Faced with high inflation, rising interest rates and geopolitical uncertainty, many SMEs have been hunkering down rather than looking to grow. But, with the global supply chain crisis easing, perhaps they don’t need to wait for the domestic storm to pass to seek out success.
At the World Economic Forum’s annual meeting in Davos this year, leaders endorsed digitisation, international trade and the establishment of new supply chains as routes to resilience amid macroeconomic uncertainty. The time for timid growth strategies is over.
“If you have a flat or challenging market in a country of about 70 million people, there are still around 8 billion other people in the world,” says Antony Harvey, managing director of Royal Mail’s international business. “So why wouldn’t you open up your customer base?”
The biggest mistake that smaller businesses often make is not being open to international sales. If you test out some markets, you’ll find a great new profit line
Anglosphere countries such as the US, Canada and Australia have a huge number of customers that SMEs can tap into with relative ease. Ecommerce platforms, digital communication tools and regional free-trade pacts have also made it easier for smaller firms to access emerging markets. The International Monetary Fund forecasts that these will grow at more than twice the rate of developed ones in 2023.
Asia, for example, is home to the world’s largest consumer market, in terms of both population and expenditure.
“There’s a lot of affection for UK brands in Asia, especially among the middle classes,” Harvey notes. “In the Middle East – particularly in emirates such as Dubai – there’s also a large and growing expat community looking for a piece of home. Along with continuing investment and business growth, this makes it a good place to look for new customers.”
Although export sales might only account for a small percentage of orders for some SMEs, these can make a significant difference to their bottom lines.
“The biggest mistake that smaller businesses often make is not being open to international sales,” Harvey says. “If you test out some markets, you’ll find a great new profit line.”
He explains that this is partly because international customers have different purchasing habits. “They tend to make fewer orders than domestic customers, but buy more items at one time to make the most of the higher delivery costs relative to their domestic options.”
Cutting through the red tape
Despite all the opportunities that exporting presents, it’s not uncommon for SMEs to dismiss it as too much trouble, deterred by the extra paperwork and regulatory compliance risks.
“Granted, there are parts of the world where you’ll need to do your homework and look up the tax rules, prohibitions and restrictions,” Harvey says. But he adds that using exports to fuel growth may require less time and effort than many firms might think. This applies as much to exports to Europe as those to emerging economies.
The thorny question of when and where to start exporting has been made even thornier by uncertainty about the EU-sized elephant in the room. True, it’s no longer possible to simply apply some postage to an item in the UK and know that it will reach the recipient. But the information needed for customs purposes is relatively straightforward to obtain.
“At first glance, it looks like a lot,” Harvey says. “But it’s often the sort of data you’d use for your stock-keeping units, plus a little about your company and some recipient information.”
He also points out that, once the initial admin is done, businesses could reasonably expect plain sailing. “There are routes to market that might be easier than you’d think. You don’t have to create a new tax department. You may have to do a few minutes of research and set up your stock listings in the right way, but it’s relatively easy from that point.”
Trade tensions aside, the EU remains a crucial market for British businesses. Navigating this new relationship, along with engaging markets further afield, will be part and parcel of building a robust trade strategy.
Export support is on hand
The good news is there’s plenty of help available for SMEs that want to export. Hundreds of British firms have benefited from £6.5bn in support from UK Export Finance (UKEF) over the past year, enabling them to break into international markets and grow. Many of this government department’s SME customers were supported through its general export facility – a platform that gives smaller firms access to trade finance options up to £25m without the need for a specific export contract.
“Ministers want to link that up to the trade deals they’ve been doing,” Harvey says. “The government is really keen that the UK exports and improves its sales overseas.”
A recent report from the Social Market Foundation concluded that an additional 70,000 small businesses in the UK could be exporting to the rest of the world if they improved their ecommerce capabilities.
“If you’re an ecommerce exporter, everyone with an internet connection can find your product. Your choice is just how easy you make it to find you,” Harvey says. “This can include targeted marketing to key markets and reskinning your website to look local. At the other end of the spectrum, it can be just about ensuring that, if you’re listing on a marketplace, you’re ticking that box that lets items go overseas.”
Royal Mail is launching an international larger parcel and weight capability to help SMEs expand into new territories. The company’s goal in doing so is to “make it as easy as sending a domestic item”, he explains. “Anything you can put into our domestic pipeline, you’ll be able to put into our international pipeline, the idea being that people can sell far more of their inventory overseas.”
As well as giving SMEs the chance to improve their bottom lines, access to fast-growing economies can also improve their long-term resilience. As Harvey notes: “There is normally somewhere that’s growing and somewhere that’s shrinking. The broader your exposure to overseas markets, the more you stand to benefit from the growth areas, even if it’s not so busy at home.”
For more information on how Royal Mail can help you export with ease, visit royalmail.com/exportingmatters
