When it comes to exports, Jonathan Church is a small business owner who puts his best foot forward. And that foot is likely to be shod in a Cheaney leather handmade shoe.
Since Church took over Cheaney Shoes with his cousin William Church four years ago, they have almost doubled turnover to over £7m – and much of the increased business has come from exports.
More than a quarter of sales are now overseas. Church says exports can be a great source of growth for a small business: “If you haven’t got an export market, get out there.”
of Britain’s 4.8 million SMEs are already exporting
Cheaney Shoes is not the only small or medium-sized UK company which has chalked up higher exports despite the financial whirlwind that has engulfed world markets in the past few years.
As many as 57% of UK exporters have notched up increased sales in the past year, according to the economia Exports Survey, in association with Lloyds Bank, carried out by research company Canadean. Fewer than one in 10 exporters have seen foreign sales drop.
The figures provide a more optimistic counterpoint to recent numbers from the Office for National Statistics, which showed exports falling in the first month of the year. With only limited signs of resurgence in Britain’s economy, exports offer the best chance for SMEs to grow.
“With domestic demand growth constrained over the coming years by fiscal austerity and squeezed household incomes, the UK really needs to see significant export growth and an improvement in its trade balance position as part of a sustained and robust economic recovery,” says Scott Corfe, senior economist at the Centre for Economic and Business Research (CEBR).
“There are already many British companies selling world-beating products and services overseas, but there is huge potential for many more,” adds Matthew Fell, the Confederation of British Industry’s (CBI) director for competitive markets.
In fact, the 475 companies surveyed – 328 existing exporters and 147 considering moving into exporting – are optimistic about the future. A sizeable minority of exporters (38%) across a range of industries generates more than £1 in every £5 of turnover from exports.
And among all exporters, three-quarters expect export sales to increase in the next five years. Even most (95%) of the companies that don’t currently export hope some of their turnover will come from overseas sales in five years’ time.
But hopes are not signed contracts. And there is a whole raft of problems, ranging from adapting products for foreign markets to finding ways to finance sales, that SMEs have to solve before they can win their first order.
Small business expert Professor Robert Blackburn, from Kingston Business School, was the specialist adviser to the House of Lords Committee on Small and Medium-sized Enterprises which published its report on SME exporting – Roads to Success – in March. Blackburn reckons as many as 20% of Britain’s 4.8 million SMEs are already exporting.
He guesses another 10% – nearly 500,000 companies – could be doing it. But some micro-businesses will be simply too small to export, others won’t have suitable products or services, and still more will be run by directors who don’t want the hassle.
Blackburn points out that digital technology makes it possible for far more businesses to win export sales. “Because of technology, you can go global at the push of a button,” he says. “Properly employed, UK SMEs could capitalise on what they already have.”
Lord Cope, a former small business minister who chaired the House of Lords committee, says SME exporting is vital if Britain is to pay its way in the world. But he also believes more companies need help with exporting, not least from government schemes such as UK Trade and Industry (UKTI) and UK Export Finance (UKEF).
A HELPING HAND
More than half (56%) of survey respondents believe that UK businesses are not sufficiently aware of opportunities for exports and 61% agreed that businesses don’t have access to the knowledge they need to be successful in overseas markets. A similar number (60%) said that access to advice from overseas trade experts would boost their confidence to tackle foreign sales. But less than a third (32%) felt that the government did a good job in helping UK businesses to export. Lord Cope’s committee pointed out that only 21 companies had received help from UKEF as of August 2012. Even though the number may have grown since then, it will still be a tiny proportion of the 1.5 million businesses that could be making more export sales.
But not all businesses need the same kind of export help. Mike Cherry, national policy chairman of the Federation of Small Businesses (FSB), argues that micro-businesses, with fewer than 10
worth of additional sales made within 18 months by companies working with UKTI
employees, need different kinds of help compared with bigger medium-sized companies.
“Trade missions and market research are not of much help to micro-businesses,” he says. “What they need is practical help in generating leads and direct support, either through a voucher scheme or other mechanisms.”
By contrast, he says, medium-sized companies need more help with export finance and assistance on the ground in countries which are export targets. For its part, the government said it intends to double the number of companies it helps to export to 50,000 by 2015. It has announced more money to help SMEs attend trade shows, discounts on the costs of accessing market research under the Overseas Market Introduction Service, and more funding for travel on overseas trade missions.
Lord Green, trade and investment minister, says companies which work with UKTI, on average go on to win additional sales of £100,000 within 18 months. He points out that nine out of 10 companies supported by UKTI are SMEs. “Over half the monetary value of the UK’s exports comes from SMEs,” he says.
Even so, SMEs new to exporting – or even experienced exporters targeting new markets – face a formidable list of concerns. These are headed by the costs of exporting (cited by 36% of survey respondents as a concern), vulnerability to currency fluctuations (35%), language and cultural barriers (32%), not getting paid (29%), controlling risks (29%), the complexity of setting up new operations (26%), and operating in markets which are not understood (21%).
Yet there are some marked differences between exporters and those thinking about it, which suggest that once a company is exporting, some of the concerns fade. For example, while 46% of non-exporters are concerned about potential costs, only 31% of existing exporters worry about them.
Similarly, while 42% of non-exporters worry about language and cultural barriers, this falls to 27% for exporters. More than a third (35%) of non-exporters worry about the complexity of setting up overseas, but only 22% of those already selling abroad have similar concerns.
But there is one exception. Existing exporters, who have experienced first-hand the fall in the value of the pound over the past year, are more concerned than prospective exporters about the problems caused by currency fluctuations. The margin – 36% to 32% respectively – is small but significant. Contradictorily, exporters rank the ability to manage currency risk as the lowest of 12 factors needed to achieve success in export markets.
When it comes to exporting, familiarity makes some of the fears fade away. So it is not surprising that 89% of existing exporters are very or somewhat confident of selling their goods and services in foreign markets in comparison with a still encouraging 83% of non-exporters.
THE SUCCESS FACTOR
So what do successful exporters believe lies at the root of their ability to conquer existing markets? The highest success factor, ranked by 38% of exporters, is the ability to find international customers. This is where the government is being challenged to provide more practical help. “Specific leads should be hoovered up and fed back to businesses,” says the FSB’s Cherry.
Other important success factors include sufficient finance (named by 34% in the survey), management and leadership skills (28%), knowledge or experience of export trading (22%), the ability to manage payment risk (26%), and reliable agents on the ground in the target country (26%).
concerned by cost of exporting
Less important to exporters as a whole are the ability to establish a new distribution network easily (25%), and the ease and simplicity of adapting their product for a new market (23%). But because each exporter faces a unique set of issues in selling its product or service into an overseas market, the relative significance of the success factors to it will also be unique.
Blackburn points out that, in his view, by far the most important success factor for exporters is the ability to offer a unique product with a clear competitive advantage over rival offerings. “The quality of the offer is something SMEs really need to focus on,” he says.
“Success in exporting is not necessarily about the price. If people are buying a commodity product, they don’t mind where it comes from. But if you are selling something that is special – and you’ve built a relationship with your customer – then you have a route to success.”
That has certainly been the experience of Jonathan Church when selling his handmade shoes overseas. They typically retail for around £250 per pair, but they attract buyers around the world because they have become renowned for their quality. Church adds that the British name also helps in some overseas markets. “Made in England is a great selling point – but only if the product is good,” he says.
Made in England may be a winning slogan, but it is worthless without customers. Companies new to exporting – and even existing exporters moving into new territories – are keen on finding reliable sources of advice and assistance.
Existing exporters are most likely to use their peer networks, such as directors in other companies (45%), a professional adviser other than an accountant (42%), their bank, accountants or UKTI (all 38%), a trade mission (37%) or the media (36%).
By contrast, companies new to exporting are most likely to use UKTI (44%), peer networks (43%), their accountants (42%), professional adviser (39%), their bank (37%), trade mission (31%) or the media (30%).
feel government does a good job helping UK export sales
Blackburn reckons there is no substitute for experienced help on the ground in the target country to provide the kind of insightful advice about whether there really will be a market for the product or service. “You need local people to provide local intelligence,” he says.
Cherry agrees that cultural information about how to do business in the prospective territory is vital. “That’s particularly important for the non-English speaking world such as the BRIC countries or Japan,” he says.
Nearly two-thirds (64%) of existing and prospective exporters rated local contacts as very important for penetrating new markets. But they also attached significant importance to market research and knowledge (69%), business strategy (68%), having a product that appeals to the market (67%), and the financial strength of the home business (66%).
Other issues for SMEs thinking about attacking a new export market include in-depth experience of the market, having staff with export experience, money to invest in the new venture, and the risk profile of the business (all 64%).
But then there are the practical issues to address – how to do it. They raise a range of other issues about how to make those all-important first moves into a new export market. By far the most successful method of ramping up sales in a new market is direct contact with customers, cited by 67% in the survey.
It is also a big help having someone in the business who knows the market, mentioned by 63% of SMEs. Other issues which the SMEs flagged up as ways to aid success were contact with an agent or potential partner in the new market (57%), assistance from professional advisers (53%), exhibiting at international trade shows (52%), specially amended marketing communications (50%), help from UKTI (47%), and going on trade missions (45%).
Again, every business will pick the mix of activities which best suit its own export campaign. For Church, penetrating new markets has often been about attending the important trade shows – as many as eight per year. He has appointed agents in some markets and a distributor in one. And he speaks highly of the help provided by UKTI.
But as Church and other experienced exporters realise, penetrating a new market is only the first step. After that comes the equally tough task of building sales. There are three issues which both existing exporters and those planning to start believe stand out. They are developing direct contact with customers (cited by 68% of survey respondents as important), exporting direct to end-customers, rather than distributors (61%), and developing a local marketing strategy (59%).
Somewhat less significant are setting up joint ventures (53%), developing local agents or potential partners (51%), local product development (51%), and setting up a regional office (50%). There is only one issue where existing and potential exporters diverge – the value of attending international trade shows. Exporters believe they are of more value by a margin of 50% to 43%.
Exporting for the first time is certainly a challenge for an SME, but the prizes are potentially great. A 2011 EU Commission study of 9,480 small companies in 33 countries found that staff numbers grew by 7% in companies which exported, compared with 3% in those that didn’t. And 26% of the exporting SMEs were more likely to be innovative – for instance, by introducing new products – compared with only 8% among the non-exporters.
SMEs which become successful exporters often have directors and managers who summon up the spirit of the merchant adventurers, says Blackburn. “The capabilities and the drive of owner managers are crucial,” he says. “There’s a sense of adventure and a pride in their products and services. There is a lot of satisfaction to be had from exporting.”