Ethical Trading Leads to Business Success

Posted on 5 Dec 2011 by Tim Brown

On November 10, David Cameron announced that increasing the number of SMEs that sell overseas by 100,000 has the potential to add £30 billion to the UK economy. But how do small and medium sized manufacturers widen their horizons beyond Europe and the US at a time when the UK’s combined trade with India and China is still less than with Republic of Ireland? David Seall, Strategic Adviser, Manufacturing at DMH Stallard law firm may have some of the answers having just co-authored a report on ‘Business Ethics and Compliance.’

It seems that not a day goes by without another story emerging about corporate misdemeanour – yet in talking to manufacturers to produce our report into corporate ethics and compliance, it became clear that many businesses are now using ethical trading as a competitive advantage.

It’s certainly true that the ethical challenges we face are expanding. As a nation we are currently attempting to “rebalance our economy” by investing in our manufacturing and engineering sector and as part of this, the government is encouraging our businesses – notably manufacturers – to export more. This trade will not just be with our existing customers in the USA and Western Europe, but with the BRIC (Brazil, Russia India and China) and emerging CIVETS countries too (Columbia, Indonesia, Vietnam, Egypt, Turkey and South Africa).

What sets this opportunity into context is the realisation that the proportion of the UK’s total exports to the BRIC nations is a paltry 5% and that our total trade to India and China combined is still less than our trade with the Republic of Ireland.

So the potential is huge, but tapping into these markets does not come without challenges for smaller companies, particularly when trading in countries that have a business culture far removed from what we might consider the conventional way of doing business. Multi-nationals have much more market muscle to effect change around the issues of ethical trading and compliance, but it’s more difficult for smaller companies to overcome the barriers to trading, particularly in countries where issues of bribery and corruption persist.

Certainly the interviewees who contributed to this report feel there is a role for government in supporting manufacturing business as they seek to expand their horizons. Others felt that that main contractors could also provide some collaborative support in ensuring an equitable approach to doing business.

However, the most successful of the smaller manufacturers said that working with local partners in each country was the most productive way forward – rather than attempting to “export UK culture” – and this involved taking very much a  “hands on” approach, with shared visits to customers in the country concerned and an audit of activities. Many had moved away from using individual agents to commercial partners who they could work with to improve business plans, provide training and even necessary investment. They view these partners as their “eyes and ears”, stressing the need to uphold their values or else run the risk of the cessation of the relationship.

What’s clear from this research is that UK manufacturing is moving fast towards a future characterised by the rigorous application of boardroom governance, the signing of ‘Honour Codes’ by employees and an increasing focus on upholding corporate values and principles throughout the supply chain.

It is true that some interviewees expressed the opinion that the UK was trying to out-do the whole world in ethical trading – for example by out-lawing practices still commonplace elsewhere, such as facilitation payments to public officials – but the most prevalent underlying theme by far was that the vast majority preferred to do business in a way that matched their principles, notably in the way they delivered their contracts and the way they interacted with local communities. In other words, it’s about how companies define their business values, communicate them and uphold them. It’s about how companies, particularly manufacturing and engineering businesses, meet the challenges of foreign trade.

From a UK perspective, it is vital that we help SMEs export beyond Europe and theUSbecause the opportunities are huge – the worry is that we are competing against other countries, particularlyUSA,Germany,FranceandJapanthat are already some way ahead of us in addressing the enormous potential for growth.

To help manufacturers address the issues surrounding ethical trading, particularly in relation to working in new territories, we have included within the report a 10-step guide to embracing business compliance and ethics. The guide covers policies and procedures, advice and guidance, training, corporate responsibility and staff consultations, the role of overseas agents and corporate social responsibility…and provides a ready checklist of activities that can help manufacturers meet – and go beyond – their statutory obligations while enhancing their competitive position.

The report – and the 10 –step guide – can be downloaded via�”rn�P�eir “eyes and ears”, stressing the need to uphold their values or else run the risk of the cessation of the relationship.