Bridging the gaps between the oceans, globalisation has arguably been the pinnacle of global development and has enabled the human race to rapidly advance and work together to achieve what once was deemed impossible. The vital component of achieving such advancement came from the age-old practice of trade. International trade has allowed the globe to shrink and unite, however, with Brexit and the new US presidency, we are expected to witness change in the scope of international trade.
This month, we speak with Lesley Batchelor OBE, the Director General of the Institute of Export & International Trade. She sheds light on what to expect in the trading world and how businesses can stay on top of all these changes.
What are your predictions for British exports post-Brexit – how do you see the UK changing globally in regards to being internationally competitive?
During the run up to the referendum the Institute of Export & International Trade found itself being ignored and, indeed, issues around trade were often shouted down in favour of less tangible, often emotive, issues. The UK has always been able to trade internationally. Nothing has been stopping us from trading with the rest of the world and the EU was an enabling force - not a restricting one. That being said, any predictions for the UK since deciding to leave the EU would simply be like quicksand and it is clear that much change is required. Interestingly, there are larger arguments now being raised around globalisation and the success or failure of world trade.
Although the UK has a long tradition of trading internationally, much of it has been lost in the ease of the trading with the EU. To succeed we will need to re-learn how to trade and ensure our businesses are not thinking in silos but in terms of a holistic approach to the skills needed. They should be sending out sales people who know how to negotiate on price and know the cost of collecting money or selling in the local currency - people who understand the culture of the local business environment and market according to their needs. Sales need to reflect the complexity of logistics and possible compliance issues in terms of both standards or technical certification, along with compliance with paperwork needed to claim preferential duties or simply enter another country. Finally, as you all will know, they should understand when they have a contract or not. All these potential costs make up an international trade deal.
What should new and upcoming businesses take into consideration when regarding exporting?
Any business should look at exporting as a natural progression of searching for new markets. That being said, there are quite a few steps to getting it right and these should be followed to ensure a first venture into world trade doesn’t finish in disaster. Like all journeys, there are a few routes to get to the destination and each business needs to look at what suits them and where the destination should be. Ask questions until you are happy that you understand the best route for the business. The Department for International Trade has advisers across the country to help. Also, look at www.opentoexport.com – which highlights useful considerations on what can be a treacherous journey.
You believe that transactions should be dealt with by a qualified international trade specialist; what do you think businesses should be looking for if they needed guidance/ support with trade?
The Institute must declare a vested interest here as we have a full programme of qualifications in international trade from a basic young international trader at level 1, to an MSc at Warwick University. This is all delivered using a digital platform and expert tutorial support which allows those studying, a flexible approach and time to work at their, and their employers’, convenience. International trade unfortunately doesn’t only happen during college opening time! It is a strange thought that if we want our books to go to HMRC we go to a qualified accountant. We wouldn’t dream of going to court without a qualified lawyer - however, we feel it is perfectly acceptable for millions of pounds of goods to travel the world without a hint of a qualified or skilled person in charge! The Institute is committed to bringing professionalism to the industry and ensuring that businesses are not operating on a ‘we’ve always done it like this’ basis but adopt a fully informed and current approach to global trade. Companies should be looking for staff that understand world trade and show commitment to staying ahead in a constantly changing environment. This is what the Institute specialises in.
What are the key things businesses should look out for in regards to international trade? And how do you think this will change post-Brexit?
One of the key elements that has been missed in this Brexit debate is that for over 40 years it has been very easy to trade with our neighbours. This ease has led to a relaxed attitude to world trade and even a complacency that led to our EU exit. Leaving the EU will mean that all businesses moving any goods or services will automatically become an exporter. Being an exporter requires good record keeping, more specific accounts of your goods’ final destination, what they were used for in some cases of dual use export controls - and taking vicarious responsibility for the action of your agents or third parties in markets around the world. This is the case for all external markets outside the EU and now will be the case for all exports.
How do you think businesses should prepare for these changes?
Learn how to export properly. It will save time and energy in the long run and prepare you for all aspects of exporting. Looking for short cuts is simply counterproductive - get it right first time and visit www.export.org.uk/qualifications or undertake short one day courses at www.export.org.uk/training.
Einstein tells us to ‘first learn the rules of the game; then go out and play it better than everyone else.’
With the result of the US presidential election alongside Brexit, how do you think trade will alter internationally and how do you think it will affect the UK?
The rhetoric of the Candidate Trump was certainly very isolationist and his first act appears to be to halt the negotiations on Trans Pacific Partnership (TPP) which would have created a trading union in the southern hemisphere between the USA and many pacific markets - easing trade between them all. This is part of his America First strategy that won a lot of popular support. The USA is our next biggest trade partner after the EU and the largest if we consider exports on a country by country basis, Germany being the next.
The Transatlantic Trade & Investment Partnership has been floundering for some time and it was more ambitious in scope for the EU and USA to form a trading union that would represent more than 43% world GDP and create a shift in power away from the Asian markets. The new president has a lot of ideas on how to build America into a greater country and we all need to be watching the White House for news in the coming months. The ‘special’ relationship has never carried boundaries or clarity on what it covers so we may see a new relationship grow that includes trade - but not as we know it today. This goes back to the many countries who have benefited from globalisation beginning to question it’s its validity in harder times. Facing the fact that we are all operating in a globally flat world economy may be hard, but it is the truth. We want to empower emerging countries to feed themselves and support themselves however, without external trade, this will become increasingly difficult.
As we reduce one economic factor another increases and the balance of world trade will turn into aid support for the Organisation for Economic Co-operation and Development (OECD) least economically developed countries. This will affect the UK one way or another and so the only certainty is that we are not in complete control of our own destiny.
Are there any specific regulations you think businesses should keep an eye on, if they are subject to change?
The world of trade is constantly changing and the specifics of regulation have been outlined a little in this article. The only specific regulation is the regime reflected in ‘rules of origin’ – the basis for all tariffs’ agreements. These change slightly depending on the agreement and lead us neatly to the issue of record keeping and compliance. If a business is importing raw materials from countries worldwide, this will have an impact on the country of origin declared by the manufacturer. This becomes a complicated calculation for a car manufacturer but simpler for most others.
What policies and regulations do you hope will change; or, if you could alter regulations, what would you change?
World trade has been operating for many centuries; Queen Elizabeth I was responsible for many laws that still make the cogs of industry and shipping turn smoothly today. Some regulations appear difficult, but to change one in isolation would be hard - like taking one stitch from a knitted sweater which would unravel the pattern. The introduction of customs schemes and regulations in many cases increases security for the trader and customer - however, it is very heavily reliant on paperwork. The World Trade Organisation (WTO) is looking at Trade Facilitation to reduce the onerous levels of paperwork but is forced to move at the rate of the slowest member states in terms of electronic data interchange and border controls at crossings. Even in the UK people cannot rely on their internet connection, so imagine how difficult it is in some of the emerging markets.
Which regulation do you think will become most imposing and problematic for businesses exporting internationally?
The recurring theme of record keeping and understanding which records are needed for compliance and taxation issues. Most imposing will be HMRC - both in terms of VAT and customs duties that will be collected - and any tax exemptions only against evidence of shipment out of the country. This will require businesses to examine current records more closely and what may need to change in order to stay on top of the needs of the HMRC. Starting a dialogue with HMRC about any new activity is a wise move and will enable your business to get it right and trade with confidence in any new market.
What factors do businesses undermine/dismiss when regarding trade?
New or inexperienced exporters tend to try and operate in a similar way to their UK operations and this includes setting the price. Using a simple cost plus basis to create an export price demonstrates a naivety around the actual costs that may be incurred and can be potentially damaging in making or losing money and also in terms of reputation in the market. Setting a price is hard but putting up a price is harder still, often involving clever positioning in the market, new collateral and finessed PR activity – all of which costs money and effort that should have been used to set the right price before launching.
Can you offer any other advice for UK businesses trying to trade abroad and for businesses wanting to trade with the UK?
There is a wealth of information out there and help in many areas. The new State Department for International Trade has a team of International Trade Advisers who are all members of the Institute of Export & International Trade and follow our CPD programme to ensure they are up to date and current with all the changes, or as many as humanly possible.
The Institute offers a business membership which has a helpline support that proves invaluable time after time to businesses needing the basics at a very competitive price and also runs Brexit Workshops to help companies understand the implications for their own businesses. Many businesses will be aware of their local chamber of commerce and some forget there is a proliferation of bi-lateral chambers based in the UK to help with specific markets.
There is a huge amount of help for anyone embarking on this journey. Getting exports right is not a fluke. Having a stab at exporting will not always produce results but treating it as a part of your long term strategy and finding skilled people to help will make the journey enjoyable and profitable, possibly leaving time for you to play golf or take an afternoon off?
Is there anything else you would like to add?
The Institute recognises that not everyone is selling a physical product and that a huge percentage of trade is in skills and services. Services represent over 70% of trade and need to be encouraged not halted. The need to recognise movement of people as part of those sales will play a key role in how we all develop our businesses over the coming years. In recognition of the challenges of selling skills or IP overseas, we have developed a diploma in Selling Services, Skills and Software Overseas.
