Many mid-sized businesses in Germany are retreating from international markets, reflecting a significant shift from earlier trends. An analysis by KfW, the state’s development bank, indicates that the number of German small and medium-sized enterprises (SMEs) actively engaged abroad fell from approximately 880,000 in 2022 to around 763,000 in 2023. This represents a decline in the proportion of SMEs involved in cross-border trade from 23 percent to 20 percent, which is below the long-term average observed prior to the COVID-19 pandemic.
Dirk Schumacher, chief economist at KfW, articulated the growing difficulties these businesses face in foreign trade. “The conditions for foreign trade have deteriorated significantly,” he stated. He pointed to ongoing geopolitical tensions, particularly surrounding the conflict in Ukraine and instability in the Middle East, as well as increasing export competition from China, particularly in critical industries. Additionally, he highlighted the protectionist trade policies of the United States as contributing to the export challenges experienced by these enterprises. Many SMEs are also finding the domestic business environment increasingly unfavourable for maintaining competitiveness, exacerbating their international withdrawal.
KfW’s special survey conducted in January 2025 confirmed the ongoing struggles — with 21 percent of internationally active SMEs reporting growth in foreign sales, while 25 percent experienced declines. The outlook for future international business remains mixed.
Particular apprehension resonates among the 16 percent of SMEs with interests in the United States, where a survey indicated that 34 percent anticipate negative impacts owing to new US policies, with an additional 9 percent expecting very negative consequences. This survey was conducted just before the announcement of a new tariff package by former President Donald Trump, suggesting that the political climate can have immediate repercussions on international trade relations for German SMEs.
Despite these withdrawals, the KfW study notes that those companies which remain engaged in foreign markets are increasingly relying on international sales to boost their overall revenues. In 2023, the proportion of foreign sales within the overall turnover rose to 29 percent for the businesses that stayed. However, the total foreign sales of the German SME sector experienced a slight dip to €698 billion.
This decline comes on the heels of record foreign sales in 2022, when SMEs achieved an impressive €701 billion in international sales, a 14 percent increase compared to the previous year. Notably, Europe accounted for 69 percent of these sales, suggesting a robust dependence on closer markets. However, the inclination towards foreign investments remained low, with merely 1.7 percent of SMEs investing abroad from 2019 to 2022 and only 3 percent of those investments directed towards China.
Broader challenges compound the reluctance of German SMEs to pursue international opportunities. Many entrepreneurs are facing cash flow issues, soaring energy costs, and labour shortages, which hinder their capabilities to expand overseas. By the end of 2025, approximately 231,000 SME owners are expected to shutter their businesses due to difficulties, including the growing complexity of finding successors, as many owners are nearing retirement age.
The pessimism surrounding future competitiveness is underscored by another KfW survey, where 29 percent of SMEs expressed concerns about falling behind in international competition, up from 19 percent the prior year. Bureaucratic hurdles, coupled with stringent environmental regulations, significantly impede investment projects.
The nexus of these economic and political challenges speaks to a precarious future for Germany’s SME sector, whose vitality is considered crucial to the overall economy. As businesses grapple with a landscape that seems fraught with uncertainty, their decisions to retreat from overseas markets could reflect an attempt to preserve their operations in an increasingly volatile global environment.
This intricate matrix of factors—political, economic, and competitive—will likely require strategic reflection and adjustment from Germany’s SMEs if they are to regain their foothold in international markets.
Reference Map
- KfW analysis on mid-sized businesses retreating from international markets
- Data on previous years’ foreign sales performance
- Concerns about business successions among SME owners
- Pessimism regarding competitiveness and bureaucratic hurdles
- Broader economic challenges impacting SMEs in 2025
- Hesitations towards foreign investments among SMEs
- Historical context of SME investments abroad
Source: Noah Wire Services
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