MT EXPERT: Energise your exports

Mid-sized companies need to export more to emerging economies and the government should help, says Grant Thornton CEO Scott Barnes.

by Scott Barnes
Last Updated: 14 Feb 2014

The UK’s mid-sized businesses are fast proving themselves to be the dynamo of the economy. What many people don’t know is that firms with a turnover of £10-100m represent just 1% of companies but make up 22% of revenue and account for 16% of jobs.

If these companies were to reach their full potential, the CBI estimates they could unlock a further £50bn of output by 2020, eye-watering figures that bode well for our economy as a whole.

This is all well and good, but how can businesses step on the gas and reach their full potential? A natural place to begin is to increase exports. Only 17% of UK mid-sized businesses generated revenues outside of Europe, compared to 25% in Germany and 30% in Italy, so it seems clear that we are missing a trick.

Our own research, conducted by the Centre for Economics and Business Research, shows that of those businesses that export or are looking to do so, the vast majority of these are focused on North America and western Europe. They’re neglecting the opportunity of higher-growth emerging markets – in large part due to uncertainty over culture, lack of contacts and a need for advice. But there should be no excuses. As Thomas Edison said, we often miss an opportunity because it’s dressed in overalls and looks like work.

Many companies, and arguably the UK government itself, can be accused of being too concerned with short-term opportunities. We need to do more to help mid-sized businesses take a longer-term view - a planned approach to exports as well as tax breaks could help. It’s hard to encourage a long-term view while the committed mid-sized company continues to pay more tax than the short-term serial business starter who benefits from entrepreneur's relief. I’m afraid to say here that short term gratification could potentially lead to long term pain.

We all know that a business is nothing without its people, and our research highlights that access to talent, including highly skilled overseas staff who offer knowledge and insight into export markets, is one of the main barriers for growth for mid-sized businesses. The government wants to reduce net migration to ‘the tens of thousands’ but it is not a numbers game. I think quality over quantity needs to take priority here. We need feasible, targeted immigration that supports international talent and growth and we need to act fast.

From conversations with mid-market companies, we know there are a number of core areas that businesses need to think about when looking to move into higher-growth export markets. Considering the product itself is vital. The most successful companies are the ones that are able to build a global brand but tailor their product or service to suit the particular market. For example, in Kenya Weetabix has developed a distribution strategy to suit local consumption. Rather than selling the standard pack of 24 biscuits, the company uses a cycling sales force to deliver sachets containing two biscuits to small rural shops.

Gaining local knowledge is important too. For instance, some kind of reciprocal relationship with a local partner can be one of the quickest routes to gain valuable expertise in local business practices, not to mention the fastest route to market. However it is important to protect all intellectual property when entering into a joint venture and ensure your equity is structured carefully at the outset, as there is little flexibility once you commit. It’s better to avoid tying the knot rather than go through a protracted divorce.

And remember, a goal without a plan is just a wish. For mid-sized companies that can balance optimism with thorough preparation and careful execution, exports represent a significant opportunity for growth.  We should be doing all we can to drive up exports and unlock the UK’s business potential. Then, and only then, can we reap the resulting rewards.

- Scott Barnes is Grant Thornton’s UK CEO

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