UK Businesses Competing Internationally

Improved transport and distribution make it easier to deliver products internationally. Digital technology allows businesses to communicate with overseas suppliers and reach customers through e-commerce. Agreements that reduce barriers to trade also make international business easier. These developments create opportunities for small businesses as well as large multinationals.

Larger markets can support growth

Selling overseas gives a UK business access to more potential customers. This is particularly useful if there is little scope for further growth in its home market. Additional sales can increase revenue and, if the extra revenue exceeds the extra costs, profit.

Higher sales may also allow a business to produce on a larger scale and benefit from economies of scale. For example, buying materials in bulk may reduce their cost per unit. This gives the business a choice: keep prices unchanged and earn more profit per product, or lower prices to become more competitive.

However, reaching overseas customers involves costs. Products need to be distributed, and marketing must reach the new audience. A larger potential market is valuable only if the business can attract enough customers to make expansion worthwhile.

Access to resources can improve efficiency

Globalisation gives UK businesses a wider choice of suppliers and production locations. They may obtain cheaper raw materials, use lower-cost production or recruit specialist workers from overseas. International cooperation can also spread knowledge and technology, helping businesses improve their production methods.

A business does not have to own an overseas factory to benefit. It can outsource production to another business. The UK sportswear brand Sweaty Betty, for example, designs clothing in Britain while outsourcing production to countries including China, Cambodia, Turkey and Portugal.

These arrangements connect several business functions. Operations must organise production and check quality; human resources may recruit people with specialist skills; finance must assess whether the savings justify the costs; and marketing must communicate the product’s benefits to customers.

Global competition creates pressure and risk

The same access to markets that helps UK businesses also allows overseas rivals to sell in the UK. Some competitors have lower production costs or operate on a much larger scale. They may offer lower prices and have more money available for product development, advertising and distribution.

A UK business could consequently lose customers and revenue. Cutting prices to defend sales may reduce profit per item. If it cannot adapt, it may reduce employment or close. Increased competition can encourage efficiency and innovation, but these improvements require investment and are not guaranteed to succeed.

Global supply networks also create dependence on events overseas. In 2021, the container ship Ever Given blocked the Suez Canal for six days, delaying deliveries and disrupting international supply chains. For a UK manufacturer waiting for components, a delivery delay could interrupt production and prevent it from fulfilling customer orders.

Demand can be affected too. If economic conditions worsen in an overseas market, customers there may buy fewer UK exports. A business can therefore be affected by a downturn even when conditions in the UK have not changed in the same way.

Competing through better design

UK businesses can compete internationally by offering better designs. Design includes how a product looks, how it works and how well it meets customers’ needs. A distinctive appearance, useful new feature or easier-to-use product can give customers a reason to choose it over a rival’s offering.

Research and development, skilled designers and new technology can support these improvements. UK aerospace businesses, for example, have strengths in wing design and engine development. This illustrates how technical expertise can help a business compete on product performance rather than price alone.

Better design must appeal to the target customer. Spending heavily on a feature that customers do not value adds cost without necessarily increasing sales.

Offering higher quality products at lower prices

Another way to compete is to offer higher quality products at lower prices than rivals. Quality might mean greater reliability, longer life or more consistent performance. Combined with a lower price, this offers customers better value for money.

Achieving both requires efficient production, rather than simply cutting prices. Training, improved technology, suitable suppliers and fewer faulty products can reduce waste and lower average costs. Economies of scale can help too. UK automotive manufacturing provides an example of the connection between high-quality design, innovation and productive manufacturing.

Lower costs can give the business room to charge a lower price while still making a profit. However, cheaper inputs are not a successful saving if they cause faults and damage quality. Equally, lowering prices without controlling costs may increase sales but reduce overall profit.

Judging whether globalisation benefits a business

Globalisation does not affect every UK business in the same way. An exporter with distinctive designs may gain greatly from access to overseas customers. A small producer facing low-cost international rivals may experience stronger competitive pressure. A business using overseas suppliers may save money but become more exposed to delivery disruption.

The overall judgement depends on whether the business can turn access to markets and resources into profitable sales while managing competition, quality and supply risks.

Competing internationally

• Better designs: attractive, useful or innovative products give customers a reason to choose the business.
• Higher quality at lower prices: reliability and performance offer better value; efficiency, productivity and economies of scale help make lower prices financially sustainable.

Overall judgement

The outcome depends on the business’s customers, suppliers, costs and ability to respond to competitors. Higher sales do not automatically mean higher profit.