Profitable overseas expansion
‘Traditional’ trading partners in the US and the Eurozone make up the majority of British overseas trade – which today stands at some 64% of total exports. But developing economies may provide an as-yet untapped source of revenue for many British manufacturers. The potential (and the reluctance to invest in these markets) has been the subject hot debate in the past few months, with many industry commentators weighing in with their opinions…
Jim O’Neill, the economist accredited with coining the “BRIC” acronym, told the EEF manufacturing conference in March, that while Europe will remain Britain’s biggest export destination, the country could not “afford” to maintain these links at the expense of emerging markets. He said “While our position with EU and Eurozone is of number one importance, we should not get blindsided as that being the key thing for our export future. Our big future for exports this decade… is going to be other parts of the world, particularly China.” Mr O’Neill said he believed that western economies still “underestimate the scale of the growth” of the BRICs together with the next big four emerging markets of Indonesia, Mexico, Turkey, South Korea. He concluded: “This decade, those eight countries will contribute as much to the dollar value of world GDP as that of the US and euro area put together, twice.”
It seems however, that British Manufacturers are making a few tentative steps into these markets, with The Independent reporting that British companies have more than “doubled their exports to the fastest growing emerging nations in a bid to cash in on the rapid expansion in the developing world”. Figures released by The Office for National Statistics showed that exports to Brazil, India, China, Russia and South Africa more than doubled from £12.7bn in 2007 to £27.1bn in 2012. This means that the BRICS now account for 5.56% of total UK exports, compared with just 3.34% in 2007.
What’s holding us back?
Manufacturing firms are reluctant to invest in emerging economies is another point for debate. A viewpoint put forward by Martin Weale, a member of the Bank of England’s Monetary Policy Committee, is that businesses have been suffering from “heightened uncertainty” about the economic outlook which may have been “putting them off” making investments in overseas markets. In a speech at the Warwick Economics Summit, he argued that a lack of confidence has been blamed for the relatively low levels of business investment since the end of the recession, and this explanation could be extended to manufacturers’ overseas ambitions. He says “The costs which need to be incurred in entering new markets are a deterrent, not because businesses expect new sales not to be worthwhile he said, but because … at a time of heightened uncertainty, the risks involved may be putting them off,” he said.
Despite this reluctance to invest, the recent flurry of positive news stories coming from UK Manufacturing sector means that overseas growth is firmly back on the agenda. The EEF Executive Survey 2013 puts “Increasing Demand for products in Emerging markets” at number 2 in their top 5 of manufacturing opportunities – just behind “the commercialisation of new technology and product development”.
Preparing for expansion
Of course any company considering entering a new market must not only ensure that they there is the right level demand for their products, but that the business has achieved a level of operational readiness that allows them to fully exploit new market opportunities. Preparing the company from an operational perspective is something that can be ably supported by the implementation of robust ERP system designed handle the demands of a truly global operation.
One recent success story is that of SPP Pumps – a manufacturer with British heritage – who are making it big on an international stage. SPP Pumps is a multi-award winning engineering firm who design and manufacture industrial pumps for a global client base and their equipment is found across all continents – covering a diverse range of industries. In 2008, the company opted to implement SAP, with the firm’s Managing Director, Graham Terry saying: “A defining characteristic of SAP is that it supports a global, growing business. Companies that are seeking to develop new service lines or explore new markets will find that SAP gives them the scope and the flexibility to do this”. Since the SAP implementation SPP have cited numerous benefits of SAP within a global context including:
- Improved financial processes with “Up-to-date financial information combined with extensive reporting and drill-down capability gives us a fast, comprehensive view of what’s happening across the global operation”.
- Improved business planning: “A clear – and often overlooked – benefit of SAP is its potential; we can confidently plan our future knowing we have the supporting systems in place to facilitate international growth”.
- Improved productivity and expansion without adding extra headcount: “The implementation of SAP means that we can now effect major international expansion without having to increase operational headcount to cope with the additional volume of work.”
With the right technologies in place you can equip your people with the tools needed to support international business growth. For a deeper understanding of how technologies such as SAP ERP can increase your chances of success when competing in a hypercompetitive global market please contact us.