Cautious optimism as business confidence strengthens in wake of improved performance
UK businesses that trade internationally are outperforming those limited to domestic trade, according to the latest Santander Trade Barometer. Despite economic headwinds, 59% of companies that trade internationally report improved performance over the past year compared to just 46% of those which do business solely in the UK.
This resilience has enhanced business confidence in growth over the coming three years to reach 76% – up from 70% recorded in autumn 20222. However, businesses are wary of rising costs (cited by 75% of companies), which they believe have the greatest influence on whether they will grow or stall over the next three years.
John Carroll, head of international & transactional banking, Santander UK said: “The Santander Trade Barometer points to international trade as a significant growth driver and the fastest route to recovery for businesses that have been up against challenge after challenge in recent years and we are delighted to have supported over a thousand businesses into a new market overseas since 2019.”
Labour market pressures and recruitment issues
Among the biggest influences on businesses’ ability to grow over the next three years is their ability to attract skilled staff (cited by 70%). The spring Trade Barometer reveals businesses have faced a host of staffing issues over the past six months, including higher starting salaries (56%), more staff vacancies than usual (54%) and Brexit-induced staff shortages (47%). In line with this, recruitment and training feature top of businesses’ investment plans for the next year, with 46% planning to hire new staff and 40% putting funds into staff training.
Supply chain diversification
Transport costs present the greatest challenge to doing business overseas (cited by 38%) and form the number one barrier to domestic companies attempting to take their business international (41%). Meanwhile, businesses are seeking to bring their supply chains closer to home, with 41% taking measures to do so. Of the 40% of firms with China at the centre of their supply chain, more than half (56%) plan to reduce their dependency on it. However, the sectors whose supply chains are most reliant on China – retail/wholesale (70%) and manufacturing (57%) – have the least intention of completely diversifying their supply chains away from China, with just 3% of retail/wholesale businesses and 12% of manufacturing firms planning to do so.
International market developments
For international growth opportunities, the EU has reclaimed its place as the leading region for growth opportunities (cited by 46%), having slipped to second spot in autumn 2022. This is despite a host of persistent obstacles to trade caused by Brexit (cited by 41%), bureaucracy (36%), and transport costs (28%).
On a country basis, the US continues to lead for growth opportunities (cited by 35%), having been top country since autumn 2021. The nation is particularly strong in providing opportunities for trade with UK telecommunications, media and technology (TMT) companies, which may have contributed to the sector coming out top of all industries in terms of its confidence in growth over the next three years (89%).
India (cited by 16%, up from 12% in autumn 2022) has overtaken China (11%, down from 15% in autumn 2022) to become the top market among Asian countries for international growth opportunities. Among all countries, India ranks 6th, ahead of China (13th), Japan (16th), and Singapore (17th).
John Carroll added: “The two international markets to watch are India and the EU. India’s economy is thriving, largely due to its ‘Make in India’ manufacturing policy reforms and its role in supply chain diversification. With strong technology and engineering talent, India will play a strategic role in many UK businesses’ global operations and innovation capabilities. As for trade with the EU, the Windsor Framework brings clarity for businesses and goods moving between the UK and the Republic of Ireland, and opens the door for UK ascension to CPTPP (the Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and other free trade agreements.”
Recovery opportunities
Businesses are looking to international trade as a means of economic recovery. More than a third (38%) perceive international growth as the way out of current economic challenges, and 65% believe international markets have greater growth potential than that of the UK. Additionally, 36% say the current economic conditions have made overseas markets more important to their business.
