The issue: What are the barriers to exporting to non-traditional countries and how can we assist businesses to overcome them?
While the North East prides itself on its positive trade balance, many businesses here have yet to taste overseas success. At the same time, others in the region want more of it, having already sampled the riches of a foreign land. BQ brought together a diverse group of business leaders and export champions with the aim of plotting new routes into new markets for North East firms – and overcoming the many barriers towering over their borders.
Here’s how the evening played out:
Caroline Theobald: “Before we can volunteer some solutions, what are the perceived barriers to exporting among small businesses?”
Simon Hanson, who explained that Federation of Small Businesses (FSB) members were often deterred from exporting because they view it as something for large corporations only, said: “Firstly it is access to finance. Some of the schemes that have been introduced don’t help the small business. Take the UK Export Finance guarantee [which supports exporters of goods and services], for example. It’s a great scheme but we’ve been told many of our members can’t get access to it. With 99% of businesses in the region being small or micro – that’s 131,000 businesses – it would be great if we could crack that nut. There is also a fear among our members about late payments in overseas markets.”
Such barriers did not stop Eldon Jobe’s relatively young firm – which provides software for the recruitment industry – from breaking into a number of overseas markets including Australia, Hong Kong and even Mongolia.
He said the company’s focus on search engine optimisation (SEO) played a crucial role in its global success. He added some practical advice to growing an online presence which sells.
“If your company supplies ‘X’ and you put out a statement about it, you can use software that will build 10,000 different ways of saying that. And suddenly you’ve got an American guy purchasing recruitment software from you. What’s worked well for us is that we’ve put images and movies on the website. Basically we’ve knocked down a barrier, and all those customers can now find us.”
Nigel King, whose business makes small unmanned airborne systems for imaging and surveying usage, said: “Finance wasn’t an issue for me as I started off with £20,000 and just decided I wasn’t going to borrow a penny and I’m going to stay that way. We’re now turning over about a third of a million in our second year without having borrowed anything. But the concern for us going out to export would be getting paid, being a small company with no larger company behind us to bully beef.”
Eldon Jobe: “We refuse to do any work for anyone unless they pay us upfront. When we started the business people said no-one would do that but I just stuck to my guns. And now they have to pay because they’re already down the line and want the software.”
Nigel King, who at the time of writing was on the verge of a one-man trade mission to Nigeria, added: “We do 50% on delivery, 50% on order and other alternatives to that are universities which tend to give purchase orders.”
Joe Telford, whose business develops productivity-based collaborative web applications, said: “We’re pretty much the same as Eldon. As soon as we get the first payment we turn the software on for them.”
Caroline Theobald: “Doesn’t that approach take guts as a small company?”
Simon Hanson: “It is about having guts as a leader and also realising that it’s not a panacea and you can’t just jump into another market because the UK is flat and expect it to pick up quickly. It is a slow burner.
Jarrett Palmer, of Aesica Pharmaceuticals – which has a presence in Newcastle and Cramlington, not to mention Italy, Germany, North America and Asia – said: “We have a way of dealing with the security of getting paid and that’s through a letter of credit. We’ve been forced down that path with places like India, for example, where we physically cannot ship unless we can prove there’s a letter of credit approved by government and that’s a legal way of getting paid.”
Marie Willson: “With issues like this, it’s really valuable for businesses to learn from other businesses and overcome some of the perceptions.”
She added that companies with finance-related issues can tap into support through UKTI and its sister body Export Finance’s financial advisers. “We’re looking to find solutions to those problems.”
Pat Dellow: “But while it would work with Eldon and Joe’s businesses to say you have to pay upfront, that isn’t going to work with the majority of businesses. So how can they make certain they get paid? That’s priority for most businesses.”
Eldon Jobe: “Businesses should definitely try it though. A lot of people don’t believe it’s going to happen or that they’re going to be able to do it. But if you tell them ‘that’s just the way it is’ they may be surprised instead of being scared to try it.”
Comparing Eldon’s three-year-old firm and Joe’s 20+ years of trading - and their mutual exporting success – Caroline Theobald concluded that length of time in business is perhaps irrelevant to overseas achievements. One crucial aspect, however, as highlighted by Nigel King, is the quality of a product or service. And according to Marie Willson this can dictate the markets targeted by small businesses. “There may be markets that are perhaps easier to get into for certain products,” she said.
Returning to the issue of chasing payments abroad, Dr Hamid Seddighi said: “Micro businesses have less than five people working for them. And so their attention is on product development, not on finance, or managing accounts. They are creative people and they want to improve their innovative activity. So that’s where I think UKTI can be helpful in helping micro businesses manage their finances. It’s not just financial help that micro businesses need, they need management, business and contacts. So you are enabling people in the business to do what they are good at. Their needs are very different from much larger businesses.”
Marie Willson: “There are a host of other organisations that provide business support in different areas that may be required. So for us it’s increasingly important to have the awareness amongst our advisers of the other support services that are available.”
Eldon Jobe: “Another solution for access to finance [in relation to exporting] is venture capital, which a lot of companies are scared to do because they don’t want to give their company up. But for a start-up business in the North East, there is access out there to venture capital, and it’s technically why we are based in the North East.”
Pat Dellow: “I believe there still needs to be more education around appropriate funding solutions. We need to be clear about which propositions are suitable for bank finance and which are more suitable for venture capital or a mixture of both - particularly in the start-up market where the risk is greater.”
Alastair MacColl, of multi-faceted business support company BE Group – which has contracts in several overseas markets - said: “When it comes to equity, things are changing in the North East. A number of sectors, like high value manufacturing, digital and new media, are becoming much more ready to talk about equity-based arrangements.”
Simon Hanson: “With venture capital, I think what a lot of small businesses don’t realise is that you do get some real good advice on the back of that investment, from the investors themselves and the mentors that can come into your business and say ‘it’s not just the cash you’re getting, it’s the advice and guidance, and the more we can encourage that the better.”
Alastair MacColl: “I think familiarity, or a lack of it, is a big issue and adds to the fear factor of exporting. A lot of businesses fall through opportunism in exporting rather than having any strategic plan and then they develop the strategy from there.”
He went on to underline the export opportunities linked to the North East’s universities: “We’ve got a group of universities in the region that are all exporting across a whole range of markets. And I think they are a great way to piggy back and find your way into international markets. We’ve found that it’s quite tough to find a new partner in a new market that you trust and that you’re willing to put your faith in. And we found that you do have to kiss a lot of frogs before you get the prince or princess you’re looking for. I think that’s a barrier – finding in-country partners - so we should be using organisations to take the pain out of some of that exploratory work.”
Andy Coticelli: “One of the key things when you look to export is cost. A number of groups have tested international markets by going online, like retailers. But partnering is another thing we have seen. I absolutely appreciate that you have to get the right partner. But the idea of joint venture doesn’t have to be setting up a legal entity, it can just be having an independent agent. Even in a joint venture arrangement, in some jurisdictions, actually having a legal entity with local investment is a requirement that helps you to bid for certain contracts. You can structure those arrangements so that there’s an ability to get out of them at a later date. So that’s a way of testing that market without having so much capital investment yourself.”
Jarrett Palmer: “Our partnerships are based on a contract manufacturing service so we take the pain out of it and do the hard bit, which is manufacturing the products. But then we also take the pain out of a lot of the peripheral supply chain. We use agents at the other end of the supply chain, where we have to import a raw material from another country. It’s just easier to do it with an agent because they take away the hassle and the pain from us. It simplifies the business.”
Andy Coticelli: “And as a contract manufacturing model, you don’t want to add any uncertainty or risk so having that flexibility is absolutely key for you.”
Jarrett Palmer: “There is a cost of using an agent but if you’re smart you can
pass that on to your customer.”
Joe Telford: “We have a network [of support], but not to do things on a daily basis for us, but rather to keep in touch with us and point us in the right direction and give us advice when we need it. That can be in a number of areas from sales and marketing down to finance.”
In building such networks of overseas market experts, what role can the region’s internationally-focused universities play.
Hamid Seddighi: “Universities are among the biggest exporters in terms of transferring knowledge to other countries. Given that we do have a lot of contacts within our communities, that can be used to improve the contacts position that businesses may have regarding customers in the export market. For example, at the moment we have eight Nigerian students doing PhDs here in manufacturing.
They are knowledgeable, they are mature students, they’ve worked in Nigeria and they know people. I wondered why we can’t use those contacts that we have within the community. They have a great deal they can tell you. They know about the culture, how to do business there etc. So the combination of the two things – businesses need support to export and you also need contacts – the university can provide both quite happily.
Andy Coticelli: “I presume those students are pretty well connected as well, which is great.”
Nigel King: “It would be great to access local knowledge very quickly from people that have lived there in the last few years who just know how it happens.”
Marie Willson: “We do have the commercial offices based in our embassies that do have that knowledge and can set up distributors, agents or give recommendations for a range of companies.”
Hamid Seddighi: “But it is the quickness [that the university] could offer. It’s a very quick, efficient channel.”
Marie Willson: “There are of course Knowledge Transfer Partnerships which encourage interaction between the universities and businesses. They are a structured programme".
Marie Willson:“But that’s a bit longer term. What would be useful is for someone to talk to before they go off somewhere at short notice.”: “That whole culture and language skills area is something that is particularly high up on our agenda at the moment. But also market visits, which can be very powerful in getting businesses together on cross cutting market visits where you get anecdotes from other experienced exporters. They are multi-sector so there is no sense that they are giving information to competitors if they share their advice.”
Eldon Jobe: “I went on a digital trade mission to America and it was very good, but the big thing I got from UKTI was telling me that ‘it can’t be done’ unless I got people on the ground. And then to do that they introduced me to very expensive law firms and accountancy firms. Whereas if we had mature students I could go and talk to, it would be a lot quicker and a valuable experience. And it’s a very different kind of information.”
Caroline Theobald: “There’s no substitute for market visits, but this could be a way of getting rid of the fear factor before you decide to go out there.”
Andy Coticelli: “With our firm, it’s about opening up our network. We’re not going to introduce you to someone in your industry who’ll tell you what it’s like to set up somewhere. But if we’ve got someone in a different industry – maybe CEO to CEO or purchasing director to purchasing director – then it’s amazing how open the conversation is when you get them in a room. I think it a case of sharing our network and some insights with clients we work with.”
Simon Hanson: “With our members it’s about putting them in a room with other business people. Some of them aren’t bothered about embassy receptions, they just want the local networks that we’ve got here. We know who’s in the room, we know what we want to sell, just introduce us to relevant people and we’ll sell it.”
Alastair MacColl: “I find it quite exciting that all these universities across the UK could help businesses access new markets because they are all really well linked to institutions in other markets who are in turn really well linked to the business community. It’s also a fabulous reverse route for inward investment as well. I think universities are an enormously underexploited resource to boost international trade.”
Simon Hanson: “It’s almost about coming up with a service like the legal one [a free legal clinic staffed by law students] at Northumbria but for exports where you’ve got international students to advise on their home markets.”
Customers can also help businesses grow their exporting prowess, as Jarrett Palmer explained: “What we find is that our customers educate us in terms of what needs to happen in exporting. Most of our business models are set up on an ex works supply contract so our customers tell us what needs to happen to export a product to their destination market. We then manufacture it and they organise all the transporting and everything else.”
Marie Willson: “It’s interesting to see examples of non-traditional routes into markets like that.”
Andy Coticelli: “It also gives you a sense of what your costs are going to be. Export duties are a very good example that you can go into China and get a 15% or 0% tax rate but if you’ve got issues on duties on the way in or out you can lose that benefit. So if your suppliers are going to take care of that position, then you can work out your margins from day one and it takes away that uncertainty.”
And such models that remove risks by outsourcing responsibilities to experts could be applied to other sectors as well as manufacturing. As an example,
Eldon Jobe explained how this idea works with software if it is bought in by a customer that then intends to oversee its usage by many more end users in another market. “They take over the service contract to an extent and then if it goes down, it’s not our fault,” he said.
At this point Alastair MacColl suggested that the idea of exporting perhaps needed to be demystified for businesses by exposing them to specific contract opportunities as opposed to general market overviews.
Marie Willson: “I think it’s also important to understand that through a supply chain you might get a smaller company providing a service or an offer to a company further down the line and one that does export. The commercial offices around the world do put something called ‘business opportunities’ on UKTI’s website and any business can actually register to have access to these business opportunities. That’s another route into identifying opportunities.”
A well timed plug for a potentially business-boosting event followed from Ken Cuthbert. The ExploreExport event, in Gateshead on 11 November gives businesspeople the opportunity to book 1-2-1 appointments with over 70 international commercial officers and hear presentations on key aspects of exporting [see exportweek.ukti.gov.uk for more].
Ken Cuthbert: “It could be the sort of event where a negative becomes a positive. You could see the officer from Colombia who tells you your product is not suited to that market – but that’s good for you to know as a business. And they might point you in the direction of a different market.”
Pat Dellow: “What our customers tell us they want most is to be connected with someone else who’s traded in that industry or country. If we can connect those people, that’s the best source for information.”
Then Caroline Theobald asked for ideas for actions that would ease the path into new markets for businesses on the part of government agencies.
Hamid Seddighi: “At university, to supervise students we have an experienced supervisor and an associate supervisor. I don’t see why you can’t have the same idea here. So an experienced exporter linked with a less experienced one.”
Jarrett Palmer: “One thing we have found challenging is exporting speciality products. We have export licenses which are heavily regulated and that’s particularly challenging and we’ve had to go through some really steep learning curves to find mechanisms to allow our supply chains to work.
“That information isn’t readily available and you have to try to find it yourself. You can’t just pick it off the shelf.”
Simon Hanson: “This is often mentioned as something that’s needed, but it’s that one-stop shop of support. It’s almost like we need something like the North East access to finance guide, where everybody points you in the direction of totally impartial, export support. It can be incredibly fragmented and we then struggle to know who’s doing what.”
Marie Willson: “In the North East we do have one single number that any business can contact and for any business our point of contact is the international trade advisor for that post code area. “We do also look to get our international trade advisors to understand what else is on offer on our programmes and we have monthly meetings to help address that.”
Pat Dellow: “One of the frustrating things for us, and I dare say for UKTI, is that we’ll organise an [export-related] event, we’ll publicise it and make it available for everybody – and take up is not where we would like it to be. What suggestions do you have to make these events more attractive and accessible to small businesses?”
Simon Hanson: “I think it’s a perception issue. Many small businesses think export is just for bigger companies and that’s why we need more examples of smaller firms that are exporting successfully.”
Joe Telford: “But also, the smaller the business the less time you have to spend working on the business.”
Caroline Theobald: So what advice can be offered to North East firms hoping to tap into non-traditional markets?
Eldon Jobe: “My advice is use Google and search engine optimisation (SEO). Someone commented to me recently about the amount we’re spending on SEO saying ‘surely you can’t be returning on your investment’. “But we are more than doing so. It’s a very worthwhile investment.”
Alastair MacColl: “We’ve done bits of work in the last year in Canada, Australia and the Baltic, for example, and on almost every occasion it’s been through an existing UK customer to do something with them in a market they were proactive in. “Or we’ve started to do something in this country and developed partnerships elsewhere.
“We’re at the stage now where we want to move away from opportunism and take a more considered look at how we develop the right kind of infrastructure.”
Nigel King: “Because of my website people found me and after a while I realised I had to listen to it. Having sent out as much as we can as cheaply as we can, it’s come back.
Simon Hanson: “What our members forget is that if you’ve got a website you can be a global business.“And so it is about that SEO to boost their presence.
“Maybe that’s something that UKTI could do to help small businesses.”
Marie Willson: “Social media and digital marketing in terms of promoting businesses is right up there on our list of priorities. I think there’s an issue that lots of businesses have internet but don’t actually use it for trading and that’s a huge missed opportunity. So that’s something we’re interested in.”
Andy Coticelli: “Twitter and social media in general is hugely powerful and that’s where you can find out about partners and new markets.
Seasoned exporter Joe Telford added two pieces of advice on cracking new markets. On SEO strategy, he said: “While Google has most of the western part of the world, in China there are other search engines and even places like Latvia have a preference to use their own and that’s the case in various other parts of the world. So if you were trying to get into China, Chinese don’t use Google and so a different approach is needed.”
And on general business management he explained: “You have to do business ethically because there are so many people out there that think the Brits are there to rip them off. I get a lot of that in dialogue in the States and in Australia.“But if you spend a bit of time sitting drinking beer with people, they will see you are ethical. You almost have to sell a change of mind to the countries you’re going into.”
Hamid Seddighi: “I think the solution is little changes, like bringing universities in more effectively, partnering between smaller and larger companies, treating smaller companies differently because their needs are different, and matching experienced with less experienced people. “These are the things that are going to make a difference.”