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Manufacturing SMEs 'missing out' on benefits of a weak pound

09 June 2010

Despite expectations that the pound will remain weak against the US dollar and Euro for the foreseeable future, small and medium-sized enterprises in the manufacturing sector are failing to take advantage of the current favourable export environment, according to a study released today (wednesday June 9) by GE Capital.

One in five (20%) of SMEs in the manufacturing put overseas expansion in their top business priorities for the year and just under one in five (19%) said that they expect their growth to come from international sales over the next three years, thus making them heavily reliant on the fortunes of the UK economy.  This is marginally more than in 2008, when 19% said overseas expansion was a priority, and 17% were planning on growing non-domestic sales.

The findings, which are based on interviews with the owners and mangers of 500 UK SMEs, show that the UK government’s emphasis on an upturn that will be largely export-driven may be at odds with the expectations of small and medium sized enterprises in the manufacturing sector.

Of those companies that do export, almost three-fifths (56%) continue to invoice their overseas customers in sterling rather in the foreign currency of their buyer.  This is no change since 2008 when only 56% were doing so.  As a result, these businesses could miss the opportunity to either increase volumes or indeed take advantage of the weak pound through higher profit margins.

John Jenkins, CEO, GE Capital: "Now that the long-awaited export-led recovery shows signs of at last arriving, the weakness of sterling against the Euro and the US dollar should provide excellent opportunities for UK firms to maximise their export potential.  However, our study shows that fewer small and medium sized businesses are making the most of the export opportunities than two years ago, despite an incredibly favourable environment.  Nonetheless, those that are planning to venture into overseas territories for the first time should seek professional advice on securing payment and managing exchange risk.”

Regional variation
Whilst overseas expansion is of low priority overall, the research highlights that there is variation from region to region.  Firms in the West Midlands (16%) East Anglia (12%) and the South East (12%), are most likely to consider expanding overseas as one of their top priorities, while owners of firms in the North and Scotland are the least likely (4% respectively).  The main priority for most businesses continues to be domestic sales, motivating staff and taking additional costs out.

Similarly, there are variations across industry sectors.  Owners of manufacturing firms (20%) are most likely to see overseas expansion as one of their business focus areas, followed closely by owners of media and printing firms (18%).  Owners of healthcare and IT & telecoms firms are least likely to consider overseas expansion (0% respectively).


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