Thousands of businesses are avoiding international expansion despite the enticing overseas markets that exist for their products. Take the first step to global success, by following our top tips for first time exporting for small businesses.
The Success of the Small Business on an International Level
An increasing number of start-ups and small businesses are including international sales as part of their business strategy. With the surge in popularity, more and more first-time exporters are entering the markets. Around 10 percent of all UK SMEs are exporters and are currently capitalising on a share of the £287,000 in additional revenue that these orders can deliver. In fact, according to UK Export Finance, firms that traded internationally in the last 2 years have grown at a rate of 15% compared to just 8.4% for those focusing solely on domestic markets.
For those businesses looking to take the plunge, get ahead of your competitors today and read on for our top five tips for first time exporting.
1. Identify Profitable Markets
If your company is yet to receive their first international order, conducting market research is imperative. If done effectively, your research will set you up with a foundation in market demand, growth opportunities and an understanding of your competition which could save you millions in the long run. If companies do not invest the time in market research, important cultural, competitor and pricing factors can be missed and the opportunity for profit can be seriously impacted.
2. Market Regulations
Regulations relating to safety, production and quality control differ within markets, particularly in the pharmaceutical and food production industries. The slightest variation could require large, expensive changes in production. Understanding the regulations from the outset will give businesses a good idea of their target audience without making costly mistakes in the process. This level of detail extends to companies who deal with consumer’s personal data. The introduction of privacy laws in Europe and US states like California hold companies to strict guidelines with hefty fines for non-compliance.
3. The Logistics
Facilitating orders on an international scale is vastly different to operating at a domestic level. Whilst globalisation has made this significantly easier in recent years, small firms are still required to go through certain changes when operating internationally for the first time. Fluctuating shipping costs, delays and lost cargo all need to be taken into consideration. It was only a few months ago that COVID-19 single handedly brought markets to its knees with some not expected to bounce back for years.
Once logistics such as potential warehousing is arranged, there’s the small matter of customs paperwork to complete which, as the Brexit process has shown, can be complex and costly, particularly when dealing with large shipments. With this in mind, it is vital that companies instruct the assistance of reputable shipping comp
4. Navigating the Shift in Currency Value
Managing a vast number of currencies whilst selling internationally can be an issue for first time and novice exporters; however, all is not lost! Unlike multi-national organisations who hire currency traders, small businesses can follow simple steps to stay on top of the shift in currency values and protect price and profit margins.
Trading in your local currency, can prevent big headaches for companies and transfers the risk of shifting currency values over to the buyer. If this is not possible and the buyer insists on their own currency, it may be wise to lock in exchange rates in advance. It is highly unlikely that as a small firm, you are going to have the cash reserves to account for negative movements in foreign exchange but this option can mitigate daily fluctuations in currency values.
For a beginner, it is important not to try and play the market. Focusing on your product, your customers, adhering to international regulations and securing those first international orders are going to put you in a much better position.
5. Understanding Tariffs
Another issue that has been highlighted by the Brexit negotiations is the potential for new tariffs and regulations to be imposed on goods after the new trade deal is agreed. The introduction of these could seriously impact the importation of certain goods in favour of supporting local business as well as decreasing your profit margins and limiting long term sales volumes. Researching where free trade agreements exist can create a competitive edge to your business. If you really want to get ahead, sourcing where new free trade agreements are likely to be introduced and investing in those locations will ensure that you are one of the first to break into new markets when they arise. This requires a certain amount of discretion on the company’s part as potential trade disputes such as the one we are currently seeing between the United States and China can create serious losses if overlooked.
Is your Company Ready to Export?
One of the primary reasons that small businesses do not venture into international markets is down to a lack of resources and expertise. According to the Department of International Trade, companies with a turnover under £500,000 were unlikely to look into exporting globally despite 73% believing that there was a strong demand for British products and services. A quarter of these businesses added that they wouldn’t know who to turn to when looking for advice. As daunting a task as it may be for businesses, the insight and the advice is out there, whether it be sourced through an external agency or researched by the company themselves, now is as good a time as ever to break through into the global markets.