Entrepreneurs ready to take on emerging markets but need help getting there
12 November 2012
The UK’s entrepreneurs are ready to embark on an era of international expansion, according to the annual Entrepreneurship UK report from the business advisory firm, Deloitte. Over half of the 416 entrepreneurial businesses surveyed already export or are making plans to do so. 30% export to emerging markets, with a further 29% planning to follow in their footsteps, whilst 45% export to traditional markets and an additional 20% are considering this option. However, entrepreneurs will need support to break into new markets with just 12% relying on banks as their primary source of development funding, whilst establishing contacts and gaining knowledge about overseas markets are seen as major barriers to successful expansion.
Mark Doleman, head of entrepreneurial business at Deloitte, said: “Entrepreneurial businesses are at the heart of the UK economy and have the potential to move Britain away from the alternating periods of recession and slow growth that have marked the last five years. Increasing revenues from international markets will be a critical element in securing strong, sustainable growth but they will need support and encouragement from government to fulfil their potential. Measures including tangible support to aid international expansion and a national insurance break to encourage recruitment would provide a welcome boost.”
One of the biggest challenges facing entrepreneurs is finding the development capital required to take on new markets. Only 12% see banks as the most likely source of finance to grow their business, down from 20% when surveyed last year. Meanwhile, a record number of entrepreneurial businesses (57%) are relying on cash they generate themselves to fund expansion. This is an increase from 54% last year and compares with 36% who were doing so in 2009, in the immediate aftermath of the credit crunch.
Doleman added: “Whilst discussions on this subject have focussed on what can be done to get banks lending more freely, the evidence from our report is that many entrepreneurs no longer trust banks enough to borrow from them, and that is concerning. This paralysis in entrepreneurial funding is devastating not only to the individual entrepreneurs and banks, but to the UK economy as a whole. The relationship of trust between entrepreneurs and banks must be rebuilt.”
The challenge of building supply chain, finance, distribution and sales networks in new markets has been identified as one of the biggest obstacles for entrepreneurs embarking on an export strategy. 23% feel this is the biggest barrier in emerging markets and 22% feel likewise in traditional markets. A lack of knowledge of overseas markets, the ability to accurately price products or services, and logistics are also cited as challenges.
The appetite for expansion comes after a year in which the majority (58%) of entrepreneurial businesses met or exceeded their revenue targets. Whilst 31% saw revenue lower than forecast, this compares with 37% last year. In addition, 62% of entrepreneurs were able to maintain or improve profitability, whilst 27% saw profits fall. The remaining 11% of respondents are new businesses so did not provide this information.
32% of business owners say they are stockpiling assets or retaining cash. This is partly to act as a buffer against economic uncertainty, but respondents also talk about ‘short term stockpiling to fund future revenue expansion’ and ‘building a war chest for investment’. However, entrepreneurs could boost their cash reserves if they made better use of the various schemes introduced by the Government to help the industry. For example, our survey found that just 14% have taken advantage of the Enterprise Investment Scheme and only 11% are aware of the Patent Box tax regime.
Keith Willey, associate professor at London Business School and chair of Enterprise 100, said: “The narrative of this year’s survey is still one of hope and inspiration overcoming adversity, but also acts as a reminder of the facts of life that are often neglected in the entrepreneurial stereotypes. Entrepreneurs must take risks, but they can’t risk it all.
“Innovation remains the key to success, not just the original founding idea but through the growth phase of the business too. Sustaining growth gets tougher as entrepreneurs encounter the big, established competitors but success stories exist, many of them technology-based. These are the entrepreneurs to whom others should look for inspiration and business lessons.”
Doleman concluded: “The UK’s entrepreneurs are on the one hand uncertain of the future, but on the other, they are eager to export and are actively preparing for growth. In addition to requiring support from government, entrepreneurs can also help themselves by improving forecasting skills to make maximum use of what capital is available and re-engaging with banks, remembering that they are businesses too.
“This is a great time to be an entrepreneur. The internet is breaking down barriers in export markets and making the world a far easier place to do business, whilst market conditions are ripe for enterprise. Leases have never been so affordable, the market is receptive to new ideas and investors are looking for the next big thing. There is uncertainty but true entrepreneurs see only opportunity and cannot wait to seize it.”
Notes to Editors:
About the survey
The businesses surveyed range from start-ups to those with revenues in excess of £200m, but 80% of respondents had revenues of £50m or less. The companies are from a broad range of sectors and are based all over the country, with two-thirds outside of London and the south east.
About Deloitte and London Business School
In May 2011, Deloitte and the London Business School launched the Deloitte Institute of Innovation and Entrepreneurship, a 10-year partnership aimed at better equipping business leaders and entrepreneurs with the information, insights and resources to create new growth and tackle social and economic challenges.
In this press release references to Deloitte are references to Deloitte LLP, which is among the country's leading professional services firms.
Deloitte LLP is the United Kingdom member firm of Deloitte Touche Tohmatsu Limited (“DTTL”), a UK private company limited by guarantee, whose member firms are legally separate and independent entities. Please see www.deloitte.co.uk/about for a detailed description of the legal structure of DTTL and its member firms.
The information contained in this press release is correct at the time of going to press.
Member of Deloitte Touche Tohmatsu Limited.