Grabbing the low-hanging fruit of international trade

Trade: Jack Simpson, policy adviser, assesses the current exporting landscape and finds nothing but reasons to be cheerful, despite the shadow of Brexit

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Jack Simpson @NEEChamberJack

International trade is a funny old thing. When I first joined the Chamber, I had this impression that international trade was for big business, with assets across the world and brands we recognise just from their jingle.

However, when within my first two weeks at the Chamber I met a couple of guys, straight out of Newcastle University who in their first six months had secured an international contract from China. Maybe it was my naivety, but I was blown away.

Then, just the other week, I met a freelance website developer who had been contacted by a Lithuanian business to help make their website UK friendly. Without even trying this freelancer was trading internationally. These aren’t even one-off stories.

Exporting can be part of any business plan, no matter age, size or sector. First-time exporters grew an average of 30 per cent over two years, with two thirds never believing such growth possible. We have a good record in the North East, exporting double the national average per exporter (£4.1m v £2.1m in 2018). This results in more jobs, increased innovation, greater opportunities and larger cashflows.

Despite this low hanging fruit, only five per cent of North East business export. It’s not hard to imagine the new prosperity and jobs that could be generated in the region if we only raised this by a few percentage points.

Some might say their product is not suitable for exporting. Which in some cases may be true, and I won’t pretend international trade is as easy as pushing a button for free money. It requires time, research and commitment to work out which markets will provide the best return for your product.

Yet I constantly hear that the British market is one of the most competitive in the world and that if you can sell it here, you can certainly trade it internationally. At the Chamber, we have members selling coffee to South America and palm trees to the Middle East.

With support from the regional DIT team and Chamber networks, it’s easy to start building the knowledge, capacity and in some cases accessing funding, to start an export journey.

I will admit, as someone who has had the unfortunate pleasure of following the Brexit negotiations for the last three (three!) years, it can feel like only a fool would be trading internationally and the world is going to come crashing down on October 31.

But trading internationally is a good method of offsetting financial uncertainty. Resilience through expansion. By not putting all your eggs in one basket and expanding your global reach, cashflow becomes less vulnerable to one nations market uncertainty… ahem.

This was highlighted by a chemical industry member selling to Europe, who for years had discarded a waste product. Yet when they underwent a Brexit review, they found that product was in demand in Eastern markets.

With small investment, they set up a new revenue stream away from Europe offsetting the impact of Brexit.

Not to distract from the seriousness of Brexit. Any market disruption on day one of Brexit will have huge implications for UK-EU trade, affecting tariffs, documentation and logistics, and the Chamber is campaigning to avoid this by securing a smooth Brexit outcome, that protects the North East business community.

However, the short-term impact on trade to “third party states”, those we have signed continuity agreements with, will be minimal. There will likely be longer term changes as new deals are brought in, but there will be much more time for business to adjust than the dwindling days before October 31.

The likely impact from Brexit will be on the value on the Sterling. Since the 2016 vote, the usually strong currency has been on a volatile, downward path. Without pointing the finger, this generally shows a lack of global confidence in our market. But a ‘slightly’ weaker currency isn’t necessarily a bad thing.

A weaker currency means British exports become more competitive. In very simple terms, if a New Zealander
can now buy two British widgets for the price of one New Zealand widget, the New Zealander will be more inclined to buy the British, better quality of course, widgets.

That’s not to say we should trigger hyper-inflation; a weak currency slows growth and raises inflation. But, trying to see the light in this period of darkness, a minor short weakening could boost export activity, and allow business to establish a foothold in markets while the currency recovers. Consulting with regional currency exchangers is a quick and easy way to manage currency risk.

We cannot, as much as I would like to, control the course of Parliament, but that does not mean Government cannot help us capitalise on global opportunities. UK Export Finance is considerably backed, providing £14bn over five years, but it is often criticised for being too narrow and bureaucratic.

Just looking across the Channel we can see how trade policy could be different. The German state bank, KfW, is much more flexible and competitive in the funding of projects, committing to longer term strategies of SME business, in contrast to the high value, national target, strategy of the UK. Maybe we should focus on the prospects and potential of our businesses.

But promoting international trade is more than money. Talking with the Swedish Chamber, local organisations are given the power and resource to facilitate long-term international activity according to their regional strengths, rather than national targets.

Here, missions are short-term, and target driven. For example, the Boston Trade Mission, which has successfully run for the last five years, will be replaced in February 2020. Developing longer term partnerships abroad provides a reliable gateway to that market and benefits us not just economically, but in culture and innovation. Something I think is lost on central decision-makers.

Hopefully I have been able to convince you that, even in these turbulent times, international trade is a good thing for business. The Chamber will always champion the global ambitions of its members, whether exporting for the first or the umpteenth time.