British SMEs look to China for future growth
Western Union Business Solutions, a leader in global payment services, has announced the latest research-based findings of the Western Union Business Solutions International Trade Monitor (ITM), the quarterly economic confidence survey of over 1,000 UK small and medium-sized enterprises (SMEs) engaged in international trade.
The survey reveals that 81% of SMEs said they felt confident about the UK’s economic climate. Despite this confidence falling from the previous quarter (86%), there was a marked increase from the same period last year, when just 68% of UK SMEs were confident in the domestic economic climate.
Significantly, a quarter (25%) of small and medium-sized enterprises in the UK expect future growth to come from China, having named the country as the biggest export market opportunity for business. This is followed by Europe (22%) and North America (18%). China far outweighs the other BRIC nations with India (4%), Brazil (2%) and Russia (1%).
SMEs continue to internationalise trade; 35% surveyed said revenue from international trade had increased over the past 12 months, generating 23% of SME business revenue. Nearly a third (31%) said their business’ international trade will increase in the next 6–12 months.
Exports to traditional European markets remain by far the largest export market for UK SME goods and services, with 81%of SMEs exporting to Europe, an increase from 74% a year ago. Additionally, 53% said mature northern hemisphere Western markets will remain their largest customer base.
However, over a quarter (28%) said emerging markets and the BRIC nations will drive trade over and above mature southern hemisphere Western markets (18%).
Christina Hamilton, UK managing director at Western Union Business Solutions, said: “The research is confirmation that UK SMEs are looking beyond traditional export shores to diversify their customer base. As expected, Europe and North America remain key trade partners for British businesses, but it is clear from our research that the UK’s SMEs are looking to engage with emerging economies, such as China, in order to maintain and grow their business revenue through exports.
“It is very encouraging that over a third of SMEs have seen business revenue increase from their international trade activity. While SMEs are still emerging from the economic turmoil of the past few years, they are taking steps to diversify beyond a domestic customer base and to internationalise their offering.
“At WUBS we believe the transition from a domestic to international trade is one of the most important steps an SME can take in maximising their growth. We see this on a daily basis with our own SME client base who often turn to us for support to help manage the complexities of cross-border trade.”
SME Challenges
The International Trade Monitor also revealed a worrying picture of businesses being plagued by a mix of late payments, cashflow concerns, credit availability and currency volatility.
In summary:
– Over half (56%) of UK SMEs identified late payments as a top concern, an increase from 42% in the previous quarter
– 55 %of British SMEs are concerned about cashflow. Customer loss and currency volatility (both 51%), were the next biggest concerns
– 34%cited credit availability as a key concern, up 16 percentage points from the previous quarter
When asked about the cost of credit/financing their business, 29% said the costs had increased, compared to 24% in the previous quarter. Despite this, 82% of businesses claimed they will either freeze or reduce prices in the next 6-12 months in order to remain competitive. By contrast, just 18% will raise prices.
Continuing, Christina said: “It is worrying that more than half of SMEs are concerned about late payments and cashflow, two issues that are intrinsically linked. Despite the ongoing media spotlight on late payments, this seems to be an issue that continues to grow without any resolution on the horizon. Further exacerbated with rising costs of credit and greater competition from a global marketplace, being able to find a solution to these issues could either make or break a UK business.
“SMEs are in a catch-22 situation; they are unable to access credit to improve cashflow, inhibiting their ability to grow, which in turn further prevents their ability to access credit. It means SMEs are struggling to find funding to grow and stay competitive in the global marketplace. Despite the Government’s efforts over the summer to introduce The Small Business, Enterprise and Employment Bill, most SMEs remain unaware of alternatives to lending from banks with regards to accessing finance.
“WUBS’ SME clients regularly tell us cashflow and funding challenges are the two key impacts on their profit margins and ability to grow internationally. While the research shows confidence is high it is these micro-economic issues that will lower SME sentiment if these issues continue to persist.
Overall UK SME confidence in micro and macro trading conditions remains steady:
– 81% have confidence in the UK economic climate
– 93% say the domestic economy has improved or stayed the same in the past 12 months
– 40% say international trade will improve in the next 6-12 months.
– 51% believe trading conditions will stay the same indicating that the expectations of improvement at the start of 2014 have come to fruition.
