Why small businesses aren't exporting as they could
(Guardian Web Via Acquire Media NewsEdge) It is a tall order, doubling UK exports to reach the Government's target of £1 trillion by 2020, and it's one that SMEs are expected to play a part in achieving.
However, while many exciting business opportunities lie overseas, many small firms are daunted enough by the challenges to put their export plans on the back burner.
A survey of 1,500 SMEs by Barclays last year showed that almost a third (29%) had seen a positive impact on their bottom line within just six months of expanding into international markets. But it also highlighted the difficulties they faced; finding contacts for potential customers (30%), language and culture differences (20%), and customs procedure (21%) were all seen as significant issues when looking to export.
Undoubtedly, language and culture are two of the biggest barriers for firms new to international trade, but getting to grips with both are crucial to business success.
With a study by the European Commission finding that 82% of consumers were less likely to buy goods online if the site was not in their native language, at the very least, exporters need to ensure that their products and services can be understood and read by prospective overseas clients.
Global Lingo is one of a number of translation firms that is helping small firms take their first steps into foreign markets.
Marketing director Richard Michie says: "Professional translation pays for itself by ensuring that businesses portray their brands, services and products accurately in foreign languages. We often receive requests for the translation of website and marketing materials which, if the company is successful, are usually followed by requests for the translation of legal documents.
"We are receiving lots of requests for languages used in emerging markets, including Latin American Spanish, Russian and, of course, Chinese. That said, European languages, such as French, Italian, German and Spanish, are still in high demand."
Poor language skills can also present a barrier to the crucial forging of business relationships with international clients. Yet, often it is the smaller companies that discover how valuable and enabling language skills are, says Donavan Whyte, Vice President EMEA, Enterprise and Education at Rosetta Stone which offers cloud-based business language training.
He says: "SMEs are very agile and have the ability to quickly explore new international opportunities, so quick access to language learning tools is vital. For business purposes fluency is by no means essential but a functional knowledge of the language that allows for relationship building and cultural understanding goes a long way."
French and German are their most frequently requested languages, however, there has been an increase in requests for BRIC languages like Portuguese and Mandarin due to the growing business opportunities in these emerging markets.
While small companies are understandably daunted by the bureaucracy and complexities associated with exporting, another big barrier is the fear of not getting paid.
This is a serious risk that needs to be considered and addressed in order to avoid costly mistakes, says Ioana Nobel, associate director, advisory at Grant Thornton UK, which was recently involved in a government project on export barriers.
"Due diligence on local partners; agents, distributors, retailers, etc., is very important and can help to avoid costly mistakes. Another way of controlling this risk is to ask for cash in advance, perhaps just for the first year or two, partial payment in advance or securing the ownership of goods shipped through letters of credit," she says.
Understanding the cash flow implications of exporting is crucial for success in overseas markets. Businesses often have to finance the production of goods before they are paid by the buyer. Depending on the credit terms agreed, this may extend to 60, 90 or even 120 days.
Andrew Dixon, niche product director at Bibby Financial Services says: "Securing the necessary finance to underpin an export operation is proving to be a real challenge for a lot of businesses. However a facility such as export finance boosts working capital by providing an immediate injection of cash into the business, against the value of outstanding invoices."
Differing payment terms across international borders made life difficult for Stuart Dunbar and Richard Harvey when they founded Cheshire-based Oak Exports which exports British food and drink across 40 overseas markets including Asia, Australia and the Americas.
Dunbar said: "We quickly discovered there was a gap to be bridged between the 30 days payment terms we had with our British suppliers, and the 60 day payment term our overseas customers worked to. We needed to address the problem quickly to maintain the excellent relationships we had built with our suppliers."
The firm used export finance to overcome the challenge and over the last ten years has seen turnover grow by 60% from £5m to £8m.
In a survey by workspace provider Regus, property costs emerged as one of the biggest obstacles to setting up a physical presence abroad for six out of ten (58%) firms.
UK CEO John Spencer said: "Many small firms consider that trading overseas is not for them, yet many of the traditional barriers have been overcome in recent years, not least the practical issue of how to set up a presence without over committing resources at an early stage."
Leeds-based employee management services company Abeceder has expanded into markets in Africa, the Middle East and Asia, which now account for half of its revenue. The company uses flexible workspace in international Regus centres to take make overseas trips easier, but has also turned to video communications to reduce overseas travel costs.
Managing director Michael Millward said: "You do need to weigh up the necessity of meeting face-to-face, of course, but often video conferencing gives you better control of the content of the meeting at a vastly reduced cost."
Other essentials for export novices include having a credible distributor or sales partner in the target country. They can be a key source of information on any product compliance legislation and take responsibility for a lot of the administrative elements of the import/export process.
"It may sound simplistic but approaching exporting with a 'can do' attitude is often the key to successfully establishing an export revenue stream for an SME, says Nobel.
"In practice, that involves time and some financial resources committed to creating an export action plan, selecting target countries, attending trade fairs to market their products and make business contacts."
Small businesses planning to export can access help and support from UK Trade & Investment which has a network of professional advisers in UK and overseas markets, plus a range of services, including outward trade missions and bespoke market intelligence reports, and can help with overseas regulations and business practice.
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