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Tuesday 20 December 2011

What We Need Is Salesmen, Not Greedy Profit Takers

If the current debate over Europe has done nothing else, it has at least made the people of Britain begin to question our country’s relationship with the wider world; and forced us to recognise some unpalatable home truths regarding the UK’s lack of manufacturing capacity, which has not only helped to tie us to the unholy alliance that is the European Union, but has fundamentally limited our ability to trade openly and competitively with the rest of the world. Despite what some may believe, Britain is still a nation of entrepreneurs, designers, engineers, builders, inventors and visionaries, but all too often they are creators frustrated by a lack of commercial insight, investment and infrastructure, the very resources that they need to bring their creations to life within the UK. As a result they are left with little option but to take their ideas, their designs and their innovative concepts outside of Britain simply to see them realised, built, or manufactured elsewhere in the world, so the even though the design itself is “Made In Britain”, the actual products are not. However, even though the lack of a credible and vibrant industrial base is one of the major factors affecting Britain’s ability to make things, it is also true to say that the British habit of unfettered and sometimes clearly unashamed profit taking by owners and investors alike has played an equal part in helping to ensure that the nations industrial capacity will never be rebuilt, unless steps are taken to curb the rapacious appetites of our modern day banks, investment groups, shareholders and business leaders.

According to a report issued by the Department of Business, Innovation and Skills (BIS), Britain’s current industrial malaise is not simply the result of the emergence of the newly industrialised BRIC nations (Brazil, Russia, India and China), whose development was a significant factor, but was also the result of commercial laziness, a lack of financial investment and a failure to provide effective representation for goods and products in these newly emerging markets, by British manufacturing companies themselves. Where once Britain had some form of commercial representative on every continent around the world, be they public or private, nowadays Britain’s manufacturers are largely left to their own devices to try and sell their wares to the world, a highly costly and often troublesome arrangement that most small manufacturing companies simply cannot afford to implement. For those larger multi-nationals with a stake in these emerging markets, or those government sponsored defence companies whose sales matter to Britain’s economy, no such financial restraints exist and as a result they are generally well represented in Russia and the Far East, as a means to gaining access to the lucrative contracts that will inevitably spring from the modernisation of these developing nations. Increasingly however, even though British manufacturers are gaining a fair share of the medium to high end technological equipment required by the likes of Brazil, Russia, India and China, this does little to help those numerous small to medium sized British producers who would like to gain access to the native populations of the BRIC countries in order to sell them British made products.

As a result many of these smaller manufacturers tend to stay within the confines of the European Union, which is not only geographically closer to their factories, but also offers the advantage of lower transport costs, no tariffs and well established trading relationships. Unfortunately, this reluctance or inability to trade with the likes of Brazil, Russia, India or China simply helps to preserve the existing status quo with regard to our country’s often troublesome membership of the EU, which will almost certainly persist, if British manufacturers and traders are unable to increase our trade with other non-EU countries, such as the BRIC’s, the Commonwealth, as well as North and South America. However, with most medium to large sized companies quietly content to maintain their generally trouble-free and highly profitable trade with their European customers, they generally have little incentive to invest both time and money in investigating new foreign markets; so as a result little is being done to claim a share of these new markets for Britain’s struggling industrial companies.

Sadly this is rather typical of the short-sighted commercial thinking that has come to dominate British industry over the past three or four decades, where minimal investment and maximum profit-taking, low risk and high returns, have typically become the order of the day. Allied to this stagnation in Britain’s manufacturing sector has been the evolution of the UK’s burgeoning financial sector, elements of which have been incorporated into the country’s official trade figures, as export and import services, as opposed to actual physical goods that are bought and sold around the world. It is thought to be increases in these non-manufactured goods that has helped to support Britain’s languishing export figures, helping to give the impression that the country’s export driven industries are in a far better shape than they actually are. According to the same BIS report, between 1998 and 2008, British exports in goods increased by around 72%, while exports in services increased by more than twice that amount, by 156%, illustrating the disparity between the sectors and the UK’s greater reliance on non-manufactured products. During the same period, Japan was said to have increased its exports by 100%, Germany by 176%, France by 100%, and the United States by 95%, putting the UK’s figure into some sort of perspective, at least internationally. However, all of these figures paled in comparison to the 700% increase in exports reported by China, which has become the main manufacturing engine of the world’s economy, often at a direct cost to the workforces of the United States and the UK. Much of the UK’s export in goods was thought to have comprised the previously mentioned medium to high end technological goods that are typically purchased by governments or large industries, typically aspirational equipment, rather than those utilitarian items bought by individual consumers, underlying the fact that it is Britain’s larger international companies that are managing to find foreign markets, rather than smaller British manufacturers, the ones that would undoubtedly add strength to the UK industrial base and create new opportunities and employment.

It is also worth pointing out perhaps that a reliance on services to support the country’s export figures might prove to be troublesome, given that such services are generally tied into the mood and behaviour of international markets, which as previous events have proved can be erratic and highly costly, as in the case of Lehman’s and the 2008 financial crash. Billions of pounds of investors, savers and taxpayer’s money was reported to have been lost, a situation that might have been less critical and cataclysmic had the monies in question been invested in real manufactured goods, as opposed to non-physical financial services like mortgages, insurances and future speculations.

In the decade 1998 to 2008 and despite the development of these new export services, Britain’s share of total world trade was reported to have fallen to 4% in 2008, from a figure of 5.8% in 1998, begging the question, what would have happened to that figure if Britain hadn’t had its growth in export services to support it. Over the same 10 year period Britain’s share of the world’s total imports had also fallen to 6.2% in 1998 to 4.5% in 2008 implying that our country’s impact on world trade was weakening, rather than strengthening, even though during 2007 and 2008 the value of sterling was said to have fallen, meaning that British made goods should have been more popular with overseas customers, but that wasn’t the case. When asked about this some 60% of exporters were said to have been reluctant to put more resources into exploiting sterling’s weakness to generate greater sales, a staggering admission from producers whose life-blood is supposed to be international trade. Out of these same exporters only 27% of them felt that a weaker pound was beneficial for their businesses, reinforcing the view that a large majority of Britain’s manufacturing were unwilling to exploit this opportunity, although the reasons for this remain unclear, although it is surmised that many preferred profit-taking to committing further financial resources to their businesses, seemingly an ongoing attitude amongst the UK’s business community.

At the same time the UK’s share of the world’s total export market has fallen from 5.3% to 3.1% between 1994 and 2009 indicating the seriousness of the situation that is facing Britain’s manufacturing companies; as well as the mountain they have to climb if they have any intention of becoming a major international trading nation in the near future. Even though the likes of Germany and Holland have followed Britain’s lead in producing medium to high end technological products for the world’s markets, more significantly both of these countries have retained their low to medium end manufacturing industries as well, giving them a distinct advantage over the UK, which has very little of this sector operating in Britain. Where German and Dutch businesses are willing to produce cheaper, better value for money products, the UK tends to go to extremes, producing cheaper goods that no-one wants, or expensive products that very few can afford, rather than copying the much more commercially successful Dutch and German models that are aimed in the middle, thereby attracting both ends of the price range. Even though the BRIC nations are reported to have bought up to 6% of Britain’s total exports at one time or another, in reality this is far from being a success story and much more needs to be done, to achieve the sort of double-digit figures that some of our European competitors regularly attain with the likes of China, Russia and Brazil, so there is still much work to be done.

Given that the BRIC nations on their own are widely expected to increase their economies as much as seven times that of existing ones (7 times the growth) then surely it makes sense for British manufacturers to be committing far more money and time into tapping the commercial potential of China, Russia, India and Brazil, rather than just taking the view that it’s all just too much trouble. Much of Germany’s industrial strength is centred on their production of heavy plant and equipment, a model that Britain would do well to copy if it has any intention of being equally successful in the years ahead. But perhaps Britain’s future prosperity is far too important to be left to the private commercial sector alone, who have clearly demonstrated their indifference to growth, while their current profit margins are deemed to be acceptable to bosses and shareholders alike. Maybe for Britain to be a truly successful manufacturing centre again, it will take direct government involvement to motivate and encourage private enterprise to look beyond our existing European borders, to see that there are huge business opportunities in the big wide world, but British business needs to go out and get it, before the competition does.

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