Small Firms Focus on Foreign Markets for Growth

Small firms are more confident in their prospects of sales overseas than growth in home markets, a Lloyds TSB survey has found.

The quarterly Lloyds Business in Britain Confidence Index revealed business confidence overall is at its highest level since 2007, following a historic low in 2008. But firms most reliant on domestic sales are the least optimistic for business growth.

Of the small businesses that currently export, a balance of 42% — the number of those expecting a rise minus those anticipating a fall — expect their overseas sales to increase in the second half of 2010, with sectors such as manufacturing and business and professional services expecting to benefit the most. However, only a balance of 25% of all SMEs expect sales to increase overall.

According to Lloyds TSB’s head of external affairs, Stephen Pegg, many small businesses are focusing more on foreign markets because of falling demand in the UK. Some 56% of the 2,300 survey respondents cited fragile domestic markets as their greatest business concern.

“There is an element of diversification, with small firms struggling to make sales in the UK looking to other markets. A lot of firms are now driving their growth through new markets. Exporting businesses are right to be optimistic, as foreign sales have grown over the last six months.”

“When sterling fell, we were surprised that exports didn’t pick up straight away. But businesses were using the improved exchange rate to increase their margins and profitability, rather than increase their volumes of sales. Now they’re turning that into volume increases as well, and we’ve found that those that are exporting are the most optimistic.”

However, Pegg said that exports cannot completely compensate for weak demand in the UK.

“Firms in some sectors can’t really export — for example, hairdressers. However, if our economy as a whole is driven by increasing success in export markets, that will benefit everyone.”

The British Chambers of Commerce trade policy adviser, John Lucas, said firms needed to be “adventurous” to take advantage of the possibilities presented by the weak pound.

“It’s good to be optimistic, but it requires a certain amount of ‘get up and go’ to export, and businesses in the UK have traditionally been a bit weak in that respect. They need to be more adventurous — instead of waiting for foreign distributors to come to them, they must research their market and take advantage of schemes such as our Export Market Research Scheme (EMRS), which we run on behalf of UK Trade & Investment (UKTI) to help businesses research new markets.”

A spokesman for UKTI said:

“Exporting need not be daunting — UKTI has tailor-made services for small firms who are new to doing business abroad.”

For further reading see 8 Tips for Profiting abroad or read the Exporting guide.

Small Firms Focus on Foreign Markets for Growth

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