By Daniel Hunter
UK mid-sized businesses are being too conservative in their export ambitions and are not considering key growth markets overseas, even though they are aware of the benefits, new research from Lloyds Bank shows.
Almost three out of five firms (58%), turning over between £25m and £750m, said that they do not currently export and less than one in ten (7%) are looking to do so within the next five years, indicating that over half of mid-sized businesses are still cautious in considering their long-term export strategy.
This reluctance to expand overseas comes despite recent indicators showing that firms are more bullish about the UK economy with business confidence reaching a 22 year high according to the Bank’s recent Business in Britain report in July.
According to the findings, just under a fifth (17%) of firms stated that selling overseas is one of their top three business objectives for the next twelve months. This contrasts with two out of five firms (43%) who said that focusing on growing their UK market is their top priority and three out of five mid-sized firms (60%) who are focused on increasing turnover.
A third of businesses said that they are focusing on reducing their costs (38%) and a similar number increasing their productivity (34%) — reflecting the fact that firms are focusing on their own performance before looking at exporting opportunities. The figures were similar when respondents were asked for their objectives for the next ten years or the next twelve months.
This lack of focus on exports is despite businesses being aware of the benefits. Around three-quarters (73%) said that the main advantages of overseas trade were expanding their customer base while just over three-quarters (77%) linked it to increasing sales and profit.
Tim Hinton, Managing Director for SME and Mid-markets Banking at Lloyds Bank said: “Although business confidence has reached a record high, mid-sized firms often appear to be overlook the benefits of exporting.
“Businesses appear to be focusing their efforts on their UK operations first, looking to reduce their costs and increase productivity before embarking on global growth opportunities.”
Businesses listed a number of factors which they said prevented them in exporting to new markets including: not having the right contacts (21%); products not being suitable for overseas markets (20%); not understanding the legal and regulatory requirements (20%); not having the time and resources to investigate (20%); and volatility in exchange rates (17%). Firms were confident of attaining trade finance with only a fraction (5%) of firms citing access to finance as a barrier to exporting.
Commenting on the wider macro-economic picture, Lloyds Bank Chief Economist, Trevor Williams said: “The latest ONS trade figures showed a worsening trade deficit for June which will weigh on UK exporters. This is in part due to the recent strength of the pound, slow growth in Europe along with geo-political tensions, and weaker growth in some large emerging market economies. These have put downward pressure on UK export growth, despite a rise in manufacturing output over the last year.”
Emerging economies low down the list for UK exporters
Of those mid-market businesses that do export, continental Europe and the USA dominate current export markets. Two fifths of firms (40%) stated Germany as being in their top three export markets by sales volume, followed by France (33%) and USA (26%).
When asked which countries businesses are targeting for future expansion over the next ten years, China was top which was named by one in seven firms (14%) — but surprisingly there was only one other emerging economy in the top five being Brazil (5%) The more established export markets of USA (9%), Germany (6%) and France (6%) took the other positions.
Steps taken to export and available support UK exporters said that they have taken a range of logical steps to export with half of firms (50%) visiting potential clients to research their market, under a third (31%) undertaking market research and under a quarter (23%) building an export plan with their banks.
Of those UK exporters that have used UKTI — the Government organisation which helps UK businesses in international markets — over four fifths (81%) said that they found the department very useful or helpful in reaching their aims.
However over two fifths of UK exporters (43%) were not aware of the organisation, showing an opportunity for more awareness and education about the services on offer.
In April the Chancellor of the Exchequer George Osborne announced an additional £4 million a year for UKTI to triple the number of medium size business (MSB) international trade advisers (ITAs).
This week the Trade Minister Lord Livingston will visit the medium-sized company Surrey Satellites who export state-of-the-art satellites to 30 countries across the globe — recently securing contracts in Kazakhstan, China and Taiwan.
Trade Minister Lord Livingston said: “Medium-sized businesses have the potential to be economic powerhouses for the UK economy, creating jobs and growth for all regions of the UK. This year I have written to every medium-sized firm in the UK to offer them tailored trade support from a dedicated advisor who can help companies start exporting for the first time or find brand new markets.
“These letters have been followed up by a contact programme to raise awareness of what UKTI can do for these companies. If any want to know more, I would urge them to contact their local UKTI adviser who can be found via www.gov.uk/ukti."
Tim Hinton added: “Although there is a great deal of interest in emerging economies, there is still a relatively low level of export activity to these regions. The picture is slowly changing, but too many UK firms appear to be prioritising markets closer to home over the long term.
“This makes sense given the proximity of Europe and the single market, but businesses will find opportunity in exploring the benefits of exporting to emerging economies further afield.
“Exporting is an important investment decision and we want to give businesses the confidence and support to develop and grow into new overseas markets.”
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