The Institute of Chartered Accountants finds that 77% of all British businesses are engaged in international activities. M Institute co-founder Jyoti Banerjee explores this finding in the light of UK plc's competitiveness in the global marketplace.
The tenth annual Enterprise study from the Institute of Chartered Accountants in England and Wales (ICAEW) has found that 77% of all UK businesses are currently engaged in globalisation to some extent. Filtering this finding to companies with less than 1,000 employees, the research indicates that as many as 44% are engaged internationally, either through having customers overseas, outsourcing, or running operations abroad. |Its higher than I would expect
Of the 1100 companies taking part in the study, 42% view globalisation positively, and 18% are concerned about it. Possibly unsurprising is the fact that it is the financial services sector that is most positive about globalisation, and manufacturing the fastest to recognise the risks, reflecting the relative strengths of these industries in the global marketplace. London continues to be a powerful global finance centre, while Britain's manufacturing is sliding away, except in certain specialist sectors such as racing cars, boats, and defence.
British performance
How well will British companies fare in a globalising marketplace? The simple (possibly simplistic) answer is that the more competitive the enterprise, the more likely they are to welcome globalisation. While the competitive position of any enterprise is largely a function of the people working in it (an item worthy of its own article), there are some key environmental and infrastructural factors that have influenced the performance of British firms. Some of these factors are currently being ignored, resulting in the UK's slide in national competitiveness, which will certainly impact the competitive performance of Britain's companies:
Flexible labour
Britain's laws regarding hiring and firing are closer to US laws than those in EU counterparts. This flexibility of labour has been an important element in making British firms agile in the international marketplace. As Britain buys wholesale into any European legislation lying around, EU thinking about protecting the workforce from rapacious employers needs tempering so that we don't end up with sclerotic employers stuck with fat employees they cannot get rid of. Competitiveness and immobile workforces are allergic to each other. As China and India grow their economies, it stands to reason that the UK will lose to them in those sectors that they have competitive advantage in. We must facilitate the domestic structural change that needs to take place, allowing workers and resources to shift to more productive and profitable activities. Inflexible labour stands against this need.
Modern infrastructure
Two weeks ago, in bright sunshine, I bought a newspaper headlined "Snow chaos threatens nation-wide closures." The country was anticipating closing down for the day as snow was arriving soon. There is no other country in the western world that is brought to a complete halt by a few flakes of snow. All the snow was gone by 11am, but the predicted transport chaos was almost non-existent because most schools and businesses had pre-empted the failure of the transport infrastructure by shutting down the day before. Transport, education, hospitals - they are all suffering right now, and illustrative of the mess that British infrastructure is in right now. We are handicapping our enterprises if we expect them to compete with international competition that doesnn't have these infrastructural challenges.
Attractive tax environment
Between 1997 and 2006, Britain slipped from 7th to 13th on the tax burden measures compiled by the World Economic Forum. The UK tax burden as a share of national income was close to the OECD average in 1997 but is now four percentage points above it. Our tax advantage with the eurozone has narrowed from 7.4 to 2.8 percentage points. We are slip-sliding towards a tax burden that is about £11.9 billion higher in 2008/9 than it was in 1996/7. Sure, we need the tax to pay for that infrastructure that is missing - see earlier point - but we are in danger of losing our competitiveness which should ensure that any hopes we have for pensions, medical care, education and the like can be kissed goodbye.
Smart people
One-sixth of all school-leavers are unable to read or write at an adequate level. Half our kids leave school with only GCSEs - given the complete devaluation that has happened to the GCSEs, this means they are effectively illiterate for the business world. As we compete with the emerging economies, we find that our comparative advantage comes in those areas where high skills are prevalent. We are currently eleventh in the OECD high skills league table, but for how much longer can we fool ourselves on this issue: last year, Britain produced 32,000 science and technology graduates, while China produced 600,000 engineering graduates alone.
Globalisation is happening across our economy. UK firms are looking forward to the advantages it will bring them. They would feel considerably less sanguine if they realised just how poorly their national economy serves them as they seek to compete with the world's best.
Comments