• The courage to think long

     

    Adventurous companies need time, says SIMON WALKER, Director General, Institute of Directors, to outface the impatient clamour from analysts and investment managers while they cultivate growth in new, unfamiliar markets.

    One of the habits we most need to change in British business, argues SIMON WALKER, is the persistent urge to think short. But in today’s uniquely volatile conditions, he’s the first to concede that it will take more courage than ever to break with “the tyranny of short-termism” and start thinking long.

    “With so much pressure in the financial marketplace now for rapid returns,” says the Director General of the Institute of Directors, “you have to be brave to plan on a 20-year horizon. But it’s the companies with that determination and clarity of purpose that will survive and prosper.”

    This summer’s Government-commissioned report by Professor John Kay into the impact of UK equity markets on long-term corporate performance crystallises the challenge, he says. “His analysis shows how equity markets are encouraging short-termism, with UK-listed companies at the top of the league internationally in terms of dividend payouts, but at the bottom in terms of investment and R&D expenditure. That’s simply not a sustainable position for our competitiveness.”

    The pressure for quick returns is intense and can divert companies from medium and long-term planning and investment. In recent years, there have been many examples both of how that pressure can go wrong – “as it did with Cable and Wireless” – and of success in resisting it, “like Rolls Royce, which has focused on 15-year to 20-year criteria to define its growth ambitions.

    “Two influences make it more necessary than ever to think long. The first is the incontestable evidence of low or flat growth, not just in our domestic backyard, but also in the UK’s two most important external marketplaces – Europe and the United States.

    “And the second is the time adventurous companies need to outface the impatient clamour from analysts, investment managers and media commentators while they  cultivate replacement growth in new and unfamiliar global markets.

     

    GLOBAL MARKETS

    “Companies are certainly facing up to the challenge of breaking into new territories with which they’re often unaccustomed. They’re starting to adjust, but it’s clear that they’re going to have to adjust an awful lot more to gain secure recognition in completely new markets in Asia, Africa and South America.”

    One statistic illustrates the scale of the challenge and the potential reward. “British manufacturers export some 20% of the production tonnage they make, whereas German and French manufacturers export about 25%. That 5% difference would bring huge benefits to the British economy if we could just step up our performance that extra bit.”

    Raising performance means working closely with UK Trade & Investment, the Government agency committed to expanding exports.

    “But it also involves taking a risk, a leap of faith amongst manufacturers and those already selling value-added goods and services into French, German and other European markets, for whom it’s quite a big move now to start thinking of opportunities further afield.

    “We’re certainly encouraging our member firms to do just that. It’s worth noting that 52% of them are already exporting and almost all of those confirm that they want to export more.”

    While that effort spans all key business sectors, there’s an important focus on manufacturing in the strategic aim of re-balancing the economy. “Forty years ago, manufacturing was roughly 40% of UK output. It’s a matter of regret that it’s now 11%.

    “We can’t hope to recapture the low added-value, unsophisticated products that we were making in the past. But what we can do is decide in which sectors we aim to excel. Other countries that have done this – Singapore, to me, is the best possible example – have succeeded economically, as a result.”

     

9/17/2019 3:32:14 PM