2.7.45 Competitiveness describes the extent to which firms are able to sell their goods and services in domestic and international markets. Competition provides the incentive for a firm to become more efficient and hence more productive. Trade and competition are both important drivers of productivity as they provide incentives for cost cutting and improvements in products and services.
2.7.46 The UK Competitiveness Index (UKCI) uses a composite measure to quantify competitiveness consistently across the United Kingdom. The measure incorporates input factors (e.g. R&D expenditure), output factors (e.g. GVA per head) and outcomes (e.g. unemployment). Based on the 2010 release, the South West ranked fifth of the English regions (behind the Greater South East, North West and East Midlands). The region ranked higher on input factors (fourth) rather than output factors (eighth). The low output rank can be attributed, in part, to the region’s low engagement with international markets (more detail below).
2.7.47 Sub-regionally, the index highlights a north east to south west divide with businesses in the north and east of the region recording competitiveness levels close to or above the UK average. Of the 379 UK areas analysed, Bath & North East Somerset, South Gloucestershire, Swindon and Bristol all appeared in the top 100 most competitive. In addition, North Somerset, Wiltshire and Exeter recorded a competitive index value above the UK average. Exeter saw a significant improvement in performance compared to the last UKCI index in 2009, climbing 24 places from 137th to 113th. West Somerset also improved substantially, with its rank rising from 283rd to 218th. Conversely, West Dorset saw the largest fall in rankings in the region (from 108th to 148th), its UKCI dropping below the UK average.
2.7.48 Trade: Engagement with international trade requires and causes a boost to productivity by increasing competitive pressures and enabling firms to gain economies of scale; specialising in line with their comparative advantage. A study found that productivity was nearly 17% higher among firms that were exporting, having taken other factors into account. It also demonstrated a relationship between export propensity and 'absorptive capacity' as evidenced by the combined effects of innovation, openness to new management techniques and use of external sources of information and advice. It has already been noted that South West has a relatively low level of engagement with international trade, and recent research suggests that this is largely due to the lower propensity of businesses in the region to export. It was also suggested that, if businesses in the South West had the same propensity to export as those businesses in the South East, total exports would be over three times greater in value.
2.7.49 As nationally, the region has a deficit in trade in goods - in 2009 this stood at £1.7 billion (Figure 2.7.9). Between 2002 and 2006, the deficit fell by almost £2bn as the growth in exports of goods outpaced the growth in imports. This gap widened in 2007 and 2008 as imports increased in response to stronger domestic demand, and then contracted again in 2009 as the recession caused both exports and imports values to fall substantially with the latter decreasing by a higher percentage.
Figure 2.7.9 South West Trade Flows 1999 to 2009 £ millions
South West Trade Flows 1999 to 2009 £ millions [Fig 2.7.9]. Source: HM Revenue and Customs.
2.7.50 The South West has a relatively low number of exporting businesses – around 5,700 in 2009 (equating to 2.8% of its active enterprises compared to 3.3% for England). These businesses contributed a total export value of £10.8bn (6.5% of the English total), the second lowest contribution of all the regions after the North East. The region’s share of national exports has fluctuated heavily over the last decade but following a low of 5.6% in 2002, it has not fallen below 6.2% since, pointing towards some degree of improvement in performance. This is corroborated by a higher than average rate of growth in the total value of exports between 2001 and 2009 (3.5% pa versus England rate of 2.7%).
2.7.51 The European Union remains the dominant market for exports and imports both nationally and in the region. In 2009, 58% of the region’s exports were destined for the EU, amounting to around £6.2bn in value – the remainder was made up by North America (15%), Asia/Oceania (13%) and the rest of the world (14%). The proportion of regional exports destined for the EU has declined since 2007 (then the value was 62%), with the proportion destined for North America and Asia/Oceania increasing slightly. We wait to see whether this signals the start of a longer term shift.
2.7.52 The region’s prime trading sector is machinery and transport equipment (see Figure 2.7.10), contributing 63% of exports and 43% of imports in 2009. Two of the region’s key sectors are included in this group - advanced engineering and marine technologies. A more detailed analysis on the effects of the recession on South West trade by area and sector has been published by the SW Economy module Economics Review Issue 20 ‘South West International Trade – recession and recovery’.
Figure 2.7.10 South West Export Share by Broad Industrial Group 2009
South West Export Share by Broad Industrial Group 2009 [Fig 2.7.10]. Source: HM Revenue and Customs.
2.7.53 Although HM Revenue and Customs data is not available at the sub-regional level, trade research (op cit) has demonstrated the considerable contrast in propensity to export between firms in the West of England compared to those in the rest of the region. The chances of a business in the West of England exporting were around 1.4 times higher than for businesses elsewhere in England and Wales.
