Internationalization for German SMEs: a step-by-step guide

The German SME sector is at a crossroads. While domestic markets are increasingly stagnating, new opportunities are emerging beyond the country’s borders. International markets offer small and medium-sized enterprises (SMEs) not only access to new customer groups, but also the opportunity to reduce dependencies on the domestic market. As a result, internationalization is becoming a strategic necessity.

With sound experience that goes far beyond language expertise, Leinhäuser Language Services has been supporting its clients on their way into international markets since 1997. We combine linguistic and intercultural competence with a deep understanding of the strategic and organizational challenges that come with internationalization. We know what’s important: clear goals, forward-looking planning and consistent implementation.

That’s where this guide comes in, offering practical inspiration – from the initial market analysis to the selection of suitable entry strategies and sustainable anchoring in international markets.

Understanding internationalization: The basics for SMEs

Internationalization refers to the targeted expansion of business activities across national borders. It’s not about achieving omnipresence on a global scale, but rather about the well-considered development of selected markets. In contrast to globalization, which represents a comprehensive worldwide networking process, internationalization focuses on the individual company and its market strategy.

There are various approaches for successful market entry in other countries:

Export: The easiest way to get started without your own branch – whereby products or services are sold abroad directly or via intermediaries.

Licensing: Granting selected rights to technologies, designs or brands to foreign partners in return for a license fee.

Franchising: Transferring tried and tested business models to independent operators abroad – which is particularly suitable for standardized services and products.

Joint ventures: Jointly developing new markets as part of a strategic partnership with local companies.

Direct investments: Building up one’s on structures directly on site.

Typically, German SMEs start with export activities to neighboring countries such as Austria or Switzerland. EU member states follow in the second step, before attention turns to more complex markets such as the USA or Asian countries. This step-by-step approach makes it possible to gain experience and minimize risks.

Phase 1: Strategic preparation

Internal positioning

Every trip abroad begins with a look inwards. When taking stock, companies analyze whether their products and services are internationally competitive, whether they have sufficient financial reserves and whether the existing systems are scalable. Without a solid starting position, going abroad can quickly become a stumbling block.

The most important questions a company has to ask are:

• Is our product in demand internationally or do we have to make adjustments?
• How long can we finance the expansion without having to rely on current income?
• Do we have sufficient personnel and technological capacities?

Resource planning and checking capacity

Then there is resource planning: New markets tie up personnel, capital and management time. Companies should therefore calculate a realistic budget – not only for market entry, but also for long-term operation.

At a glance, the central cost blocks are:

• Personnel costs: new employees or training for existing teams
• Marketing budget: Market development and brand building in the target country
• Legal advice: Compliance and contract drafting
• Logistics costs: Transportation and storage
• Technical adjustments: Product modifications or certifications

Setting objectives and measuring performance

Clear goals are the foundation of any successful internationalization. Without a concrete framework, there is no basis for measuring progress or strategically managing the project. Whether it’s sales expectations, the targeted market share or the timetable for reaching break-even – precisely formulated guidelines are a prerequisite for orientation and commitment.

Important key figures that should be defined at an early stage include:

 

• Sales targets per target market
• Market share targets
• Time frame until break-even
• Target figures for customer numbers
• Profitability ratios

Phase 2: Market analysis and selection

A successful market entry begins by selecting the right market. Decisive criteria include size, growth potential, cultural compatibility and legal framework conditions. In particular, tax regulations, product liability and special features of labor law should be taken into account at an early stage.

A deep understanding of the target group is also essential. These include specific needs, country-specific purchasing habits, the usual course of decision-making processes, and expectations regarding service quality and communication style.

Competitive analyses help to strategically secure market entry. They answer key questions, such as: Who are our direct competitors? What alternatives do customers have? And which new players are taking over market shares?

Since not every market is equally promising, a structured evaluation of potential target regions is worthwhile. A three-stage model that clearly summarizes key success factors has proved particularly successful:

• Market attractiveness: How big is the market? What growth rates are realistic? What purchasing power do the customer groups have?
• Access options: How high are trade barriers and regulatory hurdles? Is there a cultural or linguistic proximity that makes it easier to get started?
• Competitive environment: How many established providers are already active? How high are the barriers to entry – technological, financial or legal?

By systematically evaluating these criteria, target markets can be compared objectively and prioritized sensibly – an important basis for using resources efficiently and minimizing subsequent adjustment costs.

 

Phase 3: The right entry strategy

Exporting is often the first step – and for good reason. Companies do not need their own infrastructure in the target country, can use their existing products and still gain valuable experience. A distinction is made between direct and indirect exports:

• Direct exports: Direct sales to end customers or dealers abroad
• Indirect exports: Distribution via export companies or trade intermediaries domestically

More complex models such as licensing and franchising are particularly suitable when companies have proprietary know-how or highly standardized services. They enable comparatively low-risk market development – with low investment but the advantage of a local presence. However, resilient partner relationships and clearly defined contractual responsibilities are essential in order to safeguard brand image, quality and business interests in the long term.

Joint ventures make sense when local market knowledge is required, and opportunities and risks can be shared with a local partner. They are particularly suitable when facing complex markets, regulatory hurdles or cultural differences. 

Access to existing sales structures, contacts and know-how can make market entry considerably easier. At the same time, this form of collaboration requires a high degree of coordination – clear agreements on the distribution of roles and decision-making are essential in order to avoid conflicts of interest.

Direct investments are worthwhile in stable markets that are attractive in the long term. These include, greenfield investments, i.e. building up your own structures, or acquisitions of existing companies – this step requires capital, market knowledge and patience. In return, it offers maximum control in the event of success.

Phase 4: Operational implementation

 

At this stage, things get concrete: Clear responsibilities, functioning processes and reliable structures are required to practically implement market entry. Companies have to decide who will assume operational responsibility in the target market, how the local team will be set up, and which IT systems, processes and communication will be organized.

Small and medium-sized companies in particular should clarify at an early stage whether they will send employees from Germany or recruit locally. Both options involve challenges – particularly in the area of international HR management:

Typical challenges:

• Different labor law systems
• Culture-specific management styles
• Language barriers in everyday life
• Coordination across time zones

Practical solutions:

• Standardized HR processes with local adaptation
• Cooperation with local HR partners or personnel service providers
• Regular video conferences and exchange programs
• Intercultural training to promote awareness and understanding

Regardless of the personnel model, in addition to cultural awareness, clear communication structures are also crucial – especially for leadership, collaboration and team dynamics across national borders.

The product range itself also has to be tailored to the target markets. Among other things, the following adjustments have to be considered:

• Technical standards: local standards, certifications, interfaces
• Packaging: legal requirements, language, design
• Price structures: standard market price ranges, payment models, positioning

At the same time, the marketing strategy has to be translated – both literally and figuratively. Linguistic localization alone is not enough; tonality, visual language and the selection of suitable channels also differ from market to market.

Finally, there is the question of the the correct structure in sales. Is it better to rely on in-house teams or external partners? Hybrid models can be particularly useful in the initial phase – for example, a combination of a local sales partner and central control. Digital sales channels offer additional potential, but must be set up professionally and continuously managed in order to have a long-term impact.

 

Financing and risk management

Internationalization requires capital – and well thought-out risk management. In addition to equity financing, for example through the reinvestment of profits, capital increases or the sale of non-strategic company shares, there are numerous debt and alternative financing options available.

Possible financing methods include:

• Debt financing: traditional bank loans, KfW subsidy programs, mezzanine financing or leasing for machinery and equipment
• Alternative financing: Factoring to quickly obtain liquidity for export receivables, crowdfunding for innovative projects, state-supported sureties and participation by business angels or venture capitalists

Factoring for exports is particularly attractive: Receivables from foreign customers are sold, which ensures immediate liquidity, avoids payment defaults and professionalizes accounts receivable management. The factor also takes care of credit checks and debt collection.

Typical procedure:

1. Delivery and invoicing to the customer abroad
2. Sale of the receivable to the factor
3. Immediate payment of 80 to 90 percent of the invoice amount
4. The factor assumes collection procedures and default risk
5. Payment of the remaining amount after receipt of payment, minus fees

Another key issue is currency risk. Transactions in foreign currencies, conversions by subsidiaries or unexpected exchange rate fluctuations can have a significant impact on the company’s finances. Various hedging strategies are available to minimize these risks. For example, companies can use forward exchange transactions to fix exchange rates in advance or react to certain exchange rate developments with currency options. Natural hedging – for example through targeted purchases in the respective foreign currency – also helps to balance risk. In addition, the integration of currency clauses in international contracts is recommended in order to contractually cushion fluctuations.

Last but not least, suitable insurance cover is essential for operations in other countries – from trade credit and transport insurance to international public liability and legal protection solutions. In politically unstable markets, insurance against political risks (e.g. expropriation, unrest) can also be useful.

 

Targeted use of funding programs

The public sector offers numerous funding instruments to make it easier for companies to enter the international market. In particular, the Market Development Program (Markterschließungsprogramm – MEP) from the Federal Ministry for Economic Affairs and Energy (BMWE) is aimed specifically at SMEs. It provides support in the form of information events, joint stands at trade fairs, and market and industry analyses. Depending on the project format, up to 50 percent of the eligible costs are covered. Applications are submitted online via GTAI, based on specific projects and a selection process.

In addition, KfW Group offers various financing models via specialized subsidiaries:

• KfW IPEX-Bank supports major export and foreign projects by German companies – particularly in the areas of plant construction, infrastructure and supply financing.
• The German Investment Corporation (Deutsche Investitions- und Entwicklungsgesellschaft – DEG) promotes private sector involvement in developing and emerging countries – with a focus on sustainability and employment.
• KfW Entwicklungsbank finances state-commissioned projects in developing regions, for example for climate or environmental protection.

There are also special programs for foreign investments, e.g. for German subsidiaries, joint ventures or renewable energy projects.

There are also targeted funding instruments for SMEs at the EU level. The Single Market Programme facilitates internationalization within the European Union through guarantees, sureties and access to finance. Horizon Europe supports international research and innovation collaborations with attractive funding rates. Interreg programs strengthen cross-border cooperation and promote regional exchange and networking.

Additional support is provided by regional development banks in the federal states of Germany with their own programs, which can often be used in addition to federal or EU initiatives. Chambers of Industry and Commerce (IHKs) and municipal business development agencies also offer practical advice, contacts, certification services and infrastructure measures.

It’s important to note that funding programs may change at short notice or be discontinued altogether. It is therefore essential to regularly review deadlines, access conditions and regional particularities.

Digital internationalization

Digital channels offer SMEs numerous opportunities to tap into new markets quickly, flexibly and often with comparatively few resources. E-commerce is a key lever here, as products can be marketed internationally via established marketplaces such as Amazon or Alibaba, a company’s own online stores, or social commerce formats – with full access to customer data and feedback in real time.

Advantages of digital market entry:

• Lower market entry costs compared to physical distribution models
• Rapid scalability and global reach
• Direct contact with end customers
• Data-driven market analysis and targeted campaign management

At the same time, there are also challenges to overcome: International logistics and fulfillment processes must be organized efficiently, local payment options integrated and customer service adapted both linguistically and culturally. Legal requirements such as data protection, consumer rights or platform regulations also vary depending on the market and must be observed.

Digital marketing is all about local relevance. Search engine marketing, for example, requires targeted Google Ads in the local language, the use of suitable keywords and a search engine-optimized website for the respective target market. Social media must also be thought of in a market-specific way – for example with WeChat in China or LinkedIn in the B2B sector. Collaborations with influencers, as well as building a community and a locally appropriate tone of voice are key success factors.

Content marketing supports the building of trust: with multilingual content, case studies, explanatory videos and webinars that address cultural particularities.

New opportunities are also emerging in the area of digital cooperation. Technology platforms and B2B marketplaces promote technology transfer, while cloud-based tools enable virtual collaboration across national borders. Today, projects can be managed efficiently with digital prototyping tools, remote teams and agile project management – without a physical presence on site.

Performance measurement and continuous optimization

After entering the market, the real work begins: the continuous evaluation and optimization of international activities. Clearly defined KPIs, adapted to the market, business model and corporate goals, form the central basis for this.

Key financial figures provide information on economic performance abroad – such as sales per target market, profitability, ROI or customer lifetime value. They are supplemented by operational key figures such as delivery times, complaint rates, customer satisfaction and the productivity of employees on site.

Strategic parameters such as brand awareness, customer loyalty, innovation rate and partner satisfaction are also important indicators for measuring long-term success.

A robust monitoring and controlling system is essential: Monthly country reports, dashboards with real-time data, benchmark comparisons and trend analyses create transparency and comparability. Early warning systems help to identify risks such as currency fluctuations, political developments or market changes at an early stage.

If a market becomes unstable or the framework conditions change, rapid reactions are required. Adaptation strategies range from modular business models and scenario planning to local decision-making authority. Through regular market analyses, the systematic evaluation of customer feedback, the exchange of best practices between markets and ongoing training opportunities for the entire workforce, companies can ensure they continue to develop and remain successful in the long term.

Avoiding typical stumbling blocks

Internationalization offers many opportunities, but also brings challenges. Difficulties often arise due to inadequate market analyses, a lack of financial planning or unclear responsibilities. Instead of transferring the home market concept on a one-to-one basis, a gradual expansion with local expertise and a long-term perspective is prudent.

Successful companies rely on flexibility, reliable partnerships and systematic feedback from customers and employees. Good preparation and structured implementation are crucial here.

Here’s a checklist for a successful internationalization:

Before the start:

• Defining the corporate strategy
• Securing financing
• Putting together an experienced team
• Analyzing the target market
• Examining legal framework conditions

During implementation:

• Identifying and involving local partners
• Adapting products to market requirements
• Developing distribution channels
• Localizing marketing
• Establishing controlling and reporting

After market entry:

• Regularly reviewing performance
• Systematically collecting customer feedback
• Continuous process optimization
• Planning further expansions
• Ongoing risk monitoring

Conclusion and outlook: Internationalization 2025 – strategic, digital, sustainable

Internationalization will remain one of the most important growth drivers for German SMEs in 2025. But if you want to tap into new markets, you need more than just a good product; a viable strategy, regional sensitivity, technological expertise and financial stability are crucial.

There are particular opportunities in dynamic growth regions such as South East Asia, Africa, Latin America and Eastern Europe. These are areas in which new middle classes, digitally savvy target groups and cooperation potential for technology-driven business models are emerging – from the platform economy and subscription approaches to the circular and sharing economy.

As a first step, an international potential analysis helps to realistically assess opportunities. At the same time, financing options should be examined and initial research into relevant target markets should be initiated – for example via platforms such as GTAI or iXPOS. Funding offers from KfW, the EU and state investment banks also provide important financial leverage in this early phase.

The middle planning phase is about operational feasibility. Detailed market analyses and legal checks, for example on market access or product liability, are essential. Companies should develop concrete financing concepts and establish initial contacts with local partners, sales channels or service providers. The technological infrastructure – e.g. for e-commerce, digital marketing or remote project management – must now be considered and, if necessary, adapted.

What counts in the long term is consistent implementation: The establishment of local structures, the launch of a pilot project in the selected market, and robust monitoring for control and early risk detection are key milestones. Customer feedback, benchmarks and local performance data serve as the basis for the next stage of expansion. At the same time, teams should be trained, processes standardized and ESG criteria firmly anchored in corporate practice.

And keep in mind that artificial intelligence, blockchain and IoT open up opportunities for data-based services, transparent supply chains and automated market analyses. Those who use digital tools strategically can scale faster and operate closer to customer expectations.

Sustainable internationalization is not a one-off project, but a continuous learning process with a local focus, global aspirations and a sustainable orientation. It is crucial to start now: with structure, know-how and the courage to break new ground.

Because international markets don’t wait, they develop – and successful companies do the same.