British SMEs and the US market

Supported by:SMALL AND MID SIZED ENTERPRISES ON THE FRONTIERS OF EXPORTING BRITISH SMES AND THE US MARKET... 1 © The Economist Intelligence Unit Limited 2015British SMEs and the US mark

Supported by:

SMALL AND MID SIZED ENTERPRISES

ON THE FRONTIERS OF EXPORTING

BRITISH SMES AND THE US MARKET

1 © The Economist Intelligence Unit Limited 2015

British SMEs and the US market

1 “US tops export destination list for UK SMEs,” Opinium Research for Barclays Business in August 2014

2 “Exporting to the USA,” UKTI, April 2014

3 “Firms receiving government support increases by 50%,” UKTI, October 2014

Britain’s entrepreneurs recently Over half (55%) of UK small and medium sized

enterprises (SMEs) that export abroad count the US among their markets, making the US

The UK’s Department of Trade and Investment (UKTI) calculates that in 2012, 17% of all

precise figures on SMEs, demand among firms receiving export help from the department

during 2013-14 rose most rapidly among those seeking to trade in the US – an increase

industrial goods, oil and gas, information and communications technology, and advanced

engineering – with biotech and creative media firms following closely behind

The economic and cultural factors promoting UK exports to the US are clear The US is the

world’s largest market, has the world’s biggest private sector, and poses few linguistic

problems for UK exporters “The barriers to entry compared to Asia, for example,

linguistically and culturally – at the human level and in business terms – are very low,”

says Ben Halford, chief executive of the British production technology company Surface

Generation “From that perspective, exporting to the US is a very easy step for UK SMEs.”

Surface Generation sells technology that improves manufacturing techniques, and an

important part of its service involves training customers in multinational corporations to

apply the technology in their home countries While the company was able to do some of that

training via teleconferencing, it found that many US customers wanted Surface Generation’s

experts on site

As a result, Surface Generation opened an office in Texas, which Mr Halford says has a

regulatory regime for the aeronautical, automotive and consumer electronics sectors that

is similar to the one in the UK He is planning to open a second US office, and is looking far

afield of Texas “You have to have a good presence in the States on both the East and West

coasts to do well,” he says “It’s best to pick one well-connected location and establish other

satellites after that.”

2 © The Economist Intelligence Unit Limited 2015

4 “Reducing Transatlantic Barriers to Trade and Investment: An Economic Assessment,” March 2013, Centre for Economic Policy Research

As Surface Generation expands its presence in both the US and Asia, it has decided to

quote prices in dollars in those markets, and to buy in dollars from its suppliers worldwide

wherever possible While invoicing its clients in dollars poses an exchange rate risk when the

company repatriates revenues to the UK, Mr Halford says the decision to purchase in dollars

significantly reduces the company’s exposure to currency fluctuations when it sells in the US

As for many other UK SMEs, the biggest attraction of the US market is its sheer size

“Investment in technology is done on a different scale in the US,” he says “That requires UK

SMEs not to think on too small a scale We can be too niche at times UK SMEs need to scale up

and get on with it.”

The US market poses major challenges as well as big opportunities UKTI says that typical

barriers for UK SMEs looking to export to the US include strong competition, high customer

service expectations, high cost of business insurance, and a cumbersome process for

obtaining work visas In addition, due to their smaller size SME’s are more burdened than

their larger counterparts by technical and non-tariff barriers, according Allie Renison, Head

of Europe and Trade Policy at the UK Institute of Directors (IoD) Those barriers can include

complex customs procedures, duplicate safety testing of certain products – such as food and

clothing – and complying with different EU and US product standards

The proposed Transatlantic Trade and Investment Partnership (TTIP) between the US and

the European Union may reduce such trade barriers by harmonising processes and reducing

customs duty charges The economic benefit to Europe could reach €119bn a year by 2027,

according to research done by the Centre for Economic Policy Research on behalf of the

lower tariffs, and the rest from reducing technical and non-tariff barriers

According to the IoD’s research, UK SMEs in the textile, food and drink, logistics and

pharmaceutical industries all stand to benefit hugely from TTIP For example, small and

mid-sized clothing manufacturers are leading a revival in niche fashion markets, but face import

duties of up to 40% on some products In the biomedical sector, UK SMEs include producers

of innovative technologies which suffer from differences between US and UK safety testing

requirements As the UK and the US do not recognise each other’s testing procedures, these

businesses typically must test their products twice to satisfy the separate requirements

Such agreements could make the US an even more popular destination for UK businesses, Ms

Renison says “There are entrepreneurs who have thought about exporting to the US and have

decided it is too time-consuming and too cumbersome,” she adds “TTIP could encourage

many of those businesses to think again.”

While every effort has been taken to verify the accuracy

of this information, neither The Economist Intelligence Unit Ltd nor Novartis can accept any responsibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out

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