A changing global landscape

blue sky map globalisation The RBS Economic Unit in conjunction with The Economist have just completed a report on ‘Exploring the Changing Global Landscape for UK Companies.’ This is an independent report by the Economist Intelligence Unit, providing you with insight into the latest trends and opportunities in global trade. It makes interesting reading given the current economic climate. You can download the complete report here or read the headline results below:

1- Few executives expect that there will be any quick improvement in the external environment. UK companies that trade internationally express considerable concern about the prospects for the economic and market conditions over the next three years. Most notably, just 17% expect an improvement in the availability of capital over this period, with almost half expecting further deterioration. There is also concern about the cost of doing business. Despite recent volatility in oil and commodity prices, there is a strong consensus that transport, energy and raw materials will, on average, become more costly over the next three years. The availability of talent, however, is expected to improve, although this probably reflects employers’ sentiment that job losses will reduce competition in labour markets.

2 -International trade remains an essential strategic priority. Despite their gloomy assessment of the external environment, survey respondents recognise that they must not simply batten down the hatches
and pull back from international trade. If anything, they indicate that they should increase their trading activity. Almost 60% think that the opportunities for geographic expansion will improve over the next three years and more
than half say that their company plans to enter a new geographic market over the next year. Furthermore, three-quarters of respondents say that they have increased the number of overseas markets in which their company
markets products and services over the past three years. In terms of strategic priorities, it is clear that companies favour a deepening and broadening of their geographic reach, both to diversify risk and revenue streams, and
to offset the decline in a domestic market that has entered recession.

3 – UK companies see more economic challenges at home than abroad in the next three years. British executives expect to face economic challenges in whichever region they do business in the next three years, but they predict that those challenges will be tougher at home than abroad. However, they see fewer trade and investment barriers in the UK than in other regions over the same period.

4- There is a shift in the perception of emerging markets. Although growth in China, India and other key emerging markets is forecast to slow over the next year, respondents to our survey continue to see these countries as those most likely to present new opportunities. Half of the respondents said that they would invest more time and money in emerging markets than in developed markets over the next three years. China leads the pack as offering the best prospects for revenue growth, followed by India and Central and Eastern Europe. These findings represent a definite shift in the trading patterns of UK companies. Historically, UK companies saw emerging markets primarily as sources of labour, resources and raw materials. Today, however, the primary motivation for those that trade with overseas developing markets – by a considerable margin – is to access new customers, perhaps a reflection on the growing middle classes in such markets.

5 – Bottom-line improvements will help to fund international expansion. The enthusiasm with which UK companies are embracing international market expansion begs the question as to how they will fund this investment in an environment of tighter, more expensive credit than in recent times. The survey suggests that the approach taken by many companies will be to focus on the balance sheet and pay close attention to the bottom line. In-house performance improvement and process innovation are seen by respondents as the most important tools to cut costs, with the use of alliances and partnerships, and outsourcing and offshoring, following close behind. By keeping costs down and freeing up cash, companies clearly hope that they can retain their focus on their international trading priorities.

6 – Companies will seek to broaden their outsourcing relationships. The motivation behind companies’ outsourcing arrangements is now firmly on their ability to reduce expenditure. Asked about the considerations when choosing a location for an outsourcing provider, respondents point to cost as by far the most important factor ahead of the ability to access specialist expertise. The survey also suggests that there will be a broadening of supplier relationships among UK companies over the next few years. Almost half say that they will increase the overall number of supplier and partner relationships, with just 11% predicting a decrease.

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