HC 82 Trade and Investment Brazil

BRAZIL 09

Written evidence submitted by British Chambers of Commerce (BCC)

The BCC is the national body for an influential network of 52 Accredited Chambers across the UK. Representing 100,000 businesses, who together employ more than 5 million employees, the BCC is the Ultimate Business Network. No other business organisation has the geographic spread or multi-size, multi-sector membership that characterises the Chamber Network. Every Chamber sits at the heart of its local business community, providing representation, services, information and guidance to member businesses and the wider local business community.

Chambers of Commerce are recognised across the UK and around the world as leading supporters of international trade. Chambers deliver trade support and advice, as well as a range of specialist services, to businesses of all sizes in Britain’s exporting community.

BCC’s international trade research

Given the need to rebalance the UK economy towards exports to secure recovery and long-term prosperity, the British Chambers of Commerce (BCC) commissioned a major international trade business survey in Q1 2012 – to which 8,073 businesses responded. Since the BCC last surveyed Chamber members in 2011, the share of responding businesses actively exporting goods and services from the UK rose from just over a fifth (22%) to nearly a third (32%). However, on the ground, UK firms looking to export for the first time continue to face too many barriers that put them at a competitive disadvantage to their overseas competitors. BCC’s research did not focus specifically on Brazil; however the results from the survey on the BRIC markets are informative in respect of the Committee’s inquiry more generally, and can be found below:

British companies are missing out on opportunities to trade with the BRIC markets

BCC’s research demonstrates the UK’s failure to capitalise on opportunities in the fastest-growing markets: 88 per cent of Chamber exporters currently export to the EU compared to 47 per cent for the BRICs and 55 per cent for other Asian and Middle-Eastern markets. [1] Around two-thirds of large exporters see the BRIC economies as a top platform for export growth in the next 12 months, compared to around half of mediums and a third of micros. [2]

SMEs are not penetrating the BRIC markets as well as large companies

Large businesses are the most active in fast-growing, non-EU markets and micro and small companies lag behind large firms in accessing growth markets: nearly three-quarters of large exporters trade with BRIC countries but only a third of micros are engaged in these large and fast-growing markets. [3]

Social connections positively support trade

Exporters that are part of an international business group or supply chain are around 50 per cent more likely than those that are not to see the fast-growing BRIC markets as providing the greatest opportunites for growth. [4] Businesses that export have stronger social connections with their overseas markets such as previous work experience abroad, experience of collaboration with international partners, and to a lesser extent, family ties. [5]

Key barriers to entering the BRICs

Exporters to the fastest-growing BRIC markets are the most likely to encounter barriers that hold back sales. Differences in language and culture are seen as the most influential factor in the decision to enter BRIC markets (cited by 20 per cent of exporters). [6] Language is a crucial barrier - almost half of businesses claim that language barriers influence whether, when and where to enter international markets. The extent of the language deficit in the UK is truly serious: up to 96% [7] of respondents had no foreign language ability for the markets they served, and the largest language deficits are for the fastest-developing markets. Regulatory environments and differences in standards (29.9 per cent), tariffs (24.9 per cent) and enforcement of legal rights and protections (19 per cent) were indicated by exporters as key barriers to increasing sales in BRIC markets. [8] More generally, 21% of respondents said that managerial capacity and skills are a definite barrier to their company exporting [9] demonstrating that a shortage of export knowledge is holding back trade.

Trade mission by London Chamber of Commerce and Industry to Brazil

A trade mission undertaken by the London Chamber of Commerce and Industry in August 2011 acts as a helpful case study to demonstrate the opportunities and challenges faced by firms when trying to export to Brazil for the first time. The trade mission took twelve companies to Sao Paulo and Rio de Janeiro and participation was restricted to well-established SMEs selling a British product or service, with a turnover between £1m and £20m, that had been trading for more than three years and which had a maximum of 250 employees.

Overall the feedback from mission members was very positive. The group especially appreciated the helpfulness of the mission in giving them exposure to the Brazilian market and key contacts, something they would have been unable to achieve by going there individually. The best feedback revolved around the usefulness of the Embassy receptions as a way of meeting relevant local companies and the value of briefings from London chamber staff and businesses that were operating in, and had experience of, Brazil.

The companies made an average of eight useful business contacts each, which could result in up to £1m each in business value over the next twelve months. All of the mission members said they were very likely to return to Brazil for a follow-up visit and some have already done so in the few months following the mission.

This case study illustrates the importance of exploratory trade missions, especially for SMEs, and that help in generating international social connections and networks positively support trade. Businesses that export have stronger social connections with their overseas markets, as our research shows, suggesting that increased familiarisation with markets like Brazil through trade missions is important for future export growth.

BCC recommendations:

Trade missions to Brazil

For the potential or new exporter, attending trade shows can be very costly, not only in terms of exhibition fees but also in travel and shipping costs and time spent away from day-to-day business – with no guarantee of a positive return. More must be done to expose more small and medium-sized businesses to the opportunities of global trade through improved access to mentored outbound missions to Brazil, smarter use of inbound missions by Brazilian companies and greater financial support for promotional activity and tradeshow attendance by matching the world’s best schemes.

Commercial exporting skills must be improved

Understanding of the commercial aspects of exporting must be embedded in higher and further education courses. Business degrees and further education qualifications focussed on commercial subjects must include compulsory modules on international trade and exports so that incoming commercial staff are export-ready as they enter the workforce over the next 2 - 5 years. Chambers of Commerce, meanwhile, are working to upskill existing export staff through an accredited trade training now being rolled out nationally.

Re-establish foreign languages as core subjects within the UK national curriculum and in workplace training

There needs to be a fundamental reappraisal of the importance of language learning to Britain’s future competitive position and business success. The National Curriculum must be revised so that studying a foreign language is compulsory until AS level. It is important to ensure that the next generation of business owners are ‘born global’ with language skills. Portuguese is spoken by over 230 million people worldwide and therefore must be focused on alongside other major languages in the national Curriculum to achieve this purpose.

Establish an international business placement scheme

The Government should create a scheme to place young, unemployed graduates in temporary assignments with participating companies to undertake market research, search for new partners or set up subsidiaries in new markets. To avoid the high costs of similar but stand-alone schemes such as Volontariat International En Enterprises (VIE) in France (where the volunteers receive a regular stipend from the French Government) the new programme should utilise and scale-up existing routes to connecting unemployed graduates with SMEs through internship programmes, degree

placement years, the Youth Contract and other mechanisms. The Government could also offer retrospective incentives to small and medium-sized businesses that engage young people through such a scheme.

Create ‘Business Erasmus’ opportunities

The EU’s long-established and popular Erasmus scheme enables students to study abroad through an international exchange programme. A UK Erasmus-style exchange scheme should be created which promotes overseas placements in companies for employees. Opportunities to spend time abroad building global social connections through such a scheme would support UK and European exports. This scheme would cover not only Europe, but emerging markets such as Brazil or other areas where the EU has recently negotiated free-trade agreements, such as South Korea and also with high-growth markets where EU businesses' competitiveness could be heightened. This scheme could be part of the programme for Competitiveness of enterprises and SMEs (COSME) in the 2014-2020 EU budget, and would have the added benefit of allowing potential future foreign investors to work in Britain temporarily at the same time as British participants gain business contacts abroad.

1 May 2012