Exotic markets key to next wave of international growth

While George Osborne has been tireless in damping down expectations of a recovery in domestic demand and investment spend any time soon, he has been assiduous in trumpeting the importance of exports in the UK recovery.

The weak pound combined with the attractiveness of economies that have avoided the worst of the downturn has combined to offer a life raft for UK businesses.

Some finance directors have concentrated efforts in markets where they believe there are premium rates of growth. The BRICs are now emerged markets, but other markets are ripe for expansion. Take Turkey. Its economic progress in the last decade has demonstrated its enormous potential, as discussions about joining the European Union continue. Figures from the OECD show that by the end of 2006 the UK was the second largest foreign direct investor in Turkey after the Netherlands.

Doubling up
Alun Jones is FD at Faun Trackways, a manufacturer of temporary roadways for military purposes working in Turkey. “We had a large contract there which involved us doubling the size of our business for a year,” he explains. “We had to finance the purchase of a lot of equipment, so that involved working with our bank to make sure we
had the right financing structures in place to meet the terms.”

In Faun’s case, the customer provided some of the payment up front in order to help the UK business meet its working capital demands. Faun also had to provide an €8m bond.

Turkey does offer opportunities, but there are hoops you need to jump through, according to Jones. In order to prepare for dealing with a different business style, Faun used an agent, something that made the FD’s job easier. “It really helped,” says Jones.

“In my experience you have to choose an agent that is well connected and who really understands your market. That’s doubly true for the defence industry. The issue of trust is paramount there.”

Garry Clarke is CFO at Triumph Motorcycles, which currently derives 82 percent of its revenues from exports. He agrees with Faun FD Jones that working closely with partners on the ground can remove risk and improve performance.

Cost of entry
“We operate through selling subsidiaries in nine countries, mainly in Europe. We also use third-party distributors, which has reduced the cost of entry to the markets,” he says. “It also allows us to share a degree of the risk and test our product in the field. Once you go for it and establish yourself, you can start to
create traction.”

While Europe and the US have provided the lion’s share of sales at Triumph, the FD clearly sees opportunities beyond the established markets. “Triumph will certainly look to consider other emerging markets and use the benefit of experience to judge if the cost of entry, balanced with the risk of return, makes it viable,” he says.

However, it is not all exponential growth. Colin Day, FD of Reckitt Benckiser, urges a cautious approach. “There is a danger you can squeeze these markets too hard and too fast, perhaps under-invest for short-term performance and burn them out quickly,” he says.

Day cites the fact that, 10 years ago, developing markets would have accounted for less than 10 percent of revenues and were net lossmakers. Since then it has turned to 25 percent of revenues and a significant cont­ributor to Reckitt’s bottom line.

FDs must seek to balance caution with the opportunities abroad now.