2017 arguably marks a new era for exporters; a far more uncertain world post-Brexit and post-Trump, yet one in which the UK economy looks set to remain buoyant and resilient. Against this backdrop, the roundtable – sponsored by global supply chain solution company Charles Kendall Freight, international payment experts HiFX and UK Export Finance – met to discuss the issue of exporting in an environment of risk to achieve sales growth.
Current state of the global market
David Taylor, international trade adviser, DIT asked the rhetorical question to the roundtable: “When has there ever not been risk in terms of international trade?” He cited the fact that those around the table with greyer hair and longer memories remembered the original debate, back in 1975, as to whether the UK should remain in the common market? That was also a time of great change where many contradictory opinions abounded, and going forwards Brexit is likely to prove no different.
“Retrenchment is not the safe option though – the future lies in embracing new opportunities.”
Opportunities over the next five years
David Murray, chairperson and managing director of The Business Magazine, asked the roundtable to outline the export opportunities they foresaw over the next five years.
Jan Ward, CEO, Corrotherm, explained how she currently sat on business councils for both Saudi Arabia and for the Gulf States and so was able to see, at first-hand, the immense potential for the UK to do business outside of the EU.
“They want free trade agreements and they want them quickly, in sectors such as education, cyber security, financial services to name but a few. It’s interesting to see that in the recent Queens’ Awards list, the vast majority of winners exported exclusively to Europe. I find that rather disappointing, given the huge opportunities to trade with the rest of the world; cautiousness is holding companies back at a time when they should be looking outwards and forwards.”
Stuart Stoter, export finance manager, UK Export Finance, agreed with the global opportunities, pointing out that in his experience, businesses were now “looking at these markets more than they ever have done in the past.” Given the general uncertainty likely over the next few years, Stoter highlighted the wisdom of “creating Plan B outside of Europe.
“There are huge opportunities in countries such as India, China, Australia, Africa … in fact, many of the fastest growing countries in GDP terms come from Africa at present – high risk, but also high opportunities.”
David Shaw, Trading controller Europe and emerging markets, Standard Brands, agreed with this risk/reward argument pointing out that many exporters have only been “playing at exporting” outside of the EU, given the tiny relative sizes of, say, the Middle Eastern and South American markets. Echoing Stoter, he pointed out that a company might achieve 5% growth in established markets, but 1,000% growth in new ones.
“We have been programmed to focus on exports to the EU over the past 40 years – it has become the ‘path of least resistance’ for exporters. However, once that resistance becomes greater, so will the relative attraction of opportunities outside of the EU.
“That is not to say that we should lose focus on the EU market. It remains large and attractive, and we have many fantastic trading relationships here. It is more about broadening our outlook and properly investigating the global opportunities.”
Margaret Romanski, CFO of Designers Guild, outlined a slightly different expansionist view in respect of her company, for whom exports represent c 65% of turnover, with Europe the largest single trading block. “Yes there are opportunities in countries such as USA, Australia, Middle East, Asia … , but one cannot assume that these will automatically replace Europe for us. Some markets can carry their own particular challenges. For example, in the Far East they spend a lot of money on branded products but tend to favour those that are readily visible, eg fashion, rather than within the home. I expect Europe to remain a big market for us although there will probably be additional costs of doing business given increased non-financial barriers to trade. It’s something we’ll have to adapt to.”
Alex Tatham, managing director, Westcoast, also put forward the argument for doing more business in Europe going forwards. “I hate to disappoint you … but we (Westcoast) will stay in Europe and look to expand – we already act in a pan-European way and unless we buy a non-EU business, I can’t see that changing in the near future. Our worry will be how we move goods between countries, but I can’t see huge trade barriers as an obstacle and when (or if) they do occur, there is always a way around them. I’m very optimistic.”
Ian Jenkins, director of global trade, Charles Kendall Freight, observed that there was a danger of obsessing too much about what might happen post-Brexit. He pointed out that the US was already acutely aware of Brexit, given its links with populism and the rise to power of Donald Trump. However, there had been no decline in volumes Stateside and there remained a great trust and respect for UK businesses.
“It’s all too easy to become like ‘Chicken Little’ and keep worrying about the sky falling down.”
Domenico Sansalone, corporate treasurer, Expro Group, agreed that there had been “a lot of ink spilled on Brexit”, and that trade agreements had existed before the UK entered the EU and would continue to do so afterwards..
“As a UK service company a substantial portion of our cost base is sterling denominated, so we’ve already benefited from the exchange rate effect in the short-term … Having limited exports into Europe I remain vigilant on the potentially more insidious effects of Brexit, including increasing cost of capital and frictions around the free movement of a specialised work force”
Chris Towner, managing director, HiFM, approached the issue from a currency perspective, arguing that the 2008 credit crisis was a global disaster but that most companies had managed to weather the storm, with currency volatility actually creating opportunities for those brave enough to grasp them. He finished with a thought for the near future: “Remember that there are EU elections this year, and that Brexit will be a major topic – there is so much mutual interest. EU politicians will be forced to answer the question, ‘Why would we want to isolate the UK?’”
Taylor rounded off this particular discussion by pointing out that, in his view, it was a question of balance, of continuing to do business in the EU while looking for new opportunities elsewhere. He noted that the EU would still be there in five years’ time, and that the UK would still be trading with it, offering the following advice: “Make sure that your customers in Europe know that you still love them, and that you view them as an investment for the future. They are investing in you as much as you are investing in them; you can go through this process together and emerge stronger at the other end.”
Present and future threats
A very significant threat, according to Stoter, is the UK banking system, which should be supporting UK exporters but, according to what he is told by SME business owners, has ended up hindering them.
“I talk to a lot of companies who want to export, but the banks’ risk appetite has decreased so significantly that smaller businesses have just been strangled from a debt and working capital point of view.”
Tatham picked up the banking theme: “I don’t just blame the British banks … the French were awful when we were setting up there; I must have sworn in front of so many French notaries that I’m almost fluent now.”
Ward had a much scarier story, about how she had inadvertently logged onto her business banking account whilst on a trip to Iran. The account was subsequently shut down with two weeks’ notice on the grounds (as she later discovered), that “we don’t want to deal with anybody who might be dealing with Iran.
“The banks are petrified of the threat from the US, who tell them, ‘if you deal with Iran, we will stop your dollar trades’.”
This story resonated with Jenkins, who had experienced a very similar experience. Like Ward, his company was given no initial explanation as to why their local bank account was being shut down with 30 days’ notice, despite a flawless 25-year trading history.
“We discovered that the reason was our strong Middle East connections – the bank just didn’t want the risk of being associated with us. We told them that this would affect our relationship with them globally, and only then did they recant … but they now constitute a far smaller part of our business.”
Unfortunately for Taylor, this is a problem which he comes across all too frequently, there being no obvious solution to the Iran issue despite the roll-back of sanctions, because of banks’ refusal to process payments due to concern over remaining controls in the USA. The issue is currently further complicated by the lack of cash which has forced many Iranian companies into unpopular barter deals with the Chinese. However, he did have some words of encouragement: “It is important to build long-term relationships because these do bear fruit. The UK still has a very good reputation with Iran, with many companies fondly remembered from 20 years’ ago – they still want to trade with us.”
Stoter stressed that the banking issue wasn’t constrained to countries such as Iran. In relatively stable parts of Africa, such as Ghana and Kenya, there remains hardly any appetite for risk, leaving companies unable to transact via their house bank.
Ward suggested that the way around this problem was to open a company in one of the free trade zones, such as Dubai or Singapore. However, she acknowledged that this was probably not an option open to smaller businesses.
Questions from the floor
Simon Harris, sales director, Charles Kendall Freight, picked up on the earlier point about the frustration regarding countries such as Iran, ostensibly free of sanctions yet still not connected back to the banking system: “This creates massive problems and it’s so frustrating as there are huge opportunities out there with oil, infrastructure … . It’s interesting to note that the Americans were the first ones there to do business when the sanctions were lifted … but they are the ones now holding everything up.”
Rebecca Ho, group logistics manager for procurement, Unatrac, drew attention to the different mindset required for global exporters: “We are having to constantly deal with change management; Ebola, Russian sanctions, terrorist activities … it’s all part of our day-to-day business. In the EU, regulation has been so well-developed that you can assess the trading environment for years ahead, but that’s not the case with the rest of the world.”
Ward agreed with Ho’s observation, but made the point that it was very exciting to travel and visit different markets, undertake the background research, and talk with people on the ground. One of the factors holding back UK exporters is that they have already formed an inaccurate opinion, often whipped up by the media, as to what a country such as Turkey, or the Ukraine, will be like. It is only after having visited these countries for themselves that they realise their initial fears were overdone.
“Working in a global environment, you can’t predict what is going to happen around the corner, so you just have to roll with the punches, and make sure that you either pre-empt the risks or are fast and flexible enough on your feet to cope.”
Taylor echoed Ward’s point about the need for research, stressing that DIT could be an invaluable resource in this respect, “because most of us have past industry experience, and can therefore work alongside businesses”. Having said that, the Government needs to help reduce the risk factor, and understand that people are risking their capital and their lives, “which is why forums such as this roundtable are so invaluable.
“It might seem easier to stay at home and do research on the Internet, but you have to actually go out there and visit these countries to understand what is actually happening there.”
Other key issues – overseas legislation
‘What other risks do exporters need to seek protection for?’ asked Murray.
In response, Jenkins raised the issue about broader risks in the supply chain, in particular, the long international shadow cast by US legislation. He noted that freight forwarding companies were invaluable in this area, given their intimate knowledge of the supply chain.
“The 2016 Transparency International Report concluded that global corruption had worsened. There is a danger that UK exporters fail to look closely enough at their supply chain, and check for risks of foreign corruption. Be aware that the US will apply legislation even if any transactions are only obliquely relevant to the USA, and that the new attorney general has already said that he will uphold the Foreign Corrupt Practises Act, despite Trump previously saying this was a terrible piece of legislation. Think back to the FIFA scandal – only a very small element pertained to the USA (involving the award of the 2022 World Cup to Qatar), yet it was the FBI who started to arrest people …”
Sansalone agreed, stressing the need for good distributors and third-party agents, especially for smaller exporters unable to afford teams of consultants and lawyers.
Labour and funding
Murray asked the participants whether they saw labour and controls on immigration as a likely threat?
Tatham pointed out that at his Milton Keynes factory, he had had no UK applicants for the past two years. Romanski followed up on this observation, confirming that it was not just confined to factories; there were also many non-UK applicants for jobs at her head office.
Regarding Ward’s plea that ‘the Government needs to put this residency issue to bed very quickly’, Taylor responded that ‘the Government is listening, but has very little influence at present.” He stressed the need for industry to keep putting their message across, the more vocally and frequently the better.
Murray continued to press the issue, asking what help businesses would specifically like from the Government?
‘Do something sensible with DIT’, was Ward’s immediate reply, highlighting the limited support for SMEs (Small Medium Enterprises) whilst large companies continue to receive substantial funding via HVO’s (high value opportunities):
“BAE doesn’t need government money – it’s being directed in the wrong place! Almost all of the help provided to SMEs is remote and online, whereas the ‘physical’ help available to exporters such as embassy staff or up-to-date Foreign Office (FCO) research has been cut back so severely, that in some places that we’ve completely lost our credibility.”
Stoter agreed with Ward that there needed to be greater focus on practical help rather than vague political support, but had this plea for businesses.
“The Government (via departments such as the Department of Trade) bases its support about what you say you need, but greater political engagement is required, so write to your MP and tell him/her clearly what you want, don’t have, would like … . Some MPs think that the support is already there … when in actual fact, it isn’t. I would have loved to have seen an MP here today as part of this roundtable, I would love them to be an integral part of the business network – they need to be made aware of your needs.”
At this point, one of the roundtable observers, Tony Silver, international trade liaison for the Thames Valley Chamber of Commerce (TVCC), highlighted that the Chamber did regularly invite MPs to its working lunches, and this had proved very successful.
Are you optimistic or pessimistic about the future?
Murray posed the final question to the roundtable: “Do you think the UK will be a stronger or weaker exporting nation in five years’ time?”
Jenkins: “I’m a glass half-full guy, and completely agree that we have to get our boots on to visit and engage with overseas customers. Perhaps Brexit will force us to be more internationalist and outward-looking as a nation …”
Sansalone: “As a Canadian I think I can say don’t be so hard on yourselves. In the UK, you have a great pool of untapped talent, a strong currency, and so much potential.”
Ward: “I don’t think the landscape will be all that different in five years’ time. However, the extent to which we thrive will depend upon co-ordinated support from the Government and Chambers of Commerce … to ensure that companies aren’t simply left on their own.”
Stoter: “I spend every day of every week talking to amazing people, and always come away filled with enthusiasm … but then reality often strikes. I agree that a support network is essential; peer-to-peer engagement, banks, chambers, business organisations and commercial bodies (such as The Business Magazine) are all essential to disseminate the mass of information and feedback out there.”
Towner: “I’m optimistic for three reasons: confidence, language, and relationships. Most businesses are positive, English remains a global language (for example, the ECB still debates in English), and it’s in everybody’s best interests that we continue to work closely with the EU. When we look back in five years’ time, it may be that Brexit was the turning point which stopped the EU stumbling towards federalism and instead moved towards a more trading-orientated approach, which was its original intention.”
Shaw: “In the past, it’s been relatively easy to export to Europe. This new era will force people to step outside their comfort zone and contemplate the rest of the world – that has to be a good thing.”
Romanski: “Yes, I’m optimistic that we will be able to adapt and will be stronger in five years’ time. Whether the UK overall will be stronger than it would have been had Brexit not happened, however, is another question … perhaps five years’ is too short a time period to judge that?”
Tatham: “If you’re an entrepreneur, you have to be able to cope with change …that creates optimism in itself. So, in that respect, Brexit shouldn’t even figure on the radar – all businesses need to be agile.”
Ian Jenkins: Director global trade, Charles Kendall Freight
Alex Tatham: Managing director, Westcoast
David Shaw: Director, trading controller Europe & emerging markets, Standard Brands
Stuart Stoter: Export finance manager, UK Export Finance
Jan Ward CBE: CEO, Corrotherm
Chris Towner: Managing director, HiFM and director, HiFX
Domenico Sansalone: Corporate treasurer, Expro Group
Margaret Romanski: CFO, Designers Guild
David Taylor: International trade adviser, Department for International Trade
David Murray: Managing director, The Business Magazine, chaired the discussion