Download Exporting and Economic Growth

EXPORTING AND ECONOMIC GROWTH
SEPTEMBER 2010
Executive Summary
For the Scottish economy, internationalisation is critical in delivering the Scottish Government’s
purpose of increasing sustainable economic performance. The Scottish Government Economic
Strategy sets a target for export growth to exceed GDP growth. In recent years GDP growth has
tended to be higher, however given subdued domestic demand and forecast low GDP growth in the
UK this performance trend may be reversed.
Data suggests there are around 4,000 businesses exporting tradable goods from Scotland (excludes
service sector exporters, estimated at 1,500 businesses). However, 50% of Scottish exports are
accounted for by just 60 companies. Scottish and UK manufactured overseas exports grew at roughly
the same pace between 1995 and 2001. Since then Scotland’s export performance has lagged the
UK as a whole. This can largely be explained by the decline in the electronics sector – if electronic
exports are excluded exports over the time period have increased.
Enhanced productivity is a key benefit for a firm who “goes international”. Analysis of Scottish
businesses found that as well as needing to be more productive pre-entry to export markets, those
that enter international markets gain from significant post market entry “learning by exporting” which
results in productivity boosts. Engaging in foreign production through outward FDI requires an even
higher productivity threshold.
In addition to productivity, other benefits to internationalisation include increased sales, higher profit
margins and the diversification of risk through reaching a wider customer base.
Research on the barriers to or challenges of internationalisation identified key factors as insufficient
managerial time and/or skills required to internationalise, lack of financial resources and, as a
consequence, lack of knowledge of foreign markets. Leadership and ambition plays a role here.
An internationalisation strategy and acquisition of a series of capabilities, abilities and resources are
seen as key to successful and sustainable internationalisation.
An independent evaluation of SDI’s internationalisation activities found a range of benefits and
impacts of support. Firms reporting the strongest impacts were those who had received more
strategic support, were in the energy or food and drink sectors or were account managed by SE.
Scotland’s changing economic structure may have an impact on its export performance relative to
GDP growth, and so the ability to meet the GES target in the long run. In recent years, as a proportion
of the economy, the service sector (parts of which are essentially non exportable) has been growing
faster than the more export orientated manufacturing sector.
Growth rates in foreign markets and trade flows may also have an impact especially as Scotland’s
traditional trading partners (e.g. Europe) see slower growth than fast developing emerging markets
that we trade less with (e.g. China and India).
1. INTRODUCTION
The Scottish Government’s National Performance Framework states that ‘If we are to deliver
improved productivity and sustainable economic growth, we will need to place greater emphasis on
exports’ and sets a target of growing exports at a faster rate than GDP 1.
1
Scotland Performs (http://www.scotland.gov.uk/About/scotPerforms/indicators/growExports)
1
The importance of exports and wider internationalisation is highlighted by recent research and
evaluation studies commissioned by Scottish Enterprise and Scottish Development International. This
paper summarises the major findings from this research, as well as an overview of Scotland’s recent
exporting performance.
2. IMPORTANCE OF INTERNATIONALISATION
A review of internationalisation evidence commissioned by SE/SDI2 concluded there were significant
economic benefits from exporting and deeper forms of internationalisation such as outward foreign
direct investment (FDI) and joint ventures.
While indigenous firms have traditionally engaged in international markets through exporting goods
and services, there is an increasing trend for firms to launch (at an early stage) their international
expansion and enter foreign markets e.g ‘born global’. This is particularly the case with high
technology companies where the customer base is international.
For firms, the benefits of “going international” are varied, with one of the key ones being enhanced
productivity. A strong theme running through all the literature on internationalisation is that firms
need to possess productivity advantages to successfully serve global markets via exporting i.e. that
those firms with higher productivity are the ones more inclined to enter international markets.
Analysis of Scottish firms 3 found that as well as needing to become more productive pre-entry to
export markets, those that enter international markets gain from significant post market entry
“learning-by-exporting” which results in a boost to productivity of around 16-18%. Specifically,
Scottish Development International assistance has had a strong and significant impact with assisted
businesses 19% more productive than non-assisted businesses.
The research highlighted that to maximise post market entry productivity gains, firms need to invest in
more R&D and human capital and to successfully acquire foreign technologies - these are also
requirements for sustainable growth. Exposure to a richer source of knowledge and technology that
may be unavailable in the domestic market offers firms the opportunity to take advantage of these
diverse knowledge inputs and enhance their skills and capabilities - this learning can foster increased
R&D and innovation within the firm.
Other benefits and drivers of internationalisation include:




higher profit margins
diversification of risk through reaching a wider customer base
better prospects of surviving than those who haven’t entered international markets
benefits for employees in terms of higher wages
Engaging in foreign production through outward FDI requires an even higher productivity threshold.
Outward FDI is also associated with additional advantages which are normally unattainable when
only serving domestic markets e.g. relocation of production to lower cost countries; agglomeration
economies associated with international locations (for example, enabling links with key businesses,
research organisations and other services within their sector); and scale/scope economies associated
with an expanded market size.
At the economy level, recent evidence from a BERR (2009) report indicates that the UK has
particularly benefited from increased international competitiveness and openness to international
trade and investment.
A recent House of Commons report “Exporting out of Recession” also comments:
“For companies, investing and selling overseas tends to improve productivity, innovation and financial
performance. Selling overseas helps businesses achieve economies of scale and levels of growth
and revenue not otherwise possible; reduce their dependence on a single or small number of
markets; and increase the commercial life span of their products or services, with raised returns on
2 Professor Richard Harris and Dr Cher Li (2009) Internationalisation Evidence Review
3 Professor Richard Harris (2010), Report to SQW Consulting – SDI Policy Evaluation.
2
investment. These companies are more likely to have capital to invest in innovation and product
development in the UK, and to maintain or create jobs”4.
For the Scottish economy, internationalisation is critical in delivering the Scottish Government’s
purpose of increasing sustainable economic growth.
3. SCOTLAND’S EXPORT PERFORMANCE
3.1 Exports Performance against GES Target
Scotland’s total exports in 2008 (latest data available) were £63 billion (excluding oil and gas) 5. Of
this, £20.7bn was overseas exports with £42.3 billion to the rest of the UK. Measuring exports relative
to a country’s GDP provides an indication of its importance to economic performance. In 2008,
Scotland’s exports to GDP ratio was 61%, relatively high compared to other EU countries.
Spain
UK
Finland
Germany
Norway
Sweden
Denmark
Scotland
Ireland
Belgium
100
90
80
70
60
50
40
30
20
10
0
Netherlands
Exports to GDP ratio, 2008 (%)
%
Source: Scottish Government
The ratio of Scottish exports to GDP does not equate to the contribution exports make to GDP as
often components of goods are imported as part of the production process. This means that the value
of the goods exported does not necessarily reflect the value added within the Scottish economy. For
Scotland it is estimated that exports accounts for just over 35% of GDP. It is estimated that a
significant proportion (about half) of Scotland’s exports are by inward investors.
The Government Economic Strategy (GES) target is to grow exports at a faster average rate than
Scottish GDP. In 2007, GDP growth was 7.8% with exports growth of 12.6%6, therefore the gap was
4.8%. In 2008, however, GDP growth was 3.0%, whereas exports grew by 0.6%, a gap of -2.4%.
Since 2003, export growth has tended to lag GDP growth, and the average gap for the period 200308 was -1.5%.
4 House of Commons - Business, Innovation and Skills Committee (2010)
5 Global Connections Survey – raw oil and gas exports are excluded, but exports of oil and gas equipment and services are
included
6 GDP and export growth figures presented here are in current prices (not taking into account inflation)
3
Source: Scottish Government, Office for National Statistics (ONS), Global Connections Survey
3.2 Recent Export Trends
The contraction in world output towards the end of 2008 led to a sharp fall in demand for Scottish
exports. Global trade flows declined by more than output but began to recover as growth returned
during the second half of 2009. In line with this, Scottish manufactured exports declined significantly
over 2008 and the first half of 2009, and started to recover from Q3 2009. This reflected improved
conditions within the global economy, as GDP growth and trade continued to recover. Manufactured
exports though are still more than 10% below their pre-recession levels.
To some extent, Scottish exports should have been supported by the large fall in the value of sterling
since the onset of the recession. This could be because exporters have been boosting margins rather
than cutting prices. Also, sterling’s fall is likely to have increased the price of imported inputs for
Scottish produced goods. The improvement in export volumes over Q4 2009 and Q1 2010 may
though indicate that the depreciation of the pound is beginning to have an impact. More recent HMRC
data on Scottish tradable overseas exports shows a 5% increase year on year (to Q2 2010) 7.
Scottish and UK manufactured overseas exports grew at roughly the same pace between 1995 and
2001, although since then has not performed as well as the UK as a whole. Scottish exports reached
a peak in 2000/01 and has declined significantly since then. This decline can largely be explained by
the electronics sector. At its peak in 2000 it accounted for 58% of total manufactured exports and
grew by 95.7% between 1995 and 2000. Between 2000 Q4 and 2004 Q4, though, electronics exports
declined by 66%. However, it is still Scotland’s largest exporting sector at just under 30% of total
manufactured exports, although given present trends it is likely to be overtaken by the drinks (whisky)
industry in the near future.
7 HMRC data may miss a number of service sector exporters
4
UK Export Volume and SME1
200.00
Scottish Manufactured Exports
UK Export Volume
180.00
160.00
140.00
120.00
100.00
80.00
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: Index of Manufactured Exports, ONS
Index of Scottish Manufactured Exports, Index of E&IE Exports and Index of Scottish Manufactured
Exports Excluding E&IE
300
250
Index (2007=100)
200
150
100
50
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
0
1995
1996
1997
1998
1999
2000
Total Manufactured Exports
2001
2002
E&IE Exports
2003
2004
2005
2006
2007
2008
2009
Manufactured Exports Excluding E&IE
Source: Index of Manufactured Exports
A positive trade balance (i.e. where exports exceed imports) contributes to economic growth. Data on
Scotland’s balance is mixed. Data from HMRC indicates that over the last few years exports of
tradable goods have exceeded imports (a positive balance). This suggests that exporting is making a
positive contribution to Scotland’s economic performance. However, HMRC data for Scotland should
be treated with caution as a significant proportion of exports and imports cannot be allocated to any
specific part of the UK. Using the most recent data from Scottish input-output tables shows that in
2007 Scotland had a negative balance of trade. A comparison of the trade estimates at basic prices
(i.e. exports including tourism less imports) between Scotland and the rest of the UK and the rest of
the world shows and overall trade deficit of £3.7bn in 1998 rising to £10.2bn in 2007. Much of this
increase can be attributed to the collapse in the Scottish Electronics industry after 2001.
5
Source: HMRC Regional Trade Statistics (note this may exclude some services exports)
3.3 How many Scottish companies are exporters?
Statistics are relatively limited on the number of businesses in Scotland that are active exporters.
Data from UK Customs only captures overseas goods exporters, which excludes most service
sectors, and these suggest there are around 4,000 exporting businesses in Scotland. It is estimated
that there are about 1,500 service sector exporters given a total exporter base of around 5,500.
Comparative Exporter Count Scotland and UK
2004
2005
2006
2007
UK exporter count
75,511
77,751
78,682
77,745
Scotland exporter count
3,751
3,886
3,923
4,160
Scotland relative to UK
5.0%
5.0%
5.0%
5.4%
Source: HMRC, National Statistics Quarterly UK Regional Trade
2008
79,061
3,977
5.0%
2009
74,952
3,810
5.1%
Other survey evidence suggests that around one in five SME employers in Scotland exported their
products or services in 20068. The survey also highlights that exporting activity increases with the
size of the business: 19% of micro-sized employers exported, compared with 22% of small-sized and
43% of medium-sized employers. A recent UK-wide study for the Department for Business,
Innovation and Skills9 also concludes that the incidence of exporting increases with firm size, with
46.1% of firms with at least 250 employees exporting, compared to 32.9% of those with 10-49
employees. Establishments are also more likely to export if they belong to multi-region multi-plant
firms which operate in more than one industry, or if they are foreign owned. A detailed examination of
the most recent Global Connections Survey (GCS) 2008 indicates that around a half of Scottish
overseas exports are accounted for by 60 companies.
GCS data suggests that the largest 60 exporting companies account for 50% of Scotland's exports
with the top 400 companies accounting for 80% of exports. This concentration highlights a risk of
sudden structural change having a significant impact on export performance. An example of this is
with the electronics industry since 2000.
In the short term it is likely that any increase in exports will come from those already exporting and in
particular the 'top 400'. In the longer term there is a need to diversify the export base by increasing
the overall number of exporters while focussing on growth companies which have the potential to
significantly expand further into international markets and join the 'top 400'.
8 Scottish Government 2006 Survey of Small Business Opinions (it is presumed this is defined as overseas exports)
9 http://www.bis.gov.uk/assets/biscore/economics-and-statistics/docs/10-804-bis-economics-paper-05
6
The balance between supporting present exporters to export more and support to increase the
number of exporters becomes a real policy challenge along with the need to attract and retain inward
investors who by and large are export focussed.
3.4 What do we export?
The top five overseas exporting industries in 2008 were chemicals (including refined petroleum
products) (£3.5billion), food & beverages (£3.4bn), business services (£2.3bn), the wholesale, retail &
accommodation sector (£1.4bn) and manufacture machinery and equipment (£1.4bn). Together these
industries accounted for well over half of total exports from Scotland.
The top five exporting industries to the rest of the UK were financial intermediation (£10.5bn),
wholesale/retail/hotels/restaurants (£8.1bn), business services (£3.7bn), electricity/water/gas/
construction (£3.4bn) and food & drink (£2.8bn). Together these accounted for two-thirds of exports to
the rest of the UK.
Exports of financial services almost doubled between 2004 and 2008.
Source: Global Connections Survey
3.5 Major Trading Partners
The rest of the UK accounts for almost 70% of Scotland’s and the EU is the largest overseas export
partner. During 2008, an estimated £9.5 billion of Scottish exports were to the EU, 46% of the total. In
terms of individual countries, the USA is Scotland’s largest overseas export destination, receiving an
estimated £3.1 billion in exports during 2008. The Netherlands is the second largest export
destination, however this is likely to be because it is an ‘intermediate’ destination (distribution hub) for
the rest of Europe.
7
Overseas exports by geographic region
Destination
European Union
Rest of Europe
North America
Central and South America
Middle East
Asia
Africa
Australasia
Unallocable
Total
£ million
9,525
1,635
3,330
665
970
1,775
790
280
1,690
20,660
% of total
46
8
16
3
5
9
4
1
8
100
Note: The estimates for regions exclude exports from SICs 61, 62, 65, 66 and 90
Source: Global Connections Survey, 2008
Overseas Trading Partners 2008
Destination
Total Scottish
Export Value
(£m)
Share of Scottish
exports
Share of UK
exports
1
2
3
USA
Netherlands
France
3,100
1,635
1,535
15%
8%
7%
15%
8%
8%
4
5
6
Germany
Spain
Eire
1,300
995
960
6%
5%
5%
11%
4%
7%
7
8
9
Norway
Italy
Sweden
610
540
520
3%
3%
3%
1%
4%
2%
10
Belgium
495
2%
5%
Rank
Source: Global Connections Survey 2008
While changes in the exchange rate are important for Scotland’s export competitiveness, medium term
export prospects will depend in large part on the growth prospects of its major trading partners and
customer behaviour within these countries.
OECD forecasts suggest that euro area growth, and perhaps UK growth, will remain weak during 2010
and 2011, so demand for Scottish overseas exports may remain subdued even if our exports are
priced competitively. Furthermore, concerns over potential sovereign default in Southern Europe have
led to a sharp depreciation of the euro to a four year low against the dollar. This will erode the
Scotland’s relative export competitiveness compared to the euro area.
The economies that are our main trading partners are those that are expected to the lowest growth in
2010. China, now the world’s second largest economy, and India, the world’s 11th largest, are two of
the world’s fastest growing nations. In 2010 China is forecast to grow by 10.5% and India by 9.4% 10.
However, Scottish exports to these markets are relatively modest. Exports to China were £295m in
2008 (1.4% of Scotland's overseas exports) and were £230m to India (1.1% of overseas exports).
10
IMF forecasts.
8
Forecast Output Growth of Major Economies, 2010
GDP Forecast for Scottish Export Markets
IMF GDP Growth Forecast 2010
9
Asia
8
7
6
5
4
3
US
Rest of
UK
2
Euro
Area
1
0
0
10
20
30
40
50
60
70
Share of Total Scottish Exports
Source: IMF Global Economic Outlook, 2010
According to the World Trade Organisation, international trade flows by volume are forecast to grow
over 13%, this is over four times higher than world GDP Growth. Again this growth is skewed toward
emerging economies. To a large extent this is a correction to 2009 which saw world trade decline by
12%.
Merchandise exports and GDP by region, 2007-2010
Annual % change
Volume of merchandise exports
World
Developed economies
Developing economies and CIS
Real GDP at market exchange rates (2005)
World
Developed economies
Developing economies and CIS
a Projections
2007
2008
2009
2010 a
6.5
4.8
9.0
2.2
0.8
3.8
-12.2
-15.3
-7.8
13.5
11.5
16.5
3.8
2.6
8.0
1.6
0.4
5.7
-2.2
-3.5
2.0
3.0
2.1
5.9
Source: WTO Secretariat.
Looking over the longer term the chart below shows the shift given present trends which is forecast
over the next 20 years.
9
Share of UK Exports of Goods and Services11
Source: BIS
Most of these emerging markets are not our traditional trading partners and this poses challenges and
opportunities which we need to be fully prepared for to ensure Scotland’s success on the international
stage.
This raises the question about whether fast growing emerging nations offer opportunities for
Scotland’s exporters, and if so how these opportunities can be exploited. There could be a number of
reasons why exports to fast growing emerging economies are relatively low:

emerging economies import needs do not match what Scotland exports

Scottish exports are not competitively priced (e.g. when long transport costs are added)

it is difficult to get a foothold in China/India due to distance, culture and language

competition from other EU countries in these export markets

Scottish companies lack information about markets and potential customers, making

some markets are too regulated for overseas businesses to enter
Considering China in more detail, its main industrial imports are minerals (ores and oil/fuels) (23% of
industrial imports in 2008), electronics related (23%), nuclear energy related machinery and
equipment (11%), chemicals & plastics (11%), metals (iron, steel & copper) (7%) and optical
engineering products (6%)12. Scotland has strengths in a number of these (chemicals, optical
engineering and electronics), although perhaps not others. Scotland’s industrial structure and what
we produce therefore may in part explain relatively low export penetration to some emerging
economies.
11 New Industry, New Jobs – one year on (March 2010), based on extrapolation of current trends
12 Source: China Statistical Yearbook http://www.stats.gov.cn/tjsj/ndsj/2009/indexeh.htm
10
Scottish Exports to China, 2008
Electrical and Instrument Engineering
Chemicals and Mineral Products,
Rubber and Plastics
Manufacture of Food & Drink
Metals, Metal Goods, Mechanical
Engineer
Business Services & Finance
Wholesale & Retail, Hotels &
Restaurants
Other Services
Other Manufacturing
0
20
40
60
80
£ millions
Source: Global Companies Survey
Countries that include China among their major trading partners tend to be large scale exporters of
raw materials (Australia is a key example) or be close geographically (Japan, Taiwan and South
Korea)13. This may suggest that proximity to market may also be a factor.
China's Top Import Suppliers 2009 ($ billion)
Rank
1
2
3
4
5
6
7
8
9
10
Country/region
Japan
South Korea
Taiwan
United States
Germany
Australia
Malaysia
Brazil
Thailand
Saudi Arabia
Volume $ bn
130.9
102.6
85.7
77.4
55.8
39.4
32.3
28.3
24.9
23.6
Source: PRC General Administration of Customs, China's Customs Statistics
This suggests an approach could be to encourage (where appropriate) Scottish companies to
consider strategic acquisition of other companies in overseas markets to ease entry into emerging
markets.
Does Scotland’s Economic Structure Hinder Exporting?
A final point to consider here is whether Scotland’s changing economic structure has an impact on its
export performance relative to GDP growth, and so the ability to meet the GES target. In recent years,
as a proportion of the economy the service sector (parts of which are essentially non exportable) has
been growing at the expense of manufacturing. For example, between 2000 and 2007:
 manufacturing as a share of GVA has fallen from 18% to 14%
13 Source:
PRC General Administration of Customs, China's Customs Statistics
11
 the public sector’s share of GVA has risen marginally from 20% to 21% (and this is in large part a
non-tradable sector)
Financial and business services share of Scotland’s GVA has risen from 22% to 28%, but this
accounts for just 14% of overseas exports (although accounts for 27% of exports to the rest of the
UK).
This suggests that the declining share of Scotland’s economy of sectors that are more likely to export,
and growth of sectors that are perhaps less likely to export (currently) may hinder progress towards
meeting the GES target. This though also suggests the need to explore how more non traditional
exporting sectors can be encouraged to look at international markets. All the Government’s key
sectors have export potential.
4. BARRIERS AND CHALLENGES TO INTERNATIONALISATION
Research evidence on the barriers to or challenges of internationalisation identifies the following
factors:
1. insufficient managerial time and/or skills required to internationalise
2. lack of financial resources; and
3. lack of knowledge of foreign markets, mostly due to points (1) and (2).
In response to such barriers, it is acknowledged that successful and sustainable internationalisation
will require an internationalisation strategy and the acquisition of a series of capacities, abilities
and resources e.g. international ambition and development of an international mindset prior or
at the first steps of internationalisation. That is, a direct and clear link between internationalisation
(especially exporting) and competitiveness, such that boosting internationalisation requires integrating
policies for competitiveness and growth.
The recent evaluation of Scottish Development International’s internationalisation activities
questioned Scottish companies on barriers they faced to internationalisation. The most significant
barriers identified were finance, followed by management time and establishing dialogue with
prospective customers or partners. These are all areas SDI/SE can and does influence.
Main barriers to undertaking international trade
Finance
Pressure on management time
Difficulty in establishing a dialogue with prospective customers or partners
Language/cultural differences
Currency/exchange rates
Preference by overseas customers to work with firms in their own country
% of responses
33%
28%
27%
26%
26%
24%
Source: SDI Evaluation
The case for government intervention has historically centred on imperfect information. This hinders
internationalisation since potential buyers and sellers need access to the identity and location of
potential suppliers and customers, as well as information about the prices and quality of the goods
and services to be traded. Governments can facilitate access to networks of business contacts in
overseas markets. Export promotion activities are further justified if networks act as an informal
barrier to market entry by limiting the extent to which information is made available to outsiders.
However, addressing the resource and capability gaps of companies has become increasingly
important market failure to be addressed.
A recent BIS report14 also found that the incidence and nature of barriers to internationalisation tend
to be greater for innovative firms15, and that they do not diminish rapidly with export experience,
but vary across markets, and increase as firms seek to enter high growth markets, which are
14 Source: BIS Economics Paper no 5 March 2010, Internationalisation of Innovative and High Growth SMEs
15 the 2008 UKTI internationalisation survey found that innovative IP active and young and innovative firms are found to be
more likely to report barriers to internationalisation than non-innovative firms
12
also culturally more remote. These are all areas that SDI directly, and in with partners, currently seek
to address through its range of interventions.
5. SUPPORT TO COMPANIES AND IMPACTS
Scottish Development International offers a range of assistance to enhance the capabilities of
Scottish businesses seeking to become more globally active. The types of internationalisation
support delivered are:






preparation
strategy
mentoring
market support
overseas missions and learning journeys
overseas accommodation
Some of these activities will be delivered under the recently launched Smart Exporter initiative - an
ESF-funded initiative between Scottish Development International and Scottish Chambers
International designed to broaden business engagement in internationalisation, designed to offer
more light-touch support to a broader base of businesses (8,000 businesses over 3 years) to
contribute to Scotland’s export performance.
The evaluation of Scottish Development International’s internationalisation and inward investment
activities16 found that businesses showed significant improvements in perceptions of their
internationalisation capabilities following support from Scottish Development International. As
illustrated below, increased capabilities were reported in “knowing what needs to be done to establish
a local presence”, “ability to develop a strategic plan” and “having a clear view of the advantages and
disadvantages of international trade.”
Able to apply marketing skills to international opportunities
Knowing what needs to be done to establish a local presence
Ability to reach a target market overseas
before SDI
now
Understanding how to develop products for overseas markets
Ability to develop a strategic international plan
Understanding of our strengths and weaknesses in
International operations
Having a clear view of the advantages / disadvantages of
International trade
2.0
2.5
7
3.5
4.0
4.5
Source: SDI evaluation
Other impacts of Scottish Development International support include:

companies operating internationally had higher productivity, with SE/SDI assisted business
having 19% higher productivity than those not assisted
 60% of companies assisted had made or planned to make changes to their businesses as a
result of working with SE/SDI
 Just under half had achieved sales in new overseas markets and 80% expected to achieves sales
 36% had adopted new ideas following SDI support and this had led, in their view, to improved
competitiveness
16 SQW Consulting (2010) - SDI Policy Evaluation. The study included econometric analysis, company surveys, internal and
stakeholder consultations and case studies
13


companies reporting the strongest impacts were those who had received more strategic support,
were in the energy or food and drink sectors or were account managed
the main difference that SDI support has made is in helping to speed up and increase the scale
and quality of firm’s international plans rather than making non international firms international.
Economic Impacts
Both sets of analysis (econometric and business survey) produce results that reinforce one another.
The methodology used is consistent with the evaluation of SE Account and Client Managed
Companies.
The net investment in internationalisation by SDI was £19.3 million (2005/06 to mid 2009); an
average of around £5 million per annum. Businesses indicated that the support provided by SDI
between 2005/06 and 2008/09 has led to:





an additional cumulative value of exports of £174 million (an average of £58 million per
annum to date)
net additional Gross Value Added (GVA) of £75 million to date
around 1,100 net additional jobs to date
net cost per job to date is £11,000
the ratio of GVA : per £ invested is 7:1
Businesses were also asked to estimate the value of additional sales the support would lead to in the
future. These are more uncertain and the values have been reduced to reflect any “optimism bias”.
Businesses’ estimated potential effects amounting to:


a further £72 million over the next three years
including these future estimates, the GVA : £ invested ratio doubles to 13:1
CONCLUSIONS
Importance of exports to productivity and economic growth
Exports have a key role in driving productivity improvements in the economy alongside innovation.
Structural change to a more export led economy will lead to greater competitiveness of the Scottish
economy.
A critical longer term challenge for Scotland is positively responding to the changing global economic
landscape and how Scotland can better position itself to take full advantage of these opportunities
over the next 20-30 years. We need to understand better the drivers, opportunities and policy issues
which need to be considered in the near future. This longer term view is an area affecting wider
public policy where we may want to actively influence partners to consider their role e.g. education,
business infrastructure.
Government export target: is it ambitious enough given present climate?
The ability of the economy to meet the Government Economic Strategy target to grow exports at a
faster average rate than Scottish GDP is particularly difficult to assess at the present:

on the one hand the forecast low growth in GDP means export performance only has to
experience modest growth. The 5% increase in export performance year on year recorded by
HMRC reflects this point – therefore the question could be is the target challenging enough?

on the other hand, Scotland’s export performance has been patchy particularly given the
dependence on some key export sectors (i.e. electronics) which have seen an overall decline.
Overall, if Scottish GDP growth is similar to forecast UK growth (2.1% in 2011 IMF forecast) then the
export target could be perceived as unambitous. If world trade is increasing four times as fast as
world growth then Scotland’s competitive positioning relative to this needs to be considered.
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Tradition trading partners vs fast growing economies
Part of the challenge facing the Scottish exports sector is the performance of export markets. In
general, the economies that are Scotland’s main trading partners are those that are expected to have
the lowest growth in the medium term. On the other hand, the world’s fastest growing markets, for
example China and India, are presently relatively minor destinations for Scottish exports.
This raises the question about whether fast growing emerging nations offer opportunities for
Scotland’s exporters, and if so how these opportunities can be exploited in both the short and the long
term.
Scotland’s key export opportunities at present and in the near future will be with our traditional trading
partners, however the shift towards emerging markets will continue and we need to better understand
where the best opportunities lie. This should focus on understanding better the future opportunities in
emerging markets for Scottish businesses particularly at a sub-sector level.
Structural change to support growth in sectors with greater export potential
Scotland’s changing economic structure may have an impact on its export performance relative to
GDP growth. In recent years, as a proportion of the economy, the service sector (parts of which are
essentially non exportable) has been growing relatively stronger than the manufacturing sector.
Renewed emphasis on export led service and manufacturing sectors is important and the
Government’s key sector priorities reflect this.
We need to better understand service sector exports (and exporters) to ensure we capture the full
picture and allow policy decisions to be made e.g. through research with Government colleagues and
other interested parties such as the Chambers of Commerce.
Broader vs deeper engagement with businesses
Scotland has a lower proportion of its business base that is exporters than some other UK regions.
We also have a high concentration of exports coming from relative few companies.
In the short term it is likely that any increase in exports will come from those already exporting and in
particular with those companies which can achieve substantial growth through expanding
internationally. This is likely to come from SE account management companies along with larger
companies which may require specific ‘international interventions’ (e.g. international networks and
business contacts) rather than the full account managed support.
In the longer term there is a need to diversify the export base by increasing the overall number of
exporters. The balance between supporting present exporters to export more and support to increase
the number of exporters is a real policy challenge.
The ability to continue to attract, retain and expand foreign inward investors who, by and large, are
export focussed will also play a key part in future export performance.
Actions from the Evaluation
The evaluation of Scottish Development Internationalisation’s activities provides some very positive
findings for SDI. An action plan has been put in place to respond to the key recommendations of the
study. Key areas of focus for the action plan are:
 data collection and reporting to manage resource allocation effectively
 communication of strategy - especially with stakeholders & partners
 internal (within SE) promotion of internationalisation with companies to increase further the
uptake of SDI services
 enhanced performance Indicators to show outcomes, progress towards outcomes and permit an
ongoing assessment of return against investment
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Annex 1
ECONOMY, ENERGY AND TOURISM COMMITTEE (EET)
REPORT ON THE PUBLIC SECTOR’S SUPPORT FOR EXPORTERS, INTERNATIONAL
TRADE AND THE ATTRACTION OF INWARD INVESTMENT
Summary
The Committee has concluded its inquiry into international trade and investment. Overall
messages from the report include:
 The Committee is positive over and Scotland’s historic trade and investment
performance but sees more recent performance as being ‘patchy’.
 The Committee sees SDI as having a key leadership role and as being customer
focussed.
 The Committee wants to see ‘more’ in most areas with a drive for low cost solutions.
The main conclusions and recommendations fall into 11 broad areas:
1
2
Topic
Scotland’s Trade and
Investment Performance
SDI Strategy
3
Support more companies
to export
4
SDI Overseas Offices
5
Collaboration and role of
private sector
6
Wider Issues to support
international trade
Education Sector
7
8
Attraction of Inward
Investment
9
10
Wider issues to attract
inward investment
Statistics
11
New Chief Executive
Conclusion / Recommendation
Historically good, Patchy performance more recently (baseline
was 2000 at the peak of Electronics exports)
Strategy is broadly correct in its focus, should be updated to
ensure a step change in the number of exporters (this should be
the agency’s primary focus)
Support received is high quality , however not enough companies
are asking for advice in the first place, needs to reach more
companies
Physical presence outwith Scotland is static and geographically
fixed, need to build on existing network of overseas offices with
low cost solutions, build a wider network of Scottish trade
counsellors.
Need to ensure public /private sector activities are joined up and
co-ordinated. SDI must ensure it does not unnecessarily
duplicate, ‘Heineken Model’
A range of specifics from rolling out SMART exporter to better
use consulates and influencing export credit provision,
Further development needed should cover colleges as well as
universities
Current overseas provision doesn’t go far enough Concentrate
less on numbers of jobs created and more on attract specific
types of investment, need to take forward low cost options to
establish wider network of Scottish trade counsellors.
A range of specifics ranging from ensuring RSA fit for purpose, to
air route development fund.
Frustration at lack of up-to-date and consistent statistics,
recommend that this is addressed by the SG
Concerned over the delay in the appointing a new CEO,
recommend Ministers proceed to make permanent appointment
as soon as possible.
16