RESEARCH: Majority of small businesses are born global, not local. Local mindset is leaving small businesses exposed to ‘shadow risk’
‘The New Internationals’ now born global, not local;
74% of company owners say the ‘local by default’ view of small businesses is out-dated;
Yet, 82% of SME leaders admit to being more concerned about local than global risks;
75% demand more help from the Government to expand internationally;
Today’s small businesses are born global, not local, while out-dated perceptions of SMEs based on their physical footprints alone are leaving them open to hidden risks and missed opportunities, according to a new study by RSA, one of the UK’s largest commercial insurers.
The business behaviours identified in the report The New Internationals demonstrate the global nature of even the smallest companies in the UK.
Nearly three quarters (72%) of small businesses had a website in their first year, while around half (46%) used online banking and a quarter had overseas suppliers (26%), overseas customers (24%) and cloud storage (25%). A fifth (22%) of SME owners also travelled internationally on business in their first year.
However, the vast majority (92%) of SME owners believe they started out as a local or UK business rather than European or global, while four fifths (82%) admit they are more concerned about local risks than global threats. This perception gap is leaving small businesses open to ‘hidden’ or ‘shadow’ risks (i.e. risks beyond their physical footprint that haven’t been recognised or managed), and causing them to miss out on significant international growth opportunities.
External perceptions of SMEs also contribute to this ‘shadow risk’, with three quarters (74%) of SME owners saying the view that small businesses are local by default is out-dated. Top concerns related to international expansion include banking security and fraud (75%), cyber-attacks (69%) and economic turmoil (69%). This is a real concern, with almost a third (29%) of SME owners having experienced such an incident.
The study also reveals a contrast between London and the rest of the UK, with owners of London-based SMEs more likely to describe themselves as European or global when they first started up (13% London, 8% UK) and as “globally minded” business leaders (87% London, 79% UK).
David Swigciski, SME Trading Director at RSA, comments:
"The nature of technology and business operations today is such that no business – however local or small – is without global opportunities and challenges. From online banking and foreign currency to overseas travel and joint ventures, the degrees of separation between UK businesses and what’s happening overseas has been reduced to zero and the size of the prize for growing internationally can be huge.
"There is an urgent need to update perceptions of small businesses and the risks they face in the context of today’s global business environment. SMEs are the backbone of the UK economy; we need to help them realise their full growth potential and to manage their risk profile effectively.”
As a result of this perception gap, SMEs are under-exposed to global opportunities and over-exposed to global risks, while many owners feel under-supported in dealing with this.
Two thirds (63%) of SME owners do not have a global risk management plan in place, which the study reveals is due to a lack of understanding of the nature and seriousness of global risks. The majority (87%) of SME owners find it easier to understand local risks than global threats, while three quarters (73%) believe that global risks are the biggest unknown to small businesses.
Two thirds (67%) of SME owners believe Government support for SMEs is improving, however they need more information and support to be able to understand and manage their global risk exposure and seize opportunities to expand internationally. Three quarters (75%) want more help from the Government to achieve this, while two thirds (62%) say red tape is holding them back and more than half (55%) want more help dealing with the potential scenario of the UK leaving the EU.
When it comes to broader information and support, three quarters (77%) of SME owners would also welcome more advice from their insurer or insurance broker.
“Until perceptions catch up with reality, small businesses will be under-exposed to global opportunities and over-exposed to global risks. We are working together with the Government, business groups and insurance brokers to continue to develop our understanding of the pressures and needs of small businesses today and to provide the support that’s needed.
“The Government is providing some much-needed relief through measures included in the Enterprise Bill, but SMEs need more knowledge and confidence to run, grow and safeguard their business – however global their growth ambitions. The insurance industry, including insurance brokers, has a wealth of knowledge on small businesses and can help to educate SME owners on how best to achieve their full growth potential and thrive.”
Matthew Fell, Director, Competitive Markets Directorate, CBI said:
“Accessing new markets is vital for small and medium enterprises if they are to achieve their true potential and become the large firms of tomorrow. In a tough, highly competitive international environment, it is crucial growing firms are able to access the right kind of support available. This report is a valuable addition to the ongoing policy debate.”
Notes to Editors
About the study
The New Internationals is based on detailed interviews conducted between June and July 2015, with 1,002 SME owners and leaders in UK companies with between 10 and 150 employees.
Top Five concerns of operating internationally
- Concern Percentage Banking security and fraud 75%
- Cyber attacks 69%
- Economic turmoil 69%
- IP infringement 66% Supply chain disruption 66%
Key factors holding SMEs back from operating internationally
- Factor Percentage Red tape 62%
- Lack of global experience and expertise 61%
- Global economic uncertainty 59%
- Fear of unknown risks 59%
- Lack of funding 58%
- Brexit 56%
- Lack of information about opportunities available 53%
- Lack of confidence in the team 50%
- Negative reputation of the UK abroad 49%
Percentage of SME owners that describe their business as European or global when they first started up - region percentage
- London 13%
- North East 10%
- South West 10%
- South East 8%
- North West 6%
- Midlands & East 4%
Percentage of SME owners that plan for their business to become more international in the future - region percentage
- South West 83%
- London 78%
- North East 78%
- Midlands & East 77%
- North West 76%
- South East 68%