SMEs see opportunity for expansion abroad

New research has discovered that UK-based SMEs remain optimistic about international expansion next year, with almost three-quarters (70%) planning to expand into, or further into, foreign markets in 2023. The independent research by global fintech platform Airwallex, which surveyed 500 UK SME decision makers, considered where and how UK SMEs are planning to invest in, and grow, their operations abroad in 2023 and beyond.

Optimism around cross border growth remains

Despite market turbulence tempering UK SMEs’ ambitions around expansion plans, confidence is still high. When polled in May 2022, 85% of UK SMEs planned for geographical expansion – this figure has since dropped to 70% when polled in October. However, this is still a strong demonstration of market confidence, reinforced by over two-thirds (68%) agreeing that they see an opportunity to scale/expand into new markets.

Of those UK SMEs planning to expand into new markets:

  • Two-thirds (64%) have their sights set on Europe and North America in 2023; this rises to 81% when considering expansion plans over the next five years
  • One third (34%) are preparing to expand into Asia Pacific, Latin America, Africa and the Middle East. In the longer term, 60% of respondents are considering expansion to these regions by 2028

Relying on talent and trusted partners for business stability and growth

Reinvesting profits (46%) or relying on partnerships and affiliates (38%) are the two most prevalent strategies UK SMEs are taking to finance international expansion efforts. Only 27% plan to rely on bank loans to finance growth into new markets.

Establishing new partnerships will be central to SME expansion strategies for 2023: a third (33%) aim to establish new trade partnerships and a quarter (26%) want to build new channel partnerships.

Acquiring and retaining talent is also key to UK SMEs’ planned expansion:

  • Seven in ten (71%) admit employee retention is critical to their growth plans
  • Over a third (36%) are prioritising hiring to support their expansion
  • Almost three-quarters (73%) are investing in people to retain talent despite the predicted market slowdown

Shifting to digital to reduce expenses and bolster productivity

Two-fifths (42%) of UK SMEs are moving more aggressively towards digital/fintech platforms and away from traditional banking services due to the current economic environment. While a third (33%) have already adopted digital or fintech platforms instead of traditional banking (rising from 7% in 2021), a further 41% plan to do so in the next two years.

UK SMEs are relying on technology to not only avoid unnecessary costs but also to boost output:

  • Almost three quarters (71%) are investing in technology and tools to optimise workforce productivity so they can better navigate the predicted market slowdown
  • The same proportion (71%) say the economic environment makes it more important than ever for them to reduce unnecessary expenditure, like costly cross-border transaction fees

Looking ahead, UK SMEs pinpoint marketing capabilities (44%), expense management or accounting software (41%) and collaboration software (40%) as the most important tools to support their business growth in the current economic climate.

Pranav Sood, GM, EMEA at Airwallex comments: “Economic headwinds are driving more caution around business expansion abroad, but they haven’t halted SMEs’ ambitions for growth. There is clear optimism for international expansion, particularly when supported by the right talent, partnerships and technology. Our mission at Airwallex is to empower businesses to operate anywhere, anytime, by providing a global financial infrastructure that offers them complete control over their finances in a single platform. In EMEA, we’re continuing to invest heavily in the regional team, so we can better support UK and European businesses, and help them achieve their growth ambitions as they prepare for future expansion.”

Juan Diego Farah, Head of Growth, EMEA at Airwallex comments: “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.”