Grant Thornton: Can Yorkshire businesses afford not to be trading internationally?

UK BUSINESSES should act quickly and start planning their strategy for expanding overseas, according to experts at Grant Thornton.

An event hosted by the business advisers, as part of the firm’s established Aspire series for young professionals, looked at the opportunities available to UK businesses to drive growth by expanding into international markets.

Led by Rob Fuller, UK international business centre director, the event stressed that whether exporting goods to Western economies or expanding into the ever growing emerging markets, there are still huge benefits to be gained by UK companies that are able to effectively trade overseas.

Catherine Reid, Grant Thornton director and head of international business, said: “With our strong manufacturing heritage, Yorkshire businesses have a huge amount to offer globally.  There is a wealth of opportunities to enter and develop international markets, and, if they have not already done so, UK businesses should act quickly and start planning their strategy for expanding overseas.”

To better understand how international strategies evolve, it is worth looking at the factors that drive companies to expand overseas in the first place and which influence their choice of destination, Grant Thornton says.

The firm said that pursuit of growth is the primary driver, however, in the current global economic conditions, entering new markets may be a defensive move rather than being offensive. The most important factor influencing strategy is meeting the needs of clients – actual or potential.  According to Grant Thornton’s Grow Global Report, 45% of businesses state that international expansion is client driven. With clients needing and demanding international services, those businesses that are unable to adapt and respond are likely to be left behind, it said.

Growing optimism

According to the Grant Thornton International Business Report (IBR), global growth prospects look bright for most large, developed economies, especially for Japan, the UK and the United States which are all expected to grow strongly in 2014. The global economy expanded by 2.9% in 2013 and the IBR, along with other data, forecast GDP growth rates of 3.6% globally, comprising 5.1% in the developing world and 2% in the developed world.

The optimism of business leaders in these economies has increased dramatically over the past year and the hope is that rising confidence will encourage further investment in operations and personnel to achieve long-term, sustainable growth, Grant Thornton says.

The firm added: “The eurozone crisis also remains delicately poised. Following a contraction of 0.4% in 2013, the currency bloc is expected to return to growth in 2014.  At the macro-level, we are seeing a convergence in growth prospects and the emergence of a more stable, balanced global economy is great news for business growth prospects.”

Reid said: “In line with increased optimism about the prospects for established economies, we are seeing increasing numbers of our clients in the UK showing interest in entering new markets and exploiting growth overseas.”

Which territories to target?

For their first move overseas, most UK businesses tend to invest in the established economies with which they are more familiar.  Following this, they may then look to emerging markets for their second move.  Grant Thornton’s Grow Global Report indicates that 80% made Europe their first overseas move.  While in recent years growth rates may have been lower in the established economies, so is the perceived risk given the closer cultural and economic ties as well as fewer trade barriers.

Reid said: “While the developing economies tend to attract the major headlines, in reality, the developed world is the first choice for the majority of UK companies when initially expanding overseas.  With hindsight, many businesses we talk to say that they wished they had been braver in their choice of first overseas territory; while the risk of the unknown is off putting, the potential benefits of targeting a possibly less competitive market can be great.  The key is to be bold, but mitigate the risk by carrying out extensive research and employing the knowledge of local advisers before you enter the new market.

“There are still huge opportunities for dynamic, agile UK businesses that are prepared to develop a carefully planned strategy for international expansion.  Do your research and be prepared to invest time in developing your plans.  While there are numerous routes to market from setting up a subsidiary to making an acquisition, you will need to take advice from international experts to determine which is the most appropriate for your business.

“When entering any new market, preparation is key, along with local knowledge.  While UK businesses should be prepared to be brave in their choice of territory, it is vital to avoid taking unnecessary risks by enlisting the support of specialists in international trade and, specifically, those with real understanding of the target market.”