From Dr Who to Downtown Abbey to pop culture icons like James Bond and Harry Potter, Britain exports its culture throughout the world. Musical heroes from Bowie to The Beatles are part of the UK’s great legacy of exporting music which also includes such legends as The Rolling Stones, The Who, Led Zeppelin, Queen, The Clash and more recently, Adele.
The UK is also home to the world’s top two bestselling authors of all time – William Shakespeare and Agatha Christie – and the birthplace of a wealth of Hollywood stars from Charlie Chaplin and Cary Grant to Tom Hiddleston and Dame Judi Dench. However, it’s not just culture that Britain exports – Mary Quant started a fashion revolution when she brought the miniskirt to the world. British manufacturing and industry also contributes significantly to the economy, exporting US$484 billion worth of goods around the globe in 2018. The success highlights how British creativity and ingenuity is being exported overseas with great success.
Excellence across a range of industries
British manufacturing encompasses a wealth of different industries. We take a look at some of the most successful industries across the UK.
The manufacture of machinery, including computers, represents 15% of the UK’s total exports. From innovative engineering design to quality production makes British goods popular throughout the world.
Electrical machinery and equipment makes up for a further 6.1% of British exports, demonstrating the UK’s cutting edge approach to design and manufacturing.
When it comes to innovation, the British aerospace industry punches above its weight on the global stage and accounts for 4.1% of all British exports.
Vehicle manufacture is another area where the UK excels, 11.4% of all exports come from the UK with several major production plants as well as heritage brands such as Rolls Royce.
Going for gold
A surprising entry into the list of the UK’s top exports is gems and precious metals. While there may not be many gold mines across the UK, Britain is the world’s largest trading hub for gold and this accounts for the US$47.5bn of exports. There has been a recent rise in demand for gold, which has seen an increase in trade as gold leaves the vaults in London and is sent to gold refineries in Switzerland. It’s not strictly a UK export, but it does demonstrate how British trade and industry reaches out to the global industry.
Challenges for British exporters
Brexit is taking a lot of the headlines at the moment – and for good reason. Nearly half of all British exports are sent to EU member countries, but it’s not the extent of the UK’s reach. More than a fifth of British exports are sent to Asian countries and 15.2% of goods were shipped to North America. British exports are found right across the world, from Australia to Africa and everywhere in between.
Embracing the global opportunity
It’s clear that there are opportunities for British exporters across the world. Companies concerned about the impact of Brexit may benefit from looking further afield for new market opportunities across the globe which increase market share. There are some challenges – extensive market research may be required to assess where the opportunities lie, and there may be greater currency risk if both revenue and costs are flowing in and out of the company in a variety of currencies. A currency specialist that understands your challenges can help you manage both the risks inherent in currency transactions and some of the practical demands of exporting goods across the world.
Price pressures and squeezed margins
Fluctuations in the currency market can have a significant impact on the value of exports. Currently, the weakness of the pound since the Brexit vote has made British exports attractive to foreign buyers – but this cannot be taken for granted. If the pound regains some strength, companies may have to choose between smaller margins and higher costs. It’s important to develop strong relationships with overseas partners and unique selling points that extend beyond the price. Ultimately, it’s not possible to control or predict changes in the foreign exchange market.
There are so many factors that impact a currency – situations such as Brexit and the US-China trade war are major examples, but currencies fluctuate due to economic statistics, political changes and business confidence. As they fluctuate in relation to each other, a major change in another country will have a knock-on effect on other currencies. The biggest challenge is that given that there are so many factors, and that it involves areas such as politics, the currency market is difficult to predict. This in turn makes it difficult to set prices with overseas partners. In addition, there are some suggestions that the current economic situation may lead to a shift in buying patterns. The overall approach to your company’s currency exposure will depend on a number of factors, but here are some key steps to take when planning ahead in uncertain times.
Managing currency risk
STEP ONE: UNDERSTAND THE NATURE OF YOUR CURRENCY EXPOSURE
Take a look at your export revenue. Are you running the risk of pricing yourself out of the market if the pound recovers, losing your profit margin if it falls, or is there perhaps a balance of both? It’s important to look at those numbers of the balance sheet, and what fraction they are of overall incoming and outgoing funds because this will indicate your measure of risk. If it’s only 10% of your business, you may think you have less to worry about than if it’s currently 70% but the issue isn’t quite that simple. Of course, a company with higher currency exposure bears more risk due to currency fluctuations, but you have to look beyond the numbers at your strategic plans. You should consider where the market may be growing or shrinking, where the future opportunities lie. In trying economic times, whatever the percentage of your overall profits and losses are consumed by currency, you should aim to make the most of every penny.
STEP TWO: UNDERSTAND THE CHOICES AVAILABLE
There are a number of currency tools which can help you make the most of your company’s resources and still expand into further overseas markets. A forward contract allows you to lock in a prevailing rate of exchange for a set period of time. (Please note, a forward contract may require a deposit.) This can help with forward planning and provide some certainty but it carries its own risk. Currency can go up as well as down, and it depends on what is going to work best for you. In addition, there’s the fact that this works best when you have a clear pipeline. If you have definite commitments then a forward contract may be the best approach. However, you can also set up a market order; this allows you to specify your target rate and the funds are transferred if that rate is reached. There are no guarantees with a market order but you can pair this with a stop-loss order which specifies the lowest limit you are willing to accept. This allows you to protect your profit margin while also having the opportunity to take advantage of movements in the market. These are both longer term strategies that require some planning, but if you operate a more agile business, you may feel like the best approach is to wait and see what the market brings and adapt accordingly. This does carry some risk, but if you work with a specialist who can keep you updated on the latest changes in the market then it could allow you to maximise your profit margin and still protect against too severe losses.
STEP THREE: SPEAK TO A SPECIALIST
All of the above products and services are available via a currency specialist but that isn’t the only advantage. Currency specialists typically offer better rates and lower fees than high street banks. You also get the benefit of expert guidance from someone who not only understands the foreign exchange market but also the challenges of British exporters. Whether you’re just starting to consider your currency exposure or are simply looking to review your current approach, the additional expertise can shed light on the opportunities and risks of different approaches – and you can get all this extra help for free when organising your global payments through a specialist.
Controlling currency costs
Fluctuations in the exchange rate have an impact on the cost of international payments, but it isn’t the only factor. Different providers offer different rates of exchange, and even a fraction of a percentage point can make a big difference when you’re exchanging the revenue from a major sale or paying an overseas supplier. In addition, if you’re working with multiple partners, exchange fees can soon add up and can further erode the profit margin. If you’re working across multiple markets around the world, then it may be time consuming to set up and deliver the broad range of currency transactions required and to keep track of cash flow when working in multiple currencies.
Managing international payments
Working in partnership with a currency specialist like moneycorp can improve the process of managing international export revenue. As well as expert guidance on the currency market and available currency tools for managing risk, moneycorp provides clients with an online platform for managing international payments. Features of the platform include live statements, progress updates on international payments and the facility to make payments in multiple currencies and management controls. This approach doesn’t add too many additional layers of administration or require staff with specialist expertise, but does provide the transparency and checks and balances that allow for the close management of currency costs.
Currency support for global exporters
Brand Britain has appeal across the world, from specialist goods to cutting edge engineering. For many organisations, a global approach can help to offset some of the challenges of shrinking domestic markets, political changes such as Brexit or the risk of falling behind the rest of the industry. Wherever the business is expanding, the cost of international transfers and the risk of currency exposure are likely to be a key factor in whether your plans succeed – after all, there is no point in tripling your sales through overseas markets if you find that you didn’t make a penny of profit. The corporate foreign exchange service from moneycorp helps companies to manage their foreign exchange risk. Our expert team works directly with British exporters and provides guidance on the foreign exchange market and insight into currency tools and market developments and how they might impact individual businesses.