Research by Capital Economics for UK Export Finance shows that companies with only domestic customers grow less than those that export abroad
With growing demand from overseas for British goods and services, UK companies should be capitalising on the opportunity to export. This is particularly the case with small to medium enterprises (SMEs) – the research shows that those which export outperform those which do not.
Out of more than 1,000 UK SMEs surveyed by YouGov for Capital Economics, businesses with purely domestic customers reported annual growth of 8.4% over the last 5 years whereas this increased to as much as 15.2% for those which export.
Furthermore, 42% of SMEs say that exporting has increased profits by up to 20% and almost 1 in 10 (9%) say it has increased profits by over 20%.
It is now estimated that 19% of SMEs believe they could export but do not. Across the UK, 60% of potential exporters cite access to finance as a key factor in their export plans. Late payments are the most critical issue with 63% citing it as a barrier to entry. Whilst 52% of payments are made at the point of supply, 45% of sales happen on credit.
This means that at any one-time SMEs are owed an average of £64,000 in late payments, with 11% owed between £100,000 and £250,000. The consequences of this can result in damaging ripple effects that have a greater impact on SMEs compared with larger businesses.
Commonly cited challenges resulting from late payments include cash flow issues (35%), delayed supplier payments (29%) and reduced profit performance (24%).
Other key challenges to potential SME exporters included difficulty managing exporting procedures and paperwork, the length of time it takes to get paid by foreign buyers and the risk of not being paid at all.
UKEF helps companies of all sizes overcome such issues. Last year alone, it supported over 250 businesses. From offering attractive financing terms to help businesses win contracts, to providing insurance to safeguard against financial risks, UKEF helps companies from all sectors to maximise the opportunities available in an international market.
Secretary of State for International Trade, Rt Hon. Liz Truss MP, said: “Finance is a key barrier coming between SMEs and their export potential. If small businesses were to export more, Britain would see even more stronger economic growth”. “In its centenary year, UKEF continues to enable companies from across the UK to expand their global reach by helping them succeed abroad. That’s why it is at the heart of my plan to get businesses ready to trade as we leave the EU.”
Louis Taylor, CEO of UK Export Finance, said: “The right finance and insurance can make all the difference for a company that is looking to sell overseas. There’s a wide range of specialist support on offer from both private sector providers and from UK Export Finance working with private sector providers, and we’re here to help UK companies access that support and realise their global ambitions.”
Awareness is an issue
58% of UK SMEs are not aware that trade finance exists. Instead, the majority rely on credit cards, hire purchase and government grants to fulfil their potential.
Despite this lack of awareness, 60% of potential exporters said a reasonably priced service that insures against customers who do not pay and lends capital whilst they await payment, would be useful. For SMEs that are refused support due to their lack of export experience, UKEF’s financial services can be invaluable.
Higher growth outside the EU
A recent study by the Centre for Economics and Business Research (CEBR) states that 13% of SMEs have turned to exporting due to saturation in their own markets which highlights the importance of international trade opportunities. When looking where to export, the majority of SMEs still favour the EU. Research shows that 79% of exporting SMEs export to EU (non-UK) countries whereas 67% export outside the EU.
Despite this, there is growing interest in markets outside Europe with survey data collected since 2010 showing that UK SME’s are exporting to Canada, South Africa, US and China at a faster rate than anywhere else in the world. Interestingly, research gathered by Capital Economics indicates that SMEs grow slightly faster if they are focused on markets outside the EU. SMEs that get more than a quarter of their revenue from non-EU exports are reporting growth of 12.9% per annum, compared to growth of 12.2% for those that focus on customers within the EU.
Small businesses benefits
The export potential for small businesses is greater than ever. The research indicates that small businesses (those with fewer than 50 employees) have benefitted from the fastest growth in revenue through exporting. Small businesses that export, grew their revenue by an average of 10.9% annually over the past five years, compared to average growth of 7.4% for those which did not export.
Since 2000, the number of UK small businesses has grown by 25% whereas in comparison, the number of large businesses (more than 250 employees) has grown by just 4%.
The export potential
By addressing some of the barriers that SMEs face around finance, the UK could increase its export levels, and in turn, economic growth. The overall ambition for the government is to raise exports as a percentage of GDP from 30% to 35%.
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