By Daniel Hunter

Britain’s manufacturers are stepping up their investment plans to capitalise on surging demand from emerging economies and provide a long term growth presence in overseas markets, according to a survey released by EEF, the manufacturers’ organisation and Royal Bank of Scotland (RBS).

However, the survey also throws down a challenge to government to provide the framework to support this potential and, increase exports to meet the Chancellor’s £1 trillion target. In practical terms this means between now and 2020, the UK will need to match the annual growth rate of South Korean goods and services exports of nearly 9% per annum in the decade prior to the recession in 2008.

The survey illustrates how exports are increasingly the lifeblood of manufacturers, with nine in ten companies exporting and, exports accounting for more than half the turnover of two fifths of companies. It also shows that 65% of companies saw their exports grow in 2011, with a fifth of companies seeing growth of more than 20%. This year 70% of firms expect exports to increase.

Much of this growth will come from new markets. Manufacturers are building momentum on entering new markets and have been doing so for some time, not just as a response to distressed European markets. In contrast to the caution seen in the last export survey in 2009, the data also show that the vast majority are increasing investment with the specific aim of increasing exports in the long term.

However, the survey highlights that Industry still faces substantial hurdles in breaking into new markets. Whilst the hurdles vary depending on the markets, almost half of companies raised specific trade barriers as an obstacle, with Brazil and Russia proving particularly problematic.

A lack of Intellectual Property Protection was an issue in China for 45% of companies whilst, in contrast, no company reported this as an issue in SE Asia or the Gulf. Poor Credit protection was highlighted as a barrier for 38% of companies.

“These figures show that the ‘march of the makers’ is very much underway in export markets," EEF Chief Economist, Ms Lee Hopley, said.

"With companies stepping up their investment plans to grow their exports and enter new markets, this can only boost their performance still further.

“All the evidence shows that companies with a greater involvement in multiple export markets tend to be better performing. The more companies we can get into this position, the higher the benefits will be for our economy,. The challenge for government is to provide the framework to help industry fulfil its growth potential and hit the Chancellor’s £1trillion target.”

Peter Russell, Head of Manufacturing, Corporate and Institutional Banking, RBS said the survey findings support what manufacturers are saying.

"These findings resonate strongly with what manufacturers are telling us," he said.

"They are accessing new markets and winning export orders, often against strong local competition which is testament to the design, innovation and quality of UK manufacturers. However, we should not pretend that exporting is always straightforward, far from it. Determination and persistence are required which, for some businesses who are already resource constrained, can be a source of frustration and delay.

“But the number one positive is that momentum is increasing. I would encourage those manufacturers who are contemplating seeking out new markets to accelerate their plans. The opportunity is out there."

The survey also shows that strategies for entering new markets have changed little in the past five years with four fifths of companies exporting directly from their UK base. This provides encouragement for rebalancing the economy with companies keeping manufacturing activity and investment largely in the UK. In contrast, around a third of companies produce locally, a slight increase since the last survey in 2009 but highlighting anecdotal evidence that the trend towards offshoring has slowed.

In addition, the data shows the extent to which emerging economies are taking over from slower growth in the Eurozone, although the EU still accounts for around half UK exports. In the last decade exports to the ‘BRIC’ economies have grown from 2% of the total to 8% with the survey indicating this pattern will increase. Ninety per cent of companies already export to developing economies and the survey shows half expect exports to emerging economies to increase this year.

India and South East Asia lead the way in the immediate future with almost a third of companies expecting exports to increase in 2012, with China and the Gulf States close behind. In the next five years exports to China and India are expected to increase by 46% and 39% respectively whilst, in contrast the figure for Russia is just under a quarter.

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