SMEs should go west for USA exporting opportunities
By Alex Littner, managing director of Boost Capital.
All eyes are on America as the countdown begins to the most controversial US general election in living memory. But whether Trump or Clinton wins on 8 November, the United States is likely to remain a subject of keen interest to British business owners. Many of those looking to export in a post-Brexit world are seeking new markets beyond the EU, and where better to start than with our largest cousin? As sterling’s value has fallen dramatically against the dollar, politicians and entrepreneurs alike are spotting a great opportunity for UK firms to market themselves across the Atlantic, and win new business Stateside.
Weak sterling’s silver lining
The threat of a so-called hard Brexit has seen the pound fall to its weakest level ever against its trading partners, and to historically low rates against the dollar. Many people are worried, plus businesses are anxious for future trading terms with the EU to be finalised. It’s possible Britain could leave the single market by 2019, and without a free trade deal with the rest of Europe. Such an outcome will mean SMEs must look further afield for export opportunities. Experts say they should regardless of what’s agreed with Brussels.
About one in five UK firms exports at present, according to Enterprise Nation, of those that started in the last six months, more than 90% expect to grow. Sterling’s weakness gives them good reason for optimism – British goods look cheaper overseas, which can boost export sales. The USA is one potentially fertile market, as are India, China, and countries in the Middle East. Official figures tracking trade don’t yet show this expected bounce in exports, but it is early days. With the pound likely to idle at its current level for some time, this positive Brexit side effect could still emerge.
Even before sterling’s freefall, Theresa May’s new government had singled out the USA as a target for UK exporters. The US was the first country Liam Fox visited as head of the newly created Department for International Trade back in July, announcing the opening of three new official British offices in San Diego, Minneapolis and Raleigh in North Carolina. Barack Obama may have warned ahead of the EU referendum the UK would be “at the back of the queue” for any future trade negotiations if it voted to leave, but such rhetoric has since been toned down. UK politicians remain hopeful North America will prove a productive trading partner.
Why America? There are several obvious reasons, the first being language. Then, the US is already the UK’s single biggest export market – it imported £47.5bn of British goods last year. Plus, it has the merit of representing almost 30% of the world’s consumer market. All of these suggest British exporters could be pushing at an open door by trying to sell to the US. The British Chambers of Commerce (BCC) identifies advanced engineering, clean technology, creative and media, energy and power, as well as financial and professional services being sectors of particular possibility.
Overcoming cold feet
However great the opportunities posed by exporting, at present few UK firms plan to sell abroad. Just 5% of SMEs intend to start exporting over the next five years, according to recent research by the Centre for Economics and Business Research for World First. This means Britain is likely to fall short of the previous government’s vow in 2012 to raise our exports to £1tn by 2020.
Why don’t businesses want to export? Cultural and language barriers, red tape, and believing a product or service isn’t right for foreign markets are the most common reasons. Yet, the US is an English-speaking country. It has a reasonably benign regulatory environment, and strong rule of law – the BCC calculates importing a standard container of goods to America requires just five documents, takes about five days, and costs an average of £1,315. And there’s strong evidence American consumers like British products. Only recently it was announced that sales of UK-made gin to the US market have risen by an amazing 553% over the last decade, for example.
Made in Britain – sold in America
Some have expressed fear that ‘Brand Britain’ has been damaged by the Brexit vote, but many British businesses with a strong identity are still popular overseas. Household names such as Jaguar Land Rover, Dyson, and Cath Kidston are favourites with foreign customers, encapsulating something quintessentially British – whether it’s tradition, innovation, or originality. Made in Britain is a label still associated with quality in many parts of the world – businesses should exploit this advantage.
One practical consideration of exporting to the US is whether to set up an American-based satellite. If it could be necessary, think about the best location in terms of potential customers, the most favourable state for tax purposes, the best time zone, and where there’s skilled labour. Each US state has its own company laws and rules for foreign investors. The BCC is also a great source of exporting advice, as is the government’s ‘Exporting is Great’ web portal.
Knowing the US market
Boost Capital has an advantage when discussing business in the US, since we have an American parent company, BFS Capital, which has been lending to small companies there since 2002. It has provided more than £1bn worth of finance in that time, so it knows a thing or two about what makes the US market tick. And of the 400 industries it has worked with, it counts many importers among its customers. While many in the US like to buy American, plenty of others will go for imported goods if they’re better on price, quality, or cache.
Marc Glazer, the founder of BFS Capital and chairman of our UK operation, often says business owners’ concerns are fairly universal. Whether in the US or UK, most SME bosses are ambitious to expand, and need the money to take advantage of growth opportunities when they occur. Our role is to empower them to act on those ambitions. In Britain, we’re finding more of our customers with plans for growth are setting their sights on foreign markets and the possibilities of exporting. Our experience of working with these exporters mean we understand the pressures and needs such companies typically face.
Brexit has come as a shock to much of Britain, but even critics of the decision admit the big upheaval presents opportunities. Others predict this will be seen as a new dawn for foreign trade for the UK. Our job, as always, is to help British businesses with the funding they need to run in the day-to-day, but also to invest for growth where these opportunities arise. Selling goods and services to the US – and elsewhere – is likely to be an avenue more UK firms decide to take, and we look forward to helping them.