UK ENTERPRISE SURVEY REPORT 2010 A unique annual insight into UK business competitiveness and developments in globalisation Inspiring confidence icaew.com/enterprise A
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welcome to the ICAEW UK Enterprise Survey REPORT 2010 The annual ICAEW UK Enterprise Survey Report 2010, now in its 14th year, provides a unique picture of the opportunities and challenges that face UK businesses. It draws upon the expertise of our members who work at the heart of business, including chief financial officers, finance directors and senior management in businesses of all sizes, from FTSE 100 companies to micro entities. For the third year, this survey has been published alongside the ICAEW Global Enterprise Survey. This allows us to compare the views of chartered accountants in the UK with those in the remainder of the EU, the Gulf, Asia-Pacific, Africa and the US. As the global economy recovers from the economic downturn, business will refocus on longer term economic trends. If anything, the recession has increased the pace of globalisation in advanced and emerging economies. This year has seen China overtake Japan to become the second largest economy. This is hardly surprising when China s current economic growth stands at 10 per annum, while Japan has barely registered growth over the same period. In addition, China s integration into the global economy has accelerated. In light of this our survey places emphasis on growth and globalisation, with particular reference to inward investment and barriers to international expansion. Growth expectations are higher than they were in 2009, with 80 of UK businesses planning turnover growth over the next two years. However, indications are that the outlook remains cautious. The proportion of businesses planning growth of 11 or more is unchanged at 22. Internationally engaged businesses are more optimistic than those that are solely UK focused. Predictably, a higher proportion of UK businesses are thinking internationally 70 in 2010, up from 64 last year. UK businesses also remain positive about the effects of globalisation. Increased access to new markets is cited as the most common benefit. Interests in markets overseas reflect the changing global economic landscape as UK businesses focus increasingly on China and India, alongside the traditionally favoured European markets. The UK features in many overseas businesses plans as a potential country for investment. Approximately four in ten businesses based in the US, Asia-Pacific, the Gulf and Africa would consider the UK as a place to do business in Europe. The legal system, English language and skills base are perceived to be positive factors by over 80 of those who are considering UK-based investment. Of those who are unlikely to consider investment in the UK, there are four major factors the UK s market is already well served for their products and services, the UK taxation environment, and that other European countries offer greater market opportunities or are cheaper to operate in. Perhaps the most significant message for the coalition government is that UK businesses are determined to resume growth. They realise that emerging economies have greater growth prospects. A key focus for the next five years should be to maintain a stable environment that encourages businesses to pursue growth opportunities. Michael D M Izza Chief Executive Welcome icaew.com/enterprise 1
key findings at a glance GROWTH GLOBALISATION Growth expectations are higher than they were in 2009 80 of businesses say that they are planning turnover growth over the next two years although plans for growth have not yet returned to the levels seen in 2008. Expectations of growth levels remain cautious; the proportion of businesses planning growth rates of 11 or more per year (22) remains unchanged from 2009. Globally-engaged businesses are more optimistic than those with a solely UK focus. Micro businesses and those in the Real Estate & Property and Construction & Housing sectors are less positive than other businesses about turnover growth. Nearly all businesses are planning to increase profitability over the next two years; almost half list this as a key objective. Changing oil / petrol and energy costs have adversely affected competitiveness over the past year, particularly for businesses in the Construction & Housing, Transport and Manufacturing & Engineering sectors. Government measures are expected to have a major impact on business over the next year, with opinion divided on whether they will have a positive or negative effect. The proportion with operations, activities or trading relationships beyond the UK has increased from 64 in 2009 to 70. Manufacturing & Engineering and IT & Communications are the most globally-engaged sectors. UK businesses remain positive about the impact of continuing globalisation with increased access to new markets the most commonly mentioned benefit. More than 40 of businesses have international expansion plans, with Europe, China and India the main targets. Political, administrative, regulatory and legal considerations are the most frequently cited barriers to UK businesses international expansion. Around four in ten businesses based in the US, Asia-Pacific, the Gulf and Africa said they would consider the UK as a location for future investment in Europe. Within the EU only 20 held this view. regulation 50 feel that the UK s regulatory and taxation environment is business friendly, a significant improvement since 2009. Smaller businesses continue to feel less well supported but perceptions among medium-sized businesses have improved. Employment tax and legislation, business tax changes and health and safety regulations are most likely to be seen as a hindrance to the operation and development of businesses. 2 UK Enterprise Survey Report 2010 Key Findings
CONTENTS Growth 5 Business growth 5 Business objectives 8 Factors impacting on UK businesses growth 8 Globalisation 13 Global engagement 13 The impact of globalisation 15 Strategy for global markets 16 Planned global expansion by UK businesses 17 Planned investment in Europe by UK businesses 18 Inward investment to the UK 19 Barriers to international expansion 21 Regulation 23 The regulatory and taxation environment 23 TECHNICAL APPENDIX 26 Acknowledgements 27 further details 28 Contents icaew.com/enterprise 3
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Growth The ICAEW UK Enterprise Survey Report 2010 shows that optimism about the potential for growth has increased since 2009, although it remains at lower levels than before the UK recession. Increasing profitability is the main objective for most businesses, but government measures are expected to have a major impact on businesses over the next year, with opinion split on whether this will be positive or negative. BUSINESS GROWTH Cautious plans for growth Growth expectations are higher than they were in 2009, with 80 of businesses saying that they are planning turnover growth over the next two years, compared with 66 in 2009 (see chart 1). However, plans for growth have not yet returned to the levels seen in 2008. Expectations about the level of growth remain cautious. The percentage planning for higher rates of growth 11 or more per annum remains unchanged from last year at 22, with the increase in those planning growth coming in the proportion planning rates of 10 or lower. As a result, the average rate of growth targeted by those planning growth is down this year to 10.1, compared with 11.2 in 2009 and 13.4 in 2007. CHART 1: PLANNED TURNOVER GROWTH FOR THE NEXT TWO YEARS 13.4 12.4 11.2 10.1 100 90 80 70 60 50 40 30 20 10 0 1 8 23 28 13 14 13 2007 survey 1 4 10 26 27 9 12 11 2008 survey 1 7 26 28 17 5 9 8 2009 survey 2010 survey 1 3 16 35 24 6 8 8 Sell / hand on business Downsize Stay the same size Up to 5 p.a. 6-10 p.a. 11-15 p.a. 16-30 p.a. Over 30 p.a. Average planned growth among those planning to grow turnover Base: All responding: 2007: 994, 2008: 1,005, 2009: 956, 2010: 951 Growth icaew.com/enterprise 5
Plans for growth are evident across all sectors, but more limited among businesses in the Property and Construction sectors Plans for growth are lower in the Property and Construction sectors than other sectors with around six out of ten of these businesses planning growth (see chart 2). Primary, Construction and Property are the only sectors where plans for turnover growth have increased by less than 10 compared with last year. CHART 2: planned ANNUAL turnover growth FOR THE NEXT TWO YEARS by industry sector Transport* 7 52 96 +22 IT / Comms* 26 71 92 +14 Financial* 5 55 89 +21 Other Services* 4 56 89 +26 Health / Educ* 16 55 85 +19 Manuf / Eng 5 47 85 +11 Bus Services 5 39 83 +22 Retail / Hotels 4 38 82 +11 Primary* Construction* 6 13 30 46 60 +2 80 +4 Any growth Growth of 6+ Growth of 30+ Property 11 41 58 +5 Change in growth since 2009 (+/-) 0 10 20 30 40 50 60 70 80 90 100 Base: All responding: 951 *Sample base <100 6 UK Enterprise Survey Report 2010 Growth
Micro businesses not feeling the benefits of recovery Micro businesses appeared to have been relatively sheltered from the early impact of the recession in the UK, but the 2009 survey showed a sharp cutback in their expectations of growth. Indications are that, in 2010, many remain more cautious than larger businesses in their plans. Only 56 of micro businesses say that they are planning turnover growth over the next two years, compared with 80 overall (see chart 3). By contrast, the proportion of businesses with more than 10 staff planning any turnover growth in the next two years has increased and returned to levels seen in 2008. CHART 3: planned annual turnover growth for the next two years by size of business 100 90 80 79 13.1 86 10.9 82 9.2 90 6.9 70 60 50 40 30 20 10 0 16.5 56 52 51 51 42 39 14 15 9 5-1 -1-5 +13 +9 +1 +17 +3-3 +13 +14 +3 +21 +7 +1 2 Micro (171) Small (124) Medium (192) Large (141) Very large (322) Any growth Growth of 6+ Growth of 30+ Average growth by those planning to grow t/o Showing change since 2009 (+/-) Base: All responding: 951 Globally-engaged businesses are more optimistic In the 2009 survey, growth expectations were generally lower across all types of business than they had been in 2008. However, in 2010, there are indications that those UK businesses that have some level of global engagement 1 are more positive than those that are solely UK focused (see chart 4), although this may be related to the fact that globally-engaged businesses tend to be larger organisations. CHART 4: planned annual turnover growth for the next two years by global engagement 100 90 10.1 88 80 70 60 50 51 10.3 62 Any growth Growth of 6+ 40 30 20 10 0 34 8 6 +20 +11 +2-2 -4-5 Globally engaged (664) No global engagement (286) Growth of 30+ Average growth by those planning to grow t/o Showing change since 2009 (+/-) Base: All responding: 951 1 Global engagement is defined as having operations or activities, outsourcing business activities or functions, selling to customers, making acquisitions or adapting products or services to countries outside their home country. Growth icaew.com/enterprise 7
BUSINESS OBJECTIVES Increasing profitability is most commonly cited as a key objective over the next two years Nearly all the UK businesses we spoke to are looking to increase profitability over the next two years, with almost half saying that this is their key objective (see chart 5). This rises to 65 in Healthcare & Education and 58 in Retail, Hotels & Catering. More effective management of risk and the reduction of costs are each mentioned by three-quarters of these businesses as one of their objectives for the next two years. Those in the Financial Services (14) and Other Business Services (16) sectors were more likely than others (5) to cite effective risk management as one of their key objectives. The proportion of businesses identifying increasing cash balances as their key business objective has decreased significantly compared with last year with less than one in ten businesses now saying that this is their key objective. This indicates that businesses have been managing their finances more effectively and already have the cash balances they require. CHART 5: business objectives over the next two years Increase profitability 49 (+7) 91 (+3) Increase shareholder reward 15 (-4) 76 (N/C) Manage risk better 5 (N/A) 76 (N/A) Reduce costs 9 (N/A) 74 (N/A) Increase cash balances Improve IT systems Invest in non-it equipment / staff Increase management rewards 8 (-10) 3(N/C) 3 (-2) 1(-1) 44 (+4) 69 (-2) 65 (+2) 62 (+5) All objectives Key objective Showing change since 2009 (+/-) N/A Not asked (new objective for 2010) Base: All respondents: 1,000 Pay down debt 43 (N/C) 6 (-3) 0 10 20 30 40 50 60 70 80 90 100 N/C No change FACTORS IMPACTING ON UK BUSINESSES GROWTH Changing costs have adversely affected competitiveness over the past year UK businesses have been battling over the past year with a number of factors which have impacted on their costs and finances. Nearly half of these businesses said their competitiveness has been adversely affected during this period by changing costs of oil and petrol and / or energy (see chart 6). The only factor more likely to be perceived as having had a positive rather than a negative effect on competitiveness was interest rate changes. However, unsurprisingly, this was not the case for the Financial Services sector, where it was more likely to be perceived as a negative (33) rather than a positive (23). The Financial Services sector was also more likely than average to report that their competitiveness had been affected in some way by national government measures, but the specific impact of government measures on their competitiveness varied 43 considered this a negative, 23 listed it as a positive. 8 UK Enterprise Survey Report 2010 Growth
CHART 6: factors affecting organisations competitiveness over past year Oil / petrol cost changes 45 4 Energy cost changes 44 7 National government measures 35 15 Raw material cost changes 33 5 Exchange rate movements 32 15 Changes in access to finance 31 6 Positive Interest rate changes 23 29 Negative -50-40 -30-20 -10 0 10 20 30 40 Base: All respondents: 1,000 Construction and Manufacturing industries adversely affected by changing costs Businesses in the Construction & Housing sector were more likely than other businesses to report a wide range of factors as having had a negative impact on them, and, together with those in Manufacturing & Engineering were more likely than other businesses to report a negative impact from changes in costs of oil / petrol, energy and raw materials (see chart 7). Small businesses were more likely than others to feel that their competitiveness has been adversely affected by changes in access to finance (41). Large businesses were more likely than others to report having been negatively affected by changes in oil and petrol costs (53). CHART 7: factors impacting negatively on organisations competitiveness over past year by industry sector All Cos (1,000) Primary (32) Manuf & Eng (158) Constr & Housing (76) Property (121) Retail & Hotels (175) Transport (52) IT & Comms (65) Finance (94) Bus Servs (127) Other servs (60) Health & Educ (40) Changes in oil / petrol costs 45 50 52 72 39 62 70 25 15 28 37 36 Changes in energy costs 44 37 53 59 40 46 61 30 22 39 49 45 National government measures 35 34 35 47 38 33 27 26 43 24 47 30 Changes in raw material costs 33 39 62 63 24 46 42 14 5 10 22 9 Exchange rate movements 32 26 36 31 25 47 34 27 19 27 26 23 Changes in access to finance 31 35 23 53 47 26 33 14 30 33 31 23 Changes in interest rates 23 17 19 37 13 22 27 12 33 25 26 21 Base: All respondents: 1,000 (Red squares represent those significantly above average, darker grey significantly below average) Growth icaew.com/enterprise 9
Government measures expected to have a major impact on business over the next year Changing costs have had a negative impact on a large proportion of businesses over the past year and are expected to exert less influence on performance during the next year. With a change of government in May 2010, shortly before the present survey, and early announcements of austerity measures and policy changes, many survey participants expected national government measures to have a major effect on their business in the coming year. Opinions on the nature of the impact were divided. This was the factor many expected to have a positive effect on their businesses, but it was also most likely to be expected to have a negative effect on businesses (see chart 8). Other changes most likely to be viewed as having a positive influence were changes in access to finance and exchange rate movements. Changes in access to finance was one of the factors most likely to be expected to have a future positive influence by small businesses, despite them having been more likely to report a negative impact from this over the last year. CHART 8: factor expected to have most positive / most negative effect on business over next year Any effect National government measures 14 13 22 49 Changes in access to finance 15 4 4 23 Exchange rate movements 11 6 8 25 Interest rate changes 11 3 11 25 Most positive only Raw material cost changes Oil / petrol cost changes 3 5 2 7 4 8 17 12 Both most positive & negative Energy cost changes 4 Base: All respondents: 1,000 1 4 0 10 20 30 40 50 9 Most negative only 10 UK Enterprise Survey Report 2010 Growth
Businesses in Manufacturing & Engineering are sensitive to changes in raw material costs In addition to being among the most likely to have reported a negative effect over the last year from changes in raw materials costs, businesses in Manufacturing & Engineering are also more likely than other businesses to expect it to be the factor with the most negative impact on their performance over the next year. Businesses in Health & Education, Construction & Housing and Financial Services expect national government measures to have a higher impact on them Three quarters of those in Healthcare & Education expect national government measures to have a substantial impact on their business in the coming year, with businesses split on whether this impact will be positive or negative (see chart 9). The Construction & Housing and Financial Services sectors also expected this to have a major influence, although they are more likely to expect it to be negative than positive. CHART 9: greatest effect of government measures on business over next year by sector Any effect Health / Education* 22 34 19 75 Construction / Housing* 12 26 30 68 Financial Services* 16 21 30 67 Business Services 22 15 19 56 Other Services* 21 13 19 53 Real Estate / Property 11 10 32 53 IT / Communications* 12 15 22 49 Retail / Hotels / Catering 12 5 25 42 Most positive only Primary Industries* Manufacturing / Engineering 15 8 15 10 8 12 38 30 Both most positive & negative Transport / Distribution* 12 5 11 Base: All respondents: 1,000 *Sample base <100 0 10 20 30 40 50 60 70 80 28 Most negative only Growth icaew.com/enterprise 11
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globalisation Businesses are generally positive about the impact of globalisation. Of those planning to expand, Europe, China and India are the main targets. Businesses based outside the EU are the most likely to consider the UK as a location for investment. GLOBAL ENGAGEMENT More UK businesses are now globally engaged Levels of global engagement 1 have increased since last year, with 70 now having some level of global engagement, compared with 64 in 2009 (see chart 10). This increase in global engagement is illustrated by significant increases in international activity in virtually all areas, with the notable exception of acquisitions outside the UK. CHART 10: global engagement by uk companies Any global engagement +6 70 Sell to countries outside UK +8 59 Have operations or activities outside UK +6 47 Adapt products to markets outside UK +6 44 Business functions outside UK +11 34 Acquisitions outside UK +2 27 Outsource business activities outside UK +7 26 0 10 20 30 40 50 60 70 80 Showing change since 2009 (+/-) Base: All respondents: 1,000 1 Global engagement is defined as having operations or activities, outsourcing business activities or functions, selling to customers, making acquisitions or adapting products or services to countries outside their home country. Globalisation icaew.com/enterprise 13
The incidence of global engagement continues to be strongly related to company size (see chart 11), with the highest levels of global engagement shown by very large businesses and the lower levels shown by micro, small and medium-sized businesses. Micro businesses do however appear to have made up some ground this year, with more than half now globally engaged. CHART 11: global engagement by size of business 100 90 80 70 60 50 40 30 20 10 0 54 58 62 71 88 12 22 34 Any global engagement Operations / activities abroad Sell to countries outside UK 49 79 43 46 +16-3 +5 +8 +6-8 N/C +9 +3 +17 +10-1 +5 +7 +11 52 59 76 Micro (172) Small (128) Medium (200) Large (149) Very large (351) Showing change since 2009 (+/-) N/C No change Base: All responding: 1,000 Manufacturing & Engineering and IT & Communications are the most globallyengaged sectors Global engagement continues to be strongly related to sector (see chart 12). The sectors most globally engaged are Manufacturing & Engineering and IT & Communications, followed by Financial Services. At the other end of the spectrum, businesses in Real Estate & Property Services and Construction & Housing continue to be the most focused on the domestic market. CHART 12: global engagement by sector ALL BUSINESSES +6 70 Manufacturing / Engineering IT / Communications* +8 +3 91 90 Financial Services* +14 83 Business Services / Accounting Primary Industries* Other Services* +17-3 +11 72 75 74 Transport / Distribution* Retail / Hotels / Catering +3 +3 67 66 Health / Education* -4 57 Construction / Housing* +4 48 Real Estate / Property Services +6 45 Showing change since 2009 (+/-) 0 10 20 30 40 50 60 70 80 90 100 Base: All responding: 1,000 *Sample base <100 14 UK Enterprise Survey Report 2010 Globalisation
THE IMPACT OF GLOBALISATION UK businesses remain positive about the impact of continuing globalisation Those UK businesses that are globally engaged are generally positive about the impact that increasing globalisation will have on their business over the next five years, with very large businesses generally the most positive (73) and micro businesses the least positive (37) (see chart 13). The majority (80) of those businesses that are not globally engaged felt that increasing globalisation will have no effect on their business, with only a few anticipating an impact (13 positive, 5 negative), much as in 2009. Globally-engaged businesses in Financial Services continue to be significantly more positive than average about the impact that increasing globalisation will have on their business over the next five years. Globally-engaged businesses in the Business Services sector are now also more likely than average to be positive about the impact of globalisation. This may be related to the tendency for businesses in both these sectors to be larger organisations. CHART 13: anticipated impact of globalisation on globally engaged businesses All globally engaged (705) -3 5 60 +4 Micro (93) +6 8 37-31 Small (75) -3 7 47-3 Positive Medium (124) N/C 11 51 +12 Negative Large (105) -6 4 58 +1 Showing change since 2009 (+/-) Very large (308) -6 2-20 -10 0 10 20 30 40 50 60 70 80 73 +13 N/C No change Base: All globally-engaged businesses: 705 Increased access to new markets seen as the main benefit of globalisation Businesses that are globally engaged and believe that increasing globalisation will have some kind of impact on their business in the future were most likely to mention increased access to new markets as a positive way in which it would impact them (56). The most commonly mentioned negative impact was increased competition in overseas markets, cited by 12. Globalisation icaew.com/enterprise 15
STRATEGY FOR GLOBAL MARKETS Many UK businesses are still seeking to enhance their product offering and open new markets UK businesses continue to look to enhance their product offering to compete more effectively in world markets. Much in line with the findings of the 2009 survey, just over half of all businesses (54) say that, over the next five years, they plan to increase the provision of higher value added products or services, and just over one in three (35) plan to increase activities around the adaptation of products or services to markets in other countries (see chart 14). At the same time, signs of growing ambition are shown in the proportion planning to increase the number of countries we sell to (39), a significant increase on 2009, rising to 55 for businesses that are globally engaged. As in 2009, most businesses planning these types of activities already have previous international experience. Nearly all of those planning to target new markets already have customers outside of the UK. Similarly most of those planning to increase the amount of outsourcing they do currently outsource some of their activities outside the UK (88). However, 4 of businesses do plan to undertake acquisitions outside the UK for the first time. CHART 14: planned actions over the next five years Higher value-added products / services Number of countries sold to +2 +2 +5 +4 39 54 55 63 All businesses (1,000) Adapt products to overseas markets Acquisitions to enhance market presence +3-1 N/C -4 20 28 35 49 Globally engaged (705) Share of business functions outside UK +3 +3 17 24 Showing change since 2009 (+/-) Outsourcing activities outside UK +1 N/C 12 17 N/C No change Base: All respondents: 1,000 0 10 20 30 40 50 60 70 80 planning to increase the following activities As in previous years, it is typically the largest businesses which tend to have a much higher level of global engagement that are most likely to be planning to increase these activities (see chart 15). CHART 15: planned actions by size of business planning to increase the following activities 80 70 60 50 40 30 20 10 0 36 53 47 61 64 Higher value-added products 23 34 48 41 42 Number of countries sold to 15 25 38 34 49 Adapt products to other markets 33 23 17 8 5 Acquisitions 16 11 8 6 30 Business functions outside UK 13 9 6 17 13 Outsourcing activities Micro (172) Small (128) Medium (200) Large (149) Very large (351) Base: All respondents: 1,000 16 UK Enterprise Survey Report 2010 Globalisation
Businesses in Manufacturing & Engineering, IT & Communications and Financial Services most likely to plan to increase their international activities The three sectors showing the highest levels of global engagement (see chart 12) Manufacturing & Engineering, IT & Communications and Financial Services are significantly more likely than other businesses to be planning to increase their involvement in a number of international activities. For those in the Manufacturing & Engineering sector this is a significant increase compared with last year. PLANNED GLOBAL EXPANSION BY UK BUSINESSES More than 40 of businesses have international expansion plans, with Europe, China and India the main targets 43 of the UK businesses that we surveyed said that they plan to expand into or increase their market share in countries outside the UK in the next two to three years rising to 60 for globally-engaged UK businesses. Many are looking close to home in terms of where they are planning to expand or increase market share. A substantial minority (42) of those looking to expand mentioned the rest of Europe (see chart 16), with Germany (14), France (12), Spain (9) and Russia (8) most frequently mentioned as targets. Medium-sized businesses and those in the Retail, Hotels & Catering sector were more likely than average to mention Europe as a target. A similar proportion (42) mentioned the Asia-Pacific region as where they plan to expand, with China (29), Australia (10), Japan (7) and Singapore (6) most frequently mentioned. In addition, 23 mentioned India. Very large companies were more likely than other businesses to mention China and / or India. Manufacturing & Engineering businesses were more likely than others to target China (37). Those in IT & Communications were more likely than others to target India (42). CHART 16: regions where businesses plan to expand Worldwide 1 Don t know 10 North America 20 Central / South America / Caribbean 13 Europe 42 Gulf / Middle East 16 Africa 8 India 23 Asia-Pacific 42 Base: All with plans to expand / increase share outside own country: 429 Globalisation icaew.com/enterprise 17
PLANNED INVESTMENT IN EUROPE BY UK BUSINESSES Germany and France are the European locations most likely to attract investment from UK businesses UK businesses were asked which country they would be most likely to invest in if they were to consider investing in Europe over the next two years. Around 40 said they would consider investing in a country in Europe, with Germany (11) and France (8) most commonly mentioned (see chart 17). Germany was more likely than average to be mentioned by those in the IT & Communications sector (20) and Spain by those in the Real Estate & Property Services sector (12). Small businesses were more likely than other businesses to be attracted to France (13). CHART 17: european countries where UK BUSINESSES most likely to consider investment over next two years Other Countries 1 or less Would not consider investment in rest of Europe 43 Don t know 16 Ireland 3 Netherlands 2 Germany 11 Poland 3 France 8 Spain 4 Base: All responding: 1,000 Overall, the most commonly cited reasons for selecting a particular country in Europe for investment were market potential for innovative products or services, proximity and a good skills base (see chart 18) Market potential, good skills base and good supply chain were the most commonly mentioned reasons for selecting Germany as a country they would invest in. France was most commonly chosen for its proximity. 18 UK Enterprise Survey Report 2010 Globalisation
CHART 18: reasons for selection of particular european countries for investment Potential for innovative products / services Proximity Good skills base 69 69 71 High quality supply chain Legal system transparent / fair Financial system is well served Good base for distribution in Europe Competition policy fair / transparent 53 52 52 51 51 Comfortable with language 48 Competitive exchange rate Cheaper to operate in Good base for distribution ex-europe Taxation system offers incentives 33 31 29 29 Base: All suggesting a country for investment: 409 0 10 20 30 40 50 60 70 80 90 100 INWARD INVESTMENT TO THE UK Businesses based outside the EU more likely than their counterparts in the EU to consider the UK as a location for future investment In a separate Global Enterprise Survey, we asked ICAEW members working in business organisations in Asia-Pacific, the EU, US, the Gulf and Africa, whether they would consider investing in the UK if they were considering new investment in Europe. Overall, approximately four in ten members based in the US, Asia-Pacific, the Gulf and Africa said they would consider the UK as a location for future investment in Europe. Within the EU, only 20 held this view (see chart 19). Businesses that already have an operation in the UK are less likely to consider the UK as a location for future investment (33) than those that do not (41). CHART 19: likelihood of locating new european investment in uk by region outside uk 100 90 12 18 19 8 20 80 70 60 50 68 38 43 49 40 40 Don't know 30 20 10 20 44 38 43 40 No Yes 0 Other EU (101) US (100) Asia-Pac (402) Gulf (100) Africa (50) Base: All based in each region (bases as shown) Globalisation icaew.com/enterprise 19
Legal system and language important when considering UK investment Prime reasons for considering the UK are its legal system, skills base and language (see chart 20). The legal system and language are particularly important for those with no current operations in the UK. CHART 20: main reasons for considering uk investment All regions (278) With UK operations (112) No UK operations (166) Legal system is transparent and fair 90 85 94 It is English-speaking which is an advantage for our business 88 78 95 It has a good skills base 87 87 87 Financial system well served by many finance providers 79 79 78 Competition policy is fair and transparent 77 72 80 Good base for distribution into Europe 68 69 68 Market offers potential for innovative products / services 66 73 61 Has a high quality supply chain 65 62 67 Competitive exchange rate 51 54 49 Proximity 48 52 45 Good base for distribution into other global markets 47 49 46 Taxation system offers incentives for in-country operations 29 33 26 Cheaper to operate in 11 12 11 Base: All likely to consider UK for new investment (Red squares represent those significantly above average, darker grey significantly below average) Of those businesses which were unlikely to consider investing in the UK, the two main reasons mentioned were that the UK market is already well served for their products and services and that other European countries offer greater market opportunities (see chart 21). These reasons were particularly important to those which already have UK operations. Many also felt that other European countries are cheaper to operate in. CHART 21: main reasons for not considering uk investment All regions (348) With UK operations (152) No UK operations (196) UK market already well served for our products / services 70 80 62 Other European countries offer greater market opportunities 69 75 64 Other European countries are cheaper to operate in 60 66 56 UK taxation environment deters in-country operations 40 38 41 UK regulatory environment deters in-country operations 18 14 21 Uncertainty regarding exchange rates 18 13 22 UK skills base is inadequate 9 9 9 Domestic business only / can t operate in UK 8 12 20 UK transport system is unsatisfactory 8 9 7 Base: All not likely to consider UK for new investment (Red squares represent those significantly above average, darker grey significantly below average) 20 UK Enterprise Survey Report 2010 Globalisation
BARRIERS TO INTERNATIONAL EXPANSION Political, administrative, regulatory and legal considerations are a barrier to UK businesses international expansion Among those UK businesses that already have an international presence or are considering developing one, administrative, regulatory and legal considerations were the most commonly mentioned barrier to international expansion (see chart 22). Around one in three also see the political environment, corruption and the existence of effective legal systems regarding commercial agreements as critical or strong barriers. However, a large number of considerations were mentioned as at least moderate barriers by half or more of this audience, showing that a variety of factors are felt likely to impede international expansion. Two factors that are less likely to be seen as significant barriers compared with last year: the existence of effective legal systems and access to finance. CHART 22: main barriers to international expansion Admin / regulatory / legal issues 37 44 +2 Political environment 34 38-5 Corruption 33 30-3 Effective legal systems 30 38-7 Availability of local management 26 37 +1 Availability of internal resources 24 38-6 Local workforce skills 24 38-1 Uncertainty regarding exchange rates 21 46 N/A Information on markets / competition 20 38-2 Local staff recruitment 18 39-5 Critical / strong Access to finance 17 29-7 Moderate Cultural differences 16 45-4 Showing change in critical / strong vs 2009 Language issues Availability of credit insurance 15 42 11 30-1 -4 N/A Not asked (new objective for 2010) Base: All with / considering international operations / activities: 591 0 10 20 30 40 50 60 70 80 90 Globalisation icaew.com/enterprise 21
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regulation Perceptions of the regulatory and taxation environment in the UK have improved since 2009 with around half now describing it as business friendly. Employment tax and legislation continue to be seen as hindrances by the majority of businesses. THE REGULATORY AND TAXATION ENVIRONMENT Half of these UK businesses feel that the UK s regulatory and taxation environment is business friendly This represents a significant improvement since 2009 (45) (see chart 23). A similar increase has been noted in those businesses planning turnover growth, with 52 now considering the regulatory and taxation environment in the UK to be business friendly. Smaller businesses continue to feel less well supported but perceptions among mediumsized businesses have improved Medium-sized businesses are much more positive about the UK regulatory and taxation environment (55) than they were in 2009 (36). By contrast, the majority of micro and small businesses continue to feel less well supported. Nearly two-thirds are of the view that the environment is not business friendly. CHART 23: how business friendly is the uk s regulatory and taxation environment? 60 40 20 0-20 -40-60 -80 +5-6 All cos (1,000) 5 45 35 13 +2-2 Micro (172) 3 35 43 19 +1 N/C Small (128) 5 28 47 19 +19 +1 Medium (200) 4 51 32 Large (149) 48 37 11 5-21 -4-3 6 +3 Very large (351) 6 52 29 11 Very Fairly Not very Not at all Showing change since 2009 (+/-) N/C No change Base: All respondents: 1,000 Regulation icaew.com/enterprise 23
The most positive sectors are Transport & Distribution and Healthcare & Education, with more than 60 of businesses in these sectors describing the regulatory and taxation environment in the UK as business friendly (see chart 24), a significant increase since 2009. Perceptions of those in the Real Estate & Property sector have also improved significantly. The least positive sectors are those in Construction & Housing and Manufacturing & Engineering, where the majority of businesses do not consider the environment to be business friendly. CHART 24: BUSINESS FRIENDLINESS OF THE UK S REGULATORY AND TAXATION ENVIRONMENT BY SECTOR ALL BUSINESSES 48 50 +5 Transport / Distribution* 31 69 +29 Health / Education* 35 65 +19 IT / Communications* 37 61 +4 Primary Industries* 44 53 +3 Financial Services* 45 53 +2 Business Services 44 51-5 Real Estate / Property 50 50 +30 Positive Other Services* 46 49 +3 Negative Retail / Hotels / Catering Manufacturing / Engineering Construction / Housing* 64 53 54 36 41 47 N/C -5-6 Showing change since 2009 (+/-) N/C No change -70-60 -50-40 -30-20 -10 0 10 20 30 40 50 60 70 80 Base: All respondents: 1,000 *Sample base <100 Employment tax and legislation, business tax changes and health and safety regulations are most likely to be seen as a hindrance to the operation and development of businesses Employment tax continues to be seen as a hindrance by the majority of businesses (61). Around half consider employment legislation, business tax changes and health and safety regulations to be a hindrance (see chart 25). CHART 25: REGULATION AND TAXATION FACTORS HELP OR HINDRANCE to the operation and development of business? Employment tax 61 N/C +2 6 Employment legislation 53-5 N/C 11 Business tax changes 49-4 +8 17 Health & safety regulation Planning regulations 49 39 +4-1 -8 N/C 5 12 Help Environment law 38 +1 N/C 13 Hindrance Financial reporting requirements CSR reporting requirements Corporate governance requirements 34 34 33-2 +6 +2-1 -1-4 14 14 15 Showing change since 2009 (+/-) N/C No change -70-60 -50-40 -30-20 -10 0 10 20 Base: All respondents: 1,000 24 UK Enterprise Survey Report 2010 Regulation
As in 2009, taxation and regulatory factors generally tend to be perceived as more of a hindrance to small businesses and less so to very large businesses (see chart 26). Reporting and governance requirements are less of a hindrance to micro businesses than others. Businesses in the Construction & Housing and Retail, Hotels & Catering sectors are more likely than others to consider a number of factors a hindrance (see chart 27). Employment tax is viewed as a particular issue by those in the Construction & Housing sector (80), more so than in 2009 (60). Businesses in Retail, Hotels & Catering are more likely to consider health and safety regulation a hindrance compared to last year (64 vs 50). Those in Financial Services feel significantly more hindered than other businesses by corporate governance requirements (46). CHART 26: REGULATION AND TAXATION FACTORS seen as a HINDRANCE by business size All Cos (1,000) Micro (172) Small (128) Medium (200) Large (149) Very large (351) Employment tax 61 57 69 64 74 54 Employment legislation 53 48 66 56 61 45 Business tax changes 49 59 59 46 44 44 Health & safety regulation 49 44 67 55 54 39 Planning regulations 39 38 41 36 45 37 Environment law 38 35 47 40 37 34 Financial reporting requirements 34 26 34 30 36 39 CSR reporting requirements 34 26 37 33 42 35 Corporate governance requirements 33 25 37 35 26 37 Base: All respondents: 1,000 (Red squares represent those significantly above average, darker grey significantly below average) CHART 27: REGULATION AND TAXATION FACTORS seen as a HINDRANCE by industry sector All Cos (1,000) Primary (32) Manuf & Eng (158) Constr (76) Property (121) Retail & Hotels (175) Transport (52) IT & Comms (65) Finance (94) Bus Servs (127) Other servs (60) Health & Educ (40) Employment tax 61 59 65 80 57 70 69 50 53 48 56 68 Employment legislation 53 59 58 59 55 66 62 48 36 31 49 66 Business tax changes 49 53 46 43 57 53 49 32 55 37 60 59 Health & safety regulation 49 53 51 54 51 64 58 39 29 33 41 68 Planning regulations 39 50 34 60 60 43 41 22 21 27 31 38 Environment law 38 54 46 59 45 50 35 15 13 22 29 33 Financial reporting requirements 34 38 33 35 37 38 17 27 41 30 39 24 CSR reporting requirements 34 36 38 55 35 35 33 31 29 28 19 35 Corporate governance requirements 33 33 35 29 39 33 25 36 46 27 18 23 Base: All respondents: 1,000 (Red squares represent those significantly above average, darker grey significantly below average) Regulation icaew.com/enterprise 25
Technical Appendix Between 31 May and 9 July 2010, we conducted 1,000 telephone interviews with a cross-section of ICAEW members working within industry in the UK. Broad quotas were set to ensure sufficient response in key sub-cells by region, industry sector and size of business. The purpose of the study was to look at the following issues that impact upon businesses in the UK today, and comment on any trends emerging in this fourteenth survey in the series: business growth, objectives and influences the impact of globalisation on UK business and plans for expansion regulatory issues for business. The findings of the UK survey were subsequently weighted by company size (number of employees), industry sector and region so as to represent the UK profile of businesses by value in the economy (Gross Value Added). All the data shown in the charts and referenced in the text reflects weighted totals. Weighted base sizes for main sub-groups of respondents shown on charts through this report are as follows: Size of organisation No. Industry sector No. Region No. Micro (0-9 employees) 172 Primary Industries & Energy 1 32 Scotland 83 Small (10-49) 128 Manufacturing & Engineering 158 Northern 34 Medium (50-249) 200 Construction & Housing 76 North West 101 Large (250-1,000) 149 Real Estate & Property Services 121 Yorks & Humber 74 Very large (over 1,000) 351 Retail / Wholesale / Hotels / Catering 175 Wales 38 Transport, Storage & Distribution 52 East England 98 IT & Communications 65 East Midlands 66 Banking, Financial Services & Insurance 94 West Midlands 78 Other Business Services & Accountancy 127 London 191 Other Services 60 South East 158 Health & Education 40 South West 79 nb Data based on sub-samples of less than 100 should be treated with caution. 1 Primary Industries & Energy (referred to in the report as Primary Industries) comprises Agriculture & Fisheries and Energy, Water & Mining. 26 UK Enterprise Survey Report 2010 Technical Appendix
Technical Appendix CONTINUED At the same time, we carried out the Global Enterprise Survey with ICAEW members working within business in selected key regions. 753 interviews were conducted: 101 in a spread of other EU countries, representing Belgium (11), Cyprus (6), Czech Republic (3), France (10), Germany (10), Greece (2), Hungary (5), Ireland (10), Italy (10), Luxembourg (2), Netherlands (10), Poland (10), Romania (1), Slovakia (1), Spain (10): 43 (43) are in SMEs (up to 250 employees), 58 in larger businesses. 100 in the US: 36 (36) are in SMEs, 64 in larger businesses. 402 in Asia-Pacific countries: Australasia (80) (Australia 65 and New Zealand 15), China (30), Hong Kong (81), Indonesia (11), Japan (16), Korea (1), Malaysia (81), Singapore (81), Thailand (16), Vietnam (5): 142 (35) are in SMEs, 260 in larger businesses. 100 in the Gulf, comprising 50 in Dubai and 50 elsewhere (other UAE 19, Bahrain 17, Oman 1, Qatar 5, Saudi Arabia 8): 35 (35) are in SMEs, 65 in larger businesses. 50 in Africa, representing Botswana (1), Ghana (2), Kenya (10), Mauritius (10), Nigeria (1), South Africa (20), Tanzania (3), Uganda (1) and Zambia (2): 31 (62) are in SMEs, 19 in larger businesses. The results of these interviews are referred to in this report and also outlined in greater detail in a separate report: the Global Enterprise Survey Report 2010. 50 of the UK businesses sampled in our survey were SMEs (41 in globally-engaged UK businesses), a higher proportion than in the other international regions with the exception of Africa. Comparisons should therefore be treated with some caution. Acknowledgements David Burton Associates This survey was managed by David Burton Associates (DBA), an independent market research consultancy. It brings an effective mix of personal service, a practical and pragmatic approach and a high level of professionalism to help clients meet their marketing needs. Its specialist focus is in the areas of corporate and stakeholder communication, business-tobusiness, financial and professional services and advertising / PR, in both UK and international markets. The company was established in 2004 by David Burton, who has more than 25 years board-level experience in UK research agencies, has worked regularly with ICAEW and with leading accounting firms, and has managed a number of surveys in the Enterprise Survey series as well as other published surveys for ICAEW and other clients. Telephone fieldwork was conducted by DBA s associate, Critical Research. Acknowledgements icaew.com/enterprise 27
Further Details For more information or to download a copy of the UK Enterprise Survey Report 2010 visit icaew.com/enterprise or T +44 (0)20 7920 8667 E enterprise@icaew.com REGIONAL UK ICAEW OFFICES East England Region T +44 (0)1223 654 681 E eastengland@icaew.com Northern Region T +44 (0)191 300 0531 E northern@icaew.com Wales Business Centre T +44 (0)29 2002 1481 E wales@icaew.com East Midlands Region T +44 (0)115 822 1881 E eastmidlands@icaew.com South East Region T +44 (0)1483 901 821 E southeast@icaew.com West Midlands Region T +44 (0)121 270 8941 E westmidlands@icaew.com London Region T +44 (0)20 7920 8682 E london@icaew.com South West Region T +44 (0)117 370 1461 E southwest@icaew.com Yorkshire & Humberside Region T +44 (0)113 322 0871 E yorks-humberside@icaew.com North West Region T +44 (0)1925 594 283 E northwest@icaew.com Scotland T +44 (0)131 202 1251 E scotland@icaew.com To download a copy of the Global Enterprise Survey Report 2010 visit icaew.com/enterprise global ENTERPRISE SURVEY REPORT 2010 A unique annual insight into business competitiveness and globalisation in major economic regions Inspiring confidence icaew.com/enterprise Other survey reports available include: Asia; the Gulf; Africa; and UK regional highlights 28 UK Enterprise Survey Report 2010 Further Details
Further Details 29
As a world-class professional accountancy body, ICAEW provides leadership and practical support to over 134,000 members in more than 160 countries, working with governments, regulators and industry to maintain the highest standards. Our members provide financial knowledge and guidance based on the highest technical and ethical standards. They are trained to challenge people and organisations to think and act differently, to provide clarity and rigour, and so help create and sustain prosperity. ICAEW ensures these skills are constantly developed, recognised and valued. Because of us, people can do business with confidence. ICAEW Chartered Accountants Hall Moorgate Place London EC2R 6EA UK T +44 (0)20 7920 8667 F +44 (0)20 7920 8648 E enterprise@icaew.com 30 TECPLN9612 09/10