SMEs and global trade
New and small businesses are the "gatekeepers" for the UK's export ambitions
When it comes to overseas trade, 90 per cent of existing exporters are micro businesses. However only 10 per cent of micro businesses currently export.
So it’s no surprise that come 2020, the independent Office for Budget Responsibility expects the value of UK exports to be just £630bn, around a third lower than the government’s £1 trillion target. And the 100,000 additional businesses needed to hit this target, are not currently knocking at the door of the new Department for International Trade.
The Institute of Chartered Accountants in England and Wales (ICAEW) knows this because our 147,000 Chartered Accountant members speak regularly to small businesses about their exporting ambitions. Our members work in over 160 countries and here in the UK they advise over two million businesses.
Our research found that 69 per cent of businesses surveyed have never exported and have no plans to start. This may be more understandable when you consider challenges such as currency fluctuations, local regulations, recruitment of staff, securing payment and coping with corruption.
So the UK faces significant challenges but they are not insurmountable. Given there are over five million small businesses, raising the percentage of exporters by even a small amount will significantly increase the overall number of businesses exporting.
Small businesses are often unaware of the opportunities exporting can bring. That is why the value of exporting needs to be sold to them.
At the moment this is not coming through, particularly from government. ICAEW research found that 66 per cent of businesses surveyed were not aware of UK trade and Investment (now part of the Department for International Trade). Worse still is that for those who are aware, 87 per cent do not use their services.
“By 2020, the OBR expects the value of UK exports to be around a third lower than the government’s £1 trillion target”
So there needs to be a more joined up approach between central government and local business. Support services, such as Growth Hubs and Local Enterprise Partnerships, as well as Chartered Accountant advisers, can help raise awareness of opportunities and value of exporting for both businesses and policy makers.
Access to advice and overcoming risks
Expanding into global markets can be an especially daunting and risky proposition for a small business. So if we are to be successful, embedding export advice into business advice must be a priority.
We are not convinced however that the Department for International Trade is always best placed to provide that advice. Instead, a mix of trade bodies and experienced businesses may be better placed to cover the range of issues faced by different sectors in different countries. Chartered Accountants are also well placed to advise on how to make the most of exporting opportunities. This can range from market intelligence or access to supply chains to navigating bureaucracy.
Exporting often heralds significant expense and risk. This is why we need to re-balance the risk-reward ratio for small and medium-sized enterprises—and why ICAEW is proposing a system of export tax credits along the lines of the existing research and development tax credits.
Given the time, money and patience involved for many SMEs to establish themselves in a new country, it is reasonable to argue that this amounts to research and development, in much the same way as it does when a company is developing a new product.
This would, of course, incur some modest loss of tax revenue to the Treasury, though the regime could be tailored to ensure it targeted smaller businesses which would help to minimise the loss.
Embracing technology and innovation
Digital technologies and platforms are empowering entrepreneurs to think big.
As the world becomes smaller and national borders become invisible through developments in technology and transportation, the opportunities which exist for entrepreneurs are now global in scale from the outset.
If the government is serious about turning the UK into an exporting nation then taking advantage of the digital and e-commerce opportunities must be at the centre of any strategy. Increasing the number of dedicated digital trade advisers to assist in export planning, with real time advice on exporting opportunities, should no longer be an option but a given.
As the UK seeks to expand its exports to the world, concerns remain over the shape and long term strength of the economy, particularly in light of Brexit. With overall growth having been consistently faster than export growth, a stronger trade performance will be a key plank for a sustainable, balanced economy in the future.
On the 17th of January 2017, Prospect hosted a roundtable discussion with the contributors to: Brexit Britain: the trade challenge. This report is designed to act as a guide for parliamentarians, officials and businesses with a stake in the UK’s changing relationship with the world following Brexit. The discussion was chaired by Tom Clark, Editor of Prospect. Participants included Tasmina Ahmed-Sheikh MP, Miriam González and Vicky Pryce.
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