Listen to this article
David Hollander’s innovative streak is being put to the test. He is scoping out new markets thousands of miles from the English headquarters of Aqualisa, a £41m turnover shower-manufacturing business he runs.
“If we’re going to grow our export business, it has to be done in an entrepreneurial way,” he says. Restricted by a lean budget, he is researching wholesalers and has considered “selling under another brand” to allow Aqualisa to expand overseas. Businesses that were once domestic competitors are now potential allies, he says — such is the flexibility required to become a first-time exporter.
The pursuit of international markets can prove a challenge for small and medium-size businesses tight on time and resources. But for those who successfully launch an export drive — as Mr Hollander hopes to do with Aqualisa within three to five years — it also promises sizeable benefits.
Research by Barclays has shown that businesses that export grow by nearly a third in two years. “That equates to £400,000 in additional sales revenue on average per company when they start exporting, so it’s really an important source of revenue,” says Catherine Raines, chief executive of UK Trade and Investment, the government body which supports UK exporters.
Beyond sales, exposure to diverse markets can help a company balance risk and can extend the life cycle of a product that might have been crowded out by competition in its domestic market, she says.
For Ms Raines, whose organisation is tasked with getting another 100,000 UK businesses exporting by 2020, many companies face a self-imposed barrier — having the confidence to export in the first instance. Data from the CBI, a non-profit organisation representing British businesses, support this. They suggest 28 per cent of medium-sized businesses are deterred from taking their goods and services abroad because of the difficulty in identifying the right opportunities.
“There is a wealth of opportunity out there,” says Ms Raines. “The issue is persuading companies that there is a market for their brand.”
Nevertheless, where there are openings, there are also costs and risks. Drawing up an export strategy for the first time involves careful due diligence into regulations, customs and taxes, as well as a hunt for reliable local partners.
Much of the current literature advises first-time exporters to draw up demand-led strategies that will take their products into the largest or fastest growing markets. Measures of foreign market potential in this respect might include per capita income, population or consumption growth.
While these are important factors, they can be overstressed, says Pankaj Ghemawat, an economist at Iese business school in Barcelona. Instead, a well-conceived export strategy will take the “closeness” of a potential market into account, defined broadly to encompass cultural and administrative similarity as much as geographical proximity, he says.
A common language is an obvious advantage. Existing trade agreements and relationships also improve accessibility. Many US companies make their first overseas venture in Canada; Germany tends to trade most intensively with countries such as the Czech Republic and Austria.
Advice on understanding new markets and accessing export finance is available through local government bodies such as the UKTI as well as networks like chambers of commerce. In addition, many businesses find that talking to industry contacts and companies in target countries also helps.
“Ask yourself, is there anybody like us?” says David Langworth, chairman of NM Group, a UK-based engineering and geospatial modelling company with just under 100 employees that has set up branches in the Middle East, Australia, the US and Canada.
“The most valuable thing is to network with like companies who operate in that country because there’s a wealth of things they are going to know and mistakes they are going to have already made.”
Importantly, planning needs a “commitment at the top”, according to Mr Ghemawat. “If the person in charge is willing to go to a trade fair in a foreign country just once, that goes a long way — but requires action from somebody with real decision-making power.”
For Raymond Chang, a Boston-based angel investor and adjunct professor of entrepreneurship at Babson College, exporting is above all a long game.
By his calculations, around 70 per cent of products that are successful domestically sell well overseas — the correlation with domestic success is clear. Of the 30 per cent that fail, about half do so because the product is not suitable for the local context and the company fails to invest in adjusting it.
For example, the sizes for cookware and furniture in Asian households tend to be smaller than in US households, he says, so a US exporter needs to be responsive to that, tapping into local trends and tastes. Further investment in support infrastructure on the ground, such as a working customer services team, is a vital element in getting that product to take off.
For the remaining half of export bids that fail, it is not the product itself that is the issue. Instead, Mr Chang says, the company itself might not be ready for a large overseas drive. Before beginning to export, any organisation will need to ensure it has the infrastructure and financial resources to weather the ups and downs of a product launch.
“Internally, you need to make sure that every department is aligned to support that expansion, because it will require everyone to step up,” he says. “You are dealing with something completely unknown . . . There are no short-cuts.”
This article has been amended since original publication to clarify the UKTI target for the number of businesses exporting by 2020