SME exporting: the national challenge
This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government
Stephen Green's speech at The National Challenge: SMEs Export for Growth event in London on Thursday 10 November 2011.
We have covered a lot of ground this morning, and I hope you have found this time rewarding, stimulating and - yes - challenging, too.
We have heard from the Prime Minister about the centrality of trade and investment to this country’s economic strategy.
We have heard from Evan Davis about the potential and the creativity which you can find in every sector, in every part of the country. (I must tell you: I am encouraging every member of UKTI, BIS and the FCO to view his ‘Made in Britain’ - because it shows what this country is really made of, and why we can be confident of our ability to pay our way in the 21st century.)
We have also heard panel discussions of the challenges and the opportunities; from Nick Baird, the new CEO of UK Trade & Investment (UKTI), about the critical role it needs to play in supporting companies as they seek to respond to the challenge; from Patrick Crawford about the newly refreshed UK Export Finance (ECGD) and its role in supporting finance for exporters.
Overall, the message is clear and direct. We can do it, and have to.
We have to, because the old economic model of the years running up to the financial crisis is bust. For all of the insecurities we face - in a world economy beset by worries about sovereign debt, woes in the Eurozone, weakening global demand, and so on - there is one thing we all know for sure. We know we cannot rely on consumption fuelled by debt, or on government spending funded by debt, to drive growth. We all know what the economics text books tell us - that the only other way of driving growth and creating jobs - the only way of creating sustainable growth, in fact - is through investment and trade.
The challenge of the new model growth is clear: we have to excel in trade. We have to pay our way in the 21st century. Trade must contribute growth - instead of being the drag on growth which Britain’s relatively weak trade performance has been for most of the last four or five decades. This is our national challenge.
SMEs are crucial to this national challenge. They are crucial in the supply chains of the major exporters (there are at least 10,000 SMEs in the advanced manufacturing sector alone, for example). They are crucial as innovators in every sector, whether hi-tech or traditional. In fact their importance as innovators - in sectors as widely different as pharma, telecoms, design and retail - is clearly growing rapidly as the digital revolution continues to fundamentally change the way we do things.
And of course, SMEs are the main job creators of the economy. Almost 60% (58.8%) of private sector jobs have been created by SMEs.
So SMEs are crucial to the national challenge.
And nationally we are behind the curve. Whilst we should not be over-fixated on simple benchmarks, the evidence suggests fewer British SMEs export or are part of exporting supply chains than is the case in our European competitors. To move towards the European average, we need to see significantly greater involvement by SMEs in overseas markets over the next 4 or 5 years - possibly as many as 100,000, either starting to export for the first time or spreading to new markets.
If we can do this, we will not only find that we are making substantial inroads into our trade deficit. We will also create new jobs. And the businesses that rise to this challenge will benefit from what research clearly shows - that exporting brings substantial and rapid gains in efficiency. Exporters have on average significantly higher growth prospects, more durability and higher profitability than other comparable businesses.
In other words, if we can do this we will not only address the country’s fragile trade position; we will strengthen the economic backbone of the whole economy.
This is a national challenge; and it is a collective challenge. It is a challenge for government; for individual businesses; and for their supporters, advisers and financiers.
Government must of course set the policy framework. And it is clear what the strategy is. One: fiscal consolidation. Two: effective macroeconomic and prudential oversight through the new structures within the Bank of England. Three: business-friendly and competitive tax policies. Four: a commitment to the continuous hard work of minimising the burden of regulation. Five: active support for investment in skills and innovation.
Six: our commitment to reform the planning system so as to support sustainable business investment. And seven: our commitment to ensure that we have a robust, competitive financial sector which is able to provide appropriate credit to support business growth.
All this is the government’s responsibility. But this is a collective challenge. None of us can sit back and ask ‘What have the Romans ever done for me?’
And - needless to say - businesses all over the country are rising to the challenge. During my first 10 months in this job, I have visited businesses in every region of England, and in Wales, Scotland and Northern Ireland. And I have seen with my own eyes what we all know in our hearts of hearts to be true. All over the country, in every sector, there are businesses of every shape and size - hi-tech, traditional, in manufacturing, in services - that are innovative, that are outward-looking, that have taken the risk and are growing globally.
This country has all the creativity and innovation that we need to compete on the world stage. We not only export cheese to France, we export sushi to Japan, caviar to Russia, sand to Saudi Arabia and potato chips to America.
A Liverpudlian barber exports scalp treatments to Hong Kong. A small Birmingham architect, Benoy, goes global and now does business in 35 countries employing 500 people. Xaar, a spin-out from Cambridge, becomes a 450-person company making digital ink-jets for hi-tech printing machines, exporting 86% of its output. Last week, I was in Korea, meeting up with British SMEs who are exploring doing business with Korean companies in the wind power generation sector. And I witnessed the signing of a Joint Venture between a British biotech company and a Korean company to take forward a product which uses biochemical technology in insulation materials. And so on.
So of course we can do it.
But the challenge is complex. Because of course, exporting is not risk free. It’s often unclear where and how to start. Financing is all too often a problem. For a small company facing all the daily challenges of the existing business, tackling the unknown in the overseas markets will often be daunting, to say the least.
Which is where their supporters and trusted advisers come in.
Every SME has a banker, a lawyer and an accountant. Many are members of their local Chambers of Commerce. Many are also members of trade associations. All of these groups, as well as many chairmen of LEPs, are represented here today. Because today has been about the role that you, the advisers and supporters of SME’s, can play in encouraging them to look at the opportunities; in providing the advice and guidance they need; in pointing them in the direction of UKTI and of UK Export Finance – whose whole reason for existence is to help them on their journey of growth through exports.
Each of us has work to do on this. And – as you have already heard this morning – a lot is under way.
The major banks have stepped up to this challenge.
The launch of the HSBC Business Thinking programme for 2011-12 includes financial support for businesses, supported overseas trade missions and mentoring for SMEs.
Barclays will be working with UKTI to build networks and business between UK SMEs and its large customer base in sub-Saharan Africa. Lloyds will launch a pilot programme to develop a network of export mentors – in partnership with the Manufacturing Technology Association. Santander is running a series of trade missions – supporting the participating companies alongside UKTI services. And RBS will be supporting the next wave of Asia Task Force activity, continuing its engagement with this important initiative.
And more generally banks are rejuvenating their whole approach to business banking - reinvesting, in many cases, to reverse what has been years of deskilling in this all important area of banking.
A new UKTI and UK Export Finance initiative is the production of a white label ‘how to’ export guide, which is being distributed at this conference. It provides support and information to professional service companies on areas that their clients will want to consider around starting exporting. Interested professional services companies can use this guide with their own branding to issue in branches, to memberships and customers.
We are working too with the representative bodies of accountants and of lawyers to explore ways of encouraging and helping their members in reaching out to their SME clients.
A specific example is the guide to International Trade which UKTI has produced in partnership with the Institute of Chartered Accountants in England Wales (ICAEW). This will help accountants understand how they can support SMEs on export initiatives – and is today being sent out to over 2000 accountancy firms across the country. ICAEW is also launching a new Business Advice Service that will offer a free advice session in more than 2,400 locations across the country.
The Law Society will be producing ‘Doing International Business’ guides aimed at SME firms new to exporting. These guides will focus on crucial issues for company looking to reach out to overseas markets first time – including international employment, contract and tax.
I and Nick Baird will continue meeting with Chambers of Commerce over the next few months to explore ways in which we can work with them to support them in specific programmes for SME exporters, actual and potential.
And of course, UKTI itself has a crucial role to play. It will seek to double its client base from around 25,000 companies to around 50,000 over the next 3 years.
Its regional teams must be effective networkers – with businesses themselves, with their advisers, with banks, with the Chambers and LEPs. Their job is to reduce the unknowns, to facilitate the contacts, to help companies see what is possible – and go for it.
And what are the next steps?
First: Starting right here, right after lunch, Vince Cable will be hosting an exploration of the all important topic of financing for growth.
Second: I and Nick Baird will be taking the message of the national challenge around the country over the next four months. We are working with Business Representative bodies – Chambers of Commerce, the CBI and the IoD - to host a follow-up conference to this morning in every region of the country. And we will continue in the active dialogue with banks, lawyers and accountants, so that we can keep up the critical momentum of support for SMEs. Today is the start of a process, not the culmination.
Third: we are planning a substantial ramp-up in 2012 of trade missions to key markets. Led by ministers, by Nick Baird, by the CBI and the BCC (both of which are enthusiastically committed to this initiative). These missions will give more and more SMEs the opportunity to explore markets, to establish relationships, to do business. We are also reviewing our support for British companies at the key trade fairs, which I believe has been retrenched too much in recent years.
Fourth: as already spelt out by Patrick Crawford, UK Export Finance will be establishing regional presences and working closely with UKTI and with banks to make sure that its products are available to, and understood by, SME exporters.
Fifth: UKTI will be running an ambitious programme in 2012 of showcasing events around this country, to raise awareness and inform SMEs in relevant sectors about a whole series of major infrastructure and development projects around the world. In country after country – both developed and emerging – we are seeing governments launch massive programmes - from whole new cities; through transport systems; through the sporting events such as the Rio Olympics and the World cup; to energy and minerals exploration and development.
These provide all manner of opportunities for British businesses - and not just the large companies, but for thousands of SMEs in a whole variety of sectors. We want to be as sure as we can that every SME who can meaningfully play a role gets a chance to do so.
Sixth: as Nick has already highlighted, we place huge importance on SMEs sharing with each other. There is nothing like learning from the experience of those who have gone before.
So UKTI will work with Yell to develop an online service to help companies trade overseas. Open to Export will provide a digital platform for increased export support from intermediary organisations like you all here today. It will also facilitate peer-to-peer support. It will launch as a beta platform in Spring 2012. I urge you to get involved by engaging with UKTI, and I thank Yell for their commitment towards the many thousands of SMEs for whom we want to open up the opportunities to export globally. Working together we can scale up the support that we can all collectively provide to SMEs.
Finally: something I repeat as often as possible – to ministerial colleagues, to businesses, to their supporters and advisers, to journalists, this is a marathon, not a sprint. Britain has lived with a weak trade position for 50 years or so. There are no magic wands to be waved. If there were, they would have been waved by now. This is hard work for all concerned: for government, for businesses, for their advisers, supporters and financiers. We need to stick at this for 10 years or more. And we know there is no alternative.
But it is a marathon we can complete – if we keep going. All the evidence is that we have the creativity and the innovativeness to do it. We have world-class competences in a wide range of sectors, in every part of the country. Running a marathon takes determination, training and support. This national challenge of doing business internationally is a marathon; and I believe we have the stamina to stay the course and complete it.