Boundless Opportunity June 2014 Whitepaper from Regus.

Boundless opportunity

Exporting businesses reap profits by getting close to the customer

Regus, June 2014

02Boundless opportunity / Management summary

For the third consecutive year this global study reveals that exporting firms are enjoying healthier revenue and profit growth compared with their domestically focused counterparts.

One way that exporting companies maintain and grow their customer base is by setting up a physical presence in their target markets. This survey confirms that that proximity to clients carries a number of important benefits.

Four fifths of businesses report that customer churn can be more easily reduced if a firm is physically near customers and clients. Almost the same proportion believe that having a presence in foreign markets helps them solve customer problems more easily and improves customer satisfaction, all results that in turn also contribute to improving retention rates. The bottomline is that businesses regard proximity as an effective tool to improve sales and, through closer analysis of the customer environment and access to up-to-date market information, develop better, more relevant products.

But expanding abroad is no easy task and many businesses shy away from this challenge because they lack official support. Aside from introducing them to new clients, businesses highlight four top measures that their home government trade delegations should offer to help them in their export objectives: advice on legal and regulatory matters; introductions to local business associations; advice on taxation; and advice on local customs. 30% also report that they would benefit from a directory of good local places to network with other companies.

Management summary

Four fifths of businesses report that customer churn can be more easily reduced if a firm is physically near customers and clients.

03Boundless opportunity / Key findings and statistics

• For the third year running this Regus survey, analysing the responses of over 19,000 global business people, finds that more exporting businesses are reporting good results than those focusing exclusively on their domestic markets.

• 48% of internationally trading firms report profit growth over the last twelve months compared to 36% of those trading only domestically.

• Similarly, over half (55%) of internationally trading firms report profit growth in the last year compared to 46% domestically focused firms.

• While having a larger reach certainly helps internationally trading businesses increase their prospects, firms globally also report that physical proximity when expanding abroad brings additional benefits to exporting firms.

• Specifically, 81% of businesses say that customer retention rates can increase by physical proximity with customers.

• Physical proximity also helps solve customer problems (78%) and improves customer satisfaction. These two key benefits also contribute to overall improved customer/client retention.

• Larger businesses are particularly likely to regard physical proximity to customers as a retention boosting benefit.

• In addition to this, 75% of firms globally believe a location close to their customers can boost sales and half (48%) think they could develop better products.

• But foreign expansion is a big step for businesses to take and a difficult one if support is lacking. In particular, global firms report that aside from making customer introductions, home government trade delegations can most usefully help them expand abroad by providing advice on legal and regulatory matters (62%).

• Introductions to local business associations (44%) and advice on taxation (43%) would also help businesses planning foreign expansion.

• Small businesses are particularly likely to identify advice on taxation and regulatory matters as key to helping them set up a foreign presence.

• Finally, a third of businesses would like help with local custom and would benefit from a directory of places to network.

• Where these resources are not made available or are incomplete, it is evident that partnering with businesses that operate in their target country and can provide useful information and networking opportunities is highly beneficial.

statisticskey findingsand

75% of firms globally believe a location close to their customers can boost sales

04Boundless opportunity / Introduction

As the global economy finally starts gaining momentum and consumer spending, as well as larger government backed infrastructure investments gain pace, exporting activity is set to gain new momentum. Exports play a large part in providing employment and GDP growth. For example, exporting activity contributed to 86% of GDP in Belgium, 52% in Germany and 32% in the UK in 2012.1 Globally, trade in services only was valued at US$4.4 trillion and accounted for 19.4% of the world’s total exports.2 In Australia services exports, discounting intermediate services inputs, grew by an average of 4% per annum over the last decade reaching 18.7% of Australia’s total trade in goods and services in 2013, and services exports accounted for 17.4% of Australia’s total exports.3

In emerging economies consumer spend is increasingly being fuelled by a growing middle class, while in mature economies employment is improving promising an increase in consumption. A new world map has also emerged with BRIC countries now regarded as safe havens for investments and China viewed as the top investment destination by CFOs, but improved economic outlook also means that the UK, Germany and the USA have also seen a rise in investment.4

Reports suggest that in 2011 only 40% of the UK’s exports were sent to the EU and that this figure is set to continue to decrease as UK businesses focus on exporting branded consumer goods, aerospace, pharmaceuticals, education, tourism and services to BRIC countries instead. Exports to BRICS are expected to double to 16% by 2030, while the US remains a strong export market for the UK financial services sector.5

The UK also has strong ties with Brazil which is the UK’s largest trading partner in Latin America with a bilateral trade in goods worth £5.1 billion. Over the last four years, UK exports to Brazil increased by 20%, reaching £2.5 billion in 2013.6

1 World Bank, Export of goods and services(% GDP), 20112 The Australian Government Department of Foreign Affairs and

Trade, The importance of services trade to Australia3 The Australian Government Department of Foreign Affairs and

Trade, The importance of services trade to Australia4 BDO International, Global Ambition Survey, Infographic 20125 PWC, The future shape of UK exports, UK economic Outlook,

November 20126 UKTI, Guidance, Exporting to Brazil

Introduction

...exporting activity contributed to 86% of GDP in Belgium


But Brazil is an appealing market for other countries too, particularly as over the past decade the country has proven economic stability: in this period over 35 million Brazilians entered the emerging middle class and average GDP has grown 3.4% over the last 4 years. Brazil has identified road and air transport, cargo logistics and energy as key areas for development in the coming years.7 The Netherlands, Germany and the USA are reported to be among the top export destinations for Brazilian businesses.8

Canada continues to detain its role as the USA’s main import and export partner, and as the pace of Chinese growth slows and Europe’s growth forecast is revised downwards, the overall USA export market may suffer. The OECD revised reports for China’s growth at 7.4%, down from 8.2% and the European Commission predicts that GDP will rise only 1.7% in the euro-area in 2015, compared with a previous forecast of 1.8%9 The role of energy exports is yet to be determined as the Eurozone has recently asked the USA to increase its shale gas exporting in order to counter Europe’s reliance on Russia.10

The USA economy on the other hand looks more positive and improvements cannot fail to positively impact Mexico, one of its main trading partners. Mexico’s economy is heavily export-based with automotive products representing 24% of overall exports.11 U.S. consumer spending rose 3.3% and U.S. economy expanded at a 3.2% annualised pace in the final quarter of 2013, improving outlook for Mexican exporters and driving up the Peso.12

In China on the other hand, year on year exports fell sharply in March, but commentators expect to see improvements linked to a new stimulus package which includes tax breaks for small businesses as well as rail infrastructure investment.13 Currently exports account for 30% of Chinese GDP with the export of high tech products growing and accounting for 26% of overall exports.14

7 The Observatory of economic complexity, MacroConnections, The MIT Media Lab

8 The Observatory of economic complexity, MacroConnections, The MIT Media Lab

9 Bloomberg, Growing Exports Shrink U.S. Trade Gap as Global Demand Stirs, 6th May 2014

10 The Guardian, European leaders ask Obama to allow increased exports of US shale gas, 26th March 2014

11 Tradingeconomics, Mexico Exports12 Bloomberg, Mexico’s Peso Advances as U.S. GDP Growth

Buoys Export Outlook, 30th January 201413 BBC, Chinese exports and imports fall sharply in March,

14th April 201414 Tradingeconomics, China Exports

...over 35 million Brazilians entered the emerging middle class and average GDP has grown 3.4% over the last 4 years.


Foreign companies are taking tentative steps in India as concerns over corruption, bureaucracy and political uncertainty take their toll on the decision to expand in spite of government measures to encourage foreign direct investment. On the other hand, the Rupee’s weakness in 2013 should boost exports and the country is working on FTAs with Japan, ASEAN and the EU.15

The Eurozone, representing 20% of global GDP, is slowly regaining momentum although many countries still face a tight credit environment, sovereign debt issues and austerity measures. In spite of this, GDP is expected to grow by 1% in 2014 and 1.7% 2015.16 Although the Euro has appreciated over the last two years, its strength hasn’t hampered export growth: in February the Eurozone’s exports exceeded its imports by €13.6 billion ($18.8 billion) compared with a year-on-year surplus of €9.8 billion.17 In addition to this, domestic demand growth suggests that intra-European trade is also set to improve.18

In order to provide an analysis of the benefits and challenges to exporting that businesses of all sizes and from all sectors are facing across the globe, Regus commissioned this research report interviewing over 19,000 senior managers and business owners globally. Now at its third iteration, the survey delves into the perceived benefits of customer/client proximity and home government trade delegation assistance with exporting.

15 EDC, Country overview: India, March 201416 EDC, Country overview: Eurozone, March 201417 The Wall Street Journal, Exports Boost Euro-Zone Trade

Surplus, 15th April 201418 FXStreet, Eurozone: Export recovery and signs of greater

strength in internal demand, 15th April 2014

For the third year running, evidence from the survey indicates that firms trading internationally are more likely to report growing profits or revenues

07

46%

36%

55%48%

40 0

Mainly internationally

trading

Mainly internationally

trading

Mainly domestically

trading

Mainly domestically

trading

55 50

45

3050

40

‘My company revenues have grown in the past twelve months’

‘My profits have grown in the past 12 months’

Boundless opportunity / The numbers behind the growth

Figure 1Mainly internationally and mainly domestically trading businesses reporting an increase in

revenues in the past twelve months

Figure 2Mainly internationally and mainly domestically

trading businesses reporting an increase in profits in the past twelve months

numbers For the third year running, evidence from the survey indicates that firms trading internationally are more likely to report growing profits or revenues, or both, than those focusing only on their domestic market. These results suggest that foreign expansion has a positive effect on businesses allowing them to pursue growing markets, by changing target area when demand is weak for example.

A larger pool of potential customers/clients is also available to businesses that have operations in more than one country suggesting that domestically-focused companies would do well to consider expanding in neighbouring markets.

Businesses mainly trading internationally are more likely (55%) to report that they have seen an increase in revenues over the past twelve months (Fi g. 1) than those focusing exclusively on domestic markets (46%). Similarly, half (48%) of exporters report an increase in profits compared to only just over a third of mainly domestically focused firms (Fig. 2).

The numbers behind the growth

20

10

08Boundless opportunity / Close to their hearts

‘Proximity to our customers/clients helps to...’

Figure 3 Respondents report which benefits their business can draw from proximity of location to their customers/clients.

Businesses in the countries analysed were also asked to highlight the main benefits that proximity, in terms of physical location, to customers or clients could bring. The main benefit, selected by four fifths of respondents is an improvement in customer retention rates as depicted by figure 3.

Given that studies report that acquiring new business can be 5 times more expensive than retaining customers and that increasing customer retention by just 2% can equate a 10% cost reduction, this outcome for establishing a presence close to customers is very important.19 In the retail sector in particular, case studies have shown that a 15% of ‘loyal’ customers is responsible for fully 50% of sales revenue.20

Close to their hearts

90

80

70

60

50

40

30 Improve customer

retention rates

Improve customer

satisfaction

Deal more effectively

with customer problems

Understand customers and markets better

Boost sales Improve our marketing

effectiveness

Develop better products

Chase up customer payments

81%78% 78% 77% 75%

67%

48%

37%

19 Mtab, Customer Retention Rate – What does it mean?20 Mtab, Customer Retention Rate – What does it mean?

09Boundless opportunity / Close to their hearts

Top three benefits of customer proximity by country

Figure 4 Respondents report the top three benefits their business can draw from proximity of location to their customers/clients by country

The next three benefits, chosen by over three quarters of respondents, can be regarded as ones leading to better customer retention. By being located closer to their customers businesses report better satisfaction rates, easier problem resolution and a better understanding of the market. But physical proximity can also help with chasing slow payments and developing better products that respond more closely and rapidly to customer needs as they arise.

Emerging markets are particularly responsive to the benefits of proximity to customers with China, Brazil and India scoring all top three benefits highly. Mexico, Canada and Australia also recognise a significant advantage from physical proximity. Belgium, ships 72% of its exports to nearby EU countries which may explain their greater reluctance to score location benefits.21

95%

90%

85%

80%

75%

70%

65%

60%

21 ING, ING International Trade Study, Belgium, 2012

Global

aver

age

UK

USA

Fran

ce

Germ

any

India

China

Belgium

Nethe

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Brazil

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h Af

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a

Mex

ico

Improve customer retention rates Improve customer satisfaction Deal more effectively with customer problems

72% of Belgium’s exports ship to nearby EU countries

10Boundless opportunity / A helping hand

Types of government help regarded as crucial to setting up abroad

Figure 5 Respondents report the types of government help that would be crucial to help set up abroad aside from customer introductions

Businesses were also asked to report which types of home government trade delegation assistance, aside from introductions to new clients, they regarded as vital to helping them set up a presence abroad. The top three measures voted by respondents are: advice on legal and regulatory matters, introductions to local business associations or organisations and taxation advice (Fig. 5).

A third also reported they would benefit from advice on local culture and customs and locations for business networking. A fifth of respondents reported they would like to have access to a directory of suppliers when they set up presence abroad.

A helping hand

70

60

50

40

30

20

10

0Legal and

regulatory matters advice

Introductions to local business organisations/associations

Taxation advice Information on local culture etc

Boost sales

Information on networking

locations

Supplier directory Staff recruitment service

Directory of flexible workspace

providers

62%

44% 43%

33% 30%

19%16%

13%

11Boundless opportunity / A helping hand

The proportion of companies selecting each of these benefits varies significantly from country to country as displayed in figure 6. Requests for advice on legal and regulatory matters peak in Japan, India and Mexico for example, while, among the countries analysed, Chinese businesses are the most concerned with taxation advice.


Figure 6 Respondents report the types of government help that would be crucial to help set up abroad aside from customer introductions by country

80%

70%

60%

50%

40%

30%

20%

Global

aver

age

UK

USA

Fran

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any

India

China

Belgium

Nethe

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Brazil

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ralia

Canad

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Legal and regulatory matters advice Introductions to local business organisations/associations Taxation advice

43% regard taxation advice as crucial to setting up abroad.

12Boundless opportunity / Conclusion


This survey confirms for the third year running that exporting firms report higher profits or revenues, or both, than businesses that focus solely on their domestic markets. This may be because exporting businesses have a wider customer base, or that they are better able to shift their focus to areas of the world where demand for their products or services is growing. But respondents also cite a number of other benefits to having a physical presence close to their customers.

Conclusion

Greater customer satisfaction can be achieved by setting up a location in proximity to your customers or clients.

In particular, businesses report that better customer retention, faster problem resolution and greater customer satisfaction can be achieved by setting up a location in proximity to their customers or clients. In addition to these benefits, exporting businesses need to be able to expand and retract from different foreign markets in order to follow the shift in demand for their goods or services. This type of agility requires a level of flexibility that is difficult for businesses to achieve, particularly when setting up a new presence requires learning about different regulations, taxation and markets.

Businesses globally report that the best help they could expect from home government trade delegations when planning to expand abroad, aside from client introductions, is legal and regulatory advice, taxation and local custom information and tips on where to network and meet local business organisations. Where this information is not made available or is incomplete, businesses would do best to partner with firms based in the target country that understand the world of business and that can provide all the connections and information required to succeed.

13Boundless opportunity / Country highlights

Country highlightsFrance

• French businesses say that being located close to their customers can improve their marketing effectiveness (76%)

• When expanding abroad 62% of French businesses say government advice on legal and regulatory matters is crucial, followed by introduction to local business associations (51%) and information on local networking events (38%)

UK

• 76% of UK firms say that being able to operate from a work location close to their customers will definitely help improve customer retention rates

• When expanding abroad 60% of UK businesses find government support on foreign rules and regulatory matters crucial

Canada

• Canadian businesses seek government support on rules and regulatory matters (63%)

• 82% of Canadian businesses believe that being located closer to their customers will help understand them and the market better

Germany

• German respondents say that being able to operate closer to customers helps to improve customer retention rates (81%)

• German businesses identify advice on foreign rules and regulations (68%) as crucial

The Netherlands

• When it comes to expansion abroad, Dutch respondents identify three crucial types of government support: advice on legal and regulatory matters (53%), information on local customs and styles (51%) and advice on taxation (47%)

• Dutch firms identify improvement of customer retention rates (85%) as the main benefit of being located close to their customers

Belgium

• 59% of Belgian respondents find government advice on rules and regulations crucial when expanding abroad

• The top three reasons for physical proximity according to Belgian firms are: better understanding of their customers and markets (79%), improvement of marketing effectiveness (73%) and a boost in sales (71%)

South Africa

• In South Africa 82% of businesses say that being closer to their customers improves their retention rates

• When expanding abroad the support South African businesses seek from their government is advice on foreign rules and regulations (60%) and introduction to local business associations (53%)

China

• Chinese respondents believe that being closer to their customers and markets definitely helps in dealing more effectively with customer problems (94%), improves customer retention rates (92%) and customer satisfaction (84%)

• When looking to expand abroad the main support Chinese businesses seek from their government is advice on rules and regulations (57%) and on taxation (56%)

India

• In India almost three quarters of businesses believe government advice on rules and regulations (70%) is crucial

• 81% of Indian firms believe being located closer to the customer improves satisfaction and 82% that it will boost sales

Mexico

• In Mexico respondents believe that operating closer to their customers will boost sales (91%) and improves customer satisfaction (84%)

• When asked which support they seek from their home government almost three quarters of Mexican businesses responded advice on rules and regulations (72%)

Japan

• 90% of Japanese firms believe that a location close to their customers can boost sales and 77% thinks it will give them a better understanding of their customers and markets.

• Government advice on foreign rules and regulations (77%) and advice on taxation (51%) is crucial when expanding abroad, say Japanese firms

Australia

• 85% of Australian businesses report that physical proximity to customers can boost sales and 82% say it will improve customer retention rates

• When expanding abroad Australian firms find government advice on rules and regulatory matters (65%) and introduction to local business associations (48%) crucial

Brazil

• 86% of Brazilian firms believe physical proximity contributes to dealing more effectively with customer problems

• More than half of respondents say that introductions to local business associations by their government is crucial when expanding abroad (51%), followed by advice on rules and regulations (48%)

USA

• When expanding abroad 57% of US firms identify government support on legal and regulatory matters as key

• 85% of US respondents report that being located close to customers improves customer satisfaction and 84% believes it will boost sales

14Boundless opportunity / Methodology


Over 19,000 business respondents from 96 countries were interviewed during January 2014. These were sourced from Regus’ global contacts database of over 1 million business-people worldwide which is highly representative of senior managers and owners in business across the globe.

Respondents were asked where their business was experiencing growth: whether in domestic markets or mainly in international markets. They were also asked to evaluate the measures that would help businesses set up a location in a foreign country and to identify the main benefits from physical proximity to customers/clients. The survey was managed and administered by the independent organisation, MindMetre Research,

mindmetreresearch.com

Methodology

19,000business respondentsinterviewed

96countries

Respondents were asked where their business was experiencing growth: whether in domestic markets or mainly in international markets.

15Boundless opportunity / About Regus


It’s network of more than 2,000 business centres in 102 countries provides convenient, high-quality, fully serviced spaces for people to work, whether for a few minutes or a few years. Companies like Google, Toshiba and GlaxoSmithKline choose Regus so that they can work flexibly and make their businesses more successful.

The key to flexible working is convenience and so Regus is opening wherever it’s 1.5million members want support – city centres, suburban districts, shopping centres and retail outlets, railway stations, motorway service stations and even community centres.

Founded in Brussels, Belgium, in 1989, Regus is based in Luxembourg and listed on the London Stock Exchange.

For more information, please visit regus.com

About Regus