Member Article

Expanding through exporting: tips for growing through international trade

Exchange rate changes can have a big impact on UK businesses with an international footprint, and the recent unpredictability of FX rates has created challenges for many businesses. But even in more stable periods sterling continues to fluctuate.

American Express recently conducted research in partnership with East & Partners to explore how SMEs are reacting to this year’s FX volatility. It showed that while SMEs specialising in importing have seen their margins fall by an average of 13%, there is encouraging news for SMEs who export. These businesses are making the most of the weak pound and have reported increases in their margins at an average of 16%.

What’s more, of these SMEs already dealing in exports, 95% are planning to make the most of this growth by boosting exports even further over the next 12 months.

This data highlights a clear opportunity for SMEs. But with more than a quarter (27%) of SME businesses stating that currency volatility represents a risk to the future of their business, expanding abroad can be a daunting process.

So, what should businesses consider when dipping their toes in foreign waters for the first time? Although the challenges will vary depending on the product and country, there are several core precepts that will offer the best chance of success when exploring exports for the first time.

Do your homework

For any enterprise, the decision to begin exporting abroad is a big one. So spend time pinpointing exactly where the demand for your product lies.

A good starting point is considering where your fellow UK-based competitors already export to and what their success has been like in those countries or regions. Of course, if competitors are already highly successful, there is the risk that the opportunities for successful penetration are reduced. And if they are steering clear of particular countries, it may be a warning sign that customer demand simply isn’t there.

While online research will be key to exploring new opportunities, there isn’t anything quite like getting to know potential target countries and meeting new prospects first hand. In person research still matters, despite the myriad of valuable digital technologies available to establish new relationships and connections.

In addition to the time spent planning the where to export, it is equally important that time is spent planning how. The logistics of expanding abroad will mean dealing with new customers, regulations and possibly a new language. Your growth activity needs to be planned with care and backed up with solid data.

There are many organisations that can provide useful planning information, such as the Department for International Trade. It can also be advantageous to establish a relationship with the trade representative at the embassy of any country that you plan to export to. Such organisations can help you to ensure that your business plans are aligned with the needs of the locations under consideration.

Consider your access routes

The easiest and most cost-effective way to explore exporting to a new country or region is to begin by selling online. A strong digital presence is essential to easily access new areas and customers 24/7 - and will give you the opportunity to build a strong database of information that can inform your exporting strategy.

But selling online won’t be a viable option for all, and there are plenty of other options to consider. Businesses can test the waters by using local agents or distributors who will already be established in, and have knowledge of, a specific country or region. Alternatively, you could look to license or franchise your product overseas, allowing for swift set-up and lower risk. Businesses can also look to set up a division of their SME abroad, and sell directly to local customers.

Get to grips with international payments

Once you have chosen your preferred route to begin exporting, establishing good payment systems will help avoid future confusion. 26% of respondents in our research reported having cash flow issues from trading internationally – so this is of utmost importance.

Thankfully, there is now a wide choice of payment providers simplifying the process and who can offer support where required. For SMEs, which may not have a dedicated accounts department or finance officer, choosing a provider that can offer you an end-to-end solution may make the most commercial sense. They will be able to assist in taking payments and settling invoices with overseas clients without draining precious time from the business.

Payment providers such as American Express can also offer practical information to help devise a hedging strategy that works best for the company – minimising foreign exchange risk and protecting your margins from FX volatility. In particular, FX Forward Contracts help protect buyers from fluctuations in currency prices. However, our study found that the majority of SMEs (63%) aren’t using these to hedge their international payments – with 93% of those citing a lack of information as the reason why.

A lack of an established track record should be no barrier to considering expansion through export. With new trading relationships high on the agenda, ambition and careful planning will pay dividends and help fuel new growth.

This was posted in Bdaily's Members' News section by Jose Carvalho .