Last reviewed 11 May 2021
The Covid-19 pandemic has created the most challenging conditions that many exporting companies have ever seen. And while an end to restrictions in the United Kingdom may be in sight, the pandemic is still prevalent in many parts of the world. Here we outline how exporters need to learn from the experience and be prepared for similar future events.
Bill Gates has warned that a viral pandemic such as Covid-19 could happen as frequently as every 20 years. It is therefore vital that we do not treat the last 12 months or so as a one-off and expect to get back to normal. Exporters need to learn from the experience and, where necessary, adopt new trading practices to ensure greater resilience in future. There are three vital steps to achieving this.
Anticipation — communication — adaptation
After each world war, the United Kingdom, in common with many other countries, faced a crisis in exporting, which was just one part of the economic turmoil. During wartime, British exporters had struggled to supply regular international customers. The disruption lasted long enough for many customers to seek alternative suppliers, and in a lot of cases these alternative supply lines became permanent. One of the biggest threats to any exporting business is that a temporary failure to supply may result in the permanent loss of a customer.
Mercifully, it appears that the direct consequences of the Covid-19 crisis are not expected to last as long as the world wars. Notwithstanding Brexit, there are signs that export activity is returning to pre-crisis levels in many key markets. But even a short-term disruption can damage a relationship between supplier and customer. In 2020, UK exports of goods fell by 16.5% compared to the previous year. That was the biggest fall since 2009, when the global financial crisis caused a fall of 25%, and the causes and consequences are very different. Beneath that headline figure of 16.5%, there was a vast variation between markets and sectors. Exports to China fell by 61%, to the USA by 28%, to Ireland a mere 1%. Exports of chemicals, pharmaceuticals and medical equipment held up reasonably well, while exports of vehicles and aircraft were affected particularly badly.
The effect of the pandemic on many exporting businesses has been very serious, and the ability of each to recover will depend on their unique situation and the steps they take to deal with it.
The pandemic has disrupted international business for several different reasons. A local lockdown may have hampered the exporter’s ability to supply. Lockdown in the customer’s country may have hampered the customer’s ability to buy or have suppressed local demand. Production may have been delayed by a lack of essential imported materials or components. And disruption of the supply chain may have frustrated the fulfilment of orders.
Many businesses found it impossible to fully anticipate the effect of the pandemic on their performance. Given Bill Gates’ warning, it is vital that exporters take steps to learn from the recent experience and take steps to be prepared for a future disruption. Trading goods internationally can be particularly susceptible to disruption, but business has become more exposed to the effects by the recent trend towards longer and more complex supply chains. The more steps there are in a supply chain, the greater the possibility of disruption. Exporters should consider and evaluate options to make their operations more versatile. This might mean looking to local suppliers where possible and perhaps moving towards local manufacture.
Communication — a crucial step
A crucial step in protecting the business is communication. Suppliers, distributors, importers, agents, freight forwarders and end users are all part of the supply chain. A resilient export company is one that communicates regularly and effectively with all parties and responds swiftly and appropriately. If our suppliers cannot supply, we need to know quickly, we need to know the full effect and we need a contingency plan. If a distributor’s business has been adversely affected by a lockdown, we need to know and understand the situation. If there are disruptions to shipping, we must not wait to find out when our goods are already affected.
If there is one thing to learn in international trade, it is that good communication does not happen easily. That is why it is crucially important for exporting businesses to have clear and regular communication with all parties. An additional burden of lockdown has been to make international travel all but impossible, and while video conferencing has taken a huge step forward in the last year or so, it is vital that we understand the limitations of online communication compared to meeting face to face. In the meantime, exporters should be talking more frequently than ever with suppliers, customers, distributors and commercial agents. The exporter also needs to be as open and honest as possible about the ability of the company to perform. A positive attitude is always a benefit but making promises we cannot keep will do more harm than good. If we have a supply problem, we need to make buyers aware as soon as possible and make contingency plans. If we do not supply or communicate, it is much more likely that our customers will go elsewhere, perhaps permanently.
And we need to receive good communication. If demand has fallen, we need to know. Especially if our own capacity is reduced as we need to be able to prioritise.
How exporters can recover
No matter what steps we take, it is inevitable that some exporters will face the loss of key players in their supply chain. A distributor may go out of business or key customers may stop buying permanently. How does an exporter recover? In some cases, the search for a replacement may be the only way to repair the damage, and that takes time.
Many businesses who found their traditional routes to market closed in 2020, for example those supplying high street retailers, have either switched to, or given greater emphasis to, e-commerce. The pandemic appears to have accelerated customer acceptance of remote buying, both in B2B and B2C models. Rebuilding supply chains inevitably requires investment of time and resource.
The overarching goal, however, is not just to get through the crisis, it is to come out the other side stronger, wiser and better informed. The biggest mistake will be to assume that life is going back to normal. In many ways it will, but there is still the risk of a similar crisis in the future. The exporting business needs to learn from the recent experience, understand where the business faces the greatest exposure and take steps to protect itself. Making supply chains shorter and simpler, encouraging local distributors to hold larger stock levels, consider building local consignment stocks ourselves close to key markets, or even look at localising some of the production processes, are all steps that may enable us to withstand future crises better. As with all crises, every business has been affected differently. For some, the pandemic has been an opportunity that has enabled them to grow. For others there may be deep scars that are likely to be carried for some time to come. The crucial action is to learn from the experience, to take the opportunity to understand the markets and our own business better, and to take the steps now to be better prepared if there is another crisis sometime in the future.