Rising ambition turns the spotlight on exports

The logic seems impeccable: growth is slow at home, so sell more abroad. While the prospects for an export-led recovery of the UK economy depend on companies doing just that, succeeding with such a strategy is far from simple.

“Most companies in the UK responded to the recession far too late,” says Hugh Blackwood, senior vice-president of international operations at URS-Scott Wilson, the engineering consultancy. “They went through a very good five years where everybody was making decent margins. The bubble burst suddenly … then they looked at alternative markets. But that’s the wrong time to do it.”

He continues: “You need a long-term strategy about working internationally, and you hope that by the time the next recession comes, you will be able to weather it a lot better.”

While exports have regained all of the ground lost since the recession, high levels of imports mean trade is still a drain on the UK’s economic growth. The deficit did narrow to £2.4bn in February, from £3.9bn in January, raising hopes that net trade can boost growth over the next four years.

Many argue that exporters should be doing better given the favourable exchange rate – since 2007, sterling has been more than a fifth cheaper than before the crisis – and high growth in some markets, mainly emerging countries. Exports of goods have done well, but services less so.

“To a certain extent we lack faith in ourselves as an exporting nation, and that can undermine our performance,” says Adam Marshall, director of policy at the British Chambers of Commerce. “We need to remember we are the world’s second-largest service exporter, and we are still the ninth-largest manufacturer as well.”

The UK has two specific problems. One is that half its trade is with the relatively slow-growth EU, and a quarter with the rest of the developed world, mainly the US. Trade with fast-growing emerging markets is expanding, but at a slower rate than in some other advanced economies.

The second is that most UK companies, especially small and medium-sized enterprises, do not export: British SMEs export less than the EU average. Much of this comes down to a lack of confidence. According to a BCC survey, three-quarters of non-exporting companies believe their products and services are unsuitable for export.

The UK government has made boosting trade a key objective. David Cameron, prime minister, has led trade missions to India and China, and Lord Green, a former chairman of HSBC, has taken on the role of trade minister, which includes overseeing UK Trade & Investment, the promotion agency.

The government is launching programmes for smaller companies. That includes schemes for export enterprise finance guarantees, working capital, bond support and foreign exchange credit support, though critics say it still leaves less state help than in countries such as Germany and Canada.

If Britain is to take full advantage of emerging markets, it needs more companies with the ambition of ClinTec International, a Glasgow-based business that carries out clinical trials for pharmaceutical companies in 40 countries and acts as a consultant to biotechnology businesses and makers of medical devices.

It was founded by Rabinder Buttar, chief executive, who was born in India but grew up in Scotland. She started the company in Germany and grew it slowly while her children were young. In 2007, she moved back to the UK with the hope of taking ClinTec global, believing an English-speaking country would provide a better base.

The company had a presence in eastern Europe before the big investors got there, has expanded into the Middle East and Africa, and is now targeting Asia-Pacific. Ms Buttar believes its £13m turnover can grow to £50m within three years, trebling its 300 staff. She is pleased with the government’s emphasis on exports, but says “there has to be a whole education about how to get there, how to set up effectively in emerging markets, and how to overcome certain obstacles and risks”.

And while appetite for success is vital, the message from Ms Buttar and other successful exporters is that it also requires patience and time. “It has to be built strongly and slowly,” says Gordon Oliver, finance director at James Halstead, the commercial flooring manufacturer. “You have to be ambitious, but you have to know your limitations.”

In the six months to December, James Halstead’s overseas turnover rose 22.8 per cent on the same period in 2009, compared with just 3.5 per cent in the UK. Overseas sales now make up more than 60 per cent of its total turnover. The weakness of sterling helped, but rising raw materials prices were a hindrance. “Currency helps, but the main things about exporting are products, markets, market research and contacts,” Mr Oliver says, pointing out that James Halstead was growing exports for years when sterling was unhelpfully strong.

He welcomes the renewed emphasis on the commercial help British embassies can offer companies looking to export – it was a trip to a German trade show in 1960 that set the company on the path to exporting in the first place.

The BCC is urging the government to broaden access to trade fairs for UK companies, although that may not be easy when UKTI faces a large cut in its £340m budget.

Yet government backing cannot guarantee success. Stuart Hall, chief finance officer at Pace, a FTSE 250 company that makes television set-top boxes, warns that cracking emerging markets may be hard for some exporters. “The need to understand these markets will be important because it is not just us who are looking at them – Chinese companies are targeting them as well,” he says.

Pace, based in one of the industrial revolution’s greatest textile mills at Saltaire, west Yorkshire, derives just 1 per cent of its revenues from the UK, yet employs 450 of its 2,300 worldwide employers in Britain, mostly engineers. Half of its £21m global tax bill is also paid to the UK exchequer.

Mr Hall believes that, for companies operating across borders, appreciating the differences between markets is key to staying ahead. While Pace has good prospects in India, the market there is less sophisticated than, say, the US – average revenues per user in India is $4 a month, compared with $80 in the US. “You can’t just take a product from America and target India with it,” he says.

Last year, Pace bought 2Wire, a California-based router maker, helping it push into the hybrid internet-enabled pay-TV market. Some analysts fear Pace’s set-top boxes may be superseded by online video providers, but Mr Hall argues the box can evolve to manage all content coming into a home, whether satellite, cable or broadband.

Mr Blackwood at URS-Scott Wilson also warns of growing competition. Consulting engineering is a sector where the UK has a world-class capability, dating back to serving the empire, and companies such as Scott Wilson, which has 6,500 staff around the world, are expanding overseas work as infrastructure business in Britain shrinks. But, he says: “Americans are getting out of their home base more, the Europeans are growing big consultancies and the Chinese are a real threat in the market.”

He adds that exporters are operating in a riskier environment than before, particularly in emerging markets. Scott Wilson recently had to evacuate its staff from Bahrain amid anti-government protests.

Other obstacles cited by exporters include red tape, currency volatility and the danger of falling foul of the new Bribery Act. But if they can overcome these – and have the patience to build sales in new territory – the opportunities are substantial.

Grounded: why companies no longer send UK managers abroad

UK exports are growing, but sending British managers out to run overseas operations is going out of fashion.

“We see less desire from organisations to ship expats round the world,” says Alistair Cox, chief executive of Hays, the recruitment company. “The days when entire senior management layers were always expats have gone.”

Instead, companies with overseas operations are increasingly looking to exploit local knowledge. “We have sent out our own guys in the past, but it doesn’t work,” says Gordon Oliver, finance director at James Halstead, the flooring manufacturer. “They usually don’t speak the language, [which means] they do not fit in with the business community perfectly.”

Global experience is sought after at headquarters too. The chief executive of one large retailer notes that when he calls meetings to plan global expansion, all the executives around the table are British. “We need more international talent,” he says.

Yet for smaller companies, the managerial skills needed to break into emerging markets can be daunting. Wyatt Crowell, head of multinational corporates at Barclays Corporate, says: “There is a tendency to be UK-centric and try to create the old empire again …to say, ‘This is how we do it in the UK – surely it will work even better in Italy or China.’ You have to factor in the regulatory and cultural differences.

“The key thing is to have leaders who can think and act across borders, and then bring some local expertise to bear and let the leaders find the right people on the ground.”

Important, too, is a management structure that blends autonomy with corporate discipline. “We keep corporate control and governance, and yet at the same time keep the organisation pretty flat, which means decisions can be made quickly,” says Stuart Hall, chief finance officer at Pace, the TV set-top box maker.