Along with all the benefits international trade brings for consumers in terms of the range and quality of goods they can get hold of, the effect on exporters themselves has perhaps had less attention. Yet it’s something we really ought to all be talking about, especially in the context of Britain’s chronic problems with both investment and productivity.
The stats here are really quite striking: official data show that UK businesses that declare international trade in goods can be around 70% more productive on average than non-traders. Even when controlling for important factors (such as firm size, industry and ownership status), research suggests that businesses that report goods exports or imports were still around 21% and 20% more productive respectively than businesses that don’t trade.
Now, there are different hypotheses for why exporting seems to lead to productivity growth, but a leading theory is that firms which export are generally more ‘receptive’ to innovations – both in the extent to which they can innovate, and because there are more pressures on them to innovate, in order to stay competitive against global competition. Some have argued that the act of exporting also allows firms to learn from each other in how to boost productivity. Indeed, the World Trade Organisation has noted that: ‘Export participation enlarges the size of a firm’s market, allowing it to exploit economies of scale, to absorb excess production capacity or output.’
The economic benefits of exporting extend beyond immediate productivity gains. Survey evidence across 33 European countries has found that small firms that export are more than three times as likely to introduce new products or services than those that don’t. It also found that businesses which are internationally active experience significantly higher employment growth.
With all that in mind, increasing the number of firms – and particularly smaller businesses – that are engaged with international markets should be a top economic and political priority.
That’s why a new report from The Entrepreneurs Network and Enterprise Nation offers the Government a number of suggestions to help British SMEs who want to begin trading, or increase the amount they already do. The research was informed by extensive engagement with entrepreneurs’ direct experience – sometimes good, sometimes bad – of trading overseas.
Perhaps the single best thing the government can do to support SMEs in terms of trading internationally is to consistently champion the notion of free trade itself on the global stage. We should certainly not assume that free and open trade between nations is the natural state of affairs. In recent years, faith in free trade has come under concerted attack – and trade as a percentage of global GDP has been trending downwards since 2008. The case for free trade needs to be made and remade constantly – especially in global forums such as the G20, at the WTO, or the UN General Assembly.
Negotiating access to new markets, and improving the terms of access to existing ones, underpins all importing and exporting – and determines the ease (or difficulty, or even the simple possibility) of doing so. This is a competency afforded to governments and governments alone, and one it’s imperative that they use effectively.
Since the vote to leave the EU, Britain has had to think about its trade policy in a way it hasn’t had to do for several decades. It has chosen to detach itself from the European Single Market and Customs Union in favour of looking for growth opportunities further afield. To its credit, many existing trade deals the UK enjoyed as a member of the EU have been rolled over, and the government has been actively exploring access to new trading blocs, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). But expanding our trading horizons isn’t just about signing deals and then moving on: it’s a commitment that must be seen as ongoing and iterative, and the Government should seek out opportunities for deeper market access at every turn.
There’s also no escaping that withdrawal from the Single Market and Customs Union has been painful for many companies. In our research, almost all of the entrepreneurs we heard from who already export spoke of trade becoming more difficult with the EU since Brexit, and that non-tariff barriers are an impediment to them trying to do more. Many of those who don’t export – but probably could – cited worries about uncertain regulatory frameworks or charges as a major reason for not even bothering.
We don’t think it’s necessary to entirely renegotiate our current relationship with Europe, but pragmatic tweaks to existing arrangements, plus further clarification in certain areas, might help create an easier trading framework between the UK and what remains our largest single trading partner.
More generally, our research makes clear that while many British SMEs are successfully selling abroad, doing so is not as easy as it could be. Equally concerning is that many entrepreneurs – despite being naturally ambitious and enterprising people – are put off engaging in international trade because of the time-consuming and often costly bureaucracy involved.
If the UK is to quickly rebound from recent economic crises, and begin growing the economy at the rate it once did, increasing the extent to which SMEs trade on the international scene is paramount. The Government has already committed to many welcome reforms to our trade policy, now it needs to go even further – our economic livelihood depends on it.
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