CHAPTER 2: SME Export Performance
Introduction
2.1. In this chapter we consider the current
export performance of SMEs, their contribution to the UK economy
and the characteristics of successful exporting SMEs. The evidence
we received and the visits we made brought home to us the extraordinary
diversity of SMEs. Not all will succeed but there are many which
are driven by the creativity, innovative thinking and entrepreneurship
which, with the right support, enables them to compete effectively
in the international market.
Characteristics of successful
exporting SMEs
2.2. Companies which are innovative and imbued
with a competitive, "entrepreneurial spirit"[28]
are more likely to be successful exporters. The Government, for
example, said: "SMEs who were innovative, those who undertake
[Research and Development] or have Intellectual Property, and
those with higher productivity are all more likely to export,
and to do so sustainably";[29]
and BSIA suggested that the difference between SME exporters and
non-exporters was "innovation and adaptability to different
market requirements".[30]
LMK Thermosafe Ltd, winner in 2012 of the Queen's Award for Enterprise
in the International Trade category, described successful exporters
as those SMEs with "sufficient desire managerially to commit
to exports", with a focus on "higher margin goods that
have genuine quality and unique features".[31]
Professor Richard Kneller, Professor of Economics at the University
of Nottingham, responding to questions about salesmanship as an
important skill, identified a key characteristic of successful
exporter firms as "managerial quality", including "the
quality of the salesmen" working for those firms.[32]
Emerson Roberts on behalf of Brompton Bicycle Ltd argued that
SMEs in higher-cost economies needed to focus on niche markets—a
market "too small ... for the large corporations to bother
with and therefore one which is both relatively safe from competition
and also high-margin";[33]
and Edward Hopper, of Maccon GmbH, Managing Director of a German
SME involved in the development and application of electronic
motors for high-tech appliances, whom we met during our visit
to Munich, made a similar point.[34]
When we visited Wales, we toured the premises of Concrete Canvas
Ltd, an SME which illustrates the innovativeness of some SMEs
(see Box 1 below).
BOX 1
Concrete Canvas Ltd, Pontypridd
Concrete Canvas Ltd (www.concretecanvas.co.uk) sells
a flexible cement impregnated fabric that hardens on hydration
to form a thin, durable water proof and fire proof concrete layer.
Essentially, it's concrete on a roll, all you have to do is add
water. They told us: "Concrete Canvas's core technology was
developed as a university project by the two company co-founders
in 2004. We filed our first patent in 2005 with support from the
university's incubation scheme".[35]
By 2007 they had seed funding to develop the product from a group
of business angels and the regional development agency, and a
Capital Support Grant from the Welsh Government to establish a
manufacturing plant in South Wales. The first sale came in 2009,
with an order from the British Ministry of Defence for use on
the frontline in Afghanistan. Since then turnover has doubled
year-on-year and tripled in 2012. Concrete Canvas Ltd now employ
16 staff, sell to over 40 countries worldwide and 85% of sales
are exports.
Talking about the support they received in establishing
their business, accessing export support was seen as simpler than
wider government grants: "Export support on the whole is
at a lower level (under £10k) and the application process
tends to be relatively simple". Nevertheless, while acknowledging
that government grant funding has played a key role in developing
the core technology and growing the business, they said that "the
system could be markedly improved by reducing bureaucracy and
simplifying the application process at all levels. We have experienced
at least three major programme overhauls in the last five years.
This adds enormous delay, uncertainty and means the applications
process is constantly changing".[36]
2.3. UKTI's five-year strategy, Britain Open
for Business, working on the basis that innovative and high
growth SMEs "contribute disproportionately to the economy
and benefit most from government help", is explicit in its
focus on such companies.[37]
Current contribution of SMEs
to UK exports
CONTRIBUTION TO UK EXPORT ACTIVITY
2.4. The contribution of SMEs to UK exports is
significant,[38] although
the precise figures are elusive. In 2011, the Government reported
that SMEs with 10 or more employees accounted for about a third
of the value of UK exports, the contribution being much larger
in the service sector.[39]
But Professor Kneller, when asked about the contribution of SMEs
in terms of value to UK exports, suggested that there was no clear
answer.[40] We share
this view. Our impression is that the data is inconsistent, based
on guesstimates and confused by definitional problems.
2.5. Whilst clearer figures would be helpful,
their absence does not negate the fundamental premise of this
report (and of Government policy towards SMEs and export-led recovery)
which is that it would be to the significant advantage of the
UK economy and the export-led recovery if SMEs were to export
more. The UK has a persistent current account deficit, exporting
fewer goods and services than it imports. This compares unfavourably
with Germany which has long run a large current account surplus,
as shown below. Boosting exports would help close the UK's persistent
deficit. SMEs have an important role and the potential to increase
their overseas sales. Moreover, the longer-term structural shift
to SMEs (see paragraph 1.1) means that they will have to increase
their export levels if the UK is to maintain, let alone improve,
its export performance.
FIGURE 1
Current Account Balance (% of GDP)
Source: OECD
2.6. The figures that we have been given about
the recent performance of SMEs present a mixed picture. In 2009,
SMEs accounted for 53% of the value of goods exported from the
UK which, in monetary terms, amounted to about €135 billion.
In 2010 (figures published in September 2012), the total value
of the goods exported (within and outside of the EU) by SMEs had
fallen from the 2009 figure to about €115 billion and the
percentage value (as a percentage of all UK goods exported) fell
to 40%.[41] The number
of SME exporters to the EU increased between 2008 and 2010, but
those exporting outside of the EU had decreased. In 2010, over
60% (by value) of SME goods exported were to EU countries, a rise
from the previous year. This contrasts with large companies (over
250 employees) which, in 2010, exported less than 50% of their
exports (by value) to the EU, and the proportion has been declining
in recent years.
COMPARISON WITH OTHER EU COUNTRIES
2.7. Compared with SMEs in other European countries,
fewer UK SMEs export although the percentage figure is similar
to that for larger countries such as Germany and France. This
is no doubt partly because local sales in smaller countries are
more likely to be across borders, particularly land borders.[42]
One in five UK SMEs export (and, in 2010, one in 20 outside the
EU).[43] The EU average
is one in four.
2.8. Lord Green told us that "we do not
have enough SMEs that are exporting".[44]
Lord Heseltine, in his recent review, commenting more generally
on the UK export performance, also suggested that more should
be done:
"Exports are a useful benchmark of international
competitiveness in the traded sectors. Here, the UK's share of
global export markets has declined over the last 30 years. We
are not alone in this. It is part of a trend shared by many other
advanced economies. Yet there are signs that our businesses could
do better."[45]
Challenges to exporting
2.9. UK SMEs are, in some respects, particularly
well placed to export. They have the advantage of the British
brand (see Chapter 5) and, whilst the Committee is far from complacent
about the importance of language skills (see Chapter 6), the universality
of the English language cannot but help, to some extent, facilitate
international trading relationships. Historically, the UK has
a wide range of important international connections across the
globe and the current ethnic diversity of the population in the
UK has enabled individuals to maintain close ties between the
UK and their familial countries of origin. Uday Dholakia, Chairman
of the National Asian Business Association (NABA), for example,
described to us the influence of British Asian businesses and
"the leverage they bring, in terms of connectivity to the
Indian subcontinent, East Africa, United States, Middle East".[46]
2.10. From this position of strength, UK SMEs
are well placed to do a good deal more. We have sought to understand
how this might be achieved; we have looked at what developmental
and promotional assistance is offered by the Government and others,
and the extent to which the availability of help is known amongst
SMEs; and, on the basis of our findings, we have made suggestions
about what could be done differently or better. In our Call for
Evidence (see Appendix 3), we asked for submissions about the
"barriers" to exporting and, as a result, the language
of "barriers" features largely in the evidence we received.
On reflection, in many cases, we do not think that this is the
appropriate word (although we do use it on occasions in this report).
It tends to imply the notion that the "barrier" acts
as a complete block. That is not what we have seen during our
inquiry. There are undoubtedly issues which make exporting a challenge;
some are real and some are, in part, a matter of perception. Whatever
the character of the problem, rarely is there no solution to overcoming
it—if the SME has the right product or service for the right
market and a commitment to succeed. There is always help at hand
and advice available.
2.11. In the remainder of this report we consider
these problems in more detail. Following an overview of assistance
to SMEs in Chapter 3, in Chapter 4 we deal with financial issues
such as access to finance and the risk of non-payment. In Chapter
5 we consider market access and information, and in Chapters 6
and 7 we look at skills including language, cultural awareness
and other exporting skills. Chapter 8 deals with regulation, and
Chapters 9 and 10 cover other challenges, namely, the protection
of intellectual property rights and uncertainty about the implications
of the Bribery Act 2010.
28 Norman Rose, Executive Chairman of UK Trade Facilitation,
Q 363. Back
29
The Government, para A2. Back
30
BSIA. Back
31
LMK Thermosafe Ltd. Back
32
Q 70. Back
33
Brompton Bicycle Ltd. Back
34
See Appendix 7. Back
35
Concrete Canvas Ltd. Back
36
Ibid. Back
37
Britain Open for Business, op cit. Back
38
CBI, referencing BIS International Trade and Investment: the
Economic Rationale for Government Support 2011, BIS Economics
Paper No 13 (May 2011). Back
39
Ibid. Back
40
Professor Kneller, Q 58. Back
41
The Government (supplementary evidence), citing Eurostat as the
source. Back
42
Professor Kneller, Q 64. Back
43
Ibid. Back
44
Q 471. Back
45
Heseltine review, p 122, para 5.4. Back
46
Q 393 and Q 400. Back
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