The contraction in the UK economy through winter 2010/2011 has caused much soul-searching. And while anyone at the coal-face of business would probably agree that, in terms of the anecdotal evidence they were seeing, it wasn’t that much of a ‘shock’ contraction after all, what is certain is that one way forward for many of Britain’s independent businesses lies in exploring just how they can turn the factors making the headlines – a weaker pound, or a boom in outsourcing that they’d previously viewed as a threat – to their own advantage.
“Global trade is vital to the UK,” says David Frost, director-general of the British Chambers of Commerce. His sentiment has long been given lip service by many in government and in business itself, but the current economic climate means that it has now taken on a new urgency. “If we are to retain our place at the economic top table, we must create more goods and services that the rest of the world wants to buy and export more of what we already produce,” says Frost. “The impressive recovery in manufacturing output that we have seen over the past year has not yet been reflected in a major improvement in international trade. We must bring manufacturing back to the heart of the British economy as a driver of growth and wealth creation, and export our way out towards a sustainable recovery.”
“Both business and government are in agreement that exporting more is the key to sustaining a successful recovery,” he says. “So we welcome the appointment of the new trade minister, Stephen Green, who will need to play a critical role in leading trade delegations and helping to open new markets for our exporters.”
But Frost also says that the sustained recovery of UK business in the global market is about more than where you sell. It’s about where you buy. And with whom you partner.
We profile some of the potential happy hunting grounds out there for your enterprise.
United States: According to the Government agency UK Trade & Investment (UKTI), the US, perhaps unsurprisingly given its global economic dominance and the sheer size of its markets, is Britain’s largest single export market. The key goods and services the UK tends to export to the US are engineering, “clean” technology, creative and media (such as Simon Cowell and Piers Morgan, among others), energy and power, financial and professional services, IT, life sciences and ‘homeland security’. The key selling point is the two countries’ shared language and cultural familiarity.
Brazil: The largest country in South America, Brazil has been designated by UKTI as a “high growth market” for UK businesses, with a GDP per head greater than either India or China. The manufacturers’ organisation EEF in January highlighted it (along with China, India and Russia) as a key export market to watch for British firms, with these so-called BRIC nations likely to expand by some six per cent this year. Manufacturing exports to the four countries were up 11 per cent last year, and will rise by a further eight per cent this year, it’s predicted. According to the Brazilian Embassy, the UK is now its eighth biggest principal trading partner in terms in terms of exports, with minerals, fuel and oils, iron and steel, motor vehicles, pharmaceuticals, chemicals and insecticides all key markets. In the first eight months of 2010, Brazilian total imports from the UK increased by 67 per cent year-on-year it added.
Germany: Germany is the UK’s largest European export market, according to UKTI (and number two overall after the US), with annual export sales of more than €2 trillion in goods and services. Key export markets include vehicles and automotive components, petroleum and gas, healthcare, aerospace, technology, chemicals and the creative industries. A good example of the sort of firms expanding into what is now one of the most important (and economically one of the healthiest) European markets, is engineering firm Re-Ball, based in Hinckley, Leicestershire. The company was in January voted UKTI’s “new exporter of the year” after landing a €1.7 million contract to supply a German food packaging company, having, from a standing start in 2008, managed to break into markets in Poland and Italy, too.
India: In January business secretary Vince Cable led a delegation of 50 British companies to India in a high-profile endorsement of its importance as a UK export market. According to UKTI, bilateral trade with India is currently worth around £11.5 billion, with exports growing steadily, and in fact up 35 per cent just since October. The strong Indian community in the UK, the wide use of English in India and the increasingly sophisticated, advanced and diverse markets all make it an attractive destination for UK exporters.
Ireland: China may be seen by many as the key export market for the UK in the future but, in fact, Ireland remains a much bigger export destination, although the full effect of its recent economic woes on its appetite for goods from the UK remains to be fully seen. According to UKTI, the UK exports more to the Republic of Ireland than it does to
China, Brazil, Russia and India combined. Key sectors are food and drink, which is the UK’s largest export market, transport, healthcare, energy, construction (though this has been hit hard of late by Ireland’s economic collapse) and the environment.
Russia: Figures from the Office for National Statistics in January calculated that UK goods exports rose by 4.1 per cent to £23.6 billion in October, the highest total since records began in 1980. Although the European Union was a key driver of this growth, Russia was also emerging as an ever-more important player, it argued, with cars now a key export. UKTI has calculated that the country was the UK’s 23rd largest export market in 2009 – with a market worth £2.3 billion – with UK- Russian trade increasing 21 per cent year-on-year since 2001.
China: David Cameron and Li Keqiang, China’s vice-premier, agreed trade deals in January between the two countries worth £2.6 billion, in a move described by Downing Street at the time as an “important step-change” in Britain’s trade relationship with one of the world’s fastest-growing economies. With an annual GDP growth rate of more than 10 per cent (fuelling some fears that it risks over-heating), the Chinese economy has been one of the success stories of the past 30 years. Again, historic links – particularly around the relationship with Hong Kong – have strengthened links, although for many UK businesses, culture and language remain key obstacles that have to be overcome in opening up markets here. As David Frost, director-general of the British Chambers of Commerce, emphasises: “British companies must become more adept at selling their goods abroad – not just in Europe, but into high-growth developing markets such as India, China and Brazil.”
Buying
When buying for your business, overseas markets could provide the best solution for your goods and outsourcing services:
Ireland: During the boom years Ireland successfully created a reputation for high-quality outsourcing of, in particular, software support and back-office financial services. The common language, EU membership, educated and skilled workforce as well as government incentives and a favourable corporation tax regime all helped to boost its credentials with UK businesses. Despite the collapse of the Celtic Tiger, the country still remains an attractive destination for many UK firms, with its economic woes sometimes even meaning that there is the potential for more competitive terms to be negotiated.
France: Geographically, of course, the UK’s closest neighbour, France accounted for £20 million of imports into Britain last year, according to HMRC. Food and wine are probably the most familiar, but France is also a key exporter to the UK of machinery, motor vehicles, aircraft, plastics, chemicals, pharmaceutical products and iron and steel.
The Netherlands: Its geographical closeness, light-touch regulatory and legal framework, good transport links, widely spoken English and historical links have all long made the Netherlands both a key import and export partner for the UK. Last year, UK firms imported some £21 billion of goods from Dutch businesses, with agricultural goods and food (especially cheese) and flowers being key markets, although ‘green’ and wind energy is also a growing Dutch speciality, as is technology generally and life sciences, among others.
Mexico: Whereas 20 or 30 years ago Mexico would have been considered as somewhere you simply went to for, at best, low-cost labour, now it is increasingly emerging as a place where hi-tech businesses such as medical devices, automotive and even aerospace can do well, argues John T Cecilia, senior consultant with outsourcing consultancy Neal and Associates Business Consultants. “The skills base in Mexico has improved markedly since the mid-1990s. A lot of precision and specialist manufacturing firms have been moving there,” he explains. It is a key market, naturally enough, for nearby US firms. The fact that it is specialising in relatively global technologies makes it an outsourcing destination growing in importance for European and UK businesses, too, with UKTI, for one, predicting its economy will be larger than the UK’s by 2040. It was one of the key Latin American economies to watch, cited by Gartner, along with Colombia, Peru and Panama, Chile, Costa Rica and Argentina.
Germany: According to HMRC, Germany is the biggest supplier of goods to the UK, although EU countries generally account for seven of the top 10 importers. UK firms snapped up some £39 billion of German-made goods last year, with food, drinks and tobacco among the major non-manufactured goods and other key markets being machinery and transport equipment, chemicals, fuels, clothing and footwear, it said.
United States: The biggest exporter to the UK outside Europe – the US State Department estimates that the value of US goods and services sold to the UK totalled more than $99 billion in 2009. Apart from the ubiquitous cultural imports on our TV screens, in cinemas and on our airwaves, key imports from the US are fuels, chemicals, food, drinks and tobacco.
China: British firms bought goods from China worth £23 billion last year, according to HMRC, and it is one of the UK’s fastest-growing import markets, even though the downturn has, in the short-term, dampened demand generally for imports. Its main exports to the UK tend to be electrical or mechanical equipment, clothing and footwear, toys and furniture, followed by plastics and iron or steel goods. China is reckoned by Gartner to be the most likely challenger to India in the long term, simply because of its size, population and “potential scale”. Last summer, a poll of 280 senior executives across Asia by KPMG suggested that China had already replaced India as the primary destination for shared services and outsourced activities within Asia-Pacific companies. Key activities include the manufacture of automotive parts, warehousing and distribution for the South East Asia region and beyond, back-office financial services (on the back of financial hubs such as Hong Kong) and IT, software and technology.
Poland: Consultancy firm McKinsey a few years back predicted that Poland, and Eastern Europe in general, would grow exponentially in importance when it came to outsourcing, particularly in BPO, IT and technology – and it wasn’t wrong. Geographical closeness, widespread use of English, low wages, membership of the EU and a well-educated and motivated workforce have made Poland an increasingly attractive place to outsource. Other popular destinations for outsourcing in the region include the Czech Republic, Hungary, Romania, Slovakia, Russia and the Ukraine.
Kenya: Four years ago, the Kenyan government unveiled a ‘Vision 2030’ plan that included ambitious plans to make the country an outsourcing ‘hub’ to rival established players such as India and the Philippines, focused particularly around traditional call-centre and IT-based outsourcing activities. Up until 2009 this ambition was somewhat constrained by the fact that east Africa remained one of the few areas of the globe not connected by internet cable, with firms having to rely instead on costly satellite links. However, the installation of two fibre-optic data cables in that year has given the country far greater potential for providing business services.
India: Still the ‘daddy’ of outsourcing, India accounts for around 63 per cent of the world’s offshore outsourcing, and was top of analyst Gartner’s 2010/11 list of countries for globally sourced activities. With a well-educated, and technically specialised workforce, its key activities include back-office financial services, IT, web support and call centres. But it has also been expanding into areas like, legal services, drug development and even film editing.
Get help with trading
In a recent survey of more than 500 businesses, conducted on behalf of the Bank, it was found that more than two thirds believe businesses are put off exporting by the perceived complexity and risk (particularly outside of Europe and North America). In addition, more than half were receptive to free advice, and 64 per cent felt that the banking sector could do more to educate businesses. As a result, NatWest has launched a new International Trade Hotline and free online training tools aimed at simplifying the trading process, providing useful information and giving businesses the tools they need to do business overseas.
Helping you trade
Call RBS’s International Trade Hotline on 0845 603 9387 (Typetalk 18001 0800 138 4419) or use our online training.