UK Medium-sized businesses (MSBs) are an essential part of the British economy, and can play a pivotal role in leading the UK’s charge towards global growth. Despite only representing one per cent of firms, MSBs that have turnover between £10m-100m per year employ 16 per cent of the UK’s workforce and generate 22 per cent of the UK’s private sector revenue.
Yet there is the potential for many MSBs to grow still further, and a significant part of that is working beyond their own borders to take advantage of international trading opportunities. Not all MSBs are in a position to expand internationally, but those that have the potential should be encouraged to export and invest abroad. A new report that BDO has produced with the CBI, ‘Go your own Way’, outlines how UK MSBs can grow internationally and make the journey from non-exporter to global business.
MSBs are not a homogeneous group, and the evolution to global business will be different for each one. But we’ve identified five steps on how to successfully make that journey. It may be instructive to consider what step your business is at, especially as global expansion is more achievable than many businesses think.
1. With knowledge comes confidence: Obtain the knowledge and confidence to go abroad
Many MSBs with the potential to export remain domestic-focused in part because they lack the confidence to find and pursue opportunities available overseas. The first step for these future MSB exporters is to build up knowledge of overseas markets and how to approach them effectively. Strengthening international networks can help bridge these gaps, but on-the-ground experience is essential to building international know-how.
2. Think Practical: Gain practical knowledge of doing business overseas
Once a non-exporting MSB has knowledge of the opportunities abroad and the support available, the next steps include winning overseas business and, through this, gaining an understanding of the practicalities of exporting. By obtaining this knowledge, MSBs can navigate the barriers that might prevent them from successfully exporting. Businesses should also work to identify ways to help them to finance exports which may create a greater credit risk, for example by accessing UK Export Finance support, and reduce risks.
3. Start thinking and acting like a bigger, bolder business
To capitalise on overseas opportunities, successful MSB exporters should next begin to think and act like an international business. This means expanding their footprint in existing markets, potentially through agents or distributors, exploring new, potentially high-growth countries. To do this, it is essential to develop an international strategy that includes plans to expand their presence in existing – or venture into new – markets and undertaking financial planning for future growth.
4. Risk and reward: Investing for greater growth
The next step for an international business would be to invest to take their business abroad, using the knowledge contained in their international strategy to direct where the investment will be made and how it will look. There are many models for investing, from opening a sales office, franchising or finding a JV partner, so an MSB should carefully consider the benefits of each option and protect against any of the negative risks that may develop. It’s imperative to tailor the model of investment to each market, which will help the business generate and then meet international customer demand. Bear in mind that this international expansion can bring added risks but government support and advice from UK businesses is available to help mitigate it.
5. Becoming a truly global business
The final stage in the journey is managing and operating as a global business. This entails developing business models and corporate structures that look at the business across numerous international markets. These processes will support MSBs to grow further and overcome the barriers that develop as the business grows. A global business might operate from a regional hub from which to do business and with in-territory business processes while maintaining their brand identity. They should consider business reputational risks. In time they could support new exporters, helping emerging businesses to internationalise.
Many UK MSBs may recognise themselves at particular stages on the journey, and should consider how to make the steps towards becoming a truly global business. Successful internationalisation will help MSBs in their critical role in driving forward the UK’s global growth, and they should be encouraged to embark on this journey.
Kim Hayward is international liaison partner at BDO LLP.
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