Business services: securing Britain’s place in the race for global leadership

From oil & gas to facilities management through to construction and HR, leading players in these industries have been capitalising on growth opportunities – and, as a result, stock markets are increasingly recognising their attractiveness and growth potential.

However, beneath the strong track record, CEOs of B2B services industries face some difficult questions. One of the most crucial in today’s increasingly globalised world is how to best exploit international opportunities.

OC&C’s Global Warning report looks at the world’s top-200 B2B services firms and has found that the UK’s B2B services industry continues to have an edge on its international competitors. Among the top-200 B2B services firms, 23 are British. These companies currently derive nearly three quarters of revenues from sales abroad, and we forecast the UK’s B2B services market could be worth over a trillion pounds by 2025.

But our report shows that B2B firms from overseas entering the international market are threatening to knock British firms from their world leading export position if our companies don’t act now.

For the first time, China and North America have overtaken Britain as the fastest growing areas for B2B services. Over the last three years, they have grown by 33 per cent and 64 per cent respectively, compared to 21 per cent in the UK. What’s more, Chinese firms are expected to grow their global share of the B2B services market from nine per cent in 2012 to 18 per cent by 2020. Similarly, we expect the US market to increase its share from 29 per cent to 40 per cent over the same time period. Examples of firms who have significantly increased their global footprints are giants such as Halliburton and Schlumberger.

Worryingly, as a result of these trends, British firms will actually see their global position fall to six per cent by 2020, as other markets refine their international strategies.

We have found that almost half of the top-200 B2B services firms are now defined as ‘globetrotters’ – businesses deriving more than 50 per cent of revenues from outside their domestic market. However, these scaled global firms are now losing market share to the emergence of a new breed of B2B services company, the ‘travellers’ – firms with a more balanced international profile (between five to 50 per cent of revenues derived from abroad), or only a single continent footprint. This raises key questions for CEOs and shareholders to ask themselves – does the old “flags on the map” strategy of widespread internationalisation still work or do we need to be more selective?

Historically British globetrotters have been first movers in this sector, representing an impressive export success story, with 70 per cent of revenues in the sector coming from abroad. But they are now growing at half the rate of B2B ‘travellers’ and seeing the slowest margin growth. British companies have the expertise and are well placed for further international expansion but instead of adopting a scattergun approach of generating flags on the map, they need to ruthlessly prioritise markets and selectively deploy resources. It’s crucial that they find the next wave of growth or face the possibility of takeover if other fast-growth companies from overseas decide to deploy their strong balance sheets for acquisitions.

There are a number of key considerations we’d encourage all B2B services firms to reflect on when they’re thinking about international expansion:

• If international is critical to your vision it’s important to have clarity on how it marries with the core domestic proposition, what investment is required and what your key strategic / financial objectives are. This should be based on a long-term strategic rationale – not escapism from domestic problems;
• The economic trade-offs of different international expansion routes should be top of mind when embarking on an international strategy. It’s important to be aligned to international objectives when determining the number of countries vs. depth of penetration in a country, and the right entry model;
• A ruthless prioritisation of markets with a compelling economic rationale for customers to buy is critical. Understanding which geographies are genuinely attractive in their own right, given your service type and proposition, as well as the strategic benefits of having them in your portfolio, is critical to a successful international strategy;
• It’s crucial to define a management template that works in each country; simply dragging and dropping your home proposition into new markets is unlikely to be successful.

The business services sector is crucial for the overall health of the British economy, contributing almost 40 per cent of our economic output. It’s one of our best hopes for long term economic growth and our findings should act as a wake-up call for our hugely successful UK firms to review their footprint and growth plans.