Economic Report 2011
Supply Chain Exports
The current supply chain was originally developed to supply and service North Sea oil and gas activities and has a number of major companies with head offices in the UK, but it is increasingly reaching out into international markets. It also continues to diversify into other parts of the wider energy industry, both at home and overseas, with shale gas, coal bed methane and renewable energies all forming a valuable part of the business mixture. While a complete picture of export activity across the whole country is lacking, a reasonably representative view can be obtained from Scottish companies and, particularly those based in the north east of Scotland.
The Scottish Council for Development and Industry (SCDI) has systematically tracked the growth of exports and international sales by Scottish oil and gas supply chain companies over the last decade. SCDI’s latest survey covering the calendar year 2009 again provides valuable insights into the continuing growth of the Scottish oil and gas activity with the following highlights:
- international activity has risen from £1.8 billion in 2000 to £7.24 billion in 2009, of which £2.5 billion came from direct exports and £4.74 billion came from sales via overseas subsidiaries;
- in 2009, international activity increased to account for more than 45% per cent of total Scottish oil and gas supply chain sales, compared with 27 per cent in 2000;
- sales via overseas subsidiaries increased by 16% compared with 2008 of which 93% were from services;
- the value of direct exports only increased by 1% compared with 2008 with services comprising 44% of that total;
- Africa was the top geographic region for direct exports attracting 27% of sales, followed by Western Europe with 10%; North America was the largest market for overseas subsidiaries attracting 44% of total sales by overseas subsidiaries;
- Australasia and Western Europe had the highest year-on-year growth with increases of 83% and 75% respectively;
- the top five international markets for direct exports and subsidiaries’ sales combined were the United States, Canada, Angola, Norway and Australia;
- sales activity from the supply chain was recorded in 107 different country markets.
Total domestic and international sales by the Scottish oil and gas supply chain have grown steadily over the last decade, reaching £15.9 billion in 2009, with international markets more than making up for a less expansionary domestic one.
It is estimated that the total international activity by the supply chain across the whole of the United Kingdom is approximately double that achieved in Scotland, based on correlations with employment (our research shows that Scotland has approximately 45% of direct and indirect employment within the oil and gas sector). This implies that total exports from the UK by the whole supply chain were £5-6 billion in 2009, although the growth may have slowed somewhat in 2010 as the rate of international investment eased over the year.
On a wider perspective, UK Trade & Investment (UKTI) has recently carried out research that explores the developing trends in international trade, particularly with respect of small to medium sized businesses (SMEs). Research among companies that already export found that most firms (over 90%) sell directly to businesses as part of their overseas strategy.
It is clear that a permanent presence – often in the form of agents and distributors – remains an essential part of doing business overseas, with more than two in five exporters using local agents or distributors to sell their products or services abroad. Interestingly, it is larger and more experienced exporting companies that tend to use agents or distributors to the greatest extent, with 61% of larger firms (more than 50 employees) using them compared with only 34% of small firms (less than 10 employees). The research also showed that those companies with ambitions for substantial growth are more likely to use agents or distributors, 47% of them, compared with 27% of firms whose growth plans were simply to stay the same. The results suggest that this method of doing business internationally is one that stands the test of time.
More young companies are taking international opportunities from an early stage; almost one in five (17%) of new companies currently active abroad are classified as “born global”, i.e. have been doing business overseas from the outset.
Firms classed as “innovative” – those that devote resources to R&D or development of new products or services – tend to benefit most from doing business abroad and many international firms experience a virtuous circle where exporting leads to more innovation, with those innovations leading to further exporting. Over half of all firms (53%) said that a new product or service evolved because of their business overseas.
Export business is being won in a variety of areas such as:
- subsea engineering where the UK is recognised as a world leader;
- high pressure, high temperature (HPHT) field developments;
- oil and gas process machinery, equipment and technology;
- deep water oil and gas developments;
- design, project management and delivery of new field developments;
- integrated services for the operation and maintenance of fields;
- late life operation of mature fields;
- light weight, slim line structures;
- wind power generation (offshore and onshore);
- economic and technology led consultancy services;
- legal, financial and insurance services;
- health, safety and environmental expertise.