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Scale-ups target US as Brexit dampens appetite for EU expansion

25 October 2017

  • Over half of scale-ups have plans to expand overseas;
  • Interest in expanding to the US has more than doubled since the referendum;
  • Appetite for expansion within the EU has fallen by almost 40%;
  • Scale-ups recognise the benefits of collaboration with big business but remain hesitant.

The US has overtaken the EU to become the most popular market scale-ups - early stage, high potential businesses - say they will target for export growth, according to a survey of 500 UK scale-ups by Deloitte. Fifty two percent of respondents rated the US as their preferred market for overseas expansion, compared to just 21% who said they were targeting the US prior to the EU referendum.

In comparison, just 35% of respondents rated the EU as one of the most attractive markets, compared to 74% before the referendum.

However, the findings suggest that the EU will likely remain an important market for UK business, with respondents rating market size, familiarity and existing networks as key drivers for which markets they choose to export to.

Overall the research finds that almost one-third of scale-ups have already expanded overseas, with a further 51% targeting international growth within the next three years.

David Noon, UK & global Brexit leader for Deloitte, said: “Brexit clearly has not diminished the overseas ambition of the UK’s scale-up community. The question now is where do they look for growth and who do they work with to get there.

“We have seen a significant shift in the markets they are considering. The US, a traditionally strong market operating in the same language as the UK, has seen a surge in interest since the EU referendum.

“Although the scale-up community has shown some sensitivity to the outcome of the EU referendum, the EU will undoubtedly remain an important market for UK business. The factors identified as main considerations for where to expand, including market size, familiarity and existing networks, are unlikely to change as a result of Brexit. In addition, the depreciation of the British Pound against the Euro has made UK exports more competitive.”

Opportunities for collaboration
The survey findings show scale-ups remain highly self-sufficient, despite acknowledging that collaboration with government, trade associations or corporates could bring benefits such as access to broader networks and unfamiliar markets.

Half of respondents (56%) did not seek any form of public or private support to scale-up overseas. For the rest of the scale-up community who did seek support to access new markets, a combination of UK government, trade associations and large businesses were the most appealing options.

David Sproul, senior partner and chief executive of Deloitte North West Europe said: “Innovative scale-ups could provide the impetus that the UK needs to drive growth and boost productivity and it is critical that big businesses and the government work together to help them access the support they need to scale-up at home and abroad. Collaborating with scale-ups can be mutually beneficial: big businesses have strong brands, market access and maturity, while scale-ups have agility, energy and speed to market.”

Despite recognising the benefits, the survey results show a strong perception that collaborating with big business is hard work. Less than 10% of respondents were aware of the benefits of collaborating with corporates, whereas 46% cited drawbacks including the desire to retain control of their identity and product and seeing corporates as competitors. Several respondents also expressed frustration that large businesses often expect them to adhere to onerous and expensive processes.

Sproul said: “The UK has the opportunity to be a world leader in technology and innovation. However, corporates have traditionally been slow to adopt innovation. To remain competitive, this needs to change.

“Two-thirds of scale-ups are already investing in innovative technologies to scale their business, such as analytics and artificial intelligence. Collaboration with scale-ups can help big businesses experiment with innovation in a low cost, low risk way. Likewise, corporates can help scale-ups to develop their products and establish themselves in their markets more quickly than they could alone.”

End

Notes to Editors

Methodology
Our survey was conducted in June 2017, gathering responses from over 500 UK early stage, high potential businesses (aspiring scale-ups) using crowdsourcing. The respondents were decision-makers in these businesses that have active plans to grow their business in the next 12 months and have raised at least £1 million in capital.

About Deloitte
In this press release references to “Deloitte” are references to one or more of Deloitte Touche Tohmatsu Limited (“DTTL”) a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see deloitte.com/about for a detailed description of the legal structure of DTTL and its member firms.

Deloitte LLP is a subsidiary of Deloitte NWE LLP, which is a member firm of DTTL, and is among the UK's leading professional services firms.

The information contained in this press release is correct at the time of going to press.

For more information, please visit www.deloitte.co.uk. For more information, please visit www.deloitte.co.uk.

Member of Deloitte Touche Tohmatsu Limited. 

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