A recent survey by Airwallex reveals that UK small and medium entreprises (SMEs) are highly motivated to expand abroad over the next 12 months, with a majority focused on markets in Europe and North America.
The survey collected input from 500 UK-based SMEs, which indicates that international expansion is a considerable opportunity for investment from 2023. 64% of surveyed SMEs plan to expand to Europe and North America in 2023, with 81% in the next five years. The remaining 34% plans to expand to Asia Pacific, Latin America, Africa, and the Middle East in 2023, with 60% looking to expand into these regions by 2028.
Speaking to Finextra about the findings, Juan Diego Farah, head of growth, EMEA, at Airwallex, states: “Businesses which have ‘default global’ business models are continuing to grow, despite the macroeconomic challenges. In general, these companies tend to be digital natives or in the process of migrating to the cloud. Specifically, we’re still seeing strong growth in eCommerce, online travel (particularly as COVID restrictions relax) and digital services like marketing agencies.”
In order to finance the expansion into international markets, the highest amount of SMEs are reinvesting profits as a strategy (46%), while the remainder plan to rely on partners (38%), and bank loans (27%). One third of the respondents plan to build new trade partnerships and a little over 25% aim to establish channel partnerships to facilitate expansion in 2023.
Despite the instability of the current market, given the cost of living crisis and wider inflation concerns, plans for growing abroad dropped from 85% to 70% when polled in May and October respectively, indicating confidence in the future of UK businesses in coming years.
Farah observes: “A key challenge for UK SMEs will be navigating the rising inflation and higher costs impacting all businesses. If SMEs are to continue driving expansion during the economic downturn, they need to be equipped with tools and technology that offer true flexibility over domestic and international payments, managing funds and expense management. By avoiding unnecessarily high banking costs and FX fees, more revenue can be invested in employee retention and sustainable business growth across borders.”
The survey suggests optimism among SMEs to expand beyond their borders. However, according to Farah, expansion will have to be conducted in a deliberate and focused manner to manage costs and complexity market.
Employee retention and investment in people to combat the declining market are also important factors for SMEs raised in the survey. 42% of SMEs are migrating towards digital and fintech platforms as apposed to traditional banking strategies to optimise productivity and reduce costs.
Farah adds that salary increases will not be implemented until the end of the financial year due to inflation, and as a result businesses are adopting various strategies to retain talent: “While some of these perks are financial (like issuing equity), we are also seeing other benefits such as offering a hybrid work model, creating internal recognition programmes and investing in training. In particular, around half of SMEs in education (50%), retail, catering and leisure (44%), and finance (40%) plan to invest in career development opportunities.”