New Santander research shows how seriously the pandemic and Brexit are affecting the UK’s manufacturing sector, but firms remain optimistic about the future and are looking to international markets for growth.
UK manufacturing is currently facing unprecedented challenges. These range from depressed domestic and global demand and international supply chain disruption caused by the Coronavirus pandemic, to ongoing uncertainty over Brexit and Britain’s future trading relationships, not just with members of the European Union (EU) but with other economies around the world.
New research from Santander suggests manufacturers remain positive about the future and that they see international growth opportunities as the most likely route out of their current challenges.
The latest edition of the Santander Trade Barometer shows that manufacturers have been hit particularly hard by the pandemic:
- 42% of companies in the manufacturing sector say their business performance has declined in the past 12 months compared with 35% of firms across the UK economy as a whole
- Only 22% say their performance has improved
Brexit is also a significant area of concern for manufacturers as the end of the transition period on 31 December approaches. Businesses in the sector are particularly worried about the tariffs they may face, both on goods they sell into the EU and on the components they import from suppliers.
- 84% say they expect new customs arrangements to increase costs
- 74% think that producing rules of origin certification will be problematic Despite these headwinds there’s optimism about the medium to long term:
- More than half of manufacturing businesses (54%) are confident they will grow in the next three years
- A clear majority believe the pandemic (73%) and Brexit resolution (67%) will have a significant impact on their success between now and 2023
Santander’s research makes it clear that manufacturers are more likely than businesses in other parts of the economy to see overseas markets as potential sources of this future growth:
- Almost a third of manufacturers (30%), and a quarter of the general business population (26%), say trading internationally is now more important as a result of Coronavirus Meanwhile, manufacturers are more likely to see growth opportunities outside Europe than other businesses:
- 30% of manufacturing firms expect to expand their EU-based operations in the year ahead
- 35% foresee growth in North America over the next 12 months
- 22% foresee growth in the Greater China region over the next 12 months
Clearly, for companies of all kinds, not just those in the manufacturing sector, increased international trade offers a route out of the current economic and operational difficulties.
Diversifying into new markets can help British firms reduce their reliance on the domestic economy, while providing access to millions of new potential customers.
But trading overseas comes with a number of challenges. The latest edition of the Santander Trade Barometer has identified the key obstacles that manufacturers are concerned about when it comes to international growth. Given the rapidly approaching deadline, Brexit and related regulatory changes are chief among these hurdles, cited by 50% of manufacturers as potential stumbling blocks.
However, 43% say another key issue is bureaucracy in general, ranging from handling export documentation and complying with product regulations to dealing with employment law and tax legislation in target markets. Furthermore, almost a third (28%) say they struggle to find trustworthy partners on the international stage such as distributors, agents or suppliers.
Meanwhile, the travel restrictions that have resulted from the Coronavirus pandemic have created further difficulties. Business leaders who wish to trade in new territories can no longer jump on a plane to take part in trade events or visit potential customers or suppliers. Indeed, 40% of manufacturers see this as a problem.
Helping businesses succeed
At Santander, our focus right now is on helping businesses deal with their current challenges while also supporting their efforts to identify and take advantage of new opportunities.
Through our team of international specialists and their deep local contacts across multiple international markets we can help businesses find new sales channels and routes to market as well as connecting buyers and sellers directly across markets in both the EU and outside through the Trade Club Alliance. We can also support business to manage the complex legal, regulatory and compliance requirements due to our expertise, knowledge and partnerships with export compliance experts.
It’s anticipated that the number of customs declarations post-Brexit will increase annually by 200 million. Businesses that have only ever traded in Europe will now need to complete customs documentation for the first time and understand regulatory requirements such as rules of origin, third country rules, Incoterms and health certification. At Santander we work with an international trade specialist who can provide guidance on how business should prepare for the key elements of international trade.
And as a result of the pandemic, we’ve introduced a new programme of virtual trade events, enabling UK businesses to meet potential customers, suppliers and partners in locations ranging from France and Spain to South America, the Middle East and China. Certainly, the pandemic and ongoing Brexit uncertainty aren’t making it any easier to operate across borders, but with Santander’s help UK manufacturers can overcome these difficulties and find vital new growth opportunities.