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Why SMEs should take the plunge in export markets

At a glance

  • Only a fifth of UK SMEs export their goods or services
  • It’s estimated that the world economy will have expanded by $20 trillion between 2010 and 2015
  • Zurich’s market-leading covers can help smooth the passage for SMEs who trade overseas

This article counts towards accumulating your annual CII CPD structured learning hours for SME Exporting.

By reading this article, and correctly answering the three questions underneath, you will have achieved the following learning outcome: Describe the most common risks faced by SME exporters.

Visit the CPD Hub to log in and begin accumulating CPD hours.

The UK is the world’s sixth largest trading nation overall, tenth when it comes to goods and second in services. And for good reason.

We speak the global language, share it with the largest market in the world – the US – have links with a vast former empire of growing economies – the Commonwealth – and have close ties with the European Union, one of the world’s richest economic areas.

And our opportunity as a nation to further our global trade is staggering. It’s estimated that the world economy will have expanded by $20 trillion between 2010 and 2015.

But here’s the puzzle. Just a fifth of UK SMEs export their goods or services compared to 25% in the EU. It’s a surprising British underachievement. The government estimates that increasing the number of British SMEs that sell overseas by 100,000 has the potential to add £30 billion to the economy, wiping out the UK trade deficit.

So what’s holding them back?

The fear of not getting paid, of what happens if goods are damaged or seized in transit or getting involved in other legal entanglements as well as the expense of researching and travelling to new markets are all reasons why company owners might hesitate. Small firms have also criticised the complexity and level of paperwork involved in complying with the 2011 Bribery Act.

Insurance issues relating to exports

  1. Credit Insurance: Credit risk is the main risk that an SME entering the export market would be faced with. This is the risk of the foreign customer not paying for the goods sent. There are many government-backed schemes to support companies in this area but few composite companies like Zurich that offer the cover.
  2. Public and products liability: This provides cover should any of the goods cause injury or damage within the territorial limits; quite often policies will exclude the US and Canada and if these countries are involved additional cover is required.
  3. Goods in transit: It is important to identify when the ownership of the goods changes so that the correct level of cover is arranged. Sometimes cover is only required until the goods are loaded on board a ship, others require the cover to the point of delivery to the customer’s premises. There are also several types of cover from a standard goods in transit policy to the more comprehensive marine transit. Zurich is able to offer all levels of cover.
  4. Business travel: If a customer is considering exporting they will inevitably be required to travel abroad. Business travel cover can provide all the standard travel covers from medical expenses to cancellation, loss of baggage etc. Zurich provides this cover. There are countries that would be an issue in terms of travel such as Iraq and Israeli occupied territories. Excluded countries should be checked to ensure cover is in place.
  5. All risks: As with all modern business these days, equipment such as laptops, tablets, iPads and mobile phones are used away from the premises. There are various levels of cover available, but generally these are UK, EU and worldwide.

But overcoming these hurdles and sensibly mitigating risk is not that hard, said Jim Bligh, head of exports policy at the CBI, a business lobby group. Sharing experiences, talking to other firms to gain insights and shortcuts to tapping new markets will help identify and mitigate the risks, says Bligh. The UK’s Chambers of Commerce and the CBI’s own M-Clubs, which connects medium-sized businesses, are both useful forums for ambitious SMEs.

Not going solo

Identifying partners so you don’t have to go it alone can also work, said Bligh. “Talk to your supply chain and your big clients about opportunities you can share with them,” he said. “UKTI [a UK government department working with businesses based in the UK to ensure their success in international markets] also offers an awful lot of free and useful services, yet 69% of businesses have never heard of it.”

Not exporting through fear of the unknown can be a risk in itself, warns Peter Hogarth, regional director for the East Midlands at UKTI. “Businesses which export are more innovative and resilient and getting paid from overseas is less risky often than getting paid over here and things like logistics are usually much easier than you first think,” he said.

UKTI’s Passport to Export scheme, designed to help new exporters or perhaps those who may have done a small amount of reactive exporting, is an ideal way to identify opportunities and minimise risk.

It helps businesses develop a 12-month action plan to help set achievable, realistic and measurable goals that don’t require too much finance, for example the first £100,000 in sales to the first export market. It can also help tackle non-English speaking markets with translation and help you optimise your web presence for overseas markets.

It will also introduce you to other services on offer. UKTI has offices in 111 countries staffed by Brits and local people and it’s their role to help UK firms sell goods and services by helping identify routes to market, usually at heavily subsidised rates.

First steps

UK businesses that start on their journey to exporting will soon realise what they have to offer and of the risks they run by not exporting, said Hogarth. “It should be the next step in business expansion and diversification in an increasingly globalised world,” he said. “Businesses that export are more resilient and more innovative.

We have a strong national brand and services, amazing innovations and manufactured goods. There’s no reason why the growing middle-class in China and India should not buy British products

Peter Hogarth, regional director for the East Midlands at UKTI

“We have a strong national brand and services, amazing innovations and manufactured goods. There’s no reason why the growing middle-class in China and India should not buy British products.”

It may be that UK SMEs need to rediscover a sense of adventure.

“Rupert Soames, the chief executive of Aggreko [a Glasgow-based power generation company], said his company has realised expansion through the drunken man approach: lean hard into every door and at one point you will fall into one,” said Bligh at the CBI. “I think there’s a lot to learn from that approach.”

Image © Getty

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