Demand for British products may be high but many SMEs aren’t taking the leap into exports. It needn’t be as complicated as business owners often think
Trade is war and right now the battle is raging. You need look no further for examples of an escalation in tensions than Russia’s blanket ban on western meat and dairy products or Beijing’s attempts to undermine American business. But the west can give as good as it gets. The problem with British SMEs is that they don’t seem to be giving enough.
In George Osborne’s 2012 budget, the chancellor set the UK’s export targets at £1tn by 2020 and aimed for 100,000 more UK companies to be exporting by that same year. However, this is not quite going to plan because the radical action needed is nowhere to be seen. British exports increased by just 0.5% in 2012 and by 2.1% in 2013 to £505.6bn. According to the British Chambers of Commerce, exports would have to grow by 10% a year in order to meet the targets the chancellor laid out. As it stands, double digit growth is completely out of reach.
Traditionally, exporting is something we Brits excel at. UK exports have risen tenfold over the last decade; the problem is they’ve risen everywhere else too. There are also certain factors holding British companies back. First and foremost, those UK firms that survived the global recession and came out the other end still intact may be more inclined to play it safe and remain in the domestic market.
There are also a severe lack of tax incentives to attract SMEs to take advantage of the huge growth potential offered by overseas markets. This is one area where the government really needs to do more if it wants to meet its 2020 targets.
According to Matt Guffey, director of marketing for UK, Ireland and the Nordics at UPS, the main problem for British companies is their “island mentality”. British SMEs know they are good and to a large extent they are blowing their European counterparts out of the water, especially larger firms. However, one third of SMEs are still not making the leap into exports.
“Paperwork is a major concern for SMEs; generally they want to see simplified regulation,” says Guffey. Whilst very few companies would call for complete deregulation, many would argue that some regulations were off-putting when it comes to exporting. Legal regimes can also be very complex. For example, for some businesses to export to China, they must first liaise with the tangled bureaucracy of the British Embassy and Chinese government representatives.
In order to help SMEs overcome many of the problems associated for exporting, UPS has recently launched its Export Engagement Toolkit, which provides market insights and expert advice. “We’ve also put together case studies for SMEs to learn and understand what other successful companies have done,” says Guffey. “UPS wants to educate and raise awareness about the capabilities of SMEs.”
Another area of concern for SMEs is the cultural and linguistic barriers associated with going overseas. But Guffey sees this as no more than an excuse. “Overcoming these challenges isn’t as difficult as people may think,” he says. “Most of these are just perceived barriers so what needs to happen is an education of SMEs to bring about an awareness.”
Ian Monk, founder of Bathrooms.com, has first-hand experience of the difficulties presented by language barriers as his company now exports to France and Germany. “It presents some challenges, depending on what you’re trying to do. If you go to Europe or further afield to sell directly to distributors then potentially that might be more of a barrier,” he says. “However, in this sector, you’ll find those you are dealing with are much more likely to speak English.”
This is where choosing the right country to export to is of utmost importance. “Currency, geographical location and language will make some markets more suitable than others, says Hazel O’Boyle, an international trade advisor for UK Trade & Investment (UKTI). “I always recommend people start small and focus on one or two countries then expand from there,” she added.
UKTI recently launched a guide, ‘From Local to Global’, which acts as a signpost to the help available, including examples of small businesses which have made the market leap already. “Like any job, exporting needs to be broken down into achievable steps,” says O’Boyle. “To begin with, anyone considering selling overseas for the first time needs to understand the value of their product and be clear as to why it would be desirable abroad.”
Exploring the various routes into a new market is vital for SMEs and they really must look at the bigger picture. “Having supported numerous small and medium sized businesses through these stages in the export journey, I know from experience that it is time to dispel old myths around the difficulty of exporting,” says O’Boyle. “I’d encourage all businesses who haven’t considered selling overseas to book a free appointment with an international trade adviser today to discover their potential for global growth.”
With barriers being so evidently easy to overcome, it remains disappointing that there is still reluctance among SMEs to explore all options. According to a survey by KPMG and YouGov, small businesses are more the problem, with over one third having no interest in exploring overseas markets. According to another survey by Lloyd’s, it is medium-sized companies that are holding back Britain’s exporting ambitions. Wherever the reticence may be, the facts ramain only 17% of UK SMEs generate revenues outside of the EU compared to 25% in Germany and 30% in Italy.
UK SMEs who don’t engage in exporting may be really missing out. “Businesses are much more likely to survive if they export,” says Monk. “If you don’t take advantage, one of your competitors will.”
Monk is also concerned by the possibility of European companies taking up part of his market share. “For us, our medium- to long-term game is about having scale; if someone comes to the UK with scale than us then that’s a very serious threat.”
He advises those SMEs still not convinced of their ability to export to have more confidence. “If you’re going through sustained growth in the UK, are beginning to reach saturation point and you can take on another distraction, exports are another growth channel. If it’s done right and doesn’t put too much pressure on the business, go for it.”
Lara Morgan grew her own business Pacific Direct through exporting and sold it for £20m. Now as co-founder of Company Shortcuts, an agency dedicated to sales and business growth, she speaks and advises regularly on exporting. “There are hurdles; there are learning needs like logistics and financial understanding but all of these give greater scope and value to a company making staff more resilient, business more sustainable and companies that export more profitable,” she says.
Morgan has experience in emerging markets hungry for new ideas. “Start with your market research; visit potential customers and competitors in the market and make sure above all that you can be wholly price competitive,” she advises.
In order to reap the spoils of the trade war, those export-shy SMEs must focus more on competitiveness. They need to avoid the mindset of ‘this is too difficult’ and with the right planning and support, they too can benefit greatly.
In addition to its main UK site offering European markets affordable design in the bathrooms space, bathrooms.com has begun exporting to France and Germany in the last 18 months. The company currently has more than 50,000 customers and employs more than 50 people across three countries. “We’ve been operating for just over ten years but started as a relatively small business with just myself and my wife,” says Monk.
The company grew somewhere between 50-100% year-on-year for around seven years. Monk and his wife began exporting with limited ambitions. “It didn’t matter if it didn’t make profit from day one. By limiting risk and distraction this made the decision to go to Europe much easier,” he says.“When we moved into Europe we were probably £8m turnover and while we were still relatively small, it was quite a big leap.”
“Exporting may appear difficult but in reality it is relatively simple. When we started exporting we looked at how we can test the market without spending too much time or money and if we’d seen some basic traction, then would have put more energy and scale behind it.”