While the performance of the UK in the export of services is high in proportion to physical goods, this does not mean UK businesses should feel that physical product exports are not a major opportunity.
UK business, in particular SMEs, need to understand why German manufacturing is so successful on the global market. German exports of manufactured goods are not in the main from manufacturing giants, but instead they are from a mirid of SMEs. These SMEs are not located in a centralised ‘hot bed’ of manufacturing, but are instead located all over the Germany. It not because the products are particularly technically advanced in the main, either. They are neither better value, far from it, given the manufacturing high labour and overhead costs in Germany. So what is it about German manufacturers that makes them such successful global exporters of physical products?
German SMEs approach global trading at a much earlier stage within the business development cycle, compared to the majority of UK SMEs. From the outset, they have an understanding of the need to do so should they wish to build a successful, stable business; one that does not rely on a single domestic market. Exporting is seen as part of the business process, and not something that is an extra difficulty to be avoided at all costs. They do have a greater number of customs professionals, who are paid and seen as no-par with solicitors. However, that does not mean their services come cheap. They are however there, and it may be said perhaps they are of a higher proficiency than many in the UK, due to demand for their services.
Another signal of the importance German businesses give to global trading is their willingness to invest time and capital into gaining Authorised Economic Operators status (AEO). This automatically gives them benefits when dealing not just with German Customs, but increasingly with the customs departments of countries around the world. AEO is a standard, customers will be also increasingly looking for from suppliers, as a mark of quality and reassurance, which is even more necessary when dealing at a distance.
The major advantage a global trade gives German businesses is the ability to focus on developing and producing a single, or a narrower product offering. OK, this product may in time have increasing variations, but different sized packs and different coloured versions, is still the same product. This means that for the development costs, they can get a far greater return, even with the costs of export, given the increased sales volumes and lower unit costs. As volume increase, research and development costs reduce in proportion to revenue. This is not seen as another profit opportunity however, as German manufacturers tend to follow a similar system to that of Toyota Kaizen model, with the continual development of products to improve and refresh them, without waiting for a product to look tired or become obsolete against competitors. This has been an issue for too long with many UK businesses, although the likes of Land Rover, who had decades of believing a change of lights on a model every ten years was enough to keep it fresh, things are now quite different. Each model year receives changes, with completely new models coming out at an extraordinary rate.
The reality is that with the inventiveness and ingenuity within the UK, there is no good reason why UK SMEs cannot take up what is a huge opportunity in the global market. With the use of more innovative methods of funding, and the backing from the likes of UK Export Finance, the financial support for export initiatives is far greater than it ever used to be. The Department of Business and Trade also many other international trade initiatives on offer, such as the UK Export Academy, which gives SMEs a good basic level of global trading. By doing such courses it provides at least a knowledge of what to ask specialists who have been called in to help, as well as expectations of their service. Of key importance however is the inclusion of introduction of products to international markets at a much earlier stage in their product life cycle, ideally with design features included within a core framework to allow for certain market technical variations. With growing international markets, focusing upon one at a time to ensure there is adequate production capability, well managed delivery, as well as avoiding cash-flow issues. From growing revenues, an increased focus on investment into a continual cycle of product improvement is required, on both current product as well as completely new product in development, running alongside the latter part of current products lifecycle. If such a mindset change was achieved, there is absolutely no reason why UK exports of physical products should not massively outstrip UK service exports.