Corporate Q&A: “Exporting is not that difficult, but it’s a bit scary”
Name: Andrew Riley
Company: Mechatherm International
GTR: Tell us about your company and your exporting journey.
Riley: Mechatherm International is a bespoke furnace and foundry equipment manufacturer, which started from my father’s back bedroom in 1972. He very quickly realised that if he wanted to grow the company, he had to move into exports.
We went for the low-hanging fruit first and started off with South Africa. One of my dad’s ex-employees went to work there and wanted some equipment, so that was an easy way into exporting, and then we just grew from there. Exporting is not that difficult, but it’s a bit scary when you first start, so therefore, don’t run before you can walk.
Over the years Mechatherm has exported to 63 countries. I have been to 53 of them. That’s one of the joys of exporting.
GTR: As a UK SME exporting, what are your biggest opportunities?
Riley: When you go abroad, everybody loves the British, so that gives you a real advantage. You just have to decide what you can cope with and go out there.
We have a strategy that we will go from country to country to country. As an SME, we don’t have the resources of a large corporation, so we can only do a little at a time.
GTR: What are the biggest challenges?
Riley: Getting the information and understanding what your customer wants and their local market requirements. That is not easy.
Financing is a barrier, mainly bank guarantees, because banks always want to negotiate limits, but as the years have gone by and we got used to it, it isn’t so much of a barrier these days.
The biggest problem comes when you want to make a step change. If you are used to doing bank guarantees of say £1mn and suddenly you want to do £3mn or £4mn, the banks don’t always want to support you. But there is more than one bank, so we thought: “If one says no, try another.” So we’ve tried big banks, little banks, insurance companies, all sorts. There is more than one way to skin a cat.
GTR: Is the necessary support available for SMEs?
Riley: For companies that are experienced in exporting, like us, yes, because I and my colleagues know where to go if we face a barrier. But for companies starting exporting, it’s a lot harder. They don’t know the questions to ask. In my opinion, they need to talk to companies like us that have exported before and are of similar sizes to them.
Nowadays, particularly because the government wants to double our exports, they are putting in place help from the UKEF, advisors, and it’s getting a lot easier. But you still have to go out there and ask the right questions, and keep on banging on those doors until you get the right answer. They won’t come to you.
GTR: Is there anything lacking in terms of trade finance?
Riley: One of the things that is difficult is getting export credit insurance. In fact, we don’t do that anymore. We used to, but in about 2008, the insurance markets collapsed, and overnight they withdrew cover from practically all our customers. We discovered that in our chosen markets they didn’t want to cover start-up companies, even if these were backed by major multinationals, unless they had three years’ trading experience.
Not only that, the last few years, aluminium – we’re a heavily commodity-based market – has dived, and so to spend 3-4% on export credit insurance would break the deal. So we’ve had to look at alternative methods: it’s all about knowing your customer. If they are a big blue chip company, it’s relatively easy to get hold of their accounts and check that they are viable. Then why do you need export credit insurance? If they are a small company, we will make sure they have positive cash flow terms or a letter of credit or payment up front. There is more than one way to cover the risk.
GTR: How are you preparing for Brexit?
Riley: Brexit is a big issue for us. In the last few years, Europe was 40% of our turnover.
The first thing you worry about is, are the banks going to withdraw their facilities? However, every company in the UK is in the same position, so if they were to do that, there would be more problems than Mechatherm has got to worry about.
We have spoken to our customers, and yes they are concerned, particularly if there are tariffs put on our goods. They are going to make us pay for that.
What we are doing is that we are trying to concentrate on the Middle East, or markets outside of Europe, so we are diversifying into servicing, which we’ve never really looked at before, to try and maximise our take from our customers. We’ve had some success at that.take me back