So much for the export-led recovery. Last week’s official trade statistics suggested the UK has been heading in the wrong direction for much of this year, with May’s deficit of £2.4bn up by £300m on April. At the beginning of 2013, the UK trade deficit was down below £2bn – now it is heading in the wrong direction once again, mostly because exports are struggling.
The Office for National Statistics does not provide a breakdown of what proportion of UK exports comes from small and medium-sized enterprises, but there’s plenty of evidence to suggest that SMEs are doing their best to at least try to tap new markets.
A report to be published today by venture capital firm Albion Ventures, which is based on interviews with 450 SMEs, reveals that more than half have tried to move into new markets over the past two years. On a UK-wide basis, that would suggest 2.5 million SMEs have tried their hand at exporting, or exporting to new countries. Many have been successful. The majority of these SMEs told Albion they hadn’t experienced major difficulties tapping into new markets.
In which case, why are the UK trade figures deteriorating? Well, one answer is that SMEs are only part of the picture and the data is heavily skewed by the export performance of the country’s largest companies. Equally, however, it is also clear that significant numbers of SMEs are still finding export markets harder to crack than they had hoped and expected.
In the Albion study, SMEs that did have problems cited some familiar challenges they had faced: these included lack of demand, excessive competition and difficulties accessing the finance and expertise needed.
The first two problems go hand-in-hand with part of the third one, for had many of these SMEs had greater expertise, they might have spotted that demand or competition were going to be issues before they began targeting the markets in question.
There’s no reason for SMEs to go short on expertise or finance if they have a genuine opportunity to step up their exporting. The resources on offer from agencies such as UK Trade and Investment and the UK Export Finance Scheme offer both. It may be that some SMEs don’t know where to find these services. But it is also possible that many businesses have been put off by the disproportionate emphasis often placed on the importance of high-growth markets in far-flung regions to would-be exporters.
It has become fashionable of late to urge British companies to look beyond the struggling eurozone as they target new markets, yet for all its problems, continental Europe remains the best export opportunity for many – particularly SMEs that are new to selling overseas. In fact, one of the most disappointing aspects of the latest trade figures is that they show that exports to many of our key European Union partners have been falling this year.
Developing markets such as the Bric economies may be posting much faster growth rates than the eurozone but for many first-time exporters they represent a daunting prospect. These markets are large and diverse, there are cultural and language barriers, and exporters must deal with unfamiliar tax and regulatory systems.
The focus on these fast-growth areas has not helped those companies that would feel much more comfortable selling closer to home.
Small steps are important when you’re learning to do something. And for exporters, selling into markets such as Ireland and Germany are exactly that compared with the giant leap of a move into Brazil, India or China. The eurozone may indeed be struggling, but it’s our nearest source of customers, and SMEs need to be given as much encouragement to target these markets as when it comes to more glamorous economies.
Government initiatives go up in smoke
Successive governments have offered a raft of new initiatives to help small firms starved of credit since the onset of the financial crisis. But the problem with this piecemeal approach is that as each new initiative has arrived, the previous ones have started to wither on the vine.
So it is proving with the Enterprise Finance Guarantee, launched in 2009. Under this scheme, the Government underwrites loans taken out by small firms from lenders like banks, which should make them more willing to lend.
Analysis from Syscap, a specialist lender to small firms, shows that just £66.3m was lent under the scheme during the first quarter, the lowest amount since its launch. The initiative seems to have been overshadowed by the Funding for Lending scheme, even though that has been more successful at opening up the mortgage market than helping SMEs.
Too much information: firms fatalistic on breaches
Is your business properly protected against the danger of data loss? If not, you’re not alone: new research, based on over 600 small and medium-sized enterprises across Europe, suggests many take the view that their sensitive information is so hard to protect that they have no choice but to live with the risk of a breach. Such failures are rising at a rate of 50 per cent a year.
A survey by PwC and the information management firm Iron Mountain reveals that only 45 per cent of SMEs have an information-risk strategy in place, while 47 per cent say their directors do not see data protection as a big issue; 54 per cent say the pace of information change is so rapid that they have no chance of keeping up with it.
However, Claire Reid, a risk assurance partner at PwC, said SMEs couldn’t afford just to opt out. “Businesses must embrace a new way of thinking in which information security is both a means to protect data and an opportunity to create value for the business,” she said. “[Our research] suggests many firms still have a long way to go.”
Small Business Woman of the Week: Joanne Napier, founder, Linen Loft at Home
I have a very corporate background, having worked for Mars and Nestlé before doing an MBA and going into management consultancy. But when I had children I didn’t want to go back to that field.
“I was frustrated about the number of women I met with talent and experience who weren’t working because they couldn’t find something that was both fulfilling and flexible enough to fit around their families. I thought about what I was really interested in – my passion is home furnishings – and how I could turn that into a business.
“We use a social selling model – our home stylists run parties where women can get together for a drink, a chat and look at the range of products we offer, from luxury bed linen to children’s toys. They earn up to 25 per cent commission on what they sell and we provide the stock, as well as ongoing business support. This approach is ideal for our products, which are really sensory but always sold in plastic parcels by the big retailers.
“The average commission from a party is £125, but sales have been more than £2,600. You can fit your career around your family – that’s why it’s attractive to me.