While UK-based small and medium sized enterprises (SMEs) want to access opportunities in emerging and growth economies, they remain dependent on the European Union, which suggests that SMEs could be disproportionately affected if Britain votes to leave the EU in the upcoming referendum, according to the UK’s RSA.
RSA based this interpretation on a study it published called “The New Internationals*,” which reveals that UK-based SMEs are EU-dependent, with over four-fifths (82 percent) seeing European markets as important to their future growth (52 percent say they are very important), with 24 percent describing themselves as a European business.
More than half (56 percent) of SMEs complain that uncertainty around the EU referendum is already holding back their growth, while 55 percent say that the government is not supportive in dealing with the possibility of “Brexit,” (if Britain exits the EU).
The RSA report went on to say that 66 percent of SMEs are calling for greater clarity now on the UK’s future role in Europe.
Small Firms with Global Ambitions
Three-quarters (74 percent) of SMEs believe the perception that small businesses are local by default is outdated and damaging, with the same proportion saying that international growth is important to their business. Nearly nine in ten (88 percent) stated that international growth is increasingly important to SMEs as a whole.
Four in five SMEs believe that accessing new markets is important to their business (47 percent very important), with the same proportion stating that accessing new customer bases in emerging markets is critical. SMEs consider North America (67 percent) their most important market opportunity, followed by Asia Pacific (61 percent), the Middle East (59 percent), South America (58 percent) and Africa (54 percent).
Barriers to Global Growth
But while 85 percent of small business leaders believe SMEs are more globally minded than ever before, the export potential of SMEs is bounded by the EU – with 72 percent of UK SMEs struggling to export beyond EU borders.
RSA’s The New Internationals study, which was originally released in October 2015, reveals major barriers to seizing global growth opportunities, particularly outside of the EU, including red tape (62 percent), lack of funding (58 percent), lack of access to information (53 percent) and their own lack of international experience (61 percent).
Three-quarters of SMEs say that there is less support available when exporting to emerging economies, despite the considerable growth opportunities they present.
Tellingly, RSA said, the study reveals a major disconnect between government-led initiatives to boost exporting, such as plans to double exports to £1 trillion per year by 2020, with four in five SMEs stating the government must do more to champion small exporters.
Seven in ten (71 percent) SMEs call for the UK government to help relax controls in emerging markets to encourage free trade, while three-quarters (74 percent) say less red tape on exports would help SMEs to grow internationally.
“The UK’s SMEs are stuck in the gravitational pull of the EU. Current government export support isn’t working for our smaller businesses, who are struggling to trade beyond Europe,” commented David Swigciski, SME director at RSA.
“Not only are our SMEs missing out on growth markets, they face significant risk from uncertainty over a possible Brexit and our future relationship with Europe,” he said.
Tips for Global SMEs
RSA provided tips to create successful export businesses for SMEs in the UK and anywhere in the world:
- Expand. Expand your network by speaking to as many SMEs, trade bodies and associations about your ambitions as you can, and attend relevant support and information groups, seminars and events – both online and in your region. Don’t forget that importers looking to do business in the UK can be a great source of advice about doing business in their own home market.
- X-Change. Exchange ideas with others to inspire new ways of achieving your ambitions. You can learn a lot from other people’s successes and failures. Identify peers and leaders who have been successful in your chosen market and ask them to become mentors or informal advisors to your business – a couple of hours with someone who has done it before can help make your plans much more realistic.
- Protect. As your business grows, your risk profile changes so you need to know what your new risks are and how to manage and mitigate them. Speak to a specialist insurance broker or insurer about your growth ambitions, and work together on creating a global risk management plan to help you protect your business and your personal liability, at home and abroad.
- Observe. Observe different cultures and customs, and make sure that you understand how business is done in different markets. This covers everything from national and religious holidays to special requirements for foreign businesses setting up there, and less familiar risks like bribery and corruption, IP infringement, employee safety and environmental risk. Remember that cultural differences can be just as important as financial and regulatory compliance.
- Resilience. Be prepared to staying in your chosen market for the long haul. Finding good customers and partners can take time, and walking away too early could mean losing your investment and missing out on big opportunities. Consider how you can finance your plan over the medium to long term, and how you can ensure your core business remains successful while you pursue ventures elsewhere.
- Trust. Trust your instincts – if something doesn’t feel right, go back and look at it again and seek advice until you’re happy that you’re heading in the right direction. It’s important that you know your international business as well as your business at home, so don’t be afraid to ask basic questions. Likewise, work with an insurance broker to protect your business against as many risks as possible – you only want to take the risks that will help you to reap rewards.
* The New International’s study is based on interviews conducted between June and July 2015 by Opinion Matters, with 1,002 SME owners and leaders in UK companies, sized between 10 and 150 employees. Although originally released in October 2015, RSA published its latest interpretations about the study on Feb. 8, 2016.