New horizons

New horizons

Scotland is exporting its goods and services in record amounts, with key markets such as the United States and Europe now being joined by many emerging economies.

Exports have been at the heart of the Scottish economy for generations. Whether it’s through the mighty ocean liners that slipped down the causeways into the River Clyde or the barrels of pale ale that eased the thirst of workers in hotter climes, our nation can be rightly proud of the goods that it has sent around the world.

That rich heritage continues to this day. Equipment and techniques developed for the North Sea oil and gas industry are now being used on rigs as far afield as Azerbaijan, Brazil and the Gulf of Mexico. Beef, salmon and whisky are being served at tables on five continents, while Harris tweed is not just keeping fashion-lovers on-trend but also warm and dry as well.

Overseas sales of goods and services soared by £1.9 billion to a record high of £27.9bn in 2013, according to the most recent official figures, and that’s excluding sales of oil and gas as raw commodities. Manufacturers exported £16.8bn of goods, up 8.2% year-on-year, while the service sector grew its contribution by 6.8% to £9.2bn.

It’s not just the usual suspects that are proving popular either. While whisky and other food and drink accounted for £5bn of exports, lesser-known areas such as professional services – which encompasses accounting, legal and management – chalked up £1.7bn, while computer, electronic and optical products contributed £1.6bn.

The United States continued its run as Scotland’s most-important export partner, as it has done for the past 11 years, buying £3.9bn of goods and services. The Netherlands – with its large seaports, which act as conduits for sales on to other countries – was our second-largest buyer with £2bn, while Germany followed in third place with £1.9bn.

Exporters are now turning their attention to other markets too. Accountancy firm EY analysed official data from HM Revenue & Customs (HMRC) and found Scotland accounted for 7% of all UK exports in the 12 months to 30 June, with the US and Europe remaining the country’s two biggest overseas trading partners.

The practice now thinks that Scotland should concentrate its focus on America, China and Europe – the so-called “ACE” economies – as these are expected to deliver the best returns between 2020 and 2030. India should be Scotland’s “development bet”, the accountancy firm added, marking a refinement of the more general strategy of targeting the “BRICs” – Brazil, Russia, India and China – that many countries and companies have employed.

“Scotland’s exporters should target ACE economies to boost business,” explains Mark Harvey, EY partner and market leader for Scotland. “In recent years there has been a push towards the BRIC economies but these are not necessarily the best fit for Scottish, and UK, companies. Our analysis shows we should focus on and cater for our capabilities through a mix of high growth and high value markets.

“Scottish companies already have a strong footing in some of the key markets for export expansion. The nation’s leaders and businesses need to focus on maximising these relationships and exploring new opportunities for exporting to China, which is not currently amongst our top export partners but remains our second-highest source of imports after the US.

“EY’s latest Scotland Attractiveness Survey also highlighted the ongoing need to develop relationships with growth territories like Asia to secure a bigger share of their foreign direct investment (FDI) projects. China is the fifth-biggest source of projects for the UK as a whole in 2014 but does not even rank in the top ten origins for FDI into Scotland.

“By building stronger ties in China and, in the longer-term, India, companies can help Scotland and the wider UK strike the right balance to compete globally in terms of exports.”

The whisky industry has already been targeting emerging markets in Asia and beyond. In 2014, 444 million bottles of Scotch were exported to Europe, followed by 173 million to North America. Asian countries imported 239 million bottles, while South America and Central America together took a further 142 million bottles, highlighting the importance that the industry already places on emerging economies.

Industry body Scotland Food & Drink’s export strategy – which aims to grow overseas sales from £5.1bn at present to £7.1bn by 2017, as part of wider aims to increase the industry as a whole from £13.9bn of revenues to £16.5bn over the same period – is also targeting emerging markets. Sales of salmon and seafood to China have already been highlighted as one success story, with the demand for dairy from the Communist state also increasing.

Scotland Food & Drink has designated the ‘first fifteen’ markets that companies should target, with the top seven featuring: North America; France; Germany; the Middle East, including the United Arab Emirates, Saudi Arabia and Bahrain; China and Hong Kong; Japan; and South-East Asia, including Singapore and Thailand.

Exports are also at the heart of government strategy on both sides of the Border. One of the nine elements that form the Scottish Government’s “Scottish business pledge” is “pursuing international business opportunities”, alongside paying the living wage, not using zero-hours contracts and committing to prompt payment.

‘Internationalisation’ was also one of the four ‘I’s unveiled in First Minister Nicola Sturgeon’s economic strategy in March – accompanying ‘investment’, ‘innovation’ and ‘inclusive growth’ – while Prime Minister David Cameron’s high-profile trade missions to countries including India and Singapore have underlined the UK Government’s focus on exports.

With exports riding so high up the political agenda, the Scottish Parliament Economy, Energy & Tourism Committee’s report, ‘Internationalising Scottish Business’, in May highlighted the need for small and medium-sized enterprises (SMEs) to be encouraged to export their goods and services. MSPs on the committee pointed out that just 100 companies currently account for about 60% of Scotland’s export, drawing attention to the size of the opportunity available to the nation if more firms could be encouraged to trade overseas.

Encouraging a larger number of SMEs has already been a key focus for economic development agencies Highlands & Islands Enterprise and Scottish Enterprise, along with the agencies’ overseas arm, Scottish Development International (SDI) and UK Trade & Investment, which operates at a UK-wide level. The Business Gateway service delivered by local councils and their partners is also highlighting the importance of overseas trade to companies throughout Scotland.