INSPIRE LOUGHBOROUGH UNIVERSITY SCHOOL OF BUSINESS AND ECONOMICS BI-ANNUAL MAGAZINE ISSUE 18 // WINTER 2019
TRADE AND TRANSPORT
Editor: Lynsey Heap
LOUGHBOROUGH UNIVERSITY
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WELCOME Welcome to the latest issue of Inspire, the magazine of the School of Business and Economics at Loughborough University. In this issue we are focusing on trade. From a UK perspective, how we continue to do business post-Brexit is exercising the minds of policymakers and leaders of businesses from small to large. Of course, the impacts of Brexit and changes in the UK’s trading relationships will be felt well beyond the borders of the UK, which is why the on-going debate about what Brexit should look like remains a concern to so many across the world. It is not only the uncertainty around Brexit that is impacting on trade. Increased political tensions, threats of trade wars and concerns about sustainability are all fuelling increased uncertainty for businesses. All-in-all, the years ahead look likely to be a bumpy road with many challenges that need to be overcome. Talking of challenges, it seems the UK’s parliamentary democracy has been unable to rise to the challenge laid down by the referendum result of 2016 to leave the European Union. The one thing that can be agreed upon is that no majority of politicians agree on any part of the proposals for Brexit. Whether you agree with the result of the referendum or not, you have to be concerned about the stalemate that has since ensued in Parliament. We wait to see whether the result of the December election helps to break the impasse, but I do not think many of us are holding our breath for a significant change. At the time at which I am writing an outcome that delivers a majority government looks unlikely. It is almost certain that the uncertainty around Brexit will exist for some time yet, let alone the impact of the aftermath.
The articles in this issue of Inspire aim to show how businesses can continue to trade and even flourish in a world where uncertainty is the order of the day. Mat Hughes argues that for business to survive and thrive they need to continue to innovate and even large corporations need to be entrepreneurial. James Crick discusses the benefits of collaboration with competitors. There is a transport theme running through three of the articles with Jim Saker’s piece on the future of the UK car industry, Wendy Jiao looking at what the growth in the movement of shipping containers tells us about global trade, and Jon Seaton looking at the future for transport and delivery of goods. Huw Edwards explores the need to promote Britain’s exporters postBrexit, while David Llewellyn discusses the trade deals that might follow Brexit. We cannot promise to provide solutions to every problem that faces business at this time, but I hope that these articles provide a better understanding of the current circumstances, possible futures and ways to at least mitigate against the uncertainties ahead. Enjoy reading this issue of Inspire. Sincerely yours,
Stewart Robinson Dean, School of Business and Economics Loughborough University
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NEWS
Study finds that light in the workplace may influence first impressions Academics from the School have found that the more satisfied office workers are with the light in a room, the more likely they are to deem people they have just met as warm and competent. Workplace illumination is known to impact mood, performance and decision-making. However, until now, little research has examined whether light satisfaction can affect first impressions in a work context.
International Award In mid-November, SBE Dean Stewart Robinson attended the Tencent Awards in China, where he accepted the 2019 Tencent Award for Favoured UK University Among Chinese Families For Research Impact and Employment Prospects. The Chinese tech giant holds the annual education awards to commemorate notable individuals and companies from across China’s education sector. This included a group of ten British universities, in recognition of their high levels of engagement with Chinese students and families. Whilst at the event, Professor Robinson also took part in an expert panel discussion on the topic of Future Talents and Skills Development in the Fourth Industrial Revolution. The evening before the awards, Professor Robinson hosted a ‘Meet the Dean’ alumni event in Beijing for alumni from the School of Business and Economics. The event was a great success with 27 alumni attending, who had graduated from Loughborough between 2003 and 2019.
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Experts in human resource management and organisational behaviour, Dr Olga Kombeiz and Dr Erik Dietl conducted two studies: a laboratory experience and a field study in real offices. Participants were required to look at photos of male and female faces with neutral expressions and rate their level of warmth and competence. They were also asked to rate their satisfaction with the light in the office, which differed in brightness and colour temperature throughout the experiment. The duo hope their findings will contribute to the design of better and fairer work settings in which first impressions are made. Dr Kombeiz said: “From a practical point of view, this has implications for the design of settings involving the evaluation of other individuals. For example, in order to avoid unfair or biased judgements of job applicants, lighting conditions during a job interview should be the same across all applicants and/or decision-makers should be able to adjust the lighting conditions so that they are satisfied with them. “This research underlines the importance of subjective appraisals of our environment. In addition to light, we intend to take a more holistic approach by examining other features of the workplace.”
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School receives Small Business Charter Award The School of Business and Economics has been awarded the Small Business Charter Award. The five-year accreditation, granted by the Chartered Association of Business Schools (CABS), recognises the School for helping to support Small and Medium Enterprises, local economies and student enterprise. The School, which already held the accreditation, was reassessed to determine the effectiveness of its business support activity, enterprise education, small business research and engagement with the local economy. During the assessment, the School was commended for its support of students wishing to start their own business during their placement year. The Placement Year in Enterprise is run by staff in the School of Business and Economics and now supports 20 self-employed students across a variety of University Schools.
Professor Chris Holland appointed to insurance industry’s new expert panel Chris Holland, Professor of Information Management and Director of Decision Sciences in the School, has been appointed to a new expert group set up by the European Insurance and Occupational Pensions Authority (EIOPA), to look at digital ethics in insurance. In May 2019, EIOPA published the key findings of its thematic review on the use of Big Data Analytics (BDA) in motor and health insurance. This revealed how insurance firms are implementing ambitious digital transformation strategies to embrace the opportunities offered by new technologies. The review showed how traditional data sources are increasingly combined with new sources like online media data or telematics data, providing greater granularity and frequency of information about consumer’s behaviours and lifestyles. This enables the development of increasingly tailored products and services and more accurate risk assessments.
Professor Chris Holland
While there are many opportunities arising from digitalisation there are also risks that need to be addressed further. In response, EIOPA has established a multidisciplinary Consultative Expert Group to advise on the development of a set of principles that will promote responsible financial innovation within insurance for the benefit of the European consumer. The principles will address, from an ethical perspective, the use of new business models, technologies and data sources in insurance. There will be a specific focus on pricing and underwriting and special consideration will also be given to the impact on vulnerable consumers. Professor Holland has worked with a range of international business organisations on technology implementation, evaluation of IT projects and digital strategy. His current research focuses on data analytics, decisionmaking in an online customer journey context, and digital marketing strategy, with a particular emphasis on developing novel approaches to commercial data sets. Professor Holland is currently working on the use of Artificial Intelligence (AI) to develop the next generation of insurance services, funded by the UKRI, and part of the UK Government’s Industrial Strategy.
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NEWS
SBE hosts expert panel event focused on doing business with the USA Meet the winners of Loughborough University’s Enterprise Awards 2019 Loughborough’s biennial Enterprise Awards celebrate the best of the University’s entrepreneurial and enterprising academics and graduates. As well as recognising excellence, the awards focus on strengthening the institution’s partnerships with numerous organisations. The winners this year were: • Impact: Map-matching and crash-mapping algorithms which have helped reduce accidents and congestion on Britain’s roads, in partnership with Highways England and AECOM • Commercial Potential: FloodMap Live – a unique real-time street-level flood prediction solution developed to save lives and livelihoods worldwide • Partnerships: Rolls-Royce – the University’s long-standing collaboration has helped transform the way Rolls-Royce researches, designs, tests and delivers cutting-edge technology to market 6
The winners of the Commercial Potential and Partnership Awards were decided by a judging panel, and almost 5,000 public votes were cast for the Impact Award. Special awards for Outstanding Potential were made to Alcuris and INCUS Performance – fastscaling tech companies founded by graduates Alex Nash and Chris Ruddock – who have collectively raised in excess of £2 million investment and created 25 highly skilled technical jobs, rising to 32 by the end of this year. Pro Vice-Chancellor for Enterprise and host of the Awards, Professor Tracy Bhamra, said: “The partnerships we’ve celebrated are fundamental to so much of what we do as a University. Not only do they enable successful enterprise activities to take place, they also help strengthen research, support teaching and deliver placements and graduate employment. “We look forward to strengthening these partnerships and developing new ones, delivering more realworld impact together.”
Alumni from the School of Business and Economics gathered at The Shard in London in September to share their international business expertise which focused on working with businesses in the USA. Venue provider and alumnus Chris Lee, Chief Financial Officer of Jellyfish Agency, was joined on the panel by fellow alumni experts including Nick Crook, Founder of Boardies; Tracey Massey, President of the Americas for Mars Wrigley Confectionery; and Joe Middleton, Chief Executive Officer at PlayerLayer. The panel was chaired by Alumni Advisory Board member and Director of Export and Agency Finance at Commerzbank AG, Margaret Eyres. The event was part of the “Insights into” panel event series, which was launched at the beginning of the year.
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New research finds women are given feedback that is likely to slow down their progression to senior roles According to new research, women are given feedback that puts them on the wrong path to leadership.
as to how to change this, whereas men were told how to develop their confidence in specific skills.
Professor Jo Silvester from SBE – alongside Dr Wyatt from Kent Business School and Dr Doldor from Queen Mary University of London – collected over 1,000 feedback comments given to male and female leaders from those who worked closely with them, which provided advice about how they should develop as leaders.
In addition, men were encouraged to develop their networking and influencing skills to achieve their ambitions, but women were told to be more resilient and focus on teamwork, cooperation and being deferential to others.
The findings, based on a unique methodological approach using qualitative data, show that men were advised to be visionary in their roles, but women were instead advised to focus on specific technical expertise and delivering. Women were told to be more confident but given little advice
The researchers found that overall the feedback given provides different development roadmaps for men and women. Commenting on the study, Professor Silvester said: “If men are encouraged to be more strategic and political, whereas women are just told to develop a thick skin – men will continue to be seen as future statesmen and women as cheerleaders when it comes to achieving power at work.”
SBE academics contribute to game-changing research Two academics from the School of Business and Economics have been part of a ground-breaking, multi-million-pound research project which was testing various technology systems for mass casualty incidents. TOXI-triage was set up to revolutionise the way emergency services across the world tackle chemical, biological, radioactive and nuclear (CBRN) incidents. Working alongside experts across Europe, Professor Tom Jackson and Dr Ejovwoke Onojeharh – from SBE’s Centre for Information Management – lead on the elements comprising the TOXI-MOTIVE segment: • Tools to tackle the spread of fake news during an incident and improve official communications • A new way to utilise social media to tackle a crisis situation as it develops and to aid deployment of the emergency services
Other areas of focus included accurately and rapidly detecting CBRN diagnoses, sampling and assessing the threat in the air, and mapping each stage of an emergency response. The team – led by Loughborough and formed of 19 teams across the continent – has conducted field trials in Athens and Finland, working with their local and national defence and emergency teams to hold simulated incidents affecting mass casualties. The research has also featured in showcase events in London and Brussels attended by a range of influential stakeholders.
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ROAD TRANSPORT WHAT’S GONE WRONG?
Almost all goods are transported by road. Food, clothes, toys, electronics - many are imported by ship, train or airplane but eventually, they must all hit the road if they are to end up in their final destination – your home. Road and transport hubs are of critical importance to trade, development and growth in the UK. Indeed our road infrastructure is one of the largest productive assets in the country - the total road length in Great Britain is well over 246,000 miles.1 But there are major issues with our roads, and this means major issues for consumers, business and trade. By Dr Jon Seaton
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A slight delay can cause severe cost hikes and knock-on effects throughout the economy.
expenditure – could have been used for other purposes, such as rail, hospitals or even reduced taxation!
Highways England quotes a four-hour threelane motorway closure can cost a massive £1,488,960.2
Term four: externalities
In simple terms, the inconvenience associated with the extra 178 hours lost from congestion cost the average UK driver £1,317 in 2018. [See INRIX3 and Telegraph4] So, what’s gone wrong with our road transport systems and what can we do to fix them? I’ve summarised the key issues using five well-known economics terms and illustrated the issues we face on the roads by showing how long it takes to travel from Loughborough University to major ports, airports and far-flung areas of Britain.
The Economics Term one: the law of diminishing marginal productivity One car on one road can travel fast and safely as they are not encumbered by other road users. But each extra road user adds congestion for others so the benefits of road use per vehicle declines as we add more traffic. Road flow solutions help, straightening, substituting roundabouts for junctions or traffic lights, smart systems, tolls, regulations – but they only act as a partial solution as roads become more populated. Term two: scaling up The obvious solution to a congested road is to scale up with dual carriageways and motorways. The higher traffic numbers on a single road system can be easily managed if we multiply up to two, three, four, or five lanes. The economic costs of roads are important here which brings us to term three: opportunity cost. By building and scaling up a busy road, we progressively remove alternative uses for the land – farming, housing, trees, nature. The land and resources – and the vast public
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Greater flows of exhaust and other pollutants (CO2, noise, particulates etc), known as externalities, increase as private users of roads create costs for others that they may not fully pay for themselves. The fifth and last term is: depreciation A large and mature road network needs constant repair and maintenance as poor weather, environmental change, poor original construction and overuse take their toll. Of course, this problem of depreciation which is paid for by both local councils and the highways agencies is costly (about £10 billion per annum, 2009 & 2012 similar5), but road closures add costs to users in terms of journey times and diversions. We have to balance the positives with negatives of road use as scaling up is damaging but capping also limits growth opportunities.
— “A slight delay can cause severe cost hikes and knock-on effects throughout the economy.” — Simulation analysis To better illustrate the issues we face on the road, I wanted to simulate travel from one central location in England – Loughborough University (LE11 3TU) – to the country’s ten major ports, ten major airports and four extremities of mainland Britain (Corrachadh Mòr (West), Lowestoft Ness (East), Lizard Point (South) and Dunnet Head (North). I started by looking at the speed averaged to the 24 places (data listed through to 8 November 2019 and gathered from Bing Data) and plotted the averages on Figure 1. The worst speed is of course the rush hour (8am), with average speeds in the North hitting just over 40mph, but it improves late into the evening – mostly.
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Figure 1 – Mph by region
So far so expected – but the orange shaded region in Figure 2 - the ‘8:00am Crow’ plot – is simply the MPH speed using the same morning time to travel in our simulated journeys but calculated from by miles travelled as the crow flies, that is in a straight line.
51 49 47 45 43
It shows that the cost of not having straight A to B travel – as the Romans would have built and like our friend the crow takes – is a modest 30-35mph since distances are on average 30% more.
41 39 37 35
North 8am
South 2pm
East
West
10.30pm
11.30pm
I used this data to calculate the average travel speed (mph) from Loughborough University to the major transport hubs and far-flung points of Britain. Figure 2 shows the results and reveals that travel to the ports or extreme compass points of mainland Britain are faster than airports.
Figure 2 – Average travel speed (mph) from Loughborough University to major transport hubs and extreme locations in Britain 55 50 45 40 35 30
Ports 8am
2pm
Airports 10.30pm
Extremes
11.30pm
8am-Crow
Congestion around the cities could be the main culprit, but also the distances to the ports and extremes are greater, so more time is spent relatively on motorways. For example, East Midlands Airport, only 20 minutes away and mostly on nonmotorway roads with 30-40mph speed limits, yields an average speed of 25mph. For Glasgow Airport – a route which is on the motorway for a high proportion of the journey – 56mph was the average speed achieved at 11.30pm.
So, what’s the solution?
References Gov.uk – Road lengths in Great Britain 2018 1
Gov.uk – Tyre related deaths and injuries preventable say Highways England and Bridgestone 2
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Inrix.com – Scorecard 2018 UK
4 Telegraph.co.uk – Traffic jams cost average motorist 1000 a year
theguardian.com – RAC higher investment road maintenance 5
Unfortunately, in the long run we need to stop thinking about roads! The dream would be to start thinking about A to B travel directly – fully autonomous flying drones would be fantastic, but that is a long way off at least until battery technology improves further, but maybe viable for very short city flights. Currently more intelligent roads, staggering journeys, managing traffic flow, AI systems linked to intelligent cars and lorries-packing more in to 24 hours is the approach taken. Reluctance to spend more on new roads may be sensible given the credit crunch, high debt post-recession and of course the mini boom busts caused by will-we-won’t-we Brexit shocks. But low investment is harming our productivity and well-being. With high levels of depreciation it is enough to keep up with managing potholes. As it is unlikely the public sector – and your taxes - will be well placed to make the substantial investment in alternatives to roads – the private sector will need to take things into their own hands. It is no accident that Amazon is investing in drones, electric and autonomous vehicles and Elon Musk is also making headway with the Boring Company with potential for fully autonomous vehicles and of course lower cost – especially small diameter underground systems. But most of these technologies – as well as the stop go HS2 proposals – do not produce a seamless door to door service. So, despite these problems the road is set to continue, though perhaps more slowly and less surely.
Dr Jon Seaton is a Reader in Business Economics and can be reached on j.s.seaton@lboro.ac.uk
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USING SHIPPING CONTAINERS TO MEASURE GLOBAL TRADE In the past four decades, the global seaborne trade volume of shipping containers has almost trebled growing from 3.7 billion tons in 1980 to 10.7 billion tons in 2017*. As the level of goods crossing our seas continues to rise, what does this tell us about global trade? By Dr Wendy Jiao
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Global seaborne trade comprises of four segments: containers, major dry bulks (iron ore, grain and coal), other dry cargo (bauxite/alumina and phosphate) and oil and gas. Within the growth, a noticed trend is the shift from liquid to containers and dry bulks. In 1980, the trade volume of liquid, dry bulks and containers was 1.9, 1.7 and 0.1 billion tons respectively. While in 2017, these three figures became 3.1, 5.7 and 1.8 respectively. Dry bulks account for nearly half of the US/UK seaborne trade volume and containerised trade is the fastest-growing segment, with volumes expanding over near four decades at an annual average growth rate of 8.1 per cent. The main driver of the seaborne trade growth is the global production supply chain development. Within the transition from the seller market (supply<demand) to the buyer market (supply>demand), the fierce product competition brought by the great variety of products implies the higher requirements of a production process which are cheaper production cost, Just-in-time (JIT) deliveries and better service quality. Motivated by this, the global supply chain comes into existence where each member in the product supply chain concentrates on its expertise and outsources other noncrucial processes to other members in the supply chain. As a result, more than half of products are now produced and/or sold abroad 14
while the same proportion of raw material or intermediate products are imported from abroad. Many markets have become increasingly international and interdependent. In addition, the JIT delivery requirement leads to smaller, more frequent shipments to reduce inventory cost at the receivers’ end.
— “Even though transportation costs rise, the unit transportation cost drops which enables traders to purchase timely, fast and expansive transport services instead of inventory cost.” — The share of transportation cost in total logistics cost is constantly increasing, while the inventory cost has seen a corresponding decrease**. This means that even though transportation costs rise, the unit transportation cost drops which enables traders to purchase timely, fast and expansive transport services instead of inventory cost. Availability of shipping space at competitive rates on various container trade routes has characterised US/UK shipping markets for most of the last two decades and thus has driven trade in intermediates, particularly in East Asia. As a result of this, containerised trade flows can be predicted by looking at the performance of world GDP, with the multiplier effect of the container volume growth ranging between three to four times the GDP growth.
Accompanying the global supply chain, trade imbalance has become significant in the past two decades. Trade imbalance dynamics are very much centred on developing countries in East Asia, particularly China. Some shipping lines have extremely high imbalance container flows owing to an imbalance of trade volume between continents. For example, in 2017, a container moving from Asia to North America (18.7 million TEUs) was about twice that from North America to Asia (7.9 million TEUs). The imbalance between Asia and Europe was similar to a ratio of 16.4:7.6 (UNCTAD, 2018). The consequence of such an imbalanced cargo flow is the higher cost per TEU for these routes, which is a difficult task in capacity management for the shipping companies. In addition, the trade volume and the demand for containers are high during peak seasons such as Christmas. After the holidays, the demand falls back to a low level. Therefore, it is reasonable to lease containers for fluctuating seasonal demand or imbalanced cargo routes. With the substantial growth of container traffic, container leasing companies thrive on the financial benefits and operational flexibility of leasing containers requested by shippers. The leasing companies’ share of the global container fleet hasn’t changed much – increasing from 43.2% in 1990 to 52% in 2017 (Drewry, Container Leasing Industry Technical Report 2018).
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— “According to the European Rental market report, Brexit and the effect on the levels of business confidence and investment limited the growth of the rental industry in 2018.” —
The relatively stable share of the leasing companies in ownership partially reveals the strong demand of shipping companies whose needs are satisfied by lessor’s flexible services.
*The figures come from the Review of Maritime Report 2018 from United Nations Conference on Trade and Development (UNCTAD). ** From UNCTAD, based on the annual State of Logistics Report of the Council of Supply Chain
According to the European Rental Market report, Brexit and the effect on the levels of business confidence and investment limited the growth of the rental industry in 2018.
Management Professionals.
That said, even if the United Kingdom has one of the lowest growth rates of rental turnover among its European peers, it remains Europe’s largest equipment rental market and still offers appealing returns for investors – in 2018 the UK rental turnover growth rate still increased by 1.5%. With a share of rental revenue stemming from demand in the construction sector estimated to average 60%, the UK market is quite balanced and will benefit from a good economic environment. Industrial production has evolved positively, as well as the GDP, in addition to an upward revision of the infrastructure segment specifically. In effect, in the context of Brexit negotiations, the economy has reacted better than expected, and is holding up well. As a result, during a three-year period (2018–21), an average growth rate for the rental industry of almost 2.5% is expected. Therefore, investors still consider the market quite attractive given the maturity of the market and high-end rental offerings regarding safety and digitalisation.
Dr Wendy Jiao is a Lecturer in Operations Management at the School of Business and Economics. Her research focuses on revenue and capacity management for container leasing systems. She can be contacted at w.jiao@lboro.ac.uk
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WILL BREXIT LEAD TO CARMAGEDDON? By Professor Jim Saker
In 1971 Prime Minister Edward Heath took Britain into the Common Market on the back of a demand led reflation. Up until that time the UK had a policy called Competition and Credit Control which restricted the use of hire purchase. To boost the economy, Heath withdrew the policy and unleashed a pent-up demand for furniture, carpets and cars. The problem was, at that time there wasn’t the likes of IKEA or even DFS and the UK carpet industry was in a poor state. The UK car industry was in no better shape with major quality and employment issues. It was the era of Derek Robinson (‘Red Robbo’) and militant union power at British Leyland. In 1968 Ford’s plant at Dagenham had been the centre of the sewing machinists strike that had led to the Equal Pay Act of 1970. The industry was characterised by poor quality manufacturing with a built-in obsolescence in some car parts of nine months. The Government had got fed up with these poor standards and introduced the MOT test in 1968. The outcome was that the UK based car manufacturing plants were unable to respond to this sudden rise in demand and foreign cars were sucked into the UK especially from Japan. What followed in the 1980s was the then Prime Minister Margaret Thatcher promoting the UK as being the gateway to Europe, the result being that Honda opened its plant in Swindon and Nissan built their Sunderland facility - both companies intent on avoiding the 10% tariff on cars imported from outside the single market. This was subsequently followed by investment from Toyota at Burniston in Derby. From this time onwards UK car brands were attractive to foreign investors, as witnessed by BMW’s 16
involvement with Rolls-Royce and Mini and VW Group’s ownership of Bentley. Entry into Europe brought many benefits for the UK car industry, it encouraged foreign investment, provided world class manufacturing and quality jobs. It has shaped the sector and made it more competitive. New types of business have started up as a result with innovative intermediaries providing a diversity and richness to the offering made to the UK consumer. Brexit threatens the UK car industry in the same way that joining the Common Market gave it a major boost. Already Honda have announced the closure of their Swindon plant, Nissan are not making further investments in Sunderland and the Toyota plant at Burniston has mothballed production lines. Research into the supply chain for the sector shows that Brexit without the existing free trade with Europe gives no benefits only negatives. With subassemblies crossing from Britain into Europe and back again up to five times, if tariffs had to be paid at each border crossing, it would make car manufacturing in its current form unsustainable in the UK.
Brexit he would go out and buy a British car and this would not be a problem. I gently suggested that his choice of ‘British’ owned car manufacturers might be a little limited with McClaren probably being outside his price range, there being a two year wait for Morgan’s and that with his girth even if he got into a Caterham he might struggle to get out. Fortunately, my station arrived before he formulated a reply. It is difficult to see how British car manufacturing can prosper unless a trade arrangement can be made that allows for a frictionless/tariff free flow of parts in and out of Europe. Quite literally we could be facing a ‘Carmageddon’ in Britain.
The irony of the situation is that both Swindon and Sunderland voted heavily to leave the EU. The question must be asked as to the logic of doing so when your largest employer is a Japanese car company that has the capacity to move production to anywhere in the world. Perhaps the oddest conversation that I have had over this happened on a train journey, when a gentleman who was sat opposite decided he wished to engage in a less than in depth discussion about cars and Brexit. He launched into a tirade stating that post
Professor Jim Saker is Director of the Centre for Automotive Management in the School of Business and Economics and can be contacted on j.m.saker@lboro.ac.uk
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— “The irony of the situation is that both Swindon and Sunderland voted heavily to leave the EU. The question must be asked as to the logic of doing so when your largest employer is a Japanese car company that has the capacity to move production to anywhere in the world.” — 17
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PROMOTING BRITAIN’S EXPORTERS By Dr Huw Edwards A side-effect of the Brexit referendum has been a renewal of interest in Britain’s exporters. This is timely: Britain’s share of global exports has been sliding for many years, and we lag behind our main competitors, particularly in goods exports (although financial and business services are doing better). There are also fears that new trade barriers with Europe following any Brexit agreement are likely to hit exporters to our largest existing market: hence, the need to find new markets for our products. Britain, like most countries, has long accepted that there is a role for 18
government involvement in assisting develop export ties, and so has several commercial diplomats linked to embassies and consulates abroad. However, since the Brexit referendum, these functions have been moved from the old UK Trade and Investment (UKTI) agency to the new Department for International Trade (DIT), and considerable new expert resources have been poured into trying to improve the efficacy of export and investment promotion. This promotion involves not just marketing of Britain to foreign customers, but more importantly the sharing of expertise, contacts and local
know-how between exporting firms: something which is potentially of most use to those small and medium enterprises which might consider exporting, but would find it difficult to break into markets without help, and learning from others’ experiences. This is important as 99% of the businesses in the UK are small and medium businesses and statistics show that very high proportion of the businesses have been trying to explore the international market. From our point-of-view in Loughborough, our TRANSIT (post-Brexit trade and
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investment) Research Interest Group has identified export promotion as an area, both where we have existing expertise (from the Economics, International Business and Marketing groups), which can be pooled, but also in which there are considerable expressions of interest from the Confederation of British Industry (CBI) and from the DIT’s burgeoning analysis team. Hence, we see this as an area in which we can develop reputation and impact in coming years, as well as developing appropriate collaborations with other universities. Our preliminary survey of the economic literature has indicated that spending on commercial diplomacy and export promotion does indeed lead to increased export participation. However, previous work by Elena Georgiadou (focusing on the experiences of Greece – another country with a big challenge of increasing export participation) shows that there are possibilities of both organisational and methodological innovation to improve performance, while work by our colleagues in the marketing group indicates that firms have perhaps been underwhelmed by the support available in the past. Tien-Der Jerry Han carried out a series of surveys of different export promotion setups in different countries, showing huge variations in the ways in which different countries operate, with some (e.g. Australia) running a largely government-led export promotion system, operating via agencies and commercial diplomats, while others (e.g. Germany) have greater private sector and bank involvement. The UK’s own setup is changing very fast in this regard, with heavy reorganisation following the creation of the DIT. Shan Rambukwella, from the University of Derby, working with us, met with two senior DIT officials who are based in Colombo (CMB), Sri Lanka, who were able to provide very useful information on their operation. They have found that being based with the embassy helps DIT CMB to work closely with Sri Lankan officials/government as it supports the brand presence (Britain – a brand associated with good quality) and opens many doors which are not possible with even very high financial capabilities.
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In addition, missions in both countries have strong links, helping DIT CMB to influence Sri Lankan Government officials. Furthermore, as a public facing organisation, DIT CMB works with UKVI and the British Council to improve the image of Britain and deliver the same message across all institutions. Companies approach them via several routes including contacting the DIT in Colombo directly which is the most common approach. The other methods include through UK bodies or referrals from DIT posts in other countries. An initial vetting process helps to identify genuine clients, protecting the mission’s reputation. Once a genuine client is identified, the British commercial diplomats are then able to offer quite a flexible range of services from, on the one hand, a tailor-made assessment and package of advice, for which a fee will be charged. On the other end, they organise commercial events (in which potential exporters can meet prospective local partners): for example, during the visits of UK sporting teams to the island nation. The DIT has developed ties with local Sri Lankan trade associations, such as Ceylon Chamber of Commerce and its UK trading council (Council for Business with Britain). Maintaining a strong presence in local business networks such as SL UK Society, which includes both British and Sri Lankan citizens, has allowed DIT to identify potential opportunities for future business. The society was started as a social network, but now acts as a business network too as the individuals found some business opportunities among the members. As part of its reorganisation, DIT has divided the world into nine regions. Sri Lanka is covered by the ‘India Network’, with India and Bangladesh. New Delhi operates as the head office for the Indian subcontinent. The DIT organisational structure can be found at www.trade.gov.uk. Back in the UK, industry (such as the CBI) is very keen on the DIT developing its export promotion effort. However, given the many calls upon UK budgets, this will depend upon the DIT showing more rigorous evidence of the contribution of its revitalised export promotion services,
as well as upon convincing Treasury ministers that resources are being well directed, and that information on best practice is being adopted across the export promotion agencies. From our point-of-view in the School of Business and Economics, we see this as an area where academic expertise can help: working with civil servants and industry to review the effectiveness of export promotion spending, in terms of allocation so that efforts have real additionality – leading to changes in company export behaviour – rather than simply supporting larger exporters who perhaps need less help in exporting. In addition, we hope to be able to review the structures (for example, the complications of lines of communication where DIT employees are housed in Foreign Office establishments), and the use of consultants and other sources, who may be able to bring experiences from other countries’ export promotion activities. Last spring, we helped organise a roundtable forum with representatives of the DIT, industry and academics, including specialists in the field. We see this as an important area where the School of Business and Economics can contribute to the future export success of UK firms.
Dr Huw Edwards is Senior Lecturer in Economics and a member of the SBE TRANSIT Research Interest Group and can be contacted on t.h.edwards@lboro. ac.uk. Shan Rambukwella is a lecturer in International Business and Economics at Derby Business School. Tien-Der Jerry Han is University Teacher in Economics at Loughborough University and a member of the SBE Economics Discipline Group. 19
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RISING UP TO THE CHALLENGE OF OUR RIVALS THE BENEFIT AND DRAWBACKS OF COLLABORATING WITH COMPETITORS By Dr James M. Crick
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Dr James M. Crick, a Lecturer in Marketing, looks at coopetition (cooperative competition) to improve company performance, but warns that too much or too little could be costly.
coopetition, like the tensions (eg conflict, power imbalances and opportunistic behaviours) that might emerge when two or more industry rivals share resources and capabilities.
Many firms struggle to survive within their markets, as they do not possess the cash, equipment, and experience needed to create value for their customers.
Nonetheless, the dark sides of coopetition are under-researched. Specifically, it is of interest to uncover whether coopetition is always a beneficial strategy or if there are any harmful performance outcomes.
Consequently, some businesses collaborate with their competitors (coopetition) to provide themselves with new resources, capabilities, and opportunities to improve their performance. Coopetition has been found to be a prominent strategy in several sectors, such as automotive manufacturers, agricultural markets, high-tech firms, alcohol producers, tourism services and sporting clubs. Based on a forthcoming research paper in the Journal of Business & Industrial Marketing, this article shares some novel findings pertaining to the benefits and drawbacks of coopetition. Academics have been researching coopetition for the best part of twenty years. Key findings have suggested that coopetition is a positive strategy for organisations to engage in (especially smaller-sized firms), since it can help them to survive and grow within their markets and overcome some of their resource constraints. Examples include firms sharing equipment with their rivals, rather than purchasing it themselves (saving costs in the process). Likewise, some businesses work in contractual arrangements with competitors to run joint marketing events (eg trade shows) to create a more exciting experience for their target markets. Researchers have begun to explore some of the negative aspects of
Survey data was collected from a sample of 101 vineyards and wineries in New Zealand. This sector was ideal for coopetitionbased research, as it is highly cooperative and highly-competitive (needed to investigate such strategies). Moreover, the data passed all major forms of reliability and validity.
— “Collaborating with competitors is a beneficial strategy, but only to a fixed point.” — dependent on their rivals, as it could be to their disadvantage. So, while coopetition may help organisations to improve their performance, such a strategy is not without its dark sides. Companies should be cautious when working with their competitors, as there are negative performance consequences if they engage in “too little” or “too much” coopetition.
So, what did the study find? Coopetition was found to have a nonlinear (inverted U-shaped) relationship with three measures of company performance (customer satisfaction performance, market performance and financial performance). This meant that collaborating with competitors is a beneficial strategy, but only to a fixed point. In practice: • With “too little” coopetition, businesses might not possess enough assets to survive within their markets (potentially not being able to create value for their customers). • With “too much” coopetition, firms might lose vital information (eg intellectual property), experience tensions with their rivals (eg conflict, power imbalances and opportunistic behaviours), as well as struggling to simultaneously cooperate and compete. • Albeit tricky, companies should attempt to utilise coopetition to the extent to which they improve their performance, but should not become
Dr James M. Crick is a Lecturer in Marketing in the School of Business and Economics and an Adjunct Scholar in Marketing in the Telfer School of Management, University of Ottawa and can be contacted at j.m.crick@lboro.ac.uk
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TRADING PLACES Whilst emphasis in public debate has been on the withdrawal agreement, the important implications of Brexit relate to the future long-term economic and trading relationships between the UK and the EU. Customs arrangements with respect to the borders between mainland Britain (GB), Northern Ireland (NI) and Eire are a central feature of the withdrawal agreement. Brexit involves exiting from the EU customs union, which would enable the UK to negotiate trade deals with other countries â&#x20AC;&#x201C; the most important feature of Brexit according to many advocates.
David T Llewellyn, Professor of Money and Banking, looks at trade agreement options in relation to Brexit
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— “Trade with the EU accounts for over 40 percent of total trade in goods and services. This emphasises the importance of the UK maintaining both open trading relations with the EU and of negotiating trade deals.” —
A primary focus in the negotiations has been where the border between the UK and Eire was to be located: between NI and Eire (which would involve tariff and customs checks on trade between NI and Eire), or effectively in the Irish Sea, which would involve NI remaining in the EU customs area and customs checks on goods moving from GB to NI. The key issue was whether the UK as a whole or only NI would remain in the EU customs area. Teresa May’s deal involved the former while the deal negotiated by Boris Johnson involves the latter, with NI remaining in the EU customs area and removing the need for a hard border between NI and Eire so that trade can flow freely between them. The complication in this arrangement was that there would be a border between NI and GB and two parts of the UK having different arrangements. If there were to be no such border there would be a potential for customs arbitrage: goods could flow freely between GB and NI and then on to Eire thereby avoiding EU custom barriers between GB and Eire (the EU). The compromise in the Withdrawal Agreement is that NI remains within the EU customs union but also in the “customs area” of the UK. This arrangement involves customs/regulatory checks on goods crossing from GB to NI with EU tariffs imposed on such trade unless the goods remain within the NI market. Furthermore, NI would impose UK tariffs on its imports from the rest of the world unless they are headed to Eire in which case EU tariffs would be applied. When imported goods stay within NI and the UK tariff is lower than the EU tariff, the UK tariff applies. There is to be free trade and no customs checks on goods from NI to GB. This also has the potential for tariff arbitrage as if there is free trade between NI and GB and between NI and Eire, then EU goods could flow to Great Britain via Northern Ireland and escape UK tariffs.
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Long-term trade agreements The alternative long-term models lie within a spectrum of hard and soft Brexit; a customs union arrangement with the EU; some form of Free Trade Agreement; what has been termed “Common Market 2.0” and the default position of a no-deal and reversion to World Trade Organisation rules – with or without across-the-board tariff reductions on UK imports. Trade with the EU accounts for over 40 percent of total trade in goods and services and around 60 percent when trade with nonmember states with which the EU has trade agreements is included. This emphasises the importance of the UK maintaining both open trading relations with the EU and of negotiating trade deals with countries with which the EU already has trading agreements from which the UK would be excluded on leaving the EU. The EU is the UK’s largest trading partner. Although there are nuances within each model, the trading options fall into seven broad categories: 1. The Norway-European Economic Area model (close alignment with current EU arrangements but without membership of a customs union) 2. Common Market 2.0 / EEA model (Norway Plus - Single Market and Customs Union) - this would be the softest form of Brexit 3. Permanent Customs Union only (without Single Market membership) 4. A simple Free Trade Agreement with the EU 5. A Deep and Comprehensive Free Trade Agreement (Canada Model) 6. Exit with no deal: the default position of World Trade Organisation (WTO) rules and negotiating a series of trade deals with different countries 7. Exit with no deal: Unilateral Free Trade The differences between the models have several dimensions: membership or otherwise of the EU Single Market; the terms of access to the Single Market;
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membership of the EU Customs Union; acceptance or otherwise of the freedom of movement; payments to be made to the EU budget; application of EU regulation and the degree of regulatory alignment; contribution to EU decision-making; jurisdiction of the European Court of Justice; ability to negotiate independent trade deals with third countries and access to trade deals already agreed by the EU with third countries; customs controls; rules-of-origin tests; non-tariff barriers, and the Northern Ireland border issue. As the implications of each model vary substantially, many of these implications and objectives are mutually exclusive which implies that trade-offs need to be made. In general, the closer the final arrangement is to the current relationship between the UK and the EU, the more concessions the UK would be required to make over, for example, regulation alignment, immigration rules, payments to the EU budget, ability of the UK to negotiate trade deal with non-member states, etc. Overall, the closer would be the ties and trading relationship with the EU after Brexit, the more the UK would be bound by EU rules of the Single Market and Customs Union and hence the less will be the alleged restoration of national sovereignty. The political declaration accompanying the withdrawal agreement envisages a fairly loose arrangement with the EU. If no trade deal with the EU is negotiated by the end of the transition period (December 2020 though extendable) the UK will leave the EU with no deal and move to World Trade Organisation (WTO) arrangements.
No deal: WTO model In the event of a no-deal (which some MPs and analysts have been strongly in favour of) the UK reverts to the default position of WTO rules and the Most Favoured Nation Clause. The UK would have the ability to set its own tariffs subject to ceilings imposed by the WTO. There would be no special access
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to services into the EU and exports to the EU would face the EU’s Common External Tariff (CET) and also a series of non-tariff barriers and customs checks. There would also be some regulatory barriers to free trade: firms exporting to the EU would be required to conform to some EU product standards. At the same time the UK would be able to reduce its own tariffs though in this case the Most Favoured Nation requirement would apply: any preferential tariff to any one country has to be applied to all countries. The UK would have no automatic access to EU trade deals with non-member states. Regarding tariffs on imports from the EU, the Government would have a clear choice. If it aims at keeping prices of imports from the EU constant in the UK, it would not impose tariffs on imports from the EU. In this case, the zero-tariff regime would need to be applied to similar imports from all countries which would have the effect of lowering the prices in the UK of imports (especially some food products) from the rest of the world. This would be a competitive threat to UK producers. Conversely, if in order to avoid this potential threat to some UK industries the UK were to impose tariffs on imports from the EU, domestic prices of such imports would rise. In effect, a choice would have to be made between the domestic sterling prices of EU imports and those from the rest of the world. Given that world food prices are generally lower than in the EU (because of the CET), this would lead to a possibly sharp rise in food imports which in turn would have a negative impact on British agriculture. The same argument applies to other imported goods (such as motor vehicles) where the CET imposes a significant tariff on imports.
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Trade deals with rest of the world Three types of trade deals will need to be negotiated: (1) with the EU itself, (2) with those countries with which the EU has negotiated trade deals, and (3) other countries. This will be a formidable task. However, some analysts have argued that the freedom to negotiate free trade agreements (FTAs) is one of the most important advantages to be derived from Brexit. A similar view has been taken by those MPs who have advocated a “no deal” Brexit. There are several problems with this strategy not the least being that FTAs have usually taken several years to finalise. Most FTAs exclude services (which are particularly important for the UK) and in most cases only limited free trade is allowed for many agricultural products. The UK would also be negotiating alone and its bargaining position would clearly be weaker than that of the EU when negotiating trade deals. There is a global trend towards trade negotiations being conducted by trading blocs rather than single countries.
An important non-EU trading partner for the UK is the United States. This is likely to be a complex and contentious issue not the least because any trade deal is likely to depend in part on the nature of the deal the UK strikes with the EU. In particular, the issue of access by financial firms (notably US banks located in the financial centre of London) to EU markets will be a central issue. The US Commerce Secretary has warned that striking a deal with the EU that severely restricted UK access to EU financial markets after Brexit would weaken the chances of a successful trade agreement with the US. In general, the US is likely to prefer the UK to move away from EU regulation. In addition, the US has indicated that the UK should abandon EU food safety regulation. The US Congress (which must endorse trade treaties) will almost certainly insist on the UK accepting some agricultural products that do not conform to current UK standards. The problem of chlorinated chicken has become a symbolic cause célèbre. The US might also demand access to the UK health market.
Negotiating partners are likely to impose what sometimes might be difficult conditions. For instance, the US farm lobby will press strongly for the UK to accept different standards for its imports of US farm products which are strongly resisted in the UK (eg chlorinated chickens). It is alleged that India, for example, would also press for less stringent immigration laws for their citizens wishing to live and work in the UK in return for an FTA.
Overall, it is impossible to envisage that any trade deal with third countries would be as free as the arrangements within the Single Market not the least because FTAs usually do not involve substantial reductions in nontariff barriers which are generally excluded from WTO requirements. Furthermore, any advantages to be derived from independent negotiations with third countries are likely to be more than offset by the losses associated with exiting the EU Single Market and Customs Union.
The irony is that as the UK may need to adapt some regulations to satisfy negotiating countries and adherence to EU regulations (particularly product regulations) will continue to be a requirement for a trade deal with the EU, the result could be a net rise in regulation and trade being subject to divergent rules in different jurisdictions.
It is not clear that in practice Brexit will free the UK from externally-imposed regulations: in many areas it will remain subject to EU regulation (with the difference that it will have no say in the regulatory process) and will have additional externallyimposed regulation through third party trade deals.
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— “Brexit involves important trade-offs between different economic and political objectives, and difficult choices will need to be made in the post-Brexit negotiations.” —
Although some analysts and Members of Parliament have emphasised the importance of the UK being able to conduct its own trade negotiations with third parties, most empirical studies indicate that new FTAs add little to output. The government’s own analysis suggests that such trade deals would add only around 0.5 percent to GDP against its estimate of a substantial loss regarding the EU. In the final analysis, Brexit involves important trade-offs between different economic and political objectives, and difficult choices will need to be made in the post-Brexit negotiations. We have emphasised that the ultimate economic impact of Brexit will depend critically upon the precise Brexit model adopted. Trade-offs will be involved most especially between the objectives of free trade and freedom for the UK to set its own regulations.
Professor David Llewellyn is Emeritus Professor of Money & Banking within Loughborough University’s School of Business and Economics. He can be contacted on d.t.llewellyn@lboro.ac.uk
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INTRODUCING THE CENTRE FOR CORPORATE ENTREPRENEURSHIP AND INNOVATION Toys ‘R’ Us, Nokia and Sony… what do these three organisations have in common? They’re all ventures that failed to innovate. And failed pretty drastically. Toys ‘R’ Us failed to change its business model to reflect how people’s buying habits had changed, Nokia was unable to move away from the technologies they had traditionally used, and Sony missed the mark massively by not looking forward. So, how can organisations innovate to remain competitive and achieve the changes necessary to be fit for the future?
By Professor Mat Hughes, Centre for Corporate Entrepreneurship and Innovation co-founder and Director
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— “Entrepreneurs and executives need to understand what the future organisation looks like and how this will differ from the present.” —
How did a company that owned an enormous amount of music and changed people’s lives with the Walkman fail to see services like iTunes were the future? Companies must innovate to stay ahead of the curve to capitalise on societal, business and individual trends. However, the misalignment of organisational agendas surrounding governance, investments in capabilities, knowledge retention/recall, and leadership often hampers not just the organisation, but their employees’ willingness and readiness to innovate. In turn, the conditions for entrepreneurial orientation and employee entrepreneurial behaviour, capabilities required for transformation, and powerful interorganisational relations are often missing. How can organisations prepare to take on the innovation agendas required to remain competitive and achieve the changes necessary to be fit for the future? We, the School of Business and Economics, and the Institute for Innovation and Entrepreneurship at Loughborough University London have launched the Centre for Corporate Entrepreneurship and Innovation in a bid to answer this extremely difficult question. Through research, engagement and international partnerships, we seek to help entrepreneurs, executives and government leaders to better understand the state of play for corporate entrepreneurship and innovation across all types of organisation – young or old, large or small, public or private, family or nonfamily.
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There are five key areas we will try and understand: the state of play for entrepreneurship and innovation, organisational readiness for change, how to innovate, why some organisations fail in these endeavours and the differences among organisations. Entrepreneurs and executives need to understand what the future organisation looks like and how this will differ from the present. To support this, our ambition is to collate data over time and work with managers and industry experts to explore what’s happening now and strategies that are being put in place to ensure future prosperity in times of unprecedented change and uncertainty. It’s a well-known fact that many entrepreneurial firms fail and only a few become high performers so we will study various real-world winners and failures in a bid to understand what the secrets to success are. From start-ups to small firms, to maturing businesses and family firms, Loughborough and London researchers will study the entire spectrum of firm types and look at various stages of the organisation life cycle. Entrepreneurship doesn’t stop with the entrepreneur: it begins there. The future prosperity of the firm lies in capturing the entrepreneurial potential of employees across the organisation and enthuse them in ways that create a willingness and ability to innovate. Our ambition is for the Centre to become a leading place for managers and entrepreneurs to get insight into how they build, organise and lead sustainable and innovative businesses.
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— “How can organisations prepare to take on the innovation agendas required to remain competitive and achieve the changes necessary to be fit for the future?” —
We will release our findings through short reports, podcasts and videos, and workshops, with the end goal being that we help businesses achieve longevity. Business managers and entrepreneurs will also play a vital role in making the Centre a success as they will share their insights throughout the process and our researchers will formulate their studies around these valuable conversations. Personally, this Centre has been a careerlong ambition as it has the potential to lead to real change. I’m excited to see how our research helps companies flourish and stay at the top of their game and how the collected efforts of Loughborough University academics can lead to a sustainable business landscape.
Mat Hughes is Professor of Entrepreneurship and Innovation and co-founder and Director of the Centre for Corporate Entrepreneurship and Innovation. He can be contacted on m.hughes2@lboro.ac.uk
The Centre for Corporate Entrepreneurship and Innovation has already enjoyed a soft launch. There will be an official launch in early 2020.
For further information on the Centre and to access its resources, visit the website at: www.lboro.ac.uk/ departments/sbe/ccei
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