by Oliver Dowson, CEO, ICC – International Corporate Creations
With the pound dropping in value, and many incentives available from the likes of UKTI, British manufacturers should be taking advantage by prioritising their export strategies. Many, however, seem to be falling into the trap of simply doing nothing – and there’s a real danger that could be a result of uncertainty over the outcome of the EU in-out referendum.
“Out” campaigners say that we need to be out of Europe to open up trade – but in fact there are no reasons not to do business anywhere in the world right now! You’d never guess it from the hype, but there are no countries where the UK would be likely to want to seek an independent trade deal where there isn’t an existing attractive EU deal that we can take advantage of. And, whilst exchange rate volatility may worry importers, it should be seen as an incentive by exporters.
Smaller UK companies have an unfortunate tradition of being over-cautious about trading abroad. You’d think that with the barriers to international travel having been broken down over the last 20 years, trade would have expanded the same way – but no. There are countless opportunities going to waste.
The services sector is bigger than manufacturing in the UK, but with the emphasis of government promotion on exporting, there is little done to promote its international expansion. Many do consider expanding to English-speaking countries like US, Australia and South Africa, which is relatively easy. However, this neglects the 90 per cent of countries where English is not the first language.
The “free” advice on offer from UKTI appears wide in scope but, beyond information on exporting, is in fact very limited. Sometimes the free advice even seems to have the effect of discouraging expansion because it only goes so far, and then leaves the company to either purchase services or try to do everything themselves. The problem is acute with SMEs. The charges that the big consultancies make are prohibitive, and “Fear of Foreigners” and lack of language skills completes the dissuasion of doing it for themselves.
One of the biggest risks of Brexit for UK companies – and one of the best reasons for expanding overseas urgently – is that the existing skills shortage will get even worse. Business is already heavily reliant on migrant labour – there simply aren’t enough qualified employable Britons. If the current influx of well qualified young Europeans dries up, it could cause many businesses to fail.
Setting up operations abroad for this reason, especially in developing countries, is a win-win. Firstly, it enables businesses to tap into these labour markets, usually at much lower costs than employing in the UK. At the same time, the new overseas company can sell products and services in its local market, expanding the company’s business. There are many businesses already outsourcing relatively low value functions such as accounting and call centres, and high skill IT and software development.
Now is the time to look urgently at employing more highly skilled job functions abroad. But not through outsourcing. Costs are higher than they need to be, simply because of the high margin added by the overseas BPO company – and companies that send critical functions such as R&D and Customer Support abroad need to own the overseas business.
Setting up a typical overseas operation employing just ten skilled professionals delivering services to the UK would yield cost savings of around £250,000 a year, even allowing for UK liaison costs. The total costs of setup would be recovered in less than a year, and the value of additional sales to the local market comes as a bonus!
It’s neither as expensive or as risky as many assume to set up overseas subsidiaries or JV companies. There are professionals who can provide everything from initial advice through to turnkey solutions – setting up an overseas company completely – using trusted local resources to achieve results quickly and economically. Some are consultants who specialise in certain countries, through to businesses such as my own that offer unbiased advice and help to companies to set up in any country of the world.
The sooner businesses act, the sooner bosses will reap the benefits – reducing costs, increasing sales and stealing a march on the competition. The ones that do nothing now can only come to regret it.
From prime minister David Cameron suggesting London mayor Boris Johnson was a great friend albeit wrong in opinion, to former shadow business secretary Chuka Umunna and Johnson telling each other to man up, the Brexit debate has caused a few UK politicians to squabble with each other.
Article originally published on Real Business Magazine: http://realbusiness.co.uk/article/33406-the-danger-of-inaction-the-sooner-businesses-act-the-quicker-bosses-will-reap-benefits