27 May 2016

Taking the leap

Mid-market enterprises are flourishing in the UK, yet reports suggest that just one in five MMEs expect to trade overseas. Ahead of the International Festival for Business 2016 (13 June -1 July), thought leaders share their views on how British firms can overcome hurdles on the path to international growth.

International Festival for Business 2016

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  • Report finds one in five mid-sized firms plan on exporting overseas with the US and Western Europe ahead of Asia, Africa and Latin America as key targets
  • 40% of UK MMEs cite legislation and regulation as major challenges to international expansion
  • CBI highlights the wealth of knowledge and expertise within the UK ready to guide businesses through the internationalisation process.

Exporting to regions with a clear appetite for FDI diversification, such as MENA and Asia, is becoming a popular strategy for firms eager to break ground in new markets and accelerate growth.

Ben Digby, who heads the international team at the CBI, explains, "While the domestic and European markets remain somewhat depressed, it's natural for companies to look further afield for growth, where prospects are a lot better."

On paper this international transition seems logical for large companies with deep pockets, yet Grant Thornton's report on MMEs, Agents of Growth, finds that just one in five UK mid-market enterprises rank exporting as a goal, and those who are planning expansion are primarily focused on the US and Western Europe.

Why then are UK firms overlooking markets like Latin America, and China?

While the domestic and European markets remain somewhat depressed, it's natural for companies to look further afield for growth, where prospects are a lot better.

Ben Digby

Exporting risks

Companies have much to consider when gauging their capacity for exporting. Risk assessment and mitigation is a key consideration, particularly for firms in the process of courting new funding or establishing their brand's reputation.

In a Grant Thornton survey, 40% of MMEs polled listed legislation and regulation as major challenges to international expansion. Fortunately, UK firms have direct access to a wealth of advice and government support from bodies such as the UKTI.

The case of Birmingham-based brewer Aston Manor attempting to export its cider to China is compelling, and underlines the importance of seeking guidance. The firm faced large export tariffs after Chinese authorities classified their product as apple juice.

China has no home-grown cider product to protect, but does operate a significant agribusiness in the manufacture of apple juice for export. When blockers emerged, UK Trade Minister Lord Livingston intervened and successfully stated Aston Manor's case with the authorities.

Different rules

Simon Bevan, Head of Grant Thornton's China Business Services Group, compares exporting to a game of ping-pong, "It's relatively easy to deal with customers in domestic business. You both know the rules of the game and keep the ball in play.

"When you start exporting, the rules change. You can't see the size of the table, your opponent or what spin is being put on the ball. So it comes at you in a way you're not anticipating, and you have less time to react."

The road to export

Just one of many guides designed to cool the malaise around first-time exports, the CBI's report, Go Your Own Way, sets out the steps firms need to take to grow from non-exporter to international business and ultimately, global player.

Ben Digby stresses that businesses should consider growing their professional networks to understand the export landscape, and grow their contact base. Engaging with other companies, banks, support bodies and contacts which have working knowledge of foreign markets should be considered fundamental.

Find the right partner

Once companies obtain the knowledge required to export confidently, they can begin identifying domestic partners within their chosen market. Trust is a key consideration at this stage, and it is worth considering that international firms can be risk-assessed via credit checks and other methods before entering an agreement.

"The Chinese are definitely looking for business relationships. Unless you recognise that, they might regard you as merely transactional," Bevan explains.

"My brother imported from China for many years - it only really took off when he found a partner there who could source product on the ground and check it before putting it on a container. Because he never found an equivalent in India, he didn't grow his business there."

Support for MMEs

International expansion can be a daunting prospect for businesses keeping a close watch on purse strings and reputation. Ben Digby explains that despite nervousness among companies recent figures are encouraging, with UK exports to China in particular up by around 60% in the past couple of years.

The potential rewards for perseverance are vast. Firms may find they have the ideal product that caters for an unfulfilled need or emerging trend in foreign markets. In the case of Aston Manor, their export strategy was informed by a rising appetite for western drinks in China.

Exporting is understandably challenging, but there may be a case against businesses putting all their eggs in one basket. Where domestic economies or industries decline, overseas expansion may present a catalyst for growth.

When the time comes to look beyond borders, companies should remember that they need not tackle the challenge alone. The firm that is willing to reach out and collaborate may find fewer rocks in the path to internationalisation.

For further information about trading internationally, visit the HSBC Connections Lounge at the International Festival of Business in Liverpool where an HSBC Trade Specialist will be on hand to answer your questions or call +44 (0)800 78 31 300.

Lines are open from 9am -5pm, Monday to Friday and calls are recorded for security and training purposes.

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