Preparing for the international trade challenge

The latest Trade Barometer report, published in March 2022, reveals increasing optimism amongst businesses as they bounce back in the wake of the COVID-19 pandemic. One particularly prominent theme in the new study is that, while there are headwinds to deal with, including a difficult economic backdrop and the impact of war in Ukraine on global trade, businesses see international markets as a crucial element of their post-pandemic recovery.

In this article, we talk to Robin Davies, UK Head of International & Sector Solutions at Santander Corporate & Commercial Banking, about the findings of the latest research and what lies ahead for businesses in the UK.

Time and again, the Santander Trade Barometer finds that businesses trading internationally feel more confident about their growth prospects than those that only operate domestically. What is it about these more global businesses that give rise to such optimism?

This has certainly been a consistent finding and the spring 2022 research is no different. Businesses with international sales were 10 percentage points more likely than their domestic-only counterparts to be confident that they will grow over the next three years. In practice, this reflects several factors. One is that the businesses have access to a larger and more diverse customer pool that provides diversification benefits, but it also increases your chance of reaching scale. Really getting to know a market takes time, but with help from expert trade facilitators, it is possible to mitigate the risks and to overcome many of the challenges related to trading abroad.

We also find that businesses trading internationally tend to be more financially resilient. It isn’t always plain sailing, but the very strongest tend to thrive.

The key is to be disciplined and strategic with your international approach, focusing on the markets where your product or service has the greatest chance of success. That may not be the nearest or most obvious territory, so identifying the right target markets is crucial and once you have done that, it is down to execution. It’s in both of these stages where Santander wants to support businesses. We can help them identify and realise these opportunities and build the right foundations for success and support a company’s growth aspirations.

Another notable finding in the Spring 2022 Trade Barometer is the increased time and resources that businesses are having to devote to compliance, particularly since Brexit and the UK’s Trade and Cooperation Agreement with the European Union. How do businesses manage that issue, as well as all the other operational challenges they face when trading overseas?

Since the UK left the EU, we have seen a steady increase in the number of hours that managers spend dealing with bureaucracy, red tape and administration. Businesses increasingly highlight their concern about how this is getting in the way of more productive tasks.

Indeed, the Spring 2022 Trade Barometer found that 61% of managers spent between two and 20 hours each week on compliance, which is all time that could be spent focusing on growth. The opportunity cost is significant, and this issue will only become more troublesome as the effects of Brexit become more apparent.

As for other operational challenges, one growing problem is shipping costs. 39% of businesses are now concerned about the cost of shipping containers, up by five percentage points compared to autumn 2021’s Trade Barometer report. Higher shipping costs and increased delays into ports are causing real problems, particularly for small and medium sized businesses.

At the same time, many businesses are still dealing with travel restrictions related to COVID-19, as well as perennial problems such as the difficulty of finding trustworthy partners in markets that they don’t know well or are entering for the first time.

These are all challenges that have the potential to limit a business’s growth potential in overseas markets. Part of our role at Santander is to provide as much support as possible in ensuring that doesn’t happen, by supporting companies on their international journey, saving them time, money and helping them grow.

Looking beyond the EU, which global markets are UK businesses most enthusiastic about and where would they like to see the British Government prioritise new trade agreements?

North America overtook the EU last year as the region where UK businesses see the greatest potential for growth, and that remains the case today. But we are also seeing interest in other key markets, for example, 29% of business cite East Asia as particularly exciting.

Looking at specific countries, the US tops the list of target markets, with 39% picking it out as a priority for trade agreements. But businesses are also really keen to see deals done with China and India. There is also real interest in Singapore and Australia as important trading partners.

The EU remains a key trading bloc for the UK and many businesses are still trading very successfully there. That isn’t likely to change any time soon. In other words, new opportunities in global markets are additional, rather than replacements for EU trade, which is one reason why they’re so exciting.

Free trade agreements can certainly play a part in helping businesses in these new markets. They provide agreed parameters for market access, operations, and dispute resolution. That said, getting such deals isn’t always easy. The US in particular is going to be a tough nut to crack and the absence of a formal trade agreement shouldn’t stop businesses pursuing new opportunities in strong markets.

Moreover, a trade agreement won’t solve some of the key underlying challenges that exist for businesses trading overseas, such as making connections and overcoming regulatory and bureaucratic hurdles. Those issues will remain, which is why Santander sees support in these areas as so important.

Another area where businesses seem to be concerned right now is their supply chains and we’ve seen lots of disruption, first through COVID-19 and now because of Ukraine. What could businesses be doing better to drive efficiency across their supply chains? Is digital the answer?

We are definitely seeing an appetite to invest in supply chain transformation, particularly in sectors that have complex ecosystems of suppliers. In both manufacturing and transport and logistics, 26% of Trade Barometer respondents told us they are looking to invest in this over the next 12 months.

Many businesses see an opportunity here to improve their internal processes so that they can meet the demands of their customers with the resources they have available. Companies are operating in a rising cost environment with very tight margins, so while we have already seen the process of trade become very streamlined, there is room for further improvement. Investing in digitalisation is a cost-effective way to drive positive change in the supply chain.

More broadly, growing numbers of Trade Barometer respondents are investing in digital transformation throughout their businesses, and not just in their supply chains. We’re seeing this in many sectors, including retail and wholesale, manufacturing and transport and logistics.

What would you identify as key issues for businesses engaging in international trade over the years ahead?

As businesses seek to put the COVID-19 pandemic behind them, international trade is going to be a key pillar of their recovery strategies. But the evidence from the Spring 2022 Trade Barometer is that many businesses are preoccupied with three issues in particular.

Firstly, there is a real appetite to embrace digital trade in a way that simplifies processes and ensures efficiency. Where trade remains paper-based there is a chance of delay, because documents may be lost or include errors.

Our data shows businesses are keen to transform as quickly as possible, but a number of blockers remain. Finding people with the right skills to execute digital transformation, a challenge cited by 46% of Trade Barometer respondents, is a particularly widespread problem. Still, there is plenty of incentive to overcome the hurdles. For example, many businesses are keen to find new marketplaces and sales channels, but they will only be able to do this if they implement a robust digital strategy. Since COVID-19, we have all moved more of our interactions online, and while face to face contact remains important, being able to meet potential new business partners, buyers, or distributors online, especially in those early stages, can save a business precious time and money. 

The second issue is sustainability. Many businesses have made permanent changes following the pandemic, 25% of Trade Barometer respondents say they now put greater emphasis on sustainability in their business strategy, while 23% say the same of their business plans.

There are plenty of decisions to make, from how to choose greener options when trading, to how to shorten supply chains to minimise transportation delays. But there is a real sense that sustainability is front of mind for business leaders, and they are building these issues into business strategy.

Finally, supply chain resilience is becoming more important than ever, recent supply chain bottlenecks have shown just how little room there is for slack. As soon as external shocks hit companies’ systems, vulnerabilities emerged, in turn, that put a strain on capacity, and drove up costs for both producers and consumers.

In future, we expect businesses to put greater emphasis on building risk mitigants into the system. We will see them re-evaluating existing production hubs and potentially bring them closer to where consumer demand sits.

On all of these issues, Santander stands ready to help, with global insights, support and an international ecosystem of support to help businesses resolve their anxieties and simplify growth at every stage of their international journey.

How we can help

Santander has a team of sector experts, who work with businesses to provide both financial and non-financial solutions tailored to businesses in their respective sectors. The team understand the different challenges that businesses in their sectors are facing and work with their own ecosystem of specialists to support businesses in overcoming these challenges. Our sector experts also work closely with our international specialists to enable us to help businesses with both their domestic and international growth. As well as our sector expertise, our relationship teams across the UK are able to assist businesses with a range of solutions to help realise their growth ambitions, whether that’s in the UK or in overseas markets. This wealth of expertise will soon be available all in one place via the upcoming Santander Navigator platform. The platform will bring together ecosystem providers, events, market insights and more, all digitised in one platform and tailored to specific businesses, sectors, and functions.

If you need any help, please contact us on: international@santander.co.uk

For more information, please read the full Trade Barometer report