Glass half full…

Posted on 11 May 2010 by The Manufacturer

EEF's Steve Radley says firms must look further afield if export growth is to be sustained...

This year there has been a lot of talk about the need to rebalance our economy with exports playing a greater role. But until recently, the evidence suggested our hopes would not be realised; official statistics had shown trade making a minimal and sometimes negative contribution to growth.

EEF’s last quarterly survey suggested that this might be about to change, however, with a large increase in the number of manufacturers expecting export orders to increase in the coming months. But can this be sustained?

Our research shows some reasons for optimism, but only if manufacturers and policy makers play their full part. The starting point is a positive one: despite the worst downturn in world trade since the 1970s, a third of manufacturers reported an increase in exports over the previous 12 months.

Looking ahead to the recovery, nearly three in five firms expect sales to increase in the next 12 months and over the longer-term four in five are seeking to expand their presence in export markets.

But the make-up of our export markets will need to change. Currently, half our exports are destined for eurozone markets. And many firms are not expecting this to change significantly in the near future. Companies that expect to see sales increase mainly see this coming from established markets such as the eurozone and North America rather than emerging economies. However, many of these markets are likely to experience slow growth in the coming years, increasing the importance to UK manufacturers of looking beyond them if we are to see a sustained export-led recovery. For this to happen, manufacturers, government and finance providers all have an important role to carry out.

Over the last decade, the UK has retained its position as one of the world’s largest manufacturers in the world on the back of an increasing focus on quality, high-value goods and services and the creation of niche markets and products. Exports to fast-growing emerging markets have grown rapidly in recent years, outperforming other markets
as manufacturing has moved out of recession.

However, the recent recession must be a catalyst for companies to extend their reach into global markets and to develop long-term strategies to achieve this. This includes remaining open and responsive to the opportunities that will come as emerging economies continue to industrialise, and working with policymakers to promote the UK’s
considerable strengths in these markets.

In addition, manufacturers should take advantage of all available channels of information, guidance and brokerage. Exploiting new opportunities can be challenging, but the right information and intervention will help companies to succeed. And it is therefore important that the new government ensures that this support is available. Our research shows that UK Trade and Investment services have delivered tangible benefits for experienced exporters as well as for companies that are new to exporting.

Capital punishment?

The next Spending Review will be a tough one, but it must provide both sufficient resources for export services which match companies’ ambitions and the support they need to make further inroads into export markets, particularly the more difficult emerging ones. But, at the same time, we need to see an increased focus on value for money. In
particular, moving to national sector strategies rather than a regional approach will help to address much of the current duplication and waste.

Finally, the villains of the last recession have an important role to play. In the recovery there must be closer cooperation between manufacturing and the financial sector if exporters are to access the finance and other financial products that allow them to invest and minimise some of the risks of operating in international markets. The need for finance for working capital will continue to grow as demand returns, and it is vital that banks and manufacturers communicate and work together to ensure that opportunities are not missed because of a lack of finance.

Companies also face significant risks from volatile exchange rates. A shortage of foreign exchange management options can pose a considerable threat to profitability and dissuade companies from entering new markets. Banks must work with exporters to make sure there is a wellfunctioning market for foreign exchange products and tools that cater for a broader range of exporters – not just the largest.

An export-led recovery can be achieved, but only if manufacturers, government and the finance sector all pull in the same direction.

Steve Radley, director of policy, EEF