How SMEs export today

There are three main types of exporters amongst UK SMEs:

Strategic - this group tends to factor in exports into their business strategy, with identified destinations and specific target markets. Exporting isn’t an option for them, it’s a necessity.

Opportunistic - businesses that fall into this group didn’t necessarily plan to export from the offset but they respond to opportunities and make the most of them, leading to a presence abroad.

Reactive - these businesses will invest after being approached by foreign customers via digital platforms – they don’t have a plan to target a specific area but will happily do business with anyone who asks.

Whatever group you fall into, it’s important to evaluate your business objectives and balance them with the right opportunities.

Ecommerce is also another growth area, opening up a lot of new export opportunities for SMEs, in both developed and emerging markets. A key point to think about is that the top export markets for SMEs are the biggest growing e-commerce markets globally.

Why aren’t more SMEs exporting?

The lack of capacity, resources and time required to invest in exporting is a large part of it. When you have a small team, making changes to your production processes and supply chains can feel like an extra, unnecessary step since there won’t be an immediate pay off.

Another issue with exporting is attitude. Many businesses just don’t consider themselves candidates for export. It’s not that exporting has been discounted – it’s just never been considered in the first place.

Similarly, many small businesses don’t understand the potential their business has. 

There are many good reasons (or benefits) for exporting.

Increasing sales

While the local market may represent enough sales potential for smaller firms, for medium and larger companies the local market is just too small and the only way to expand sales is to export.

Increased sales also impact upon your profitability (although not always positively), your productivity by lowering unit costs, and may increase your firm's perceived size and stature, thereby affecting its competitive position compared with other similar-sized organisations. What is more, research and development (R&D) and other costs can also be offset against a larger sales base, or the move into exports may contribute to the company's general expansion.

Increasing profits

Companies generally strive to make profits and the bigger the profits the better. In many instances, exports can contribute to increased profits because the average orders from international customers are often larger than they are from domestic buyers, as importers generally order by the container instead of by the pallet (thereby affecting both total sales and total profits). Some products - especially those that are unique or very innovative in nature may also command greater profit margins abroad than in the local market.

The reason for this is the highly competitive nature of global markets that forces exporters to lower prices, squeeze profits and reduce costs.

Reducing risk and balancing growth

It is risky being bound to the domestic market alone. Export sales to a variety of diverse foreign markets can help reduce the risk that the company may be exposed to because of fluctuations in local (and foreign) business cycles.

Lower unit costs

Exports help to put idle production capacity to work. This is generally achieved the more efficient utilisation of the existing factory, machines and staff. What is more, because you are now selling more products without increasing total costs to the same extent, this has the effect of lowering your unit costs which represents a more productive overall operation. Lower unit costs make a product more competitive in the local marketplace as well as in foreign markets, and/or can contribute to the firm's overall profitability.

 Economies of scale

Exporting is an excellent way to enjoy pure economies of scale with products that are more "global" in scope and have a wider range of acceptance around the world.

With increased export production and sales, you can achieve economies of scale and spread costs over a larger volume of revenue. You reduce average unit costs and increase overall profitability and competitiveness. Long-term exports may enable a company to expand its production facilities in order to achieve an economic level of production.

Minimising the effect of seasonal fluctuations in sales

For companies that sell seasonal goods such as certain food products, or products that are dependent on seasonal cycles and needs, being able to sell in other countries, helps achieve a longer and more stable sales pattern. This increases the sales potential for these goods and also helps reduce risk.

Small and/or saturated domestic markets

One good reason to begin exporting is when the local market is too small to support a firm's output or when the market becomes saturated.

In todays globalized environment usually it does not take long before many foreign competitors are selling their products in your home market, and consequently your key home market  becomes more crowded, saturated and offers limited additional opportunities for sales.

Overcoming low growth in the home market

It is not uncommon for a recession in the local market to act as a spur for companies to enter export markets that may offer greater opportunities for sales. While this may have the benefit of offering ongoing sales potential for the firm in question, the danger with this approach is that when the local market improves, these companies abandon their export markets to focus on the now buoyant local market.

Extending the product life-cycle

All products go through a product life-cycle. In the beginning they are novel and sales increase quite dramatically, then sales level off and they become what is referred to as mature products and eventually sales start to decrease and the product goes into decline. Now, a product that has entered its decline stage may have a life elsewhere in the world and by finding a market where this product could be sold anew, you are essentially extending the life-cycle of the product.

Improving efficiency and product quality

The global market is a highly competitive place and by participating in this marketplace, you need to become equally efficient and quality conscious. It is generally the case that successful exporters are also very successful in their home markets because of their heightened efficiency and focus on product quality.

Untapped markets

A company may have a very unique product that is not yet available elsewhere in the world. In this instance, these untapped markets are likely to drive the firm's export activities.

Status as an exporter

For some companies, the status of being involved in international trade is very important to them.

Drawbacks of exporting

There are also potential pitfalls in exporting and it is important for prospective exporters to know what these are. They include the following:

• Management may need to devote a considerable amount of time to the start-up procedures and decisions involved in exporting
  
• Key personnel or other critical resources may have to be diverted from domestic responsibilities to help with the company's export activities
  
• Additional plant facilities may be needed to cope with increased sales through exports
  
• Catalogues, brochures and other sales promotion material, as well as packaging and labelling, may need to be translated into a foreign language
  
• The product may need to be modified to meet foreign market criteria
  
• Credit terms may need to be extended because of competition, local custom or transit time
  
• Exporting, although rewarding, is generally an expensive activity and will require additional financial resources