International Trade

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SME confidence has led to increased international trade

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The average number of countries that British businesses typically trade with are on the rise, reveals Western Union Business Solutions’ ‘International Trade Monitor’ (ITM). This has increased from 2.1 to 2.3 countries over the last two quarters. And, in addition, 47 per cent of respondents say they have increased the number of countries they do business with over the last 12 months.

The report states that “this growing trend looks set to continue well into 2015, with more than a third of UK businesses saying they are confident that their international activity will grow this year”.

The ITM also demonstrates the importance that British SMEs place on export markets. A quarter of SME business revenues comes from international trade, far more than that of other Western economies. For US companies, only 18 per cent of revenues comes from exports, and for Canada the percentage is even less (12 per cent).

Furthermore, 43 per cent of UK businesses expect exports to account for a greater revenue proportion in the coming year.

Tony Crivelli, managing director, Europe at Western Union Business Solutions, said: “This research highlights the UK’s reliance on having a healthy, robust export market compared to other developed economies. SME revenues are intrinsically linked to the success of the domestic export market, and exporters need to ensure they remain as internationally competitive as possible.

“It is encouraging to see that, for the second quarter in a row, over a third of SMEs have seen business revenues increase as a result of their international trade activity, with many anticipating further growth in this space in the coming months.”

Half of business owners anticipate international trade to be driven by northern hemisphere markets, while 30 per cent believe that emerging markets and the BRIC nations will be key.

China is an increasingly popular export market. Trade between the two countries has increased by eight per cent since the first quarter. And, perhaps surprisingly, China is the country that represents the biggest opportunity market for SMEs.

The ITM suggests that “these perceptions are gaining momentum, with 25 per cent having said so last quarter”.

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Of the BRIC countries, interest in Russia has drastically fallen. This could be due to the rapid decline of the Rouble in recent months.

“However, Europe is consistently regarded as the largest trade market, both for UK importers and exporters, and this should not be ignored,” explains Crivelli.

The number of UK business exporting within the EU has risen to 80 per cent compared to its previous 66 per cent 18 months ago. This demonstrates that Britain has successfully strengthened its trade relationships with European counterparts.

When it comes to exporting, Crivelli suggests that businesses need to check the currency markets regularly.

“Having an understanding of foreign exchange markets is crucial for the success of any business that sends or receives money internationally,” he said.

“Compared to businesses based in the US and Canada, it appears that British SMEs are generally well-informed about the foreign exchange markets. However, more education is needed so that business owners are fully-equipped to make the best decisions for their companies and to best manage FX risk.

“Unforeseen foreign exchange costs can harm the profitability of importers and exporters. Businesses that trade internationally should consider implementing risk management strategies and currency hedging tools in order to manage revenue streams and remain resilient in an increasingly competitive market.”

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