The Internationalization of a Small Firm - The Mechbadger Case

Mechbadger needs to avoid liquidity problems, but it needs to keep a reasonable debt-over-equity ratio⁶⁵. This is because, Mechbadger is looking for financial resources through the financial aids provided by the EU and the Italian government. Indeed, to fight the COVID-19 crisis, the national and the supranational (the EU) governments reserved funds for innovative SMEs. (Ministero dell'Economia e delle Finanze, 2021)

Mechbadger made an application to the contest "Fondo Start-ER" published by the Emilia-Romagna in February 2023. It guarantees the borrowing of funds at a very low interest rate⁶⁶. 206500€ were requested by Mechbadger to maximize the benefits of the low interest rate, Mechbadger chose the maximum period possible for the repayment of the debt (96 months). (Artigian Credito website)

The aim of the project was the development of both the MP01 full-electric Power Unit and a new equipment: the aerial platform. The R&D projects require high funds because Mechbadger requires high costs for labor, consulting and raw materials.

The costs of labor was estimated putting together the labor costs for the employees involved in the project (considering the hours of work necessary for the project and the individual wages). The estimated cost of labor is equal to 151360€ for the engineering and 54064€ for the crafting, as we can see in the table 14. These costs are necessary to develop 3 prototypes of the electric machine and 2 aerial platforms. The 5 prototypes are indispensable for any stage of development/testing of the new products. The funds will be required for an amount of 124000€ to buy the components. Furthermore, to trade machines in compliance with EU laws, Mechbadger needed the consulting of two societies (with an estimated expense of €13300). [...]

This loan will guarantee a significative amount of liquidity at low interest rates to the firm to develop new products. On the one hand, the firm will have the capabilities to develop new products. On the other hand, the low interest rate mitigates the worsening indebtedness of the company. The only flipside of this project is that these funds must be used exclusively for the R&D by law. Consequently, due to these constraints, other funds/loans for other projects (i.e.: internationalization projects) will be necessary. The limited capabilities and the liquidity issues of the firm may influence the choice of the internationalization strategies: expensive projects (such as FDIs) may be unfeasible in the short-term.


⁶⁵ Mechbadger debt-over-equity ratio is already critical.
⁶⁶ zero interest for the 70% of the investment and a low interest rate for the remaining part given by an hbadger chose Banca di Imola).