Can business trade tomorrow on today’s strategies? International trade capability in 2021
Sally Jones, Trade Strategy and Policy Leader, Brexit Lead, Ernst & Young LLP
As someone who has worked in trade for several years, I naturally find the topic fascinating. However, I had become used to the idea that most people do not – the glazed expressions and rapid conversation changes during dinner party conversations proved the point.
Something has changed. Trade is now a hot topic. We can trace the change to the financial crisis of 2007/08, which marked the end of 60 years’ international consensus that reducing trade barriers is a laudable objective. Instead, protectionist measures started to creep in, and that trend has accelerated ever since. The COVID-19 pandemic hasn’t helped. Add in sustainability, servicification, geopolitics, and technological innovation and it becomes clear that we live in an increasingly fragile and fragmented trade world.
EY recently surveyed trade specialists from 400 large international businesses to ask them about their trade strategies at such a critical time. The vast majority (81%) of businesses recognise the disruption that rising protectionism brings, and say that their trade strategies are more important than ever. This sentiment is broadly echoed by the C-suite: 67% of businesses say that their C-suite currently viewed their international trade strategy as a higher priority than ever.
So, the natural follow-on question we asked was how confident businesses are that they are on top of their trade strategies. Some good news here, it seemed: a whopping 93% of businesses said that they had an international trade strategy and 88% said that they have dedicated in-house international trade capability.
But scratch below the surface a little and things start to look less rosy.
Simply having a trade strategy and some dedicated trade capability does not necessarily mean that these functions are operating effectively and being best utilised across the business. In fact, EY research suggests that what businesses define as an ‘international trade strategy’ is often relatively simplistic and does not take into account emerging trade issues. Many seem to be referring to loose international sales plans rather than the truly strategic thinking that their boards now demand.
For a start, trade functions are typically good at operational trade matters – customs and regulatory compliance. Three quarters of businesses feel comfortable with their import/export licensing and other technical requirements, and around two thirds feel the same way about their ability to handle border checks. However, they are not confident with more strategic trade matters: only half of the businesses feel that they have a good grasp of critical areas such as digital regulation, intellectual property management, price controls or trade remedies – and significantly fewer than half feel equipped to manage government engagement or investment restrictions.
Why might that be? There seem to be several root causes:
First, the pace of change in trade is unprecedented in recent times, and is accelerating, as evidenced by the excellent work done by Global Trade Alert in its Global Dynamics report, or the OECD’s Services Trade Restrictiveness Index. Businesses have not had time to catch up, and the global recession triggered by the 2007/08 financial crisis has often meant that funding was not available for (what was previously seen as) non-essential spend on building trade capability.
Secondly, trade capability within businesses is usually dispersed throughout the whole business. Our survey found that trade people report up through many different business lines – including management, tax, finance, legal, logistics, customs, operations, government affairs and procurement. In other words, most businesses do have skills across their organisation that could feed into a trade strategy, but they are highly fragmented, with many being underutilised or unknown by key decision makers.
Thirdly, trade skills are in short supply globally. A key factor in failure by businesses to build out trade expertise — particularly at a more senior level — is the difficulty of sourcing talent with the right experience. Over half (59%) of businesses thought it would be difficult to find individuals with relevant trade strategy experience, whereas only one in ten (9%) suggested it might be easy (and none thought it would be very easy).
So, what can businesses do to improve their lot? There are some simple and quick wins that businesses should consider.
Defragmenting trade capabilities is the first step. MakeUK’s ‘How-to guide for exporting’ emphasises this, saying that businesses should assign board-level responsibility for the development of a comprehensive trade strategy.
We wholeheartedly agree with MakeUK – EY UK has done exactly that – but we would go further and argue that businesses should also create clear reporting lines for all trade people in their organisation. That will give the organisation a holistic overview of trade issues that is currently lacking. Building these strong networks across the business is vital, and yet of all the priorities driving trade strategy, ‘ensuring staff with trade responsibilities across the organisation are more joined-up’ was the least commonly cited — with only 29% of businesses mentioning it.
Next, think about how trade people are appraised and evaluated. EY has identified nine Key Performance Indicators for trade capability – but the average business was measuring fewer than half. We all know that, human nature being what it is, we focus on what gets measured, so make sure the right trade KPIs are in place.
Finally, build in-house skills. Be willing to invest in sending operational trade people – and, again, particularly more senior trade people – on training programmes. There are some great training programmes out there, and it’s worth spending a relatively modest amount of money on creating new capabilities within the organisation.
My concern is that businesses do not appreciate how pressingly they need to build strategic trade capabilities. As 80% of businesses believe that those without an international trade strategy in place will be at a competitive disadvantage, it is integral to their whole business performance that they do move to put in place those capabilities.
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