Ian Beaumont: Local businesses need backing in world of opportunity

Business optimism is at its highest for the eight consecutive month and Yorkshire manufacturers have experienced a surge in activity that they expect to continue into the final furlong to Christmas.

Yorkshire companies have a lot to be pleased about yet, as our joint report with the CBI makes clear, there is still huge untapped potential for many medium-sized businesses (MSBs).

For me, there is a real concern that our mid-market – the businesses that will make or break this region’s economic recovery – are being shackled by geographic borders and a lack of funding that leaves them unable to take advantage of the opportunities that lie overseas.

In Yorkshire, the biggest companies are making progress. According to the Yorkshire Report 2013, which analyses the financial accounts of the region’s top 150 businesses, exports and international trade has improved. Although the percentage of sales to Europe – still by far the region’s biggest overseas market – has fallen slightly, the region performed better with the value of goods exported to the rest of the world up by 11 per cent to £5.57bn.

More promisingly still, sales to emerging markets rose sharply – albeit from a very low base – with exports to Asia up 47 per cent and Africa 45 per cent.

But that doesn’t tell the full story. Our region’s biggest companies still only generate less than 12 per cent of revenue from overseas sales, and less than three per cent of that from emerging markets.

Worryingly still, MSBs are lagging even further behind, with too many locked out from the essential sources of growth products and support they need to export and invest abroad.

Local businesses need to build the knowledge and confidence to go abroad, developing international networks, connecting with local partners that have on-the-ground knowledge and researching the funding options and incentives available to them.

They should build practical knowledge of doing business overseas by getting to know the local culture and understanding their regulations. This is a big ask and clearly help is needed.

They should also be aware of – but not scared by – the unpredictability of new markets. In China for example, for so long the darling of the emerging nations, the retail industry is struggling. By contrast, the economies of Mexico and Indonesia are strengthening and offer potential fertile ground for new entrants. Meanwhile, nations such as India and Brazil are investing heavily in infrastructure and consequently have a need for industrial equipment and innovative design; clearly offering an opportunity to machinery and architecture businesses from our region. Collaboration is key.

The importance of talking to businesses, advisers, customers and experienced exporters that have already succeeded abroad should not be under-estimated.

Larger firms can also help by sharing their knowledge and experience, supporting their MSB suppliers to bring their products through to market, and collaborating through supply chains to help foster growth.

Government has a big role to play too, and it needs to take this huge part of the market seriously. MSBs that have a turnover between £10m and £100m may only represent one per cent of UK firms, but they employ 16 per cent of our workforce and generate 22 per cent of the private sector’s revenue. MSBs are big business.

Now’s the time for the Government and private sector to get behind the international ambitions of MSBs in the regions. Over the past few years, government support has significantly improved but the majority of smaller businesses still don’t know about the schemes the Government offers, with two-thirds unaware of UK Export Finance (UKEF) and 69 per cent of exporters not aware of UK Trade & Industry. If we could unlock the growth potential of the mid-market, MSBs could be worth an additional £20bn to the economy. A figure too big to be ignored.

The Government also needs to recognise the importance of “patient lending” – one of my new favourite terms. This means looking at capital investments over the longer term of five years or more, not just short-term fixes. If MSBs are to successfully plan strong roots in new markets, access to finance is the first building block.

In that respect, the sooner the Government can get the Business Bank up and running, the better.

What’s clear is that confidence has turned a corner, and that businesses – regardless of size – appear more certain of a future worth investing in. Not all will be in a position to expand internationally, but those that are need help to understand their potential for international success with hands on support to map out their international journey.

The Government and private sector need to step up to the challenge to help local businesses prosper in new markets across the world, which will in turn benefit Yorkshire’s prosperity.

*Ian Beaumont is a partner and head of accountancy and business advisory firm BDO LLP in Yorkshire.