Trading places: SMEs and international trade
Richard Carter, CEO for Europe & Asia at Bibby Financial Services
News that the EU has negotiated a free-trade deal with Japan has thrown such agreements to the fore, once again. The deal is set to link around a third of the world’s export of goods and has been hailed by EU President, Donald Tusk, as evidence that global economies are resisting protectionism.
Despite renewed debate over the relative merits of globalisation and open trade following the U.S presidential election and EU referendum in the UK, many – as I – believe that international trade is essential to the long-term stability of the global economy. While we are now seeing an upswing in performance following a relatively shaky 2016, the IMF recently warned of the risk on global growth of isolationist, trade-restrictive policies.
International trade is often considered in the context of nation-to-nation buying and selling; economic growth and trade flows. We frequently talk about the balance of trade; surpluses and deficits.
In practice, however, international trade is dependent on individual businesses, often SMEs, transacting with their counterparts in different countries. It is reliant on businesses of all sizes forging relationships with customers, suppliers and service providers in other territories.
There’s a growing understanding among Governments around the world that encouraging international trade amongst SMEs can provide employment, increase productivity and boost prosperity at a national and international level.
During a recent visit to BFS’s operations in Hong Kong, I was asked about the key challenges for SMEs in relation to doing business in different parts of the world.
Certainly there are a number of country-specific factors to manage including time zones, cultural nuances, border regulations, legal practices, languages and currencies. But equally, there are a number of universal challenges encountered by businesses, irrespective of location.
While the rise of digital technology has enabled SMEs to partially overcome some of these challenges, common themes remain in the factors preventing them from taking part in international trade.
According to our Global Business Monitor (GBM) report in 2016, almost a quarter (24%) of SMEs across the world see currency fluctuation as the main barrier to cross-border trade. Cashflow was cited as the second biggest obstacle, followed by managing overseas payments.
Furthermore, in its 2016 report, Levelling the Trading Field for SMEs, the World Trade Organisation cited difficulty in accessing trade finance as a key constraint for all SMEs, but particularly those in developing countries.
The report goes on to cite findings from the Asian Development Bank, which reveal that more than half of the requests made by SMEs for trade finance are rejected, compared with just seven per cent for multinational companies.
Our own GBM research highlights disparity in the ease of accessing finance across the world. Just seven per cent of SMEs in the UK and eight per cent in Hong Kong were rejected for finance in 2016. This figure rose to almost a quarter in Poland (23%).
As our research shows, liquidity isn’t an issue for all SMEs. Rather, a lack of both awareness and understanding of non-traditional forms of finance is hampering ambition to trade overseas.
Leveraging receivables finance
As banks across the world have invariably stepped in and out of the commercial finance market much like the hokey cokey, independent asset based financiers have stepped-up to support SMEs trading both domestically and overseas.
Today, cross-border trade needn’t be something SMEs tackle alone and there are a variety of support routes available, ranging from government departments, to online resources and financial services providers.
As a funder supporting more than 10,000 businesses worldwide, BFS is seeing increasing success in supporting our clients’ cross-border ambitions, leveraging our international presence and local knowledge. A good example of this is Maas Aviation, a specialist aircraft painting business handling contracts for Airbus, and supported by our local teams throughout Ireland, Germany and the Netherlands.
According to Factors Chain International, despite an overall reduction in global factoring volumes in 2016 - much of which was attributed to a 25% decline in China - the global receivables market is in good health and is increasingly attracting larger, corporate businesses.
While governments across the world decide whether it is in their economic interests to take an open or restricted approach to global trade, more-and-more SMEs are seeing the benefit of having a presence outside of their domestic environments.
While challenges still exist, business owners across the world would do well to remember that when it comes to funding and support, there are options available beyond their traditional banking partners.
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Original source from: BIBBY FINANCIAL SERVICES BLOG - TRADING PLACES: SMES AND INTERNATIONAL TRADE