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Economie des langues

The Costs to the UK of Language Deficiencies (report of Cardiff University)

Mis à jour : 24 Mai 2017

The Costs to the UK of Language Deficiencies as a Barrier to UK Engagement in Exporting:
A Report to UK Trade & Investment
James Foreman-Peck and Yi Wang
Cardiff Business School

Executive Summary

This report is a response to the recommendation on UK SME exports of the February 2013 House of Lords Select Committee on Small and Medium Sized Enterprises. The Committee’s Recommendation 14 was that UKTI should give priority to dispelling misleading perceptions associated with language differences and to improving the ability of SMEs to deal with language and cultural differences.

Necessary conditions for worthwhile government interventions in markets to improve efficiency are that there should be a market failure and that there must be a cost-effective solution. In the case of domestic firms’ entry to foreign trade, and especially the development of foreign markets by SMEs, the likely source of failure arises from deficient information. Companies may not know what they do not know and thereby can lose profitable opportunities.

The present report analyses two types of data to show that this is indeed the case for UK businesses. These data are bilateral international trade flows and responses to questions asked about exporting, actual and potential, in surveys of individual companies. The results of our analysis indicate that the opportunities forgone because of inadequate information, in turn stemming from insufficient UK investment in the languages and cultures of other countries, are potentially very large. They suggest that there are likely to be government policies that could be highly effective in ameliorating these deficiencies.

Conclusions of the trade data analysis are in line with findings from the academic literature, which consistently identifies a strong language barrier effect on trade patterns, although the precise numbers vary. All of these estimates, with the exception of those presented for the first time here, refer to an average for the whole world rather than for the UK. A reasonable estimate of the gross effect for the UK is 3.5 percent of GDP. Although there are wide margins of error around this figure, even the lower bound is a substantial proportion of GDP. This implies that there must be some investments in language skills that would yield a high return.

Our analysis suggests that over time the trade cost to the UK resulting from language barriers has varied in magnitude, but has been consistently large. Costs to rest of world appear to have increased recently (possibly due to rise of China’s trade, and limited Chinese language skills among non-Chinese).

The analysis has also been able to identify markets in which the UK is exporting less II than would be expected, using a model which takes account of a wide range of factors, including an average language barrier effect that does not vary between countries. This shows that the UK underperformed in 2006 in all four of the BRICs, as well as in France, Germany and Japan.

The firm-level survey evidence confirms the view that businesses ‘don’t know what they don’t know’. Exporting enterprises claiming that they had not experienced ‘cultural difficulties’ tend to be those without language skills, relying on being able to use English for their foreign sales. By contrast, businesses with high export intensity are much more likely to state they are aware of cultural difficulties. These businesses have deeper experience of exporting, and have gained greater understanding of cultural differences, and of the difficulties they can present.

Our analysis demonstrates that language difficulties are the largest single contributor to perceived cultural problems, even when information, relationship difficulties, and legal problems are taken into account. The findings also show that reliance on English is widespread among UK exporters. The overwhelming majority of businesses that said they had not experienced significant difficulties with language differences reported that this was because they had always been able to use English Only a few indicated that they had the necessary language skills.

These results strongly suggest that language ignorance is an important reason for the low exports of those firms reporting that they had experienced no cultural difficulties in selling abroad. Either such businesses are relying excessively on English-speaking markets, and not developing sales elsewhere, or they are failing to appreciate the role of language and cultural differences behind the other types of barriers to expansion in non-Anglophone markets. For example, our analysis finds that experience of difficulties with lack of contacts also has a significant adverse effect on export performance. But the ease with which businesses can access and develop such contacts is highly likely to depend, at least in part, on language and cultural skills.

UKTI already has in place some services designed to help UK firms gain a better understanding of the ways in which language and cultural diversity can impact on their export performance, and how they can bridge these differences more successfully.

Among the possible further investments to reduce language ignorance currently being investigated by UKTI are ways of developing appropriate links with higher education institutes to enable suitable foreign students to undertake placements in UK businesses, with a view to bridging the language and culture gaps that are hindering their export growth.

We strongly recommend that UKTI should pursue this policy. It is likely that there would be substantial net benefits from some form of student placement scheme, because the costs are small relative to the likely pay offs. Almost all UK HE institutes now enroll large numbers of business students from the full range of languages and markets across the world. Many of them would welcome either the opportunity to enhance their incomes, or to gain a placement in a company so as to write a dissertation or other piece of assessed coursework. These contacts could add substantially to a smaller company’s resource base, especially to their exporting skills.

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