Are you frightened of Exporting?

There's no doubt that many start ups and SME's are averse to developing their businesses overseas, after all there are so many variables to control and, well, it's all in another country isn't it? Sure it has its challenges and if not tackled in the right way it can soon become a drain on resources, time and cash. But the potential benefits far outweigh the effort required to kick start an International business. I was discussing this with a group of Private Equity investors this week and it was interesting to note that even seeing an outline International strategy at an early stage shows that the business is clearly thinking beyond just 'launch' and makes them a far more attractive investment prospect. SME's that embrace International at an early stage in their development grow on average 60% faster than a UK centric one. If you have one eye on fundraising to help drive scale, having an International strategy as part of your pitch can be a huge advantage.

This next section is an article from the Federation of Small Businesses that nicely highlights some of the perceived negatives and upsides of grasping the nettle. To discuss how an International strategy could boost your business and it's ability to attract investment, just drop me a line.

Federation of Small Businesses July 2018

"Selling Britain abroad is key to the Government’s plan for economic resurgence, with the Department for International Trade (DIT)’s Exporting is Great campaign encouraging small business to sell overseas.

Exporting offers significant income potential. A typical UK small business exporter generates more than ￡287,000 from exports per year, a report by World First found. Of those small firms currently exporting, 70 per cent expect to increase exports over the next three years, according to research by the Chartered Institute of Marketing (CIM) and PwC.

Despite this, fewer than one-fifth of British small firms export. However, FSB research shows that this figure could be doubled with the right support. With a fertile market awaiting overseas, what is holding small business back? 

According to the CIM study, 33 per cent lack the confidence to approach new markets, while many see it as too great a challenge – 69 per cent of small companies reported signifcant hurdles to exporting in the 2017 Hitachi Capital British Business Barometer.

Insufficient resource – whether staff, time, cash or product – is the biggest obstacle facing potential small business exporters. “We are seeing more businesses build a global client base, and even invest in a presence abroad, before they have scaled up enough to cope with the complications of doing business there,” says Peter Sewell, Regional Director at Crown World Mobility.

Red tape can also tie up small exporters; Hitachi Capital says 24 per cent of SMEs find foreign legislative difficulties a barrier to exporting. “Whether it is understanding international tax rules, coping with ever-changing immigration laws or surviving scrutiny for Base Equity Profit Shifting regulations, the potential fines are massive,” says Mr Sewell. Understanding it all, he says, takes more than a Google search.

Adrian Noble, Director of Strutt Import Export, agrees: “With certain countries there may be hidden costs; additional paperwork such as certificates of origin; you might have to undertake an inspection, and pay for it.”  

Cultural concerns

Culture presents another barrier – as well as the local language, business etiquette needs to be translated. “Failing to understand the cultural landscape of an international business partner can lead to misunderstandings that threaten business relationships,” says Mr Sewell.

If you sell physical products, shipping is a budgetary and organisational drain – Hitachi Capital found that 19 per cent of small firms struggle with shipping issues. Mr Noble warns: ““Before you confirm an order, you need to be clear on who will cover the costs. What are the terms on which you’re selling? Handling charges, clearing charges and agency charges all mount up. You also need to be aware of any likelihood of delays, especially to places such as the Far East.” FSB Legal can help firms ensure they get the right contracts in place; visit fsb.org.uk/benefits for more information.

Companies with tight margins and limited cash flow need to consider the costs involved. “The biggest challenge is definitely the financial side,” says Paul Walters, founder of exporting consultancy Lime Tree. “Make sure you’re going to get paid. And with exchange rates, you have to be aware of the fluctuations of the pound.” 

To scale these challenges, you need to do your homework. “Look at doing business in different ways, and adapt to different standards, languages and cultures,” advises Mr Walters. “See if there is a demand. Look at whether competitors do it.” After research, the DIT lists finance, planning and identifying customers as key steps to exporting. “Be prepared to spend on marketing – pay an analyst or the DIT to do some market research,” he suggests. 

Boots on the ground

If you want to break into a particular territory, pay it a visit. “If you’re serious about doing business with someone, visit them, see the set-up and meet the people you’ll be dealing with,” says Mr Noble. Mr Walters adds: “An international trade show is a good way to start – not necessarily to exhibit, but to see what’s available, how it’s priced, and whether you can compete.”

Once you get some traction in a territory, address localisation. Consider purchasing local web domains or a virtual office to give yourself a local presence, even if you can’t physically be there the whole time. Another option is to use a local agent or distributor. This approach can circumvent cultural barriers, but comes at a price.

“People are confused about selling through a distributor or agent, and what their responsibilities will be,” says Bryan Treherne, Chairman of the South London Export Club. “An agent does all the work, while a distributor provides basic customer information. If you’re employing them in Europe, they might work in every country, in which case it’s better to get local contacts. In the US, there are 52 different ‘countries’, and you can’t cover it all with one distributor,” he says.

When it comes to financing, speak to your bank or finance provider about raising capital, to avoid overstretching yourself. Review any extra financing beyond your usual business costs, and think long-term. And to protect your investment from a volatile currency market, hedge through currency companies. FSB Funding Platform can help identify sources of finance – it has helped several members who were applying for export assistance funding. For more details, visit fsb.org.uk/benefits

Destinations of choice

So where should businesses look to sell their wares? Whatever the post-Brexit customs arrangement, Europe will always be an obvious target for small exporters.

“Small firms trade with countries based on ease, cost and value,” says Mike Cherry, FSB National Chairman. “The EU single market is still a crucial market for small firms which export, and they find it cannot be undervalued.” In fact, research by FSB in 2017 found that 58 per cent of small firms find it easier to trade with EU nations than with non-EU ones, with only 6 per cent saying they find it harder. 

Nonetheless, exporters see the fastest growth in demand coming from outside of the EU, with CIM research listing the US, China and the UAE as top destinations. Singapore is also a good option, says Mr Treherne. “It’s part of the ASEAN, so you’ll get a leg into Malaysia and Indonesia, and they like British products.”

“There are opportunities in the so-called ‘developing’ countries,” adds Mr Walters. “For example, Vietnam is quite developed now. It’s looking to improve the infrastructure offering: for anyone in the road, rail, airports or building sectors, there are a lot of projects. Equally there’s demand for Western products among the burgeoning middle class.” South America is also home to a large purchasing population. “Go for Brazil and Mexico, where the UK has reasonable working relationships,” adds Mr Treherne.

Above all, keep an open mind, recommends Mr Noble. “People tend to avoid places that are ‘unstable’, but there will be markets there. I used to do a lot of business in Sudan; it was having a civil war, it was on the US blacklist, but people were still manufacturing products and seeking to buy components.”

Sports gear firm on to a winner

“From the moment Net World Sports was founded in 2009, we began exporting,” says Managing Director Alex Lovén. “As the business has grown, so has the number of countries we deliver sports equipment to, with 61.5 per cent of 2017’s revenue coming from overseas.” 

The Wrexham-based company has sold sports equipment to customers in more than 100 countries, from core markets in the US, Australia, Canada and continental Europe to others in Japan, Dubai and Guam. “Seasonal variations and different sporting calendars are hugely beneficial, as demand for our products is evenly spread through the year,” says Mr Lovén. “All businesses will face challenges in the beginning and ours was no different – but you have to not let the tests defeat you. When we were starting out, I purchased an entire container of sporting goods. But I didn’t realise I had to pay VAT on it, so it was kept at the port until we raised the funds. This was my first lesson in exporting, and one of the most important,” he says.

The company won the title of business exporter of the year at the FSB Wales Celebrating Small Business Awards. To firms thinking about exporting, Mr Lovén says: “Just do it. It will allow your business to grow in ways you never imagined.” 

He advises firms that are planning to export to anticipate challenges. “Expect the unexpected: cash flow issues with delayed payments, delays at customs, port fees, import duties and different tender requirements. It can be daunting, but the rewards and opportunity to see the world outweigh any of the downsides.”

Don't be frightened

I've developed International strategies for companies backed by the world's largest PE organisations, and I've developed an International strategy over a cup of tea with two women making baby food in their kitchen at home. It's quite painless, so don't let fear hold you back...drop me a line and let's talk world domination.