THE NEW INTERNATIONALS Updating perceptions of SMEs in an increasingly globalised world
Contents Introduction 5 Born Global 6 International Futures 7 Supporting UK SMEs 8 UK Regions 9 Conclusion 10 About This Report 11 About RSA 11 3
The New Internationals Updating perceptions of SMEs in an increasingly globalised world October 2015 Whether a company imports stock, pays in multiple currencies or simply markets its services online, it is operating in a global environment and is therefore subject to international opportunities and challenges. 4
October 2015 The New Internationals Updating perceptions of SMEs in an increasingly globalised world Introduction We hear it almost every day: SMEs are the backbone of the UK economy and are key to fuelling the country s growth. However, people often think of us as a nation of local shopkeepers. In reality, SMEs are more varied and complex businesses and are faced quite literally with a world of possibilities and shadow risks, or hidden challenges as a result of their global footprint. In fact, many SMEs are now born global. Whether a company imports stock, pays in multiple currencies or simply markets its services online, it is operating in a global environment and is therefore subject to international opportunities and challenges. This is not always widely understood by new businesses, which can lead to greater risk exposure and potential missed opportunities for cross-border growth and expansion. Today s SMEs are The New Internationals connected through their technology and business operations to markets far beyond the UK and Europe. In this study, we examine why all businesses whether hyperlocal or hyper-global, and particularly SMEs should be mindful of the potential opportunities and risks that internationalisation can pose, and where we should be directing more help to stimulate growth. Dealing with the practical realities of globalisation is a core competency of running a successful business today. There is much that the Government and private sector can also do to help SMEs seize opportunities beyond the UK and mitigate the risks inherent in expanding internationally. RSA s studies show a welcome alignment between SMEs biggest concerns and the Government s business growth strategy, but it s the detail behind these policies that really matters. Whether a business is truly local, digitally savvy, an importer, an exporter or operating globally, the UK economy stands to benefit from helping SMEs to operate successfully in an increasingly connected world. The New Internationals is designed to give small business owners, professional advisers, policy makers and interest groups some much needed insight into the nature of SMEs today, and the opportunities for the future. 5
The New Internationals Updating perceptions of SMEs in an increasingly globalised world October 2015 Born Global TODAY S SMES ARE BORN WITH GLOBAL OPPORTUNITIES AND RISKS While physical footprints used to better reflect a company s ecosystem, today this couldn t be further from the truth. From internet-enabled technology to complex supply chains and demand from emerging economies, many of today s SMEs are born global. In their first year in business, a quarter of SMEs dealt with foreign currency or exchange (27%), had overseas suppliers (26%) or sold to international customers (24%), while three quarters (72%) had a website. Creating a website is often top of the list of things to do for a new company, and yet very few businesses appreciate the consequences of making your business searchable and accessible online. These first-year attributes demonstrate a significant degree of activity and exposure to what s happening beyond the UK, which is being further driven by initiatives such as the Government s Business is GREAT Britain and Exported by Britain campaigns. A number of recent studies also show that this degree of international exposure is on the rise, from the Open University s reports on the increasing use of Cloud amongst SMEs 1 to KPMG s finding that export businesses are 11% more likely to succeed. 2 SMES FIRST-YEAR ATTRIBUTES Website 72% Online banking 46% Social media presence 39% Dealing with foreign currency or exchange 27% Overseas suppliers 26% Cloud storage 25% Overseas customers 24% International business travel 22% Overseas partners 20% Employees overseas 17% Three quarters (72%) of SME owners say that too many people think of SMEs as just a corner shop. Recognising your international exposure is essential to maximising growth and minimising any challenges from abroad. However, SMEs see themselves as being more localised than they actually are: almost all (92%) SME owners believe they started out as a local or UK business rather than European (4%) or global (4%), and the majority (82%) admit they are more concerned about local risks than global threats. This antiquated perception extends beyond SME leaders themselves. Three quarters of SME owners say that too many people think of SMEs as just a corner shop (72%), and that the view that small businesses are local by default is out-dated (74%). In order to better support the UK economy, we need to educate entrepreneurs and update perceptions of SMEs so that we can design the most appropriate support and deliver this in the most effective way so they can make the most of growth opportunities available. 1 http://www.open.ac.uk/business-school/news/archive/smes-embrace-mobile-and-cloud-based-computing 2 http://www.telegraph.co.uk/sponsored/business/sme-home/11251103/sme-exports-international-trading.html 6
October 2015 The New Internationals Updating perceptions of SMEs in an increasingly globalised world International Futures FULLY INTERNATIONAL BUSINESS OPERATIONS WILL BECOME THE NORM The days of local-by-default businesses may be in the past, but the degree of international exposure amongst SMEs will continue to grow as new markets present themselves and the world becomes increasingly connected. SME owners concur; our research shows that doing business overseas is more than just a consideration it s key to their survival and growth. Four fifths (79%) of SME owners believe that global expansion is vital to the success of small and medium-sized businesses, while more than three quarters (77%) plan to be more international in the future. Echoing the ambition identified in RSA s 2014 study Growing Pains, the vast majority of SME owners describe themselves as ambitious (91%) and globally minded (79%), while an overwhelming majority (85%) say that SMEs are more globally minded than ever before. Clearly, SMEs have international futures in their sights. There is of course always risk in growth, but also many rewards. By understanding and effectively managing the challenges, SMEs can take advantage of chances to expand, remain strong and out-pace the competition when new opportunities arise. When it comes to international business operations, the issues that SME owners are most concerned about include banking security and fraud (75%), cyber attacks (69%) and economic turmoil (69%). This is perhaps not surprising given that these issues regularly appear in the news, and with cyber-attacks leading to subsequent data breaches, severe business interruption and topping claims lists in 2014. SMES GLOBAL RISK CONCERNS Banking security and fraud 75% Cyber attacks 69% Other data information leak 69% Economic turmoil 69% IP infringement 66% Supply chain disruption 66% Detrimental impact of currency fluctuations 66% on the business Late or no payment by overseas customers 65% Web or social media hack 63% Professional negligence claim 63% These are also some of the most likely risks to occur. More than a quarter (29%) of SME leaders have experienced an incident associated with their international business activities, including cyber-attacks (16%) and supply chain disruption (13%). GLOBAL RISKS EXPERIENCED BY SMES Web or social media hack 17% Cyber attack 16% Late or no payment by overseas customers 16% Supply chain disruption 13% Other data information leak 12% IP infringement 10% Bribery and corruption 10% Injury to employees working overseas 9% Unexpected change to laws and regulations 9% overseas 7
The New Internationals Updating perceptions of SMEs in an increasingly globalised world October 2015 Supporting UK SMEs THE GOVERNMENT AND PRIVATE SECTOR BOTH HAVE A ROLE TO PLAY In order to realise the results of this ambition and to guarantee the UK and its SMEs a global future, there are several obstacles that need to be addressed. There is of course a significant role for the Government to play by removing barriers to growth and incentivising global expansion plans through SME support packages. RSA s studies show that the previous and current Governments SME growth plans are strategically aligned with SMEs top priorities, and the recent Enterprise Bill and pledge to remove 10bn worth of red tape were welcome. However, when it comes to the practicalities and rolling these plans out to businesses, The New Internationals suggests that there is a lot more to be done. Three quarters (75%) of SME owners say they need more help from the Government to become a global business, while half (50%) believe the Government isn t supportive enough in helping them to operate internationally. Two thirds (62%) reveal that red tape is holding them back from international growth, closely followed by a lack of experience and expertise (61%) and global economic uncertainty (59%). BARRIERS TO OPERATING INTERNATIONALLY Red tape 62% Lack of global experience and expertise 61% Global economic uncertainty 59% Fear of unknown risks 59% Lack of funding 58% Brexit 56% Lack of information about opportunities 53% available Lack of confidence in the team 50% Negative reputation of the UK abroad 49% SMEs also reveal that there is an immediate opportunity for insurance brokers to help them achieve a better understanding of their potential global risk exposure. A fifth (22%) of SME owners admit they have never discussed their global risk management exposure with an insurance broker, while two thirds (63%) do not have a global risk management plan in place. A third (29%) do not know where to start when it comes to creating a global risk management plan, and three quarters (77%) would welcome more advice from a broker on global risk management and what risks and liabilities their international expansion plans might entail. The FCA s thematic review recently addressed how insurance brokers handle conflicts of interest when dealing with SMEs particularly with regards to their communication and service delivery. It appears there is also room for greater communication with SMEs about global risks, and a need to search the market for the best cover with today s more complex businesses in mind. GLOBAL RISKS WHERE SMES FEEL UNDERINSURED Criminal investigation as a result of employee 82% behaviour Supply chain disruption 82% Legal or regulatory claim or investigation 80% Injury of employees working overseas 78% IP infringement 78% Professional negligence claim against the 77% business Data or information leak 73% Web or social media hack 71% Cyber attack 60% Bank security and fraud 59% 8
October 2015 The New Internationals Updating perceptions of SMEs in an increasingly globalised world UK Regions THE REGIONAL PICTURE When looking at perception gaps, there is a contrast between London and the rest of the UK. The capital s SME owners are more likely to say their company was global or European when it first started up (13% London, 8% UK). Interestingly, the majority (87%) of London-based SME owners also describe themselves as globally minded (compared to 79% UK). These companies are also the most likely to have overseas employees today (41% London, 34% UK), demonstrating their success in reaching new markets and expanding their geographical footprint beyond the UK. With the UK Government under significant pressure to ensure that support reaches every corner of the UK, not just London and the South of England, it is interesting to see the regions that feel the Government is most supportive in helping them operate internationally. London is the most positive, with 57% of SME owners in the capital saying that the Government supports businesses to expand globally, followed by SME owners in the Midlands and East (53%). HOW SME OWNERS DESCRIBE THEIR BUSINESS WHEN IT FIRST STARTED UP LOCAL EUROPEAN GLOBAL OR UK Midlands & East 96% 3% 1% North West 94% 1% 5% South East 92% 5% 3% South West 91% 5% 4% North East 90% 4% 6% London 88% 7% 6% London is the most positive, with 57% of SME owners in the capital saying that the Government supports businesses to expand globally, followed by SME owners in the Midlands and East (53%) SME OWNERS AGREEING THE UK GOVERNMENT IS SUPPORTIVE IN OPERATING INTERNATIONALLY Midlands & East 1% North West 5% South East 3% South West 4% North East 6% London 6% SUPPORTIVE 3 https://www.fca.org.uk/news/fca-calls-on-insurance-intermediaries-to-better-manage-conflicts-of-interest 9
The New Internationals Updating perceptions of SMEs in an increasingly globalised world October 2015 Conclusion The New Internationals shows that times have changed and reality needs to catch up with today s incredibly ambitious and globally minded SMEs. At the moment, out-dated perceptions of how far the opportunities and risks extend beyond their physical footprints could be undermining their ability to compete on the global stage. SME owners identify several areas where the Government could further help them to grow including new tax incentives (74%), a dedicated support service for international expansion (73%), incentivising banks to support international growth (71%) and better protection against late payment by overseas customers (65%). GOVERNMENT INITIATIVES NEEDED TO HELP SMES GROW Cutting red tape on exporting 74% New tax incentives 74% Dedicated support service for international expansion 73% More free trade and relaxation of controls in emerging 71% markets More free trade and relaxation of controls in Europe 71% Less red tape on imports 71% Incentivise banks to support international growth 71% More free trade and relaxation of controls with the US 70% Better range of export finance and insurance solutions 69% Better protection against late or no payment by overseas 65% customers The Enterprise Bill and other Government initiatives such as the creation of Digital Economy Centres and the UKTI s export advisory service are all welcome developments, but the real impact of these schemes is what matters. The Government needs to make it easier for SMEs to expand. The Government must also remain sensitive to SMEs confidence levels in order to maximise growth opportunities. The EU Referendum is a particular pain point, with its potential to disrupt supply chain routes, create currency fluctuations and negatively impact on factors such as inward investment and overseas demand. Business owners can also better equip themselves for this new internationalised future by seeking information and best practice examples, and by speaking to their professional advisers and insurance brokers about their company vision and how they can draw a clear path that supports the sustainable growth of their business. RSA is running a dedicated support service for UK brokers aimed at sharing its insights into SME business operations and the associated risks, and to help them connect SMEs with the information and support they need to succeed. 10
October 2015 The New Internationals Updating perceptions of SMEs in an increasingly globalised world About This Report The New Internationals is based on detailed interviews conducted between June and July 2015 by Opinion Matters, with 1,002 SME owners and leaders in UK companies with between 10 and 150 employees. About RSA RSA is a leading insurer in the SME market, providing insurance to a wide variety of businesses from pubs, restaurants and hotels to tradespeople and homeworkers. Working together with our SME insurance broker partners, we use industry insight and data to develop the most suitable products and services to help support SMEs ambitious growth plans. For more information please visit http://www.rsabroker.com/sme Or please contact Deepa Bose on 0207 337 5710 or email deepa.x.bose@uk.rsagroup.com 11
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