British companies look to emerging markets for growth

By Daniel Hunter

Asia has over-taken the European Union as the market in which exporters expect to see the most growth over the next five years, new research from the Institute of Directors (IoD) and the All Party Parliamentary Group on Trade and Investment reveals.

The report, launched yesterday (Tuesday) in the Houses of Parliament, also shows that Asia has moved ahead of North America as a destination for UK exports.

The report presents the findings of a Policy Voice poll of 1,162 IoD members which ran from Wednesday 14th November until Friday 23rd November 2012.

Key Findings

EU is still the top destination for exports…

The European Union remains the market in which most IoD members are active. However, the percentage of IoD members trading in the EU is falling (from 84% to 82% between 2010 and 2012), whereas the percentage in Asia is on the rise (from 39% to 47%). The EU was the only market to see a decrease in activity, with strong growth in the Middle East in particular (38% in 2010 to 44% in 2012). For the first time, IoD members are more likely to trade in emerging Asian markets than with the mature markets of North America (47% to 46%).

…but businesses expect faster growth elsewhere

Asked which markets they expected to deliver export growth over the next five years, Asia came out top, with 50% of IoD exporters optimistic about their prospects there. Compared with two years ago, members are far more pessimistic about future trade with Europe. Only 43% anticipate their export activity to grow in the EU over the next five years, a fall from 58% in 2010.

Exporting remains difficult for small businesses

In order to reduce our trade deficit, more businesses must be encouraged to export. The survey reveals that 57% of IoD members export, considerably higher than the national figure of 31%, indicating that there is scope for more UK companies to begin exporting. Half of members gain less than a third of their turnover from exports, showing that there is also significant potential for expansion by existing exporters.

However, the risks associated with exporting still put off small companies. 35% of businesses said their organisation was just too small to export. Worryingly, 72% of companies which had never exported said they had no plans to do so.

Commenting on the research, Alexander Ehmann, Head of Enterprise Policy at the IoD and author of the report, said: “Given the on-going troubles in Europe, it is perhaps not surprising that exporters are looking to emerging markets for growth. Expansion into new markets is critical if the UK is to address its truly alarming trade deficit. Policy-making should focus first on encouraging those firms for which export activity is only a small part of their business to expand to greater levels.”

Margot James MP, Chair of the APPG on Trade and Investment, said: “I’m delighted that the APPG and the IoD are able to contribute to the debate around Britain’s international trade activity and pleased by the positive conclusions in this report. Growing exports is fundamental to the success of the government strategy of re-balancing the economy, and it is our job to help remove the barriers facing exporters whilst also working to encourage more of our world class British businesses to take their products and services abroad.”

|International Trade News|

European Leaders’ Softening on Austerity May Accelerate

By Patrick Donahue

Europe may accelerate a shift away from its austerity-first agenda this week as the new Italian government changes course and a German-Spanish investment pact underscores a renewed focus on combating record unemployment.

Yesterday’s swearing in of Italian Prime Minister Enrico Letta ends a political deadlock nine weeks after voters rejected the country’s budget-cutting course. German Finance Minister Wolfgang Schaeuble, a champion of austerity, will travel to Spain today to unveil a plan aimed at spurring investment in Spanish companies. Later this week, the European Central Bank may also cut interest rate at a meeting.

 

“You have to react to economic developments -- we do so in Germany,” Schaeuble told members of Chancellor Angela Merkel’s Christian Democratic Union in Berlin last week. “We are not bureaucratic; we are not stupid.”

The new Italian government’s pledges to dismantle parts of the budget-cutting project undertaken by ousted premier Mario Monti open a new front in the debate over the German-led policy of austerity to overcome the bloc’s debt crisis. As the 17- member euro area remains mired in recession, European leaders are joining global critics in urging the bloc to devote more resources to boosting economic growth.

 

Italian bonds strengthened for a fourth week last week, with 10-year yields dropping below 4 percent for the first time in almost 2 1/2 years. As the two-month political gridlock ended, speculation also about the ECB’s possible rate cut.

|Bloomberg| Fragment

 

 

 

How foreign companies evaluate the Russian market

A clear verdict – falling both positively and negatively – is how member businesses of the Committee on Eastern European Economic Relations and the German-Russian Chamber of Commerce (AHK) evaluate the business climate in Russia in 2013 according to a recent survey. International Trade News lays out the arguments on both sides

ADVANTAGES:

 

Securing growth and profit
The companies surveyed see opportunities for growth and profit as the greatest advantage of the Russian market. They are followed by the market’s great consumer demand, and in third place, its perceived low tax burden.

Where the action is: the energy, automobile and construction industries
The energy market – including electricity, oil and gas – is an unchallenged market primed for the future. Industry leaders also expect strong chances for growth in the coming years in the automobile industry and in construction.

Business situation looking slightly up
Compared with 2011/2012 figures, the business situation is improving for many survey respondents. Roughly 13% describe their situation for 2012 as being ‘very good.’ Just a year before, only 10% evaluated it in such a way. At mere 3% (in 2011, 9%) said their situation was ‘bad.’

Hungry for investment
The survey’s respondents want to invest in new employees and facilities. Almost two thirds (65%) plan new hires. Roughly half (49%) are pursuing con-crete investment plans, which they estimate at about 800 million EUR. Since just a third of businesses provided concrete sums, the total amount being invested is assumed to be in the billions.

Russia’s joning into the World Trade Organization shaking up business
Over three fourth of respondents expect Russia’s joining into the World Trade Organization to invigorate Russia’s business climate in 2013.

Top locations Moscow and St. Petersburg
A ranking of Russian business locations with the best investment climates: Moscow, St. Petersburg, Tatarstan, Krasnodar (in the Olympics region) and Nizhnij Nowgorod.
                                          
DISAVANTAGES:

The industrial ‘Mittelstand’ does not exist in Russia
Russia’s midsize businesses are still not a motor for industrialization, which also has negative consequences for foreign businesses. An estimated three fourths of all medium-sized Russian firms are considered part of the service industry or come from trade.

Supply structures are weak
German investors complain about the lack of supply structures for midsize firms in Russia.

Acute lack of skilled professionals
Russian businesses and foreign investors alike are suffering from an acute lack of highly specialized skilled professionals – especially outside of metropolitan areas.

Exasperating bureaucracy
Bureaucratic structures can create time-wasting barriers to investment projects. One example here is the very long process to obtain permits.

Corruption
Businesses see bureaucratic hurdles as the second greatest hindrance to investment. On the Corruption Perception Index of 2012, put together by Transparency International, Russia is far down the list – at 133rd place.

|International trade news|

UK targets Brazilian market for automotive sector growth

By Daniel Hunter

British businesses in the automotive sector were given a boost when the Business Secretary confirmed the opening of a new Vehicle Certification Agency (VCA) office in Sao Paulo. The VCA office will allow manufacturers in the auto sector to export more easily to emerging markets in South America.

Automotive exports from the UK are at an all time high, with five out of every six cars produced in the UK being exported. Brazil has been identified as an important growth market for the sector.

The government is determined to build on the success of the automotive sector and is aiming to publish its automotive strategy in the summer. Ahead of this, the government has taken the decision to open a Vehicle Certification Agency (VCA) office in Sao Paulo, the first to be opened in Latin America.

VCA offices support the automotive industry by verifying that cars and parts imported into local markets from the UK and elsewhere, comply with EU Directives and Regulations, as well as UN environmental and safety standards. The VCA office in Brazil will also allow manufacturers based locally to export from Brazil to the wider region, opening up new markets and further benefiting the UK economy.

"I want to make it as easy as possible for the automotive manufacturers to export to emerging markets," Business Secretary Vince Cable said.

"UK manufacturers are planning to more than double their sales in Brazil in the coming years. By opening a VCA office in Sao Paulo we can make sure exports are not being held up unnecessarily."

Mike Baunton, Interim Chief Executive of the Society of Motor Manufacturers and Traders said: "We are delighted the UK government is taking steps directly to support the export of UK built vehicles, particularly with Brazil being one of the growing global markets. Almost 15% of UK automotive exports go to the Americas but we expect exports to the region to grow as recently launched premium brands and advanced technology vehicles are increasingly sought by Brazilian motorists."

The VCA is already providing safety certification services for automotive components, working with the Brazilian Transport Ministry. It is also in discussions with the Brazilian Environmental Ministry to explore how it can provide additional services, such as providing certification on environmental standards and emissions.

Eleven of the world’s global vehicle manufacturers are based in Britain and 74 per cent of all cars and commercial vehicles manufactured in Britain are exported. Britain is also a world leader for engine production with 2.5 million units produced in 2012 by companies including Ford, Toyota, BMW, Honda, Nissan, Perkins and JCB. 62 per cent of UK engine production was exported in 2012.

The VCA office in Sao Paulo will also open up wider markets for UK manufacturers as countries such as Argentina and Chile base their environmental and safety regulations heavily on the Brazilian legislation.

|International Trade|

 

China to enhance relations with Argentina

Li calls on nations to push forward cooperation in trade and investment

China is seeking to deepen its ties with Argentina "with a more comprehensive and strategic vision", Premier Li Keqiang told a visiting high-ranking Argentine official on Sunday.
Li made the remarks when meeting Julian Dominguez, president of the Chamber of Deputies, the lower house of the Argentine parliament, in Zhongnanhai, the headquarters of the central government in downtown Beijing.

China and Argentina are both important emerging economies and developing countries, and the two should develop bilateral relations "with a more comprehensive and strategic vision", Li told Dominguez during the meeting. He called on the two nations to push forward cooperation in trade and investment and seek joint development.

Li also briefed Dominguez on the economic situation in China, saying the Chinese dream of national revival will become a great opportunity for the world. According to Chinese customs, bilateral trade reached $14.4 billion in 2012. China is Argentina's second-largest trading partner, while Argentina is China's sixth-largest trading partner in Latin America.

Jiang Shixue, an expert on Latin American studies with the Chinese Academy of Social Sciences, said China's business ties with Argentina are in excellent shape, except for Argentina's frequent anti-dumping investigations against China. "In that regard, at the moment it is significant for the two sides to realize the importance of each other," Jiang said.

China is a market with huge potential for Argentina, while Argentina, a G20 member, also plays a big role in China's business in Latin America, he said."And I think Beijing has sent signals that it would like to see the two sides have their eyes more on the comprehensive picture of cooperation and develop it in a strategic way," he said.

By Li Xiaokun (China Daily)

Understanding the hidden costs of international trade

The Trade and Investment Minister Lord Green is campaigning to increase the number of British exporters by roughly a quarter in 2013. If this is achieved, it is estimated that about £36 billion could be added to the UK economy.

Lord Green has been impressed by the way that many firms have seized on the export opportunity since the launch in 2011 of UK Export Week, a national series of events designed to inspire and provide practical advice for new and experienced exporters.

We know that there are £19.5 billion worth of exports generated by companies in London and the South East alone and a recent survey undertaken by workplace solution provider Regus found that of the Berkshire firms that don’t currently trade overseas, 29% are planning to start in the next two years. Clearly there are many benefits to doing business overseas.

A recent research report unveiled by the UK Trade and Investment (UKTI) shows that many UK firms are increasingly venturing beyond traditional export markets such as Europe and the US and into high growth markets in Asia and Latin America. 

The UK has always been a great trading nation and the report shows that those companies that continue this tradition by thinking globally stand to reap sizeable rewards. 58% of entrepreneurs said exporting led to a ‘level of growth not otherwise possible’.

Most economists agree that the biggest story of the twenty-first century will be a shift in the economic centre of gravity from the developed world to high-growth markets such as China, India, Russia and Brazil. Companies of all ages and sizes are increasingly finding success in these markets.

The report also highlighted that two in five small exporters (with less than 10 employees) already do business in at least one high-growth market. Many internationalised firms experience a ‘virtuous circle’ where exporting leads to new innovation, and where those innovations then lead to further exporting. Over half of all the firms surveyed (53%) said that a new product or service evolved because of their business outside the UK.

However, it’s important to recognise that exporting isn’t an automatic passage to growth and a success for everyone. In today’s economic environment it can be a costly mistake for a business to forge ahead with an export strategy simply because growth in its traditional home markets is slowing down, something that UKTI is keen to emphasise.

It must conduct a full and realistic assessment of its business model in the context of the new export markets it wishes to enter; this needs to encompass its products, services and commercial propositions. It is unrealistic to assume that a model that has worked in a traditional, home market can simply be lifted into an overseas one that is likely to be driven by significantly different commercial and cultural characteristics.

Such consideration is particularly true if, like DAV, you are a people based business providing professional services. The European market has a largely consistent and mature view of professional services and, whilst there’s no doubt that competition is driving increasingly sharper deals, it’s still possible to maintain the kind of commercial model that service providers have traditionally enjoyed. But, as we have discovered, it’s a whole new ball game trying to take that model into, say, Asian or Middle Eastern markets which have a very different view of the commercial rates they are prepared to pay.

Unless you are highly differentiated, servicing these markets with UK based staff, with all the cost this implies, is very difficult to sustain, particularly if your people are likely to be deployed in situ over a long period of time. In our experience, this model only works if you are able to establish an ‘in region’ operational presence and have access to suitably qualified and experienced local resources.

Achieving this gives you a commercial model and, if you hire effectively, people that are calibrated to your ‘local’ market. Leaving aside your enhanced competitiveness, this renders you less susceptible to things like currency fluctuations, hidden costs and cultural aspects. It also reduces the likely disruption to UK based staff who may only be at best prepared to work overseas for relatively short periods of time.

So, whilst the UKTI research indicates that exporting offers substantial benefits there are clearly downsides that must be considered. The fundamental principle is that any business thinking of exporting must undertake a thorough due diligence before setting out down this path.

Your export business plan needs to consider a multitude of scenarios specific to your business model and, most importantly, companies need to understand what it is that they are trying to achieve and why, and how well suited their business is to exporting. It is very easy to get carried away with the promise that exporting appears to offer, particularly for firms who are experiencing slower growth rates in their traditional home markets due to the current economic environment. But normal business rules apply and an effective due diligence may show that, in the end, export business may be harder and less profitable than the equivalent generated in this country.
11/04/2013 |www.internationaltrade.co.uk|

Australia Sugar Industry Alliance supports Japan entry to Trans Pacific Partnership negotiations

Media Release: Australian Sugar Industry Alliance

Japan the next to open trade with Australia?

Australian sugar has welcomed news that Japan is considering entry to the Trans Pacific Partnership Agreement (TPP).

According to the Australian Sugar Industry Alliance, Japan is a longstanding trading partner of the Australian sugar industry. Japan has the reputation of having one of the most protected agricultural and sugar sectors in the world.


"It is important that Japan comes to the negotiations with a strong commitment to the TPP's underlying principles; it must be a comprehensive agreement that delivers commercially meaningful trade outcomes, including for sugar," says Alf Cristaudo, Chairman of ASA.


"This must address the rules of origin that facilitate trade and there must be NO exclusions. Japan must accept progress made to date, with no back trading," he says.

The Australian Sugar Alliance says it is important that Japan's entry does not stand in the way of the timely development of a TPP agreement which facilitates the development of agricultural trade and strengthens production and supply chains throughout the region.

"By eliminating import tariffs, levies and surcharges and other import barriers including quotas, the TPP can improve market outcomes for the region's efficient producers, expand consumer choices, enhance competitiveness, strengthen supply chains and improve the Asia-Pacific region’s food security," says Cristaudo.

"The challenge for TPP negotiators is to break the shackles of protectionism to unleash trade – the most powerful driver of economic growth and development on the planet."

March 21, 2013 |www.sugar.ca|