Despite the obvious gains to be made, many small businesses remain overly cautious about exporting overseas. The Royal Bank of Scotland’s Business team in Stockport are reporting that ‘the world can be your oyster’, providing insight and analysis from the British Chambers of Commerce and experienced SME exporters.
Left: Barrier to Export ?
Economic growth is expected to occur in the North in 2014, which is leading to increased optimism in the region. Especially when given the fact that the latest projections suggest that 2013 will have seen four consecutive quarters of positive growth in the UK – the first time this has happened in a calendar year since 2007.
Stockport’s Royal Bank of Scotland’s Corporate team co-host the South Manchester International Trade Forum to provide local businesses with assistance to enter the export arena. Evidence shows that exporting can help your business grow and prosper both at home and abroad. The more companies that export, the higher the benefits to them and the UK economy.
But we’re not in the land of milk and honey just yet. The North is still lagging behind the national average and unemployment remains an issue. Also, in the medium-term, UK GDP growth looks set to remain close to its current modest level (the OECD projects 1.4 per cent in 2013). For these reasons, it should come as no surprise that more and more businesses in the region are setting their sights on overseas trade.
The case for exporting
At the moment, the main point of focus for British exporters is the European Union. Some 88 per cent of UK exporters supply goods or service to the EU. But other markets are becoming more important. If the Conservatives win a majority at the 2015 General Election and, as promised, hold a referendum on the country’s membership of the EU, that trend could accelerate even more rapidly.
Growth in the BRIC nations and other emerging economies has built up a head of steam. The CIA World Fact Book estimates that as many as 60 countries grew by more than 5 per cent last year . There’s no shortage of motivation for businesses to broaden their horizons and investigate the wealth of opportunities on offer in foreign markets.
An increasing number of UK companies are getting in on the act; the number actively exporting grew from just under a third in 2012 (32%) to almost a fifth (39%) this year. The value of British exports is rising all the time, and reached £78bn in Q2 2013 alone.
The government has set the ambitious goal of increasing annual UK exports to £1 trillion, paving the way for 100,000 more companies to become exporters, and for ‘rebalancing’ the economy, so that the UK becomes a net exporter – all by 2020.
Reservations?
But even when companies can plainly see the advantages of exporting, many are put off. They reason that while a different way of doing business could bring new opportunities, it could also bring new challenges. Some of which might even be barriers that are too difficult or time-consuming to overcome.
Here, with the help of experienced SME exporters and the British Chambers of Commerce (BCC), we show you why that doesn’t need to be the case. If you have the right product and the ambition to succeed, there’s not much that can stand in your way.
1. No suitable product or service
In a survey carried out by the BCC earlier this year, the most commonly identified barrier to overseas trade for current non-exporters was not having a suitable product or service.
It’s true that in some cases it will be impossible – or perhaps extremely impractical or inefficient – to invest time and money into becoming an exporter. However, it’s not uncommon for companies to cite this difficulty before they have fully investigated a way of getting around it.
Take the Street Crane Company; the manufacturer of large, heavy, customised factory cranes could have dismissed exports as an answer to dwindling domestic demand. But instead, the company fundamentally altered its business model and began to supply components, rather than complete machines, allowing it to work with partner businesses overseas. Since it began 15 years ago, the company’s export business has grown to make up 70 per cent of its turnover.
2. Taking the first step
For pet food manufacturer MPM, foreign markets were initially opened up thanks to the company’s presence at trade shows. “The key is meeting people and expanding your network,” says the firm’s FD James Bracewell, who describes going to the events as an “eye-opener”.
“It doesn’t happen overnight, but if your product is good and you make the effort, then it will start slowly and build. We started exporting after people came to us and offered to distribute our product in Slovenia, Lithuania, Estonia and Finland. Then, once you’ve gauged interest, you can start actively hunting.”
3. Identifying the right market
A simple way of solving this problem is to draw up a list of countries that have the biggest market for your company’s product. But there may also be other considerations. Writing in a BCC report, CEO of DHL Express in the UK and Ireland, Phil Couchman, advocates the use of an “export curve”.
This “tried and tested” approach involves “starting out by growing your exporting business in shared-language countries, then branching out into other European countries to take advantage of free trade agreements, and finally, reaching the top of the export curve by expanding into BRIC countries and other, more challenging markets.”
But even when it comes to these “more challenging markets”, there’s help at hand. “We’re working on being more like Germany in that way,” says BCC global economic adviser, Sukhdeep Dhillon. “In countries such as Iraq and Libya, they’re often one of the first nations to open up trade.”
4. Local regulations
When faced with strict approval protocols governing pet food to be sold in Korea, MPM turned to the BCC to provide a vet that was qualified to carry out the necessary tests. When up against Australian restrictions on British-manufactured meat products, the company found an in-country manufacturer.
“The overarching thing to remember is the need to be flexible,” says Bracewell. “Don’t just think: ‘We’ve got this model that works in the UK, we can roll it out across the world.’ You’ve got to tailor your approach to each market you enter.
5. Logistics
The mechanics of getting goods into different countries can be difficult. Fees, protectionist tariffs and bureaucracy can vary widely, so it’s worth doing some homework. For example, according to World Bank data , it takes six documents, 13 days and £1,750 to get a standard container of goods into Colombia, but only three documents, seven days and £432 to do the same in South Korea.
6. Language
When MPM began selling its products in Scandinavia, it entered the market with its existing English-language packaging. This didn’t raise any problems to start off with, but, as sales grew, local agencies got onto the company’s case and insisted that the pack be changed.
Initially local distributors or retailers were able to apply local-language stickers to packs but later, a new multi-language pack – in line with all regulations – was developed through an EU labelling and translation company.
“When you start exporting, it’s not the case that everything has to be 100 per cent perfect,” says Bracewell. “We could bumble along for a while with the label not quite right, but you get to the point where you’re confident that it’s worth making the investment.”
7. Financial concerns
MPM insists that all its new export customers pay on a pro forma basis, before goods are supplied. However, for large and longstanding customers, the company does extend trade terms. This, in turn, requires trade finance and foreign exchange instruments. “My advice would be to talk to the bank and let them know about your company’s situation,” says Bracewell. “Chances are, they’ve dealt with something very similar in the past.”
In 2011 MPM’s export business accounted for 35 per cent of revenue. Now, in 2013, that’s up to 60 per cent, with that part of the business growing 80 per cent each year. The pet food manufacturer and thousands of other UK firms have seen exports grow from nothing to become an essential part of the business.
It might seem daunting to start off with, but according to Bracewell, it’s worth it in the end. “The good news is that once you’ve got over these hurdles the first time, you can do it again more easily,” he says. “We haven’t looked back.”