The language of export: Shared communication as a boost for business A BRIEFING PAPER FOR POLICY MAKERS AND BUSINESS LEADERS by EF Corporate Solutions
CONTENTS 1. Executive Summary 2. The Importance of Language for Exports 3. The Value Chain Effect 4. Pointers for Policy-makers 5. Recommendations: A Three-pronged Approach
EXECUTIVE SUMMARY The ability of companies and nations to innovate and sell their wares abroad is strongly linked to language. Empirical research and anecdotal evidence both support the idea that having a shared language can strengthen export potential. The Great Recession of the late 2000s focused considerable attention on the factors that help boost export potential. One factor that’s increasingly recognised as important is linguistic capability. Companies and countries that speak the same language are more likely to trade with one another. While that seems selfevident, it’s also a point that policy-makers frequently overlook or fail to act on. This issue affects not just the quantity of exports but also the quality of exports and the level of innovation behind them. Multi-lingual communication is usually of only limited importance for the creation of low-value exports. However, as companies and countries move up the manufacturing value chain, it becomes increasingly vital to communicate in English. This is partly because of the continuing dominance of North America as a trade destination. But it’s also because English, as the universal language of business, is uniquely suited for the delivery of complex sales messages and contract negotiations. India, for example, has used its English language skills to help build a multi-billion-dollar export industry. Meanwhile, at the other end of the scale, much smaller countries such as Iceland have used their English language skills to punch well above their weight in the delivery of cultural exports. Clearly, recognising that languages are a key pillar for export efforts could help improve national competitiveness. The EU has recently recognised the importance of shared languages as a key to building more cross-country e-commerce in Europe. Its Digital Single Market initiative includes several goals aimed at improving communication skills for citizens, businesses and agencies that regulate e-commerce.
This paper highlights the role of language in underpinning export strength and suggests three tiers of action for policy-makers looking to boost industrial capabilities and balance of payments:
At national level, prioritise the acquisition of language skills -along with science, technology, engineering and mathematics (STEM) -- teaching in secondary, higher and even primary education.
At corporate level, make it easier and more cost effective for companies of all shapes and sizes to integrate languages into their standard training and personnel development packages.
The Language of Export: Shared communication as a boost for business
At individual level, give working-age citizens easy access to language acquisition training, for example, as part of unemployment benefit offerings and back-to-work schemes.
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THE IMPORTANCE OF LANGUAGE FOR EXPORTS In an increasingly connected global marketplace, the ability to speak the language of your customers is a prized commodity that can sometimes make or break an export deal.
In September 2013, Madrid Mayor Ana Botella delivered a key presentation in the Spanish capital’s bid for the 2020 Olympic Games. Her televised speech in halting, heavily accented English failed to impress the International Olympic Committee, which selected Tokyo instead. It also stung the consciousness of a nation that has been fighting to stay competitive in the global marketplace. Botella’s reference to a ‘relaxing cup of café con leche in Plaza Mayor’ became one of the top social media
cross-cultural collaboration and prevent sales teams from pitching in the first place, which significantly reduces a company’s opportunities for growth. And this is not a problem for non-English-speaking nations alone. A 2013 study by the British Chambers of Commerce (BCC) found that 62 percent of non-exporters that are likely to consider trading internationally in the future see proficiency in foreign languages, or a lack thereof, as a barrier to doing so. “Even when business owners claim
“Poor language skills act like a ‘tax on growth’, hampering small to medium-size exporters.” Citing research by Professor James Foreman-Peck for the Department of Business, Innovation and Skills, the press article
some language knowledge,” the BCC memes of the year in Spain. Even stated, “very few speak well enough to today, the phrase remains a byword conduct deals in their buyers’ language, for Spanish incompetence on the and this is doubly important when worldwide stage. More widely, conducting business outside the though, the Mayor’s poor performance largest cities.” highlighted the importance of That same year, The Guardian linguistic prowess for international newspaper reported that, “Deficient marketing. language skills and the assumption Every day, companies around that ‘everyone speaks English’ are the world struggle with the same costing the UK economy around issue Botella faced. Perhaps one of £48bn a year, or 3.5% of GDP.” the reasons her speech was so widely Citing research for the Department ridiculed at home was precisely because of Business, Innovation and Skills it exemplified a national problem. “The by Cardiff Business School Professor level of Spanish business leaders is James Foreman-Peck, the article noted, in no way enough to compete in the “Poor language skills act like a ‘tax on global market,” said María Luisa growth’, hampering small to mediumBlázquez of IESE Business School in size exporters.” a 2014 El País story titled, ‘The lack of English hampers the competitiveness Language and trade of Spanish businesses’. In this context it is interesting to see how many export-driven economies Language difficulties do not speak English. The correlation translate only into poor sales results. between English proficiency and More often than not, they also limit
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exports per capita has an interestingly sharp dividing line [fig 1]. Countries with ‘low’ and ‘very low proficiency’ have uniformly low levels of exports per capita, with the notable exception of Saudi Arabia’s unusually oil-based economy. Starting at ‘moderate proficiency’, however, the relationship between improved English and increased exports is clear. The EU’s new Digital Single Market initiative, for instance, acknowledges that people often have a built-in “home bias” towards e-businesses that speak the same language they do. However, it also says better language and communication skills could help to reduce barriers to cross-country e-commerce, especially for small and medium-sized businesses. The language connection explains why, for example, some of the largest multinationals in Latin America are Spanish companies such as Banco Santander and Telefónica rather than U.S. equivalents. Conversely, Japan’s post-war emergence as an export powerhouse is often attributed to efforts by Japanese companies to overcome language and cultural barriers to adoption in foreign markets, as exemplified by the use of anglicised names such as ‘Sony’. It could be argued that language preferences can hamper export capabilities. Exporters lacking confidence in their language skills, for example, might choose to focus only on linguistically simmilar markets, which could be less appealing in other respects. In the U.K., for example, monolingual business leaders seeking export opportunities might naturally look first to countries such as Australia, South Africa or the U.S., instead of to closer markets that could probably be reached more cost-effectively.
Figure 1 We talk, we trade Source: EF English Proficiency Index 2013
Exports per capita $40,000 $30,000 $20,000 $10,000 $0
40
50
60
= Average line = Country
70
EF EPI Score
English fuels exports The correlation between English proficiency and exports per capita has an interestingly sharp diving line. Countries with low and very low proficiency have uniformly low levels of exports per capita, with the notable exception of Saudi Arabia’s unusually oil-based economy. Starting at moderate proficiency, however, the relationship between improved English and increased exports is clear. A minimum level of English is required to export successfully.
The Language of Export: Shared communication as a boost for business
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THE VALUE CHAIN EFFECT The need for a common language is accentuated as companies and nations strive to rise up the value chain, and as simple supplier-customer relationships evolve into more complex, collaborative arrangements While there has been little empirical research on the subject, it seems clear that the need for a common language (usually English) grows as exporters seek to rise up the value chain. There are a number of reasons for this. One has to do with the nature of the relationships involved: Where exports have low value, the manufacturing processes involved tend to be based on a massive-volume, template approach. In these circumstances, deep understanding is not as important as low cost. If you are buying millions of widgets, you need to only make sure your supplier can get the first one right. However, as the value of trading partnerships increases, there is usually a greater emphasis on collaboration and innovation. As noted in a separate EF paper (‘Accelerating innovation: The language multiplier effct on economic prosperity’), innovation is strongly correlated with communication. In 2015 Economist Intelligence Unit research, for example, 81 percent of respondents said ‘increased investment in communication skills of staff would significantly increase the firm’s ability to innovate.’ A good example of how common language can help improve highvalue export capabilities can be seen in India’s rise as a business process outsourcing (BPO) hub. According to India’s National Association of Software and Services Companies (NASSCOM), IT and BPO services
in 2015 are set to create USD$146 billion in value, of which $98 billion is exports. The market has expanded 13 percent since 2014. The importance of language here is underscored by the fact that a massive 62 percent of these exports go to the U.S., with a further 17 percent going to the U.K. [fig 2]. While other Asian countries, and particularly neighbouring China, might wish to create similar high-value export industries, it is difficult to see how they might do so without the benefit of widespread use of English in education, business and administration. Size and worth The Indian example highlights another reason why a knowledge of English can help in the development of high-value trade, and that is the sheer size and worth of the English-speaking market. In May 2012, the Harvard Business Review noted that 1.75 billion people worldwide spoke English ‘at a useful level’ [fig 3]. Today, that figure is over 2 billion. English is the official language of nearly 60 sovereign states, compared to 20 for Spanish and four for Chinese. Even though Chinese and Spanish beat English in terms of overall number of speakers, it’s important to note that English-speaking countries are among the richest in the world. Among these are the U.S. (ranked first for GDP), the U.K. (fifth) and India (tenth). In fact, English is an official
language in no less than one quarter of all the countries in the International Monetary Fund’s 2014 list of the top 20 nations by GDP. (And number 21, Nigeria, is also English-speaking). Affluent and influential speakers Additionally, because English is used so much in business, it is widely adopted as a second language across the most affluent and influential sectors of society worldwide. One indicator of the importance of English in modern business and society is its prevalence in Internet communications. According to Internet World Stats, more than 800 million Internet users used English in 2013, ahead of Chinese (649 million) and Spanish (222 million) [fig 4]. And that is despite the fact that almost 46 percent of Internet users are in Asia. This vast, affluent user base means any country with a strong grasp of the English language can fast-track its way into major export opportunities. A striking instance of this is Iceland, with a tiny population of around 323,000. This country’s widespread familiarity with English has helped drive export growth in a cultural sector that is worth about €1 billion a year.
*Exports: Added USD 11 Billion over FY2014. IT services (>56 per cent share), SMAC, testing, IS outsourcing - main drivers. ER&D and product development to grow > 13 per cent Y-o-Y, faster than industry. Software products, at ~USD 2 billion, being driven by increasing demand for mobile apps, cloud-based products. BPM: Strong platform play; knowledge services seeing rapid uptake especially analytics. Uptick in demand from the US (12.5 per cent Y-o-Y growth) and Asia (12.4 per cent Y-o-Y growth). Retail growing on demand for UX technologies; manufacturing seeing greater application of ERP, CRM, mobility, analytics, etc.
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Figure 2 Indian BPO success
Figure 3 The English-speaking world
Source: NAASCOM.
Source: Wikimedia Commons
Exports to touch nearly USD 100 billion in FY 2015* FY2015E: 12.3 per cent Y-o-Y growth / USD Billion IT services BPM ER&D, Software products Hardcore Total
55% 23% 20% 0.4% 98.4%
Retail, manufacturing growing fastest verticals / per cent
Countries of the world where English is a majority native language Countries where English is official but not a majority native language
Healthcare 5% Retail Others 10% 9% Manufacturing 11%
Figure 4 Top 10 languages on the internet 2013 / in millions of users Source: Internet World Stats (www.internetworldstats.com)
BFSI 41% Hi-tech/Telecom 17%
800.6 649.4
Revival of demand from the US / per cent
440.1
RoW 2% APAC 8%
222.4 75.5
t es er l th
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Al
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78.9
Fr e
an
81.1
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ia n ss
se
87.5
Ru
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gu
es
e
ic
tu
ab
Po r
Ar
ish an
se
The Language of Export: Shared communication as a boost for business
Sp
ine Ch
sh g li
UK 17%
En
USA 62%
135.6 135.6 121.8
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Continental Europe 11%
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POINTERS FOR POLICY-MAKERS Language acquisition is commonly seen as an educational requirement. There needs to be greater appreciation of the fact that in some situations it can also be an export enabler and a motor for economic growth. While few would dispute the intrinsic value of language acquisition, the prevailing policy approach is to treat languages as yet another curriculum requirement within national teaching programmes. This perpetuates the idea that language learning is above all a vocational activity of debatable value in the ‘real world’. As this paper demonstrates, nothing could be further from the truth. Linguistic capabilities have a clear link to export potential and, thus, GDP growth. Policy-makers should view them in this light and establish clear programmes to boost language acquisition. It is important, too, to distinguish between language acquisition per se and the value of specific languages for exports. Thus, while it is important to provide access to a wide range of languages (including the preservation of native tongues and dialects) in the name of diversity, it may also be
desirable to single out one or two foreign languages to be fostered as a matter of policy. In most non-English speaking nations, the choice to offer English as a second language is an obvious one. But that might not always be the case. In Portugal, for example, a fifth of all exports go to neighbouring Spain, and there is only one Anglophone nation among the country’s top five export partners (the U.K., which accounts for just 4.7 percent of Portugal’s outgoing trade). Under such circumstances, policy-makers may want to select a balanced language provision strategy that offers the best possible prospects for trade and economic development. When looking at the value of languages for innovation and export creation, it is also necessary to recognise that school education frequently falls short of the level needed for business success. This
implies that access to language training may need to be provided well beyond the standard curriculum, and that the acquisition of ‘business English’ (or similar skills) should be seen as a vital component in GDP growth programmes. “Ready or not, English is now the global language of business,” Tsedal Neeley wrote in the Harvard Business Review in 2012. “More and more multinational companies are mandating English as the common corporate language ... in an attempt to facilitate communication and performance across geographically diverse functions and business endeavours.” Neeley added, “Adopting a common mode of speech isn’t just a good idea; it’s a must, even for an American company with operations overseas, for instance, or a French company focused on domestic customers.”
“Ready or not, English is now the global language of business.” Tsedal Neeley in the Harvard Business Review in 2012
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Figure 5 Using English for global expansion: a case study Source: Harvard Business Review.
May 2012: 50% of employees converse in English, 25% use it as a working language with foreign partners and subsidiaries, and half the company’s senior executives don’t even speak Japanese.
March 2010: Hiroshi Mikitani, CEO of the Japanese online marketplace provider Rakuten, decrees English should be the official language of the company’s 7,100 employees.
Japanese cafeteria menus and elevator directories all switched to English.
Widespread derision of the move in Japanese media. Honda boss calls the initiative “stupid.”
Employees required to be competent in international English in two years or face demotion/dismissal.
The Language of Export: Shared communication as a boost for business
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RECOMMENDATIONS: A THREE-PRONGED APPROACH Countries and companies are all keen to see exports grow. They need to work together to make sure language education is part of the process. Given the importance of languages in promoting foreign trade, it makes sense for language acquisition to be given the highest priority by governments and corporations alike. We propose a three-tiered approach, as follows.
1. At national level National policymakers should work with industry to identify which language skills can provide the greatest contribution to GDP growth. These languages should be promoted not just as a matter of educational policy (although preferably without sacrificing moves to promote linguistic and cultural diversity within schools) but also from within national trade and industry portfolios. In this respect, it may be worth affording one or two ‘trade languages’ the same status as STEM subjects, so that special emphasis is placed on recruiting and training teachers and students, opportunities for further study are provided, and so on.
Conclusions Countries and corporations that want to foster innovation and improve their export potential need to recognise the key role of language. Providing support for language acquisition can help promote creative business strategies, boost exports and improve national competitiveness. It is important to bear in mind that these benefits come at a relatively low cost.
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2. At corporate level If corporations really want to improve their export capabilities, they have a duty to make sure their people are fully prepared. This means including language training, where appropriate, as an essential part of staff development plans. Public administrations can help in this process partly by providing tools and facilities for training and partly by offering incentives to businesses that want to train their employees. This is particularly important for the small-to-medium-enterprise sector, where employee resources are often stretched and it may be more difficult to justify time away from work.
3. At individual level A characteristic of many highly competitive economies, such as those of Germany or the Nordic countries, is that speaking a second language is not seen as onerous or challenging .. it is simply a fact of life. This ‘normalisation’ of language acquisition at the citizen level needs to be encouraged by policy-makers. This can be driven partly through the aggressive promotion of languages in schools and colleges. But it should also involve other channels, such as unemployment benefit offerings and back-to-work schemes.
Most of the infrastructure needed for language learning is already in place through schools, colleges and privatesector providers. What is needed most is a change of emphasis. Similarly, at the citizen level, language acquisition is a more-orless one-off investment with a lasting impact. Unlike, say, research and development, which requires constant
and ongoing funding, language learning for students and workers can take place in a relatively short span of time. Once people acquire language skills, not much further significant investment in training is required.
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