Services pull their weight in UK export rankings

When it comes to national champions, British companies at first sight appear to do as badly as our sportsmen. Few manufacturers, apart from the occasional pharmaceutical or chemicals group, can claim to be gold medallists, instead, it has been left to the service sector to fly the flag.

In the past that has meant legal work, accounting and the City, but Britain’s success in services is in fact far more deep-rooted. A quick skim through the list of FTSE 100 companies reveals stars like Rentokil, which has become the world’s largest business services supplier after its acquisition of BET, the world’s favourite airline British Airways and the increasingly popular satellite broadcaster, BSkyB.

The reasons for their relative success is not hard to fathom. The extensive use of English as the international business language and its predominance in the media and communication industries are the deciding factors. Also, these sectors tend to attract the best and brightest of UK graduates allowing them to develop superior management and information systems.

In addition, business service companies have benefited from privatisation of former state-owned companies and the resulting move to outsource what were once considered to be core activities.

Finally, acquisition accounting based on the write-off of goodwill has allowed expansion with only minimal depression of earnings.

In the past, there has been criticism that the UK’s increasing dependence on the service sector (now nearly 70% of GDP) has crippled export performance.

But leading players such as WPP and BAA are making increasing headway in their respective overseas markets. Activities such as transport, distribution and telecommunications naturally lend themselves to cross-border business.

And areas where branding and central purchasing are important – hotels, catering and marketing – should also benefit.

Where services have to be delivered to local markets, exporting becomes harder. Two examples are retailing and financial services, where UK companies tried to offer sophisticated services before local consumers were ready, and failed. But, the increasing sophistication of these markets means those that persevere and educate their customers stand a better than evens chance of success.