Global leaders in trade and receivables finance at HSBC mark the start of Export Week with some clear cut challenges to Western manufacturers looking for growth.
From May 13-17 UK Trade and Investment is hosting events nationwide which celebrate British companies which have successfully internationalised, exporting products and services around the globe. The events are designed to inspire others to follow the road to globalised business and improve understanding of the business requirements behind export excellence.
The bank HSBC is closely involved in promoting Export Week and yesterday it invited industry press representatives to meet with global and regional leaders of its trade and receivables finance (GTRF) business to improve understanding of its approach to helping businesses internationalise and to promoting “global connectivity”.
Steve Box, regional head of GTRF for Europe explained: “Growing exports is not just about supporting financial transactions or offering finance packages. Those are important. But we see the need to educate business leaders, support connectivity and communicate success stories as equally important.”
And why is it so essential to increase exports? Yesterday’s discussion with press representatives threw out some statistics which made it abundantly clear why – and with what urgency.
“By 2050, there will be an extra £3 billion new middle class individuals around the globe – mostly in emerging markets. That’s about forty per cent of today’s global population,” commented James Emmet, Global head of GTRF at HSBC. “In the next five years the number of middles class individuals to appear in China will exceed the UK population today.”
Simon Constantinides, regional head of GTRF for Asia Pacific picked up the narrative. “There are already more millionaires in China than there are in the US. There is no doubt that economic power is shifting away from the West and towards emerging markets. But this shift of power, while daunting, creates some amazing opportunities for Western businesses and governments who recognise the opportunities that that the swelling populous and wealth in emerging markets represents in terms of demand for infrastructure and consumer products.”
Emerging markets, HSBC’s GTRF leaders agreed, are no longer export driven powerhouses for low cost production. Instead they are hungry importers. Mr Constantinides says that by 2016 China will be the world’s largest two way trade market, and that already its largest export market is not cheap apparel and footwear – as many still assume – but industrial machinery, which it is selling in swathes to other rapid growth markets.
And it is this trend for emerging market to emerging market trade which perhaps presents the biggest challenge – and potential threat – to Western businesses who are slow to supply new importers today said Mr Emmet, calling on evidence from Tim Evans, regional head of GTRF for the Middle East and North Africa.
Shifting trade routes and new loyalties
Mr Evans confirmed, “the Middle East is becoming a hub for bypassing traditional Western business hubs. Whenever I fly to Asia the plane is now full of Brazilian businessmen and when I come back it is full of Chinese on their way to Latin America. Sometimes these business people are simply keen to avoid US customs, but often they also chose different national carriers and routes on the basis of ease of travel and directness. You can fly from Beijing to Sao Paolo with an hour’s stop in the Middle East – other traditional hubs require three or four hours stop.”
As trade routes shift, new global cultural and business alliances are being founded says Evans. “The Middle East has always thrived on exporting oil and gas and its petrochemical derivatives and import almost everything else. This means that key export markets are the most power hungry – China, India, Korea.”
These countries buy oil from the Middle East in American dollars. But Evans said that long standing trade agreements of this nature are now beginning to develop a set of quid pro quos. “Middle Eastern governments are investing heavily in infrastructure in the wake of the Arab Spring as a means to placate a very young and energetic populous. This is leading to China demanding some reciprocity for its willingness to buy oil in dollars. Consequently there has been a rapid increase in the use of Chinese contractors in Middle Eastern infrastructure engineering and construction.”
Such new alliances and shifts in power must serve as a wakeup call to Western businesses which are perhaps resting on the laurels of a historical reputation which may no longer be unique or relevant to a changed global marketplace.
“I never hear Chinese businesses singing the praises of English engineering and equipment,” says Constantinides. “If they talk of European excellence they talk of Germany.”
And what of innovation? Also often held up as a British USP in engineering and manufacturing. Talk among HSBC’s leaders seemed to suggest South East Asia is the new global hub for rapid, targeted and competitive innovation in fields from electronics to garments.
Britain’s place in the new world order
But all is not lost insists Mr Box. “HSBC forecasts growth of sixty per cent in its UK business alone by 2026. There are fantastic examples of businesses which have already mobilised internationally and are reaping the benefits.”
“In part this is because internationalisation of business is also met with a global trend for manufacturing localism and we are seeing some manufacturing move back to the UK. But in many markets it is also because there is significant brand power for UK products. Brazil for example has very few of its own brands but has a growing middle class which wants products and a lifestyle which show status.”
Box went on to emphasize that the biggest challenge for many UK companies in accessing international opportunities was lack of education.
“Knowing how and where to make connections and understanding how the needs of a globalised business differ to a purely domestic one is extremely important,” he commented.
“Our trade and receivables finance work is in fact a lot less about managing transactions, and more about making introductions and managing risk.
“In order to do that effectively we need to help businesses who are venturing into international markets for the first time to understand the issues around transacting across borders. What are the nuances of regulation? How does currency exchange effect business? How do I stop giving personal guarantees and de-risk so that funding discussions are less about balance sheet and more about risk mitigation and supporting international cash flow?”
These education issues are not only applicable to small firms stated Box. “I hosted a Global Connection event in Singapore recently at which a senior representative from a UK company with a turnover of circa £15 million had the courage to admit they did not know what a letter of credit is.”
Collaboration with banks and government is key to overcoming such ignorance effectively says Box who is keen to promote HSBC’s drive for a “whole economy” approach to growth in which expertise and influence are shared efficiently between government, service sector and industry to create a robust “growth package”.