As we prepare to leave the European Union, alongside new Free-Trade-Agreements around the world, we need to help our businesses with the non-tariff barriers they face when entering new markets, such as regulatory, cultural, commercial and operational issues.
As well as a new tax credit to reduce the costs of entering a new market (see my blog yesterday), we should also do more to help businesses help each other to export. A collaboration network to match smaller firms with larger exporters could help fledgling exporters access the knowledge, contacts and expertise of their more established counterparts in order to enter new markets.
This collaborative model of exporting would match a smaller business (SME) with a mid-sized business (MSB) with complementary services or products, to enable the SME to leverage the MSB’s existing distribution channels. The SME would be able to sell to the same overseas distributor, using the same transport route, via the MSB.
There is strong evidence to support this approach, including:
•A White Paper from the Enterprise Research Centre stating that deliberate relationships (casual or contractual) with other exporting organisations is a key enabler for businesses to export (ERC, 2013).
•The British Chambers of Commerce survey of 8,000 UK businesses suggesting that collaboration with overseas partners was the largest motivator to export (BCC, 2013).
•The German Company Pool Programme, where SMEs provide mutual support for exporting into target markets. Support includes deal brokering and joint market entry strategies, and is 75% privately funded by the SMEs themselves. This model demonstrates the effectives of businesses collaborating to make export more accessible and less risky for all (OECD, 2014).
The key to this would be to facilitate targeted partnerships between already-exporting MSBs and new to market SMEs. Government could enable this business-to-business collaboration by supporting the establishment of commercial brokers who promote private sector collaboration.
This builds on existing successful models in some UK sectors. Scotch whisky is a good example, a leading UK export enjoyed globally worth £4bn a year. The Scotch whisky industry has built an enviable distribution network throughout the globe and encourages collaborative efforts amongst producers and with related Scottish products.
This collaborative model provides a range of benefits to both parties The established exporter could benefit from new revenue stream(s) from commercial agreements, the opportunity to market test new products and diversify product range, and an enhanced relationship with distributors in overseas territory, by connecting them to high-potential and commercially relevant SMEs.
The 'new to market' SME exporter would benefit from de-risked, easier and speedier route to overseas markets, the possibility of using existing financial and contractual arrangements to go to market, and building trusted relationships with other larger businesses.
Both parties could benefit from a possible reduction in administrative and logistical costs of exporting (e.g. by sharing shipping containers, researching new legislation, etc.). By creating a group of British brands that access a market through the same channels and in a collaborative way, this could also provide a good fit with UK Government’s activities such as the GREAT campaign and trade missions in specific markets.
Grant Thornton is currently exploring this collaborative approach with a number of other businesses, to test further how this could work in practice.
Let me know what you think - and if you would be interested in collaborating with other businesses in export markets.
As UK businesses seek out new global markets, they will face more complex supply chains and global distribution networks. We need to reverse historic under performance and rise to future competitive challenges. We need to act now. We can't wait until a Brexit deal is negotiated. And we all have a part to play - British businesses have to start doing more to help each other.