Solving the investment conundrum

Our new Trade Barometer report shows a sharp downturn in spending among UK businesses. But companies must be careful to ensure cuts in investment don’t impede their long-term growth.

Solving the investment conundrum

The most successful businesses are ambitious in their investments, from talent acquisition and product development to new technology and overseas markets. But our Trade Barometer indicates there has been a worrying decline in business investment across all sectors of the UK economy over the past 12 months.

Dampened appetite

Last year, our research found 81% of businesses planned to hire new staff in the 12 months ahead. Today that rate has fallen to just 47%.

A year ago, more than three-quarters of companies (76%) intended to put money into new product development – this proportion has now practically halved, to 39%. And while 69% of businesses last year were aiming to make purchases of new machinery or equipment, the number is now down to 32%.

British businesses’ investment plans have been dampened by ongoing uncertainty in a few areas: as well as the Brexit process and worries about a possible downturn in the UK economy, there is increasing concern about a global economic slowdown and protectionism.

Against this backdrop, the latest edition of the Trade Barometer shows that business confidence in future growth has fallen sharply – today 56% of companies expect to grow over the next three years, down from 68% in 2018 – while just 42% of businesses say their performance has improved over the last 12 months.

Solving the investment conundrum

Missed opportunities?

In this environment, it is understandable that businesses are reluctant to commit to spending money in areas such as hiring, equipment purchases and innovation. But this attitude risks creating a self-fulfilling prophecy – where concerns about growth in the months and years ahead lead to investment cuts, which in turn reduce the potential for future success as companies miss out on new market opportunities or much-needed productivity improvements.

As evidenced by our recent Trailblazers research into the factors that set the UK’s fastest-growth businesses apart from their rivals, higher levels of planned investment tend to correlate with increased sales or profit performance: the most successful companies are those which devote time and money to building for the future.

Identifying priorities

Still, today’s challenging economic climate means that businesses must be more discerning about where they target this kind of investment. So where should businesses be focusing their efforts?

For businesses which are part of international supply chains, ensuring their processes and systems are ready to deal with any Brexit-related changes to existing overseas trading arrangements is one of the most pressing concerns. But at Santander we also believe that the businesses which achieve future growth will be those that act today to explore opportunities in new markets around the world.

One way in which businesses can explore new markets is through the sector-specific trade missions that we run with our partners for UK businesses each year.

One UK-based Santander client in the automotive sector recently took part in one of our missions to meet fellow businesses and potential customers in Poland. The company’s representative was particularly impressed with the kind of access to senior decision-makers that the mission afforded and is currently close to finalising deals with two Polish businesses.

Businesses able to diversify internationally do not only have the chance to benefit from a larger customer base; they can also reduce their exposure to and reliance on the changing fortunes of a single economy.

It is worth considering that the uncertainty – both domestic and global – facing businesses today may be the ‘new normal’, rather than simply a bump in the road. If this is the case, it is even more imperative for businesses to take all steps necessary to prepare for the challenges and opportunities ahead.

By making smart, cost-effective investments into the likes of market research, trade missions, and hiring the right skilled staff - and by taking advantage of the global support that Santander’s international market experts can provide – businesses can realise their international trading ambitions, and give themselves the ideal platform to build resilience and deliver success.

 

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