A wise man* once said that “nothing endures but change” and this is a most apt expression for the times that we are living in. The world is a changing place and fears that economic growth in the USA and Europe will stagnate, as Asia and other parts of the developing world rise, are increasingly being realised. While we are still short of a total reversal of the situation of the mid-20th century, when the developing world was synonymous with debt and no hope of growth, it is becoming increasingly clear that the 2008 economic crisis is unlikely to be followed by a strong recovery for the West any time soon. Moreover, the long-term indicators are not optimistic, as changing demographic trends and the unsustainability of debt-driven consumption may necessitate a radical shift in the ways we do business and live our lives.
Opportunities for British Business
But all is not doom and gloom, as these global changes also create opportunities. It has become increasingly clear that the devaluation of sterling in 2008 is a long-term phenomenon, which is a strong impetus for making the UK economy more competitive. In combination with rising purchasing power in the emerging markets of Asia, where the middle class will soon approach one Billion, this presents a tremendous opportunity to open up new markets for UK goods and services:
1. Services
The service sector is the first to be able to seize opportunities offered and in Asia there is a lot of demand for precisely the type of services which the Uk has a competitive edge in. For example, a set of recent studies by the LDA identified a myriad of current opportunities for the finance, IT and creative industries in China, including the insurance sector, e-Healthcare, industrial design and TV programmes among many others.
Other services for which there is a lot of potential business in Asia, include contracting and consultancy in engineering and infrastructure development, particularly water supply and waste-water management, as well as alternative energy and other clean-tech industries. But UK businesses will have to fight hard to gain and retain market share in these fields, as there is fierce competition not just from other western competitors, but also from Asian countries themselves, which are heavily investing in R&D and in engineering-related education.
2. Manufacturing and Related-Sectors
While we are not likely to see a resurgence of British mass-manufacturing at any time soon, it no longer as far-fetched a notion as it would have seemed a few years ago, and may be within the realm of possibility by 2020. Prices for mineral and material inputs being equal at a global level, the main determinant for competitiveness is the cost and efficiency of labour. The cost of this is currently driven up by direct and indirect taxation, as well as overregulation in health and safety compliance requirements, which is also a major factor preventing entrepreneurship.
But for those producing innovative and high-quality products, the market is already there. Current opportunities for exporting manufactured goods to Asia range from the high-tech industries, such as precision tools and medical equipment, to branded luxury goods and handicrafts.
3. “Importing Customers” – the Education and Tourism Sectors
The British education sector has long benefitted from the foreign students and this is a trend that is likely to continue to grow as long as quality remains high. Private secondary schools in particular are well positioned to make up for decreasing enrollment rates from UK students by soliciting new students overseas. The situation for the tertiary sector is more complex, as private universities generally do not enjoy the same prestige as their counterparts in the US, and the state sector is subject to more political interference.
In theory at least, Tourism also stands to benefit a lot, as the UK is high on the wish list of places that Asia’s middle classes would like to visit. Other European countries are already benefiting from this to a large degree, but in the UK, growth in this sector has been hampered by restrictive visa policies, and it will require a great deal of political will to address this.
Obstacles to Growth
Sceptics may point out that Sterling has been in a steady decline since the 1970s, when it had an exchange rate of 1-6 for the Deutschmark and that UK manufacturing has declined in tandem. This is correct, but in the 80s the reasons for this were primarily domestic. The price advantage means nothing unless you are also able to compete in terms of quality or innovation. Moreover, macro-economic opportunities can only be realised if managers and entrepreneurs act to seize these. Aside from dedication, this requires a willingness to take risks for long-term investment in both research and marketing. And if you are not prepared to take these risks than you cannot expect to prosper.
* Heraclitos, a greek philosopher in the 5th Century BC
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It is foreseeable that the integration of domestic economies into a..single market globalization will have a direct consequence on firm..profits. Firms will see their returns converge in the long-term towards..an equilibrium value that is identical to that of diverse firms coming..from other economies. The results suggest that even though the..competitive forces that operate at an international level will result in..the convergence of the respective returns of firms in the long-term the..convergence process is only partial.