The effect of growth on exports
The UK economy’s promising turnaround has meant a stronger sterling. While there were initial fears that this might threaten British exports and impede the government’s plans to double UK ex-ports to £1 trillion by 2020, it should be noted that a stronger sterling can instigate a stronger economy in terms of both imports and exports, as a cheaper imports industry can encourage UK production, ultimately boosting export activity.
Carl Hasty, Director at Smart Currency Business, commented, “It will be interesting to see if businesses will seize this opportunity and invest in imports, especially in cases when doing so helps cut supply-side costs and improves a business’s bottom line. Medium-sized businesses in particular could help boost the UK’s trade activity, and more needs to be done in order to create awareness and provide support to businesses attempting to do so.”
Are conditions safe for business growth?
Reality, however, is governed by momentum, and although small and medium-sized companies are confident about growth, they are still cautious to translate this into financial activity like borrowing. This means that more efforts need to be exerted to motivate business growth, as these businesses may be slow to bat, preferring to obtain more reassurance of economic growth before expanding their own businesses – particularly when it comes to international trade.
“While there is certainly a case for prudence, businesses need to remember that economic activity – and, by implication, currency strength – can be forecast, but are still subject to circumstances beyond prediction,” continues Hasty. “SMEs looking to scale up have to take the initial steps to get the ball rolling toward successful business growth.”
Opportunity for Growth
According to recent figures from United Kingdom Trade & Investment (UKTI), businesses that ex-port are, on average, 34% more productive, 75% more innovative, undertake three times as much R&D and are 12.5% more resilient than businesses that don’t. Businesses that invest in exports are required by necessity to view foreign markets differently to domestic ones, and this widening of perspective can help businesses to grow beyond their comfort zones, potentially leading to exponential business growth.
Hasty points out, “Although it can be argued that exports are a sport for weak currencies, as a strong currency theoretically hampers export competitiveness, the view barely scratches the surface of a larger economic playing field and hasn’t stopped Germany becoming one of the world’s largest ex-porters. A stronger currency means cheaper imports; given their mitigating effect on costs, cheaper imports can be manufactured or repackaged into goods and services that are then exported at relatively low price points. Re-exporting can help a business grow, while feeding activity back into the British economy.”
“Businesses that are convinced of the opportunities offered by starting out in exports or expanding current exporting facilities still require much support. A significant proportion of this is extended by United Kingdom Export Finance (UKEF), which provides businesses with an array of services, from funding support and face-to-face export guidance to educational and networking events.
“The fanfare surrounding exports means that they have been expected to perform miracles for businesses and the economy even before they have been fully harnessed at full speed. As with anything else, exporting endeavours require patience. They also require support, as well as a proactive, dynamic approach to growth.”
Outlook, Smart Currency Business’s magazine for the latest currency news, forecast comparisons for all major currencies and topical news affecting UK businesses, is available to read here.
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Business 4 Media (Featured in newsletter) 11/02/2014