Britain is the world's fifth largest exporter but its economic report card will continue to be marked "Must do better". Yet Britain is top in some surprising sectors. There are achievements to hearten the strugglers and show that there can be light at the end of the tunnel - even if there can be no end to the quest for continuing improvement. Aziz Panni takes a close look at the figures for light and lessons.
'Exports are fun,' said Harold Macmillan. They might have been - once. But then strike-interrupted supplies, overvalued sterling and ruthless German and Japanese competition reduced the fun factor and increased the introspection. Britain's share of world exports declined from 9.6% in 1980 to a low of 7.6% in 1985, before gradually recovering to 8.7% in 1991. Even so, Britain remains the world's fifth-largest exporter, with total export sales in 1992 of £108 billion, nearly a quarter of the UK's gross domestic product. And, hidden among the figures are some surprising success stories. In these sectors, British exporters - with or without fun - lead the world.
Comparisons produced by the United Nations reveal an intriguing picture of those areas where Britain sits atop the world trading tree.
Table 1 on page 38 identifies the eight industry sectors in which British exports had the highest share of world exports in 1990. The statistics are not perfect. There are no special categories, for example, for specific areas of technology, such as Marconi's world-leading, fighter-aircraft head-up displays (which project instrument readings on to the cockpit canopy). The statistics also do not credit clear market leadership where manufacture is disseminated throughout the world. Glaxo's Zantac, for example, is the world's best-selling medicine with annual sales of £2.1 billion, but with local manufacture in America, the company's exports from the UK in 1992 totalled just £844 million. Despite such imperfections, the statistics show that in certain sectors, Britain is indisputably still best.
An 81% share of whisky world exports gives Britain a commanding lead in that sector. Bourbon, Canadian and Irish whiskey account for the remaining 19% of trade. Scotch's $3.09 billion contribution to the UK balance of payments is the greatest provided by any single product.
With United Distillers' Johnnie Walker Red Label leading the international brand leagues, according to the industry statistics produced by Impact International, the company is confident that Red Label has been the world's leading post-war consumer brand. The company is proud of its history, pointing out that Red Label was the number-one export in 1820, and even in 1920, it was sold in 122 markets. 'It was probably the world's best-known brand name until Coca-Cola,' they say. This glowing history apart, since 1990 Red Label's sales have been static at 6.5 million cases, and the number-two brand, J and B Rare (made by IDV) has nearly caught up, with 6.2 million cases. However, United Distillers, with its other brands, Black Label, White Horse, Bells and VAT 69, is estimated to hold a formidable 34% of the world market, followed by Hiram Walker (Allied Lyons) with 12.4% for its Ballantine and Teachers brands.
But a threat looms. Growing price sensitivity undermines whisky's aspirational image. In the mature markets of the US and Japan, discounting is increasing. Some retailers, indeed, fret about the industry's 'ineffective marketing' but sales in status-conscious markets such as France, Spain and the Netherlands have continued to grow, with Hiram Walker's Ballantine claiming the number-one slot. A pronounced upsurge in sales somewhere is now certainly needed since many Scottish distilleries are currently operating at under 50% capacity. Cannily, their marketing ambitions are now turning to the Far East. Scotch whisky is a conspicuous symbol of success among the emerging entrepreneurial classes there, partly because of its relatively enormous cost - a month's salary in China. A cheering prospect then for whisky.
In a different kind of hard stuff, aerospace engineering, Rolls-Royce is a world leader. The UN figures show the UK with a 44.5% share (value $2.6 billion) of world exports in reaction engines (turbojet). As one of only three major engine manufacturers in the world - the other two being General Electric of America and Pratt and Whitney - Rolls's market is particularly competitive. Its total 1992 sales were £3.56 billion, with aero engines accounting for £2.14 billion, some 70% of which were exported.
Currently, the industry is going through hard times. Military expenditure is being cut. Civil cancellations have caused Boeing to reduce its production from 32 planes a month to 21, and total industry deliveries are expected to drop from the 1991 peak of 844 aircraft to 500. Rolls also reduced its aerospace labour force from 36,500 in 1990 to about 24,000 by the end of 1993. All manufacturers have complained that engines are having to be sold at cost, with deals even being offered on spares. But despite these problems, the companies are pursuing expensive development programmes for new, high-thrust engines, and Rolls has an additional objective. In the 1980s, the company was only able to access about 25% of the total engine market. Its investment in new products therefore has been aimed at increasing this access to 'almost all new civil airframes manufactured from the year 2000 onwards'. In 1980 for example, Rolls engines were available on only three civil aircraft. Today the figure is 17.
'The major factor in our sales is our technical competitiveness,' says Richard Turner, Rolls's group marketing director. 'With most civil aircraft, engines are sold separately, and we have to persuade airlines on the specific merits of our engines in terms of cost, fuel consumption, the financial package and so on. But for this we must have access to the airframes.' Rolls's strategy has to encompass long timescales. Development of the three-shaft engine configuration and hollow-chord fan blade in the RB211 in the 1960s and 1970s, for instance, led to the Trent 800's massive 100,000-lb thrust engine. The development period averaged 14 years before the first engine could be sold, and a further 12 years before a complete range was on offer. With spares sales following some six years after engine sales (because of modern reliability), and a 25-year life of a modern airliner, the commercial timescale for an engine is about 50 years. Payback can therefore stretch to 10 or 15 years.
In an industry rife with rumours of new alliances or mergers, Rolls is currently involved with Mitsubishi in a consortium developing the new V2500 engine and also in a consortium with Westinghouse and Mitsubishi for industrial gas turbines. All this activity indicates that Rolls is well placed to at least maintain its reputation in what Japan's Ministry of International Trade and Industry has singled out as 'the most important sunrise industry' of the 21st century. As development expenditures are likely to get more rather than less onerous, Japanese interest in such deals could grow. Rolls's, too.
Britain's world-leading sugar confectionery industry has a more settled tradition. Exports of $242 million in 1990 represented a 12.5% world share for the UK. A history of successful exporting for over 100 years has established British brands across the world and, despite acquisitions and rationalisation in the trade, the UK still boasts significant numbers of small but profitable confectionery exporters. The big companies, however, have tended to develop local manufacture overseas, which has reduced British direct exports while increasing repatriated dividends. Thus Cadbury's overseas markets are served by numerous local manufacturing centres in, for example, Australia, Malaysia, Indonesia and East Europe, and these in turn also have their own export sales. 'Our export sales currently stand at about £20 million,' says John Taylor, managing director of Trebor Bassett, Cadbury's sugar confectionery subsidiary in the UK. 'About three-quarters of that goes to Europe with the Scandinavian markets being particularly important; and the balance goes to North America and the Middle East.' With Liquorice Allsorts accounting for over half its sales, (other products include Extra Strong Mints and Maynards wine gums), Trebor Bassett's market appears to be relatively mature. Taylor reveals that 'the customer profile is adult/family-rather than child-based, and the marketing image relies on the Britishness of the product, in terms of style rather than aggressive flag-waving.' He recognises that with the improvement in manufacturing methods in Europe, local price competition is increasingly important.
The story is similar at Nestle Rowntree. Rowntree's established brands such as Polo and Fruit Pastilles have historical markets in places coloured pink in old atlases. Challenging the confectioners, however, are the changes imposed by the European Common Agricultural Policy.
This has kept sugar prices at a higher level than elsewhere in the world, and though exports receive a refund, it fails to cover the difference.
Given that sugar confectionery is a relatively simple manufacturing process and highly sensitive to raw material costs, it must mean that local manufacture outside Europe will increasingly supplant direct exports.
Among the smaller companies, Taveners still promotes the English theme for all its worth. Selling mainly to duty-free shops, its sugar-dusted unwrapped sweets are sold in airtight tins with olde English styling. Europe (Scandinavia in particular) takes 70% of exports, which account for a third of the company's £14 million sales. The company was acquired by Toms Chocolate of Denmark in 1992, but is still run by Bill Tavener. 'The business is extremely price sensitive, and very susceptible to exchange rates. In 1979, for example, when the pound rose so strongly we lost our American and Swedish markets overnight,' he reports. The more competitive pound has made life sweeter. 'Export sales have risen by 30% compared with last year.' One of the surprises in the UN statistics is that British exports in small aircraft (under 15 tonnes) have 21% of world exports, with sales of $1.4 billion. British Aerospace's Hawk trainer is probably the world's most successful jet trainer, and some air forces, like Malaysia's, have even adapted it for a combat role. It also features prominently in the giant Saudi Al Yamamah contracts.
The civil aircraft story is rather different. In 1990, British Aerospace proudly boasted that its 19-seater Jetstream 31 commuter aircraft had had another good year, with record deliveries of 52 aircraft. A new 29-seater version was expected to make its first flight. Its 125 business jet, which had achieved over 750 deliveries in the US and had captured 60% of the market for mid-sized business jets, had picked up another 17 orders. But the business was peripheral to the company's larger defence preoccupations and development funds had other priorities. The business jet company has therefore been sold to Raytheon, and Jetstream sales are not running well.
Contrast Short Brothers in Belfast. The company had been in decline under state ownership and was sold to the Canadian Bombardier group in 1989. Reinvigorated export sales have doubled since 1990 to £246 million (see Management Today, November 1993). In 1990 the company was coming to the end of a contract to supply the US Army National Guard with 10 Sherpa medium-lift aircraft, and lack of new orders meant that the production line was closed in 1991. However, the performance of the aircraft has been outstanding and Shorts has secured a new $100 million contract for 20 more aircraft by offering to convert secondhand SD360 regional commuter aircraft from which the design was originally derived. 'Since that order, there has been a lot of interest in the aircraft,' says Rona Fairhead, marketing vice-president at Shorts. 'It's funny that people have begun to notice how good it is only when we stopped making it.' Another niche manufacturer, Pilatus Britten Norman, a subsidiary of Switzerland's Oerlikon-Buhrle, has been making small but steady sales of its 10-seater Islander and the enhanced surveillance version. 'Virtually all its £20 million sales are exported and 14 aircraft have recently been sold to the Moroccan Air Force. The surveillance role is being further developed with Westinghouse, incorporating multi-mode radar and sensors.
The star of this sector must however be Slingsby Aviation, a subsidiary of ML Holdings. Slingsby's T67 primary military trainer (the first phase training aircraft before pilots go on to basic trainers such as the Tucano and advanced trainers such as the Hawk) had to struggle for orders initially without the benefit of RAF sales. 'Although the company has manufactured aircraft for 60 years for the RAF, and other air forces and civilian companies in 45 countries, we established the T67's credibility by selling to the smaller air forces, like Hong Kong, Turkey, and Norway,' says Michael Jones, ML Holdings' Group Aviation executive.
'In 1991 we made a big effort to get into Canadair's military training programme, eventually selling them 20 planes for about £5 million. The big break was an order for 113 aircraft from the USAF worth about $55 million which we only obtained after a thorough production and facilities audit.' With the T67's avionics and strong composite materials airframe providing aerobatics capability, the primary screening syllabus can extend into the Tucano or other basic trainer syllabus, so reducing overall training costs. The US screening programme is 25 hours, but the RAF uses 50 and Turkey 100 hours. In Slingsby's extremely competitive market, this factor has given the company a useful edge.
The American order represents more than just a few good years' earnings. With it as baseload manufacture, Jones convinced his board to spend £1.4 million to revamp completely the manufacturing system, introducing automotive production techniques based on cell manufacturing units. This has cut labour hours and enabled the company to absorb increased design and approvals costs. Says Jones, 'We now expect to make the profit we forecast.' Explosives is another sector of British expertise. After trundling along at around $75 million a year, exports suddenly jumped to $433 million in 1988, at about the time, according to Lady Thatcher's evidence to the Scott enquiry, when three junior ministers had apparently taken it on themselves to change the rules about exports to Iraq. Interestingly, the figure has continued to rise through to 1992, implying further new customers in this sensitive area.
Royal Ordnance, now a subsidiary of British Aerospace, is believed to have been a beneficiary. The company does not release its export figures, saying only that they are a significant proportion of its £500 million estimated sales. Having been criticised for its high prices and low efficiency, the company has made an effort under British Aerospace to improve its profitability and extend its diversification into new military and civil lines.
For non-military purposes, ICI Explosives is a major supplier. Here nitroglycerine-based products still retain a third of the package explosives market, but watergel-and emulsion-based explosives which are safer to handle are increasingly important. 'European markets have been in decline in the past two to three years,' says Colin Alston, ICI's exports manager for industrial explosives, 'due to the fall in demand in coal mining and construction.' This has caused ICI's competitors to seek business in the company's traditional markets in Africa, the Middle East and Asia. ICI's policy of local manufacture means that its exports in explosives and initiating systems is - at about £6.5 million - quite small. Smaller companies, like Hayley and Weller which makes military pyrotechnics (flares, smoke grenades, thunderflashes) work hard to keep abreast of rising materials costs (not least from Royal Ordnance's new regime) and cost-cutting from the Far East, but at least, with consumables, they have regular repeat orders.
Another chemical export leading the field is insecticides for use in retail products. At $325 million in 1990, the UK had 17.2% of world exports. These consist mainly of the active ingredient in aerosols and other packaged insecticides, made up from natural and synthetic pyrethroids (developed from a toxin in chrysanthemums) and insecticide synergists which enhance conventional insecticides. The French-controlled company, Roussel Uclaf, and Sumitomo of Japan claim to be world leaders in this sector, and Roussel recently acquired Wellcome's environmental health business. Zeneca, which was spun off from ICI, also has substantial insecticides sales, amounting to over £250 million last year, of which 80% was exported. The US is a major market as are Southeast Asia and Europe but competition is fierce with the big chemical companies, Ciba-Geigy, Bayer, Hoechst, DuPont, DowElanco and Cyanamid, offering product as well.
A more surprising success is that of regenerated (extruded from wood pulp) yarns and fibre with export figures stated at $710 million. They include acetate yarns and fibres, and viscose staple fibre (yarn manufacture having ended in the UK). As the sole manufacturer, Courtaulds is allowed by Customs to include other categories in its returns, but the $710 million figure is puzzling as total production is considerably less. Customers include knitters and weavers in Europe (75%) and the US, spinners of mixed-fibre yarns and wadding-products manufacturers. With industry rationalisation in Europe, acetate filaments are produced through a 50/50 joint venture with SNIA of Italy, and a forthcoming joint venture with Hoechst in viscose fibre is aimed at strengthening coverage of Europe. Like many survivors in a heavily rationalised market, Courtaulds makes good profits in this niche 10% of the world man-made-fibres market.
The smallest export sector where Britain leads the world is developed cinema film. It owes its $66 million earnings and 21.6% world export share to the presence in London of the Rank and Technicolor film laboratories. Rank's own film distribution company is relevant, but the greater proportion of export earnings in the sector are derived from American companies, such as United International Pictures (UIP), which distributes film outside North America for MGM, Paramount and Universal. 'A new print costs about $1200,' says Andrew Cripps, senior vice-president of international sales at UIP, 'so economies of scale by bulk printing can amount to a sizeable figure.' With excellent quality and competitive pricing London's developed-film business is a growing niche market.
It is sometimes difficult to see the picture of where Britain leads in invisibles - those earnings vital to the country's balance of payments. Until 1985, invisibles covered the visible trade deficit. The explosion of imports from 1986 onwards has been terrifying and 1992's figures, though not as bad as 1989, show a net visible trade deficit of £13.1 billion with an invisibles surplus of £4.8 billion.
But by using the same criterion as for the visible trade classifications, ie, those activities where Britain has the leading world share, some fascinating trends are highlighted. Although New York and Tokyo have bigger stock exchanges both in terms of total capitalisation and daily trades, the volume of foreign stocks traded is considerably greater in London than elsewhere. With 64% of total world foreign trading volume, London is clearly the world's most significant international exchange. Similarly in external lending and foreign exchange dealings, Table 5 shows the UK's leading shares. These dealings reflect the presence in London of all the major financial and investment dealing companies of the world.
The figures are colossal. In 1992, total UK exports were £108 billion, against imports of £121 billion. Compare that to the foreign exchange positions carried by banks in the UK, which stood at $1,020 billion in December 1992. (The figure for the US was $279 billion.) The turnover figures would, of course, be so large as to be meaningless.
Other London institutions such as The Baltic Exchange and Lloyds also have a special position in world markets. The Baltic's $750 million revenues in 1992 accounted for roughly half of world shipbroking fees. The London market for marine and aviation insurance, in which Lloyds of London - for all its problems - is pre-eminent, accounted for 32.2% of world marine premiums and 42.7% of world aviation premiums in 1991 (the last available figures). Both are larger than any other market in the sector and produced premium income of £3.6 billion.
In the exports business, however, Britain is still a niche player, dominated by Germany, Japan and the US which have a 79% share of world merchandise exports and 87% of manufactures. But the prospects for British exports are improving. Production is stable. Steps have been taken to improve Britain's 20-40% productivity gap. Managements have been weeded out and tested by two of the hardest recessions known in Europe since 1945, and Britain has learnt from the skills imported with the flood of foreign investment projects. The currency should remain competitive for some time against the DM and Yen. The big markets of the Far East have significant British links and now GATT has opened up the prospects of world trade.
In the next decade as Asia undertakes the restructuring and infrastructure investment required to transform itself into an economic zone to rival the West, the opportunities for business could be truly spectacular. Investment in power generation, telecoms and rail transport alone are estimated at $1,000 billion, $750 billion and $200 billion respectively. Although Asia has hitherto accounted for only a small part of British exports (see Table 3) this has been a function of the size of the market. In the new eco-politics of the Pacific Rim, few of the UK's competitors have its advantages of longstanding political and commercial relationships through centres such as Hong Kong, Singapore and Australasia.
With Germany and Japan forced into a high-interest, high-currency posture, opportunities for Britain's 11,000 exporters to take a lead have seldom been brighter. Britain's best, then, could still be to come.
TABLE 1: UK SHARE OF WORLD EXPORTS
Export sales 1990 World exports
Whisky 3,090 81.1
Reaction engines (jets) 2,603 44.5
Small aircraft 1,429 21.0
Regenerated fibre yarn 710 28.3
Explosives, pyrotechnics 469 39.4
Insecticides for retail 325 17.2
Non-choc. sugar conf. 242 12.5
Developed cinema film 66 21.6
Total UK exports 1990 $m103,691
% share held by 8 sector leaders 5.7
Source: UN international trade statistics
TABLE 2: RANKING - UK TOP 10 EXPORTERS
British Aerospace (eng, aerospace) 5,821
BP (oil) 4,020
Shell (UK) (oil) 2,898
Ford Motor Co (motor) 2,196
Rolls-Royce (eng.,aerospace) 2,137
IBM (UK) (computers) 2,135
ICI (chemicals) 1,852
GEC (electronics) 1,472
British Steel (metals) 1,439
Zeneca (health, household) 1,403
Total exports 1992 £108,507
% share of top 10 companies 23.4
Source: Financial Times
TABLE 3: UK EXPORT MARKETS
1992 £m %
European Union 60,702 56
North America 13,971 13
Other Western Europe 8,548 8
Pacific Rim 5,799 5
Oil-exporting countries 5,489 5
Japan, Australia, NZ 3,873 3
Eastern Europe 1,702 2
Other 8,423 8
Total exports 1992 £108,507 100
Source: CSO Monthly Digest of Statistics
TABLE 4: UK EXPORTS BY PRODUCT GROUP
Commodity mfs (eg, rubber, leather) 15,482
Transport vehicles and equip. 13,728
Misc. mfs (eg, prefab, furniture) 13,964
Office telecoms and equipment 9,475
Industrial machinery 9,326
Food, beverages, tobacco 8,707
Electrical apparatus 6,354
Power generating equipment 5,537
Commodities, materials 3,990
Total exports 1992 £108,507
Source: CSO Monthly Digest of Statistics
TABLE 5: UK INVISIBLES - HIGHEST
1992 bn % of
Foreign equities traded £164.7 63.7
(London Stock Exchange)
External lending (Dec '92) $1.019.6 16.4
Marine, aviation insurance £3.6 33.7
(London mkt, '91 premiums)
Shipbroking $0.75 50.0
(Baltic Exchange) Foreign
exchange dealing $880 26.5
(net daily trades in April '92)
Sources: Bank of England, British Invisibles, Lloyds of
London, Baltic Exchange, Bank for International Settlements.