Export: a risk too far or a risk not to try?
22 September 2020: For some companies, the domestic market is big enough. But what happens if the local market goes away? Export can be a saving grace. ICAEW Insights hears from two real-life cases of export success.
Self-belief and an open mind are usually prerequisites for business success. Circumstances and the right opportunities to grow also help. Export will be part of the mix when growth would otherwise be constrained by national boundaries.
Lawrence Brown is the Chairman of UK-based Royston Power Generation Ltd. He says his company went from a regional engineering business to a national engineering business when it picked up a National Grid contract – which it still has. This was the company’s route to start growing the business and, when non-UK opportunities presented themselves, an expansion mindset was already in place.
Brown’s first foray into the international market was to Australia – quite a leap geographically but perhaps less risky from a language and cultural point of view. An export opportunity turned into an acquisition and so the business continued to grow. But he did not stop there.
Brown had previously worked for a food manufacturer with both a strong brand and culture of exporting. “This prompted us to focus on marketing and strategy, but equally I wanted our own product, so I talked to our local university to solve a customer’s engineering problem,” he said. This resulted in the development of a bespoke marine engine fuel monitoring system with six software engineers now on the payroll.
“Our biggest market for this product currently is Nigeria,” says Brown. “We have sold it in Dubai and we have agents in Singapore and Malaysia. We went from almost no export 12 years ago to two-thirds of our turnover coming from export now.”
He says putting in place a daily cash management system from the beginning, with the right person managing that cashflow, has contributed significantly to overall business success.
Export ‘has to be in a company’s DNA’
Stephen Huyton, Group Finance Director of Netherlands-based Thermopatch BV, a market leader in the world of labelling, transfers and emblems on textile. Huyton has plenty of experience building export markets and comments that in the end taking that first step towards exporting is all about moving beyond your comfort zone.
Huyton joined Thermopatch 26 years ago when he switched from practitioner to CFO. The Dutch company was sold to a US group and is now present across Europe. Production takes place in the Netherlands, the UK and Poland. There are sales and marketing offices in France and Germany.
“Export has to be in a company’s DNA,” he says. Language and travel distance are practical issues, he points out, but they are not insurmountable. “Distance can be a psychological barrier,” says Huyton, “but it does not have to be a barrier to trade.”
“It’s all about managing risk,” says Brown. “You don’t take a risk until you’ve identified your fall-back position or until you have researched the market properly. I’ve always known what I would do if something went wrong. And you need to have good people in place who will be able to manage the situation.”
Huyton adds that, regardless of export, you should undertake background research on any new client, wherever they are based. “The problem with doing business in overseas markets is you have to figure out where to go to do your research. In the UK, you would go to Companies House for background checks. In other markets, it may not be obvious where that information is held.” And research has to be proportional. If the deal is large, it will warrant much greater investment in background checking and it may require payment in advance or bank guarantees - whatever it takes to provide comfort and mitigate risk.
Building a local presence
At what point does an export market become so successful that a local presence is required? Royston Power Generation’s Lawrence Brown responds: “Initially we were flying people into Nigeria, but clients really wanted to be able to pick up a phone and have someone come to the site immediately.”
He was also keen to tap into local talent so a Nigerian office with five staff was the best way forward. “It all comes down to quality and integrity. And clients want to see you are there for the long term,” he says.
Huyton adds: “In the last three or four years, our business in China has doubled each year. Last year, it grew even more dramatically.” Part of the reason for this growth was the conversion of trade show networking into business opportunities. All these leads were best dealt with locally, not out of the Netherlands, and in the local language.
“It became obvious to us that if we were to develop the Chinese market further, we could not do it from the Netherlands. We had the same experience with Poland,” says Huyton. “It has become the centre of our operations for central and eastern Europe, simply because there are such wide cultural differences between that region and the Netherlands.”
He continues: “A distributor in the local market can often act as a springboard for a new operation, although a distributor can also be a permanent step.” Ultimately, a local presence (distributor, agent or operation), with local knowledge, language capability and the ability to provide the funnel through which business can flow might well result from a successful exporting experience.
Before local operations become an option, a company will have to stick its toe in the water. This can be a leap of faith for a small company that is struggling to understand a foreign market or even identify where to go to find out more to conduct a meaningful risk assessment. It all takes time.
Brown says: “Going to an export market with either a new product or service does not happen overnight. It is part of a plan to grow your business. You have got to have belief.”
To hear more from Brown and Huyton, sign up for the webinar ‘Demystifying exporting: hear real-life stories that will help you understand where to start and the potential pitfalls’. For details please click here.