The strongest small and medium sized enterprises (SMEs) in the wider Birmingham region are exporting to generate growth – with most of those companies specialising in advanced manufacturing or engineering, according to research by the Marketing Birmingham Regional Observatory and the Greater Birmingham and Solihull Local Enterprise Partnership (GBSLEP) launched today (28th June).
Yet, despite the success of exporters, only one in four (25%) of SMEs are operating in overseas markets, with nearly half (48%) focusing predominantly on the West Midlands region and a quarter (25%) generating most of their turnover across the wider UK.
sme market focus
1,700 businesses across the GBSLEP area* and the Black Country were surveyed. The report is available to download from the Marketing Birmingham website.
The research examines which SMEs are experiencing the most growth in areas such as turnover and employment, and how this has been affected by factors such as exporting and business support.
It found that SMEs with a UK or international focus are more likely to be growing than businesses consolidating locally. While nearly half (43%) of companies focusing on local markets have experienced a reduction in turnover or staff over the last three years, this is a problem faced by only a third (31%) of SMEs operating in a UK market and just over a fifth (21%) that are trading overseas.
Businesses in the West Midlands exported £20.2 billion of goods and services during 2011 – compared with £17.5 billion in 2010 and £13.6 billion in 2009, according to HMRC**.
Neil Rami, Chief Executive of Marketing Birmingham, which operates the Regional Observatory, said: “Many of the region’s most successful SMEs are our most ambitious, looking further afield to find new customers. This has a knock on effect with evidence also suggesting that higher export levels raise the prospect of attracting further inward investment to the region.
“It is clear that smaller businesses wanting to achieve growth in their turnover, and that have the means and ability to approach foreign markets, should consider exporting in addition to strengthening their positions in the UK.”
Rami continued: “Yet while it is positive news that exporting can lead to stronger growth, we need to address why just a quarter of SMEs are doing so. With almost two thirds of UK private sector jobs created by SMEs, supporting their ambitions to sell overseas can boost employment as well as their turnover.
“Exporting is not risk free, and we must ensure that smaller businesses have the tools, knowledge and guidance to help them join the international market with a full understanding of its potential challenges and benefits.”
Nearly half (42%) of all SMEs surveyed acknowledged that a key barrier to growth was the intensity of competition, followed by the cost of raw materials or supplies (41%). Other barriers included cash flow and access to finance, two factors identified by a third of respondents (33%), demonstrating the importance of financial support for smaller businesses in the current climate.
Andy Street, Chairman of the Greater Birmingham and Solihull LEP, commented: “Exports are an excellent indicator of the performance of the economy in the LEP. Therefore, we should welcome this research which confirms the strength of our export sector. However, it also confirms the potential which still exists for new exporters. Support to help companies break into overseas markets is available and the launch of the LEP’s Central Business Portal will be vital in increasing the number of exporters and the value they add to our economy.”
Sectoral successes
As expected, when analysed by sector there was considerable variation in the proportion of SMEs that exported. Building on the strength of manufacturing in the region – worth more than £15 billion annually to the local economy – SMEs in this sector that are operating abroad are experiencing the biggest increases in turnover and recruitment.
While more than half (52%) of advanced manufacturing and 38% of engineering SMEs export, just 6% of construction firms focus on overseas markets. Furthermore, the sectors with the most SMEs deemed ‘high growth’*** were in exporting industries – advanced manufacturing (30%) and engineering (26%) – while nearly half (41%) of SMEs in construction experienced a downturn in employment or turnover each year in the last three years.
exporting sectors
Overseas markets
Amongst high growth SMEs, growing a portfolio of customers outside the UK has been a vital part of their development – with more than a third (34%) generating turnover from other European countries, and over a fifth (21%) targeting countries outside Europe.
Of the high growth SMEs that generate most of their turnover from Europe, France and Germany are particularly valuable markets, with around a third (32%) of respondents ranking the two countries amongst their top three sources of turnover. The Republic of Ireland remains important for nearly a quarter (23%), followed by Belgium, which was ranked by a fifth (20%).
Respondents that target countries beyond Europe highlighted that they represent a small proportion of turnover – and that established, English-speaking countries are more accessible than emerging economies, with the exception of China. Nearly half (48%) of high growth SMEs that trade outside Europe ranked the USA amongst their top three key markets, followed by Australia (15%), Canada (15%) and China (15%).
Jonathan Webber, International Trade Development Director at the Birmingham Chamber of Commerce, said: “Despite the Eurozone crisis and the huge potential associated with the BRIC nations, local SMEs are still looking closer to home when they are exporting. This reflects our national business activity, with the UK exporting more products and services to the EU than anywhere else.
“For SMEs looking to foreign markets, it is crucial for them to consider locations that provide fewer barriers to trade. As a result, countries that are geographically close to the UK, such as France and Germany, or have an English-speaking population, like the USA, provide the easiest route to overseas markets – although moving forward, businesses must prepare for any shocks that may emerge from the Eurozone crisis.”
Looking ahead
Despite their success, high growth SMEs can still face barriers to exporting; one in six (16%) highlighted that they had encountered issues trying to access particular export markets in the past, although more than half (53%) stated that they had not faced any problems.
Amongst high growth companies that are already exporting, confidence remains high after coping with the effects of the previous recession. While nearly two thirds (63%) experienced an increase in export sales since 2008, 27% maintained levels and 10% had a reduction in sales. For the coming 12 months, 63% of high growth exporters expected to increase their sales, with just 5% anticipating a decline.
Mark Smith, Regional Chairman at PwC in the Midlands, concluded: “SMEs in the region have a diverse offer that customers across the globe want to access, but fewer businesses in the UK consider exporting to be essential compared with business models in other countries.
“During this economic climate exporting may seem particularly daunting – and businesses must protect themselves from disruption from the Eurozone – but taking this step can provide SMEs with opportunities to enter growing markets, access new clients and form joint ventures or partnerships that may not currently be available in the UK.”
