Family Affair: Rise of the Mittelstand

Why the UK’s SMEs are shunning new markets

Against a backdrop of robust growth at home, British small and medium-sized businesses appear to be shunning riskier, new markets, according to research.

Less than four-in-ten (37 percent) of U.K. SMEs have entered new markets – be they different geographical regions or sectors -- over the past year compared to 53 percent in 2013, according to research by Albion Ventures, an independent venture capital investor with around £230 million under management, in the U.K.

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During the first quarter of 2014, the venture capitalist commissioned a market research firm to interview a random sample of 450 British SMEs on the challenges and opportunities they face in growing their business.

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Compiled in the "Albion Growth Report 2014," the results showed that almost half of SMEs experienced a range of problems in trying to enter new sectors and geographies.

Specific hurdles the U.K. SMEs faced in entering new markets include a lack of expertise around their target market, finding the competition too strong and lacking the financial resources. Overcoming regulatory hurdles was also a difficulty SMEs faced.

Despite general optimism among the SMEs interviewed that they would see growth in the next two years, according to 67 percent of the businesses, the data showed that "many were focused on expanding into their core markets, where more opportunities existed compared to 12 months ago," rather than into riskier new markets.

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Revised data released on Wednesday showed that the U.K. economy grew 0.7 percent in the third quarter, slowing from 0.9 percent in the second quarter but still robust compared with the euro zone's largest economy Germany, which eked out 0.1 percent growth in the third quarter.

"Entering new markets can be an exciting yet daunting challenge for many businesses and it's not surprising that nearly half have encountered problems along the way," Patrick Reeve, Managing Partner at Albion Ventures said. "As the U.K. economy recovers it's understandable that small businesses are less willing to take the risk as more growth opportunities appear closer to home."

- By CNBC's Holly Ellyatt, follow her on Twitter @HollyEllyatt.