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SMEs hesitant about the Government’s trading aspirations out of the EEA

phil-tobin

Only time will tell whether the UK economy thrives or suffers in the aftermath of Brexit. Following Theresa May’s speech on the 17th of January, it seems highly likely that the UK will leave the single market.  Therefore, to make a success of Brexit, the government needs to cultivate new trading relationships. We’re not short of options in our globalised world; Australia, New Zealand, China and India have already dropped hints about their willingness to reach new agreements.  As much as May might want this to happen, the success of Brexit lies in large part with the UK SMEs, that contribute almost half (47%) of the turnover of the private sector British economy.  Voting to leave the largest trading bloc in the world on June 24th 2016 means SMEs need to search out new international trading partners. However, according to our research, SMEs are hesitant to do so.

A Bleak Brexit for SMEs

Studies suggests that UK SMEs have little or no trading experience outside the EU because they typically prefer to trade in similar markets to their own. It is of no surprise, therefore, that almost six in ten (59%) of those questioned said they considered Germany to be the most important trading partner of the UK. It would not be too bleak to say that in a post-Brexit, post single market UK, this cannot last.  Trade with Germany and our former EU colleagues is endangered by the increase of red tape, costs and practical barriers that will appear if (and when) the UK exits the single market. The FT says that even a small 2-3% tariff increase could be the difference between an SME successfully pitching for a lucrative new contact or being left staring at insolvency proceedings.

SMEs face business barriers to international trade

Despite the international trade opportunities available, to replace the tariff free market of 500 million that we left, SMEs are reluctant to take them. Most cite barriers such as volatile FX rates, understanding complex tax regimes, language and cultural barriers as justification (Real Business). SMEs are also hesitant because they do not have enough knowledge of international exporting; many SMEs (68%) feel they have limited understanding of local markets and, as a result, 45% have not even considered exporting internationally (Small Business).

New trading partners?

Obtaining lucrative contracts with new international markets could be the key to the success of UK SMEs. So, who should UK SMEs trade with? When asked which countries outside the EU they see as the most important to the UK, over half (51%) of SMEs indicated the USA, and 32% chose China. Yet, according to our research, only 1 in 10 (13%) UK SMEs plan to invest in exporting to these markets.

Export and Thrive

It seems logical to conclude that exporting SMEs are more likely to grow and thrive. British exports haven’t been this attractive in recent history, largely thanks to Sterling being at its lowest level since 1985.  Perhaps it’s the hangover of the 2007 financial crisis that makes SMEs less willing to take the calculated risk associated with international trade. However, with the right support, guidance and encouragement, exporting can help businesses thrive.

BFS seeks to offer support and encouragement to these businesses to enable them to take advantage of the high-reward overseas opportunities available to the UK business community. The UK’s success outside of the EU is largely dependent on whether UK SMEs can be persuaded of the merits of international trade. As the future of the UK outside of the EU begins to take shape, there really is no time like the present, to invest in the worldwide export market.

Phil Tobin, Managing Director for Trade & International at Bibby Financial Services 

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