Export and Expand

The drop in the exchange rate for sterling has again pushed the focus for UK manufacturers onto export markets. The theory is that a reduction of around 30% in the value of the pound sterling against the US Dollar makes UK goods considerably cheaper against competition from the USA.

The problem with this is that for many markets we are still competing with competition from Far East economies with still much lower labour costs and significantly less stringent labour employment practices. Even a large reduction in the value of sterling against the dollar cannot make up that much of difference in a short period of time.

Much of our export trade actually goes to the ‘Eurozone’ and while over the period of the last four years Sterling devaluation against the euro has been at a similar level to the recent falls against the dollar, this has been a much more progressive effect.

The other major problem UK manufacturing has to overcome to meet this sort of cost opportunity is that most of our raw materials are imported and often priced in dollars. Fortunately world commodity prices have also fallen significantly over the last six months but the depreciation of sterling against the dollar means that much of this effect has been negated. For many UK manufacturers the effect of weak sterling means significant increases in raw material costs and that the added value they can add by processing raw materials is the only factor that reduces in competitive cost to provide an edge.

Finally, exporting, if you don’t already do it, involves building up a whole new dimension to your business and cannot just be a tap that is turned on and off. You need to think about overseas agencies and distribution arrangements, translation of sales literature, product approval for many products in overseas markets and possibly overseas branches or subsidiaries. And this is just the start.

However, everything we have in this country is built upon its ability in the past to successfully trade internationally with the world at large through war, economic crisis and ecological disaster. If you want to get into exporting then you can do it at any time. It’s just that right now there’s just a small bit of extra incentive in the form of a reduced exchange rate for sterling that might make your move just a bit more comfortable.

For further information on international trading, contact your local office.