International trade – a post-COVID perspective
At the end of 2019, we surveyed 1,109 business leaders of small and medium enterprises (SMEs) across the UK to explore the views of businesses towards international trade as the country looked to exit the EU. The research was to be published in March this year just before the UK and the rest of the world went into lockdown following the outbreak of COVID-19.
In late May 2020, we conducted a follow-up survey of 514 UK business leaders to explore how COVID-19 might change their plans for international trade.
The views of business have never been more important as we begin to emerge from what has been the biggest shock to the global economy and as we approach December’s deadline to secure a trade deal with the EU. Understanding the drivers and barriers to international trade can help businesses plan and take the advice they need to successfully grow overseas.
Our research told us that 71% of UK businesses had some degree of international trade prior to the outbreak of COVID-19 and that 55% of those businesses have, unsurprisingly, seen that trade fall away.
It is, however, encouraging that over half (51%) of the business leaders surveyed say their view on the importance of exporting has increased in a post COVID-19 world. 45% also expect international trade to return within the next 12 months, suggesting they are expecting a V-shaped economic recovery. Equally encouraging is that of the 29% of businesses with no international trade before the outbreak of COVID-19, 34% of them now say they are likely to look to overseas markets to aid their recovery.
Both our December 2019 and May 2020 surveys suggest UK businesses are outward looking and have a strong international focus. But international trade is, at the best of times, not without its challenges.
Our original survey in 2019 asked business leaders to tell us what they consider to be the biggest barriers to international trade.
As the chart in this article shows, businesses trading overseas face many challenges, each equally challenging and taking time to address. Yet there are some challenges that stand out over others for their complexity and the management time business leaders need to give.
The biggest single concern is tax, VAT and duties (23%), followed by currency fluctuations (20%), and tariffs and trade barriers (19%). Red tape (18%), the cost of international trade (18%), logistics (17%), and getting paid (14%) are all very real barriers to international growth.
These challenges cannot be addressed in one simple measure. Business leaders told us that a mix of measures are needed to make international trade easier.
Top of that list is, for 32% of business leaders, a free trade deal with our European partners. Yet at the time of writing that is looking ever less likely.
Business owners will not be surprised to see VAT and duties topping this list. Both are already complex and time consuming and are only likely to become more so in coming years.
Knowledgeable advisers with an international network, such as Kreston Reeves, are essential in guiding businesses through this financial maze.
Not all measures are financial and that is where businesses can turn to their professional bodies, chambers of commerce, the Department for International Trade (DIT) for guidance and support. The levels of satisfaction in the advice and support business receive is high, with on average 80% of business leaders telling us the advice they received was useful.
As the UK looks to reposition itself on the global stage, we asked business leaders where their focus is likely to be over the next five years? And it will be of no surprise that European markets will dominate – 58% of businesses told us that is where they see international growth, compared to just 36% for North America.
The need for a comprehensive trade deal with the EU is paramount, as will be separate trade deals around the world. There has to be a concern as to whether these deals can be delivered in the now very tight timeframe remaining as governments around the world manage the aftermath of COVID-19.
A full copy of the Kreston Reeves research published in the report Trading internationally 2020 – A post COVID-19 perspective. We will also be publishing a series of articles that looks in more detail at the challenges facing businesses.
For more information, please contact your usual Kreston Reeves contact or Andrew Wallis.
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