We are living in times of such political unorthodoxy there is arguably a danger that economic commentators will start to sound like a broken record. Uncertainty, or rather what Mervin King the former Governor of the Bank of England calls radical uncertainty, is a dominating factor in the global economy. This is the kind of uncertainty that pollsters and skilled economists find difficult, if not impossible to predict. Events such as Brexit, a hung Parliament in the UK, Trump’s election victory and the election of Emmanuel Macron and en Marche! are all good examples of instances where experts made the wrong call or were unable to predict the outcome.
Despite a series of radical uncertainties, the OECD predicted global growth rates will rise to 3.5% in 2017 and 3.6% in 2018. This might not seem high but a year ago, rates were at a low of 3%, their lowest since 2009. However, growth remains uneven and the global economy is yet to reach the magic 4% that preceded the financial crisis. This leaves many scratching their heads to understand where the next spurt of global growth will come from.
A threat to global trade
As a result of a perceived backlash against globalisation and the resurgence of protectionism, SMEs are under threat from losing out on global trade. This has been most apparent in the US where Donald Trump has been a vociferous critic. Around 20% of US exports come from SMEs. However, in Europe, which is seeing a period of stronger growth, there is a sense that exports could be disrupted by the Brexit process. Around 40% of EU trade is derived from SMEs.
Almost a quarter of SMEs say that foreign exchange fluctuations are the biggest barrier to international trade. At a time of geopolitical uncertainty, currency fluctuations are hard to escape.
My own view is that once a greater degree of political stability emerges from the UK and the EU, SMEs will begin to regain their confidence in taking on an export strategy. When this will be is currently anyone’s guess, but ultimately, it would be wrong for SMEs to pull back from expanding when there are many opportunities to forge new trading relationships. Similarly, in the US, the President might be concerned about US trade deficits with certain markets like Germany, but it would be wrong and counterintuitive to pull back.
However, we are already seeing early signs that businesses are at least delaying investment in our UK market. Does this herald a recession? Possibly yes. We will know for sure during the next few weeks and months.
In our experience, business success is not achieved by postponing investment or cost cutting (much of which is happening today). Many SMEs would be wise to consider their international trading partnerships and the rewards from exports arguably remain a constant benefit in growth and prosperity.
Our own 2016 research of SMEs in six of the world’s largest economies found that while macro-economic and geo-political changes have dominated global headlines, SMEs were concerned with issues that affected their everyday activities, such as cashflow, hiring skilled staff and rising costs.
Encouragingly, our Global Business Monitor research found that 95% of SMEs planned to invest in their business in 2017, with staff training, promotional activity and technology the most popular areas.
There is still, however, work to do in relation to financing such growth and investment.
According to the World Bank, up to 70% of micro-businesses in emerging markets lack access to credit. Furthermore, the World Trade Organisation found that over half of trade finance requests by SMEs are rejected, against just 7% for multinational companies. This is resulting in global liquidity becoming concentrated within the biggest institutions and their clients, but not flowing down to smaller businesses that play an equally pivotal part in driving economic growth.
Disparity in access to finance is not confined to business size either. There are huge gaps geographically. Our own research shows that almost half of SMEs in Germany believe the availability of credit is good or excellent. Conversely, Irish SMEs are most likely to view the availability of finance for their businesses as poor. Similarly, where just 8% of UK businesses have been rejected, almost a quarter (23%) of SMEs in Hong Kong have had applications for finance declined.
Fundamentally, I believe this issue is much less about a lack of available finance and more about a lack of awareness and understanding of the full range of options. While awareness of alternative forms of finance is undoubtedly growing, there remains a tendency for small businesses – wherever they are – to approach their main banking provider in the first instance, before considering the full range of options available. Indeed, a report published by the British Business Bank in February 2016 suggested: “whilst levels of awareness have improved, in particular for newer types of finance, it is striking that over half of UK smaller businesses still go only to their main bank and do not shop around for finance.”
While uncertainty caused by a constantly shifting geopolitical environment continues to stall investment decisions and expansion plans of some SMEs, others are taking the future into their own hands. This includes exploring opportunities outside of their domestic markets, hiring new talent and looking beyond traditional banking partnerships to leverage business assets and unlock working capital.
Despite the current challenges and some protectionist and anti-globalisation rhetoric from some quarters, I still have confidence that there are opportunities abound for SMEs across the world, and an abundance of finance available right under their noses. Businesses just need to regain their confidence and grab the opportunities presented.