United Kingdom in Business

United Kingdom in Business

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Introduction

The United Kingdom (UK) is one of the largest economies, both in Europe and in the world (BIS Economic Paper, 2012, p. 3). This paper seeks to evaluate the business performance of the UK in the past few years. To achieve this, the paper compares its trade performance with the performance of its key European competitors, namely, Germany and France. It examines in brief the total trade by the UK over the past few years and its performance in both goods and services sectors.

Discussion

According to BIS Economic Paper (2012, p. 8), the UK is one of the largest economies in Europe, lagging behind Germany and France. The total amount of UK exports in 2010 amounted to US$632 billion. This was a 9 percent increase from 2009 exports. The imports increased by 11 percent from 2009 to US$714 billion in 2010. This places the UK as the largest trader in Europe behind Germany and France. The UK exports more services than goods and is the second-largest exporter of services in Europe behind Germany. It is the fourth largest exporter of goods behind Germany, France and Netherlands. UK’s trade grew at a faster rate between 2002 and 2008 than in the 1990s during which it was significantly faster than in 1`980s. However, the positive growth rate was halted in 2009 amidst the recent global crisis. Despite this, the UK’s growth in trade started recovering rapidly in 2010. The top destinations for UK’s exports are US, Germany, France, Netherlands and Ireland. China is currently the largest exporter to the UK followed by Germany and France (BIS Economic Paper, 2012, p. 8).

The UK has large oil, coal and natural gas resources but the natural gas and oil reserves have been declining over the last one decade. As a result, the UK started importing energy in 2005. As BIS Economic Paper (2012, p. 8) explains, services (particularly business, insurance and banking services) account for the largest proportion of UK’s GDP. In 2010, the UK recorded a services trade surplus of 3.1 of GDP and a goods trade deficit of -6.8 per cent of GDP. France also recorded a services trade surplus of 0.6 percent of GDP and goods trade deficit of -3.3 percent of GDP. The UK recorded a trade deficit of -3.6 percent of GDP. The highest sector deficits were in vehicles, electrical equipments, and mineral fuels and oils. As BIS Economic Paper (2012, p. 8) explains, the UKs trade balance is somewhat reliant on oil prices, although not as much as in France where trade deficit has been worsened by oil prices.

Over the last one decade, UK’s services and goods exports have grown by an average of 7.5 percent and 2.8 percent respectively (BIS Economic Paper, 2011, p.8). This compares to 5.9 percent and 5.3 percent in France and 11.4 percent and 8.1 percent in Germany. The UK recorded the highest share of service exports in 2004 at 8.7 percent but it has fallen continuously since 2007. In 2010, the UK’s share amounted to 6.2 percent compared to France’s 3.8 percent share and Germany’s 6.3 percent share. On the other hand, the UK’s share of goods exports declined in 2007 to 2.7 percent in 2010. The shares of France’s and Germany’s goods exports also declined to 3.4 percent and 8.3 percent over the same period (BIS Economic Paper, 2011, p.5).

As BIS Economic Paper (2011, p.5) explains, these figures portray different patterns across sectors and markets. For instance, the UK’s global share of financial services exports amounts to 22.8 percent while the global share of construction service exports amounts to 2.6 percent. The global share of UKs communication service exports amounts to 8.3 percent while the share of office and telecommunication equipments amounts to only 1.7 percent. The UK’s share of pharmaceutical exports in the world is far much higher than that of chemical exports. Meanwhile, the UK exports 3.3 percent of goods to Singapore but only 1.5 percent to Malaysia. 14.9 percent of UK services exports are destined to South Africa, 14.1 percent to Ireland and only 0.5 percent to Indonesia (BIS Economic Paper, 2011, p.5). The range of performance is more striking when considering combinations of sectors and markets. While the share of goods imported from the UK by Brazil amounts to 1.7 percent, the share of imports of printed books and newspapers from the UK amounts to 12.8 percent. Mexico imports more pharmaceuticals from Germany and France than the UK but the US imports more pharmaceuticals from the UK than Germany and France (BIS Economic Paper, 2011, p.5).

According to Great Britain: Parliament: House of Commons: Business, (2011, p. 11), the UK lags behind Germany and France in some markets, even in areas of strength such as services sectors exports. In comparison to both Germany and France, the UK tends to export lower volume of goods to nations with lower GDP especially due to the relatively high quality and high prices of UK products. As well, it has a relatively lower market share in geographically distant markets. This is more pronounced when the market is linguistically and culturally different. For instance, the market share of UK exports to Latin America and Brazil is considerably low compared to Germany’s and France’s exports, given the rapidly increasing consumption rate in these regions (Wells, 2011, p. 11). One of the reasons for this is that UK exports are sent to Latin America and Mexico via third markets such as the US and other EU markets. As well, more firms from the UK have established operations in the US compared to their counterparts in Germany and France and they export to Latin America and Mexico from there.

Conclusion

In conclusion, statistics indicate that UK’s trade performance has been strong over the past few years. This performance has mostly been driven by the strong performance of the service sector. The goods sector has been relatively weak with 2010 recording continuous deficit over time. As indicated in the analysis, the trade performance of the UK is weaker in some markets compared to Germany and France. The UK can improve its trade performance by expanding exports to new, untapped markets.

References

BIS Economic Paper (2012), “UK trade performance across markets and sectors.” Viewed July 5

2013. < HYPERLINK “https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/32475/12-579-uk-trade-performance-markets-and-sectors.pdf” https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/32475/12-579-uk-trade-performance-markets-and-sectors.pdf>

BIS Economic Paper (2011), UK trade performance over the past years. Viewed July 5 2013.

< HYPERLINK “https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/43313/11-” https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/43313/11-720-uk-trade-performance.pdf>

Great Britain: Parliament: House of Commons: Business, (2011, p. 11), House of commons

papers. The Stationery Office, London

Wells, S. J. (2011), British Export Performance: A Comparative Study. Cambridge University

Press