Exporting - how do firms begin?

Despite the challenges and risks associated with exporting, there are numerous benefits not likely to be achieved by remaining solely in the domestic market

Ian Tandy

Managing Director of Global Trade and Receivables Finance of HSBC UK

Exporting is big business for the UK. Total exports reached £637bn at the end of last year, with the number of SMEs trading overseas increasing by 6.6pc and the number of large companies increasing by 6.1pc.

But how can you take your business global? Research, for example, is crucial – into suppliers, your target market, local tax and duties, and practical considerations such as local infrastructure.

Here are seven of the most common questions UK businesses have about getting started in exporting.

What types of business could consider exporting?

Any size or type of business has the potential to export. With the growth of e-commerce, the youngest business can start trading with the world almost immediately.

International expansion is also an attractive prospect for larger companies on the hunt for their next big growth opportunity. And for mid-market businesses treading the line between financial stability and the continuous pressure from stakeholders to grow, globalisation strategies cannot exist as half-measures. 

What are the basic steps businesses need to take before they start?

Whether you are selling to the UK or overseas, the same business basics apply. Has your product or service the potential to sell in your chosen overseas market and can you make a profit?

• Yes, you have the challenge of getting your goods to market and adapting your product where necessary, but step one is getting your business fit and healthy to trade domestically as well as internationally.
• You need to develop a dedicated export plan if this is going to form a core part of your business strategy. That will include everything from marketing budget to market selection, costs and pricing, market entry approach, and planning for different regulations. For example, an HSBC survey of 1,000 customers revealed that almost two-thirds of all potential exporters cited regulation in the destination market as a worry. So an important decision you will need to make is how you will sell and distribute your products and remain compliant.
• Pairing up with a local agent, distributor, franchisee or licence holder, or selling and fulfilling orders direct from the UK, are all possible, and each requires its own careful planning. It is critical to research at an early stage the best legal set-up for your company in a new market, be that representative office, subsidiary or joint venture. Due diligence on overseas trading partners should be as thorough as for domestic trading partners.
• Plan for financing. Before you start exporting, create financial and sales projections and use them to assess your capital needs. Have adequate financial resources to meet those needs – plus a cushion – before you start. If you get a big order but do not have the working capital to finance buying or manufacturing the products, your global expansion might end before it begins.
• Understanding if you are able to protect your intellectual property in the market of choice should be a key consideration.

What are the advantages of exporting?

HSBC research confirms that the benefits of exporting to an SME’s turnover are clear. For more than a fifth (22pc), exports generate more than half their business’s total revenue.

Despite the challenges and risks associated with exporting, it also offers numerous benefits that are not likely to be achieved by remaining solely in the domestic market.

Independent research of companies that export reveals that they are more innovative, profitable, resilient to downturns in the economy and grow more rapidly than those trading domestically.  

For a small business, exporting can seem scary and it is invariably a steep learning curve. That said, it has been cited as key to economic recovery, and the Government has long encouraged small businesses to accelerate their growth through overseas sales. The good news is that it is not as hard as it seems – and there is plenty of help available.

Are there any useful networks I should join?

There are plenty of organisations that can help a company on its export journey. Exporting is easier with a team behind you. Organisations such as the Department for International Trade (DIT) and UK Export Finance (UKEF) can provide training and bespoke advice – and in certain cases, finance. 

Joining your local chamber of commerce is a good idea too, as it can provide support and will help you connect with other businesses trading internationally. Trade shows, networking, industry contacts and online directories are all potential sources of customers.

Through the Institute of Export you can access a team of experts to help you deal with any export issues you come across.

You will need help both in the UK and in the market you export to. HSBC has expert trade teams in more than 60 countries, giving access to more than 90pc of all world trade flows.

How do I define a route to market?

There are multiple ways of exporting, which range in complexity, cost and the risks they present. Starting with low-cost and low-risk, the main ways to sell overseas include direct sales (including selling online), using in-country agents or distributors, licensing or franchising, a joint venture or partnership, or setting up an overseas operation.

How can I secure export finance?

An export is a gift until it is paid for. If you cannot finance your exports, any time spent looking for orders will be wasted. If you cannot be sure of being paid, you are opening up a financial risk.

Discuss the finance options avaiable to you – your bank should be your first port of call.

In certain circumstances where your bank cannot provide the level of finance you need, it may be possible to obtain government-backed finance or insurance via UKEF. It has a range of schemes guaranteeing loans and financial products to UK exporters and their suppliers.

Research is key: ensure you're au fait with local customs and practices 

There is also a wide range of alternate finance providers that can be found via websites such as Alternative Business Funding.

How can I best understand the local cultures of my export markets?

Getting to grips with a country’s language, customs and culture can be a challenge, but it can also be one of the most rewarding aspects of doing business overseas.

Understanding cultural differences can be make or break for some businesses in new markets. To be successful in your chosen export market, you need to fully understand the local culture and adapt your approach accordingly. In many markets modern business practices have emerged, but centuries-old traditions remain and the working culture is a mix of old and new.

Many issues experienced by foreigners can often be put down to misunderstandings, nervousness and unfamiliarity with the local culture, so it is worth familiarising yourself with the local working practices and values.

The best way of understanding the culture of your chosen markets is to visit them.  But that is not always practical. There is plenty of useful information available, such as the HSBC International Business Guides, and the Department for International Trade’s series of webinars on specific markets.

As a truly global bank, HSBC is in a unique position to support businesses as they explore new markets. 

Break into exporting with HSBC

HSBC has joined forces with Telegraph Spark to share all the expert guidance and advice your business needs to break into global exporting. Securing finance, emerging markets to consider, defining a route to market - it’s all here.

Visit HSBC's export hub for more information and to speak to an expert adviser.