Exploring exporting behaviour of UK rural and urban firms
22 February 2022
Research report
Rural businesses are more dynamic exporters than commonly assumed, writes the NICRE team researching exporting and business support. In our Research Report Rural family businesses and exporting behaviour (February 2022) (PDF: 1.1MB) we - Kevin Mole, Inge Hill, Thao Nguyen and Sara Maioli - analyse exporting behaviour of rural and urban firms in the UK. Exporting from the UK is vital following Brexit. In 2020 the UK exported £308,679m according to UK trade figures from August 2021.
SMEs are often overlooked as important contributors to UK exports, yet they account for three fifths of employment and about half of the UK private sector turnover (Department for Business, Energy and Industrial Strategy). SMEs contribute nearly one third (32%) every year to the UK export volume (British Business Bank). Usually, figures do not differentiate between those located in urban and rural areas.
Analysing the annual Longitudinal Small Business Survey (LSBS) data between 2015 and 2019, our Research Report gives account of how rural SMEs are contributing to the UK export volume. Using data from five waves of the LSBS, the report examines the exporting behavior of rural and urban firms.
Sparse rural area location increases likelihood of being a constant exporter
Overall, we find significant differences between rural and urban firms in terms of exporting: firms located in sparse, dispersed areas were more likely to export, although less likely if they indicated to be family businesses. The report demonstrates the significant impacts from changes in various factors on the likelihood of firms to constantly export in the LSBS data. Two models are used to illustrate firms’ exporting behavior. Both models incorporate a factor to account for the firms' idiosyncratic elements. One model assumes this idiosyncratic element does not affect any other measure (such as competition), the second one lets the idiosyncratic element impact other measures.
Greater sales and the location in a sparse rural area increases the probability of being a constant exporter. We have two measures of rural areas in the analysis. Sparse rural area is a recode of the urban and rural areas in the LSBS, which includes rural villages, hamlets and dispersed areas. We have a measure of rural towns and fringe, where fringe is the rural hinterland surrounding urban areas.
Innovation and advice help firms to be export capable
Not all businesses have the same chance to export. Exporting activity depends on some business characteristics but the methodology reflects a selection into export from firms which are export capable. What makes a firm export capable is modelled, which includes positive impacts from innovation and advice.
More bespoke business support for effective exporting needed for rural businesses
We call for more detailed research into the impact of location on exporting behaviour of firms to demonstrate more efficiently the already existing contributions of rural firms. Our research finds that a more bespoke business support ecosystem will be needed to deliver on Levelling Up (see Levelling Up and Rural Areas (March 2021) (PDF: 415KB)) and improve the export contributions of rural SMEs.
Our next blog will discuss the surprising findings on the impact of advice on business exporting behaviour.
