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1 September 2012

Winning overseas: boosting business export performance

Tag(s): Business

Ever since I was an exchange student on the American Field Service programme living and studying in Minnesota in 1967-8 I have had a deep awareness of international affairs. The programme did not just expose me to the challenge of adapting to living with an American family and studying at an American High School, but also to the 3,080 other exchange students coming from 60 countries. At the end of our year we left our host families and took a three week bus tour visiting several other communities and finishing with a huge assembly in Washington DC. My bus had 40 students from 23 different nationalities and I have remained friends with some of the people I met that year to this date.

I took this international outlook into business and in my 20s started doing business overseas first for Mars and then for most of my subsequent employers. All in all I have transacted business in over 50 countries. It was with that background that some 6 or 7 years ago I applied for the position of Chief Executive of United Kingdom Trade & Industry (UKTI), the nation’s agency for encouraging both inward investment and export performance. I was shortlisted for the role and attended final interviews in Whitehall with the Permanent Secretaries of both the Department for Trade and Industry (DTI now BIS) and the Foreign and Commonwealth Office (FCO) which share oversight of UKTI.

The brief for the job was to find someone who both had strong international business experience and also knew his way around Whitehall. I felt my credentials on the first point were good but were probably less convincing on the second. And so it proved. I came second and the job went to someone who certainly did know his way around Whitehall including a spell in the Cabinet office, but his business experience was considerably less than mine, its highlight being a stint as a lobbyist for a recently privatised state enterprise.

The UK is a major trading nation. Our history is a story of developing trade routes and investing in overseas markets. We can claim important economic and cultural connections across the world and we have successfully exported our language to a third of the global population. We lead the world in advocating open markets and free trade, championing the removal of trade barriers as key to unlocking global growth and rising prosperity.

It is therefore sad to relate that the UK’s share of global exports has declined sharply over the last decade, from 5.3% in 2000 to 4.1% in 2010 - accelerating a longer term trend that can be traced back to the 1950s. Some might like to blame this recent fall in share on the emergence of the BRIC economies but over the same period Germany grew its share of global exports from 8.9% to 9.3%. It is more likely that British companies have missed out on the opportunities presented by globalisation or are just unable to compete on an equal footing.

This decline is particularly acute in manufactured goods, where our share of global goods exports fell from 4.4% to 3.1% in the period from 2000 to 2010, a growth rate of only 1% pa compared with 5% in Germany and 3% in the US. Our service exports have maintained good growth with an average annual growth rate of 4.6% in the last decade, but even here Germany and Sweden outperform the UK.

During most of this period the conventional view was that the British economy was performing well with constant annual growth in GDP until the banking crisis of 2007-8. But the reality is that this growth was fuelled by consumer debt and increased government borrowing and spending. We were losing global market share and our balance of trade was deteriorating. Even our position outside the Euro, where for much of that period the pound was gradually sliding in relative value against its major trading partners, did not seem to help very much. Now the Euro is weak and sterling has strengthened, apparently seen by some investors as a ‘safe haven’, so UK industry may find it even more difficult to gain share.

So what’s to be done?

In a document “Winning overseas: boosting business export performance” published in November 2011[i]the CBI, with the support of Ernst & Young, proposes a five point plan:

1.       Government must set a high bar for export performance to be met through a national exports strategy

2.       Government must provide the right policy framework to boost businesses’ export capability

3.       UKTI must inject greater commercial focus into its operations to better support UK business

4.       CBI will take the lead in supporting UK businesses entering new markets

5.       Business and government must work together to increase the availability of export finance

I served on the National Council of the CBI back in the 1990s when Britain’s export performance was much better. It is interesting to note that a private sector organisation like the CBI places such responsibility on the Government. In the arid debate between right and left on such public policy issues the myth is that business wants to be left alone to get on with things. This is apparently the free market dogma. But very few businessmen I know believe in entirely free markets.  Indeed, arguably the only free markets are the illegal ones i.e. those that are not regulated, like legitimate markets, but criminalised. The CBI knows that every country in the world is seeking to compete and all governments have to participate in the process. David Cameron made much of his trip to China in November 2010 which reportedly drummed up £1.4 billion of trade deals. But in the same month President Sarkozy also headed a trade delegation to China securing 15 billion in new deals. Chancellor Merkel has made four visits to China in five years winning 5 billion in new deals on her last trip.

The report makes the important point that encouraging inward investment is vital to boost export. This may seem counter-intuitive but there is a proven link between the two. If overseas companies can be encouraged to invest in the UK it is likely that they will then export within the UK’s free trade areas of the EU and beyond. Further, the larger players will encourage their supply chains to do the same.  This is why it makes sense for UKTI to be a single body as it addresses both ends of the same equation.

However, the UK has declined in attractiveness to inward investors over the last decade on a number of counts. A CBI/Ipsos MORI survey of 121 senior leaders in FTSE 100 and 250 companies and large overseas firms in the UK found that the UK was seen as more attractive to invest in only a handful of areas including historical legacy of that particular business, good labour relations, flexibility of work practices and critical mass of other businesses in your sector. However, declines were perceived in a host of areas including quality of life (7%), availability of trained/skilled workforce (11%), political and economic stability (16%), infrastructure (16%), exchange rate risk (20%), ability to attract internationally mobile key staff (23%), availability of land/planning restrictions (32%), availability of grants/loans (36%), business taxation levels (51%), nature/level of regulation (69%),and personal taxation levels (84%).

Thus we can see the real legacy of the Blair/Brown years. Business, both UK and International, sees the UK as overtaxed, over-regulated and lacking in infrastructure and skilled workforce. If it is already based here and has developed a good workforce and strong business links it may stay. But if it is looking around for the best place to come it is unlikely to settle in the UK. To address this requires a more competitive tax regime, the stimulation of new markets and a transformation of the core physical, regulatory and human capital infrastructure.

Because of my personal experience I was particularly interested in the report’s findings on UKTI. It states “UKTI must inject greater commercial focus into its operations to better support UK business.” It points out that “at present …UKTI has a lack of business representation at its most senior level: six out of eight positions on the executive team are held by career civil servants. Research commissioned by the World Bank has shown that trade agencies with a higher proportion of business input operate more effectively[ii]. Government must work to redress this balance.”

To be fair it looks as though they have been listening because there have been a number of changes at UKTI.  There is a new CEO in place whose background is as a career civil servant including assignments as a UK ambassador but my sources rate him highly. The rest of his six person Executive team is largely drawn from business with experience with a number of SMEs as well as BP, Cisco and Ernst & Young among others.

When I applied for the job I wrote “I am a strong believer in international trade and investment as a means of improving prosperity and would relish the challenge of leading the national effort to maximise the United Kingdom’s share of that.”

I hope they feel the same.

[i]Winning overseas: boosting business export performance CBI in association with Ernst & Young 2011

[ii]Export Promotion Agencies: What works and what doesn’t”  Daniel Lederman, Marcelo Olarreaga and Lucy Payton World Bank Research paper 2007

Copyright David C Pearson 2012 All rights reserved


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