Britain in need of an export booster
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British companies seem to be getting the message that they need to export more – especially to emerging markets – for their own sake as well as that of the UK economy. The trouble is that not only is there a crisis in the eurozone but the outlook is also weakening in countries such as the US, India and China.
“The evidence we have from businesses around the UK is that they are responding to the export challenge,” says Adam Marshall, director of policy and external affairs at the British Chambers of Commerce, the business network. Last year, when the BCC surveyed its members, 22 per cent were exporting. This year, that figure is 32 per cent.
“Businesses are adjusting to a slower domestic market and the eurozone situation, and are looking further afield,” Mr Marshall says. He sees evidence that more are going straight into high-growth markets. No longer is starting out in Thailand, South Africa or Brazil the preserve of seasoned exporters.
He adds, however: “The problem we have so often is that when we get to the emerging markets, others are already there.”
The government’s aim of doubling annual UK exports to £1tn by 2020 appears to be a difficult target. It will mean matching the annual growth rate of almost 9 per cent in goods and services exports achieved by South Korea in the decade before the 2008 recession. The UK has managed about half that in the past decade.
Half of the UK’s trade is still with the relatively low-growth EU and a quarter with the rest of the developed world, including the US – its top export destination. Sales to leading emerging markets such as Brazil, Russia, India and China have grown from 2 per cent of the total to 8 per cent in the past 10 years.
Some markets are faltering. Goods exports to non-EU countries fell 7.2 per cent in August compared with July, while those to the EU fell 0.5 per cent. But exporting requires long-term commitment and has proven benefits. Studies show exporters tend to have higher productivity, better survival rates and a more diversified base.
Help for inexperienced exporters is available through UK Trade & Investment, the trade promotion agency, and chambers of commerce. UK Export Finance, the government export credits guarantee department, has introduced finance support schemes to help small and medium-sized companies, although awareness of these has grown only slowly.
The government has pledged £5bn to support loans to foreign buyers of British exports.
“Many people see exports as something they do when they need it,” says Colin Mustoe, founder and chairman of Senator, a Lancashire-based office furniture manufacturer. “But if you are going to export, you have to take it really seriously. You have to do your homework, be prepared to invest a relatively large amount of money; and the return will take quite a long time to come.”
Senator has exported to 65 countries in the past three years, driven in part by a less lucrative UK market – of which it has 15 per cent – as thinner computer monitors mean companies are buying simpler, cheaper desks. Senator also has a manufacturing operation in the US. This year, exports will account for about 20 per cent of Senator’s £100m sales, a proportion Mr Mustoe wants to see double within five years.
“You get a lot of benefits, because quite often it causes you to develop products you wouldn’t otherwise develop and it causes your quality standards to improve.”
Dudson, the Stoke-on-Trent-based maker of ceramic tableware for hotels and restaurants, has seen markets such as Greece and Spain become “quite difficult”, according to Max Dudson, chief executive. “However, there are growth markets, which is where we are focusing.”
The company exports two-thirds of what it makes in the UK; it also has a smaller factory in France. Its main markets are North America and western Europe, and it is growing in areas such as eastern Europe, Russia and the Middle East.
It has not been an easy few years for Dudson, which recently returned to profit after three years of losses. Its clients include leisure group Disney, Virgin Atlantic, the airline, and Hilton Hotels. Dudson trades on the durability of its products, which have a lifetime no-chip guarantee. The company supplied plates with a Thames-shaped indent for VIP dining at London’s Olympic Park this summer.
Mr Dudson advises exporters to do their research: “You need to understand the market you are targeting and make sure your product has a place.” He adds that they need to protect credit terms as best they can, either through insurance or making sure payment schedules are as tight as possible. More could be done by governments to lower tariffs and other trade barriers, Mr Dudson says.
Nick Forrest, an economist at PwC, the business consultants, says the UK’s export performance has been “not too bad”, with balance of payments problems mainly caused by rising imports. Manufacturing exports – in the automotive and aerospace sectors, for example – have been strong, he says, and the UK has a comparative advantage in financial and business services and in personal services, such as the healthcare sector.
“Services sometimes require a more localised presence than putting something in a box on a container ship, but that is where we have seen growth,” Mr Forrest says. He thinks prospects are good for areas such as life sciences, because of ageing populations, and for selling luxury goods and services to the growing middle classes in emerging economies.
Richard Heald, chief executive of the UK India Business Council, the investment promotion agency, says UK trade with India has grown 40 per cent since 2010 if investment in the country is added to exports. “Admittedly, it is from a low base and we can’t be complacent,” he says.
He adds that some large companies are “still working out how to fully develop and grasp the opportunities in emerging markets”, in particular how to establish parts of their supply chains there. Smaller businesses “want to be able to talk to companies that have done it and learn from them”, he says.
Scientifica, an East Sussex-based company launched in 1997, is one of several British businesses that are building a global technological niche. It makes equipment for electrophysiology researchers in universities and pharmaceutical companies, most of whom are researching neurodegenerative diseases.
It has grown its business by 25 per cent a year for six years and 70 per cent of sales are overseas, notably in the US and Europe but growing also in China, Japan, South Korea, Singapore and Australasia. It has just appointed a distributor in India.
“We felt that because we fell into a very niche market, we could identify our potential customers, because they have to publish scientific papers to generate grants for the future,” says Mark Johnson, joint managing director.
“We are a small company and have a vision of being market leader in our sector,” Mr Johnson says. He estimates Scientifica has 7 per cent of the global market, so there is great potential for growth. The UK needs more such ambition if it is to achieve its much desired export-led recovery.
Case study: Steps
When UK public spending cuts started to bite three years ago, Steps, a company created 20 years ago by three actors to provide corporate training programmes in the form of interactive theatre, found itself losing clients.
To fill the gap, the company decided to expand overseas, establishing a subsidiary in India and creating a pool of more than 40 trainers in the cities of Delhi, Mumbai, Calcutta and Bangalore.
“We have had enormous fun doing this,” says Robbie Swales, a director, who has visited India more than a dozen times since 2010. “We are in the creative sector anyway, so working with different cultures has given a great deal of energy to all of us.”
The opportunity for Steps to spread its wings came at the right time. At the end of 2009, Vodafone, the telecommunications group, asked it to run diversity sessions for senior management teams in 26 countries.
To achieve this, it had to audition and recruit actors in each place.
Steps’ drama-based training aims to address workplace behaviour. The company recently ran a session in Bangalore for Goldman Sachs, the investment bank, to tackle a problem whereby female staff trusted their male managers less than men did.
Steps created a fictional situation in which a woman turned up for her monthly review wanting to say she felt ready for promotion, but could not get this across to her male manager. Delegates were encouraged to question the characters and suggest ways to do things better.
The technique can be used in areas such as diversity training, how to run appraisals and how to give feedback. The company is running a diversity training programme, for instance, for a professional services firm in India, Singapore, Australia, Hong Kong, Japan and South Korea.
Overseas contracts now account for up to a fifth of business for Steps, which has 20 in-house staff and some 150 freelance actor associates, says Mr Swales. He sees India as a growth prospect.
“They love theatre, English is the official language, there are 1bn Indians, the economy is growing, there is a pool of talented actors and they like the methodology.”
At the start of Steps’ push into India a couple of years ago, UK Trade & Investment, the trade promotion agency, paid for Mr Swales to go on a course at the Indian Institute of Management in Ahmedabad and invited him on a trade mission to Hyderabad, Pune and Mumbai.
Steps’ expansion into overseas markets has had other benefits, Mr Swales says, because “if you can go to a meeting in London and talk about our range, it helps to enhance the whole company”.