By Daniel Hunter
Around a third (31%) of Britain’s small to medium-sized enterprises (SMEs) that currently export goods and services believe the international export market is riskier than it was last year, according to Zurich’s latest quarterly SME Risk Index report.
The survey, conducted by YouGov, shows that only 5% of decision makers surveyed believe export risk has decreased during that period.
Despite this, only 27% of respondents from exporting businesses say that their business reviews potential export risks more than once every 6 months — and 17% never do it at all, possibly exposing themselves to the dangers of severe business interruption.
The Index also shows that 12% of SMEs that don’t export products and services say international expansion being too big a risk to their business is one of the three main barriers to their business expanding internationally.
One in six (17%) cite the complex regulatory and compliance requirements as a main barrier to exporting, something that access to expert advice could quickly resolve.
Indeed, more than one in five (22%) SME decision makers say that their business needs more advice and guidance on the risks, exposures and liabilities associated with exporting overseas.
The findings come as the Office for National Statistics reports that the UK's trade deficit stayed above £3bn in both July and August this year. A third (35%) of respondents whose businesses aren’t exporting admit that one of the three main barriers is a lack of desire to expand abroad, and 13% are still working on establishing their business in the UK.
Richard Coleman, Director of SME at Zurich Insurance, said:“The global risk environment is increasingly complex, which may be why nearly a third of SMEs feel there is now more export risk in the current international market than a year ago.
“It is a real concern that so many SMEs feel they can’t access the right advice. Whilst it’s impossible to eliminate all of the risks involved in exporting, insurers and independent advisors — in addition to UKTI and other key stakeholders, such as the British Chambers of Commerce — must all play a crucial role in supporting SME owners with enough knowledge to prepare for the challenges associated with international expansion.
“This will be critical to giving many more UK SMEs the confidence to move beyond British borders and into the global marketplace, flying the business flag for Britain and increasing the chances of sustained economic growth.”
British SMEs who are already exporting identified the following as the main areas of export risk to their business, when asked to tick their top 3:
- Violation of regulatory and compliance obligations 21%
- Business strategy (e.g. over-estimating demand) 20%
- Distribution or supply chain 19%
- Export finance 17%
- International crime 17%
- Violation of international tax and licensing rules 15%
- Product liabilities, exposures associated with customer product use 15%
- Violation of international laws or political sanctions 14%
To help pave the way for small businesses to overcome their exporting hesitance, Zurich has produced some simple advice for SMEs who may be considering exporting for the first time. It is natural that small firms may be reluctant to embrace an uncertain opportunity, but Zurich suggests that SMEs should consider the following when making the decision to sell goods beyond British border:
• Regulation - Always understand the regulatory implications of the territory you’re looking to export to and remember it’s never enough to just consider trading laws. Licensing, competition and intellectual property rules are important. Local chambers of commerce and UK Trade & Investment are good sources of information, but at a more basic level using social networks like LinkedIn can also be very beneficial to find local experts.
• Supply Chain - Review your supply chain and ensure that you are fully prepared when exporting and that all points of your supply chain are capable of meeting the demand abroad. Consider all scenarios and ensure you have a business continuity plan in place.
• Customer Service — If you’re exporting to a country where English is not a common language then you may need to consider some on-the-ground customer support to make it easier for local consumers and avoid damaging your reputation.
• Do your research — Market research is an obvious thing to do before entering a new market, but make sure it is robust. Look at levels of disposable income, inflation and competitor pricing. You may have to reduce costs at first to make headway.
• Act global, think local — From a strategic point of view you may now be starting to think about your business in a global sense and looking to your next market to export to. However, always ensure that your company feels relevant locally. Ensure you understand the cultural nuances of a territory and make sure your marketing materials and product strategy reflect this.
• Insurance — Check with your insurer or insurance advisor that you are completely covered for any incidents that may occur abroad (particularly covers such as product liability and product recall). There are usually many options available, but the worst thing would be not having any cover when entering a new market.
• Legal Advice — UK exporters should seek legal advice in advance of plans to export and also be prepared to push for English law and dispute resolutions in their contracts. This may provide useful safeguards to local legal interpretations, politics and, in certain circumstances, corruption. In addition, English law remains widely respected.
Zurich also recommends that SMEs considering international expansion also consult the wide range of advice and services available from UK Trade & Investment (UKTI) — such as UKTI’s “Overseas Business Risk” online advice centre (http://www.ukti.gov.uk/export/howwehelp/overseasbusinessrisk) — the British Chambers of Commerce, Association of British Insurers (ABI) and other key support organisations.
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