Thinking of expanding abroad? Tapping international potential is a great opportunity for businesses to expand and make a profit but there are many obstacles. Our guide will put you on the right track
A survey by American Express FX International Payments reveals that 2.2 million SMEs in the UK don’t think there is enough advice, information and support available for small firms trading internationally.
While 73 per cent believe in an export-led recovery, 23 per cent say they would be cutting back international activity. But businesses in the UK will play a big role in helping the economy to recover from the recession and in order for that to happen more need to look abroad.
“We want more companies to export. We need an export-led recovery, that is the way we will get growth and increased manufacturing,” says Clive Drinkwater, director of UKTI North West.
Nina Uppal, founder of New York Delhi, adds: “I think right now is a brilliant time to be exporting because the exchange rate is favourable to the international market but also because British brands are in huge demand.”
Delegates at the IoD International Trade Forum in June learnt how to successfully trade across borders. Now Uppal and other experts give their advice to businesses contemplating international trade for the first time.
Ray Jones, head of business consulting at RTC North, a business support organisation, reckons that not enough SMEs treat international expansion correctly.
“You have to set it up as a separate business model rather than simply take a punt at getting some business from a different part of the world,” he says. “It is vital to build and invest in something that will be sustainable in the future.”
While most SMEs like the glamour of being in new countries, they see it as an aside to their core market, says Jones. “My philosophy is that the international market is where your growth will come from. We have got some fabulous technology and some great products but we are not competing in the right way.”
He adds: “Look at your international trade as a separate business model that requires investment and returns to make sure it is sustainable for the future, not just for now or for next year.”
You can’t please everybody
Richard North, chief executive of toy manufacturer Wow! Stuff, found entering the overseas market overwhelming. “We thought we were tentatively dipping our toes in the waters by taking a small booth at a trade show 18 months ago, but we were inundated,” he says. “The biggest lesson we learnt was that you have to be good at prioritising because you’ll get a thousand business cards, all saying ‘your products will be fantastic in our market’. At that first show we got it badly wrong, trying to service everybody.”
North believes it is vital to get to know people to determine whether they will work as distributors. “We have to work with like-minded companies and it is important they understand our strategy if they are going to sell our products,” he says. “Business is done between people, not companies, so you need to ask yourself if people get your strategy and whether they will adopt it.”
His advice is to be selective. “You may have some on the list that you don’t go for in the first instance, but they will still be there in two or three years. We learnt from trying to do too much,” he says.
Have confidence in your product
When Nina Uppal set up New York Delhi, selling spices, nuts and other snacks, she found it relatively easy to start exporting. “We were picked up by a US distributor at the first international trade market we attended; and later by distributors in Spain and the Netherlands,” she says.
She thinks small firms are often overly grateful and accept what distributors offer too readily. “In the early days we were so flattered that it didn’t matter who else distributors were buying from. You are so full of yourself you don’t care as long as they buy from you,” she says. “It is important to ask the right questions. Now we are looking less needy, people have been jumping through hoops to tell us why they are the best distributor.”
When Uppal recently ventured into China she had five different distributors wanting to represent her. “I whittled them down to two and they said they wanted exclusivity and also that I couldn’t talk to anyone else. I made it clear that I would stop talking to other suitors when one of them put in an order. That same afternoon an order came in. If they want a product badly enough they will place the order,” she says. “They thought I was really bold in a positive way, and they loved that.”
Make the right connections
Dr Herbert Loebl, founder of the Herbert Loebl Export Academy at Newcastle University Business School, says connecting with the right people is key to success in international trade. “The first point of call when looking to export should be UK Trade & Investment,” he says. “They are incredibly helpful and will be able to assist you in selecting a market for your product and find suitable representatives in your chosen field.”
Loebl has always sought out trade publications in countries to which his companies have exported and maintained good relationships with them. “Public relations, advertising and attending exhibitions can go a long way towards raising your profile in a chosen market, so it is worth researching opportunities for developing an international marketing campaign,” he explains.
Developing relationships with UK trade commissioners in countries earmarked for export can go a long way towards success, he adds. “If a commissioner does not have expertise on your service or product they will know someone who does, which will help you find an appropriate agent,” says Loebl. “I only went against the advice of a trade commissioner once in Serbia and it was certainly to my detriment.”
Embrace technological change
As a business owner who sources half his stock from Chinese manufacturers and sells goods in several countries, Darren Williams of Harland Hair and Beauty knows a thing or two about trading internationally.
For his business the internet is hugely important and keeping up to date has presented the biggest challenge. “We are dependent on search engines and they have evolved so much in recent months,” he says. “Google tries to be more local so if you are searching for a restaurant it will most likely throw up results in your area and the same will happen for hair and hair extensions.
“It has proved a challenge internationally because we are not performing so well in the search engines. Our strategy is now geared more towards getting our website translated and having it optimised in foreign search engines. You have got to embrace change on an international level. Because we are all online we rely on search engines. Keeping up with change is critical and it is absolutely key to international success.”
Choose your international market well
If you have decided to launch internationally your choice of market is crucial, says Clive Drinkwater at UKTI North West. “You should start by looking at a few of the markets where you think there are major players and where there is potential in your sector; you should look at the political stability, the culture and language,” he suggests. “If you are in the auto industry then one of the up-and-coming countries is Slovakia, so you’d want to look for opportunities there.”
He believes there are advantages in sticking to the European market for firms that are just starting to trade internationally. “It is sensible to start off within the EU because of the free-market access. Once you go beyond Europe there are certain barriers,” he says.
Few small companies should launch straight into one of the Bric countries. “You should start in the easier markets where language is not a barrier, such as the Netherlands, Scandinavia, Belgium or Ireland; these are all in the EU and will not present barriers to trading,” he advises.
Choosing your market depends on doing research. “If you haven’t looked at the value proposition you are going to present to the market and understood what factors they will take into account – your price point may be too high or your channels of distribution may be inappropriate for the market – it will fail.”
It could be a costly experience if you haven’t done your homework properly. “There is a lot of cost associated with market entry; it is an investment,” says Drinkwater.
Protect your currency
Many SMEs are put off international trade due to unpredictable currency rates. “It is clear that many SMEs don’t trade internationally because they don’t know how they can mitigate against foreign-currency fluctuations,” says Rocco Magno, general manager of American Express FX International Payments. “Last year the euro gradually appreciated and then it reached a plateau and then it began to appreciate again. Since January it has risen nine per cent against the value of the pound. For an SME, nine per cent of your margin is quite significant if it is not protected.”
Up to £20.4bn is lost every year through unprotected payments and 55 per cent of UK SMEs don’t safeguard themselves from currency fluctuations.
But Magno says it is easy for businesses to protect themselves. “SMEs in particular take out foreign-exchange contracts to forward buy foreign currency and fix the rate. A company may require €100,000 (£89,000) and taking out a foreign-exchange contract allows them to fix the price. This way they are able to focus on their business.”
Consider your finance options
The government’s Export Credits Guarantee Department (ECGD) provides short-term products aimed at SMEs. “We offer an expanded product range to SME exporters to give them confidence to trade and compete overseas when they are not able to get all the support they need from existing providers,” says chief executive Patrick Crawford.
Products available include export insurance policy and a bond support scheme as well as a bond insurance policy. “SMEs need to know that if they are not getting enough support from banks or the insurance market there is an alternative provider,” says Crawford. “We hope we can complement the existing provisions from banks and providers of insurance against non-payment so that we address any market failures that get in the way of SMEs doing good business.”
If you’re trading within Europe, legal and tax issues need special attention. “When people say the European Union is not a single market they are absolutely right,” says Professor Richard Scase of Kent University. “In terms of professional services and legal arrangements there is an enormous diversity. I know people who have tried to set up businesses in Spain, or tried to do business there selling products, and they have had incredible problems getting licences.”
But, says Scase, although this appears a barrier especially for SMEs, it is not an insurmountable one. “It does appear complex and frightening and they may think it is not worth the effort, but it is more straightforward than it first appears.” Scase says that businesses must get information on a country’s legal system to understand contracts, taxation and licences. One way is to seek support from an accountancy firm. “Companies like KPMG are everywhere and if SMEs can’t afford the big boys there are smaller companies that can help. Language and advice won’t be a problem, nor will access. Do your research and get the advice,” he adds.
Invest in your credit team
According to Marc Jones, sales director of Atradius, a versatile credit team is vital for a company to succeed at international trade. He believes that businesses need to invest in this area substantially. “A credit team in 2011 is very different from what it was in 1999. In the last 10 years credit teams have become far more the hub of trade, particularly international trade,” he says.
“Credit managers are no longer profit and loss analysts, or balance sheet analysts. Good credit managers have to know as much about relationship work as account managers or salesmen because the credit manager has to juggle so many relationships.”
He predicts credit will be a key part of global economic recovery. “Anybody thinking whether they can afford to upskill their credit team by investing in relationship skill is asking if they want to be involved in international trade,” he says.
“Over the next five years extension of credit and the management of credit will be key to international sales growth. No one will double or triple trade values by bank transfer and cash terms only.”
Tina Nielsen reports from the IoD International Trade Forum
There was plenty of advice available to delegates at the IoD International Trade Forum in June. The annual event is a chance for UK businesses to gain practical tips from experts as well as inspiration from businesses already successful overseas.
Susan Haird, acting chief executive of UK Trade & Investment, said trade and investment is a government priority. “This government wants to help British companies overseas,” she said before announcing the launch of a UKTI peer-to-peer online forum where SMEs will be able to exchange experiences.
Business case studies came from two successful SMEs – Cocorose London and A Suit That Fits. Janan Leo, founder and creative director of shoe manufacturer Cocorose, has been selling into several countries while manufacturing in the UK and China. She advised delegates to invest in building relationships with overseas partners. “Make sure they are fully aware of your brand and the standards of quality you expect,” she said.
A session with Atradius covered south-east Asia, central Europe, (including Russia and Ukraine) and Italy. The high-growth Bric countries still present many opportunities to UK businesses but are full of pitfalls for those unprepared. Problems include late payment or non-payment, a lack of transparency, cultural differences and currency fluctuation.
Michael Frigo, Atradius expert for south-east Asia, said: “You need to understand your product differentiation and whether it is priced right.?Also make sure that you are entering the market with a really different proposition.”
Baroness Wilcox, minister for intellectual property, announced that a network of IP attachés will be set up in overseas markets to help businesses on the ground. “This will help British companies protect their IP from within overseas markets,” she said.
UK companies invested £17bn in 7,000 projects in China last year. “China is moving away from manufacturing for export to focus on domestic consumption so that brings new opportunities,” said Ralph Rogers from the China-Britain Business Council.
And Brazil is investing heavily in infrastructure. With big sporting events such as the 2014 World Cup and the 2016 Olympic Games on the horizon, the country will be seeking the best suppliers.
“There has been under-investment in Brazilian infrastructure. Ports and airports need updating,” explained Jaime Gornsztejn from the Brazilian Chamber of Commerce in Great Britain. “If you go to Brazil and you bring innovation, you will be successful.”
Delegates also heard from Richard Heald of the UK India Business Council. He said it was crucial to visit India before launching there. “Due diligence is vital and many choose to tie up with a local partner in order to understand the market better,” he said. Heald encouraged delegates to enter the Indian market despite potential difficulties. “The real risk is not being aware of the opportunities.”
Helpful contacts for expanding abroad
- UKTI offers practical advice and visits to potential international markets. ukti.gov.uk
- IoD researchers find information on everything from setting up a business abroad to sector details in international markets. iod.com/research
- The Department for Business, Innovation & Skills can advise on areas including international trade agreements, market assessments and intellectual property law. bis.gov.uk
By Tina Nielsen