Revealed: How SMEs are seizing global opportunity

What does it mean to be an international business? It covers a much wider category than the typical image of global corporates with offices in multiple markets – at least in the definition we use at HSBC UK.

An SME that sells to overseas customers online, or imports components for its products, is trading internationally. In fact, anecdotally we find that many smaller firms are active in some element of overseas trade without considering themselves to be ‘international’.

The distinction is important, not least because the overwhelming majority of UK businesses are SMEs. It follows that their attitudes and intentions on international trade will be critical to the UK’s economic growth.

Indeed, those SMEs who do trade internationally are reaping the benefits for themselves and the economy, according to the findings of research for our annual ‘Going global for growth’ report. They are also showing great creativity and resilience in the face of geopolitical challenges.

The SMEs which are trading internationally tell us they have many motivations for looking overseas. For example, 44% aim to find new buyers and improve sales; 40% see their overseas ventures as a way to improve innovation; and 35% say international expansion will help improve product quality.

With inflation still high and employment costs rising, using international expansion as a means to reduce costs is also a growing trend for SMEs. 28% are seeking to do this, compared to 20% a year earlier.

Amid a flatlining home economy, the potential gains are clear. 72% of SMEs which are trading internationally expect to grow over the next two years, including 20% who predict significant growth.

The UK labour market will also benefit from their expansion plans. 54% expect their ventures to lead to more UK employment, with only 8% saying they will lead to a reduction in their UK employee numbers.

There are undeniably challenges for those businesses that seek out opportunities beyond the domestic scene, especially where they lack the experience and resources of bigger corporates.

The prospect of global trade tariffs is seen as a problem by 22% of internationally-trading SMEs. Far from being daunted, however, many are already taking action to adapt.

Half of those affected say they are now seeking to expand into different markets that offer more favourable trade conditions. 47% say they are negotiating more favourable trade arrangements.

Hearteningly, only 14% of SMEs affected by tariffs plan to reduce their level of international trade as a consequence.

Bigger perceived challenges lie in the UK’s own economic outlook, and the international trading climate generally.

Businesses are rising to these challenges in different ways. An increasing number of SMEs are moving services back to the UK from abroad (24%, up from 13% year on year). Conversely, 25% are moving services from the UK to overseas locations (up from 15%).

More SMEs are also getting wise to the advantages of free trade arrangements, with the numbers taking advantage of these agreements doubling to 24% this year. This is an encouraging trend, and we’d like to see more companies experience the benefits.

Changing trade conditions between the UK and the EU are influencing the markets SMEs choose to target. Last year 86% of SMEs were active in the EU; this year, while Europe remains the most popular market, that proportion has dropped to 73%.

The US (49%) and Canada (30%) are both increasingly popular, up by 5% year-on-year, as is China (27%, up 2%).

However, SMEs are far less likely than corporates to be targeting fast-growing markets such as South East Asia (19%) or India (17%).

While it’s natural for SMEs to look to our nearest neighbours, or those with the closest cultural fit, the most promising opportunities may sometimes lie elsewhere, especially at present.

Seeking support from those with a knowledge of less familiar territories can mitigate what might at first seem the daunting prospect of operating in Asia.

In fact, SMEs operating abroad could benefit hugely from more support to help them manage risk – as could the hundreds of thousands of SMEs who don’t yet trade internationally, but express an intention to do so.

11% of the SMEs in our survey class themselves in the latter camp, which would equate to half a million businesses nationwide. Only just over a fifth of these are actually preparing to start trade; for most, it remains an aspiration at present, with more help needed to realise their ambitions.

Where they use government-backed support, such as international trade products and advice from UK Export Finance, SMEs express strong satisfaction. But they are much less likely than corporates to report using these services.

To its credit, the UK government acknowledges this. Its newly-revamped Board of Trade has a specific focus on supporting SMEs in their international efforts.¹

I’m gratified that the research findings show more and more SMEs using their banks to support them with international ventures (33%, up from 19% a year earlier). At HSBC UK, it’s an area in which we believe we can be especially useful to our SME clients.

That certainly includes products to help businesses manage risks such as dealing with new clients in unfamiliar markets or fluctuating foreign currency exchange rates. But that’s just the start.

Using our unrivalled on-the-ground presence in over 50 markets, we can also provide valuable guidance and connections that SMEs might not expect from their bank.

Navigating local business culture and regulation in an unfamiliar market is less daunting with an expert on hand. And we might well be able to put businesses in touch with potential customers, suppliers, advisers or partners in their new market.

Whether you’re looking to extend the reach of your international activities, or testing the water for the first time, talk to us about the support we could offer to help you seize global opportunity.