Exporting is great for your business

Whatever your opinion on the results of the EU referendum, there is no doubt that the landscape of international trade is going to change over the next few years.

In deciding to leave the EU the UK has set itself on a path to becoming more global in international trade.

So, what are the opportunities SMEs will have, what do they need to consider before exporting and what are the risks they will face?

Following on from the 2018 Export Strategy, the government has set out a revised export plan to take account a raft of new Free Trade Agreements, a tilt towards the Indo-Pacific, and the final withdrawal from the EU.

In 2022, the UK exported £813 billion in goods and services and imported £898 billion. A deficit of £230 billion on trade in goods was offset by a £145 billion surplus on trade in services.  The UK had a trade deficit with the EU of £43 billion in 2021 and a surplus with the rest of the world of £15 billion.

The programme is designed for owners and senior managers of businesses with a turnover of up to £500,000, though bigger first-time exporters may be considered.

Businesses will get:

• An export action plan
• Educational events, independent learning, networking, mentoring
• Educational webinars covering key topics
• Shared experience from other SMEs and Export Champions
• Support from International Trade Advisers
• Other DIT support such as joining trade missions, grants and funding
• Referrals to specialist support

The Department for International Trade (DIT) has set up the UK Export Academy in order to get more small and micro-businesses exporting. It has been designed to encompass differing levels of export experience, allowing UK companies to overcome some of the common challenges faced when exporting.

Who is it for?
The UK Export Academy is open to any business in the UK that has a product or service that can be sold in international markets, whether they want to start exporting or expand into new markets.

What will your business get from the UK Export Academy?
Foundation course: Build your knowledge and confidence if you’re relatively new to selling internationally or interested in learning about how to start. You will leave the foundation course with an export action plan tailored to your business.
Sector faculties: Sector specific webinars, masterclasses and virtual missions. More experienced exporters can join sector faculties to provide your business with specific information to allow you to operate effectively in particular foreign markets or sectors.
Market access events: Learn about the benefits of new market opportunities, including the benefits of new free trade agreements.

Digital trade has become increasingly important in the modern world, and the United Kingdom is a leader in this area. With a share of 42.5%, the potential for digital delivery of services exports in the UK is one of the highest amongst OECD countries, significantly surpassing the OECD average of 33%. The UK's financial services sector has a particularly high share of digital exports, with 24% of financial services exports being delivered digitally. This is a much larger share than other leading countries in this area, such as Switzerland (17%) and the United States (14%), and puts the UK at the forefront of digital trade.

While the UK excels in the potential for digital delivery of services, it lags behind in the actual digital trade related to charges for intellectual property use not included elsewhere or telecommunications, computer, and information services. This is below the OECD average and significantly lower than in the best-performing countries, indicating that there is room for improvement in this area.

Experimental data from the Office for National Statistics (ONS) provides complementary information on the actual digital delivery of services. The data shows that remote supply, or mode 1, accounted for 65% of services exported via modes 1, 2, and 4, and 22% of services supplied through all modes. Additionally, approximately 55% of trade in services was estimated to be imported (excluding mode 3) by remote means. The top three services that had the highest proportion of imports supplied remotely were intellectual property (95%), telecommunications (83%), and transportation (80%).

The United Kingdom has a significant potential for digital delivery of services exports, particularly in the financial services sector. However, there is room for improvement in the actual digital trade related to certain services. The ONS experimental data shows that remote supply is a key driver of digital trade, indicating the importance of digital infrastructure and technological capabilities in facilitating the digital delivery of services.

Source:
SERVICES TRADE IN THE UNITED KINGDOM AND THE GLOBAL ECONOMY
OECD TRADE POLICY PAPER
November 2021

According to the General Agreement on Trade in Services (GATS), there are four modes of supply for trade in services.

Mode 1 involves cross-border supply, where a service is produced in one country but consumed in another.

Mode 2 refers to the consumption of services abroad, where the consumer or their property are abroad when the service is supplied.

Mode 3 involves commercial presence, where a service supplier establishes a presence abroad to provide services.

Mode 4 is the presence of natural persons, where an individual is present abroad to provide a commercial service.

A recent report Opportunity and challenges for SME exporters, January 2021, has been commissioned by Sage and prepared and published by Capital Economics. Their research suggested that there were 375,000 SMEs who have exportable goods or services but were not currently exporting. Using average turnover per employee in each sector, they estimated that export revenues had the potential to rise by £290bn a year. 

As this represents a doubling of the current level of exports, it is unlikely to be achieved in the short term. However, if sufficient barriers can be removed to achieve a 10% rise in exports, this additional £29bn in revenue would support 210,000 jobs and would be equivalent to the turnover of  around 50,000 SMEs.

A recent survey by the British Chambers of Commerce in January 2023  of more than 2,300 UK SME exporters has revealed that most small and medium-sized enterprise exporters report no improvement to exports, with 27% reporting decreased export sales in the quarter and 47% reporting no change.

Only 26% of SME exporters saw increased export sales. The picture for future orders is even weaker, with 28% reporting a decrease against 24% an increase. Energy, labour, and raw materials are the three biggest cost pressures for SME exporters.

When you are considering exporting, one thing you need to work out is how to plan the financial side of things. Not only do you take on the extra risk of shipping goods to customers with whom you may not have had a previous relationship, you also have to incur a delayed payment to take account of the longer time to delivery. Local payment terms may typically be longer than in the UK as well. There is also the currency risk to consider.

Export finance providers help businesses overcome the financial challenges of exporting in a variety of ways. They can help release capital tied up in your overseas orders and provide risk protection with insurance against non-payment by your overseas buyers.

There are many providers who provide finance options and to ensure that companies can access sufficient funds, the government also provides partial guarantees (typically 80% of the risk) to third-party lenders to provide export working capital facilities.

Following the ending of the Second World War, the General Agreement on Tariffs and Trade (GATT) was set up in 1948. It was designed to ensure that global trade was conducted in a more orderly fashion following the collapse of trade in the 1930's. It was also meant to ensure that trade disputes and (lack of) market access were no longer seen as a reason to go to war.

Since it was set up, global export volumes have increased dramatically, rising from less than 5% of global output in 1948 to more than 30% today. As the global economy developed and more complex, the fact that GATT mainly dealt in goods became a hindrance. In 1995, the WTO was set up to cover trade in services and intellectual property, as well as trade in goods. Importantly, it also created new procedures to allow the resolution of trade disputes.