Memorandum submitted by British Chambers
of Commerce
1. SUMMARY
1.1 The British Chambers of Commerce (BCC)
believes that British exporters have an important role to play
in helping the UK recover from the recession. While the banking
and financial services sector had been lauded as the key driver
for economic growth and wealth creation for a decade, it is unlikely
that this will remain the case in the coming years. The UK will
have to create innovative goods and services that the rest of
the world wishes to buy if it is to remain one of the world's
largest economies. International trade is also a driver of wealth
creation, efficiency and employment for the UK and we therefore
need to effectively support British exporters and pursue policies
that encourage trade.
1.2 British exporters have a strong base
upon which to build. The UK has a tradition as one of the great
trading nations, and a large part of its wealth has been based
upon international trade. The UK is still the seventh largest
exporter and fifth largest importer of merchandise in the world,
while British service exports have grown in recent years.
1.3 While exports from the UK are worth
around £370 billion a year, the UK's trade deficit has
been growing for a number of years. The trade deficit of goods
and services combined amounts to some £4 billion every
month, while the deficit in visible traded goods stands at around
£7 billion. Although the UK has often operated a trade
deficit during the last fifty years, today's deficit is larger,
and growing.
1.4 The UK must reverse this trend. As a
nation, we are entering gloomier economic times, and trade will
need to make a stronger contribution to the UK economy in the
coming years. It is therefore vital that British goods and service
exports are properly and effectively promoted abroad, and that
current and would-be exporters are firmly supported.
1.5 All too often, the Government's trade
promotion policy stands in the way of exporters, while banks and
insurers have withdrawn many valuable services since the recession
began. If exporting is to help the UK out of the recession, these
issues must be addressed. The Government also needs to ensure
a positive conclusion to the Doha round of the World Trade Organisation
negotiations, which will liberalise trade in both goods and services.
2. ABOUT THE
BRITISH CHAMBERS
OF COMMERCE
2.1 The British Chambers of Commerce (BCC)
represents over 100,000 businesses of varying sizes and sectors
which, when combined, in total employ around five million people.
Part of the role of the BCC is to help create the right environment
for UK businesses to thrive. It is our job to work with the Government
to deliver the right policy framework in which UK businesses are
able to grow at home and compete internationally.
2.2 The BCC and its member Chambers across
the UK are some of the most important actors on the international
trade stage. All businesses who export will have some contact
with their local Chamber of Commerce at some point in the exporting
process. The BCC itself delivers schemes for UK Trade and Investment
(UKTI), which aim help companies market and communicate abroad
effectively. The Chamber Network also provides export documentation
such as certificates of origin, while they also have expertise
in international trade which helps potential exporters identify
trading partners and navigate the difficult waters of new markets.
Many Chambers also organise trade missions and other activities
which place British companies at the heart of business opportunities.
2.3 The BCC sits within a global network
of Chambers of Commerce across the world, and we have contacts
with many of our sister organisations in different countries.
We are part of the ultimate business network.
3. EXPORTS AND
THE ECONOMIC
DOWNTURN
3.1 Evidence strongly shows that foreign
trade has seriously slowed during the past 12 months. This
can be seen in export figures both within the EU and to the rest
of the world. This is due to the global economic downturn and
banking crisis. A loss of confidence and lack of available credit
has in turn precipitated a serious drop in demand from nearly
all economic sectors around the globe.
3.2 The BCC's own Quarterly Economic Survey
clearly illustrates the drop in British exports. The new balance
for manufacturing export orders plummeted to—28% in the
first quarter of 2009, from—19% in quarter four 2008. The
quarter one export balance is the lowest on record since the third
quarter of 1998. The service sectors exports were also very low
by historical standards.
4. EXCHANGE RATE
4.1 The fall in Sterling's value against
many of the other major currencies should theoretically benefit
British exporters as the relative cost of their goods would be
reduced in foreign markets. During the past decade, British exporters
have suffered from the relatively high value of Sterling against
the Euro and US Dollar. However, we have not yet seen the positive
impact of the fall in Sterling. Although British goods and services
are now relatively cheaper in many markets, demand has fallen
globally so that exporters have not seen the benefits of this.
4.2 The low exchange rate also presents
problems for UK exporters, especially manufacturers, who have
found that the cost of importing raw materials has increased considerably
with the fall in the value of Sterling. This has impacted upon
the already hard-pressed cashflows of SME businesses.
4.3 The twin effects of falling demand with
trading partners and the increased cost of imports mean that the
full benefits of the currency depreciation will not be experienced
in the immediate future. Further to this, historically, depreciation
of the currency has led to exporters raising their Sterling prices
in the short-term to boost profits; and, it inevitably takes time
for exporters, or potential exporters, to identify opportunity
and exploit them.
4.4 For effective trade, business needs
a stable and competitive exchange rate over a protracted period
of time. Without this, British exports will never achieve their
full potential.
5. UK TRADE AND
INVESTMENT
5.1 Government trade promotion policy
5.1.1 Both UK Government policy and the
services that UKTI can potentially offer are central to restoring
British exports. UKTI currently offers a number of services that
both current and would-be exporters find invaluable. For example,
the Export Market Research Scheme and the Export Communications
Review, which are run by the BCC, have both been successful in
helping businesses understand the potential markets that they
can sell to. Likewise, Passport to Export has helped many small
firms sell abroad, many of whom would otherwise have remained
only in the domestic market.
5.1.2 Despite these positive contributions
to British exports, Government policy and UKTI's work often are
contrary to the success of British exporting companies. These
issues must be addressed if exporting is to achieve its full potential
to raise national wealth.
Inward Investment versus Export Promotion
5.1.3 Government policy for trade and investment
has focused on inward investment at the expense of trade. Work
on inward investment currently accounts for 30% of UKTI's time
and resource. When he was Minister for Trade and Investment, Lord
Jones claimed that a high volume of investment into the UK, and
a consequential number of jobs, had been created on account of
UKTI's work. However, many of the successes that UKTI claims as
its own are more related to the UK's liberal economic, regulatory
and employment regime than any specific input from Government
agencies. The £70 million budget for inward investment
promotion is therefore excessive, and would have been better spent
on supporting exporters. In any case, the budget for attracting
inward investment should never have been allowed to encroach on
that for export promotion.
BRIC countries and other "emerging markets"
5.1.4 Government trade policy is currently
focused on promoting exports to Brazil, India, China and India
(The BRIC countries) and a number of other emerging markets. These
are indeed growing markets, and help for exporters here is welcome.
However, these are generally hard markets to break into for British
SME exporters, many of whom will find it easier to export to more
familiar and less risky markets in North America and the European
Union. At present, some 70% of trade takes place with these areas,
and yet UKTI has directed resource away from trade promotion in
these areas to fund more work in BRIC countries. It is undeniable
that there are good opportunities for business in emerging markets,
but as UKTI focuses much of its work on helping on first time
SME exporters, we question why so much resource has been taken
away from easier markets for companies who are fresh to international
trade. Emerging markets are often beset with legal problems and
are operate within very different structures to those in the UK.
It is much easier for first time SME exporters to trade with EU
and Western markets initially.
5.1.5 The Government's focus on BRIC leads
to too little support in areas where profits are to be made. Priority
in the distribution of resource is dictated in order to meet government
targets rather than towards markets that offer them the best chance
of success. For example, Angola is currently the largest deepwater
oil and gas market in the world, but is not high on the UKTI's
priority list. This means that exporting support is often only
available to a tiny percentage of the companies which seek assistance,
and therefore opportunities are lost. This is a market in which
British companies should be pre-eminent, but too often lose out
to those of other countries. We would welcome a more direct client
centred approach where help is targeted where it is needed.
5.1.6 UKTI help needs to be able to adapt
to the fast changing conditions of the market. The loss of Sterling's
value clearly opens up better opportunities in the Eurozone and
United States, but UKTI has not been able to shift its resource
allocation nearly quickly enough in response to this.
Misdirection of resource
5.1.7 Resource within UKTI is often misdirected.
Staff who work on export promotion are given targets for the sale
of UKTI products such as the Overseas Market Introduction Service
(OMIS). UKTI staff do not even cover their costs by meeting these
targets, while their time is directed away from trade promotion,
which is where we believe it should be completely focused. Such
targets clearly stand in the way of staff getting on with the
day to day task of helping businesses export, and serve to cloud
serious analysis of UKTI's successes and failures.
5.1.8 Further misdirection of resource can
be seen in the amount that UKTI spends on staffing and human resource
compared to the amount that it allocates for direct schemes aimed
at exporters. Indeed, staff costs at UKTI far exceed the budget
allocated for the delivery of direct services and grants. For
example, at a tradeshow in Vietnam during 2008, there were some
twenty FCO and UKTI staff from around South East Asia. It is likely
that in such a case, many exporters had their applications for
grants to attend turned down. We believe that money would have
been better spent by allowing manufacturing and service exporters
promote themselves at such an event.
5.2 Key programmes
5.2.1 Traditional international export promotion
tools such as trade missions and tradeshows are key planks in
helping exporters develop their business. However, companies report
that these programmes have been seriously cut in recent years,
despite the fact that they clearly deliver high returns per pound
spent. It is also worth noting that our major economic competitors
in North America and Europe have not made cuts in their comparable
programmes for exporters, and this puts British businesses at
a another palpable disadvantage.
Trade Missions
5.2.2 The Missions Programme takes exporters
into potential markets and introduces them to potential customers.
It has always been highly valued by businesses, who have found
missions incredibly successful in helping them find new markets.
However, funding for missions has been slashed by UKTI, and the
current regional Market Visit Scheme does not give companies the
wide range of dates for assisted market visits that they could
have from access to a national scheme.
5.2.3 A coordinated national scheme, using
organising bodies with proven knowledge and experience of particular
markets would open up help to many more companies. This would
encourage more existing exporters into BRIC and emerging markets.
Tradeshow Access Programme (TAP)
5.2.4 Funding for the Tradeshow Access Programme
has also been seriously cut. International tradeshows are a key
part of the export world, and for many companies are the most
efficient way of entering new markets. All of the UK's key international
competitors provide finance and support for their SME companies
to take part in tradeshows. In comparison, funding in UK is inconsistent,
unreliable, and falling. This can be seen in the 2009 Dubai
International Boat Show, where many companies did not attend because
subsidies for UK SME companies were the lowest ever received.
While the TAP grant was eventually topped up, this happened too
late and the UK was significantly underrepresented in comparison
to other European states, which inevitably took the most lucrative
contacts on offer at the Middle East's largest marine trade event.
5.3 Schemes for existing exporters
5.3.1 Some of the businesses that are best
poised to exploit new foreign markets are those that are already
exporting. Despite this, there are no UKTI schemes that aim to
help existing SME exporters access new markets. The help given
to SMEs who have not exported before through schemes such as Passport
to Export are invaluable to British industry, but we are missing
a real opportunity by not further helping those who already export
and who are therefore the best placed to attack new markets.
5.4 Assistance for exporting companies in
the recession
5.4.1 The range of businesses that require
government assistance increases during a recession. This means
that more exporters will need access to government backed international
trade services. This is because during a recession businesses
are naturally more cautious with expenditure and are less likely
to spend their financial resources on seeking new markets, despite
the positive impacts that exporting potentially offers. In the
current economic climate, many companies are also completely unable
to take on the financial risk of exploring new markets.
5.4.2 Government policy faces key two problems
here. The first is that many of the schemes which it runs have
costs to businesses, who will become unable to pay for them during
a recession. For example, fees for an Overseas Market Introduction
Scheme (OMIS), or paying the embassies or high commissions for
country briefings, visa letters or networking support become difficult
to justify for many companies. This will stop companies accessing
government's services who might otherwise have found them useful.
5.4.3 Secondly, despite the greater need
that companies have of government export services, many businesses
have found UKTI's qualification procedures to be restrictive.
Given the present economic climate, UKTI should be able to help
all companies who require assistance. For example, an SME manufacturer
of printing equipment was turned down for a grant to attend the
main global printing industry trade fair that takes place once
every four years. The reason given was that they were too qualified
despite one being a small company. Likewise, a manufacturer of
medical equipment was at first awarded a grant to attend the Arab
Health Exhibition, but had the grant revoked because UKTI decided
to reclassify the company. In both cases, comparable companies
from competitor countries received full grants and as a result
will have gained a business advantage over British firms.
5.5 Government services for exporters—UKTI
5.5.1 Businesses often find it difficult
to work with the Government and its agencies. This is because
there is often a fundamental lack of understanding of the private
sector within public sector organisations. This can be seen in
the targets driven culture of organisations such as UKTI which
aim to reach a set number of companies without ensuring real quality
of engagement.
5.5.2 Often intermediaries are required
to facilitate the relationship between public and private bodies.
The Chamber Network is a key partner for both business and the
Government in doing this, and it provides many successful services
for exporters from advice and guidance to export documentation.
5.5.3 Unfortunately, in some areas where
the Chamber has traditionally hosted government trade services,
the contracts have been awarded to bodies which are closer to
government. The effect of this has been to take trade services
from a single roof which employers knew and understood, to spreading
them among many different organisations. Common sense would dictate
that this can only make it more difficult for businesses that
wish to access trade services.
6. THE BRITISH
BRAND ABROAD
6.1 The United Kingdom has a strong image
abroad. From the United States to the Persian Gulf and beyond
British goods and services are seen as being high quality. And
yet the UK brand has been watered down by separate representation
from all three devolved nations and nine English regions that
constitute the country. Separate efforts from Scotland, Wales,
Northern Ireland and the English RDAs only serve to confuse potential
customers of British firms who are likely to be unaware of the
constitutional particulars of the UK.
7. TRADE SKILLS
7.1 It has been noted that there is also
a shortage of trade skills within the British economy. Companies
often find it difficult to obtain skills such as overseas marketing
or knowledge of foreign markets, current regulations and legislation
governing international trade, and cultural awareness. The British
economy is also woefully short of foreign language skills. Although
the international business language is English, exporters can
achieve much more by being able to speak in the tongues of the
markets that they are seeking to sell into.
8. TRADE FINANCE
AND CREDIT
GUARANTEES
8.1 Exporting businesses around the country
have reported serious problems in gaining export credit guarantees
from private sources. This is especially serious considering the
difficult economic conditions across the globe mean export guarantees
and insurances are more important than ever.
8.2 Credit insurers are evidently responding
to a climate of higher risk. In the absence of access to private
insurance and credit guarantees, it is vital that the Government
steps in to provide support and confidence to exporters where
the market has failed.
8.3 Many businesses see the collapse of
the credit insurance market as one of the biggest threats to their
exporting trade. Businesses have spoken of their confidence being
shaken by the near complete withdrawal of credit insurance cover
in their market. For example, a supplier in the automotive industry
asserted that this element of the current economic climate poses
a far greater risk to the stability of their business than the
downturn in sales volume. Because of Sterling's recent competitiveness,
the company has recently been appointed sole supplier to a major
car manufacturer. However, because credit insurance has been withdrawn
for the large automotive Tier 1 suppliers, the firm must
now incur a much greater risk in their trade with this manufacturer.
The speed and ferocity of the removal of credit insurance cover
is staggering and it puts entire supply chains at enormous risk.
8.4 Should current rumours that the Chancellor
will include a state backed insurance scheme in the Budget prove
to be correct, it is crucial that any scheme is quickly and efficiently
implemented so that struggling companies can take advantage of
it as soon as possible.
8.5 Any other government action in this
area is yet to make significant inroads into the export community.
9. FURTHER BANKING
PROBLEMS
9.1 There is evidence that British banks
are standing in the way of exporters. Aside from problems associated
with export credit and insurances, there are a number of other
areas where banks are not correctly facilitating exporters, or
are holding back successful companies. Given the recent banking
bailouts, obstructive practices by the banks to businesses must
be investigated and stopped.
9.2 For example, one company has reported
that every transaction within their Export function requires a
bank transfer, for both receiving payments and for the purchase
of components. This requires a visit to the bank, as it is not
possible to make international transfers on-line. This is also
an expensive process, where the banks take a varying commission,
depending on the transfer origin or destination. It should be
possible to make these transfers on-line to save time and money.
9.3 Furthermore, we have also received a
number of examples where the banks have obstructed trade with
certain countries for unsound reasons. For example, one company
had been working for months on building a relationship with a
Syrian contact; they had an order from them for £1 million
of product, but when the time came to pay, their bank refused
to accept the money. On contacting the bank the business was told
that there were government and UN sanctions in place against trading
with Syria. In receipt of such perturbing advice, the business
considered writing off their contract immediately but thought
they should investigate further before doing so. On speaking to
both UKTI and BERR, the company was informed that Syria is part
of an EU trade agreement, and trade between our countries is encouraged.
The bank was effectively misleading its customer as to the reasons
behind its refusal to take deposits from trade with Syria. This
seriously risked its customer's months of money, time and effort.
It should be noted that the company in question does £1.5 million
of business with the Middle East alone. They rely on their bank
to deal with the customers and the countries that they work with.
This kind of activity causes them to jeopardise months of work
developing trade contacts.
10. PROTECTIONISM
AND THE
DOHA DEVELOPMENT
AGENDA
10.1 At this time, it is vital that the
British Government does all it can to combat protectionism both
within the European Union and throughout the world as a whole.
Lessons must be learned from the Great Depression. The increase
in protection that stemmed from the United States Congress' Hawley-Smoot
Tariff Act in 1930, and the subsequent reactions from European
states and British Empire greatly increased the severity of the
Great Depression, and a similar situation must be avoided.
10.2 Every effort must be made to encourage
a swift and beneficial conclusion to the Doha Development Agenda
negotiations at the World Trade Organisation (WTO). As the global
economy continues to face difficult times, a final resolution
to Doha will provide a crucial facilitation to global trade. While
trade is not dependent on the WTO, if Doha collapses for good
it will take years for the WTO to recover its worldwide prestige,
if it manages to do so at all. The rise of protectionism, and
bi-lateral trade deals instead of a multilateral solution, will
only serve to push the world's major economies further into recession.
11. CONCLUSION
11.1 As the UK enters economic turbulence,
exports will need to become a more important contributor to the
national current account. The Government's trade policy and services
simply must do better. The UK needs a nimble, light touch service
that delivers high value for money through providing schemes and
services that exporters and potential exporters find effective.
The UK must present a unified image to the outside world in order
to capitalise on its competitive advantages. Currently there are
only 80,000 British companies who export. If we are to remain
an economically successful world power, this has to change.
20 April 2009
| 
