Seven tips in seven minutes: International trade
The UK economy faces several headwinds, including tightening monetary policy, low productivity, geopolitical instability and, of course, Brexit. But Rowan Austin, NatWest’s head of trade and working capital, had positive news for attendees at the EEF National Manufacturing Conference 2018, as he revealed his seven key tips for the sector.
1. Capitalise on export markets and global growth
“We’re all aware of the headwinds facing the UK economy. We also know about the following winds, such as low unemployment, possible fiscal easing and record low-interest rates," said Austin.
“Most importantly, we’re seeing a strong global recovery of our key export markets, including the US and Europe. This, along with the devaluation of sterling since the Brexit vote, has led to a boom in UK exports. Export orders are at the highest levels for 30 years, and some suggest global growth could offset any short-term negatives of Brexit on the UK economy.
“So it’s time to capitalise. Businesses should think about building beachheads in new markets and having a clear export strategy to target these markets.”
2. Line up your stakeholders early
“Three key stakeholders are there to help you tap into export markets. The first of these is the banks. We’re here to provide funding and risk-management tools to facilitate trade and to support investment in domestic infrastructure.
“Second is UK Export Finance – UKEF’s mission is that no viable British export should fail for a lack of finance. Working closely with the banks, UKEF is becoming more ambitious and innovative in supporting UK exports.
“Third is the Department for International Trade. DfIT has experts placed in embassies across the world. It’s a fantastic network that gives practical support and advice for exporters and guidance around local practices.
“These three stakeholders are working closer than ever before. So make use of them, and the key is to engage them as early as possible so they can support you from the very beginning of the deal.”
3. Pick your partners carefully
“Businesses have rigorous processes to select those that supply raw materials, equipment and services. In the same way, companies should choose their financial partners very carefully. For example, most people have longer relationships with their bank than they do with their spouse. Surprising but true.
“The world of banking has changed dramatically since the financial crisis. While the world has globalised, lots of banks have gone the other way, and many banks now focus solely on their domestic markets.
“Export orders are at the highest levels for 30 years, so it’s time to capitalise. Businesses should think about building beachheads in new markets”
“To support you in global growth, it’s critical to find the right banking partner – one with knowledge, sector expertise and cross-border product capability. Be demanding of your banks and change banks if you’re not getting what you need.”
4. Stay sharp on financial risk management
“The world might seem like a relatively benign place at the moment, but now is the time to prepare for financial risk. There are three key areas – the first of which is interest rates. The Bank of England has already signalled that rates will rise, so lower for longer won’t mean lower forever, and borrowing costs will increase.
“Second is currency risk. Sterling devaluation has helped exporters, but where will it go next? Having strategies to manage currency risk in a volatile environment is critical.
“Third is counterparty risk. Supply chains have become increasingly globalised. Trading with a counterparty in Boston, Lincolnshire, is very different from trading with a counterparty in Boston, Massachusetts. So managing the financial risks of trading with overseas counterparties is essential.”
5. Keep your eye on working capital
“In the UK, it’s estimated that £150bn is locked up in excess working capital. In Europe, this could be as high as €1trn. Poor working capital management can mean sacrificing investment to maintain cash flow – or, to put it another way, tied-up working capital is a resource that can be used to fund growth.
“It can be easy to take your eye off the working capital ball when interest rates are low. It means getting finance can be easy and cheap, but rates are rising from historical lows, and optimising working capital management can deliver real competitive advantage, so it’s crucial to get into the right habits and practices now. Developing a cash culture and improved discipline in working capital management should be a priority.”
6. Embrace technology
“Whether it’s the products you sell or how you run your business, technology is changing our world faster than we can imagine. AI, blockchain, VR, robotics and nanotech – they’re all in vogue, but which are going to be fads, and which are on an exponential growth path? That’s difficult to predict, although it’s not a new conundrum.
“Business models are changing incredibly fast. There’s a lot of disruption. Uber is now the world’s biggest taxi firm without taxis. Airbnb is the world’s largest provider of rooms without owning a hotel. We also see in banking how fintech is changing the way we operate and how we think. So embrace technology and the growth mindset. Make it work for you professionally and personally: prototype and experiment, test stuff, play around and be prepared to fail.”
7. Cyber security
“Technology brings great opportunities but also brings threats. Cyber security is a growing risk to us as individuals and also as companies. Europol estimates that more money is made from cybercrime than the entire international drugs trade. Hacking is a risk that affects brands, customers and businesses.
“In 2017, we saw WannaCry cripple the NHS. We also saw NotPetya spread to 100 countries in just a couple of days and hit some of the biggest corporates, such as Maersk, Reckitt Benckiser and FedEx. It’s estimated the cost of that outbreak was hundreds of millions of dollars, just for those three companies. So in a world where we're becoming ever more connected, the need for vigilance and cyber security is critical.”