As the economy in Britain and much of Europe looks set to stay in the doldrums for some years to come, businesses are questioning how to stimulate demand for their products in an age of austerity and uncertain demand.
Some are bound to domestic or regional markets, but an increasing number are considering how to exploit the rapid growth being enjoyed in countries in Asia, Africa, the Middle East and other emerging markets.
Some of the most prominent are the BRIC countries – Brazil, Russia, India and China – to which UK exports are expected to increase by an average of 11.7 per cent a year, according to the Ernst & Young ITEM Club.
While China’s growth rate has slowed in recent months, it is still running at 7.4 per cent a year – vastly higher than the 1 per cent managed by the UK in the third quarter of 2012.
Some 65 per cent of middle-class consumers in India and China indicated a desire to buy more British-made products
The rapidly expanding middle classes in emerging markets – which now includes about one billion people – presents a golden opportunity for British companies, according to Chris Gentle, a partner at Deloitte and its head of insight.
Some 65 per cent of middle-class consumers in India and China surveyed by Deloitte earlier this year indicated a desire to buy more British-made products. That compares to a figure of just 33 per cent among consumers in France and Germany.
While companies need to be very considered about the markets they decide to enter, Mr Gentle points out that about half of emerging markets are members of the Commonwealth, where English is widely spoken.
Alex Lambeth, Middle East and Asia director of British Expertise, a non-profit organisation that supports UK companies internationally, says it aims to help its members make reasoned decisions so they can enter new markets in the best state possible. “We encourage companies to go in with their eyes wide open,” he says.
There is an increasing amount of interest from British companies in emerging markets, Mr Lambeth says, but he warns they should not assume easy, quick profits will result.
Ensuring that businesses comply with laws, such as recently introduced UK anti-bribery legislation, as well as overcoming regulatory and language barriers, are among the many factors to take into consideration. However, the long-term opportunities are clear, particularly for companies that have unique products which already sell well in more established markets.
As well as the more established markets in Southern Africa and the Middle East, British Expertise works with UK Trade & Investment (UKTI) and the Foreign Office to run missions to countries, such as Angola and Libya, which both have fast-growing oil and gas exploration sectors.
UKTI, the government’s trade promotion body, operates in almost 100 countries, but is targeting 17 of the fastest-growing. They include Indonesia – the world’s fourth most populous country with 240 million people, where UK exports rose 25 per cent to almost £440 million in 2010 – as well as Malaysia, Thailand, Turkey, Mexico, Saudi Arabia and Nigeria, among others.
Steve Box, head of global trade and receivable finance for Europe at HBSC, says UKTI support for companies entering emerging markets is very important given the issues that must be overcome, such as late payment of invoices and legal problems. Being able to find out how other organisations have coped with these challenges can make the process much simpler, he says.
The World Bank’s Ease of Doing Business rankings indicate Thailand and Malaysia are the countries with fast-growing economies that are the easiest to do business with, ranked at 17 and 18. In contrast, China is at 91, Brazil is 126, Indonesia three places lower and India brings up the rear at 132, reflecting its myriad red tape and bureaucracy.
Access to finance is another major issue for companies. Earlier this year, HSBC set up a £4-billion fund to lend to UK small and medium-sized enterprises (SMEs) to help them grow exports. Mr Box says demand was so great that by September another £1 billion was added to the total. To date the bank has lent to 9,000 businesses, with 81 per cent of applications approved.
FINANCIAL EXPANSION
Government and business initiatives
Opportunities are opening up for British exporters thanks to a new political mood at Westminster, writes Marcel Le Gouais. A government under acute pressure to lay solid foundations for economic growth has created several policies either to fund exports directly or increase options for export credit.
State-backed schemes include export insurance and a bond support scheme, as well as a working capital arrangement to ensure exporters can finance products if business is growing rapidly.
Government schemes are often “welcomed” by trade bodies, but subsequently lack participation. However, the private sector offers many other options. Factoring remains popular where lenders offer exporters an advance of up to 85 per cent of the value of an invoice. The factoring firm will then collect the invoice themselves and take a fee.
Trace credit insurance policies can also be useful. Aside from paying out when an exporter’s customer becomes insolvent and therefore fails to pay invoices, a credit insurance policy will involve advice on trading risks. Insurers such as Atradius also offer global debt collection under the policy. It’s not right for everyone, but policies can move the credit risk from exporters to insurers.
Letters of credit are another option. This is effectively a bank guarantee of payment, subject to the correct presentation of documents by the vendor. Letters of credit aren’t widely used in Europe – more than 90 per cent of transactions are on open account – and they need to suit businesses’ trading patterns.
