Download Exporting the Challenge - February 2014

EXPORTING:
THE CHALLENGE
FEBRUARY 2014
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NI Chamber is the largest independent business
network in the region and one of the fastest
growing in the British Chambers of Commerce
(BCC) network. Formed in 1783, we have
represented the interests of local business
and commerce across for over 230 years. We
now have a large and active membership of
over 1,200 businesses from sole traders to the
largest multinationals across every area of
business with in excess of 100,000 employees.
NI Chamber is an award winning, quality assured,
customer focused organisation and has achieved
the following accreditations and awards.
ACCREDITATIONS
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British Chambers of Commerce
Accreditation (achieved 2010)
Investors in People Silver Award (achieved
2012, original standard achieved 2009)
Customer Service Excellence (achieved 2011)
ISO 9001: 2008 Quality Management
(achieved 2011, retained 2012 and 2013)
AWARDS
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CIM Marketing Excellence Award UK and
Ireland 2011 – Best Traditional Sales Campaign
CIM Marketing Excellence Award UK 2012 –
Best Sales and Marketing Campaign Not Profit
British Chamber of Commerce
Chamber of the Year 2012
As an accredited member of British Chambers
of Commerce we are part of a wider network
representing the interests of 104,000 business
members which collectively employ almost
five million people. This network also links
us into the world wide Chamber network in
support of our export development activity.
NI Chamber also works on an all island basis
with the Chamber Network in Republic
of Ireland to develop all island trade.
PRESIDENT
Mr Mark Nodder, Wrights Group
VICE-PRESIDENTS
Mr Kevin Kingston, Danske Bank
Mr Stephen McCully, Power NI
CHIEF EXECUTIVE
Ms Ann McGregor MBE
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MARK NODDER,
PRESIDENT,
NORTHERN IRELAND
CHAMBER OF COMMERCE
FOREWORD
ABOUT US
Northern Ireland Chamber of Commerce (NI
Chamber) is the network for business in Northern
Ireland which enables members to grow their
organisation both locally and internationally
and drive the development of the economy.
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.
NI Chamber of Commerce is the only private sector
business body to have developed an extensive
range of export-focused services. These include the
Danske Bank Export First programme, NI Chamber
Connections, Gateways to Growth and an export
documentation service.
A key aspiration for NI Chamber is to contribute to
Northern Ireland’s economic recovery by helping
businesses particularly SMEs to move successfully
and profitably into export markets.
In our day to day activity and through research
carried out over the last two years it is clear that
there are still many challenges regarding export
growth.
This brief report summarises the findings of a
base line study into Northern Ireland’s Business
and Export Base carried out on our behalf by the
Economist Maureen O’Reilly. It also includes the
results of a UK wide export survey conducted
by the British Chambers of Commerce (with
8,000 respondents across the UK); the results of
a number of NI Chamber Surveys including our
Quarterly Economic Survey (500 respondents
quarterly), the Growing Something Brilliant
Conference (attended by 500 delegates in
September 2013) and via roundtable discussions
with new and experienced exporters on an ongoing
basis (Exporters Forum).
Northern Ireland Business
and Export Base
Northern Ireland’s business base is relatively
small…
Business base is contracting but not
remotely as sharp as the preceding rise…
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113,000 private sector enterprises in
Northern Ireland, 2.3% of the UK’s
business base.
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Northern Ireland’s business base has
receded by 14.3% since 2007.
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Smallest across the 12 UK regions 4th smallest relative to its size (adult
population).
It is now one of only four UK regions
where the business base continues to
contract.
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44% or just under 50,000 Northern
Ireland businesses are unregistered.
Over the year beginning 2013 the
number of private sector enterprises
here has fallen by -1% (UK +2.2%).
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99% employ less than 50 people.
With the smallest private sector
employment base across the UK regions…
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Business “deaths” exceed “births”…
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Northern Ireland’s enterprises employed
an estimated 503,000 people at the start
of 2013, 2.1% of the UK total.
Between 2007 and 2009 Northern
Ireland experienced the largest fall in its
business birth rate across the UK regions
alongside the North East.
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Enterprises with no employees make up
18.5% of private sector employment in
Northern Ireland (UK 16.6%).
At the same time the business death rate
here increased, up from 6.5% in 2007 to
9.2% in 2009.
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As a result the business death rate in
Northern Ireland actually surpassed the
business birth rate in 2009. This has been
the case across all UK regions.
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The business birth rate has risen slightly
in 2012 (to 7% from 6.5% 2011) while the
death rate has fallen (to 9.4% from 9.8%
2011).
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Northern Ireland’s active business base
has continued to contract faster than any
other UK region (-6.3% between 2008
and 2012 vs UK +2.0%).
Medium/large enterprises (50+
employees) make up a comparatively
low share of private sector employment
vis-à-vis the UK regions (Northern Ireland
40% vs. UK 53%).
Large firms make up a much lower share
of private sector jobs here compared to
many other UK regions (25% vs. UK 41%).
Strong expansion in the good times but
largely “one-man bands”…
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In 2001 Northern Ireland had just under
90,000 enterprises.
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By 2007, at the peak of the “boom”, this
had risen to just over 132,000, up 42,000
businesses or by almost 47%.
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The scale of increase in sole traders is
striking, up 63% over the period or just
over 36,000 enterprises.
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Gains in the number of SMEs were
modest by comparison (just under
6,000).
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The number of large firms increased by
50% over that period but from a very low
base.
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The number of Northern Ireland’s goods
exporters has been falling…
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Around 1,500 active goods exporters in
Northern Ireland in 2013, just over 2% of
Northern Ireland’s registered business
base and making up a 2% share of UK
exporters.
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The number of goods exporters here
peaked at just over 1,700 in 2009 but, as
with all UK regions, has fallen since then.
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However, Northern Ireland has
experienced the largest fall in its number
of goods exporters across the UK
regions over that 3-year period.
Northern Ireland Business
and Export Base
Northern Ireland Business Births and Deaths
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Export Policy In
Northern Ireland
Northern Ireland’s future growth prospects
as a regional economy are inextricably
linked with its ability to grow the size
of its export base. The benefits are
profuse. It is one of the main ways in
which Northern Ireland can start to reduce
its over dependence on the public sector
and address Northern Ireland’s low level
of productivity vis-à-vis the UK regions.
Trading internationally provides links to fast
growing economies as well as improving
the local skills and knowledge base and
providing a more attractive environment for
Foreign Direct Investment. Where internal
demand is weak, as has been the case
here for some time now, exports can help
accelerate recovery.
Despite some excellent success stories and
achievements in export markets Northern
Ireland’s export base remains small. In 2012
goods exports were valued at £5.7bn, just
under 2% of UK total, the lowest share across
the UK regions. While exports as a share
of the region’s value-added (GVA) is just
below the UK average it is well below other
small UK regions such as the North East and
Wales. The Republic of Ireland’s performance
in export markets has been striking by
comparison helped in no small part by its
low corporation tax rate and development as
a multi-national hub for inward investment.
In 2011 exports accounted for 107% of GDP
in Ireland compared to 32% for the UK. The
UK’s performance in export markets has in
fact been weakening in recent years, in spite
of sterling’s depreciation. The UK has been
losing market share in global markets faster
than most other EU countries.
Compared to other UK regions Northern
Ireland has the greatest reliance on EU
exports. 55% of goods exported from
Northern Ireland in 2012 were to EU markets.
This compares to 47% for England, 44% for
Wales and 33% for Scotland.
This is largely driven by the fact that the
Republic of Ireland is our main trading
partner whereas the USA is the main exporttrading partner for most other UK regions.
Other major markets for Northern Ireland
goods are the USA and Canada. France,
Germany and the Netherlands are the main
EU markets for Northern Irish exports outside
the Republic of Ireland.
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Despite the importance of the USA and
Canada as export destinations, Northern
Ireland has one of the lowest shares of nonEU trade across the UK regions. One of the
areas where Northern Ireland differs most
is in the share of sales to non-EU parts of
Europe. This market accounts for 3.5% of
Northern Ireland exports compared to 7.6%
for the UK. Inroads are increasingly being
made into a wide range of both emerging
and developed markets albeit from a
relatively small base. Growth has been
particularly strong in exports to Asia, largely
China, along with Latin America, the Middle
East/North Africa and Australia. In the last
year alone exports to the BRIC countries,
the largest and fastest growing emerging
markets in the world, have increased
by 30%. However, the BCC has found
that micro and small enterprises, which
dominate Northern Ireland’s business base,
are much less likely to have penetrated
these fast-growing markets, or see them as
a route to future growth.
Engineering and Food are Northern
Ireland’s most important export sectors.
Machinery & Transport Equipment alone
accounts for two-fifths of goods exported.
Northern Ireland is the only UK devolved
administration to have Food & Live Animals
among its top 5 exporting sectors. Other
important exporting sectors are Computer,
Electronic and Optical Equipment along
with Chemicals and Electrical Equipment.
Computer Services is Northern Ireland’s
largest tradeable service.
Our largest manufacturers (250+
employees) account for around two-thirds
of exports. In fact the top 10 exporters
alone account for half of all goods
manufactured for export here. Markets
outside the EU, particularly North America,
are most important to Northern Ireland’s
largest exporters. Small manufacturing
businesses are much more orientated
towards the local market (making up 53%
of their sales) but where they do export
this tends to be much more “near market”.
The Republic of Ireland accounts for 58% of
small firm exports and 45% of medium firm
exports.
Export Policy In
Northern Ireland
Strong export gains were made here over
most of the last decade. In fact in the 10 years
to 2008/09 Northern Ireland manufacturing
exports increased by more than 50% in
real terms. However, the fall out from the
recession and particularly the collapse
of the Irish economy has had significant
repercussions. Export sales fell by 20%
between 2008/09 and 2010/11 driven largely
by a fall off in exports to Ireland and the rest
of the EU. Much of this reflects just how
important the Irish “boom” in Construction
had been to local manufacturers. This impact
has been particularly acute for Northern
Ireland’s smaller exporters reflected in the
fact that the share of exports accounted
for by Northern Ireland’s Top 10 exporters
increased from 45% in 2008/09 to 51% in
2010/11.
The latest NICC quarterly economic survey
suggests a very patchy recovery in export
sales among local businesses. Although
more firms are reporting an increase in
exports compared to a decrease, the
balance in both export sales and orders has
weakened in Quarter 3 2013.
It is still a very challenging time for
exporters. Issues remain over a recovery in
global demand, particularly with the EU and
companies’ apparent reticence to invest,
particularly in terms of the costs associated
with trading into new and unknown
markets.
There are around 1,500 active goods
exporters in Northern Ireland, just over 2%
of Northern Ireland’s registered business
base (UK 3.1%). The number of exporters
here peaked at just over 1,700 in 2009
but, as with all UK regions, has fallen over
the last few years. In fact Northern Ireland
saw the largest decline in the number of
exporters over that time. The number of EU
exporters from Northern Ireland has fallen
much more sharply than those exporting to
non-EU countries reflecting again the fall out
here from the Irish recession and wider EU
economic crisis.
The latest Manufacturing export figures
for Northern Ireland suggests no overall
improvement in the export fortunes of
Northern Ireland manufacturers. In fact
manufacturing exports have fallen by 1.2%
between 2011/12 to 2012/13 after having risen
by almost 9% during 2010/11 and 2011/12.
Much of the fall in exports was due to a fall in
sales to the Rest of the EU, down 13.1% over
the year. Trade with most other markets
has stabilized or is improving. The HMRC
figures,which includes all goods traded from
Northern Ireland, have yet to register any
consistent improvement.
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The Export Challenge
The benefits of exporting are extensive
and go beyond simply the potential for
increased sales and profits. Research has
found that firms engaging in international
markets improve their skills, knowledge
and management practices through what
is termed an “export learning” effect.
They are therefore less likely to fail. The
ability to export expands the market
available to businesses thereby reducing
risks of relying on the domestic market
alone, an issue of particularly importance
in the current economic climate. Scaling
up production can lead to lower unit
costs bringing economies of scale as
well as improving efficiency and product
quality which can be associated with
global competition. Exporting can help
extend product life cycles and hone in on
untapped markets for certain products.
Some of the key findings from this extensive
research suggest that:
But there are significant challenges
both locally and nationally. The British
Chamber of Commerce (BCC) has invested
considerable resources in developing a
detailed understanding of the issues faced
by UK exporters. A major survey by the
BCC in 2012 involving over 8,000 businesses
showed a number of challenges, barriers
and obstacles. These centre on issues
around skills, red tape, costs, access to
finance, transport connections and business
planning.
Northern Ireland Chamber of Commerce
has also actively engaged with business
community to understand the issues that
they face in trading products/services
internationally. This included commissioning
Economist Maureen O’Reilly to carry out a
base line study into NI’s Business and Export
Base and surveying NI businesses directly
through the Quarterly Economic Survey; at
the Growing Something Brilliant Conference
attended by 500 delegates in September
2013 and via roundtable discussions with
new and experienced exporters.
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MES are typically the backbone of any
S
regional or national economy providing
two thirds of employment and most
of GDP but there is a structural issue
regarding SME’s in Northern Ireland. It
appears to lack (compared to Germany
and Italy for example) a dynamic
‘middle strand’ of enterprises combining
high-skill with high-quality products
targeted at export markets(1).
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Our research also raised issues with
Northern Ireland’s export support
framework. Feedback suggests that is
fragmented and programme rather than
needs driven, varies according to region
and is difficult to navigate. An effective
support model is considered vital.
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A series of challenges were put forward
around Northern Ireland’s future export
success. For potential exporters the
biggest challenges are in relation
to finding/understanding overseas
customers; the fact that their business is
too small; finance requirements (access,
cashflow, currency); having the right
management/staff skills and export
costs including logistics. For existing
exporters the biggest challenges
are inadequate market intelligence;
developing/maintaining necessary skills
to export and finance requirements.
(1) NERI
Addressing The Challenge
The Economic Strategy highlights that
it ‘prioritises export led growth’ but
is this really enough? The scale of the
export challenge needs to be recognised
and government should lead on the
development of an explicit Export Strategy/
Action Plan for Northern Ireland which
includes:
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a review of export data sources to
assess the true extent of NI exporting
a review of the entire export support
system
an assessment of business capability
regarding exporting and growth
a series of action points which engages
both the public and private sector in
maximising the opportunity to promote
Northern Ireland exports
The action plan should deliver for business
no matter what stage they are at in their
export journey. It should be consistent
across all parts of Northern Ireland;
recognise that every business looking to
export has different requirements and
that the system needs some flexibility and
also recognise the skills of other partners
including the private sector in delivering
trade support to business.
Local universities/colleges
and business
It was clear from the Exporter’s Forum
that there is scope to substantially
improve connections between
businesses and universities/colleges.
Research should be undertaken to
identify where successful links have been
forged and to understand the reasons
behind that success. This will help shape
future policy direction in relation to
university/business links here.
Harness the experience within
the Chamber network
There is a wealth of exporting experience
across not only the local but also
national/international Chamber network.
NI Chamber has a network of individuals/
businesses experienced in exporting to
specific countries/sectors globally. These
businesses are willing to provide practical
advice and guidance. NI Chamber is
also linked to the world wide chamber
network through the International
Chambers Initative (UKTI/BCC).
Potential actions might include:
Re-Introduce an export
graduate training programme
for Northern Ireland
Exporters believe there is an immediate
need for a graduate training programme
which focuses on export development.
Many of those involved in the NI
Chamber roundtable have either been
participants on the ‘Explorers’ programme
or companies that have employed an
Explorers graduate, and agree that is was
an excellent way of training effective sales
people for export.
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Addressing The Challenge
Better target support for
exporters to address the size
and sector divides in accessing
the fastest-growing markets
InvestNI and its partners, including
Chambers, must work together to address
the reticence of some sectors and size
groups to consider trading in new markets.
Chambers of Commerce as a leading source
of private-sector trade support, must help
local companies to build up international
skills and the confidence to trade in new
and unfamiliar markets.
Consider More Direct Targeting
of Potential Exporters
The need for a support framework
specifically targeted at potential
exporters should be explored. Enterprise
Ireland introduced a Potential Exporters
division in March 2012 to support Irish
companies wanting to start exporting.
The programme of support offers
workshops, a help desk, access to advice
from successful export companies, and
mentoring and advocate support. The
division includes two members of staff
that are London-based.
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Improve the visibility of support
for international transactions
There is a strong need to ensure that
new support mechanisms under UK
Export Finance, including the separate
Enterprise Finance Guarantee for Exports
(ExEFG), are better marketed and more
accessible to SMEs. It is clear that many
businesses are still unaware of these
products. Export finance support must
have clearer channels to businesses
through their intermediaries and brokers
with the additional resourcing needed to
make this happen. This should include
support to Northern Ireland’s Regional
Export Finance Adviser. Chambers of
Commerce stand ready to act as the key
route to market.
Educate businesses on the
costs on doing business
internationally
Perceptions around the significant costs
involved in exporting are one of the main
deterrents for businesses considering
making that first step. Business must be
helped through this process to assuage
concerns. This might include guidance
on pricing strategy as well as advice on
factors such as currency conversion,
additional costs associated with foreign
trade which may impose higher costs
(fees, licenses, etc.), translation costs and
potentially higher costs of money.
Addendum:
Business Specific Export
Challenges
Skills
The BCC research shows that one in five
UK businesses believe they lack the inhouse skills, managerial capacity and/or
knowledge to export. This is particularly
acute among micro and small businesses
and acts as a very real deterrent to
potential exporters.
A dearth of people with good business
development skills presents a real
challenge. Local exporters believe
that there is a lack of understanding
of the importance of sales/business
development skills to the economy at
all levels of education from schools,
colleges and universities. Businesses
also need to be educated to understand
the importance of training staff in how
to develop both internal and external
markets for local goods and services.
China is quoted as an example in
addressing this issue by tasking students
not only with developing products but
with selling those products as well. Invest
NI’s recently announced Skills Accelerator
grant, offering 50% contribution towards
export training costs up to £10,000, has
excellent potential for smaller companies
that are exporting or ready to export.
Language skills also act as a barrier.
Almost half of businesses claim that
language barriers influence whether,
when and where to enter international
markets. The BCC survey highlights
that the extent of the language deficit
in the UK is truly serious: up to 96% of
businesses had no foreign language
ability for the markets they serve. The
largest language deficits are for the
fastest-developing markets.
There is an immediate skills deficit
in certain sectors in Northern Ireland
including engineering and software.
Local software companies are being
forced to outsource work out of Northern
Ireland because they cannot recruit
locally. Trained engineers are also
proving elusive for local employers.
While the deficit in engineering students
has been recognised by DELNI, exporters
believe that sufficient sponsorship is not
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available to Masters/PhD engineering
students to advance their studies.
Exporters also identified poor basic skills
levels among non-graduates in Northern
Ireland as a particular concern.
Research & Development
Investment in Research and Development
creates new businesses and improves
existing ones, brings highly skilled
people into the job market, and attracts
international investment.
The consensus by local exporters is
that there are some excellent platforms
of support available for businesses to
undertake research and development in
Northern Ireland including those offered
by InvestNI. However, exporters have
concerns over the timeliness of the
government supported R&D application
process along with the skills of those
involved in that process. Particular
challenges remain around the perceived
disconnect between businesses and
universities in how they work through
the R&D process. Germany is known to
provide excellent demonstration effects
in their approach to R&D and exporting.
Market Barriers and Red Tape
Red tape can act as an unnecessary
barrier to export growth. Needless
regulation imposes costs on businesses,
can create uncertainty and detract from
business getting on with business. A
quarter of current/potential exporters
believe that UK regulation acts as a
barrier to exporting. International
regulation is also an issue. The most
common cited obstacles were customs
clearance, import regulations, tariffs and
random and lengthy hold-ups securing
export licences.
Local exporters have particular concerns
around employment law including the
early introduction of national insurance
contributions for graduates, the need
for exporters to pay VAT to then claim
back and the timing of corporation tax
payments.
Addendum:
Business Specific Export
Challenges
Finance and Costs
Establishing and growing export markets
involve considerable upfront costs and
managing additional risk. In particular
there are significant sunk costs in
exporting and this can act as a barrier
for first time exporters, particularly small
firms which dominate Northern Ireland’s
business landscape. The BCC note that
over a third of potential exporters say
that resource levels and access to finance
are ‘highly influential’ in deciding if, when,
and where to export. Businesses that are
actively considering exporting or recently
engaged in international trade say they
are less likely to start exporting if their
cash flow position is deteriorating. Yet
current exporters say they are more likely
to seek growth in overseas markets if
their domestic cash flow weakens. This
suggests that where companies have
the experience, the organisation and
the contacts, offsetting weakness in one
market by growing another is a strategy
of choice.
Foreign exchange and risk management
continue to prove challenging for
exporters. Exporters view that banks
are beginning to rebuild relationships
with businesses which should improve
the outlook for financing exporters.
Production costs are also cited as a
challenge for exporters, particularly in
relation to energy consumption. Energy
costs in Northern Ireland are viewed as
higher that the rest of the UK and are a
major concern going forward.
a strategic approach to exporting as
selecting overseas markets as part of a
business strategy for new growth; taking
one market at a time based on market
research.
Transport Connections
Transport connections play a key role in
international trade. They support supply
chains and move goods to market, but
also promote global social connections,
collaboration between companies, and
market research activities. Businesses
across the UK perceive both the cost
and quality of transport connections
to be barriers to export. Goods held
up in supply chains because of slow
or unreliable connections requires
businesses to hold more stock, which
in turn hits their bottom line. Services
companies looking to conduct business
face-to-face overseas are hit with higher
costs if the international connections to
their target markets are poor. BCC note
that concern about transport barriers
is highest among potential exporters.
Nearly half of non-exporters actively
considering international trade see the
cost of international connections from
the UK as a barrier to export.
Planning
Exporters and potential exporters need
to show a willingness to adapt their
business offering to overseas markets.
Encouragingly, the BCC survey shows
that nearly half of businesses actively
considering exporting were in the process
of adapting their goods or services
specifically to target markets abroad.
However, the majority of exporters
(nearly three quarters) have no formal
export strategy. While even the majority
of large exporting companies that
responded claimed not to be working
to a formal strategy, there is still a
clear size divide: SMEs are less likely to
possess one. BCC research identifies
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Notes:
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Notes:
NORTHERN IRELAND
CHAMBER OF COMMERCE
22 GREAT VICTORIA ST
BELFAST BT2 7BJ
T +44 (0) 28 9024 4113
F +44 (0) 28 9024 7024
[email protected]
www.northernirelandchamber.com