SMALL AND MEDIUM SIZED ENTERPRISES SELECT COMMITTEE · increase their involvement further in a global market set to increase almost 10 fold to $1tn by 2020. 1.2. What contribution

SMALL AND MEDIUM SIZED ENTERPRISES SELECT COMMITTEE

Written evidence

Contents

ADS - Written evidence ............................................................................................ 4

Alderley Plc - Written evidence ............................................................................... 12

Aston Business School - Written evidence ............................................................. 17

Barclays Plc – Written evidence ............................................................................. 21

Betfair Ltd - Written evidence ................................................................................. 27

Birmingham Chamber of Commerce Group - Written evidence ............................. 33

Black Country Chamber of Commerce - Written evidence ..................................... 42

Black Country Metals Limited - Written evidence ................................................... 50

Blue Sheep LLP - Written evidence ........................................................................ 53

BP Sail boats - Written evidence ............................................................................ 58

Bradford Centre in International Business (BCIB) - Written evidence..................... 60

British Chambers of Commerce - Written evidence ................................................ 78

British Exporters Association - Written evidence .................................................... 86

British Insurance Broker’s Association - Written evidence ...................................... 93

British Marine Federation - Written evidence .......................................................... 96

British Security Industry Association Ltd (BSIA) - Written evidence ..................... 100

British Textile Machinery Association - Written evidence ..................................... 105

Brompton Bicycles Ltd - Written evidence ............................................................ 107

Buckinghamshire Business First - Written evidence ............................................. 113

CBI - Written evidence .......................................................................................... 115

China-Britain Business Council (CBBC) - Written evidence ................................. 119

ADS - Written evidence

Dart Sensors Ltd - Written evidence s .................................................................. 128

Deltex Medical Ltd - Written evidence .................................................................. 133

EMASUK - Written evidence ................................................................................ 139

Engineering and Machinery Alliance (EAMA) - Written evidence ......................... 141

Engineering the Future Alliance - Written evidence .............................................. 152

Federation of Small Businesses - Written evidence ............................................. 158

Federation of Small Businesses, Kent and Medway Region - Written evidence .. 167

Felixstowe College – Written evidence ................................................................. 170

Forum of Private Business - Written evidence ...................................................... 171

Gambica - Written evidence ................................................................................. 182

Going Global Skills - Written evidence ................................................................. 188

Griffon Hoverwork - Written evidence ................................................................... 190

Hampshire Chamber of Commerce - Written evidence ........................................ 195

Tim Harrap - Written evidence .............................................................................. 199

HMG Trade and Investment - Written evidence ................................................... 203

ICAEW - Written evidence .................................................................................... 236

Institute of Physics (IOP) - Written evidence ........................................................ 244

ITS - Written evidence .......................................................................................... 246

Lloyds Banking Group - Written evidence ............................................................ 247

LMK Thermosafe Ltd - Written evidence .............................................................. 252

London and General Marketing Ltd - Written evidence ........................................ 255

London Stock Exchange - Written evidence ......................................................... 256

Market Research Society (MRS) - Written evidence ............................................ 261

Minden Systems Ltd - Written evidence ............................................................... 263

National Asian Business Association (NABA) - Written evidence ......................... 268 2


NEPIC - Written evidence ..................................................................................... 276

Northern Defence Industries Ltd - Written evidence ............................................. 279

Quartzlock - Written evidence .............................................................................. 282

Rank Brothers – Written evidence ........................................................................ 285

Research Councils UK – Written evidence ........................................................... 287

Scotch Whisky Association - Written evidence ..................................................... 289

Society of Motor Manufacturers and Traders (SMMT) – Written evidence ........... 293

Steel Services Direct Ltd – Written evidence ........................................................ 305

Testhouose Ltd – Written evidence ...................................................................... 307

Trade and Export Finance Ltd – Written evidence ............................................... 310

UK India Business Council (UKIBC) – Written evidence ...................................... 315

UKTF, ITS and Felixstowe College – Written evidence ........................................ 338

University of Chester – Written evidence .............................................................. 345

Malcolm Whitmore – Written evidence ................................................................. 351

Woodhead Publishing Ltd – Written evidence ...................................................... 354

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ADS - Written evidence About ADS ADS is the trade organisation advancing the UK Aerospace, Defence, Security and Space industries. Farnborough International Limited (FIL), which runs the Farnborough International Airshow, is a wholly-owned subsidiary. ADS comprises over 900 member companies, of which over 800 are small and medium enterprises (SMEs). With its regional partners, ADS represents over 2,600 companies across the UK supply chain. ADS has offices in England, Scotland and Northern Ireland and, internationally, in France and India. ADS Toulouse and India provide in-country representation and have supported numerous UK SMEs access local programmes. The sectors that ADS represents are hi-tech and innovative. They contribute to the UK's economic growth and create and sustain high-value engineering jobs. • UK Aerospace is the second largest in the world (17% market share), is worth over

£24.2 bn. to the UK, of which £18.15 bn i.e. 75%1 is exported world-wide. The sector directly employs nearly 100,000 people in the UK, and supports a workforce of around 360,000.

• UK Defence employs 314,000 people in the UK – directly and through the supply chain.

Export orders were £5.4bn in 2011 and UK gained over 15% of the world defence market. The sector has more SMEs than France, Germany, Italy, Spain and Norway combined.

• The global security market was worth £348bn in 2011 and will experience a compound

annual growth rate of 5.3% per annum until 2015. In 2011 there were more than 11,000 UK companies in the security sector with sales accounting for around £11.8bn. 2011 exports were £2.5bn.

• The UK Space sector expects to grow 10% each year. It is strong in areas such as

satellite communications and satellite navigation, and well placed to capitalise on new emerging services derived from Earth Observation, Cyber Security, Cubesats, and Broadband Services.

1. Current export market

1.1 What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors (both directly and through the supply chain to larger companies)?

1.1.1. The UK civil Aerospace market is booming, with a 6%2 year on year rise in air traffic.

Airbus’s latest Global Market Forecast (GMF) predicts that the average annual rate of

1 ADS UK Aerospace Survey 2012

2 ibid.

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increase in passenger traffic will be 4.7% over the next 20 years, with some 27,350 new aircraft expected. As the UK Aerospace sector has a full supply chain, this means that SMEs are well-placed to benefit from this increased demand on large companies.

1.1.2. When the UK does win high profile, prestigious Defence contracts such as the BAE Systems Hawk aircraft, they result in some flow-down sales for UK subcontractors. However, because of offset obligations, work can be dragged away from UK SMEs in the prime’s supply chain.

1.1.3. Another route for UK SMEs is acting as subcontractors to non-UK primes. Examples include Lockheed Martin’s F-22 Raptor programme, the C17 Globemaster, the US Navy’s “Virginia” class SSN submarine programme, the French Leclerc Main Battle Tank programme.

1.1.4. The full scale of SME export business in the defence and security sector is therefore hard to quantify but defence SMEs export around the world, with key markets being North America, Europe, Middle East and some parts of the Far East. UK defence and security companies only export where the UK Government will grant an export licence for the product or service.

1.1.5. The UK security industry is a rapidly growing sector in a global market estimated to

be worth £348bn; however the UK currently ranks sixth globally for exports, with a 3.4% market share. The top export destination is the US; whilst exports to the Middle East and emerging markets are weak. Approximately 450 ADS members are involved in security, 95% of them are SMEs. Of these, fewer than 20% export products or services, indicating the likely export potential.

1.1.6. The UK space industry has key markets in Europe, US, China, India and Russia, with emerging markets in Brazil and Indonesia. SMEs contribute to all markets, but better identification of opportunities to brief ministerial trade visits through UKTI would increase their involvement further in a global market set to increase almost 10 fold to $1tn by 2020.

1.2. What contribution could SMEs potentially make both now and in the future,

and within which markets and countries?

1.2.1. ADS produced an International Defence Strategy in 2012 to focus its efforts on supporting UK Defence exporters successfully pursuing opportunities in International markets. This strategy identified 23 markets (excluding US, EU and NATO countries where close relationships already exist) prioritised against the attractiveness of the market and its accessibility from the perspective of UK SMEs. The countries are grouped into three Priorities. In declining order of importance, these are Grow (e.g. Australia, Brazil, India, Malaysia, Oman and Saudi Arabia), Focus (e.g. South Africa, Thailand, Chile, Kuwait) and Respond (e.g. Canada, Japan, South Korea, Turkey and UAE). In all these countries disproportionate growth is expected, with a Compound Annual Growth Rate (CAGR) in defence procurement of 3.9%. With reduced domestic and European spend, success in these markets is critical if UK SMEs are to prosper.

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1.2.2. ADS Civil aerospace companies report that key markets are Europe (France, Germany, Spain and Italy), China, India, but that prospects in the US and Brazilian markets are also growing. Aeromet International Plc, which has a long-standing relationship with Japan and Korea is also focussing its efforts on these two countries. To this end, the priorities for defence is mirrored somewhat in civil Aerospace.

1.2.3. The niche R&D capabilities of UK SMEs position them to export to the priority

countries; however many open markets (e.g. Australia, Canada.) require proactive in-country UK presence. Resource limited SMEs face significant barriers to entry without supply chain pull through or assistance from UKTI DSO providing representation to penetrate the market.

1.2.4. The UK security industry is pursuing high value opportunities such as major events

and infrastructure projects abroad. Emerging markets with forthcoming international sports competitions (e.g. Brazil for the 2014 World Cup and 2016 Olympic Games and Qatar for the 2018 World Cup) provide partnering opportunities and the growing cyber security market (e.g. in Saudi Arabia, Qatar, South Korea, Turkey and the UAE) offers opportunities to export UK expertise.

2. How does the UK’s SME export performance compare to those in competitor

countries? What can the UK learn from their successes?

2.1.1. The UK is the largest European defence exporter and second globally only to the USA. However in a number of developing countries, the UK lags behind competitor countries in levels of market penetration, partly due to increased Government to Government (G2G) representation and contact from other nations and, in some markets, due to UK export control issues.

2.1.2. In Brazil for example, between 2005 and 2009, the country imported $9.5bn of Defence equipment. Over three quarters of this was from France. To challenge this, UK industry needs proactive G2G engagement and further Government assistance to build the relationships in country to encourage Brazilian prime contractors to work with UK companies.

2.1.3. Many countries show a preferential treatment towards their domestic prime

contractors, thereby limiting opportunities for UK SMEs with niche capabilities. British business in some markets relies heavily on strong political relationships existing between nations that only Government can develop. With G2G activity likely to become more prevalent, the UK Government should stand ready to actively support such arrangements where they are the most likely route to achieving major contracts. Indeed, the most successful exporting nations devote significant political effort to achieve substantial sales, and each of them has developed systems and infrastructure to support this activity.

2.1.4. In the Civil Aerospace market, again the concern is that UK Government has to step

up its game compared to key competitor nations like France, Spain, Germany and the US. A case in point is that Airbus has predicted that Brazil will require more than 700 new 100-plus seat passenger aircraft with an estimated value of $82bn over the next 20 years, The US Government have been putting strong efforts into building relationships with Brazil, to the benefit of their industry and there is concern that UK

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efforts are being outshone. It is therefore essential for the UK Government to increase efforts in Brazil so that the UK is in a better placed to take advantage of this market. Brazil has in Embraer its domestic Aerospace champion, and here, UK government support is required to improve SMEs access to the supply chain.

2.1.5. Finally, a permanent presence in the target country in the form of local,

knowledgeable and long-term representation will assist exporting SMEs. ADS is in discussions with the UKTI regarding the possibility of an ADS China office to serve SMEs, as its current offices in Toulouse and India do very effectively.

3. Internationalisation of SMEs and Incentives

3.1. What are the characteristics of successfully exporting SMEs? How do they

differ from SMEs that are not exporting?

3.1.1. Knowledge of UKTI, its products and the support available to SMEs is vital. There are many barriers to exporting but such support can reduce these. UK Export Finance [formerly Export Credits Guarantee Department (ECGD)] has put commendable efforts into extending and broadening the range of its portfolio of products and services, to make them more relevant to SMEs. However, many SMEs are unaware, having written-off ECGD as irrelevant or too restricted. This is resulting in a low take-up, so ADS is working with UK Export Finance to promote awareness.

3.1.2. In-country, local representation is not economically viable for most SMEs in the early stages of entering a new market; however knowledge of the market is essential. This will often involve SMEs commissioning an Overseas Market Introduction Service (OMIS) from UKTI, but due to their cost, SMEs have to decide which markets to target before they commission an OMIS. There is some dissenting feedback here, with some ADS members noting that the initial cost of OMIS is acceptable, but that the years of follow up activity including marketing is what restricts growth. Nonetheless, there is an overall concern that OMIS income is more important to UKTI than delivery and support to companies. Indeed, UKTI overseas staffs were last year tasked with increasing their OMIS income by 30%.

3.2. What are the perceived and real risks to SMEs of exporting?

3.2.1. The need to enhance the UK’s global reputation for its business ethics standards

resulted in the Bribery Act 2010. The Act is a step forward but clearer guidance could be provided on its practical application and its implications, particularly the responsibility on SMEs for local “agents”. ADS Members have focused on clearer rules on corporate hospitality and managing third parties and suppliers, but definitive guidance can only enhance international activity. It is also essential that the UK pursues a global level playing field in bribery rules so UK companies are not disadvantaged.

3.2.2. Exporting often requires significant upfront costs. ADS Members have noted a worrying trend for UK banks and financial institutions to adopt investment policies that refrain from investing in defence and some banks have specific restrictions in place. Anecdotal evidence is that banks, many of whom have a 20-30 years relationship with a company are limiting their financial support, in particular with export activities. Problems have

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arisen when companies try to raise letters of credit to cover sales, including for customer nations who have excellent payment record histories.

3.2.3. In civil aerospace, many SMEs export indirectly by supplying components to companies higher up the UK supply chain who export them. For example a UK sub-contractor provides power transformers for UK manufactured cockpit displays used in a number of US military and civilian aircraft. It is often impractical or too difficult to export directly with significant entry costs for each market.

3.3. What role should Government play in supporting SMEs looking to export?

3.3.1. To remain globally competitive, the UK must invest in technology development. UK

SMEs are often at the forefront of developing niche products with export potential. A lack of investment in R&D and capability development may undermine the UK’s position as a key aerospace & defence industrial nation for the future. Industry welcomes the Government’s decision to sustain investment in Science and Technology at a minimum of 1.2% of the defence budget, announced in the ‘National Security through Technology’ White Paper.

3.3.2. As highlighted in pt. 3.1.1. SMEs require financial support from Government to export and it is important that the Government continues to work with organisations like ADS to develop and promote an appropriate range of new financial products.

3.3.3. The Aerospace Growth Partnership (AGP) between industry and Government was

formed in 2010 to support UK companies throughout the supply chain to broaden and diversify their customer base. A recent AGP report highlighted the need for a strategic, long-term partnership with Government and, in particular, the need to support SMEs with the heavy upfront investment costs they are faced with at the start of a period of market growth. The recent announcement by the Prime Minister at Farnborough Airshow of a similar initiative in the Defence Sector is very welcome.

3.3.4. The Department for Business, Innovation and Skills (BIS) plays a crucial role in

supporting exports, particularly through UKTI. The support for exports by BIS and MoD Ministers on trips to Brazil, China and India is welcomed. However, support for UK exports must go beyond politicians to civil servants across Government, from UKTI, MoD, Home Office, FCO to BIS. As things stand, industry in many competing countries, particularly Germany, France and the USA, enjoy higher levels of Government support in overseas markets, including in alliances like NATO.

4. Barriers and market failures 4.1. What are the key barriers and market failures (including regulatory, financial,

operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies?

4.1.1. As noted in pt 3.2.2. access to affordable finance is of vital importance. There are, similarly, a number of barriers to trade that SMEs are facing when trying to export, including a lack of awareness or clarity of country-knowledge and the level of Government support available to export. in-house resources available to larger companies are not matched in SMEs and this is a primary barrier to exporting. SMEs

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need help targeting export markets as they have limited resource, hence the recent activity by ADS to develop an Export Strategy to help SMEs to select target markets.

4.1.2. The Government adopts a risk-based approach to approving Export Licences and, in ADS’s view, currently has adequate resources to cope with around 10,000 (Single Individual Export Licences (SIEL) applications pa. However, since 2009, the export control system has struggled to process upwards of 17,000 SIEL applications, resulting in delays which have affected SMEs in particular. An ADS member noted that it took 180 days for a license to be approved. Efforts to make the control system more efficient are overdue and welcomed and can only encourage SMEs to export.

4.1.3. Many UK companies are bound by the extraterritorial nature of US export controls,

specifically, the International Traffic in Arms Regulations (ITAR). This regulatory regime is a burden. ADS applauds the US Government’s proposals to reform ITAR and the introduction of the UK/US Defence Trade Cooperation Treaty which aims to streamline the bilateral exchange of defence articles under certain circumstances.

4.1.4. Offset regulations built in to export deals mean that the prime contractors are under

pressure to award sub-contracts to the indigenous industries of those nations. Whilst offset rarely applies directly to UK SMEs due to their exports being below the high value thresholds at which point Offset becomes mandatory, these obligations can have a significant impact on the continued retention of UK SMEs in the Prime contactor’s supply chains. Increased Government to Government activity is needed to build relationships between the UK and these countries to reduce the offset percentage in export deals and ease trade, particularly for SMEs.

5. Government Actions

5.1. How effective are the Government’s current policy mechanisms in supporting

SMEs to export at the UK and EU level?

5.1.1. In UKTI DSO (Defence & Security Organisation), ADS believes that there is an appropriately joined up attempt to pursue trade and investment objectives in Defence and Security. In attempting to reduce UKTI and DSO budgets as set out in the Comprehensive Spending Review, ADS is concerned that crucial resources are at risk.

5.1.2. A key enabler of commercial success is access to sufficient export financing. ADS notes that work is currently being undertaken to enable greater access to these UK Export Finance and will work closely with Government on this matter.

5.1.3. With export licensing, slicker processes are a key enabler of commercial success,

especially for systems and component manufacturers, many of which are SMEs. Efficient processing of licensing requests and consistent application of standards will assist SMEs in exporting.

5.2. What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies?

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5.2.1. As noted in 2.1.3, financial support through UK Export Finance is vital. UKTI DSO is to be applauded for its efforts, but it remains a challenge to get UK SMEs to explore opportunities in emerging markets, due to risk and resources. Increased efforts should be put into demonstrating the benefits of these markets to UK suppliers and the assistance that the Government can offer to support market access.

5.2.2. The UK is the “poor relation” at international export shows and events where the

governments of Denmark, Canada, Australia and others help fund a more enhanced presence for their companies. Feedback from one company put the cost of attending the Japan Aerospace show at £10k, with a similar costing to attend the Germany, Russian and Chinese shows. In view of the returns and the extent to which similar funding from the Government will boost export potential, and bring SMEs into the export market, ADS believes this is a small step that would immediately assist SMEs.

5.2.3. In non-Defence markets, there needs to be a move away from the old model of

energetic generalists promoting and marketing individual companies in networking and trade missions towards a new model promoting the whole supply chain. There needs to be an increase in in–country, permanent sector specialists, funded through a reduction in generalist staff and budgets, to support industry on the ground more effectively.

5.2.4. UKTI should continue to support innovative low-cost export support initiatives (e.g.

an Industry-led Public Security Exhibition programme). The programme provides a way for SMEs to access different countries around the world, through one-day table top exhibitions that do not require significant investment of resources.

5.2.5. The appointment of Crispin Simon as UKTI’s Managing Director for Trade SMEs

means there is someone now directly responsible for the delivery of UKTI’s support for SMEs in international markets. ADS looks forward to working with Mr. Simon.

5.3. Should the Government target specific sectors, markets or types of companies

where the potential is thought to be greatest

5.3.1. UK Aerospace Industry has received vocal support, with the Prime Minister opening the 2012 Farnborough International Airshow and the Chancellor of the Exchequer’s endorsement of industry in the March 2012 Budget Statement: ‘We earn our way in the world if we stop being afraid to identify Britain’s strengths and reinforce them, backing industries, like aerospace…’.

5.3.2. The UK has the second largest aerospace industry in the world and 2011 was one of the best years for civil aerospace. In the face of strong global competition, the industry increased exports to more than 75% of output. UK aerospace is also unique in having a large number of SMEs, compared with EU counterparts.

5.3.3. The UK defence industry is the largest in Europe and through the use of its products

in combat by the UK Armed Forces, is viewed as a respected supplier. With traditional markets declining, SMEs will require assistance through financial and Government-to-Government representation, in accessing new markets to the benefit of the UK economy.

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5.3.4. The global security market was worth £348bn in 2011. UK sales figures have grown

steadily and were £11.8bn in 2011. UK companies have strengths in cyber security, access control systems, communications equipment and intruder alarms. These products account for the largest proportion of exports. The London Olympics provided a stage for UK expertise and the Government should now assist industry SMEs looking to capitalise on the success of their products overseas.

5.3.5. UK Space has experienced a decade of growth at an average of over 10% pa with full-time employment increasing by around 14% in the last three years. UK expertise in satellite broadcasting, communications and navigation are key areas, and the industry has growth targets of 10% year on year to 2020 and 2040. Government should champion the industry to maintain its world-leading advantage developing cheap, flexibly deployed satellites that enable a wide range of highly profitable downstream applications, against rising international competition.

14 September 2012

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Alderley Plc - Written evidence

Alderley Plc - Written evidence 1. Introduction

Alderley plc is a medium sized engineering business making process equipment for the oil and gas industry. It specialises in metering, produced water and wellhead control systems. With its headquarters in Wickwar near Bristol, it employs about 350 staff worldwide and with 85% of its business initiated from overseas. It had a turnover in 2011 of £55,000,000. Alderley regards itself as a successful exporter. Its comments on some of the questions raised are as follows:

2. Current Export Markets 2.1. Contribution to Export Market

Alderley has supplied its oilfield systems to most producing countries and to most major oil companies. Its unique selling policy is to concentrate sales effort on specific oil or gas producing areas, each of which is centred on a local Alderley controlled company with its own assembly workshop, design team and customer support staff. The UK company has its assembly workshop near Bristol, and covers systems supplied to the North Sea, Europe and Africa. Similar operations are based in Dubai, covering the majority of the Middle East, and Dammam working exclusively in Saudi Arabia.

2.2. Potential Export Markets Alderley plans to set up another locally managed company in 2012/13. It is investigating the potential for Western Australia, Canada, Brazil, Libya and Singapore. It is hoped that market potential and funds will be adequate to start one new venture every two years.

2.3. Comparison with Overseas Competitors The majority of Alderley’s competitors are subsidiaries of much larger American or European companies. They have different problems. Alderley is similar to a German ‘Mittelstand’ company. These are generally independent, family owned, concentrating on core technologies and having a substantial export business. The German State government and financial infrastructure are designed to assist this kind of company. They have many advantages which are listed in the remainder of the paper.

3. Internationalisation of SMEs 3.1. Characteristics of Alderley

Alderley’s products are designed for the oil and gas business, most of which operates to international standards. The company’s products were, initially, developed during the early part of the construction of the North Sea oil fields. North Sea engineering standards were high. Alderley’s North Sea experience, and its work for most of the world’s major oil companies there, has ensured its acceptance as a supplier in world markets.

3.2. Risk Alderley’s business risks are usually associated with payment, site delays and process failures. Payment risk is covered by insurance, cost of site delays are usually resolved by strong project management. Process failures are the most difficult to overcome. Systems integrators, such as Alderley, have to design equipment using information supplied by the client. When this proves to be inaccurate, and the system does not work, the integrator is often expected to

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bear the full cost of rectification. This attitude is unusual in home and European markets.

3.3. Preparation for Exporting Alderley’s preparation for exporting was its initial work in the North Sea. There it got experience in working for oil companies, learnt the quality standards required, and developed the designs and project management techniques necessary for success. Without this experience in what is the company’s home market, it would not have been possible to develop the substantial export business. To develop an export market it is necessary to understand the process of local decision making. Alderley has found embassy staff able to talk about generalities but ineffective on detail.

4. Barriers to Trade 4.1. Finance

Availability of satisfactory pre-shipment finance and of ‘on demand’ retention bonds has been the principal barrier to trade in the past. However, the new facilities offered by UKEF (formerly ECGD) have radically altered the situation. Provided UKEF and Alderley’s bankers can work together, this problem will go away for Alderley.

4.2. Corruption The recently introduced Anti Bribery legislation has created a barrier to trade in many parts of the world. The UK SME is now subject to the most stringent legislation anywhere in the world. The outlawing of ‘facilitation payments’ and the rules on entertainment are particularly onerous.

4.3. Staff Recruitment Alderley’s policy of setting up business centres in major oil producing countries requires the availability of well qualified engineers, with management ability, who are prepared to work overseas for long periods. Recruitment, training and retention of suitable staff has proved difficult, and represents a major restraint on expansion of export business.

4.4. Ownership Alderley is a PLC, wholly owned by a UK based English family. It has a vital interest in maintaining and building up its UK based operations, and complete control of sales destinations. Most of its UK based competitors are foreign owned, without control of choice of markets. Only a UK owned company has full freedom to operate in any export market. Foreign ownership is a significant barrier to growth of exports.

4.5. Languages Inability to speak in the customers’ language has proved an impediment to trade in Russia. Elsewhere, the use of English is so common in the oil and gas industry that language has not proved a barrier.

4.6. Protection of Technology In some markets, particularly China, customers reverse engineer equipment as routine. There appears to be little opportunity for redress. For a comparatively low technology business like Alderley, this is a major barrier to trade. At present it has no intention of selling to China.

5. Incentives 5.1. The company’s policy is to remain independent. It intends to grow by

incremental development of its existing products and services and by increasing its share of world markets. Any well run business has to have growth plans to

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maintain staff motivation. Export led growth is the only option for Alderley. It needs no other incentives.

5.2. The opportunity to work overseas and earn a substantial income tax free is an important incentive for engineers at certain stages of their careers. This is very helpful with the staffing problem.

6. Government Actions 6.1. Effectiveness

UKTI supported visits to potential markets are an effective way of introducing an SME to a particular market. The embassy can be a good source of information on agents and local legislation. However, as soon as it has set up its operations in a country, Alderley has not found the embassy of much help. In the past, services available from UKEF were not targeted at SMEs. This attitude has been detrimental to development of SME exports in the oil and gas industry. However new proposals for bonds, credit insurance and project finance introduced a year ago are a major step forward. Unfortunately they are only available through banks; this introduces extra cost and bureaucracy. If they could be made available directly, they should solve the majority of funding problems for SMEs in this sector.

6.2. Banking Government’s policy of working through clearing banks may not be the best way of handling SME export finance. The US has the EXIM bank with a wide range of assistance available directly to smaller exporters, and Germany has its state owned regional banks with a remit to develop local employment and exports. In addition, German government support is available to insurance companies for the provision of the special retention bonds required in the oil and gas industry. Government should review the possibility of UKEF dealing directly with insurance companies in the same way.

6.3. Targeting Alderley‘s sales efforts are more often successful when it identifies a project at an early stage and follows it closely. Government, through its Embassies, could identify projects which they think will present opportunities for UK SMEs and make sure that a UK company is prepared to bid for them. The oil and gas industry is particularly suitable for this approach. Benefits are obvious if a contract is obtained, but choosing who should be a ‘National Champion' is a problem.

6.4. Coordination Better coordination is always a good thing. However most exporters in the oil and gas industry expect to manage their own submissions. The responsibility for coordination rests with them. All they need from government and other agencies is the availability of good support and the willingness to make it available quickly when required.

7. Personal Opinions The author of this report has been involved in managing SME type engineering businesses for most of his working life, either as a partner, or a majority shareholder. He, also, has had extensive experience in business politics with long service on the CBI Small Firms Council, the ECGD advisory council, and the board of the Bristol Chamber of Commerce. When Alderley was started in 1989, it was accepted that it would not fulfil its potential without a substantial, and expanding, amount of export work. This has been achieved, but only by following an unconventional approach to

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many aspects of the business. Some of the lessons learnt, and personal opinions on how to deal with them are summarised below; 7.1. Development of an Export Business

Development of Alderley’s export business has been a long term project. Alderley has been trading for 23 years, with the majority of its export development done in the last 15 years. Whilst mistakes have been made, overall the current situation is very satisfactory. Getting to this position has required an approach to ownership, profit and management which is the antithesis of current UK practice.

7.2. Inexperience of Clearing Banks A continuing problem for Alderley has been the availability and cost of contract finance. The oil and gas industry presents particular difficulties because of the requirement for retention bonds. The main problems have been the lack of expertise in the regional banking sector and the absence of government support. Whilst new facilities available from UKEF will make a big difference they will still be administered by the banks. This is still proving very difficult. With semi nationalised banks representing such a large section of the available lenders, it is unacceptable that so little has been done to support smaller exporters.

7.3. Venture Capitalists The venture capital industry, as experienced by Alderley, has very little to offer small and medium sized exporters. Insistence on an ‘early get out’ is incompatible with the long term nature of the business. Venture capital enforced sales have led to foreign ownership of large parts of the industry. In this respect they are a threat to Britain’s export policy. There is a need for the type of long term finance which used to be available from ICFC. This means a different type of Venture Capitalist, who is more suited to the needs of an export led business.

7.4. Support from British Oil and Gas Companies Shell, BP and BG are mainly British companies who are major players in the international oil and gas industry. Whilst they all express interest in working with British SMEs, there is no doubt that their use of British, and particularly British owned, suppliers could be substantially increased. This would have many benefits both in the development of technology, and the enhanced reputation needed to sell to overseas oil producers without their own ‘in country’ equipment suppliers. Government needs to find a way of getting major oil companies to sponsor British owned, SMEs more effectively.

7.5. Currency The UK’s failure to join the common currency is a disadvantage to Alderley’s UK based export operations. The nature of the business requires forward exchange cover for most transactions. With long deliveries, few orders placed in sterling, and a European supply chain, this amounts to a substantial cost, and a drain on the company’s bank facilities.

7.6. Training Basic engineering skills are required for most oil and gas industry jobs. However there is a wide range of specialist skills which need to be added to the basics if the industry is to expand to its full potential. This work is probably best done in the SMEs, but targeted Government assistance, like the old EITB training grants could be useful whilst the industry is building up its resources.

8. Conclusions The SME section of the oil and gas equipment industry is already exporting a substantial amount of its products. There is, however, a lot more that could be done.

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The UK still has the engineering ability to undertake a much larger share of the worldwide business, but it must be enhanced by improved technology, better finance facilities and technical training. There is a major role for Government in ensuring that this happens.

29 August 2012

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Aston Business School - Written evidence


1. Research has been undertaken in recent years by the team of economists at Aston Business School (ABS) into the relationship between small business performance and exporting behaviour. We draw together a summary of evidence from 5 separate projects undertaken recently which have a direct bearing on the work of the Select Committee. These are:

• Export Propensity, Export Intensity and Firm Performance: the Role of the Entrepreneurial Founding Team

• Learning by Exporting: Lessons from high-technology SMEs • Exporting, Growth and Innovation • Exporting and R&D Expenditure • Contribution of Trade and Investment to High Growth Firms

Export Propensity, Export Intensity and Firm Performance: the Role of the Entrepreneurial Founding Team 3

2. This research has been based on a sample of c.400 British technology-based SMEs. It examined how the characteristics and experience of the entrepreneurial founding team (EFT) affect the export orientation and subsequent performance of the businesses they establish, while allowing for the mutually-reinforcing relationship between exporting and productivity.

a. We find that the set of EFT human capital needed for entering export markets

is different from that required for succeeding in export markets. Commercial and managerial experience helps firms become exporters, but once over the exporting hurdle it is education, both general and specific, that has a substantially positive effect.

b. We also find evidence that productive firms are more likely both to enter export markets and to be export intensive, and that exporting boosts subsequent firm productivity.

3. This may give rise to something of a strategic dilemma within the hi-tech SME. It is experience rather than educational dimensions of EFT human capital which is the key both to becoming an exporter and ultimately to increased productivity performance. On the other hand, better general and specific education provides the platform for export success. Moving from intermittent or sporadic exporting to a more strategic approach may therefore require the firm to acquire educational human capital which the EFT currently lacks, either by adding new members to the management team or by investing in the education of existing EFT members. Neither option is costless: the former clearly has a financial cost as well as the implications for coherence of the

3 Ganotakis P and Love J H (2013) ‘Export Propensity, Export Intensity and Firm Performance: the Role of the Entrepreneurial Founding Team’ Journal of International Business Studies, forthcoming.

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management team, while the latter option may involve a diminished input from a key (experienced) member of the team for a period of time. However, the pay-off in terms of increased export sales and the possibility of learning-by-exporting effects may be great, leading to the need for SMEs to consider carefully how important is substantial foreign market penetration to their overall strategy. Learning by Exporting: Lessons from high-technology SMEs4

4. Do firms learn from exporting? Given the amount of resources devoted by governments to supporting exporters, this is an important question. There are reasons to expect exporting to boost performance, both through the exposure to foreign competition which exporting brings, and through ‘learning by exporting’. However, the broad thrust of previous research is that more productive firms self-select into export markets, with relatively little evidence that exporting leads to higher performance thereafter.

5. We investigate the learning by exporting hypothesis by examining the effect of exporting on the subsequent innovation performance of c.400 UK high-tech SMEs. We find evidence of learning by exporting, but the pattern of this effect is complex. Exporting helps high-tech SMEs innovate subsequently, but does not make them more innovation intensive. There is evidence that consistent exposure to export markets helps firms overcome the innovation hurdle, but that there is a positive scale effect of exposure to export markets which allows innovative firms to sell more of their new-to-market products on entering export markets. Service sector firms are able to reap the benefits of exposure to export markets at an earlier (entry) stage of the internationalization process than are manufacturing firms. Innovation-intensive firms exhibit a different pattern of entry to and exit from export markets from low-intensity innovators, and this is reflected in different effects of exporting. Exporting, Growth and Innovation5

6. This research analysed the export orientation of small and medium enterprises (SMEs) based on the Annual Small Business Survey and the findings are summarised as follows:

a. Exporters tend to be older more established businesses and with well qualified owners/MDs.

b. Innovation is an important determinant of exporting, and exporting behaviour is much higher in London and the south east of England.

c. Product innovation is not surprisingly important in explaining export performance of manufacturing industries but not services.

d. Contribution that exporting can make to growth, in terms of output, employment and labour productivity? Exporting and innovation are strongly

4 Love J H and Ganotakis P (2013) ‘Learning by Exporting: Lessons from high-technology SMEs’, International Business Review, forthcoming.

5 Driffield, N and Anon Higon, D (2000) Secondary analysis of SBS Annual Small Business Survey 2004: Exporting, Growth, and Innovation, Report for UKTI; Anon Higon, D and Driffield, N (2011) ‘Exporting and innovation performance: Analysis of the annual Small Business Survey in the UK’, International Small Business Journal, Vol. 29, 1, 4-24.

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associated with firm growth, and with productivity growth, even after allowing for industry and regional effects.

e. Innovating firms are, therefore, a potential target for policies designed to boost exporting activity at the firm level, as exporting activity is associated with both output and productivity growth.

f. Finally, the analysis examines the financing constraints of firms, and shows that exporters appear significantly less likely to obtain finance than non-exporters. Exporters also appear more optimistic than average, so whether financiers see exporters as being too ambitious, or whether the financial markets see exporting behaviour as too risky is unclear.

Exporting and R&D Expenditure6 7. A study by ABS for UKTI on the relationship between exporting and R&D

expenditure revealed the following from a review of the literature:

a. OECD comparative evidence suggests that for the majority of countries there is a positive relationship between exposure to foreign markets and innovation/R&D.

b. The econometric empirical evidence suggests a mutually self-reinforcing mechanism linking R&D, innovation and exporting. Firms performing R&D and innovating are more likely to export and to be more export intensive. Exporting in turn assist firms in performing R&D and innovating.

c. Relationships between innovation, exporting and productivity are complex but suggest that innovation itself is not sufficient to generate productivity improvements.

d. Overall, our review of the literature suggests there are good reasons to expect exposure to export markets to increase the likelihood that firms will innovate, and to increase the R&D and innovation performance of exporting firms.

8. Our empirical analysis enables us to say with a high degree of confidence that there is clear evidence that the UKTI’s standard trade development support has a positive and significant impact on R&D activity and spend. Further, there is evidence that a combination of support from UKTI under this heading enhances the level of R&D spend.

9. The findings of our quantitative empirical research for this evaluation for UKTI reinforce conclusions of the literature review with respect to the links between trade and innovation, and policy implications:

a. Innovation itself is not sufficient to generate productivity improvements. Only when innovation is combined with increased export activity are productivity gains evident;

b. Therefore, innovation interventions oriented towards helping firms to innovate can have even greater effects where it helps firms enter export markets or expand existing export market presence.

6 Driffield, N; Du; Hart, M; Love, J and Tapinos, S (2010) ‘A Comparative Evaluation of the Impact of UK Trade & Investment’s R&D Programme and Other UKTI Support that Impacts R&D’, Report for UKTI.

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c. We conclude that trade development support is an important element in the armoury of policy instruments relating to innovation policy and specifically to the policy aim of increasing UK R&D by 2014.

Contribution of Trade and Investment to High Growth Firms7

10. This project for UKTI was designed to investigate the contribution of trade and

investment to high growth firms (HGFs)8 in the UK. The key empirical findings of this study relating to exporting and outward investment, using ONS and FAME data, were as follows:

a. A firm with a track record of exports has a significantly higher likelihood of being a HGF than their non-exporting counterparts.

b. A firm with non-UK subsidiaries has a significantly higher likelihood of being a HGF than their counterparts that do not make overseas investments.

c. Exporting matters – firms who derive turnover from overseas markets, ceteris paribus, have the highest rates of growth in sales – firms who have opened EU subsidiaries are also more likely to have achieved higher rates of growth.

14 September 2012

7 Bhaumik, S; Bonner, K; Gong, Y; Hart, M; Temouri, Y and Anyadike-Danes, M (2012), Contribution of Trade and Investment to High Growth Firms, report for UKTI forthcoming.

8 The OECD metric for identifying an HGF requires that the firm has at least 10 employees at the beginning of the period and records an annual average growth of 20% in employment over the period

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Barclays Plc – Written evidence

Barclays Plc – Written evidence EXECUTIVE SUMMARY

1. Barclays welcomes the opportunity to respond to the Call for Evidence on SME exports. We recognise how important exporting is to delivering economic growth and creating jobs. The challenge is how to encourage a greater number of SMEs to fulfil their export potential.

2. For over 300 years, Barclays has been supporting business customers of all sizes to

grow domestically and overseas. We keenly recognise our responsibilities in helping our customers to trade internationally through the provision of a holistic set of trade solutions. In the last 12 months in the UK market we have processed over 141,000 trade related transactions. Over the same period, our Invoice Finance operations in the UK have processed more than £57bn of invoices for early payment; and we have made significant credit lines available to our UK clients, with total limits marked for Bonds Guarantees and Indemnities totalling £13.1bn and a further £1.1bn for Letters of Credit.

3. Trade is a key priority for us and a considerable growth area for our business. We have more than one hundred front office staff focused on trade in our Corporate division, and our Business Banking division will include 90 CITA qualified International Specialists by the end of 2012. Our aim is to have a scalable business providing trade and working capital facilities to businesses ranging from small family run enterprises to large corporates. To bolster our trade offering, we have recently launched ‘Business Abroad’ - a package of tools and information to help small businesses export for the first time with confidence. The ‘one stop shop’ includes a range of measures such as international credit checks, export document preparation and a currency account. Each aspect has been designed to help small businesses overcome barriers to exporting, buffeted by practical advice offered by our network of Business Managers and our regional link-up with UKTI.

4. In responding to this consultation, we draw on two pieces of research - a survey of 250 UK business leaders currently trading in Africa; and a piece of research among 1,500 small businesses, split into those who currently export and those who do not. Our research indicates there is considerable untapped potential for SMEs to contribute to international trade, with around a quarter of small businesses considering exporting for the first time in the next five years and over half of current SME exporters looking to branch out into new markets. Though the more traditional markets (US, Germany, France) currently dominate, we are keen to encourage SMEs to set their sights further afield to the opportunity-rich emerging markets. The fundamental – and deceptively simple – challenge is to encourage more SMEs to see themselves as potential exporters, and then to provide the information they need to take their business overseas: most notably, knowledge of local markets and contacts.

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5. We work closely with both UKTI and ECGD (UKEF) and welcome the efforts of the Government in supporting both organisations. In our response we highlight a few areas which may merit further exploration by the Committee:

• There is a perception that traditionally ECGD (UK Export Finance) products have been directed towards larger corporates, so we support further efforts by ECGD to adapt their products to the SME market.

• Trade finance is critical to supporting SMEs to export, and we are concerned that the new EU capital rules threaten to hinder trade finance provision.

• We would welcome a concentrated focus from Government on working in partnership on trade missions with organisations best connected to the business community, such as trade associations and financial institutions.

QUESTION RESPONSES What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors?

6. Approximately one in six of our small business customers9 currently trade

internationally, mainly in manufacturing, health, construction and technology sectors. More than half (60%) trade in Sterling only; and of those that trade in other currencies, around 80-90% trade in US Dollar or Euro only. This is mirrored by our research10 which finds that the top three markets for both novice and experienced exporters are currently the US (52% presently export to the country), France (47%) and Germany (46%). The popularity of these markets is likely linked to geographical proximity and/or common language.

What contribution could SMEs potentially make both now and in the future, and within which markets and countries?

7. There is considerable untapped potential for SMEs to contribute to international trade. Our research indicates that 23% of small businesses not currently exporting are considering doing so within the next five years. A further fifth (21%) are currently undecided as to whether to start exporting, and may yet be persuaded of its benefits. Small businesses in the manufacturing sector are more likely than those in any other to say they are planning to start exporting (46%).

9 Small business customer = annual turnover less than £5m.

10 Research carried out by Vanson Bourne during June 2012 on behalf of Barclays amongst 1500 small businesses in the UK. Small Businesses = fewer than 250 employees and up to £5m annual turnover. ‘Novice’ exporters = exporting and/or marketing abroad for less than three years; ‘experienced’ exporters = exporting and/or marketing abroad for more than three years.

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8. The key focus for potential exporters is the US (35% say they plan to start here), Germany (33%) and France (32%). The research indicates a gap between perceived opportunity and existing plans – while 30% of non-exporting small businesses say China is a great opportunity, only 14% of those planning to start exporting intend to do so there.

9. There is also significant scope for existing exporters to expand their operations.

Our research shows that 66% of small businesses that currently export plan on branching out into new markets within the next five years. This intention is most prevalent among construction and manufacturing sectors (81% and 70% respectively). France, Ireland and Germany are the most popular new target markets for small businesses that have been exporting for less than three years; while the key target markets for experienced exporters are China, Hong Kong, Australia and India.

10. Although often overlooked, we believe Africa holds considerable potential for UK

exporters. The continent is experiencing an era of change and long-term growth prospects are strong, with improved political and economic stability coupled with abundant reserves of natural resources. Despite attracting only 3% of global investment in 2011, IMF forecasts predict that Africa will be a leader in economic growth over the next five years. Our clients have shown increased interest in the region and we have recently hosted a series of events to present business opportunities in Africa. In addition, to gauge attitudes towards trading with Africa, Barclays earlier this year commissioned a piece of research11 among 250 prominent UK business leaders that currently trade in the area: • 64% of those currently exporting to Africa believe opportunities will grow in the

next five years, with a similar proportion looking to increase the amount of goods or services they sell in the area during this period.

• 92% believe there are opportunities for UK business in Africa, with 32% saying these opportunities are ‘huge’.

• While over a quarter (29%) believe it is challenging to do business in Africa –

citing poor regional integration, corruption, payment systems and infrastructure – 36% say conditions are rapidly or steadily improving.

11. Through our investment bank, we have established new facilities to support SME to

SME trade between the UK and Africa. How does the UK’s SME export performance compare to those in competitor countries? What can the UK learn from their successes?

12. We would like to draw the Committee’s attention to a model we believe works well. Barclays currently runs ‘Business Clubs’ in Kenya, Ghana and Uganda which offer local businesses the opportunity to attend international trade fairs, network with companies around the world, and participate in seminars. In Kenya, for example,

11 Africa: The UK’s emerging trade partner

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more than 2,000 members have been assisted by Barclays and UKTI to visit more than 10 countries including the USA, Japan and China since the Club’s inception in 2003. As a result of the Business Club offerings, there has been a remarkable improvement, with businesses including leveraging on contacts and transacted businesses worth in excess of Kshs 3 billion (approximately £21m at current exchange rates).

What are the perceived and real risks and opportunities to SMEs of exporting?

13. Potential for accelerated growth is the greatest opportunity exporting presents. Indeed, small businesses who intend to start exporting or expand their exporting operations identify an increase in turnover, an increase in profits and a change in products/services as their top three reasons (45%, 44% and 26% respectively). This is corroborated by the experience of those who have started to export – 48% of small businesses who export have seen an increase in sales over the last two years; compared to 30% of those who do not.

14. On average, small businesses who export have experienced average growth of 30% during the last two years. The vast majority cite exporting as the reason for this accelerated growth (78%). The impact on the bottom line is swift – on average, small businesses see the impact within their first year of exporting. Perhaps understandably, 84% of those who export say this aspect of their business is important to future growth plans and 53% believe exporting will contribute increasingly to their bottom line in coming years.

15. Aside from the bottom line, small business exporters point to increased confidence in the future of the business (44%); a high level of productivity (37%); increased innovation (28%); and a longer lifespan for their products/services (27%).

16. There is a well documented link between exporting and job creation. Our research finds that 57% of small businesses who export say they have employed more people as a result of their exporting activity. On average these businesses say they take on 16 more employees a result of exporting.

What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them?

17. Small businesses who currently export were asked what advice they would give to other small businesses considering exporting. The top three suggestions were: researching the target market (49%); understanding the UK tax implications of trading overseas (31%); and protecting cash flow (22%).

What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign

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languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barriers and market failures?

18. Businesses perceive different barriers at different stages of their exporting journey. Our research finds that small businesses who do not export see the top three barriers as: the size of their business (40% believe their business is simply too small to export); identifying a potential market (27% believe there is no market for their products/services); and finding potential contacts (22%). Other reasons include different tax/legal structures (17%); not knowing where to start (15%); lack of resources (13%), language and cultural differences (13%) and perceived bias to local markets (13%); a lack of information (11%); a lack of time (10%) and customs procedures (10%).

19. Novice exporters see the top three barriers to expansion as: finding contacts (30%);

legal and tax structures (27%); customs procedures (25%) and the size of their business (25%). Key barriers for experienced exporters are: finding contacts (30%); legal and tax structures (25%) and language and culture (24%).

20. Protecting cash flow is often cited as a key risk of exporting and finding ways of doing this could be presented as a barrier to international trade. Interestingly, in contrast to expectations in 2008 for increased demand for letters of credit, we have seen increased use of open account financing during the last few years, with more than 80% of global trade now conducted on this basis. As companies have moved away from more traditional types of trade, we have seen increased demand for structured products with lower capital ratios in place of overdrafts.

What are the key factors to encouraging SMEs: a) which already export, to sell more overseas; or b) which do not currently export, to start doing so?

For example, how have developments in information technology influenced the performance of SMEs and their capacity to compete internationally for trade and investment?

21. The increased use of the internet has certainly lowered the barriers to starting out in

international trade. We are seeing more start-ups exporting from the outset.

How effective are the Government’s current policy mechanisms in supporting SMEs to export at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting? What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets? How should Government act and behave with regard to SME exports? Should the Government target specific sectors, markets or types of companies where

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the potential is thought to be greatest? What are the costs and benefits of such an approach? Is there sufficient co-ordination of actions and awareness across Government and other bodies? How should other bodies be acting?

22. We would like to answer the four questions above together. Our expertise centres

on trade finance so we offer comments on two key areas: ECGD and the impact of the Capital Requirements Directive on trade finance provision.

23. We welcome the efforts of the Government in developing schemes to support exporters. Barclays has been working extensively with ECGD and we are pleased to have concluded numerous transactions that allow SMEs and large corporates to trade internationally. Nonetheless, there is a perception that traditionally ECGD (UK Export Finance) products have been directed towards larger corporates - seemingly too complex for SMEs. The Q1 2012 British Chamber of Commerce trade survey illustrated a lack of widespread use, with just 3% of respondents having used UK Export Finance. As a result, we have been working with ECGD to adapt products to the SME market. We would encourage ECGD to do more to help this process – such as introducing more competitive pricing and speeding up the application process.

24. The provision of trade finance is critical to supporting SME to export, and we are concerned that the new EU capital rules threaten to hinder the provision of this type of finance. While Barclays fully supports the objectives of CRD IV, there are some unintended consequences that could impact the ability of financial institutions to provide trade finance. Barclays has been proactively engaging with EU policy makers to recommend a separate correlation curve for trade finance to address the different risk profile of this kind of finance.

25. We work closely with UKTI; their products and services are excellent in helping SMEs export. However, a greater number of SMEs could benefit if UKTI’s profile were higher. To this end, we encourage UKTI to focus their endeavours on partnering with organisations best connected to the business community, such as trade associations and financial institutions. Financial institutions have a truly extensive business customer network, coupled with close relationships held by business managers/relationship directors. They also have a global footprint, with local knowledge and a customer base in a range of markets. Trade associations, while typically nationally or locally based, are an excellent conduit between Government and the business community, and have considerable ability to galvanise their members. We would welcome a concentrated focus from Government on working in partnership on trade missions, building on existing work such as the CBI’s Turkey trade mission in April 2012 and the Barclays Business Clubs in Africa. It may be most effective for UKTI to select a small number of emerging markets and a number of countries within them to focus their efforts around. UKTI might like to consider dedicated trade missions for small businesses, as distinct from the broader category of SME.

14 September 2012

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Betfair Ltd - Written evidence

Betfair Ltd - Written evidence Introduction

1. This paper constitutes the response of Betfair Group plc (‘Betfair’) to the Select Committee on SME Exports (‘the Committee’) and refers specifically to the company’s own experience within the sector of remote gambling12. Betfair is happy to supply additional information on anything referred to in this paper if that would be of use to the Committee.

2. This submission answers the questions set out in the call for evidence which are relevant to Betfair or the gambling sector more generally, as well as providing some additional introductory information about the company.

3. Betfair falls under the definition used by the Mid-sized Businesses Growth Review13 to describe such companies; given it has an annual turnover (revenue) of between £25m-£500m per year. Betfair’s annual revenue for FY12 was £389.7m14. Betfair was established in 2000 by Andrew Black and Edward Wray as an internet start-up and since then has gone on to become a market leader in the gambling industry. By the beginning of 2002 Betfair had grown to 40 people and was awarded The Ernst and Young Emerging Entrepreneur of the Year Award in 2002 and The Queen's Award for Enterprise in 2003. By 2005 Betfair employed 800 people, and today Betfair has a workforce of over 2,300 people globally.

About Betfair

4. Betfair is one of the largest UK-headquartered betting companies operating purely online. Betfair became a public company in October 2010, entering the FTSE 25015. Betfair has over four million registered customers around the world and is a global company with in London, Stevenage, Halifax, Ireland, Australia, the US, Romania, Malta and Gibraltar.

5. Betfair’s core product is the world-leading online betting exchange, a concept which it pioneered. The exchange uses technology similar to a stock exchange, allowing Betfair to offset its risk perfectly by exactly matching sports betting supply and demand in a way not possible for traditional bookmakers. The exchange processes more than seven millions bets a day, more than the total number of the transactions on all the European stock markets combined. Betfair offers casino, exchange games

12 Remote covers gambling on the internet and telephone. The term ‘remote’ is more often used or used interchangeably with the term online. Betfair will refer to the ‘remote gambling sector’ in this paper.

13 Definition of Mid-Sized Businesses http://www.bis.gov.uk/analysis/statistics/mid-sized-businesses

14 Betfair Annual Report 2012, page 25 http://html.investis.com/B/Betfair/annual-report-2012/

15 http://corporate.betfair.com/

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http://www.bis.gov.uk/analysis/statistics/mid-sized-businesses

http://html.investis.com/B/Betfair/annual-report-2012/

http://corporate.betfair.com/


(such as Blackjack) and poker products and has recently launched a sportsbook (a traditional fixed-odds betting product).

6. Betfair is a British internet success story employing some 850 software developers and engineers worldwide, the majority of whom are based in either the London headquarters or at the company’s development office in Cluj, Romania. Remote.

7. Betfair currently holds licences in Malta, Gibraltar, Italy, Australia, Denmark, Spain, the German State of Schleswig-Holstein and the US (through its horseracing TV channel TVG).

8. Until 2011, Betfair was one of the few remaining remote gambling companies licensed and paying General Betting Duty in the UK. In March 2011 Betfair took the commercial decision to switch its betting exchange from operating under a UK licence to a Gibraltarian one. However, Betfair’s headquarters remain in the UK and it is committed to meeting, and exceeding, the same social responsibility standards as required by the regulator here - the Gambling Commission.

Questions Current export market

1) What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors (both directly and through the supply chain to larger companies)?

9. As a purely remote gambling company, Betfair offers its gambling services overseas where the company deems it legal to do so based on European Single Market laws or the law of any specific jurisdiction16. Gambling is a legitimate leisure activity in most countries. For example, in the UK an estimated 73% of the adult population participate in some form of gambling every year17.

10. When Betfair was established in 2000 just about all of its revenue was derived from customers registered in the UK. In the space of 12 years this has radically changed. Betfair now generates 47% of its revenue from customers registered outside of the UK with the majority of those being based in Europe.

2) What contribution could SMEs potentially make both now and in the future, and within which markets and countries?

16 In many jurisdictions, both within and outside Europe, there are no specific laws in place regulating remote gambling. Betfair does not accept customers from countries where remote gambling is expressly prohibited, including the US, China and Turkey.

17 British Gambling Prevalence Survey 2010, page 9: http://www.gamblingcommission.gov.uk/PDF/British%20Gambling%20Prevalence%20Survey%202010.pdf

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http://www.gamblingcommission.gov.uk/PDF/British%20Gambling%20Prevalence%20Survey%202010.pdf


11. Betfair has always operated a strategy of trying to secure gambling licences in countries that have, or are in the process of, implementing a regulated remote gambling regime.

12. Europe has a growing remote gambling market, particularly in the Eastern European region where significant growth rates are being seen as internet penetration increases. Other European countries are slowly starting to regulate remote gambling, which Betfair sees as a positive step forward as it can potentially allow companies to operate more freely across borders within a licensed and taxed framework that can help provide long-term stability for businesses. However, in seeking to regulate the remote gambling sector, the primary aim of some governments appears to be protecting domestic companies, which in turn can mean imposing unnecessary restrictions in these jurisdictions. Therefore, the ever-changing regulatory environment for remote gambling leaves the sector, and operators within it, in a state of increased business uncertainty which places limitations on the overall economic contribution they can make.

13. In order to address this, the UK Government needs to support British companies, both at the level of the European Institutions and nationally, when those companies meet with unjustified market barriers which potentially restrict severely their future capacity for growth. Within this context Betfair has very positive relationships with the Department for Business, Innovation and Skills, UK Trade & Investment (UKTI) as well as many Ambassadors and UK Embassies around the world. All have been (and continue to be) of great assistance to Betfair.

3) How does the UK’s SME export performance compare to those in competitor countries? What can the UK learn from their successes?

14. Betfair has no specialist knowledge on this topic. Internationalisation of SMEs 4) What are the characteristics of successfully exporting SMEs? How do they differ from SMEs that are not exporting?

15. The remote gambling industry is already highly regulated in many jurisdictions. It can also be an industry towards which individual governments pursue a highly protectionist approach. This can see certain restrictions imposed on companies like Betfair making them less able to successfully export their products to other countries. From Betfair’s experience as a one-time SME which has since grown rapidly, a key growth factor, as highlighted in Betfair’s answer to question 2, is the willingness of the British Government to support companies wanting to operate abroad in order to help ensure the latter are able to achieve their full potential.

16. For their part, companies themselves must be committed to long-term planning and prepared to involve themselves in the political process of engaging with foreign governments and then seeking the removal of trade barriers, both of which can be a lengthy, complex and expensive process. Admittedly this can be difficult for smaller businesses, so it may be that they should consider the merits of joining a representative trade association in order to increase their bargaining power and

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spread the costs of lobbying governments or similar activities with like-minded organisations who want the same outcome.

5) What are the perceived and real risks and opportunities to SMEs of exporting?

17. The opportunities of exporting to non-domestic markets are significant, not least in the remote gambling sector. ‘New’ gambling markets where internet penetration is increasing are growing much faster than the more mature UK market. Consequently, internet-based gambling operators can achieve significant growth in a relatively short space of time.

18. However, within the remote gambling sector there is also a risk in basing future growth on exporting into foreign jurisdictions due to the constantly evolving regulatory environment, which inevitably creates a degree of uncertainty. Remote gambling companies have tended to try and mitigate this risk by ensuring they have as good as possible understanding of individual markets. They have also sought to ensure that revenue is derived from several jurisdictions so that risk that can be spread - and so better managed.

6) What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them?

19. Please refer to the answers provided by Betfair in response to questions 2 and 4.

Barriers and market failures 7) What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barriers and market failures?

20. Within the remote gambling sector the continuing failure to complete an EU Single Market is a huge barrier for British companies like Betfair, as well as other well-known operators like Ladbrokes, William Hill and bet365. These businesses require Member States to either adhere to the values of a Single Market or choose to impose a national-level regulatory structure which allows any company, wherever they are based, to gain a licence to operate providing they meet the standards set by that specific jurisdiction. The standards required should be based on requiring a defined and acceptable level of social responsibility from companies coupled with the application of an equitable rate of tax for all operators. Clearly, if larger companies, like those named above, are experiencing difficulties then so will smaller enterprises.

21. Within the remote gambling sector some jurisdictions have applied, or are seeking to apply, unjustified trade barriers to keep out foreign companies - with the European Institutions seemingly unwilling to address the issues this raises for remote gambling companies. Betfair was encouraged by the launch of a Green Paper on Remote Gambling in 2011 with a Communication on the subject expected this autumn.

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22. As has already been emphasised, the Government needs to support SMEs in Brussels

and at a national level when other Member States seek to impose unjustified and unlawful market restrictions. This help can take many different forms including (but not limited to): initiating contact between relevant politicians and officials; setting up meetings between the interested parties; being willing to show practical support for British companies and, even engaging in legal challenges, if necessary.

Incentives 8) What are the key factors to encouraging SMEs:

a) which already export, to sell more overseas; or b) which do not currently export, to start doing so?


23. To be able to export a product into foreign jurisdictions, a company must have a stable market at home. For example, when Betfair launched it needed to have business confidence in the UK market before expanding into other jurisdictions. Businesses wishing to export to new territories must also be prepared to take some level of risk and to invest a degree of time and resources into opening up and developing new markets abroad.

Government Actions 9) How effective are the Government’s current policy mechanisms in supporting SMEs to export at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting?

24. Within the remote gambling sector the Government’s policy is proving effective in some countries. For example, Betfair has worked closely with UKTI and the Foreign & Commonwealth Office to illustrate the company’s credentials as a British technology success story and to successfully lobby for gambling licences in Spain and Italy. These successes have included having a ‘Betting Exchange Decree’ passed by the Italian Government and working with the Spanish Government and regulatory bodies there to ensure the regulation of betting exchanges is specifically provided for in their primary legislation and the introduction of further practical regulation for the industry.

10) What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets?

25. From Betfair’s experience, the UK Government already has the expertise needed to help companies which are facing market restrictions abroad, however, active engagement on issues is sometimes found wanting due to a number of factors. For example, the Government is often very sensitive to another country’s cultural

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differences and therefore does not seek overly to involve itself in debates about specific sectors, such as gambling. It also has to be recognised that the resources in central Government, within UKTI and at Embassies with which to help a large number of companies across diverse and often complex industries are finite.

11) How should Government act and behave with regard to SME exports?

26. As well as the tangible measures outlined in Betfair’s answer to question 7, the Government needs to ensure that from the Prime Minister down, the importance of supporting British businesses is recognised and turned into concrete action whenever realistically possible.

12) Should the Government target specific sectors, markets or types of companies where the potential is thought to be greatest? What are the costs and benefits of such an approach?

27. In general, markets and specific sectors tend to change too rapidly for this to be a valuable policy. The role of the Government here, Betfair would contend, should be to support British business where it is needed and justified. The specific type of sector within which businesses operate should very much be a secondary consideration.

13) Is there sufficient co-ordination of actions and awareness across Government and other bodies? How should other bodies be acting?

28. The experience of Betfair shows that government bodies and departments can work very well together and co-ordinate action when needed. For example, when Betfair has needed to work with the Department for Culture, Media & Sport and the Department for Business, Innovation & Skills, they have both communicated with worked well together and in the company’s interest, and have been keen to involve UKTI and relevant Embassies when necessary.

September 2012

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Birmingham Chamber of Commerce Group - Written evidence

Birmingham Chamber of Commerce Group - Written evidence The Birmingham Chamber of Commerce Group (BCCG) consists of the Birmingham Chamber of Commerce, the Solihull Chamber of Commerce, the Lichfield and Tamworth Chamber of Commerce, the Burton and District Chamber of Commerce and the Chase Chamber of Commerce. The BCCG is one of the largest Chambers in the UK with 3,000 members and 20,000 affiliate members. Geographically the Chamber Group covers a large swathe of the West Midlands and closely mirrors the geography of the Greater Birmingham and Solihull Local Enterprise Partnership. The Chamber Group is a vocal advocate of businesses issues and lobbies both local and national government in the Interest of Greater Birmingham plc. Acronyms, abbreviations and terms Micro business – a business employing fewer than 10 employees Small business – a business employing between 10 and 49 employees Medium Business – a business employing between 50 and 249 employees Large business – a business employing more than 250 employees SME – Small to Medium sized Enterprise (here inclusive of Micro businesses) N.B. All data presented in tables is taken from the Birmingham Chamber of Commerce Group’s Trade Survey from Q1 2012 Current export market What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors (both directly and through the supply chain to larger companies)? SMEs make a significant contribution to the UK’s export market. SMEs, particularly Manufacturers, within the West Midlands have a global reach due to the high quality goods that they produce and their role within national and international supply chains. However calculating an exact estimate is difficult. HMRC’s Trade in Goods figures, for example, do not record exports below a certain (although not unsubstantial) threshold. This distorts the role played by SMEs within exporting as well as regions such as the West Midlands that have many thousands of SMEs. Table 1 below highlights the propensity of SMEs (excluding micro-businesses) to export and indeed companies employing less than 250 employees are almost twice as likely to export than larger companies within the West Midlands. However businesses employing less than 10 people are more than half as likely to export as larger SMEs. The countries that SMEs export to are broadly consistent with those that larger firms export to. However table 2 highlights that businesses employing less than 50 people are slightly less likely to export to the EU – although this still represents the most important market for SMEs. Of the medium sized firms that export 91.4 per cent export to the EU while this figure is 100 per cent for larger firms.

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Table 3 shows that SMEs within the West Midlands are far more likely to be part of an international supply chain with 6.3 per cent and 9.3 per cent of micro and small firms, respectively, placing themselves within this category. This figure is 10 per cent for medium sized businesses while fro large firms this figure is 2.9 per cent. Larger firms are much more likely to form part of an international business/group/chain with 42.9 per cent surveyed reporting this to be the case. This figure is 30 per cent for medium sized firms and 10.10 and 12.4 per cent for micro and small businesses respectively.

Table 1 Total

How many people are currently employed by your business

Which one of the following best describes your business

Micro (0-9)

Small (10-49)

Medium (50-249)

Large (250+)

Not specified

Currently export goods, products and/or services to overseas/international markets from the UK

32.00%

18.20%

43.10% 43.20% 22.90% 42.90%

Do not currently export, but have exported in the last two years

2.90%

2.50% 4.60% - 5.70% -

Do not currently export, but actively considering it

4.80%

8.20% 5.40% - - -

Do not currently export, but likely to consider exporting in the future

6.40%

11.30%

3.10% 3.70% 5.70% -

Do not currently export and unlikely to do so in the future

53.90%

59.70%

43.80% 53.10% 65.70% 57.10%

Table 2 To where do you currently export?

Total Micro (0-9)

Small (10-49)

Medium (50-249)

Large (250+)

Not specified

BRIC countries 48.50%

37.90%

47.30%

57.10% 71.40% 33.30%

CIVET countries 37.10%

31.00%

34.50%

42.90% 42.90% 50.00%

EU Member countries 88.60%

82.80%

87.30%

91.40% 100.00% 100.00%

EEA countries outside the EU

37.10%

44.80%

34.50%

31.40% 57.10% 33.30%

Other OECD member countries

59.10%

51.70%

63.60%

60.00% 57.10% 50.00%

Other countries in Europe (non-EEA or non-EU members)

31.10%

27.60%

34.50%

28.60% 42.90% 16.70%

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Countries in Africa 41.70%

37.90%

43.60%

42.90% 42.90% 33.30%

Countries in Asia including the Middle East

57.60%

51.70%

56.40%

65.70% 71.40% 33.30%

Countries in the Americas

36.40%

27.60%

45.50%

28.60% 28.60% 50.00%

Countries in Oceania 19.70%

10.30%

18.20%

20.00% 42.90% 50.00%

Table 3 Tota

l Micro (0-9)

Small (10-49)

Medium (50-249)

Large (250+)

Not specified

My business is part of an international business/group/chain

17.80%

10.10%

12.40% 30.00% 42.90% 21.40%

My business is part of an international supply chain (e.g. supplying goods, products and/or services to those that then export)

7.70%

6.30% 9.30% 10.00% 2.90% 7.10%

My business is an agent or distributor for overseas businesses

6.00%

5.70% 8.50% 5.00% 2.90% -

My business is an importer (e.g. import components, food stuffs, finished goods, services, etc)

9.90%

10.10%

9.30% 11.30% 8.60% 7.10%

None of these 67.80%

76.60%

69.00% 57.50% 48.60% 64.30%

What contribution could SMEs potentially make both now and in the future, and within which markets and countries? Table 4 shows that while businesses of all sizes are increasingly concentrating their efforts outside of the EU SMEs are more likely than large firms to focus on the EU. Indeed 64.2 per cent of small firms reported that they believed the EU will provide their companies with the greatest opportunities compared with 42.9 per cent for large firms. Larger firms appear to be more comfortable making inroads in BRIC countries for example where 71.4 per cent reported that this market represented the greatest opportunities – compared with 52.9 per cent for medium firms, 50.9 per cent for small firms and 27.6 per cent for micro businesses. However anecdotal evidence suggests that the contained within the SME category is a broad church with highly innovative exporters who have, with great deals of success, broken into many emerging markets to businesses that are uncomfortable treading new ground.

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Table 4 Which of these countries do you believe will provide your business with the greatest opportunities for growth in the next 12 months?

Total Micro (0-9)

Small (10-49)

Medium (50-249)

Large (250+)

Not specified

BRIC countries 45.70% 27.60% 50.90% 52.90% 71.40% 16.70% CIVET countries 12.40% 13.80% 9.40% 11.80% 14.30% 33.30% EU Member countries 57.40% 58.60% 64.20% 47.10% 42.90% 66.70% EEA countries outside the EU

7.80% 10.30% 7.50% 2.90% 14.30% 16.70%

Other OECD member countries

31.00% 31.00% 35.80% 23.50% 28.60% 33.30%

Other countries in Europe (non-EEA or non-EU members)

10.10% 6.90% 15.10% 5.90% - 16.70%

Countries in Africa 22.50% 44.80% 20.80% 5.90% 28.60% 16.70% Countries in Asia including the Middle East

38.80% 37.90% 41.50% 35.30% 14.30% 66.70%

Countries in the Americas

13.20% 17.20% 15.10% 8.80% - 16.70%

Countries in Oceania 3.10% 6.90% 3.80% - - - None of these 2.30% 3.40% 1.90% 2.90% - -

Internationalisation of SMEs What are the characteristics of successfully exporting SMEs? How do they differ from SMEs that are not exporting? SMEs, by their nature, are small operations with scares resources. The Chamber’s trade survey found that many SMEs admitted that they sometimes became distracted from developing their export market due to the day to day needs of their business. Although the difference between large firms and smaller firms is not as large as many would expect it is clear that large firms can afford to employ specialists devoted to developing export markets while many SME owners must play multiple roles within their business. Clearly some manage this well while others recognise the importance of exporting and devote resources to this activity. Additionally there are a multitude of other factors that can influence a business to export from familial ties to a region or country to language skills and knowledge of the regulatory systems of other countries. Within small firms these factors can be more pronounced as they are much more difficult to mitigate due to scarce resources and time constraints. However Birmingham Chamber of Commerce Group believes a key issue discouraging businesses from exporting is the taxation and employment law implications. Businesses employing less than 5 people and or earning less than 250,000 are often reluctant to expand

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due to the implications that this could have on their business in terms of the rate of corporation taxation that they pay and employment/ health and safety law that they would have to follow – this is particularly true for manufacturers.

I often get distracted from developing my export markets by the day-to-day management of the business

Total Micro (0-9)

Small (10-49)

Medium (50-249)

Large (250+)

Not specified

Agree strongly 15.50% 11.50% 19.60% 14.30% 12.50% - Agree slightly 31.00% 38.50% 39.30% 14.30% 25.00% 25.00% Neither agree nor disagree

15.50% 19.20% 14.30% 17.10% 12.50% -

Disagree slightly 10.10% 11.50% 8.90% 8.60% 12.50% 25.00% Disagree strongly 23.30% 15.40% 14.30% 40.00% 25.00% 50.00% Don't know / Not applicable

4.70% 3.80% 3.60% 5.70% 12.50% -

What are the perceived and real risks and opportunities to SMEs of exporting? Perceived and real risk include a lack of market awareness, market identification, successful management of routes to market, issues surrounding IP, certification and documentation, export finance, tax and regulation. Opportunities include product diversification, market growth, spreading risk, business innovation, developing partnerships and strengthening business models; obviously financial growth, turnover and profit. What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them? The role of UK Trade & Investment is crucial in supporting SMEs into international markets. SMEs benefit from existing UKTI products and services including the Passport to Export Programme, Global Gateway Programme, Overseas Market Introductory Service (OMIS) etc. Undoubtedly increased support through the UKTI network with a focus on market readiness via UKTI International Trade Advisor (ITA) support and mentoring would result in positive impact. Essentially SMEs should be partnering with government and stakeholders in internationalisation readiness programmes. Barriers and market failures What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barriers and market failures?

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What are your principal reasons for not having exported goods and/or services?

Total Micro (0-9)

Small (10-49)

Medium (50-249)

Large (250+)

Not specified

Do not have a suitable export product or service

77.30% 70.60% 77.40% 97.20% 76.20% 62.50%

Have sufficient business in the UK

19.20% 25.90% 20.80% 2.80% 14.30% 25.00%

Have limited knowledge of the commercial aspects of exporting, e.g. credit terms, collections and finance

4.90% 7.10% 3.80% - 4.80% 12.50%

Have difficulty sourcing market information and/or identifying export opportunities

3.40% 3.50% 3.80% - 4.80% 12.50%

Have difficulty finding overseas customers, agents and/or distributors

3.40% 3.50% 3.80% 2.80% - 12.50%

Have fears of payment problems

3.40% 4.70% 3.80% - - 12.50%

Have a lack of product development funding

1.50% 3.50% - - - -

Cannot find the resources to make it happen

3.90% 7.10% 3.80% - - -

Language and/or cultural differences with overseas markets

3.00% 4.70% - - 4.80% 12.50%

Concerns about risk exposure

1.50% 1.20% 1.90% - - 12.50%

Concerns over the paperwork involved

1.50% 2.40% - - - 12.50%

Other (please specify below)

3.40% 2.40% 7.50% - 4.80% -

Incentives What are the key factors to encouraging SMEs:- -which already export, to sell more overseas; or

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-which do not currently export, to start doing so? For example, how have developments in information technology influenced the performance of SMEs and their capacity to compete internationally for trade and investment? The provision of structured, supported services that aim to mitigate first-time export risk and provide an authoritative and effective guidance/mentoring system able to navigate and guide. Managing expectation – being encouraging but prudent. Greater and wider marketing and awareness of current support programmes from UK Trade & Investment and other international trade organisations. Fact finder flying visits to ‘starter markets’ and fact finder flying visits to strategic international exhibitions and shows – including UK international exhibitions. Greater and wider marketing and awareness of current support programmes from UK Trade & Investment with an emphasis and support on market expansion and with bespoke solutions for larger businesses. Using support and services from other funding streams (EU) and working with national and international multipliers and stakeholders. Ensuring that the UK Export Finance initiative is well marketed

Which one of the following would be most likely to increase your exports?

Total Micro (0-9)

Small (10-49)

Medium (50-249)

Large (250+)

A reduction in corporation tax

12.90% 10.30% 12.50% 14.30% 14.30%

An increase in capital allowances

3.80% - 5.40% 5.70% -

Simplification of VAT rules/a reduction in VAT administrative burden

15.90% 27.60% 10.70% 11.40% -

Reduced employer NICs 10.60% 3.40% 16.10% 11.40% - Improvements to the Controlled Foreign Companies tax regime

1.50% - 1.80% - 14.30%

None of these 37.10% 44.80% 37.50% 31.40% 42.90% Don't know 18.20% 13.80% 16.10% 25.70% 28.60%

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Government Actions How effective are the Government’s current policy mechanisms in supporting SMEs to export at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting?

Which of the following export support organisations have you used, if either?

Total Micro (0-9)

Small (10-49)

Medium (50-249)

Large (250+)

UKTI 44.30% 37.90% 49.10% 38.20% 50.00% UK Export Finance (formerly ECGD)

3.10% 3.40% 1.80% - 12.50%

Neither of these 55.00% 62.10% 50.90% 61.80% 37.50% What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets? Commercial Diplomacy appears to be working well but needs aligning more thoroughly with UKTI. Overseas Posts are good – the information fed into the UKTI website also good. UKTI is not widely known enough; more resource needs to be allocated to publicising the service with budget allocated regionally to reflect local imperatives. Chambers of Commerce are an ideal mechanism to support and integrate export intelligence into the wider marketplace. How should Government act and behave with regard to SME exports? SME export development requires a long-term strategy of engagement. Such a strategy needs to be robust in that export / international trade is not for everyone and that must be recognised – but adequately resourced to support and develop an increased demand that any effective marketing campaign would command. Multipliers and stakeholders are an important route to consolidating the message and delivering local, focused support. Should the Government target specific sectors, markets or types of companies where the potential is thought to be greatest? What are the costs and benefits of such an approach? It isn’t fashionable to pick ‘winners’ but it is essential to ensure that potential exporters have the means to engage successfully. Export can be cash intensive and resource intensive. Current policy in driving the BRICS and emerging markets is in important but we should not lose sight of the importance of Europe and North America. Again, we suggest that there would be considerable greater take up by SMEs new to export or those looking to new markets if UKTI marketed and positioned itself more effectively and robustly.

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Is there sufficient co-ordination of actions and awareness across Government and other bodies? How should other bodies be acting? There should be greater emphasis on aligning support and market knowledge through strategic engagement between government, multipliers and stakeholders. To a considerable degree this is being undertaken with the banks / financial institutions and UKTI but could be extended more widely into universities and Chamber of Commerce. The Chamber of Commerce movement is responsible for export documentation and certification and is uniquely positioned to add considerably to SME export development. September 2012

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Black Country Chamber of Commerce - Written evidence

Black Country Chamber of Commerce - Written evidence The Black Country Chamber of Commerce is the voice of business across Dudley, Sandwell, Walsall and Wolverhampton, an area which collectively employs almost half a million people and which has a strong manufacturing base. With over 1,500 members Black Country Chamber is well-placed to represent the needs of employers in this industrial heartland.

The Government’s growth agenda must include assistance for businesses to engage in international trade to increase the UK’s exports. The Government must support exporters as a way of bolstering the UK economy and the channels for inward investment to the UK must be more structured, as is the case with our European counterparts.

Black Country Chamber would strongly advocate the strengthening of UKTI within the context of a national strategy based on local delivery.

1. What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors (both directly and through the supply chain to larger companies)?

The recent British Chambers of Commerce Trade Survey was completed by 259 Black Country businesses and showed that exporting was not a particularly high priority for local firms. Whilst 42% of respondents export currently, 41% do not and state that they are unlikely to do so in the future and 93% do not have a formal written export strategy. Yet, SMEs can potentially make a very significant contribution to UK exports, as the experience of Black Country firm Mechatherm over the last five years demonstrates.

2008 - 2012

Country Total Turnover £

%age of total

Australia £56,240 0.08%

China £147,802 0.22%

Dubai £1,371,796 2.04%

Egypt £9,726,466 14.49%

Finland £4,829 0.01%

Germany £343,603 0.51%

Greece £1,166,838 1.74%

Iceland £118,741 0.18%

India £3,823,065 5.70%

Malaysia £479 0.00%

Netherlands £13,673 0.02%

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Norway £165,381 0.25%

Palestine £20,216 0.03%

Quatar £5,000 0.01%

Russia £8,167,217 12.17%

Slovenia £18,950 0.03%

South Africa £4,246,914 6.33%

Sweden £4,586,994 6.83%

Turkey £19,603 0.03%

United Arab Emirates £24,782,228 36.92%

United Kingdom £4,249,960 6.33%

USA £271,797 0.40%

Venezuela £3,817,071 5.69%

Total £67,124,863 100.00%

Q2 What contribution could SMEs potentially make both now and in the future, and within which markets and countries?

Clearly there is significant opportunity in encouraging SMEs to export. However exports must be sustainable and have real growth potential. The territories to target are subject to the specific product.

Q3 How does the UK’s SME export performance compare to those in competitor countries. What can the UK learn from their successes?

We are not as strong as our USA competitors who have had more than a head start into all the markets that UK firms are approaching. The UK ‘lags behind’ in terms of competitiveness, knowhow and drive.

Q4 What are the characteristics of successfully exporting SMEs. How do they differ from SMEs that are not exporting?

Successfully exporting SMEs do not see exporting as a last resort, only to be considered as a result of deterioration in sales revenue or market share. They have export strategies and allocate resources to the delivery of those strategies.

The strongest attributes are a propensity for innovation, focused sales & marketing team and awareness of the market potentials, and take a targeted approach to exporting. Non exporters concentrate too heavily on the domestic market and are therefore prone to the spikes of the UK economy.

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Q5 What are the perceived and real risks and opportunities to SMEs of exporting?

Cash flow and payment risks are export deterrents. The risk of non payment and fraud is high and creates fear of exporting.

Lack of exporting know how/skills, access to trade finance and finance to expand, as well as the ease of finding customers, agents and/or distributers are also of concern. Political risks are a deterrent for exports to African countries. Over 55% of respondents in our survey highlighted the availability of export information and support as a problem.

Difficulties with overseas legislation or bureaucracy are also a concern, as well as with transport or shipping.

Q6 What steps that SMEs that want to export take to prepare themselves to do so. What role should Government play in supporting them?

A thorough and in depth assessment of the potential market is essential. OMIS is very good but the cost is prohibitive for many SME especially with the number of reports often required for one region. Analysis of territories, potential sources of enquiries and clients is critical.

Companies preparing to export need to establish links and relationships with:

Banks – Letters of Credit, Bank Guarantees

Insurers – Risks insurances, Product Liabilities,

Embassies & Consulates - help in analysis of territories, local advice on business practices

7.1 What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts?

The key barrier is lack of experience which ultimately leads to fear of exporting. There should be much more funded support via UKTI. A series of funded flights / missions should be arranged on a national level and a high level marketing campaign targeted at the SMEs.

Language barriers are of course huge but this again could be overcome if UKTI had a series of regional translators directly working for them that could assist on a telephone / email basis to the subsidised companies. This would then offer a seamless service to the client abroad.

For smaller firms expenditure regarding trying to export could be potentially prohibitive. Fear of unfeasibly high workloads or having to employ more staff is very significant for SMEs.

One significant barrier is the ability to provide bank guarantees for the contract. Many small companies have to cash cover bank guarantees, as well as having an overall facility limit placed upon them by banks (even if they have the cash cover).

Many SMEs have reported extreme difficulties with trade credit insurance and the lack of support from the insurance industry over the past four years. Business are still reporting a removal of cover without warning, a reduction of cover for the remaining “insurable” customers, an insistence that minimum premiums have been met even though cover has

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been removed or reduced and a lack of understanding of industry and global commodity prices and its impact on selling prices.

A code of conduct that ensures insurance providers’ decisions are transparent and clear to customers would be welcome. A state-backed export credit insurance scheme for marketable countries would be useful in future downturns or periods of market disruption.

Businesses, including SMEs should be able to go directly to the insurer, rather than having to go through a broker, who will often take 15% or so of the premium for themselves and insurers seem to want to use brokers as their salespeople.

Businesses do not feel that they get the best deals through a broker and there is also the perception that brokers are not properly licensed or regulated. If brokers are used, they must all report directly to the licensing authorities.

The lack of state-backed export trade credit insurance continues to cause problems. The private insurance industry has withdrawn wholesale from certain markets and sectors without undertaking serious qualitative analysis of an individual company’s health. Even for larger firms, this has meant the loss of potentially valuable business because insurance could not be obtained, without which the deal would have been too great a risk for the company.

Letters of Credit have become difficult to use during the past few years, as banks can refuse to make payment for the slightest of reasons, for example small discrepancies in documentation.

Some SMEs have reported changes to insurance policies being brought in during the lifetime of the policy, as well as premiums being arbitrarily increased. Yet firms are unable to talk to the insurers directly to ensure that they have all of the details of the business that they require to make a sound decision, based on risk.

Local firms have reported that trade credit insurance was withdrawn at precisely the moment they had purchased it for in the first place. Its withdrawal has seriously impacted upon the businesses’ ability to export, offer expected lines of credit to their customers, and have lines of credit extended to them by their suppliers, as well as damaging their cash-flow at a critical time. Insurance cover in some cases has been cancelled overnight with scant regard for what was actually happening on the ground, with little or no room given for appeal, argument or explanation.

Banks and insurance companies have not looked at businesses and their customers on an individual basis; rather they have viewed whole industrial sectors as too risky. The businesses would have been happy to have provided more information on their customers to prove their risk-worthiness, but say that insurance companies were unwilling to listen.

Problems have also been created by banks using export trade credit insurance risk decisions made by insurers to assess the company’s credit worthiness, threatening wider trade finance. Even where trade has been fully insured, banks have still refused to advance export working capital or bond payments because they consider the customers and/or markets as too risky – even if there is a history of secure payment.

Overall, the insurance companies need as less formulaic approach and need to look at the credit worthiness of individual companies to make decisions, even if this means increasing premiums to more accurately reflect the level of risk. Banks should stop the use of trade credit insurance decisions as a guide to an individual company’s credit-worthiness. Insurers

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and banks should look at each individual situation or application rather than taking blanket decisions on industries.

Businesses report problems with communication from the banks and insurers to their customers. There has been little in the way of relationship banking and insurance-broking and their customers, which has exacerbated the financial institutions misunderstandings of the real state-of-play on the ground. There is also a lack of understanding of industry and global commodity prices and its impact on selling prices.

Going forward, many companies have depleted balance sheets because of the last several years of recession, and might have recorded losses, despite being healthy companies in the medium and long-term. However, banks and insurers are still using this balance sheet data to make lending and cover decisions on these companies. As a result, many viable companies are unable to access the finance and insurance they require for successful trade. Banks and insurers must therefore find new ways of working out the credit worthiness of individual companies.

The ECO has received criticism from local exporters because of its slow response in both processing times and its response to telephone enquiries. This may seriously affect our competitiveness in international markets.

The charging of VAT on export invoices is another concern. Businesses are required to prove that goods have ben exported when they have been collected by the customer. However a declaration from the customer to this effect is not acceptable proof of export and HMRC are advising exporters to charge VAT and only issue a credit for the VAT once they have received a copy of the customer’s shipping invoice, which must clearly state that the good were collected and exported.

This is causing problems with customers who refuse to pay the VAT and even if they do, once they have the goods it can be difficult to obtain a copy of the shipping invoice.

HMRC have responded to this by suggesting companies obtain recovery of the VAT through the legal system, as with any other debt. Yet this does create a significant time and cost increase for SMEs, as does the loss of orders from overseas customers who will prefer to order goods domestically to avoid the difficulty altogether.

Furthermore, when businesses produce goods for an export customer who may be working on a project within the UK they may ask the firm to deliver goods inside the UK. As they must charge VAT on invoices, this creates additional problems if the customer is registered outside of the UK, as reclaiming the VAT is extremely difficult. One example was an order relating to the Olympics, where a local firm won a sizeable order for goods from a German customer who wished them to be delivered to one of the Olympic venues in the UK. When the VAT issue was explained, the customer immediately cancelled the order and bought the goods from Germany, exporting them from Germany to the UK and later advised that this worked out cheaper.

7.2 How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting?

Larger companies experience the same barriers as SMEs, but are more able to deal with them, due to the either with assets or a larger turnover whereby costs or employing more staff are proportionally less significant. However, despite this, if SMEs are unable to resolve

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these issues there will be a negative impact across the supply chain, which will clearly affect larger firms.

Foreign languages have not been raised as a particular barrier to exports, although it does act as a deterrent to more uncertain, less experienced exporters. Translators are readily available, albeit at a cost. SMEs find the advice from Chambers of Commerce and UKTI particularly valuable in relation to this. However, the poor language skills in the UK must be addressed to significantly increase our overseas competitiveness in the long term.

7.3 How can Government help SMEs overcome the barriers and market failures?

Banks, insurers, the government and business are not co-ordinated enough in their understanding of the market. This stands at odds with France and Germany, where the key players work together much more closely.

If the state will not create a scheme similar to those offered in all comparable trading nations, the insurance industry and its regulators should ensure that the long-term price for risk is factored-in to ensure that withdrawals of cover do not happen again. It is unlikely that the industry will be able to do this itself. There could be a premium for a central fund for when insurers withdraw cover, although this must not be set at a level which prices SMEs out of the market.

There must be a return to relationship banking if the problems described by businesses are to be avoided in the future; this should be accompanied by increased knowledge of trade finance and insurance issues at the front line.

The fact that the UK has opted out of the Schengen Agreement is an issue for non EU trade visitors and could be discouraging foreign businesses/investment. Government should consider this issue and determine whether there is any movement on this – if the Agreement itself could be tightened.

Aviation policy is critical. Business leaders in high growth or emerging economies see direct air links as vital to maintaining the UK’s prospects in global markets in terms of inward investment and increased trade. Consequently, the Government must ensure that all of the UK’s Strategic airports are exploited to their existing capacity, not only those of the South East airports and specifically Heathrow. This would play a vital part in rebalancing the UK economy and creating jobs. Birmingham Airport has the capacity to double its passenger numbers immediately at a fraction of the time and cost provided surface access links via road and rail to regional airports are improved. This would provide enhanced competition between airport operators and would relieve pressure on airports in the South East. The Government should support of the UK’s strategic airports, which would present substantial additional aviation capacity more quickly and cost effectively, irrespective of South East-specific residual capacity constraints and any major infrastructure plans that would take decades to deliver. Addressing the high cost of air travel would also assist in making exploratory visits overseas more feasible.

There is a need to ensure that UK gives best possible support to UK businesses looking to export. The UK is at a competitive disadvantage in terms of Government support provided to businesses looking to export. Recently Lord Green confirmed his view that International Trade Shows have proved a successful market entry method for exporters, yet there is often criticism that the UK presence at international trade shows is poor by comparison

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with our overseas counterparts. The Government should consider extending financial support to exporters to enable more SMEs to take part in international trade shows.

Increasing awareness of and encouraging take up of UK Export Finance by SMEs would also be beneficial.

Over half of businesses responding to the Chamber survey believe that EU member countries would provide the greatest opportunities for growth. Therefore, a free trade area with continental Europe would be of the most benefit to business in the long term.

8. What are the key factors to encouraging SMEs:

a) which already export, to sell more overseas; or

b) which do not currently export, to start doing so?


Subsidies / grants should be seen as investment in the future. It is very expensive funding trips abroad and sending out of sales teams, if a costed ‘partnership’ approach was adopted to prevent abuse then this would merit a significant shift in emphasis with a measured output that could be benchmarked across relevant industries.

Increased technological advances have been fantastic but without the confidence or incentive to exploit them they are merely unused tools.

9. How effective are the Government’s current policy mechanisms in supporting SMEs to export at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting?

SMEs report a positive experience of dealing with UKTI, however they feel that resources are too stretched. Enabling more flexibility and local discretion within UKTI services would better assist the business community.

Relaxing the eligibility criteria for export assistance would also be welcomed. Businesses require ongoing financial support to continue to export/return to markets, as well as support for first-time exporters. There is a perception that active exporters are penalised.

There is concern that in the current climate, protectionism will increase. The Government should continue to resist protectionism, whilst influencing overseas governments to reduce import duties.

If match funding were in place it would encourage more companies to take the initial risk and invest in exporting.

10. What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets?

11. Should the Government target specific sectors, markets or types of companies where the potential is thought to be greatest? What are the costs and benefits of such an approach?

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The framework should not be too rigid, otherwise innovation will be stifled. Government support for exporters must be flexible enough to take advantage of the opportunities provided by changing global economic circumstances. The Government could support the redistribution of resources by UKTI to facilitate access opportunities according to where local businesses may have a competitive advantage.

September 2012

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Black Country Metals Limited - Written evidence

Black Country Metals Limited - Written evidence Firstly, I'd like to give you some background of where I am coming from. I am an SME trading metals globally from our offices in the West Midlands, our company has been in business for 26 years. I am an ex Board Member of UKTI after which I chaired the Advanced Engineering Sector Advisory Board and currently chair the International Business Forum for the West Midlands under the umbrella of UKTI, as well as representing the Black Country on International matters. As well as the above, I sat on the panel to judge the Queen's Award for Export and was awarded my CMG in 2002 for exports. Please find below my comments accordingly. Current export market 1. I answer this question as an SME, there is no doubt about it in my mind that the manufacturing sector is exceedingly well supported by the SME structure in the UK and indeed there is a thirst in today's global market for SMEs to engage. The obvious markets being China, India, Russia and Brazil but for some SMEs the competition can be quite fierce in the BRIC countries. The will to export into smaller more accessible and less competitive areas is a must and I think SMEs do their best to meet that challenge. 2. Obviously Europe is a key to first-time exporters too. I feel some SMEs could be supportive of others as mentors and looking to work in a "hand-holding" capacity. The knowledge that SMEs have, especially with Managing Directors or Export Sales Managers is grass roots stuff and therefore the understanding of global markets is exceedingly high. 3. Many individuals go abroad on their own to look into export market potential, though UKTI gives good and strong support where SMEs are aware of their existence. Other countries appear to be more joined-up and give more national leadership, I think it is obvious that we do lag behind in markets and obviously look for guidance especially from our posts abroad. Internationalisation of SMEs 4. It is a known fact that SMEs who are exporting are better run companies as they have a broader view of the markets potentially available. There is also a higher confidence factor for those entering and working in the global market today. This is something which I feel strongly needs to be highlighted and maybe used towards future progress. 5. The risks are many, in fact some SMEs do not enter the export market because they don't understand it, and are fearful of the risks involved. Today's market is exceedingly tough and it can be difficult to find the right partner abroad. The obvious risks are getting paid, knowing whether or not you can obtain insurance cover and especially the correct paperwork that can be a minefield on its own.

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6. The Government through UK Trade & Investment (UKTI) do an excellent job, in my view, supporting international trade both at home and abroad. However, as I have already mentioned, many companies try and enter into global markets without the knowledge of Government agencies. What we need to do is to give confidence to potential exporters. Quite often people from Chambers of Commerce for example, will try and lead, but have never exported themselves It's a scenario which I look at and which I can say that if you work in the office then it is very difficult to lead the team onto the pitch for a cup final! There is a tendency for those who advise to talk down to potential exports and this shouldn't be the case, what we need to do is to engender enthusiasm and opportunity. Barriers and market failures 7. I generally do not think the Government can do much to help SMEs overcome the barriers and market failures but it's good to be able to make sure that payments are in order. Many businesses do not realise how helpful the UK banking sector can be in making sure that monetary exchange is made correctly. Barriers are numerous, over regulatory paperwork stemming especially from the European Union can put people off exporting. Funding is not as available as it was and I anticipate it will become even more difficult. Operationally, customers don't sometimes realise when they go into an export market they need to have the costs of getting their goods into the market in their hand. Quite often people go abroad not realising what the container rate from UK to the destination country would be, for example, and the costs involved. There needs to be clarify and support in this area especially. As regards which way we lag behind in the UK to the point where if you are competing with another country for business and you don't speak that country's language and your competitor does, there is no doubt about it that the competitor will get the business. This is a point that is not well understood or hardly talked about in the UK and needs addressing with some seriousness. Incentives 8. I have already mentioned the companies that do not currently export, they need support and hand-holding. Information technology can be helpful but business is not done over the world-wide web and is usually done by people meeting each other face to face to gain the confidence needed to go forward. Government Actions 9. UKTI is, as already mentioned, a great supporting organisation. Some SMEs think that the Government is more focused on multi-national companies and the representative view of the SMEs for exporting could be a low priority. Bearing in mind the value of the SME sector, this should be addressed. I don't see barriers to exporting, as such, but better co-ordination especially regionally and nationally, could be very helpful. 10. I feel the UKTI system can work very well indeed to provide adequate local intelligence to assist SMEs with the programmes that UKTI have, especially OMIS. Sometimes business does not know who to turn to for assistance, we need to ask also how well recognised is the UKTI offer. With budgetary constraints upon that organisation, they may not be in a position to raise the profile to encompass you potential exporters.

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11. The Government should hold in high regard and high importance the potential of SMEs, as from little acorns grow ....... 12. The Government should target specific sectors especially, as I have already mentioned in manufacturing, costs obviously balance with business success and there should be a national awareness of certain sectorial priorities, such as manufacturing, infrastructure, etc. 13. This is a good question because there is insufficient co-ordination of actions and awareness across Government and other bodies and appropriate organisations. Examples are that export trade missions go from one area without other areas of the country knowing, even with local authorities organising their own trips without letting those around them know and the awareness factor becomes very parochial, this obviously hinders potential. As regards inward missions, they are usually jealously guarded by the destination the inward mission would come to, but if an inward mission comes to a certain area where there's just a few business people, because of the parochial view it would be much more positive to have a wider and more mature attitude to encompass, so those areas around inward missions destination would have more people to encourage our potential trading partners abroad to come back to the UK, or for us to go and visit them. There needs to be quite a lot of work to co-ordinate, from a UK point of view, how we are going to go abroad and take UK business to levels that can be more easily attained with the right approach. September 2012

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Blue Sheep LLP - Written evidence

Blue Sheep LLP - Written evidence Money Mapping for Export Growth P1.Manufacturing is the third largest area of activity in the UK economy – after professional and business services and retail � representing just over 12 per cent of the UK economy. Around 25 per cent of manufacturing companies are in high technology industries, which make intensive use of capital, knowledge and R&D, and require a specialist workforce.

These characteristics apply across the aerospace, agrifood, automotive, chemicals and energy sectors, where companies depend on long-term investment decisions to develop processes and buy equipment. P2.The UK has world-class capability across these sectors but companies in these areas need to compete in – and win investment from � international markets, in order to flourish. Both the aerospace and automotive sectors, for instance, export some 70 per cent of their products. P3.Even through challenging economic times, there are unparalleled

opportunities for British manufacturers around the world as the emerging high growth markets - such as Brazil, India, Russia and China - continue to grow. Europe still, for most new Exporters, represents the biggest opportunity and the easiest market to access due to it’s closeness to the UK. P4. In the UK, if we are to make progress in reducing our trade deficit, we need to encourage more small and medium-sized manufacturers to begin exporting, and to encourage those already doing so to export more and find new markets. P5.When starting out in any new market it is important to identify two key factors "Who are your customers?” “Who will buy your product?" Assumptions about these two key questions lead to wrong decisions, wrong pricing, wronmarketing strategy – and ultimately, businessexporting failure.

can g

P6. The most successful exporting businesses understand that only a limited number of people will buy their product or service. The task then becomes determining, as closely as possible, exactly who those people are, and 'targeting' the business's marketing efforts and sales efforts toward them. The expense of securing an export order makes it imperative that resources are focussed where success is more likely. P7. We can build a better, stronger business exporting strategy, by identifying and serving a particular customer group – your primary target market where sales are more likely.

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P8. One of the first things you need to do is to refine your product or service that you are

going to export and analyse the customer base that buy those products and services so that you are NOT trying to be 'all things to all people.' This focus will pay dividends in the future. P9.This is where the Money Map pays dividends. Money Mapping delivers amazingly powerful insight that is proven to shape export engagement simprove first up engagement and transformperformance.

trategy, export

P10. After using Money Mapping a company in distance selling sector benefitted from 11% increase in sales and a 30% growth in profitability by extending its reach and brand to a much broader targeted audience that spent more on more profitable products. P11. Can you have too many targets? If the principles of Vilfredo Pareto are to be embraced then, as a rule of thumb, 80% of your export business will typically come from 20% of your customers. This of course is a generalisation but the point is, for many companies, a large percentage of your targets will not generate much business, ever. So ensuring that you target only those that matter is critical to success. Bigger better opportunities first. P12. Taking customer inequality seriously Inequality is a highly charged word. It suggests unfair treatment, disproportionate care, favouritism and much more. In business, inequality should not be translated as poor service or bad experience but a proportionate response to the commercial value represented. This is where Blue Sheep have a winning idea for UK Exporters. P13. Blue Sheep®’s approach analyses precisely what’s in your customer database, exactly where the revenue comes from, what proportion of the market is represented, how customers monetarily segment themselves and whether your exporting ‘efforts’ and expenditures are aligned to these segments. We call this a Money Map. P14. At its simplest level, Money Mapping addresses four classifications of customers in descending order of value to you: • Those that you should treasure – Treasure • Those that yield less but are consistently productive – Sales Promotion • Those smaller organisations with high growth potential – Market Development • Those that should be avoided – Avoid

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P15. Overview Not all customers, products and activities are equally profitable, but to identify the areas that will deliver the greatest value requires the right information. P16. Blue Sheep’s customer profiling service (Money Map) identifies, extracts and analyses your raw business information – including your CRM, sales and accounts systems – to reveal trends, inefficiencies and untapped opportunities. It looks not only at what your clients spend but projects what they, and similar businesses, could spend with you in the future. It places a value above every door in the land for your product or service so you can be sure that you are contacting the businesses that are most likley to be potential new and profitable clients. P17. With this in-depth understanding of who your customers and prospects are and what drives their behaviour, you are ideally placed to meet their needs – resulting in a dramatic improvement in your financial performance as your efforts are directed at where the rewards are bigger and better. P18. The process

P18.1. Data Gathering:

Two types of data are gathered together in the initial stages.

a. Your customer database, pricing information & transactional data is matched together to create a simple single customer view.

b. External financial information on your customers and industry-specific data on market dynamics and decision makers as well as an external database of prospects that covers all the European markets.

P18.2. Analysis:

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Internal & external information is imported into a proprietary data warehouse, cross-referenced and analysed using pre-agreed metrics, all based upon the Blue Sheep Money Map

P18.3. Insight Full report on the results of the analysis, including risk of customer attrition, customer buying potential and most viable high value targets

P19 The Benefits Our customer profiling service helps you understand:

• Each customer’s potential spend so as to determine where to concentrate your sales efforts. • Which customers provide the best return for your business, so you can target them appropriately? • The purchasing processes of different types of customer so as to tailor your sales and marketing techniques for each category • Why some customers are more price sensitive than others where variable pricing exists • Customer attrition and recruitment patterns so as to assess which customers are at risk of moving on and which areas will produce more customers for faster growth • How to provide your customers with more value • How to communicate more effectively with your target segments

P20. Case study P20.1. A distance selling catalogue business suffering from declining response rates and erosion of margins from increased competition needed to identify ways to improve its performance without changing its primary marketing and sales processes. P20.2. Blue Sheep created a dedicated data file that combined the firm’s customer information and all data on orders, invoices, pricing and profitability with external intelligence on industry dynamics and finances. The resulting analysis revealed: • The common trends existing among high-margin customers. • A data profile on high-margin customers to enable the marketing team to target new business accordingly • The common trends in customer attrition to avoid potential further revenue loss more effectively • The buying patterns and processes of different customer types to underpin a segmented sales and marketing approach P20.3. Summary: As a result of these actionable insights, the customer profiling project yielded a full return on investment in less than two months. At Blue Sheep we are committed to helping businesses succeed. We do this by providing the most comprehensive business intelligence and advice so as to help our clients achieve their strategic export objectives. We have the experience and expertise to help businesses grow, and our service ensures you have the information

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you need to make the most profitable decisions possible and target the right businesses across the world for export lead growth. P20.4. The output from this work is:

• A full Money Map of the exiting UK customer base identifying where the business is being more successful. Each location ranked as to its potential revenue for each company.

• A split across Europe that identifies where the treasure accounts are in each country. • A sample of up to 500 records across Europe of the key targets for export sales.

P21. Additional available services to help Exporters: P22. Blue Sheep is based in Cheltenham and has access to many multi lingual organisations, many of whom will be able to use the identified prospect data to contact, via telephone, all potential clients. P23. These services are available at an additional cost to the Blue Sheep Money Map and can be used, if required, by clients to, for example, arrange meetings with the identified prospect organisations. P24. Blue Sheep’s process is aimed at identifying EU prospect organisations as, Blue Sheep believe, this would be the most appropriate starting point for all new exporters. Data is available for all other relevant World trading areas if required. P25. Guidance on costings. A project of this nature, Money Map and identification of up to 500 prospects, would normally cost BS clients in the region of £10,000 subject to volumes of data to be analysed and number of prospect companies selected. Blue Sheep would propose that, if Government funding was available for client projects, either fully or partly, to encourage business to enter the Export Market, then Blue Sheep would reduce their costs significantly based on likely project volumes. P26. The service, Blue Sheep believes, should be available via regional business organisations, (Chambers of Commerce etc) and UKTI. 14 September 2012

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BP Sail boats - Written evidence

BP Sail boats - Written evidence Thank you for your recent letter and questionnaire about the growth opportunities for SMEs. SMEs will florish again if Mr. Vince Cable and his ministers can put into place their current suggestions for the development of larger companies, eg cars, scientific developments, BAA etc, all of which have components supplied by smaller companies. These all need to be provided with support and incentives to grow and encouraged to export, as jobs will be created, people employed, their fami1ies provided for and their communities will prosper. The first sign of a failing economy is when employees of small companies which supply goods to the large ones are made redundant. Mr. Fallon states that he wants the Coalition to demonstrate by its actions that it is a business friendly administration by its actions. eg cutting red tape, easing employment laws, revision of taxes, this is all very well but businesses need financial incentives and support, and take the emphasis off providing more business loans. I would like to quote from a letter printed in the Daily Telegraph Sept 9th 2012 "The government must make sure that British industries have financial support to ensure they can meet national demand and increase exports. This is the only way to promote recovery and provide jobs" On a personal level, I still require financial aid to see my export product through to completion. I have the product, the market and customers asking for details, but am most uncertain if l can afford the final equipment for fitting out the dinghy and cost of transit to USA. I am doing my utmost to make these final arrangements. Potential customers approved of what they saw in design and materials used in the boat at the International 505 dinghy racing championships in France this summer. It is now a question of hanging on until someone actually places an order. Internationalisation of SMEs 4. Characteristics of successfully exporting SMEs Believe that you have a product of the highest quality, of modem functional design-fit for purpose, and that you can persuade people to think they need it to contribute to their project or is necessary to their life style. Dedication and long working hours for little money are also essential requirements as is providing an efficient after sales service and always lend an ear to what people are saying about your product and listen to their ideas for future developments and improvements if applicable. Research your potential market well and appoint an agent who knows the area and customs well, perhaps speak a native language if applicable, who is honest in handling your goods, over see the import of your goods, and most importantly your finances, payments etc.

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BP Sail boats - Written evidence

Government support? As stated above, financial support is usually the first requirement. As with the majority of projects, they usually cost more to complete than the original estimates suggest. Unforeseen costs always emerge, rising prices of materials, transport costs, insurances, licenses, trials of and extra wastage of materials, time wasting situations etc. 8 Incentives The key factors to encouraging SME A firms which already export, to sell more overseas or on the brink of doing so 1, government aid to assist the training of a highly skilled workforce related to the job. I myself received appropriate training at the East Anglian Boat Building College at Lowestoft Suffolk, it no longer exists -I was supported by a government grant, which my father paid into over a number of years. In the years, late 60's early 70's the government -Trades and Industry Department supported various industries, one of which was the Marine Industry. My father received a grant from them in order to go on a trade mission to the USA, this enabled him to travel all around the country, mostly coastal ,meeting potential c1ients/ agents who would be interested in importing and selling his boats, the first 505s . These had been proven and there were good sales in England at that time, and had been seen by the americans, french and germans. Sales boomed after this trip, we were in this market for the next 25 years, there after the firm diversified into the production of racing sailing lift keel Yachts, which were produced until 1996, when the firm was forced into liquidation Since then I had some work until recently I developed the new 505 which I am trying to market under my own name. The developments of information technology have greatly influenced the performance of SME's, though instant communication, of design, for acquiring up to date knowledge about the science and availability of required materials, appointments ,deliveries, securing and rejecting supplies and all financial transactions etc. I apologise if I have not replied to your questions I sufficient depth, but much of the required detail does not apply to me, as you will appreciate, the majority of my time is spent in the workshop, and as little as possible in the office unless directed at the production of the dinghy. 11 September 2012

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Bradford Centre in International Business (BCIB) - Written evidence

Bradford Centre in International Business (BCIB) - Written evidence Introduction This document contains evidence on SME internationalisation in some of the key areas requested by the House of Lords Select Committee on SME Exports. Members of the Bradford Centre in International Business have gathered and analysed various data sources to provide information on some of the major areas of interest as outlined in the Select Committee’s call for evidence. The paper presents an analysis of evidence on

1. Current export markets 2. Internationalisation of SMEs – Incentives and Disincentives 3. Barriers and market failures 4. Government actions 5.

Each of these sections contains an analysis of the evidence followed by some policy recommendations based on the analysis. The main thrust of the evidence is present in pages 2 to 7. The other pages provide back-up data as appendices and references. Author information Professor Frank McDonald, Professor in International Business & Director of Bradford Centre in International Business Dr Chengang Wang, Senior Lecturer in International Business Dr Nikolaos Papageorgiadis, Lecturer in Strategy Mr Asif Majid, Business Partnerships Centre Mr Ahmad Abu-Arja, Doctoral Student Current export markets The share of exports from manufacturing SMEs is about 45% of the EU‘s exports, compared to approximately 19% for the USA and 15% for Japan (USITC, 2010b). This implies that the large sizes of the domestic markets of the USA and Japan have encouraged larger firms to develop and they consequently dominate exporting and thereby reduce the internationalization of SMEs (USITC, 2010b). In EU, the USA and Japan, micro SMEs compose the lowest proportion of exporting SMEs, followed by small firms, with medium sized firms having clearly the highest proportion of exporting SMEs. This is the case in nearly all sectors, industries and technology intensities (European Commission, 2010). The UK is slightly below the EU average for the proportion of exporting SMEs in all size categories. Data on exports by UK SMEs by sector and region are in Appendix 1. The general pattern of UK SMEs exporting in terms of size, sector, industry and technological intensities is similar to that of the other large member states, with the exception of Italy, which has a larger exporting SME sector (European Commission, 2010). The major sector responsible for exporting SMEs in the UK, as is the case in most developed economies, is manufacturing, closely followed by wholesale trade, with exports from the service sector being considerably lower (European Commission, 2010, USITC, 2010b).

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Export trends (2000 to 2010) for most developed economies display slowly rising numbers of SMEs exporting and also the value of exports are slowly increasing. The fastest growing SME exporting sector in the EU is medium-technology industries, especially exports to emerging economies. High-technology EU SMEs have the fastest growth to Japan and Korea, there are also high growth trends for exports to small developed economies, and a declining share of exports to USA - from 28% in 2000 to 18% in 2010 (European Commission, 2011). The trend of value of exports to emerging economies is rising faster than to most developed economies, but this increase is from a low base. The data for exporting SMEs in the UK indicate that they have similar characteristics and are experiencing similar trends to the other large member states of the EU (BIS, 2010, European Commission, 2011). Summary The pattern of exports, in terms of SME characteristics such as size, industry and technological intensities, is similar in the UK to those in the other large member states of the EU. The UK, like most EU countries, has a much larger SME exporting sector and it is also structurally somewhat different from the SME sector in the USA and Japan. The emerging trend for SME exports is for declining share to large developed economies with expansion to small developed economies and emerging economies. Exports to the emerging economies are however from a low base. Manufacturing and wholesale trade are the dominant sectors where UK SMEs export. However, exports of services are growing, again normally from a low base. Recommendation 1 -UK policy can potentially learn from the SME policy’s successes and failures in EU member states that have a similar SME sector and probably have fewer useful learning experiences available from countries such as the USA and Japan. Given that Italy has a large SME exporting sector, relative to the other large member states, it is possible that examination of Italian support systems could provide valuable lessons Recommendation 2 - UK policy should identify the areas of fast growing export markets for SMEs by key characteristics such as size, sector, industry and technological intensity and ascertain the challenges and opportunities that SMEs with given key characteristics face in capturing and developing export markets in these fast growing markets. Internationalisation of SMEs – Incentives and Disincentives Data from the West Midlands (Marketing Birmingham Regional Observatory, 2012) indicates that small scale exporters (exports less than 10% of turnover) represent 5% total exporting SMEs (5%), which is the same as large scale exporters (export more than 50% of turnover). Medium scale exporters (export between 10 - 49% of turnover) however represent a much larger share- 12% of the total SME population. This study and others (BIS, 2010; European Commission 2010; USITC 2010a) find that exporting SMEs have higher productivity and are more likely to engage in innovative activities. These studies also find that exporting SMEs are also more likely to have high growth. It is not clear however if better performance results from exporting, or whether productive and innovative firms are more likely to engage in exporting. The evidence from studies such as (Julien and Ramangalahy, 2003; Dhanaraj and Beamish, 2003) indicates that for SMEs to export requires the acquisition of a set of capabilities in areas connected to product and process qualities, marketing and distribution knowledge, and abilities to manage effectively the cultural and institutional requirements of internationalization. The acquisition and development of such capabilities provides the

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competitive advantages necessary for exporting. Capabilities development requires the accumulation of resources suitable for such developments. These resources include networks of suppliers and customers; governmental and non-governmental supporting agencies, and an appropriate base of experienced managers and employees (BIS, 2010; OECD, 2009; USITC, 2010a). It is by the accumulation of such capabilities that SMEs overcome the limited resource base imposed on them by their small size. The evidence suggests that developed capabilities are a precursor to successful SME exporting, but engaging in exporting leads to learning that enhances performance (Martin and Yang, 2009). Thus SMEs with appropriate capabilities can benefit from exporting and by engaging in internationalization such SMEs further improve their performance. Although some micro and small firms successfully engage in exporting in nearly all countries and across most sectors, industries and technological intensities, medium sized firms tend to be more involved in exporting (European Commission, 2001 and 2011, USITC, 2010c). This connects to the problem of the lack of resources that impede many SMEs from exporting (Mittelstaedt et al, 2003; Terziouski, 2010). The evidence suggests that most micro, and many small firms, in medium to high technology sectors, export on the basis of pronounced firm specific advantage often based on radical and firm specific product and process innovations (European Commission, 2011). Often such SMEs internationalize close to their foundation. These so called ‘born globals’ are often considered to have high potential to grow and develop largely based on exports and other forms of international activities (Knight et al, 2004). The innovations used by micro and small SMEs appear to outweigh the restriction imposed by the constrained capabilities they can muster given their low resource base. Medium sized firms however are less constrained by small size and are therefore more likely to export using less focus on radical innovations in products and processes. The requirement for SMEs to have good capabilities in terms of product and process qualities, innovation and appropriate management skills is well testified in SME research (BIS, 2010, OECD, 2009, USITC, 2010a). Overall the evidence suggests that SMEs experience performance benefits from exporting, but they need to have appropriate capabilities in place before they begin to export. In this respect research on the management skills and other key capabilities of UK SMEs compared to potential competitors indicates that some UK SMEs may face challenges in matching the capabilities of their competitors (see Appendix II). It is possible that many UK SMEs face structural weaknesses that may undermine their abilities to develop the capabilities necessary to prosper in export markets. Summary Exporting SMEs can overcome the constraints they face to prosper in international markets by developing appropriate capabilities by acquiring resources by use of networks, managers and employees that have experience in exporting, and by innovation in products and processes. Those firms that succeed in acquiring the necessary competencies can enter a virtuous cycle of exporting based on good capabilities that further develop capabilities that foster more export opportunities. There is evidence that many UK SMEs face structural problems in terms of productivity, innovation and good management practices that place them in a poor position to compete in international markets. Recommendation 3 – UK policy should develop the UKTI partnership scheme for SMEs with support agencies and Business Schools to help SMEs to conduct capability audits leading to strategies to acquire the necessary resources to develop required capabilities that align

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with target export markets. This requires matching existing and likely acquired capabilities to potential export markets of SMEs and which accounts for the key characteristics of the SME. This would require considerable expansion and development of the existing UKTI work on partnership schemes with SMEs. Appropriate finance is required to permit effective partnerships of this type to be effective. Recommendation 4 – UK policy should seek ways to identify key minimum conditions that will permit SMEs to develop the capabilities necessary to flourish in export markets. SMEs that do not pass defined thresholds to develop necessary capabilities should have these defects rectified before they are encouraged to develop export markets. This requires policy that includes consideration of key characteristics such as size, industry etc and possible target markets. Barriers and market failures There are a host of surveys on the barriers and market failures that hinder SMEs from exporting or from expanding their exports. These include the UK (for example, Kingston University London & Barclays, 2010) the EU (European Commission, 2010 and 2011) OECD countries (OECD 2009) and the USA (USITC, 2010b). The main classifications of barriers are those internal to firms and those external to firms. The surveys place as the major internal barriers, quality of products and processes, problems with obtain appropriately skilled labour, and abilities to meet technical specifications. The top external barriers are normally finance, lack of adequate information, obtaining good public support, ability to deal with documentation and regulations and cultural and language problems. Most studies reveal minor differences in the rank order of these top barriers particularly according to size, with micro firms have most problems with both external and internal barriers. In studies that compare barriers to exporting for SMEs and large firms (European Commission, 2010) the affect of these barriers in nearly all sectors, industries and technological intensities is greater for SMEs than for large firms. There are some differences in the ranking of these barriers according to country, size of firms, sector, industry and technological intensity, but on the whole the same major barriers affect SMEs exporting activities in all developed economies, including the UK. Surprisingly cultural and language barriers rarely come top, or even second behind finance (nearly always first). Requirements for documentation relating to tariffs and conforming to regulations (DTR) normally rank highly as export barriers, usually higher than cultural and language barriers. Some studies however identify barriers connected to DTR issues as connecting primarily to institutional/cultural barriers (BIS, 2010, OECD, 2009). These barriers arise from informal institutional systems that link to cultural norms of behaviour. In this view, the barriers faced by exporters do not centre on failure to confirm to the 'letter' of DTR requirements. The real problems arise because of the way informal institutional systems operate in different countries that leads to outsiders facing difficulties in managing DTR requirements. Often these informal systems can led to considerable delays and unforeseen problems and costs even in cases were the 'paperwork' is in order. These informal institutional systems involve not only factors such as bribery and corruption, but include what is considered to be social acceptable procedures for obtaining permissions and licences, difficulties accessing customs clearance and transport and distribution permissions. The costs and risks of these informal institutional obstacles vary across countries and the World Bank (http://www.doingbusiness.org/) provides evidence on the nature and extent of these barriers in 183 countries

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http://www.doingbusiness.org/


There is a host of help available to SMEs to complete the 'paperwork' requirements for exporting. This help is normally available for most of the major destinations for exports. There are also numerous sources of help to understand basic cultural differences, for example, simple guides to business cultures and basic handbooks on cultural differences. These guides and handbooks do not normally however provide information on now differences in informal institutional systems can lead to increased costs and risks to exporters. It is likely that the evidence on the importance of 'paperwork' barriers for SME exporters embraces considerable elements of problems associated with managing informal institutional systems. Thus the high incidence of complaints about dealing with ’paperwork’ requirements is probably strongly linked to problems associated with informal institutional systems that lead to costs and risks in managing 'paperwork' requirements. Therefore, reported barriers of connected to DTR requirements and cultural problems are perhaps picking up problems associated with these informal institutional systems. The high incidence of barriers associated with obtaining good quality information and accessing distribution channels may also link to informal institutional systems that make it difficult for 'outsiders' to obtain access to required information and distribution channels. Current public and private sector support to reduce these barriers tends not to identify the links between perceived barriers and informal institutional systems. Extensive help is offered to reduce problems with ''paperwork' and obtaining information and access to distribution channel. Help is available from government agencies from overseas offices and business advisors in the UK. There is also extensive help in these areas from consultancy companies. Government agencies and consultancy companies also provide simple guides to cultural and language differences, but do not normally link such help to how to reduce problems associated managing 'paperwork' requirements and accessing required information and appropriate channels for distribution. Issues institutional factors connected to protecting intellectual property is also a significant barriers barrier for SMEs, especially micro and small firms in high-technology industries. Emerging economies often have the most pronounced problems of protecting intellectual property. There is significant help available to deal with the formal aspects of protecting intellectual property, but once again the help to manage the risks associated with informal institutional factors is not readily available from private and public sector support agencies (see Appendix III). The best ways to reduce costs and risks arising from these barriers is to develop networks to learn how to manage effectively 'paperwork' requirements and access to information and distribution channels (Westhead et al, 2001). Another and often complementary method is to acquire employees and managers with experience of dealing with informal institutional systems so that the costs and risks associated with these problems are minimised (Camisón and Villar-López, 2010). The alternative is to outsource the management of many of these issues to third parties by using agents. The latter approach is low cost but limits learning thereby reducing the experience that can build up capabilities to develop exports. A trade therefore exists between low cost but low learning by using agents, or higher cost but higher learning from developing internal capabilities.

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Summary The major barriers facing exporting SMEs are well known and are similar for UK SMEs as those faced by SMEs in other medium-sixed developed economies. Internal and external barriers can be militated by obtaining good information on what is required to prosper in selected export markets and developing capabilities to manage effectively the challenges and opportunities that exporting SMEs face. Recommendations 1 to 4 above cover our suggestions on improvements on help for SMEs in these areas. Perhaps the major possible area of misunderstanding, by both SMEs and support agencies, is the crucial role of informal institutional systems and their affect on many of the external barriers. The trade-off between lower cost and increasing learning is a crucial issue in the use of agents to help to manage many external barriers. Recommendation 5 – UK policy should develop the partnership scheme between SMEs, and support agencies to provide systems, and implementation processes, to help SMEs to assess which internal and external barriers they face and how to develop strategies to develop internal capabilities, and when to outsource to agents, to reduce the costs and risks associated with barriers. The identification of the barriers and their major costs and risks require assessment in the light of characteristics such as the size of SMEs, sector, industry and technological intensities and target markets. Government Actions Evidence from the USA, the EU and the UK shows that awareness and use of public support agencies varies according to size (European Commission, 2010; USITC, 2010b). Micro firms make the least use of public support agencies (15%) with 20% for small and 27% for medium. Not surprisingly the most active exporting SME sectors, manufacturing and wholesale trade, make most use of public support agencies. In terms of the satisfaction of SMEs with public support, the highest encouragement and help satisfaction ratings are from small and medium SMEs, but micro SMEs report the lowest no effect from using public support. The UK’s satisfaction ranking (2009/10) it was 13th (out of 27) for financial support and 15th for other public support. Italy, which has a high proportion of exporting SMEs than the UK, ranked 8th and 6th respectively (European Commission, 2010). However, another study by the European Commission, 2011 found the effectiveness of UK public support for exporting SMEs was the best in the EU. This study however highlights that scientific evaluation of the effectiveness of public support policies is very underdeveloped. Public support in the US is decentralised with provision by federal, state and city authorities (USITC, 2010b). This may lead to fragmentation of support, but it also provides competition on policies, which with open sharing of information may lead to the development of best practice, with suitable adaptation to local and regional conditions. The analysis and data provided by US public support agencies is considerable more detailed and extensive than that provided by the EU, which is better that that provided by the UK. Not only does the Federal government in the US provided detailed analysis and statistics (see USITC, 2010a, b & c) regional and local agencies also provide detailed analysis and statistics on SME and exporting (see for example, MSU Center for Community and Economic Development, 2012). The study of the West Midlands provides information on exporting and SMEs (Marketing Birmingham Regional Observatory, 2012) and this and the summary of data on regional data provided in Appendix I highlight that significant regional variations in UK SME exporting patterns exist.

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Summary Awareness and use of public support agencies seems to be low among UK SMEs especially micro firms. This however does not seem to be very different from SMEs in other developed economies. Those SMEs that use public support seem to be relatively satisfied, but use of these support systems is often low. The lack of scientific evaluation of the effectiveness of public support agencies makes it difficult to know how well such agencies are doing. The evidence reveals significant regional variation in SME exporting activities, which currently lacks adequate scientific research to establish patterns and trends in regional SME export behaviour. Understanding regional variations and learning from different approaches in different parts of the world does it appear to play an important part in the development of public policy support systems in the UK. The US provides better analysis and data on SME exporting and on regional variations in such activities. Recommendation 6 – UK policy towards exporting SMEs requires expansion of analysis and data from policies in other developed economies, including regional data and analysis. This should focus on similar economies with larger SME exporting sectors. There are however likely to be useful lessons from examining countries that have smaller SME exporting sectors because of the diversity of experience and applicability conditions. The most notable country in this context is the USA, where not only is there good data and analysis available, but also a diversity of approaches at national, state and local level. Recommendation 7 – UK policy requires enhanced analysis and data on regional variations within the UK. Recommendation 8 – UK policy requires more scientific evaluation of the effectiveness of its current policies. Recommendation 9 – On the basis of data and evidence resulting from recommendations 6, 7 and 8, the development of UK public support should proceed with due account of the importance of learning from other public support policies and ensuring implementation of best practice is adapted in line with regional, size, sector, industry and technological intensity differences. Recommendation 10 - The current UKTI partnership approach needs to be developed based on recommendations 6, 7, 8 & 9 and development such as this outlined in recommendations 1 to 5 needs to be developed in the context of the evolving and hopefully more effective public support polices of the UK government. September 2012

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Appendix I Data on SME exporting by Sector and Region Introduction The data for tables 1 to 4 is from (Kingston University London & Barclays 2010) and 6 and 7 are from (BIS 2010). Data Table 1 provides a summary of which exporting by sectors. This shows that manufacturing and retailing (wholesaling) are the largest sectors. Leisure and entertainment and hotels, catering and hospitality are also important, and are likely connect closely to tourism. Financial and business services form a smaller proportion, and are possibly good candidates for growth. Table 1 - Exporting SMEs by Sector (%)

0 10 20 30 40 50 60 70

Technology/It/Computer Services

Health & Social Work

Transport and Communications

Financial Services

Consumer Services

Business and Professional Services

Leisure/Entertainment

Hotels, Catering and hospitality

Retail Trade

Construction

Manufacturing

Agriculture, Foresty or Fishing

Average

The results in Table 2 demonstrate that there is a wide regional variation in exporting SMEs. London has the highest proportion of exporting firms at 61%, followed by SMEs in the South West where 55% are exporting. The region with the lowest proportion of exporters is Wales at 35%. These results highlight large differences in how active SMEs are in exporting in the various regions of the UK.

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Table 2 Exporting SMEs by region

(%)0 10 20 30 40 50 60 70

Scotland

Wales

London

South East England

South West England

East of England

Central England

Yorkshire and Humberside

North East England

North West England

Average

Table 3 illustrates on average 68% of firms surveyed have exported from or very soon after their foundation and that manufacturing and interestingly many business and professional services firms are born global. Table 3 Born Global Sector

Table 4 illustrates that the Born Global firms vary considerably across the regions. As indicated in Table 2 Wales has the lowest proportion of exporters however it has the highest number of born global firms (77%).

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Table 4 Born Global by Region

All firms exporting activity by region Tables 5 and 6 illustrate exports by all firms (SMEs and larger firms) by region. These tables show that the some regions, for example, the North East, although they have a low proportion of exporting SMEs, do well when all firms are considered. This implies a particular problem with SME exports in the North East. However, other regions such and the London and the South West reveal surprisingly low exporting activity for all firms but high for SMEs. Clearly, there are marked regional variations in the export performance of SMEs. Table 5 Value of Exports of Goods per Workforce Job

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Table 6 Value of Export Goods as Percentage of Regional GVA

Appendix II Measures of factors affecting the capabilities of UK SMEs compare to competitor countries This appendix uses data from a survey on management practice by Bloom and Van Reenen (2009)18 to examine some key factors affecting the competitiveness of medium sized enterprises (between 100 and 250 employees) in the manufacturing sector. Section A provides an assessment of the performance of British and competitor country SMEs to identify key differences in major areas of SME capabilities. To examine the potential sources of weak/strong performance of British SMEs Section B considers the relative performance of foreign small multinational enterprises (MNEs), small UK MNEs, and domestic SMEs are considered.

18 The data used in this section is extracted from Bloom, Nicholas, and John Van Reenen (2009). Why Do Management Practices Differ across Firms and Countries? Journal of Economic Perspectives. It covers 2427 SMEs in 12 countries over the period of 2003-2008.

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Section A The comparative performance of British SMEs in manufacturing

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Section A shows that UK SMEs have lower productivity, investment and patents than some of the main competitor countries. These factors combined with the relatively low score on management practices implies that UK SMEs may face capability shortcomings that could impede operating effectively in highly competitive international markets.

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Section B Relative performance of foreign small multinational enterprises (MNEs) small UK MNE, and domestic SMEs

Log (Sales per employee)

France GB Germany Greece Italy Portugal Sweden Small Foreign MNEs 5.69 5.56 5.76 5.65 6.07 5.20 5.87 Small UK MNEs 5.46 5.18 5.61 4.56 5.39 5.23 5.62 UK SMEs 5.21 5.10 5.12 4.99 5.57 4.59 5.43 Management Scores

GB Germany France Sweden Poland Italy Canada US Australia Small Foreign MNEs 3.05 3.56 3.38 3.46 3.14 3.72 3.52 3.35 3.34

Small UK MNEs 2.70 3.12 3.25 3.45 3.50 3.75 3.38 3.58 2.93

Domestic SMEs 2.74 2.97 2.85 3.31 2.50 3.02 2.95 3.20 3.09

Log of fixed tangible assets per employee

France GB Germany Greece Italy Portugal Sweden Small Foreign MNEs 3.45 3.65 3.93 3.72 3.79 4.08 3.81 Small UK MNEs 2.79 3.29 3.67 2.42 4.01 4.08 3.54 Domestic SMEs 2.77 3.18 3.60 3.91 3.90 3.52 3.58 Section B highlights the relatively low rank of UK Domestic SMEs compared to firms that may be competing with them in export markets. Domestic SMEs face the likelihood of capability shortcomings compared to small firms located in other countries and small foreign MNEs operating in UK.

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Appendix III Intellectual Property Risk The violation of intellectual property (IP) in foreign countries is a major risk for the intellectual assets of UK exporting SMEs. The UK is one of the main global players in the exporting of intellectual assets, with the total value of UK IP exports exceeding £110 billion in 2009 (IP Office, 2011a). Baroness Wilcox recently highlighted the risk from inadequate IPR enforcement in the UK IP Crime Strategy report (IP Office, 2011b, pg. 3): “The ability of holders of IP rights to enforce their rights through the courts in a particular jurisdiction is vital to that country’s attractiveness to overseas investment”. Indeed, according to OECD (2008a) estimates, the international trade of counterfeit and pirated goods have accounted for around 2% of total world trade since 2001 (on a consistently upwards trend) and by 2007 this trade was valued at around US$250bn. Exporting SMEs therefore need to consider the risk from IP violations during the market selection process. As the UK IP Office highlights, “Exporters often realize about the importance of protecting their intellectual property once it is too late, i.e. once they are faced with imitators or counterfeiters or once they are being accused of infringing the rights of others. While preparing the export plan and strategy, it is, therefore, important to understand the IP environment in the potential export market as much as it is understanding all other facets of the business environment in that market” (IP Office, 2012). The UKTI in partnership with the IP Office have developed a series of “IP Primers” to help British companies in six major markets around the world. The primers are available for Brazil, China, India, Korea, USA and Vietnam, and include information about registering and enforcing intellectual property in each particular country as well as an indication of the potential problems faced and how to deal with them. Further to this resource, SMEs can also consult the UKTI exporting website, where the “overseas business risk” category provides a very short general description of IP in a country (if available). The resources offered by the UKTI and the IP Office can be complemented and extended by the new composite index of patent protection and enforcement strength, developed by Papageorgiadis (2010) and updated by Papageorgiadis, Cross and Alexiou (2012a,b), which provides an objective, numerical assessment for 49 countries. This new annual index measures the general effectiveness and efficiency of patent protection and enforcement aspects of national patent protection regimes for the years 1998-2011, utilizing 10 established secondary sources. The calculation of the index is a fully transparent and replicable methodology, applying a number of uniform techniques recommended by the OECD (2008b). Table I displays the average values of the index for the years 1998-2011. The full dataset and methodology is available by Dr. Nikolaos Papageorgiadis upon request. 19

19 This is because the index is currently in the peer review process at a highly ranked academic journal.

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Table 1: Patent protection and enforcement index scores, average values (1998-2011) Argentina 4.51 Korea 5.99 Australia 8.76 Malaysia 5.84 Austria 8.37 Mexico 4.84 Belgium 7.61 Netherlands 9.04 Brazil 4.89 New Zealand 9.17 Canada 8.97 Norway 8.74 Chile 7.53 Philippines 4.45 China 4.88 Poland 5.55 Colombia 4.76 Portugal 6.97 Czech R. 5.67 Romania 4.77 Denmark 9.48 Russia 3.98 Finland 9.46 Singapore 9.04 France 7.61 Slovakia 5.41 Germany 8.31 South Africa 5.93 Greece 5.67 Spain 7.24 Hong Kong 8.09 Sweden 9.23 Hungary 6.24 Switzerland 8.91 Iceland 8.79 Taiwan 6.41 India 4.57 Thailand 4.56 Indonesia 3.65 Turkey 5.11 Ireland 8.20 Ukraine 3.97 Israel 7.28 UK 8.64 Italy 6.04 USA 8.14 Japan 7.82 Venezuela 3.64 Jordan 5.85

Sources: Papageorgiadis (2010), Papageorgiadis, Cross and Alexiou (2012a). The Papageorgiadis et al, 2010 index provides information about variable patent enforcement levels across countries and fully aligns with the qualitative IP primers provided by the UKTI and the IP office. The new index offers numerical assessments for 44 additional to the IP primers’ countries (the index does not cover Vietnam). It is an objective tool that SMEs can use it in order to gain an initial understanding of patent protection and enforcement in different countries and understand the trajectory of positive or negative developments over time. This will enable them to quickly assess how favorable the IP system in a given country is, gain an understanding of the potential IP specific costs needed to export in that country and decide if they need to seek out for additional, more detailed information from UKTI and the IP Office.

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References BIS (2010) ‘Internationalisation of Innovative and High Growth SMEs’

http://www.bis.gov.uk/assets/biscore/economics-and-statistics/docs/10-804-bis-economics-paper-05

Bloom, N., Van Reenen, J., (2007) Measuring and Explaining Management Practices Across Firms and Nations, Quarterly Journal of Economics (2007) 122 (4), 1351-1408. Data on Measuring and Explaining Management Practices Across Firms and Nations available at http://cep.lse.ac.uk/pubs/download/data0716.zip

Camisón, C., Villar-López, A., (2010) Effect of SME’s international experience on foreign intensity and economic performance; The mediating role of internationally exploitable assets and competitive strategies. Journal of Small Business Management. 48, 116-151.

Dhanaraj, C., Beamish, W.P., (2003) A resource-based approach to the study of export performance. Journal of Small Business Management. 41, 242-261

European Commission (2010) Internationalisation of European SMEs, DG for Enterprise and Industry, Brussels

European Commission (2011) Opportunities for the internationalisation of European SMEs, DG for Enterprise and Industry, Brussels

IP Office 2011a. The UK’s international strategy for intellectual property. August 11 http://www.ipo.gov.uk/ipresponse-international.pdf

IP Office 2011b. The UK IP crime strategy 2011. August 11 http://www.ipo.gov.uk/ipcrimestrategy2011.pdf

IP Office 2012. Common IP mistakes made by exporters. IP office website. http://www.ipo.gov.uk/news/newsletters/ipinsight/ipinsight-201204/ipinsight-201204-2.htm

Julien, P-A., Ramangalahy, C., (2003) Competitive Strategy and Performance of Exporting SMEs: An Empirical Investigation of the Impact of Their Export Information Search and Competencies, Entrepreneurship Theory and Practice, 27, 227-245.

Kingston University London & Barclays (2010) The Export Factor: British SMEs Approach to Doing Business Overseas. http://www.barclays.co.uk/Businessmanagement/BlueprintforSuccessBornGlobal/P1242583260201

Knight, G., Madsen, T. and Servais, P. (2004) ‘An Inquiry into Born-Global Firms in Europe and the USA’, International Marketing Review 21(6): 645-65.

Marketing Birmingham Regional Observatory (2012) Research on fast growth SMEs, http://www.marketingbirmingham.com/regional_observatory/business_economy/

Martins, P.S. and Yang, Y. (2009) ‘The impact of exporting on firm productivity: a meta-analysis of the learning-by-exporting hypothesis’, Review of World Economy, 145, 431–445.

Mittelstaedt, D. J., Harben, N.G., Ward, A.W., (2003) How small is too small: Firm size as a barrier to exporting from the United States. Journal of Small Business Management. 41, 68-84.

MSU Center for Community and Economic Development (2012) East Michigan and Eastern Upper Peninsula SME Exporting Survey Analysis and Annotated U.S. Export Assistance Directory, Research Briefing Paper #1, Michigan, USA

OECD 2008a. The economic impact of counterfeiting and piracy. OECD, Paris. OECD 2008b. Handbook on constructing composite indicators: methodology and user

guide. Paris: OECD Publishing. OECD (2009) Top Barriers and Drivers to SME Internationalisation, Report by the

OECD Working Party on SMEs and Entrepreneurship, OECD, Paris.

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http://cep.lse.ac.uk/pubs/download/data0716.zip

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http://www.ipo.gov.uk/ipcrimestrategy2011.pdf

http://www.ipo.gov.uk/news/newsletters/ipinsight/ipinsight-201204/ipinsight-201204-2.htm

http://www.barclays.co.uk/Businessmanagement/BlueprintforSuccessBornGlobal/P1242583260201

http://www.barclays.co.uk/Businessmanagement/BlueprintforSuccessBornGlobal/P1242583260201

http://www.marketingbirmingham.com/regional_observatory/business_economy/


Papageorgiadis, N. 2010. The effect of intellectual property rights protection and enforcement on international business: The case of licensing. PhD Dissertation, Leeds: University of Leeds.

Papageorgiadis, N., Cross, A. R., Alexiou, C. 2012a. Measuring the institutional system of patent protection and enforcement: a new index of 49 countries. Bradford University School of Management Working Paper Series, working paper No 12/10.

Papageorgiadis, N., Cross, A. R., Alexiou, C. 2012b. The impact of the institution of patent protection and enforcement on entry mode strategy: A panel data investigation of U.S. firms. International Business Review, (in press). http://dx.doi.org/10.1016/j.ibusrev.2012.04.005

Terziouski, M., (2010) Innovation practices and its performance implications in small and medium sized enterprises (SMEs) in the manufacturing sector: A resource-based view. Strategic Management Journal, 31, 892-902.

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http://dx.doi.org/10.1016/j.ibusrev.2012.04.005

British Chambers of Commerce - Written evidence

British Chambers of Commerce - Written evidence INTRODUCTION 1. The British Chambers of Commerce (BCC) represents 104,000 companies, who are

members of 51 accredited Chambers of Commerce in every region and nation of the UK. Many of these companies are small and medium-sized businesses.

2. The BCC submitted its 2012 suite of research on SMEs and exporting to the Committee

and presented an overview of its findings in a presentation session on 28 June. This research includes a major international trade survey of over 8,000 businesses conducted in Q1 2012 and the regular BCC/DHL Trade Confidence Index reports. All documents are available to download online:

• DHL / BCC Trade Confidence Index Q2 2012 • Exporting is Good for Britain: Finance and Costs • Exporting is Good for Britain: Planning • Exporting is Good for Britain: Red Tape • Exporting is Good for Britain: Market Barriers • Exporting is Good for Britain: Transport Connections • Exporting is Good for Britain: Skills • Exporting is Good for Britain: Social Connections

3. The material below includes four case studies of SME Chamber members that trade

internationally – how they have grown, the opportunities and challenges they face. These and other Chamber businesses are willing to provide more detail of their export experiences to the Committee through oral evidence and the BCC would be delighted to assist in making this happen.

4. This submission also includes an overview of the role Chambers play in assisting SMEs to export. The breadth and depth of involvement reflects the success that Chambers have had in raising the share of exporters among their members from an average of 22% in Q1 2011 to 32% in Q1 2012.

THE ROLE OF THE BRITISH CHAMBERS OF COMMERCE IN SUPPORTING SME EXPORTS 5. Chambers of Commerce worldwide is synonymous with trade. In the UK, the network

of accredited Chambers supports and advises businesses in all areas of international trade and exporting. We also offer links to British Bilateral Chambers and International Chambers of Commerce, providing UK exporters with connections in new markets.

6. The BCC and accredited Chambers across the UK are some of the most important actors on the international trade stage. All businesses who export goods outside the EU will have some contact with their local Chamber of Commerce at some point in the export process. The Chamber Network provides export documentation such as certificates of origin, and offers expertise which helps potential exporters identify trading partners and navigate new markets. The BCC itself delivers schemes for UK Trade and

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http://www.britishchambers.org.uk/policy-maker/policy-reports-and-publications/dhl/bcc-trade-confidence-index-q2-2012.html

http://www.britishchambers.org.uk/policy-maker/policy-reports-and-publications/exporting-is-good-for-britain-finance-and-costs.html

http://www.britishchambers.org.uk/policy-maker/policy-reports-and-publications/exporting-is-good-for-britain-planning.html

http://www.britishchambers.org.uk/policy-maker/policy-reports-and-publications/exporting-is-good-for-britain-red-tape.html

http://www.britishchambers.org.uk/policy-maker/policy-reports-and-publications/exporting-is-good-for-britain-market-barriers.html

http://www.britishchambers.org.uk/policy-maker/policy-reports-and-publications/exporting-is-good-for-britain-transport-connections.html

http://www.britishchambers.org.uk/policy-maker/policy-reports-and-publications/exporting-is-good-for-britain-skills.html

http://www.britishchambers.org.uk/policy-maker/policy-reports-and-publications/exporting-is-good-for-britain-social-connections.html


Investment (UKTI), supporting both exports and inward investment. Many Chambers also organise trade missions and other activities which place British companies at the heart of business opportunities.

7. Our current programme of trade support services include:

a. Researching the Market: Overseas Market Intelligence, Export Feasibility

Assessment, UK-based Trade Events

b. Financing: Access to Finance, Letters of Credit, Foreign Currency Exchange

c. Getting Goods to Market: Trade Documentation, Logistics, Trade Training, Insurance, Legal & Accounting Services

d. Overseas Connections: Access to Distribution Channels, Trade Missions,

Agents, Distributors, Export Clubs

e. Marketing & Communications: Translation Services, Overseas Marketing Advice

8. In accordance with our strategic focus around supporting SME exporters, the following

programmes are planned for 2013:

a. Programmes: SME New Exporter Programme, SME Exporter Supply Chain & Consortium-building Programmes

b. Online Support: International Trade Directory & Portal, Online Training

c. PR/Campaigns: ‘Exporting is Good for Britain’ Campaign 2012

d. Events: International Trade Conference, Debate & Seminar Series, Training Workshops, Trade Missions – inbound & outbound, Matchmaking & Networking Events, SME Exporter Awards

e. Publications: Reports, Surveys, Whitepapers (e.g. Opportunities in Emerging

Markets), Guides (e.g. Export Basics, Franchising Overseas, Supply Chain)

9. Strategic Trade Partnerships (UKTI & FCO): The BCC works closely with UKTI & FCO and, as well as delivering UKTI trade and investment services, is currently supporting the following programmes: • UKTI High Value Opportunities Programme • FCO Commercial Diplomacy Programme

10. British Chambers Overseas, Bilateral Chambers, Trade Associations &

Business Councils: The BCC is working closely with the worldwide Chamber Network, as well as trade associations and business councils, to deliver a programme of inbound and outbound trade missions, including matchmaking and brokerage, providing access to potential buyers, suppliers and partners, in order to maximise opportunities for UK SMEs in key emerging markets.

14 September 2012

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Export Case Study 1: M W Polymer John Toon, 01332 835001 Derbyshire & Nottinghamshire Chamber, Laura Howard, 0115 9578748 What does M W Polymer do? M W Polymer manufactures leak-sealing products for the gas industry. These products are for leaks on gas pipes, or to repair joints in gas pipes. They can create an elastic seal to allow pipes to move slightly with earthquakes, changing weather conditions etc. When there is a hole in the road to repair leaky gas pipes, they will probably be using one of this company’s products. MW Polymer supplies all the major utility companies in the UK, has 11 employees and an annual turnover of almost £1m. Three of the employees work on international trade (1 of them full time), and exports accounts for about 20% of turnover. The company exports to Germany, Poland, Turkey, Hong Kong, China and the USA. Growing exports M W Polymer started exporting off its own initiative. The company got in touch with embassies, who put them in touch with potential customers. This was followed up by market visits – going abroad and presenting to companies. The local Chamber of Commerce was helpful as a source of information and advice. The company also participated in a trade mission to Poland organised by the local Chamber. Policy challenges

• Access to finance remains a big concern

• Red tape: although the company recognises the need for regulation, red tape can be burdensome - time spent filling out forms takes away from time actually producing. Institutions change too often which increases the red tape burden

• Trade support: there is a lot of support in the initial stages of the export journey, but once contacts have been made abroad they are left alone. Continued support would be helpful

• Skills: it is difficult to find the employees who speak the languages the company needs in order to trade

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Export Case Study 2: PMT Industries What does PMT Industries do? PMT Industries is a Bolton-based manufacturer of paper-making equipment parts for machines or full machines, as well as replacements and refurbishments of machines. PMT Industries is also a foundry for third-party rolls and castings and is the only company in the UK able to do castings in iron of a certain size. The company employs 79 people in Bolton with annual turnover of £7.4m last year. Around 90% of company turnover is from exports and it has been this way since the company was founded in 2007. PMT Industries exports to over 20 different countries, including China, Indonesia, Mexico and Australia. Growing exports The company’s special, niche product is called a Yankee Drier, which is a key component of a tissue paper making machine (a huge, drying cylinder – see images below). Very few companies can manufacture these. PMT Industries exports loads to countries in China and South America, where the rising importance of personal hygiene has boosted demand for tissues, but where companies still don’t have the capabilities to produce the parts. The company takes on many apprenticeships, usually more mature ones rather than young people, because training staff is a vital investment in the future of the business (skills are so specific that training needs to be done by the company itself). The Chamber has provided invaluable networking opportunities: She met someone from Russia House at one of the Chamber’s International Trade Club ‘Business in Russia’ breakfasts. Russia House now provide all Russian visas to the company. Policy challenges • Access to finance (in the UK and all over the world): parent company, Turin

based PMT Italia SPA, saw a contractual agreement delayed for years because the company couldn’t access the finance to pay for the order (the average drying cylinder costs £1m and the full machine up to £35m)

• Red tape: rules and regulations have undermined work on a number of different promising schemes. Business Link, regional grants, taking on graduates through a scheme with Bolton University have all been “blind alleys”.

• Skills: despite taking on many apprentices, the company receives no support from

government


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Export Case Study 3: Greenbank Group What does Greenbank Group do? Greenbank manufactures and delivers products and services for engineering companies, in areas such as steel and coal power, handling etc. They supply in three distinct areas: wear protections for transporting materials such as linings in pipes and ducts; weighing equipment, for example conveyer belts that weigh materials as they’re loaded onto ships and combustion efficiency improving solutions. Greenbank has 83 staff members in the UK and an annual turnover of around £26m split across three businesses. The percentage of sales going on exports has risen from about 5% to around 20% last year. This is through a combination of foreign orders increasing as well as home orders declining. Growing exports As the coal industry has contracted in the UK, the group has expanded into markets where it is still prevalent, notably China and Germany. Other markets include the Netherlands, Turkey and Australia. Greenbank is currently de-merging from its US sister company after which the group aims to export there too. Germany was a “hard nut to crack” because German companies tend only want to work with other German companies and it is extremely difficult to get a good distributing agent. Trying to export to China has been extremely difficult. Greenbank hired a native Mandarin Chinese speaker to go abroad and make contacts who didn’t have adequate business skills but had the language skills that they couldn’t find elsewhere. The Chamber Awards programme has provided real encouragement to the business, and aiming towards these awards is now part of the business plan. Policy challenges • Skills: It is extremely difficult to find employees with the right language skills

• Apprenticeships: apprenticeships are an important mechanism for delivering the skills

that Greenbank and the wider industry needs. Charles Conroy, who is now the Managing Director, joined the company as an apprentice. But more must be done to promote the image of apprenticeships which are often considered as the “poor man’s options”.

Export Case Study 4: MidlandHR What does MidlandHR do? MidlandHR provides solutions in HR and payroll management. This includes in-house, private cloud hosting and fully outsourced HR & Payroll functions; transaction HR management, (hiring, transferring, paying of staff etc); through to human capital management (acquisition, development, reward and overall talent management). It is a vertically-integrated business with services covering the research and design phase; software production; hosting on a private, highly secure cloud; implementation services and full outsourcing. It is niche in the sense that it focuses exclusively on HR and payroll but covers the broadest range of services in these areas. Its solutions manage and pay over 10% of the entire UK workforce.


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MidlandHR has 397 employees and an annual turnover of £32m. The customer base is split evenly between public and private-sector clients and has operated abroad since 2007. It provides HR solutions in 50 countries and around 7% of the company’s work (including number of employees, revenue and software design) is focused on overseas markets. MidlandHR has a strong heritage in the provision of HR solutions to public-sector organisations, primarily in local government and also increasingly in central government; with recent wins at DFID and The British Council. The company has a highly secure cloud environment which allows them to service highly sensitive customers within Police and Central Government. Growing exports In the private sector, there is a growing and significant number of UK-centric exporters; primarily in the SME segment but with a global workforce which averages 2000 employees upwards. This is compared to MidlandHR’s normal customer size of circa 5,000 employees within the UK market. Strong private-sector segments include Manufacturing, Retail, Banking, Private healthcare, Logistics, Precision Engineering and Construction. The company also has a significant presence in the FE and HE markets. When expanding internationally MidlandHR has followed two main strands; opportunistically developing via existing UK-centric accounts and strategic analysis of markets. Both strands have been used in combination to inform the business and ensure the short, medium and long term aspirations are achieved. MidlandHR has had great experience with its local Chamber of Commerce, which helped the company with networking, advice and practical implementation. The company made great use of a recent trade mission to Germany organised by the Chamber and has subsequently developed their German network further. Policy challenges • Trade support: UKTI initiatives can be helpful in terms of the initial analysis and in

certain regions in assisting in the incubator phase (China is a good example). But many of MidlandHR’s customers struggle with finding basic information around the very basics of establishing new organisational entities overseas and the phasing of work to ensure compliance and optimal initial setup. Further practical assistance from UKTI/FCO would greatly assist this process.

• Immigration: Policy around immigration for highly-skilled individuals needs to be balanced and UK HE market and Border Agency policy needs to be carefully considered in light of the current difficulties already affecting these institutions. HE is a significant market for MidlandHR.

British Exporters Association - Written evidence

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British Exporters Association - Written evidence 1. The British Exporters Association (BExA) is a membership organisation representing the export community – capital goods manufacturers (large corporates, MSBs, SMEs and Micro exporters), international traders and their bank, credit insurance and other service providers. BExA takes a particular interest in trade finance and export credit insurance. SUMMARY 2. The National Export Challenge launched in 2011 targets an increase in UK exports from the current level of £450bn per annum to £1trl by 2020, getting an additional 100,000 companies exporting and increasing the ratio of companies exporting from the current 1:5 ratio to 1:4. The internationalisation of SMEs will be key to achieving these objectives; indeed the increase in numbers of companies exporting can only come from the SME and micro exporter categories. 3. In order to achieve these ambitious targets, BExA considers that a combination of UK Government support will be required. Such support needs to be focussed through UKTI and UK Export Finance (UKEF). BExA’s ECA Benchmarking Research20 has identified that whilst the introduction of the new products by UKEF during 2011 has closed the ‘gap’ on competitor OECD ECAs, the shortfall in ECA supported products available to UK exporters continues to put them at a competitive disadvantage. 4. Furthermore the levels of export business supported by the new products in the first 12 months of their availability has been disappointing. This lack of take-up highlights the need for UKEF in conjunction with UKTI to increase their marketing of their products and services to SMEs nationwide. 5. In terms of product range the lack of a tender-to-contract cover product, to protect SMEs against adverse foreign exchange movements between bid date and contract award, and a fixed rate export finance product (withdrawn in 2010) continues to hamper the winning of export contracts by UK exporters. CURRENT EXPORT MARKET INTERNATIONALISATION OF SMEs 6. The supply chains of large corporate exporters routinely include SMEs and in some cases micro exporters. Whilst indirect exporting by SMEs through the supply chain represents a significant element of SME exporting activity and a low risk entry to exporting, it should be noted that competitor ECAs extend support to such indirect exports. UKEF should similarly support the UK supply chain. By so doing, it would also establish direct linkage with SME suppliers, which in turn might encourage the SMEs to start exporting in their own right.

20 http://bexa.co.uk/docs/BExA%20ECA%20benchmarking%20paper%202011%20-%20111020%20bexa%20research%20-%20eca%20benchmarking%20v16%20_final%20version.pdf

http://bexa.co.uk/docs/BExA%20ECA%20benchmarking%20paper%202011%20-%20111020%20bexa%20research%20-%20eca%20benchmarking%20v16%20_final%20version.pdf

http://bexa.co.uk/docs/BExA%20ECA%20benchmarking%20paper%202011%20-%20111020%20bexa%20research%20-%20eca%20benchmarking%20v16%20_final%20version.pdf


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BARRIERS AND MARKET FAILURES 7. BExA is concerned that the latest proposed revisions to the Basel Accord (referred to as ‘Basel III’) to be implemented in the European Union through changes to the Capital Requirements Directive (‘CRD IV’) will have a detrimental impact on the availability and cost of trade finance products at a time when European governments are striving to encourage an export-led recovery. Trade finance is becoming increasingly important for all exporters but especially so for SMEs whose cash flows are critical to the success of their business and at a time when they are being encouraged to increase their export efforts. 8. Trade finance instruments are, by nature, intrinsically low risk, as they are underpinned by a tangible value of goods and services that have been delivered. The Basel III proposals, as currently drafted, impose risk weightings that are not consistent with the low risk and non-speculative nature of trade finance products. The potential consequences are:

1. Significant increases in the cost of trade finance products; and 2. A potential reduction of availability of trade finance products, as banks divert

resources to more profitable corporate products.

9. If trade finance becomes more expensive and restrictive, this may seriously impact UK exporters and particularly the SME and micro exporter sectors.

The European Commission is proposing to introduce the CESL aimed at helping SMEs in their cross-border EU trade. BExA believes the existing system works well, except, perhaps, for internet transactions. English contract law has stood the test of time and is used internationally. The proposed CESL favours imprecise notions of good faith and fairness over the certainty of English law. Courts are given wide powers to intervene in contracts freely entered into. The new law will need to be explained and tested, which will be expensive.

INCENTIVES 10. SMEs will consider exporting if they are aware of potential overseas opportunities (part of UKTI’s role) and consider that the benefit (profit) will exceed the risks (including non-payment) and cost (in terms of time and extra resource) of exporting. GOVERNMENT ACTIONS

UKTI AND FOREIGN AND COMMONWEALTH OFFICE (FCO)

11, UKTI and the FCO have a vital interface role to enable trade between SME and micro exporters and potential export buyers. BExA welcomes the creation of the 3 new business groups within UKTI, which reflects the need to focus on different categories of exporter and particularly the SME and micro exporter sector.

12. BExA considers that changes to UKTI’s modus operandi of their charging regime and dissemination of available database information would increase the participation and competitiveness of SMEs in export markets. To this end, we propose:

• Payment for the OMIS service only when exports are won, ie on a success basis. Free access to UKTI’s UK and overseas databases of potential target buyers


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• UKTI to provide Trade Delegation members with lists of companies invited to receptions and meetings in advance of visits. This would allow exporters to research these potential buyers and decide on appropriate contract terms in advance of meetings.

• We set out two members’ experiences of the OMIS service in paras. 13 – 16. We support the suggestion that a ‘mini-OMIS’ might be introduced.

13. A BExA member was considering entering a Far East market but did not pursue his OMIS enquiry when the local UKTI office quoted him £2,200 for a ‘warmed up list of potential importers and/or distributors’. He questioned whether ‘any SME would spend such a sum with little of no information about the likely outcome. £2,000 would pay for a stand at a significant exhibition with a good chance of meeting new importers’.

14. Another member believes that UKTI can ‘get exporters on the road’ and has commissioned 5 OMIS reports over the years – showing that he is not looking for ‘something for nothing’. However, from a cost point-of-view, he feels that in some cases it may be better for exporters to commission their own market research. He suggests that UKTI should provide potential exporters to a new market with a level of introductory information free of charge (a mini OMIS). This could include general information and pointers without going into specifics. It should help the exporter to decide where to focus his efforts and to identify what information he wants from the full OMIS. The eventual OMIS report would include information not readily available such as a warmed up list of potential distributors, partners and agents, specific market information, remuneration, and payment terms. 15, The member adds that, for a new exporter, it is all about momentum. The mini OMIS would bridge the gap between commissioning and receiving the full report, which can take 6 – 8 weeks to produce. 16, After receiving one OMIS report, the BExA member travelled to the territory and met a UKTI officer in the British embassy. He learnt that useful supplementary support, including a mail-shot of his company brochures by the local UKTI office, was available free-of-charge. This helpful service had not been mentioned before. BExA favours the publication of a definitive list of UKTI services. At present, services and charges seem to vary from office to office and the results received may also vary.

17. Within the UK, BExA believes that UKTI and BIS have, in addition to promoting the products and services of UKEF, a role to play in raising awareness of the availability of export credit insurance cover and how it can enable an exporter to offer attractive commercial terms to customers and be protected against the risk of bad debt. Private market credit insurers have capacity and appetite to provide cover in the majority of export markets for the majority of exports. UKEF’s role needs to be placed in its context of not competing with but complementing the private market. UKEF support is therefore applicable to markets and/or individual exports for which private cover cannot, for whatever reason, be obtained by the exporter. By definition this will include smaller value one-off export contracts, which will typically apply to SME and first time exporters. UKTI


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and BIS should not ignore the private market and should indeed promote credit insurance across the board as a key enabler for successful exporting.

UK EXPORT FINANCE (UKEF) 18. UKEF has a vital role to play in supporting SMEs and micro exporters. UKEFs current risk portfolio is weighted heavily in the aerospace sector. There is a pressing need for UKEF to market its products and services to SMEs and micro exporters and thereby bring its operations more in line with the goals of the NEC and build a more balanced risk portfolio. 19. UKEF’s new products, introduced in 2011, focussed on trade finance and short term credit insurance shortfalls in their portfolio; both of which are of key significance to SMEs. There has been some take up of the new products by the SME sector, but much more needs to be done to market these products and raise awareness of the existence of UKEF. UKEF’s 2011-12 annual report states that 18 exporters obtained support under the new SME orientated schemes for an aggregate value of £90m. Short Term Schemes 20. UKEF’s short term schemes are of particular importance to SME and micro exporters. BExA has submitted a number of comments and suggestions on the new Short Term Products to UKEF in response to its review of the new schemes introduced in 2011, as follows: Export Insurance Policy (EXIP) 21. BExA believes that there are a number of specific improvements to the EXIP required, all of which would reduce risk for SME and micro exporters and which would accordingly improve the marketability of the product and bring it into line with private market wording as follows:

• No waiting period for payment of insolvency claims • Clarification of treatment of public buyer default • Lack of clarity around non-payment of termination account • Lack of pre credit claim mechanism (except for political risk claims) • No sharing of recoveries (between insured and insurer)

22. EXIP should be available for cover in countries in addition to non-OECD and Greece, ie worldwide where the private market will not provide cover. Finnvera (the Finnish Export Credit Agency) has recently been granted approval by the European Commission to support small exporters’ sales into Europe. UKEF should apply for a similar exemption from the permanent rules. (See para. 24). This would allow UKEF to support smaller value contracts, and smaller exporters, both of which are uneconomic for commercial credit insurers to cover. UKEF should follow UK exporter demand not restrict availability. 23. Bond Support Scheme The Bond Support Scheme works well for large corporates and Mid Sized Businesses (MSBs). However it is not particularly helpful for SMEs and micro exporters, for whom cash release and/or credit capacity are critical. UKEF should take a wider view of the underlying project viability, job creation/protection and exporter standing rather than


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simply operate in the role of an additional bank bonding capacity provider. Such an approach would significantly improve the availability of the Bond Support Scheme to smaller and new exporters. Furthermore BExA suggests the following amendments to the scheme:

• In cases where the supply chain is required by the prime UK exporter to contribute to the contract bonding requirements, then UKEF’s Bond Support Scheme should be extended to the affected suppliers. UKEF should remove the £1m bond threshold for this product; the current limit removes the eligibility of the product from the majority of SMEs and micro exporters, which is clearly not the intention.

Letter of Credit Scheme 24. BExA believe that UKEF should increase cover up to 90% of LC value rather than limit support to 50%. Product Deficiencies 25. UKEF’s product range remains deficient in 2 key areas which are of particular significance to SMEs and micro exporters as follows:

• A tender to contract foreign exchange rate protection scheme, which would be particularly beneficial for SMEs and micro exporters that need to bid in USD or Euros and for whom adverse exchange rate movement could result in having to contract at a loss.

• Fixed Rate Export Finance, the lack of which puts all UK exporters at a competitive disadvantage when competing against overseas companies who have such support from their ECA.

26. In addition BExA believes that under EU rules on short term export credit there is scope for UK Export Finance to provide support to companies with export turnover of less than €2m per annum when selling to ‘marketable’ risk countries, even before the introduction of a revised European Commission definition of ‘marketable risk’ expected at the end of this year.

27. As a general point BExA considers that UKEF continues to place an over-emphasis on bank requirements and the banks’ view of risk and should balance this approach by engaging more with, and listen to, exporter needs, most particularly the needs of SMEs and micro exporters.

Marketing and Distribution 28. The operations of UKEF should in BExA’s view be directly aligned with the NEC and its products should be marketed and distributed nationwide accordingly. To this end BExA would encourage UKEF to:

• finalise appointments of all the Export Finance Advisor positions as soon as possible and agree financial targets for them;

• work with UKTI and HM Treasury to encourage banks to spread awareness of UKEF’s schemes to their exporter clients through their branch networks. To this end BExA would urge Government to encourage the UK High Street banks to


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ensure there is adequate product knowledge within regional international business centres that have contact with and support SMEs and micro exporters. BExA believes that the banks would be incentivised to do so if an appropriate commission framework were to be put in place.

• UKEF’s agreement to pay brokerage to specialist insurance brokers is welcome. However, BExA believes that 10% brokerage level is marginal for all but very large exports. Brokerage should be paid on related bond insurance since it forms part of the contract risk. The UK has a strong broking industry which could be harnessed to even greater effect in the context of the NEC if the appropriate incentive levels were to be offered.

29. The focus of increased marketing and distribution incentives should be on the SME and micro exporter sectors, for both existing and first time exporters. General UKEF Issues 30. BExA has a number of additional observations on the operation of UKEF as follows:

• Application Process

31. BExA believes UKEF’s products would become more marketable if the application process could be streamlined and application documentation simplified, particularly for the SME sector. For instance the Bond Support Application documentation runs to 33 pages. The equivalent EKN (Swedish Export Credit Agency) documentation is clear and concise and runs to 9 pages (4 of which are to be completed by the exporter). EKN’s short term export credit insurance application is 5 pages while UKEF’s EXIP is 18 pages. Furthermore UKEF application documentation is ‘top heavy’ in the area of exporter undertakings regarding Anti Bribery and Corruption. Whilst BExA fully supports the OECD Guidelines in this area, the introduction of the UK Bribery Act in 2012, which is recognised as the most stringent legislation of its type globally, has superseded the need for such a level of red tape to be built into the UKEF application forms. All of these changes would benefit the SME and micro exporter community and make UKEF more accessible.

• Basis of Coverage

32. UKEF’s modus operandi is to provide support on a contract by contract basis. It would enhance the applicability and take up of certain of the Short Term Schemes if cover limits could be put in place on a wider basis. Maximum cover levels could be agreed for individual exporters (per the EKN model for Bond Support) and similarly EXIP cover should be adapted to address a series of export sales to a single buyer or distributor. Such flexibility would enable SMEs to address export opportunities in a more confident and robust manner knowing that UKEF’s valuable support is available at an early stage.

Should Government Target Specific Sectors, Markets or Types of Companies? 33. BExA does not believe that Government should target specific sectors, markets or types of company. Whilst there are clear advantages in developing exports to high growth markets such as the BRIC countries, BExA considers that developing such trade will take time, persistence on the part of UKTI, and no little expense in market development costs to


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UK exporters. The UK should not take its eye off current export markets, such as our top three markets: USA, Germany and the Netherlands. It is more likely that a small company assessing whether or not to start exporting will feel more comfortable entering markets that are closer to home, which are more immediately accessible and better understood than more far flung markets with very different business cultures and regulation. All SMEs and micro exporters need to be encouraged. 35. Turning to particular product sectors, BExA appreciates the need for support for high technology, innovative and green companies, but believes that some hydrocarbon technology may not be considered ‘green’ in itself, but its application may enable a customer to be more fuel-efficient, thereby creating an environmental benefit. Government Co-ordination 36, There is a need for Government documentation, websites and advisors, including those within UKTI and BIS, based in the UK and overseas, to be able to provide clear advice to SMEs and micro exporters on how the commercial terms offered by the exporter can win or lose an export deal, on the risks of not being paid, and on good business practice. This should highlight the existence of credit insurance and trade finance and the role of UKEF. 14 September 2012

British Insurance Broker’s Association - Written evidence

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British Insurance Broker’s Association - Written evidence The British Insurance Brokers' Association (BIBA) is the UK's leading general insurance organisation representing the interests of insurance brokers, intermediaries and their customers. BIBA membership includes just under 2,000 regulated firms having merged with the Institute of Insurance Brokers (IIB) in November 2011. General insurance brokers contribute 1% of GDP to the UK economy and BIBA brokers employ more than 100,000 staff. BIBA helps more than 400,000 people a year to access insurance protection through it’s Find a Broker service, both online and via the telephone. Brokers provide professional advice to businesses and individuals, playing a key role in the identification, measurement, management, control and transfer of risk. They negotiate appropriate insurance protection tailored to individual needs. BIBA is the voice of the industry advising members, the regulators, consumer bodies and other stakeholders on key insurance issues. BIBA provides unique schemes and facilities, technical advice, guidance on regulation and business support and is helping to raise, and maintain, industry standards. Please find below BIBA’s response to the Call for Evidence paper sent with regard to SME’s.

Current export market

Questions 1, 2 and 3.

BIBA does not feel able to comment.

Internationalisation of SME Question 4. What are the characteristics of successfully exporting SME? How do they differ from SMEs that are not exporting? An exporting business has a greater depth of understanding with documentation and usually thinks further ahead because of the consignment lead times. Domestic trade tends to be more hand to mouth and hence reactive, which you cannot afford to be with exporting. Question 5. What are the perceived and real risks and opportunities to SMEs of exporting? Whilst brokers know that helping an SME to grow its business will potentially secure a deeper business relationship and therefore income as its overall insurance needs grow, brokers are obliged to comply by regulations that mean they need to be selective about which clients can be taken on. A significant risk is the issue of non-payment and the methods of securing payment is where the credit insurance can assist.


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Question 6. What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them? The Government generally does not promote export credit insurance as good business practice, suggesting that exporters sell on letter of credit terms (which are expensive for the overseas customer and so may not win the deal). In some cases, i.e. for larger brokers, the level of premium can be below brokerage thresholds set by the broking firm, making them unattractive. Barriers and market failures. Question 7. What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting. How can Government help SMEs overcome the barriers and market failures? Government business departments do not seem to promote export credit insurance for its benefit of protection against bad debt or support for access to finance, and tend to recommend only UKEF which, as we know, is unable to provide short term cover for most OECD countries. Incentives Question 8. What are the key factors to encouraging SMEs: (a) which already export, to sell more overseas; or (b) which do not currently export, to start doing so? BIBA is working with broker members to promote export credit to SMEs and UKEF to simplify the application and documentation. Question 9. . How effective are the Government’s current policy mechanisms in supporting SMEs to export at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting? BIBA feels there is a need for education of the business departments of Government so that advisors are confident of promoting all export credit insurance for its benefits of enabling trade to be conducted on commercial terms that are attractive to customers while at the same time providing vital protection against bad debt write off and improved access to working capital. Question 10. What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets?


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Government business advisors should recommend credit insurance as a business solution, clarifying that UKEF’s role is to provide cover for risks capable of being underwritten where there is limited commercial appetite. Question 11. BIBA does not feel able to comment. Question 11. Should the Government target specific sectors, markets or types of companies where the potential is thought to be greatest? What are the costs and benefits of such an approach? UKEF has not applied for the ‘small company exception’ which would have allowed UKEF to offer cover to an SME for its first exports, whether EU or USA or further afield. 13th September, 2012.

British Marine Federation - Written evidence

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British Marine Federation - Written evidence The British Marine Federation (BMF) welcomes the opportunity to submit evidence to the inquiry of the House of Lords Small and Medium Sized Enterprises Select Committee into SME Exports. These responses broadly reflect the on-going view of the BMF and its members. Section 1 – Introduction Introduction 1.1 The BMF is the Trade Association for the UK leisure, superyacht and small

commercial marine industry, representing approximately 1,500 member companies. Our industry is almost entirely comprised of small and medium enterprises, with over 98% of the 4,200 companies employing less than 50 people.

1.2 In total, the UK leisure marine sector directly employs over 31,300 employees and

generated revenue of over £2.9 billion in 2010/11. Of this total revenue, exports accounted for approximately 37% (£1.07 billion)21.

1.3 This export revenue is split across three core sectors of the leisure marine industry:

UK boat manufacture - £671m; distribution of products - £221m; and provision of services - £181m.

1.4 As a trade association we play a major role in supporting our member companies as

they develop their businesses across the globe. We provide an essential source of advice and contact on export development opportunities and promote best practice and innovation in exports. The International Development service acts as our members’ gateway to the wide range of services that are available from: UK Trade & Investment; UK Embassies and Consulates; International Marine Industry Associations & Show Organisers.

Section 2 – State of the UK leisure marine export market 2.1 The leisure marine export market has seen recently a small recovery from the

difficulties caused by the global recession, and more specifically the extreme economic difficulties seen in the Eurozone.

2.2 The core export market for the UK Leisure marine industry is Europe, with £685m of

the total export revenue attributed to this market. North America is the next largest market, generating export revenues of £138m.

21Source: UK Leisure, Superyacht and Small Commercial Marine Industry Key Performance Indicators 2010/11 (http://www.britishmarine.co.uk/upload_pub/KPIReport2010-11.pdf)

http://www.britishmarine.co.uk/upload_pub/KPIReport2010-11.pdf


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2.3 The growing economies of the BRIC (Brazil, Russia, India and China) countries are slowly becoming more lucrative markets for the UK leisure marine industry, but there remains a long way to go for these markets to generate the sort of revenues seen in more mature markets like North America.

Section 3 – Barriers to SME Export Introduction 3.1 The UK leisure marine industry does not differ from any other industry when

considering barriers to exporting. Issues of resources, upfront financing, and market knowledge are all areas that a company must face before deciding whether or not to export.

3.2 In addition to these common business barriers, companies must also assess the

regulations in both the markets they are seeking to export into, as well as the regulatory requirements that exist in the UK.

3.3 One such area of regulation in the UK is the Export Control Licence regime. Export Control Licences and the Export Control Organisation 3.4 Any item exported from the UK that is subject to export control needs a licence. The

Export Control Organisation (ECO) is responsible for assessing and issuing (or refusing) export licences for a wide range of controlled so called “strategic” goods. This includes military and dual-use items.

3.5 The ECO is responsible for legislating, assessing and issuing export, trade

transhipment and trade control licences for specific categories of 'controlled' goods. This encompasses a wide range of items including so-called dual-use goods, as well as military items. Whether a licence is required depends on various factors such as whether the items are listed on the UK Strategic Export Control Lists, subject to End-Use Controls or to sanctions.

3.6 If items exported from the UK are controlled, then a licence is needed to legally

export. Exporters are responsible for complying with the law, understanding the regulations and keeping informed.

Problems for SMEs 3.7 There are a number of areas where SMEs can experience extreme difficulties with

ensuring compliance with these regulations, including: understanding the dual-use goods register; licence application times; confusion about when liability on the exporter ceases; and a lack of sector specific guidelines.

3.8 The BMF and its members understand the need for these export control regulations.

However, the current regime places significant burdens on SMEs at a time when they are being encouraged by Government to explore export opportunities.


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Dual-Use Goods 3.9 It is very difficult for an exporter to know if their products fall under the dual-use

goods regulations and owing to the lack of sector specific knowledge available at the ECO and with Her Majesties Revenue and Customs (who enforce the regulations), it is not always possible to get exact guidance.

The Licences 3.9 There are two main licences that our members currently apply for: Standard

Individual Export Licences (SIEL) and Open General Export Licences (OGEL). It takes on average 20 working days to issue an SIEL, which can often cause extreme difficulties for an SME, where their customers often require a product in a much shorter timeframe.

3.10 In order to allow for a faster licensing process, exporters can apply for an OGEL,

however, there are very strict requirements for these and in essence, a company needs to build up a history of successfully complying with the Individual Licence regulations to qualify for this type of licence.

Liability 3.11 Based on information provided to the BMF by a number of its members, liability for

the licence rests with the exporter at all times. Often the exporter is required to have a level of knowledge about the customer’s intentions for a product far in excess of what might be considered practical.

3.12 It is the case that if a customer is acting as a “middleman” and sells the goods on to a

third party, the liabilities of the export control licence continues to rest with the original exporter. This is an exceptionally heavy burden for an SME to bear.

3.13 We are aware that a number of our members will no longer supply to countries,

which are not on the trade embargo register, because it is known that they do supply to countries which the UK / EU has trade embargoes against.

3.14 We believe that Government should urgently review the level of liability placed on

exporters. Lack of Sector Specific Guidelines 3.15 We are aware that Government is planning to introduce training and guidance for the

marine industry, but as yet, we do not know when this will be implemented. Until this happens marine industry companies are required to follow guidance that was designed for other industries.

3.16 This also means that the ECO and HMRC are creating and enforcing regulations on

the marine industry without appropriate understanding of the sector. This greatly hampers the licensing process and dramatically increases the risk of failing compliance


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with the regulations, which can have very serious financial and reputational issues on an SME.

Section 4 - Conclusions 4.1 The BMF would like to see the following urgent actions from Government:

4.10 The introduction of marine sector specific training and guidance as a matter of urgency

4.11 Greater clarification from Government on the liabilities faced by exporters 4.12 A faster licensing process, to allow exporters to fully meet the needs of their

customers and remain competitive in these difficult economic times

September 2012

British Security Industry Association Ltd (BSIA) - Written evidence

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British Security Industry Association Ltd (BSIA) - Written evidence The BSIA response is based on the three responses received from our members S&M and the trade association view after discussion with a number of BSIA SME’s. Current Export Market 1) What contribution do SMEs currently make to the export market and in which countries and sectors. The BSIA Export Council representing 35 companies mainly SMEs who strongly believe that SME make a large contribution to the UK export market. An example of this is one of our companies’ exports into 46 countries and this represents 70% (£5million) of its annual turnover. 2) What contribution could SMEs potentially make both now and in the future and within which markets and countries? The Security market in which the BSIA companies work is a growing market in the most countries. Our SME/s are looking at the European Union, the Middle East, the Far East, Africa and Australasia Markets 3) How does the UK's SME export performance compare to those in competitor countries? What can the UK learn from their successes? With the exception of a number of countries such as China, Germany, US etc, the UK SME`s perform well when compared to the rest of the world. However in order to stay with the pack, UK SME`s need to focus on quality and innovation as UK SME`s are unable to compete in terms of price with the likes of China, therefore innovation and quality are essential in order to hold our place in terms of export share. In our industry our key competitors (Germany, US, etc) outperform us in most areas; companies in these countries appear to receive greater government support in areas such as finance, R&D and marketing for exporting. Internationalization of SMEs 4) What are the characteristics of successfully exporting SMEs? How do they differ from SMEs that are not exporting? Successfully exporting SMEs are more complex than domestic SME’s of a similar size. Whilst the organisation needs to be flexible in dealing with business activity in different countries, they need to be better organised and have a wider range of skills and knowledge than domestic businesses of a similar size, especially in areas such as risk management and finance. The need for senior staff with some international expertise or experience is critical along with a good working knowledge of the export markets they work in, including the ability to manufacture ‘market specific’ products, manage product certification and identify relevant local distribution channels supported by relevant marketing activity.


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Also Innovation and adaptability to different market requirements are the main differentials between exporting SME`s and those that don't. Market knowledge whether by market research or in country partners is also essential. 5) What are the perceived and real risks and opportunities to SMEs of exporting? Key Risks: Financial-managing financial transactions, credit risk, exchange rate fluctuations and hidden costs (duty, VAT, carriage etc). Political-instability, policy changes etc. Loss of Intellectual property rights (IP) Opportunities: Markets-more diversity, better opportunities to sell similar products. Knowledge-greater opportunities to gather R & D, product and marketing expertise. Risk management-rich diversity of export markets provide a degree of protection against a poor performing domestic economy. Payment terms are always a concern: Getting paid on time or at all. Not being able to County Count Judgements (CCJ) companies. Many companies usually request full payment before dispatch for export, but not all clients are happy with this. The companies have to weigh up the opportunity with the risk, unlike in the UK where the opportunity is always far greater than the risk. 6) What steps should SMEs that want to export take to prepare themselve’s to do so? What role does Government play in Supporting them? a. Market Research Market research is always a good first step. The Govt must have access to all sorts of market information whether this be general or industry specific. It would be helpful if Govt had some vehicle for making this information available to exporting SME`s across a variety of sectors free of change. b. Preparation Preparation is key. Work needs to start with desk research to narrow down appropriate markets but ultimately some ‘on the ground’ research is required to learn about the opportunities that specific markets provide, including the products they require, specifications required, distribution channels and about ways to manage and finance sales activities. Government could help with finding in-country partners/agents for SMES wishing to export, but ensure that there is a rigorous system for checking in-country partners/agents so as not to waste the SME valuable time and cost. c. Supported Opportunities Market research, travel, visiting exhibitions are extremely costly activities for SME’s trying to penetrate export markets. Often information is generic and of little use for specific markets. The government can assist by sponsoring the above activities and providing supported opportunities to exhibit and market products abroad on a scale relevant to small businesses.


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Barriers and Market Failures 7) What are the key barriers and market failures that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barrier and market failures? a. Larger companies can provide better support to underwrite the credits they give to their customers in a large diversity of markets even those ‘perceived’ as high risk. Banks are generally inflexible with SME’s in a similar context. b. Barriers-ease of product certification and financing appropriate credit risks associated with dealing with export markets. c. The government can help by creating more robust trade agreements with export market countries. However, since export is such a key contributor to our balance of trade, the government should adopt financial incentives similar to the one’s adopted to encourage R & D. i.e. tax credits for sales associated with export markets. This will assist SME’s with managing the financial risks and costs associated with export and encourage entrepreneurship. d. Cost is probably the overriding factor that inhibits SME`s penetration into foreign markets. Conducting market research, initial fact finding trips etc, without any guarantee of success will be the main barriers to SME`s breaking into new markets. Govt, can assist by providing general information on markets also releasing OMIS reports that are for instance a year old and no longer up to date, even if from a different market sector. All of these would be helpful and provide initial pointers as to how the market operates, what are the likely impediments, customs etc. e. Language and custom regulations are surmountable problems for SME’s, especially with UK language but when ‘custom related’ issues occur then an SME is in almost powerless to negotiate f. Finding the right local partner can be difficult and costly – even with UKTI support. The cost of researching and finding local partners is similar regardless of the size of the UK company. Therefore SMEs are naturally at a disadvantage over large companies as budgets are tighter. Incentives 8) What are the key factors to encouraging SMEs: a) which already export, to sell more overseas; or b) which do not currently export, to start doing so? a. Access to free general market information, customs, histories of other SME`s penetration into a particular market even if in a different market sector b. Show that export means increased sales and also an improved company profile can positively affect domestic sales too. Government Actions 9) How effective are the Government's current policy mechanisms in supporting SMEs to export at the UK and EU level? What are the most


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effective, what are the least effective mechanisms and when might they act as a barrier to exporting? UKTI services are useful but they are still very costly for a SME’s especially small SME’s. It is also very bureaucratic especially if it is not initially clear to the SME whether the market is worthwhile entering. If EMRS or OMIS services eventually lead to the conclusion that market entry is not viable then the expenditure of thousands of pounds makes the next market entry attempt far harder to justify. 10) What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets? a. The biggest incentive to SME’s would be a ‘tax credit’ or financial incentive type arrangement focused specifically on export sales and managed through the accounting process in a similar way to R & D tax credits. However, in our sector the government has to work towards harmonising the product testing and certification requirements in EU. Currently almost every EU market has a different set of product certifications, which creates a huge trade barrier for companies within the EU itself. b. Government could provide good general information, but not specific information relating to an individual market. UKTI DSO services can help with finding potential partners and arranging meetings but it is always difficult to find companies and specific information for our specific niche market (Security). It is probably unfair to expect local government departments and agencies to know such detailed information on all markets; nonetheless, without that knowledge the onus is back with SME to find it as general market information is not enough to plan to export. c. The availability of information already gathered on countries, markets, and sectors even if out of date or for completely different market sectors would be useful. Also Information on other industries sectors, where British companies prosper in overseas markets would be useful. 11) How should Government act and behave with regard to SME exports? a. If the Government is serious with regards to SME exports, then the government should look at how other countries support their SMEs to export (Germany, USA, etc ) and use this knowledge to improve the export service to SMEs in the UK. b. A critical review of UKTI should be undertaken to ensure the organisation is not only correctly resourced, but is fully focussed and the right shape to support the governments current and future export drives and that the money given to UKTI is fully used to support UK exports. c. The government should consider more financial aid for SME’s to support trade promotions and missions, better promotion of SME’s on the international stage, reduce corporation tax on export revenues, tax incentives for exports to targeted countries, new tax incentives to remain in place for at least 5 years to increase confidence, more funding to subsidise overseas market visits and exhibitions and increase tax credits for export R&D activities.


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It is important to remember that exports are critical to long term SME success and SME success is critical to the UK economy. 12) Should the Government target specific sectors, markets or types of companies where the potential is thought to be greatest? What are the costs and benefits of such an approach. a. The problem with targeting specific sectors is that in many markets the potential is not known and the there is always a drift in to the easiest way to export. E.g. In the security market it is easier to go for government-to-government contracts (defence, etc) than to go for business to business contracts. In UKTI the defence department is much larger than the security therefore the main focus in on defence with a much smaller focus on security. Yet the global security market is worth around €100 billion (2011 figures) with the EU security market between €26 billion and €36.5 billion (The figures quoted here are from the “communication for the commission to the European Parliament, the council and the European economic and social committee” on a “Security Industrial Policy”. Document attached). So should not security and defence be of equal footing within UKTI DSO and government policy? b. Obviously markets and sectors vary enormously in size, scope and risk and these are dynamic. Whilst the government may vary support ‘on the ground’ to encourage favourable ‘high growth’ markets it would seem simplest and most cost effective to have this ‘on the ground’ support underpinned by one ‘overarching’ level of support that encourages SME’s to export in ‘all markets’. As mentioned earlier, a tax rebate or similar financial incentive, like the current R & D tax credits, managed through the accounting process could provide SME’s with sufficient incentive to manage the risks and costs associated with export whist making a big impact on our balance of trade. 14th September 2012

British Textile Machinery Association - Written evidence

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British Textile Machinery Association - Written evidence The points that are made below refer to small or medium sized enterprises involved in the design, manufacture and sales of textile machinery and associated products and services to overseas markets. Current Export Market 1. The textile machinery industry in the UK comprises 100% of SME’s who, in order to

survive, have for many years, had to “learn” how to export their products and services to all the textile producing countries worldwide.

Markets have changed over the years, however today, China, India, USA, Turkey and Germany are the main “target” countries for UK companies, with South America, Africa and other Asian and European countries becoming increasingly important.

The UK over the past few years has exported on average £96 million per year of textile machinery to overseas markets.

2. With help from Government, SME’s could potentially increase their market share,

particularly in the emerging markets of Asia (Indonesia, Malaysia and Thailand) and in the “new” European member states.

3. The UK’s SME export performance is somewhat inferior to their competitors in

other countries, particularly, European countries, much can be attributed to their lack of funding from Banks and Government, which our competitors do not have to endure. They enjoy much more favourable and accessible loan facilities to fund work in progress together with a fully committed Commercial Section in their embassies and consulates who seem to work tirelessly to help exporters to achieve their sales targets and help to promote their country and countries image.

Internationalisation of SME’s 4. Successful SME’s have fully researched the markets and have developed their

products accordingly. In our industry it is important to keep abreast of the latest developments in textiles and develop equipment to produce it.

To successfully export it is most important to have the right local agent in place to build up a relationship and sell your products.

5. The real risks to SME’s of exporting are those connected to companies defaulting on

payments. SME’s have to make sure that they have adequate export credit insurance in place before accepting orders from overseas companies.

6. SME’s should thoroughly research the market regarding suitability and conformity of

their product, and the sales potential. They should ensure that they have suitably knowledgeable local agents in place to promote/distribute their product.

British Textile Machinery Association - Written evidence

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Government, from experience, are only able to support companies financially in their efforts to develop and export.

Barriers and Market Failures 7. In our industry all our SME’s have to export as there is not enough business in the

UK to make their businesses viable. However the key barriers that inhibit SME’s from exporting to certain regions are IPR, Government policy (i.e. Iran) and cost.

Incentives 8. The key factors to encouraging SME’s is quite simply funding. Their trade

associations can provide all the other help SME’s need to export successfully and at a profit. Their Trade Associations have both product, commercial and market knowledge based on many years experience.

Government Actions 9-12. Regrettably there is insufficient experience within the Government and Government

Departments regarding the basic rudiments of manufacturing for and selling to overseas markets particularly in relation to SME’s.

All too often Government employ the services of individuals with experience in large multi-national companies or groups and their focus is generally centred around the Aerospace or Automotive and other large industries. They are not qualified to advise SME’s.

Government employ International Trade Advisors, the majority of which are not long out of University and have no basic overseas sales or marketing experience at SME level. They are merely employed to sell UKTI products that other countries offer to their industries free of change (market surveys in Germany and Italy are free). Most of our member companies would not go to their local ITA for advice on exporting to a particular county. Their first port of call is their Trade Association, which they know has the experience and respect that they need to make management decisions.

Government should encourage companies to join their trade association and connect the associations with FCO posts overseas to assist in developing overseas markets.

August 2012

Brompton Bicycles Ltd - Written evidence

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Brompton Bicycles Ltd - Written evidence Current export market 1. What contribution do SMEs currently make to the export market (in products and services)

and in which countries and sectors (both directly and through the supply chain to larger companies)? Brompton sells its range of bicycles, and related spares and accessories, into markets around the world. In addition to the UK, our products are sold in 27 markets in Europe and the Near East (Russia, Israel, etc.), with a further 6 in the Americas and 11 in Asia (including Australia, and counting Hong Kong and Macau as separate entities). We therefore supply products to 44 export markets, and will add Mainland China to their number next month and probably Colombia by the end of the year. Distribution is mostly through distributors, who oversee the logistics of importation and distribution and who act in loco Brompton in their markets; in Anglophone countries (Ireland, USA, Canada, Australia and of course the UK) sales and deliveries are made direct to retailers, without the mediation of a distributor. We do not sell to larger companies. When I joined Brompton in January 2006, 60% of our bikes were exported; that figure now stands at 76% of a much-enlarged production. We are now a medium-sized business but clearly still a drop in the export ocean.

2. What contribution could SMEs potentially make both now and in the future, and within which markets and countries? The exports of many SMEs combined will match the output of larger, better-known entities like McClaren and BAE Systems, though the latter naturally attract more interest and coverage. SMEs are arguably less likely to relocate operations offshore and, if affected by a downturn, less likely to introduce cost-saving measures that have a material impact on a national level. They are perhaps also more likely to be well-integrated into the local communities in which they are based. The future contributions of SMEs can and should extend to all sectors and all markets; even those projects which are too large to be undertaken by any businesses other than the largest public companies might involve smaller players as niche suppliers and specialist deliverers.

3. How does the UK’s SME export performance compare to those in competitor countries? What

can the UK learn from their successes? The notion that no market or sector should be closed to SMEs is perhaps best demonstrated by Germany’s Mittelstand. The thousands of SMEs that comprise this profitable stratum of German economic endeavour are active in a vast variety of sectors and industries, much like our own SMEs; however, they seem to be much more open to exporting their goods than SMEs in the UK.


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In part, this may reflect Germany’s central European position and the absence of a psychological watery barrier, but for whatever reason German companies of all sizes took the decision 20+ years ago to start looking at markets like China, Brazil, Russia, etc. where British companies, and SMEs in particular, are under-represented to this day. In my view, British companies were too comfortable with European, American and Commonwealth export markets that were accessible and familiar; the BRICs, including India despite its long shared history, was left untouched and continental companies were simply much quicker off the mark. The lesson, for me, is very simple: the next series of ‘new markets’, from Myanmar to the Philippines, from East Africa to the Andes, must be approached now with an enthusiastic can-do attitude. If SMEs are not diversified in the markets they supply, they will be exposed to the kinds of shocks now affecting regions to which UK companies do export (Europe, USA, etc.). The same lesson may be drawn from the work of Asian SMEs, particularly those based in countries like Taiwan and China where competitive bids have been the cornerstone of survival for decades as SMEs set about supplying original equipment manufacturers to Western brands; those OEMs (HTC, Lenovo, Huawei etc. obvious examples) now have their own brands they are taking to market overseas, and the SMEs have followed; for years small manufacturers in Taiwan, for instance, have looked for business anywhere they could find it, irrespective of location, and by pursuing sales everywhere (not just on their island) have insulated themselves against the ups and downs in any one market or region.

Internationalisation of SMEs 4. What are the characteristics of successfully exporting SMEs? How do they differ from SMEs

that are not exporting? Again, I draw lessons from the performance of the Mittelstand, which apply also to Brompton. I feel it is vitally important, particularly for an SME based in a higher-cost economy like the UK or continental Europe, to excel in what one does. It can be a number of related activities but a characteristic one sees time and again among the best-performing SMEs is that they are often the standout performer/provider in just one particular field or application, perhaps in the fabrication of one particular membrane used in a small number of specialised fields: too small a niche for the large corporations to bother with and therefore one which is both relatively safe from competition and also high-margin. Brompton operates in a very competitive sector (there are now many designs of folding bike targeted at commuters) in an industry that over the last 10 – 20 years has become very rationalised, with all manner of brands sharing a handful of production sites and differentiating by brand. We are a small player in global terms but are sought out for the excellence of our finished product and the appeal of our brand, associated with British engineering and manufacturing. At the heart of our success is a product that has not fundamentally changed since full-time production began in 1987, even if every part on the bike is now better and offered with multiple choices. Differentiate through quality and focus on what you do well, and that can be sold as readily in Brussels and Baltimore as Basingstoke and Brighton, albeit in different ways.


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5. What are the perceived and real risks and opportunities to SMEs of exporting?

Fear of the unknown is the fundamental emotion, perhaps. One leaves the certainties picked up over years of working in the UK for a business culture that may be very different. As with all things, differences are enriching if properly approached. Linguistic and legal barriers can be managed easily if properly prepared-for, and inexpensive advice from the likes of UKTI (or even a subsidised market visit through them) can overcome many of these hurdles. There are real risks associated with exports to some markets. IP concerns surround exports to markets where patent/copyright infringement is rife, though Brompton took the view that Chinese copycats would create a Chinese Brompton soon enough anyway, so why forego selling the real thing to Chinese consumers and educate them about what it should be? Business risks also exist around costs like heightened transportation costs and import duties/tariffs; these must be factored into any analysis of a market’s desirability, but should not preclude investigations. There are political concerns also; some countries have a capricious approach to overseas companies’ assets (viz. Argentina’s recent seizure of assets belonging to foreign entities is one example), though these are often the countries with the most punitive/self-defeating protectionist tariffs (again, Argentina). All these risks exist to a greater or lesser extent but all can be managed with a modicum of due diligence. Not exporting is arguably a much greater risk.

6. What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them? The fundamental question for any business is how they wish to enter a market. In Brompton’s case, our approach is generally to favour a distribution model in most markets (see separate note submitted herewith); the risks are reduced, and we are able to export to more markets than our small resources would ordinarily allow, though the pay-off lies naturally in reduced margins. Those SMEs that do export will often have a personal connection with an overseas market and will know it well, thereby obviating many of the risks that might ensnare a less knowledgeable businessperson. Alternatively, and this applied for many years to Brompton, SMEs might be approached by individuals or companies from overseas markets who wish to bring the company’s products to their markets; in those circumstances, assuming one is satisfied with the people one partners with, one may be able to avoid many of the legal, cultural, financial and practical issues, especially if exports are made on an ex works or freight on board basis, i.e. responsibility for goods ceases at the factory gates/port of embarkation. I have referred to UKTI above, and their support has been very valuable to Brompton in entering South American markets in the last couple of years, as we became more proactive in seeking out new markets, rather than waiting for would-be partners to contact us. The organised market visit was worthwhile, as was the pre-visit market report prepared by the consulates in Santiago (especially) and Sao Paulo.


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The Department of Business Innovation and Skills should therefore continue to support organisations like UKTI who offer assistance for those businesses that need it; it is money well spent. More broadly, Government would do well to offer tax breaks and NI holidays to manufacturers taking on new staff; many of these businesses will be growing through exports in a time of stagnant economic activity at home. Finally, the Government might wish to revisit the extent to which it is prepared to underwrite the investments British SMEs make in overseas trade; though Brompton does not avail itself of these, the word on the street is that export guarantees are generally not made available to smaller businesses, being reserved for the larger businesses least likely to need that kind of support. Again, the sense from many people I have spoken to is that the German government did not just facilitate VW’s march into China and Brazil in the 1970s by guaranteeing the exports of products and investment from Wolfsburg; it offers similar guarantees for its conservatively-managed but ambitious SME sector. The lesson for government is to not be so in thrall to Big Business, important though it is; it is important not to overlook the riches that may be found further down the corporate scale, and to support them.

Barriers and market failures 7. What are the key barriers and market failures (including regulatory, financial, operational, and

other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barriers and market failures? I have addressed the issue of export guarantees in the previous answer. It is self-evident that a larger organisation is more likely to contain within its organisation people with linguistic and cultural affinity for any given markets, but SMEs – as suggested above – often have a personal connection at the senior level with the export market(s) they choose to enter, so it seems that they are cutting their cloth accordingly. As suggested above, UKTI’s work does assist SMEs willing to explore opportunities in new markets, the market visits being particularly helpful in easing less confident businesses into new business cultures. It might help British businesses if language courses were made available on a subsidised basis, though a more important step would be for Government to actively encourage the learning of foreign languages to a greater extent than it currently does. Two foreign languages up to GCSE level ought to be the minimum, and the learning of non-Romance languages, especially Mandarin and Korean, should be promoted. Again, cultural and linguistic obstacles may be largely overcome by adopting a distributor model. What cannot be avoided is the indigenous macro-economic policy in other markets. Our biggest challenge at Brompton in this regard is the protectionist stance adopted by both Brazil and Argentina, who have lacklustre domestic (low-value, non-folding) bicycle manufacturers they shield from international competition with blanket import tariffs; these ensure that our products are 50% more expensive there


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than here, even before internal tariffs (between states in Brazil, for instance) and sales taxes are included. Neighbouring Chile, with a free-trade agreement with the EU, by contrast, is a breeze to export to, and sales per capita there far outstrip the performance in the other two markets.

Incentives 8. What are the key factors to encouraging SMEs:

a. which already export, to sell more overseas; or b. which do not currently export, to start doing so? For example, how have developments in information technology influenced the performance of SMEs and their capacity to compete internationally for trade and investment? Simply put, SMEs just need to get out there and explore the opportunities available in overseas markets. It is an absolute no-brainer for many businesses to at least consider exporting/exporting more; diversification of markets as a defensive ploy alone makes it worthwhile. If a conservative industry such as bike retail, focused on bulky, fairly technical items, can be shaken up by the emergence of online retailers, it is clear that remote and cross-border selling must be on everyone’s radar. Like larger businesses, SMEs can use modern technology to their advantage (Skype calls with distributors in Brazil and suppliers in Taiwan are commonplace here, and we are about to limit all orders to an online system that eliminates duplication of work and errors) but the fundamentals of doing business overseas remain unchanged; courtesy, respect for the target market, etc. It’s just now easier to do business overseas than ever.

Government Actions 9. How effective are the Government’s current policy mechanisms in supporting SMEs to export

at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting? On the whole, I have little to add to the above. Perhaps a more proactive approach to export encouragement might be welcome – we could compare the British presence in, say, Shanghai with that of the Delegation of German Industry & Commerce (boasting a very large staff), under whose auspices the German Chamber of Commerce is active; up the road, the cultural side is covered by a German Centre. That scale of investment and national brand-building brings rewards which a single high-profile visit by a PM, however welcome, cannot match.

10. What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets? See above.

11. How should Government act and behave with regard to SME exports?


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See above.

12. Should the Government target specific sectors, markets or types of companies where the potential is thought to be greatest? What are the costs and benefits of such an approach? In my experience, politicians, even well-advised ones, tend to back the wrong horses. For all its failings, a free market tends to sort the wheat from the chaff better than an elected official, with all the pressures he faces to back pet sectors and industries represented in his constituency. Even the most impartial of officials will struggle to predict accurately how a technology or sector will develop; even leaders in those fields struggle accurately to predict sales, never mind technological development. I would urge a broader approach to promoting British business and our national brand; the “Great” campaign was a very welcome step in that direction, but proper support on the ground would be welcome.

13. Is there sufficient co-ordination of actions and awareness across Government and other bodies? How should other bodies be acting? No comment.

14 August 2012

Buckinghamshire Business First - Written evidence

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Buckinghamshire Business First is business driven and business led. We bring together the combined business voice of Buckinghamshire, providing the link between government economic policy and the business community. Our mission is to work with our partners to create a dynamic business environment in the ‘Entrepreneurial Heart of Britain’. We do this by providing and signposting to business support and by leading on and delivering strategic economic development initiatives.

Our partners are the many organisations that we work with to achieve our goals. These include local authority and central government departments, business representative organisations, further and higher education establishments, skills providers and private sector companies.

We have hundreds of members from across the business community in Buckinghamshire. It is the right of every business person in the County to be a member of BBF and membership ensures that they are kept informed and have a say in the direction of the local economy. Our funding comes from local business donors, from our local authority partners and increasingly from other revenue sources for our long-term financial sustainability. Buckinghamshire Business First is the engine behind the Buckinghamshire Thames Valley LEP, providing secretariat and executive capacity.

This response is drawn from the views of our board and members.

SMEs and Exports

Even where firms have been successfully exporting for many years and where overseas clients form the largest part of the market there are frustrations with the system, most notably with regard to export licences. These regularly take 15 weeks to be granted, this is too long to ask a customer to wait and so all the risk is placed on the UK firm aspiring to export. It is reported that Civil Servants responsible for granting licences will not offer an opinion ahead of a decision, but do expect firms to reach a judgement themselves based on what has been granted a licence in the past.

Key roles identified for Government include:

• providing exchange rate stability. Where contracts extend over long periods exchange rates can make a marked impact on profitability and on the likelihood of winning contracts. SMEs cannot hedge contracts as currency portfolios do not exist;

• defending the UK’s brand. UK universities and research institutions enjoy a strong international reputation. The reputation of the national science base is considered to be a significant advantage to companies trading in high-technology components, giving buyers confidence that products will be robust. Overseas students returning home on graduation or after a period in employment in the UK are valuable clients and so play a vital role in sustaining and developing UK exports;

• provision of fast and reliable broadband, current arrangements make it difficult to communicate over skype with customers.


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Less agreement was reached on the effectiveness of current arrangements. While some Buckinghamshire firms reported satisfaction, particularly with UKTI, others felt current policy mechanisms would be better delivered at the level of the firm. Personal visits to companies would allow expert advice to be offered, including mentoring, tailored to the ambitions of each firm. Extra resource for firm level intervention would be well-received and that resource should be delivered by Local Enterprise Partnerships, the bodies most closely working with firms.

Responses were split as to whether a sector based approach would be beneficial or whether firms should be supported on the basis of opportunity, irrespective of sector.

Other barriers identified included: language, although the importance of English as the language of business was noted; difficulties in finding markets; difficulties in finding distributers once a market was identified; and the risk associated with beginning to export including both time and money invested.

14 September 2012

CBI - Written evidence

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CBI - Written evidence 1. The CBI is the UK’s leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. With offices across the UK as well as representation in Brussels, Washington, Beijing and Delhi the CBI communicates the British business voice around the world.

2. The CBI welcomes the opportunity to respond to the House of Lords Select Committee on small and medium-sized enterprise (SME) exports call for evidence. This submission focuses on the role of government in increasing the UK’s export activity from the perspective of SMEs and the role that businesses themselves can play.

3. This submission makes the following key points:

• The UK’s SMEs play a valuable role in the UK’s export activity, however there is scope to increase this contribution

• SMEs face significant barriers to exporting • Government and business can take further steps to help SMEs reach their export

potential.

The UK’s SMEs play a valuable role in the UK’s export activity; however there is scope to increase this contribution

4. SMEs make a substantial contribution to UK’s export activity. In the manufacturing sector, SMEs with 10 or more employees contribute around a third of the value of UK exports. In service sectors the contribution of SMEs is much larger.22

5. However, in comparison to the UK’s competitor markets, SMEs are underperforming; in the EU one in four SMEs export whereas in the UK one in five SMEs export. It is important for the UK to aspire to equal and overtake this figure in order for the UK’s export activity to increase and for the UK’s SMEs to compete internationally.

6. There is a huge potential for SMEs to increase their export activity, by some firms exporting for the first time, and existing exporters looking to new markets. Exporting also helps SMEs by increasing sales and profit, minimising risk by diversifying the range of markets in which a business operates and encouraging innovation. Businesses are 11% more likely to survive if they export and 58% of exporters reported a ‘level of growth not otherwise possible’.23

7. In addition, boosting the UK’s export performance is essential for economic recovery. The CBI’s Winning Overseas24 report states that achieving the UK’s export potential across

22 BIS International Trade and Investment- The Economic Rationale for Government Support 2011

23 UKTI Bringing home the benefits: How to grow through exporting 2012

24 CBI Winning Overseas: boosting business export performance 2011


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businesses of all sizes, including SMEs, could be worth up to £20bn to the UK economy by 2020.

SMEs face significant barriers to exporting

8. Many SMEs, regardless of their sector and size, face significant barriers to exporting. These challenges impact their confidence, and therefore whether they decide to increase their export activity. 9. Some of the challenges SMEs may face prior to exporting include:

• Lack of networks. It is important to be able to identify credible, helpful contacts both in the UK and overseas. Without appropriate advice and networks, it is often impossible to conduct business in new markets.

• Increased costs. Additional costs that may be incurred in order to prepare a product for a different market can include ensuring the product complies with local legislation, developing international packaging or taking steps to protect the products’ intellectual property.

• Inadequate resources. Senior staff in the organisation need to be able to find the time to fully prepare the business for exporting. For SMEs staff resources are often limited and a focus on exporting may mean that less attention can be given to local markets. This may not be a feasible option in some cases.

10. During exporting SMEs may come up against a number of barriers, for example:

• Cash flow risks. SMEs, more than larger companies, are very reliant on timely payment to manage their cash flow. Receiving payment from overseas customers often takes longer than in domestic contractual arrangements, which could have a negative impact on the exporter’s cash flow. Non-payment is also a risk for exporting businesses, partly because recovering payment from an overseas customer will be more time consuming and costly than recovering payment from a UK customer.

• Cultural differences. For businesses exporting to new markets, a lack of understanding of cultural differences, and the local language, can often be a barrier. Attempting to navigate these cultural and language difficulties alone, without advice or direct assistance, may expose the business to additional risks. However, for some small to medium-sized businesses cost may prohibit them from making the necessary investments to overcome these challenges, such as hiring an interpreter or local guide.

• Exchange rate risks. Exposure to fluctuations in exchange rates can leave SMEs at risk.

11. However, not all SMEs are hindered by these barriers, and there are many success stories. Successful small and medium-sized exporting businesses in the UK tend to have a distinctive set of characteristics. They are likely to be highly-ambitious, high-growth businesses and see exporting as integral to their business model. Also, while the traditional narrative surrounding SME exporters is that they export reactively, for example in response to sales generated online or an approach from a potential client, successful exporters are likely to be those companies that proactively seek exporting opportunities as part of their growth strategy.


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12. In addition, the majority of our members who export took extensive steps to prepare their business and products, including:

• Assessing the company’s financial position and planning financial projections • Developing an export plan/strategy • Preparatory costs, including developing marketing materials and product

customisation • Identifying the best distribution channels • Researching and modelling to decide product pricing • Determining appropriate payment terms.

13. For many potential exporters the challenges may seem too great, and the barriers too significant, for them to aspire to be a successful exporter. There is, therefore a role for all stakeholders to play in addressing these barriers and lifting business confidence, so more small and medium businesses are ready to embark on increasing their export activity.

Government and business can take further steps to help SMEs reach their export potential

14. The CBI welcomes the government’s increased focus on helping boost the UK’s export performance, and moves to lift business ambition, including the Chancellor’s announcement in the Budget which set a target to double the annual value of British exports to £1 trillion by 2020. Measures to support medium-sized businesses in the 2011 Autumn Statement and Budget were also welcome; including £10 million additional funding to help 500 medium-sized businesses export to new markets; £1.2 billion to invest in medium-sized businesses through the Business Finance Partnership; and the Enterprise Finance Guarantee Scheme.

The government plays an important role providing practical support for companies

15. Companies highlight that government is uniquely positioned to use its diplomatic channels to further open up overseas markets, to enable companies of all sizes to expand their activities overseas. In addition, SMEs emphasise the valuable role that government can play in providing practical assistance, both in the UK and overseas, to potential exporters, and companies seeking to grow overseas.

16. Businesses often are seeking intelligence, overseas contacts, sectoral perspectives and local market analysis that would help them address their particular barriers to exporting. SMEs often report that due to their size they struggle to access helpful, appropriate contacts in the market in which they are seeking to export. In addition, companies may require help to overcome local market constraints in some cases.

17. UK government posts overseas are well-placed to have the local knowledge that can help address this challenge for SMEs. We continue to receive a mixed response about the Overseas Market Introduction Service (OMIS) provided by posts. We hear that in many cases OMIS reports are often excellent, providing the information and assistance that directly meets a company’s specific needs. However, in other instances we hear that companies do not receive information that is of value to them. In order for there to be an export-led recovery of the UK economy, the standard of service provided by posts across the globe needs to be consistently high.


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18. Government-organised trade missions can be an excellent way for businesses to get a taste of a new market, explore opportunities and have valuable conversations with contacts on-the-ground that can lead to business deals in the future. Companies often report that a visit to a country on a government-led trade mission has been the start that they needed to expand their business overseas.

19. As trade missions can often be a relatively expensive activity for SMEs, it is essential that the visits aim to meet each company’s specific reasons for joining the mission. To ensure that it is worthwhile a company joining the trade delegation, it is important that they discuss the visit and their goals with UK Trade and Investment (UKTI) staff, before committing to the mission. By doing this UKTI can provide the most appropriate advice, and the company can make a fully-informed decision about the potential return from being involved.

20. The joint UKTI -CBI trade mission for medium-sized companies to Turkey earlier this year, the first of its kind, was a highly-successful initiative that delivered for business. The preparation work with the companies to understand their needs, development of a delegation programme that had clear objectives for each session, and post-visit follow up work with the businesses helped ensure the trade mission was a success. Companies provided very positive feedback after the visit, and reported that it was a worthwhile undertaking, with potential clients met and business opportunities created.

21. Government can also play an important role assisting businesses, particularly small and medium-sized firms, in the UK. Companies welcome recent changes that the government has made to improve the practical support it provides throughout its network of regional offices and initiatives such as UKTI’s Passport to Export and Gateway to Global Growth. Businesses have given supportive views, and report that government teams increasingly have a stronger commercial awareness and a more business-friendly approach. It is essential that these improvements are across all regions of the UK, so businesses in all areas can receive the assistance and advice they need.

China-Britain Business Council (CBBC) - Written evidence

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Government and businesses need to continue to raise awareness of the support that is available

22. However, research shows that many small and medium-sized companies are failing to use the assistance that is available as they are unaware of what is on offer. In our ‘Winning Overseas’ report 13.7% of business leaders said that a greater publicity of the services available was one of the most important things government could do to facilitate UK exports. Indeed, both business and government has a role to play in this. 23. Over the last year UKTI and the Department of Business, Innovation and Skills have increased their awareness-raising activities substantially, from the high-profile ‘National Challenge: SMEs Exporting and Growth’ events that targeted intermediaries that interact with small and medium sized businesses, to the new Open to Export website. Also of note is the introduction of SME experts in UKTI offices throughout the UK, to reach out to companies to highlight export opportunities and signpost businesses to the assistance that is available.

24. The CBI welcomes these moves, and whilst it is too early to assess the medium to long-term impact of the changes, they have been well received by SMEs. The CBI recognises its role in helping to raise awareness, and will continue to actively promote these helpful initiatives to our members, encouraging them to make use of the assistance that is available.

Peer support can be a valuable way for businesses to boost their export performance

25. Also of great value to potential exporters, or exporters looking to expand their overseas activities is peer-to-peer learning and support. Recognising this, the CBI has introduced ‘M-clubs’, commencing in September this year. Our ‘M-Clubs’ bring together medium-sized businesses in 11 regions throughout the UK, to form a network of businesses that can share knowledge and gain intelligence that will enable their businesses to grow. A focus of the clubs will be exports, and companies will discuss how to increase their export capabilities and create opportunities to increase their activities overseas, learning from each other and developing networks that can help them take ideas forward. 26. In addition, businesses have expressed the need for a mentoring programme whereby successful small and medium-sized exporters are matched with a business which has the capacity to begin exporting for the first time or a business which is looking to expand their exporting activities. The mentor would be well-placed to provide vision and/or practical advice that are needed to boost confidence and overcome challenges. UKTI, with its local networks in the UK, may be best placed to identify potential mentors. Using the characteristics of successfully exporting SMEs may assist with this, so that mentored companies can learn best practice, which will maximise their chances of export success. September 2012 China-Britain Business Council (CBBC) - Written evidence


Further to the request from the House of Lords Select Committee on SME Exports, the China-Britain Business Council (CBBC) is pleased to submit its written evidence for consideration by the Committee.

We agree that encouraging greater commercial activity within the SME sector is fundamental to the UK’s economic recovery. Since SMEs provide nearly 60% of private sector employment in the UK, it is important to understand what assistance they require to assist them to take advantage of the important opportunities that international markets offer and how the British government, support organisations and market specialists can support them.

CBBC is the leading organisation helping UK companies grow and develop their business with China. CBBC supports British companies of all sizes and at every stage of market entry with practical in-market assistance, services, industry initiatives as well as a membership programme offering access, seminars and significant networking. CBBC works closely with UK Trade and Investment (UKTI) and has a strategic partnership with the British Chamber of Commerce in Beijing providing Corporate Members with reciprocal membership.

Our business-led Board and professional team have extensive first-hand experience of doing business in China and through 58 years of engagement, CBBC has built up exceptional connections with government and business across China. CBBC’s services are delivered through a network of nine offices in the UK and 11 key strategic locations across China.

Our services range from initial market research and analysis, through to identifying specific contacts for UK companies, to assisting companies to establish a presence in China and supporting them develop sustainable business over time.

CBBC is also a membership organisation, where our corporate members are actively involved in doing business in China. The split of our members by company size at the end of FY 11/12 was:

CBBC therefore has a very strong understanding of the type of assistance that British companies, particularly SMEs, need when approaching a market the size of China. We talk to SMEs on a daily basis and work with the British Chamber in Beijing to conduct an annual survey of British business in China so we are fully aware of the prevailing issues and

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challenges – and we can respond to support businesses, inform businesses and develop new services as required by our customers.

Within our response, we do not focus on the contribution of SMEs to exporting on a global scale, we look at some of the key themes and trends in relation to China and highlight the range of existing services that exist to support businesses to establish and expand their exports into China.

Today’s China

The rise of China, rapid growth, increasing presence on the global scale is well documented. The well developed cities of China’s east coast are household names – not so the equally vibrant, dynamic cities – with 5-6 million populations – that are China’s regional or second/third tier cities. The pure scale of China can be daunting for SMEs. In 2008 UKTI, CBBC and the University of Leeds, started a process to investigate in more detail the opportunities for British businesses in 35 of these regional cities. CBBC, supported by Leeds academics, conducted the large scale piece of research (funded by UKTI), which was the first of its kind on this topic (subsequent reports on this topic were prepared by large consultancies e.g. McKinsey). As part of the research, interviews were conducted with British companies about the challenges of doing business in China as well as the main drivers for looking at the China market – and looking beyond the major cities on the East Coast like Beijing, Shanghai, Guangzhou and Shenzhen. The market drivers identified are shown in the table below:

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The challenges cited by companies can be seen in the following chart.

The 2008 Opportunities for UK Business in China’s Regional Cities report was updated by a further report in 2011. The second report revisited the initial 35 cities, added a further 6 provincial capitals and prioritised those cities according to the range of business opportunities across 8 industry sectors where UK has market leading expertise. The sectors covered in the report are Aerospeace / Aviation, Automotive, Built environment, Education, Energy, Healthcare, Rail and Retail.

Interviews were conducted again with British companies during the research phase. When asked about the challenges of doing business in China the highest ranking topics by number of respondents were:

• Regulations and bureaucracy (60+ responses)

• Building reglationships and trust with partners / Language and culture (30)

• Transfer /localisation of business model, human resource-related issues (c 20 each)

• Lack of local knowledge/Raising business image and profile / Problematic business practices (c 15 each)

• Protection and enforcement of IP / formal & informal protectionism/ Legal environment (10 each)

Lesser cited challenges included Increasing costs, Policy-related challenges, Time and effort, FOREX and other finance-related issues, Domestic competition, Taxation-related matters, Foreign competition, Trading regulations and requirements

In the 2011 report, we also asked companies to rank strategies for overcoming barriers and obstacles to doing business in China.

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The largest number of respondents cited building relationships as the most important strategy for mitigating these challenges, followed by the need to be patient, committed and flexible, employment of Chinese staff, working with local partners and working with


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professional and financial advisers. Market research and due diligence were also felt to be key as part of the overall business strategy.

Earlier this year, CBBC and the British Chamber of Commerce in China conducted its annual BRITISH BUSINESS IN CHINA – 2012 BUSINESS CLIMATE SURVEY. 190 respondents took part – the majority of whom fall into the SME headcount (based on personnel in China). The key outcomes are listed below. http://www.cbbc.org/guide/downloads/2012_china_business_climate_survey

1. China remains a key market, with the majority of respondents planning an increase in investment and remaining positive in their expectations for the coming year.

2. Human resource issues continue to be a substantial challenge for business, with

members tackling increasing labour costs and problems attracting and retaining skilled staff.

3. Whilst domestic competition still struggles to compete in terms of technical

innovation and management expertise, they showed significant improvement in marketing and branding.

4. The key business challenges facing those in the China market continue to be

bureaucracy, securing licences and protecting intellectual property.

5. A significant proportion of companies (70%) viewed obtaining local licenses as a major concern and not level playing field as compared to domestic companies. Enforcement varies across different cities and regions with poor transparency in the decision-making process

6. Despite intellectual property rights being cited as an important factor in China

operations, the number of infringements that actually harmed operations was relatively low.

Internationalisation of SMEs

What are the characteristics of successfully exporting SMEs? How do they differ from SMEs that are not exporting? What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them?

It is not easy to generalise what makes a successful exporting SME. In our experience there are different categories / attitudes within SME business: There are those who are entrepreneurial, that have a “can-do” attitude, are driven and enthusiastic. There are those who are more cautious or even sceptical about long-haul overseas markets and who consider the challenge simply too difficult. Another group have aspirations to export but struggle to find the resource ( senior management time / key experienced personnel /budget) to commit to exploring the potential for their business in a market like China. However, ultimately it is often the people driving the business that are the key to success.

In essence to be successful in China companies need:

http://www.cbbc.org/guide/downloads/2012_china_business_climate_survey


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1) The right product or service – this may seem obvious but some companies do not fully appreciate how advanced Chinese industry is. Chinese companies increasingly look for excellence from their suppliers. They also look for value added benefits, strong operational advantages and strong branding / good reputation. Competition amongst overseas companies and increasingly sophisticated and ambitious Chinese companies is increasing.

SMEs therefore need to be well prepared, with literature – or at least a company profile stating their Unique Selling Points – translated into Chinese. CBBC provides this service for companies – we are happy to work with companies to help them develop the brief, as are UKTI’s team.

They need to conduct market research (see 4 below) to ensure that there is indeed a market for them in China.

2) The right people – doing business in China is not for the faint-hearted. It is necessary for a company to commit a senior member of staff with sufficient experience, authority and technical knowledge to be their company’s China champion. Someone committed to visiting the market and to building the personal relationships that are key to developing business in China.

Our research, surveys and nearly 60 years’ experience prove that business success in China is dependent on building, then maintaining relationships. The personal bond in China is very important – so regular visits by the same person are important. UKTI offer a range of supported visits to China, be they through trade missions or trade fair schemes. Flights to China are increasingly frequent, and with UKTI and CBBC’s network of offices in market, we are able to help companies, whether they be on an individual visit or part of a sector / industry group.

SMEs can also make contacts and build their networks through engagement with inward delegations visiting from China. This can be a cost effective way of meeting senior officials from key cities and industries, before following up later, in China. CBBC hosts such delegations on a weekly basis and can open doors to senior level officials who would not ordinarily meet SMEs in China.

3) The right partners – knowing who is the right person or organisation to partner with, is challenging for SMEs. Due diligence is important – through CBBC we offer services and guidance on how companies can do primary due diligence at low cost. For companies who do not have established contacts / connections in China, CBBC and UKTI can provide targeted contacts through delivery of market research. Of course, initially, SMEs can check their own network of contacts to see whether they have existing customers, clients, friends or alumni who are already active in China and can help.

4) Good market research. There is abundant information about China available for free via the internet, corporate services company newsletters (from banks, law firms, accountancy firms etc), books as well as UKTI and CBBC. The challenge for SMEs is distilling that information and obtaining an honest, impartial view about the real prospects for their business in China. CBBC and UKTI provide that “honest broker” role very effectively, through free initial consultations and cost effective commissioned research, tailored to the customers’ specific objectives.


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These research services are conducted through UKTI’s Overseas Market Introduction Service (OMIS), which is delivered by CBBC in China for business to business projects. UKTI in China support this process, but in terms of the work split, it focuses more on market access issues and business to government lobbying matters. Over 80% of the OMIS work we do for UKTI is commissioned by SMEs – and much of this relates to the identification of key contacts (e.g. potential distributors, customers, partners).

5) On-going support – helping SMEs maintain the momentum and provide on-going assistance and guidance as their business model evolves. Chinese companies often regard an in-country presence in China as a sign of commitment – especially where a product requires aftersales service and maintenance. The prospect of setting up or running an office in China may be daunting for SMEs.

Through our network of offices in China (currently 11 but expanding to 13 in 2012), CBBC’s Launchpad scheme has, since 1994, offered companies wishing to enter the China market a facility for having a low cost, low risk in-market presence. Essentially CBBC hires a project manager for the company, based within a CBBC office, for a fixed cost. One particular SME cited that they were attracted to the scheme because, in their market entry planning/budgeting for China, the ability to manage risks and costs was essential. The flat rates and pre-agreed budgets of Launchpad gave them that control, with no hidden surprises.

Another option may be for SMEs to hire a Chinese student on an internship basis, or hire a graduate to assist them with developing their China business. They provide useful insight into Chinese culture and importantly the ability to communicate with customers in their home language.

Barriers and market failures

What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barriers and market failures?

Language and culture were cited in our research as being a considerable challenge when looking at China. CBBC offers a China Business Culture training course which SMEs can join – we also speak regularly on this topic as part of wider China business seminars around the UK. In terms of language, few SME managers will have the time to devote to learning the Chinese language. However, using a good interpreter in China is a worthwhile investment. So too , as mentioned previously, is identifying a local Chinese student who may wish to intern or do work experience in the UK. One scheme that exists to try and match companies with foreign students is run by Derbyshire and Nottinghamshire Chamber of Commerce.

Government Actions


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How effective are the Government’s current policy mechanisms in supporting SMEs to export at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting?

For China, UKTI and CBBC offer an unrivalled level of expertise and coverage. CBBC has the largest network of offices in China (currently 11) amongst all the EU countries. UKTI are supporting CBBC with additional resource to open two further offices. We have already referred to the foresight shown by UKTI and CBBC in delivering the regional cities report as early as 2008. On the back of this there is a very active on-going programme of visits to a wide selection of these cities across China in order to open doors to new business for British companies, SME and large companies alike.

CBBC is also one of the lead partners in the consortium that manages the EU SME Centre in Beijing. (www.eusmecentre.org.cn )

In terms of lobbying, UKTI and its counterpart in China, the Ministry of Commerce (MOFCOM) run a Joint Economic Trade Commission (JETC) through which policy issues can be addressed in relation to trade. CBBC and other associations including CBI and BCC consult with their members regularly to inform government on key issues to feed into the agenda for these JETC meetings.

From our surveys and research, the challenging regulatory environment in China means that companies will often need help from the British Embassy and government representatives in China to seek advice from their Chinese counterparts. Regulatory changes can often happen at very short notice and it is challenging for SMEs to keep pace.


One positive move that UKTI has taken is to initiate the development of the Open to Export website in partnership with Yell. It has been said in some consultations that CBBC should take an active part in this initiative, since SMEs would prefer a single source of impartial information and advice on exporting to China. CBBC is working closely with UKTI to ensure that the China section of this website is populated with relevant, timely and practical advice, as well as information that is relevant to SMEs.


Increased partnership with trade associations and other membership organisations who have SMEs as members is essential. An example of proactive stakeholder engagement can be seen through the UKTI Asia Task Force programme. UKTI and the Business Councils for Asia - China (CBBC), SE Asia (ABBC) and India (UKIBC) - meet regularly with stakeholders to discuss how best to work together for mutual benefit. A regular programme of activities is organised across the UK, bringing specialists from the Asian markets to the doorsteps of SMEs. UKTI Asia Task Force and partners are trying to broaden the marketing for these events to ensure that the opportunities in this hugely vibrant region are made known to more UK SMEs.

http://www.eusmecentre.org.cn/


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As the lead trade support body within Government, UKTI already undertakes an extensive mapping exercise of sector opportunities and develops initiatives related to this. There is a wide range of sector trade associations who also have active programmes for China across numerous sectors, including food and drink, process and packaging machinery, machine tools, equestrian industries, agriculture / livestock to mention but a few. Many of these organisations take delegations of companies to China under the Trade Fair Access Programme (TAP), where government assistance for SMEs is greatly appreciated.

That said, not all SMEs will necessarily want to visit overseas markets as part of structured sector focussed groups – indeed their services or products may not comfortably fit within a specific sector. So a broader set of services to offer more diverse support is also required. Services such as Passport to Export, the Export Communications Review and OMIS provide this. Practical export training via the British Chambers of Commerce is also available.

We conclude our submission by saying that as far as China is concerned, there is already a good track record of SMEs doing business and succeeding in China. CBBC, with the support of UKTI, remains committed to sharing the stories and successes of these SMEs, which can inspire others to rise to the challenge.

September 2012

Dart Sensors Ltd - Written evidence s

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1. My name is Walter John King, BSc, PhD, age 67, resident in Devon; semi-retired founder, shareholder and now marketing director of Dart Sensors Ltd, a company employing 13 in Exeter and one in China. In 2010 we received the Queen's Award for International Trade at the first attempt, one of only two Devon businesses to receive it in that year.

2. Dart Sensors was founded in 1994. We develop and manufacture chemical sensors,

originally just for breathalysers - we are the world's leading supplier to the professional market – and more recently for domestic and industrial air quality measurement.

3. During the five year period 2007 – 2012 we have experienced about 300% growth in

turnover to almost £3 million. About 98% of our turnover is derived from exports, of which about 65% goes to China, 30% to the USA, the remainder mainly to Korea, Japan, Germany, Australia and Turkey, plus small quantities to a host of other countries. Our China-derived turnover during the past year amounted to 0.2% of the entire UK export value to that country.

4. I can write with authority only about my own experiences in manufacturing and

exporting, but having done so will attempt to draw conclusions from the particular to the general.

5. I will deal first with our recent rapid growth. The company, from small beginnings in

the archetypal garden shed, was still quite small with one (albeit industry major) customer until the early 2000s, when we started to get noticed through our web presence. By 2007 we were getting enquiries from Shenzhen, a place I had to look up on the map. Intrigued, I made my first visit in July 2007, and was absolutely astounded by the potential I found there. Shenzhen has grown from next to nothing to a city of maybe 15 million in 30 years; it has its own airline; a GDP of £100 billion. By the end of 2007 we had established a local office in Shenzhen, and business with China, from zero in 2006, began to grow rapidly. We sell more within a taxi ride of our Shenzhen office than to all of Europe, including the UK

6. Shenzhen is geographically a useful base from which to service the market in south

and east Asia, so since 2007 I have concentrated my efforts there, visiting four times a year. From my experience so far I can weight the potential importance to our business of countries I have visited in that region as follows, out of 100: China including HK and Taiwan (which while politically separate has much economic connection) 95; Korea 3; Japan 1; India 1; Vietnam 0. We have an active China customer list of about 50, with new enquiries arriving at the China desk weekly. I have just returned from a four week tour in which I had barely a spare minute. The most exciting development was the opening of discussions with China's biggest and only listed gas detection company on a joint venture to produce industrial gas sensors.


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7. Before turning to other matters I need to explain the ways in which foreign

companies may trade into China. There are three levels of engagement: the most involved is the WFOE, the wholly foreign owned enterprise; the second is the Joint Venture with a Chinese company; and the simplest and most appropriate approach for the beginner, which we are currently operating, is the Representative Office (RO), which cannot itself engage in trade, but operates to assist the home company. Essentially it consists of a Chinese local with good English and a working knowledge of one's business, equipped with a computer and a telephone.

8. Another way of looking at the 98% export figure is to note that our home market

amounts to a mere 2%. This is a result of the de-industrialisation of the UK which I will return to. We sell hundreds of thousands of sensor components every year, but in the past five years our sales within the UK amount to barely double figures, and most of that 2% is from calibration standards for the UK police breathalysers. We receive new enquiries weekly from all over the world, but in the past year we have just had one or two from within the UK and they have led nowhere. The home market is dead, there is no innovation going on here from our perspective.

9. I have on a number of occasions been asked to respond to questionnaires principally

aiming to establish the main obstacles to business growth. The supposition always is that it must be availability of investment or skilled personnel, etc. I have tried on many occasions to get the message across that it has been the lack of availability of freehold business land or suitable buildings. From about 2006 we began to think seriously about investing in our own freehold premises. For three years we persisted in the South Hams where we were then based, but there was nothing available, and any commercial property coming to the market was swiftly given consent for conversion to residential which put it out of reach. The Local Development Framework was many years delayed, and still there was no available industrial land when in 2009 we uprooted and took a three year lease at the Innovation Centre at Exeter University, while we continued the hunt up there. Amazingly, in the three years since, there has been not a square inch of land available in Exeter, all enquiries for such being directed to uncertain fantasy science park projects way out in the future. A few unsuitable buildings came to the market, mostly ruins. Finally in March this year, after a six year search, we purchased a 6,000 square feet building in the centre of Exeter for £750,000, and are currently spending another £250,000 on adapting it to our uses. For us the search is over, but I am aware of numerous other businesses facing the same problem.

10. I now turn to my experience with government and local bodies. In early days I had

contact with Business Links, they used to run a local export club which I attended monthly. I believe they helped us with a Smart Award in 2000, and a marketing exercise a few years later.

11. When the time came to get help in getting set up in China, I believe I approached UKTI. I was told that all China services were subcontracted to the China Britain Business Council (CBBC), a private body. They arranged for our RO to be set up in Shenzhen, at a considerable cost which included a membership fee of £600, plus substantial fees for the formation. I am now aware of how to get the whole process


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done for about £250. They struck me as a money-grubbing organisation. The final straw came when I learned that the director of the CBBC was in Chengdu, Sichuan at the same time that I would be there on business. I offered to turn up in support and they asked me for £400 for the privilege. We did not renew our membership at the end of that first year.

12. I have little other experience of UKTI. I understand that it is a private organisation

owned by SERCO. I have found it of no particular use and others have told me the same.

13. Shortly after getting the office set up in China I looked up the nearest UK

representative, and found one (remarkably there was not one in Shenzhen, China's fastest growing city) in Guangzhou, a couple of hours up the Pearl River. I contacted the (I think) DTI representative there to introduce myself as part of the (part-time) local UK business community, and to invite a call by when convenient, and the response I received amounted to a rather brusque “What do you want?”. There has been no further contact between us.

14. I turn now to the provision of business services by local authorities, of which I have

experience in south Devon of South Hams District, Exeter City and Devon County councils. These councils purport to have economic development units and resettlement assistance, but in my experience, with one exception they provide no useful services, and the councils appear to have no policy at all for the provision of employment land. My requests for resettlement assistance from DCC went unanswered and I eventually received from the leader, through the good offices of the Lord Lieutenant of Devon, a written apology – but still no assistance! I have set out above something of the years of wasted time spent on a search, which was eventually concluded by the expedient of hiring a local commercial estate agent to act on our behalf to seek out suitable properties. His services (which, I repeat, should have been provided by the local authorities) were ultimately successful, at a fee of £8,000. The one item of potential value was the industrial property web site run by Devon County Council, though this was hampered by the lack of actual suitable properties to list, consisting virtually entirely of short term rentals of properties in the hands of local investors and speculators.

15. In all the years in business down here we have never been visited by a UKTI

representative, or any council official with business service responsibilities.

16. I now turn to the impact that an effective web presence has on export growth. We put up our first pages in 1999, and by the mid 2000s we were being noticed and receiving a useful volume of enquiries. Once we were operating in China we put up pages in Chinese. These showed a moderate return, but it was not until we got a sponsored listing on Baidu that it really took off. Baidu is the Chinese equivalent of Google and it is the first search engine the Chinese will turn to. The sponsored listing works in a similar fashion to the Google Ads service we already used, but you have to pay up front, and the amount you pay determines your position on the page. For 18p a click-through we are from time to time number one in China on the search pages for our main product interests. That really gets attention.


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17. This brings me naturally to an idea for a service business I was floating a few months ago. Having served my apprenticeship in China business I feel I can, casting aside false modesty, claim to have some expertise and having learned where the traps and pitfalls are, would be able to do it all smoothly a second time around. I was considering offering potential exporters:

i. Set up of web site in Chinese ii. Set up Baidu contract iii. Receive initial enquiries, translate into English iv. Set up RO registration v. Find office accommodation vi. Find office staff However I am simply too busy during the time I have in China (which amounts to 3 – 4

months of the year) to attend to other people's business, but this is something I shall return to below.

18. Informal support networks operate in Shenzhen. I am a member of the oldest expat

club in China, the Snake Pit, which was set up in 1986 by oilmen. It has several thousand members, from permanent residents to passers-by, predominantly US, many European, a few Brits, now many Chinese also, and every night it is possible to make a new acquaintance with a business interest, swap cards and learn something new. Interestingly they have recently started a business club in which established business people meet and offer assistance to start-ups.

19. And so to the question, why export? Because it is rewarding in both senses: for fun

and for profit. Home-bound manufacturers need to learn of the riches that wait out there, which would make the merchant venturers of past centuries swoon with envy. I believe that we have barely scratched the surface of what is possible. Is it true that China comprises just 2% of UK exports, and Ireland is our biggest market? If so, that speaks volumes. And as for fun, there is the opportunity to go native, immerse yourself in an alien culture, its history, language, food, etc (there is a lot of etc) and to see the world from another perspective. I have to date visited three of the four municipalities and a bare majority of provinces, seen the terracotta soldiers, the Forbidden City and the Summer Palace, sailed the Three Gorges and seen the dam... I could go on but I think you'll get the picture. Suffice it to say that you have to go there and meet face to face to do the business: I do not believe it can be done successfully from a desk in England.

20. Finally I draw on what I have written above to turn to the question: “What can

government do?” 20.1 Ask us. I and people like me are only too willing to help. We may not have too much time to spare, but we will do what we can for the old country, what remains of it. 20.2 Abolish the UKTI. Appoint civil servants reporting to the BIS in the regions, with responsibility to monitor and audit the business services of local authorities, to familiarise themselves with and make themselves known to local businesses, to identify and encourage


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suitable candidates to start/expand their export activities, and to liaise with the next category: 20.3 Appoint BIS representatives attached to the diplomatic service in the main cities in China, Korea, Japan; additionally Russia, Turkey; India, Brazil, maybe, to familiarise themselves with British businesses operating in their region, to receive details of would-be exporters from the previous category, to arrange networking meetings, and to provide the sort of service I set out in paragraph 17 above. 20.4 It is proposed that corporate profits derived from patented IP be taxed at a 10% rate from next April. This suits us as it covers about 95% of our product. Why not profits derived from exports also? A great incentive, particularly if introduced in tandem with my final proposal. 20.5 Protect industrial property from the depredations of property speculators and developers. 20.6 And finally, and most important of all: it is now conventional wisdom that the madness of the past 30 years spent in thrall to the finance “industry” which has de-industrialised Britain and left it in such a weak economic position must be reversed (some of us kept the faith throughout, but let that pass). At the very heart of this cabal of asset stripping “consultants”, speculators, compliant accountants, corrupt bankers with their opaque financial “products”, arrangers of tax evasion and secret banking on a prodigious scale through a complex web of crooked unregulated offshore entities, lies that state-within-a-state, the City of London. I read that of the 100 top UK companies, all but one have their finances obscured through these vehicles to escape their share of tax, and that one interestingly is the manufacturer Dyson. Only when a government takes power with the guts to deal with that abscess in the body of the nation will it return to economic and moral health. Whichever party, it will get my vote. 10 August 2012

Deltex Medical Ltd - Written evidence

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ay.

Deltex Medical Ltd - Written evidence 1. Introduction

1.1. Deltex Medical is a small British medical technology company that has pioneered Oesophageal Doppler Monitoring (ODM). Our CardioQ-ODM provides an innovative solution to fluid management in surgery and intensive care25 and in March 2011 it was recommended by NICE26 for us in NHS operations. ODM hasbeen shown in successive studies to save time and money by reducing complicationsand cutting the average length of hospital st

1.2. We employ 75 people and have spent over £5 million on R&D over the past ten years. Our technology was developed in the UK and our monitors and probes are manufactured and exported from our Chichester base. Exports are worth £3 million per year and we are looking to increase this significantly, especially to North America. In addition to products, we also export expertise that helps health systems and patients across the world benefit from the ideas behind enhanced recovery following surgery.

1.3. As a British manufacturer working in a key growth sector (life sciences) we see ourselves at the heart of hopes for economic revival. We therefore welcome the Committee’s inquiry into SME exports and hope our experience positions us as a useful case study in the Committee’s deliberations.

1.4. From a UK policy perspective, our main challenge as an exporter stems from our home market. The Committee’s call for evidence27 opens with the quote from UKTI that, “succeeding in international markets” is essential to “rebuilding the economy at home”. In our experience, the opposite is also true: succeeding in our home market is essential to growing our international presence. This is because we are a small and innovative business looking to grow the market for a new product in a sector (health care) that is strongly dependent on public purchasers and clinical evidence. We therefore rely on the NHS to provide a solid platform for growth of the UK life sciences. However, as we explain in this submission, we are battling against a combination of low NHS usage locally and confusing messages nationally that we feel could restrict our market growth in the UK and abroad.

1.5. Consequently, not only are we a case study of a promising SME exporter, but our experience offers a case study of a good Government intention (i.e. its Life Sciences Strategy) being undermined by poor implementation. We provide further

25 Our minimally invasive technology achieves this by enabling clinical teams to optimise patients’ state of hydration. This in turn ensures the right amount of oxygen and nutrients reach the site of the surgery, speeding up healing.

26 http://www.nice.org.uk/MTG3

27 http://www.parliament.uk/documents/lords-committees/SME-Exports/Call-for-evidence.pdf

http://www.nice.org.uk/MTG3

http://www.parliament.uk/documents/lords-committees/SME-Exports/Call-for-evidence.pdf


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information below on our experience as a growing SME exporter. We have grouped the questions and provide responses where we feel able to offer relevant perspectives. We would be happy to provide further information to the Committee in this inquiry.

2. Our current export market

Q1 What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors (both directly and through the supply chain to larger companies)?

Q2 What contribution could SMEs potentially make both now and in the future, and within which markets and countries?

Q3 How does the UK’s SME export performance compare to those in competitor countries? What can the UK learn from their successes?

2.1. In the past six years Deltex Medical’s exports have grown from approximately £500,000 per annum to £3,000,000 per annum. We currently sell into over 40 countries worldwide, mainly using local distribution. We have set up direct selling operations in the USA and in Spain. In the USA we hire 8 people directly and in Spain 3. Our biggest export markets are the US, France, Denmark, Sweden and Peru.

2.2. Looking at the growth of our business over the past decade, we can confidently say that we see ourselves as a British SME export success story. We have developed an innovative technology, built a market for it, and from a UK base we are now looking to increase our global reach. It is the rapidly growing SMEs that will deliver the best return on investment; companies like ours enable this.

3. Internationalisation of SMEs

Q4 What are the characteristics of successfully exporting SMEs? How do they differ from SMEs that are not exporting?

Q5 What are the perceived and real risks and opportunities to SMEs of exporting?

Q6 What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them?

3.1. A number of factors contributed to our growth at home and abroad. Pioneering clinicians that embraced innovation were important. We have also worked hard to support clinical teams and promote Enhanced Recovery principles in the UK and abroad. As an innovative UK company, building a strong home market was also important; it is in the interests of patients, NHS efficiency and the UK life sciences for the NHS to be a fast adopter of innovation. (We deal in section 6 with our concerns about the NHS approach to uptake of our products.)


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3.2. Underpinning our growth was investment. Our overseas growth is mainly due to direct investment by Deltex Medical. Strongest growth is currently coming from the markets that we focus on heavily. Providing direct sales and clinical training support into places like the USA and France significantly increases sales.

3.3. Support from UKTI has also helped us in places like the USA. We regularly use UKTI to set up specific meetings, using one of the British Embassies. At the American Society of Anesthesia (ASA) meeting in Washington this October, UKTI have arranged an Enhanced Recovery reception, inviting along both surgeons and anaesthetists, who will hear how to improve the care of their patients by introducing best clinical care pathways. This will include the CardioQ-ODM.

3.4. Based on this experience, we recommend a policy combination to help internationalise SMEs – ensuring a stable and rewarding environment for businesses to raise capital and invest in their future, supported by Government facilitating exports through relationship-building overseas and (where relevant, as in the NHS) de-risking exports by helping build a domestic market for innovation.

4. Barriers and market failures

Q7 What are the key barriers and market failures (including regulatory, financial, operational and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barriers and market failures?

4.1. To ensure a successful export market it is first important to maintain a positive commercial environment at home. That means reducing unnecessary regulatory burdens, maintaining a competitive tax system and providing incentives to develop new products. We welcome reforms to the Research and Development Tax Credit and the introduction of the Patent Box. We urge the Government to continue its emphasis on growing SMEs and providing incentives to employ people, develop IP and manufacture products in the UK.

4.2. From our experience, it seems that some other countries around Europe are developing their SMEs much more effectively than in the UK. Germany is the best example of this, where the German government invests heavily in their SMEs to support their international competitiveness. Grants provided to SMEs by the German government can be used for firms which will invest in modernisation or in the expansion of their productive capacity. This in turn secures local jobs or creates new employment. Grants can also be used to subsidise consultancy, to finance training and research activities of enterprises and for credit guarantees. By doing this, they can promote key technologies which in turn creates income and employment for the German economy. Another very important grant that German SMEs receive are ones to exhibit their goods and services at international trade shows. It is relatively expensive for an SME to undertake this activity on its own; government support is therefore important for growing the overseas sales pipeline.


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4.3. Barriers to entry into some countries are also a major issue. In Brazil, for example, it can take between 12-18 months to register a medical device and at a cost of around $30,000 (USD). This includes having to be audited in the UK. Once registration has been granted, there can be up to a 90% import tax on your product, making it difficult to compete locally. We would welcome inter-governmental efforts to streamline such approval processes, with UKTI support to help negotiate the regulatory systems in key UK export markets.

4.4. The Bribery Act is a concern because it creates an imbalance with other markets. We support appropriate measures to uphold industry best practice and ethical business practices. However, the terms of the Bribery Act itself potentially restrict trading opportunities – for example in countries such as China and Brazil that do not conform to the same code of practice as the UK. In our experience, we have had to pay to review potential overseas distributors in China. Many Directors of SMEs are rightly concerned about being able to expand export markets whilst conforming to the Bribery Act.

5. Incentives

Q8. What are the key factors to encouraging SMEs (a) which already export, to sell more overseas; or (b) which do not currently export, to start doing so?

5.1. We are prepared to make strong commercial investments in our global market, but as a smaller company we do not have access to the same resources and networks as larger firms. We therefore welcome Government support for exports. For example, in a 2011 UKTI case-study our products and their NICE recommendation were highlighted in a UK consortium proposal to the Saudi Arabian government. We would like to see UKTI place even more emphasis on promoting promising British technologies and industries and leading trade delegations that help us build relationships in new markets. It is also essential that the Government continues to commit time and resource to trade missions. It is extremely important, for example, that trade missions have a government Minister leading the mission.

5.2. A further challenge for SMEs is allocating enough marketing budget to open new territories. We strongly support UKTI’s Tradeshow Access Programme. We would welcome additional TAP resources to allow UK SMEs to attend more trade fairs in potential and existing export markets. If the Government funds the exhibition space at the meeting then SMEs would be more willing to participate, and would find it easier to establish overseas commercial relationships.

6. Government actions

Q9. How effective are the Government’s current policy mechanisms in supporting SMEs to export at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting?


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Q10. What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets?

Q11. How should Government act and behave with regard to SME exports? Should the Government target specific sectors, markets or types of companies where the potential is thought to be greatest? What are the costs and benefits of such an approach?

Q 12. Is there sufficient co-ordination of actions and awareness across Government and other bodies? How should other bodies be acting?

6.1. We strongly support the idea that Government should target specific sectors. The Government has identified life sciences as a priority growth sector; as a result, trade policy should focus on the life sciences as a sector and recognise specific challenges for businesses involved in healthcare.

6.2. Export success for many SMEs in the UK life sciences depends on the track record of the NHS as an adopter and user of new technology. The NHS, by virtue of its size and reputation, has the power to help grow innovative markets and build an evidence base for innovative British products. There is therefore a connection between our NHS market and our export market. The global reach of NICE also has the potential to guide decisions internationally, with NICE evidence providing valuable credibility overseas.

6.3. The Government can help SMEs in the life sciences grow their export markets by improving NHS procurement practices, increasing rates of innovation uptake and reinforcing compliance with the NICE guidance. The Government recognised this in its Life Sciences Strategy28 and vision for NHS Global. However, we are concerned that the positive intentions set out in government policy documents are now being undermined by poor local implementation. This can result in confusion in our overseas markets.

6.4. Following a positive NICE appraisal of CardioQ-ODM in March 2011,29 ODM was prioritised as one of six high-impact innovations in the NHS Innovation Review, Innovation, Health and Wealth30 (IHW). However, despite these positive endorsements, we feel that the implementation plan for intra-operative fluid management in the NHS lacks sufficient pace, scale and evidence to realise its full potential. The NHS Technology Adoption Pack31 for intra-operative fluid management targeted less than 10% of the potential patient population (800,000 NHS patients) identified by NICE in their guidance on CardioQ-ODM. The same

28 http://www.bis.gov.uk/assets/biscore/innovation/docs/s/11-1429-strategy-for-uk-life-sciences

29 http://www.nice.org.uk/MTG3

30 http://www.dh.gov.uk/health/2011/12/nhs-adopting-innovation/

31 http://www.ntac.nhs.uk/NewsAndEvents/Intraoperative_Fluid_Management_Adoption_Pack_Published.aspx

http://www.bis.gov.uk/assets/biscore/innovation/docs/s/11-1429-strategy-for-uk-life-sciences

http://www.nice.org.uk/MTG3

http://www.dh.gov.uk/health/2011/12/nhs-adopting-innovation/

http://www.ntac.nhs.uk/NewsAndEvents/Intraoperative_Fluid_Management_Adoption_Pack_Published.aspx


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adoption pack also sought to elevate alternative fluid management technologies to a position of equivalence with ODM.

6.5. While the NHS should be able to choose from a range of clinically appropriate technologies, we are concerned that the official adoption guidance for intra-operative fluid management dilutes the evidence base and sends confusing market signals about which technologies have been shown to deliver clinical and cost benefits. As a result, overseas buyers could easily think that a whole range of products (some British, some foreign, some minimally invasive, others using more invasive methods) are “similar” to Oesophageal Doppler Monitoring. In actual fact, only the CardioQ-ODM has undergone the NICE evaluation and it was to this guidance on the CardioQ-ODM that NHS Chief Executive David Nicholson referred when he described the opportunities for fluid management as “tantalising” in the Foreword to Innovation, Health and Wealth.

6.6. Given the confusing implementation guidance, we feel the Department of Health is losing the opportunity to shape a strong global market for a promising British technology. Ultimately, this is not about providing a commercial endorsement of our product (the CardioQ-ODM) but about respecting the evidence base behind a promising British technology (ODM). We are doing all we can to grow sales globally. However, the un-ambitious pace and scale and dilution of the evidence base has made the task harder.

6.7. The UK has in NICE a world leader in Health Technology Assessment; its recommendations should be respected in the UK and promoted abroad. This would help innovative, evidence-based British products access foreign markets. We cannot do this as effectively if the NHS in the UK fails to implement NICE guidance appropriately. The UK Government should also be promoting NICE much more internationally. It is one of the leading independent clinical research reviewers in the world and UK life sciences companies could really benefit from strong application of its evidence and recommendations.

14 September 2012

EMASUK - Written evidence

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EMASUK - Written evidence What contribution do SME’s currently make to the export market?

SME’s make a big contribution but it tends to be on their own with little help from the government. Small companies are left to fend for themselves and it is often through other contacts or activities that they find market support. I am still looking at procurement daily and not being able to access one as we are too small even though the potential is for us to be an international company trading wherever communication is needed i.e. all fields, in all of the world. I suggest that OJEU notification needs to be available free of charge from the government daily – As a small company now unlike many other companies our potential is unlimited with accurate translation available for the cost of a packet of cigarettes every week a company can have the world at their finger tips.

What contribution could SME’s make now and in the future, and within which markets and countries?

SME’s will work with all markets in the future and with all levels providing that the government do not put obstacles in the way.

What are the perceived and real risks and opportunities to SME’s for exporting

The perceived risks are financial and tax and falling foul of the laws in other countries

What steps should SME’s take to prepare themselves sand what role should Govt play in supporting them

SME’s have to have a clear business plan with steps in place to cover areas such as language, culture, market placement and financial. The Govt needs to offer practical help and that is financial and moral support for companies wanting to go abroad. The govt could probably look at taking a cut of a companies earning i.e. they could become a partner with the govt if the govt helped them to get into the country.

What are the key barriers and market failures that inhibit SME’s from beginning to export. What role can the govt Play?

Financial and liability and fear. Aftercare It is ok selling into the country but how do you make sure the people are looked after afterwards? How do you position your company in that market comfortably?

What are the key factors to encouraging SME’s

Financial support, practical assistance, dedicated personnel, interested personnel and country knowledge.

EMASUK - Written evidence

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How effective are the Govts current policy mechanisms

The govt’s policies are anti SME’s effectively stopping us from trading with our own government without those from around the world.

Take the following http://media.education.gov.uk/assets/files/pdf/c/consultancy%20services%20suppliers%20list.pdf where are the SME’s like EMASUK that provide a service that none of these can offer, yet is needed by everyone in school. It also send the wrong message out and as we try to sell into schools only the risk takers are going for it as those more cautious say that we aren’t on the suppliers list so we cannot do business with you, this in turn stops the teachers from having the cheapest tools to support their learners. In effect the current legislation allows bigger companies to get bigger but not necessarily give the breadth and depth of services needed to support schools adequately. With the loss of many LA staff schools will look more and more at this list and not finding the niche products that need. Also in this times of austerity measures schools are being set up to do deals they can ill afford because there appears to be no alternative. Although this isn’t re exporting it gives a good indication of the general problem SME’s face against big businesses and sometimes not British big businesses.

NB I have started a discussion on linked in so there maybe more advice forthcoming from there.

http://www.linkedin.com/groupItem?view=&gid=2952129&type=member&item=146465938&qid=4361c690-02ba-4205-a25e-07b074557eb0&goback=%2Egmp_2952129%2Egde_2952129_member_146465938%2Egmp_2952129

Is there sufficient co-ordination of actions and awareness across govt?

No. The Govt currently offers flashes of brilliance but they are only flashes other than that they are unco-ordinated, disorganised and poor. Effective monitoring of personnel would eliminate the need for SME’s to duplicate and triplicate the work that individuals should be doing. Accountability both financial and morally is important if this is to be successful in the future. WE need successful mentors not civil servants.

14 August 2012

http://media.education.gov.uk/assets/files/pdf/c/consultancy%20services%20suppliers%20list.pdf

http://media.education.gov.uk/assets/files/pdf/c/consultancy%20services%20suppliers%20list.pdf





Engineering and Machinery Alliance (EAMA) - Written evidence

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Engineering and Machinery Alliance (EAMA) - Written evidence Summary • EAMA is an alliance of 12 independent trade associations representing 1,700 firms

mostly mechanical engineering SMEs with sales of £8.5 billion, predominantly from exports. (1-3)

• UK mechanical engineering is very export oriented (70% of sales). It’s a powerful net contributor (£3-5bn annually) to the balance of payments, but has a low profile because its products are machinery or components that are used by other industries to make planes, cars etc, so that it is prone to slip under government’s radar when it comes to export strategy. (4-7)

• SMEs increasing their machinery exports will not only increase product sales but will also extend their service packages to meet the requirements of mechanical engineering markets, where currently the UK appears to be competitive. (8-12)

• Our five top export markets are USA, Germany, France, Singapore and China. Selling capital equipment into a new export market generally takes two to six years. (13-17)

• Access to finance, skills and even accounting standards can be barriers for SMEs that can be resolved if they are made into a priority. But as the experience with UK Export Finance (UKEF) shows it’s not sufficient to have good products on offer. If take up is low, as is the case with the vastly improved range that UKEF manages, it’s a case of focusing on the other elements, marketing, distribution, sales support and customer after care. (18-39)

• When allowance is made for the budget pressure UKTI has been under, it’s achieved some good results. But the pressure on UKTI may well have gone too far. It has certainly skewed judgment so that the peculiarities of some of the charges raise hackles, for example charging exporters for introductions to contacts they may have provided in the first place. (40-43)

• Trade shows and missions are vital to SME exporters. But there’s only £8 million to support trade shows out of a UKTI activity programme of £100 million and an overall budget of £350 million. An international comparison shows UK needs to be more flexible to be more effective. (44-48)

• A crucial first step would be handing the responsibility to an organisation solely focused on exporting. Absent such a move, there’s a danger budgetary pressures could force BIS and UKTI to become too introspective, when they should be engaging with partners. Some trade associations could help in this if given the chance, but it would require a more open sharing of information round export activity and a much more flexible approach. (49-50)

• The UK’s operating environment as a whole affects companies’ ability to export from here. It’s not clear that simple fact is readily appreciated across all relevant departments. But it’s equally true that SME exporters in a sector like mechanical engineering can suffer the double whammy of being ‘taken for granted’ because they are SMEs and because the sector itself has no single profile because it supplies into other industries. Despite that it has its own characteristics in the way business is done round the world. If the UK is to make the most of this in the future then it needs much better recognition at export policy level. (51-57)


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Introduction The Engineering and Machinery Alliance

1. Formed in November 2001, the Engineering and Machinery Alliance comprises 12 independent trade associations representing 1,700 firms, overwhelmingly mechanical engineering SMEs with 60,000 employees and combined sales of some £8.5 billion.

2. Typically, these supply ‘enabling technologies’ to other sectors (e.g. automotive, aerospace, medical, power, printing and food industries) in the form of machinery or packages combining services and products.

3. The overall sector challenge is to grow mechanical’s positive balance each year instead of letting it continue to hover in the £3-5 billion range. For that the sector requires skilled people and a flexible approach to support from all stakeholders (e.g. HMG, the banks, insurers) to be able to better the overseas competition who are plying the same foreign markets, introducing new technologies (e.g. mechatronics).

How these views were assembled This submission draws on:

A. The manufacturers segment of a recent Institute for Export survey that EAMA members contributed to (2012)

B. European Mechanical Engineering Competitiveness Study commissioned by EU Enterprise and Industry Directorate (2012)

C. Exporting members’ views expressed over the last 30 months. D. A Study produced by ICC comparing UK and five other countries support for

exporters commissioned by the Manufacturing Technologies Association an EAMA member (2007)

The Current Export Market Export survey (source A) found manufacturers:

Dependence on exports: important, very important, extremely important (63%) Dependence on exports to: increase (58%), stay the same (39%) Export growth driven by: product demand (53%), strategy (41%), growth potential

(29%), reduce home market (22%) Top ten markets: Europe (69%), India (31%), China (29%), USA (26%), S. America (22%),

Asia (18%) Russia (12%), Middle East (10%), Africa (7%), Australia (5%) Mechanical engineering an SME dominated sector with strong export performance

4. The mechanical engineering sector must qualify as one of the sectors best able to compete internationally. It may be low profile because it supplies into other industries. It doesn’t have the immediate ‘appeal’ of the automotive or aerospace sectors, but OEMs in those sectors rely on mechanical engineering to make their cars and planes. And because there are also plenty of other industries in other countries that do too, UK-based mechanical engineering companies run a surplus for the balance of payments year after year of between three and five billion pounds Sterling according to ONS’s Monthly Review of External Trade. The only other UK manufacturing sector to achieve the same sort of record is the chemicals industry.


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UK mechanical engineering exports and net balance of trade (£ billion) Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Exports 22.7 24.2 23.8 25.8 28.22 28.9 32.3 29.3 32.9 38.6 Balance 3.8 5.3 4.1 3.9 5.6 3.2 3.4 4.9 4.1 5.7 Source: Monthly Review of External Trade May 2012

5. One of the main characteristics that set mechanical engineering apart from the other main exporters is the average size of the companies involved.

Average size of companies in different UK manufacturing sectors Sector (2010) Mechanic

al engineering

Chemicals Pharmaceuticals

Motor vehicles

Air and space craft

Average firm sales £m

3.8 13.9 38.9 54.0 43.3

Source: Derived from Annual Business Survey 17 November 2011

6. The lack of public profile is a disadvantage when it comes to government recognition and its export strategy.

7. Nonetheless, the sector is characterised by a large number of niche SMEs and a few large specialist companies. Success for many of these firms is predicated on their ability to develop machines or components that deliver performance to a customer specification that may be unique.

Likely future sector trends

8. To expand into foreign markets, SMEs will not only have to consider their manufacturing capabilities but also their capacity to develop service packages to maintain machines working in factories around the world.

9. As on-demand manufacturing grows to meet bespoke requirements and UK firms increase their added-value content mechanical engineering firms will play an even bigger role in supporting UK exporting success.

10. But there are other important sector considerations too: a) Selling (large scale) capital plant depends on the company’s ability to establish its

reputation for quality, delivery and commitment to the market in question. b) Trade Shows are therefore absolutely central to exporting in our sector, a factor

amplified by globalisation which is tending to promote global ‘super-shows’. 11. Our impression is that UK SMEs are integrated into international supply chains both

directly and indirectly through their customers -- witness the impact of the German and French car scrappage schemes on UK suppliers; witness the significant export market for car components from the UK.

12. A BIS report (Industrial Strategy: UK Sector Analysis) published this month shows UK labour productivity slightly ahead of Germany’s in this sector based on 2007 data.


13. The sector’s five top markets in 2011 were: USA (£4.6 billion), Germany (£3 billion), France (£1.5 billion), Singapore (£1.2 billion), China (£1 .0 billion).


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Tackling a new market 14. All markets are different.

a) Developing a new business to business market successfully may take many visits over several years. If it’s not tightly managed it will be costly to the company. Advice and support that reduce the risks involved are therefore helpful in these opening stages which have to be financed before there is any return.

b) On their first visit to a new market, the company will look at all the relevant parameters, the competition, the size of the market and some potential customers and probably agents (particularly if the firm is new to exporting). A later visit will lead to the firm appointing an agent and then agreeing sales and marketing activity. It’s then a question of showing prospects that they can trust your products to work perfectly in their operating environments. That’s likely to take time and more than ‘three’ visits. All or some of these steps will be repeated in neighbouring markets. In large national markets (e.g. China, USA, Russia), ‘neighbouring markets’ may be other regions in the same country, rather than other independent states.

Some characteristics of success 15. Successful exporting is not a straightforward extension of home sales. In capital

goods, the three basics that differentiate the economics of exporting from home sales are: a) The cost of sales in export markets is usually much higher than in the home

market (e.g. cost of delivery, translation and maybe some local adaptation) b) The sales price is often reduced by the local competition in the export market. c) Exchange rates.

16. This means that the margin on export business will almost always be lower, but there are two very significant, boosting benefits: a) First, more stable order income from sales in several different markets: this

helps iron out the volatile highs and lows that inevitably apply if a company sells into a single (home) market.

b) Second, increased volume through the factory: this allows the manufacturer to spread the overheads across higher output and therefore reduces manufacturing costs per item.

17. Successful exporters therefore have a plan about how to broach the market, the time and resources that will be needed. Financial partnership is vital. Preparation before entering negotiations with a local prospect will help ensure the exporter has no surprises and is able to offer competitive financing arrangements for the purchase of machinery or package.

Barriers and market failures Export survey of members (source A) found:

Barriers: Red tape 25%, Finance 22%, No relationship 17%, Languages 17%, Taxation 13%, Lack of knowledge 13%, Experience 12%.

Train in international trade 18% Major issues facing business: Finance (24%), Lack of skilled people (23%), Lack of demand

(8%) current economic climate, red tape, competition, lack of government support (all 6%)


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18. Access to finance, decent trade cover and encouragement to invest for the long term are vital for exporters, so are trade shows and missions to help SMEs expand their capacity to grow.

Access to finance

19. UK SME manufacturers won’t outperform the competition in export markets if their financing packages are uncompetitive. The priority needs are: a) Better access to finance for investment and growth as well as exports so that

they can improve productive capacity and increase their market presence. b) Customer deposits paid to confirm their order should be treated as a source of

working capital for the manufacturer/supplier not the bank (see para 25). 20. Better financing terms will reduce export risk and help firms grow through export

sales ultimately providing additional corporate and personal tax-take both directly from the companies involved and from their suppliers and their employees.

21. Confidence is currently fragile, changing almost every month according to our monthly Business Monitor. Our members’ trust in banks is low.

22. Increasing sales at this time means growing sales in export markets, an apparently ‘riskier’ path that immediately ‘causes’ banks to increase their charges and collateral requirements, when new markets or customers are involved (particularly for SMEs.)

23. We don’t see ‘Funding for Lending’ tackling this ‘risk premium’ as long as the banks are the sole distribution channel.

24. Confidence will improve both for the banks and for the businesses if a proportion (say 30%) of the (financial) risk could be shared by another trusted party (e.g. a UK Enterprise Bank). Finding new customers is the number one priority for our firms. That’s why we welcome Business Secretary Cable’s announcement of an enterprise bank to encourage investment.

25. In mechanical engineering it is standard practice for a customer to pay a 20-30% deposit to confirm their order. In return for the deposit, the customer expects to receive a guarantee, normally from a bank, that they will either receive the machine they have ordered or their money back. Too often the whole of this deposit is taken by the bank as security against the export order, rather than releasing it to the company for them to use as working capital.

26. We welcome the advances that UK Export Finance has made in its product offering (some of which is designed to fix the deposit question), but these real improvements aren’t being taken up/promoted adequately by the banks to make a real difference to UK SME export performance.

The importance of skills

27. Skills development is one of the two most important issues for companies in the sector. The industry has a problematic skills profile because of the decline in the numbers of new entrants over the last three decades. Government seems to be well seized of this and its significance.

28. In our sector, the prevailing view is that educational standards have slipped in the last 20 years and that the school leavers the companies see tend to lack the commitment and work ethic found in immigrants from eastern Europe.

29. Even on the assumption that recent measures being applied rectify the problem, it’s still going to take a long time.

30. Meanwhile, our internationally competitive high-tech companies need top class engineers in their chosen disciplines as well as a raft of supportive technicians.


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31. For example, Germany and Japan lead the world in control systems. Unsurprisingly, those countries also produce the best control engineers. Stopping UK companies recruiting there means that UK companies aren’t going to be cutting edge leaders in their chosen field. Hobbling them in this way therefore makes them less competitive and reduces their export potential. The top cryogenics companies worldwide recruit from Russia etc.

32. It’s therefore vital that business is able to recruit from the best worldwide to raise standards in business and ultimately to help raise UK standards in further education and research establishments.

Accounting standards 33. The current system discourages SME companies from setting up operations to handle

client after-sales care in export markets (see para 8). This is an increasingly important and competitive area for firms tendering for longer term contracts.

34. Government can resolve this. 35. Companies are responsible for assessing their own liability for corporation tax and

for ensuring that all the money that is due is paid on time. Most companies have to pay CT within 9 months of the end of their accounting period.

36. This rule applies to SMEs with profits up to £1.5 million. The £1.5 million threshold is reduced for every active company under common control within a group. For an SME active say in five overseas markets, the figure of £1.5 million reduces to £250,000.

37. Larger companies have to pay the tax due in quarterly instalments. 38. This is very onerous on cash flow in the transitional year, as the company has to pay

its CT liability under the ‘9 month’ rule and a quarter of its estimated liability for the following year in the first 6 months on the new accounting year.

39. All this means that the simplest way to minimise your CT bill is to limit the number of subsidiary or associate companies, which hampers a UK SME trying to grow its international capability in areas such as servicing machinery, which is an increasingly important and competitive part of the higher value added export sale.

Government actions Support services for exporters

40. Budgetary pressure on UKTI has reduced its capabilities to support export activity, just as global competition is increasing and the UK is more dependent on trade than ever before (55% of UK GDP depends on trade according to the World Trade Organisation).

41. There’s plenty of good work going on at UKTI and elsewhere to help exporters, but unfortunately companies often say that the paring back makes the UK presence look smaller, less professional and therefore less competitive when compared to the likes of Germany, France and Italy.

42. Their governments are investing heavily in support trade shows and missions. Their ambassadors attend the shows and extol the strengths of their countries’ manufacturing capabilities. In short they sell themselves very well.

43. HM Treasury pressure is forcing posts to dream up ways of charging exporters for their services. While there may be some merit in this (e.g. when it tests the seriousness of the information or market enquiry), some initiatives border on the surreal. Here are a couple of examples.


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a. “This week I came across an extraordinary paradox from UKTI the organisation that is there to assist small UK companies to do business overseas. I was invited on a trade mission to the US to meet some senior officials in NASA. To my amazement when I enquired the details I found we are to be charged for the introductions being provided. I quote ‘The British consulate offices in Washington and Los Angeles will charge a fee for making the connections within NASA and the prime contractors, taking care of logistics and for aspects of mission organisation that will be passed onto mission delegates. We have agreed with the consulate offices on a per company charge of £480 + VAT for the mission.’

“I would end by making the point that these guys are the very same ones who regularly contact me asking for names and introductions to various contacts that I have around the world. Can you imagine them ever paying me/ us for such information?”

b. “For me this comes on top of recently having to pay the Consulate in Taiwan

£500 to validate an electronic signature on a UK Export Licence – because the new electronic signature had not been agreed with the countries to which it applied. Our customer, the Taiwanese Government, wouldn’t believe the signature.”

Trade shows

44. Trade shows are vitally important to companies selling capital goods overseas. Prospects need to have seen the goods and get to know and trust the company behind the product before they will spend £300,000 or more on a new piece of machinery for their plant.

45. BIS needs to do more to ensure that UK trade show participation doesn’t compare unfavourably with our major competitors. That doesn’t necessarily mean having contingents of a similar size. But we do need to show that the UK has the depth of supply chain and manufacturing to match others. Key sector events are one route to achieving this and may be under threat of further budgetary cuts.

46. A study (2007) by the International Consultancy Group for the Manufacturing Technologies Association (an EAMA member) comparing the UK’s support for exporters at international exhibitions with French, German, Italian, Spanish, Turkish and Chinese practice found that: c) UK’s competitors offer more funding and attend the same number or more

exhibitions. d) The competition is very strong and more adept at involving all ‘stakeholders’. It

is also growing fast in places like Turkey and China. e) Other countries don’t restrict support to categories such as ‘new to export’, or

SMEs. Unlike the UK, they use their support to have a broad swath of industry represented.

f) France and Germany in particular have a range of schemes that support companies under a variety of different scenarios, for example encouraging prospecting in markets over time or supply chain co-operation at exhibitions.

47. Our member associations are Accredited Trade Organisations (ATOs) to the Trade Access Programme (TAP). Some have offices in China and Russia. In their view what’s appropriate when supporting major defence, infrastructure and natural


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resource deals doesn’t necessarily apply when it comes to selling operating equipment into overseas businesses.

48. Prestige events with the great and the good promoting UK capability are important, but when an exporter is looking to develop and sustain a relationship of trust with the production director or factory manager, that exporter needs a different type of support to foster that relationship.

49. The crucial step to facilitating this type of diversity is to set up an export agency exclusively focused on exporting with a policy framework that’s flexible enough to: a) Encourage different sectors (e.g. consumer, investment and industrial goods

producers) to tackle what they see as their most prospective markets. b) Task the export agency with delivering a high profile British branded presence at

prestigious trade shows around the world. c) Provide sensible exhibition and seminar support, advice and guidance (i.e. no

open cheque book), so that firms taking advantage of government support are vetted to ensure that they are able to make the most of the opportunities (e.g. at a trade show).

d) Manage a range of alternative services to create a wider and more confident exporting presence at exhibitions, trade shows and missions.

e) Cut out prescription (e.g. three visits might arguably be OK for a medium priced consumer goods exporter in a European market, but it certainly won’t do for specialist machinery manufacturers establishing their credentials in a market like the USA or China).

f) Ensure that the agency works with trade associations that are able to demonstrate existing export promotion expertise or a willingness to develop it.

50. Absent such a move we would like to see clear and consistent guidelines about charging and the levels applicable. The guideline ought to be to ensure the best quality result, not to raise revenue. In addition: a) There are areas where UKTI could work much more closely with trade

associations. For example, some trade associations have their own overseas trade offices to support their members (e.g. in Russia, China, Brazil and the USA). Here is an opportunity to optimise sector initiatives by encouraging wider geographical coverage promoting technical specialities through these offices.

b) There is still a lot of confusion about the way UKTI is funded and on what basis its funds are allocated to trade promotion and other activities.

c) For example in Resource Accounts 2009-10, the total UKTI budget is put at £350 million, £81 million of which is staff costs (UKTI, BIS, FCO). £100 million is spent on UKTI programmes (including revenue of £6 million from sales of OMIS32 charges to users). £8 million is spent on supporting trade shows. The remaining 50% goes on BIS and FCO administration. These costs are then placed against some impressive outputs/outcomes to provide some management measurement.

d) Trade associations and other organisations involved in promoting export and developing links with UKTI would find other information more useful, e.g. breakdown of companies by size and sector, activity type and service rating. After all as partners working with UKTI, their members are the exporters.

32 OMIS = Overseas Market Information Service under which firms pay for services supplied.


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Cross departmental responsibilities 51. All departments that have an impact on business should understand how they fit in to

the whole picture and what the overarching priorities for the country are. 52. A strategy for rebalancing the economy, of producing jobs and growth through

industrial investment (in part) should be shared by all those departments so that government’s plans are comprehensive and don’t produce conflicting outcomes and pressures other than at the policy margin.

53. For example, most potential investors coming to the UK will only consider a sales office if they are looking at the UK exclusively as a market. It’s only if they want to export competitively from the UK into Europe or elsewhere that they’ll consider something more substantial. So actually, the main trade and inward investment considerations for mechanical engineering firms relate to exporting from the UK, the investment environment and the policy pressures and regulations on operations based here.

54. Many departments of state therefore have an impact on policies that affect UK-based manufacturers’ ability to export and the country’s attractiveness in inward investor’s eyes.

Sounding out policy alternatives within industry -- top down vs. bottom up

55. As previously mentioned (para 4) companies in this sector supply other industries so their products don’t have the general recognition or immediate visual impact of cars or planes. But OEMs including those producing cars and planes depend on them.

56. Many primes, like some of the supermarkets in retail, have sought cost out at the expense of supply chain margin with a corrosive impact on their supply chains’ investment performance and innovation.

57. Clearly government needs input from OEMs when developing policy. They are usually much bigger companies than their suppliers and drive requirements through their supply chains. But government also needs to be more accurate in reflecting industry flows by sounding out views within the supply chain so that schemes such as the Advanced Manufacturing Supply Chain Initiative or Funding for Lending reflect both the top down drive from large OEMs/banks and the bottom up push from small and medium sized firms within the supply chains -- they are exporters and also release and invest in technological innovation on their own account. And after all government recognises that much of the economy’s innovation so vital to our export potential lies within these SMEs.

14 September 2012

Engineering the Future Alliance - Written evidence

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Engineering the Future Alliance - Written evidence This response has been developed by:

• The Institution of Engineering and Technology The response is supported by

• The Institution of Mechanical Engineers • The Royal Academy of Engineering

Engineering the Future is a broad alliance of engineering institutions and bodies which represent the UK’s 450,000 professional engineers. We provide independent expert advice and promote understanding of the contribution that engineering makes to the economy, society and to the development and delivery of national policy Inquiry on SME Exports 1. Summary 1.1 Engineering the Future welcomes this inquiry which tackles the important subject of

how to get more UK SMEs to export. Exporting firms contribute significantly to the overall productivity and potential of the economy. The more UK firms exporting intensively the better off the UK economy would be.

1.2 Not all SMEs are in a position to export; various factors inhibit their ability to

export and other forms of support are required to get such SMEs to an ‘export ready’ stage. This is outside the remit of this inquiry, but such SMEs include start-ups, lifestyle companies and those with nothing to offer to external markets. When this is taken into consideration the number of SMEs who could be expected to be within the ‘export ready’ category is reduced considerably.

1.3 Government support in helping SMEs to export is fragmented across departments,

regional government, chambers of commerce, NGOs, trade associations and other organisations. This is confusing to overseas customers and organisations looking to import from UK suppliers. This fragmentation also creates confusion for UK SMEs as a result of the variety and quality of support packages on offer.

1.4 On the whole, more government intervention is not needed for a boost in SME

exports. What is needed is a sharper focus, more subject specialists working in both UK Trade and Investment (UKTI) (in the UK and overseas) and other export supporting businesses (such as banks), a more detailed knowledge base of the market dynamics of other countries and wider publicity and awareness of the role of UKTI. A strong collaborative partnership between UKTI and the Manufacturing Advisory Service (MAS) could serve as a powerful engine for UK SME export


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growth. Recent feedback from delegates at an Engineering the Future event has suggested the performance of UKTI has improved over the last 12 months.33

2. Internationalisation of SMEs 2.1 The number of SMEs that can export is a small percentage of those registered with

Companies House. Analysis shows that when considering the entire SME population “exporters are in the minority34”. The characteristics of SMEs in relation to exporting can be broken down into 6 key categories: • Start-ups • Potential exporters • Those already exporting • Lifestyle companies • Those with no prospect of exporting • SMEs which form part of an international group or are a subsidiary of an

overseas company 2.2 The government, through UK Trade and Investment (UKTI), can only realistically

support SMEs to export if they fall within categories 2 and 3 above. SMEs in categories 1, 4 and 5 would need additional support such as through entrepreneurial encouragement programmes or through support from the Technology Strategy Board and Manufacturing Advisory Service (MAS) in supporting the development of their technology and processes to become ‘export ready’.

2.3 Further analysis suggests that some sectors can be more internationally focussed

such as the life sciences and chemicals industry. Within these areas, people intuitively look overseas. SMEs in these sectors are generally part of international supply chains and are typically “Business to Business” rather than “Business to Consumer” focussed. These sectors are global in their outlook because they have to be.

2.4 As many SMEs are 2nd or 3rd tier suppliers, their opportunities in export markets

arise from joining the supply chain in that market. This route requires either a cost, technology or service quality advantage over in-country suppliers. As a result many SMEs export indirectly through their customers in the UK; this may not be reflected in the analysis of exporting SMEs. Matching UK SME export capability with the need of the supply chains of overseas markets is a difficult challenge as the number and spread of companies rises greatly as you go down these supply chains.

2.5 There is a risk that the prime customers of UK SMEs are coming under pressure to

establish local sources of supply in their export market. In markets like China and India, offset legislation (which requires foreign companies to utilise the domestic

33 UK Manufacturing Summit 2012, Making UK Manufacturing Internationally Competitive, http://www.ukmanufacturingsummit.co.uk/

34 Internationalisation of Innovative and High Growth SMEs, BIS Economics Paper No.5, DBIS, March 2010

http://www.ukmanufacturingsummit.co.uk/


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supply chain in exchange for public sector contracts) and local content procurement policies are driving this threat to UK SMEs.

2.6 Some of the other perceived risks include loss of IP and the copying of products, in

particular in certain high tech sectors. This is a risk which should be addressed as exporting is more prevalent among the population of SMEs which invest in research and development and who hold intellectual property.35

2.7 Some of the real risks of exporting, beyond duties and tariffs, include exposure to a

foreign currency and trying to hedge that exposure against international currency fluctuations which could occur over the lifetime of a contract. Alongside this the local regulatory and labelling requirement provides another level of costs which can be significant for smaller orders.

2.8 The key source of information for SMEs on exporting is through UKTI. MAS, which

now operates under a national framework, could help to signpost SMEs who are ready to start exporting. As both are funded through the Department for Business, Innovation and Skills (BIS) a strong collaborative working relationship between the two could be a powerful partnership in increasing SME exports. This working relationship is crucial; one of the key criticisms of UKTI is its lack of profile amongst SMEs and the vast range of services they can provide. For markets closer to the UK, commercial agents can be a second port of call for information on access and export opportunities.

2.9 MAS intends to support OEMs to develop better working relationships with their

SME supply chains to ensure that the cost, technology, process and quality advantage mentioned in paragraph 2.4 can be developed and exploited. OEMs, as prime contractors, can then help to pull through SMEs to new export markets.

2.10 Export financing is also important and within this space there is a role for

government. Favourable payment terms provide a comparative product advantage for exporting SMEs when compared to SMEs trying to sell into the same market from competitor countries. Most governments provide a route for exporters to access export insurance and financing and in the UK this role is conducted by UK Export Finance, but SMEs report the difficulty they have in gaining access to this source of finance in the UK. This is largely due to a lack of detailed understanding of manufacturing sectors and their requirements in the UK. The lack of awareness of UK Export Finance among the SME community is also something which urgently needs to be addressed.

2.11 The criticism of export finance is not limited to just UK Export Finance but also

applies to banks and trade insurance firms. Worryingly, even after SMEs gain export contracts, banks are often still reluctant to supply financing. Some medium sized companies report that it is often easier to export from another EU country where they run a subsidiary or partnership company and utilise that government’s export

35 Internationalisation of Innovative and High Growth SMEs, DBIS, March 2010


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finance scheme. Trade insurance firms have also begun to differentiate their fee structure for different export markets. Unfortunately often the most expensive markets to insure for are also those offering the best growth prospects.

3. Barriers and market failures 3.1 The barriers faced by SMEs to exporting vary depending on the size and sector of

these SMEs. An analysis of the barriers to exporting faced by ‘young’ innovative SMEs suggested that this group views resource constraints as the main barrier to exporting followed by limited knowledge of who to contact in-country to establish a relationship and gain more information about exporting.36 These innovative firms are also more likely to report barriers to exporting than non-innovative firms. Similar analysis by BIS suggests that barriers relating to culture are the main area which inhibits entry to overseas markets, this runs along the same theme as lack of contacts to establish relationships.37 The social and cultural side of developing an export foothold is as important as the business case for SMEs, in particular familiarity with a foreign language; commercial and technical negotiations often take place in the native language.

3.2 The regulatory and operational structures outside the EU differ greatly from country

to country, creating complexity for small firms seeking to export. Within the EU, even where regulation is more homogenous across countries these can still have an impact on operating costs of SMEs. For example, the REACH regulations which require companies to conduct a full testing regime on chemical substances can be prohibitively expensive for SMEs in a way that it won’t be for larger companies who will be producing more material. As a result compliance costs for SMEs are proportionally more the smaller a company is.

3.3 Another barrier is the development of standards both in the EU and other countries

such as the US. Without proper engagement on standards development from UK industry, especially in emerging technology fields, UK companies both large and small could find themselves shut out of potential export markets in the future, unless they adapt their products to be compliant. This adaptation is an expensive process for SMEs, especially given the R&D costs which would have already been spent and represents a risk and a potential barrier in new technology sectors.

3.4 The upfront sunk costs of starting to export are also a major barrier for SMEs; with

no guarantee of success SMEs often decide to avoid the risk. While UKTI can play a role in providing the initial contact and information about sectors and markets within countries, the ongoing costs before a first payment is received can include a market study; identifying target customers and contacts; carrying out in-territory business development missions (between four and six over 12 months); or seeking out a representative in-country to develop opportunities; providing sample parts; conducting a supplier quality assurance exercise; contract costs and supplying parts.

36 An Investigation of the Barriers to Internationalisation Faced by Young Technology Intensive Firms, UKTI, 2009

37 Internationalisation of Innovative and High Growth SMEs, DBIS, March 2010


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4. Government actions 4.1 One of the most effective ways to supporting UK SMEs to export is to demonstrate

to SMEs that exporting can be a successful way to grow their business. Most of the governments focus to date has been on selling UK manufacturing internationally, through various promotional schemes. This should be applauded and continued to help drive up the image of UK manufacturing. What does need to be developed is more appropriate feedback to SMEs information on successfully exporting companies within their sector with case studies where possibly. One option could be for MAS to include this as part of its ongoing work.

4.2 A large increase in government activity is not what is required, what activity the

government currently undertakes needs to be done better coupled with an increase in sector specialist knowledge. This could be done through either direct recruitment or through industrial secondments from Tier 1 companies. A broader knowledgebase is required to help fulfil the needs of UK SMEs looking to export.

4.3 The main route to exporting for SMEs is through UKTI which has a broad portfolio

of services and is well funded both in the UK and in overseas countries through the Foreign and Commonwealth Office (FCO) and other networks. There are, however, ways that this service could be improved. SMEs taking the first steps toward exporting may not know about UKTI or their range of services; raising the profile of the support on offer would be very helpful. This push should include support with regulation and financing requirements based on their subject areas – general support needs to become tailored to be more specialist support.

4.4 Government support is well known for being uncoordinated and is vested across

departments, regional government, chambers of commerce, NGOs and trade associations. This is highly confusing for overseas customers and organisations looking to import or support importing from UK customers. This network also creates confusion for UK SMEs as each has different support packages and routes to engage. The government is discussing creating an industrial strategy for the UK, an important component of this should be an explanation for overseas companies, unreached by the work of UKTI, about the sectors the UK intends to compete in.

4.5 UKTI is in touch with what is happening on the ground in overseas markets through

the FCO network, but greater in-country knowledge of key sectors is needed as the FCO network will be limited. There is also a lack of consistency in the quality of this network from one country and market to another. Improvements such as standardisation of reporting or improvements in processes should be introduced to improve quality in the interim.

4.6 Over the medium to long term, the relationship between the FCO and UKTI teams

needs to be formalised. Both organisations have different structures and reporting mechanisms and one solution could be to make FCO experts more accountable to UKTI teams in the UK. The effectiveness of NGOs funded by UKTI and other bodies to perform in-country work also needs to be reviewed to see if they are truly providing value.


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4.7 While many discussions tend to focus on what the government needs to do, some

developing analysis shows that a cultural change may be needed from the UK SME community toward the idea of exporting and the support that is available for this. SMEs have to focus on designing and manufacturing products and services that represent the highest technology and performance, without these attributes prospects in export markets are negligible. This means a substantial increase in business investment in product development supported through government or other financial channels is required.

4.8 If the government does wish to target sectors, a strategy which focusses on markets

where UK companies have the highest productivity measures as gross value added (GVA) to the economy (e.g. high value manufacturing sectors such as aerospace) would be sensible as an initial approach. This strategy should however recognise that opportunities may exist in some developing countries for products with a lower GVA or where services and other digital products make the access to market easier.

19 September 2012

Federation of Small Businesses - Written evidence

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Federation of Small Businesses - Written evidence Introduction

1. The FSB is the UK’s leading business organisation. It exists to protect and promote the interests of the self-employed and all those who run their own business. The FSB is non-party-political and, with around 200,000 members, it is also the largest organisation representing small and medium-sized businesses in the UK.

2. Small businesses make up 99.3 per cent of all businesses in the UK, and make a huge

contribution to the UK economy. They contribute up to 50 per cent of GDP and employ over 59 per cent of the private-sector workforce.

3. As far as the SME definition for this inquiry is concerned, the FSB membership is

made up of small and micro businesses. The average FSB member has around seven members of staff and a mean annual turnover of around £500,000 per year38. The FSB’s submission is very much focused on the importance of engaging with both potentially new and existing exporters of this size, that make up the vast majority of the SME community.

FSB recommendations Key points that we would like to get across in terms of Government priorities and focus for SME export support in the future, in addition to the questions raised in the inquiry:

• More effective signposting of existing export support and finance is important for small businesses. This should be achieved, in part, through the promotion of a single online portal for export advice

• More effective targeting of support to micro business exporters, in straightforward

language to reach the goals that the Government has set with regard to encouraging new exporters

• The UKTI should set up a ‘micro business/first time exporters’ desk in each region

so that businesses starting out have an accessible place where they can go for advice

• More readily available advice on export finance at a local level with UK Export

Finance regional advisers and banks collaborating and working together to provide appropriate advice and finance to businesses

The FSB will be publishing a report on small business exporting in November and will be developing these recommendations through that publication.

38 FSB ‘Voice of Small Business’ Member Survey (February 2012)


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Current export market Current and future SME contribution

4. FSB research39 indicates that up to one quarter (23%) of FSB members export. By region, this figure is strongest in London (39%), Eastern (29%) and the South East (28%). These figures have been confirmed more recently through the FSB’s ‘Voice of Small Business’ Index Qu.1&240 showing that around 23% of members are exporting. Of those members that do not currently export, 12% indicated that exporting would be a future target so there are clearly new businesses with potential to target in terms of support.

5. The vast majority of FSB members that are exporting, export to the European

Economic Area (EEA) (87%) but also USA (45%) and Canada (25%). Countries that businesses planned to target in the future also revealed a range of destinations (see the figures in the Annex). FSB research on these themes will be updated in November and we would be open to sharing these results with the Lords Committee at an early stage to inform the inquiry.

SME export performance compared with competitor countries

6. Interesting analysis has been carried out in the EU with regard to the impact of a range of different export support services for SMEs41. FSB is planning to do further analysis in this area with the Institute of Export and would be open to sharing those findings with the Lords Committee. We think it is important, as raised during the initial Lords Committee seminar, to look at good practice in other countries with regard to export performance and Government support in order to learn important lessons for the UK.

Internationalisation of SMEs Characteristics of successfully exporting SMEs

7. We know from the FSB Quarterly Business Confidence Index42 that in general exporters, compared to non-exporters, are; marginally more positive about their business prospects, have slightly higher sales/revenue and are slightly more likely to be thinking about taking on staff. In terms of changes in costs to their business, they are marginally more impacted by the cost of raw materials and fuel costs and impacted much more, as you’d expect, by currency weakness and sterling

39 Made in the UK: Small Businesses and an export led recovery (FSB, 2010)

40 FSB ‘Voice of Small Business’ Index Qu.1&2 2012 www.fsb.org.uk/small-business-index

41 http://ec.europa.eu/enterprise/policies/sme/market-access/files/bd_2a_overview_of_310_policy_support_measures_identified_in_the_eu_member_states_ol_en.pdf

42 FSB ‘Voice of Small Business’ Index Qu.1&2 2012 www.fsb.org.uk/small-business-index

http://www.fsb.org.uk/small-business-index

http://ec.europa.eu/enterprise/policies/sme/market-access/files/bd_2a_overview_of_310_policy_support_measures_identified_in_the_eu_member_states_ol_en.pdf

http://ec.europa.eu/enterprise/policies/sme/market-access/files/bd_2a_overview_of_310_policy_support_measures_identified_in_the_eu_member_states_ol_en.pdf

http://www.fsb.org.uk/small-business-index


depreciation. In terms of growth aspirations, exporters are more likely than non-exporters to want to grow moderately (52% versus 39%)43 or rapidly (12% versus 7%). In terms of barriers to growth, exporters are obviously slightly less fazed by economic conditions in the UK but much more concerned than non-exporters about the economic conditions overseas. They are also marginally more concerned about the cost and access to finance although exporters tend to secure a slightly better interest rate for credit.


8. It is clear that there is no one single barrier to exporting for SMEs although concerns around fluctuating exchange rates, red tape/bureaucracy and payment issues feature in the top three. The range of issues and barriers that businesses experience is understandable given the diversity of the SME community.

Q9. Which of the following, if any, are challenges that your business has to overcome when exporting goods overseas? Base: 383

Fluctuating exchange rates/ foreign currency and red tape/ bureaucracy are the most commonly highlighted challenges faced when exporting goods overseas.

Challenges to overcome when exporting

9. In addition to the quantitative research published in 2010, the FSB has organized a series of regional focus groups during 2012 with exporting businesses which has also revealed the following issues and barriers:

• Intellectual Property (IP): there is a fear of IP theft with one member, for example,

having been approached by a business in Bulgaria wanting more information about their product which they refused to give

43 FSB ‘Voice of Small Business’ Quarterly Index Qu.2 2012

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• Distance Selling Regulations: delivery issues, cost of shipping and fear of items being returned if declared faulty or damaged. Some businesses take the decision not to export further afield as a result as they can’t meet the cost and logistics of returns

• Access to finance: where a well-established business is successful enough to have secured a larger contract than normal, the business isn’t granted funding. Members report that they feel the bank then needs to be convinced of giving a well performing company support, rather than being more open minded

• Website optimization: Appetite was expressed by members for maximizing their websites to customers overseas but with concerns about the costs and time needed for setting up a website under another domain name eg. .de/.fr/.ie. There is a need and appetite for straightforward and accessible advice in this area

• EU Services Directive: Low awareness of the benefits of the EU Services Directive in general for members and of the Point of Single Contact in EU countries signaling that more awareness raising by Government is needed here

• Card not present (CNP) fraud: Retailers raised serious concerns around card not present fraud (where transactions are taken over the phone or internet and no PIN is used) and the issue of trust of customers and clients whilst shopping online. 3D Secure products offer protection but are also an additional layer for the customer. Banks accept no liability in CNP fraud transactions over the phone even where the card is initially authorized, meaning businesses take all the risk

• Language barriers: small businesses experience a variety of issues although many deal with these in day to day business operations. Businesses that penetrate a market and aim at a sustained relationship (mostly business to business) find themselves needing to get to grips with the local language. In these cases they employ staff with language skills and have terms and conditions translated. Some adapt their business operations e.g. reducing the size of terms and conditions to make the translation process cheaper. Other businesses will adapt business operations by making a verbal agreement then fax or email over what was understood to confirm in writing

• Visa Red Tape: and confusion around which visa is appropriate and the relevant forms to fill in, in order to travel overseas particularly to emerging economies in Africa. Businesses appreciate straightforward advice from UKTI about which visa and forms are appropriate in their individual circumstances.

Incentives for new and existing exporters

10. The FSB is realistic in the current economic climate that advocating a tax incentive for exporting is not a straightforward policy to deliver. However, the Government could give thought to a potential reduction in corporation tax for exporters. UKTI could also consider providing reduced rates on services such as OMIS (Overseas Market Introduction Service) specifically for small businesses or chose not charge the business for the service until they start earning from the leads generated.

11. There are other ways in which the Government could offer ‘incentives’, through

targeting its advice more effectively particularly to micro businesses and first time exporters. Businesses comment that they don’t necessarily need help in paying for a plane ticket overseas but they would see value in tailored advice on appropriate trade fairs in the knowledge that valuable contacts will be made. Targeting information in bite size chunks to small businesses and straightforward information,


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such as simple advice on website optimization, is likely to be of more use than reams of documentation.

Government actions Current policy support UKTI services

12. FSB regions have a positive relationship with UKTI at a local level and are engaging in organizing a number of joint seminars, workshops and networking opportunities together. General awareness of UKTI is relatively low amongst the FSB membership at 21% overall (37% amongst exporters and 16% of non-exporters). However, we recognize that there may be cases in which members have used ‘overseas commercial services’ and don’t necessarily recognize the UKTI brand. Usage of UKTI services is relatively low also sitting at around 18% of exporters. Clearly, there is scope for more targeting of information from UKTI to small businesses to increase its brand recognition.

13. It is clear from feedback from our regional teams that quality of UKTI services do

vary around the country and that some offices are seen as being more effective than others. Some members do feel as though UKTI is set up to support big business and that it doesn’t really speak their language. Other negative views from members are reflected in the experience of one member running a logistics company that contacted the Commercial Section of the British Embassy in Berlin and never received a response with regard to market research. This obviously doesn’t build confidence with the small business community, yet is only one example.

14. Members also have mixed views around trade missions some seeing them as a bit of

a ‘jolly’ for businesses that already know each other. That said, members tell us how they reap huge rewards from attending trade exhibitions and the value around making contacts with businesses and clients in their sector.

15. In terms of their strategy, the UKTI is clear on the fact that it only helps businesses

that are established in exporting. The FSB believes that the UKTI is missing out on micro businesses, operating at a low level that needs a bit of advice and hand holding to encourage them into the export arena. FSB would be keen to see a ‘first time exporter/micro-business desk’ introduced into UKTI to encourage low level inquiries and encourage new exporters onto the field. The Government has set targets for numbers of new exporters in the next few years so this would help attract new exporters.

16. With regard to strategy and a targeted sector approach, the FSB is not keen on the

Government preference for targeting ‘high growth’ businesses and thinks it is important to cast the net widely in terms of support as a range of different types of businesses in different sectors need support. That point made, there are opportunities for UKTI to develop its expertise around creative services for example. Our North East team comment that UKTI is geared up to support manufacturing and retail but has less well developed expertise around what film


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companies, for example, have to offer. Businesses report cases of them having to spell out what they are offering as a product and the input and output as a result. OMIS (Overseas Market Introduction Service) doesn’t apparently support the sector very well as businesses in this sector are selling an intangible product.

UK Export Finance

17. Awareness of UK Export Finance (formerly ECGD, Export Credit Guarantee Department) is relatively low amongst members at 22% overall (28% for exporters and 20% for non-exporters). Usage is very low at 1% so clearly there is more scope for awareness raising about the products and services on offer to the small business community.

18. The FSB is aware that UK Export Finance is in the process of recruiting a set of regional trade finance advisers to promote the options available to businesses. Five out of the nine advisers in England are now in place and we would urge the Government to speed up the process as far as possible. The FSB would like to see advisers in place that are understanding of and responsive to the needs of small businesses. UK Export Finance is currently centralized and any steps that seek to provide advice at a more local level is a positive step from a small business perspective.

Coordination between Government and other bodies

19. FSB is aware that there are a number of different advice and support services for businesses and agrees with comments raised during the initial Lords Committee Inquiry seminar for an evaluation audit to be carried out of all the existing support with findings reported. There is a range of support from that which is Government led to private sector led initiatives.

20. FSB members have commented that they would appreciate advice and guidance to

be held in one straightforward portal that is well advertised and easily available. The www.opentoexport.com portal, a joint initiative between the UKTI and yell.com is a step in right direction and may prove to be a useful port of call for businesses. We hope that work on this portal will be pushed forward for launch.

21. The reality is from previous research44 on business support services is that more

informal business support services such as advice from business peers is more useful in the eyes of small businesses, than advice from Government bodies. The FSB would encourage the private sector to act both through effective support and mentoring from big business to small businesses in the supply chain. This advice could also come through initiatives such as online forums and webinars and links with similar businesses through social media.

Next steps

44 FSB ‘Voice of Small Business’ Member Survey (February 2012)

http://www.opentoexport.com/


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22. In terms of future strategy and messaging it’s important that small businesses get clarity and honesty around the realities of exporting. It is important to manage expectations that exporting isn’t necessarily straightforward, particularly to emerging economies. However, there should be greater awareness that there are a number of bodies that can help give businesses good advice. There is a debate as to whether small businesses should play safe and stay in Europe given its geographical proximity but added complications at the moment given the uncertainties in the Eurozone. Businesses could be encouraged to enter emerging markets but there should be honesty and openness in the debate and clear information about how to manage risks.

September 2012


Q10. Which regions do you export goods to currently? Base: 396

The vast majority of those exporting target the European Economic Area (EEA), just under half export to the USA. 37% export to non EEA countries.

Current export regions

Q10. Which regions will you export to in the future? Base: 274

Amongst those identifying future exporting prospects, over a third classify the European Economic Area as a potential target, 27% highlight the USA, 21% Canada.

Future export regions

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Federation of Small Businesses, Kent and Medway Region - Written evidence

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Federation of Small Businesses, Kent and Medway Region - Written evidence The Federation of Small Businesses (FSB) is the UK’s leading business organisation. It exists to protect and promote the interests of the self-employed and all those who run their own business. The FSB is non-party-political and, with 6,500 members in Kent and Medway and around 200,000 members throughout Britain, it is also the largest organisation representing small and medium-sized businesses in the county and in the UK. As far as the SME definition for this inquiry is concerned, the FSB membership is made up of small and micro businesses. The average FSB member in Kent and Medway has around five members of staff. Eight out of ten Kent businesses1 only sell within Britain with 19% exporting. This is below the UK average of 21%2 and disappointing considering Kent is the gateway to Europe. Further data on the profile of Kent businesses is provided later in this report. The FSB in Kent participates in Kent International Business, a partnership of public sector organisations including Kent County Council and UKTI, universities and business support organisations including the Institute of Directors and Chambers of Commerce. Our objective is to support existing exporters and to encourage more businesses to sell their products and services into international markets. Barriers to businesses wishing to export have been researched and analysed by the FSB centrally and their submission will be made directly to this Inquiry. FSB recommendations Key points that we would like to get across in terms of Government priorities and focus for SME export support in the future, in addition to the questions raised in the inquiry: 1. More effective signposting of existing export support and finance is important, particularly for small businesses; this should be achieved, in part, through the promotion of a single online portal for export advice 2. More effective targeting of support to low level exporters in straightforward language to reach the goals that the Government has set with regard to encouraging new exporters 3. The UKTI should set up a ‘micro/first time exporters’ desk in each region so that businesses starting out know where to go 4. More readily available advice on export finance at a local level with UK Export Finance regional advisers and banks collaborating and working together to provide advice and finance to businesses


One third of Kent small businesses sell only within Kent – Over half sell only in South East England – almost 8 in 10 only sell only the UK – 20% export. A marginally lower proportion when compared to the UK but down 5 percentage points when compared to South East England.

Sales Kent Businesses1

SELEP Businesses2

SEE Businesses2

UK Businesses2

Kent Only 32% - - - South East England Only 54% - - - UK Only 79% 78% 76% 79% Worldwide 19% 22% 24% 21% Not answered 2%

Exporters Export Sales Kent

Businesses1 Kent Exporters1

SELEP Businesses2

SEE Businesses2

UK Businesses2

Less than 10% 6% 35% 51% 47% 50% More than 10% 12% 65% 49% 53% 50% More than 30% 7% 37% 24% 28% 29%

While a smaller proportion of Kent small businesses export, the share of sales achieved from overseas is greater. 1 in 3 Kent businesses exports account for less than 10% of their business compared to half of businesses elsewhere in the South East and UK – Almost 4 in 10 Kent exporters receive 30% or more of their sales from overseas, 8% points up on the UK national Size of Business by Turnover

Exporter size Sales of Business1 Exporters Kent

Businesses Less than £99,000 44% 42% £100 K to 249K 12% 20% £250k - £499K 15% 17% £500K - £999K 15% 13% £1 million + 10% 8%

There is a close coloration between the distribution of all responding businesses by size of turnover and those that export.

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Business Sector Land based businesses, Construction, IT Services, Education and Medical sectors did not report any business from exports.

Sector1 Exporters Kent Businesses

Professional Services 26% 27% Sales/Marketing 23% 12% Manufacture 16% 9% Retail 13% 27% Leisure 10% 11% Motor Trade 8% 7% Transport 3% 6%

A higher proportion of businesses in Sales and Marketing and Manufacturing export – A smaller proportion of retailers export Matters of Concern

Issue1 Exporters Kent Businesses

Operating Cost 66% 70% Sales Volume 45% 57% Transport 38% 28% Finance 29% 20%

Kent exporters appear to have greater problems with transport and finance; businesses selling to the domestic market have greater problems with sales volumes. 6 September 2012

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Felixstowe College – Written evidence

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Felixstowe College – Written evidence Please see under UKTF

Forum of Private Business - Written evidence


1. The Forum of Private Business is a proactive, not-for-profit organisation providing comprehensive support, protection and reassurance to over 18,000 small and medium-sized businesses. Our answers are ordered to the questions as set out in the call for evidence.

What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors (both directly and through the supply chain to larger companies)?

2. The last Annual Small Business Survey in 2007/08 showed exporting activity increases with the size of business, from 22 per cent of micro-sized businesses, to 33 per cent of small- and 43 per cent of medium-sized businesses.

3. Forum findings support this, with micro businesses less likely to undertake exporting

than slightly larger firms. The main determining factor was the industry sector of the business, with construction and some personal services organisations less likely to consider exporting. Manufacturers were the most likely to be currently exporting, but services companies were as likely to be considering.

Figure 1: Interest in exporting based on company type

51%

29%

36%

17%

65%

69%

65%

65%

44%

11%

9%

14%

8%

4%

14%

13%

10%

11%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Base

Other

Business services

Construction

Wholesale, retail, transport andstorage

Manufacturer

Medium

Small

Micro

Yes, we currently export No, but we are considering exporting in the future

4. Europe is the key market for both those who are looking to increase their exports and those considering exporting. Close proximity is the main reason for this trend, but businesses have benefited from the similarity of regulatory systems in member states. A single currency has also benefited exporters.

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Figure 2 – targeted location for increases in exports

10%

12%

12%

29%

24%

17%

78%

13%

35%

47%

47%

50%

65%

75%

12%

29%

38%

42%

43%

52%

76%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

Elsewhere

Australasia

Far East and Asia

North America

Middle East and Africa

Elsewhere in Europe

Within the European Union

Considering exporting Looking to increase exports Base How does the UK’s SME export performance compare to those in competitor countries? What can the UK learn from their successes?

5. According to BIS figures, UK SMEs internationally have lower exports than the EU

average. Recent surveys show that the UK had a slightly lower share of exporting SMEs than the EU average and that the share of UK SMEs’ revenues accounted for by exports was also lower than the EU average.


6. The cash flow risk association with currency fluctuations were considered the most significant risk (63%). Increased shipping costs (31%) and payment of additional duty (28%) were the next most significant risks. 57% of businesses carry out credit checks on customers to reduce risk. Just 18% have taken out credit insurance and 18% check that their suppliers have credit insurance.

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Figure 3: Significance of major cost risks to businesses

13%

16%

16%

19%

26%

28%

31%

63%

35%

23%

26%

27%

30%

32%

36%

26%

44%

53%

53%

42%

36%

36%

30%

11%

8%

8%

5%

12%

8%

5%

3%

1%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Changes to insurancerequirements

Issues over ownership transfer

Understanding shipping termsand conditions

Other contractual disputes(including country of jurisdiction)

Unforeseen restrictions on trade

Payment of additional duty

Increase in shipping costs

Currency fluctuations

Significant Moderate Minor Do not know

7. Our research found that 72% of SMEs had seen a noticeable difference to their profitability as a result of currency fluctuations.

Figure 4 – Impact of currency fluctuations

8. Assessing credit risk is important for businesses, as late payment and bad debt can be exacerbated by national boundaries. Compared to currency fluctuations, businesses involved in international trade seemed to be more concerned by late payment (net balance of 41%) and customer insolvency (42%).

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Figure 5 – Comparison of other financial risks with currency fluctuations

9. Foreign exchange support was also cited as a risk. 36% spoke to their current bank about the provision of foreign exchange services and 30% contacted a specialist foreign exchange broker. Trusted sources of information such as accountants (25%) UKTI (20%) and trade associations (19%) were also contacted.

10. While 63% felt that the best rate was a significant factor in choosing the provider, 42%

felt that speed and convenience of exchange was important as the person responsible for foreign currency (the business owner or financial director) has a multitude of other responsibilities. Control (41%) and competitive rates of commission (33%) were also considered. Security was not offered to respondents as an option but was reported by 2% of respondents of their own accord.

What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them?

11. Based on our research the Forum suggests greater support is needed from Government agencies:

- Training and support in internationalising a business in order to increase turnover. 67%

of UK companies that were not exporting felt that their business model was not conducive to exporting or that the business only satisfied a local need. However, as Starbucks has shown, there are potential solutions such as franchising or joint ventures that can be used to overcome these issues.

- UKTI provides support for businesses looking to export for the first time and for

experienced exporters. However, research indicates that there is greater demand than supply in this area and that additional funding would help in developing UKTI’s services further. Furthermore, support agencies must ensure that they are working cohesively and not duplicating support already available from the public sector. For example, a small business unable to attend a trade show because they cannot afford the time away from their business could be supported with a translation service and key distribution contacts.

- Better awareness is always crucial to the success of export campaigns. Whilst trade and

membership bodies are an important route to market government must ensure that potential exporters are not impeded by a lack of government PR in this area.

12. Improved support to businesses from financial institutions is also required:

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- Better protection for importers and exporters is needed from international credit

ratings agencies. Businesses frequently complain that it is difficult to assess credit risk internationally and the information available is not always current enough to allow them to make an informed decision on the level of credit they should extend to trading partners.

- Overseas customers must be encouraged to pay invoices promptly.

- Banks also need to make sure that – sometimes complex – export financial products are explained to customers by knowledgeable managers. Experience to date suggests there is a lag time between new government products and understanding at the front line.

13. Greater financial discipline is needed from businesses themselves:

- Businesses must be prepared to agree to greater financial transparency in order to improve their credit rating. To some extent this is already happening as a by-product of the credit crunch

- Businesses must also ensure that they research potential suppliers and overseas

customers and look at a variety of sources of information.

- In addition businesses should also pay closer attention to detail on contracts so that businesses have recourse to legal redress in case of a contractual dispute.

Figure 6 - Ways of reducing the risk of international trade


14%

8%

12%

12%

13%

14%

18%

18%

19%

30%

33%

39%

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0% 10% 20% 30% 40% 50% 60%

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Contractual incentives / penalty clauses for failure to deliver

By having contingency plans for shipping products

By managing interest rate risk

By avoiding guaranteeing employees bonuses and pay rises

By using invoice discounting

By taking out credit insurance

By undertaking due diligence to ensure suppliers have credit insurance

By placing restrictive covenants on staff to prevent them sharing confidential information withcompetitors

By clarifying in the contract whether you will be using buyers' or sellers' law (outside EU) in case ofdisputes

By clarifying when responsibility transfers from supplier to customer

By taking out shipping insurance

By managing foreign currency exchange rate risk

By including Retention to Title clauses in customer contracts

By carrying out credit checks on customers

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What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barriers and market failures?

14. Lack of information on markets was the most frequently cited reason as a barrier for developing a business by the seasoned exporters surveyed (36%). It was also a concern for non-exporters (see figure 7) along with a lack of local presence. To some extent these are provided already through UKTI, however in the case of around a quarter of those who see the lack of a local presence as an issue, they also cite a localised client base which would tend to indicate a more manpower-intensive solution than using trade fairs and embassies to tap into a local distribution network.

Figure 7 - Barriers to exporting for non-exporters

15. Differing regulatory systems do provide barriers to exporting. One of our members, an exporter of cryogenic storage vessels, has found excessive red tape a barrier to accessing some target markets. For example, they been unable to export to the Canadian market because of the bureaucracy involved in its technical licensing requirements. The UK Government should provide businesses with more information on the regulatory systems of other countries, particularly those outside the EU, in order that firms know what steps they need to take to comply. This will also help them calculate costs, as the costs of compliance can be factored in to profit margin calculations.

16. The European Union has done some work on enabling businesses to access information

for trading within the EU. One of the outcomes of the Services Directive was that each EU country must ‘Set up ‘Points of Single Contact’ through which businesses will be able to obtain information and complete procedures required for doing business.’ We believe

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that this has the potential to be useful for businesses but the signposting to the ‘Points of Single Contact’ must be very clear so that businesses know of their existence.


17. Anecdotal evidence from our members suggests small firms are struggling to access the Export Credit Guarantee Scheme (ECGS). Delta Design Systems LTD, based in Essex, is an example of one such business. After securing a £57 million contract in Iraq they repeatedly contacted the ECG Department for help in delivering the contract. They received no support and were told that if they were a larger company such as BAE they probably would have been able to help. However, because they were an SME and because the country in question was Iraq they were deemed too risky. Another business felt that Governments in other countries, such as Australia and South Africa, were more supportive of their exporters and thought the UK Government could do more, particularly by considering the importance of smaller £30-100 million projects.

What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets?

18. The Government’s ambition is to increase as a proportion the amount of export with countries outside the EU. The Forum believes more could be done to support small businesses in exporting and protecting them abroad. We need to ensure an emphasis on supporting IP in the emerging economies where the real economic prizes are. The Forum has previously recommended stronger enforcement of UK patents and intellectual property overseas. The first a business knows about their intellectual property being abused is when a customer asks them why their product is more expensive than a competitor’s. Agreements like the ones we have recently signed with Mexico and Nigeria can be of enormous help.

19. There are also general, institutionalised issues that remain within government. A

complaint we hear from a number of businesses is that government departments are inhibitors rather than facilitators. The recent Account Consignor Scheme is a good example of this. Cargo to be carried on a flight originating in the UK must be subject to a security procedure to ensure that it does not contain prohibited articles such as explosive devices. The cargo can be screened using a number of different techniques or else be securely originated by a known consignor. The scheme allowed logistic groups such as TNT to accept goods from self-certified businesses. To become self-certified one person in the business must be responsible for ‘aviation security’ and they must sign a declaration saying they will apply the relevant rules. This enables the logistics company to transport the goods by air, without putting them through rigorous security checks. Following the Yemen printer attacks targeting air cargo in October 2010 the UK introduced several measures designed to mitigate the threat. One of these measures was to remove the UK Account Consignor scheme, which was considered to represent an


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unacceptable risk in light of the changing threat. Existing account consignors faced four options:

a) Allow logistics firms to scan goods with X-rays. However, x-rays will not work on

dense objects. b) Become a ‘known consignor,’ enabling firms to ship goods without undergoing

further checks. c) Transport goods by road to the continent, to resume their journey by air. We

believe this is an issue of UK gold-plating. Other EU counties still have the account consignor scheme, which will give them a competitive advantage. This option is no good if the goods are needed quickly.

d) Turn down orders. One of our members manufactures and distributes hydraulic pumps and motors. These products are made out of cast iron or aluminium and in order to withstand high pressures are up to 70-80mm thick in places. The internal mechanism will only leave a number of very small cavities making the complete unit appear, when scanned, to have the density of a solid block of metal without clearly discernible voids. Our member exports to approximately one hundred countries around the world to repair mobile machinery that has broken down. Most customers are looking for a very quick delivery by air courier. Whilst TNT has scanners that exceed the requirements of a minimum of 26mm of steel their products are so dense they are unable to handle in excess of 60% of the airfreight. DfT advice is for the company to become a ‘Known Consignor’ but this comes at a high regulatory and financial cost:

• Annual inspection (£400) regardless of whether it leads to successful validation. Further £200 costs for any further visits until a pass. Pre-validation services are offered, but at a cost of up to £200.

• A check list of people responsible for security and recruitment must be produced – the inspector must be able to talk to these people when inspecting the site.

• Physical security – such as a fence, an alarm or CCTV and all doors/windows secure. • Background checks on new staff and all staff with access to cargo must undergo

security training. • Must produce a Consignment Security Certificate • If using own transport must show drivers are trained in the right procedures. If using

a contractor, business must seal the cargo themselves. • Unannounced Dft inspections

Whilst this is quite a detailed example, the Forum believes it demonstrates the point. Removing this scheme placed some businesses at a competitive disadvantage to their European competitors. Our member was faced with a more expensive and administratively burdensome set of rules, or to simply turn down orders. The rapid need for the parts they provide precludes the option of transporting by freight to a continental airport. The Department of Transport considers this to be a proportionate response to the issue exposed by the Yemen printer cartridge bombs. Whilst we would not advocate a weakening of rules that prevent terrorism, we disagree that this is proportionate and


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question why the scheme is not being scrapped in other countries. We understand from DfT the justification for the Account Consignor scheme remaining in other EU Member states is that “it is enshrined in European Legislation (EC300) relating to aviation security. In common with all member States, the UK retains the right to introduce more stringent aviation security measures to mitigate the specific threat to its aviation interests if it believes that the baseline EU measures are not sufficiently robust.” The option of becoming a Known Consignor does not guarantee against future attacks, it simply proves a company has the relevant paperwork in place. One alternative option would be to allow the scheme to continue and for freight that is too dense to be scanned by x-ray to be passed if it fitted the profile of previous shipments by companies recognised as working in this area. Alternatively a one-off set of grants could be given to affected companies to compensate for the costs of security clearing additional staff. Should the Government target specific sectors, markets or types of companies where the potential is thought to be greatest? What are the costs and benefits of such an approach?

20. A paper prepared for DBIS and to which the Forum contributed last year, suggests the evidence base surrounding the need for special attention to high-growth and innovative firms to export is somewhat lacking.

21. However, it is clear there is a sizeable demographic of businesses that do not want to

export, or feel their business model is unsuitable. For instance, a Forum for Private Business (FPB) survey in July 2010 reported that 67 per cent of companies that did not sell overseas felt that their business model was not suited to exporting, or that the model was based upon providing for a local need45. It therefore makes sense that Government money is spent getting those businesses most keen to export doing so before focusing on those at the next tier down, those that feel their business model is unsuitable rather than displaying a disinterest in exporting at all.

Is there sufficient co-ordination of actions and awareness across Government and other bodies? How should other bodies be acting?

22. Evidence offered here is purely anecdotal. Government is aware of the potential reach of representative bodies like the Forum to UK businesses. The Forum is therefore often used as an additional conduit for government to disseminate key messages on policy, or to raise awareness of forthcoming policies, deadlines etc.

23. With regard to encouraging small businesses to export, we are aware that the UKTI had

a series of regional seminars for small businesses. However, there was a discrepancy within that department about whether or not we could advertise the seminars to our members. Whilst one section of UKTO advised we shouldn’t advertise it, a regional representative within the North West had been in touch with the Forum to ask that we

45 FPB, Exporting and Foreign Exchange, July ’10.


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did do so. Whilst this is a very minor point, it does call into question that understanding of the UKTI strategy.

24. Elsewhere, we welcome the emphasis on UK embassies seeing themselves as business

champions first and foremost. September 2012

Gambica - Written evidence

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Gambica - Written evidence Gambica is the UK trade association for companies in the Instrumentation, Control, Automation and Laboratory Technology industries.

Many of our 200 or so members are UK SME manufacturing exporters.

We are also in touch with over 300 non-members companies who are also exporters.

The laboratory technology sector alone exports nearly £2bn and contributes an estimated £300m to UK GDP (i.e. exports over imports – source; Prodom report from ONS data for Gambica). It is part of the UK’s high technology manufacturing sector.

We asked our member companies to reply to the call for evidence; some have sent information directly to the committee, some only to us. Below is a summary of those who either sent it to us or also copied us with their submission. Not all questions were answered.

Before that though our industry feels the inquiry should know about two things.

1. In order to sell to people overseas you need help in that market. For almost all SMEs this means a representative in that market, when you start off and even when you are well established. In most cases this means a distributor and/or agent. Appointing and managing overseas representatives is not something that can be done without some face to face meetings. “People still buy from people” (as one company put it).

2. We believe many companies who do not export cannot export. In our sector a lot of companies, unless they are new and there are quite a few each year, could not export. Those companies who don’t export are really UK specific, i.e. they are UK bases for multi-nationals (an inward investment opportunity perhaps and in our sector many of these large multinational manufacture in the UK and export too) or are UK distributors of products sourced either in the UK or overseas.

Our members feel that there has been a great deal of emphasis placed on getting companies who are not exporting to export. The concern is that the Government thinks there are more companies out there waiting to export, than there really are. It is far cheaper to help existing exporters to export more. We do not wish to see all help to new exporters stop, far from it but the balance needs to be right.

Responses to the questions

Question 2

The results of our annual survey (July 2012) showed that the majority of our exporters already export to the EU, North America, the Middle East and parts of South East Asia. There is increasing interest in the markets of South America, more esoteric South Asian countries (e.g. Cambodia, Laos, Burma) and Africa.


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Question 5

Real or otherwise, most companies who wish to export find that a lack or resources (Financial and Personnel) plus the fear of dealing with a market and people they do not understand (both culturally and business wise) or trust.

The benefits are the obvious increase in business (if you persevere), spread of risk (for example if one market is down another maybe up) and the exposure to new ideas and competition, which usually leads to new products and other innovative developments.

Question 6

New to export

SMEs need to prepare themselves for exporting. There needs to be a more coherent approach as to where they get help. Presently there are too many helpers not connected. UKTI, Chambers of Commerce, Trade Associations, UKTI regional offices, LEPs and local government, accountants, banks, lawyers all of who mean well but there is no single starting point for new to export SMEs.

The business link website is OK to start with; if SMEs know it is there, but usually they require someone to help them. UKTI is trying to get everyone to realise they exist but more must be done to help promote UKTI to companies that don’t export.

Existing Exporters

For companies already exporting, the requirements are to support to help them overcome their fears and to help them get to more markets.

With regard to new markets and overcoming market obstacles; UKTI, through their ITAs and sector specialist, together with Trade Associations (with their sector knowledge) are well placed to help these companies.

The issues surrounding finance should be with the banks but as banks no longer lend to companies or offer overdrafts of sufficient size, most SMEs expand their business through their own cashflow. This is definitely a major constraint to their expansion. The UK government has tried to help with various schemes but UK Export Finance is still way short of the world’s best, who originally copied our schemes before they were slashed in the 2000’s. The Government needs to bring back UK export finance to the level it used to be.

Question 7

As mentioned earlier, for those companies who are exporting, there are two primary things that prevent them for exporting more - Resources and Fear

Resources

The resource issue is one that covers a number of areas including; financial costs, barriers and limitations, human time and expertise.


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The financial costs include the cost of specialised staff (e.g. export and regulatory staff), the cost of visiting the market, (one area that has seen costs increase greatly, is the price of air travel. An airline ticket to China, for example, has risen by 40% in the last two years) and the costs involved in setting up websites, getting translations done and obtaining legal support to comply with regulations overseas.

Access to Export Finance is also an issue for SMEs. Most now use their cash flow to support their businesses with many reporting “unhelpful banks”. UK Export Finance still does not offer what is really needed. Although it has improved a little recently, it does not offer the complete range of support it used to in the middle 1990’s and help to SMEs is too slow and too costly.

Another Finance issue has been UK banks unwillingness to deal with payments from certain countries because of pressure from the USA and it’s so called “axis of evil”. This has lead to UKTI taking missions to countries where should a UK company win business the UK banks will not accept payment. There are ways around this but many SMEs do not have the time to deal with this.

Human time is always an issue for SMEs – it is a familiar tales of chicken and egg. “I don’t have enough business to warrant taking on a specialised person to deal with our exports” is often quoted, yet if the company does take on that person then usually the business will follow. It doesn’t matter if there is a good strategy in place if you haven’t physically got the resource to carry it out.

Expertise is an area where SMEs can suffer. While many use their trade associations, chambers of commerce and in some cases UKTI, what they often need is an expert for a short time. Someone who can gather the relevant information to ensure they comply with the requirements in an overseas market or to show them how to approach a market. Often though companies think that using such an organisation will involve high costs or they will not get what they need (usually this is incorrect)

Fear

The second major issue for SME exporters is fear. Fear because they are going outside their comfort zone. They fear being scammed or not being paid (and we see many of these issues on a regular basis, even from companies who are experienced exporters).

They fear the regulations and red tape overseas, including litigation, intellectual property and patent protection

They also fear that exporting will mean they take their eye of the ball back home.

In our sector many have also seen issues with customs in the UK. In recent times a large number of countries we used to deal with have become “less favourable to deal with”. This combined with the fact that some laboratory products are classified as “dual use” and thus require an export licence, has seen laboratory products stopped in UK customs. A process of then checking to see if a licence is required, which it often isn’t, leads to delayed shipments, angry customers cancelling orders or letters of credit expiring.

Question 8 – Incentives


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The dwindling government support for SMEs at Overseas Exhibitions

In November 2011 at the launch of the UK government’s Global growth program we heard from David Cameron, Vince Cable and Lord Green about how the UK needed to increase its exports and that we needed many more new exporters.

We also heard from four SME companies who all said they received their first export order either at an overseas exhibition or as a direct result of attending one. They had all exhibited with a UK group organised by an Accredited Trade Organisation (ATO). ATO’s are organisations that UKTI have certified to organise UK groups at overseas exhibitions. They are mostly not for profit organisations such as Chambers of Commerce and Trade Associations.

Exhibiting at a trade show overseas is the best way of finding out about a market. Companies learn more in a few days at an exhibition than they will learn in a month using any other format (e.g. on the web, through an expert etc.)

UKTI used to support (through their overseas exhibition support program – SESA more recently named Tradeshow Access Program, TAP) many more companies (new and existing) to exhibit at overseas tradeshows. However the amount of money offered to help these companies (the amount of funding in the TAP scheme has fallen from £20m in 2004 to around £7m this year) and the rules restricting the access to this money has seen a drastic reduction in the number of companies supported and therefore the number of exhibitions companies undertake overseas. Many of our more experienced exporters now exhibit at half the exhibitions they used to 5 or 10 years ago.

This is down to the fact that they no longer receive the funding they used to, so they cut back in their overseas shows and that in turn leads to two outcomes. Firstly they visit fewer markets or do not explore the new ones, choosing instead to only attend the larger “international” exhibitions and secondly it means many ATOs no longer run groups to these exhibitions. This is not only damaging existing exporters but also the new to export companies, as they learn from those more experienced exporters in the UK group. They share their experiences, contacts (if not competing) and offer advice. But if there are no experienced exporters, getting a group together may not be feasible.

This self fulfilling downward spiral occurs because as SME companies funding is cut they exhibit at less exhibitions, which means the ATOs cannot get sufficient companies to make the UK groups viable (as the ATOs rely on a certain number of exhibitors, paying a management fee, to make the group feasible) and therefore the new to export and new to market SMEs have no group to take them. This downward spiral is continuing and there are a fraction of UK groups at overseas exhibitions compared to 2004 when funding was at a level comparable with Germany. Should things continue at the same level, it is likely there will be very few UK groups at overseas exhibitions by the end of the decade.

If we expect our new to export and new to market companies to exploit the opportunities overseas, we have to help them get to the market. That means restoring support to the Overseas Trade show scheme (TAP) to something more comparable to our EU competitors such as Germany.

Other government schemes that help new and existing exporters have also seen their funding cut. Passport to Export is a very useful scheme for new to export companies, it


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helps them overcome many of the resource issues with help of expertise and finance but the financial support (matched funding) to companies has been dramatically cut by 75%. This has reduced its impact severely.

Question 9

UKTI, through the posts, used to provide trade leads and market intelligence. Our members tell us these were very useful. In recent times this service has become less useful. The process of registering is fine but the information supplied has been reduced and the need to go back to the contact at UKTI has slowed down the speed of response to the customer. Members tell us the service has now become almost none existent. We understand that UKTI is looking at this and we hope it will return with a speedier system that allows companies to get in touch with the customer directly they receive the enquiry.

Question 10

UKTI’s network of International Trade Advisors has a number of good people in it but their expertise is often diluted by having to deal with a whole raft of companies in different sectors.

Success overseas depends not just on knowing how to greet people but on understanding the market for your sector. A Specialist in one sector and one geographical region (say London) cannot help someone in Sidcup (just over the boarder in Kent and 30 minutes from central London). There should be greater use of sector specialist over a broader area or the ITAs should be allowed to go outside their geographical area to help companies who need their sector expertise.

Questions 11 and 12

Quite a few of our experienced exporters feel that UKTI is giving the impression it is trying to sell services, rather than provide advice and support.

The UK government should provide a system where regardless of whether a company is a new exporter or an existing one; there is a place they can go to find out everything about exporting.

This may mean referring to other sources but the need for a central point of contact (that everyone promotes) has to be the first step. As one of our members put it, “If I want export advice, I go to my Trade Association and they are able to either help me directly or point me to where I need to go”.

UKTI needs to be this place for those not in a trade association or other organisation. They can point companies to those trade associations and organisations that fit that companies sector.

This should then be backed up by a national system (or English at least) for financial and other funding advice. Schemes such as TAP, OMIS, Passport to export and Gateway for global growth were all successful. However with budget cuts these schemes now provide very little (in funding terms) that makes a real difference. These schemes need financial support at a level that does make a difference, one that is consistent and for the long term.


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Targeting specific sectors for support is always a difficult call, especially when there are often shining examples in sectors not favoured. Realism dictates that with a limited budget, decisions have to be made and restrictions will inevitable follow. However there should always be a way that sectors not favoured, are not cut off and can get access to some of the support available. Picking winners is always a difficult and as we have seen, putting too many eggs into one basket can have a damaging effect, especially if that sector is, for whatever reason, damaged.

September 2012

Going Global Skills - Written evidence

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Going Global Skills - Written evidence 7. What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barriers and market failures?

Language and intercultural competence skills are vital for international trade.

“The extent of the language deficit is truly serious: up to 96% of respondents had no foreign language ability for the markets that they served, and the largest language deficits are for the fastest growing economies” British Chambers of Commerce Business is Good for Britain - Skills

This House of Lords Report should be a wakeup call to politicians concerning the need to take decisive steps to remedy the above situation.

UK businesses tend to be successful in exporting to English speaking countries and underperform in other markets. As a result the UK is gaining a smaller share of the overall world trade market.

Research has shown that there is -

A lack of awareness among SMEs of the missed global opportunities - North East Language Skills Capacity Audit (2000)

A widespread complacency in regard to language skills - ELAN: Effects on the European economy of shortages of foreign language skills in enterprise (2007)

The under investment in language competences is costing the country dearly: Costing Babel: the contribution of Language Skills to Exporting and Productivity in the UK (2007)

The most recent research published by the British Chambers of Commerce “Business is Good for Britain – Skills” reveals an alarming picture of lack of language skills and a serious warning concerning the future prospects of the UK economy.

How can Government help SMEs overcome the barriers and market

failures?

The Government should champion the importance of language skills. If the market is left to itself it will gloss over the problem and not take action. The government needs to find a suitable business model which will act as a Voice for Languages - drive change, lead on new initiatives and share best practice and knowledge.

Going Global Skills - Written evidence

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In North East England the Regional Language Network, funded by the Regional Development Agency, One North East ,and supported by CILT, the National Centre for Languages achieved wide spread recognition as the voice for foreign language and business culture in the region. Its key partners such as UK Trade and Investment and the Chamber of Commerce, local universities and schools were active supporters and partners... Since its demise nothing has taken its place.

Business can find short term solutions ranging from employing foreign nationals to fill export vacancies and using online machine translations to do business.

However, the long term consequences are not good - they lead to a dependency on a transient workforce who will move on and the quick fix machine translation can easily result in a poor professional image for a business.

Education and business may try to resolve the issues separately yet end up duplicating effort and creating expensive solutions which do not appeal to the other sector.

In addition, the importance of language skills to the Visitor economy should not be overlooked. Brand GB should benefit from the marvellous and very successful Olympics and Paralympics 2012 Games. Yet if the businesses fail to adequately promote themselves overseas in the right language and if their workforce does not have the customer service skills then the international visitors will stay away.

The government is strongly urged to accept the recommendations of the BCC” Exporting is good for Britain - Skills report” -

• Incentivise take up of export related training • Put commercial export skills at the core of business education • Re-establish languages within the curriculum including a cultural focus to help with

future business deals.

And in addition, look to a Voice of Languages model which can lead the campaign for change.

September 2012

Griffon Hoverwork - Written evidence

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Griffon Hoverwork - Written evidence Thank you for the opportunity to provide evidence to the Select Committee. The points suggested in your invitation implied a requirement for evidence pertaining to the whole field of exporting SMEs. Clearly I comment from the perspective of only one company in that field. Griffon Hoverwork Limited (GHL) was formed from the UK’s two leading hovercraft manufacturers in April 2009 bringing together 44 years46 of Hovercraft design, manufacture and operational experience. The company has more than 170 craft in operation with 65 military, commercial and rescue service customers in 41 countries across the globe. GHL is the World leader in launching new designs into practical service and is also the design authority for all of the British Hovercraft Corporation / Westland / GKN historical designs. GHL is a Medium Enterprise at the smaller end of that categorisation.

Concerning the points suggested for inclusion in the invitation:

Current Export Market 1. Q. What contribution do SMEs currently make to the export market (in products and

services) and in which countries and sectors?

A. GHL currently dominates the world diesel engine hovercraft market supplying, in the order of, 80% of the global requirement (to the value of £20m to £30m p.a.). GHL provides support services associated with the product including training, engineering advice and operational consultancy

2. Q. What contribution could SMEs potentially make both now and in the future, and within which markets and countries?

A. Generally little is known globally about the application of hovercraft technology, therefore the opportunity lies in developing new markets rather than pursuing complete domination of the existing market. Breaking into new markets requires significant investment in consultative selling, with associated up-front cost. The target would be regions with the appropriate geographical, economic and commercial requirements. Examples:

a. Caspian (Kazakhstan), oil and gas exploration logistic support. The Caspian is a shallow sea that is intermittently ice covered; ideal hovercraft terrain. (GHL made a one year effort to penetrate the market at considerable expense but eventually reached an impasse founded on the risks associated with the underlying political control of industry. Pursuing this avenue further would have been too costly)

b. Brazil, Riverine transportation, security and oil and gas logistic support (water depths are variable and floating object in the rainforest rivers are hazards to conventional displacement craft)

46 Griffon Hoverwork brought together Hoverwork, formed in 1965, and Griffon Hovercraft, formed in 1967.


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c. Brazil, Rio 2016 cross harbour transport infrastructure (the water is shallow in some areas and speed of connection is critical)

d. Arctic (Canada, Alaska, Russia) oil and gas exploration logistic support (independent consultancy conducted by oil and gas majors has concluded that hovercraft are a viable solution to over ice transportation)

3. Q. How does the UK’s SME export performance compare to those of competitor countries?

A. The UK dominates the Hovercraft export market, but it is small and therefore we are not complacent, whoever wins the most recent large order is in effect the market leader.

Internationalisation of SMEs 4. Q. What are the characteristics of successfully exporting SMEs? How do they differ

from SMEs that are not exporting?

A. Multi country exporters of a similar nature to GHL require an effective network of commission based agents; the indirect cost of their own distributed sales infrastructure would be unaffordable. They require a significant infrastructure to deal with the financial instruments required for exporting, the complexity of these instruments is the same regardless of the size of a deal (ie whether BAE Systems or GHL). Exporting SMEs require access to capital, even though deals can be structured to be cash neutral, capital (whether in the company or in supporting funders) is required support the bank guarantees that will inevitably be required to balance importing customers’ letters of credit.

5. Q. What are the perceived and real risks and opportunities to SMEs of exporting?

A. SMEs intending to export need to realistically consider the significant additional sales and marketing cost and the drain on capital / cost of financial instruments to support export.

6. Q. What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them?

A. SMEs need to address the points made above. The Government has taken steps to make UK Export Finance (UKEF) more accessible to small and medium enterprise but this need to be taken to another level. In GHL we have a relatively robust finance team, because we are already involved in exporting. Without that strength in depth we would not have the capacity to be able to meet the information requirements of UKEF. Potentially the UKEF product could be scaled with the diligence package associated with the smallest scale UKEF guarantees requiring a modest online submission ie with the Government taking some risk in order to make the administrative burden feasible for a small business.

Barriers and Market Failures


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7. Q. What are the key barriers and market failures (including regulatory, financial, operational and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts?

A. Export market knowledge. SMEs often expand into exports without a predefined strategy as this research would be too expensive and time consuming to small businesses.

Regulatory control. The UK has a well developed regulatory, employee welfare and business control system. This brings a much higher level of diligence around many areas from Health and Safety to product certification, compliance and documentary evidence and increases the overall cost of supply. This counter competitive effect need to be addressed, making UK exports less competitive in the global stage and companies needing to find other ways in which to promote products. Currently the Maritime and Coastguard Agency (MCA) are finding their way around the emerging regulation of specific aspects of Hovercraft engineering. Foreign regulators look to the MCA as an example in the field and hence the implied delay while they ‘find their feet’ in unfamiliar territory has been translated as a lack of confidence. UK regulators should be wary of the impact of their actions on the export market.

Import tariffs are particularly high in some key developing markets. (GHL has particular experience of Brazil and India). For GHL this manifests itself as sales to government organisations in Brazil also being subject to import taxes in addition to those applicable to sales to private companies. Of particular relevance to military equipment, but not exclusively, a key barrier to markets, (specifically Saudi Arabia in our experience) is evidence of a company’s products in service with the UK Government. Without this sales to foreign governments are severely limited and often precluded. UK spending constraints have therefore severely limited the ability for UK plc to sell overseas because of the absence of UK Government endorsement.

Typically, larger organisations will have already established a network of contacts or markets round the world or can afford a more significant distributed direct sales force which result in new opportunities being more likely to be identified. A smaller SME sized business may well not have a South American, let alone Brazilian presence or agent so would often never know of new opportunities arising in that market.

Government Actions 9. Q. How effective are the Government’s current policy mechanisms in supporting SMEs

to export at the UK and EU Level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting?

A. GHL and its parent Group have always had an uncompromising approach to anti-corruption and therefore has no objection to the UK setting a gold standard in this area but it is asked that for the next round of export related policy making the Government consider tackling an issue that stimulates rather than regulates export, for example a focus on diplomatic efforts to remove import tariffs in growing markets. GHL is particularly interested in Brazil and India; both countries implement draconian import duty (the impact of this is that GHL is led to consider selling its IP to these potential


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importers so that they can manufacture under license. This is an economic but short term approach that will lead to the eventual decline of manufacturing and associated skills / employment in the UK)

10. Q. What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide local adequate intelligence to assist SMEs in foreign markets?

A. In GHL’s particular experience, inter-departmental Government co-operation could be improved to support export. By way of example, when, in 2010, GHL were contacted by the Pakistan Navy (who already deploy 4 of our craft and are therefore capable operators) to provide as many craft as we could send as quickly as possible to assist with flood relief. GHL responded immediately by recalling a hire craft from Singapore and contacting the Ministry of Defence who reacted within 24 hours to release their 4 old craft on a buy back scheme, earlier than planned, to form a potential life saving package of 5 craft. As a small company, GHL could not donate but formed a package including the cost of buy back, refurbishment and air-freighting with a team of staff at £1.4M. Initially, the Pakistan Navy were extremely pleased at such a low price but subsequently shared the fact that although funding was available, it was from the “wrong source” and the money could not be used to purchase UK craft.

Driven by the moral imperative to get these craft working in support of the flood relief, we contacted DfID Head of Logistics who gave the view that UK funding in general terms was distributed through aid agencies according to need. Through the British High Commission in Islamabad we were able to gain the contact details for various aid agencies that appeared unaware of the advantages of the use of hovercraft for flood rescue and disaster relief but also advised of the need to register with the UN as a provider of disaster relief equipment. GHL are registered.

Perhaps the DFiD charter could be modified to allow for donations of money and critical disaster relief equipment, thus British Industry and UK PLC benefits in kind by the donation, our UK contribution is visible by virtue of the equipment being used and in the case of Pakistan, perhaps many more lives could be saved. All of this is in the context of immediate post disaster relief but there is the additional option for DfID to donate equipment to countries subject to annual cycles of natural disasters such as Pakistan, Bangladesh, Vietnam, Philippines and Indonesia in order to build capacity to save life in the future. Thus we might come close to a level playing field with the USA where aid is tied in part to US equipments.

GHL has been delighted with the support provided by UKTI and overseas diplomatic missions in its marketing. But, further through the selling process, when tenders are in negotiation the UK seem to be under-resourced in comparison to our competitors. On two recent occasions we have witnessed the US Embassy providing a competitor with legal support to contend the award of a contract to GHL in addition to direct contact with the buying country’s Government procurement department. Therefore I would support the rebalancing of resources between the needs of market finding and contract winning.

I hope these notes will be of use to the Select Committee. Should further clarification be required please do not hesitate to make contact.


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14 September 2012

Hampshire Chamber of Commerce - Written evidence

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Hampshire Chamber of Commerce - Written evidence SME’s do not export because of perceived risks and a belief that international trade is only for large companies, and requires huge resources. Whilst nearly everyone travels internationally these days and are comfortable in foreign countries for a holiday they do not necessarily translate this to their businesses. Most business TV programmes promote the idea of the entrepreneur, but never touch on foreign markets or international trade. Business courses do not cover exporting as a norm, and if they do touch on international trade it is in the context of international economics. There is no mention in the school curriculum of international trade. Unless specifically international in their aims most business support organisations that SME’s come into contact with do not include international trade or exporting as a norm in seminars or events, instead international trade is treated as a separate subject, which generally only aimed at those companies already exporting. Therefore exporting is perceived as outside the mainstream of general commerce.

Because of this lack of mainstreaming the perceived risks and level of resources needed to export are higher than the reality. Our company was founded in 1992 with no capital, however it was rich in exporting knowledge. We are therefore a good example of the ability to be a successful exporter with very few resources. Access to contacts and information through internet makes the development of international markets even easier now.

Perceived risks generally revolve around getting paid. The risks are easily mitigated with knowledge and training , by ensuring that customers are properly vetted if they are going to be on open credit or by using a secure payment method through the international banking system. Lack of knowledge of these vehicles are what leads to the misconception. Our company is a 85-90% exporter and has been in business for over 20 years, and we have never had a bad debt.

There is clearly vast opportunity globally for UK products and services. Entering a foreign market for the first time is intimidating and often is avoided because the company executives don’t know where to start. I believe there would be a higher uptake into exporting if SME’s could be mentored or could matchmake with current UK SME exporters who can give them practical help and guidance. Whilst this can be perceived as a burden on already busy executives a great deal of this could be done in virtual forums and by SME’s employing an experienced Non Exec Director. This sort of support and advise cannot in my experience be provided by civil servants. Not only because they lack practical experience, but the new exporter will have much greater confidence in an experienced person who has actually done it. Government funding would be better utilised than it is now by funding a matchmaking contact data base and subsidizing mentors and NED’s.

The current system does not assess the market suitability for new exporters or even current exporters, based on their product/sector or experience, but promotes exporting to a broad range of expanding economies ( eg BRIC countries currently) which quite often are wholly unsuitable for new exporters , due to their distance and complicated buying cultures. The approach needs to be much more specific to a companies product, the market conditions that are required for the product to be a success and the aspiring


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exporters abilities. The best judge of this is the company itself. It is not possible for a proper assessment to be made from one or two trade missions. A great deal of time and money could be saved by matching up an exporter experienced in a particular market with a company looking to start exporting there. SME’s could matchmake with experienced exporters who could help them introduce their product and research a market they are already involved in and hold their hand. The current exporter could be incentivized from both government funding and possibly commission on sales . Government resources could be used to develop a match making service online where aspiring exporters could advertise for exporting mates. This could also extend to an SME co-exhibiting with a larger or experienced company at trade shows.

Essentially I believe we need to get away from government employees advising businesses and move towards them providing a service that matches them with other businesses or experienced people that can provide practical advise based on experience. In the past government has recruited advisors from within business, however these recruits are secondments from large companies and are generally unable to give comprehensive support to a small business.

A knowledge of foreign languages is a great advantage, but the lack of languages in my experience to date has not been a barrier, mostly thanks to the internet which has made English the universal language. However my sector is engineering, and English is the global engineering language, and so I cannot be sure that this is true of all sectors.

Customs if what is meant by this is a markets’ culture is a barrier if the exporter does not spend sufficient time in the market, or uses others experience to learn the culture. It is also a barrier if the exporter is not flexible enough to change its systems to match the required culture. An example of this is the way our company deals with customers purchasing systems that do not match our sales system. (see attached case study ).

There are clearly customs barriers in the way of import restrictions that foreign governments impose from time to time. It is incumbent upon the UK government to negotiate on these as a matter of course.

The internet can be a great aid in exporting by making it possible to contact foreign customers and advertise internationally via their website. However there is also a great deal of misinformation on the web and this is where the knowledge of an experienced exporter can also help.

I don’t believe that the OMIS reports are value for money, they are too generalised and the commercial posts do not have enough specific sector knowledge to give specific industry information. They are useful for general market information, but they do not have enough specific up to date information to be value for money.

It should be possible to incentivize a proportion of the large number of current exporters to post on a blog on their recent experiences in a market that could be available to all. The sort of information that would be useful is non commercially sensitive information about market conditions generally ,(eg “ S Korean shipyards are pushing hard on oil and gas projects to fill up their empty yards “) travel advise – (eg “don’t go near xxx to stay as the new bridge build is causing traffic chaos, or “ allow at least 2 hours to travel form X – Y at 9am in Seoul”) Regulations (eg “you cant register as a vendor with XXX unless you have ISO 9001”) There could also be potential for the commercial posts to blog this sort of


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information from the field. This could be grown into an information exchange system that would allow companies to make direct contact and share contacts and information as long as it doesn’t conflict with their interests. (almost along the lines of Linked In)

Trade mission support should be increased, the TAP grant is insignificant for the remote markets and does not provide an incentive to join a trade mission or exhibit. Most companies that use this would visit the market anyway. If the grant was higher (min 50% of the actual cost) it is more likely to encourage SME’s to visit a market or exhibit for the first time. Grants should only be given to genuine UK based SME’s. I have been on several trade missions that included companies who do not fit this description or may do as a branch but are in fact owned by a much larger company, and are not in fact SME’s. The definition of an SME for this purpose should be much tighter to ensure that those who really need support are getting it at a level that encourages them to participate.

Trade missions for SME’s need to be lead by Ministers as often as possible. There is a perception that Ministers are really only interested in high profile missions with household names that are good for publicity.

Understandably any mention of tax breaks and the involvement of the Treasury is very sensitive, and usually unwelcome, but corporation tax incentives could be used to encourage companies to make more international sales. Lower Corp tax rate for export sales, which would have to be evidenced by export documentation in the same way that VAT is recovered on non EC sales is evidenced now.

Governments are not well equipped to pick winners, and there should not be a favoured sectors in terms of the export drive. The match should be market need and potential with companies that have products that can fulfil this. The sectorial approach leads to “fashionable” promotion and civil servants playing to what is currently in favour. As in business generally the market need should drive the approach, not “this I what we are good at making, who can we sell it to?” There is room for innovation in methods of approach to a market as well as in actual product or service.

September 2012

Case Study – Saudi Arabian Basic Industries Co ( SABIC)

SABIC run a SAP system which only allows payment of an invoice if it matches exactly the value of the purchase order. Our pipe is manufactured in random lengths between 5 and 7 meters long. This is recognised as an industry standard. Therefore if a customer orders a 6 meter random length they may get 5.7meters or possibly 6.3meters. It is possible to have fixed lengths cut to size but this carries a price premium of around 10% to cover wastage.

SABIC will not pay the extra 10% for fixed lengths. Therefore they order 6 meters or multiples of 6 meters, but will not accept the extra 10% charge for cutting. Therefore if we ship over 6 meters or multiples of 6 meters there is a long payment delay (which can be up to 9 months) as the sales invoice does not match the value of the purchase order in their system. The buyer has to then apply for a change order to be processed before he can pass the invoice for payment.


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To accommodate this we always invoice the exact amount and then send an additional invoice for any overage. eg if we ship 6.2 meters we invoice 6 meters on one invoice and then 0.2 meters on a second invoice. We generally get paid within 28 days for the first invoice and then have to wait several months for the second invoice to be processed through the change order system.

Tim Harrap - Written evidence

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Tim Harrap - Written evidence Private submission by: Tim Harrap. 20 years in the food industry, 17 years exporting worldwide with mostly SME’s Member South West International Business Forum – joint SWRDA/UKTI activity 2005 – 2009. (Currently Head of Collaboration, Lye Cross Farm, Somerset) The following comments are made from a food industry perspective. Current export market

1. What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors (both directly and through the supply chain to larger companies)?

This is far too generalised a question, I would expect SMEs are an integral part of any economy. The statistical evidence should be readily available from UKTI staffers or read the BIS report from March 2010 Internationalisation of Innovative and High Growth SMEs ! In the food and farming sector SMEs clearly undertake export development providing ingredients and through finished products. Countries supplied: worldwide! In 2011 GB exported cheddar to 54 countries – much of that activity would have been supplied by SME’s filling a niche market for British products. Sectors: In the dairy sector retail, food service, manufacturing

2. What contribution could SMEs potentially make both now and in the future, and within which markets and countries?

SMEs in the food sector make a valuable contribution in providing highly respected and commercialised products as well as exporting the cultural identity of the UK. The focus for British companies has to be Asia and the Middle East. The USA and European markets are mature and to some degree oversubscribed.

3. How does the UK’s SME export performance compare to those in competitor countries? What can the UK learn from their successes?

The extensive presence of SME’s from other countries (e.g. Italian, Egyptian, Brazilian manufacturers) at international food shows suggests a greater commitment across the sector with national body support whether government or NGO’s. Internationalisation of SMEs

4. What are the characteristics of successfully exporting SMEs? How do they differ from SMEs that are not exporting?

A world view not a parochial view. This goes for Government too. GB needs to lead the way in getting beyond the old frameworks of “nation state” we have to show how the world can operate above and beyond petty nationalism – SME’s can do this, can the British Government do the same?

http://www.bis.gov.uk/assets/biscore/economics-and-statistics/docs/10-804-bis-economics-paper-05


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5. What are the perceived and real risks and opportunities to SMEs of

exporting? • Finding the right partner • Not being afraid to fail • Getting paid • Having the image of your business challenged by overseas clients and thereby

refreshing your offer through experience • Becoming part of a global community.

6. What steps should SMEs that want to export take to prepare themselves

to do so? What role should Government play in supporting them?

Preparation: Undertake a Passport to Export programme with UKTI. Government should give backing to UKTI activities and not duplicate processes through FCO, DEFRA etc. Most importantly ensure that programmes bridge the electoral cycle and do not fall foul of attempts to reinvent the wheel. Whilst the current economic and financial climate certainly requires budgetary restraint the need to accommodate new (political and potential unnecessary) views slows UKTI activity until new regimes are in place. This means productive time is lost in fast moving international markets. Barriers and market failures

7. What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barriers and market failures?

Larger companies have their own internal resources to deliver for example language resources, credit insurance, etc.. SMEs, unless convinced otherwise, will consider these additional costs a burden. Giving a confidence boost to companies/employees for example with an Export Communication Reviews is vital. The poor language and cultural skills of many UK citizens should be overcome through the education system – this has been a shortcoming of the UK education system for decades and should indeed be seen as a market failure that needs urgent corrective action. Incentives 8. What are the key factors to encouraging SMEs: a) which already export, to sell more overseas; or :

Strategize target markets

b) which do not currently export, to start doing so? :

Passport to export, hand holding, mentoring.


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For example, how have developments in information technology influenced the performance of SMEs and their capacity to compete internationally for trade and investment? Surprised this is even asked today. The internet has been available as the WWW since 1994 – the current generation of university and A levels students are digital natives they have known no other environment. It is quite easy to see that even those older than the above generation are making full use to communicate directly to markets. – SMEs are probably more adept at this activity than corporates who get caught up in too much “control”. Select Committee Members might wish to undertake some background reading in this area. I would suggest they read these two recently published books on the influence of technology in the workplace: Organizations Don’t Tweet People Do by Euan Semple & The End of Business as Usual by Brian Solis Government Actions

9. How effective are the Government’s current policy mechanisms in supporting SMEs to export at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting?

There has to be awareness that supra-national negotiations by the EU carry weight with regional partners such as China. The UK will have to ensure good partners strategies with EU development efforts so as to extract best value from FTA’s e.g. South Korea. Enterprise Europe Network – provides a valuable network within Europe.


It is hard for SME’s to access Government contracts particularly in the food sector as economies of scale both by product and service exclude SME’s from participating directly. The illusion of widespread opportunities for SME’s at the Olympics is a case in point. SME’s were never truly going to get a look in. This was the case in Athens- these falsehoods should be countered at source. Commercial Officers at British Embassies are generally second to none. Whilst some business people have had poor reports under the OMIS scheme for instance I have found these locally employed staff to be a godsend and commercially astute.


http://www.amazon.co.uk/Organizations-Dont-Tweet-People-Do/dp/1119950554

http://www.amazon.co.uk/End-Business-As-Usual-Revolution/dp/1118077555/ref=sr_1_1?s=books&ie=UTF8&qid=1347563162&sr=1-1

http://portal.enterprise-europe-network.ec.europa.eu/


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Recognise that those in power – economic, financial or political - are very unlikely to have been at the coalface of the SME market/agenda for some considerable time, if ever. Corporate mentality is not SME mentality – SME’s often work on a satisficer model and not maximising profits model. The current economic and financial climate suggests that new ways of working – greater collaboration will require reimagining by Government of how they deliver their services and agenda.


SME’s will have to prove their worth in whatever sector to make claim on Government resources. Targeting sectors will undoubtedly lead to some opportunities being missed and starving some SME’s of coherent support to achieve rewards for their business and their communities. It would be interesting to know the politics surrounding “where the potential is thought to be greatest.” and how the judgment call is made. The demise of the quango “Food from Britain” was simply an act of vandalism and the Government has had to reinvent the services that this organization delivered – the costs involved for FFB were not significant but delivered on Brand GB.

12. Is there sufficient co-ordination of actions and awareness across Government and other bodies? How should other bodies be acting?

See note 6 Government coordinating across electoral cycles September 2012

HMG Trade and Investment - Written evidence

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HMG Trade and Investment - Written evidence Trade and investment are central to re-engineering strong, sustainable and balanced growth in the UK and overseas. Trade and Investment for Growth, February 2011 A note outlining recent developments in HM Government support is offered alongside this document. This piece is to provide specific answers to the questions posed. The following answers include reference to academic work and surveys of UK business. Evidence about the financial benefits generated by UKTI trade services is gathered quarterly through the Performance and Impact Monitoring Survey carried out by OMB Research, an independent market research company specialising in business surveys. In addition to the evidence collected through PIMS, estimates of the impact of UKTI trade services are obtained through a rolling programme of independent evaluations of particular trade services. UKTI clients consistently cite the importance of UKTI support in helping them overcome barriers to new overseas markets, thus enabling them to improve their business performance. They also highlight benefits in terms of improving their knowledge of the competitive environment, gaining new ideas and improving their products or services as a result. The current export market Q1: What contribution do SMEs make to exports both directly and through the supply chain to larger companies? (Slide 2) A1a: UK SMEs account for over half the value of UK exports (53% goods exports, and much higher proportion of services exports).

A1b: Many UK companies, including SMEs, have UK-based business customers who export at least some of their turnover. These sales contribute to the UK content of UK exports. We do not have data on the proportion of inputs to UK exports which may be purchased from UK-based SMEs. Q2: What are the characteristics of SMEs that export at present, and how does this differ from those that do not (for example, are they already global firms)? (Slide 3) A2: SMEs who are innovative, those who undertake R&D or have Intellectual Property (IP), and those with higher productivity are all more likely to export, and to do so sustainably. However, there are many non-exporting UK SMEs who match the productivity and innovation profile of successful exporters, and nevertheless do not export.


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Larger and older firms are also more likely to export. However, some SMEs are ‘born global’ - active in many markets before they have been exporting for 1-2 years. ‘Born globals’ are often high technology firms, operating in specialist niche markets which are global by nature.

The evidence shows that measurable factors such as these explain only a minority of the observed incidence of exporting. This shows that softer factors, such as management attitude, are also important influences.

Survey evidence shows that 39% of the non-exporters believe they do not have a suitable product to export, while a further 21% see sufficient demand in the UK or have chosen to be a local business only, or see themselves as too young/small. Q3. What contribution could they potentially make and within which markets? (Slides 4-5) A3: UK SMEs are highly successful exporters in markets all across the globe, and account for over half of UK good exports in both EU and non-EU markets. Some 39% are already active in at least one of the BRICs or 5 other key High Growth Markets47, while a substantial proportion expect to be doing so in the near future.

Evidence on the number of export markets by number of years exporting shows that some SMEs are active in a large number of markets, but with just over half exporting to not more than 5 markets. Many of these could benefit from expanding into new markets.

Q4. How does the UK’s SME export performance compare to those in competitor countries? (Slide 6) A4a: In terms of the % SMEs exporting, the UK is on a par with larger EU countries such as Germany and France, although under the EU average of 25%. Smaller EU countries have higher proportions of exporters, because with a smaller domestic market more firms need to export to meet growth objectives.

A4b: In terms of the SME % of value of exports, international data suggest that there is large variation across countries, with the EU average of 40% well below the UK, where SMEs account for 53% goods exports. Q5: How have developments in information technology influenced the performance of SMEs and their capacity to compete internationally? A5: The opportunity to sell through a web site has added a new mode of exporting. However, survey evidence for 2011 suggests that most SME exporting is through more traditional modes, most often directly to customers, but also via agents or distributors. Around 4% were exporting only through their web site, with fewer than a quarter selling directly to overseas customers partly through the web. (Slide 7)

47 Russia, Turkey, South Africa, The United Arab Emirates, Saudi Arabia, Brazil, Mexico, China, India


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We do not have evidence on how this may have impacted on the extent or scope of SME export activity over time. Barriers, market failures and incentives

Q6: What are the key barriers and market failures (including regulatory, financial, operational) that inhibit the ability of SMEs to begin to export or grow their export efforts? (Slide 9) A6: UKTI tracks SME perceptions and experience about barriers to exporting through annual surveys. Although barriers vary by market, the main issues can be grouped in the following two categories:

• In market barriers, such as gaining access to contacts, navigating the legal and

regulatory environment, and coping with local culture and language; and • Internal know-how and capabilities, including knowing who to approach for

information and expertise, and lack of confidence, or awareness of opportunities or of the potential benefits of exporting.

Mentoring has been demonstrated to be a successful way of addressing some of the barriers identified. Mentors act as a sounding board and share their experience and expertise including by actively helping their mentees to navigate the legal and regulatory environment, to gain access to relevant contacts, and to fill gaps in internal knowledge. Q7: What are the key factors that have encouraged or would encourage further export activity amongst those who export, or would encourage those that do not currently export to start doing so? Please provide examples. (Slides 10 and 13) A7a: UKTI surveys have gathered a substantial body of evidence about motivations for exporting, and for expanding export activity to new markets. The most common motivations are:

• To achieve a level of growth otherwise not possible; • To improve the firm’s profile or credibility; • To respond to orders or enquiries from overseas customers; • To utilise existing capacity more fully. • Personal connections or desire to travel are also cited by a significant minority of

firms as a reason for beginning to export. A7b: Evidence shows two key factors can be effective in encouraging more firms to export:

• Building confidence, knowledge, and capabilities: e.g. showcasing successful

SME case studies as role models; providing access to trusted expert advisers who


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can also make it easier for SMEs to find the specialist knowledge and services they need.

• Help individual firms to overcome barriers to new markets: e.g. by

providing tailored in market advice, including access to contacts; or supporting participation in market visits, events, trade-shows.

Research shows that increased use of external guidance can have a major impact of improving business skills, innovation and export activity. However, there is evidence that owner-managers tend not to recognise fully the need to seek external support. Increasing the use of experienced business advice can help UK SMEs to grow and prosper, and enter new markets. UKTI supports the ‘Get Mentoring’ and ‘Mentor SME’ initiatives. Several UKTI programmes incorporate mentoring, such as Passport to Export, Gateway to Global Growth and the Tech City events and networks. Q8 How significant are foreign languages and customs as barriers to SMEs exporting and how can the difficulties be overcome? (Slides 11 and 14) A8a: Language and cultural barriers are identified as significant difficulties by just under a fifth of exporters, but this probably understates the significance of these issues. Most of those experiencing no language barrier say this is because they rely on English. Quantitative studies of trade patterns find strong evidence that language and cultural ties have significant influence.

A8b: The pool of language and cultural skills available to UK SMEs could be increased by increasing the number of students studying these subjects to a high level. In terms of help to individual businesses:

• UKTI’s Export Communications Review service provides subsidised advice on how

best to deal with communications issues. The service is highly effective, consistently showing high benefits.

• Advice on navigating an unfamiliar business culture is available from UKTI’s in market

teams. Policy

Q9: How effective are the current policy mechanisms at supporting SMEs to export? (Slides 15-16) A: There is a substantial body of independent evaluation evidence which demonstrates that UKTI trade services are highly effective. However, there are still gaps in quality for some services, especially web services. In 2011, UK Export Finance (UKEF) broadened its business domain in order to support all types of exports, revamped and simplified its short-term credit insurance policy and introduced new short-term finance products to meet gaps in the provision of support to exporters, especially SMEs, from private sector providers. UKEF will be making some


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minor improvements to the products following a recent review, but overall the products are well-designed and effective. Lack of sufficient awareness within banks and the exporting community continues to be addressed, including through the appointment of regional Export Finance Advisers. Q10: What should Government and others be doing to assist and promote the export of products and services by SMEs without creating perverse incentives that inhibit growth? (Slide17) A: Perverse incentives which can inhibit growth are a risk associated with poorly designed policy interventions. This is most likely if:

• Exporting is indiscriminately encouraged among companies who may not have the capabilities necessary for sustainable success in the longer term. This risk can be minimised by: messaging which highlights the capabilities required for long-term export success, and by providing access to expert advisers, who can help firms make a realistic assessment of their export potential.

• Cash grants are offered on terms which may motivate firms to take actions which

would not be justified on sound business grounds. This risk can be minimised by: ensuring that match-funding is only offered in the context of a soundly based overseas business plan, such as the match funding for export capability building which is offered through Passport to Export.

Trade liberalisation more generally can play a role in improving the framework in which exporting SMEs operate. Free Trade Agreements can provide a means of reducing behind-the-border barriers that provide some of the biggest obstacles to trade. Whilst this benefit is not limited to SMEs it may be particularly pertinent for them as they are less likely to have the resources to negotiate such barriers. Q11: What forms of intervention are appropriate from Government to assist and promote SMEs to export? Should the Government target specific sectors and markets where the potential is thought to be greatest? What are the costs and benefits of such approach? (Slide 18) A: SME needs for help are diverse, and also vary across markets, depending on circumstances, such as whether they happen to have established contacts in a target market. Evaluation evidence shows that support can be most effective, and yield most benefit, by:

Matching services to business needs: Enabling them to gain confidence, capabilities, and know-how by: providing access to advisory services, training, high quality events, information; and enabling them to overcome the barriers they encounter by providing tailored in market help, support for engagement in trade-shows and market visits, and access to information about opportunities. Optimise business receptiveness: Well-designed events can be an effective means of targeting companies when they are at their most receptive, because companies who are most receptive are more likely to make the effort to attend. By


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contrast, pro-active targeting can be relatively inefficient because many of the companies contacted may not be receptive. Research on the contexts in which external sources of knowledge and expertise can be of most benefit to a business shows that this is when the business is experiencing a period of transition, associated with interest in business growth.48 The right quality of help provided at these times can sometimes result in a ‘tipping point’ into a period of high growth. Case studies of SME success illustrate how services can sometimes achieve very high benefits. A number of case studies have been written up in a series of short reports designed for use by International Trade Advisers and others with SME business clients, available in hard copy from UKTI or on the web site at: http://www.ukti.gov.uk/uktihome/item/158720.html Identify and address market failure in the provision of trade finance: This is being done through UKEF, with UKEF’s remit being to complement and not compete with the provision of support from the private market. UKEF charges premium for the provision of its support that covers the risk on individual transactions and its operating costs.

Export performance will vary within SMEs, micro firms tending to behave differently from larger SMEs. This supports the need for flexible and differentiated policies – a one dimensional approach will not be appropriate for all SMEs. Q12: Is there sufficient co-ordination of actions and awareness across Government and other bodies? How should other bodies be acting? Both the Trade and Investment White Paper and those elements of the Growth Review were cross-Government publications, with input from business bodies and businesses. Trade support services (such as the ‘Passport to Export’ initiative) are developed in consultation with trade advisers delivering export support and exporting businesses. The Government’s Export Challenge called specifically on partners and intermediaries to help spread the message about exporting and exporting more widely. Using lawyers, banks and accountants helps UKTI and other Government bodies reach a broader range of business. The Economic Affairs (Trade and Investment) Cabinet sub-committee brings together a broad range of ministers, as does the officials group below it at senior official level. The Prime Ministerial request for all Government Ministers to undertake trade activity when relevant, such as on overseas visits, has raised awareness and brought high level activity, though this varies.

48 A Review of the Literature Addressing the Role of External Knowledge and Expertise at Key Stages of Business Growth and Development – Final Report (2005); John Bessant, Bob Phelps, Richard Adams; Cranfield School of Management https://dspace.lib.cranfield.ac.uk/bitstream/1826/1036/4/Rev_of_Lit_Business_Growth_Final_Report_2005.pdf

http://www.ukti.gov.uk/uktihome/item/158720.html


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Government in the UK has no structural set-up similar to Germany (with compulsory membership of Chambers), close government business relations as in France (where ties between government and large business tend to be stronger than in the UK), or strong government-business influence, as in the USA. The UK model is more one of co-operation: depending on strong co-operation across government, business support bodies and the private sector. UKTI works with other HM Government-led initiatives. As well as coaching, the BIS-led ‘Growth Accelerator’ initiative provides comprehensive support by fast-tracking high growth businesses to trusted providers of business advice to help them achieve their ambitions. There are costs involved in exporting (which could be onerous for SMEs), so it is not something that suits all firms49. Equally some will happily be ‘passive’ exporters, responding to overseas orders or expressions of interest and hence with generally more limited prospects for expanding their export activities. Of course, some SMEs could expand domestically but lack the desire or ability to do so. Annex: Slides accompanying House of Lords Evidence

49 Helpman, Melitz and Yeaple (Export Versus FDI with Heterogeneous Firms, 2004), for example, established a model in which the most productive firms invest overseas, the next most productive export, whilst the less productive remain focussed on their home market as they are not sufficiently productive to make exporting (with all its extra costs) profitable. The point is brought out in BIS Economics Paper 11, published alongside the UKTI Strategy (May 2011): “In terms of targeting, the evidence showed that export support should be focused on firms which have the productivity and innovation characteristics necessary for long term success, and are seeking to grow.” It also cautioned against encouraging firms to export who lack the qualities necessary for sustainable export success.


1

The Current Export Market

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2

Q1.“What contributions do SMEs make to export both directly and through the supply chain to larger companies?”

• SMEs accounted for 53% of the value of goods exports in 2009 (<250 employees)

•The smallest firms (0-9 employees) accounted for 22%of the value of UK goods exports to Non-EU countries, and 27% to EU countries.

At present, no data source allows us to identify the proportion of inputs to UK exports which is purchased from other UK SMEs.

Source: Eurostat

3

Q2.“What are the characteristics of SMEs that export at present, and how does this differ from those that do not export (for example, are they already global firms)?”

Exporters tend to have higher productivity and stronger financial performance, and more likely to be innovative and do R&D. But many non-exporting UK SMEs have the profile of successful exporters.

PRODUCTIVITY INNOVATION AND R&D FINANCIAL PERFORMANCE

•Successful exporters tend to have higherproductivity than non-exporting firms.

•But: Many non-exporting firms haveproductivity levels that match those ofexporters.

•The picture shows that productivityvaries greatly across firms for bothexporters and non-exporters.

•Firms which successfully export are more innovative and more likely to engage in R&D – and R&D active firms are more likely to export.

•There is evidence that exporting firms are much more likely to hold IP – and IP active firms are more likely to export.

•But: The table shows that many R&D active firms do not export.

Don’t Export

Export All

2006 (CIS5), wide def of R&DManufacturing No R&DUndertake R&DTotalNon-ManufacturingNo R&DUndertake R&DTotal

18.92644.8

35.340.275.5

7.547.655.2

4.819.724.5

26.473.62933

40.159.911758Source: Harris and Li (2010)

•Empirically, exporters show stronger financial performance than non-exporters.

•Evidence for the UK show that improved financial performance is an outcome of exporting – not a determinant of beginning to export.

•Research also shows that beginning to export and then dropping out has adverse impact on business performance.

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4

Q3.“What contributions could they potentially make and within which markets?”

•Many SMEs export to a large number of countries (46% export to more than 5 countries). UKTI survey (2012) suggests that 39% of SMEs are already active in High Growth Markets

•A relatively high proportion of SMEs who are not in emerging and fast growing markets feel that it is “very likely” or “quite likely” that they will enter these markets in the next 2 years.

• But nearly a quarter of long term exporters still export to only 2-5 markets.

Total UKTI User Non-User 0-9 emps

10-49 emps

50-99 emps

100-249 emps

250+ emps

Number of Overseas Markets Done Business in During Last 5 Years (Internationalisation Survey 2012)

None

2-5

One

6-10

Over 10

SMEs (0-249 emps)

39%40% 54% 35% 37% 39% 65% 81% 70%Active in fast growing

mkts

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5

5Q3.“What contributions could they potentially make and within which markets?”

Number of markets

Base: All respondents (Base, Don’t know/refused)

<2 years (185, 0%), 2-5 years (219, 1%), 6-10 years (214, 1%), >10 years (270, 1%)

The chart shows the number of export markets by the number of years exporting. The red line shows that some ‘born global’ SMEs are in a large number of markets in first 2 years of exporting. By contrast, most firms export to only 2-5 markets – even among those exporting for 10+ years. Many UK SMEs could benefit from exporting to more markets.

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6

Q4.“How does the UK’s SME export performance compare to those in competitor countries?”

•20% of all UK SMEs (including firms with no employees) export, but 23% of firms with at least 1 employee. (Source: Small Business Survey 2010)

•This is slightly under the EU average of 25%, but very similar to larger EU countries such as France and Germany.

•55.2% of manufacturing firms exported in 2006, a similar proportion was found to export in Europe (55.7%)

•SMEs accounted for over 40% of goods exports in EU countries and around 25%in the US. In 2009 SMEs accounted for 53% of the value of UK goods exports.

(More recent data not available.)

Distribution of Total Exports by Firm size (2007 or latest year available)

% of European SMEs Exporting Directly (2006-2008)

7

Q5.“How have developments in information technology influenced the performance of SMEs and their capacity to compete internationally?”

Size (Number of employees)

0-9 10-49 50-99 100-249 250+

Selling direct 87% 87% 80% 82% 89%

- ‘Web only’ exporters 5% 2% 1% 0% 0%

Agents/distributors 37% 45% 58% 43% 49%

Contractual arrangements (eg licencing, franchising)

9% 13% 18% 11% 9%

Overseas site 5% 16% 25% 19% 33%

- Manufacturing/ assembly site 1% 4% 7% 0% 22%

- Call centre 0% 1% 4% 2% 0%

- Sales/ service delivery site 4% 13% 23% 19% 24%

- R&D site 1% 3% 9% 6% 9%

Modes of Internationalisation – By Size

•Smaller (0-9) and younger (up to 5 years old) firms are most likely to be ‘web exporters’ only.

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8

Barriers, market failure and incentives

215


9

Q6.“What are the key barriers and market failure (including regulatory, financial, operational) that inhibit the ability of SMEs to begin to export or grow their export effort?”

Proportion of firms experiencing significant difficulty (4-5 out of 5, where 1 is ‘not at all difficult’ and 5 is ‘extremely difficult’)

Size (Number of Employees)Market Type Individual Markets (where base is 30+)

0-9 10-49

50-99

100-249 250+

High Growth

EEA Other

China

France

Ger-man

y

India

Ireland

Russia USA

Types of Barriers

Legal & regulatory barriers 33% 47% 28% 43% 45% 48% 26% 38% 58% 29% 12% 45% 16% 58% 40%

Customs barriers 21% 30% 30% 27% 33% 34% 14% 26% 25% 24% 15% 31% 3% 58% 20%

Contacts barriers 20% 30% 27% 38% 27% 30% 16% 26% 40% 28% 21% 29% 6% 38% 21%

Information barriers 8% 12% 10% 14% 33% 13% 8% 9% 10% 12% 9% 8% 6% 26% 5%

Resource barriers 14% 20% 0% 14% 37% 18% 11% 17% 22% 21% 9% 17% 7% 16% 16%

Language & cultural barriers 15% 18% 15% 10% 33% 23% 12% 13% 40% 35% 16% 11% 0% 26% 6%

Bias barriers 10% 14% 13% 19% 18% 12% 12% 11% 18% 40% 4% 13% 1% 7% 14%

Number of Barriers

At least one sig. individual barrier 51% 68% 60% 76% 76% 69% 44% 59% 75% 56% 39% 60% 25% 84% 65%

- One 15% 19% 14% 21% 18% 18% 15% 15% 14% 6% 5% 18% 15% 17% 20%

- Two 12% 14% 25% 22% 6% 14% 9% 15% 6% 9% 14% 5% 4% 28% 26%

- Three 9% 11% 10% 14% 18% 10% 8% 12% 22% 12% 9% 8% 1% 3% 8%

- Four or more 16% 24% 10% 19% 33% 27% 12% 16% 33% 30% 11% 29% 4% 36% 10%

No significant barriers 49% 32% 40% 24% 24% 31% 56% 41% 25% 44% 61% 40% 75% 16% 35%

•Barriers to trade do notvary by firm size

•The most commonly reported barrier is “Legal and Regulatory”

•Firms operating in high growth markets are more likely to report barriers to trade

•Firms operating in Russia are more likely to report at least one significant barrier than in any other market

• Firms operating in Ireland are the least likely to report barriers

Evidence from the Internationalisation Survey on Barriers to Trade suggests that:

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10

Q7.“What are the key factors that have encouraged or would encourage further export activity amongst those who export, or would encourage those that currently do not export to start doing so?

To enable you to

achieve a level of growth

otherwise not possible

To allow you to more fully utilise

existing capacity

To reduce your

dependence on the UK

market

To improve your firm’s profile or credibility

You received orders or enquiries

from overseas

customers

You had personal

connections overseas or a

desire to travel abroad (Exporting <2 years only)Users (PIMS 23-26) Non-Users (PIMS NU 2011)

Export Motivations: Proportion agreeing (4-5 out of 5) that they export for the following reasons

Market Entry Motivations: Did you start doing business in this country for any of the following reasons?

Users Non-Users

A customer that you were already doing business

with requested that you start doing business there

You received an approach or

enquiry from a potential customer

or partner there

A company that you were already doing business

with in a different market helped you

to start doing business there

There was someone in your

company who already had

experience of that country or contacts there

This country is at the forefront

of developments

for your industry

All Exporters

•81% of UKTI clients and 48% non-users export to ‘achieve a level of growth otherwise not possible’

•53% of UKTI clients and 31% non-users export ‘to reduce dependence on the UK market’

•Personal reasons drove decision to export for 33% UKTI clients and 23% non-users.

•Response to orders or enquiries a major influence for both users and non-users.

•Serendipity and established contacts are strong influences on firms’ choice of market –consistent picture from many surveys.

•69% of all exporters began exporting to their ‘most challenging overseas market’ because they ‘received an approach or enquiry from a potential customer or partner there’

11

Q8.“How significant are foreign languages and customs as barriers to SMEs exporting and how can the difficulties be overcome?”

37%

24% 24%

10%15% 16%

12%

43%

29%34%

12%

19% 20% 18%

35%

23%20%

9%14% 14%

10%

Legal & regulatory barriers

Customs barriers

Contacts barriers

Information barriers

Resource barriers

Language & cultural barriers

Bias barriers

All Exporters Users Non-Users

Proportion experiencing significant difficulties (4-5 out of 5) with each barrier

•Language and Cultural barriers are reported by 16% of all exporters and by 20% of UKTI users

•Language and cultural barriers are most widespread amongst companies operating in China and France (40% and 35% respectively)

Proportion of firms experiencing significant difficulty (4-5 out of 5, where 1 is ‘not at all difficult’ and 5 is ‘extremely difficult’)

Size (Number of Employees)Individual Markets (where base is 30+)

0-9 10-49 50-99 100-249 250+ China France Germany India Ireland Russia USA

Language & cultural barriers 15% 18% 15% 10% 33% 40% 35% 16% 11% 0% 26% 6%

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12

Policy

13

Q7. “What factors can encourage more export activity?”

Evidence shows beneficial impact from 2 main factors:

Building confidence, knowledge, and capabilities (advisory services, events, case studies of SME success):

• Gaining the confidence to explore/expand overseas markets • Improving knowledge of competitive environment overseas• Improving the way you do business in overseas market • Improving overseas marketing strategy

Helping firms overcome barriers to new markets (Overseas Market Introduction Service; overseas missions, events, tradeshows):

• Access to prospective customers or business partners • Access to information they would otherwise have been unable to come by• Enabling the company to improve their profile or credibility• Overcome a particular problem or difficulty with a legal or regulatory issue or

quality standards

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14

14

Q7. “What can policy do?” – Deal with barriers

Type of Barrier What can policy do?Management attitude: - Is exporting for us?- What export strategy for us?

Showcase SME export success – role models. UK based events – opportunities. Provide experiencedadvisers – talk things through. Build confidence.

Resource barriers - scarce management time

Expert advisers can enable SMEs to optimise scarce management time and other resources by making it easier to find the knowledge and services they need.

Legal & regulatory barriers Tailored help from UKTI overseas network can make it easier for SMEs to navigate unfamiliar or difficult business environment, and can also provide access to contacts and information not otherwise accessible.

Customs barriersContacts barriers

Information barriers Provide high quality information about opportunities, markets, and other export related issues.

Language & cultural barriers UKTI: Tailored advice; Export Communications Review. Wider Gov’t: Support language skills.

Bias barriers – overseas buyer preferences for local suppliers

Showcasing support eg Tradeshow Access Programme. UKTI teams in market can often open doors which would otherwise be inaccessible. Trade liberalisation helps too.

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15

Q9. “How effective are current policy mechanisms?”

Evaluation evidence shows export support is highly effective:

– increased export activity and sales (mean £1.5m additional sales*, 5-7 additional jobs**; median £600k additional sales)

– 70% improve productivity and competitiveness (e.g. improving products and services) – long term business benefit

– UKTI trade clients grow faster, are in more markets, have higher survival rate

– Around £22 additional profit per £1 UKTI spend – strongly positive exchequer impact

*Evidence from a recent academic study of OMIS found mean additional sales £1.5m over 2 years, mean 7 additional jobs; evidence from the PIMS independent surveys show very similar mean additional sales, and mean 5.3 additional jobs (new and safeguarded).

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16

16

PIMS Mean additional sales: £1.794m

All Trade Services

UK-based Advisory Services

Overseas Network Services

EventsTrade-

shows & Missions

Web & Report

Services

DSO Support

Number of Firms Supported (PIMS 24-27)*

25,400 6,800 9,040 12,780 5,290 3,730 860

Quality Rating 78% 86% 78% 76% 74% 57% 84%

% Reporting Significant Business Benefit (Improved Productivity & Competitiveness)

70% 74% 65% 64% 88% 54% 71%

16

Q9.“How effective are current mechanisms?”

UKTI’s Performance and Impact Monitoring Survey (PIMS) shows high benefits to many firms but some areas for quality improvement.

17

Q10. “How can Government promote SME exports without creating perverse incentives?”

Target business performance – not exportsHelp SMEs to exploit export potential as means to achieve growth and improve their business performance – not an end in itself.

Export capability diagnosticsNot every firm is capable of sustainable export success – need clear and realistic guidance from experienced advisers.

Focus on two key success factorsBuilding capabilities/knowhow, and overcoming barriers - deliver tried and true services to more businesses.

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18

Q11. “What forms of Government support? Should Government target sectors & markets?”

Match services to business needs:– Building capabilities – advisory services, training, events, case

studies of SME success). – Overcoming barriers – Tradeshow support, missions, tailored in

market help (eg OMIS), access to information about opportunities– Optimise business receptiveness – Events can attract businesses

when they are most receptive to export help – aid to targeting.

Export capability diagnostics:- Not every firm is capable of sustainable export success – need clear

and realistic guidance from experienced advisers.

Focus on proven key success factors:- Building capabilities/knowhow, and overcoming barriers - deliver

tried and true services to more businesses.

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195% 40%

19Trade Service Delivery Volume by Overseas Region (Outward Missions, T.A.P., Posts’ Services including O.M.I.S., overseas events) – Annex A

Latin America –3,453

North America –3,557

Europe –13,441

M East & Africa–5,189

China –2,501

India – 2,066

Other Asia/Pacific –6,220

% of Total Service Delivery Volume

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20

20Trade Service Delivery Volume by Overseas Region (Outward Missions, TAP, Posts’ Services including OMIS, overseas events) – Annex B

Overseas Region

Europe North America

Latin America

Asia Pacific M East & AfricaTotal China India Other

Service Delivery Volume 13,441 3,557 3,453 10,787 2,501 2,066 6,220 5,189

Base: Europe (600), North America (302), Latin America (215), Asia Pacific (601), China (142), India (125), Other AP (334), M.East & Africa (283)

Base: High Growth (783), European Established (504), Other Established (434), Other Markets (280)

The tables show the number of companies using UKTI trade services with specific market focus. Numbers are not de-duplicated across services, so sum to a larger number than the total of 25,000 companies helped in the year. High Growth Markets account for 14,847 of the 36,427 Service Deliveries (around 40%).

Market Type

High Growth European Established

Other Established Other Markets

Service Delivery Volume 14,847 11,371 5,632 4,577

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225

HM Government – Support for Exporting – Activity and Progress Contents ......................................................................................................... 203 1. UK Trade & Investment Strategy ....................................................... 226 1.1. Focus on high growth and innovative Small and Medium-sized Enterprises: ... 226 1.2. Focus on high-value opportunities (HVOs): ............................................................ 227 1.3. Focus on targeted inward investment: ...................................................................... 227 1.4. Focus on building strategic relationships: ................................................................. 227 2. Trade Finance and the role of UK Export Finance ........................... 227 3. Commercial and Economic Diplomacy .............................................. 228 4. Wider Business Issues .......................................................................... 229 5. The EU and Single Market ................................................................... 230 6. Free Trade Agreements ...................................................................... 230


226

Introduction 1. In February 2011 the Government published a White Paper on its trade strategy,

“Trade and Investment for Growth” (Cm 8015). This note sets out the progress made against the export commitments in the Trade and Investment Framework for Action laid out in that White Paper.

1. UK Trade & Investment Strategy 2. Under the leadership of its new CEO, Nick Baird, UK Trade & Investment (UKTI) is

refocusing the organisation’s top management team and introducing strong private sector expertise and talent. UKTI’s work to help the UK economy grow by boosting exports and encouraging overseas investors to come to the UK is being done in close co-operation with the rest of Government and particularly the Department for Business, Innovation and Skills (BIS) and the Foreign and Commonwealth Office (FCO).

3. As well as the activities set out below, UKTI is seizing the once-in-a-lifetime potential

of the London 2012 Olympics and Paralympics through a major international business programme aimed at boosting British exports and attracting inward investment.

4. The new UKTI five-year strategy was launched in May 2011. It sets out four pathways

to growth:

1.1 Focus on high growth and innovative Small and Medium-sized Enterprises (SMEs):

5. UKTI will step up its work to encourage significantly more SMEs to export and to

seize opportunities in high growth and emerging markets. It is taking steps to link high-potential firms to trade finance, credit insurance and venture capital. To this end, over the last year, UKTI has helped over 20,000 SMEs to export and break into new high growth markets, and is continuing to do so. UKTI is now taking its campaign across the country in order to achieve its target to double its client base to 50,000 companies per year by 2015. This will see conferences in every region of the UK; active engagement with support networks; and targeted support of SMEs at trade fairs and on trade missions. In addition, UK Export Finance has introduced new products aimed especially at helping more SMEs to export (see below, Section 2).

6. In November 2011 the Prime Minister backed this up by launching a National Export

Challenge to increase the number of SMEs that sell overseas by 100,000 by 2020, with business intermediaries such as banks, lawyers and accountants playing a major role. Other announcements at the launch included an Export for Growth prize and a white label export guide for intermediary organisations to brand and give to customers or members. In addition, the Prime Minister announced that Yell will deliver a peer-to-peer project “Open to Export”. This will provide an e-networking facility for SMEs, including mentoring and experience-sharing.

7. Catalyst UK is a global network of business leaders, influencers and academics with a

strong affinity to the UK. There are currently 130 members and we aim for 200 by the end of March 2012. Members work with UKTI and other parts of Government to


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promote UK excellence; help UK-based SMEs develop their global footprint; and champion the UK as the international business partner of choice.

1.2 Focus on high-value opportunities (HVOs): 8. UKTI will help bring home HVOs – multi-million pound global infrastructure projects -

through a programme of intensive support for larger companies seeking to win overseas contracts valued at £250 million or more. It will also focus on identifying supply chain opportunities for SMEs across a wide range of sectors. Through the identification of such HVOs, UKTI has supported UK businesses in securing more than £800 million of successes overseas. An early success of the HVO programme was the winning of contracts associated with the Singapore Mass Rapid Transport project. UKTI also helped Invensys Rail, which won business worth £420 million around the Saudi Land Bridge rail project, and Carillion, which won business worth £296 million relating to the Musheireb Redevelopment project in Qatar.

9. UKTI is currently pursuing 60 priority HVO projects around the world, including

reconstruction projects in Libya. Over the coming months there will be an ambitious programme of conferences and other country-specific activities, along with trade missions for key sector providers, including SMEs. UKTI is working closely with UK Export Finance so that, where appropriate, associated financing packages can be made available as part of the overall UK offer to overseas buyers and sponsors.

1.3 Focus on targeted inward investment:

10. UKTI is working to maintain Britain’s position as one of the top three destinations for inward investment. This involves introducing an enhanced bespoke service for foreign direct investors, including in-depth market analysis, predictive targeting and tailored business propositions.

1.4 Focus on building strategic relationships:

11. UKTI has introduced “key account management”, which provides for a systematic

approach to the strategic relationship management of the UK’s top exporters and the most significant inward investors. This will give key inward investors and exporters a seamless, “one stop” service and speedy resolution of bureaucratic obstacles to doing business. There has been a strong positive response to this initiative from business and the programme will be rolled out to more clients in the coming year.

2. Trade Finance and the role of UK Export Finance 12. In 2011 UK Export Finance (as the operating name of the Export Credits Guarantee

Department – ECGD) successfully launched new short-term export finance products, particularly aimed at supporting smaller firms. These were a Contract Bond Support Scheme, an Export Working Capital Scheme and a Foreign Exchange Credit Support Scheme. UK Export Finance also widened the types of export business it was able to support and re-launched its short-term credit insurance policy, with a new fee arrangement for insurance brokers who introduced business to UK Export Finance.


228

13. This brought the range of products and services available to UK exporters through

UK Export Finance broadly into line with that available to exporters from their export credit agencies in other G7 countries and meant UK Export Finance was able to support exports outside the capital goods and related services sector and sold on short terms of payment for the first time since 1991. These new products have so far supported new exports worth around £175 million, by 31 exporters, including 21 SMEs. Annex A1 details the issued business and outstanding offers under the new products.

14. To raise awareness of how its support can help companies trade overseas, UK Export

Finance representatives have been working closely with UKTI, regional and sectoral representative bodies, professional services firms and banks. UK Export Finance staff have attended over 240 roadshow events around the country, making direct contact with around 13,300 companies.

15. UK Export Finance is continuing its recruitment of regional Export Finance Advisers

(EFAs) to be embedded in the UKTI English regions (and UKTI’s counterparts in the Devolved Administrations), supporting businesses with export potential by signposting them to banks, credit insurers, brokers, trade support bodies and the services and products of UK Export Finance. To date, six EFAs are in place, with the remaining six due to be in place by the end of the year.

16. UK Export Finance works with non-bank trade finance providers and is exploring how

its support can be further extended within this sector. In this way, UK Export Finance is making its support available to exporters who may not have otherwise come into contact with it through established channels such as UKTI, banks and insurance brokers.

17. UK Export Finance also indirectly supports SMEs through the extensive supply chains

involved in the large projects or aerospace exports it supports. As an example, UKEF recently supported business for VAI Siemens to a Brazilian buyer in the steel sector with 69 UK companies in the supply chain, of which 30 were SMEs. When it supports Airbus exports, it is also supporting the numerous companies within its supply chain across the UK.

18. In 2012 UK Export Finance is working closely with the banks on trade finance and

many service providers to promote awareness on the part of exporters of its role. 3. Commercial and Economic Diplomacy 19. The FCO has made promoting Britain’s prosperity a central part of its wider foreign

policy agenda. 20. In May 2011 the FCO launched a new Charter for Business which sets out seven

commitments to support UK businesses overseas and attract investors to the UK, including: incorporating the views of UK business and drawing on the best available economic analysis in pursuing our foreign policy and the UK’s bilateral relationships; using the FCO’s knowledge of other countries to help UK businesses identify and


229

pursue new opportunities, and manage risk and build relationships; and lobbying on behalf of UK business interests overseas.

21. The FCO has redeployed more than 100 diplomats to work more directly in this area,

focusing particularly on our commercial and diplomatic effort in the emerging powers beyond Europe. It has also developed an extensive commercial and economic training programme to expand the skills of its staff, as well providing targeted project funding. This means more support to UK businesses operating overseas and more help to improve the global economic conditions that affect the UK’s prosperity.

22. The Overseas Business Risk website – available at

http://www.ukti.gov.uk/overseasbusinessrisk was launched in July 2011 and provides UK businesses with information to help them understand and manage the risks they may face when operating overseas.

23. FCO teams have helped to secure major business wins in many countries, including for

Premier Oil in Indonesia; Shell in Korea; and HSBC and Diageo in China. A particularly good example came in February 2011, during the Prime Minister’s visit to Qatar, when Centrica agreed a three-year, £2 billion gas supply deal with Qatar Petroleum (QP). This was followed up in December 2011 when Centrica signed a Memorandum of Understanding with QP International to explore opportunities to partner on energy-related investments worldwide.

4. Wider Business Issues 24. To help UK businesses realise the value of the intellectual property and ensure that it

is protected appropriately overseas, Intellectual Property Office (IPO), UKTI, FCO, and others have developed an improved range of products and services available to UK businesses. This includes specific business guides and improved business support literature.

25. IPO has recruited its first Intellectual Property Rights attaché, to work as part of the

British Embassy in China. This and other attachés, covering India, Brazil, and South-East Asia, will work with the existing network of UKTI representatives across China, to provide on-the-ground help for UK businesses with IP-related issues. As part of this work, the first UK-China IP Symposium took place in December 2011 in London. In October 2011, IPO also signed a key agreement with the Mexican Institute of Industrial Property. This agreement will help UK businesses operating in Mexico by improving co-operation between the two nations on issues such as copyright, patents, trade marks and designs.

26. The Bribery Act, which modernised the offences for both domestic and foreign

bribery, came into force on 1 July 2011. The Ministry of Justice published guidance on the Act and has run a programme of awareness-raising, prioritising UK industrial sectors most exposed to corruption risks. The Business Anti-Corruption Portal provides SMEs with a comprehensive and practical online business tool to help them avoid and fight corruption, with specific advice on 62 countries. Commercial Awareness training for FCO staff aims to equip them with the knowledge and skills to be able to provide suitable support to businesses, including advice on this issue.

http://www.ukti.gov.uk/overseasbusinessrisk


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27. BIS works with both UKTI and the FCO more generally, including to address market

access issues faced by business (such as legislative issues). 5. The EU and Single Market 28. The UK has been central to the efforts to promote growth and a deepening of the

EU’s single market. We have actively engaged across Europe to promote our priorities. The Government’s broad approach was set out in the pamphlet “Let’s Choose Growth”, which was published in March 2011, and which sets out the need for more ambitious action to reduce regulation; create a fully functioning digital single market; and improve the functioning of the single market in services. The UK has established a group of “like-minded” European Ministers to support the liberalising agenda and to maximise influence. The views of that group have been reflected in successive European Council conclusions and in the ongoing legislative work across the Union.

29. The UK SOLVIT centre can help businesses facing legal barriers in the EU, specifically

resulting from the incorrect application of EU law. Over the last year the SOLVIT centre has reached out to more businesses and encouraged the European Commission to look at the broader type of barriers that businesses face.

30. The role of the EU in setting the overall legal framework should be noted, including

with Free Trade Agreements and growing activity of the EU foreign service. 6. Free Trade Agreements (FTAs) 31. The EU is continuing to negotiate a wide range of Free Trade Agreements with

countries around the world. FTAs are designed to increase trade which will benefit the UK’s economic growth and thereby benefit UK industry, including SME exports.

32. The EU-South Korea Free Trade Agreement (FTA) came into force on 1 July 2011,

unlocking a huge range of opportunities for UK companies. South Korea is the EU’s fourth largest export market outside Europe. Based on current trading patterns, this agreement is expected to increase the UK’s Gross Domestic Product by £500m and result in £1.4 billion savings in duties annually for EU exporters.

33. The EU-Central America Association Agreement and the EUU-Columbia & Peru Free

Trade Agreement were both signed in June 2012. Both agreements open up new markets to UK exporters.

34. The Government continues work with the rest of the EU and the European

Commission to push for progress and conclusion of FTA negotiations with important markets including Canada, Singapore and India, in addition to working towards the opening of negotiations with Japan. The Government also strongly supports the reinvigorated work between the EU and the US, which is looking at ways to deepen the economic relationship between the two. Finally, we also support the work to start FTA negotiations with Egypt, Jordan, Morocco and Tunisia, as and when they are each deemed ready.


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Conclusion 35. There is much more to do. Improving the UK’s trade performance, promoting the

multilateral trading system, and helping support the interests of developing countries will all take sustained time and effort. But we have made a strong start; a difference is already visible; and the Government is determined to drive forward to durable success.

Annex A1: Data on UK Export Finance Short-Term Products Annex A2: List of UK Trade & Investment Services Annex A3: Summary Table of UKTI Evaluation Research Evidence


Annex A1 - DATA ON UTILISATION OF SHORT-TERM PRODUCTS – As at 31 August 2012

Product Status No. of exporters*

Of which SMEs* No. of contracts No. of

markets* Contract value (£,m)

Credit Insurance

Issued: 20 13 27 16 46.04

Pipeline: 7 5 7 5 8.03

Total: 27 18 34 18 54.07

Bond support

Issued: 10 7 28 11 108.07

Pipeline: 9 7 11 11 64.73

Total: 16 13 39 17 172.80

Export Working Capital

Issued: 2 1 2 2 20.77

Pipeline: 4 4 4 4 2.92

Total: 6 5 6 6 23.69

All Products

Total issued: 31 21 57 23 174.89

Total pipeline: 20 16 22 19 75.67

Grand total: 47 35 79 31 250.56

* Totals are not additive and vary to the extent that an exporter may have received support or an offer of support under more than one product or support has been provided on multiple occasions in a single market.


Annex A2: List of UK Trade & Investment Services


Annex A3: Summary Table of UKTI Evaluation Research Evidence

Summary of Econometric Impact Studies of UKTI Trade Services Evaluation project Estimated business benefits 2005 (Gorg et al University of Nottingham): Passport - Significance affected by small number of firms Data: UKTI + FAME

Some evidence of positive effects on labour productivity and wage growth. No estimate of turnover effects.

2008 (Rogers et al Oxford): Passport - Significance affected by small number of firms Data: UKTI + OFLIP

Some evidence of positive impact on asset and turnover growth.

2008 (London Economics): Tradeshow Access Programme Data: Survey of users + non-users

Evidence of impact on innovation and productivity, estimated benefit cost ratio of £5:1, measured in terms of additional profit, net of additionality.

2009 (Hart, Driffield et al Aston): Various Trade services (Passport, TAP, Outward Missions, ECR, EMRS) Data: Survey users + non-users

Average (mean) additional R&D over 2 years £65k per firm.

2010 (Rogers et al Oxford): Passport and EMRS Data: UKTI + OFLIP

Some evidence of positive effects on survival rates for both, and also on asset growth for Passport; 2004 users of Passport had 3-6% greater asset growth. No estimate of turnover impact.

2012 (London Economics): Passport, GGG and ER Significant Assists Data: Survey users + non-users (as per Aston 2009

Positive increase in turnover of 11% over 2 years (5.5% annualised); £55k per year at median; £264.16k per year mean; mean benefit over 5 years using 8% discount rate £1.1m additional turnover.

2012 (Breinlich et al – Essex, LSE, Warwick): OMIS Data: UKTI + OFLIP (+ ORBIS)

Users significantly more likely to report subsequent export turnover growth, to have higher growth rates of total assets, employment, turnover, and labour productivity. Also likely to survive longer. Estimated effects on employment and total turnover growth over a two year period after using OMIS: Mean - nearly 7 jobs and £1.5 million of turnover. The median firm using OMIS it is likely to add 3 jobs and £611,000 of turnover.

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ICAEW - Written evidence

ICAEW - Written evidence Our key points

1. Prioritise SME export as part of our plans for recovery. SMEs are a major driver of growth and job creation, accounting for 59% of private sector employment and 49% of private sector turnover.

2. ICAEW research indicates the major barrier to higher SME exports is apathy. The majority of UK SMEs do not currently export and do not see the benefit of exporting to their business. Most SMEs have never even considered exporting seriously enough to encounter legal or regulatory barriers.

3. Getting the right information about the markets SMEs want to export to is the biggest obstacle. ICAEW chartered accountants can help make this information more widely available to SMEs.

4. Many of the factors that could drive higher SME exports are beyond the government’s control. These include a solution to the Eurozone crisis, favourable exchange rates, and the inclination or ambitions of people running SMEs. Most SMEs are opportunistic – they start to export, or increase exports, in response to consumer demand.

5. But government can create a supportive business and policy environment for exporters, work to promote exporting, boost resources at UK Trade and Investment, and expand support to help those looking to export beyond the Eurozone.

6. Government should continue to work through professional advice networks such as accountancy, and ensure support from UK Trade and Investment (UKTI) and UK Export Finance is accessible, understandable and practical.

ICAEW and export

7. ICAEW is a professional membership body for chartered accountants, with more

than 138,000 members around the world. Our members support over 1.5 million businesses in the UK, working in accountancy practices and in businesses of all sectors and sizes. They advise SMEs on business issues including export, business strategy, cash management and growth.

8. We work with government to raise SME awareness of the export opportunity and

the resources available to help them boost overseas sales. We host regular roundtables for the trade minister Lord Green to meet with business advisors, and we have published export guides for small businesses and for accountants advising them, with UKTI, UK Export Finance and the British Exporters Association. We also conduct regular research with our members on export intentions.

9. Since the financial crisis, other drivers of growth like consumer demand, public

spending and business investment have stagnated. Export is an important part of a sustainable route to recovery. Government policy and business strategy must reflect this new reality.

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(Question 1) What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors (both directly and through the supply chain to larger companies)? 10. Our research suggests that 41% of SMEs export (defining SMEs as businesses

employing up to 250 employees).50 11. In our experience, large and medium-sized companies are responsible for a greater

proportion of export volume. Our research suggests that SMEs are less optimistic than large businesses about their export growth. 49% of SMEs expect their exports to increase, compared to 55% of large businesses.

12. After a low point in 2009, when only 40% of SMEs reported a growth in exports, the

proportion of SMEs reporting export growth jumped to 59% in 2011, and has now levelled off at around 50%. Europe remains the most popular export destination for SMEs – 85% of exporting SMEs sell there. The Americas and Asia-Pacific come next, with around 50% of exporting SMEs making sales there. 33% of exporting SMEs report that they sell to the Middle East, and 30% export to Africa.

(Question 2) What contribution could SMEs potentially make both now and in the future, and within which markets and countries? 13. The government wants to boost the proportion of UK businesses that export. As

most UK businesses are SMEs (around 99% of them), targeting small businesses is the most efficient way to hit that target. There are three export regions worth considering here:

i) More than four in five exporting SMEs sell to European countries – so SMEs will

be hit by any worsening of the Eurozone crisis, but those trade links will continue to be vital.

ii) The Department for Business, Innovation and Skills (BIS) figures51 suggest the eight largest emerging economies – BRICS and CIVETS countries – have a combined GDP roughly equal to that of the US, making them a major source of demand and export potential.

iii) We shouldn’t overlook non-EU, English-speaking markets. Nearly a quarter of exporting businesses of all sizes tell us they sell to the US, and 12% export to Australia. Common language, cultural and often family links make them viable export targets.

Internationalisation of SMEs (Question 4) What are the characteristics of successfully exporting SMEs? How do they differ from SMEs that are not exporting?

50 ICAEW 2012 Enterprise Survey due to be published on Monday 17th September 2012.

51BIS Trade and Investment for Growth February 2011 (http://www.bis.gov.uk/assets/biscore/international-trade-investment-and-development/docs/t/11-717-trade-investment-for-growth.pdf).

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14. Export improves a firms’ profile, credibility, experience and access to new customers and consumers. It enables them to achieve a relative level of growth higher than their non – exporting counterparts.

15. SMEs that export are more likely than non-exporters to anticipate turnover growth

in the coming year. This link between exporting and growth is evident among all sizes of firm, but is particularly marked among small firms. 64% of exporting businesses expect their turnover to grow, compared to only 49% of non-exporters. Within that, 29% of exporters expect high turnover growth (in excess of 10% growth), but only 19% of non-exporters expect high growth. 52

16. Firms who operate in international markets show signs of developing new skills

compared to those who do not export. This ‘export learning affect’ enhances international management and planning abilities, a skill that is vital for SMEs to thrive in overseas markets.53

(Question 5) What are the perceived and real risks and opportunities to SMEs of

exporting? 17. Exporting is daunting. SMEs can perceive it as complex, confusing and risky – and it

can be. In fact, while SMEs need to be opportunistic in seizing opportunities to export (60% of SMEs tell us their main reason for beginning to export was reacting – prompted by consumer demand – rather than proactive), the government shouldn’t be urging businesses to take unreasonable risks. High growth, emerging markets like Brazil and China can sound like a quick and easy way to make money. But risks for SMEs include:

i) Failing to pay enough attention to their home market ii) A greater likelihood of late payment – or no payment iii) Having to spend huge amounts of time and resource in establishing trading

relationships and securing deals. (Question 6) What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them? 18. Trading overseas can be complex, especially for those running SMEs who do not have

the time or resource to research the legal, financial and regulatory implications fully. There are a number of planned decisions an SME should make before they start to sell their product outside of the UK. We have grouped them into three key steps:

52 ICAEW 2011 Enterprise Survey (http://www.icaew.com/en/technical/business-and-financial-management/smes/enterprise-survey-report ).

53BIS Trade and Investment for Growth February 2011 (http://www.bis.gov.uk/assets/biscore/international-trade-investment-and-development/docs/t/11-717-trade-investment-for-growth.pdf).

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i) Be confident of your product’s potential overseas. Put simply, consider whether the product going to sell in a foreign market, and whether the activity be sufficiently profitable.

ii) Research the market you want to sell to. This includes identifying the administrative requirements regarding, local taxes, product standards and employment laws.

iii) Decide on distribution channels, including whether to trade through agents, local distributors or employing your own staff.

19. There are two main areas in which we believe the government can help: 20. Raising ambitions and awareness: According to ICAEW chartered accountants

advising SMEs, small businesses often know little about UKTI and UK Export Finance, and what they can offer. Government can struggle to talk directly to SMEs. The best way to get the message across is to work with trusted advisers to business, who can offer tailored, practical advice. Government should continue to work through professional advice networks such as accountancy, and ensure their support is accessible, understandable and practical.

21. Providing information: According to ICAEW research current exporters and

those planning to start point to market intelligence for particular countries, and details of commercial laws such as product regulations as being among the most helpful type of information.

22. In light of this, in 2011, UKTI and ICAEW produced a guide to help businesses trade

effectively overseas.54 The guide is designed to help accountants in practice advise their clients on international trade and to help finance directors, financial controllers and other accountants in business assess the potential profitability and risk of an international project or sale. We also provide a collection of pages with links to Doing Business in guides and other useful resources for a range of countries.

Barriers and market failures (Question 7) What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? 23. According to UKTI research, there is a clear need for external assistance to help

firms overcome barriers and successfully trade overseas. The most widely experienced barriers all relate to the formalities and bureaucracy of doing business overseas, with 25% having significant problems with legal or tax regulations, 24% with customs procedures and 22% with getting paid. 55

54 International Trade – An Accountants’ Guide UKTI in association with ICAEW November 2011 (http://www.ion.icaew.com/ClientFiles/a42b9c80-6acd-4dca-980abac45d9a324d/UKTI%20Accounts%20Guide%20Accessible.pdf )

55UKTI International Business Strategies, Barriers & Awareness Monitoring Survey 2011 (http://www.ukti.gov.uk/uktihome/aboutukti/ourperformance/research/barrierstointernationalisation.html)

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http://www.ukti.gov.uk/uktihome/aboutukti/ourperformance/research/barrierstointernationalisation.html


How significant are foreign languages and customs as barriers to SMEs exporting? 24. UKTI research suggests that the likelihood of experiencing customs, contacts and

language & cultural barriers increases as firms become active in more regions. 25. Overall, barriers to trade and investment with the emerging powers are generally

higher. For example, in China, problems include selective inward investment regulations, uneven intellectual property enforcement, standardisation issues and limited access to public procurement.

Incentives (Question 8) What are the key factors to encouraging SMEs:

i) Which already export, to sell more overseas; ii) or which do not currently export, to start doing so?

26. Most SMEs make export decisions reactively. That is to say, they export because an

opportunity pops up and customer demand triggers international expansion. 27. We have data from our members on why SMEs change their export patterns – selling

to different markets, or starting to export. 60% of SMEs tell us they are responding to customer demand. Only 24% cite a proactive decision – i.e. only a quarter of SMEs plan to begin exporting to another market or change their export behaviour. 56

28. Our respondents also indicated that SMEs’ export decisions are being impacted by a

sense that because the UK market is stagnating, they should be looking abroad for new opportunities.

Government Actions (Question 9) How effective are the Government’s current policy mechanisms in supporting SMEs to export at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting? 29. We applaud the government’s efforts on several fronts where they have the ability to

influence SME export: 30. Raising aspirations: The government has high aspirations for SME export.

Government alone cannot persuade an SME to export. But it can raise the profile of the issue and help to boost national aspirations, and work with partners such as the accountancy profession to reach out to and advise SMEs.

56ICAEW 2012 Enterprise Survey

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31. Export finance: The government has overhauled the old Export Credit Guarantee Department into the new UK Export Finance department and revamped its product range.

32. Trade agreements: The government is continuing efforts, through the EU, to

boost our trade links abroad through multilateral and bilateral agreements. 33. But the committee should note that on some fronts, there is little the government

can do to directly influence the level of SME exports. 34. Exchange rates: These are vital to the competitiveness of a country’s exports. We

have some influence over them via interest rates, but these are set independently of government and look set to remain historically low for some time.

35. The crisis in the Eurozone: Uncertainty about the fate of the Eurozone

economies is undermining business confidence, investment decisions and exporters’ plans. We’ve recently conducted some research into how our members in businesses of all sizes are responding to it.57

i) Only 30% of SMEs who think a worsening of the crisis would hit their business have

taken, or plan to take, any action to prepare themselves (47% of large businesses have).

ii) Of businesses who are preparing (of all sizes), 23% are hoarding cash, 19% are converting cash reserves out of Euros, 15% are cutting staff, 11% are leaving the Eurozone, and 11% are selling assets in the Eurozone.

iii) Asked if they thought EU leaders could solve the crisis in the next year, 77% of businesses were not at all confident or not very confident. Only 22% were fairly or very confident that they could.

36. Apathy: As discussed above, many small businesses never even consider exporting.

Small businesses have had to make major adjustments to how they operate in during a double-dip recession. Surviving at home is the first priority for SMEs.

(Question 10) What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets? (Question 12) Is there sufficient co-ordination of actions and awareness across Government and other bodies? How should other bodies be acting? 37. At the committee’s discretion, we are answering these questions together, with an

assessment of what more the government could do to boost SME export.

57 ICAEW Research Report, The Impact of the Eurozone Crisis on UK Business, May 2012 (http://www.icaew.com/~/media/Files/About-ICAEW/What-we-do/business-confidence-monitor/2012/icaew-business-opinion-report-march-2012-impact-of-the-eurozone-crisis-final.pdf)

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http://www.icaew.com/%7E/media/Files/About-ICAEW/What-we-do/business-confidence-monitor/2012/icaew-business-opinion-report-march-2012-impact-of-the-eurozone-crisis-final.pdf


38. Identifying opportunities: The government could be more systematic about how it gathers market intelligence and opportunities for SMEs. The new structure of UKTI and UK embassies abroad may be beginning to help with this. But it could do more to gather information from exporters – large and small – about the problems they encounter in specific markets, and intervening on their behalf. This could mean working even more with business advisers and intermediaries such as the accountancy profession.

39. Ensure maximum influence on trade negotiations: The UK negotiates trade

agreements through the EU. We should ensure we use our relationship with the EU to maximum effect to ensure our key sectors and markets are opened up.

40. Improve communication of UKTI and UK Export Finance offer: We are

working with both organisations to help boost their profile, particularly among small businesses. But awareness remains low, and the government will have to continue and boost efforts to encourage small businesses to make the most of the resources available.

41. UK business environment: British exporters need a supportive environment for

enterprise at home. Our small business membership tell us they need a simpler and more constant tax regime, a greater effort to tackle the regulatory burden, a tax revenue body (HMRC) that works in a business-friendly and efficient way, and help accessing bank and non-bank finance.

(Question 11) Should the Government target specific sectors, markets or types of companies where the potential is thought to be greatest? What are the costs and benefits of such an approach? 42. As a qualifications provider and professional body, we would like to highlight the

huge potential of the UK’s education and training sector. British qualifications are respected around the world, and are in demand.

43. Exporting British education, training and qualifications doesn’t just mean immediate

business prospects. The government should also see it as a major ‘soft power’ tool. When people from overseas take British qualifications, study in the UK or take a professional qualification whilst working here, they build relationships, knowledge and affinity with the UK. This can greatly increase their decisions, later in life, to invest in the UK or trade with it. With the right trade, immigration and business policies, we could be using the British education sector to extend British commercial links and influence across the world.

44. But we’re not calling on the government to ‘pick winners’ (specific businesses or

sectors). Instead, the challenge is to help businesses to identify the right markets for the right product. Based on UKTI’s three priority markets amongst the emerging economies, here is a quick assessment of how this could be done:

45. China - 12% of exporting businesses (of all sizes) tell us that they are exporting to

China – the same proportion that say they export to Ireland and Australia. This doesn’t measure export volume, but it does measure increased ambitions. China’s next phase of economic development presents an huge opportunity for UK

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exporters. The growth of international financial centres in Shanghai and Beijing will require world leading professional services. It is important that the government and private sector continue to work closely with their Chinese counterparts to develop trading opportunities.

46. India - India offers opportunities in education and skills, green energy and financial

services. These are all sectors in which the UK has notable capabilities. In the long term, the government should continue to work closely with the EU to reach a free trade agreement with India that would allow UK SMEs to flourish in India in these sectors, and attract further Indian investment into the UK.

47. Brazil – BIS has identified the Olympic and Paralympic games as an unparalleled

opportunity to build on our trading relationship with Brazil in a number of sectors as they prepare for Rio 2016.

September 2012

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Institute of Physics (IOP) - Written evidence

Institute of Physics (IOP) - Written evidence The Institute of Physics is a leading scientific society promoting physics and bringing physicists together for the benefit of all. It has a worldwide membership of around 45 000 comprising physicists from all sectors, as well as those with an interest in physics. It works to advance physics research, application and education; and engages with policy makers and the public to develop awareness and understanding of physics, and the social and economic benefits that it creates. Its publishing company, IOP Publishing, is a world leader in professional scientific communications.

This submission was prepared in consultation with the Institute’s Business and Innovation Board, with input from members of the Institute with direct experience of the issues raised.

The Institute welcomes the opportunity to respond to the House of Lords Select Committee inquiry on SME exports, the attached annex includes responses to points of particular relevance the Institute and its work.

1. Physics-based sectors, sectors whose performance is critically dependent on physics,

including areas of energy production and distribution, manufacturing and telecommunications, make a significant contribution to the economy of the UK. Recent research commissioned by the Institute has suggested that exports from physics-based sectors in the UK in are worth more than £100 billion.58 It was a stated aim of the Conservative party prior to the 2010 General Election that the UK should become the leading high-technology exporter in the European Union. It is notclear that any progress has been made towards this target. Physics-based businessesare natural exporters as there can only be a limited UK-based market for ttechnologies and innovations they produce, and the sector should be a focus for government and other agencies who wish to improve the UK export performance.

he

2. It is not possible to treat exporting as a separate quantity to the broader package required to enable SMEs to succeed in the UK. The submission below details some specific areas of concern for smaller physics-based SMEs, and also highlights some areas of the UK’s innovation landscape that require attention from government if the exporting performance of the UK is to be improved.

3. While exporting SMEs need to be globally-minded from business conception and the

connections and markets forged need to be international, a strong domestic market can be an important step in enabling these companies to break into the export market. The role of public procurement and particularly the SBRI programme in promoting high-technology businesses should remain a focus of government. The research and development support, and subsequent contracts that are possible through the scheme, can provide an opportunity for SMEs to develop a global

58 IOP Physics in the UK Economy 2012 (due for publication October 2012)

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Institute of Physics (IOP) - Written evidence

differentiator within their industry. Similar programmes are in place within our international competitors and these demand that the UK keeps pace.

4. To specifically promote exporting within physics-based SMEs, knowledge and

understanding of science, technology, engineering and mathematics (STEM) subjects of governmental staff, especially the UKTI, is fundamental.59 The connections between UKTI and the Technology Strategy Board, for example, should be strengthened. An area specific to physics-based business is that in addition to considering the export potential of final products, the whole supply chain needs to be evaluated when discussing SME exports. The products of physics-based SMEs are often devices and technologies, are which subsequently incorporated in devices manufactured by other companies that are then exported from the UK.

5. Another consideration when discussing SME exports, especially physics-based

businesses, is the time between conception and commercialisation and even profit making, which can be longer in physics-based industries than in other exporting sectors. Building relationships that may lead to early export markets can therefore be a similarly long-term process. A further consideration for many science-based businesses is the need to work within what can be many levels of regulation of products and technologies and many different jurisdictions while technologies and products are being developed. Closer connection between UKTI and agencies tasked with supporting business through this stage could also be beneficial.

6. There are some financial barriers that remain in place preventing SMEs from

exporting. It has been suggested by some smaller companies that the subsidies offered for exploratory visits abroad are still unaffordable to micro-businesses, as they are financially too high risk to put up the necessary additional funding that would be required to make such visits to new sites.

14 September 2012

59 For background see: http://www.iop.org/policy/consultations/industry_innovation/file_55144.pdf

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ITS - Written evidence

ITS - Written evidence Please see under UKTF

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Lloyds Banking Group - Written evidence

Lloyds Banking Group - Written evidence EXECUTIVE SUMMARY: The importance of SMEs to the UK economy is well established. Smaller businesses account for around 48% of the economic activity in the private sector, employ 60% of the UK workforce, and play a central role in driving innovation and high value development. SMEs understand that there are risks associated with exporting. Research clearly indicates that businesses feel that the industry, and government agencies can do more to help to de-mystify exporting, and make it a positive choice for SMEs to consider. Designing products and services specifically for exporters to help mitigate for their unique risks and opportunities is also a key consideration when considering SME exports and its policy implications. Fundamentally, finding fit for purpose help easily and quickly is critical as often SME management resources must be tightly balanced to cover all of the business’s priorities. For any business, the decision to enter export markets is likely to be one of the most significant it will take, particularly for SMEs; it requires a great deal of initial research and management scrutiny of business plans and strategies. It is critical that SMEs make informed decisions about the long-term investment needed to build sustainable export activity. Our SME customer-based research suggests that this is lacking at the moment. LBG believe exporting is good, both for our customers’ growth strategies, as well as for the positive effects it can encourage in the wider economy. LBG has seen a 4% increase in net lending year on year as at June 2012 against an overall industry decline of 4% in the same period, that has been driven disproportionately through exporters, where we have seen double digit growth. Success in international business depends on a number of key factors, including having the right type of financing in place and the right financial partner. Trade Finance products need to be backed up by extensive experience working in these export markets and business sectors that we train our dedicated International Business Managers in, building on their extensive experience working with SMEs. We believe that the Banks, together with the Government and associated stakeholders have a role to play together in coordinating and better signposting the information that will help SMEs identify, realise and support their exporting potential. 1. Lloyds Banking Group is a leading UK based financial services group providing a wide

range of banking and financial services, primarily in the UK, to personal and corporate customers. Our main business activities include retail, commercial and corporate banking, and our services are offered through a number of well recognised brands including Lloyds TSB, Halifax, Bank of Scotland, and a range of distribution channels.

2. LBG Commercial serves in excess of a million small and medium-sized enterprises (SME)

and community organisations with a turnover of up to £15 million. Customers range from start-up enterprises to established corporations, with a range of propositions aligned to

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customer needs. Commercial comprises Commercial Banking and Commercial Finance; our invoice discounting and factoring business.

3. We welcome the opportunity to contribute to the House of Lords Committee on Small

and Medium-sized Enterprises to investigate SME exports. We have read the key questions to which you are seeking answers and using as a starting point to further this important policy area. We have focussed our answers on what we can look to in the future rather than the context of the past as we believe the Committee wishes to be forward-looking.

This is particularly so when considering Government’s role in exporting and in identifying and encouraging the necessary education to help businesses and associated interested parties properly consider the barriers, risks and opportunities associated with exporting.

4. Exports offer an immediate, sustainable and significant market for goods and services

produced by SMEs. While the domestic economy continues to struggle with low growth, overseas markets, crucially those beyond Europe are recording healthy demand for goods and services across a range of sectors. For smaller businesses in particular, competing in exports encourages innovation in products and services and can help them spread their business risks as they serve customers in a wider range of markets.

5. In order to continuously improve and refresh our understanding of what SMEs need, LBG

collaborated with Financial Director magazine in the first half of 2012 on commissioned research covering a number of topics including the challenges faced by UK companies looking to export. This research consisted of a survey of the magazine’s readers - with over 300 responses - followed by a roundtable discussion of the findings. Of those that responded to the survey, 46% turned over less than £15m and 56% turned over less than £25m, with the majority yet to embark on an export effort. Post-survey, ten finance directors, drawn largely from small and mid-market companies with turnovers between £5m and £80m, gave two hours of their time to discuss the factors they believe stand in the way of the UK’s SMEs truly achieving export excellence. Nine of the ten finance directors represented companies that were already exporting.

6. The survey invited these companies Finance Directors to highlight:

i. what they felt were the barriers to export growth; ii. what techniques they use to manage the risks they face, and; iii. what external help they felt would be useful.

The results revealed three clear trends: for those businesses already exporting, some processes can be unhelpful; the risks they face are very real, and; support is hard to identify and access.

7. We believe these issues can be addressed to not only help existing exporting businesses

but also encourage those businesses that have potential but do not export at present. For those businesses not already exporting or considering expanding their business into an exporting market, knowing where to start is the biggest barrier, with the research reporting:

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i. Confusion over the sources of help and advice, and that a more integrated approach between government agencies and financial and professional services firms would be of great help.

ii. They also expressed the desire to learn from their peers – through mentoring networks as well as exemplar case studies, as some examples – who are already successfully exporting.

EDUCATION: 8. There are risks associated with exporting, and these key concerns identified by the

research underline that SMEs are aware of these risks but do not necessarily fully understand their implications; i. What these risks are ii. What tools are available to help them negotiate these risks iii. How they can support financing of their exporting activity iv. How to invest in ensuring risk mitigation

9. There was a feeling that banks, insurers and other interested parties could do more to

simplify their services, make the fee structure more transparent and tailor services to meet their specific needs.

The industry, including financial and professional services firms, and the Government can play a vital role in educating firms on how to run lean and sustainable supply chains while remaining compliant with local and domestic law. LBG have 70 accredited Manufacturing Relationship Managers with an understanding of exporting and export finance capabilities. These Relationship Managers are closely aligned with our 22 International Business Managers and working with manufacturing trade associations, e.g. EAMA and MTA amongst others, we are promoting exporting and new markets to manufacturers: 90% of whom export, with manufacturing overall accounting for nearly 50% of UK exports.

10. The lack of information on potential new markets is an area where government

agencies and the overseas trade networks can make a significant difference by providing accessible, clear and useful guides to both individual markets and assistance in identifying the most appropriate ways of reaching and selling to those markets. This information may well be available but it is not in a clearly accessible place or format. We would cite the “Open to Export” partnership between UKTI and Yell as an example of how this accessibility can be best achieved. “Open to Export” is a dedicated platform providing essential advice and information for SMEs who want to grow by exporting.

11. In summary, advice needs to be clear, easily accessed, affordable and tailored to the

real concerns of SMEs. Smaller businesses shouldn’t have to spend vital management time on searching for the right agency to help them. For examples many exporters will be concerned about protecting their IP when selling into less well regulated export markets

12. In addition to addressing the advice and guidance gap, tailored products and services

for the UK’s SME exporters must also be a key consideration to improve exporting capability. Those tools will range from the well established and understood to the esoteric and niche offerings.

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LBG’s products and services are aimed at helping SMEs exploit export markets primarily focus on three elements: securing and accelerating cash flow, and managing risk – particularly payment and foreign exchange. Helping SMEs get clarity and security over payments is critical, in conjunction with speeding up the flow of cash through factoring, invoice discounting and trade finance can also protect them from the effects of the longer trading cycles inherent in exporting. In the case of foreign exchange, better explaining hedging products on offer would give smaller businesses insight into managing risks and allow them to plan more effectively to protect themselves from currency fluctuations. Currency markets are likely to remain volatile and represent a very real risk to any business plan in terms of delivering profitability and cash in the UK.

13. Exporters will always be at the mercy of events, but useful and timelier advice from government agencies to serve as an early warning system would greatly reduce at least some of the uncertainty.

14. Furthermore, larger businesses are increasingly trying to remove risk from their

operations, often pushing it onto smaller partners. Banks can play a vital role here in identifying methods of managing those risks. Effective participation in Global supply chains is a challenge for SMEs, but a key requirement for success.

15. Helping SMEs to understand these risks and signposting to appropriate resources are

exactly what government agencies can deliver, provided small businesses know where to look and what to ask.

It is clear that many small businesses are enthusiastic and keen to begin exporting. Those that can identify opportunities report that they are ready and wiling to invest in order to capitalise on growth markets. These SMEs do, however, require help from those agencies mentioned in order to build robust and well thought through investment plans for exporting.

16. Government agencies - offered as a catch all option in the LBG and FD research

previously cited - were only identified as useful sources of help by 17% of the Finance Directors polled.

Governments from other countries are more effective at ensuring that relevant businesses are made aware of international infrastructure contracts representing export opportunities.

17. Despite investment by both government agencies and professional service firms,

there is a lack of clarity over what help is available, and SMEs are unsure where to look for assistance (both advice and actual services). Among SMEs already exporting, many of the concerns expressed centred on the lack of a coordinated approach from government towards helping smaller firms find opportunities, understand risk and access networks; a welcome example here is UKEF’s short term bond support and working capital schemes for exporters. We would advocate any support to educate exporters and their professional advisors about the support UKEF can provide, including the appointment of their regional trade advisors.

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18. Professional advisers and finance providers also have a role to play - to provide not

only advice but practical, affordable and sustainable solutions to the export specific issues that SMEs face. There should also be close collaboration with UKEF - critical to improving awareness of UKEF and the use of its products.

CONCLUSION: Any steps in support of SME exports should recognise that the move to export is an investment decision for the SME. As such there needs to be better co-ordination and signposting to those parties – industry, and government agencies such as UKTI and UKEF - who are best placed to support the SME in making that investment decision in terms of assessing potential, assessing the market, understanding risk and ensuring that proper financing – both long term/equity and short term working capital – is identified. Although, there has been some notable improvement, for example the UKTI/Yell “Open to Export” portal, coordinated actions amongst government, finance providers, industry and trade associations and professional advisors will build capability and confidence in SMEs to make the decision to invest in the long term opportunity presented by exporting. September 2012

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LMK Thermosafe Ltd - Written evidence

LMK Thermosafe Ltd - Written evidence As a winner this year of the “Queen’s Award for Enterprise” in the International Trade Category, and an early beneficiary of the Government Small Firms Loan Guarantee Scheme in August 2000, which provided me the finance to purchase this manufacturing business and profitably multiply its turnover, I can comment with personal authority and experience on the reasons why we have been successful in exports as an SME. Prior to owning this business, I had been employed by medium and large UK manufacturing businesses for most of my career, usually in some way or another involved in exporting technically sophisticated products. By training I am a Professional Engineer with a degree in Electronics Engineering from Southampton University. Current Export Markets: 1. Like many SME’s we export products manufactured and designed in the UK to almost

every major industrialised country, and many developing countries where local manufacturing facilities have been established by large multi-nationals. Our vertical market is industrial drum and container heating, with multiple product sectors such as pharmaceutical, petrochemical, food processing, batch blending, and cosmetics. We sell directly to end users and in the larger markets through local distributors.

2. If the UK market is strong for any SME, it is likely that there are other countries that have similar market needs, but design modifications may be necessary to market into those countries, and almost always for continuing growth, a local partner is required to act as a bridge between supplier and user.

3. In my experience the UK SME performs well with competitor country SME’s when there is sufficient desire managerially to commit to exports. We should not consider major exporting nations like USA and Germany as somehow better by definition, but we can learn from their drive (USA) and quality/consistency (Germany)

4. To be a successfully exporting SME requires focus on higher margin goods that have genuine quality and unique features. Management commitment, willingness to visit and support partners in target markets, and ability to understand and evaluate associated risk factors – financial, technical, and cultural.

5. There are perceived risks, (which can be real), that payment is always difficult, and that products will not be accepted overseas. It is often perceived that the only opportunities for exporters are in high volume goods requiring massive capital investment, but this is not the case. There are real opportunities for most small manufacturers in my experience.

6. An SME willing to consider exporting should prepare by doing desk based research and web searches to determine whether similar products are marketed overseas. This should not be difficult! The Government can support early stage exporters through its International Trade Advisers, and in new market areas for existing exporters, through such services as “OMIS” We have used OMIS successfully to find new distributors in target markets.

7. I believe the barriers to entry are similar, whether the Company is large or small in its sector. Clearly if margins are tight, it is difficult to fund travel to the markets, but much initial work can be done by email and phone at low cost. Regulatory matters can be beneficial or problematic to any exporter, whatever the size. For example, we

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are aware of potential for our products in Japan, but their product approvals regime is so slow and rigid that we can grow faster in other smaller markets that accept our products with Internationally recognized standards we already achieve. Foreign languages need not be a barrier – very few companies can employ multiple, multi-lingual sales people, but with English as a common language of business in most countries, we have a significant advantage over many other exporting nations. In our business, we simply include English language ability as a key selection criteria when choosing our marketing partners. There is a genuine barrier to entry if the SME is not willing to learn how to adapt to the local culture and customs of the target country. This is equally important for large companies however – a rigid structure (“we only do it this way, with this paperwork”) will lead to frustration rather than success. There is also a genuine barrier to entry where the overseas market has historically been corrupt. I agree with the current law regarding bribery and uphold it vigorously in our overseas dealings, but in some places this can restrict our ability to sell successfully. I accept that and prefer to work in markets where honesty is appreciated.

8. As an existing exporter, I am encouraged when I see Government taking steps that clearly shows they want us to export more, but these do not need to be expensive! Ensuring that the Commercial departments of Embassies and Consulates are staffed with experienced folk who understand their local markets, and offering a value proposition to help businesses enter the market should not be costly to the Treasury, its just good recruitment and motivation at a local level. There are currently no tax credits or advantages to encourage us to export more! There is an indirect link with R&D tax credits in that it is a risky development activity to change a product for a new market, but most R&D departments can be fully employed on development for the home market, so this is not a key driver. As the internet age has developed over the last 15 years, the web has been a great “leveler” in that a small company can present itself on the world stage and appear as effective as a large company. In our case, many of our large competitors globally have web sites that are difficult to navigate, and so customers “find us” much more readily than these large multinationals with local offices in each country. An effective web site gains us access to key personal in export markets much more quickly than a salesman trying to get a meeting through the front receptionist. I would encourage any business considering exporting to take a close look at its web site, and set up an alternate site with an appropriate domain name that can be used to target specific markets in different ways. The results can be measured and the new site adjusted to improve it, without affecting the viability of the existing “home” site.

9. Our Company exports without reference to specific Government policy mechanisms, and when I discuss with other SME owners about exports, unfortunately I find similar – there seems to be a disconnect between the policy and the delivery, when applied to experienced exporters. Apart from R&D funding programs, if there are mechanisms at EU level, then sadly they are transparent to me, so the advertising at least is ineffective. We would value more support through more flexible shared funding/support for overseas trade shows, targeted country visits where work such as an OMIS has been conducted. The current airline travel taxes act as a serious barrier to exporting, as they are unrecoverable costs and have increased significantly recently. When calculating return on investment, long haul air travel is very poor if there are domestic markets that can be developed.

10. As I have many years of export experience, I have not found domestic Government agencies to be particularly helpful or useful as we have grown our own exports.

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When entering a new market, whether I think I understand it or not, the periodic seminars offered by various Government departments are useful insight on a general level. Once beyond the general, a good exporter will need to be able to work independently as it is unlikely the local staff back in UK have direct experience of the sector. The local Chamber of Commerce provides very good documentation help for exporters, and this could be extended into other areas so that there are less potential points of contact.

11. The Government should consider tax or other incentive methods to increase SME’s exports. This could be through access to small scale insurance for payment protection or exchange rate risks. Currently such products are only viable for much larger companies. These risks are real but are manageable, and a local office could give sound advise that is easily covered by the premium income, which would be competitive as the Government could obtain preferential rates from the providers.

12. Some targeting of specific sectors is good, but not if it automatically precludes other less well know sectors. Our products sell so widely that we could rarely benefit from a highly targeted, government selected approach. It would be better to fund pilot studies or web site translations, that help verify or not whether an SME’s products fit into a market overseas that they are considering. If the results are positive, then further help could be made available, if not, then cost and risk has been minimised.

13. From my perspective it doesn’t look like there is strong co-ordination across Government about export policy. Other bodies will always need to act independently, but if they have relevant experience, have an open door to the most appropriate Government department.

24 October 2012

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London and General Marketing Ltd - Written evidence

London and General Marketing Ltd - Written evidence Thank you for including us in your discussions with the HL SME Exports Committee, to determine how to be of help for SME Exports. From our end having been in export business since 1989 our views are following: 1) The best way for the government to help is through the banks. Considering most of the exporters approach their banks at the beginning to arrange the finance for their requirements in export trading, for example opening letters of credits, having overdrafts to tie in their small term requirements, and any advice on their transactions to do with their trade. 2) Banks on their part can only cater for the business upon its performance, number of years in operations, its past records, profitability, collaterals available to them. With many wonderful opportunities this is not enough as the capacity to achieve may be higher but to hindrance of the business records. 3) We feel the areas in which the government can help are

a) Extending the export credit Guarantee scheme to smaller businesses. b) Making available finance guarantee schemes the banks would normally consider. c) Arranging Export insurance guarantee for smaller businesses whereby their portfolio

is not very large to protect them. d) Looking at doing business with Africa more favourably. There are no facilities of any

schemes available for the next growth area which is Africa. Africa currently presents a great number of opportunities which are explored by China, India, Fareast and many a South American countries like Brazil, Argentina etc. Britain having had an Empire around a large number of African countries are missing on some very good trade opportunities

Small family firms are on the dying spree due to lack of government incentives to promote trade in their prehistoric strong holds. My company is family firm keeping 4 people off the dole and trying to expand. These family firms can absorb a lot of talents and keep a lot of people occupied and contribute towards the government taxation September 2012

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London Stock Exchange - Written evidence


1. The London Stock Exchange is delighted to make a submission to the House of Lords Select Committee on SME Exports. We would be very happy to give further evidence in person. Our evidence shows that SMEs can achieve a springboard towards greater exports by seeking an admission to our growth market for SMEs, AIM. We recommend that the Government should support measures that increase access to a wider pool of investors for SMEs. In this paper we present our data and case study evidence together with supporting analysis and our proposals for Government action.

401

69

15107

16

3

59

28

2

51

21

6

Isle of Man

51

122

Yorkshire & North East

4821

2

34

5

1

28

8

3

8

4.3

0.4

Ireland

2

0.80.3

Key# of companies

# of employees (in '000s)

Market cap (in billions)

Midlands

50

131

Channel Islands

79

86

AIM: The SME growth market

2. SMEs quoted on our growth market, AIM, are more than twice as likely to be exporters as other SMEs. 53% of AIM companies have at least some exports61, significantly higher than the Government estimate62 that only 20% of SMEs are exporters. AIM provides working capital to help fund the export activities of hundreds of internationally minded SMEs in innovative sectors like technology. We therefore believe that an analysis of how Government action could support the success of AIM would be interesting for the committee.

3. The AIM admission process boosts SME profile and credibility with export customers. SMEs on AIM can demonstrate enhanced corporate governance and more accessible management. Stakeholders are reassured that professional advisors have already completed a first round of due diligence and have implemented robust financial and reporting procedures, thereby increasing their confidence and willingness to trade with an AIM quoted SME.

AIM: Key Facts60

• Since 1995, AIM has helped over 3,300 companies raise £77 billion to fund their growth.

• UK AIM companies contribute £12 billion to UK GDP, directly support 250,000 jobs, and indirectly supported a further 320,000 jobs.

• AIM companies typically increase turnover by 37 % and employment by 20% in the first year after admission to the market.

• So far in 2012, 50 new companies have joined AIM, with a total market value of over £2bn

60 The Economic Impact of Aim and the Role of Fiscal Incentives, Grant Thornton (2010)

61 Sample size representative of over 80% of AIM companies based in the UK as at 31 December 2011.

62 FT, 2 March 2012

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4. It easy for export partners to check the financials of an SME quoted on AIM. This is because the information is published in a transparent and timely manner due to the requirements of being a public company. Checks by potential export partners on the SME’s business and financial model can be carried out much more quickly and efficiently where the SME is admitted to AIM.

5. SMEs that export face the same key growth issue as all SME: access to finance. A package of regulatory and fiscal changes are needed to lower the cost of capital for SMEs – to include abolishing stamp duty and a lower rate of Capital Gains Tax for AIM companies.

Data

6. Table 1 provides data showing how a quotation on AIM provided a springboard to increase exports. This sample of data, which is based on a selection of leading AIM exporters, is presented with export levels both relative to total revenues and also in terms of absolute growth in revenue.

Table 1: Leading AIM companies exports profile (before and after AIM quotation)63

AIM Company Sector Date joined

AIM Before AIM quotation

After AIM quotation

Export Growth (prop. of total rev)

Export Growth (absolute)

UK%

Export %

UK% Export %

ANDOR TECHNOLOGY

Electronics Dec-03-2004 34% 0% 0% 100% 100.0% 100%

ZYTRONIC Electronics Jul-06-2000 68% 32% 10% 90% 58.7% 1093%

IQE Tech hardware Jul-06-2000 51% 49% 1% 99% 49.9% 456%

NORTHBRIDGE INDUSTRIAL SERVICES

Industrial engineering

Mar-28-2006 98% 2% 50% 50% 47.2% 6064%

JAMES HALSTEAD

Construction materials

Mar-11-2002 53% 47% 34% 66% 19.0% 240%

ALLIANCE PHARMA

Pharmaceuticals Nov-20-2001 100%

0% 81% 19% 18.8% 100%

CROPPER (JAMES)

Paper Aug-31-2007 59% 41% 46% 54% 13.0% 100%

ABCAM Biotechnology Nov-03-2005 9% 91% 8% 92% 1.1% 48%

ALLOCATE SOFTWARE PLC

Software May-16-2002 51% 49% 50% 50% 0.7% 2050%

63 Sourced from Company Annual Reports and FactSet

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ECO ANIMAL HEALTH GROUP PLC

Pharmaceuticals Sep-26-1995 3% 97% 2% 98% 0.6% 41%

ILIKA PLC Alternative energy

May-14-2010 8% 92% 9% 91% -1% 42%

OMEGA DIAGNOSTICS GROUP PLC

Medical Supplies

Aug-31-2007 4% 97% 12% 88% -8.6% 247%

BYOTROL PLC Chemicals Jul-06-2005 39% 61% 61% 39% -22.1% 100%

7. Table 2, below, shows aggregated evidence from a wider sample of AIM companies of the scale of export performance amongst SMEs on market.

Table 2: Scale of export performance of AIM quoted SMEs64

• Exports represent at least £4.9bn of total revenues of all AIM quoted UK SMEs

• Industrials (53%) and Consumer Services (16%) are the leading export sectors

• SMEs from London and the South East combined represented 45% of all the export volume on AIM. However, companies from across the regions were also important contributors—West Midlands 13%, East of England 9%, North West 7%

64 Sample size representative of over 80% of AIM companies based in the UK as at 31 December 2011.

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Case studies

Case Study: Alliance Pharma

“I believe it is very fair to say that being on AIM has been beneficial to our export capabilities.” Richard Wright, Finance Director, Alliance Pharma

Based in Chippenham, Alliance's principal activities are the acquisition and licensing of mature pharmaceutical products and the marketing of those products.

Case Study: Andor Technology

Following AIM admission, Andor Technology, now derives all its revenues from exports. Based in Belfast, it operates at the high-value end of the global scientific digital camera market, and now employs over 300 people in 16 offices worldwide and distributes its products to 10,000 customers in 55 countries.

Case Study: MASS

On 15 August 2012, MASS (a Cohort plc. defence technology company based in Cambridgeshire) announced that it had signed a Memorandum of Understanding with BAE Systems to coordinate business development related to electronic warfare technology in order to enable effective capabilities for export customers.

How Government can help support SME exports

7. Government should support measures that increase access to a wider pool of investors for SMEs. Admission to AIM is a demonstrable way to support exports. However, SMEs that export face the same key growth issue as all SMEs: access to finance. Bank lending has become more difficult to access for SMEs, meaning that equity has an increasingly important role to support innovative SMEs at each stage of their growth.

8. The challenge is to ensure that growing SMEs maintain a base in Britain. As the OECD has recognised, the UK is good at supporting start ups. Government policies to improve access to seed capital, such as the Enterprise Investment Scheme, have been successful in promoting entrepreneurialism and business start ups. But SMEs need the

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maximum exposure to investors as they continue to grow, thus contributing to British innovation, employment and economic growth including through exports.

9. We believe that the key to addressing this challenge is to ensure that the UK’s regulatory and fiscal framework encourages a more robust and diverse IPO market. The majority of our recommendations below are entirely revenue neutral and are designed to:

• Provide earlier stage equity investors with certainty over their exit options • Reduce regulatory and fiscal costs of investing in SMEs • Showcase the success stories to make an IPO aspirational again • Ensure an appropriate regulatory framework for SME issuers

10. We welcome the recent announcement from Business Minister David Willetts,

who has declared Government support for a new market segment specifically designed for growth companies. To build on this we recommend that the Government introduce a dedicated package of measures with the specific purpose of increasing the number of SME IPOs in the UK through lowering the cost of capital, sending a strong signal that the UK is open for business and providing confidence to the markets.

Key Policy Recommendations

Reducing taxes on SME investment

• Abolish stamp duty on AIM and the new growth market segment

• Reduced capital gains tax regime on AIM and the new growth market segment

• Remove the 5% ownership threshold to be eligible for Entrepreneur’s Relief

• Actively engage in next year’s review of EU State Aid guidelines to ensure the role of expansion capital is recognised

Reducing regulatory barriers to investment

• Review of the FSA’s Conduct of Business rules to encourage investment in SMEs

• Increase availability of investor research on SMEs to reduce information asymmetries

• Encourage allocation of larger funds to SMEs

• Introduce a shelf-registration system for regulated markets in order to help companies take advantage of raising capital when the short term ‘IPO window’ is open

October 2012

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Market Research Society (MRS) - Written evidence

Market Research Society (MRS) - Written evidence Introduction

1. The Market Research Society (MRS) is the world’s largest research association. It’s for everyone with professional equity in market, social and opinion research and in business intelligence, market analysis, customer insight and consultancy. In consultation with its individual members and Company Partners, MRS supports best practice by setting and enforcing industry standards. The commitment to uphold the MRS Code of Conduct is supported by the Codeline service and a wide range of specialist guidelines.

Response to Call for Evidence questions

Q1. What contribution do SMEs currently make to the export market and in which countries and sectors (both directly though the supply chain to larger companies)

2. Research is an intellectual capital intensive business and contributes to all sectors that use it. 70% of UK market social and opinion research companies are small or medium sized companies.

3. According to the results of the MRS Annual Survey of the UK Market Research Industry 2011, 33% of the turnover of UK research companies came from international research projects, that is a project which involves collecting data in one or more overseas countries, a proportion that has increased from 26% since 2007,

Q10. What more should Government be doing to assist or promote the export of products and services by SMEs though different departments and agencies? Are the Government able to provide adequate local intelligence to assist SME in understanding foreign markets?

4. Market research plays a key role in identifying, defining, measuring and assessing markets. This knowledge is essential to indentify sales and investment opportunities, by providing insight and quantifying risk.

5. It is unlikely that any government service can or could provide adequate local intelligence to assist SME in understanding foreign markets. Investors and businesses need highly specific market and sector information, which mean that tailored market research and market measurement is required.

6. The UKTI’s Export Marketing Research Scheme65 offers part funding for export marketing research on topics such as:

• Market size and segmentation

• Regulations and legislation

65 http://www.ukti.gov.uk/export/howwehelp/exportmarketingresearchscheme.html

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http://www.ukti.gov.uk/export/howwehelp/exportmarketingresearchscheme.html

Market Research Society (MRS) - Written evidence

• Customer needs, usage and attitudes

• Distribution channels

• Trends

• Competitor activity, strategy and performance

Companies with fewer than 250 employees may be eligible for a grant of up to 50 percent of the agreed cost of market research projects.

7. Although this scheme has limited funding and relatively low grants, it demonstrates the significant difference market research can make to successful SME exports. MRS recommends that the funding of this scheme is expanded and that the maximum levels of grants are raised.

8. Further, Research & Development Relief for Corporation Tax does not extend to market research. In light of the Government’s strategy of promoting SME exports but its inability to provide appropriate information services, the government should also consider corporation tax relief for investments made by SMEs in market research in regard to overseas markets.

9. Such reliefs do need to be closely and carefully defined to prevent abuse. MRS would be willing to provide advice to the Government and to HMRC on the appropriate scope of an export market research relief.

10. For further information or clarification on this submission please contact Barry Ryan, Director of the MRS Policy Unit, ([email protected] – 020-7566-1882)

11. This submission is made by Barry Ryan, Director of the MRS Policy Unit on behalf of the Market Research Society.

14 September 2012

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mailto:[email protected]

Minden Systems Ltd - Written evidence

Minden Systems Ltd - Written evidence Background Minden is a company involved in the Design, Manufacture and Installation of High Velocity Centralised Extraction systems. The company has been selling these systems for over 25 years and its market was primarily the Automotive sector within the UK. Established installations such as BMW Mini factory at Cowley, Aston Martin at Gaydon and many other Car Repair (Body Shop ) businesses established Minden as the best solution ( Most powerful, reliable and long lasting ) in the niche sector. Ownership from 1985 to 2000 was with a private Limited UK owner. It was purchased by a German manufacturer of high quality hand tools in 2000 as part of taking ownership of its UK distribution for its high quality hand tools (‘Festool’ brand) – for which the Minden company was also at the time UK importer. In 2006 the German parent - Tool Technic Systems Gmbh decided to sell off the Minden centralised division as non-core business. Turnover at this time was around £600k per annum. The current owner and MD acquired the business after being made redundant at the age of 50 from a manufacturing division of a US owned corporation, for which he was UK general manager and European Finance controller. At this point, Minden had made very few exports around the world, only to Middle Eastern expat operations where the product was known. With over 25 years of installations and a strong customer base with a ‘blue chip’ reputation, the new owner considered the UK market as flat or declining. But, the product had great potential for Export. Initially, in 2006 a Sales Export manager was directly employed to travel overseas and find new markets / customers. After 12 months without any direct sales success and a cost of £40,000 to the company, plus the onset of the recession in 2007, this role was terminated and the owner MD – Les Brooker (writer of this report) adopted the export Role as well as MD and UK sales. The main overseas trade show for the product was a bi-annual fair called Automechanika, in Frankfurt Germany. Minden attended the show in 2006 with a shared stand from a German company known to the owner. This was very much a ‘toe in the water’ event, but proved the appetite further for Export business.

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I then got to hear about the ‘Passport for Export’ programme run by UKTI. I committed the company and myself to the time and energy to complete the course – the course was Very Good in terms of instruction and make up, there was also additional grants which we used to translate our marketing in to other languages – French, Spanish and German. The company slowly established some new exports to countries such as Norway, Estonia and the Middle East. However, it was felt that more International exposure was required to establish the brand and product to existing and emerging overseas markets. Minden again attended the 2008 Automechanika Frankfurt show under a trade visit with the SMMT – TAP grant of £1000 was received by the company as a part contribution to total costs of circa £10,000. Minden also attended Automechanika Middle East with its local distributor in Dubai in Easter 2010, plus Automechanika Russia in August 2010 ( Bank holiday weekend). Both shows were fully funded by the company and the owner / report writer effectively spent the Easter holiday and August holiday period either travelling or being at as trade show during the holiday period. Through previously established contacts Minden also started to supply the Dust plant to a company in China that was supplying the new high speed train project. A visit to China was made in April 2011 and July 2012 in a support / advisory role. In the year ending 2011 Minden’s total sales at £665k of which £205k were exports, as a result it had a profitable year in what was a tough recessionary period. However, during this period it has been very frustrating in terms of any ongoing support – especially from the UKTI – E Midlands section who have changed some of the ‘rules’ for support in the past 2 years. I would summarise our frustrations as:-

1. The ‘Passport to Export’ was a really good mechanism for getting companies started

and committed on the export ladder. But as soon as you got going the ladder was taken away and very little really useful support was received after this, so lesser companies would fall by the wayside.

2. Substantial costs in terms of show, visas, travel etc. over the past 4 years have

primarily been funded from the UK sales and effectively the owners own funds.

3. For the past 12 -18months the regional UKTI imposed new rules whereby travel support to new countries would only be given if you tool out an OMIS market report – effectively you had to spend £500 - £1000 to obtain funding! This made the whole exercise pointless, especially as due to past contacts and experience, the owner new of many ‘players’ ( potential partners ) in the market. This appeared to us to be ‘jobs for the boys (and girls)’ justification?

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To compound this, in discussions with companies at networking events, the reports were not highly regarded by those who had utilised the service.

4. We have found the UKTI advisors to be reactionary rather than proactive in

assistance – perhaps they should receive a bonus / incentive based upon the companies they support export success?

Minden on the whole feels that what we have achieved, we have done so off our own back and substantial efforts. We could have sat back and not spent anything on export markets over the years; we certainly would be wealthier personally as a result!

5. As a small company we do not expect ‘charity’ but we do need REAL assistance,

financially or other wise to grow in to new markets.

6. Minden considers ourselves to have hade moderate ‘success’ but we could do so much more!

Minden moved to larger premises in 2011 and took on an extra member of staff, ( currently employ 5 full time and 2 part time staff )we see no reason why we can not increase our export sales by at least 10x current levels, plus we can expand in to other market sectors outside Automotive ( as is happening in the UK ).

Where possible we purchase our component parts form UK sources and this creates further demand and jobs in the UK supply chain.

7. Suggestion – for those companies that have shown the right attitude and an element

of success and commitment to the export cause, have them classified as ‘export stars’ and give them a higher status and level of support as a result.

8. Compared with other countries assistance to their small companies, whether it is

Italian wine growers or Chinese component suppliers, these companies receive tremendous ongoing fully funded support.

9. Internationalisation of SME’s? My view is that the UKTI like to support the already

successful BIG companies as this is ‘easy’ success, but SME’s need a different approach and are more practical, lower budget requirements. Unlike many smaller overseas companies, SME’s in the UK don’t really think strongly about export – it just happens almost by accident due to our already historic global reputation etc.

10. The real risks are bad debts.

The opportunities are fantastic in a global market. We can ship a system to the Middle East at the same rate as we can to many long distance UK customers.

There is a risk that as you become too successful a foreign competitor will buy you out and close you down / move the operation overseas.

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11. SME’s that want to export should:-

Have the product fully evaluated for its potential – brutal honesty is required here. Have the markets evaluated for potential.

12. Barriers we have experienced:-

Available finance to expand – its done within the availability of the UK operations funds.

Regulatory – exporting to Russia is very difficult.

Regulatory – Additional quarterly UK sales reporting

Languages – we have not found this a big problem.

Time – A small company can not afford dedicated export departments and personnel like large companies are able to. The person trying to do export sales in most cases is doing this as well as other roles!

13. Incentives

The incentives for most businesses / owners is that they develop a more diverse customer base that ultimately makes them a stronger and more profitable – this is enough satisfaction / reword for most business owners!

Incentives to start? This could be very much down to the UKTI advisors and others to show the benefits. It’s an increasingly shrinking / changing world out there; we need to get UK companies thinking export to bring about wealth income to the country and ultimately jobs etc.

14. Government actions – for us the UKTI only worked at the beginning to get us going,

it has not assisted in keeping us on track and increasing sales. It’s easy to get some one to attend the Gym for the first time – the difficult bit is motivating them to come back and increase their fitness.

15. Government need to focus on SME’s large companies are naturally driven by growth

/ profit and shareholders, plus they have the resource of time and finances.

16. Yes target sectors, but also evaluate specific company products. Minden is a good example of a quality ‘niche’ product that can be developed even further. We are not market leaders, but we could be!

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17. Personally, I do not see very much co-ordination of actions and awareness across

government and other bodies – although SMMT are really trying hard and doing a good job here as they seem particularly active.

Summary note by author Although accountancy trained historically, I consider my self fortunate to have been made redundant at 50 and been given a second chance running a small manufacturing operation that has a great product and fantastic potential around the world. Having remortgaged our house, tapped in to my final salary pension fund and expensed much time and effort on driving the company to better things – particularly export wise. We become extremely frustrated and down hearted that no one seems to want to take a ‘risk’ any more! Minden have the right product, right attitude and are prepared to work hard to get there, companies like us should be given enhanced status - more focus, support and opportunity as a potential export medal winner. September 2012

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National Asian Business Association (NABA) - Written evidence

National Asian Business Association (NABA) - Written evidence 1.0 This submission is on behalf of the NABA, an umbrella body representing the

following British Asian business organisations: LABA – Leicestershire Asian Business Association

ABDN- Asian Business Development Network (Yorkshire) IAB – Institute of Asian Businesses – Birmingham HABA- Hertfordshire Asian Business Association BABA – Bedfordshire Asian Business Association BACBA- Black Country Asian Business Association – Dudley NeABA- Newcastle Asian Business Association DABA- Derby Asian Business Association ABA – Asian Business Association – London

1.2 NABA broadly welcomes the UK Trade and Investment‘s strategy. Of “succeeding in

international markets” is essential to “rebuilding the economy at home in a balanced and sustainable way”.

1.3 Current export market

What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors (both directly and through the supply chain to larger companies)?

The British Asian SME’s make a significant contribution to the enterprise and international trade landscape of the UK Plc. The exact volume of exports from this business community has not been researched. NABA through its European Centre for Asian Business Research (EC-ABR) is keen to undertake a short, focussed research study to explore this, and is currently sourcing funding for this project. Anecdotal evidence suggests that these companies are active in Africa, the Middle East and the Indian Sub-continent. The sectors being, engineering, automotive, pharmaceuticals, technology transfer, Food and Drink and commodities.


British Asian business communities have a unique inside track to the markets of the Indian sub-continent, East and Central Africa, the USA, Europe and the Middle East. This has not been fully recognised in the UK and as a result not fully exploited for the benefit of UK Plc. British Asian SME’s are also active in the emerging markets of China, Brazil, the Caribbean and Indonesia and Malaysia. With appropriate international trade support (exports and imports – especially for supply chain needs) there is tremendous capacity to significantly increase the level of trade and resulting prosperity.

How does the UK’s SME export performance compare to those in competitor countries? What can the UK learn from their successes?

NABA has a close working relationship with the Minority Business Development Agency (MBDA) of the US Department of Commerce. The US business and trade support agencies have successful best practice of levering their connections with the Latin America, the Caribbean, China, Korea, Africa and India via its diverse communities. In comparison the UK still has a one size fits all approach. NABA is now forging formal trade links with MBDA and would welcome House of Lords support for a study delegation

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to Washington DC during week commencing 3rd December 2012 http://www.medweek.gov/ to facilitate a formal Memorandum of Understanding between US agencies and NABA and enable bilateral trade and investment best practices, between US and the UK and jointly with the developing countries.

1.4 Internationalisation of SMEs

What are the characteristics of successfully exporting SMEs? How do they differ from SMEs that are not exporting?

Anecdotal evidence about the characteristics British Asian SME exporters are as follows:

1) Often stiff competition in domestic markets forces attention on international opportunities. As a result of economic globalisation, British Asian SMEs are major players in the international arena where exporting is central to their survival.

2) Due to lack of open procurement opportunities in the UK - be it in the public sector or the private sector, for many British Asian SMEs exports are a form of corporate growth that imply an increase in production capacity, an improvement in financial results and business competitiveness, and also to ensure the survival of the company in a highly globalised marketplace.

3) The cultural and community networks add to the traction for international trade. A British Asian SME wanting to trade in Russia will not face the challenges of translating literature in Russian etc., chances are they will have the support of a Russian based Asian who will assist with language and business culture, often act as an intermediary, market researcher, broker and a temporary banker. If this cultural network is extended worldwide the potential to enhance international trade is tremendous.

4) All of the above are supplemented with sheer determination, focus, courage and ability to make life-style sacrifices for long-term success.


The British Asian SMEs supplement formal business advice from the banks and British Embassy with their own networks. This ensures that most risks are mitigated and covered for. A degree of loss (higher than mainstream SME’s may be prepared to accept) as part of a learning curve or market access is built in the international business ethos. As are challenges on quality, payment, currency pricing, regulations, local marketing

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http://www.medweek.gov/


inducement protocols and sheer bad luck. What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them?

As part of their rigorous planning and research, British SME’s need to reach-out to wider sources for help. For example, a Midlands SME planning to explore market potential for its product in Uganda or Kenya can get direct advice and support from organisations like the Leicestershire Asian Business Association, which has members who will be happy to mentor British companies entering markets in which they have an inside track. Same goes for India, with some eleven Indian banks in the Midlands. The biggest challenge for the government, and especially the UKTI, and Lord Stephen Green the Minister for Trade and Investment is acutely aware of this – is how to distil the considerable synergies of the entrepreneurial British Asian communities and their international reach for the benefit of the wider UK SME base. The government can start by ensuring that at the heart of international trade planning, policy and execution there is adequate representation of British Asian SMEs. Be it at British Embassy abroad, NEDs at UKTI and FCO as a well as business advisers at UKTI local delivery arm. As an island, international trade is crucial for the prosperity of the nation and its promotion and delivery has to be a core government function and not out-sourced to commercial organisations who often lack a basic and demonstrable commitment to diversity.

1.5 Barriers and market failures

What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome

(A caveat- due to lack of any specific research in this area the submission is anecdotal) The major barriers are:

1) Lack of and access to affordable trade finance; 2) Trade Guarantee schemes are perceived to be too

bureaucratic and not well promoted or executed. 3) Regulation is a real burden. However there is best

practice emerging. Leicestershire Asian Business Association working with the Indian High Commission in the UK and all the UK Food and Drink regulators in the UK hosted a major conference in London to create an intelligent regulators landscape to enhance bilateral trade and supplier chain links. This was done on a shoe string budget with no real support from the UK government.

4) Government support mainly via the UKTI is focussed on a rather governmental need for commissioning formal market research rather than emphasis on actual trading. The focus seems to be on inputs of subvention support for trade missions and outputs of how many OMIS reports commissioned, rather than the outcome of actual

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the barriers and market failures?

trade being won or transacted. There is need for a shift in culture at the heart of the UKTI and BIS.

5) Larger companies have access to political lobby to influence politicians, policy and processes. SME’s, especially British Asian SME’s lack this. NABA is building this infrastructure and support of the House of Lords in opening up access to lobby will be greatly benefiting the country.

6) Under the Localism Agenda in many areas of the UK, where there is a significant British Asian demographic presence – the creation of new business, jobs, international trade and inward investment will come from the local people and business organisations. The government needs to empower organisations represented by NABA via its initiatives like the Local Enterprise Partnerships. This has to be more than the tokenistic board appointment to meet diversity criteria.

7) In a competitive global environment, the support for British Asian exporters needs to be real and immediate. There is no room for civil service entrenched academic restitution about the problem or the challenge. The entrepreneurial base in the UK is delicate and finite at a given time. If this is eroded to a precarious level, the future entrepreneurial base of UK Plc will be jeopardised for a long time. The Challenge for the House of Lords and the government is to create the environment that will integrate the synergies, and ambitions and commitment of NABA to the mainstream economic development of the country. That proposal for a National Enterprise Hub by the British Bankers Association and BIS involve NABA at the heart of its formation and roll-out.

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1.6 Incentives

What are the key factors to encouraging SMEs: a) which already export, to sell more overseas; or b) which do not currently export, to start doing so?

a) From a British Asian SME perspective, a clear and precise

recognition at the heart of the government and the opposition that the British Asian Business communities have a crucial role to play in enhancing UK’s international trading potential. That, far too often many of the public sector initiatives are London centric. Additionally, the following would further encourage current exporters:

b) The existence of a clear and strong governmental commitment to supporting domestic SMEs with potential to export, tell the world “that the UK is open for business” -directly or indirectly through linkages give a positive signal to Potential investors. This should include:

1) A coherent policy framework from the government. 2) Practical market intelligence on opportunities; 3) Better Regulation – Intelligent Regulation 4) Transparent trade finance 5) Affordable trade finance 6) Practical and legacy based business advice and support

from a wide and diverse source. 7) Create an open light touch environment for inward

investment, joint ventures and collaborations.

c) For the new exporters;

1) The creation and further development of a business-friendly environment enabling SMEs to start exporting, or to help consolidate the activities of SMEs that are passive exporters, is critical. This implies: a) Simplification of import-export policies

and procedures; b) Combating of corruption and red tape that hinder the growth and export potential of SMEs;

b) Creation or reform of administrative and legal institutions in order to

guarantee SMEs a stable legal framework in which to operate, and to facilitate an anti-monopolistic and competitive business environment; c) Delivery of an appropriate public infrastructure, especially in transportation, logistics, telecommunications (broadband and 4G access) and other infrastructure

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needed to enable domestic and external trade (e.g. testing and certification laboratories).

1) Define the UK Plc’s Unique selling propositions: – business friendly, innovative, fair, corruption free – “The Best Place in the World to do Business with”

2) Whist, targeting the growth economies of India, Chain and Brazil, don’t forget the mature markets of Europe, USA and Canada etc.

3) Improve access to SME export finance.

• Encourage the Bank of England or the proposed National Investment Bank via a policy framework for channelling adequate funds to new exporting SMEs.

• Improve the negotiating position of SME’s within large supply chain links.

4) Encourage new SME’s to piggy-back on current exporters

via genuine public-private sector partnerships.

1.7 Government Actions


Anecdotal and practical experiences of government support under the Regional Development Agencies to British Asian SME’s was an unmitigated failure. Support was confusing and regions competed with each other. The traction with UKTI in the regions varies. Out-sourcing UKTI services to commercial entities has limited success so far, although Lord Green remains committed to engage the British Asian SMEs. The most effective mechanisms will be the local Asian Business Associations, part of NABA’s national network. However, they will have to be adequately resourced and funded. The Asian business community cannot support the total endeavour through its own resources. The least effective mechanisms are existing arrangements to deliver UKTI services. UKTI should be a civil service delivery provision with a private sector oversight and not vice-versa. All our major competitors in Europe have a direct government commitment in this area. Banks are another area of support that has failed SME’s in giving right advice on letters of credit etc. This culture seems to discourage exports as there is innovation and risk attached to it. The British Bankers Association has missed the opportunity to encourage innovative banking products, and consecutive

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governments have failed to really grasp the needs of SME’s and exports.

What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets?

The answer is simple – France and Germany provide examples of good practice in support given to SME’s and international trade, and these should be studied. The House of Lords should direct the Prime Minister and Deputy Prime Minister and the Leader of the Opposition to commit to an SME Charter that will override departmental jurisdictions in favour of an overarching policy framework that will influence cross department and agencies to work cohesively. This activity to be overseen by a small scrutiny committee with SME representation reporting directly to the Prime Minister and the Leader of the Opposition. UK has to move away from a three year stop-start business support initiative cycle to a legacy based commitment of making “UK the best country in the World to do business with”. The government is currently not able to provide British Asian SME’s with value for money intelligence or understanding of foreign markets. This articulates the need for a partnership between the government and organisations like NABA to develop legacy based formal and informal intelligence and support infrastructure.

How should Government act and behave with regard to SME exports?

For an SME to export, requires vision, determination, courage and resilience. These qualities are not valued or recognised. The Government should make and recognise exports as the highest form of entrepreneurial activity. It has to go beyond the Queens Awards for export or local awards for exports; it has to be a cultural shift in “Making UK a nation of modern day traders”.

Should the Government target specific sectors, markets or types of companies where the potential is thought to be greatest? What are the costs and benefits of such an approach?

In Leicester, working with the City Mayor, Leicestershire Asian Business Association has put forward a business case for an International Food and Drink Enterprise Zone to support local fast growing food and drink manufacturers. This would lever University based innovation, develop world class supplier chain platforms, and create a conducive environment to attract inward investment from the USA, India and Europe for food and drink manufacture that can be exported throughout the world. Under the Localism Agenda, food and drink Manufacturing companies are growing and creating jobs, innovation and exports. The case for sector specific engagement is comprehensively made. The benefits outweigh the costs, in that the public sector creates the framework and policy, the private sector will lever expansion, new jobs and direct FDI. LABA is also developing an International Private Equity Hub with support of key private sector partners to match high growth companies with risk capital.

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Is there sufficient co-ordination of actions and awareness across Government and other bodies? How should other bodies be acting?

The support from the coalition is somewhat lottery based. Local Enterprise Partnerships were charged to stimulate locally based economic development and prosperity. The engagement with the British Asian SME’s has been patchy. The opportunity cost in terms of international competition means that most LEP’s are chasing flag ship projects, most business and export activities are left to individual SME’s to get on with. If that is the landscape, NABA would welcome an engagement with the government around a table and bring commitment to deliver new business, jobs, international trade and inward investment, as long term legacy based partners.

September 2012

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NEPIC - Written evidence


I have consulted within the NEPIC team and here are a few thoughts regarding your consultation on SMEs and exporting. We have focused on the core questions in the interests of efficiency. Please note that our key experience is within the Process sector and via our relationship with UKTI where NEPIC is one of the 3 managing partners of the UKTI contract in the North East.

The key messages are as follows:

For SMEs, sharing experiences and learning from others who have been there before is critical. This type of business mentoring by experienced mentors from appropriate sector body is much more effective.

UKTI needs to ensure it uses all the relevant sector specific expertise via industry clusters both in UK and abroad.

Programmes need to be centred on the potential exporter and not over standardised.

Industry Clusters should have access to medium term funding and support so they can take a strategic approach to help SMEs from their sector to export.

What more could Government be doing to help the exports of products and services by SMEs?

Government should make more use of clusters in specific industries. This is over and above support from chambers of commerce who can also help but don’t have the specific industry knowledge

Government should also provide more funding for group activities and territory visits. This leads to reduced risk for a single SME, sharing of experiences and an increased chance of success. Such activities need to be based around sector supply chains which are much more effective than general visits to a country involving all sectors.

Although there is a significant amount of information already available via the UKTI website this should be more accessible and easily visible .It should also be more targeted at particular sectors and again clusters with their international relationships can help.

For certain territories Government should consider providing an Export Credit Guarantee which can otherwise be extremely expensive for an SME. The parallel would be the Green Bank.

UKTI products need to be more tailored to the specific need of the SMEs. Products such as the Overseas Market Introduction Service (OMIS) can be too general and not sufficiently targeted to succeed. Embassy contacts are extremely important when making the right contacts in another country and in generating interest in that territory but should be augmented by specific sector expertise from both the exporting country and in the territory concerned. The Virtual Export Manager (VEM) programme was highly

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valued for its targeted support but this now appears to less prominent in the UKTI support portfolio.

What differentiates SMEs that export successfully and those that don't?

Medium sized organisations with more management support can usually be more successful at exporting.

Lifestyle type companies are also less likely to export. There needs to be a genuine desire to make this step.

Companies which have experience working with multinationals and outside their region in the UK can also find it easier to move into exporting.

Companies with a strong USP are more likely to succeed. If a company cannot be easily differentiated in its local market it will have even more difficulty abroad

Leadership is another key requirement as well as persistence and energy. A strategic and planned approach is also key.

Clusters can also help SMEs to export by providing targeted advice.

Companies which are prepared to partner abroad can also be more successful but again having the right advice through sector clusters can help achieve the right partner

Companies which have products and services which meet a defined international standard are also more likely to succeed.

What are risks and opportunities to SMEs exporting? What barriers deter SMEs from exporting and how they can be overcome?

Concerns, risks and barriers

Impact on cash flow from late payments and bad debt.

Requirement for Export Credit Guarantees (See earlier).

Lack of understanding of the culture.

Opportunities

Learn from others who have done it - sharing works (including sector visits to other territories).

Make use of chambers of commerce on paperwork side

Make use of Industry Clusters on the sector side

Which specific sectors, markets or types of company have the best potential for export?

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We see manufacturing especially chemicals, automotive, aerospace and engineering as potentially strong exporters

In the engineering sector it is important to manufacture specialist equipment which is best in class and has all the necessary accreditations. The USP needs to be particularly strong.

This can also apply to specialist services e.g. design, training, logistics

Which other countries are particularly good at exporting? Can the UK learn from them?

In our experience Germany and Japan demonstrate best practice at exporting

NEPIC has strong relationships with other European clusters and have noted the high level of support and SME focus with our colleagues in Germany and Austria

The EU has a cluster observatory which can help in this regard

In other parts of Europe industry clusters are trusted with significant budgets. In the UK it appears that budgets are only for one year in which is insufficient to make medium term (3 years plus) plans

It is also important to focus on genuine outcomes for SMEs and not just targets which are not necessarily the same thing e.g. A target stating number of companies engaged by UKTI will not by itself lead to increased exports

I hope this information is helpful. If you have any questions or points of clarification please do not hesitate to contact me.

Over the next 3 years as part of the NEPIC Business Acceleration for SMEs (BASME) project we will supporting SMEs in the process sector supply chain who wish to either start exporting or increase the existing export base. This should provide even more learning on what proves successful in increasing SME exports.

October 2012

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Northern Defence Industries Ltd - Written evidence

Northern Defence Industries Ltd - Written evidence Introduction 1. Northern Defence Industries Ltd (NDI) is a membership-based business and supply chain development organisation that provides support to small and medium size companies (SMEs) operating in the defence, aerospace, space and security sectors. Although based in its heartland of the North of England, NDI has members in over 30 counties in England and Scotland. 2. NDI also works with prime and higher tier companies in the four sectors to attract and integrate SMEs into their supply chains. While the major focus for such activity is the UK market, NDI is also keen to explore and exploit the scope for member SMEs to be part of their industry customers’ export programmes and, through that, to seek to develop international customers in their own right. 3. Many NDI member companies working in the defence and security sectors also do business direct with the Ministry of Defence and with public and commercial procurement organisations across the national security infrastructure. Some of those companies are already exporters to overseas government defence and security authorities and more have aspirations to export, not least in order to offset the declining UK defence equipment and systems market. The Select Committee’s investigation into support for SME exports is therefore very relevant and timely to NDI and its members. 4. By virtue of NDI’s sector focus, the following comments are made from that perspective. However, we believe many of them have more general application. Current export market 5. The majority of SMEs’ involvement in exporting experience and revenue comes through their role as suppliers to higher tier companies, either in the UK or in overseas markets. Some have their own products and may be exporters in their own right. The percentage of business that derives from exporting varies greatly across the NDI membership and will often depend on their higher-tier customers and whether they in turn are exporters; in some cases the SME may not even know that its products will form part of an export. In the case of the larger SMEs and those with their own products, sampling suggests that up to 50% of business is from exporting. For one medium-sized NDI member company its planned growth in terms of staff and turnover in the nest 5-7 years is primarily driven by the export market. . 6. In the defence and security sectors industry, including SMEs, is able to call on the services of the UKTI Defence and Security Organisation (UKTI/DSO) and the wider UKTI network of overseas offices. Overall UKTI/DSO does a first class job in supporting the highly successful UK defence and security industry and this includes looking to help SMEs to build or grow an export footprint. However, partly by virtue of the number and variety of SMEs that are potential exporters, and partly as a consequence of the indirect route to market that most SMEs use (i.e. though higher tier companies either in the UK or in the overseas market), it is more difficult for UKTI/DSO to meet the needs of exporting SMEs.

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Similarly, UKTI as a whole struggles to meet all the demands for hands-on assistance that the SME community would ideally like to have. 7. The primary responsibility for finding and prosecuting export opportunities must rightly rest with the company concerned but the realities of limits on marketing budgets and manpower and on management bandwidth mean that many small firms that could potentially establish and grow new revenue streams in overseas markets are deterred from doing so. Internationalisation of SMEs 8. In order to be successful any company, large or small, has to invest time and effort to understand an export market and for small companies this can be unaffordable. And without that understanding the financial risk in dipping the company’s toes in a new and unfamiliar market may be unacceptable. 9. A successful SME exporter therefore takes an incremental approach. In the first instance there must be a deliberate decision to invest the resources needed to investigate and understand what is involved in doing business in a particular market. The focus should be on leveraging all available sources of information and advice on the potential market, including on potential partners and competitors. Only once the company is comfortable that it understands the business environment and the potential customer base should it consider launching a marketing initiative and then potentially though or in partnership with a local company, either as a representative office, distributor, sub-contractor or licensee. 10. As already mentioned, the ability of organisations such as UKTI and UKTI/DSO to have the kind of granularity of knowledge of an export market (for example, potential SME partner companies) that a disparate community of SMEs might look to tap is inevitably constrained by resources. It is for consideration therefore that, as part of the overarching trade relationship between the UK and an overseas market country, there could be a focal point in each country’s inward investment organisation that is specifically focussed on helping SMEs to understand and navigate their way round the market sectors in which they have an interest. This is not revolutionary but would build on existing organisations and resources. 11. In the same vein, consideration might be given to including in bilateral trade arrangements – provided, of course, they are consistent with international law – mechanisms to encourage two-way trade at the SME level and measures to minimise or abate import levies. Barriers and market failures 12. Mention has been made above of the possibility of reducing for SMEs the taxes that are payable on imports. For example, NDI understand that a 98% import tax is applied to any equipment imported into the country and sending back products manufactured for a Brazilian company attracts large taxes at the docks. One NDI SME member company closed its Brazilian operation as it could not afford to bring equipment into the country to support its customers. 13. There are also obstacles in export controls procedures. While effective export controls on sensitive items are of course needed, there is also a need for judgement to be applied. For example, a company that uses a particular high-strength aluminium alloy for

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commercial aircraft parts suffered a 10 week delay in securing the necessary export approval because this item is also use in military aircraft manufacture. As a result of such delays the company struggles to meet customer deadlines and, on one occasion, the customer went elsewhere. For a large company the loss of an order is regrettable, for a small company it can be crippling. Government Actions 14. The government has rightly recognised and promotes the significant role that SMEs can play in generating economic growth, innovation, skills and employment. Successful SME exporters would be particularly valuable in attracting foreign earnings and strengthening the fabric of the UK’s international trading network. But amongst many SMEs there is a feeling that much of this is rhetoric and they have not seen much evidence of improved practical help. 15. UKTI and UKTI/DSO provide very good services (probably as good as any if not better than any other government) and the individuals with whom NDI members deal are genuinely keen to contribute to the companies’ success. The inward and outward missions and the other events that they run or in which they participate – for example the Farnborough Air Show – are a major encouragement to British business as a whole. 16. From an SME perspective, much of this support is also of great benefit and is appreciated. However, the very characteristics that define an SME mean that a company in the category has particular constraints and needs. This is already recognised by UKTI and UKTI/DSO (the latter having a dedicated SME team). However, NDI believes that there would be value in UKTI, in partnership with other interested Departments and working with industry associations and representatives, to review the existing arrangements for supporting SME exporters and to identify how improvement might be made. NDI would welcome the opportunity to be involved in such a review. 13 September 2012

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Quartzlock - Written evidence

Quartzlock - Written evidence Some of these questions can be answered quite accurately by HMRC & UKTI…trust them, but check their replies & data. Q1 HMRC have all the data from the many, many forms we have to fill in for them every month. All existing exporting SME’s have to do this. Please confirm to me that HMRC will do this for you. We will all be extremely angry with HMRC if they cannot do this immediately …I am sure they can. Q2 UKTI should have an accurate (estimate) they have very skilled consultants, at every embassy on the planet…..again, let me know if UKTI cannot do this. Q3 as above. You need a proper study here, we can do this but not without an NRE charge…it will take some time actual work, over an even longer time while the data is collected. Any of the governments “consultancy friends” will charge £300,000:00 to £1,000,000:00 + and not get to the real answers. Quartzlock would produce industry evidenced study for £100,000:00. Internationalization Q4 some SME’s have a director who like’s to travel, some do not. This is a big factor. Travel is such a pain with our lousy airports and getting much worse…also very expensive, so the financial controller will not agree to the costs. Export sales actions are expensive, very expensive. To increase sales by 10X is quite feasible, but will cost a complete years revenue, the year before the 10X increase in sales is seen. In most real technology (not IT) science based business this will need say £300,000:00…..no bank will help. We are in this position right now having spent a similar amount (£200…300k)on R&D on a new breakthrough product line. Our current order book is actually normal….US, Saudia, China, Brazil, Switzerland. Like most SME we spend on the R&D & have little left for the promotion. An Exporting SME, especially in S America & SE Asia / China will be less risk averse….will take risks…”the future favors the bold” this is not something civil servants or government will ever understand….they don’t understand manufacturing or exporting…none of them have ever done it…well the odd 1 or 2 may have but with a BIGCO. None of your panel / committee have the required experience….well one seems OK maybe. I would love to talk to them in a very helpful way. Q5 risks, real & perceived are big delays & extra costs at our airports. Risk of a miserable time travelling on full flights. We don’t have credit risks, other SME would worry about this or pay a big % to factor…the factor usually want’s your whole book…this is not needed, factor also needs to approve each order….to late by then, as you can imagine ! Financial risks will be representative / customer dependant.

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In professional equipment sales this should not be such a problem….in retail items maybe more so. Of course product risks, return costs for repair etc are more expensive…BUT ALSO DEALING WITH HMRC & THE PAPERWORK MOUNTAIN, when re-importing for repair / service / calibration. IPR risks, real & perceived, bad advice from the UKIP office, huge cost & time penalties and mostly un-required patent costs…lots of other ways, much less expensive (different subject, but still a barrier to some) Q6 prepare by finding a similar sized exporting SME as a Guru. Get as much help from UKTI as possible. Go to the local export club….be careful, lots of advisers will be Banks, Insurance, Shippers, Legal, IPR advisors etc….when the new exporter needs actual, real life examples of problem solving to win export orders. The appropriate overseas exhibition may be included in a first visit….where you should also be meeting possible import sales representitives or for retail a wholesaler. He cannot afford say 16 UMIS costs at say £400:00 plus to cover the pacific rim countries (£6,400:00…..£8,000:00) UMIS make no guarantees for this payment…..yet the SME has to deliver: on-time, meeting specification and to budget….if the SME product does not work, he does NOT get paid Barriers Q7 The biggest barrier is the “Buy American Act” the UK.gov is to scared to address this…it a restrictive practice, completely illegal. It cost some 100,000 skilled UK proper jobs @…£40k….£60k p/a at least. Incentives Q8 Get HMRC off our backs….they are a big big hassle to SME exporters. More help is needed with the very large export promotional costs.

Embassies should be willing to hold small dedicated exhibition’s to which potential buyers can be invited. Embassies are expensive, usually very impressive, it’s easy to fix a small exhibition with wine & cheese etc….IT SHOULD NOT BE A BIG DEAL & EXPENSIVE. These nice places should be available, & not only to bigco’s.

UKTI should not charge for their work in the posts for simple tasks…i.e. finding a suitable representive. The problem is most in-post export staff do not have industrial or exporting experience, they are civil servants…not, ex industry, export trade people….nor do most, if not all, UKTI staff. Government Actions Q9 Some help is very useful, exhibition support (but only at government chosen exhibitions) also other export cost support, however, the help is to little, much to little. Its typically 10….15% of the real cost (that does cannot include staying in business hotels) A successful export exhibition with local rep support, printing fliers, PR, Tech Articles, direct mail & d-email, web coverage, special promotion printing as exhibition fliers, not to mention local language translations…..a total of some 20 sales tools have to be covered to get maximum effect….including extremely expensive advertising in scientific (or appropriate journals) The OMIS charge maybe is a barrier. The government needs to think about say just 1% or 0.1% of the support extended to banks…but direct to exporting & export ready SME’s.

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Q10 See above. No I don’t think the government agencies can help much. SME needs are quite product/user specific. Export depts. tend to issue local general knowledge, as “useful background”, OK that’s OK, even interesting…..However, what is really needed is data, specific to the exporters product & market. It’s not so difficult, the embassy needs to have the latest, local exhibition catalogues in the business library…many of the answers to representitives may be in these catalogues. Often the local chamber of commerce will be many times better equipped to help the exporter in this country…than the embassy. Q11 as above….plus much more….need an NRE for us to do this properly. Q11 ! yes, very high, added value, product sectors……list, we need an NRE to do this. Markets precision machinery & complex / specialist electronics, defence, security, surveillance, explosives & weapons detection….chemical, physics / science based and many other areas. Types of companies: well, start with existing small SME exporters, they are more ready to go….then other sSME’s who express a burning interest in exporting & have export ready products. Q12 No, .gov depts. do not talk, take action or share awareness to each other in a meaning-full, technically competent way. This small contribution contains many ideas that .gov is not aware of, I would like the opportunity to meet the appropriate committee member. If all our high tech sSME exporting companies multiplies their exports by X10….even X5 25 September 2012

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Rank Brothers – Written evidence

Rank Brothers – Written evidence The numbering is based on the numbering on your original letter. 1) We are an SME (7 employees, 3 fulltime), established in 1957, and currently manufacture scientific instruments and also carry out sub-contract precision machining. We were We normally export around 40% of our output annually, this representing over 70% of our instrument output. Our instruments are mainly used in research laboratories, both in universities and also the private sector. We export to most areas in the world, both directly to the end user and also through agents. 4. We are fortunate that our products are mainly used in international research and thus any published research papers mention our equipment. We are thus approached by researchers for information asbout our products. Our products are also fairly unique in the world markets and so they score highly in most website search engines 5. It is necessary to ensure that our products meet international standards and some research is required to ensure compliance. It also necessary to be aware of current international fraud and scams. For exports our terms are prepayment by bank transfer prior to despatch. This appears to be the safest method of payment and we do not make any exceptions to this other than from our agents. In this way we minimise our risk of late or non-payment 6. They need to ensure they are aware of all the compliance regulations for the countries they are going to export to and ensure that they have robust payment terms. We have used letters of credit in the past, but these are quite costly and are complicated to ensure compliance with all the terms and conditions. 7. Customs are sometimes quite difficult and will stop goods that do not comply with local regulations and return them. This is costly and time consuming. They do appear to check 100% of the goods and so whilst one shipment might get through another may be stopped. It would be extremely useful to have government aid to carry out and give advice on compliance issues for products. 8. What are the key factors to encouraging SMEs: Our website have given us an international shop window that helped maintain our export levels, but we also rely on our agents to generate local sales in their specific regions. Government Actions 9. It is quite difficult to make contact with the appropriate person when trying to get some advice. You are quite often given several numbers to call before you get to the person who can help. 10. Local Chambers are a very good source of support and are small enough to get through to the right person quickly. Maybe government should consider channelling some SME resources via them.

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Rank Brothers – Written evidence

11. If government wants SMEs to be part of their export programme then they need to provide support and assistance that is easily accessible and not too costly. 11. Who is going to decide which sectors should benefit, this seems like a one size fits all strategy. Also we are regularly approached by consultants offering various services that will attract Government/EU funding. This seems like the wrong approach, it seems like a licence for consultants to print money. Surely to get best value the approach should be from the SMEs to the consultants with say CoCs advising the SMEs on funding available 12. Answered above 18 July 2012

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Research Councils UK – Written evidence

Research Councils UK – Written evidence Please find below a statement from RCUK on our interactions with SMEs. I'm afraid we have little information on exports but we wish to highlight how we interact with SMEs. If you would like further information on any of the mechanisms below please let me know:

The Research Councils are unable to fund businesses directly except in a very limited number of cases66. However, the Research Councils have a number of mechanisms in place to promote and support mutually-beneficial joint working between the researchers we fund and SMEs, and to encourage, where appropriate, the development of innovative small businesses from Research Council-funded research.

The involvement of companies in research, training and knowledge exchange activities enables the two way flow of ideas and knowledge, and increases the likelihood that RCUK research investments will lead to successful commercial outcomes and economic impacts. Furthermore, by stimulating and nurturing new ventures arising from research outcomes we help create innovative small businesses that deliver a significant benefit to the economy. Some examples of Research Council mechanisms that support collaborative working between academia and business, including SMEs, or which stimulate and support the development of small businesses, are provided below:

• Collaborative research – various schemes to support collaborative research (and research training) between academic researchers and industrial partners. This includes support for collaborative projects instigated jointly by researchers in academic and industrial laboratories, as well as joint funding from Research Councils and industrial consortia to support industrially-relevant research projects in the science base (e.g. through Research and Technology Clubs).

• CASE studentships - PhD studentships which are supervised jointly by academic and non-academic (often industrial) partners. As well as providing high-quality training for students, the CASE scheme helps to foster links between academia and industry.

• Funding for knowledge exchange and commercialisation activities – the Councils offer various schemes to help researchers develop the commercial potential of ideas arising from their Research Council-funded research, including follow-on funding and fellowships to support scientists who want to develop a business idea based on Research Council-funded research. Councils also help to promote knowledge exchange between academia and industry through activities such as Knowledge Exchange Hubs.

• Research and Innovation campuses – providing academic researchers with access to research users through co-location with SMEs. These campuses also ensure that newly established and growing spin-out companies and SMEs have

66 STFC fund a small number of businesses directly through Innovations Partnership Schemes which are classified as ‘State Aid Notified

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Research Councils UK – Written evidence

access to world-leading researchers and facilities, and drives excellent research into application.

HEIs may also procure research services from SMEs as part of RC funded projects. In addition, through our partnership with the Technology Strategy Board we further aim to significantly increase SMEs’ involvement with the academic research base For example, Research Councils are involved in a number of the TSB-funded Knowledge Transfer Networks (KTNs) , designed to stimulate innovation in key technology sectors by promoting collaboration, best practice and knowledge sharing between industry and academia. The Research Councils also contribute to the funding and promotion of Knowledge Transfer Partnerships (KTPs), co-ordinated by the TSB, and under which high calibre graduates and postgraduates work on innovative projects within industry, jointly supervised by the industrial and academic partners.

September 2012

288

Scotch Whisky Association - Written evidence

Scotch Whisky Association - Written evidence Introduction The Scotch Whisky Association (SWA) is the industry’s representative body, with a remit to protect and promote Scotch Whisky worldwide. Its member companies – Scotch Whisky distillers, blenders and bottlers – account for over 90% of the industry.

Scotch Whisky is Scotland’s leading single product export and the UK’s largest consumer good export. Annual shipments, in excess of £4.2bn, in Customs value represent 25% of the UK’s food and drink exports. The SWA is delighted to have the opportunity to respond to the Select Committee’s Inquiry into SME Exports. Summary

• Scotch Whisky is a key UK export • Irrespective of the size of business, international trade is the life blood of the Scotch

Whisky industry. Export growth supports jobs in communities which are often rural, and frequently lack any significant alternative job opportunities.

• Policy decisions need to be joined up across all departments. The Government’s economic recovery strategy is based on export growth, a strategy we believe will be undermined by the planned introduction of the minimum pricing of alcohol that will negatively affect Scotch Whisky exports.

Current Export Market The SWA has 51 members ranging from small family owned businesses to large international drinks companies. Some operate on a global basis, others focus on niche markets. Scotch Whisky is exported to around 200 countries across the world, with Europe accounting for around 40% of total Scotch Whisky exports. Like other distillers, SMEs in the Scotch Whisky industry have enjoyed export growth in recent years, supporting investment in jobs and production capacity. Growth is broad-based, with emerging markets, including the BRIC countries, already delivering on their potential. Other markets, such as Africa, are also beginning to develop from a low base. Europe remains a key market for Scotch Whisky companies, with many SMEs focused on the region. Eurozone challenges have impacted exports to markets such as Greece and Spain. Internationalisation of SMEs The Scotch Whisky industry is clearly export orientated given that around 90% of Scotch Whisky is exported. International growth and optimism about export potential has supported in excess of £1bn in new capital investment over the last five years. Recent announcements have demonstrated that investment in increasing Scotch Whisky production is set to continue. SMEs in the Scotch Whisky sector have to export to stay in operation and for most SMEs 90% of turnover is from export. SMEs cite that previous experience is nearly always essential

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with regard to breaking into new markets and that providing credit and insurance cover are risks to exporting. UKTI and the British Embassy network have good resources in many markets and often reach out to many Scotch Whisky companies to take part in foreign UK trade shows to enhance their visibility and meet potential distributors and clients. The SWA believes that the Government should continue to support businesses, particularly SMEs, in exporting and reaching new markets. The Government’s economic recovery strategy places emphasis on the growth of exports and the Scotch Whisky industry is therefore well placed to assist. This can be done by providing financial assistance to attend exhibitions, support within Embassies to identify contacts and tackling trade barriers that may work against Scotch Whisky. Barriers and market failures Scotch Whisky exports are negatively impacted by tariff and non-tariff barriers to trade. In 2010, an SWA analysis identified around 660 separate barriers to the trade in Scotch Whisky in 186 markets. Efforts to improve the export environment and promote fair market access, are of the highest priority to the industry. The industry’s focus on international sales means we have considerable experience in international trade issues and the excuses that governments seek to use to discriminate against Scotch Whisky. Issues include high import tariffs and discriminatory taxes. While these tariffs and taxes may be met by importers, Scotch Whisky SMEs may well need to hold prices down to ensure that they are able to keep their share of the market. This can be particularly difficult when SMEs begin to access a new market. Other issues facing SMEs include burdensome bureaucracy such as restrictive certification, labelling and licensing rules. Documentation can also be very costly before a shipment even reaches its destination. This is particularly an issue for SMEs given they will face relatively higher upfront costs before they see return, including establishing often more complex distribution arrangements. The Scotch Whisky industry works closely with the UK Government on such issues, including the FCO, BIS, UKTI, DEFRA and the British Embassy network. The generally high quality level of support received over many years supports the industry’s market access ambitions. However, several of our members have commented that the UKTI website needs additional work to make it more effective and useful following the recent merging of regional sites within the website.

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The Government could consider: a) Providing trade mentors who are experienced in the field of trade and exporting that

goes wider than sales. b) Supporting individual companies who have proven track records of breaking into new

markets. Incentives Scotch Whisky exports increased by 22% over the course of 2011. For this to be maintained, the industry needs to continue to increase its sales to both established and developing markets. One way in which Scotch Whisky SMEs identify customers is by attending international exhibitions. The cost of these exhibitions can prove to be prohibitive and although some support from UKTI is available, it does not appear to be at a level provided by overseas governments that offer greater support to their drinks industry. Given the link between these exhibitions and increasing exports, additional support would be welcomed in this area. The Government could perhaps establish export budgets for active SMEs to attend exhibitions and to make one-off visits to potential new customers. Sales are often made once face to face meetings are made and this can prove to be a financial risk to small companies given the upfront spend required for such visits. In addition, Embassies should be able to provide both small and large importers with assistance. In some instances, the capacity to do this within Embassies may be limited however, this should be viewed as an effective measure that can help to increase SME exports. Government Actions The SWA supports the Government’s strong focus on commercial diplomacy, market access, and export promotion. We have played an active part in assisting the delivery of commercial diplomacy training. The SWA is also involved in the development and implementation of the DEFRA food and drink export plan. Such initiatives are welcome and show improved joint thinking across government on how to support SME exporters. The Government’s recent announcements appointing Paul Walsh as Business Ambassador for Food and Drink and Brian Wilson as Business Ambassador for Scotland highlights the importance of British business for the Government. Promoting the export performance of SMEs will be a key part of their roles. UKTI is shifting its focus towards high growth and emerging markets. This is a welcome step in the right direction but it is difficult for SMEs as they work on smaller scales and need assistance identifying distributors which suit their size of export capacity. The Government’s recognition and positive outlook of an industry such as the Scotch Whisky industry is important but joined up thinking is essential with regard to policy decisions and the delivery of initiatives to assist SMEs with exporting. Policy is often created in a vacuum. One example is the ramifications of a minimum unit price for alcohol in the UK. If introduced it will allow health justified exemptions to trade rules. The negative impact of such a precedent would have on domestic and international

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trade in alcoholic drinks is a cause for great concern. Many smaller businesses rely on a vibrant home market as a launch pad to exporting. Minimum pricing would damage that opportunity, whilst also setting a precedent that will impact market access overseas. Overseas governments will dress protectionist barriers as ‘health measures’ to keep imports, such as Scotch Whisky out. HMG will be powerless to address these, leading to long term harm to the UK balance of trade. To assist SMEs in exporting, an alternative approach should be adopted to tackle alcohol misuse. Conclusion Promoting SME export success in the Scotch Whisky industry should be central to the UK Government given that Scotch Whisky exports account for 25% of the UK’s food and drink exports. A greater understanding and a more focussed approach is required when assisting SMEs to exporting internationally or break into new markets. The SWA is encouraged by strong messages from the Government to introduce initiatives to assist SMEs with exporting, but policy decisions across all departments, directly impacting on Scotch Whisky also need to be considered. September 2012

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Society of Motor Manufacturers and Traders (SMMT) – Written evidence

Society of Motor Manufacturers and Traders (SMMT) – Written evidence Introduction and summary of key points 1. The Society of Motor Manufacturers and Traders (SMMT) is one of the largest and most

influential trade associations in the UK. It supports the interests of the UK automotive industry at home and abroad, promoting a united position to government, stakeholders and the media. The UK automotive industry is dynamic and globally competitive. Our sector is a vital part of the UK economy with £50 billion turnover and £10 billion value added. With over 700,000 jobs dependent on the industry, it accounts for 11% of total UK exports and invests £1.3 billion each year in R&D. The industry plays an important role in the UK’s trade balance, with vehicle manufacturers exporting over 80% of production. The UK is home to the world’s largest number of low volume vehicle manufacturers.

2. SMMT welcomes the opportunity to respond to House of Lords Select Committee on

SME Exports. It is vital that in efforts to rebalance the economy and support manufacturing and an export and investment-driven growth strategy is a top priority. High-value exporting sectors such as automotive have significant growth opportunities through new markets. Government’s approach to enhancing international trade and increasing exports should support the opportunities that underpin growth in our sector. In 2011, the UK exported a record number of vehicles, 1,194,052, which represents 81.5% of the total 1,465,122 vehicles manufactured in the UK. Compared to 2010, the number of exported vehicles increased by 14%. Current restraints on UK and European demand demonstrate the importance of exporting to business and industrial success. Weak consumer and business confidence compounded by restricted access to finance poses significant challenges for manufacturers.

3. Open, fair and balanced trade policies as well as a strategic support of trade facilitation

are key factors government should consider when looking to support SME exporters. The automotive industry is committed to free trade and government should be actively engaged with industry to ensure business priorities are aligned with trade policy objectives. For government’s trade policy to be successful in supporting rebalanced growth, business engagement is a crucial requirement at every stage of policy formulation and negotiations. Industry knowledge and expertise of operating in international markets can inform government’s strategy and should be used to enhance the UK’s overall position on trade and investment.

4. Summary of key points:

• There are many opportunities for automotive SMEs in terms of exporting and the

value add to the UK economy from automotive trade demonstrates the importance of the sector. The UK automotive industry has specific international competitive advantages and sectors of the industry where SMEs are most prevalent, which should be supported by government’s trade policy and export facilitation measures.

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• Key barriers to export include regulatory non-tariff barriers, access to credit and finance, as well as lack of experience in terms of commercial practices, sales operations, investment, management and customs regulations.

• Government and UKTI support services are effective where the products and

services are used by SMEs, however poor utilisation suggests that more should be done to make SMEs aware of export support, particularly UKTI overseas commercial posts.

• UKTI should act on a strategic level in supporting exporters in key growth sectors where at present the restriction of support for existing exporters is counter-productive. In the present financial climate, largest returns on government investment should be a driving principle.

Response to call for evidence questions Current export market What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors (both directly and through the supply chain to larger companies)?

5. The UK is an important location for the global automotive industry both in terms of

exports, the manufacturing base as well as inward investment. As outlined above, the UK manufactured almost 1.5 million cars and commercial vehicles in 2011, of which over 80% of products are exported. Within this overall export total there is inevitably a significant element of UK sourced components. The UK automotive sector supply chain has in the region of 2,600 component manufacturers and suppliers, employing over 115,000 people, with particular expertise in power train design and engine production. Approximately 90% of automotive component suppliers are SMEs, employing less than 200 workers.

6. As outlined in the Smith Institute’s report67 into automotive supply chain finance, more than 52% of employment in England’s automotive manufacturing is in firms with less than 500 staff (76,300 jobs), accounting for nearly 99% of all firms in the sector. In common with many industrial sectors a small number of large firms (less than 50 in total) provide the balance of employment (69,500 jobs). The UK’s automotive industry exports to and operates in 100 markets worldwide. At £6.1 billion, the value of car exports in the first quarter of 2012 exceeded imports by £561 million, an increase of 20% compared to the last quarter of 2011. The volume of cars exported increased by 22% in the first quarter of 2012 while imports rose by 6%.

7. SMMT carried out a survey from March to May 2012 as part of the Smith Institute report, which was completed by 82 automotive firms of all sizes, 61% of which employed less than 250 people. When asked what their most important business objectives were,

67 Smith Institute report, page 12: http://www.smmt.co.uk/wp-content/uploads/Give-Them-Some-Credit-Smith-Institute-and-SMMT.pdf

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over half of the firms identified growth in sales and profit margin (53%), with growth in exports and share of the export market totaling 17%. 14% of firms identified diversification of their customer base as their most important business objective. Surveyed on the most significant business challenges, 19% of firms identified overall growth of market demand, 15% availability and cost of debt finance, with 7% identifying access to overseas markets.

8. UK specialist automotive manufacturers including the high-performance, design engineering, taxi, bus and motorsport sectors include a relatively higher proportion of SMEs. These companies and those within their supply chains are well placed to take advantage of the increasing wealth of emerging markets. There is a desire for European quality brands and manufacturing, and a worldwide focus on light weighting, internal combustion engine fuel efficiency, low carbon emissions and new energy powertrains. The UK is home to more specialist car manufacturers than any other country, with over 100 operating across the country. They employ highly skilled and highly valuable engineers who lead exciting new projects and the development of cutting-edge products. Furthermore, vehicles produced in low volumes are often high value commodities designed, engineered and built in the UK but with a strong export focus, creating an important revenue stream for the UK.

9. Further research68 by the Marketing Birmingham Regional Observatory and the Greater

Birmingham and Solihull Local Enterprise Partnership (GBS LEP) show that the strongest SMEs in the region are exporting to generate growth with most specialising in advanced manufacturing or engineering. The research also revealed just one in four SMEs is operating in overseas markets with those SMEs experiencing the most growth in areas such as turnover and employment. The sectors with the most SMEs deemed ‘high growth’ were in exporting industries – and included advanced manufacturing (30%) and engineering (26%).

10. Western Europe and the USA will continue to be core markets for the UK automotive

industry. The USA remains the prime market outside Europe and with the recovery of their local automotive industry, increased interest in downsizing, electric and hybrid vehicles and fuel efficient engines, the European and often UK approach and lead in these areas is providing a renewed interest from the USA in sourcing from UK and the rest of Europe. The proposed EU-US trade agreement is an important mechanism in reducing tariffs and removing non-tariff barriers that act as regulatory hurdles for manufacturers both large and small. Mutual recognition of similar automotive legislation could be a route in which further trade and exports are promoted.

11. Companies looking for significant new market opportunities are focusing on the rapidly

emerging BRIC countries (Brazil, Russia, India, China) in addition to looking towards elements of the fast developing new emerging markets such as the “CIVETS” (Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa) which could provide the greatest growth opportunities for UK vehicle manufacturers and the UK automotive supply chain for both Original Equipment Manufacturers (OEMs) components and aftermarket

68 Marketing Birmingham Regional Observatory and GBS LEP report, 28 June 2012: http://www.marketingbirmingham.com/media_office/press_releases/6/2012/369/exports_drive_sme_growth_across_greater_birmingham_the_black_country_and_solihull/

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products. As yet Africa remains the one continent where UK companies have still to penetrate in any quantity or depth. South Africa has a successful automotive manufacturing industry and Egypt and Morocco also have a number of assembly plants. There are opportunities to further link the supply chain to the African automotive assembly sector. The Middle East (often linked to North Africa through MENA reference) is a further developing opportunity for the distribution of automotive parts throughout the wider Middle and Far East and Australasia markets. Brazil has proven to be a difficult market to penetrate and until the recent politically imposed import restrictions in Argentina, this market was looking to be a better alternative export market for UK automotive sector suppliers. Mexico is increasingly the best opportunity market in Latin America from where much of the North American supply requirements are now sourced.


12. The motor vehicle is arguably the most “globalised” product and in every national

market there are opportunities which must be measured against risk and reward. The least risk internationally for UK automotive SMEs is to follow their existing customers into foreign markets. With the majority of UK automotive OEMs and Tier 1 suppliers being foreign owned this should be a relatively straightforward task if UK SMEs are able to support increased production with appropriate resources (which presently in a number of cases they are not due to buoyant home demand). In doing so the supply must be globally competitive, and whilst increasingly UK companies are globally competitive when supplying into the UK due to favourable exchange rate and a desire for reduced logistic supply lines, the reverse can be the case when supplying the same products to overseas markets for the same principal customers.

13. SMEs are typically able to make rapid decisions and changes in strategy that cannot be matched by larger organisations. In the majority of SMEs it is owner/managing director level that will initiate and pursue overseas opportunities. These however are typically reactive responses to one off opportunities rather than proactively developed through a strategic international development approach that is properly resourced and researched.

14. UK SMEs are able to be competitive where high manufacturing skills, sophisticated plant and equipment, intellectual property and innovative technology are inherent elements of companies’ products and services. This can often be in the form of technology transfer through a joint venture or foreign subsidiary manufacturing overseas. The UK design engineering and specialist motorsport manufacturers have had notable success working alongside a wide range of global manufacturers in their home markets and for many the export opportunities have provided an essential supplement to restricted or at times declining domestic market.

15. The aftermarket for a range of components is proving lucrative as increasingly overseas manufacturers and end users seek products that add value and differentiate their otherwise standard products – particularly where western brands and European manufactured components and accessories are perceived as being higher quality, meriting higher prices.

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16. The opportunity to promote and sell in the English language is an initial advantage for many UK SMEs compared to their foreign counterparts. The legacy of UK vehicles supplied throughout the world in typically “right hand drive” markets also helps UK companies to provide essential “legacy” components.

17. Western Europe and USA markets have been the best opportunity markets and India

and China are now providing further opportunities. Japan, Korea, South America, Russia have all proved difficult markets for UK SMEs to penetrate.

18. UK has particular experience in low carbon engine development technology, electric and

hybrid vehicles, and performance engineering and light-weighting. The majority of developing and emerging or growth markets are moving rapidly to incorporate these developments into their mainstream vehicle offering and this presents a real and growing UK SME opportunity. The Automotive Council has been a central forum in looking at sourcing roadmaps for the UK supply chain and directing technology priorities, which enhances the position of innovative UK automotive SMEs exporting or looking to export.

How does the UK’s SME export performance compare to those in competitor countries? What can the UK learn from their successes?

19. There is limited statistical data that supports a clear view on relative national export

success or volumes, however experience attending a large number of international automotive trade shows suggests that UK SMEs are as active internationally as all but German, Italian, Turkish and Chinese SMEs. In many trade shows the UK representation is one of the largest groups, but as a proportion of the indigenous home sector it still only represents a small proportion of the total. British exporters are a far lower proportion than German or Italians in terms of the total industry in each country.

20. Turkish and Chinese manufacturers have difficulty in selling their products directly into Europe but have much increased success when partnering with or selling through a European agent or distributor where the product is then not always described as being of non-European origin. The majority of UK automotive sector SMEs will have ISO quality standard registration as will many Western European counterparts. This is only the case for a relative minority of Chinese and Turkish SME manufacturers. Very few UK SMEs advertise or promote services internationally and relatively few have appointed foreign agents, partners or distributors – this however is not dissimilar to other national SME groups. The majority of export sales are in response to an enquiry – often from an existing customer foreign contact or increasingly from a website and for many, the contact and relationships initiated and developed from exhibiting at international trade shows, which can often result in both quick and sustainable overseas sales.


What are the characteristics of successfully exporting SMEs? How do they differ from SMEs that are not exporting?

21. A European study and comparative analysis exists, however from working with a large

number of exporting SMEs, SMMT believes the key factors are as follows: • Personal interest and involvement of owner/managing director in overseas markets.

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• Early initial success in selling overseas that bolsters confidence and justifies further investment.

• Available resources in manufacturing capacity, staff ability, finance and time to commit to selling overseas due to profitable and stable base market.

• Understanding of local market competitor products, pricing, and routes to market derived from research or experience.

• Sophisticated awareness of differential pricing, agents and distributor relationships, understanding of commercial law, regulations, shipping and accounting/finance with ability to understand and comply with national requirements and variations.

• The consensus at senior management level of an overseas development strategy. • A facility with languages and willingness to embrace national cultural differences. • Close attention to developing local sales presence, increasing overseas contacts to

grow sales and ability to provide good local after sales service and customer relations.

What are the perceived and real risks and opportunities to SMEs of exporting? 22. Risks:

• Losing focus and diverted attention from core UK business success. • Best use of available finance - extended credit terms and bad debts/credit risks. • Losing or protecting intellectual property and product piracy. • Currency exchange exposure and fluctuation • Partner, joint-venture agent, distributor management, set up time and costs and

potential decoupling and closure issues. • Foreign market packaging, customs duty and freight regulation complexity and cost. • Language and misinterpretation/misunderstanding in terms of trade and contracts

23. Opportunities: • Broader customer base providing shelter from cyclical local market changes. • Source of external foreign currency from sales to match against overseas purchases. • Contact with wider distribution and agent sales network. • Increased sales volume to justify further plant improvements and production scale

investment. • Matching product pricing, specification and performance against best available global

competition. • Contact with new technology and wider range of products to enhance global

portfolio offering. • Development and career progression of staff and management. • Increased profitability from reduced exposure to competitive margins in established

market. What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them?

24. Steps to Export

• Meet and discuss with other experienced UK companies operating in the target market.

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• Carry out sufficient desk and field market research to fully understand the opportunity and risks in each market, fully recognising in each differences from the home market.

• Produce a clear international business development strategy agreed by a fully engaged and committed senior team based on thorough understanding of agreed key objectives.

• Allocate adequate resources and set a clear financial plan with realistic metrics, financial targets and milestones.

• Initiate contacts in the target market and establish the appropriate supply, sales, distribution, customer support route and resource in market.

• Review marketing, sales media, packaging, pricing to reflect and incorporate local market requirements.

• Plan to regularly visit target market to develop contacts and build relationships. 25. Government support

• Encourage training, mentoring and networking with experienced exporters, local market sector specialists supporting both Chamber-type cross-sector and sector specific trade association international trade development initiatives for advice and training.

• Provide local market reports, points of contact, information and business start up guidance.

• Maintain support for market research. • Maintain support for international trade show exhibitors. • Maintain support for sector specific profile raising trade missions.

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What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barriers and market failures? 26. SMMT views the key barriers as follows:

• Regulatory: Non-tariff barriers and local regulatory requirements are a key barrier to

market for exporters, particularly for small companies where there is no complementing production base in the target market.

• Finance: credit and foreign credit risk assessment and control – typically considered “post event” rather than planned or negotiated in advance. Difficulty accessing and the expense of debt risk insurance in certain emerging markets

• Commercial: Terms of contract, local practices and legislation, agent/distributor

relationship and control – inexperience and reluctance to appoint appropriate local legal advice.

• Sales: Maintaining sales growth, local marketing, developing and maintaining sales

contacts – initial successes wither through limited in market development activity.

• Investment: Achieving and maintaining profitability for adequate return and additional resource to support ongoing growth with foreign investment - diluting UK enthusiasm, resource, overseas operation ownership and control

• Management: Inexperienced operating in export markets, cultural differences,

languages, diversion from UK activity and additional workload stress • Shipping: Freight, tariff duty, packaging and customs regulations are poorly

understood and invariably sub-contracted by the SME to a freight forwarder specialist with limited retained knowledge within the SME

Incentives What are the key factors to encouraging SMEs: a) which already export, to sell more overseas; or b) which do not currently export, to start doing so? For example, how have developments in information technology influenced the performance of SMEs and their capacity to compete internationally for trade and investment?

27. Key factors include:

• early tangible success • ongoing awareness of opportunities • regular exemplar case studies

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• successful exporter mentoring • export trade regulation training • ongoing support advice and guidance • recognition and reward for export activity and perseverance

28. The internet now provides the smallest SME with the capability at limited cost to have global exposure, presence and profile that can easily match the largest competitors worldwide. The difficulty for SMEs is then in delivering the reality where limited resources are the key restraining factor although their speed of response and decision making often scores higher against larger companies.

29. A website in English language is a pre-requisite for global trade and naturally gives UK companies a major advantage. What are often not understood are the cultural local market differences that the complacency and facility with using English as mother tongue often leads UK SMEs to overlook.

Government Actions How effective are the Government’s current policy mechanisms in supporting SMEs to export at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting? 30. At the EU level, Enterprise Europe is of limited value and poorly accessed by the

majority of SMEs in SMMT’s experience. The regional funding schemes are poorly coordinated and are poorly understood and accessed by the majority of SMEs.

31. UKTI overseas commercial posts provide an excellent market resource but their role is not widely understood and as a consequence are poorly utilised by SMEs. Their targeting on Overseas Market Introduction Service (OMIS) delivery is slanting their delivery and utilisation of time.

32. Government could encourage SMEs to export by offering further support for market

information. This information is currently available from UKTI as an OMIS Report, however there is a cost to the SME of £500 to £1,000 per country which makes it prohibitive for smaller companies to expand into new territory without making a significant investment up front. UKTI could look to use reports in the same or similar sectors and be completed less frequently.

33. The regionalisation of UKTI International Trade Advisers (ITAs) support results in

competing and conflicting initiatives and events for a national sector and their approach is uncoordinated and poorly communicated.

34. The UKTI Export Market Research Scheme, Gateway to Global Growth, Passport to

Export, and Tradeshow Access Programme are beneficial, and for those SMEs aware of and using the service are well regarded.

35. The restriction of support for experienced exporters and focus on new exporters

results in limited resources being widely spread and with a high failure and low take up of initiatives.

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What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets? 36. SMMT supports the following actions to assist our members, particularly SME members,

in increasing their international foothold:

• A state aided mentoring programme co-funded by the company, which would lead to a “qualification” rating for companies engaged in international trade.

• Grant support, co-funded by government and businesses for the “internationalisation” of a company’s website to enable electronic trading.

• The provision of country specific government-funded and organised business development market access visits. These visits should be country specific and available for SMEs as established in UKTI’s strategic plan, limited in number and value, focusing on new markets.

• The provision of sector specific, government supported organised business development market access visits. These could be co-funded (SME/government/trade body) trade delegations to develop reciprocal two way trade missions with a defined business purpose and measurable outcome.

• Co-funded (business/government) support to subsidise and encourage SMEs to participate in trade show national pavilion groups. The number of participating SME companies, trade show type / location should be determined nationally but the level of funding provided should be identical across EU.

• Local government funded provision of local offices and sector specific support staff (where key sector in market is evident) in targeted markets to develop ongoing links with target opportunity markets and companies, business leaders, media and opinion formers.

37. Local UKTI posts are an excellent resource underutilised and not widely understood by

SMEs. Export Trade Finance as a new initiative for providing trade finance in market failure is a useful addition. Sourcing local business opportunities through posts, attending trade shows and being active in meeting with senior purchasing procurement staff in market is key but little directed in key markets. Government supported trade missions with sector specific focus can raise profile and level of introductions.

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How should Government act and behave with regard to SME exports? 38. A scheme similar to Investor in People (IIP), but as “Investor in Exports (IIE)”, could be

one approach (merging the approach taken with the present Passport to Export and Gateway to Global Growth programmes). This scheme could provide “kitemark” type recognition for SMEs engaging in exports to access relevant services and support. An SME would undertake training, development mentoring and assessment, possibly by UKTI ITAs against key success criteria to determine the company’s suitability and ability for sustained export growth. This could be reassessed every three years, as is the case through IIP. Those obtaining an “Investor in Exports” certificate could access a range of negotiated commercial benefits, such as preferential banking terms, extended working capital, foreign exchange terms and loans (negotiated by UKTI with a pool of experienced export-oriented banks signed up to the scheme), preferential foreign commercial drafting advice (from a UKTI pool of lawyers), as well as preferential insurance, preferential freight, and preferential airline flights, all through pooled schemes.

39. Initially the scheme could be introduced to be aligned to the UKTI’s key strategy market

sectors to model the development of the scheme on a manageable basis. IIE certification could act as a statement of independent verification of an SME’s ability (whether new to export or experienced) to undertake export business in a sensible, knowledgeable and appropriate manner conducive to the overall growth and success of the business and its customers, suppliers and staff. Government could also consider entering companies under such a scheme for a Queen’s Award for Enterprise, highlighting the importance and recognising the significance of exporting SMEs.

Should the Government target specific sectors, markets or types of companies where the potential is thought to be greatest? What are the costs and benefits of such an approach?

40. As a key UK exporting sector, SMMT has a close working relationship with UKTI as an

Accredited Trade Association. UKTI must ensure that it leads at a strategic level in enabling SMEs to explore new export markets and build their long-term capabilities. In line with the Automotive Council, UKTI should also continue to build strategic trade relationships in key emerging markets in enabling high-level business and diplomatic engagement to promote the UK as a key location for investment as well as establishing a UK presence in those countries. This will enhance efforts at a governmental level in supporting fair and free trade.

41. Within the current budgetary constraints, government and UKTI should target specific growth sectors and use limited resource to the greatest effect. A dilution of support would lead to a dilution of results.

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Is there sufficient co-ordination of actions and awareness across Government and other bodies? How should other bodies be acting? 42. In the past, SMMT’s experience shows that there has been little strategic coordination

for export development on a national basis and ongoing competition and confusion between regions and government departments has lead to a large number of companies failing to engage and benefit from exporting.

43. It is too early to comprehensively assess the new UKTI strategy in practice against

export performance or statistics. 7 September 2012

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Steel Services Direct Ltd – Written evidence

Steel Services Direct Ltd – Written evidence John Bradburn, Managing Director, (Experienced in selling into Nigeria / Middle East / South Africa for many years ) Led a Trade Mission to South Africa on behalf of Birmingham Chamber of Commerce..

We are an SME that exports 99% if our Turnover and have been in business since 1999. We have much experience in exporting and the pitfalls and problems associated with exporting . Answers from our perspective. Numerically as questions from the Call for Evidence. 1. No data. 2. From our point of view we could increase our turnover ten fold – so if this were across the market there could be a huge increase in contribution. Likely areas Middle East / Far East / India / China / South America / Africa and South Africa . 3. No Data. 4.From our point of view we have grasped Internet technology from very early days. Director’s of exporting SME’s have experience in selling and marketing abroad. Maybe through Trade Mission’s or just travelling abroad. More open minded on trade generally. 5. Perceived risks- Fear of losing goods and not getting paid. International troubles may destroy a market and lose goods this way. General fear of exporting . Real risks- If terms of trading are set up correctly initially - little risk and insurance for the risk to goods. Therefore little risks. 6. Identify a Country or Countries that use their goods and go and visit to get trade information about existing suppliers in the market and to visit areas that they could find names of potential customers to make appointments to call and visit whilst there. Check with credit agencies on payment patterns for the Country and what can be expected in that market. Find other Companies exporting to that area maybe in a different product and ask how they get paid and problems in the area. Government can help by using locally Embassies to get Trade papers and market information to pass back to help prospective Exporters. Then most importantly help with funding orders if needed. 7. Small SME have less Manpower to resolve problems in exporting and maybe have not the resources to handle enquiries and lack the time to put serious effort into the sales push. Shipping can be a problem for inexperienced SME’s and understanding INCOTERMS FAS-FOB-CFR etc-– it can also be very time consuming and it is easy to fall foul over a Countries restrictions for instance on packing materials (treated wood etc). Languages are not such an issues as many Countries have English as a second or even first language. Customs barriers in our experience are not such an issue but can be time consuming when goods are held or slowed down by Customs and deliveries may be late affecting L/C’s etc.. 8.a. Better and most importantly faster funding and decision making by Government and the banks. Often a deal is lost purely on time – other Countries that back their Exporters (Germany is a prime example) and help can easily beat us due to time taken even offering

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Steel Services Direct Ltd – Written evidence

funding or finance. Also onerous guarantees imposed by Banks put off most people as homes are on the line etc so trying to expand in an Overseas market whilst worrying about losing your home would put off most people. Government taking a much larger risk on behalf of the exporter would encourage many would be Exporters (including our Company). b, Corporation Tax relief based on a percentage of Exported turnover could help SME’s wanting to Export. Cheaper funding and less onerous guarantee’s for SME’s wanting to Export – subsidies for overseas travel (not as part of a Trade Mission) for bone fide sales visits and market exploration. Funding and help in IT and shipping if needed . Less red tape generally to release SME’ Directors to invest more of their time into Exporting and trying to Export. Help with general funding of overseas calls - spending hours cold calling can be extremely expensive and make the chances of finding customers harder if SME’s are worried about running up huge phone bill etc (not everyone will work on Skype). The internet and search engines such as Google open up overseas markets and make contact finding much easier (also for our overseas opposition). 9. Traditionally ECGD have been used to handling and assisting Rolls Royce / BAE / huge companies in large deals so it needs a total mind set and probably more staff to help speed up the process and be far more used to dealing with many smaller business deals. (I am aware they are becoming far more flexible but this needs to be much more so). The Banks still will not fund Companies despite all the rhetoric and the Government needs somehow to make banks fund companies WITHOUT onerous guarantees by Directors or business will never grow. 10. In 12 years of trading our Company has traded from 1 Million to 5 Million and back now to 1.8 million in all our years we have never had any assistance in Exporting – Marketing – Funding. We find the opposite it is hard to export as there is little or no assistance. Government can help with funding and some of the earlier suggestions regarding relief for helping exporters and encouraging them. 11. 12 Government should identify successful companies selling solely in the UK and target them and try to push them into exporting. 13. September 2012

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Testhouose Ltd – Written evidence

Testhouose Ltd – Written evidence Current Situation: We are an IT Consultancy focussing on Software Quality founded and headquartered in the UK. We have established a presence in the following regions Spain, UAE, India and USA. We are using local resources to deliver these functions so our only export is the concept, however the expansion of the business is benefiting the UK. Current export market 1. What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors (both directly and through the supply chain to larger companies)? Not in a position to answer this question 2. What contribution could SMEs potentially make both now and in the future, and within which markets and countries? Not in a position to answer this question 3. How does the UK’s SME export performance compare to those in competitor countries? What can the UK learn from their successes? Not in a position to answer this question Internationalisation of SMEs 4. What are the characteristics of successfully exporting SMEs? How do they differ from SMEs that are not exporting? Characteristics of successfully exporting SME’s are

a) More interested in growth than profit b) Will take slightly more calculated risks. c) Broadminded about accepting other cultures and policies d) Willingness to work in other timezones which means outside of normal working

hours e) Flexible in approach rather than follow strict procedures.

5. What are the perceived and real risks and opportunities to SMEs of exporting? The real risks are

a) The local business will have an impact both financially and with respect to focus, when expanding outside the local market

b) Sales cycles between countries vary significantly which effects the business plan c) Corruption in certain countries can seriously effect the plans d) Bureaucracy in certain countries can slow down the ability to conduct business. e) Credit Risks and Exchange Rate Risks

6. What steps should SMEs that want to export take to prepare themselves to do so? What role should Government play in supporting them? SME’s that want to export should

a) Should seek out the market and ensure that there is a demand and know the competition

b) Understand the pricing structure, including all transportation costs, government taxes and ensure that the business can be conducted profitably

c) Should understand the political risks and stability of the region The Government should assist in good sound research

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a) Government should be able to determine what each market demands and the current competition

b) Government should advise each SME’s on potentially good and bad markets for that SME

c) Government should advise on corruption, political situation and stability of the region

Barriers and market failures 7. What are the key barriers and market failures (including regulatory, financial, operational, and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barriers and market failures? SME’s budget is very limited so they cannot conduct expensive detailed studies, this becomes an unknown and therefore appear more risky. Incentives 8. What are the key factors to encouraging SMEs: a) which already export, to sell more overseas; or Well researched Information about the region b) which do not currently export, to start doing so? Well researched Information about the region For example, how have developments in information technology influenced the performance of SMEs and their capacity to compete internationally for trade and investment? Better communications mean quicker responses therefore decisions are made faster. Government Actions 9. How effective are the Government’s current policy mechanisms in supporting SMEs to export at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting? Currently the UKTI’s first response is to sell the SME an OMIS report, this is a chargeable piece of work and seems more like a money making exercise rather than supporting the SME community. 10. What more should Government be doing to assist or promote the export of products and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets? Currently they provide the OMIS report followed by trips to the region. In principle the OMIS report should be done Free of Charge and should be available to others. The trips are good in principle but the organisation and effectiveness of them can be improved. 11. How should Government act and behave with regard to SME exports? The Government should encourage them and they should take some SME’s on trade trips rather than the big corporates. If our government treats them with high regard so will the people being visited. The Government should find some funds to invest into this area as the returns can be very high. The government should include SME’s who have exported successfully into organisations like UKTI and related bodies so that any changes made in supporting the SME’s are evaluated early. 12. Should the Government target specific sectors, markets or types of companies where the potential is thought to be greatest? What are the costs and benefits of such an approach?

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Definitely the Government should identify what the world needs and focus the effort on those areas which UK Inc can best deliver. Therefore running UK Inc like any other business. 13. Is there sufficient co-ordination of actions and awareness across Government and other bodies? How should other bodies be acting? a) UKTI and the embassies should be more aligned, there are initiatives by each section without knowledge / support of the other. b) It will be beneficial to involve the British people living in overseas, as ex-pats, in the initiative of improving business relations between UK and these countries. c) Clarity on objectives mainly between ( inward investment and export overseas ). d) Better coordination between UKTI and the trade bodies from overseas countries eg Arab British Chamber of Commerce, Middle East Association 3 August 2012

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Trade and Export Finance Ltd – Written evidence

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Trade and Export Finance Ltd – Written evidence 1 Statistical sources and overview

Reference is made throughout this document to The International Trade Survey (ITS) undertaken between February and May 2012 by Trade & Export Finance Ltd (TAEFL). Full copies of the published Survey Report have been made available to the Committee.

This submission responds to the specific questions raised, but it would be appropriate to assert right from the start of this document that the lack of sufficient funding for exports by SMEs is a major concern. Given the predominance of SMEs in the economy, this is reflected in export sales falling significantly short of market potential.

2 Question 1 – contribution of SMEs.

86% of companies involved in the ITS stated that exporting was important to their business, with 64% claiming that exporting was extremely important. Only 7% reported that they did not consider exporting to be important to their business. The respondents have been responsible for £billions of exports and are important to the UK economy.

These responses were biased to the extent that the criterion for inclusion in the Survey was that respondents were already trading internationally and it would therefore be expected that exporting would be a major part of their business strategy.

One in three respondents had ceased to trade either internationally or had completely ceased to trade. In some cases this was the result of takeovers or mergers but it reflects the economic climate as a whole.

The majority of respondents in all turnover bands covered by the Survey believe that

0%10%20%30%40%50%60%70%80%

Not Important Sl ightly Important

Important Very Important

Extremely Important

up to £1m

£1m up to £5m

£5m up to £10m

£10m up to £25m

£25m and over

Fig 1 - The importance of exports to SMEs exporting is extremely important to their business. Respondents with a turnover above £25m believe it to be the most important, with 73% reporting it is extremely important to their business, compared with 46% of respondents with a turnover below £1m. 3 Question 2 – Market potential for SMEs in exports

The region that had the greatest potential for exports according to the survey was Europe, despite the impact of the recession within the EU.


Northern Europe - including Poland, Romania and the Czech Republic - continues to provide a significant opportunity. This region was followed closely by China, with 22% of respondents stating that this was a country in which they wished to expand their business.

India also featured highly, with 20% of respondents hoping to export here in the future. Brazil and Russia were overtaken by North America and the Middle East. South East Asia, South America and Australia also featured in the top ten export markets. (ITS 4.2)

4 Question 3 – Export performance.

When reviewed, the total package of assistance for SME exporters in the UK falls short of comparable facilities in Germany, France and Italy. Companies in the UK require better ‘signposting’ to help them identify the assistance which is available.

An exporter looking at a new market needs high quality local information which should be sourced through the UKTI in conjunction with local commercial attachés. UK companies are charged a fee for that service (£1,500 is the typical figure) but there is no charge made by other major exporting countries such as Germany.

5 Question 5 – Risks and opportunities for SMEs as exporters.

For more than a decade, UKTI has promoted the belief that SMEs which are able to compete on equal footing with international competition are inherently stronger and more resilient businesses than those which have not had to face such a challenge. Whilst such assertions are entirely logical, TAEFL cannot find evidence that exporters are materially different as a cohort from those of comparable size but which sell wholly within the UK.

Economic and political uncertainties in several economies to which UK companies have previously exported have made businesses more cautious about selling into those countries today. The International Trade Survey revealed that 53% of all respondents protect their credit risk; the remaining 47% do not. Many believed that credit insurance was not cost effective, which was the main reason they chose not to protect this risk. (ITS 8)

More detailed analysis of the responses by size of company reveals important differences between turnover bands. Businesses with a turnover between £5m to £10m have the highest proportion of respondents who protect their credit risk, with70% using credit protection. This compares with only one third of those with a turnover up to £1m. If knowledge about the options for insuring credit risk were more widely known to the smallest exporters, there is every likelihood that a greater proportion of businesses in the sub-£6 million bands would seek to export a higher proportion of their turnover.

6 Question 6 – Preparing to export

Businesses cannot succeed in exporting in the longer term without extensive analysis of the target markets and strategic planning to address the opportunities identified there. Preparation for exporting involves ensuring the availability of finance – whether sourced from within the company, banks or specialist institutions prepared to fund the export process.

Exporters require in-depth understanding of the conditions prevailing in their chosen markets. An example is that the US should not be treated as a single market but as 30 or more individual markets, each with different criteria.

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SMEs rarely have on ‘experts’ who understand the mechanics and funding of exporting. Specialist export training appears to be very limited, despite the efforts of the professional organisations in this field.

7 Question 7 – Barriers to exporting

Lack of finance is the single most important barrier to SMEs seeking to export. In the International Trade Survey, the majority of respondents with a turnover up to £25m believe that lack of finance is the main problem facing their company. Respondents with a turnover above £25m believe that the current economic climate is the main problem facing their business.

Finance schemes have been available to support exporters for over one year, but few exporters are aware of that support. As a result, two out of three respondents use their own funds to finance their business. This is a higher percentage than those companies trading domestically. Exporters wish to have bank finance but are unable to obtain the support of banks, despite having strong order books.

The smaller companies within the SME band are facing more of a struggle to obtain bank finance than the larger exporters and, as a result, need to use more of their own funds, often getting the financial support of family members.

27% of survey respondents maintained that it was hard to establish trusted contacts overseas, a factor which hindered their development into these markets. 23% reported that red tape, such as export legislation in the buyers’ country was preventing them from developing markets. 18% reported that a lack of knowledge of exporting was holding them back, and 11% did not know whom to speak to.

19% believe that the current economic climate is affecting their business. One respondent, for example, said there was a lack of confidence in the European markets, which was making buyers more cautious, and therefore ordering less.

Other major issues included lack of a skilled workforce, with respondents advising it was increasingly difficult to find skilled workers, especially in the engineering sectors. Competition from countries such as China, with a low cost workforce and products was affecting trade, as was a lack of demand for the company’s products or services.

SMEs in the range £2 million to £60 million turnover are usually not able to finance the export process from within their own resources. This contrasts with much larger organisations that have stronger balance sheets and are more readily able to attract the support of their banks to cover the (often) short term funding required.

8 Question 8 – Key factors encouraging SMEs

The Internet is proving the most significant single factor, with many SMEs promoting their products and services on the Web. Greater knowledge and awareness of Search Engine Optimisation (SEO), for example, is helping bring companies which take advantage of these facilities to the attention of a wider audience. This is equally true of SMEs which are already exporting and those which are considering taking this step.

There is evidence of strong export order books amongst SMEs. This highly encouraging factor at a time of economic problems in several areas of Europe is impacted upon adversely by those companies being unable to finance the stages of fulfilling orders. A niche market

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exists for specialist organisations to develop bespoke solutions, drawing in the most appropriate funds for the client.

9 Question 9. – The effectiveness of current Government policy.

The success of any Government initiative is dependent upon the willingness or ability of the banking sector to support its customers. There is evidence that the mechanisms involving UKEF are improving, but these positive signs have taken a disproportionate amount of time to have taken any effect. The banks have prevented UKEF assistance being rolled out at a sufficiently high rate to accommodate the needs of exporters.

This is the result of a combination of factors. Notwithstanding changes in the asset ratios to be maintained by banks, there is an insufficient number of bank staff who are trained or who fully understand what is involved in the export process, while banks’ credit committees do not take into account the complete export funding chain before reaching their decisions.

An equally important factor is that exporters fail to present their business case effectively enough to the banks and other financial institutions. It follows that opportunities to fund export projects utilising Government funds cannot be taken up.

10 Question 10 – Assisting the promotion of exports

TAEFL does not believe that the volume of exports by SMEs will be increased significantly by the Government ‘throwing money at the problem’. Any proposed initiative requires more careful scrutiny to ensure that, by the time the funds have been filtered through the distribution network (typically the high street banks, chambers of commerce or more specialised financial institutions) they remain targeted sufficiently well to have any effect on the businesses for whom they are intended. There is little evidence so far to indicate that the policy of channelling funds for export assistance from UKTI to the Chambers of Commerce is an effective solution.

The agencies of Government should adopt a generally more pro-active stance regarding exporters and the markets they are seeking to address. Local representatives (commercial attachés, for example) should be aware of UK exporters who can fulfil requirements within their territory and be able to effect introductions.

11 Question 11a - How should Government act?

It is essential that better value is obtained for the funds that have been and continue to be committed by Government.

Should the Government be supporting as a first priority existing SME exporter or assisting companies have never exported to take that important step? The TAEFL view is that if a business is exporting successfully, then the likelihood is that it has found the trade finance, banking facilities and credit insurance to make this happen. A given amount of Government assistance would be expected to yield greater Additionality than the same sum ‘invested’ in a company that is not presently exporting.

12 Question 11b – Government targeting specific sectors etc.

Effort should be expended on promoting exports to all countries and regions where there is hard evidence of business opportunities. Trade & Export Finance Ltd believes that there is an undue concentration on the BRIC economies, on which every other exporting nation is

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currently focussing. Independent research demonstrates that Africa, for example, is a growth market which remains largely untapped and competition is less other than the Chinese who are investing heavily in the continent.

13 Question 12 – Co-ordination

The ‘privatisation’ of overseas trade missions typifies the way in which export support activity has become progressively more decentralised and fragmented over time. Exporters turning t0 BIS for support find at least four different contact points within a single Department.

14 September 2012

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UK India Business Council (UKIBC) – Written evidence

UK India Business Council (UKIBC) – Written evidence 1.0 Introduction

Further to the request from the House of Lords Small and Medium Sized Enterprises Select Committee (“the Committee”), the UK India Business Council (“UKIBC”) is pleased to submit its written evidence for consideration by the Committee.

We agree with the Committee that encouraging greater commercial activity within the SME sector is fundamental to the UK’s economic recovery.

Since SMEs provide nearly 60% of private sector employment in the UK, it is important to understand how they can take advantage of the important opportunities that international markers offer, as the British government looks to have an export led recovery.

The UKIBC is the premier business-led organisation promoting bilateral trade and investment between the UK and India by providing a platform for UK PLC across specified industry sectors which accelerates business “learning”, enables a lowering of entry risk, maximises serendipity and, enhances the chances of sustainable success.

The UKIBC plays an influential role in creating and sustaining an environment in which free-trade and investment flourishes. Through the facilitation of partnerships, and with an extensive network of influential corporate and individual members, the UKIBC provides the resource, knowledge and infrastructure support vital for UK companies to make the most of emerging opportunities in India.

The Committee’s inquiry is looking at exports globally. The UKIBC’s work is focused specifically on exports to India, a market that is vital for the UK’s future prosperity.

The evidence which the UKIBC is pleased to submit is the result of a survey in which some 211 separate businesses participated69 and of face to face discussions via a roundtable of a further 20 businesses. The UKIBC offered the opportunity to participate in these opinion-gathering events to all members and sector subscribers as well as those UK based companies we have contacted over our years of operation.

In addition, we have amplified these conclusions by also drawing on relevant surveys and research which we, as the UKIBC, carry out regularly on aspects of bilateral trade involving SMEs70. Finally, also, the UKIBC has tapped into our collective organizational and personal experiences gathered over decades of international trade.

69 69% of Survey Respondents were SME (as defined by EU). 72.2% of Survey Respondents already export, 27.8% do not.

70 UK India Business Council Information Services Survey (2010); UK India Business Council the Demand for Business Services from India Report (2011)

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2.0 EXECUTIVE SUMMARY

India represents, today, one of the fastest growing economies in the world. To quote Standard Chartered Global Research:-

“The Super-Cycle Report projects that .................... India could become the world‟s third-largest economy by 2030. Moreover, India is likely to grow faster, on average, than China over the next two decades. We factor in a trend rate of growth of 6.9% for China, allowing for setbacks along the way, and of 9.3% for India, again taking into account the business cycle.”71

Since 1991, India’s GDP has grown at an annual average rate of 7.45%72.The growth is driven by a number of specific factors:- a need to upgrade infrastructure, rapid urbanisation, and expansion and innovation in the manufacturing and industrial base, the establishment of the country as a world leader in off-shore & IT services and a growing and increasingly youthful population. This has led to a predominantly domestically driven expansion of demand, fuelled by a rapidly growing middle-class. According to McKinsey73, India will become the world’s fifth largest consumer economy by 2025. Overall, this momentum is expected to continue despite current issues.

The UK has an active bilateral trade relationship with India. Statistics74 would indicate that UK exports to India (goods and services) has risen by 60% in the period from 2000 to 2010 – indeed, between 2010 and 2011 UK exports to India increased by 29% making India, the UK’s largest non EU market75 - however, this has to be put into the context of a 550% increase in value in India’s total import of goods over the same 10 year period. Frustrating though this relative decline is, it masks the rapid increase in Foreign Direct Investment (FDI) flows from the UK, the growth of UK invisible earnings from India and the increase in India –UK e-commerce.

India is a complicated market to access, with significant regional, social, religious, linguistic and commercial differences between and within the 28 States that make up the Indian Union. These complications are amplified for UK SMEs looking at entering the Indian market.

In analysing the responses to the Survey and the Roundtable there are three general themes:-

• First, that the majority of SME’s do not consciously plan to export to India or, indeed, elsewhere. Many companies’ first foray into foreign trade is via a chance

71 “India in the Super Cycle”: Standard Chartered Global Research, 25th May 2011

72 Economic Times 2011

73 McKinsey : Urban World Cities and the Rise of the Consumer Class; 2010

74 UK-India trade Statistics; House of Commons Library(ref SNEP 6191) 19th January 2012

75 British High Commission for India website 17th September 2012

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enquiry through a website or a networking session. As such, their level of preparedness and experience is limited, their knowledge of the operating environment and commercial options is low and their management and operational bandwidth is restricted.

• Secondly, as a consequence SMEs’ primary requirement is for practical and

commercially relevant information/ advice delivered by knowledgeable business savvy individuals. This information/advice should combine primary intelligence as well as desk-top analysis and should be priced appropriately.

• Thirdly, involvement with India is a process rather than a series of discrete steps.

Support during this process should ideally be provided by a single point of entry throughout. In practice, it is provided by a varying number of public and private entities during the period. OMIS was acknowledged by some respondents as useful. A particularly strong request was made for UK Government backed in-country support.

Nevertheless, as India’s economy rapidly expands, particularly into areas where the UK has expertise such as retailing, logistical services, digital and creative industries, advanced manufacturing, alternative energy and healthcare, it is necessary to galvanise SMEs to examine the opportunities. In addition, through our Survey and our subsequent discussions at our Roundtable, UK PLC and, in particular, the SME’s made the following specific requests:-

• Changes in regulation to reduce the burden of export related administration including a streamlining of export paperwork;

• The introduction of tax incentives to encourage them to seek exports and to

develop business internationally;

• Catalysing “accelerated-learning” via training ideally provided by a “Go-To” organisation which is a knowledgeable non 3rd party provider.

• Increased emphasis should be given to more detailed and in-depth information on the operating environment across the 28 States with India and within individual industry sectors.

• The establishment of an impartial UK Government backed Business Centres - along similar lines to that provided in China by the China British Business Council (“CBBC”) or by the Indo-German Chambers of Commerce in India in specified cities in India - possibly complementing the planned roll-out of Deputy High Commissions and British Trade Offices, providing entry and on-going support services exclusively for UK PLC.

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• The development of strategy to develop further British brand awareness in certain developing sectors where Britain has key strengths through measured such as raised UK PLC profile, targeting of relevant trade fairs and integrated Ministerial visits.

• A continued effort, on a transparent basis, by the UK Government to address market access issues

Further detail is contained within the report under Sections 3 & 4 and in Annex 1 & 2. 3.0 Summary conclusions: Barriers to Exporting to India

The table below sets out the summary conclusions of the survey conducted by UKIBC. The respondents have been split into two groups: exporters and non-exporters.

In general terms, those non-exporters are more likely to consider barriers “less problematic” than those with exporting experience. On further examination there is a more nuanced message. Non-exporters underestimate the difficulty of getting market information, access to decision-makers and legal and tax regulations, but over estimate the difficulty of hiring or finding management time.

The conclusion must be that you need to understand the realities – if you are there, you need to learn rapidly from people or companies with experience.

Figure 1

Not Problematic

Slightly Problematic

Problematic Very Problematic

Non Export

Export

Non Export

Export

Non Export

Export

Non Export

Export

Obtaining market information 32% 19% 23% 39% 43% 37% 2% 5%

Access to decision makers 11% 14% 20% 32% 51% 44% 18% 10%

Finding the management time 20% 29% 32% 30% 34% 33% 14% 8%

Hiring staff in country 15% 26% 49% 32% 20% 35% 16% 7%

Dealing with legal or tax regulations 12% 8% 38% 15% 25% 29% 25% 48%

The business culture and/or language barriers

17% 19% 40% 36% 35% 27% 8% 18%

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Protecting your intellectual property 29% 18% 31% 37% 31% 27% 9% 18%

Ensuring you get paid and enforcing contracts 14% 9% 29% 32% 40% 27% 17% 32%

Dealing with customs procedures or paperwork

17% 19% 43% 44% 23% 40% 17% 21%

Obtaining trade finance or credit insurance 11% 43% 46% 25% 29% 20% 14% 12%

Source: UKIBC Survey

3.1 Obtaining Market Information

Due diligence and hence securing market information is key to succeeding in India.

The fact that 80% of exporting respondents felt obtaining relevant information was a problem is a critical issue.

Superficially, this issue is a surprise since there is a large quantity of information on India available to SMEs through multiple sources. However, further examination indicates, the problems resides not with a lack in the absolute level of information, but with this information being able easily to access, interpret and apply. The abundance of information from multiple sources, in itself, made it problematic. Hence, it is not clear to an SME which sources are credible and authoritative and which are not “real experts”.

3.2 Depth of Information

While it was acknowledged that professional services firms publish “thought leadership” pieces, that trade bodies such as the UKIBC provide sector specific reports and some “thought leadership”, and that UKTI provide information for individual companies via OMIS, participants expressed a desire to receive more insightful, non-generic information.

Indeed, three further information needs were raised during the roundtable discussions:

• A renewed push on opportunities in India: This particular project was given additional weight given the negative publicity India is receiving in the UK press because of the political stalemate and, overall, declining growth figures.

• Data on Indian states. It is widely recognised that India is an important high growth market, but too many businesses are not aware of the diversity within the country. An Indian-wide approach hides the fact that some States within India are growing at double digit rates, house world class industrial clusters hungry for UK technology, and collectively are home to hundreds of millions of aspirational consumers with an attraction to UK brands.

• Promoting sector-specific trends and demand to engage with more UK SMEs, perhaps through sector-specific trade associations.

3.3 Observations on existing market support

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Existing market entry support was deemed adequate but could be improved. Respondents and roundtable participants indicated a strong demand for high quality general and bespoke advice, but SMEs are very cost-conscious.

The UKTI’s Indian OMIS service met with broad approval. Those that had used it made the point that it was a low cost and high quality product. At the same time, the point was made, that, ideally, one has to be an already informed and engaged company to gain maximum benefit. It was not perceived to be an entry-level product.

The need for formalised entry-level support provided by an Indian expert or someone who has relevant previous commercial experience provided both in-country or within the UK, is a strong consistent message.

At the same time, a minority of respondents raised in general the cost of market information. UKTI’s OMIS, some UKIBC material, other trade associations’ offerings and professional services firms’ services can cumulatively amount to a significant cost to SMEs.

3.4 Access to Decision Makers

Corporate India is very hierarchical with significant operational decisions being taken at a senior level.

Responses to the Survey suggested that access to decision makers was a barrier to engagement within India. This point was further explored at the Roundtable.

In practice, the challenge is not access to the decision makers per se. While these can be and are accessible in many cases via UKTI, UKIBC, and other networks,

The difficulty is building relationships with the decision makers and influencers within the hierarchy of Indian organizations. SMEs need to nurture the introductions made by their own efforts or by 3rd party networks themselves and hence invest time and effort to develop their own networks.

This takes time, money and knowledge to make the necessary visits to India and to build rapport, practical dialogues, and to reach commercial agreements at all the appropriate levels and departments of the Indian counterpart. Large UK companies need to build the same relationships, but they have more resources and international experience and knowledge to enable them to do this.

3.5 Lack of Resource

The largest barrier SMEs face to exporting to India is lack of resource – time, knowledge and money.

In many cases, SMEs are currently devoting all their resources to surviving in the existing home market and don’t have the capacity to access India. To succeed – ie, make money – in India, takes time, which of course costs. The general view at our roundtable was that success requires 3 to 4 years of up-front investment, with multiple market visits to build relationships and establish a sales/distribution team.

To convert this time and cash investment into success, SMEs need on-going support; not just a report, but detailed guidance, business plan development, and ongoing guidance/mentoring and services.

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3.6 Dealing with Legal or Tax Regulations

This is an area where UK SMEs respondents indicated a need for good quality and affordable advice.

According to the survey this is very problematic. 48% of exporters identified this option. This might explain why the vast majority of respondents got their information about India from professional services firms. One business explained how tax rules resulted in his business needing to establish companies in Cyprus and Mauritius to ensure he could repatriate profits from India. This added to his costs and time-commitment, eg, attending quarterly Board meetings in Cyprus.

3.7 The Business Culture and/or Language Barrier

Because the way of doing business in India is different from Britain or other developed economies, the particular challenges needs to be recognised.

The most popular response from the survey was “slightly problematic”. Roundtable participants believed it was a particular problem for SMEs due to the lack of opportunity to invest in due diligence prior to engagement.

3.8 Protecting your Intellectual Property

As with the business culture question, Survey respondents ranked IP protection as only “slightly problematic” but the Roundtable disagreed due to the problems with dealing with any kind of bureaucratic service in India.76

3.9 Obtaining Trade Finance and Credit Insurance

68% of Survey respondents which export said that obtaining trade finance or insurance was either “not problematic” or only “slightly problematic”. This contradicts the popularly held view that banks in the UK are not doing enough. Nonetheless, 43% of non-exporters and 32% of exporters to India still want the Government to provide trade finance.

In this area, we want to recognize the revised offering from UK Export Finance (ex-ECGD), which now provides support designed specifically for SMEs.

Indeed, we are aware that UK Export Finance is appointing Export Finance Advisors that will operate in the 9 UKTI regions, and also Northern Ireland, Scotland and Wales with a remit to raise awareness of UK Export Finance’s new products amongst the local export community. We welcome this development.

There does, though, appear to be a lack of awareness of these important services, as evidenced by one Survey respondent who wrote, “Reintroduce export credit guarantee system for small firms. The current systems are only applicable to large firms.”

4.0 What SMEs Want

As the principal barrier to exporting more is lack of resource – time, knowledge and money, it is no surprise that the types of support SMEs raised address their resource constraints.

76 The UKIBC very much welcomes the appointment earlier this year by BIS of an IP Attache in India.

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Figure 2 – What are the most important things the UK government and UKIBC could do to help SMEs overcome barriers

The following itemised points represent a summation of comments made by respondents answering the above table (vz Annexe 2) and supplemented by the in-depth discussion at the Round table

4.1 Cut UK Red Tape

SMEs want to free their resources from administration to business development. Annex 2 contains some of the comments we received on this topic. These include simplifying export paperwork and simplifying the tax code, which will reduce the need for spend on accountants.

4.2 Reduce the Tax Burden

Businesses proposed a range of tax cuts and incentives that would enable them to grow. Annex 2 gives more detail, but the requests included: tax incentives to mitigate set up costs of international operations; cut tax on air travel as this makes market visits even less affordable; abolish National Insurance Contributions, at least until a company is profitable; and allow international business marketing/business development costs to be offset against corporation tax until a specified value of sustainable business was secured.

4.3 Quality Advice, Easily Accessible, Delivered by Qualified Individuals

As with our consultations in 2010 and 2011, businesses asked for “accelerated learning” – reduce the time it takes to succeed in India and help them avoid the pitfalls.

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As noted above, there is no shortage of information about doing business in India. Across the UK and across sectors, businesses are looking for information and advice on the Indian market. They turn to a range of people: local chambers of commerce, local UKTI staff, UKIBC, trade associations, professional services advisers, and the internet.

The problems with this are that the information is in several different places; relatively few people or organizations in the UK have sufficient expertise but many others still offer advice; and not enough SMEs have the ability to fully interpret the information and apply its to their own company.

The clear message that the UKIBC received in our consultation was that there should be a “Go To” organization that is credible, expert and specialises only in India. This organization needs:

• An online bank of knowledge – its own and that of partners; and • Specialist and expert India business advisers located locally across the UK, to deliver

sound advice local to SMEs.

4.4 . . . supplemented by relevant training

It was also clear that SMEs want/need training on how to do business in India.

Understandably, the survey indicated a stronger demand from those that do not currently export. The need for such an offering was confirmed by the exporters’ higher awareness of just how much of a problem it is to overcome the barriers to exporting to India. The training should help the SMEs navigate the barriers, provide learning from peers, and, importantly, not just be classroom based – there should be ongoing mentoring and support until the company has found success.

4.5 “Launchpad” type services

The survey strongly backed a “Launchpad” type service in India. This recommendation was endorsed by the SMEs at the roundtable. Such a service was similarly supported in the UKIBC’s earlier consultations.

Roundtable attendees highlighted as best practice the China Britain Business Council’s service in China and, particularly, the Indo-German Chamber of Commerce77 in India both of which help companies enter the markets quickly, at a lower cost and lower risk. It was acknowledged that similar services were provided in India by the private sector, but

77 The Indo-German Chamber of Commerce is headquartered in Mumbai and has branch offices in Delhi, Kolkata, Chennai, Bangalore, Pune and a liaison office in Düsseldorf. It is financed 3 Landesbanks and by various Chambers of Commerce & Industry in Germany. Their network in India is supplemented by 17 honorary representatives in other towns and cities of the subcontinent. The Indo-German Chamber of Commerce provides Single Window Business Solutions for companies planning to do business with India or Germany. The Market Entry Service is a core service and is supported by Business Advisory, Taxation and Legal services and Recruitment. Other important services include Market Research, Business Partner Search, Event Management, Property Search, PR & Press amongst others, specifically tailored to the needs of small and medium-sized companies. Over the last 6 years, they claim to have supported more than 150 German companies to get established in India.

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respondents felt that the CBBC and German approach – i.e. a business-led service backed by the UK Government - would provide the best and most reliable platform for UK SMEs.

Such facilities could be co-located in cities so as to complement the extended network of Deputy High Commissions and British Trade Offices planned to be rolled out over the coming months.

A formally-backed and/or funded offering would save SMEs from doing due diligence on the independent providers, provide a “home away from home” and also start to promote further Britain PLC as a strong commercial brand in country.

4.6 Promote “Brand Britain”

When asked about which of our competitors “do exporting better” the roundtable gave one resounding answer – Germany.

The Indo-German Chamber of Commerce cited above was one example cited. Another main German strength cited was the financial support provided to SMEs to attend Indian trade fairs. German companies are apparently subsidised to participate and are housed in a “German Pavilion” - other delegates and local Government ministers and officials at the fair therefore know Germany is there, and in numbers.

This collective approach by Germany sends a positive signal about commitment to India. It also allows them to project a unified message about what Germany is offering and to sustain and build their brand – a strong reputation for quality.

The US, similarly, has an all-powerful brand in terms of software and information technology.

The UK’s excellence in financial and professional services and higher education are well-recognised in India. But as the Indian market is at least partially closed to foreigner providers in both areas, and student recruitment is often damaged by stories around visas, the UK is not fully able to capitalize.

However, other areas of genuine UK strengths are not sufficiently recognized in India - for example, in media, advanced manufacturing, infrastructure, vocational skills and a whole range of technologies across engineering, healthcare & life sciences, low carbon, and software.

Respondents and participants, therefore, felt more should be done to “open the doors” by creating a positive British brand awareness in specific niches via directed campaigns.

4.7 Delivery on Market Access Negotiations

Although the technical negotiations can seem remote from their day to day operations, business want the UK government to deliver better access to the Indian market via the JETCO (the Joint Economic and Trade Committee) and the EU-India FTA negotiations.

They also want HMG to represent their views and lobby on their behalf – collectively and individually – with the Indian authorities.

October 2012

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Annex 1

This Annex details the UKIBC survey results. A short section on Methodology is followed by sections on results. The results from the first few questions are universal, then the results split into three different streams;

• Companies which do not export – Section 2 • Companies which export to India – Section 3 • Companies which export to areas of the world other than India – Section 4

Methodology

In August 2012, UKIBC contacted relevant businesses within their data bases by email and asked them to complete a short survey on their views on the support needed by SMEs to export.

211 business men and women self completed an online survey providing primary quantitative data plus several used the spaces for additional comments. These comments are at Annex 2.

Results

Figure 1.1 – Size of company – All respondents

Almost three quarters (69%) of companies who responded are considered to be an SME according to *EU rules. * EU definition of SMEs used by member states for info:

Enterprise category Headcount Turnover or Balance sheet total

medium-sized < 250 ≤ € 50 million ≤ € 43 million

small < 50 ≤ € 10 million ≤ € 10 million

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Figure 1.2 – Graph showing which sector filled in the survey – All respondents

A wide cross section of sectors across the UK economy completed the questionnaire but the largest response came from the Professional, Financial and Legal services (32%) and then Advanced Engineering and Manufacturing (23%). There were some respondents who felt they did not fit into the specific categories and thus indicated “other” in their responses.

Exporters and Non-Exporters

72.2% of respondents already export, 27.8% do not.

2.0 Companies which do not export

Figure 2.1 – Barriers to SMEs exporting – Non Exporters

Not Problematic

Slightly Problematic

Problematic Very Problematic

Obtaining market analysis 31% 23% 43% 3%

Identifying who to make contact with in the first instance

23% 23% 37% 17%

Building relationships with or access to key influencers or decision makers

12% 20% 51% 17%

Hiring staff in country 14% 49% 20% 17% Finding the necessary management time

20% 31% 34% 15%

Dealing with legal or tax regulations

11% 37% 26% 26%

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The business culture and/or language barriers

17% 40% 34% 9%

Protecting your intellectual property

29% 31% 31% 9%

Ensuring you get paid and enforcing contracts

14% 29% 40% 17%

Dealing with customs procedures or paperwork

17% 43% 23% 17%

Obtaining trade finance or credit insurance for business activity

11% 46% 29% 14%

The results suggest that non-exporters consider most barriers are either slightly problematic or problematic. For a company looking at India for the first time, developing contacts in such a complicated market is a clear concern. 68% of respondents categorised this issue as “problematic” or very “problematic”. 57% of respondents were similarly concerned about getting paid and enforcing contracts. It is not clear whether these answers from non-exporters are based on real experience, i.e. they tried and failed to export, or are assumptions based on their peers’ experiences. But these are high percentages, perhaps, indicating a level of support and due diligence required to assist them during the initial forays.

Figure 2.2 – The most important things the UK government and UKIBC could do to help SMEs overcome barriers – Non Exporters

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The chart clearly shows the non-exporters pre-occupation on advice and on-going support from an impartial source.

Advice tailored to the individual companies needs is the highest priority followed by on-going support in country and training on how to export.

These responses clearly indicate recognition of a need to clearly understand the operating environment ahead of and during the exporting process.

Practical support around trade finance and fiscal incentives to export is also important.

The least important way is to represent UK business views to other governments with just of 20% of respondents selecting this variable, although it has been noted previously that existing exporters placed a greater emphasis on this element.

Figure 2.4 – Sources of knowledge or assistance that have been used to help with potential exporting – Non Exporters

The greatest sources of knowledge that have been used to help with exporting are professional services with 53%.

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3.0 Companies which export to India Figure 3.1 – What factors influenced your decision to export? – Exporters to India

There are two main reasons why companies decide to export: request from customers (64%); and visiting the market personally (58%).

The opportunities which are highlighted through UKTI (18%) are not considered to be the key determinates on a business’s decision to export. The decision to export is much more based upon a person’s own experience and not driven from outside circumstances such as competitors or media.

Figure 3.2 –The main barriers SMEs face in exporting to India –Exporters to India

Not Problematic

Slightly Problematic Problematic

Very Problematic

Obtaining market information 19% 39% 37% 11%

Access to decision makers 14% 32% 44% 10% Finding the management time

29% 30% 33% 8%

Hiring staff in country 26% 32% 35% 17% Dealing with legal or tax regulations 8% 15% 29% 48%

The business culture and/or language barriers 19% 36% 27% 18%

Protecting your intellectual property 19% 36% 27% 18%

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Ensuring you get paid and enforcing contracts 8% 32% 27% 32%

Dealing with customs procedures or paperwork 19% 20% 40% 21%

Obtaining trade finance or credit insurance 44% 25% 20% 11%

The table shows that most of the barriers are between slightly problematic or problematic.

The most problematic variable when exporting to India is dealing with legal or tax regulations in India with almost half of respondents (48%) saying that this is very problematic and 29% said that it was problematic.

Thirdly, obtaining trade finance or credit insurance was not problematic according to 44% of the respondents.

Figure 3.3 – The most important things the UK government and UKIBC could do to help SMEs overcome barriers from companies which export – Exporters to India

This graph shows that practical support in-country for an exporter is the best way in which the UK government or UKIBC could help SMEs overcome trade barriers.

Exporters to India view receiving on-going bespoke advice highly. This is followed by representing UK business views and getting fiscal incentives as the second most important thing in which government and business-led organisations such as the UKIBC could do.

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Figure 3.4 –Sources of knowledge or assistance which have been used to help with exporting – Exporters to India

The companies which export to India get most of their information from both Government and Professional services indicating that there is a greater utilization of services provided by government by those who already export.

There is greater use of research from media channels and also with working with other similar firms to be able to get a better understanding of how to export to India.

4.0 Exporting to other areas of the world

Figure 4.1 – What factors influenced your decision to export? – Exporting to the Rest of the World

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As with India exporting companies; “Requests from Customer” at 70% is the single biggest catalyst to exporting, followed by “Visiting the Market Personally” at 55%.

At the same time, there are large differences between companies which export to India and ones that export to the rest of the world. “Competitors already active in markets” and “Poor Growth Prospects in Existing Market” are much more important reasons for companies exporting to the rest of the world than for companies exporting to India.

Figure 4.2 – Factors affecting SMEs exports – Exporters to the Rest of the World

Not Problematic

Slightly Problematic Problematic

Very Problematic

Obtaining market information 15% 38% 41% 6%

Access to decision makers 21% 26% 32% 21% Finding the management time

29% 21% 38% 12%

Hiring staff in country 32% 18% 26% 24% Dealing with legal or tax regulations 16% 26% 32% 26%

The business culture and/or language barriers 27% 35% 27% 11%

Protecting your intellectual property 24% 47% 18% 12%

Ensuring you get paid and enforcing contracts 15% 32% 21% 32%

Dealing with customs procedures or paperwork 18% 44% 21% 17%

Obtaining trade finance or credit insurance 41% 26% 12% 21%

It is similar to the other tables in that most of the answers are either slightly problematic or problematic indicating that while there are obstructions they are not significant enough to act as a barrier to trade.

However, there are some discrepancies such as that ensuring you get paid and enforcing contracts could either be slightly problematic or very problematic.

Secondly, obtaining trade or credit insurance and hiring staff in country is considered to be not problematic, which is very similar to companies exporting to India as shown in table 3.2.

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Figure 4.3 –The most important things the UK government and UKIBC could do to help SMEs overcome barriers – Exporters to the Rest of the World

Again, bespoke advice and practical support in country e.g. “launchpad” type services are cited by respondents as the most important thing that the UK government and UKIBC could do to help SMEs overcome barriers in exports. 58% of respondents rated these elements as the most important

Secondly, companies exporting to the rest of the world feel that there is a great need for encouragement to export through fiscal incentives to export and support on trade finance.

Thirdly, with only 15% of respondents exporting to other areas of the world selecting delegations (in and out of the UK) as an important way in which government can help, these was the least favoured option.

Figure 15 –Sources of knowledge or assistance used to help with exporting – Exporters to the Rest of the World

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As in the other streams, professional services tends to be the greatest source of knowledge or assistance with 66% of respondents selecting this option.

What differentiates exporters to the rest of the world and those who do not export is their willingness to learn from other firms with 53% of respondents choosing this option with only 32% selecting this option from those who do not export.

Secondly, there seems to be a greater utilisation of information disseminated from the government with 47% of respondents saying that they received knowledge or assistance from government bodies e.g. UKTI.

Annex 2: COMMENTS included in survey by respondents

Question 8 – Non- Exporters - Do you have any thoughts or comments on how the UK can increase exports by SMEs?

1) Greater tax incentives/ benefits and improved risk underwriting into high risk/ high value markets eg China Small Enterprise in the Life Science and Healthcare sector

2) More help with trade show funding like the rest of Europe get – Medium

Enterprise in the Advanced Engineering and Manufacturing sector

3) Find a way to bring customers and suppliers together that is cost effective and not time consuming – Small Enterprise in the Professional, Financial and Legal Services sector

4) Provide the framework for exporters to structure and finance deals with assistance

of professionals – Small Enterprise in the Professional, Financial and Legal Services sector

5) Identifying the demand and creating those products which are in demand with the

help of government – Medium Enterprise in the Professional, Financial and Legal Services sector

6) Without government-backed trade insurance there will be no exports to speak of

because it is just out of our reach. We cannot shoulder these risks – Large Enterprise in the Professional, Financial and Legal Services sector

7) Exporting needs to be from the basis of a stable home market – Small Enterprise

in Professional, Financial and Legal Services sector

8) Create a bespoke support team with possible partnership with Indian firms who SMEs can approach about doing business in India. Helping understand issues such as the complex tax regulations , bribery, finding the right skill base of employee, working in India as an expat etc – Medium Enterprise in Infrastructure sector

9) More consistent UKTI support - more outward missions - more expertise in OMIS

research – Small Enterprise in Digital Innovation sector

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Question 15 – Exporters to India - Do you have any thoughts or comments on how the UK can increase exports by SMEs?

1) By providing OMIS at zero cost. By sharpening up the attitudes to commerce in the political embassies. Moving the Commercial sections overseas from FCO & in to the revised UK organisations dealing with Trade. ONE Organisation please. – Small Enterprise in Advanced Engineering and Manufacturing sector

2) Actively provide business opportunities and leads and make the UK companies bid

and assure them of ground support to win first business. Improve further the UKTI OMIS services - Small Enterprise in Advanced Engineering and Manufacturing sector

3) Simplified VAT and customs procedures - SME do not have specialist department

when you only employ 40! – Small Enterprise in Advanced Engineering and Manufacturing sector

4) Getting paid out of India is the biggest problem we have had and support in being

sure that Indian banks operate transparently would increase our exports to that country several fold – Small Enterprise in Retail, Lifestyle and Logistics sector

5) Cultural education on how to do business. Benefits and potential pitfalls - show

potential exporters that they are not alone with the challenges others have been there and won! – Large Enterprise in Professional, Financial and Legal Services sector

6) Give us some tax incentives to mitigate set up costs!!! – Medium Enterprise in

Advanced Engineering and Manufacturing sector

7) Export paperwork for manufacturers is very complex and time consuming. Reduced complexity or simpler advice would help. E.g. the S Korea - EU FTA runs to several hundred pages just to comply with a single sentence for preferential tariff on the invoice. That cost us 0.5 days admin time to no financial benefit to us. That does not incentivise us to increase our export volume as we cannot afford the admin time to deal with the increasingly complex paperwork, as we are not specialist exporters, but manufacturers who happen to export – Small Enterprise in Advanced Engineering and Manufacturing sector

8) Stronger permanent UK professional business presence in top target countries –

Small Enterprise in Life Sciences and Healthcare sector

9) Help us overcome the fear of exporting. – Small Enterprise in Digital Innovation sector

10) Much better support from Government. Plus awareness of what is actually going on

in markets. Make companies totally aware of the markets and how SME's can approach these. Local UK events regarding exports but properly run plus all institutions should make companies aware of trade events that are happening - not

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just the ones they feel important – Small Enterprise in Digital Innovation sector

11) One voice, too many organisations promoting similar services causes confusion –

Large Enterprise in Skills and Education sector

12) Build on success-sectors that are booming, entrepreneurs or conglomerates that are successful in India and have good links. Celebrate success through UKIBC – Large Enterprise in Retail, Lifestyle and Logistics sector

13) Getting like minded people together, ideally from similar industries to talk to other

established exporters/Indian operators – Medium Enterprise in the Other sector

14) Issue in India is access to the right people to build relationships. UKTI should do

more to facilitate/encourage/fund meetings of the right sort where 1-on-1 discussions are set up. – Large Sized Enterprise in Advanced Engineering and Manufacturing sector

15) Manage our image in India better esp. wrt. UK Border Agency and deliver responsive services for all sectors. Since HE now receives a tiny proportion of its funding from HMG and we are a top ten export sector by fiscal value, perhaps the relevant departments would communicate their offer directly to us via British Council or similar? – Large Sized Enterprise in Skills and Education sector

16) We must do all we can to encourage SMEs to export. They need to have confidence

in travelling to countries and thus we need to take some of the mystery out and get facts into them. Local International trade Groups are a good way why experienced companies pass on tips and advice to those seeking it. However the message must be got out so that the non exporting SME’s get an appetite to export i.e. increase sales and profits and you get paid quicker and easier than UK Business – Small Sized Enterprise in Advanced Engineering and Manufacturing sector

17) A local legal and accounting outsourcing provider vetted by UK India Business

Council who could give detailed advice and process local business transactions would be very helpful (else you have to set up an Indian subsidiary company and employ / manage remotely) – Medium Sized Enterprise in Professional, Financial and Legal Services sector

Question 21 – Exporters to the rest of the world - Do you have any thoughts or comments on how the UK can increase exports by SMEs?

1) Ensure the £ is not allowed to rise above current levels, and keep interest rates low. – Medium Sized Enterprise in Skills and Education sector

2) The issue isn't how the UK can increase exports by SMEs. The real issue is how to make SMEs more successful part of the overall economy. When SMEs are prosperous - or at least have stable cash flow - they will feel more comfortable about investing in exporting.

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Many SME companies are under financial pressure due to the poor economy plus taxation / regulation. The government is a big part of the problem. For years it has milked SMEs and others for taxes - and provided very little in return. It has also made them pay social benefits - such as maternity benefits, etc. etc. If the government values these things so highly it should pay 100% of the cost. Not load it on to business.

You cannot do business in a new territory without visiting it. It does not help when the government puts heavy taxes on air travel. For example on a airfare of £820 to China, I recently paid tax of £360, which is scandalous.

The government should allow entrepreneurs to make more money by reducing taxes. They would invest the profits to make even more money. And the economy would boom. Abolish National Insurance. NI is a burden particularly on new business and technology businesses, which pay NI before they even make a profit. Let's have some social justice here!! Abolish capital gains tax. It is the entrepreneur's reward for working for next to nothing for years. Simplify the tax code. Slash the costs SMEs incur with accountants and lawyers. Slash staff at HMRC. Pass on savings to SMEs – Small Enterprise in Digital Innovation sector

3) Promote the capabilities of SMEs overseas, assist with training / demystifying

exporting for SMEs, assist in cutting bureaucracy / red tape with governments – Small Enterprise in Skills and Education

4) Help to understand the opportunity, and how the market works (as consumers,

retailers and wholesalers will be different than in UK)

Help to understand the barriers – Small Enterprise in Retail, Lifestyle and Logistics sector

5) Allow marketing spend to be offset against corporation tax until a specified value of

sustainable business achieved – Small Enterprise in Retail, Lifestyle and Logistics sector

6) Support trips and trade exhibitions. We fail to attend many trade shows and there is

no financial or tax support. Compare and contrast Germany, China government support to exhibit and support. – Small Enterprise in Life Sciences and Healthcare sector

7) Reintroduce export credit guarantee system for small firms. The current systems are

only applicable to large firms - Small Enterprise in Life Sciences and Healthcare sector

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UKTF, ITS and Felixstowe College – Written evidence

UKTF, ITS and Felixstowe College – Written evidence 1. This evidence is submitted jointly by ITS Training Services Limited and Felixstowe

College, both of which are well established major providers of training and advice to SMEs across the UK and Europe, and UKTF, a new organisation offering specialist advice and information to companies wishing to expand their overseas business. (See Annexe 1)

2. Prior to submitting this evidence 100 SMEs were surveyed and 80 responses received; the collated results are appended to this evidence. (See Annexe 2)

3. It is clear from the survey is that the importance of European markets is decreasing. This

is exacerbated because of the EU downturn which is causing consumers in Germany, Spain, Italy, Romania and Poland to look at cheaper products which, in turn, is having a direct impact on trade between the UK and the EU.

Q1 & 2 4. As SMEs are the backbone of the economy, so they are of fundamental importance in the

export market. Many are niche suppliers of products and services which are in high demand in their targeted markets. It is not possible to delineate the countries to which SMEs export as these already cover each continent and sub-continent and are growing continually. More details are included in the results of the survey contained in Annexe 2.

Q3 5. Statistics available from Eurostat show the UK generated 11.5% of external exports from

the EU 27 in 2011, (in second place to Germany (27.7%).) Much of this came through SMEs. The recent 2011 World Bank survey on the ease of doing business puts the UK 7th position worldwide, significantly improved from earlier years. Despite the excellent research behind the report, it is not easy to make international comparisons as there are influencing factors in each economic area which do not always bear direct comparison. Nevertheless, it appears that some newer economies encourage and achieve export by SMEs more that the UK – e.g. Malaysia, Korea, Hong Kong, Japan and China. Their government-sponsored export organisations seem to be more business-friendly and less bureaucratic than those in the UK.

Q4 6. SMEs which export successfully are those whose products or services are of high quality

which makes them sought after in the domestic market. Their owners have an entrepreneurial attitude to developing new markets for the products or services which they sell or provide, and have the confidence or prior knowledge to do so successfully. They recognise that their products or services should have an equal appeal in other international markets and that there is a greater market for these goods or services which will benefit the company.

7. SMEs which do not export may be equally entrepreneurial in their own field but view their sole market as national or local, often correctly and necessarily. They may also not feel that they wish to take the risk of entering an unknown foreign market, especially in a time of economic downturn, if they are making sufficient turnover and profit within their existing markets.

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8. In the current economic climate an increasing number of companies are now considering new markets overseas as the means of keeping their businesses profitable and growing, especially as more traditional markets in Europe are contracting as a result of the economic downturn. Many, however, remain nervous of doing so without external support and advice.

Q5.

9. Many SMEs are deterred from exporting or exploring international markets by lack of knowledge about them and by fear of local regulation. (This is addressed later in this submission.) Currently there is not sufficient support from Government and within the private sector to encourage them sufficiently to make that leap of faith.

10. Among the perceived and real risks are:- • The lack of relevant up to-date national information relating to some countries (e.g.

Russia / Ukraine). This holds back the development of business in these areas. • ‘Prompter or Warning messages’. This is an area where exporters need country-

specific services (e.g. where country legal changes affect cargo in transit) and assistance in finding a solution to problems which they have encountered.

• Currency fluctuation vs. actual payment date, payment methods and problems with banks’ attitude to ESCROW v Documentary Credits. In these areas, exporters need to have other options of advice in addition to their bank as they need impartial information.

• Poor information concerning possible buyers, agents and distributors for products and services, including knowledge of how to form the contract and or make the first step. This requires expert advice from those knowledgeable about the relevant country and its potential purchasing market.

• The need for an SME exporter to make sure the price at which it has agreed to sell its products is competitive (including the use of Incoterms as this can affect the profit).

• Borrowing or short term finance (while keeping bank charges to a minimum) and the different options linked to payment terms and currency risk. There is generally insufficient independent advice available in this area.

• Ensuring prompt payment. Letters of Credit, Documentary Credits, Waybills and Bills of Exchange are all used in different transactions and markets. Many SMEs need expert advice on how to complete these without error so that they can receive payment on time.

• Effective use of documentation to protect cargo physically and financially, including packing and marking to meet destination country regulations.

• Lack of adequate information and understanding concerning money laundering. Many SMEs do not understand The Bribery Act 2008 or forget its application to their transactions.

• Product branding and sales promotion. This is a complex area which has to be adapted to meet the requirements of national markets and potential customers. It can be the difference between success and failure in getting into a market.

Q6 11. In preparing to export, SMEs will need to take steps to address the issues raised in Q5

above.

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12. Detailed research into a market, its regulation and potential opportunities (including customers) is essential if the foray into new business is to be successful. This will take time and incur expense using internal resources and external expertise while the company develops a detailed forward plan for its entry to the chosen market. It will include detailed knowledge of the country, its economy, politics, currency and forecasts of its economic development.

An SME exporter has been successful in expanding its export customer base through UKTF. The information provided allowed it to consider a strategy and the UKTF support allowed this to form with some speed. The company chose Vietnam as an area of growth which proved to be accurate based on good solid research

13. Training and understanding of trade is essential. This should be tailored to an individual exporter through courses and qualifications such as apprenticeships and higher apprenticeships in international trade as these can provide the support and knowledge needed to address the points raised in Q5 above. Government should provide access to ‘Freedoms and Flexibility’ courses funded by the Skills Funding Agency which enable students to concentrate on trade matters. This should be available irrespective of age or other qualifications. Government support (not necessarily financial) to business in providing trade, process and documentation service is crucial and could be offered based on a membership model. The cost of membership would be recovered through increased sales and would allow the agency to provide additional support at varying levels.

Q7

14. Market failures are usually caused by poor planning in respect of the new markets, including market segmentation, costs and economic performance. Exporters need to review constantly market change including world oil prices and fluctuations in currencies (including stability). Other factors include bank borrowing, changes in products and trade regulations or competition. These issues will affect all exporters but SMEs will experience additional problems, often related to their supplier costs. Since they do not have the buying power of larger organisations for the purchase of freight, SMEs will rely on the cost savings using a freight forwarding agent (broker) but this may not always be the best option for certain markets.

A medium sized exporter reduced its costs to stay competitive through a project ITS undertook with it to benchmark its freight costs in order to form a standardised approach to markets. ITS carried out the benchmark based on shipping routes/lines directly relevant to its markets, at the same time comparing their costs to other companies of a similar size.

15. Large organisations are able to negotiate lower supplier costs as markets become volatile or, in the case of supermarkets, reduction of product price - again through power led purchase. New initiatives such as bulk product cooperatives should be considered as this would provide a cushion for SMEs. The facilities of ECDG need to be more readily available.

16. A lack of foreign language skills will not usually inhibit trade for those involved in the logistics industry as the majority of staff will speak English. However there are distinct advantages for exporters in employing staff with language skills relevant to their areas of trade as this may assist in understanding cultural matters which in turn may affect communication.

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One respondant to our survey told us: A main reason for lack of overseas business growth is the inconsistent level of support available from UKTI. Staff at overseas posts work to different standards (to each other). The cost of OMIS reports is too high for small exporters at a time when travel and marketing budgets are being cut. Other ‘barriers’ to overseas trade will be overcome by competent exporters….provided professional training is available. Existing exporters will have region(s) they are strong in. Given the current global climate it is more important than ever to diversify. Breaking into a new region, even an experienced exporter is something of a novice, and like the first time exporter, needs to learn a new set of regulations and cultures.

Q8 17. The provision of newsletters or email trade news focused on a specific market or

subject based on client needs is helpful, as many busy users would not read through large amounts of information to find what they are looking for. This area needs a great deal of thought as it needs to guide manufactures/ exporters to extend their current markets.

18. Another area which needs to be addressed is cross trades (which can be classed as an export) and the support necessary to deal with this. This can be a complex area depending on the national laws of both selling and buying countries.

19. As suggested in answer to Q7, freedom and flexibility training would go a large way

to helping current exports and would support non exporters to look at possible markets.

20. Information technology is an important area as we move towards paperless trading.

Software is available but this is costly and needs to be modified to meet world trade needs. UKTF has recently teamed up with one of the leading UK experts in this field to produce a suite of paperless documents, to be made available free on the web. This has been needed for some years but was hindered by undue reliance on UNeDocs developments.

21. HMRC software for customs clearance and trade barriers needs to be made more user-friendly and Government should create a pathway to achieve this.

Q9 – Q12 22. Government has put in place a number of welcome initiatives to assist SME

exporters. UKTI has played an important role in this. These, however, only scratch the surface. It is not possible for Government to provide sufficient support for the large number of SME exporters across the UK. This has to be undertaken by the trade for the trade, at local and national level. Despite the plethora of trade bodies many small exporters remain unaware of the issues which need to be addressed in creating and sustaining a new market for their products – or even simply how best to export them. Experts are needed to impart expertise. A new, dedicated network is required with sufficient manpower and knowledge to assists SMEs though what can be for many a minefield. UKTF seeks to plug this gap.

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23. While there are many Government initiatives these are frequently un-coordinated and sometimes work against each other. What is required is not more but better and centrally coordinated advice and assistance.

24. In December 2009, following extensive consultation with the trade by SITPRO, the Department for Business recommended in the report Simplifying Trade Across UK Borders the establishment of a cross-Government Committee (the International Trade Facilitation Committee) bringing together high level representatives from the Government departments and agencies involved in international trade. It was intended to drive best practice and root out unnecessary burdens and had a wide remit to enhance international trade policy co-ordination by:

• Considering forthcoming EU and domestic legislation affecting trade and ensuring that all cross-cutting impacts are addressed;

• Overseeing and promoting best practice at the border; • Reviewing the UK’s standing against leading international comparators.

25. The inter-departmental International Trade Facilitation Committee was set up with immediate effect and met on a number of occasions over the next 18 months before being disbanded as a result of the departmental reorganisation. It is unfortunate that its work was discontinued and that nothing appears to have been done since then to learn from its findings and successes.

26. Border barriers remain a major hurdle for all international traders and especially SMEs. SITPRO served that trading community well for 40 years. Since its demise in 2010 there has been no UK champion for trade facilitation issues. (One of the authors of this paper was the last Chairman of SITPRO from 2004.) Nor is there any real expertise in these issues remaining in BIS, although there is expertise in other Government departments such as HMRC and DEFRA. This is unfortunate and places the UK, as one of the largest trading Member States of the EU 27, at a severe disadvantage to almost every other Member State which has a dedicated body funded either by Government or the private sector. It also means that the UK has no seat within EUROPRO (the European network of national trade facilitation bodies) nor formal membership of the Trade Contact Group of DG TAXUD. This needs to be rectified. UKTF has been established to provide this help and expertise. Hopefully Government will wish to work with it to assist SMEs in their quest to increase UK trade through exports.

September 2012

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Annexe 1 ITS Training, a government-funded further education provider, has been specialising in shipping-based training, qualifications and consultancy since 1994. ITS offers nationally certified qualifications and works together with shipping industry professional organisations to offer valid, recognised and relevant courses and qualifications. The ITS training centre is based in Felixstowe, one of the largest container ports in Europe, and offers a broad range of courses and qualifications, many of which are also available through online e-learning systems,. Felixstowe College was set up and is managed by ITS. It was created to offer access to further education qualifications and courses on their doorstep for residents in Felixstowe and the surrounding area. The College and its partners provide a range of educational courses and qualifications, from the very basic to advanced levels, with pathways to further study, including degree programmes. Partners include:

• ITS Training • U-Phorm • Suffolk New College • The Institute of Export

UKTF (UK Trade Facilitation) is a newly-established private sector funded organisation, set up on the basis of expressions of interest and concern from large and small traders. Its aim is to make international trade transactions better, faster and more profitable for UK traders. Annexe 2 House of Lords enquiry – commentary on data collected from survey Introduction A short survey was emailed to 100 small and medium companies. Follow-up telephone calls were then made to each company. Responses were received from 36 micro companies (less than 25 employees), 30 small companies (25-250 employees) and 14 medium companies (250+ employees) Trading activity Micro companies surveyed report international trade activity ranging from 10% to 100% of their total business. For 22 of the 36, it represents 50% or more of their activity. Small companies report a range from 5% to 100% with a wider range of variation. More than half of these businesses do more than 50% of their business overseas. More than half of the medium companies surveyed also report that 50% or more of their business is international, although the range is slightly narrower (4% - 80% of total business) The majority of companies surveyed in all categories are trading directly with overseas partners, rather than as part of a wider supply chain. Types of goods traded This does not appear to be affected significantly by the size of the company, with the same major categories in all 3 groupings. The largest single category is Machinery / electrical goods (17 companies), closely followed by Operational Services (including logistics) – listed by 15 respondents. Other significant categories include Chemicals (13), and Food and drink (9) 10 companies reported only general Import / Export activity.

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Markets and patterns of activity Micro companies surveyed are currently trading predominantly in Europe and Asia. 7 companies surveyed in this category reporting trading overseas to only one country (Russia, Vietnam, Nigeria, France, New Zealand, Netherlands and Libya) Small companies show a similar pattern though with a little more variety across the continents. 5 companies operate only in Asia (1 in Egypt, 1 in China, 1 in Hong Kong and 2 unspecified) and 5 only in Europe. Not surprisingly, medium companies report a wider geographic spread of trading activity. 1 company trades only with South Africa but another reports as many as 16 countries across 5 regions. In general, most activity for all sizes of company is focused on Europe and Asia, with smaller numbers in the Middle East and Oceania and notably less activity in N and S America. Only 5 companies (2 micro, 2 medium-sized and 1 small) are currently active in Africa. Barriers to overseas trade Far and away the biggest issue for respondents of all sizes was that of problems in understanding and implementing regulations – this was highlighted by 22 of 36 micro companies, 18 of 30 small and 11 of 14 medium. The second major concern was the lack of adequate market information, raised by 11 micro, 14 small and 5 medium companies. Other problem areas were operational concerns (a particular issue for micro companies), security procedures (cited by 18 respondents), financial issues such as payments and currency risk and social and cultural issues, including language barriers. These issues appear to concern companies of all sizes, though responses received suggest that in general small companies are somewhat more confident than either their larger or smaller competitors – 11 of 30 respondents in the small category report no problems with any of the issues mentioned above, alongside only 5 micro companies and 3 medium.

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University of Chester – Written evidence

University of Chester – Written evidence 1.0 Introduction

1.1 This document constitutes the submission to the House of Lords Select Committee on SME Exports. It has been written by:

• Prof. Phil Harris, Executive Dean of Business, Enterprise and Lifelong Learning and Westminster Chair of Public Affairs, University of Chester

• Dr. Simon Adderley, Assistant Director of the Centre for Labour Market Development, University of Chester

• Ms. Natalie Russell, Researcher, Centre for Labour Market Development, University of Chester

2.0 Current export markets

2.1 A recent questionnaire by the University of Chester’s Centre for Labour Market Development amongst 140 SMEs within West Cheshire and North Wales showed that:

• 34% of SMEs currently export goods and/or services • 20% of SMEs do not currently export but have some interest in doing so • 46% of SMEs do not currently export and are unlikely to in the future

(Full details about sample size and methodology of the survey can be found in Appendix A).

2.2 The most popular export location for exporters in West Cheshire and North Wales is Europe (83% of current exporters), followed by North America (52%) and Australia and Oceania (50%). 44% of current exporters export to Asia and 42% to the Middle East.

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2.3 The survey showed that the main reasons given by businesses for not expecting to export are that:

• they do not have a suitable product or service (71% of respondents), • they have sufficient business in the UK (7% of respondents) • there are too many barriers to overcome (7% of respondents) • 15% of respondents indicated ‘Other’ reasons, which included: ‘[we] bring

work into the UK, rather than doing it overseas’.

2.4 There is clearly then a need to challenge the common assumption amongst businesses that their products/services are unsuitable for exporting. There is potential to exploit the fact that large companies tend to be appointing distributors for smaller pieces of business.

3.0 Internationalisation

3.1 Successfully exporting SMEs tend to be those who have superior knowledge and contacts, whether this is knowledge of the market or contacts that give them access to potential new clients. Such knowledge also helps companies devise products and services that are more appropriate for overseas markets as well as giving them experience of the pitfalls and necessary procedures relevant to different markets.

3.2 The primary perceived risk to business is payment risk and the legal aspects if the product or service does not match customer expectation. One respondent told the University of Chester that “The main risk in my opinion is receiving payment. Issues arise when customers go bust, or operate a different system of credit. In the UK most invoices operate on a 30 day system, where as we have experienced in other markets 60 – 90 day systems which can impact upon you cash flow and debt collection can be difficult enough, but with a language barrier as well this can increase the difficulty.”

3.3 It is vital that SMEs ensure that they have representatives in the countries they are exporting to and that they know their market.

3.4 New SME exporters must prepare themselves by having a strong payment recovery system in place before orders go out. It is clear from the survey responses that some businesses will only ship goods once payment is received but obviously this is

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not always possible.

4.0 Barriers and market failures

4.1 Some survey respondents identified domestic barriers to exporting to be the main barrier to exporting, in particular layers of bureaucracy which hinders UK companies from growing and from accessing new markets. One respondent wrote that “I can recall on several occasions when orders have been lost to foreign competitors because they are able to turn around orders at a faster rate as there is less paper work and ease of access to the system than there currently is in the UK.”

4.2 However, the primary barriers identified were linked to ‘overseas’ issues. The most significant barrier is the lack of overseas contacts (e.g. customers, agents and/or distributors). 31% of current exporters and 51% of businesses interested in exporting state this factor is ‘highly significant’.

4.3 The next most significant barriers are:

• The cost of international transport connections • Enforcement of legal rights and protections overseas (including contracts

and intellectual property rights) • The overseas regulatory environment and differences in standards • Overseas public sector procurement rules

4.4 It is notable that non exporters interested in exporting rated these barriers particularly highly.

4.5 55% of non-exporters interested in exporting stated that a lack of overseas contacts is a significant barrier. This is despite businesses having a number of personal and professional links with overseas:

• 22% have social links with overseas communities, compared to 15% of current exporters.

• 19% have family ties/links overseas. This is also true of 19% of current exporters.

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• 11% are part of an international business/group/chain, compared to 17% of current exporters.

• 7% are part of an international supply chain, compared to 10% of current exporters.

• 7% have lived abroad in their adult life, as have 17% of current exporters.

4.6 A lack of foreign language skills is a significant barrier to 1 in 10 non exporters interested in exporting and 8% of current exporters. Of all respondents:

• 98% speak no Chinese, 87% no Russian, 70% no Italian, 68% no Spanish, 46% no German and 16% no French. Those with some knowledge of these language reported that their skills were limited.

• Only 7% of respondents stated that they know enough French to conduct business deals in that language, while 3% know enough German, 4% Spanish and 2% Russian for the same purpose.

4.7 It was also felt that these issues were heightened by a sense of isolation amongst SMEs who lacked the time to strengthen leadership, particularly for owner managers growing their companies. One respondent stated that “I believe larger companies can ‘take the losses’ where SME’s cannot – one bad decision can be extremely costly and at times there does not seem to be the right level of support or advice available.”

5.0 Incentives

5.1 The key factors to encouraging SMEs which already export to sell more overseas are:

• More technical support– specifically on how to grow an already successful export business

• More support from banks and lenders towards exporter businesses, making their relationships easier and more flexible as new customers cannot always be as reliable as desired.

• There should be mechanisms put in place to allow companies promote their products and services to a global audience which is affordable. Current advertising costs are prohibitive for smaller organisations. This should link into the building of the personal and professional links highlighted above.

5.2 In terms of supporting businesses who do not currently export to start doing so:

• The key issue is that SME owners often do not have the time or staff resource to build up the personal and professional contacts which successful exporters need. It is important that organisations such as UKTI and others help to provide these. The current system of trade missions are not SME friendly as they are seen as expensive and time consuming. The trade missions also tend to engage with political figures and not the end buyer / user. Trips which gave access to buyers and distributers would be far more beneficial to smaller organisations.

• Financial incentives (potentially through the tax system) would also support SMEs to take the ‘risk’ of exporting.

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6.0

Government Action

6.1 There is a need to ensure stronger cross departmental coherence in Government which enables action at local level to develop “in the round” – i.e. business support as a part of infrastructure, finance, capital investment, skills, transport etc.

6.2 The University of Chester’s Riverside Innovation Service is attempting to establish all the key elements of innovation linked to business support, bringing ideas to market while at the same time working on the longer game of creating lasting and trustful relationships, especially in working together to attract and retain graduate talent, entrepreneurial potential and well prepared employees.

6.3 It may be useful to organise a ministerial visit in order to explore how this model, which has seen local authority economic development staff co-located with staff from the Chamber of Commerce, the University and new businesses (many of whom are exploring exporting), can be taken forward to support this agenda.

6.4 More should be done to encourage SMEs to consider exporting and to think creatively about ways in which the products and services they deliver are suitable for export. Once this desire is created it must then be supported by the creation of personal contacts through mechanisms which are appropriate to SMEs.

6.5 The Cheshire and Warrington LEP Sub team on Export have developed an Export Development Model. While this is no way complete it provides an interesting case study of the type of activity which could be taken forward. Indeed a proposal for this 'First Step to Export' model has been pioneered by an Accountancy company in Chester (Ellis & Co.) in conjunction with the UKTI.

6.6 The approach that is being proposed is that Intermediaries (IM) (e.g. Accountants, Lawyers etc.) are used as the 'touchpoint' with potential exporters who are not picked up by the other forms of communication. It is believed that IMs are the trusted partners of SME's and hence will be listened to more readily.

6.7 IMs will then communicate to their clients by email promoting the benefits of exporting and encouraging them to talk to their advisor about the opportunity. Even if the IM is only successful with a small number of clients, because of the number of IMs, the multiplier effect should result in a noticeable increase in the number of companies being fed through to the Chambers of Commerce and UKTI to be taken through the steps to exporting.

6.8 At this stage this 'First Step to Export' model is at the proposal stage and before it can be activated the agreement of the Professional bodies is being sought i.e. ICAEW and Law Society. Once approval has been given then the approach will be communicated to the IM's and with support from the UKTI will be activated.

6.9 In order to help develop such a scheme the Government could explore a tax incentive similar to the Research and Development Tax Credit system that applies to companies who focus on technology innovation. There is no question that this scheme motivates companies to be inventive and innovative and therefore a related model could be developed that supported IMs who focused on getting their clients

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to export.

6.10 The proposal is that a scheme would be prepared that gave Tax Credits to IMs based on the number and value of clients that they developed in to exporters. The scheme envisaged would be to give tax credits based on an uplift on the expenditure that the IM incurred leading clients through the journey to export.

6.11 Clearly, this is an embryonic proposal that needs to be fleshed out before being formally presented for consideration. Further discussions will be held to define the scheme more fully and convert this idea into a full proposal.

23 August 2012

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Malcolm Whitmore – Written evidence

Malcolm Whitmore – Written evidence Personal Background. BSc , MSc in Electrical Engineering Founder of a series of three SMEs that have successfully traded in high value engineering products with a good export record. This was marked by gaining the Queens Award for Enterprise awards in 1984 and 2009. Currently I am a non executive director responsible for R&D and liaison with University research operations in an SME exporting high value machine tools to the level of >£12M/pa. In this connection I have had connection with the various Government sponsored agencies that have been targeting SME success in high value engineering. I list answers to your questionnaire as I feel I can give relevant comment as follows. What contribution do SMEs currently make to the export market (in products and services) and in which countries and sectors (both directly and through the supply chain to larger Current export market 1. companies)? 2. What contribution could SMEs potentially make both now and in the future, and within

which markets and countries? 3. How does the UK’s SME export performance compare to those in competitor

countries? What can the UK learn from their successes? The contribution of SMEs is easily hidden within the export results for larger enterprises and so tends to be underestimated. In my own experience over the last 30 years the capability of SMEs operating in my area of high value engineering has fallen precipitously. This compares poorly with seeing comparable companies in Germany make sustainable and successful growth over the same period. The major factors in this discrepancy that need to be addressed are 1. Finance from local banks who understand and support the local SME in a

technological area 2. A more sustainable attitude to the SME from the larger customers that SMEs have

to deal with. An example we suffered from was Rolls Royce adopting a tougher approach to its supply chain in the mid 1990s. They recruited purchasing staff from the motor industry and almost drove our company out of business for short term benefits.

3. A more liberal and generous approach to Govt. grants than is provided by regional and national authorities in Europe.

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A A demand in the UK for return on capital that is unrealistic in the short term where major projects are in gestation and subject to delay.In my experience the impact of 9/11 meant that the airline industry stopped buying engines for a year and our company plans were delayed. Our bank took the view that the plans were flawed.

Internationalisation of SMEs 4. What are the characteristics of successfully exporting SMEs? How do they differ from

SMEs that are not exporting? 5. What are the perceived and real risks and opportunities to SMEs of exporting? The major benefit for an SME is that he is operating in a much larger more diversified market which for a niche product transforms the potential for growth and sustainability The risks are those of overtrading and potential loss of adequate focus to get things done. 6. What steps should SMEs that want to export take to prepare themselves to do so?

What role should Government play in supporting them? The Govt should make finance more easily available to worthwhile projects. In my area it is essential that the Govt identifies areas of growth that it will support over a long term basis giving the confidence to an y business that the prospects for investment are sustainable. It is easily shown that the majority of significant technical products have been supported in this way. The biggest engineers in the country Rolls and BAE only exist because of Govt support.In addition a cultural change to support the SME supply chain is needed,this goes right back to education,apprenticeship and security of employment.We have fallen well behind Germany,Japan,Korea in many of these aspects and need major step change in our approach if we stand a chance of catching up. Barriers and market failures 7. What are the key barriers and market failures (including regulatory, financial, and

operational and other barriers) that inhibit SMEs from beginning to export or to increase their export efforts? How does this compare to the barriers experienced by larger companies? For example, how significant are foreign languages and customs as barriers to SMEs exporting? How can Government help SMEs overcome the barriers and market failures?

Incentives 8. What are the key factors to encouraging SMEs:

� Which already export, to sell more overseas; or � Which do not currently export, to start doing so?


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Government Actions 9. How effective are the Government’s current policy mechanisms in supporting SMEs to

export at the UK and EU level? What are the most effective, what are the least effective mechanisms and when might they act as a barrier to exporting?

I think that the measures are singularly ineffective in my area of activity. The level of investment in high value engineering is a small proportion of the German investment .A simple comparison of funds invested over the last 40 years will tell a clear story. Institutions such as the Franhofer totally out weigh anything done in the UK and in the US defense spending brings big money that is helpful to US SMEs. I did anticipate that an opportunity would be presented when the Catapult centres for helping SMEs participate in major projects being undertaken by larger companies. There is no effective method of encouraging SMEs to get involved with the major projects that are being undertaken in Coventry at the MTC and at Sheffield at the ASMRC. These are big company driven with no effective links to SMEs because the structure of the set up is designed such that it is top driven. 10. What more should Government be doing to assist or promote the export of products

and services by SMEs through different departments and agencies? Are the Government able to provide adequate local intelligence to assist SMEs in understanding foreign markets?

11. How should Government act and behave with regard to SME exports? 12. Should the Government target specific sectors, markets or types of companies where

the potential is thought to be greatest? What are the costs and benefits of such an approach?

Absolutely vital to ensure adequate funds are available and that a supply chain effect can be created. The loss of SMEs in our sector now means that local SME s providing machining and assembly resources have disappeared and we are having to enquire for suppliers in Taiwan to complete some of our projects. 13. Is there sufficient co-ordination of actions and awareness across Government and other

bodies? How should other bodies be acting? No. The performance is totally inadequate because we lost the plot years ago.A major rethink on how to operate is necessary to ensure that a vibrant future exists for SMEs in our area of activity. Without a major shift we will not exist in 10 years time. 14 September 2012

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Woodhead Publishing Ltd – Written evidence

Woodhead Publishing Ltd – Written evidence The Independent Publishers Guild, to which we belong, has invited its members to submit evidence to your Committee concerning its welcome investigation into SME exports. As a successful SME exporter, Woodhead Publishing (hereinafter WP) is therefore pleased to comment on the questions that have been raised in the Call for Evidence. The website of WP is www.woodheadpublishing.com . 1. Introduction WP was established in 1989, in Cambridge, to publish books on the latest science and technology in the field of materials science and engineering, with the objective of transferring such technology from scientists to industry. The company has expanded steadily into additional fields such as textile technology, food science / technology, energy and biomedicine. It is now the largest independent UK publisher in these fields, employs 40 people in 2 locations, Cambridge and Oxford, and exports account for 80% of sales. The company also has a joint venture publishing business in India. 2. Current export market

(i) Without a strong export market, WP could not survive. Since 1989 the company has grown exports steadily from approximately 40% at the outset to 80% today. This has been achieved through appointing and managing a strong network of agents and making regular visits to the key markets of the United States, Europe, China, India and other Asian countries.

(ii) The contribution which SMEs in the book and journal publishing industry make towards UK exports is already very considerable. The potential for increased exports is also considerable given the strength of the English language and the constant development of new markets such as Brazil, India, China and Russia, not to mention other rapidly developing markets such as Malaysia, Mexico and Eastern Europe.

(iii) The UK’s SME export performance, from a publishing point of view, compares very favourably with that of other countries. It is streets ahead of the United States, the only major competitor, and capable of maintaining that position with sufficient support from the Government. 3. Internationalisation of SMEs

(i) The characteristics of a successful SME exporter are, primarily, a willingness to travel and understand their customer’s culture, needs and constraints. Companies that distrust overseas customers and who resort to legal attempts too soon to resolve disputes will never make good exporters. Developing contacts and long term friendships in business is the key to export success.

(ii) The risks of exporting are immense for an SME – lengthy negotiations, cost of travel and accommodation, packing, shipping and payment being the main difficulties. The

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opportunities are long term growth prospects through riding on the back of economies growing at a faster rate than that of the UK.

(iii) SMEs wanting to export should initially gain advice from their trade association. The Independent Publishers Guild has over 550 dynamic small to medium sized companies and holds regular meetings and briefings on export matters as well as organising cooperative stands at major book fairs. The Publishers Association, which represents approximately 100 mainly larger companies, does much the same but takes a more active part in organising trade missions and publishing market reports. The Government needs to support their efforts through a far simpler structure of trade support and not to keep changing how it provides services. In the last 20 years there have been constant changes in export support policy and departmental names which makes it very difficult to keep up with what’s happening and who to contact about securing an all important grant. Communication about these changes is abysmal. Currently, we find ourselves going round the houses from Norwich (now our ‘local’ office as Cambridge was closed down), to Glasgow to London to find out which is the best office to talk to. Together with much form filling, the whole process is hardly worth the effort and we often find there is a minimum expenditure to be incurred before a grant will be considered. The current system is therefore long on bureaucracy and short on benefits. 4. Barriers and market failures The key barriers are financial. Export sales are generally made at lower prices and longer credit periods than domestic sales, resulting in reduced profit margins and poor cash flow. Fluctuating exchange rates create additional problems and costs, and financial instruments such as letters of credit or hedging are rarely useful. These conditions have resulted in WP achieving over a 20 year period a profit before tax figure averaging less than 10% with poor dividends being paid to the shareholders who have funded it. Fortunately, corporation tax for SMEs has reduced over the period (but now at very similar levels to larger companies) which has enabled WP to make constant investments in organic growth through employing additional people and making small acquisitions. It is now poised for further growth having made an investment of several hundred thousand dollars in its online platform, www.woodheadpublishingonline.com . But, compared to my subsidy-rich arable farming friends around Cambridge, publishing remains a poorly paid and risky business yet the creative industries contribute 8% of the UK’s GDP (Hargreave’s Report) compared to agriculture’s 1% (Government figure). Larger companies are probably able to manage exports better through having more specialist staff at their disposal and possibly more ‘clout’ with regard to securing better terms of trading. A lack of foreign languages has not proved a great hardship as purchasers of English language books tend to be proficient in English. However, knowledge of a few words of a customer’s native language go a long way. The sale of translation rights to foreign publishers provides small additional revenue due to low royalties on low prices and the difficulty of being paid. 5. Incentives

(i) Key factors to encourage SME exporters such as WP to sell more overseas would be greater support to visit both emerging and existing markets, partly through reducing bureaucracy and partly through additional funding.

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(ii) For SMEs not yet exporting, joining a trade association and attending briefings on exporting would be the best place to start.

(iii) Developments in IT have strongly influenced the growth in export sales of WP. Our online platform launched in 2010 hosts over 1,000 titles and has boosted e-sales from 10% to 25% of total sales in less than 2 years. 95% of WP’s online sales have so far been to export markets, the largest by far being to China where a 3 year contract has recently been signed. Sadly, UK budgets have been cut drastically and so few sales have been made domestically which puts UK researchers at a disadvantage over their competitors in other countries. 6. Government Actions

(i) Government red tape limits the effectiveness of it’s welcome efforts to promote exports, as explained above. The most effective mechanisms to promote exports are well organised trade missions, either industry specific, or more general organised by, say, a Chamber of Commerce. In my experience, the latter have been more successful as I have been free to make my own appointments whilst taking advantage of useful Government briefings and inviting guests to a reception, typically at the local Ambassador’s residence, which is always popular. (My Korean customers still talk of getting drunk several years ago on John Smith’s bitter whilst sitting in the British Ambassador’s lovely garden.) Conversely, publishing trade missions have sometimes been poorly organised in advance and during the mission, resulting in less effective use of time.

(ii) The Government attempts to provide services such as representative / agency selection but generally lacks sufficient knowledge of the industry sector. Surveys of the local economy, customs and etiquette are excellent but charging high prices for consultancy services has not proved worthwhile for WP.

(iii) The Government might consider giving greater recognition to successful SME exporters. It is not an easy life.

(iv) The creative industries are growing rapidly and should be a good candidate for greater Government support. However, mixed messages from the Government about the future of copyright are frequent, yet copyright and the control of piracy are the cornerstone of future growth of the sector. 25 July 2012

SMALL AND MEDIUM SIZED ENTERPRISES SELECT COMMITTEE · increase their involvement further in a global market set to increase almost 10 fold to $1tn by 2020. 1.2. What contribution

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