21 February 2012

The Ex factor

Exports are being billed as the knight in shining armour for the UK's flagging economy. But British manufacturing needs something more radical than generic business aid from policymakers if we're to conquer the world. Max Gosney reports

The following quote will never feature as a soundbite for the government's campaign to get more UK manufacturers to export. But Brompton Bicycle managing director Will Butler-Adams sums up the hook for British factories pondering a jaunt overseas: "Sod the British economy," he says. "Go and sell your stuff to Asia or South America – to an economy that isn't going to be flat-lining for the foreseeable future."

Brompton has done just that. Exports now account for seven in 10 orders for the Brentford-based firm, with a boom in Asia fuelling a 15% annual growth spurt since 2004. The business is there to be won for committed UK companies, according to Butler-Adams. "It's a bit like having old friends who now live in New Zealand and you spend years saying, 'we really must go and see them', but you never do. When you finally take the plunge you think, 'this is great – why did it take me 15 years to do it?'"

The government is hoping to woo UK firms in a far shorter time. Ministers plan to double UKTI clients to 50,000 by 2014 and the number of exporters from 20% to 25%. Exports are the Holy Grail for the coalition government, with the top brass talking up the prospect of an export-led recovery.

The rationale reads like a Thomas Cook holiday brochure: go abroad and bask in the glorious sunshine of growth economies like Brazil while escaping a prolonged gloomy spell back in Blighty. Exports fuel growth, create jobs and peg back the trade deficit.

Hence Westminster's bid to entice more SMEs to take it up. A campaign entitled 'SME exporting: the National Challenge' vows extended financial guarantees, trade delegations and roadshows championing the paybacks of overseas trade. If the policymakers need a case study, then they should jump on the M1 to Leicester's Cressall Resistors. The company makes industrial power resistors – which might lack the wow factor of Brompton's folding bikes but which have proved equally alluring overseas.

Cressall recorded a 41% growth in exports in 2011. MD Peter Duncan furrows his brow when asked to explain the magic formula. "I really wish I knew," he says. "The net effect for us is the home market is constant but exports are growing. That's partly down to oil prices and market developments."

The Cressall chief also credits a revamped company website for the success. "The way you present yourself on the web is very important. Someone in Russia or Brazil can just as easily find you as someone in Bournemouth." Cressall proves the point with a web advertising campaign landing a £500,000 order from Singapore.

Once that first overseas order does arrive, Duncan advises, it's crucial to remember to stick to the basics. "The rules of the home market are just as fundamental when exporting. You've got to build a relationship and I'd advise going out to meet your potential customer."

And that's when some SMEs can get startled. While there are big deals to be done, the associated workload is proportional. Foreign markets need to be researched, customers vetted and orders distributed. Large corporates can fall back on export-focused divisions or departments – SMEs can't.

Export agents offer a potential ally. David Olugbenga, an agent at Liaizon Commodities in Leicester, told WM: "If you come to us looking to sell product abroad we could go to our network contacts in China and generate sales leads. We can also arrange for shipping and distribution of your product and would charge a 5% commission."

It all sounds too good to be true and for some agents that's exactly the case, warns Duncan of Cressall. "Finding the right person to act as distributor or agent is a black art," he says. "If you're lucky enough to have a good distributor you'll do better in the marketplace." Firms should begin with a thorough examination of agents and their credentials, adds Duncan.

But it's not just the agents you should be reading up on. Local health and safety requirements, credit checks on potential customers, intellectual property protection, legal obligations and packaging requirements are just some of the pitfalls awaiting novices. "It's not just a case of changing the plug," says Mick Jones of Eschmann Equipment, which exports medical equipment globally. "You have to get your research right. Ultimately if you don't get it right first time you won't have a second chance."

Prep should also include creating a plan B for any product services, adds Jones. Getting an engineer to Kuala Lumpur from a back office in Kettering is not going to be cheap, he explains. It's one of many expenses allied to the export game, according to Jones. "No company is going to make the same margins from exports as it does in the home market," he says.

The final bill could top £30,000 to £50,000 for a newbie, Jones estimates. Help is on hand though. Banks are falling over themselves to support wannabe exporters (see p17). The government has also weighed in with extended export guarantees via a revamped UK Export Finance scheme. These include the government acting as guarantor on bank bonds, which means manufacturers may only need to stump up half the funding required. Westminster has also pledged extra business support with face-to-face export advice available via its network of regional UKTI advisors.

Yet despite this arsenal of support services some manufacturers just refuse to bite. "It can be a pain," explains Eddie Czestochowski, MD at Newcastle-based firm Cell Pack Solutions, where exports account for only 5% of sales. "We ship batteries to France that are classified as non hazardous but when the shipment arrives at the port you still get bombarded with calls saying, 'we can't ship this, it's hazardous'. The whole thing just takes so much time and effort."

Okay, so exports will never be for everyone. However as an industry we're failing to punch at our weight, let alone above it. Figures vary but a sizeable number (around one third) of UK manufacturers do not export. The lion's share of those that do is made up of the big boys, with our top exporters accounting for the bulk of trade.

The UK's trade deficit offers further cause for concern. Despite all the advantages of a weak pound, our balance of payments continues to yo-yo. Latest figures show the deficit creeping back over the £8 billion mark albeit after a record drop the previous month. Net exports stood at -2.4% in 2010 with one in four EU firms trading overseas versus one in five in the UK. Once again we're left red-faced by Germany, whose manufacturers have twice our market share in the boom economies of Brazil, Russia, India and China as well as much stronger field of SME exporters. Crucially, those mid-sized manufacturers are German-owned. In the UK, it's another story. "I buy in components from Italy for £100 that I could make in the UK for less after taking into account the shipping costs," says Richard Webb, operations director at appliances manufacturer Indesit – which is Italian-owned. "To make them here, I would have to build a shed for £1 million and I can't get that investment."

It's symptomatic of the British manufacturing model. A lack of home-grown talent means we'll always be at the mercy of foreign-owned giants, according to Sukhdev Johal, lecturer and author of a report on the future of UK manufacturing entitled 'Buyer's Remorse'. "Our biggest problem is we consume more than we export – we have an £80 billion deficit on manufacturers and a legacy of broken supply chains."

The shortfall in home-grown suppliers curtails economic growth, Johal explains. "As soon as you grow exports, you bring in more imports, too. It's like going for a run and you think you've gone miles only to find out you've only run 20% of the distance." Reversing the decline means nurturing a new generation of domestic manufacturers – and that will call for something more radical than government-backed export guarantees and a coach load of export advisers, argues Johal.

"We're pursuing the same trade policies that didn't work 20 years ago. Why can't we think outside the box? Give an SME a tax break for every year in which they increase UK value added and, if he reinvests the money, give him another year's break or a national insurance holiday in return for creating new jobs."

Don't count on such sweeping reforms to industrial policy anytime soon. Instead, the coalition government seems set to offer general pro-business, pro-export policies. That's fine for the trailblazers like Brompton and Cressall who will continue to win big from overseas trade. But, without something more fundamental and more daring to revitalise the entire manufacturing community, Britain's export-led recovery will remain a world away.

Decided that being in Beijing could make order bells ring, or going to Rio could have your shareholders dancing in the sun? What next? WM looks at the options for manufacturers keen to take up the export challenge

So you think you want to export?
Decided that being in Beijing could make order bells ring, or going to Rio could have your shareholders dancing in the sun?
What next? WM looks at the options for manufacturers keen to take up the export challenge

  1. UKTI
    Who? Government quango set up to help British businesses sell more goods overseas. UKTI has just unveiled plans to double the number of companies it helps to 50,000 by 2014.

    How can they help? A bit like Starbucks or McDonald's, UKTI has a formidable global presence. Contacts stretch across 96 countries offering detailed knowledge of local markets. UKTI agents can set up meetings with local buyers ensuring a fast track service to getting your product to the right place.

    UKTI also offers a network of domestic-based advisors for rookie exporters. "Their job is to reduce the unknown, to facilitate the contacts, to help companies see what is possible and go for it," says trade minister Lord Green.

    A Facebook-style website is also in the pipeline. The service, jointly developed with Yell, will invite companies to post their export experiences and encourage fellow members to exchange tips and advice. WM likes this.

    Best for: UKTI offers something for all. Services are tailored towards both SMEs and blue chip giants. Advice ranges from start-up advice and coaching for first-time exporters through Passport to Export, to fine tuning for old hands via Gateway to Global Growth.

    Cost: Advice and support services are largely free. However, detailed market research and face-to-face meetings with business leads are charged. UKTI declined to give a fee.

    What they say: "We've got a network of offices around the world and can help in all of the major markets. For small companies that have never exported we offer one-to-one support through our regional advisors. We're still one of the leading manufacturing nations and the percentage of companies exporting is increasing all the time. There's a way to go yet, but coming to UKTI can offer valuable business leads."

    For more information: www.ukti.gov.uk or 020 7215 8000.

  2. The banks
    Who? The high street giants are vying to boost their export business. Little surprise when the government – a significant stakeholder in a few – is trumpeting SME exports as key to the UK economic recovery.

    How can they help? Generally by taking some of the strain out of trading with an unknown customer thousands of miles away. Services include Export Invoice Finance, which releases cash from invoices within 24 hours to aid cashflow. Packages also offer protection against late payment, credit checks on potential partners. But as well as offering financial products, the banks are a valuable source of advice and business support for exporting including help with language barriers and cultural differences.

    Best for: Something for businesses of all sizes. But SMEs are a real target market
    right now.

    Cost: Charges vary from bank to bank and will depend on many factors including amount to be financed, type of business, export market, etc.

    What they say: "There's a huge piece of work to do for all banks in terms of increasing the awareness of how we can assist UK SMEs with their exports. We can help businesses get a better understanding of the credit worthiness of their trading partner as well as protecting against interest rate movements. We see an awful lot of manufacturers focusing on emerging markets like China and Brazil. We at Barclays also see significant potential in Africa. "

    John Bevan, head of Barclays Corporate trade and working capital UK

    "HSBC started as a trade bank and the focus on exports stays with us. We've got the heritage and access to our network of offices across the world with the ability to introduce key contacts and share local knowledge in addition to financing growth. We look at the individual circumstances and the full picture. One manufacturer was funding their export trade through an overdraft. Since speaking to us we're now offering three different trade finance products and have doubled the funding available to them. That took sitting down with our relationship manager and understanding the business. If manufacturers want to get this right, they've got to invest in the support."

    Carol Bagnald, regional commercial director, HSBC

    "In the current climate, business internationalisation is more important than ever. There is great potential to improve Britain's international trading position via the SME sector and last November we took 10 SMEs to Brazil as part of the first Santander 'Breakthrough' trade mission. The week-long trip was focused on the manufacturing sector, with expert business, government and agency contacts set up in advance for the delegates. Some delegates have now received signed contracts following the trip.

    "While exporting can be very profitable, it can also be capital intense, due to the need to offer extended credit terms to compensate for shipment periods. The advantage of using a bank for export finance is that we are able to help free up this cash, by providing bespoke financing for export sales, thus relieving the cash pressures."

    Damian McGann, head of business development for corporate and commercial banking, Santander

    For more information: www.barclays.co.uk; www.hsbc.co.uk; www.santander.co.uk.

  3. UK Export Finance

    Who? A government-owned export credit agency first launched in 1919 to reinvigorate markets that had been lost because of the German blockade in World War I. Almost 100 years later and we're still trying to keep pace with Bavaria, this time by replicating the export success of mid-sized German manufacturers.

    How can they help? UK Export Finance provides a raft of financial backing to help British companies break into new markets. New products have been launched in 2011 with a particular focus on helping SMEs. These include a bond support scheme where UK Export Finance guarantees 50% of the value of a bank bond related to export finance.

    Best for: SMEs – the scheme is tailored to helping this group.

    Cost: Depends on the service. For many financial products, fees are taken from bank rather than export partners. However you will be charged for insurance services.

    What they say: "We're here to fill the gaps when the private market hasn't got the capacity. Since February last year, we've introduced a number of new products aimed at the SME community like export finance guarantees. If a company wants to borrow £10,000 from a bank to export and the bank is only willing to lend £5,000, then we will provide a guarantee for the other £5,000."

    Steve Roberts-Mee, UK Export Finance

    For more information: www.ecgd.gov.uk or call 020 7512 7887.

  4. DIY

    What? If you've been taking lessons in Mandarin and have a sizeable investment kitty, then you have the option of ploughing your own furrow on export trade.

    How? You might be lucky enough to receive an off-the-cuff international order, offering you an entry point to a new market. Alternatively there are a host of international trade exhibitions giving you the opportunity to showcase goods to potential buyers. Trade delegations are another option, with UKTI and banks putting together regular trips.

    Best for: Entrepreneurs with the confidence and the cash to get out there and do it for themselves.

    Cost: A return flight to Beijing plus the rest. The bill could run to more than £100,000 with trade fares, hotel bills, regulatory cost and other corporate expenditure. You're also going to need a distribution arrangement for your product.

Exports: your view
"The pound is weak. We know how to make innovative, world-class products – now is the time to get out there and sell them."

"Exporting to a new market is like going out on a first date. Sometimes it goes well; sometimes it doesn't. It's risky, so you need the right support structure."

"Personally I just can't see how an export renaissance is possible (except for a very few companies). Manufacturing is run down and far below what it should and could be."

"I wish the government would start speaking English instead of cliché-ridden rhetoric and explain to exporters what they consider to be the priorities of success."

"UK plc is highly respected and has a great deal to offer, but many companies lack self belief. The government needs to promote and offer incentives to participate in trade shows overseas."

"There is no such thing as the 'golden age for exporters'. Markets are soft; money is tight."

The WM verdict
UKTI offers a raft of support services for manufacturers of all shapes and sizes. With much of the entry-level advice available for free and the organisation desperate to increase its client base, this is a great time to get in touch if you're serious about exports.

The banks
It's a manufacturing exporters' market right now, with banks fighting tooth and nail to sign businesses up. Push for the best value-for-money package before putting pen to paper.

UK Export Finance
A sure bet for SMEs who can cherry pick from a range of financial support packages. Good to see the government using our AAA credit rating to help the smaller guys.

A big investment in time and money makes this route the preserve of experienced exporters only.

Max Gosney

Supporting Information


Barclays Corporate Banking
Santander UK plc

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