Construction has the greatest potential for export growth among the service sectors, a report from the CBI says.
The business lobby group jointly published a report with management consultants Ernst & Young on Monday showing that construction services exports can grow faster over the next eight years than any other services sector, including financial services and communications.
The report, Winning overseas: boosting business export performance, estimates construction services could have a 10.8 per cent projected average annual growth to 2020, compared with a 9.4 per cent predicted export growth for financial services (see graph).
With global construction projected to grow by almost 70 per cent from $7.5 trillion £4.75 trillion) today to $12.7 trillion (£8.04 trillion) in 2020, and the majority of this growth taking place in emerging markets, the report claims there is a huge opportunity for British construction to export its expertise. Markets such as Nigeria, India, China, Russia, Vietnam and Indonesia look set to post the highest growth opportunities for UK construction.
CBI director John Cridland said: “We have seen many of our biggest construction companies recently expand overseas, but more firms need to seize the opportunity. The designers, the engineers, they are already out there, but there are firms right through the supply chain that could be successful overseas.”
He added that the London 2012 games would provide the perfect platform to show the world what British construction can achieve.
“It’s a great advertisement, and British construction companies can export that reputation for quality of work,” he said.
“The Games could really give smaller and medium sized firms the momentum and confidence to go abroad.”
Ernst & Young UK and Ireland managing partner Steve Varley said that one of the key ingredients for firms looking to export their businesses was to “go local”.
“It is important to recognise the change that has happened in establishing businesses in foreign countries,” said Varley.
“Whereas in the past you may have gone over and set up a base using mainly expat staff, that way of doing things no longer accepted. You must train up a local workforce.”
The report recommends a five point plan to grow UK business overseas:
1. Government must set a high bar for export performance to be met through a 2020 national exports strategy
2. Government must provide the right policy framework to boost businesses’ export capability
3. UK Trade and Investment, the government export body, must inject greater commercial focus into its operations to better support UK business
4. CBI will take the lead in supporting UK businesses entering new markets
5. Government and business must work together to increase the availability of export finance
Cridland said that one of the main barriers to exporting reported by the CBI’s members was the upfront cost setting up an overseas business, and as a result the CBI was now working on a proposal for an Export Tax Credit to help ease the initial financial pain.
“Many of the UK’s medium sized firms have looked at the barriers to exporting and one of the major ones is upfront cost,” said Cridland.
“Going to these more challenging but potentially more rewarding countries such as Brazil, Russia, India and China is very challenging, and our members have told us that they feel they are not incentivised to make that upfront investment in the same way as they are with research and development tax credit.”