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Emerging Europe – ‘Our GPS for Success in 2014’

Introduction - the Essence of Emerging Europe

This time last year, I was in London with Nick Baird, the CEO of UKTI to talk

about Emerging Europe. We said; “Now is the time for Growth”.

We encouraged business to consider the opportunities of a market close to

home – that of Emerging Europe – which consists of nine markets; Austria,

Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovakia and

Slovenia that together make up the Foreign Office‟s Central European

Network.

I said that, in a globalised world, business does not function within tight

boundaries. And that neither did we. British Embassies in the region were

gearing up to support British business, wanting to help you access a region of

over 100 million people, where large sums in EU structural and cohesion

funds were being spent. I spoke about the region where a group of countries

experiencing higher growth rates by EU standards were seeking to modernise

and develop rapidly. I said that these countries, on our doorstep, only a

couple of hours flying time away, where you could travel into and out of in a

day if necessary, were also members of the Single Market. British brands,

expertise and quality are valued across the region.

I said that it puzzled me why, for such a high potential region, UK market

penetration is very low. It concerned me that for new-to-export and innovative

SMEs, the UK wasn‟t taking advantage. After all, Emerging Europe offers an

excellent introduction to selling into emerging markets. Cultural, linguistic and

business barriers are low. This region‟s heart is in Europe and would continue

to be so.

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So I asked my commercial diplomacy teams at our Embassies, the Economics

Unit in the Foreign Office, representatives from UKTI teams across the region

to work hard, be eager to help you more and push more for GREAT British

companies to export to, or invest in, our region.

One year on – what are the concrete opportunities, how are we

performing and most importantly, what have we done to enable you to

access these markets?

What has changed since last year? Why am I, the British Ambassador to

Poland, back here in London, again, talking about Emerging Europe.

Well, the reason is simple. Our roadmap - or as we call it, “Our GPS for

success in 2014” - is gathering momentum. Like a modern-day steam train,

with a full head of steam, there is no stopping us. As the Region‟s Director, I

am here with colleagues to encourage you to look hard at the markets of

Emerging Europe as a fantastic business opportunity.

As an avid fan of the region, I am looking at the potential for Emerging Europe

to catch-up with the rest of Europe in its infrastructure, energy security,

healthcare, and many other sectors. The region still lacks many products of

day-to-day living that we take for granted in the UK. The region has yet to

harness the full potential of „added value‟, quality and customer service.

For me, that‟s not a problem. It‟s an opportunity. For you, it offers GREAT

business development potential and for the UK a route to enhanced

prosperity.

You guys in this room are the people who can provide the solutions to the

problems modernising Emerging Europe. I want to encourage you to come

and see for yourselves, if you haven‟t already, that the dark days of

communism and socialism are well and truly gone.

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Capitalism, diverse and modern economies, aspiration, and prosperity are at

the heart of Emerging Europe. The time for action is now.

But, as a fan, that‟s easy for me to say. So let‟s consider the facts and

evidence. I‟ll focus on three issues. First, let‟s take a look at what has been

changing.

Politics and Economics

Croatia joined the EU in July making Emerging Europe part of the 28 group of

countries of the European Union. All Emerging Europe countries operate

within the Single Market. Take the Single Market Services Directive for

example. Its implementation since 2009 has seen significant economic gains,

its total impact is estimated by the European Commission at 0.8% of EU GDP

or a value of approximately 100 million Euros.

The gains have come from reforming protected service sectors, reducing the

power of incumbents, and opening up domestic markets to new entrants.

Gains have varied from 0.2% (Bulgaria) to nearly 1.8% (Cyprus).

More recently the European Parliament signed off the multi-annual financial

perspective, a deal that sets payments at 135.5 billion Euros and

commitments at 142.6 billion Euros to support development across the bloc

between 2014 and 2020. EU funding has been an important economic driver

and will be in the forthcoming financial framework. There is still much to do as

the region‟s infrastructure develops and countries in the region chase

convergence. All this brings business opportunity.

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Looking forward and seeking to enhance prospects for growth and prosperity,

the launch of negotiations for the EU-US Transatlantic Trade and Investment

Partnership (TTIP) is a once in a generation opportunity - TTIP has the

potential to be the largest bilateral trade agreement in the world, and bring

significant economic benefits in terms of growth and jobs to both sides of the

Atlantic.

It could add as much as 10bn pounds annually to the UK economy in the long-

term (100bn pounds for the EU and 80bn pounds for the US). Outreach

through Emerging Europe creates a huge incentive and dynamo for business

growth.

More specifically, let’s look at how this translates into business

opportunity;

Emerging Europe countries have enjoyed strong growth since accession.

Some more than others. Yet the strategic picture is one of continued

development, growth and modernisation. A relentless focus on inclusion,

prosperity and quality. Consumer markets are hungry and the region is the

manufacturing engine for Europe. There is a quest for innovation and added

value. Infrastructure, the backbone of a competitive society is in fundamental

need of modernisation – transport, energy and the key pillars of social and

welfare reform. We are participating in this opportunity but we need to be

doing much more.

The potential of Austria is well known both as a country in its own right and

as a market which has been closely associated with economic development

in Emerging Europe. The Czech Republic, Slovenia, Hungary and Slovakia

are a cluster of markets which are well integrated with Europe and offer

opportunities for the UK.

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Poland, the largest country in the region has enjoyed positive quarterly

economic growth since the economic switch in 1989; it is now a top 6 EU

economy; sustained forward growth is expected as the economy converges

with its established EU peers (current convergence 55%). Romania, Bulgaria

and Croatia offer important and valued potential. The region is one of

individual market opportunity. And, there is a consistent common thread which

links them – infrastructure, innovation and technological development. These

are areas where the UK excels.

This brings me to my second point. How should we be engaging? What are

the results so far? What does future potential look like?

Trade Highlights: 2013 year to date – surging forward

On the surface, it looks as though we are doing well. 18 billion pounds in

exports of goods and services in 2012. In 2011 an increase of 2 billion pounds

which places us in the top rankings in the growth charts along with India and

China. But we are not doing well enough. Our exports to Emerging Europe are

less than 4% of the region‟s total import picture. Out of every 100 products

bought only 4 are from the UK. As consumers buy more expensive products,

and trust me they are, that means we are just not in the picture. This against a

backdrop of respect for the UK. We are being beaten by our main EU

competitors – Germany, Italy, France and Spain. That is just not something

we should accept.

So, how are we reacting? I want to paint you a picture of Poland, my home

market, as an example of what we will be doing across the entire Emerging

Europe Region to actively promote and support British based business grow.

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Poland

The UK is Poland‟s 2nd largest global trading partner and Poland the UK‟s 17th

largest export destination. In the first 9 months of 2013, UK exports of goods

to Poland achieved a value of 3 billion pounds; a 16% increase over the same

period last year. In the same period Polish exports to the UK were 5.6 billion

pounds which represents growth of 3.5%. Bilateral growth is 7.5%.

Total exports of goods and services for 2013 from the UK to Poland are

projected to be 6.5 billion pounds; Polish exports to the UK are estimated to

achieve 9 billion pounds of which 1.5 billion pounds is supply chain to be re-

exported by the UK.

In Poland we have listened intensely to the needs of UK business and we

have created one in-country Trade and Investment Growth platform under a

banner ‘ Business is GREAT’ which unifies and intensifies our activity to

support your growth in this exciting country:

- We are actively engaged in the GREAT campaign – one of 11 country

components to promote the very best of the UK to create bilateral

opportunity. That is a 1 million pound commitment to promote growth;

- We have increased the capacity of UKTI to focus on strategic sector

opportunities, business wins and the strategic growth agenda – UKTI

works hand-in-hand with my prosperity team on „big ticket‟ projects in 6

key sectors;

- We have created a frontline services delivery team for SMEs including a

modern, British Polish Business Centre, a soft landing zone for

companies doing business with Poland. A key feature of this is a digital

business development journey – you do not need to commit valuable

resources until you have to.

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A strategic approach to High Value Opportunities

We are forging ahead with our high value opportunities. As part of our

Prosperity engagement agenda the British Embassy Commercial Diplomacy

teams work on strategic sectors of opportunity – issues such as Health and

Life Sciences; Infrastructure – mass transport; smart cities and social

infrastructure; Energy – nuclear, renewable, oil and gas and smart grid;

Security and Defence; Retail – food and drink; Financial Services. All matter to

us. We have developed 2 globally recognised HVOs – Civil Nuclear and Rail

Infrastructure; we are actively pursuing strategic campaign projects in the

other identified sectors.

In addition to our strategic sectors, supply chain and services represent

attractive export opportunities. The Economist in a piece on Great Britain said

„Britain is a strong exporter of services, with champions both large and small.‟

But, as Lord Green says in the same piece, the overriding perception of British

business in emerging countries is summed up by something he occasionally

hears: „We don‟t see enough of you.‟

A concrete, tactical business approach for SMEs

In today‟s modern business world there is an overload of information and

diversity of development opportunity which is overwhelming for small and

medium business. For SMEs we have put the B back in business in Poland

and have created a business development mecca which is focused on doing

concrete business quickly. Our business centre in Warsaw offers everything a

UK company needs to get up and grow.

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Forward Growth Opportunity Context to 2020 – a sustainable future

My third point is about the future. The UK has historically neither promoted

the Emerging Europe region as an export or supply chain destination. We are,

currently, significantly outperformed by our top 3 EU competitors, Germany,

France and Italy. I want to leave you with 3 growth challenges:

- Expert analysis shows that matching 30% of the performance of

Germany, France and Italy in Emerging Europe would yield an

incremental 20 billion pounds in UK exports by 2020. Currently only 1%

of our SMEs export to Poland whilst 40% of German companies do

business with Poland;

- Over 2 billion pounds of exports from the region to the UK go directly

into UK supply chain. This is a double win – an increase in export for

the UK and a significant contribution to our bottom line. That number

triples if we add in exports arriving to the UK from Poland through

Germany;

- Rapid economic development brings with it a massive services sector

opportunity. We are great at services. In 2011 the EU 27 accounted for

80% of all the UK‟s services exports (74.77bn pounds), yet Poland

accounted for only 1.9% of this amount. Poland is the UK‟s 27th most

important services export destination but is eclipsed by UK services

exports to Germany (11.3bn pounds), the Netherlands (10.4bn pounds),

France (10.1bn pounds) and Ireland (9.5bn pounds). At the moment we

are scratching the surface. If we match Germany‟s service exports to

Emerging Europe there is a 10 billion pound opportunity by 2020.

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Conclusion

At the heart of what I have been saying are 3 „I‟s. First of all Innovation, the

destructive force which creates renewal – Emerging Europe needs big doses

of innovation – as a leading global innovator we are a relevant and important

partner. We need to engage.

Second, Infrastructure – the cornerstone of competitive development in this

region is a modern and efficient framework for growth. We are global experts

in this. We need to seize the challenge in Emerging Europe.

And third „I will‟ – a commitment and passion right from the heart to develop

British business in this region. At the heart of government in Emerging Europe

we have transferred the biggest level of resources to support frontline growth

that this region has ever seen. We are ready for the challenge. Are you?

Our combined Foreign Office Prosperity and UKTI teams are working together

to create an enabling business environment. In recognition of the significant

business opportunity which Emerging Europe represents we have invested in

re-designing UKTI resources to focus on strategic sector campaigning to link

up core UK competency with local market opportunity. I invite you to join me in

Emerging Europe.