Whitepaper: Market Entry

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When organisations are deciding on a ‘go to market’ strategy, particularly in new territories, there are usually two main choices to make, do you sell direct to end users and set up your own operation …

When organisations are deciding on a ‘go to market’ strategy, particularly in new territories, there are usually two main choices to make, do you sell direct to end users and set up your own operation or subsidiary and customers or develop an indirect sales channel of distributors, agents or resellers?

This paper discusses and contrasts these two traditional approaches with the alternative of sales outsourcing. Sales outsourcing will suit companies who are looking to expand, or set up operations in new territories.

Some key facts and figures are also given about the UK and the European Union along with some comparisons with Japan and the USA.

From a software and technology perspective, the UK is one of the key worldwide IT markets, and any aspiring technology organisation will want to have a presence in the UK. The UK is often used as a landing and jumping off point for expansion into the rest of Europe or EMEA.

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  • 1. WHITEPAPER: UK/EMEA MARKET ENTRY A NEW APPROACH FOR IT VENDORSSelling PeopleVersion 6Jan 2013Written by:Julian Poulter: www.sellingpeople.biz Copyright © Selling People Ltd, 2013 Contact: www.europa.co.uk 01494 739800 Version 6 Page 1 of 21
  • 2. Contents1. Introduction – a new approach .................................................. 32. Company set up options ........................................................... 33. Outsourcing Methodology ......................................................... 54. Overview of Capabilities............................................................ 65. Charging basis and Margin Considerations ............................... 86. Benefits ................................................................................... 107. Investment .............................................................................. 108. Summary ................................................................................ 119. About Europa .......................................................................... 1110. Appendix 1: Sales outsourcing Capabilities ............................ 1211. Appendix 2a: Map of UK ......................................................... 1412. Appendix 2b: Map of Europe ................................................... 1414. Appendix 3: Key Facts and Figures ........................................ 1515. Appendix 4: EU, USA & Japan key statistics cont…................ 2016. Appendix 5: References .......................................................... 21 Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 2 of 21
  • 3. 1. Introduction – a new approachWhen organisations are deciding on a ‘go to market’ strategy, particularly in newterritories, there are usually two main choices to make, do you sell direct to end usersand set up your own operation or subsidiary to attract customers or develop an indirectsales channel of distributors, agents or resellers?This paper discusses and contrasts these two traditional approaches with the thirdalternative of sales outsourcing. Sales outsourcing will particularly suit companies whoare looking to expand, or set up operations in new territories.Some key facts and figures are also given about the UK and the European Unionmarkets along with some comparisons with Japan and the USA.From a software and technology perspective, the UK is one of the key worldwide ITmarkets, and any aspiring technology organisation will want to have a presence in theUK. The UK is often used as a landing and jumping off point for expansion into the restof Europe or EMEA or other English speaking territories.2. Company set up optionsOne of the first questions to ask when considering an overseas expansion is “do you selldirect to end users and customers”, or “develop a sales channel of distributors andresellers”? The establishment of either a direct or indirect sales operation will need asales force, even to just ‘set up and prime the pump’ in the indirect sales approach.The vendor organisation’s attitude to risk, availability of fixed and working capital, andknowledge of and access to chosen markets,will determine which approach an organisationprefers.However, the third option is that of sales A large software company basedoutsourcing. The principle differences between in Redwood, CA has manythe three approaches are listed in table 1 boutique consultancies asbelow. ‘partners’ in its business intelligence division. However,One of the main reasons to create a distributor, getting these partners to focus onapart from lower upfront costs will be to gain software rather thanaccess to the distributor’s existing customers, implementation services is anew markets and domain knowledge, or a constant challenge.combination of all of these. However, theproblem with any distributor is that the productmarketed by the vendor often becomessecondary to selling that distributor’s own core product or service. Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 3 of 21
  • 4. In many cases your product will be part of a solution involving several products. SystemsIntegrators (SI’s) can also act as a channel, though they will not usually be tied to aparticular vendor, and may recommend several alternative solutions to clients.A direct approach brings greater control and more immediate results at the expense ofhigher upfront costs and associated risks.Table 1 – Comparison of go to market approachesIssue Direct Sales Outsourcing Channel**Ownership of clients Vendor Vendor DistributorMargin 100% 10-25% 40-50% to distributorControl of sales cycle 90% high 90% high 10% lowConfiguration of 90% high 90% high 10% lowsolutionCosts of sales High – employees Medium – direct Low or non existentresources with basics, costs often passed commissions, on but limited set up expenses, phones, costs cars, holidaysRisk of loss Medium Medium SmallRisk of high profit Medium Medium MediumTime to revenue Short Short Medium – 2 stages nd rdPost sales support All All Only 2 or 3 lineImplementation All All Licence fees only torevenue vendorFocus on vendor Total Total Partial, will haveproduct multiple productsLoyalty 100% Total Loyalty is to the highest margin.Transparency of High, full visibility High, full visibility LowoperationAccess to existing No Probably not Yes, probablycustomers** Many different channel models exist (VAR, Super VAR, Reseller, Agent, Distributor)and this paper does not attempt to define or explain all of them, however the generalprinciples of a distribution model are assumed.For these reasons many vendors only use the channel when they cannot afford theinvestment, or when specific domain or geographic knowledge, such as setting upoverseas is required. The vendor may also reserve an option to buy out the distributor,or a division, at some future point when the business becomes established.Sales outsourcing maybe used for establishing both models, and is an alternativemethod of setting up your chosen distribution or go to market method.One of the main reasons for using an outsourcer (or distributor) is to gain access toknowledge of the local market and conditions. Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 4 of 21
  • 5. Unlike the USA the conditions across the EU vary widely. Whilst there are manycommonalities for business across the EU there are still plenty of local differencesespecially with regard to salaries and employment law as well as culture and regulation.A local distributor is likely to also bring to the table a selection of customers andprospects to which the new product can be quickly introduced.An outsourcer can bring existing customers and the more extensive sales force typicallyemployed by the outsourcer, compared to a typical start up, can provide access to manyaccounts and contacts. Some outsourcers pitch themselves as experts in a particularsector to which they have significant knowledge of, along with access to contacts.3. Outsourcing MethodologyThe overall approach to an outsourcing engagement typically consists of four mainphases: a. Preparation – Scan & Plan b. Launch / Test & Review c. Initial Operations d. Full operations Figure 1 – Sales Outsourcing Methodology Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 5 of 21
  • 6. The key phases are discussed in brief then in more detail below.PreparationThe initial Preparation phase is concerned with developing a comprehensive sales andmarketing plan for the commissioning organisation. This may just cover a short initialperiod but would usually provide an outline of operations over 1-2 years.The key part of this preparation phase is an intensive sales workshop where all aspectsof the engagement are discussed and defined. This phase may also incorporateelements of desk and field based market research, especially for new products or newmarkets.The remaining component of the Preparation phase is to complete the remaining itemsof set up that are required to get the engagement going: logistics, training, recruitmentetc.Launch or TestFollowing the Preparation, a longer Launch or Test phase is then undertaken wherethe emphasis is on getting in front of as many prospects as possible to outline theproposition(s) in detail and build pipeline. In the Launch or Test phase the emphasis ison selling and closing deals, but in these early stages, significant review and feedback ismaintained to track progress.At the end of the Launch phase the results are reviewed and a decision can be madeon progressing to the next phase and the sales plan can be updated if necessary withthe live metrics.Initial OperationsThe Initial Operations phase is now all about generating sales orders and ramping upthe sales operation. If the plan calls for five fields sales personnel within one year theLaunch phase may only use one full time equivalent (FTE). The resource may in fact besplit into two for extended coverage, segmentation or comparison purposes. This is partof the flexibility of a sales outsourced solution. Now in the Initial Operations additionalresources can now be brought to bear.Full OperationsThe Full Operations phase can be an extension of the Initial Operations or the clientmay wish to set up their own subsidiary or distribution channel and the outsourcing bephased out or be used to support certain aspects of the sales function. Many clientsmay also choose to take the now established sales operation in house once an earlysales footprint has been established.4. Overview of CapabilitiesSales outsourcing usually consists of one or more of the following principal elementspresent in any sales organisation:  Sales resources  Sales management and sales direction Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 6 of 21
  • 7.  Lead generation  Marketing  Systems and processes (CRM, sales process, lead qualification etc)  FacilitiesFull details of these capabilities are given in Appendix 1. The diagram below shows howthe capabilities fit in helping produce the sales funnel.Sales outsourcing can offer the advantages of both the direct and indirect models. Thekey features of an outsourced sales solution should include: Results focused on activity, pipeline and sales orders. Whilst an outsourcer would expect to be paid partly on time especially in the early stages they are focused as far as practicable in achieving the results agreed Rapid - Rapid set up in a matter of days and weeks rather than months of a typical recruitment or in-house operation Flexible – solutions that can be modified quickly, or over time, to react to changing conditions. Resources can be increased or decreased at short notice according to campaigns or results Diagram showing overview of sales capabilities in the sales funnel Expertise – Professional approach, utilizing predominantly existing staff and local office facilities Cost effective – Low upfront costs (no recruitment costs) and reduced long term commitments and no employee relationships resulting in lower initial risks Methodology – Using a proven and common sales process/methodology and systems increase the quality and ensures valuable leads are not lost Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 7 of 21
  • 8. The majority of resources used on any new project should be from the outsourcer’sexisting proven sales resources.Combining all of the above services, lead generation, sales resource, direction andperhaps marketing, results in a fully outsourced sales solution.Outsourcing to a third party provides for all day to day decisions and activities to behandled by the outsourcing company, to include interaction with all the client company’sdepartments. The designated project or sales manager will form a key part of the client’smanagement team.The outsourcing company can vary key elements of the sales function over time, leadgeneration, operational and management resources, according to specific businessneeds. For example, additional resources can be acquired for a specific campaign, bothin terms of the lead generation and follow up sales resource.A full sales outsourcing arrangement compares very favorably with trying to recruit oneor more full time people to cover all of these activities. Activities will be focused andcarried out continuously, rather than being carried out by one all rounder, with theresultant feast and famine situation, regarding lead generation, that inevitably results.Ultimately, an outsourced contract is usually based on revenue performance. It includesa basic retainer and commission or bonuses based on the revenue/margin delivered.The commission only sales approach rarely performs well. Go to www.sellingpeople.bizand download or request our white paper entitled “Commission Only Sales” for moreinformation on that topic.5. Charging basis and Margin ConsiderationsThere are many aspects to an organization’s sales and marketing effort. When choosingsales channels to market there are three main approaches:  Direct sales effort internally: The vendor’s own sales and marketing team.  Enlist partners/distributors/VAR’s/resellers etc: Third party companies, whose business is aligned or complimentary to the vendor’s, and will naturally open up opportunities for product/service sales. They may even pay for the privilege of selling your product if you are a market leader. Third parties are not part of your business they are a separate channel.  Sales outsourcing service providers are companies that will sell products or services on your behalf within their range of expertise for a fee and usually a commission. They become part of the vendor’s business rather than a separate channel.The key differences between the three models are their comparative costs andrisk/reward ratios. Outsourcing is positioned somewhere in the middle of these threeoptions. For example: Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 8 of 21
  • 9. Option Upfront cost Risk Commission paidDirect/Internal High High Low (2-15%)Partner model Zero other than Very low High (35-55%) training, management time etc.Outsourcing Low Medium Medium (10-30%)Commission rates vary widely between engagements and these figures are purelyillustrative.Where the product or service is high value or complex, the partner model initially tendsto be very unproductive and rarely is anything sold within the first year. In these cases,an outsourcing sales solution can be far more productive. Where IT products are soldthrough distribution channels, margins and financial models are highly variable and arebeyond the scope of this paper.There are many aspects to negotiating a sales outsourcing contract, some of thevariables include: equity, commission, base rates, market exclusivity, timescales, salessupport and marketing spend etc.There are several main types of sales outsourcing contract engagement. All of themshould provide a rapid, flexible and responsive solution, with low initial costs: Time and materials basis – where the costs of the outsourcer are passed on, plus a margin, to the vendor. Costs are fully detailed; the contract is very transparent and would normally have a termination or variation clause period of only two to four weeks. Commission is paid, but only at the rate at which a sales executive could earn – usually 5-10 percent in software. This mode of operation is very relevant in a start-up, or test marketing phase, where there is no track record of sales success provided by the vendor. Deliverables – in this case the contract identifies key deliverables and payment is based on achieving these. The delivery targets could be activity based such as Surveys with senior decision makers or meetings or could be based on pipeline or orders. Base + commission – is essentially a variation on time and materials, but the sales fees charged are costs less a margin of typically 20-30%. Alternatively the base could be a reflection of the management costs + the overheads and facilities – essentially the fixed costs. Therefore the outsourcer will only make a sensible profit if “product” is sold and commission/margin shared between the vendor and outsourcer. Set up, planning and training costs would normally be charged at the beginning. Commission only has no external ongoing fixed costs to the vendor, though there could be, and usually is, a negotiated set up cost, particularly in new markets or with new products. When sales are made a relatively high commission (25-80%) is paid to the outsourcer, similar to the rates paid for a distributor. Sometimes quite high rates can be paid in the early deals to recoup Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 9 of 21
  • 10. some of the investment costs. This will however provide the lowest profit, but lowest financial risk, to the vendor as more commission / percentage of margin is being paid out.6. BenefitsIn summary, the benefits of adopting an outsourced sales approach in establishing apresence in the UK/EMEA are many and varied:  The use of experienced sales professionals to establish and drive the sales effort.  Flexibility - an efficient use of differing sales resources split between lead generation and tele-sales, sales and marketing and administration.  Reduced initial investment with no recruitment fees.  Use of outsourcers office and facilities.  Provision of an early operations/test marketing phase, which can be used for proof of concept prior to additional investment and resource becoming committed.  Required resource may be varied, and increased or decreased at short notice.  No employee overheads – just a monthly invoice.  Minimum call on existing management time.  The outsourcer may also be able to procure additional leads from within the associate network and knowledge of the target prospects.  Immediate access to proven processes and supporting systems provides speedy results and reduced set up times.7. InvestmentThe cost of a sales engagement can vary significantly. Normally, in the early stagesprojects can be varied or terminated subject to a four week notice period – hencereducing the risk to the client organisation.In any engagement the sales plan that is created includes a detailed cost and revenuetarget spreadsheet, this acts as the budget plan for the engagement. Typical guide ratesare given for a variety of services in the table below (UK rates 2008): Service Item Daily rates Daily rate for lead generation – 10-15 surveys* per day £150-£300 Daily rate for research/data cleansing £100 - 150 Project management and set up for projects £250- £400 Data purchasing , normally 40p per record for eternal license with emails £400 per 1000 Sales resources for tele sales / tele-marketing £100-350 Sales resources for field work £150 -£450 £25 -£75 per user per Rental of campaign management / e-Marketing system month Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 10 of 21
  • 11. Sales Management £300-£450 Sales consulting £600-£1500* A survey is a full conversation with a decision maker.8. SummarySales outsourcing is a relatively new phenomenon in the IT industry, though has beenprevalent in other industries for many years such a financial services andpharmaceutical.There are pros and cons of sales outsourcing, as there are with the traditional direct orindirect models. For some companies the attractiveness of outsourcing this importantbusiness process will be compelling.For companies setting up in new territories such as the UK and EU the outsourcingmodel should be given full consideration.9. About Selling PeopleSelling People was founded in 2003 and has rapidly become Europe’s leading salesoutsourcing agency. SP has provided market evaluation, lead generation and salesoutsourcing services to a variety of companies.Selling People is UK based but is part of the Branch Service operation with offices in 20countries and 60+ sales executives allowing us to put together pan European solutions.We operate in many sectors but our specialism is the demanding IT software salessector. Within that sector we have particular expertise in: Business intelligence & knowledge management Help Desk & service management CRM & customer service ERPWe maintain our own intelligence/data gathering system and watch and research theabove sectors as well as the UK’s top 100 IT spenders and the Mergers and Acquisitionsmarket in the UK, as these are often key to our clients.Selling People operates using a number of full time employed sales and telemarketingexecutives, including in-house project and sales management. We supplement this withexternal associate resources to extend our skills and geographic coverage. Our externalnetwork consists of approximately 200 associates allowing us to operate in many sectorsand geographic areas.Selling People Ltd Phone: 020 3397 3270Unit 12, The Power HouseHigham Mead Email: enquiries@sellingpeople.bizCheshamBuckinghamshire Web site: www.sellingpeople.biz Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 11 of 21
  • 12. HP5 2AH10. Appendix 1: Sales outsourcing CapabilitiesSee our Whitepaper: Sales Outsourcing Alternatives for more information onthese topics. The diagram below shows graphically the main functions usually requiredin an outsourced sales function.The key functions are now discussed in turn – sales executives, sales management,lead generation, facilities & processesSales ExecutivesFront line sales personnel are clearly at the heart of any sales operation. Theseresources are called many names: account managers, business development managers,sales consultants depending on the organisation or role, here we refer simply to salesexecutive.Sales executives have traditionally been recruited on a full time employment basis. Theupside is quite apparent but the downsides are often less obvious. For example, there isa high cost and hence risk if full time sales resources fails to give the required return oninvestment, particularly in the often, overpaid IT sector. The worst acquisition a businesscan make is an expensive sales recruit who does not sell anything and leaves after sixmonths, resulting in wasted time, effort investment, salary payment and hefty recruitmentfees. Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 12 of 21
  • 13. Sales Management / DirectionWhere the outsourced sales solution is more than a single person then some element ofmanagement will be required. Even where there is only one person involved, certainaspects of an engagement will also fall under the ‘management’ function.Outsourcing sales direction can provide an experienced sales director at a fraction of thecost of in house equivalents. There are many aspects to sales direction, the basicfunctions include:  An accurate weekly/monthly forecast and process review.  Weekly management to coach and direct the sales effort.  Strategic sessions to help with overall business growth and planning, including the review or determination of value propositions.  Creating a sales manual defining how the sales function operates in the company.  Sales resource/recruitment, for example, the candidate selection process.  Contribution towards company ‘best practice’ methods for operating a sales function. This can include resourcing, the sales model (how we sell), the sales cycle (the route to a sale) and sales process - including departmental interfaces (vital in a professional service operation), forecasting and reviewing processes.Lead Generation and MarketingOutsourcing lead generation to a capable company ensures the aforementionedservices are provided and managed professionally. A lead generation contract ensuresyour chosen service provider focuses staff attention on using their core skills to increaseyour revenue, without diverting your sales force from the areas of the sales cycle, wherethey are most effective.FacilitiesThe outsourcer should provide local market facilities such as office and phones in orderfor the client to have a definite physical presence in its chosen markets.ProcessesAn outsourcer should bring to the table a variety of systems and processes to quicklyenable best practice sales and marketing to be implemented. Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 13 of 21
  • 14. 11. Appendix 2a: Map of UKSee also:http://www.ukti.gov.uk/investintheuk/investorsmap.html12. Appendix 2b: Map of Europe Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 14 of 21
  • 15. 14. Appendix 3: Key Facts and FiguresDuring the days of the British Empire the UK economy was the largest in the world andthe first to industrialise (or industrialize, ushering in the Industrial Revolution). Although ithas declined in significance since, the UK is still the sixth largest economy in the worldby purchasing power parity.It is a member of the G7 (now expanding to the G8 and G20), the European Union(although not the European Economic and Monetary Union -EMU - or Euro) and theOECD (Organisation for Economic Cooperation and Development). It is also thefounding member of the Commonwealth, the association formed by former BritishEmpire states.The British Economy is one of the most globalised (or globalized) economies in theworld, thanks in no small part to the City of London, considered to be the largestfinancial center in the world.The economy of the United Kingdom of Great Britain includes the economies ofEngland, Scotland, Wales and Northern Ireland. The Isle of Man and the Channel Islesare part of the British Isles and have offshore banking status.The Bank of England had cut interest rates to 1.0 per cent by the end of 2008, and thatis expected to drop to 0.5 per cent for most of 2009 and 2010.UK budget deficit stood at 5.3 per cent of GDP in 2008. With economic stimuluspackages and bank bailouts being worked on, that is expected to balloon to 11.3 percent of GDP in 2009 and 13 per cent of GDP in 2010.In 2008, the UK had the 43rd largest relative national public debt, at 47.2 per cent ofGDP. This figure could rise to 58.5 per cent of GDP by 2009 and 70 per cent of GDP in2010, thanks to the projected budget deficits of 2009-2010.Inflation had ramped up to 3.6 per cent in 2008, but has dropped back with the economiccollapse and is expected to be 0.4 per cent in 2009 and 0.8 per cent in 2010. It had the58th lowest inflation rate in the world at end 2008.The 3-month Treasury rate has similarly dropped, from 5.5 per cent in 2008 to anexpected 1.3 per cent in 2009 and 2010.The unemployment rate had reached 6.3 per cent in the UK by the end of 2008according to the Office of National Statistics, reaching close to 2 million unemployed.This figure is likely to grow to the 2.5 million – 3 million figures, or 8-10 per cent.The UK has the third highest current account deficit in the world of US$186 billion. It hasa large trade deficit in manufacturing and has become a net importer of energy andNorth Sea extraction declines. It runs $468.7 billion of exports (9th in the world exportrankings) and $654.7 billion of imports (6th in the world). Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 15 of 21
  • 16. It was the 2nd largest recipient of foreign direct investment (FDI) in 2007 (although thefigure has dropped since), and one of the most competitive in Europe for business andtax.UK GDP DataThe UK economy is the 5th largest in the world and 2nd largest in Europe with GDP ofUS$2.279 trillion (6th largest by PPP GDP).GDP growth was 1.1 per cent in 2008 but it is expected to contract in coming years, withGDP growth forecasts of -3.2 per cent in 2009 and -1.1 per cent in 2010.The UK has a population of 61m and a GDP per capita is US$37.4k, which makes it the30th richest country in the world, above the European Union average of US$33.8k.UK GDP by industrial sector:  Services Sector - 76.2 per cent of UK GDP  Industry & Manufacturing - 22.8 per cent of UK GDP  Agriculture - 0.9 per cent of UK GDPUK Economic HistoryThe UK was once the largest economy in the world. At its peak during the nineteenthcentury it ran the British Empire - and one quarter of the world. Its global mercantilesystem transported people, resources and capital, generating vast profits for the Empire.Since the end of World War II the UK has been weakened by the costs of war, the end ofthe Empire and the Republic of Ireland leaving the United Kingdom.In recent times, there have been two periods of strong economic performance. The firstresulted from the Prime Ministership of Margaret Thatcher, who famously broke theunions and ushered in free market reforms that helped the UK to shed its ‘Sick Man ofEurope’ mantle.The second came about when the ‘New Labour’ government came to power in 1997,with Gordon Brown serving as both Chancellor of the Exchequer Gordon Brown andlater Prime Minister, inheriting and expanding a period of continuous economic growthfrom 1992 to 2007.UK Economy 2001-2007The UK experienced a double bubble in both housing and the stock markets from 2001 -2007.Credit was cheap and easy, regulation lax and rules broken. Fuelled by mortgages of upto 125 per cent, house prices tripled in some areas during that period and the LondonStock Exchange (LSE) reached record highs. Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 16 of 21
  • 17. Home prices peaked in the third quarter of 2007 and the long decline set in. Unable toget wholesale funding UK bank Northern Rock was forced to turn to the Bank of Englandas lender of last resort in September 2007. This led to the first run on a British bank ingenerations, and forced the government eventually to nationalise the bank.UK Economy 2008Northern Rock did not mark the end of the British government’s involvement in thefinancial sector.It was forced to nationalise Bradford & Bingley, help Alliance & Leicester and HBOS getbought, and provide capital, funding and underwriting worth more than 400 billion GBPto both over-leveraged giants like RBS and Lloyds TSB, and relatively stronger groupslike Barclays, HSBC and Standard Chartered.By Q2 2008 the UK was officially in recession and Sterling had dropped more than 30per cent against the other main currencies.With consumer confidence dropping and unemployment rising, the auto and retail sectorwere the next victims of recession. Household names in the High St includingWoolworths, Zavvi (the former Virgin Megastores), MFI, Adams and WaterfordsWedgewood went into receivership by Christmas 2008.UK Economy 2009The British economy in 2009 was declining at an even quicker rate than originallysuspected.All sectors of the UK economy seem to be struggling, with consumer confidence, thehousing market, employment and manufacturing either at the lowest point, or droppingfaster than ever previously recorded.Seeking to overcome blame for the recession and the fall out from his previousstatements that he had tamed the ‘Boom and Bust’ cycle, Prime Minster Gordon Brownannounced a major economic stimulus package. It will add to already high debt levelsabove 40 per cent of GDP, leading to speculation that Britain’s sovereign debt ratingswould be downgraded and to further slides int eh value of sterling.By the end of 2009, the UK economy is expected to have contracted 3.2 per cent(although some economists are revising that figure further downwards), with UK publicdebt rising to a staggering 70 per cent.UK Economy 2010 ForecastForecasting in the midst of such economic uncertainty and financial upheaval is, to put itmildly, a challenge.The consensus for 2010 has now shifted to flat to negative growth. Forecasts range from0 per cent to -5 per cent growth, with the median in the -1 to -2 per cent range, althoughmost economists state that major downside risks remain. Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 17 of 21
  • 18. The Bank of England Interest Rate, Inflation and the three month Treasury rate areexpected to stay low at under 1 per cent, under 1 per cent and 1.3 per cent respectively.The budget balance is forecast to grow dangerously to -13 per cent of GDP, which wouldtake UK national public debt above 70 per cent of GDP.UK Monetary and Fiscal PolicyAs of Q1 2009, the Bank of England has already cut Interest Rates to a historic low of1.0 per cent, with a drop to 0.5 per cent or even 0 likely.Further measures are probably needed, and this will include quantative easing, in otherwords printing more money.During Gordon Brown’s stint as Chancellor, the Labour Party officially adopted theGolden Rule and the Sustainable Investment Rule in fiscal policy, which state that deficitover an economic cycle should only be used for future investment, and only up to anational debt of 40 per cent of GDP.By the end of 2008 estimated public debt had already risen to 42 per cent, and could riseto 70 per cent of GDP by 2010, meaning that the rules have gone out of the window asfighting the recession takes priority. Keynesian economics says this is the right thing todo, but it leaves the British government finances dangerously over leveraged - and overleverage was, after all, what got us into this mess in the first place.UK Real Estate, UK Property MarketThe UK real estate or property market has been growing for most of the years since1992. Between 2000 and 2007 alone, some areas saw median prices trebling in value.Since the third quarter of 2007, prices have fallen every month, reaching record levels ofprice drops and record lows in terms of new sales.Speculators were a big part of the growth of that market, with Buy-To-Let buyers makingup as much as 50 per cent of house purchases in London before the crash. Thiseffectively priced new home buyers out of the market.Although prices have now dropped back to affordable levels, fears of further falls, risingunemployment and reluctance among beleaguered banks to lend continue to restrict themarket.UK TaxThe UK taxation system involves taxes applied by both the central government and localgovernment. Central government collects tax through Her Majesties Revenue andCustoms (HM Revenue & Customs) department, in the form of income tax, nationalinsurance, VAT (value added tax), corporation tax and fuel duty.Local government receives grants from central government, and additionally collectsrevenue from business rates, council tax and fees such as on-street parking. Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 18 of 21
  • 19. Source: http://www.economywatch.com/world_economy/united-kingdom/ Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 19 of 21
  • 20. 15. Appendix 4: EU, USA & Japan key statistics cont… EU25 EU15 Euro-Zone US JapanArea 1 3,893 1 3,154 1 2,456 1 9,631 5 378 3(2003 thousands, km sq)Population 1 1 1 1 5 3 454.56 380.36 306.70 293.03 127.62(2003 millions)Density 1 116.8 120.6 124.9 30.4 5 337.6 3(2003 km sq)Unemployment Rate 1(2003 1 1 1 4 2002 8.9% 7.7% 8.4% 5.8% 5.4%standardized) 2003 9.1% 1 8.1% 1 8.9% 1 6.0% 4 5.3%GDP 1 11,017 1 10,522 1 8,209 1 11,000 6 4,301 8(2003, current prices,USD billions)GDP increase, 2002-03 1 0.9% 1 0.8% 1 0.5% 1 3.1% 6 2.7% 8GDP per Capita 1 24,027 1 27,511 1 26,595 1 37,756 2 33,720 2(2003, inPPS/inhabitant)Inflation Rate 1 2.0% 2 2.0% 2 2.1% 2 1.6% 4 -0.2% 2(Annual 2003)Total Imports 1 1,047 1* 1,570 2 2,848 2 1,517 7 477 2(2003 USD billions)Total Exports 1 1,250 1* 1,633 2 3,025 2 1,021 7 597 2(2003 USD billions)World Import Share 1 14.0% 2 22.4% 2 40.6% 2 22.9% 2 6.8% 2World Export Share 1 13.1% 2 23.3% 2 43.1% 2 13.8% 2 8.5% 2EU-25: Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France,Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta,Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, United Kingdom.The 10 additional countries joined the European Union on May 1 st 2004.EU-15: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom.Euro-Zone: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy,Luxembourg, Netherlands, Portugal, Spain.Sources: 1. EUROSTAT (European Union Statistical Office). Free Dat: http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/. 2. IMF (International Monetary Fund): http://www.imf.org/external/index.htm 3. World Bank: http://www.worldbank.org/ Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 20 of 21
  • 21. 16. Appendix 5: ReferencesUK Government contacts UKTI, FCOhttp://www.ukti.gov.uk/home.html?guid=noneUK Inward investment report 2010http://www.ukti.gov.uk/investintheuk/investintheukhome/news/114034.htmlBusiness Link – www.businesslink.gov.ukTrade associations: CBI – www.cbi.org.uk IoD – www.iod.comUSA Embassy in the UK – www.usembassy.org.uk Copyright © Selling People (SMDI Ltd) Contact: www.sellingpeople.biz 020 3397 3270 Version 6 Page 21 of 21