Midland SMEs that target overseas markets are reaping dividends when it comes to growth.

A joint research project by the Marketing Birmingham Regional Observatory and the Greater Birmingham and Solihull Local Enterprise Partnership has revealed the strongest SMEs in the region are exporting to generate growth with most specialising in advanced manufacturing or engineering.

But the research also revealed just one in four SMEs are operating in overseas markets, with almost half (48 per cent) focusing mainly on the West Midlands region and a quarter generating most of their turnover across the UK.

The research, which surveyed 1,700 businesses across the GBSLEP area and the Black Country, examined which SMEs were experiencing the most growth in areas such as turnover and employment, and how this has been affected by factors such as exporting and business support.

It found SMEs with a UK or international focus were more likely to be growing than businesses consolidating locally.

While nearly half (43 per cent) of companies focusing on local markets experienced a reduction in turnover or staff over the last three years, this was a problem faced by only a third (31 per cent) of SMEs operating in a UK market and just over a fifth (21 per cent) trading overseas.

Businesses in the West Midlands exported £20.2 billion of goods and services during 2011 – compared with £17.5 billion in 2010 and £13.6 billion in 2009.

When analysed by sector there was a wide variation in the proportion of SMEs that exported. Manufacturing SMEs operating abroad experienced the biggest increases in turnover and recruitment.

While 52 per cent of advanced manufacturing and 38 per cent of engineering SMEs exported, just six per cent of construction firms have been focusing on overseas markets.

The sectors with the most SMEs deemed ‘high growth’ were in exporting industries – advanced manufacturing (30 per cent) and engineering (26 per cent) – while nearly half (41 per cent) of SMEs in construction experienced a downturn in employment or turnover each year in the last three years.

Neil Rami, chief executive of Marketing Birmingham, said: “Many of the region’s most successful SMEs are our most ambitious, looking further afield to find new customers. This has a knock on effect with evidence also suggesting higher export levels raise the prospect of attracting further inward investment to the region.

“It is clear smaller businesses wanting to achieve growth in their turnover, and that have the means and ability to approach foreign markets, should consider exporting in addition to strengthening their positions in the UK.”

“Yet while it is positive news that exporting can lead to stronger growth, we need to address why just a quarter of SMEs are doing so. With almost two thirds of UK private sector jobs created by SMEs, supporting their ambitions to sell overseas can boost employment as well as their turnover.

“Exporting is not risk free, and we must ensure that smaller businesses have the tools, knowledge and guidance to help them join the international market with a full understanding of its potential challenges and benefits.”

Andy Street, chairman of the Greater Birmingham and Solihull LEP said: “Exports are an excellent indicator of the performance of the economy in the LEP. Therefore, we should welcome this research which confirms the strength of our export sector. However, it also confirms the potential which still exists for new exporters.”