Last Friday, I gave a presentation to a group of Welsh businesspeople at Hays Recruitment's Cardiff offices on the subject "Is Wales missing out on Global Opportunities?".
I started by examining the relative performance of Wales in terms of exports during the last year. Unfortunately, it showed that whilst the total value of UK exports increased by 16.2 per cent during the period December 2009-2010, exports from Wales fell by 0.1 per cent to £9 billion over the same period.
Therefore, whilst the Welsh economy is not going backwards in terms of international activity, we are certainly not taking advantage of the recent trends in growing exports across the rest of the UK.
The official data also shows a concentration in the areas in which we export, with three sectors - energy, metals and chemicals - accounting for two thirds of trade from Welsh businesses. As these are also sectors that are predominantly driven by larger firms, there is a question as to whether any policymaking here in Wales can positively affect these industries. Perhaps the focus should be on those sectors that are growing quickly in this area.
For example, in terms of export growth during the last four years, the three sectors that have shown the largest expansion have been creative industries (306% growth), food and drink (124% growth) and clothing (80% growth) and it is clear that, with the right support, these sectors could grow further, especially a they currently account for only 2% of Welsh exports. The biggest decline in exporting over the same period has come from oil and gas (-80%), telecommunications (-49%) and engineering (-37%).
The panel then discussed the reasons for firms to pursue internationalisation, especially as there was sentiment expressed that businesses could develop through predominantly exploiting their home market, although a recent study from the European Commission has shown that internationalisation is positively correlated with business performance. For example, more than 50% of SMEs (Small to Medium-sized enterprises) that invest abroad have increased their turnover whereas for all SMEs this is about 35%.
Similarly, SMEs that are internationally active generally report higher employment growth than those that are non-active. Innovation is also higher within exporting firms with 26% of internationally active SMEs introducing products or services that were new for their sector in their country as compared to 8% of other. These internationally active SMEs are also more active with process innovations that are new for their sector in their country.
The same report also made a number of recommendations as to how internationalisation can be encouraged. For example, given that the results showed a strong link between activities on international markets and different forms of innovation, policymakers should design and present policy support measures aimed at stimulating innovation and internationalisation in conjunction.
It also suggested that as e-commerce activity is positively correlated with being active in export markets, then it should be encouraged and supported. Indeed, the internet has already made it easier for SMEs of all sizes to overcome some of the barriers to internationalisation and actions by policy makers to facilitate a continuing growth of e-commerce may further strengthen this effect. Given this, it is a great loss to the development of Welsh businesses that Opportunity Wales, championed by BT, failed to get any support from the Welsh Assembly Government. Certainly, ensuring that businesses develop their capability and capacity on the world wide web is as important as funding superfast broadband across the country.
Finally, it suggested that there a lack of information is a crucial barrier for doing international business. More specifically, it stated that SMEs need support in gathering and organising the collection and analysis of information on areas such as market developments and the legal environment in foreign markets. Ironically, this was one of the key roles played by the now defunct International Business Wales and, as yet, this vacuum in the provision of vital intelligence on foreign markets has yet to be filled by any other organisation.
Indeed, various research studies have shown that one of the biggest barriers to getting small firms to initiate exporting is information – many small business owners have said they couldn't tap foreign markets because they simply weren't sure where to start. Given this, it is not surprising that only around 2000 Welsh companies are actively involved in exporting.
Internationalisation has become the focus for many economies wishing to emerge strongly out of recession. In the USA, President Obama’s goal is to double his nation’s exports to $3 trillion within five years and his administration have already admitted that it will be small firms that will be the focus of much of their efforts in achieving this. In Wales, we cannot be left behind as the rest of the World develops its international trade.
Certainly, Welsh businesses face many challenges over the next five years but if the economy is to grow and develop, then firms must increasingly look outside our borders for trading opportunities. If not, then the Welsh economy will continue to fall further behind not only other UK regions, but other nations across the World.