Roundtable discussion: SMEs going global

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The government aims to double Britain’s SME exports by 2020 but companies here are still not yet maximising their potential for selling overseas. We gathered together 10 business leaders with experience in international trade to reveal how they took their first steps outside the UK and to identify the barriers and opportunities that exist. IoD director general Simon Walker hosts…

The panel

Simon Walker
Director general, IoD

Mark Collings
UK director, Santander Corporate & Commercial Banking

 Jackie Maguire
Chief executive, Coller IP

Martin Reed
Chief executive and chairman, Thomas International

Richard Dorf
Managing director, PXtech

Huw Griffith-Jones
Sales director, Fox Umbrellas

J Haynes
Chairman, Haynes Publishing Group

Jan van der Velde
Chief executive, Kit for Kids Group

Ray Duffy
Managing director, Mask-arade

David Fitzpatrick
Director, Ruskin Air Management

Ed Bussey
Founder and chief executive, Quill

Simon Duffy
Founder, Bulldog Skincare for Men

Simon Walker Welcome to you all. It’s fantastic to see such a splendid variety of businesses around the table. We’re all aware of the pitfalls facing businesses when they start operating in overseas markets. Not just problems of marketing or finance, but also of language and culture. IoD members are adventurous in export terms – 60 per cent of our members export something, as opposed to about 30 per cent of British business overall. Between them, they export into every country in the world – even North Korea!

However, often it happens through accident, more than design. There are signs, though, that more SMEs are drawing up export strategies, perhaps buoyed by a feeling that we’re out of the worst economically, and so they’re looking to new horizons.

Some ambition carries risk, and perhaps intimidated by risks, British companies aren’t always maximising their export potential. In Britain as a whole, we were in a trade deficit of £27bn last year. The deficit in goods was well over £100bn, reflecting the strength of the services sector.

That is underperformance relative to our European neighbours, but the good news is that the government’s very committed to helping SMEs in particular step up to the challenge. I’ve been on several trade delegations with this government, normally featuring large businesses. Earlier this year, UKTI and the government organised a mission specifically for SMEs looking to get a foothold in central and eastern Europe. We were very struck by the efforts of diplomatic and consular officials who’ve got a renewed focus on helping businesses, whatever their size.

It’s government policy to double SME exports by 2020 and a recent report suggested we could add £50bn to the economy if mid-sized companies could match their peers in France and Germany. I hope this morning we can identify the issues holding firms back and begin to come up with solutions. Mark, can I pass over to you please.

Mark Collings Thank you, Simon. Good morning everyone. In my role as UK director for Santander Corporate and Commercial, I focus on businesses that trade internationally and, although I’ve spent 30 years within the finance industry, I also spent a few years out setting up an SME of my own, which was very insightful. From a bank’s perspective, international businesses are very attractive in two main areas. First, a business that is diversified into different markets and different territories provides the greater risk acceptance. Second, your relationship with your bank or any professional adviser should help you to determine which markets to grow with. They should look at how to help you from both a knowledge and funding perspective, overcome any language challenges and help you connect with local partners. I’m interested to hear how the banking industry can support you with international trade in the future.

Walker How did you all make that first leap into international business?

Jan van der Velde Can I start by talking about the USA? My business, Kit for Kids Group, designs high-end education and nursery equipment. For years we believed that the USA was unusually high risk because of litigation. Eventually, I went on a course run by the Greater Richmond Partnership, an organisation that helps trade between Richmond, Virginia [in the US], and Kent. One of their attorneys spoke and within half an hour he’d taken away all my prejudice about what might happen if we did business in the USA. They got us set up and now we’re trading out there and doing very well. It had just been something in my head which stopped us dealing with them.

Ray Duffy That’s interesting, that’s where we are now – wary of moving in. We make celebrity face masks, so we have to make sure we’ve got the rights to those faces. We’re expanding into Europe, but have held back from North America because of the same prejudice. However, last night we had our first tentative order from a North American distributor. Very small beans to begin with – they’re being as cautious as we are.

Huw Griffith-Jones As a UK umbrella manufacturer we have to be very careful of the policies we sign with companies. The multinational company in the States that we deal with wanted us to sign a contract with a liability form which meant that if somebody got poked in the eye with a Fox umbrella we would technically be liable. It hasn’t inhabited our business so far but we have had a lot of discussions with the company. Fortunately, they have always agreed to our changes but it is so important to read contracts very carefully.

Jackie Maguire That’s good advice – it is more litigious in the States and the laws are different in every jurisdiction. The companies that come unstuck are those that go in blind.

Simon Duffy America represents such a big opportunity for lots of British companies, though perhaps it isn’t always the right market to go to first. At Bulldog we now sell our skincare products in 14,000 stores in 13 countries but we started with Sweden in 2010. It was a close market – we could visit within a day – and there wasn’t an insignificant opportunity based on the size of the market, but it wasn’t like America, where if you drop the ball you destroy the value of the brand. We used Sweden as bit of a laboratory to develop our brand, test our supply chain, our contracts, work with distributors for the first time and the various different things that go into building an effective international network. It worked well for us and we took those learnings into some of the bigger markets. We discovered that the key things were the relationships. We operate three different models now, but the first model was partnering with a local distributor with local knowledge and making sure that we found amazing people to work with who buy into the vision and values of the Bulldog brand.

Ed Bussey Just picking up on this US point. In my previous business, Figleaves.com, we were captivated by getting into the US and frankly, it was probably a mistake – we underestimated the sophistication of our competitors. They were a year ahead of us digitally, had deeper pockets and an e-commerce market to build their business on which was 15 or 20 times larger than the UK. We had to reverse quite a lot of what we did. If we had our time again we wouldn’t have picked the US as our first export market.
At Quill – we produce content for clients’ websites – our approach now is to open up the markets in a purely digital way before we put people on the ground and incur costs. We’re launching German- and Chinese-language websites in an effort to win business first. Over 25 per cent of our revenues come from outside the UK and that should grow to 50 per cent over the next two years.The question that interests me, though, is to what extent should you deploy from the mothership and to what extent do you employ locally? And how do you marry up the different cultures? Do we look for the exact same profile for a role in the US as we have had in the UK? I’m going through this right now.

Martin Reed At Thomas International we’ve been psychometric testing and personality profiling around 20 million people in 60 countries, for 33 years, and each culture, each behaviour, each personality group, is slightly different. In American companies they tend to clone what works in the US and then expect that the personality group then works culturally in other parts of the world. We have only one per cent of our marketplace in the US because I’m still nervous of the States. I don’t want to be sued because, particularly with profiling, as potentially I don’t want somebody saying, ‘You told us to hire that person.’

Richard Dorf I’m going to go slightly against the flow here – in terms of the US I would say we’ve been too slow in moving into markets. PXtech provide IT solutions for the hospitality and retail sectors and about 30 per cent of our business now is in North America. We have solutions in 35,000 locations in 50 different countries but we started in France – pulled in by an opportunity which really helped us in 2008/2009 when the UK retail business cliff-faced for a short period. We always had our foot in the water with North America, but we were cautious. Once we started getting bolder, things moved very fast and they have huge potential. One of the big advantages of North America is that although there are cultural and legal differences, you share the same language. The ability to connect with resellers and understand where they’re coming from means you can get there much quicker than with somebody who’s speaking their second language.

J Haynes We’re probably best known for our iconic Haynes Manuals. The US accounts for 50 per cent of our revenues and we entered the market by realising that we couldn’t compete head-to-head with the existing entrenched publishing companies within the US. Instead, we identified a niche which was of no interest to them but one we already were covering – the import market: Toyotas, MGBs and the like. And then the question was how could we expand efficiently? We didn’t want to set up a very expensive publishing function over there straight away.
Our editorial director had the idea of going to American bases in the UK, borrowing cars from the American soldiers and asking to rebuild them. That way, we were able to keep the cost base low. Once we got to a certain scale and had cashflow coming in from the US we were able to use that to develop a presence in the US. As well as the commonality of language, the huge advantage is that our top 10 customers in the US are larger than our largest customers in Europe. They’re colossal – 5,000 retail outlets. That’s a complete game-changer for a business.

Walker Who helped you expand into different markets? Was it UKTI? Or were there other useful networks?

David Fitzpatrick We had been manufacturing ventilation equipment for 35 years and started trading internationally by chance, by people asking to have our products in their country. You get very excited by it and then learn from your mistakes. UKTI focused us and made us research thoroughly before going into a country. They were also very good at explaining about how you speak to people in different countries as well – no jargon!

Griffith-Jones Over the last five years we’ve been trying to increase our export market and have done a couple of trade shows – in Korea and Hong Kong. We took advantage of UKTI’s research and the local embassy created a great report on our market and arranged face-to-face [meetings] with potential customers. The report costs about £1,000 but it saves a lot of legwork.

Reed It’s great value. If we had done the report ourselves it would probably have cost between five and 10 [thousand].

Maguire We also found UKTI really helpful. It’s good to speak to the person at the desk too, as they have a huge amount of knowledge and information.

Van der Velde Our UKTI adviser was so good we poached him. He has set us up in the Middle East, and that’s now our fastest-growing market.

Walker Could I move on to finance and ask how you funded your international expansion? What help did you get and what else did you need?

Ray Duffy We’re a small company at the moment and everything’s been organic. We are fortunate in that we haven’t got any bank loans but we’re doing more business in Europe now and, even with due diligence and a good credit controller, we’re still going in kind of blind as we don’t understand the culture. Our bank was willing to help but then they sacked everybody that used to help us so now we’re back to someone who probably doesn’t understand our business at all.

Maguire I think lots of companies have similar challenges. So many small companies still can’t get the finance they need from the banks. There’s lots in the banking regulation that stops them lending against IP assets, which is a real challenge.

Collings If I can comment as an SME, not a banker: I agree that you can never undervalue the relationship you have with your bank manager and the continuity of that relationship. Having a number of new relationship directors over a short period of time can be very frustrating for an SME because they don’t necessarily know the longer-term goals of you both as a person and a business. You need the balance of local and continuity, and you need a finance provider to give you the support globally to understand the supply chain.
Reed But banks don’t do enough around relationships. We’ve got challenges in that 33 years on, our bank still doesn’t really know what we do.

Bussey We’ve changed our bank for that reason alone. We were so fed up with the incumbent bank because the account manager kept changing, there was continual knowledge loss and they didn’t understand the business. It started to impact on my efficiency as a CEO running the business because I was waiting on the line for 20 minutes trying to get through to somebody and had to keep repeating our situation. We’ve now moved to a bank where I have a direct mobile number to an individual who’s taken the time to get to know us as a business, and with whom I’m hoping I can build a long-term relationship. I am concerned, though, about maintaining that continuity if we want to get a presence in some of the markets we’re talking about.

Dorf We’ve had a similar experience, we’ve had the same bank since we started but we took a different approach around currency. We wanted our customers in America to think they were buying something familiar so we made a decision early on to trade in local currencies. We started working with the banks to say we need a US-based bank account, because sending money out of the country was an issue. We’d get a cheque, it would come over here, then go back to the US to be registered and come back again. It was the best-travelled cheque ever and it took ages to get it sorted out.

Walker What about local contacts in the markets you moved to? How did you develop those?

Maguire We have over 170 associates in 90 different jurisdictions, because we provide legal services and people presenting in front of the national [offices] have to be locally qualified. We’ve spent a long time developing these relationships because they reflect on the services we provide for our clients.

Reed We’re lucky, we can profile our people and it does help being able to understand the types of behaviours that work.

Haynes One of the ways that we’ve done it is through our retail relationships – we use their network to get introduced to the right people abroad. We are increasing our presence in Mexico, and with the help of a large retailer in the US who has 500 stores in Mexico and can provide us with local information.

Walker How important has your international side been to the growth of your business?

Dorf It’s been critical for us. It’s now about 50 per cent of our business, whereas seven years ago it was about one per cent. It helped mitigate the risk when the world crisis hit us.

Reed We had the same issue, 73 per cent of our revenue is international, and the rest is in the UK. So we wouldn’t be here if we didn’t have our multinational sales. In 2008, our UK business dropped by 50 per cent in five weeks. That hurts.

Griffith-Jones We used to do about 40 per cent export. Last year, we did 58 per cent. And that’s been through tempered growth.

Walker Where is the growth going to be for your business in the next three to five years?

Simon Duffy For skincare, Asia is our focus. Over 70 per cent of the value of the market is in six countries with South Korea, China and Japan accounting for about two-thirds of the market. South Korea is the number one market by a long way.

Haynes It’s very industry-specific, isn’t it? But for us there are various elements that are combining to make growth in the future a very exciting proposition and that is partly the growth in the delivery of digital information. We already produce digital information for the professional market in 23 languages and looking to the future, we will follow car sales figures, so that means Brazil and China.

Griffith-Jones The growing market for us is Asia – our largest export market is Japan, then Hong Kong. They want high-brand British goods out there so there is huge potential.

Fitzpatrick It’s not always just countries: you may have a product that can be used slightly differently to its use in the UK. For example, we manufacture a range of smoke [dampers] which are used in hotels and hospitals here, but they are strong in Italy and Sweden for the luxury yacht market.

Dorf North America. Some of the established markets are still probably our primary focus but it’s only a matter of time until the emerging markets start to become more engaging.

Maguire We’re seeing an emerging trend for investment in the Middle East and in Russia which, for me, is an indicator of where the opportunities are going to arise.

Walker Finally, please can I ask, what are the barriers that still worry you?

Reed The hardest thing is finding a place which is a one-stop shop for all the information. You’ve got to either go to UKTI or do your own local research – and for that you’ve got to go everywhere. And the contractual stuff is just a pain.

Griffith-Jones I agree entirely with that point. There are so many different organisations – it is time-consuming. And although we have had assistance from UKTI, that grant is only for the first trade show – it would be good if there were some supplementary grants as it takes three or four visits to establish yourself in a market. The Britain is Great campaign has really helped international trade for British-made products though. That’s been a real bonus.

Reed But nobody knows here in the UK that that’s been running! It’s another classic secret campaign.

Walker That is interesting. I’m having breakfast with the prime minister tomorrow, so I will make that a specific point. Thank you all so much, it’s been a fascinating morning.

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About author

Simon Walker

Simon Walker

Simon Walker served as director general of the IoD from September 2011 until January 2017, having enjoyed a career spanning business, politics and public service. From 2007 to 2011 he was chief executive of the BVCA, the organisation that represents British private equity and venture capital. Walker has previously held senior roles at 10 Downing Street, Buckingham Palace, British Airways and Reuters.

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