Big opportunities lie abroad
I'm excited about the year ahead. Many Scottish industries have regained their innate optimism and are looking to grow worldwide. I'm particularly intrigued by the progress of two of Scotland's most dominant sectors: energy, and food and drink.
Oil giants are moving into new markets, such as Latin America, through organic growth and international acquisition. National oil companies are actively encouraging foreign investment. This will generate lucrative opportunities for Scotland based oilfield service companies.
At the moment, Brazil is the biggest growth area. Goldman Sachs expect it to be one of the largest economies of the decade. The country is actively seeking international experience and Scottish skills fit their needs. The problem solving and technological abilities required for small UK oil fields are easily transferrable to wells in Brazil. Yet, the market remains notoriously difficult to penetrate.
State-run oil multinational Petrobras monopolises the Brazilian oil and gas industry. Until 1997, it boasted exclusive rights to explore and produce oil and gas in Brazil. It still produces more than 95 per cent of the countrys oil. Foreign investments are now welcome, but they must be in accordance with Brazilian goals. As a result, strict regulations, such as local content laws and high import tariffs, make the market difficult to service from Scotland.
So, how can Scottish businesses break through these barriers? Acquisition remains an option but many Scottish businesses don't have the deep cash reserves required. Companies must find different ways of entering this lucrative market. It's rapidly becoming a norm for organisations to seek suitable local partners in their target country to work with. Scottish businesses should partner, not purchase.
When entering by acquisition, companies start from scratch and must quickly become experts in their new environment. Partnering with locals is the perfect stepping stone. You effectively gain a neighbourhood guide who can familiarise you with business basics: corporate culture, tax policies and employee standards. Collaborating satisfies nationalism too. The products and services that a UK company provides from a Brazilian subsidiary count as local content.
A partnership isn't necessarily a panacea. A good interpreter remains the key to successful communication and finding the right partner is critical. Its all about who you know. Networking can provide great opportunities. We are members of UHY, an incredible international network of accounting and consulting firms. This means we can offer introductions to foreign companies and provide a soft landing.
You may think you have a choice of organisations to partner with, but in reality the locals have the power. Many UK companies are touting for partners. You must stand out, be brave and showcase your skills. The first question they'll ask is the extent of your industry experience.
Making a good impression is vital. This is best done by adhering to Brazilian culture. Brits should make an effort to adjust to the relaxed way of working and honour their preference for face-to-face communication. Brazilians like to do business with friends. This means its important to be in the country as much as possible. Visits may be time consuming, but costs will undoubtedly be outweighed by business benefits.
These opportunities aren't just available to the oil and gas industry. The Scottish food and drink sector has ambitious targets and exporting could be a lucrative step towards achieving them.
Food and drink industry leaders are aiming to boost turnover from £3.7 to £5.1 billion in the next six years. Although the sector already sells abroad, the majority of our exports are seafood and whisky. Scotland has so much more to offer. Consider the French emphasis on their use of Scottish beef. Our high quality Scottish brand commands a premium overseas. We should take advantage of this and expand our exports.
As with oil service companies, there are exciting opportunities for substantial owner managed manufacturers to export. The industry is heavily weighted towards them. There are only around 30 Scottish food and drink companies with a turnover of more than £50 million. Yet 75 per cent of the sector is comprised of organisations with 10 or less employees. This means SMEs have the power to take the lead.
The biggest prospects are in France, Spain and Germany, because of their close proximity to the UK, and in America, due to shared language. However, like oil companies, food and drink face obstacles. The food and drink VAT framework is particularly complicated and the cost of using multiple overseas agents can make the product significantly more expensive than the indigenous offering.
Help is available. Scottish Food and Drink, who we have been working closely with, are developing a distribution hub to act as one point of contact, eliminating the need for agents. Scottish Development International offer operational level advice and the UHY network isnt just for oil and gas companies. Any sector can get involved.
The launch of the Scottish Investment Bank, a division of Scottish Enterprise that provides investment funds to support company growth in Scotland, can help budding exporters to secure finance. Above all though, its vital to get introduced to the right professional advisors. Setting up incorrectly will cost a lot of money.
Lessons in internationalisation can be shared. Scottish industries must work together to generate a truly international presence for our country. We are looking forward to working with local SMEs to get there.