Alison McGregor

Alison McGregor, CEO, HSBC Scotland

Scotland’s exporting landscape

Alison McGregor, CEO of HSBC in Scotland, argues that Scotland’s food and drink exports are a success story but encouragement and support is needed for SMEs.

An international thirst for Scotch whisky has buoyed exports in both Scotland and the UK, bucking a three-year downward trend. Unsurprisingly, the booming food and drink sector remains the country’s central exporting engine adding £5bn to the economy each year making it the UK’s largest net contributor to the balance of trade in goods.

January also brought welcome results of wider economic prosperity as Scottish cross-sector exports rose from £27.7bn in 2014 to £28.7bn in 2015 turning the previous year’s trend on its head.

Exporting fears
Despite these positive exporting figures, there still remains a hesitancy amongst Scottish SMEs to dip their toes into international waters. Exporting may seem second nature for medium sized and large businesses but, for smaller organisations, the prospect of overseas trade can seem impossible.

The whisky industry is unique in that it is the driving force behind the country’s strongest exporting figures but bucks the perception that it is large corporate firms operating from the central belt which have the capacity to expand their markets internationally. In fact, the reality is that you’ll find a Bruichladdich whisky distilled in Islay available in over 400 locations in Taiwan.

Yet, there is still cross-sector work to be done to encourage Scotland’s small businesses to ship their products and services abroad. The exporting figures point to a prosperous landscape for international trade in Scotland as a whole but the further you drill into the information, the more revealing it is.

For example, there was a 9.6% fall in international exports by small businesses in the same timeframe between 2014 and 2015. Worryingly, this perception of big businesses driving exports is fulfilled by the statistics in other sectors.
When considering the Scottish economy there are five conditions Scotland requires to grow in business. These are: a stable tax and regulatory regime; improving our skilled labour force; building our digital infrastructure; support in innovation and in internationalisation.

The latter two pillars of innovation and internationalisation rely on a symbiotic relationship between government and industry.

Micro multinationals
The rise of so-called ‘micro multinational’ businesses shows the potential for change: lean, home-grown firms using overseas markets to achieve success, whether that’s by accessing talent and skills, reducing production costs, or researching new products.

‘Micro multis’ are far more likely to export ‘from birth’ – they understand the fluidity of global markets and know to enter earlier rather than later. These nimble mid-sized firms are taking on new markets earlier in their business cycle, helping to change the face of global commerce.

But if this fluidity is not intrinsically understood, and therefore second nature, it is incumbent upon government and industry to encourage, educate and engage the SME community to stimulate more internationalisation.
E

xamples of this support comes from the Scottish and UK governments’ Exporting is GREAT campaign. Exporting is GREAT is designed specifically to inspire and help first-time UK exporters and aims to have 100,000 extra UK businesses exporting by 2020. The programme demonstrates to exporters that demand exists by hosting hundreds of live export opportunities on its site. The total potential value equates to over £300m.

Exporting success
Scotland continues to generate fantastic success stories, many of which show how innovation can come from overcoming economic challenges. For example, a number of exporting success have emerged from Aberdeen’s downtrodden oil and gas economy.

Online Valves is a distributer of equipment to the sector, servicing clients both at home and abroad. As specialists in pipeline valves, the Aberdeen-headquartered company, provides both product and services to 37 countries across the world. The company’s ambition and internationalisation has gone a long way to future-proof their business and to weather tough trading conditions faced by the city and sector. Knowing the oil and gas sector intrinsically, Online Valves now has operations in Houston, Trinidad and Dubai with sights set even further afield.

However, for Scottish businesses, exporting as close to home as England can provide significant expansion and new markets.

Take another Aberdeen company, Run4It. The specialised running retailer uses a combination of hands-on customer service offerings and digital platforms to engage with and expand into new markets. The digital platforms have bolstered an international strategy where Run4It has identified it can take its personalised approach and transfer this online with good effect. 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. As well as upgrading its online sales platform, the retailer is also planning to expand its footprint into the North of England.

Encouragement and support
Yet, despite these success stories and in particularly harsh trading environments, there is still a reticence amongst SMEs. A recent HSBC survey, Exporting for Growth: the SME Perspective, found only 45% of businesses factored overseas trade into the growth of the business and that 73% of would-be exporters feel held back by a lack of international business experience and knowledge. Following the UK’s vote to leave the European Union, HSBC canvassed 1,000 UK SMEs about their future plans for business and export. Based on the findings, the bank has identified three areas for government, business and the financial sector to consider in order to encourage more SMEs to take their business global:

Work together
Encourage a symbiotic relationship between 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.

Demystifying the process
Ninety-three per cent of would-be exporters surveyed know that help is available but find many online and governmental resources baffling. Our survey showed that it’s not a lack of information which is an issue but the type of information, with many SMEs wishing for more tailored, on-the-ground support. By providing user-friendly information sources such as HSBC’s Connections HuB or Export Resource Centre, it helps to demystify the process and foster better understanding of international trade amongst SMEs.

Give exporters a voice
In a time of uncertainty policy makers 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. Our survey showed that SMEs feared tariff increases as a result of Brexit. Non-tariff barriers such as legal and regulatory requirements and customs co-operation have stoked concern in 55% of surveyed SMEs who fear delays in the UK reaching new trade deals. In giving these businesses a seat at the table, they can help better inform decisions with more positive outcomes for all.