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Crisis of confidence

The reasons laid out for going global are good ones, and yet despite growing markets, ease of access, political will and the opportunity to broaden horizons, out of a base of 4.5 million-plus small businesses in the UK, only 75,000 are currently exporting.

I believe the figure is low on account of a crisis of confidence.

This is reflected in many surveys that show a high number of business owners who want to export but are deterred by perceived business barriers.

The HSBC ‘Going International’ report claims millions of small businesses are unduly sceptical about the importance of international trade. Four-in-ten businesses contemplating international trade see it as potentially crucial to their overall survival, but this number rises to nearly nine-in-ten for those with experience of already trading overseas. Companies that have the confidence to sell abroad are reaping the rewards, with four-in-five saying they consider it to be a profitable venture. 78% of these businesses having grown as a direct consequence.

There’s also what Noel Quin, HSBC’s UK head of commercial banking, calls a “psychological barrier”:

“The reality of setting up overseas trading deals was perceived as more costly and problematic by potential exporters than was actually the experience of those that already exported. The benefits [of exporting] far outweigh the costs when you start to do it.”

Another high street bank, Lloyds TSB Commercial, commissioned similar research and came out with similar results. ‘British Businesses Missing a Trick in Export Markets’ ran the headline, with the facts as follows:

 62% of SME [small to medium-sized enterprise] exporters have experienced growth in foreign markets in the last 12 months.

 39% of businesses not currently exporting say fearing a lack of demand is the main reason for not doing so.

 21% cite worries about late payments as a reason for not exporting.

“By far the biggest concern amongst small businesses questioned was that there would not be demand for their product or service overseas. And yet, amongst firms that are exporting, overseas trade is contributing to a growing proportion of company turnover with almost nine out of ten believing exports as a percentage of turnover will increase this year, or at least stay at current levels.”

This crisis of confidence has been sufficiently serious for trade Ministers and representatives to step up to the stage and voice concern.

UK companies overestimate the barriers and underestimate the benefits of exporting. I’ve been disappointed by the fact that although we are a nation of small and medium-sized businesses, we are not yet a nation of exporters.

– Lord Davies, former minister of international trade

Business needs to rediscover the mercantile spirit that has driven our wealth in the past and now drives other, younger industrial economies.

– David Frost, director general, British Chambers of Commerce

Future economic prosperity will only come from UK companies exploiting opportunities overseas.

– Andrew Cahn, chief executive, UK Trade and Investment

The only way the UK will recover quickly and sustainably from the recession is by trading her way out. That calls for our continued, indeed our increased, commitment to the export of goods and services.

– Digby Jones, former international trade minister

There is a common thread to these protestations. It is a call to action for companies to overcome fear and take our products and services to the world.

But before we look at how to do that, let’s examine what’s holding us back.

Based on the evidence, I have come up with a list of key deterrents or perceived barriers and divided them into two key categories:

1 Perceptual & psychological

2 Profitable & practical

1. Perceptual & psychological

The UK has a stellar record when it comes to trade, being the world’s second largest exporter of commercial services (data from the World Trade Organiastion) and the eighth largest exporter of merchandise (from the OECD Factbook 2008). It has one of the highest shares of services as an exporter across the globe. But my question to you is this: when you think of the word ‘export’ or the concept of ‘going global’, what comes to mind?

I will hazard a guess it is:

 big business and large investment

 cargo and freight

 manufacturing and machinery

 capital and infrastructure.

International trade carries with it the perception of being a heavy-duty task taken on by big companies with deep pockets. This is even reflected in the way we measure exports and the imagery that goes with it.

The international trade page on the Business Link website (www.businesslink.gov.uk) shows a large ship carrying big boxes, ploughing its way through choppy seas. The key export indicator as measured by the Office for National Statistics is ‘The Monthly Review of External Trade Statistics’ which notes oil, manufacturing, chemicals, road vehicles and power-generating equipment as top exports from the UK. There is little reference to the volume of smaller items sold via the web and packages shipped via the local Post Office.

Despite the fact this perception no longer matches reality, small business owners are put off, with exporting made to look an intensive and expensive affair.

“While exporting may have traditionally been seen as only suitable to companies in industries such as manufacturing, firms operating in other sectors have the opportunity to explore new markets and assess international demand for their products.”

– Donald Kerr, commercial banking director, Bank of Scotland

Many business owners speak of ‘fear of the unknown’ when it comes to doing business with people they don’t know in countries they’ve never visited and in languages of which they have little knowledge.

Certainly, international trade forces us out of our comfort zone. But what it does do is introduce us to new territories and ideally, lucrative ones!

Despite an insatiable consumer appetite in China and India, companies dipping their toes into international waters are opting to trade much closer to home.

– HSBC ‘Going International’ report

2. Profitable & practical

You want to know that time invested is time well spent. Small businesses have doubts over:

 how to cost-effectively find and communicate with customers abroad

 how to guarantee payment amidst currency fluctuations

 what the general cost of exporting is, when taking into account shipping and international travel.

“Trepidation is founded on issues like geographical distance, language and cultural differences and occasionally market access barriers. It’s about having the confidence to visualise yourself doing business outside the UK.”

– Lord Davies, former trade minister

When it comes to matters of a practical nature, this category is an umbrella for a number of fears, including how to go about identifying overseas customers, tackling legislation and paperwork, language and cultural barriers, and where to go for help.

41% of small businesses not trading internationally view the language barrier as the key inhibitor in taking their businesses overseas.

– HSBC ‘Going International’ report

There’s even the practicality of air travel, with the 2010 volcanic ash cloud having had such an impact that 16% of companies said they would reconsider overseas trade on account of the disruption it can be subject to.

In December 2009, trading platform Alibaba.com questioned 3,600 entrepreneurs about sources of help and advice. The results revealed that 98% of respondents were unaware of initiatives to facilitate international trade.

Evidence given to the National Audit Office by CBI emphasised the same issue:

“A cry we often hear, particularly from small and medium-sized companies is that, ‘I just didn’t know that this was a service which was available to me’.”

And in our own ‘Going Global’ survey carried out on Enterprise Nation, 79% of respondents said they did not know that public support for international trade promotion was available.

This has been acknowledged by national government body UK Trade & Investment (UKTI), which, with an annual budget at its disposal of £268 million, is charged with attracting inward investment to the UK and boosting exports from the UK.

Indeed, the agency’s own research:

“indicates large numbers of existing exporters are not aware UKTI exists or are not convinced of the potential benefits from any external assistance, suggesting that many businesses have yet to access the services provided by UK Trade & Investment.”

Actions are being taken to raise its profile, but UKTI will want to be sure their programmes are well-suited to the needs of modern day global traders who tend not to have employees, export departments or years of trading history, all of which currently form the eligibility criteria of key programmes such as Passport to Export.

As a beginner’s guide, this book has been written to get you started on the right foot and with all the resources you need to prosper as you start to export to the world. If you have felt any of the fears raised above, don’t worry, as we will be busting the myths they depend on, and bringing down the barriers that may be holding you back from profitably taking your own business global.

I see fear stopping people making sales. To them I’d like to say don’t let fear of the unknown or prejudice hold back your business – widen your market, spread your wings!

– Mhairi Gordon, Impact Associates