Small UK businesses are bullish about international trade, and have been taking advantage of the weak pound to increase overseas sales since the EU referendum, according to new data. A survey of small businesses commissioned by international payments company OFX revealed that, while inflation is beginning to bite at home, entrepreneurial SMEs are shifting their focus to global sales.
Of the 500 SME owners and senior managers surveyed, two-thirds said they feel confident about doing business overseas (67%). Since the EU referendum, almost half have increased international sales (48%), while 36% expect to start or increase exports in the next 12 months.
Inflation bites at home
This increase in overseas sales comes in the context of a more challenging domestic market. Since the EU referendum, 28% of the SMEs surveyed have seen sales decrease to UK customers, while 44% say rising inflation is the biggest current concern for their business.
Almost half (49%) have raised the price of goods or services in the last year – and the weak pound is the single biggest reason for doing so (62%), having made raw materials more expensive. Indeed, 44% of SMEs have stopped or reduced imports in the last 12 months.
Nimble and resilient SMEs pivot to global trade
Overseas, the weak pound is making British goods and services more affordable for international buyers – and UK SMEs have been quick to take advantage of the situation. Of those that plan to increase exports in the next year, 46% are doing so because of declining UK sales, while one in five wants to make the most of the weak pound (21%).
Four out of five of the SME decision makers surveyed now export goods or sell services outside the UK (80%), and for more than half (55%), international trade now represents at least 10% of revenue.
Jake Trask, FX research director at OFX, says: “Following the referendum, small businesses have shown their resilience by turning a weak pound into a real opportunity. While not all SMEs supported Brexit, their size, optimism, and entrepreneurialism have allowed them to adapt swiftly to a changing market. We expect to see more of this fighting spirit as Britain prepares its exit from the EU.”
USA an attractive market for trade
For small businesses looking to start or increase exports in the next year, the USA is by far the most attractive market. The number of SMEs currently doing business with the US (48%) is on par with those trading with Western Europe (47%). However, only 20% plan to increase European exports in the next twelve months, compared with the 62% who plan to increase exports to the USA.
The majority of SMEs think their business will either be better off once the UK leaves the EU, or altogether unaffected (63%). Those that trade with the USA are even more likely to see this as an opportunity – almost three quarters believe their business will be better off after Brexit (72%).
Trask adds: “Since the Brexit vote, exporters trading with the US have seen the weak pound as a boost for business. Sterling-denominated goods have been on average 15% cheaper since the vote to leave the EU and subsequent GBP/USD exchange rate collapse. However, with President Trump struggling to push through his promised reforms, the dollar has weakened, eroding some of the savings seen by US importers.”
Surprisingly, millennial entrepreneurs embrace Brexit
SME decision-makers aged between 18 and 30 are most likely to embrace Brexit, which is perhaps unexpected, given that young people overwhelmingly voted to Remain in last year’s referendum*.
70% believe their business will be better off after Brexit (vs. only 22% of those aged 31-40 and 15% of those aged 41-50), while 80% believe “no deal is better than a bad deal” when it comes to the terms of the UK’s departure from the EU.
Small businesses run by millennials are also the most global. Only 7% of SMEs run by people in this age bracket do not currently do business overseas, and over two thirds (67%) earn between 16 and 30% of their revenue from global business. Unsurprisingly, 90% of SME decision-makers in this age group feel confident about doing business overseas.
Summary of findings from UK SMEs:
- Two-thirds (67%) feel confident about doing business overseas
- Since the EU referendum, 48% have increased sales to overseas customers
- 36% expect to start or increase exports in the next year
- Of these, 46% are doing so because of declining UK sales; 1 in 5 want to make the most of the weak pound (21%)
- The USA is the most attractive market for doing so (62%); only 20% plan to increase exports to Western Europe
- 4 out of 5 now export goods or sell services outside the UK (80%)
- For 55%, international trade now represents at least 10% of revenue
- Currently, 48% trade with the USA; 47% trade with Western Europe
- The majority (63%) believe their business will be better off after Brexit, or left unaffected
- 72% of those that trade with the USA believe their business will be better off after Brexit
- Since the EU referendum, 28% have seen sales decrease to UK customers
- 44% say rising inflation is the biggest concern for their business
- 49% have raised the price of goods or services in the last year
- The weak pound, which has made raw materials more expensive, is the biggest reason for doing so (62%)
- 44% have stopped or reduced imports in the last year
Of SME decision-makers aged 18-30:
- 70% believe their business will be better off after Brexit (vs. 22% of those aged 31-40, 15% of those aged 41-50, 15% of those aged 51-60 and 9% of those over 61)
- 80% believe “no deal is better than a bad deal” when it comes to Brexit (vs. 36% of those aged 31-40, 32% of those aged 41-50, 40% of those aged 51-60, and 47% of those over 61)
- 67% earn between 16-30% of their revenue from global business (vs. 25% of those aged 31-40, 15% of those aged 41-50, 9% of those aged 51-60 and 11% of those over 61)
- Only 7% do not currently do business internationally
- 90% feel confident about doing business overseas
* YouGov exit poll, 27th June 2016: https://yougov.co.uk/news/2016/06/27/how-britain-voted/
Based on a survey of 500 owners and senior managers at UK businesses with between 10 and 249 employees.
