It’s been several weeks now since Scotland’s oil and gas sector descended on trade show ADIPEC en masse, showcasing the technology and capabilities that have placed our industry at the forefront of the global energy industry.
Trade events such as these are critical to Scotland’s prosperity and for making inroads on the ambitious targets set out by the Scottish Government in its strategy, A Trading Nation – how it intends to increase the value of exports in proportion to the size of the economy.
Benchmarking – taking the time to reflect on export performance over the year – is not only vital for a company’s growth, it’s the only way we can assess whether Scotland is delivering on the objectives of A Trading Nation.
The current picture for Scotland’s economy shows that 500 companies are responsible for 80% of our export sales, with a further 10,500 firms making up the remaining 20%. Scotland’s GDP is £180bn – well below the comparators of Norway, Ireland and Denmark – and export sales account for about £30bn.
If the 500 businesses at the top of the tree were to increase their exports by £20m, this would result in £10bn per year in additional export sales. A greater challenge is to see 1,000 of the other exporters increase their annual overseas sales to £10m, which would add a further £10bn per year.
Traditionally, there are two types of methodologies for business internationalisation. The first, often adopted by SMEs, is to stay within Scotland and to use direct sales, agents, distributors and informal collaborations to roll their products and services out to market. The second, more often adopted by larger companies, leads to an overseas presence with subsidiaries and branches, joint ventures and acquisitions.
There are a huge number of ambitious businesses that float between the two spectrums, and it’s essential to support their expansion plans to deliver on the aims of A Trading Nation. The key, I believe, is to help them plot a roadmap that identifies a journey to success.
The number one consideration for businesses planning to internationalise in the Middle East – a region where I’ve been operating for two decades – is localisation. New ventures in this region cannot be launched from afar: history shows that the best results are achieved by having a strong local presence, with boots on the ground.
Therefore, selecting the right local partner – and the right deal – is paramount. A local partner’s contribution to market verification and connectivity, legal compliance, localisation and logistics support can be vital. Make a wrong decision here, and the consequences can be catastrophic.
There are a range of other issues allied to internationalisation that should also be considered – for example, management arrangements, working capital, risk management, and legal and tax compliance – and addressed on the roadmap.
And, of course, the entry to market mechanism should be a key factor in the journey. Conventional arrangements in some Middle East countries are no longer relevant: with greater importance being placed on localisation and in-country value traditional agency and distributorship models are increasingly ineffective and obsolete.
The Middle East remains a tough but highly prospective territory for Scottish companies. Taking the time to fully examine the route to the final destination will help to avoid costly and time-consuming detours and breakdowns that need not ever happen.
Now that the dust has settled and the hubbub around the world’s biggest energy show has died down, the real acid test for Scottish firms that made the trip to the UAE is where their business will be positioned when the doors open on ADIPEC 2020 in terms of sales revenues, profits and positive cashflow.
Hugh Fraser, a member of the GlobalScot network, is the manging partner of HFI Consulting International and the author of Roadmap Series – Successful Business Ventures in the Middle East.
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