New research by American Express reveals that half (51%) of UK small and medium sized businesses currently operating internationally plan to enter new global markets in the next 12 months.
The research reveals that the pandemic has led over seven in 10 (72%) SMEs to diversify the markets they trade with. European countries including France, Germany and Spain top the list of targets for expansion, but many are also looking across the Atlantic, with one in five (20%) identifying the US as a target market. This strategy may support growth, with almost three quarters (73%) reporting that doing business internationally creates resilience by providing protection from changing domestic market conditions.
Furthermore, almost six in 10 (57%) agree they see greater returns from international trade than from within the UK. This is likely due to the global market being inherently larger than the UK alone, as well as a wider diversity of suppliers – offering better opportunities to increase product margins.
However, 85% of respondents stated that the recent fluctuation in the value of Sterling has caused some disruption to their business. The impact has been particularly felt by those importing, with four in 10 (41%) reporting that it has caused ‘significant’ disruption. A further seven in 10 (69%) agree that FX volatility can have a huge impact on their profit margins and two thirds (65%) said the recent Sterling fluctuations had a negative impact on their cashflow.
Despite this, half (49%) of SMEs either don’t have a proactive strategy in place for managing FX changes and volatility or aren’t sure if they do – with exporters being the least likely to have a strategy in place. Furthermore, over half (57%) of internationally trading SMEs say that taking a more proactive approach to managing foreign exchange volatility earlier in the previous 12 months would have benefitted their business.
Harry Mole, Vice President and General Manager of Cross-Border B2B Payments, American Express, said: “Trading internationally continues to offer many fruitful growth opportunities for UK businesses – and it’s positive to see that so many plan to expand in the year ahead. But currency rates never stand still, so it’s important for businesses to take a proactive approach. Working with a partner with established expertise that can offer bespoke strategies for success and get more from their transactions is paramount. This is particularly the case for busy SMEs, whose time is better spent focusing on the bigger picture – such as which market they should break into next.”
While the vast majority (84%) of SMEs operating internationally state they feel at least somewhat confident trading with overseas markets, three quarters (77%) agreed that the cost of doing business internationally has risen over the last 12 months, making it even more critical to manage FX volatility.
Mole continues, “Keeping close to the market and utilising services like Forward Contracts and Market Orders for their payments allows small businesses to get on the front foot. By booking trades in advance or buying at a pre-agreed rate, these measures provide a crucial layer of security to help SMEs weather market volatility storms.”
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