April 2012 - Private sector must do more for SME exporters
Reproduced by kind permission of South East Business magazine
Companies which want to grow their business and improve their profit in future must look outside the UK.
“The UK and European markets are going to look quite dreary over the next five to 10 years, and businesses should look way beyond their traditional markets for improved profits and growth,” said Linda Penny, from chartered accountants Wilkins Kennedy, during a round table organised by Wilkins Kennedy in collaboration with South East Business magazine at the Hilton Hotel in Cobham, Surrey.
The government can help through its export agency, UK Trade and Investment (UKTI), but Ms Penny said a lot of SMEs have difficulty accessing UKTI. “That is partly because UKTI have a policy of cherry picking,” Ms Penny said. “They will only work with those that they think are winners, and so the criteria are quite closely set in reality. Certainly for the SMEs I speak to, that is quite a stumbling block.” SMEs need a service which gives them a lot more hand holding, she added.
Mark Garrity, international commercial manager at HSBC Bank, said UKTI mentors accepted that they are one of the UK’s best kept secrets. “I have seen a drive by them recently at a number of events to get out and put on more seminars about helping small businesses to start exporting.” Given the difficulties in the eurozone, Mr Garrity said the UK must look further afield to some of the emerging markets for exports. “They can be difficult because they are much further away and being dealt with at arms length.”
Towards the end of last year, the government began a big drive for an export led recovery spearheaded by Lord Green, the trade minister. “The government has put a fair chunk of resource into that,” said Jeremy Newman from Wilkins Kennedy. “I think a lot of this has been the government effectively outsourcing to professional advisers who go and grab their clients warmly by the throat and say ‘if you want to grow, the UK and most of Europe is pretty stagnant, so you are going to have to sort your game out and look much further afield.’ Brazil, Russia, India and China are fairly obvious as targets, but there are other areas where you may find, depending on the business, that there is a much easier market to enter into without heading straight for China or trying to do business in Russia.”
Dr Kegang Wu, chief China adviser to the British Chambers of Commerce (BCC) and executive director of LinkToChina, said the recent improvement in UK exports was partly due to the devaluation of the pound against some other currencies such as the Chinese yuan as well as increasing demand from emerging markets. “UK exports to China have increased by 20% a year for the last few years. Some sectors which traditionally have not done much in China have suddenly become star performers – such as designers, architects and service companies.”
If the UK is to grow in the future, Dr Wu said it would have to connect with overseas markets which traditionally have not been seen as a target, such as China, Russia, Brazil and India. He disagreed with Mr Garrity that UKTI was the best kept secret because every Chinese government trade and investment agency is familiar with UKTI. “When you talk to companies, they don’t know UKTI – but that is because UKTI is effectively a government agency which is supposed to intervene in markets where there is a weakness.” UKTI has 400 international trade advisers across the country.
Dr Wu asked what the role of UKTI should be compared to the private sector in accessing international markets. “My answer is that the private sector should do more collectively for international trade and exports – and that is very close to my heart because I spent 12 years working with SMEs in this country and China, and there is a big gap between what is being provided and what is required by those companies.” In the newer markets, SMEs don’t have enough knowledge, they are unfamiliar with the culture – and tasks such as finding an interpreter and booking a local train ticket can be challenging. China’s market is about the size of western Europe, and UKTI has four offices covering it. “So there is very little they can do,” Dr Wu said. He called on the private sector to support the efforts of UKTI and help SMEs which want to export to emerging markets.
German, French, Italian and Spanish SMEs operating in China may not match their UK counterparts’ performance individually. “But collectively, that is not necessarily the case.”
David Birch, a director of Consult Hyperion, an information technology management consultancy based in Guildford, said he had not worked in China, but he had done so in Singapore and Hong Kong. “Last year we worked in Russia. How do you get work in Russia? By getting on a ‘plane and going to Russia. You don’t fill out UKTI forms.”
SMEs on the Surrey Research Park in Guildford have adopted other strategies to trade overseas, said Dr Malcolm Parry, the park’s director. “One company, Stingray, developed technology which came out of the defence sector and was put to civilian use by using lasers for oil well assessment. They could not reach international markets, so they found a partner in a Norwegian oil services company who they sold themselves to. That company now exports Stingray’s service, and Stingray no longer exists because it is part of this London based Norwegian group.”
Another company, ANGLE Technology – who are also based on the park - have done something similar, said Dr Parry. “They have teamed up with a large supplier of in vitro fertilisation clinics to sell their product. This is done by connections and networks, and I think a particularly important network is venture capital (VC) or private equity finance. If you can get someone in the US with a good connection to a market there to invest in a small UK company, you can attack that market with the right clout.”
Mr Birch said the UK did not really have a VC market in the same way as the US does. “London is a management buyout market,” he said. “What they are looking for is teams in large companies to buy into smaller companies. The wild west VC does not exist in the UK, and it is not part of our culture.”
Consult Hyperion is a professional services firm rather than a manufacturer, said Mr Birch, but nonetheless he thought the internet, blogs and websites were having far more impact on exports than UKTI or organisations such as BCC. “You can demonstrate expertise in a way that you could not have done ten years ago, because then if you wanted to show you were the world’s biggest expert in widgets, you had to take out adverts at trade shows and put things up at airports. Now you don’t – you just have to write the best blog on widgets. I think things have tipped in SME’s favour because of the way in which the technology works”
Chaz Brooks, managing director of Chaz Brooks Communications in Guildford, said the internet had made the world smaller, which gave English companies a tremendous advantage. “English is still the international business language. A website or a blog in English is a big advantage.” Chaz Brooks had a client inquiry a few years ago via the internet from a Dutch company which Mr Brooks said he would never have thought of targeting before. “He then became a good client of ours.”
Consult Hyperion won a contract from the Italian Banking Association in Milan to do some work on contactless cards and develop the Italian version of the relevant standards. “Five years ago, we would not even have been on a UKTI list for that project. The reason we are in that work is because the association goes (on the internet) and looks on a list to see who knows the most about this. Ten years ago, that work would not even have gone outside Milan, let alone Italy.”
The internet gives SMEs the tools to be more successful, but businesses should not bury their heads in the sand, Mr Birch added. Chinese is likely to be the dominant language on the internet in the future, and Consult Hyperion is already employing a Chinese national.
But Dr Wu said Mr Birch’s remarks would not necessarily hold true for manufacturing firms. Mr Birch’s comments were valid for the European or US markets with a shared culture and language, Dr Wu continued, but if an SME was going down the partnership route suggested by Dr Parry to gain a foothold in the Chinese market, the internet alone would not be sufficient. “In China, you build friendships before you do business. SMEs using the internet alone will lose a lot of opportunities.”
If you would like to found out more about Wilkins Kennedy Round Table discussions, or to inquire about becoming a panelist, then please contact Claire Peers.
