Alison McGregor, chief executive at HSBC Scotland, shares some success stories from Scottish exporters and examines what needs to be done to help more companies to trade internationally.
A recent HSBC survey, entitled ‘Exporting for Growth: the SME Perspective’, found that 73% of would-be exporters feel held back by a lack of international business experience and knowledge. Of the companies surveyed, only 45% factored overseas trade into the growth of their business.
The report questioned more than 1,000 UK small and medium-sized enterprises (SMEs) – some already exporting and some planning to start – about their experiences, views and concerns amid a landscape of uncertainty following the European Union (EU) referendum.
In this wake of uncertainty, we have seen SMEs act with caution. According to the survey, the impact of Brexit and Scotland’s place in these negotiations is one of the main contributing factors to Scottish SMEs’ hesitancy to export. The findings show that SMEs believe that this, combined with limited understanding of local markets and navigation of regulations, has a significant impact on the decision of a business to enter overseas markets.
However, in times of economic uncertainty, growth is critical to the survival of a business and exporting products or services presents some of the most compelling opportunities to expand a business. For example, in 2008, when businesses and exporting suffered following the financial crisis, most firms went into survival mode, retrenching into their core markets and focusing on revenue generation and cost savings.
However, even in those difficult times, some companies had the bravery, cash reserves or foresight to expand beyond borders. In many of those cases these were the ones to achieve growth throughout the downturn.
International business can seem complex. Our research shows that would-be exporters can be discouraged from international trade as they believe their product or service is not suitable for export. However, Scottish brands are loved and respected around the world for their quality and innovation.
For example, PureMalt Products based at Haddington in East Lothian is a specialist manufacturer supplying more than 50 countries worldwide. Operating from an 800-year-old mill roasting 6,000 tonnes of malt each year, the company’s malt extract forms a key ingredient in 1,400 branded product lines.
Moving from malt to confectionary, Larbert-based Mrs Tilly’s exports its premium products as far afield as France, Germany, Switzerland, Canada and the United States. The business was established in 1997 and since then the specialist fudge, tablet and macaroon maker has gone from strength–to-strength in both domestic and international markets.
Following a successful year of sales, a £1.6 million financial package from the bank and a number of new listings with major retailers, Mrs Tilly’s will continue to implement a growth strategy both at home and abroad. The confectioner works closely with Scottish Enterprise, Scottish Development International and Scotland Food & Drink to develop the right strategies in the right international markets after the company invested in new machinery and staff to provide the infrastructure for growth.
Scotland is renowned for its rich heritage in quality food and drink production and PureMalt and Mrs Tilly’s not only cement this reputation but exemplify the diversity of products and businesses contributing to the success of this sector.
Another example of a Scottish success story is Mabbett, a Glasgow-based business recognised as one of the leading independent environmental, engineering, health and safety, and energy-sustainability consultancies in the UK, Ireland and Europe. The company operates across multiple industries including aerospace, public sector, manufacturing, construction and energy with clients including General Electric, the World Bank, Raytheon, Diageo, National Health Service (NHS) Scotland, and Scottish Water.
As an ambitious SME, Mabbett already has a foothold in the European marketplace but has identified Europe as a key marketplace for growth. As part of the company’s 2020 business plan, Mabbett has employed an aggressive growth agenda to further expand in Europe and the UK by diversifying the business and creating Mabbett Environmental Planning. The new enterprise will facilitate the firm’s expansion specifically in the UK’s environmental planning services sector, growing the business’s expertise and market share.
However, for Scottish businesses, ‘exporting’ as close to home as England can provide significant expansion and entry to new markets. Take Inverness-based Coast & Glen, for example. Former BQ Scotland cover star Magnus Houston established the business in 2011 after an unfortunate accident put an end to his motorcycling career.
Houston set-up Coast & Glen after joining a friend on a trawler boat to initially supply quality fish from the Highlands and islands to local restaurants. Tired of the supertrawler-to-supermarket route, Houston’s vision was firmly on quality of fish provided, which led to interest from Michelin-starred restaurants south of the Border.
He quickly identified a market for quality Scottish seafood and wanted to grow the business at a rate to meet demand but was inhibited by long-term credit agreements typical in the industry. A £29,000 financial package from HSBC was enough to cement a foothold in the lucrative London market where Coast & Glen now counts Restaurant Gordon Ramsay and Wright Brothers as customers.
Another example is Run4It, a specialised running retailer, expanding both its physical footprint and digital offering to target international markets. Headquartered in Aberdeen, the high street retailer owns eight stores across Scotland.
As well as bolstering its online sales platform, the retailer also seeks to expand its footprint into the North of England. By implementing a fit-for-purpose website and employing highly knowledgeable staff the retailer can take the expertise received by customers in-store and deliver it online.
Despite these success stories and Scotland being full of dynamic entrepreneurs who want to look beyond their own borders, our survey’s statistics show that Scottish SMEs are still reticent to take their products and services abroad. Uncertainty plays a role in this and what’s more, these SMEs often feel the resources they need can be hard to find.
Encouraging exports is a win-win for the Scottish economy and its small businesses, so we must work together to help support SMEs take their businesses global. In fact, there is a clear need for both government, banks and businesses to do more to give SMEs the bespoke support they need to flourish globally.
Based on the findings of ‘Exporting for Growth: the SME Perspective’, HSBC has identified three areas for government, business and the financial sector to consider in order to encourage more SMEs to take their business global.
First, cut through the complexity for small businesses by offering a more tailored, user-friendly hub of services. Our survey found 93% of would-be exporters know that help is available to them from government bodies such as the Department for International Trade, for example, but only just over half are engaging with those services, and find the range and volume of services available baffling. For example, more tailored, on-the-ground support from government and agencies would encourage 64% of SMEs who are thinking about exporting to get started.
Second, give exporters a voice in trade negotiations. As the lines for international trade are redrawn in the coming years, 58% of exporters are concerned about potential tariff increases amid worries the UK will struggle to negotiate trade deals. In addition, they are almost as concerned with non-tariff barriers such as legal and regulatory requirements and customs co-operation.
A lack of resource within the UK in negotiating free-trade agreements is a worry for 60% of exporting SMEs, and 55% fear delays in the UK reaching new trade deals. To allay these fears, policymakers would benefit from setting up
and taking counsel from an advisory group of SME exporters. They can help advise on how to tailor trading arrangements to get the best for their businesses.
Finally, renew efforts by banks, business groups and support services to share best practice. Almost three quarters of future exporters surveyed said that having the opportunity to learn from businesses currently exporting would encourage them to do so.
The business benefits of exporting are clear. In times of uncertainty the best way to future-proof your business is to grow it. International trade can seem complex and intimidating but Scottish SMEs must be ambitious and think beyond borders to realise their full potential.