By Marcus Leach

Nearly three quarters of small to medium sized businesses (SMEs) in the UK believe in the ‘export led recovery’.

However a ‘knowledge gap’ and currency fluctuations are having a major impact on their confidence and bottom line in exporting, according to data released today in a new report from American Express FX International Payments.

The International Trade Tracker, which surveyed 1,500 SME business leaders in the UK, Australia and the United States of America, has revealed that the majority of UK SME business leaders have faith in an export led economic recovery and that they are not alone. Indeed, 82 per cent of Australian SMEs believe in an export led recovery and 74 per cent in the US.

However, the UK seems to be the most affected by the current economic climate, with nearly a quarter (23 per cent) saying they are looking to decrease their international trade activity as a result of concerns surrounding a number of issues including currency fluctuations and red tape.

This is compared to 13 per cent and 15 per cent respectively for their Australian and US counterparts. Indeed, the Tracker revealed over a third of UK SMEs (36 per cent) say their confidence in operating on an international scale has diminished.

Currency Concerns

Much of this declining confidence centres on currency fluctuations, which stood out as the leading concern across all three markets. Over half (56 per cent) of UK SMEs said the reason for decreased confidence in trading internationality is as a result of the volatility of the Euro.

“Entrepreneurs are natural risk takers, but currency risk is an area where they shouldn’t feel unnecessarily exposed, especially if it means hesitating before pursuing international business opportunities, so tools to help manage and mitigate currency risk are an absolute must-have in my view,” Julie Meyer, SME expert and ‘Dragon’ for Dragon’s Den online, said in support of the study.

With the International Trade Tracker revealing that the UK ‘trade capitals’ (those countries to which most UK SMEs export) are all Euro denominated countries - Germany, Spain and Poland - concerns about the fluctuation of the Euro is likely to impact directly the confidence in which SMEs will trade in Europe and, in turn, hinder the chances of an export led recovery.

“After a tempestuous year for currencies, it’s not surprising that currency fluctuations are the number one concern for SMEs trading internationally. For example, since the beginning of 2011, the US dollar has weakened by over seven percent against Sterling," Rocco Magno, General Manager, American Express FX International Payments, said.

"Worryingly, these fluctuations are not only affecting confidence but also the bottom line for SMEs due to a knowledge gap on how businesses can protect themselves from these fluctuations.”

Up to £20.4 billion a year lost through unprotected payments

Despite these concerns, over half (55 per cent) of UK SMEs do not protect themselves from the risk of currency volatility and as such, the average UK SME risks losing as much as £19,745 a year, or £20.4 billion across the UK SME market as a whole.

Nearly one in five (21 per cent) of UK SMEs admitted that they were unaware of the benefits of protecting themselves from currency fluctuations and a further 28 per cent said that they have never considered it before, suggesting that a lack of support and advice could be the reason for such heavy losses each year.

Indeed, according to the report, 2.2 million UK SMEs do not think there is enough advice, information and support available for UK SMEs trading internationally, highlighting a dramatic ‘knowledge gap’ between what is deemed necessary for economic recovery and what SMEs feel equipped and informed to do.

“American Express works with thousands of SMEs providing guidance, information and support regarding international payments in order to help them manage the risks associated with currency fluctuations," Magno continues.

"This service includes delivering innovative products such as forward contracts; these provide protection against exchange rate movements, very much like purchasing a fixed rate mortgage. Locking in the exchange rate minimises risk by fixing future costs and revenues, while also helping to control cash flow.

“For example, the value of the Euro against the Pound fell gradually throughout 2010 reaching a plateau at the end of the year where it began its appreciation once more. Since the 10th January this year, Euro’s value has risen nine per cent against the Pound representing a significant saving if you are exporting and receiving Euros. Locking in the FX rate helps minimise future risks and can be achieved by buying a forward contract. Educating business owners and leaders on these services definitely helps to build confidence and encourage them to grow their international business.”