The world is closer than we think

The world is closer than we think

The issue: How can we help Scottish businesses to internationalise? What obstacles stand in their way and what support is available to overcome them?

Scotland AttendeesWith export volumes increasing and distinct opportunities in existing and emerging overseas markets for companies operating in all sectors, for many the time is ripe to explore and exploit these opportunities, and ensure that international trading features higher on their business’s agenda.

According to the Scottish Index of Manufactured Exports, published in October, export volumes rose by 3.5% in real terms during the second quarter of 2013 (April to June), the second consecutive quarter of positive growth. Certainly, the figures are encouraging and Scottish Development International (SDI), the international arm of Scottish Enterprise and Highlands & Islands Enterprise, is helping more Scottish companies than ever before branch into overseas trading markets.

Yet is there sufficient help and advice available? Last year, SDI worked with well over 2,000 companies to develop their international business – an increase of 52%, according to SDI’s annual results for 2012/13. Support included a range of trade and investment activities such as trade missions, workshops and in-market support. As part of this, SDI worked with 229 companies on high-value international projects that are expected to lead to an increase in export sales of £818 million over the next three years – up from the £733 million achieved 2011/12.

The figures are impressive. Yet even Anne MacColl, chief executive of SDI, admits that there is still much work to be done. Kicking off our Live Debate, held amid the elegance of the Officers’ Wardroom on board the Royal Yacht Britannia in Edinburgh, MacColl said: “At SDI we are thinking very hard about not just where we are as a country regarding international trade but where we want to be.

“On exports, things are moving well but I want to see them moving faster. A lot of you round this table have international experience – you have travelled widely, you have lived overseas, you have touched it, felt it, smelled it, tasted it,” she said. “But I would like to see more of an international mindset across all our business sectors,” she continued. “There are stacks of opportunities for Scotland. We are a small country with a fantastic brand and a strong proposition but it is all about opportunity as well as challenge. And more than anything it is about mindset. How do we package that to the rest of the world in a way that has real resonance?”

It was significant that the Royal Yacht Britannia, steeped in history and patriotism, was the venue for a BQ Live Debate on internationalism given the grand old lady’s role in promoting Britain as she travelled the world on her Royal duties for over 40 years. And as this particular debate gathered momentum, there was discussion surrounding the challenges and barriers to trading overseas plus inspirational stories from those who have experienced trading in countries where the language, social culture and way of doing business is sometimes very different.

As delegates enjoyed their supper, chair Caroline Theobald, orchestrating proceedings from the helm in a style that surely would have impressed Britannia captains through the ages, asked delegates to introduce themselves and share their varied experiences.

What emerged was a menu overflowing with knowledge from individuals touching on issues such as not conducting sufficient research into a particular market, the importance of Intellectual Property (IP), not knowing where to go for help and advice, lack of funding and resources, utilising social media and simply not being brave enough to explore new markets overseas.

One of the best pieces of advice came from Eamonn Doyle, vice-president of sales & marketing, Avvio, a leading global provider of hotel booking engine technology with bases
in London, New York, Dublin and Las Vegas. “If you are going to do business in the US,
do your homework,” he warned.

“You need to have a website that is Americanized – I mean American English spelling and no UK case studies,” Doyle continued. “For young companies particularly, they need to understand that setting up an export opportunity is very different. It can be like a brand new start-up and needs your attention – it needs the owner or founder of the business to be there. Don’t send a lieutenant.”

Gareth Magee, partner at Scott-Moncrieff, echoed Doyle’s sentiments: “Too many people approach expanding into the US as a selling exercise,” he said. “You have to be aware that it is not just that – you also need to be thinking about distribution, staffing, finance and funding, all of those things and much more. You are effectively starting a whole new business and you need a skill set that is commensurate with that shopping list.”

One man who wholeheartedly agreed with Doyle and Magee is Jonathan Heap, owner and director of No Need 4 Mirrors, an award-winning Edinburgh-based company that creates, designs and delivers mobile apps for the retail sector and whose customers include Debenhams, House of Fraser and Mothercare. Striking a warning note, he said: “About two years ago, we won business with Saks Fifth Avenue but we have learned that our biggest challenge is what happens on day two.

“Getting that first overseas customer is tough but how do you move forward? We were not ready to internationalise but we did and learned from it and have taken a step back until we are 100% ready to start again,” he pointed out. “You need to be really focused. Saks Fifth Avenue is still a customer but we weren’t prepared for the differences in the way they do business. As others round this table have said, you need to do your homework and we have learned a lot of things we would not do again.”

Meanwhile, Pointer is one of the UK’s largest independent security companies in the UK, with established footholds in mainland Europe, the Middle East and Asia. So who better to offer advice than Sandy Rowan, chief executive? “I reiterate Eamonn’s advice on how important it is to do your homework,” he said. “We’ve been operating in Thailand for 12 years and are still learning. When you’re considering a new market overseas you need to know what resources are available when you get there,” he added. “You need to be confident and people you are dealing with also need to have a feeling of confidence in you. I’m not an expert but I certainly know how not to do things now.”

As everyone sitting around the dining table in the Officers’ Wardroom finished their main course, the debate picked up pace.

Sandy Rowan: “Be aware of local practices. If you are going to the Middle East, for example, don’t expect to be paid in 45 days. You will always be paid but sometimes it can be months or longer – that is the type of cash you need to develop.”

David Grahame: “We are equity investors and we get people coming to us looking for working capital but that’s not what we do. We twice lent to companies for this reason because we wanted to see them do well but that is not sustainable.”

Alison Grieve: “We started manufacturing in China and ended up with a good product but it was expensive for us. I would not deter people from manufacturing in China because it is such an important market but you need to be aware that outsourcing quality control can be quite expensive. Then you have the linguistic and cultural issues plus you have to be prepared to go over there yourself and be there on the ground.”

Anne MacColl: “We can help companies wanting to move into international markets through our 27 overseas offices staffed by our own people, local people and also ex-pats –
so we can help you tap into new markets. We have two of our best people in China: Mark Dolan is head of China and Julian Taylor, our Asia director, is out in Shanghai for two years so we have a combination of our own people, ex-pats who understand what it is like to live and work in these countries. The local people we employ know and understand these markets and can guide you through the cultural nuances.”

Gareth Magee: “We also have our own international network – over 600 offices in
100 countries – because it is essential that clients have access to the best local advice.
This is really important and we rely on our network to advise clients on local payroll, taxes, compliance and so on. You really do need to have the best local advice and I can’t stress how important that is.”

Alison Grieve: “We were originally set up as a manufacturing, distribution and design company, and make trays for iPads and tablets that don’t topple over. It’s as simple as that. We export to the likes of Sydney, Beirut and Mexico, and have struck a lucrative licensing deal for North America which has put a lot of emphasise on IP. You must protect your IP.

We have spoken to Finance Secretary John Swinney – and others – about setting up an
IP insurance scheme.”

David Grahame: “As angel investors, our role in this area is very niche. At the time of engaging with a company, we will see that they are very small but with high potential. They are IP rich and are having to internationalise very, very early. And that does pose challenges.”

Alex Nicol: “We supply the likes of Waitrose and Sainsbury’s here in the UK but in fact 50% of our business is international. Our biggest challenge? The biggest challenge for us is funding and we have not been very brave – we have not gone to the bank. We used to take products around the country in a horsebox and for us the challenge is picking a market, picking the route to market and working hard with the right distributor. We don’t go everywhere.”

So what kind of help can Scottish firms expect when they decide to move into the exporting market?

Anne MacColl: “There is a before, during and after phase. We offer our International Business Manager for Hire service so for six months you can have a person out in the market working for you. A programme like this can speed things up. That is part of what we call our ‘before’ phase. Missions take place in the ‘during’ phase although you don’t have to join a mission – you can go to that market yourself and speak to our people. In the ‘after’ phase, you come back and do the follow through – we can help with that, too.”

Charlotte Wright, who has been working with Scottish companies in the Highlands, said: “A journey might take five to ten years and what is good about this discussion is that it exposes everything, warts and all. The business base in the Highlands and Islands is predominately small and micro-businesses and it is hard for them to get a toe in the water.”

But exporting is so much more than manufacturing – there are now increasing opportunities for e-commerce services companies, including those using the cloud.

Scotland Meal

Ros Donaldson: “eFormsFactory has been developed by our company, Tidalfire, which is a specialist technology company providing electronic business solutions online and mobile, from a need to take the business’s needs electronic. We are taking it global but we need some support. Here we’ve won a major contract with North Ayrshire Council to provide an eForms solution, to capture and analyse data online.”

Campbell McLundie: “It’s not just the private sector who are looking for help. We’re getting more involved with the public sector where they are being encouraged to go into international markets themselves – and where they are finding exactly the same challenges as the commercial sector. There’s no doubt that a lot of companies are looking for support from the likes of SDI, Chambers of Commerce and the British Council.”

Alister MacDonald: “Our business [swimming pool and spa specialist] is 50 years old but we’ve only been exporting for ten years. We have a presence in Dubai, Hong Kong and Beijing. You need to be enterprising but  you need to have courage and a lot of cash.”

Barr & Wray have developed a reputation for high quality service and delivery with some of the leading hotel chains in the world.  They have exploited global connections to develop additional business opportunities in new locations which is particularly relevant in growth areas, such as China.

Iain Stirling: “Stirling & Stirling [hospitality company specialising in Scottish experiences]
is involved in food and drink and travel. We are working in North America and Asia but you need to have an appetite for it. The challenge is growing and keeping a business
of scale in Scotland.”

Anne MacColl: “There are other themes around companies of scale. Are we talking about Scottish businesses or global businesses? Look at Aggreko or Wood Group – both successful global businesses based here in Scotland and they don’t have tartan stamped on their heads.”

“For SMEs – that is companies with less than 250 employees – 13% export. But I think that is too low. If you look at Europe, it’s about 25% although that figure is a little bit skewed because Germany does so much exporting but there is definitely something to aspire to for Scottish companies. Consider that 60% of our exports come from only 100 companies – that’s a very narrow base,” she says.

“And consider that our biggest trading partner is the rest of the UK – that’s worth £45 billion. Exports to the rest of the world are about half of that - £23 billion. What would it take to flip that over? Does it help to have such a close trading neighbour or is it hindering us?”

David Grahame: “It takes time. LINC’s 20th anniversary is in December and we
have assisted in helping companies set up in 23 countries.”

Eamonn Doyle: “I would say that the Irish are far more international in outlook for their business.”

Ros Donaldson: “I think that cash is a requirement but the way that technology is developing and the speed at which technology is developing is phenomenal – and that is an opportunity. The mind set is there. When we established Tidalfire 13 years ago we did not consider that we would just be UK-wide. It
was never an option for us.”

Campbell McLundie asked Anne MacColl to explain how SDI balances its role of attracting inward investors with the wider economic development role of Scottish Enterprise.  Anne commented that the attraction of larger inward investor employers, as a result of the skills available in Scotland, allows a greater number of these skills to be retained in Scotland for the wider benefit.  However she accepted there is a fine balance to be maintained to ensure that indigenous businesses were not disadvantaged

Iain Stirling: “No-one’s mentioned mentoring yet. I think a lot of large Scottish businesses could do more to mentor smaller businesses. When you’re already operating internationally and have an office and people on the ground, I think taking a little time to mentor someone would be really beneficial. But, having said that, we need to encourage a culture of people asking for advice.”

Anne MacColl: “I agree. The GlobalScot network now has 630 people around the world. They are professional, successful ex-pat Scots or people with an affinity for Scotland, someone who might have gone to university here, for example. We don’t pay them a fee – they just want to give something back to Scotland. How do you access this network? You go to the GlobalScot website and anyone can do this and tap into it. It’s a bit like LinkedIn so you focus on the markets you are looking for and we will make sure you get that pull-through back. It’s very powerful when you think about the university network in Scotland and ex-alumni base all over the world.”

Iain Stirling: “Look at social media, too. It’s about the hype and making people want what you have. There is quite a lot of work that could be done but the problem for SMEs is time. Social media can work but it is trying to do that and get it right.”

Alison Grieve: “We’ve used social media a lot. You can keep in touch with people and put videos on YouTube. Facebook can also be really useful. For example, if you are going to be in a certain place you can ask friends if they will put you up and so on. A friendly face and someone who has local knowledge can really help you in business. We would never have been able to export in some of the countries we are in without personal connections and social media is important in helping you keep in touch with them and build relationships.”

Alex Nicol: “We’ve used Skype with one particular client and managed to get access to a party in the British Embassy in Greece.”

Alister MacDonald: “Something we’ve found works for us is to chase major international hotel groups. They can be very influential so rather than chasing countries, try to make inroads with a big group. For example, the Four Seasons has global central purchasing.”

Anne MacColl: “This is very true. John Beveridge of Hyatt, one of our GlobalScots, has helped some companies get into the Middle East and Asia. It’s all about thinking more creatively and not being afraid to approach someone you know. So if you know someone who is influential within an international hotel group or other organisation, approach them.”

Sandy Rowan: “There are definitely some straightforward lessons to be learned and a lot of common themes around the table. But clearly doing your homework is a big, big tick. And we must tap into our Scottish diaspora. Don’t underestimate their size. Also, remember to focus on what you’re good at – don’t be distracted.”

Jonathan Heap: “I agree. If it’s not right for your business and you do go into that market then it will cause you problems in the long-term and you will waste a lot of time.

Anne MacColl: “With so many business opportunities now lying outwith Scotland, it is about ambition, it is about commitment and it is about courage. Increasing our international business could be absolutely transformational for the Scottish economy if people can find a bit more courage.”

Iain Stirling: “Get a mentor and connect with people via social media which is a good way of getting to the people you need to get to.”

Gareth Magee: “I like Iain’s point about the role a large company can play. It chimes with a lot of what I hear from SMEs going to the US and dealing with large corporates. When an SME goes to the US and they suddenly find themselves dealing with large corporates, this is something they are not used to. They often struggle with finding the right people, being passed from department to department and coping with protracted decision making. If larger companies here in Scotland can help, our growing companies will be better equipped and prepared when they go.”

Sandy Rowan: “Can I give you an alternative view? Sometimes there is more of an open mind in the US – they take us on what we can demonstrate we have done.

Campbell McLundie: “Much of the discussion tonight has been about people and I think that is very telling. Ultimately business is all about people and the relationships and connections we forge.”

There was much to be commended in encouraging more firms to export, but Jonathan Heap helped bring the event to a positive conclusion.

Jonathan Heap: “We don’t have an identity problem. Scotland has done a very good job of promoting itself so we are in a great position. Let’s work on this!”