31 May How to grow your business through international trade
Pursuing international markets provides huge opportunity for growth for UK businesses. However, with it comes a certain amount of risk – although this can be offset by developing a comprehensive research and development strategy. Here we look at the benefits of international trade, what businesses must consider and also some tips for success in international trade for your business.
The current situation
Thanks to the UK Government’s drive to increase exports, there is now an unprecedented amount of information available for those businesses looking to take the next step. With pledges to double UK exports to £1tn per year by 2020 and the UKTI’s National Export Challenge aiming to get 100,000 more businesses exporting by the same year, driving the growth of Britain’s SMEs through international trade is a key focus for the Government, and is seen as crucial to improving the deficit.
“Exporting not only helps individual companies to grow but also plays an important role in improving our trade balance.” – Crispin Simon, Acting Chief Executive, UK Trade & Investment
These are tough targets. Exports would need to increase by around 9% year on year to achieve the Government’s aspirations. To put this into perspective, the highest export growth rate in prosperous years so far has been around 5%. Yet despite these figures being challenging, the market is out there, and opportunities for UK SMEs looking to grow internationally are huge.
The benefits of international trade
“Firms who choose to export become 34 per cent more productive in their first year while those already exporting achieve 59 per cent faster productivity growth than non-exporters.” – Crispin Simon
Pursuing international trade provides a great many benefits for businesses that are well-prepared, including:
Innovation – Many businesses find that they develop or modify their products or services due to exporting to new overseas markets, and 78% of UKTI trade clients say exporting gives them exposure to new ideas.
Increased sales/profits – 85% of UKTI trade clients say exporting leads to a ‘level of growth not otherwise possible’.
Increased market share – Raising your profile above that of your competitors through exposure to new markets.
More efficiencies, less waste – Increasing your market overseas allows for economies of scale, lower production costs (especially if manufacturing is done overseas), and often increases the commercial lifespan of products and services. And surplus stock can often be sold abroad if required too.
Minimise risk – Increasing your exposure to large untapped markets with more variation in demand cycles allows for smoother seasonal peaks and troughs, and risk from economic downturns or new competitors can be spread.
According to UKTI research, once a company has ‘dipped their toe’ into a new market, this in turn tends to increase confidence and ambition and provides the momentum for further growth through exporting.
Things to consider
So with all these benefits there for the taking, what’s preventing UK SMEs from making the leap to international trade? According to the same UKTI research, 64 per cent of firms experience significant barriers to entering new overseas markets, with the following being the most common:
Legal and regulatory barriers – 43%
Custom barriers – 27%
Lack of contacts – 25%
Language and cultural barriers – 17%
Lack of resources – 15%
A bias towards domestic providers – 15%
Lack of information – 14%
With these issues in mind, it’s important to consider the following when deciding whether to grow your business overseas:
Legalities – From legislation around safety and security, advertising, VAT rules, duty & customs, insurance, and intellectual property (if licensing or franchising), it’s crucial to fully understand what the legalities are around trading in your target market. The UKTI’s ‘Exporting is Great’ website has a lot of useful information to help you get started.
Logistics – However you decide to do business overseas, you need to consider the logistics. You’ll need the right local partnerships and the right delivery and distribution network. Will local offices work best for your business, or will you use export agents or overseas distributors? How will you ensure services levels are met? How will you manage installation, payment and aftersales? Goods delayed in customs for example will really hurt your reputation for reliability. You need to understand the customs, trade and shipping laws specific to your product or service.
Competition – In order to succeed in a new, overseas market, you may need to rethink your offering. Will your product need modifying to cater to the market demand? You’ll need to compete against local suppliers and other international competitors on quality, service and price.
Culture – To resonate with your new target audience, you’ll need to adopt the right messaging through the right channels, the right language, and even adopt the correct cultural sales processes.
Resources – Do you have the necessary raw materials, machinery, staff, cash flow and working capital for scaling to meet the demand? International consignments are usually larger, lead times are longer and the risks are more difficult to control. Having the flexibility of extra working capital really helps here.
Top tips for exporting
There are some important steps you can take to minimise risk and maximise opportunity when exploring overseas:
Keep it simple – Try not to pursue potential customers in overly-complicated, large and non-transparent markets.
Do your research – Spend time and money on learning the activities and issues around international trade. From visiting your target market to immerse yourself in the culture, to training on logistics and legalities like incoterms, letters of credit and customs laws, you need to put in the planning beforehand. You can even commission research specific to your business opportunities to help focus your approach and thinking.
Create the right partnerships – If you’re looking to make an impact and compete in an overseas market, you’ll likely need a network of agents, distributors, or local partners. With nearly half of international traders using them to sell abroad, finding the good ones will be the difference between success and failure.
For shipping, partnering with freight forwarders who oversee the distribution, packing, documentation and custom clearance for you can help remove a lot of the hassle. Check out the British International Freight Association (BIFA) for details.
Have a cash flow strategy– Make sure you have the necessary working capital to finance the expansion. You not only need enough capital to make the initial investment, but you also should have a long-term financial plan in place. Incorporating a flexible working capital facility that enables you to offset unexpected expenses will help smooth the process. Pay4’s pre-approved rolling credit facility is ideal for exporting businesses, allowing you to keep a healthy stock level and enter new markets with confidence in your ability to meet new demand.
Be vigilant on tax To pay the correct tax and remain compliant, you’ll need to have a commodity code for the goods you’re exporting. You can find these using the online international Trade Tariff tool on the Government’s website
Utilise technology – Adapt or update your website to connect with your new audience. Get a country specific domain (e.g. www.company.fr) to improve your search engine ranking, and make sure your content is translated well (you can find translators on websites such as Upwork.com.
Ecommerce is the fastest growing retail market in Europe, so also make sure your ecommerce site allows multiple currencies and overseas shipping. Many businesses use online marketplaces to sell directly to consumers, so make sure you’re using the right ones for your country. The same with social media sites.
Ensuring you have everything in place to successfully go global means having the resource strength to support and sustain that move. Including a flexible, growth-focused working capital facility in your financial strategy will help to maintain the cash flow stability required to create and maintain a successful market presence.