House of Commons Business, Innovation and Skills Committee
Rebalancing the Economy: Trade and Investment
Seventh Report of Session 2010–12
Volume II
Oral and written evidence
Additional written evidence is contained in Volume III, available on the Committee website at www.parliament.uk/treascom
Ordered by the House of Commons to be printed 28 June 2011
HC 735-II Published on 11 July 2011 by authority of the House of Commons London: The Stationery Office Limited £20.50
Business, Innovation and Skills Committee
The Business, Innovation and Skills Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department for Business, Innovation and Skills.
Current membership Mr Adrian Bailey MP (Labour, West Bromwich West) (Chair) Mr Brian Binley MP (Conservative, Northampton South) Paul Blomfield MP (Labour, Sheffield Central) Katy Clark MP (Labour, North Ayrshire and Arran) Rebecca Harris MP (Conservative, Castle Point) Margot James MP (Conservative, Stourbridge) Dan Jarvis MP (Barnsley Central) Simon Kirby MP (Conservative, Brighton Kemptown) Ian Murray MP (Labour, Edinburgh South) Mr David Ward MP (Liberal Democrat, Bradford East) Nadhim Zahawi MP (Conservative, Stratford-upon-Avon)
The following members were also members of the Committee during the parliament. Luciana Berger MP (Labour, Liverpool, Wavertree) Jack Dromey MP (Labour, Birmingham, Erdington) Gregg McClymont MP (Labour, Cumbernauld, Kilsyth and Kirkintilloch East) Nicky Morgan MP (Conservative, Loughborough) Chi Onwurah MP (Labour, Newcastle upon Tyne Central) Rachel Reeves MP (Labour, Leeds West)
Powers The Committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk.
Publication The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the internet at www.parliament.uk/parliament.uk/bis. A list of Reports of the Committee in the present Parliament is at the back of this volume.
The Reports of the Committee, the formal minutes relating to that report, oral evidence taken and some or all written evidence are available in a printed volume. Additional written evidence may be published on the internet only.
Committee staff The current staff of the Committee are James Davies (Clerk), Charlotte Pochin (Second Clerk), Louise Whitley (Inquiry Manager), Neil Caulfield (Inquiry Manager), Ian Hook (Senior Committee Assistant), Jennifer Kelly (Committee Assistant).
Contacts All correspondence should be addressed to the Clerk of the Business, Innovation and Skills Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5777; the Committee’s email address is [email protected].
Witnesses
Tuesday 18 January 2011 Page
Susan Ross, Chairman, British Exporters Association (BExA), and Dr Adam Marshall, Director of Policy and External Affairs, British Chambers of Commerce Ev 1
Paul Everitt, Chief Executive, Society of Motor Manufacturers and Traders (SMMT), Melanie Leech, Director-General, Food and Drink Federation (FDF), Graham Hayes, President, Engineering and Machinery Alliance (EAMA), and Graham Dewhurst, Director-General, Manufacturing Technologies Association (MTA) Ev 12
Tuesday 25 January 2011
Andy Scott, Director of International and UK Operations, CBI, Andrew Cave, Head of Policy, Federation of Small Businesses, Phil Orford, Chief Executive Officer, Forum of Private Business, and Alexander Ehmann, Head of Parliamentary and Regulatory Affairs, Institute of Directors Ev 21
Tuesday 1 February 2011
Nick Fry, Chief Executive, Mercedes GP, Sir Roger Bone, President, Boeing UK Ltd, Lord Charles Powell, Chairman, Asia Task Force, and Paul Skinner, Chair, Infrastructure UK Ev 37
Graham Chisnall, Managing Director, Commercial Aerospace and Operations, ADS, Stephen Phipson CBE, Vice-President of Security, ADS, and President of Smiths Detection, Bob Keen, Head of Government Relations, BAE Systems plc, and Katherine Bennett OBE, Vice President, Airbus Ev 46
Tuesday 8 February 2011
John McVay, Chief Executive, PACT, Feargal Sharkey, Chief Executive Officer, UK Music, Paul Redding, International Managing Director, Beggars Group, and Richard Mollett, Chief Executive Officer, The Publishers Association Ev 58
Tuesday 15 February 2011
Stephen Phillips, Chief Executive, China-Britain Business Council, Dr Kerry Brown, Head of Asia Programme, Chatham House, and Professor Peter Nolan, Cambridge University Ev 72
Simon Carter, fashion designer, Joan Turley, author, and Steve Young, Head of Business Development and Sales, Surrey Satellite Technology Ltd Ev 84
Tuesday 8 March 2011
Dr Razeen Sally, London School of Economics, Professor Jim Rollo CMG, Ev 93 Sussex University, and Vanessa Rossi, Senior Research Fellow, International
Economics, Chatham House
Susan Haird, Acting Chief Executive, UKTI, Patrick Crawford, Chief Executive, ECGD, and David Frost CMG, Director for Europe, Trade and International Affairs, Department for Business, Innovation and Skills Ev 100
Thursday 10 March 2011
Lord Green of Hurstpierpoint, Minister for Trade and Investment, Edward Davey MP, Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills, Susan Haird, Acting Chief Executive, UKTI, and Patrick Crawford, Chief Executive, Export Credits Guarantee Department Ev 113
List of printed written evidence
1 Department for Business, Innovation and Skills Ev 131; :Ev 142; Ev 145; 146 2 A|D|S Ev 149; 152 3 Airbus Ev 156 4 British Chambers of Commerce Ev 158 5 British Exporters Association Ev :Ev 163; 164 6 CBI Ev 164 7 China-Britain Business Council Ev 169 8 Engineering and Machinery Alliance Ev 173 9 Federation of Small Businesses Ev 178 10 Food and Drink Federation Ev 179 11 Forum of Private Business Ev 181; Ev 185 12 Institute of Directors Ev 186 13 International Chamber of Commerce UK Ev 214 14 Pact Ev 189 15 PRS for Music Ev 193 16 The Publishers Association Ev 198 17 Simon Carter Ev 202 18 The Society of Motor Manufacturers and Traders Ev 203; 205 19 Surrey Satellite Technology Ltd Ev 206 20 UK Music Ev 211
List of additional written evidence
(published in Volume II on the Committee’s website www.parliament.uk/bis)
1 Amnesty International UIK Ev w1 2 British Airways plc Ev w4 3 Campaign Against Arms Trade Ev w7; Ev w8 4 City of Bradford Metropolitan District Council Ev w13 5 City of London Corporation Ev w14 6 Clyde Blowers Ltd Ev w15 7 The Corner House Ev w16 8 Export Action Ltd Ev w22 9 The Institution of Engineering and Technology Ev w23 10 Jubilee Debt Campaign Ev w27 11 London Stock Exchange Group Ev w30 12 Navitas Ev w31 13 Reaction Engines Ltd Ev w34 14 Royal Bank of Scotland Ev w37
15 Study Group Ev w39 16 UK Fashion & Textile Association Ev w43 17 Worldwide Wildlife Fund Ev w45 18 Linda Kaucher Ev w46 19 Stephen Perry Ev w55
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Business, Innovation and Skills Committee: Evidence Ev 1
Oral evidence
Taken before the Business, Innovation and Skills Committee on Tuesday 18 January 2011
Members present: Mr Adrian Bailey (Chair)
Mr Brian Binley Gregg McClymont Margot James Mr David Ward Simon Kirby Nadhim Zahawi ______
Examination of Witnesses
Witnesses: Ms Susan Ross, Chairman, British Exporters Association (BExA), and Dr Adam Marshall, Director of Policy and External Affairs, British Chambers of Commerce, gave evidence.
Q1 Chair: Good morning, and thank you very much Adam Marshall: A lot of businesses will say to us for agreeing to attend this morning’s session. I that the home market is sufficient for them to grow to apologise that it is a little on the chilly side; I think it the size to which they want to grow. We do not believe is all part of the Administration’s efforts to cut costs. that that is setting the bar particularly high, to be I emphasise that we are all in this together. Can I just honest with you. We would like to see more ask you to introduce yourselves, so that we can get businesses converted from lifestyle businesses or “big voice levels for transcription purposes? enough” businesses into fast-growing businesses. In Adam Marshall: I am Adam Marshall. I am Director many cases, companies will simply say to us, “Look, of Policy for the British Chambers of Commerce. I have got enough demand in the domestic market. I Susan Ross: I am Susan Ross. I am Chairman of the do not really need to go overseas; it is too much risk British Exporters Association, BExA. right now.” What we would like to see is a cultural shift to push businesses—and this involves businesses Q2 Chair: Thank you very much. We will be asking helping other businesses, in a lot of cases, to do so— you questions. If one of you feels the other has to internationalise their operations and to look covered the answer quite adequately, do not feel overseas for new markets. That also involves the obliged to supplement it, but there may be particular Government. We think that, in this country, we need questions to either one of you as appropriate. May I to see trade promotion activity on the ground with start with the British Chambers of Commerce? Your small and medium-sized businesses, not as a “nice to submission to us makes the comment that British have” or a luxury, but as an absolutely core part of industry needs to recover its “mercantile spirit”. First, what Government funds. can you define what you mean by that? Secondly, how do you think we have lost it and, lastly, how can we Q4 Chair: Thank you. Certainly I think there is a get it back? considerable body of survey evidence to substantiate Adam Marshall: We define “mercantile spirit” as a what you have said there. You have made the point willingness and an interest in exporting both goods that it is a cultural difference. Government does have and services overseas. We did some survey work a role. Now, I have to say that I think that SMEs have during 2009, and a very large business sample an instinctive and, you could say, cultural aversion to suggested that only about 30% were exporting, and having anything to do with Government. How do you six in ten were doing so because they had been think you could bridge that gap and what could the approached from overseas. They had not proactively Government do to change this? gone out to potential customers overseas and sought Adam Marshall: We want the Government to do three out business. Whilst some of our largest companies things. One is to reform and boost trade promotion are indeed trading around the world and many of our services for SMEs, to which I referred before. It is not medium-sized manufacturers, because of their necessarily about simply increasing the budget of UK particular businesses, are also trading around the Trade & Investment, for example, but helping world, there are many companies, especially in the companies in a variety of different ways to get to SME sector, whose sights are not set on foreign overseas markets or to think about exporting for the horizons. We want them to look to those overseas first time. For some it is as small as a £2,000 travel markets in future. grant to go on a trade mission. Those are the kind of very small interventions that can make a very big Q3 Chair: Interestingly—we were just having a difference. Second is sorting some of the persistent conversation on the subject before you came in—a problems with trade finance and trade credit insurance relatively small proportion of SMEs export, and of that businesses talk about as an obstacle, and that is those that do not, a very significant number do not something I know Susan will come on to discuss in even consider exporting. What do you think are the greater detail. reasons for this? Chair: We are going to go on to that in a moment. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Ev 2 Business, Innovation and Skills Committee: Evidence
18 January 2011 Ms Susan Ross and Dr Adam Marshall
Adam Marshall: The third one is around tax things that businesses say to us is a big problem for incentives and looking at ways to use the tax system them going into a new market is familiarisation with perhaps to encourage exporting amongst those who the local culture. Language plays an important role in are more reticent. There are certain ways you can use that—in making connections, in building up the sorts tax allowances, both on the corporation tax side and of networks that turn into a new client pipeline. It on the income tax side, to encourage both individuals is something that could be improved. Indeed, a past and companies to look to export markets. Clearly at a President of the British Chambers of Commerce some time like this, money is in short supply and finding years ago spent quite a bit of time working on this, ways to pay for that could be difficult, but it is because she herself was in the language and something that should be considered over the medium translation business, working with a number of to long-term. companies, both at home and overseas. She said that this was a deficiency that we needed to address. Q5 Chair: That is interesting. Have you actually put any proposals on that to either this Government or the Q9 Mr Binley: Let me talk about something I know previous one? a little bit about. I am non-executive Chairman of a Adam Marshall: Well, we have commented on the company that provides a database-building service to withdrawal of quite a large number of allowances that business-to-business publishing. We are now doing favoured exporters over time. We have not put sizeable trade with the USA, sizeable trade with forward proposals for new forms of allowances or France, Belgium and hopefully with Germany, and new forms of incentives. I think it is a bit early and, with Australia. The point about it is that they all came in general, our companies are very supportive of to us; we did not go to them. That underlines your consolidation of our fiscal position before we get back point. I want to make a point about outreach. To my to that stage of the game, but it is something we would knowledge, and I could be corrected on this by see as a medium to long-term priority. executive members of the company, we have never had an approach from UKTI. How do we deal with Q6 Chair: What products do you think we could that outreach problem with the SME sector? export that we are not at the moment? Adam Marshall: It is a difficult question, because of Adam Marshall: If you look at the UK economy, we course we have 4.7 million SMEs around the country, have got manufacturers who tend to be the backbone if I remember correctly, of which some one million of our export population, as it were. A great number are companies of an appreciable size that might have of small and medium-sized manufacturing companies a service to export. That is a lot of people to target. I are exporting their goods around the world. A big am encouraged by the pronouncements by the newly chunk of the UK economy—more than 75% of the appointed Trade Minister, Stephen Green, who said economy overall—is services. We are the world’s that he will spend a lot of time on the ground in the second-largest services exporter but, when you strip UK working with small and medium-sized companies out financial services, where we are of course one of that have the potential to export. That is very the global hubs, our service businesses do not important. While of course you want a Trade Minister necessarily get out there as much as we would want who is going overseas regularly to bang the drum for them to. With everything, including professional businesses, it is also important very important to work services—for example, health and safety consultants, with SMEs at home. That is useful profile-raising of or lawyers—there is more that could be done to help export possibilities among SMEs. these people export their services abroad. In a lot of cases, what businesses will say to us is it is not about having an approach from UKTI; it is Q7 Chair: Have you put forward any proposals to about having some basic knowledge of markets. There do this? is a big role for businesses that are exporters to play Adam Marshall: The points that I made at the here in working with those that are not yet exporting beginning were about trade promotion and helping and—I hate using the word, “mentoring”, at the these companies really realise that there are markets moment, because everything is about mentoring right out there for their products, whether it is a now and it seems to be getting devalued, to be honest non-tangible product, as in a service, or a tangible with you. Exporting businesses can mentor product, as in a manufactured good. non-exporting businesses and help them open their eyes to some of the possibilities. That would play an Q8 Mr Ward: Without wanting to open too big a important role in helping where government debate on the subject, it is quite topical at the moment institutions have not been able to contact some with all the things that are happening. I am quite businesses. Chambers of Commerce might play a role interested in this “mercantile spirit” and the culture. in that. Is language a problem? Most German, French, Italian, Mr Binley: Could I pass this briefly to Ms Ross and Chinese and Japanese businesses and companies will get your impression? all have English speakers. It is not the same with Susan Ross: The sales process is very difficult. We many small manufacturers in particular in the UK. Is have seen advertising on billboards for UKTI, maybe that an issue? a year ago, which was excellent. I do not suppose it Adam Marshall: I think it certainly is an issue. If brought in too much, because I think from business you look at the outcomes of our educational system, we do tend to know our own world and we do not unfortunately we are not good in the global league search out. The first place you look though is the tables of speaking foreign languages. One of the website. I do think, if we could somehow have a cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Business, Innovation and Skills Committee: Evidence Ev 3
18 January 2011 Ms Susan Ross and Dr Adam Marshall better, more coordinated, refreshed, up-to-date, increase the brand recognition of a number of British easy-to-access website, which pointed companies in companies abroad. You have heard comments from good directions, they might search for information the Chinese in recent weeks, for example, saying, about Brazil and then realise actually there is a trade “French, German and Italian brands: we recognise mission going, realise if they are small that there may them more because they have got more people be a grant for something. To me, accessibility is travelling abroad and because our consumers are important. interested in their brands.” These people can play a On networking, you cannot just network; you have to role in boosting the profile of British business and have sponsored networking. Maybe part of it is for British exports. However, if you look at the list of UKTI, or through the Chambers, to have events that Business Ambassadors, they are almost all drawn bring in non-members of the Chambers, people who from the very large companies and the very notable have never exported before, but I am afraid to say and recognisable companies we have here in this they will have to be dug out; they will have to be country. A lot of SMEs with which I come into invited. You cannot put a price on it, you cannot say contact from my membership or even just from the that it is £100, the commercial people charge £1,000 wider SME community would say to me, “I do not see to join a networking event. how this person can help me represent my interests overseas, because actually I manufacture mechanical Q10 Chair: Before we move off this issue, I could parts for combine harvesters and this person is the come back to a point Adam made earlier about small managing director of a fashion company,” for grants potentially for businesses to go abroad. I am example. There is a bit of a disconnect there and I do not aware of any government scheme that disburses not think that the programme yet has got the SME bit such grants. Has there ever been one and, if there of the market taken care of. hasn’t, could you recommend a model that would be Nadhim Zahawi: Ms Ross, do you want to comment appropriate? on that question? Adam Marshall: There have been things like the Susan Ross: I think they need to be active and visible. Tradeshow Access Programme, which have been very Nadhim Zahawi: Have you met any of them? successful for a lot of small businesses, which Susan Ross: No. I would like to. previously had no real incentive to go on a trade Nadhim Zahawi: Have you, Adam? mission for the first time. Those provided small grants Adam Marshall: One or two. of around £1,000 to £2,000, literally to help cover the airfare, so that they could get out to a potential market and learn about what that market might offer them. Q13 Nadhim Zahawi: Looking at the list, I counted This is the sort of thing where we spend considerably companies that could be classed as SMEs, but none less, as a Government and as a country, than some of from the manufacturing sector. You mentioned, Adam, our foreign competitors and counterparts. Trade that there are 4.7 or 4.8 million SMEs. How would missions and trade promotion of that sort form a you envisage getting that sort of representation among bigger part of the budgets of export promotion the Ambassadors? agencies in many other countries. Having a volume of Adam Marshall: I think it is a very good question and support available that enables more companies to take a very tough one. Business organisations like my own that first step or go on that first mission is very might be aware of a number of very dynamic SME important. owners or managers who might be interested in helping or taking part in the programme. I am Q11 Chair: Have we got actually any sort of constantly surprised, going up and down the country measurement of outcomes arising from such missions, talking to our members, about the number of small to give some sort of value-for-money indicator? business-people who are worked off their feet, but Adam Marshall: I would venture to say that the only who are still willing to give up their time to help agency that might have access is UKTI itself, but you others, whether that is through local economic touch on a very big problem, a very big issue, for us development partnerships and things like that, which overall, which is that it is very difficult sometimes to are emerging, or doing something like this. Quite a lot measure the outcomes of trade promotion generally. of them say, “I will do this. I would get involved, but From our perspective, we would like an emphasis on I do not know what the mechanism is. How do I get the measurement of outcomes whereas, now, we very into it in the first place?” That is the principal barrier, often have an emphasis on outputs. UKTI measures but I think that business organisations would be very the number of companies that have been through the willing to work with the Government to identify more front door, for example, or the number of companies SME Business Ambassadors and SME export to which a chargeable service has been sold. Those champions. seem to be the metrics against which our trade promotions agencies are judged right now, rather than Q14 Nadhim Zahawi: In the last couple of years, “Business X has got £5 million of exports going out there has obviously been a focus on the emerging to China. Business Y did the same in Australia.” markets. We have all heard of the acronym coined by Goldman Sachs—the BRICs. Less well known is Q12 Nadhim Zahawi: How important do you think CIVETS, which includes Colombia, Indonesia, the effect of the British Business Ambassadors is? Vietnam, Egypt, Turkey and South Africa. Is this the Adam Marshall: I think I would start by saying that right approach and targeting or should we concentrate it is a positive idea on several fronts. It does help to on more established markets? cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Ev 4 Business, Innovation and Skills Committee: Evidence
18 January 2011 Ms Susan Ross and Dr Adam Marshall
Adam Marshall: I am thinking through the acronyms! Q16 Mr Ward: Something we are trying to do in Effectively we need a focus on both established and Bradford is to take advantage of the large amount of emerging markets when we talk about trade immigration and harness that. To some degree, promotion. I would say that, wouldn’t I? Very large latterly, East Europeans have come in, but of course numbers of first-time exporters will want to go there is a big Indian community in this country. Have somewhere familiar, and that means generally Europe we done anything strategically to build on that natural or North America, because they are seen as the easiest advantage that we have to get into markets such as markets, in many cases, to start out in. They are often India? looking for a bit of support, a bit of advice or a bit of Adam Marshall: The trade mission that is going to help to move into those markets for the first time. That India at the moment and the Prime Minister’s said, however, these are markets whose economic prioritisation of India as a market are recognitions of growth levels are relatively stagnant, whereas the the importance of those links. There are two things BRICs, the CIVETS and any other number of that we need to consider. One is historical links to a emerging markets are the ones where we are seeing number of countries that are either members of the 6%, 7% or 8% year-on-year growth and the potential Commonwealth or ex-colonies, where the trading for new markets opening up. If I was sat in UKTI links survived long after the British departed. The right now, I would probably defend a focus on the other thing that we have to think about is those emerging markets because of the potential returns countries from which we have had recent from their growth to British exporters. At the same immigration. You do not necessarily think about a time, I would be saying, “I wonder how we could country like Poland, for example, from where we have unlock more resource or more money so that we could seen recent immigration, as a major export market for actually help businesses get into established markets the UK. That is a cultural problem. We would like to if they are first time exporters.” say we now have a large number of Polish people in Susan Ross: I think there should be a focus on this country; we actually do have good economic links markets where our UK products will go down well. with Poland now. Why isn’t it a bigger export market We sell leading-edge technologies in a whole range, for UK companies and what can we do to make it so? from fashion through to engineering, service industries and project management. That is not going Q17 Nadhim Zahawi: Can I now move on to to go down so well in some countries as it is in others. thinking about UKTI? Following the announcement Let us concentrate on where it will go down well, of the budget cuts for BIS through the Comprehensive where perhaps trade might be a stepping stone for Spending Review, which services would you be most diplomacy, so there might be a good reason to go there worried about losing at UKTI or being cut back? Mr and, lastly, where either there are commercial ways of Marshall, your own research survey showed that most helping with the risk of non-payment under the trade companies that you spoke to felt that UKTI needed finance, or where ECGD can come in and supply rationalisation and a more joined-up service. Can you that—a targeted, focused, smart view on how to get expand on those comments? What does UKTI need to there. do more of, stop doing or scrap altogether? Adam Marshall: I think I indicated earlier in my evidence that trade promotion and promotion of Q15 Nadhim Zahawi: Are you saying that UKTI exporting as a route to business growth is our absolute and UK plc need to segment better—i.e. there is no top priority. In many cases, this needs to be done with point in having a broad-brush approach and running small and medium-sized business in the regions, around the world after the CIVETS, the BRICs or rather than necessarily large businesses in and around whatever acronym? It is much better to think of what the capital. UKTI is having significant cutbacks. What we are good at and what are we good at exporting, we would like to see protected is frontline advice to and then target those towards those countries that have businesses wherever possible. Now, that also needs to those needs. be done in the context of a reform of how UKTI does Susan Ross: It could be for example that South business. I mentioned earlier a focus on outcomes America is more attuned to North America than to rather than on number of businesses seen as being Europe. Where do British products go down well? In extremely important. Also, there are possibilities for the Middle East, the Far East, so perhaps the “V” UKTI to work with other providers of support for rather than the “C”. exporters—Chambers of Commerce is one of many— Adam Marshall: I agree with Susan. At a time of to deliver a better service over time. What I do not limited resource and limited capacity, we need to think we have taken into account here though is the target our efforts on what generates the most returns. fact that UKTI’s budget, or the trade promotion However, I would caution against a retreat from budget of UK plc, as it were, was very small to begin higher-growth markets where we currently do not with. When we went into the Spending Review, we have a presence, because that effectively leaves the said there are only two things we need to protect in territory open to our major international competitors, this country in terms of budgets. One is our when in fact we may have something within a very infrastructure budget and the other is our trade short time period that we could be selling into those promotion budget. Certainly there are ways to reform markets. It is a question of being a bit omnipresent, how we spend both of them and spend them both but being smart when you are investing major better, but those are the two things that will help our resource. economy grow. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Business, Innovation and Skills Committee: Evidence Ev 5
18 January 2011 Ms Susan Ross and Dr Adam Marshall
Susan Ross: My view is that, as companies get bigger Adam Marshall: The first thing is to recognise that and merge, they tend not to keep the same HQ career diplomats are not market makers, and that is functions duplicated in the individual companies; they something that UKTI, BIS and the FCO need to agree tend to cut down on staff numbers in central functions, between them. This is a classic Whitehall thing, isn’t such as human resources, IT and finance. I suggest it? The money comes from three separate sources and that perhaps the same could be achieved in order to there are three separate sets of personnel involved, keep plenty of frontline staff, but just be a bit wiser three separate sets of initial priorities, etc. On the about how the budget is spent. ground, overseas, it is FCO personnel very often and FCO money that has gone into that. I think that Q18 Nadhim Zahawi: Thank you for that. Do you secondments into business of FCO staff, over the think that diplomats can make good salesmen? long-term, are one way we could get around this. Adam Marshall: This is a question that has been Another way is to bring people into the diplomatic doing the rounds for a number of years. I think we service later in their careers, on the express premise have seen a number of successive Governments say that they are there to perform a commercial service that they want to use our embassies better as shop rather than to be well-rounded diplomats who are windows for potential exporters. The current Foreign doing consular work, political representation, etc. Secretary is no exception to that. He has gone at it with a good degree of zeal and zest, which is very Q20 Nadhim Zahawi: Do you think there is a welcome. We need the reality though to match the cultural issue here? On a recent all-party group visit rhetoric. That means that we need qualified business- to the Kurdish region of Iraq, some of the evidence people, often in these overseas posts, who understand we got back was that, to compare and contrast us with the needs of a company, whether it is an SME or a the French, the French Foreign Service would lead large company, coming to try to develop a new with business questions or business development and market. I think our members would say there has been then follow with the political questions when meeting significant improvement in very recent years in the leaders of those countries, whereas we do the reverse. quality of local, on-the-ground staff, both of UKTI Also, they are not shy about using their president. We and the FCO, in those overseas posts, but that that had direct evidence of two or three major contracts quality could still be significantly higher. You would won because President Sarkozy actually very directly like to see more seasoned business-people, after a led not just a general trade mission but a very specific 30-year business career, perhaps becoming our mission to win a contract or to deliver an agreement representative in Delhi, in Beijing, in Seoul, etc, rather for Carrefour or France Telecom, whereas we than someone who has spent a 30-year career within culturally are more reticent about going out and actually selling specific companies. the diplomatic service. Adam Marshall: We must not be shy about banging Susan Ross: My view is yes, I think they are the drum for our businesses, and we must not beat important. I think overseas posts, though, should not about the bush if the principal reason for us going be trying to earn money out of making their premises overseas is to generate income for UK plc, generate available for meetings or get-togethers, particularly turnover for our businesses. The Prime Minister in his from SMEs, which are the ones that do not have a first months has been positive on that front, in the local presence. If those embassy commercial staff sense that he has been on a number of serious overseas were to spend time working on secondment in visits with the express recognition that his top priority business, they would get a much greater was commercial relationships. That is quite positive. understanding of what business-people need when What you need to see is that across the system, across they come to them overseas. The reports that we have the variety of encounters that we have over time. had back from members are that some overseas Whenever any politician goes overseas and, indeed, embassies and consulates are fantastic and others are whenever any senior official goes overseas, those not so good. commercial interests need to be front and centre. Susan Ross: I do not think there is a recognition, in Q19 Mr Binley: I would particularly like to follow the diplomatic side, of the value of commerce in that up. We have made a number of visits to important winning over the hearts and minds of people. If you potential export areas as a Committee, and we have see your products overseas, definitely you start to have found exactly that: the point that you have just made an appreciation of the tie between the countries. that, where we have good people it works very well; where we have not, it is a pretty bureaucratic Q21 Chair: Could I just follow up this argument? It operation. The fact that you concentrate your remarks has been put to me that, valuable though these on process and not outcomes is very much a headline-making trips are by senior politicians and so bureaucratic way of looking at the world and certainly on—and yes, certainly when we visited the Gulf area not a business way of looking at the world. While the it was emphasised just how important it was for top quality has improved, it is very patchy. How do we people to be going there to represent industry—there ensure in practical terms that we get people involved was a certain feeling that, in effect, they were in UKTI out in those countries who know about highlighting only deals that would have happened business? How do we get them? It is not happening; anyway; and that there is a need for business and it is accidentally happening. When you get somebody, Government to be engaged, if you like, at a level that it is almost by accident and not by design. How do would enable, as Nadhim has just outlined, our senior we do that? politicians—Government members—to go out and cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Ev 6 Business, Innovation and Skills Committee: Evidence
18 January 2011 Ms Susan Ross and Dr Adam Marshall help prepare the ground abroad at an earlier stage for have a certain level of trust, in order to ask first the realisation of successful contracts. I am not sure if questions about how to export, how to get overseas, that culture, as opposed to the headline PR coronation how to meet embassy staff in Japan, a commercial culture, if you like, has really been developed. I would advisor in Delhi or whoever else it might be. welcome your comments on that. Not to paddle my own canoe, as it were, but I think Adam Marshall: I think unfortunately that goes back Chambers of Commerce are those front doors in many to the short-termist nature of our political system in places around the country. They are the sorts of places this country, where short-term outcomes are often where local business can feel confident walking valued over the patient long-term work required to through the door and not feeling like they have make some of these deals a reality. I would not put possibly gone to the wrong place. The Chambers of the blame for that on any single politician or any Commerce that have international trade staff, which single party, but really on the system itself. Any Prime are the vast majority, can either help them directly or Minister who goes abroad is going to want to come signpost them to the right type of assistance. We also back with a clutch of contracts in hand, and I can provide quite a lot of training for inexperienced understand that because that is what our newspapers exporters and for companies thinking about going are after. Otherwise, the trip is a failure in media abroad for the first time. I think there is a role there terms. We in the business world, conversely, would for organisations like the Chambers of Commerce in not see the trip as a failure if a Prime Minister, a the private sector to do more of this and to take on Foreign Secretary, a Business Minister indeed, went more of the role of helping SMEs get into exporting. abroad and simply patiently met a wide variety of There are other organisations as well that could do companies to open markets. The two types of visits that. go hand in hand. Susan Ross: I think that the Chambers do a great job. I think UKTI does a great job in broad terms. I would Q22 Chair: In effect, what can you do to ensure that like to see UKTI getting to understand what there is engagement at a level that would enable that commercial solutions are out there. For example, to take place? export trading houses can pick up and run with an Adam Marshall: It is a difficult question. We would export. Let us say you want to develop the Libya certainly make that point to senior Ministers and market; you have never been there before. You go to senior politicians in our conversations with them. UKTI or you could go to a trading house that says, What we would also do is use the Chambers of “Yes, now then. Let us work it through. This is what Commerce network itself; with a front door in towns you need. This is the type of approach you need to and cities across the world, you can also begin to make. This is what you have got to put in your bid. make markets for SMEs without involving This is going to tick the boxes.” UKTI can offer so Government. You have a lot of ‘Bilateral Chambers’, much, but somebody who has an office there on the we call them—Chambers of Commerce between ground, who knows how to collect money, who knows Britain and single countries overseas—whose the system, will take a commission but get the job effective job is to create those links between done; they will get the export done. I would like to companies on the ground. That is something that both see UKTI understanding better what is available the Chambers of Commerce here in the UK and those commercially and, dare I say it, making it available, Bilateral Chambers abroad will continue to do. or more accessible, through their system for new exporters to find those sorts of solutions. Q23 Margot James: Just before I ask my question, I wanted to follow up on the conversation about Q24 Margot James: What do you think about the diplomats and our embassies abroad. I would just like addition of the Foreign Office in their responsibilities to put on record, if I may, that on my recent trip to on the export side now? Do you think there is a danger Japan at the end of last year, I really was very that that might confuse businesses further or do you impressed by the commercial savvy of our diplomats see it as a wholly good thing? in Japan whom I met. The British embassy in Japan Adam Marshall: I do not think that the Foreign Office is a huge draw for local businesses, because it is such is doing anything particularly different from what it a beautiful historic building of such renown, and our did before. It is just emphasising more the export side ambassador there is thinking about business for much and the commercial side of their role. I do not think of the time. In the evidence presented to us, it has they are visible or tangible to most SMEs on the been suggested that the lines between the various ground as a player in that provision of advice. Chambers, trade associations and UKTI that are all Businesses would be more likely to think of UKTI, charged with a mission to help exports are rather Chambers of Commerce, Regional Development blurred, and that businesses do not really know who Agencies, local banks, accountants, etc. They would to go to for help. Do you see any truth in that? If so, be looking at a wide variety of far more local systems what do you think could be done about it? of support and wondering who to go to. Adam Marshall: I think the business support landscape for SMEs in general is extremely crowded, Q25 Margot James: Moving on to the UK brand, though becoming less so day by day, as the number you have suggested that inward investment has been of services are cut and as particular branded quite successful in recent years, but has there been organisations close their doors. Some competing any dilution of the UK as a country that all potential routes of advice are starting to fall away. SMEs want investors see, with the RDAs promoting their own to be able to walk into a local institution, where they regions in different markets? cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Business, Innovation and Skills Committee: Evidence Ev 7
18 January 2011 Ms Susan Ross and Dr Adam Marshall
Adam Marshall: I remember giving evidence to an that choose to locate in London and the South-East inquiry on exporting out of recession about a year and know they are locating in one of the highest-cost areas a half ago, and one of the topics that we brought up of the world, and will probably be different from at the time was that there was too much on-the-ground companies that would locate in other regions of the competition in major foreign markets looking for UK, where that cost base is lower. I do not inward investment. We wanted there to be a single intrinsically see this as a competition between the front door to the UK in a major overseas capital like South-East and the rest of the UK for inward Beijing, Delhi, Brasilia, wherever it may be, for investment; I see this as a competition between UK foreign inward investment into the UK; competing regions and provincial cities, and those on the missions, for example, of differing RDAs, UKTI or continent and further afield. What we need to be the devolved nations’ institutions makes us look a bit paying attention to is how Birmingham, for example, fragmented. We did campaign quite hard at the time competes with a city like Bordeaux—or Bari in Italy, and continue to believe that we should not have that just to keep the theme of the “Bs” going—rather than level of fragmentation overseas, when it comes to how it competes with London for inward investment. inward investment. Susan Ross: The British Exporters Association is less Q28 Chair: The Committee has asked this question involved in inward investment, except that it is worth at various inquiries, and I received correspondence noting that some of our biggest exporters are from BIS advising me that UKTI will shortly launch international or multinational companies. Therefore, a procurement to identify a contractor to deliver the as a separate but related issue, inward investment is necessary support. This procurement will seek to important. appoint a single organisation to support the delivery of foreign direct investment within England. Were you Q26 Margot James: Adam, just following up on aware of this? Is BCC involved at all? Do you know that, I think you have answered the question I was anything about it? going to ask you, which was: should LEPs have a role Adam Marshall: Yes, I am aware of it. I would not in place of RDAs with trade and inward investment? like to comment on ongoing tenders. I presume from what you have said about the form of fragmentation that you would not be in favour of that, Q29 Mr Ward: Just to bring this bit together, we but what would you say to LEPs, which want to have been talking, in Margot’s previous question, maximise inward investment into their regions? What about blurring, and various organisations being advice would you give them on how to maximise the available to support a business that wants to export. I inward investment opportunities? want to go a stage before that. Take the example of a Adam Marshall: Let’s remember that LEPs are small manufacturing business in, say, Bradford East— non-statutory partnerships. They do not have who takes the lead in going to that business and significant budgetary resources, so I seriously doubt saying, “Have you ever thought about exporting?” any of them will be creating their own inward- Adam Marshall: Quite often, actually it will be the investment missions and sending people over to Chamber of Commerce. Bradford Chamber, for foreign markets in order to try to secure inward example, might be the very first to contact that investment. If they do that, it is probably a mistake, I business and say to them, first, “Are you a member?”, would suggest. What I would like to see Local and second, “Are you interested in learning more Enterprise Partnerships doing, and particularly the about export opportunities? Are you interested in business heads who are leading those Local Enterprise getting trained up so that you can go out into potential Partnerships—not necessarily the local authorities— export markets?” Sometimes it will be UKTI through is, when a foreign investor does come calling in a city its regional teams. The answer is that there are various or town around the UK, to take that investor by the routes, and various people who may be the first callers hand, show them around the area, why it is dynamic, to ask that particular question. The thing that we hear why they should be there, etc. It is really the service more than anything else, to be completely honest with on the ground here in the UK where the LEPs may you, is it is the first time that that firm receives a have a role in making sure that a potential investor telephone call from an overseas market and someone has seen the best of an area. That is something that interested in buying their products; then they spring can be done both on a voluntary basis, i.e. businesses into action and other players become involved. getting involved and trying to get other businesses in to create a critical mass in a particular area, and also Q30 Chair: Before I go on to the next section, which using resources from the local authorities where is basically export credit finance, we are getting into possible in order to provide data, etc, about the a very arcane area with financial instruments that are attractiveness of the area. not totally clear to laypersons. In particular, we are told the UK does not offer bond support. I wonder if Q27 Margot James: Is there a danger that inward anybody could clarify exactly what bonds are in this investment will revert to London and the South-East particular context. Fixed-rate export finance also, I as a default, now that we do not have this regional think, would be useful. Before we get to the detailed representation abroad? questions, would you like to give a summary of what Adam Marshall: This is a difficult question. Company these particular instruments are and perhaps what role location decisions are extremely complex. You have they could play? things like land prices, cost of labour, etc, which go Susan Ross: Bonds first: bonds are used to support into a really complex set of calculations. Companies export contracts. For capital and semi-capital goods, cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Ev 8 Business, Innovation and Skills Committee: Evidence
18 January 2011 Ms Susan Ross and Dr Adam Marshall there is a little bit of development work usually going I cannot remember which way round. We are down at on. The customer overseas has had to write quite a five. We then looked at something else; we looked at complicated specification of what it needs, so it has our world ranking for GDP and our world ranking for put an investment in just for the tendering process. It exports. It became very clear that those countries with wants to be sure that whoever it chooses, number one, effective export credit agencies actually had a better is going to turn up and do the job and, number two, ranking in export terms than their GDP would suggest. is going to do it properly, so they ask for a bond. They Now, that might be circumstantial; we just make the ask for a bid or tender bond to cover the tender and observation. make sure that, if they are selected, that company will do the job. For the contract, once it is won, they Q34 Simon Kirby: I am very interested in your require a performance bond. More often than not, the answer to the question, because it clearly is an area exporter will say, “Look, I am doing a lot of work where there is considerable room for improvement. here. I would like an advance or mobilisation Can you be specific about what changes you would payment.” The customer says, “I will make that like? You mention 10 targets and only five being advance payment to you if you give me a bond.” That achieved in your report. If you were to tell us here, as is called an advance payment guarantee. a Committee, two or three areas that you think specifically could result in improvements, what would Q31 Chair: How are these bonds financed in other they be? countries? Susan Ross: I will go back to something that David Susan Ross: For an exporter to have a bond issued, it Ward mentioned: India. A company that is setting out goes to its bank and says, “Could you arrange for a to export, has Indian ties, wants to export to India and bond to be issued to this overseas entity?”, which is selling something that is paid for normally at 60 or might be private sector or public sector. The bank 90-day terms—a short-term export—goes to a says, “Yes, of course I will arrange it for you, but I commercial credit insurer and says, “I have one would like a fee and I would also like some security.” contract. It is for India.” The commercial credit In other countries—France, Germany, Canada, insurers will probably say, “I am terribly sorry, but my Australia—you can go to your export credit agency, minimum premium is going to make the purchase of the equivalent of ECGD and, although the fee is still my offering uncompetitive.” We need ECGD to be there, the export credit agency solves part of the able to offer short-term covers where there are good security issue, so you are not having to take some risks, but it is uneconomic for a commercial export of your fixed assets and put them as security for the credit insurer to provide. That is the first thing: contract bonds. short-term export credit insurance. In theory, ECGD can provide it; they have been Q32 Chair: Thank you, that was very helpful. allowed to provide it for what is known as Fixed-rate export finance, would you like to do a ‘non-marketable risks’, non-OECD risks, but they just quick explanation of that? have not been very active. If you look at last year’s Susan Ross: Usually overseas Governments, if they financials to March 2010, 90% of ECGD’s business are putting out a tender for a big project, say, “I would was aerospace. That is fantastic for aerospace, a like to have a fixed-rate interest. I would like to pay brilliant team, but the problem is we also need them over five years and I would like it to be at a fixed rate to be there for other industries. Germany has an of interest.” When we bid, we need to provide a bid enormous SME customer base, and the turnover from that shows we have got a fixed rate of interest. If we Hermes Germany is way above ours. do not provide the bid with a fixed rate of interest, the bid goes in the bin. Nobody’s going to open it and Q35 Simon Kirby: Sorry, we are having a look and see if the goods and services are right or conversation here, and I do apologise, Chair, because perfect for the job; the bid goes in the bin before it is I will stick to a questioning format. Why do you think even looked at. The overseas customer will require it was that the ECGD did not provide greater support the fixed-rate export finance, FREF, to come from the to SMEs during our recessionary times, when clearly export credit agency. It is a demonstration of the competitors abroad did? It doesn’t make any sense to Government’s support for that project. me at all. Susan Ross: There had been a general decline year Q33 Simon Kirby: You have been kind enough to on year. We looked at 10 years and there was a decline explain some of the differences between the ECGD of 60% odd in ECGD’s business. At the same time, and other countries’ export credit agencies. Can you other European ECAs (export credit agencies) were expand on that and compare the service offered in this improving by multiples—hundreds of per cent. To me, country with our competitors elsewhere? that points to a lack of political will. Maybe there are Susan Ross: Yes I can, and I am afraid it makes signs of change now, but I think more needs to be dismal reading. We produced a report in the summer, done. If I can mention bonds as well—I talked about which set out where we are for UK exporters with bonds earlier—we really do need ECGD to be there ECGD, and we looked at 38 different export credit for small and medium-sized companies that want to agencies. We picked 10 of the most important have bonds issued on their behalf, and for which they facilities that export credit agencies provide, and do not want to hand over the security. We are having ECGD ticked five. Of the 38, it was in the bottom set. discussions with ECGD at the moment about bond Some export credit agencies ticked all 10; some, nine; support, but they want a sharing of security. If you some, eight. France and Germany were eight and nine; have some security, you pledge it to the bank; they cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Business, Innovation and Skills Committee: Evidence Ev 9
18 January 2011 Ms Susan Ross and Dr Adam Marshall pick up the calculator and give you—this is very suite of finance options, do you think that basic, I am sorry—they give you whatever in simplification is the way forward? Companies are borrowings. If you take half that security away to give there and they know what is available, and it is a it to ECGD, what is going to happen to the straightforward process for them. Is that an important calculation? It is the same percentage. You are going element of changes to the current regime? to have a reduction in the available lending. We need Adam Marshall: Susan is better placed to answer on ECGD to be there, as other ECAs are, to support the the complexity of the structured financing. All I will security aspect of bond-issue support. say is that companies will want to walk through a door Adam Marshall: Our SME members say to us and speak to someone who can advise them on a wide continuously that ECGD is not there for them and that range of potential options that suit their needs, at a its products, whilst they may work for some of our particular time. Usually a company will walk into a biggest exporters and some of our biggest companies, conversation like this and say, “I have a problem,” and do not really help at the SME level. A lot of that is a explain the problem in terms of their business. What structural problem because, since 1991, when ECGD they cannot do is walk in and say, “By the way, I need privatised their short-term trade credit insurance bond support for a non-marketable country,” etc. That business, a lot of their capacity to help small and is what the specialists are here for. medium-sized businesses went away overnight. What Susan Ross: If there are new facilities, and I you do have are some teams of very good specialists, understand they are going to happen, they need to who can do work for some of those big companies in provide additionality. If you can go to the bank and particular markets like aerospace, as Susan mentioned, borrow, the Government needs to be there. It needs to but you simply do not have the ability to help volumes focus on what companies need. It needs to find out of SMEs with a suite of products that gives them the from the exporters what they need; talk to the confidence to say, “My national export credit agency exporters. ECGD, of course, is going to need a is working on my behalf in the same way the Germans distribution method, because it hasn’t got innumerable are, the French are, etc.” staff on the ground, so use the banks for the administration of distribution, but do not try also to Q36 Simon Kirby: That is very interesting. We have use the banks’ decision taking and what they are doing had a number of interesting sessions about the on security, taking pledges of security, because that is Enterprise Finance Guarantee scheme, and part of not going to provide additionality. ECGD acts as an those discussions came up with the idea that a similar insurance company. It is profitable. ECGD should start scheme might be useful for trade. Would you agree to think as an insurance company and to assess risk with that? from an insurance perspective. It can outsource that Adam Marshall: Absolutely. Our view on the EFG assessment to credit insurers, for example, but it needs scheme generally was that, whilst it had a slow start, it to think differently from what the banks are doing and has become increasingly important and has been very not require this sharing of security. important to a large number of SMEs, both over the course of the recession and as we have entered into Q38 Mr Binley: We have pretty much established by recovery. We have been pleased that the Government dint of your evidence that the Government could do has extended it as well. What a lot of companies did much more to help the SME sector. Indeed, I talked say to us, however, was that it was not adapted to the Forum of Private Business, to your own properly to enable them to export or to get the sorts of organisation, as you know, Adam, and to the FSB, financing they needed for export—whether it is bond and they all said that much more could be done by support, as Susan mentioned, or some other very Government to promote export credit guarantee technical forms of export financing and export schemes and other schemes to aid the SME sector. support. They would certainly welcome the The whole argument is irrefutable and we need to introduction of an export-focused variant of EFG. make that point very firmly. The questions I would ask are whether the price and The Forum of Private Business gave me one example, the terms are right and whether the Government and which I would like to read into the record. I apologise its partners are willing to take a sufficiently long-term for doing so. It takes just a little time, but I think it is view on something like this, rather than simply wrap very worthwhile. “One of our members had real it up in six months or a year if there is not high take- problems accessing these guarantees; a company up right away. All too often we create quite a lot of called Delta Design Systems Limited, near Clacton, support schemes, and Governments decide to stop Essex. They needed help over a contract in Iraq worth them or to discontinue them on the basis of very small £57 million. They raised a performance bond of amounts of evidence. I think what we would like to £1.27 million but, despite repeatedly trying, received see is the maximum portfolio of support schemes no support from the Export Credit Guarantee possible, so that businesses operating with particular Department, which told them that, if they were a problems or in particular niches can get the help that company such as BAE, they would probably have they require and always have those schemes open. been able to help.” I think that comment absolutely That is what the Germans do and that is what others makes the point you have been stating, and we need do as well to ensure that they have got this broad that firmly stated, I believe, in our Report. Forgive me portfolio and that all their SMEs can get access. for reading that out, but I assume that this is not an isolated case. Q37 Simon Kirby: If I may, Chair, ask a final Adam Marshall: Unfortunately, the number of question just to pick up a point made about having a members who have come to us reporting similar cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Ev 10 Business, Innovation and Skills Committee: Evidence
18 January 2011 Ms Susan Ross and Dr Adam Marshall stories is far too large for me to mention in the limited such as Iraq, where surely the export credit insurers time we have available. At the last inquiry of this on the commercial side are not going to have acres of nature, I talked about a wallpaper manufacturer from capacity?” I think they just did not have that vision. Lancashire who could not get short-term export credit insurance for Russia, and lost market share to its Q41 Mr Binley: One of the things we have got to German competitor. The number of stories like that, do is kick this Government into ensuring a greater which I can tell you, is quite large. Unfortunately, diversification. You imply that privatisation could be what we come up against, time and time again, is a an idea. To be fair, I think that you both say that a classic civil service answer, which is, “Unless you can state-backed export trade credit insurance scheme can provide me with evidence at scale of what the problem run through a private company. Am I being is, we do not think it is necessary to take action.” That over-zealous? is what we have been fighting against for a number of Adam Marshall: Yes, but I would not characterise that years. We could simply say, “Look, I can provide you as privatisation. What both Susan and I are looking with anecdote after anecdote after anecdote.” for is the state to step in where the commercial market When they get to the scale that I have seen and does not. The state can always work through a private problems such as the one, Brian, that you have just company but, at the end of the day, it is the state’s described, it is very obvious that there is a problem guarantee. here. That is why we have recommended a state backed short-term export credit insurance scheme. Q42 Mr Binley: Thank you; that explains it for me. That is why we have recommended that we always I am grateful. One of the things we can do is highlight have something on the shelf, in terms of export credit this matter very effectively and robustly, and bring it insurance, to activate when times get tough for SMEs. to the attention of the Minister and the Secretary of Invariably they will get tough again, from the lessons State, when we meet the Secretary of State, as we do of the last two years. Yes, the situation has improved on a regular basis. What else can be done to achieve in recent months, but that does not mean this could the objectives you wish? not happen again at very short notice, and we are not Adam Marshall: I think there are three watchwords doing enough as a country to be prepared when those in terms of ECGD or any export credit agency that situations arise, so that we do not get more horror you should be looking for, especially in terms of their stories like the one that you have just read out. dealings with SMEs. The first is agility. Susan touched on this when she said that, before, ECGD found it Q39 Mr Binley: That is a pretty firm difficult to react in short amounts of time in order to recommendation and I am grateful that you have help SMEs when business conditions changed. I think given it. Ms Ross, your figures show in that in you should be looking for that. The second is 2009–10, and I think you have already touched on responsiveness. We should not see cases where this, ECGD’s non-aerospace business declined by someone has proactively gone to our national export nearly 90%. Can I ask what you think the reason for credit agency and been told that there is no help that was? available for them. The third is capacity, at the end of Susan Ross: I think they got into a rut. They are very the day, and of course that brings on the question of good at aerospace, but they were not out there looking how you resource it. ECGD needs to be able to help for other business. As I say, I do not think the will SMEs in greater numbers but, unfortunately, it has a was there to do other than what they knew they were very dedicated but very specialist team that cannot do good at. They also had the problem of their business that at the moment. I would not like to say that they principles, which were set up at the beginning in 2000 have gotten lazy in any way, shape or form; they are or 2001, and which meant that they had to have a just overly focused on a very specific segment of the consultation about anything new they wanted to do. market, because that is what they have the resource They have cleared those; we have got a new set of to do. business principles. I think, with help from folk such as you, we might see a change. I hope it is going to Q43 Mr Binley: Can I conclude, Mr Chairman, by be that the figures are not going to be so dismal for asking about the importance of ECGD’s fixed-rate non-aerospace next year. export finance, and what the consequences will be of phasing it out for UK industry? Q40 Mr Binley: Would I be being too robust by Susan Ross: The consequences of throwing out, I am saying that the words that come into my mind, from going to call it FREF, are that big business will not be both the evidence and your answer, is that they able to have a Government-supported became lazy and complacent? Go on, push it. fixed-interest-rate option on medium-term projects Susan Ross: I think they lost the understanding of and contracts, which means that when the bids are their role. They were covered in the problem of assessed by the overseas entity, only the fixed-rate having always to explain to NGOs what they were options will be looked at. The ones that are doing, and gradually withdrew to things that were non-compliant, because they do not have a tried and tested. They were not prepared to stick their Government supported fixed-interest-rate option, will necks out and say, “No, we have got good engineering be thrown out. We then cut ourselves out of these big businesses here. Why aren’t we doing enough of projects. As you know, it is very important to support them? Why are we not taking a snapshot of all the big business with big projects, because a lot of the capital and semi-capital goods in this country and innovation that they have is brought in from SMEs. helping these companies to go abroad to new markets, Take Airbus, for example. The Airbus wings business cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Business, Innovation and Skills Committee: Evidence Ev 11
18 January 2011 Ms Susan Ross and Dr Adam Marshall in Wales is responsible for about 10,000 Airbus jobs revenue is dependent on exports. What we have said in the UK and 135,000 in the supply chain. The SME to both the current Government and the previous aspect is there. The other aspect about big projects is, Government, and will say to successive Governments, further along the line, somebody is going to need is that this may be a technical, difficult and long-term spares, support, training, services. If you have got the set of issues, but it requires their full attention from original project, 10 years down the line, the phone day one. call comes, “Can you supply the replacement part for Susan Ross: It is very scary. I wonder, in the figures something or the upgrade?” If you do not have the that you quoted, what proportion was of frontline project, if the project has gone to France or Germany, staff. What we have seen at ECGD is a lot of we have cut ourselves out of those follow-on orders. retirements of very experienced personnel, and that is a great shame, and they are not being replaced. Fair Q44 Mr Binley: A final supplementary question: do enough if it is HQ staff merged with another you think the Government simply does not understand Department, using somebody else’s HQ, but frontline that any form of growth, be it in the manufacturing staff are really important. I think ECGD has the sector or in the service sector, needs financing and that potential to have a great role and I think it could is a major problem at this moment? outsource more, but it still needs proper frontline staff, Susan Ross: I think the interest in cuts, the time spent who can help exporters to get where they want to with talking about cuts, has prevented them from seeing contracts and projects. the real world. You never get anywhere unless you invest. You cannot grow without investment. Q46 Chair: Arising from what you have just said, Adam Marshall: I would simply say that we need Susan, it would appear that possibly there might be a to have the maximum portfolio of financing options connection between the reduction in its role with available for businesses to draw on, when they are SMEs and the retirement of long-standing and required. It does not cost the Government a lot of experienced personnel. Do you think that could be money to keep FREF going, for example. They cite correct? low take-up as a reason to discontinue it. That is Susan Ross: ECGD sold off its short-term arm in because, at the end of the day, it is simply a tick box December 1991, so it does not really explain what has thing that is needed in order to tender for the contracts been going on in the last decade. However, we have that Susan is talking about, but it is still needed. That seen a decline in turnover for the UK: in 2003–04, goes for a range of other schemes, whereby there will turnover was £3 billion; it was halved in 2009, but be businesses that will lose out if they are closed. came up to £2.2 billion. Heavens, inflation must have run at some per cent over that period. Q45 Chair: Can I just conclude this section with, quite frankly, rather frightening figures? The ECGD Q47 Chair: Do you know if the comparable reduced its staff numbers from an average of 366 in organisations in countries such as France and 2003–04 to 207 in 2009–10, so you are talking about Germany have had a reduction in staff? something like a 40% reduction in the last six years, Susan Ross: France in the last decade: up 258%. which could have resulted in some of the problems Germany: up only 37%. If I may quote you Italy: up we have just heard or been a consequence of them. It 325%. Belgium is up 188%. There is a list. is not altogether clear. What is even more frightening is that it expects to reduce its staff numbers further Q48 Chair: Yes, that could be very significant. Can over the lifetime of this Parliament, in compliance I thank you for attending? That really has been very with Government policy to reduce costs to the public helpful. Obviously we will be following through the sector. This has enormous implications as far as I can issues that you have raised rigorously with other see. Obviously we as a Committee can make bodies. If I could just conclude, Adam, I refer to my representations. Is there anything from the business earlier question on foreign direct investment and you community that you can do or say that could, if you could not comment on the tendering process. Is that like, mitigate the potential consequences of these because BCC is involved? reductions? Adam Marshall: Yes. As I said, I would not want to Adam Marshall: We have said, and we will continue comment on an ongoing tendering process. to say, that export financing is a bit like the National Chair: Okay, thank you. We have got the information Health Service; it is a necessity, not a “nice to have”. we want. Thank you very much anyway. That is a position that we have taken for a long time. Susan Ross: Thank you. That was very encouraging. At the end of the day, jobs are dependent on exports; company growth is dependent on exports, and tax cobber Pack: U PL: CWE1 [E] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01
Ev 12 Business, Innovation and Skills Committee: Evidence
Examination of Witnesses
Witnesses: Mr Paul Everitt, Chief Executive, Society of Motor Manufacturers and Traders (SMMT), Ms Melanie Leech, Director General, Food and Drink Federation (FDF), Mr Graham Hayes, President, Engineering and Machinery Alliance (EAMA), and Mr Graham Dewhurst, Director General, Manufacturing Technologies Association (MTA), gave evidence.
Q49 Chair: Could I welcome you all and go through Graham Dewhurst: Perhaps I could pick up on that. the procedures I went through with the previous We have an office in Yekaterinburg in Russia, in the panel? If you could introduce yourself for Urals. About 18 months ago, I was invited to the Urals transcription purposes, that would be helpful. by the Economic Minister from the regional Melanie Leech: I am Melanie Leech. I am the Government. His main reason for doing that was that Director General of the Food and Drink Federation, they had recognised that the UK companies were which is the trade association for food and drink under-represented in the area, and that what he wanted manufacturing in the UK. to do was find out from the UK exactly what we have Paul Everitt: My name is Paul Everitt, and I am the to offer and what our capability is. I then went out Chief Executive of the Society of Motor there and met them and, at the same time, went to the Manufacturers and Traders, the trade association for Foreign and Commonwealth Office there, only to find the motor manufacturing industry in the UK. that there was no relationship between the posts on Graham Dewhurst: I am Graham Dewhurst. I am the the ground and the Economic Ministry of that regional Director General of the Manufacturing Technologies Government, which I found appalling. I just felt as if Association, representing companies that supply into I were in a foreign country with no way of having the major engineering end-user markets. contact. That is the point that we are making through Graham Hayes: I am Graham Hayes. I am the EAMA; the MTA is also a member of the EAMA President of EAMA, the Engineering and Machinery group. In the general knowledge of people outside the Alliance, which represents nine trade associations. UK, the impression is that the UK is no longer a big exporter, with the exception of things like aerospace. Q50 Gregg McClymont: May I address this first of It just is not true. What we have got to do is to dispel all to Graham Hayes? EAMA’s submission states that that by being very active in these areas and promoting the Government’s “tentative approach” reinforces the UK capability. Only if an SME is going out there, into impression that the UK isn’t really serious about a friendly environment, is it going to encourage them exporting. Can I ask you to expand and elaborate on to take that opportunity. the reasons you believe the Government to be tentative in its approach? Q52 Gregg McClymont: Can I put the same Graham Hayes: Yes, absolutely. As a sector, we question to Paul and Melanie? export 70% of the product, which is worth about Paul Everitt: I guess we would see it slightly £27 billion, and I think the support we get in the differently. The UK motor industry is probably one of export market is very poor. The image we get into the our leading exporters. We export 70–75% of all the market is very poor. You go to exhibitions and you vehicles and engines we manufacture in the UK. For see the German, French, Italian and American stands. us, these are global businesses in the main that are They are the ones that I would particularly point out. operating here. For us, the key is the very strong There seems to be more life to them than ours. That signals that we have had, admittedly from both the attitude has also got into the market-place, where previous and the current Administration, about the potential customers see the UK as tentative as well. need to rebalance the economy, focus on manufacturing as a key part of a more balanced Q51 Gregg McClymont: I see from the evidence economy and, as part of that, the need for us to do about mechanical engineering exports that they grew more designing, developing and selling goods and 42% in the last six years. Does that cut across what services abroad. The strategic direction that we have you are saying? What is the evidence for the notion? is very clear. There are a range of issues about how Graham Hayes: In our particular sector, we have a that is actually transmitted on a day-to-day level, and lot of small companies. In fact, the majority are very the various support measures that might be there. small but they are in very niche businesses. Their Melanie Leech: I guess my take is, again, slightly products allow them to export. When you are breaking different in that, although we are the largest into new markets, that is particularly where you need manufacturing sector in the UK and the world’s eighth help. largest exporter for food and drink, we have not Gregg McClymont: This is an impression you are historically had much of a focus in terms of working gathering strongly from your members? with Government strategically on exports. I start from Graham Hayes: From our members, yes. the position of there is not a long history of Gregg McClymont: Is there any way to measure engagement and involvement. In that context, I would that impression? say absolutely there is a huge opportunity to do more Graham Hayes: We do surveys on a very regular to promote UK food and drink, and to grow export basis of our members, on all areas, and I guess we markets. Food and drink exports are growing, but it is have done several surveys on export, and I am sure incremental growth and we see huge opportunity to we could give you the results of that. do better. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Business, Innovation and Skills Committee: Evidence Ev 13
18 January 2011 Mr Paul Everitt, Ms Melanie Leech, Mr Graham Hayes and Mr Graham Dewhurst
Q53 Gregg McClymont: Are the differences in Q58 Gregg McClymont: That sounds to me, as we posture to do with the differences in markets? Would have heard often over the years, as if we have to get that be a fair explanation—that engineering has got better at picking winners. Would that be a fair way to smaller scale as well? put it and, if so, how do you go about picking Graham Dewhurst: We are selling capital goods winners? anywhere from £100,000 up to multi-millions of Paul Everitt: Picking winners becomes very difficult, pounds per article—to be involved in those markets because there are certain areas where we are not for an SME is a huge investment in time and energy, looking for Government to say, “This particular in gaining trust and being able to show your business is the one we want to support and not that technological as well as your commercial capabilities. particular business”. There are ways and means of saying that there are some successful sectors in the Q54 Gregg McClymont: It is not like bringing a car UK; there are clearly sectors that are internationally to the market; in that sense it is a longer-term process. competitive and which, if they are successful, will Graham Dewhurst: I think Paul would probably say generate a huge amount of business not just in their sector, but across sectors. As an automotive sector, we it is more difficult to bring a car to market. I think it are successful in exporting. If we were to increase the is a question of the size of the individual product. level of exports from the UK, the demand that we People take a lot more persuading on capital would provide, for a whole range of other sectors, investment if they are going to be investing would be quite significant. I am not saying that it is £1 million. They take a lot more time to make those only the automotive sector that should get priority, but decisions. It is a lot more technologically driven you understand: there are some key sectors that can perhaps than the purchase of a commercial vehicle. generate a wide level of demand. It is in our interest, We do have slightly different issues. as a nation, if we can be successful, to be more successful in those areas. Q55 Gregg McClymont: What are your recommendations or suggestions? What would you Q59 Gregg McClymont: From the food and drink like to see happen to improve the situation from an point of view, what can be done to improve engineering perspective? performance? Graham Dewhurst: Basically, I think our members Melanie Leech: I completely agree with what Graham would like to feel that the Foreign and and Paul have said. For our sector, we are currently Commonwealth Office is adopting a much more world-class in the UK in food and drink, in all sorts commercial view in promoting UK capability. In the of areas. Partly that is because we are a very mature previous session, there was a discussion about the market, so we are a demanding market. Tastes are level of cultural influence versus the commercial ahead of the global norm, so people have to invest influence. We would like to see the commercial side here if they want to stay competitive in the UK. That of things put to the forefront, and the cultural things brings all sorts of strengths and creates a virtuous will follow. circle, because that then creates a value-added proposition, which is attractive not only to the UK Q56 Gregg McClymont: How do you imagine that market but, increasingly, to overseas markets. If you process could change? think about the global trends in food consumption, Graham Dewhurst: I think it is a question of that gives us an edge not only in mature markets, but language, of the posts in the field understanding what in emerging markets, where the diet is changing and the capability of the UK is. I know that UKTI in the appetite is growing exponentially for the western Glasgow and in London has been working for the past diet. There are absolutely huge opportunities there. few years to develop and understand that capability, Although I agree with Paul’s point that it should not so that it can translate it into the FCO. It is a question be Government’s business to pick winners, you can now of delivering that. clearly see that there are sectors where the opportunities are there, where the capability is there, and there needs to be a strategic approach, which is a Q57 Gregg McClymont: Can I ask Paul and Melanie joint Government-industry approach, which says, for their thoughts? “Okay, we have the capability. How do we keep the Paul Everitt: Perhaps we are looking for the focus capability and how do we harness that, not only for that the Government and its agencies bring to the task the UK market but also overseas markets?” We think and the priorities that they set. You cannot prioritise that is the right approach. every sector or every size of firm or every commodity; May I just give you one anecdote? I do not know if it you have to work out what the strategy is going to be helps to illustrate the points that Graham was making. and then you have to try to find the most impactful As well as all this grand strategic stuff, we are missing measures that you can deliver. For the best of reasons, opportunities day in, day out, and letting ourselves, as what tends to happen is that there is a limited amount the UK, down. I was given one anecdote by a of resource, and it is spread as widely as possible to colleague overseas. This is not a European Union keep as many people as possible happy, which is a political point. There was a food fair in Brussels last strategy, but not necessarily the strategy that is going autumn, the EU 27 On Your Plate food fair, and each to deliver the most economic growth and the most member state had a stand to promote its food and prosperity and jobs in the UK, which is where we drink industry. There were 26 bustling stands, would want to be focused. dragging people in, showcasing the best of their cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Ev 14 Business, Innovation and Skills Committee: Evidence
18 January 2011 Mr Paul Everitt, Ms Melanie Leech, Mr Graham Hayes and Mr Graham Dewhurst products. There was an empty cardboard box on the can get Government and the bureaucracy that supports UK stall. We are missing opportunities. It would not Government to recognise that they really need to take have taken a great strategic push by UKTI or the local a more vigorous, more creative and different approach embassy to have just been there, had a presence, in outreach terms to dealing with the SME sector? promoted the UK. Someone had written on the Can you help us in that respect? cardboard box, “UK n’est pas dans l’Union Graham Hayes: I think in the earlier session—I came européenne.” in at the end of it—they talked about getting professional people in the right places. I think that is Q60 Mr Ward: I ask the two Grahams to be pretty what it is; you need commercial people. They talked frank, because the “whys” are as important as the about career diplomats in some of the areas where “whats”. I think we have some idea about what the there should be commercial people. You asked where position is, but “tentative” is a strange word. It we get those people from. I would have thought at the suggests there is a willingness, but we may be unsure. moment, with so many unemployed in this country in I do not get the feeling that is what you were saying— some sectors, you could very easily get people who unwilling, unable? would go into those jobs. It is a nice job; you can be Graham Hayes: I think they are capable of doing it. abroad. These people will know the sectors they are I do not know what it is. They seem to be frightened in. It is no use having somebody there who has got to fly the flag. Getting it right is like anything in this too wide a knowledge. In some of the overseas places world; it is getting the detail right, isn’t it? It is that you go to, the guy has far too much—he probably making it look right, having the right people visit an looks after aerospace, maybe automobiles and exhibition, doing the work before the exhibition, engineering as well. Many sectors have engineering in making sure people know you are going to be there, them, but they are very different things you are selling getting the right exhibitors there. I go to some and very different things you are trying to market. If exhibitions and I see, for example, a guy trying to sell someone’s phoning a company or talking to a Sellotape in America, and I think, “Christ, it is like company in a particular country, if they cannot get to taking coals to Newcastle. He has got no hope of the basic questions and the basic understanding of doing that.” You have to make sure that you are going what they are trying to discuss, they will not get the to get on a stand the companies that will attract the answers back that say that company is one that should visitors. As they attract the visitors, the visitors will be visited, or that agent is the type of agent that we look at other things on those stands. It is a whole host should be talking to. It is back to having the right of things. It is professionalism, let’s put it that way. people. It is true of anything in life: having the right Graham Dewhurst: There are four or five people in the right place. international machine tool shows around the world every two years. One is in Beijing; one is in America; Q62 Mr Binley: Ms Leech, if you might respond? one’s in Japan; one is in Europe at EMO. At each of Melanie Leech: I agree with that. I should slightly those, over the past four years whilst I have been in qualify my portrayal of my sector as neglected, in the this position, and in previous years when I was sense that it would certainly be true for UKTI, but we actually out there exporting machine tools, I have had our own dedicated Food From Britain, supported watched the Swiss delegation have support from their by DEFRA until about three or four years ago. So Ministers. I have watched the Germans have full there was a place where SMEs in the food and drink support from their Ministers with ministerial visits, sector could go to get advice, help and be part of a and similarly with the Spanish and the Italians. We bigger grouping that could then market UK food and have had, I think in the past four years—so that would drink. It was a matter of regret to the sector, I think, be about ten of these shows—Lord Jones at EMO, and that the decision was taken to stop that support. Really that was the only ministerial and/or FCO presence that that left the food industry a little bit high and dry we have had at those shows. Bearing in mind that the because, having had our own dedicated organisation, machine tool industry is at the heart of every understandably at that time we were not a priority for engineering-based manufacturing country, I think that some of the broader effort and have never recovered is really a question of what you want to do, rather from that position. I guess I would start by saying that than what you are doing. I am not here at all to argue for replacing a quango; I do not think that would be sensible. However, I think Q61 Mr Binley: You are collectively making a very, it would be worth looking at the functions that that very important point. I recognise the supply chain organisation provided and asking: how can we make element of the car manufacturing and assembly sure that that valuable support continues to exist? industry, but it is a relatively easy industry to get at, Some of that was picked up by the RDAs, Yorkshire very easily identifiable, with a small number of major Forward being a good example. There are strong players. You say you are getting a sizeable amount of RDAs that have focused on food and drink, and made attention from Government, and I am delighted. The a success of that. There were others where, food industry, of which 99% is made up of SMEs, understandably, there were other competing priorities seems to have little connection with Government on and that didn’t happen. promoting, exporting and so forth, and EAMA seems I think it is about going back to see what worked, to to be quite concerned about the lack of quality support the extent that that is still there, and building on that. it gets. We are back to that differential between I do not think that is a lot of money, but I think it is UK plc and the SME market, aren’t we? That is what a lot of, as has been said, people in the right places is emerging from all this. Can you tell us how we understanding. It is about the language. That has to sit cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Business, Innovation and Skills Committee: Evidence Ev 15
18 January 2011 Mr Paul Everitt, Ms Melanie Leech, Mr Graham Hayes and Mr Graham Dewhurst within a big-picture framework. We have some one part of a mix that we need to look at in order to concerns about the impact of the localism agenda, not generate long-term growth and jobs here in the UK. just because there are not huge opportunities there in We have to think about not just welcoming people to terms of LEPs to build the kinds of partnerships we a particular market, but what the strategy is for those are discussing, which are essential to promote locally. companies and businesses, or what we need to do as It needs to be within a framework that has some a country to support those businesses over the longer common language and some common understanding term. of big objectives for UK plc. I think it is about Graham Dewhurst: Perhaps I could give a bit of stitching the narrative together, from the UK plc context to our particular kind of trade shows. The central-Government narrative right through to LEPs EMO trade show in Germany, for example, is around and very local activities and partnerships, making sure 150,000 square metres, and it runs across 26 different we are also pulling in the same direction. halls with 2,000 exhibitors. Over a week, they will get Graham Hayes: I think it would help to let you know about 125,000 to 150,000 visitors, each of whom is that I ran a business in Germany as well as the UK going there because he wants to buy something. In and America. I used Germany to find out an awful lot terms of SMEs and even larger companies, which are of information about other markets to which I was taking anywhere between a nine-square-metre stand exporting. right the way through to maybe 100 or 200 square metres, it is vital that they are able to get some Q63 Mr Binley: I take that point totally. Can I ask recognition as UK capability. Otherwise, you become you about piggy-backing as well? It seems to me there lost in this huge village that descends for a week. is a real opportunity. I know Volkswagen piggy-back The Chinese have recognised this and created, at their quite well with smaller companies, helping to own show, a Chinese-only area. If a Chinese customer introduce their suppliers to a wider market. wants to buy from a Chinese company, he knows that Paul Everitt: That is very true. I just wanted to pick he goes straight to the Chinese area. If he wants to up on one point, which goes back to how things can import goods, then he knows to go anywhere else. be improved. It is very hard for organisations to If the Chinese have recognised this absolute need to improve, if there is not a very clear strategy with a promote their indigenous products, I think we have to clear set of objectives and a way in which you monitor recognise the same thing: that we should be promoting success that actually means something. One of the our products overseas for export. The only way to do issues we might talk about in relation to UKTI is that that is by encouraging the larger companies to come their measure of success is how many people turn up, under the UKTI/UK capability banner. The only way not how much business is done. Unless you have got that is going to happen, if you want them to work to a clear strategy, you will not know who the right your agenda, is to give support of some kind. people are, whom you need to employ in the right Incidentally, the Italian pavilion at the last major show places. It means taking a step back and saying, “This was 3,500 square metres. We did take a UK pavilion, is something we want to do and want to do well. but the most that we could manage to undertake was Therefore, we should have a clear strategy as to how 500 square metres. Many of our larger companies or what it is we want to do.” Then you have got a chose not to go under the UK banner, because it was chance of being able to deliver something. not well enough supported to give the right image. If we had been able to bring some of those companies Q64 Margot James: You say that trade shows are into our area, we could have been up at maybe 1,000 essential to your industries. Would you all agree on or 1,500 square metres. To our people, it is really very, that? Why is Government support required for trade very important that support is there. It is often the best shows and delegations? We heard from the evidence way into the market to show a working machine. in the previous session that trade shows were felt to be very important, and that, particularly for small Q65 Margot James: Do you all agree that this would businesses, Government help was important. What be a very good use of UKTI’s budget—supporting about for the larger companies? these shows and providing this UK plc umbrella? Paul Everitt: From a vehicle manufacturing point of Graham Hayes: I grew a small business into a view, clearly when we run shows at a vehicle £50 million turnover business by exporting; 80% of manufacturing level, these are consumer events. That my output was exported. I could not have done it is a different market. For companies in the supply without shows. Just as people who buy food want to chain, the B2B trade shows are important, and taste, engineers want to see, touch and look at the certainly being part of a UK presence is seen to be equipment. Exhibitions are extremely important for very productive and beneficial. Colleagues will also putting your goods out on display. They can do that. comment, but for us, it seems to be a very strange set People say that you only have to exhibit once, but you of circumstances, whereby there is support for a are developing machinery all the time. You have to limited number of companies, which are in the early keep developing it and you have to keep showing your stages of perhaps trying to break into a new market latest developments to the marketplace. You do not and therefore there is some funding available, which just develop in developing markets, if you understand is good, but once they are familiar with the territory, me, where you are trying to look for new markets, you if you like, there is not a great deal that can be offered also have to look after your existing markets. They are in help and support to ensure that they can progress two different types of exhibits, two different types of their business. Whilst I do not think I would approaches, but you have to do that, and they are underestimate the importance of trade shows, they are absolutely the most important thing in our sector. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Ev 16 Business, Innovation and Skills Committee: Evidence
18 January 2011 Mr Paul Everitt, Ms Melanie Leech, Mr Graham Hayes and Mr Graham Dewhurst
Q66 Margot James: Thank you, that was very Melanie Leech: We have not got one for food and illuminating. Could I just follow up, Ms Leech, with drink, which you might think was a notable omission the evidence you presented? You said that, on a recent given our size and our potential. Chinese mission, the Chinese had said that Italian and Margot James: A very good point. French brands are much better known in China than Paul Everitt: I am not aware whether there is one for British brands. Aside from what we have heard about the automotive industry, so take that as you like. the importance of trade shows, is there anything else Chair: Have you made representations to the you think UKTI and the various other bodies that Government about this? represent British businesses abroad could do to make Melanie Leech: We are making representations, yes. our brands better known? We are in discussion with them about the growth Melanie Leech: I am sure there is, from showcasing strategy at the moment, and that is certainly one of our brands within their own facilities to just the points we are making to them. awareness—it is not a huge new strand of activity necessarily. It is just having at the forefront of the Q68 Nadhim Zahawi: One of the things that mind, the philosophy of asking, “Where are there Ministers tell us that we are doing very well in is opportunities to raise the profile of brands?” For the education—export of our universities. Some of our food and drink sector certainly, the huge potential is best universities have opened their doors in China, around brands, particularly in emerging markets. India and elsewhere. Do you link up with the Because the retail market is so concentrated in the educational sector to promote British brands? UK, some of the SMEs’ best opportunities to grow Paul Everitt: From an automotive perspective, we are their businesses to scale and be competitive in the UK very much focused on selling the services and are overseas. There are some examples of companies expertise that we have. As a consequence, we link that have done exactly that: they started very small in very heavily with the key centres of excellence in our the UK, went straight to export, grew a sizeable industry and work with them trying to generate a business and only then became able to engage in the presence in the marketplace, with a reasonable degree supply chain in the UK at scale, because they have of success. There is a slightly different market aspect now got the bargaining power and the commercial though. For us, we are trying to sell our services to ability to do that. The brands for us are central, those countries. I suspect that the universities and although there are other opportunities too, and I am others are encouraging those students to come to the not denigrating those. Brand awareness is absolutely UK, or certainly they were—maybe not quite so critical to us. much now. Paul Everitt: If I could reinforce that from a slightly different perspective, UK automotive brands are quite Q69 Nadhim Zahawi: My thinking was the other attractive, but in some of the faster-growing markets way round—i.e. we are told by one of our Foreign Office Ministers that Nottingham University, for like China and India, there is an awareness, but there example, has opened a campus in China. Are there does not seem to be quite the same focus on trying to links the other way around, i.e. you being in the promote in those markets in the same way, and yet the campuses that are in those countries that you are opportunities are huge. trying to sell to? Margot James: Why do you think that is? Paul Everitt: No, not that I am aware of. Paul Everitt: Again, I think it is because automotive Graham Dewhurst: Our sector’s links have tended to companies are perceived to be big companies that be in the UK. They have centred on probably six or therefore do not need any help. Bentley, Rolls-Royce, seven of the major universities, and some have been Aston Martin, or Jaguar Land Rover are big about putting equipment in; some have basically been businesses; they have infrastructure in those countries about having relationships with the manufacturing because they are trying to sell actively in those technologies seats, so that we get the right students countries. There is a perception in some of the coming out with the right qualifications. It is really embassies and indeed in UKTI that, “It is okay, they been about the skills side of our workforce, rather than do not need any help.” Actually, what we want is not about marketing our product overseas. Maybe that is financial help but profile help with showing to the a bit remiss. senior administrators or the senior business figures in Nadhim Zahawi: I was thinking that you have got a those areas that British brands are exciting, interesting captive audience; you can brand build. Some of our products that should be aspirational. best schools have opened their doors in those target Melanie Leech: There is a virtuous leap right back to countries, and perhaps your members should be inward investment, because the more you have that looking at working with them. If education is one of positive image for British brands, the more likely it is our great exports, why are we not utilising it to that the big companies will be saying, “Okay, this is brand build? the place we need to be if we want to be at the leading edge in this particular industry.” It is not only about Q70 Chair: Could we go on to trade finance? I exports and penetrating markets; there is a loop right believe that you would have been present at the back back to drawing in inward investment from global when we had a lengthy discussion on this earlier, but players. I am sure that you will want to make your own points on this. Can I just ask you, I suppose, almost the Q67 Margot James: How important do you think the no-brainer question? Are trade finance providers British Business Ambassadors are? holding back British businesses? cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Business, Innovation and Skills Committee: Evidence Ev 17
18 January 2011 Mr Paul Everitt, Ms Melanie Leech, Mr Graham Hayes and Mr Graham Dewhurst
Paul Everitt: In general terms, finance is still tough they insisted that we insured all our turnover, which for us as an industry and certainly for companies in at the time was about £18 million, with them. All our the supply chain. As heard in your evidence earlier, turnover had to be insured with ECGD, although the as a sector I am not aware we have any use of ECGD. contracts that we were probably taking in Russia and As we heard earlier, that’s because 90% of it is going China, in the main, would have been around £3 to aerospace, very good for them, and because, by and million to £4 million of our turnover. They insisted on large, the people who are likely to want to use it that, and the rates were so high at that time that we would not be necessarily the sort of companies that felt that, basically, we might just as well take the risk people like ECGD would do business with. with the debt in the foreign country as pay all this The financial situation and the approach of banks to money over to the ECGD. Whether that’s changed, I manufacturers and to people accompanying the supply don’t know, but that’s how it used to be and this was chain remain extremely difficult. It is a cultural rather after the privatisation, I think. We found other ways than a risk issue. We have been through one of the of insuring our debts. Basically what I’m saying is deepest recession that most of us can recall and not that ECGD wasn’t fit for purpose and still isn’t. That many supply chain companies in our sector went bust, will be why there’s very low take-up. mainly because they have been supported by the Graham Hayes: We turned them down for exactly the vehicle manufacturer, for which they are a key same reason. We are dealing with Unilever, Nestlé, component, not because they found finance from and doing a lot of business with them, but ECGD elsewhere. The challenge is now, as we come out of insisted that they all had to come under the same the recession, that vehicle manufacturers themselves scheme, so you had to insure everything. It’s just are under constraint, so they cannot continue to do crazy. It meant an additional cost of 6%, I think it was that. It would be nice to see a more enlightened view at the time, on our overall business, which we didn’t from the finance community, which was taking a need. That was the first thing. Secondly, their longer-term view of investments in businesses—about paperwork was designed for an aerospace job or a the long-term return rather than short-term. hydroelectric dam. To be honest with you, you needed to employ people to fill it out. It was absolutely Q71 Chair: At the end there, you touched on an ridiculous. issue, I think, which goes far wider than export trade I would just like to give you an example of this. We finance. There is a financial cultural issue linked had a job in Russia, interestingly, for a tea company. between banks and industry, and manufacturing in It was about four years ago. It was a fairly large particular. I was very interested in your point that the contract for us; it was five tea packing lines. Our SMEs in your sector would not deal with the ECGD, competition was from Germany and Italy, and the and the ECGD would not deal with companies in your customer liked our equipment best, but he required sector. The phraseology was very interesting. Is that finance. We took it to ECGD for cover. They again basically because you have got quite a successful said they wanted all our business, but they also said, exporting record? Most of those companies would not “We’ll give you a quote.” It took them ages to do the be bothered with ECGD because they do not need quote, and in the meantime we went to Germany. We them, they can succeed without them; or is there, if used the Hermes bank and we got the order. We made you like, an aversion within ECGD towards the motor it in Germany and we laid off the people in the UK. industry supply sector and basically you have give up Mr Binley: You shock me but, in a way, don’t on it? surprise me. It seems to me that you’re simply saying Paul Everitt: It is difficult to comment. I cannot find the organisation doesn’t understand your market from anyone in our sector who has had much or any contact a commercial perspective. with ECGD, nor have I had too much contact with Graham Hayes: It’s not fit for purpose. It doesn’t ECGD wanting to get access to our supply base. work, and that’s why its business is dropping. I wasn’t Graham Dewhurst: I was astonished when I looked surprised when I heard it was dropping. It just doesn’t on the website. They did £2.21 billion backings last suit anything under the £1 million—our orders were year and, when you think that the mechanical £1 million, maximum probably £2 million, and the engineering sector exports more than £30 billion, it lowest orders were down at £200,000 for equipment. tells me that ECGD is not fit for purpose. It is not Most of our members will be in a very similar doing what it needs to do—and if 90% of that situation, and you just can’t use ECGD. We would £2.2 billion is in aerospace, that leaves £200 million. like to use it for some of the orders to some of the They are not interested. The other thing that I found developing markets, such as Russia and China. The really interesting was that division one was aerospace, other thing we found was that it was very difficult to and there was a nice picture of a gentleman; division get a sensible credit rating on a customer. Again, on a two was civil and defence; and division three didn’t couple of occasions we got turned down on the basis have anyone as a director. That again tells a story that the company that we were dealing with did not about being fit for purpose. have credit worthiness and yet again, the German On a personal basis, I exported machine tools for Hermes bank went ahead with it. Their way of 20 years in the 1990s and between 2000 and 2007. We assessing the credit worthiness of the customers we had a lot of large blue-chip companies as customers— were dealing with is obviously not right, either. I don’t people like United Technologies in the USA. When know how they do it, but it’s not right. we approached the ECGD to find out how best we Paul Everitt: There’s a point here about what the could reduce our risks in Russia and China, which organisation thinks it’s there for. We’ve seen, because were our other two big markets apart from the USA, this organisation has been around a long time, that it’s cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Ev 18 Business, Innovation and Skills Committee: Evidence
18 January 2011 Mr Paul Everitt, Ms Melanie Leech, Mr Graham Hayes and Mr Graham Dewhurst gone through a number of different iterations. What Graham Hayes: I know that some letters have gone should be there is a governmental institution to assist from Angela Knight to this Committee about that, where there is clear market failure. What has because I have copies of them. happened over time is that it has seen itself as part of Graham Dewhurst: We have companies that are a competitive landscape with other organisations that refusing orders because they cannot actually finance are wholly in the private sector. Therefore, it has a the working capital. tendency, one, to be highly risk-averse, because it’s public money and we don’t want to be lending public Q73 Chair: Do you think we could adapt the money to things that might go horribly wrong, but Enterprise Finance Guarantee scheme at all to help? equally, it doesn’t have the same appetite as a Graham Dewhurst: To include export? commercial entity to bring some products to the Chair: Yes, that is basically it, because at the moment marketplace that would be beneficial. It’s not really that is precluded. sure what its function is. It’s very clear that it’s Graham Dewhurst: Again, as I understand it, it is a understood that its function is, by and large, to support loan of last resort, in that you have to have put up aerospace projects around the world. As a former every element of your own collateral to take that as a employee in the aerospace industry, I think that’s a loan for working capital within your business. There fabulous thing, but it could probably do a bit more for will be very few companies that will have taken up others as well. every piece of their asset base, still wanting to expand Chair: It has fallen between two stools and, if you into export markets, would be my view. There would like, they take the safest most risk-averse area to be very few companies that would be so demonstrate they are doing a job when we know they cash-restrained in terms of availability of finance that are not. they would want to go to that point of putting every Graham Dewhurst: One thing we would not want asset against these kinds of bonds to continue going them to do is to say, “We will not do aerospace now. into the export market. That would be our view. We will go somewhere else.” Graham Hayes: I recently applied for an Enterprise Chair: This is not a complaint about their support Finance Guarantee scheme here in the UK, and I can for aerospace. tell you, again it is very complicated. There seem to Graham Dewhurst: Absolutely not. be more reasons not to give it to you than to give it to you. If we get on to banking, then we will be here all day. Q72 Chair: I was going to ask you whether ECGD’s Sovereign Star Trade Finance facility was used by Q74 Chair: your members. On the basis of the evidence we have There has been a significant take-up of this particular scheme. It is generally considered to be so far, I do not think I really even need to ask. If there successful, and of course the Government is actually is any comment that you want to make, I will hear it. putting more money into it, but it cannot be used for Graham Hayes: It shows how active they are. We did exporting. Again, there is a feeling that other not know about that until this week, when somebody European countries managed to do this and stay told me about it. They are obviously not very active within the state aid rules. I was wondering if you felt out in the market-place. Could we comment on bonds there was any potential there. as well? It was mentioned earlier. Typically in our Graham Dewhurst: Sorry, I may have misunderstood business our terms and conditions are 30% down with your question. I thought that you were asking whether the order. That is obviously to make sure the it should be put towards export finance. If you are customer’s committed, but also that money should be talking about a company that predominantly exports used to help you finance the early part of the machine, and, therefore at the moment, is excluded from being which is normally doing drawing work or buying in able to get that aid— some of the bought-out items. That was the original Chair: That’s what I was talking about, yes. idea of it. Graham Dewhurst: In that case, I would say we Companies will say, even the bigger companies, “We should definitely extend it, because the fact that you would like that 30% guaranteed.” That is particularly are a predominant exporter should not mean that you common in recessions. You go to your bank and you can’t get state aid in these difficult times with get a guarantee from them and they take that off your working capital. overdraft facility, so you have no way of using that 30% for what it was actually intended for. Overseas, Q75 Chair: With the bonfire of quangos, the Simpler they do it of course, as the lady previously told you, Trade Procedures Board was withdrawn. Is that going through bonds. I think nearly every country in Europe to have an adverse effect on your members at all, in does this. I talked to the BBA about it, and they told any area? me that it’s something to do with aid. If we go down Graham Dewhurst: I believe it will, because in the this route, we are breaking the European state aid 20 years that I worked in a small company, I used the rules or something, and I do not understand that. If SITPRO documentation. It allows a small company to other countries in Europe are all doing it and they are know that the documents that they’re completing fulfil not breaking the rules, are ours different from theirs? all the requirements overseas so, therefore, you’re not Chair: I have to say that this is a conundrum that has going to get your documents refused at a bank when exercised me, and I know that applies to other you’re waiting for an LC to be paid over. If it wasn’t members of the Committee. We will be asking these taken up in the private sector, I think smaller questions in due course. businesses will have nowhere to go to get these best cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Business, Innovation and Skills Committee: Evidence Ev 19
18 January 2011 Mr Paul Everitt, Ms Melanie Leech, Mr Graham Hayes and Mr Graham Dewhurst practice documents. They are very simple to use, but the EU and a variety of countries. Our experience of I think it should be taken up somewhere else, possibly that process has not been a happy one. in the private sector. Melanie Leech: I think our members would have a Q79 Chair: In your evidence you said that you were similar view. Certainly I think that there is concern very unhappy with the EU-South Korea Free Trade about losing a one-stop shop, where you can go to Agreement. Can you just tell us what went wrong and find out what you need to know and that you think is what was the role of the UK Government in this, or independently batting on your behalf in terms of trade what role might it have had to prevent it going wrong? facilitation and so on. It is always going to be a matter Paul Everitt: In our view, the Free Trade Agreement of regret, I think, to an industry when something like between the EU and Korea traded between sectors in that disappears. For us, the concern would be to make order to arrive at the ultimate agreement with Korea. sure that the things that it did to encourage trade That’s to say, access to the European automotive facilitation in particular, some of which we believe market was made easier to ensure that other sectors BIS is supposed to be taking on board, to make sure got easier access to the Korean market. We did not that actually happens and doesn’t get sucked into the get easier access to the Korean market. There were Department and lost. That is clearly a very important certain aspects of the arrangement, which are around role. As Graham says, more realistically it’s going to a complex area—duty drawback and other things— look to the private sector to pick up that service that effectively mean that the Korean vehicle function. I hope that someone will do that. Our manufacturers operating in Korea can import parts concern would be around ensuring that those bits that from China and then send those complete vehicles to have gone back into Government in terms of Europe, which is fine, except that, if we were to facilitation, and batting on the UK’s behalf in those source from China and manufacture in the EU, then discussions, don’t get lost. we would face significant tariffs for importing those same parts. Therefore, that puts us at a significant Q76 Mr Binley: You can have the function without disadvantage, not that I’m suggesting that we should the Board, can’t you? be importing lots of parts from China. I’m merely Melanie Leech: It is not an argument necessarily for highlighting that we are allowing the goods and services into the EU at a much more advantageous maintaining the status quo. pricing level than we would be allowed to do by Mr Binley: Get rid of the Board and have the manufacturing here in the EU which, in my view and function. our view as an industry, puts at risk our sector in a Melanie Leech: The important thing is the function, way that is not reciprocated by us being able to export not the structure. more into the Korean market. Q77 Chair: The issue is how best that function is to Q80 Chair: Which sector has benefited from the use be preserved. The FDF suggests that finance providers of you as a sacrificial lamb? should distinguish between different manufacturing Paul Everitt: We believe that finance and other industries. The feedback I am getting is that they do services were the priority. Respecting that, this was a already. What perhaps is the opinion of the others free trade agreement that was developed over a long here, SMMT and EAMA? period of time. I think it was developed in a world Paul Everitt: Again, as I have explained, our concern that was pre-recession, where it was seen to be in the is that there is already a reluctance in the finance UK’s interest that financial services were better able community generally to see automotive as part of the to access this important market. Therefore, it was felt long-term future. We take a rather contrary view, and that it was an acceptable trade-off. The danger is we would certainly like to see how we can work with are, in the UK and the UK auto industry, heavily Government to try to change some views on how the reliant on inward investors. We are beginning to be sector is perceived. We see ourselves as being 1) quite good at winning inward investment from some successful, and 2) very firmly fixed on the future, of the fast-emerging markets, but Japan would like a particularly around the low-carbon agenda and the free trade agreement with the EU; India would like a success of ultra-low-carbon vehicles and technology. free trade agreement with the EU; and a whole range To be as successful as we need to be, we need of other countries would. If we go through the same investment and that will require help from the sort of process, then something that is prized in the finance community. UK and in the EU will begin to be diminished.
Q78 Chair: Can we move on finally to Government’s Q81 Chair: Interesting, because you have an role in world trade negotiations? Just in very general uncanny ability to pre-empt my next question. The terms, what do you think the priorities should be for EU-India free trade negotiations, what can BIS do to the UK Government and BIS in world trade? prevent this happening? Paul Everitt: From our perspective, the motor Paul Everitt: It’s less to do with what they can do to industry is a global business, and a business dedicated prevent it, but it is about making sure that it is an to free trade. We think the highest priority should be equivalent agreement, so that access to the Indian on progressing that agenda, particularly restarting, and market for all sectors is improved in return for easier a successful conclusion of the Doha Round and the access to the EU market. We are intrinsically free Doha activities. We have concerns that, in its absence, marketeers, and that is what we want to see: the what we’re seeing are bilateral agreements between elimination of trade barriers and an opportunity to cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:18] Job: 010554 Unit: PG01 Source: /MILES/PKU/INPUT/010554/010554_o001_kathy_No1-18Jan2011 [CORRECTED] by SF.xml
Ev 20 Business, Innovation and Skills Committee: Evidence
18 January 2011 Mr Paul Everitt, Ms Melanie Leech, Mr Graham Hayes and Mr Graham Dewhurst compete on a level playing field. For us, that is what dicing with these individual nations, to see a proper is important, and it is very important from a UK level playing field from Doha. I know that that is what perspective that they ensure that that is what the EU they’ve been driving for, for the past three to five does. Again, our disappointment was that there were years. a number of European Governments with concerns about the Korean Free Trade Agreement; the UK was Q84 Chair: You too are anticipating. My final not one of them and, therefore, some of the other question, in conclusion: how important do you think major vehicle-manufacturing countries, which could Doha is for manufacturing? have come together to have done something slightly Melanie Leech: From a food and drink perspective it more productive on that Agreement, did not have all is absolutely critical. In general terms, in the UK food the support that they might have required. and drink industry, we want to buy globally traded commodities at a competitive price. We want to export Q82 Chair: Could that have been because this value-added products into global markets, so a country benefited disproportionately from the multilateral trade liberalisation has to be the priority financial benefits? for us, so Doha is absolutely critical, certainly from Paul Everitt: I believe that that was potentially the our perspective. thought process at the time when it was originated. Paul Everitt: I agree wholeheartedly with that; we are Nadhim Zahawi: Timing is everything. in exactly the same position. Chair: Good. Thank you very much for your Q83 Chair: I appreciate, in effect, that these contribution. This inquiry has got off to a fairly questions have been directed mainly at yourself but, interesting and meaty start. We have got plenty that just before I come to my final question, is there we can pursue. I want to repeat what I have said to anything any of the other speakers would like to say other representatives in the past. If you feel that there in this area? is additional evidence that you would like to give Graham Dewhurst: We partake in an organisation because, for one reason or another, it was not covered called CECIMO, which is the European machine tool at this meeting, do feel free to do so. Of course, it and manufacturing technology industry. Because may well be that we will think of a question that we they’re responsible for 40% in Europe of the world did not think of before, and we will be in touch with production, they take a very strong view on the Doha you. Thank you very much again. I appreciate your Agreement and would prefer, rather than slicing and contributions. cobber Pack: U PL: COE1 [SO] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 21
Tuesday 25 January 2011
Members present: Mr Adrian Bailey (Chair)
Paul Blomfield Gregg McClymont Rebecca Harris Ian Murray Margot James Nadhim Zahawi Simon Kirby ______
Examination of Witnesses
Witnesses: Mr Andy Scott, Director of International and UK Operations, CBI, Mr Andrew Cave, Head of Policy, Federation of Small Businesses, Mr Phil Orford, Chief Executive Officer, Forum of Private Business, and Mr Alexander Ehmann, Head of Parliamentary and Regulatory Affairs, Institute of Directors, gave evidence.
Q85 Chair: Good morning, and thank you for Andrew Cave: I think from our perspective, we would agreeing to speak to us this morning. Just before we agree with that. We come at this from a slightly start the formal part of the proceedings, if you could different angle, in that, obviously representing the just introduce yourselves so that we can get sound smaller, micro-businesses, these are the businesses levels okay, that would be helpful. that want to be exporting and want to be getting out Andy Scott: Andy Scott, the Director of International there and there are various impediments to that at the and UK Operations, CBI. moment. So we would say that certainly the picture Andrew Cave: Andrew Cave, Head of Policy for the that is being portrayed abroad is not a true reflection Federation of Small Businesses. of the ambition and desire to export of the business Phil Orford: Phil Orford, Chief Executive for the community across all sectors in the UK. Forum of Private Business. Alexander Ehmann: The only thing I’d add, Alexander Ehmann: Alexander Ehmann, Head of Chairman, is that from the point of view of the Parliamentary and Regulatory Affairs at the Institute Institute of Directors, Britain has lagged behind of Directors. France and Germany in the export of goods to countries such as China and the Russian Federation, and even with the depreciation of pound sterling it Q86 Chair: Thanks very much. We’re fractionally still continues to lag. So I think on a factual basis early, but I think we’ll start. I’ll open the batting with we’re underperforming, and perhaps it’s better to deal a couple of fairly general questions. Last week—and with those facts rather than in general perceptions. you may well have either heard this or seen the transcript—we heard witnesses say that the UK was Q87 Chair: Yes. Could I just challenge your giving the wrong impression about its interest in and comment, Andrew Cave? You say that your ability to export. Do you agree? Could I say that, in businesses want to export; have you got any hard general, if somebody has answered in such a way as evidence of that? Because certainly—and I must you feel there is nothing meaningful that you can add, confess I cannot remember the polling organisation— please feel free to say so, so that we don’t just in fact a huge majority of SMEs were quite content to duplicate replies. Who would like to lead on it? just retain their market in the domestic market and Andy Scott: I’ll kick off with a few thoughts. This is didn’t actually look to export. Have you got any hard generally on the impression externally on the UK as evidence that contradicts that? an exporter. I think that is a perception that we often Andrew Cave: We have, and the evidence is the result hear around the world. People do compare and of a survey that was conducted quite recently, and it contrast UK performance in markets with those of our surprised us as well about our own membership. We principal competitors. I’ve just come back from a found that over 20% of small businesses are engaged week last week in India, and I heard there from Indian in exporting. However, across the board that only businesses that sometimes we see a more aggressive represents 10% of trade for small businesses, so there approach and a more export-driven approach coming is clearly an appetite there. But certainly, when you through from some of our competitors. I have to say, look into it in more detail and from anecdotal when I sometimes talk to some of our sister comments we get, exports make up a very small organisations in other countries, I hear that those proportion of turnover of a small business. So from selfsame countries sometimes say the same things to that we glean that there is a desire to do more, but them as well. So I do think sometimes that we have they are held back by various obstacles that exist at one country being played off against another. But I the moment. think there is some semblance of truth in the fact that Phil Orford: If I could just add to that, Chairman, this there is more that we could and should be doing, and may reflect some of the nuances within the different sometimes our markets abroad don’t always see the membership organisations, but our figures are quite UK in the light that we would like to think that they different. From a poll taken at the back end of last should and could. year, 51% of our members currently export; 11% Chair: Is that a fairly representative view? would like to export; and the remaining 38% have no cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Ev 22 Business, Innovation and Skills Committee: Evidence
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann interest in exporting. So certainly within our have not looked beyond their local markets. And I membership—I think we ought to identify that this think that’s borne out in the other figures, which may be a nuance in terms of quite well-established suggest that one of the main impediments is the lack employer businesses—we have a majority who are of access to information and advice, and I think if that already exporting. were opened up to those businesses then they would see those opportunities with more clarity. Q88 Chair: So that 11% would be companies that currently do not export but would like to? Q91 Chair: That brings me on to the point I was Phil Orford: Yes. going to make next. What are you as organisations Chair: So there is 11% over and above those that doing to encourage your members to export? You just would wish to? said lack of advice; surely that’s part of your Phil Orford: Yes, that’s right. respective roles? Alexander Ehmann: From the point of view of the Q89 Chair: Yes. Did you wish to add something, Institute of Directors, we run an information and Alexander? advisory service, through which we take calls from Alexander Ehmann: I’ll add a third set of statistics our membership about a whole range of issues and we to complicate things further. Of the IoD’s have skilled advisers on various different subjects. I membership, 53% of our members are exporting at the found out today that roughly—and it’s been consistent moment, so a very high number in our membership. I over the last year or so—10% of those enquiries won’t go in to all the details, but we’ve got plenty of coming into us in a reactive way are about survey data around the reasons why the membership international trade, about export and overseas that we have is not exporting. But 31% are exporting operations. The other activity that we really focus on goods and 52% services, with a further 17% doing is working in conjunction with UKTI and other both. The thing I would say at this stage about those partners on a range of events targeting specific nations that don’t is that when asked whether they have plans and trying to inform people about how to get into to begin exporting, only 16% say they do. So there’s those markets; so events on establishing business in around 80% that aren’t quite sure; around four out of China or Russia or India over the past year or two five businesses not exporting amongst our have been things that we’ve done with our membership have no immediate plans to do so. I think membership to try to boost our involvement in there’s a sub-categorisation, for want of a better foreign markets. expression, between those who don’t export, those Andy Scott: I think we’d all be in a similar situation. who have the ambition to do so and those who don’t. We do some things independently: we will run various Andrew Cave: If I may add to that, Chairman, I think seminars and events around the country and here in those figures reflect the difference of our London. Invariably, though, we will also do those memberships. Both the IoD and the FPB tend to jointly with UKTI and with other business represent larger SMEs. We represent the organisations. I think there is considerable mileage in micro-businesses: our average business member seeing that the business representative organisations, employs six people, so I think that’s a reflection of this. wherever possible, are joined up in this so that we present a connected outlook to the business Andy Scott: I won’t add another set of statistics, but obviously from a CBI point of view we cover an community. We also get involved directly in external additional part of the business community, which is trade missions, sometimes supporting Ministers. We the medium and the larger guys as well, and for many are represented on various regional, geographical, of those, particularly in the current economic climate, business councils, like business councils on China, if they are not looking to international markets then India, Russia and Brazil, so we have a range of they’re not going to be getting the growth that they’re different approaches through which we try to make going to need as they see themselves coming out of sure we get the message out to as wide an audience recession. So for many of those businesses they’re amongst our membership as we can. more mature markets, they’re established markets in Andrew Cave: In addition to obviously having an the UK—they are growing but they’re growing advice line, the FSB has been very active in the early relatively slowly—they’re mature markets in Europe stages of lobbying for the adoption of the Services and the States likewise. They are looking for those Directive at EU level, but also in its implementation export markets and they’re looking for international both nationally and across the country through local investments to secure their growth going forward, so government, because we see that as probably the we would see the international dimension for those biggest opportunity for smaller micro-businesses in businesses as being a critical part of their future venturing into foreign markets and offering their competitiveness. services, particularly across the European Union. So that is our main thrust with regard to promoting Q90 Simon Kirby: FSB, you say that you found 73% exports to small businesses. of non-exporting businesses claim that they lack a suitable product or service to export. Do you think Q92 Chair: Have you done any evaluation of the that is the case or do you think that perhaps there’s an actual outcomes of the advice that you’ve given? ignorance of potential opportunities overseas? Have you got any measurement of how much the Andrew Cave: You’ve hit the nail on the head. I think advice you’ve given to your members on exporting there is an ignorance factor there because a lot of them has translated into actual contracts or trade? cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 23
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann
Phil Orford: We haven’t at the moment, but just activities unless they know there’s going to be a linking that back to your previous question about what measurable output at the end. we’re doing to support members, we recently Phil Orford: I would agree with that absolutely. There formulated what we call a panel of export members, are opportunities now of course with the growth made up of those exporters that I mentioned early on, review work streams to look at how these systems can and the idea there is to gain evidence of best practice be improved. There is obvious room for improvement. and put that back out to the broader membership, I think we’ve all acknowledged that right from the perhaps more specifically the 11% that we’ve beginning, and in fact Lord Green said as much earlier identified as wanting to take that step towards export. this week. So we would clearly like to see more So I suppose we’re now in a position where we do engagement to remove some of the barriers that have an evidence base, or we’re developing an exporters currently find in front of them. evidence base, and clearly what we’ll do going forward is measure that against any improvement in Q95 Chair: Just moving on to the Government’s the exporting within our membership. proposed Trade White Paper; can you summarise very If I may just also mention, in terms of trying to raise briefly what you think the Government’s strategy the awareness of trade in general—not just should be for the future of UK trade? international trade—we’ve just launched a campaign Phil Orford: Shall I start? called Get Britain Trading. The idea behind that is Chair: Yes, you can kick off. to bring in partner organisations to support initiatives Phil Orford: Thank you. Well, export readiness is a around looking at trade beyond your traditional terminology that we ought to start embracing. We talk boundaries, whether that’s parochial or international. about skills readiness and we talk about investment So I think probably all the bodies would agree that and finance readiness, but export readiness is as we’re all doing more to support our members in the important, and the reason for that is that very often export arena. it’s a mindset; it’s a cultural issue within businesses. They just don’t perceive international markets as Q93 Chair: In terms of engagement with the being relevant to them. Having said that, I obviously Government to promote exports, how many of you go back to the fact that we have got quite a substantial are involved, or your members involved, in attending number of our members who are engaged in that. But government trade delegations? there is a real difference in going from trading within Alexander Ehmann: The Institute of Directors is your town, your county or your region, or even within involved. the UK, to taking that step to international trade, and Andy Scott: We are as the CBI—I participated in a we certainly believe that there’s a lot more that could visit last week that was partly linked to a delegation be done in terms of workshops on export readiness, that Vince Cable was leading—but many of our bringing in practical mentors, those who do it day in members are also actively involved in those, whether day out, to try and break down some of the perception they be on a sectoral basis or a geographical basis, barriers that exist within businesses that have a desire sometimes supporting Ministers, sometimes very to export but don’t really know how to take that next step. much driven by a sector initiative, which could well Andrew Cave: I won’t repeat what has been said—we be driven by UKTI. So many of those companies are agree with all of that—but just to develop it slightly: involved in them. whilst amongst our membership UKTI has very low Andrew Cave: I would say there will be small visibility, when we drill down and look at those businesses who are members of the FSB who are members who are aware of it and have used it, 83% engaged in that small number, but certainly the FSB find the services very useful and particularly the as an organisation is not. Passport to Export scheme, which is very much Phil Orford: Similar to us. We know we’ve got looking at readiness and getting businesses ready for members who do take part in delegations; we as an exporting. So I think our plea would be not to try and organisation so far haven’t asked to be involved in reinvent the wheel. There are some good schemes those, but neither have we been invited. there at the moment, and what we need to do is make sure that more businesses are aware of them. Q94 Chair: Do you think there’s any scope for Alexander Ehmann: Could I come in there, Chair? I improvement in that? I’m talking specifically to echo the comments of my colleagues in terms of Andrew Cave and you, Phil, because you represent, if UKTI. I’m happy to go into more detail later if that’s you like, the smaller businesses. useful, but generally our members are supportive of Andrew Cave: Certainly talking to members who have UKTI where they have access to services similar to been involved in those activities there is scope for Andrew’s membership… improvement, and one of our recommendations is that Chair: We will be questioning you a little more the way in which success of such activities is about UKTI. measured needs to change. The feedback we get at the Alexander Ehmann: Sure. The only other point I’d moment from our members is that they’re concerned make then, Chair, is that what we’d like to see in the that success is gauged by how many meetings are Trade White Paper is a focus away from the narrow organised rather than how many contracts come out concept of trade, but actually to focus on the supply as a result of those meetings, and for a small business, side improvements that need to be made to enable where every pound and every hour counts, they can’t export activity to take place in the UK, particularly really afford the time or the money to engage in such looking at deregulation and looking at greater cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Ev 24 Business, Innovation and Skills Committee: Evidence
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann infrastructure spending to assist businesses in export without direct support from Government. What is activity, rather than narrowly focused tools. most critical to ensure that that activity takes place is Andy Scott: From our broad perspective on the Trade that they have a competitive environment in the UK in White Paper, I think we would probably say there are which and from which to undertake their businesses. three strands. One, I think it’s very important that Andrew Cave: To add to that, Chairman, from the there is a very clear commitment, which the small business perspective, I think that engaging the Government is giving through a Trade White Paper smallest businesses is only possible with Government and a trade strategy, on the importance of trade and involvement. We would argue that there hasn’t been investment to the UK’s overall competitiveness. If we enough Government involvement, or rather the aren’t out there in export markets and in international connection between the small businesses and what investment and encouraging investment into the UK, Government is doing is not strong enough at the then we haven’t got one of the key ingredients of a moment, and certainly when you look at the situation successful economy. So I think that’s number one. for small businesses in other European countries, we I think number two is you need to have the right believe they are given more support than they are conditions in the UK to enable businesses, small, here, so we would argue for increasing that. medium and large, to flourish. If they can flourish they Phil Orford: And if I can maybe perhaps bring an will then have the right environment in which they analogy to that, if you look at all the businesses out can be addressing some of those export markets and there exporting as sales managers, plying their trade some of those international investment opportunities. internationally, what we need is a sales director, So getting the conditions in the UK right is an someone who defines strategy, someone who’s going important precursor to actually going out and to lead from the front, and I think that’s where the addressing the export market itself. Government’s role should be. There absolutely needs Then thirdly, as I’m sure we’re going to come on to to be a national strategy for international trade. later, there are a number of quite specific ways in Alexander Ehmann: I am simply going to say I agree. which, through UKTI and other such programmes, we can look to see what support we can give to those Q97 Chair: Just very briefly, are there any companies to get out and address those export conspicuous examples of what other countries do that markets. But I think there are those three conditions. is successful and we don’t, from a Government I think the first one is that it is important to give a perspective? very clear message about the significance of Andrew Cave: I think the financial support that international trade and investments to the UK’s businesses get in other European countries, something prosperity, and that, I think, will be a clear akin to the Export Credit Agency that used to exist in commitment, which David Cameron and the Coalition this country that provides insurance and guarantees. Government have given already since they’ve been What we understand from talking to counterparts in in power. France and Germany is that they have access to that; our members don’t, and that is a serious obstacle at Q96 Chair: I will just conclude, and from what the moment. you’ve said, I can gauge the response. Basically, do Chair: I can assure you, we’re on the case. Arising you think Government should be involved in trade from that—well, I say arising—no doubt totally promotion, or should it just be left to private coincidentally, I believe Lord Green took up the issue enterprise and the free market? And if you do think it the day after we raised it. Let us go on to British should be involved, at what sort of level do you think Business Ambassadors and I’ll bring in Nadhim it should be involved? Zahawi. Andy Scott: From our perspective, as you would gather from my remarks, I think there is an important Q98 Nadhim Zahawi: Thank you very much, role that the Government can play. First of all—almost Chairman. Mr Scott, the CBI has always supported in partly trying to address that very first question that British Business Ambassadors, but you also highlight you raised about the perception of the UK—I think that it’s difficult to identify the impact of the Business it’s very important indeed that the Government tries Ambassadors. How do you think it could be to redress what are some of the perceptions of the measured, and do you think they could improve the UK’s capabilities in international markets. Some of branding of UK plc? these external missions, which everyone from Cabinet Andy Scott: I think they can improve the branding of Ministers downwards undertakes, are a very important UK plc. You’re right; we have supported the concept part of that. In a White Paper, I think a statement of of British Business Ambassadors. As often is the way the UK’s strengths, the UK’s capabilities, the with schemes, it starts and initially there is a degree importance of trade and investment to our economic of enthusiasm within that scheme; there is always a prosperity is important, so I think that is a key role. challenge in any initiative in maintaining momentum, And I think there are absolutely areas where and I think that was the problem that arose in the Government support of one sort or another, predecessors to the now relaunched scheme, which information and advice, providing and helping has just been kicked off again. I think they can play a companies access into what are sometimes difficult key role. I think part of the problem with the previous markets is very important. I’m sure we’re going to scheme was that when you spoke to a number of those come on to some of those questions later on. But at people who were listed as Business Ambassadors, the end of the day, let’s be honest: the vast majority of they weren’t 100% sure what their role was and what international trade and investment will be undertaken they were being required to do. As I think they would cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 25
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann understand the role when they were asked to take it from exactly the same hymn sheet as the Trade on, it would be: given that you are out regularly in Minister or the BIS Minister might be when they are international markets on your own business, will you going out. So it’s trying to provide a bit more of a then while you’re out there take some opportunity to coherent and a co-ordinated message, and the fact that promote the overall story about UK capability, the these people are prepared and willing to give of their overall strengths of the UK economy, and to address time to be designated as Ambassadors shows that some of these issues, which we raised in a couple of they’re prepared to do that, so I think we should questions already, about the perception of the UK in capitalise on their willingness to engage. international markets? And these people can do that, because invariably they are chosen because they are Q100 Nadhim Zahawi: I think you’ve sort of highly regarded and highly respected in terms of what answered the next bit of my question on that—what they have done, individually, and their own should the briefings concentrate on—and you think businesses. there should be a link with what the top ten priorities These sorts of schemes, however, are notoriously are for us in a particular market; some segmentation difficult to measure; that is the challenge with them. or some research work in terms of what are we trying They needn’t be, necessarily, terribly resource to sell to that particular market? intensive. So they needn’t be costly; it’s not as if we Andy Scott: There could be a range of things. Little have a huge cost to then weigh on one side of the simple fact cards just to keep reiterating what the equation against the benefit on the other. They do, as strengths of the UK are, so we’re trying to get over you will have seen from our evidence, we would some of these points on perceptions. If you are in argue, require some small degree of a core team, most market x, what are some of those major market realistically I suspect in UKTI, which there is, to opportunities that you would want to make sure you actually give them some briefing and to be able to see were repeating if you were talking to a Minister? where these people are going so we can actually have Those would be the sorts of specific things that I think a forward programme on a forward schedule. So I are very useful for them to have. think the scheme has considerable merit, but it does The other thing is that many of them are larger require someone who is actively managing it. But as companies, and one may say, “Well, how does that always, it is notoriously difficult to be able to put relate to the needs of the SMEs?” But I think the key direct cause and effect between that particular route through which many SMEs do gain market Business Ambassador and a change in perceptions in access is thorough those supply chains, and many of the UK in international markets. those Business Ambassadors can be equally effective at demonstrating that, through the reach in their own Q99 Nadhim Zahawi: So let me just push you a bit businesses, they bring—if not directly, certainly further on the briefing side, because you highlight that indirectly—many SMEs to market. point as being one of the failures of previous schemes, that is, the Ambassadors themselves don’t know what Q101 Nadhim Zahawi: And you say that the head they’re meant to be doing out being Ambassadors. of your organisation is one of the Ambassadors. Is this You mentioned UKTI. Is UKTI the best body to be happening, or are you seeing evidence of it happening, able to deliver those briefings, or should it be left to or has it never happened and it’s not happening now industry itself, and have you offered to deliver those either? briefings? Andy Scott: I think if you go back through history, as Andy Scott: No, we worked closely with them, I said, you go through phases. When it first kicked off because many of those Business Ambassadors are in a previous incarnation, I think there was a degree indeed people who are closely involved in our work, of enthusiasm and I think it was working quite well. and our current Director General is one of those As always, these things need to keep the momentum. Business Ambassadors as well. So we work closely We’ve now had it relaunched and redesignated. I think with them, and we have fed in our ideas and thoughts it’s far too early to be able to make any comment on in our regular dialogue with UKTI. Yes, I think UKTI that, but you’ve got people there who have agreed to is probably the logical place to be as the core, but it continue, some of them, and some new people coming can’t do these things in isolation: it needs to work on board and some different people, which I think is closely with other organisations, ourselves and indeed also quite important to show the spread of different other business organisations, and I think there is industries; many of them are now representative of clearly an opportunity to be a bit smarter in just creative industries, which probably weren’t as well literally co-ordinating forward schedules. You’re not represented in the previous grouping before. So I think telling these people where to go, but identifying, when it has the potential and I’m sure that when we see the they are out in a market, whether their visits could be new UKTI strategy emerging post the White Paper coincident with a major trade show or with when a they will have an element within that showing how Minister might be going out into a market? they’re going to take this forward in terms of the The FCO is now asking all its posts around the world issues I’ve mentioned on briefing. I would certainly to identify the “Top 10 Asked”, as they describe it, in hope so. each of those markets. Could those Business Ambassadors be given those Top 10 Asked, so when Q102 Simon Kirby: On that specific point, you they’re going out and they meet businesses mentioned the creative industries—the two, as far as colleagues, they meet ministers in market x or market I can see, from the fashion industry—but the other y, they could be saying exactly the same or singing creative industries, music and art, seem perhaps not cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Ev 26 Business, Innovation and Skills Committee: Evidence
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann quite so well represented. And in view of the fact that exporting, rather than offshore functions that they according to UKTI this country exports $2 billion have. Those tend to be less effective. And so it might worth of music alone, is that imbalance a good thing? be worth looking at greater collaboration with Andy Scott: On the designated list, it’s not a good business networks that already exist abroad. The one thing in that sense because you’re absolutely right: the thing I would urge, though, is that to choose one creative industries in as wide a definition as you could provider of international choice would be a concern, choose to use, whether it be music, fashion, design, and it would block people from using potentially other architecture, or whatever else, are huge strengths for sources. The Chambers network may well be useful the UK. The response, I’m sure, that UKTI would in some cases but it might not in others. But using make to that is you don’t have to restrict yourself what’s there is obviously a way of gaining greater entirely to that list of Business Ambassadors, efficiency, and I think UKTI should look to do that in important and helpful as they are. If that was the only their offshore operations. route to market then I think there would be validity in Phil Orford: Coming back to the research that I being concerned, but I think there are other ways of mentioned earlier on, I think perhaps the most doing that and I am sure they can extend that and add pertinent point is that it was lack of information about other ambassadors in. We certainly know from our prospective markets that was most frequently cited by experience of people that we take with us on these members as a reason for their inability to export. If various missions that a wide spread from precisely anything, we would like to see UKTI having a bigger those sorts of sectors is extremely important and it’s brief on market intelligence. Market intelligence in the also why, within the CBI within the last 18 months, domestic market is increasingly important, whether we have put a particular focus on an initiative to that be related to customers’ credit ratings or sectors promote the creative industries for that very reason. or demographics. I think it would be very useful to have a function co-ordinated by UKTI on an Q103 Nadhim Zahawi: Thank you, Chairman. Can international level. we just move on to the subject of UKTI itself? Last Andy Scott: I think colleagues have touched on a week we heard from witnesses that UKTI has its number of the areas on the strengths and I would agree strong points as well as its weaknesses. What does the with those, particularly for the smaller companies. In panel think are its strong points and its weaknesses? terms of some of the areas where we’ve been urging What I would very much appreciate you addressing in tightening up or reform within UKTI, we think that answering that question is how the UKTI could some of the measurements have been a bit too much engage more with the service sector and promote the driven, as Andrew mentioned earlier, by literally exporting of services, because we heard some headcounts and box-ticking. I think there has been a evidence of a weakness there, and what of the UKTI’s concern that when you talk, for instance, to some of current work could be done by the private sector? For the people on the ground in posts abroad, they find example, chambers of commerce infrastructure around that what they are required to be doing is just in the world? danger of becoming the numbers game, rather than Andrew Cave: I think from the Federation of Small focusing on the outcomes. I’ve been encouraged to Businesses’ perspective, as I have already alluded to, hear UKTI say they recognise that and they need to those businesses that have exposure to UKTI and do more to address it. We would encourage them to make use of it overwhelmingly support the activities do even more of that. and particularly the main three programmes: the And I think probably a second area—again, there are overseas marketing introduction service, the Passport encouraging signs that they have been moving in this that I mentioned and the trade access programme. direction—is closer alignment between what UKTI Where the blockage comes is getting that information does and what BIS do on some of their sector out to the vast majority of businesses, and that’s why activities, so maybe making more of a connection. So we’re concerned that moving back from money being although there is a sectoral approach within UKTI, available for informing the business community of which it is right and proper that there should be, and UKTI being available, but also the possibility of they are increasingly working with the BIS sector Business Link and the RDAs stepping back from that teams, I think there could be even more and greater and serving, as we would have liked to have seen, as connection on that front. a conduit to UKTI. So we’d like UKTI to keep doing You raised a number of other points in your question; what it does, but with much more exposure. I don’t know whether you want to cover those now or Alexander Ehmann: Can I add, as with Andrew’s come on to them in a moment or two, on the service findings, our members that do use the service are sector? supportive of it, broadly. There are obviously an awful Nadhim Zahawi: It would be useful if you could lot of members who don’t and aren’t aware of the cover them now, because then we can move on to the services. I think the thing I would say is that, around next question. UKTI reform, our members want to see greater Andy Scott: If I may make just a couple of comments efficiency, greater bang for the buck, for want of a on services, first of all it’s a key issue, and one that better expression. At the moment there’s an awful lot we would recognise, that when people talk about of spend on trade support and £80 million is spent on exporting, they tend to immediately think of exporting investment promotion. According to the studies that goods, physical goods. Actually, for the UK one of we’ve seen at the IoD, it’s much more effective for our key strengths is our wide range of services, not an export promotion agency like UKTI to focus their just in the financial and professional sectors but in all attempts on the support of businesses in the UK in types of the services area, and that sometimes gets cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 27
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann overlooked. I think there are two things that Andrew Cave: I think we’ve all touched on the Government can do on that. One is that the reality of various aspects: the charging arrangements; the way life is that for many service sector companies, there that success is measured. But also, making greater are still restrictions in certain international markets in awareness of the services that are being provided. It’s terms of market access. You only need to look at the staggering how few businesses are aware of what restrictions that there are for insurance companies, for UKTI can do for them. So those would be the three the banking companies, for the legal companies, for main things that could be done differently. accountancy, for retail in certain markets. Even with Alexander Ehmann: The other thing I’d add is that all the best promotion in the world for some of those UKTI could be more vocal within Government about companies, there are physical restrictions in terms of the types of issues that businesses are facing when market access. That’s why Government has an exporting to make sure that they are hearing that. absolutely critical role in pursuing, both at the That’s also from an inward investment perspective multilateral and the bilateral level, individual market too. I think UKTI accumulate a lot of knowledge access and market opening. That is the first point. about the various reasons why businesses are not The second thing that they can do is clearly they need exporting or investing in the UK, and I’m not sure to work as closely with some of those professional that that is being passed on to the Government. services organisations in the UK, the sector organisations in the UK, as they probably have been Q106 Nadhim Zahawi: Mr Scott, you say in your doing traditionally with some of the more traditional submission that UKTI should manage the move from manufacturing trade associations. Again, that’s further RDAs to LEPs, so that SMEs understand that the evidence that UKTI really works well when it is access to export support is not reduced. Is there are a engaging with and working in partnership with other clear understanding of the access to export support at organisations. There is some good evidence that it’s the moment? doing this with some of the individual professional Andy Scott: I think we’re all saying the same thing. organisations, but that is certainly an area where they Information and awareness of what those services are can capitalise on working further with some of those is one of the biggest challenges to reaching into a sector bodies. So one is market access and two is the wider network of the SME business community. trade associations or the sector organisations. Colleagues here have quoted the statistics in terms of awareness of UKTI services. I think we’re all agreed Q104 Nadhim Zahawi: Thank you very much, that’s that, for those businesses, once they get access to very useful. Can I just move on to thinking about the those services, with certain provisos on charging etc, SME sector? Is the UKTI really set up to help an they find those services to be value-added services. average small businessman wanting to export, say, to But it’s how you reach those businesses, and that’s China, or is it much more focused, obviously, on the part of the difficulty. Structures like RDAs and LEPs bigger businesses with the hope of a bigger return? in the future will be a route to market. I think there Andrew Cave: As I said, those businesses that do are multiple routes; I don’t think it can just be literally access it find it helpful, so we would say that it does a UKTI solely driven marketing campaign per se. I perform that function. Where there is a problem for think they need to look at how they engage with the many small businesses is the charging arrangements various multipliers; how they engage with people that that UKTI have at the moment in terms of upfront SMEs have to come into contact with every day of payments. It makes much more sense for a small the week, or every day of the month. Banks, the business if those payments are staggered or there is a accountant; how do you use some of those payment upon completion. So I think that would professional advisers as a route to make sure that actually open up the floodgates to a lot more when they’re going in and talking to a business that businesses engaging with UKTI. says, “Look, I’m struggling with finance,” or “I’m Alexander Ehmann: The only thing I would add is struggling with growing,” they say, “Okay, have you that I think UKTI is set up relatively well to do that. thought about where your opportunities might be? I think the bigger issue with the difference of ability Have you actually gone and looked at and seen where to export between SMEs and larger businesses is you can get some help from UKTI?” Some of that fundamentally down to the capacity of those exists, some of that happens, but I think a key part of businesses. Of those of our members who said they their marketing drive is and must be and must were not exporting, one of the key reasons for that continue to be how they use those multipliers as the was they felt they were not of a sufficient size to enter route into the SMEs, because if you’re just going out the export market. So the size is actually the issue, cold and doing it straight from a marketing campaign, rather than it being necessarily an indicator of UKTI’s you can spend a huge amount of money and not get inability to work with those businesses. anywhere. Phil Orford: And something that we picked up from our research was that there was an indication of a Q107 Nadhim Zahawi: The challenge, as you quite greater demand than supply, so that UKTI anecdotally rightly set it out, is getting that information through are unable to meet all the requirements of those about access to export support. Is the challenge not seeking support. exacerbated by the number of organisations that are around, whether it’s the chambers or trade Q105 Nadhim Zahawi: And is there anything that associations? Can some of those multipliers also add comes to your mind that UKTI can do better to help to the confusion? I’d love to hear from the FSB and SMEs that it is not doing at the moment? everyone on the panel, really, what you think. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Ev 28 Business, Innovation and Skills Committee: Evidence
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann
Alexander Ehmann: I’ll go first. Certainly, I wouldn’t and you’ve already begun to do that, is going to affect recognise that picture. I think there are a number of the availability of trade support for SMEs in the bodies out there that offer advice, and that actually regions? has been helpful. I don’t think there’s a great deal of Andy Scott: The first thing I think to look at is where complexity there. As I said, about 50% of our we are now in terms of this transition from RDAs to membership is aware of UKTI services; roughly 50% LEPS? And I think we’re probably all going to say a of our membership is exporting, and I think there’s a similar sort of thing, which is we have not felt that rough overlap there. There might be an issue about the whole transition from RDAs to LEPs has been set those that are not yet in the business of exporting and out as a smooth transition, and we are still very much, about how visible UKTI is to them. But when our to be generous, in the foothills of understanding what membership was asked about what their preferable the new LEP environment is going to be like. So I mode of advice was, I’m pleased to say that UKTI think there was always going to be a risk without was the preferable mode of advice for 27% of our having a clearer definition as to initially what LEPs overall membership. We were second, as the IoD, at were going to do. That was a bit of a struggle in the 9% and then the chambers at 7%. early days of when the RDAs were abolished and then I think the one thing I would urge some caution on the bids were invited for LEPs; there wasn’t a clear though is that. If you look further down the list, enough definition as to precisely what those LEPs Businesses Link and BIS respectively had 4%, RDAs were going to do. Some of that is now settling down managed 2%, and at present local authorities managed in the sense that those that have been awarded are 0%. So in terms of transition to LEPs, which I’m sure now building their business plans, but I think there is we’ll get on to, there’s a serious issue about how much going to inevitably be a hiatus as we go through this competency local authorities have to really work in transition from the RDAs as were to the LEPs as they this area. start to establish their roles. So I think that is a real Phil Orford: Moving on from that, I think that UKTI risk. can play a role in co-ordinating it all. There has been What it will be like when the landscape settles down criticism in the past of the conflict with the RDAs and is a moot point. I think we still have to be able to UKTI in terms of their international presence. Clearly, judge that. At the moment we’re still in this interim that will no longer be an ongoing issue, but if you period, when people are still not at all sure as to what look at most current RDA regions, we’re going from their respective roles are. Many of these LEPS are still one co-ordinator to many. The numbers vary, but very much in the very early stages of being sometimes there are as many as six or eight. Now, I established, both in terms of what they’re going to do, think UKTI in the regions needs to grab that baton the resources, the services and the roles that they will and make sure that this is not diluted in the way that play, so I think that does create uncertainty, and I think you’re suggesting it could be, because I think that is certainly many of the companies that we talk to, a significant risk. whatever size, have been concerned about the way in Andrew Cave: I don’t think the number of networks, which the regionalisation restructuring has unfolded as you point out, needs to be a problem, and I don’t and is unfolding. think it needs to be a confusion as long as there’s a Alexander Ehmann: Not to move this on to LEPs too consistency of message that is filtered through that. squarely, but one of the things to recognise about Ironically, overwhelmingly our members will look to LEPs and RDAs was that one of the failings of the the banks for advice, and traditionally they will have RDA network from the IoD’s perspective, our gone to the banks for support and advice with membership’s perspective, was that activities kept exporting. That’s obviously fallen away to a greater getting added to the RDA’s remit. When LEPs were or lesser extent, depending on which bank you bank formed, we were very clear in saying what LEPs with. But pushing more information through the should do, what they must not do, and for us this is a banking networks I think is absolutely crucial. I don’t function they should not do. They should not be see that there is a problem that there are too many involved in it, and the reason for that, as the evidence voices out there. What we are concerned about, and I just cited suggests, is that in terms of picking a this reflects Phil’s comment, is that at the moment winner here, UKTI is by far and away the most well there is a certain unknown as to what is going to regarded of the information resources available. So happen with RDAs and Business Link being removed it’s playing to our strengths. We should make UKTI from that space, and how LEPs can possibly take that step forward. They should take up more of that forward. We’re very concerned about that. responsibility on a local basis. They may need to recalibrate to do so. But coming from the stark Q108 Paul Blomfield: Perhaps we could talk a little comparison of a rather low 2% in terms of recognition more about that specific point. Certainly I’ve had of the value that RDAs played in terms of advice to concerns raised with me from small businesses in my businesses around export activity, and an even lower patch, as wide ranging as from the music sector to figure of 0% amongst our membership for local light engineering, that already the practical support authorities, I think it’s a much safer game to try to and advice that was available through RDAs is no make UKTI push down rather than build competency longer there, and they are worried—these are from the local authority level. businesses that are stepping into the export market and Paul Blomfield: And do you have confidence that looking at others that might be—that’s going to have UKTI are ready for that challenge? significant impact. I wondered if you could each Alexander Ehmann: I have more confidence than I reflect on how you felt the move from RDAs to LEPs, do that local authorities are. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 29
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann
Phil Orford: I can’t add anything else. I agree with number of companies that do not feel that their goods what Alex has said, and it supports what I said earlier or their services, probably more specifically, are about fears of dilution. conducive to exporting, and that’s clearly both an educational issue, but also, at the risk of overdoing Q109 Paul Blomfield: Andy, may I come back to the word, a mentoring issue. These businesses owners your comments, which focused on the uncertainty but do need to see practical examples of what’s going on also talked about the emerging role that some LEPs on the ground, and the development of that sort of anticipate taking on: looking at that emerging role, do network would be very helpful. I think Andy you think there are still significant gaps in relation to mentioned early on about organisations working more trade support for SMEs? cohesively. Our head office, as you may know, is in Andy Scott: I think there significant gaps. If you’re the North West, so certainly we have a regular asking: does it look as if most of those LEPs that have engagement with the North West offices around issues been asked to develop their full business plans are of working more cohesively, not just with us as an going to deliver services, I would be with Alex on organisation but with a lot of the trading organisations this, in that I don’t think that is where they should that also have regional representation across the primarily be. I think we should be focusing our efforts country. So there are a whole range of mechanisms more on doing exactly as Alexander said, which is to that we try and communicate across, and we do that make sure that UKTI has the capability to do it. I on a continual basis, but I think, if I’m being honest, agree entirely that they have got more of a chance of it’s fair to say we could have done more and we will doing it than collectively the LEPs have. I think the be doing more to support export trade as part of the reality will be, on a number of fronts and this will be overall growth strategy for the UK. but one of them, one or two of the more effective and Andrew Cave: I should probably be equally honest. larger LEPs as they get established will inevitably take As I said at the outset, we were quite surprised by our on some of these things, and I think that will be latest survey data that revealed so many of our something that we’ll just have to judge as time goes members were engaged in exporting. That wasn’t the by. But would it be something that we would urge case years ago when we undertook similar research. should be cascaded and delivered by all of them? I So it’s an area that we as an organisation need to step would agree no. up to, I think, and work much more closely with Andrew Cave: That is one of our major concerns: that UKTI. But it’s not just UKTI; it’s Government there will be that inconsistency across the UK. There departments as well. We’re looking increasingly at the will be parts of the country where businesses do not role that the MOD, we believe, should be playing in have the same access because the LEP does not take promoting export opportunities for small businesses. that responsibility or is not strong enough in that area, The one exception, I think, is probably in the services hence coming back to the argument for a stronger sector, where we have worked very closely with UKTI. members in promoting the opportunities of the Services Directive. In our view the single market has Q110 Paul Blomfield: Thanks very much. If I could been closed to small businesses for many years, and ask a different question, related, but to Andrew and the Services Directive offers huge opportunity for a Phil in particular. You both painted a picture of an great number of our members, and we’ve been very appetite to export, and Phil you mentioned that 38% active in promoting that. But we need to do more of your members perhaps didn’t have that appetite but across the piece. suggested that with support they might broaden their horizons. I wondered how you both, as organisations, Q111 Margot James: Thank you very much for engaged with UKTI to promote the needs of small everything you’ve illuminated about the UKTI. I’ve businesses, and, through that process, perhaps widen only got one question left. We’re clear about the horizons for those that weren’t seeing themselves in limitations of UKTI in terms of small businesses, but the export market, but also supporting better those you all collectively seem to think that it has been, on who did. the whole, a good thing and made a good contribution Phil Orford: I think first of all, being honest, we’ve to exports. But the CBI, Mr Scott, has said that it probably not engaged as much as we could or should needs to develop a more sophisticated relationship have done and indeed the amount we will be doing in with larger companies. Could you elaborate further on the future. We try to do our best to communicate the that? What are its shortcomings in the way it deals information we get back from our membership, and with larger companies? obviously that comes from the research that we do. So Andy Scott: I think quite rightly much of the focus of the primary reasons are some of the ones I’ve the questioning so far has been on some of the specific mentioned earlier about the lack of information on services and support for the SME community, and we markets, and clearly market intelligence would be will be the first to say that support for SMEs is both very helpful there. There are clear issues related to needed and vitally important. But, in terms of our cash flow risks that many small businesses face, and overall trade figures, a lot of that is going to be driven although not cited as the main reason, I think by some of those major companies. particularly at the moment, with the cash situation in Now, those major companies do not need the same many businesses remaining tight, there is a reluctance sort of support for services that we’ve been talking to put cash flow at further risk. about and the UKTI generic services. What they need In terms of some other specifics, I think I mentioned much more is information, intelligence and support earlier on that there is a mindset issue related to the from embassies and posts abroad in terms of helping cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Ev 30 Business, Innovation and Skills Committee: Evidence
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann them when they’re looking to set up meetings in those own boundaries, in fact within the European Union; particular markets. They need good intelligence about that the state aid implications related to guarantees for the business environment in those markets—that’s the export finance are treated quite differently in the UK, biggest thing that we hear from many of our whereas in other countries like Spain, for example, it’s companies—and where there might be regulatory treated as de minimis, so they don’t see it as being an issues emerging in that market that either they as issue at all. The big issue for us as a nation in companies would need to see Government helping to redressing this issue is we need to make a quick address—I mentioned before some of those things on decision: are we going to tie our hands behind our market access—or where as a result of regulatory back in terms of competitiveness, or are we going to changes in those markets it might actually be opening follow the rest of Europe, and if repercussions come, up a new market opportunity. If you look at some of accept those repercussions at some point in the future? the areas in terms of public-private partnerships, But at the moment to sit here saying that we’re which is increasingly an issue for many other prepared to do it one way when the rest of Europe is countries as it has been here, they are going to be doing it another is not very logical in terms of driven by public policy in those countries, and there supporting our exporters. will be opportunities arising out of that for many Alexander Ehmann: Can I come in on the same point companies who are providing similar services here in but in a slightly different way? I will touch on the the UK. finance issue more broadly, if I may, in one second, Now, in order to help UKTI and the posts to but I think our first point would be that we are understand how they can best meet those needs for supportive of the state aid rules, and if we’re not able those sorts of companies, we’ve been suggesting to get to a situation where we can deliver a product something that any professional services organisation that we feel is beneficial, it may be much more of a does, which is good account management: understand useful activity for the UK to be making sure that those larger businesses; understand what particular infraction proceedings are being taken against the markets they’re interested in; understand their other member states that are breaching these. We capability, and that is just down to good solid account shouldn’t necessarily race to the bottom here. We management—somebody understanding what the might want instead to be making sure that we’ve got business needs are, somebody being their key anchor proper compliance going on across the European point within them. And that is something that BIS had Union. been doing and starting to do quite effectively with The other point I would make is that finance, to our some of their sector teams, and is an approach that we membership anyway, is not the critical issue here. have been hearing and seeing UKTI starting to do, Seventy-five per cent of the businesses of our and certainly some of the recommendations that we’ve membership that are exporting are doing so with their been making to them. I would be hopeful of seeing own resources and their own retained profits, with a that approach continuing when they come forward further 29% doing so through payment received in with the next five-year strategy. But it’s a different advance, 12% through letters of credit and 10% via sort of service and it’s not classic support at all, and trade credit. Only 3% actually finance their activities it’s certainly not financial support. through the Export Credit Guarantee. It’s a negligible number of businesses amongst our membership that Q112 Margot James: Thank you. Is there any are actually using that finance. So I would urge the research that you’ve done that supports what you’ve Government, or indeed the Committee, not to become just said, or is it member feedback? too preoccupied with the impact that this will have. Andy Scott: It’s member feedback. In all of these Andrew Cave: From what I understand, something things, quantitative research is very difficult, but I like 90% of global trade is conducted through some think these are classic examples of: “Does the kind of trade financed product, and 40% of our company feel that it is well engaged? Does it feel that members suggest that they would consider exporting is has somebody within UKTI who it can go to at a if they could get the right kind of finance. So it’s reasonably senior level, who will understand what clearly a block on the smallest businesses from even their issues and their needs are?” It is important to do considering venturing into that. feedback on that, but it will be qualitative feedback rather than straightforward, classic quantitative Q114 Simon Kirby: In your particular case, are your feedback. members aware of the SOVEREIGN STAR Trade Chair: Can we move on to trade finance? It was Finance, and is it a facility used by your members? touched on earlier. Andrew Cave: We’ve got over 200,000 members, so I’m sure there must be one or two out there who are Q113 Simon Kirby: We were told last week by the aware of it, but I’ve not met them, and it’s not Engineering and Machinery Alliance that the ECGD something that we’re aware of. was not fit for purpose. Would you agree with them? Simon Kirby: Because it was set up, was it not, in Phil Orford: I think there are fairly widespread 2004 specifically for businesses such as those you concerns about the scheme, and again it’s been in the represent? news this week, and I know that the British Bankers Andrew Cave: Yes. Association are working hard on what might be called an export EFG. I think the main issues that most Q115 Chair: Just before you go on, Simon, could I people are concerned about is the unfair playing field just intervene? We’ve got an interesting difference of that appears to be in place not that far beyond our perspective, shall we say, between Andrew and cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 31
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann
Alexander. Alexander has said only a very tiny across the world in India, and they said that, of the 23 proportion actually use it, but isn’t this really a ECAs that they deal with, they find dealing with self-fulfilling prophecy? If the money isn’t available, ECGD one of the most difficult. That is quite a telling then they’re not going to use it anyway and that will indictment of where we are. I think we take great show through in the statistics. What evidence have encouragement from the fact that Lord Green has said you got of the number of companies that might use it that we now need to look quite closely at how ECGD if adequate facilities were there? itself operates and the range of products that it has Alexander Ehmann: Your point is well made, Chair, available through to companies of all sizes. and it is possible that perhaps better-targeted, more responsive product would mean that more of our Q116 Simon Kirby: On that point, I think there is a members would be using it. I only named the top two, danger that British business or the health of British three, four modes of finance that our members are business can be blinkered to the relative success of using, but there does seem to be quite a wealth of ECGD with other country’s ECAs, because clearly ways that our members are financing export activities, ours has declined whereas theirs have all increased and certainly, in the research that we conducted in the and the amount of business they’ve done. But last couple of months, we didn’t get the feedback that specifically on the point, you mentioned Lord Green the reason for them not exporting was anything to do and the changes that I think last week he suggested in with finance. In terms of the issues raised, they were an interview in the Financial Times. Have you been much more to do with finding the time to export and involved as organisations? Have you been consulted finding the right networks and business contacts on these changes and what it is that the businesses abroad. Finance came very, very low down the list that you represent would like to see? of priorities. Andy Scott: We haven’t been involved since the Andy Scott: Could I just perhaps make a couple of announcement that Lord Green made only last week, points on ECGD itself, which I think was one of the but we have been actively involved, both directly with very specific points that you were asking about: ECGD and with UKTI over a consistent period of whether we felt ECGD as a structure and as a service time with various suggestions as to what we would that it provides is fit for purpose, I think like to see in terms of the way in which ECGD itself acknowledging that even with a wider product operates—the conditions within which it is required portfolio and even with wider marketing or wider to operate. Part of the reason why we feel it has now awareness, it would still be reaching and designed to slipped down in that pecking order is partly because reach only a relatively small part of the marketplace. of the environment that is has been required to operate Having said that, though, it can and ought to be in, frankly, by Government—the previous providing a service support through to particular parts Government and throughout the 2000s, to be honest. of the market where they cannot get that finance from So I think there is that issue. The second issue that he the normal financial provisions. That’s after all what is referring to is whether they should be looking more an export credit agency is designed to do, and that’s closely at a range of different sorts of products, and what ECGD is there to do. It’s not to provide parallel we have had a longstanding view about the sort of funding, which you can get in the marketplace; it is things where we would like to see the ECGD to provide those sorts of credits, and in the UK we operating: areas such as bonds supports and fixed rate use it for more than two-year funding, which would export finance. These are areas where, for a variety of not be available in the marketplace. There is a need reasons, ECGD has not offered the sort of service that for that sort of funding, as every major OECD country some of the equivalent organisations in other countries has an export credit agency of some sort or another to do, and I noticed that in his statement they were at provide that degree of support that the market itself least being referred to as ones they would be looking cannot do for a variety of reasons. And our concern at again, so we take a degree of encouragement from has been that the ECGD in the UK, if you went back that, and we will certainly be making sure that our 10 years or more, would have been regarded as one views, which have been well documented, will be fed of the premier of these export credit agencies into any other review he is now doing. internationally. Now I have to say that, if you ask most people who Q117 Simon Kirby: He also said that he wanted to are engaged, whether from the bank’s side or from the make it more relevant to SMEs; do you have any companies who engage in it, you cannot say that any comments, Andrew? longer. Over the last few years for a variety of reasons, Andrew Cave: Obviously we’d welcome that. We’ve they have been concerned about the response time not been involved, as the CBI’s already said. What from ECGD; they’ve been concerned about what we, and our members, would like to see, as Phil has progressively has been a much more overzealous already outlined, is an export EFG; that is something approach to the things it has to do, quite rightly, on that is straightforward to understand, and in talking environmental and social issues, but a more to our members anecdotally, it’s something that they aggressive approach than its competitor ECAs. Those would welcome. have been factors which have undermined ECGD’s Phil Orford: Just on that point, it is one of the ability to be able to provide a service to the types of outcomes of the British Banks Association’s taskforce companies that are very important to it. document to try and deliver this, but with the current Just to give a quote—I mentioned that I was in this state of the issues, specifically on state aid law, as and visit last week in India—we were talking to one of when this product does become available, it is going the major banks that provide substantial export finance to be premium priced as a result of that. That, frankly, cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Ev 32 Business, Innovation and Skills Committee: Evidence
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann doesn’t help. It might help, also, just to mention that those elements where there is a risk that the Mark Prisk held a small business economic forum just marketplace will not otherwise cover itself. But I yesterday, and you can feel reassured that this was on think, as colleagues have also said, even with a the agenda and that all the organisations were restructured and refocused ECGD and a wider product lobbying the Minister hard to address this issue as portfolio, the vast majority of the financing that is soon as possible. supporting international trade and investment is delivered through the private sector anyway. Q118 Margot James: I just wanted to follow up, Colleagues have already mentioned whether there before I ask the question I’ve been allocated, on might be an export-driven EFG; that may have a role something we heard last week, which was that 90% as well. Clearly, for the private sector, it is providing of ECGD business was for the aerospace industry. Is the lion’s share of the financing for international trade that something you’re familiar with? and investment in any case. Andy Scott: Yes. Margot James: That struck us as being… Q120 Margot James: Thank you, and a question, I Andy Scott: Unbalanced? think, for you, Mr Cave. You mentioned that you Margot James: Well, just beyond belief, really. thought that the letter of credit guarantee system Andy Scott: It is, and I think we will happily provide should be reviewed. Could you tell us why? the Committee with any further of the background Andrew Cave: Simply because there are so few of our papers that we have produced on this issue over a members who are taking it up or aware of it. consistent period of time. Those facts are pretty much Margot James: Is it an awareness issue or is there the case, and it’s a valuable service for those something wrong with the product? companies and for Airbus, because of the way Airbus Andrew Cave: Well, it’s only available through the is financed, by export credit finance, whether from main high street banks, which obviously limits its here, or from France, Germany or from wherever else. scope somewhat, so I think it’s more about availability It is an important and integral part of the funding of as much as anything that the take-up rates are so low those major deals that they do. But the problem is that amongst our members. it has become—for all the reasons that I have Chair: Isn’t that a case for reform rather than described, which is why we have concerns over removal? whether ECGD has been delivering for the broader Andrew Cave: Quite possibly, yes. business community—too focused in those sectors. It has been constrained from going out, frankly—from Q121 Rebecca Harris: I’d just like to touch a bit on the way in which it is being required to operate—and inward investment. We are told that the UK has actually looking at a broader range of the business slipped down the league tables for inward investment, community. If you talk to ECGD, and you will and I want to know what you think the principal probably be having them before this Committee, I’m reasons for this are—I imagine some of them are not, sure they will be saying, “We would like to have a strictly speaking, reasons within the scope of this wider portfolio; that is not a balanced portfolio in inquiry—and what you think the Government should anybody’s definition,” and there are one or two further be doing to address it. examples coming through, I think, where they are Andrew Cave: I think this is a probably a question getting back into a more diversified range of capital that’s more for Andy. equipment, which is primarily what they’re there to Andy Scott: Well, I think the difficulty in taking finance. But if we were to address some of the snapshots of league tables at any one moment in time fundamental issues that we think have undermined is you can be very heavily influenced by a range of ECGD’s competitiveness, I think that would enable it economic factors. That I think is point one. Over the to widen its portfolio too. But it is unbalanced at the last two to three years, the total volume of mobile moment, valuable though it is for that part of the inward investment that is around globally has shrunk, community. understandably so. I think those are factors that clearly will have some impact and make it difficult to do Q119 Margot James: Thank you. You, Mr Scott, did immediate and direct comparisons one year with the outline the need for the ECGD to perform the next. Having said all of that, within the CBI we are functions it should perform because the private sector actually doing a project as we speak under the is not able to provide sufficient finance on the right strap-line of “UK as a place in which to invest” to terms. ensure we do maintain the UK’s attractiveness as an Andy Scott: Where there is the risk that the private investment location, both for indigenous companies sector would not normally finance. that are here and for internationally mobile Margot James: Notwithstanding that, do you think companies. There are a number of factors that have there is a greater role for the private sector in meeting led to a decline in what have been traditionally the some of this need? UK’s strengths in attracting that inward investment. Andy Scott: Sure, and indeed invariably even on We still are attractive for it, but I don’t think we have ECGD-financed projects, there will always be an been quite as attractive as we used to be. Levels of engagement with the banking sector, the private taxation, levels of regulation, and the way in which sector, because after all this is a provision of a we address some of our employment regulations in guarantee through to the banks, so there will the UK: these are all factors that have some impact invariably be mixed financing within this. This is just on a company’s decisions when they’re looking at providing, effectively, a Government guarantee for where they will locate. So whilst in absolute terms the cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 33
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann
UK is still an attractive location, in relative terms I be surprised if it probably didn’t go Germany, France think we have lost a little bit of ground. and Japan. < Alexander Ehmann: The only thing I would add to that is that, absolutely on the indicators like labour Q124 Rebecca Harris: You all expressed a certain market competitiveness, you’ve seen the UK slip amount of scepticism about the potential for the new down international comparison tables. Those are LEPs to help with export, but what do you see as their having the effect, so the issue is the product rather role in terms of bringing in inward investment to their than the selling of the product itself. regions? Are you more positive about the potential for client management and that kind of thing? Q122 Rebecca Harris: The Government has said Phil Orford: Clearly there’s the localism agenda to that it is proposing to have a competition to appoint a the strategy of LEPs. I originate from the North West, private contractor to oversee inward investment, and I so I’ll perhaps just give specific examples there. There was wondering if you had any thoughts on that; are fears within the North West that the strong cities, whether you thought that was a good suggestion. primarily those with city region status, Manchester Andrew Cave: I think there may be a place for that, perhaps more specifically than others, will potentially but what we seem to be saying is that if you get—and dominate the region in terms of attracting inward this is for small businesses as well—the conditions investment. There is a very powerful group of local right for small business then inward investment will authorities there, and that may be to the detriment of flow. Talk to any small business out there in the other parts of the region, for example, North and East supply chain and it’s about skills, it’s about training, Lancashire, possibly even Liverpool—although it’s about employment law and the regulation that they Liverpool itself is getting its act together in terms of confront on a daily basis. Those conditions have to be looking now at a Greater Liverpool in the same way right first of all, and if you then have a private that Manchester has looked at a Greater Manchester. organisation come in to promote inward investment, But the main fear, actually, is inter-region competition great, but there’s no point in doing that until you’ve for investment that would have perhaps more got the groundwork right. holistically been spread out regionally, and may Alexander Ehmann: I would add to that the become more concentrated in the stronger leaderships. reductions in capital spending as well have not been That would be our main concern. beneficial for us in terms of our inward attractiveness. Alexander Ehmann: The interaction between LEPs Andy Scott: But in terms of the specific, I think we’re and the body bringing inward investment in, whether all agreeing that you need to get the groundwork right it be UKTI or any other, needs to be at that level. The to make it attractive in the first place. I think what absolute thing that must be stopped is allowing LEPs you’re specifically referring to is the proposals that to have, like RDAs did, overseas offices or attempt to are out now at the moment with organisations to bid be effectively underbidding one another to the for the management of the inward investment activity, detriment of the UK. So I think it’s important for us and also once they come into the UK—back to the to have a central point for bringing in that investment, point that was made in response to an earlier and then for a good dialogue between LEPs and local authorities about where best to place that. We need to question—how one account manages those, given the be very careful that that’s managed on the basis of restructuring that is going on within the regions etc, facts and evidence and a much more holistic view, which has been an activity that RDAs have been doing rather than necessarily allowing those with the most hitherto. At the moment I think there are a number of weight to swing it around. organisations that are bidding for this. I don’t see any Andrew Cave: I think it’s probably too early to tell. reason at all why a private sector organisation, What we’re seeing, obviously with the way the LEPs possibly in partnership with others, couldn’t be one of are evolving, is that a lot depends on the leadership those that are successful. As always we would say, and the individuals concerned. I think there’s the judge it on the criteria that have been set and on the danger of inter-regional rivalries opening up there, but proposals as presented if they deliver on those criteria. also inconsistency across the UK. But, as I say, I think Whether it’s public or private sector is not necessarily it’s too early to say how that will develop. the key issue; it’s whether they can deliver on what’s Andy Scott: I think we’re pretty similar. We would been set as the criteria. certainly not want to see the LEPs actively out there marketing in the international environment. We have Q123 Gregg McClymont: Just as a point of all been concerned that we were seeing too much information, what’s the composition of the top four duplication when we had RDAs doing that in the for inward investment? marketplace, and frankly for many of these companies Andy Scott: Countries? Well, the top one would be that are looking at a location, they are not looking at the US, and then—I don’t know whether I have them subsets of the parts of the UK; they are thinking about in the right order—you would have Japan, Germany Europe versus East versus West. They then might and I suspect France. It would be that sort of thing, think UK; they certainly aren’t getting into the but by pretty much a country mile you have the US. minutiae of wherever we are county-wise, let alone China not yet: it is coming up on the rails, but LEP-wise, around the country. So we certainly won’t certainly in terms of the legacy, it has been the US. want to do that. Once an investor has made a decision We are the largest investor in the US, the US is the to come to the UK, how and when and where that is largest investor in us, so that’s by a huge factor, and supported I think when we see the landscape because of our well-established links with Europe I’d emerging, it will need to at least link with LEPs, but cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Ev 34 Business, Innovation and Skills Committee: Evidence
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann
I don’t think LEPs are going to be the principal body introduced is obviously welcomed by those members for doing that. There’s just not going to be a resource who have expressed concerns in the past. to do it, and once they start to try to, as we said before, Phil Orford: Nothing else to add really. get into mission creep, there will be similar concerns to those we had with RDAs before them in terms of Q127 Ian Murray: I’d like to talk a little bit about lacking focus on what they’re set up to do. the thorny issue of world trade negotiations, and start with quite a wide question, which is really just what Q125 Rebecca Harris: Are you confident that if this the priorities for the UK Government and in particular function is left, for example, with the UKTI there will the BIS department should be in negotiations going be a fair geographical spread in terms of our efforts forward? to rebalance the economy? Will London and the South Andy Scott: I don’t think any of us are claiming to be East not dominate? trade policy specialists, but we will, I’m sure, have Andy Scott: In the article where Lord Green was some comments to make. I guess you’re talking asked that same question, I think he was honest particularly about the Doha Development Round, enough to say that will be something that they will which I think is best described as being stalled at the need to guard against, because there might otherwise moment or certainly limited progress. From a broad be a natural tendency, given the economic pull of perspective, we have been very supportive of the London and the South East—for a variety of reasons Doha Round, long extended as it is becoming. We that’s absolutely right and proper and we don’t want think that multilateral agreements, multilateral trading to force people to go to places which it is not arrangements, are very important for opening up economically sensible for them to go to—but I do markets, and if we could get a successful conclusion think you need to have balanced options put in front of that Round it would provide real opportunities for of these companies so that we can then see that, where many companies, both here and indeed internationally it makes sense to do so, there are some options around and in developing countries as well, which is after the rest of the UK. So I think he was honest enough all what the Round was designated to be particularly to say that would be a challenge; however we choose helping, and that would be a real boost to world trade to structure this with whatever body we award this to, at a time when we need it. So I think conceptually we we will make sure that that is an issue that we factor have argued very strongly, and continue to. in and look at very carefully, and rightly so. It has been stalled, it has been difficult, and it has been Alexander Ehmann: LEPs do have a role in trying to painful. Some of these negotiations—I’m pleased to work out exactly what their strengths are, and really say I’ve not been involved in them—from what you getting to the bottom of that sectorally, geographically, can see of them, are fairly drawn out and protracted. in terms of their populations, in terms of the different At the moment people would be saying that there are amenities they offer to a potential inward investor. windows of opportunity, as it is often described, in the And I think, having done that, they will provide a first half of this year to make some further progress. I good basis for UKTI to understand how they can have to say, we have had those words being use before communicate the assets that they have to a potential and those windows have not opened, but maybe they inward investor. With that in mind we will hopefully might. Various discussions have been taking place, so we read and hear in the press and from our contacts see the restraint that will be necessary to stop with companies, in the margins of, for instance, everything being deposited in the South and London. ministerial meetings when they met at the G20 last year, when they’re meeting in Davos, so there is some Q126 Chair: Do you think that immigration caps will progress to get some of those discussions back on have an impact on inward investment? track, but it will require a really concerted effort to do Andy Scott: I think it would have had an even more so, because they haven’t been going on for so long for adverse impact on inward investment if the no good reason; they are difficult and there are still relaxations, which we have now seen, had not been some difficult issues to resolve to get a multilateral introduced. We had real concerns from a number of agreement of that nature resolved. well-established inward investors who, when looking Ian Murray: But from your organisation’s at the UK market, were attracted to it because of the perspective, what should the priority be? Just to get flexibility of our labour markets within the UK and them moving and concluded, or should we be focusing their ability to bring people in and out as they need to in on certain aspects, particular with regards to the meet company needs. One of our key concerns was to Doha Round? make sure that what are designated as inter-company Andy Scott: I think we would like to see it concluded, transfers would not be caught by the immigration cap, and we would certainly say, as I said before, that a and that, with a few minor points still to be resolved, successful conclusion of that Round could be a real has indeed been exempted. That I think has reassured, fillip and a boost to world trade. Now, does that mean certainly, many of those companies who otherwise we want a conclusion of a Round at any cost? No. So were saying to us, “This will be a real problem for us, you have to get the right Round, you have to make and if I’m going back to my boardroom in Tokyo or sure that in any concluding agreement there is wherever else and arguing for future investment, it’s genuinely reciprocal, opened access right across the not a tick in the box.” spectrum of products and services that are being Andrew Cave: This is obviously less of an issue for negotiated, and there are really three broad areas. the vast majority of our members, but just to reiterate There are the vexed issues that often attract a lot of what Andy said, the flexibility that looks to be the focus, which is around agricultural products; there cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 35
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann is the manufacture of goods and the tariffs associated Alexander Ehmann: Can I just make a quick with those manufactured goods; and the one that we observation, again from the research we did? When think hasn’t had enough attention, and which we we asked our members, of those that export, which touched on perhaps in earlier questions as well, is the areas they see the growth coming from in terms of services area, because that will be an area that will their export activity, it was quite interesting that the particularly be beneficial to the UK if there is equal majority of our membership felt that the European focus. We wouldn’t want to see a conclusion of the Union was the area over the next five years where Round unless there was, on the opening up of the they’d see the greatest growth. Now, I think that’s services sector as well as industrial tariffs and on the quite a surprising finding, and I think in some ways it agricultural products. So that would be our particular means that it is necessary for the White Paper to focus. address a dual-track approach here, between its focus Alexander Ehmann: The only thing I’d add is that a on the emerging economies but also upon rather more welcome outcome would be a lessening of the number traditional economies, with whom our members still of bilateral free trade agreements that we currently believe there’s still a great deal of growth to be had. have. As an example, the US-Singapore free trade Chair: Does anybody else wish to pick up on that? agreement contains 248 pages of product specific That’s an interesting observation. requirement, and actually that’s injecting an extra Andy Scott: I was going to pick up on something else. level of complexity into the marketplace. So these Chair: On this, that is particularly interesting given multilateral agreements are absolutely essential. the fact that growth is likely to be slower than in the EU, and one would assume there is already a fairly Q128 Ian Murray: That probably brings us high penetration level there compared with the seamlessly on to my next question. The Society of emerging markets, where growth is potentially greater Motor Manufacturers and Traders, which we spoke to and lower levels of current penetration. last week, raised concerns that the EU-South Korea negotiations had traded off different sectors. They felt Alexander Ehmann: I think there are a whole range they had been unfairly traded with regards to financial of factors clearly influencing that, some of which will services at that particular time, and Mr Scott be people’s comfort, I suppose, as much as anything mentioned that the third aspect that you’d be looking else in terms of the nations they interact with. That for is the service area in terms of opening up free does feed into, I think, UKTI’s approach to trade in those areas. How can we go about making encouraging people to more exotic climes, perhaps, sure that when we conclude some of these agreements but it was an interesting finding; I thought the we’re not trading one sector off against another? Committee might be interested. Andy Scott: These are the classic dilemmas in all Chair: Move out of their trading comfort zones. these international trade agreements, bilateral or multilateral, because they have to involve degrees of Q130 Nadhim Zahawi: Have you segmented that give and take, one country with another, and looking into industries? at the complexities of all the different sectors within Alexander Ehmann: I haven’t done that at present, them. That is why these negotiations are invariably but we would be able to do that. long and protracted. One is always trying to ensure Nadhim Zahawi: It would be very useful if we could that one sector is not, as you rightly describe it, traded have that. off against another, but there will always have to be some degrees of give and take to get an agreement. Q131 Chair: If we could have that evidence. Andy The country in question will want something out of Scott, I think you wanted to come in? these agreements. These can’t all be one-way traffic; Andy Scott: I just wanted to flag up one issue which that’s the very nature of these agreements. So it’s really looking at it and seeing how one can strike the we haven’t touched on, but one that is certainly giving best agreement that is going to give the advantage to us a lot of concern, and I think other organisations the biggest number of companies in both countries, would share this, which is the implications of the because this has to be a two-way process. And you’re Bribery Act and the way that that could well have, right: one of the most difficult and sensitive areas in and is having, serious concerns for people who are the EU-South Korea agreement was around auto looking both at their current arrangements and products, and manufacturers here and certainly activities and who are uncertain, because the Act is manufacturers in Europe were particularly concerned lacking in clarity as to exactly how this will be about the implications for their sectors. These are the implemented in certain areas. Clearly we all start from challenges which inevitably one gets into on both the premise of saying that this is nothing at all to do bilateral as well as multilateral agreements. with anything other than stamping out corruption and extortion, but the way in which this Act is being Q129 Chair: Thank you. Is there anything that you implemented and the guidelines are giving great would wish to add before we conclude? If there’s uncertainty, and these were due to be coming into anything that you feel should be said that hasn’t been force on the 1st of April, and is making a lot of said, please feel free to do so, or of course if you companies think seriously about the way in which subsequently feel that there’s some contribution that they will be able to conduct their business and still wasn’t covered that should be made, then we’re very stay within the letter of the law, even though they, by happy to receive it in written form. Is there anything anybody else’s standards, will be acting entirely that anybody wishes to conclude on? legally. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG02 Source: /MILES/PKU/INPUT/010554/010554_o002_kathy_No2-25Jan2011 [CORRECTED].xml
Ev 36 Business, Innovation and Skills Committee: Evidence
25 January 2011 Mr Andy Scott, Mr Andrew Cave, Mr Phil Orford and Mr Alexander Ehmann
Q132 Chair: This is an issue that I’ve become very the similarity of regulatory systems. We may not think much aware of in the last two or three weeks. It’s that we’ve got similarities with the rest of Europe, but begun to really surface, and in fact I believe I’ve got we have bigger differences with the rest of the world. a meeting scheduled to have a briefing on it. I will be In fact, a member of ours had a specific problem with looking at this and possibly we will be conducting North America in relation to pressure equipment further investigations into this. recently. So that is just some examples of why Phil Orford: Can I just come back to Alex’s point businesses are looking more close to home, I think. earlier about having data on Europe in the research, Chair: Thank you. That’s very helpful and it will because we’ve got similar data? Obviously proximity certainly inform our discussions. If there are any is one of the reasons, but interestingly the common further questions we may well contact you again. currency is another, rather than multi-currencies, and Thank you for your assistance. Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 37
Tuesday 1 February 2011
Members present: Mr Adrian Bailey (Chair)
Mr Brian Binley Simon Kirby Paul Blomfield Gregg McClymont Katy Clark Ian Murray Rebecca Harris Nadhim Zahawi Margot James ______
Examination of Witnesses
Witnesses: Nick Fry, Chief Executive, Mercedes GP, Sir Roger Bone, President, Boeing UK Ltd, Lord Charles Powell, Chairman, Asia Task Force, and Paul Skinner, Chair, Infrastructure UK, gave evidence.
Q133 Chair: Good morning and thank you for don’t want to go into all the detail now, although I am agreeing to speak to us today. Just before we go into happy to if you wish, Chair. I think the best course is the formal questions, in order to check on to let that run its process through in the WTO, and transcription levels and so on, would you like to for both sides to respect whatever judgment the WTO introduce yourselves, starting from the left? comes to, to listen to it, to respect those judgements, Nick Fry: Good morning, my name is Nick Fry, I am and then to move on. the chief executive of the Mercedes Formula 1 team, based in Northamptonshire. Q136 Chair: We will watch that with interest. Can I Sir Roger Bone: I am Roger Bone and I am the move on to more general questions? I would stress president of Boeing UK. that not every member of the panel needs to feel Lord Powell: I am Charles Powell, chairman of the obliged to answer all the questions. If you feel that Asia Task Force. your particular response has already been covered by Paul Skinner: Paul Skinner, chair of Infrastructure another speaker, please, in the interests of brevity, UK, within the Treasury, and I was previously move on. Can I just start with a very general question? involved with Shell and Rio Tinto. Since the start of this inquiry we have heard that the UK has lost its “mercantile spirit”: that it gives the Q134 Chair: Thanks very much, I appreciate you impression it does not have the capacity or interest in coming. Before I go into the questions there is one exporting. What do you see as your role, as British particular question that I should ask Sir Roger. business ambassadors, in reversing this? Comments have been made that you represent Boeing, Lord Powell: Shall I start, Chair, as a volunteer? It is which has been involved in lawsuits against a British not true that Britain has lost its mercantile spirit. I company, or British interests. Is there not a conflict of think that is absolutely wrong. I would, however, say interest in you being an ambassador? that its mercantile spirit needs to be liberated; I think Sir Roger Bone: Chair, I have two points to make to it has become rather submerged by regulation and tax, that. The first is that we are very much a British and reforms in the economy are strongly needed to set company. We are onshore in the United Kingdom. We it free again. Secondly, I think when we talk about our are a British subsidiary of an American company, we mercantile spirit, which is a term of which we were do an enormous amount of business here and we are very proud in the 18th and 19th centuries, we have to heavily dependent on the UK aerospace supply chain. remember that the competition globally is very much We spend billions of dollars on business here and stronger these days. Therefore, the idea of Britain as therefore I am in a good position to comment on the virtually the only trading nation out there is a bit supply chain. We are also growing our footprint here; dated, so we are up against it. What do we do as we have recently signed a contract with the Ministry Business Ambassadors? In my view, we work of Defence, whereby we will be taking between 250 alongside companies and the Government in and 300 MOD civil servants onto our books, who will promoting what Britain and British companies have to become Boeing employees. So we belong to the UK offer in world markets. We use the access that we have in a very big way. The second point I would make is through our own business activities, and the networks this: speaking as the head of the British subsidiary of that we have built up, to advance the British cause. a huge American company perhaps adds to my Above all, we talk up Britain; we don’t play down credibility when I talk positively, as I can, about the Britain, as the media so often does. UK aerospace industry. Q137 Chair: Anybody wish to add to that? Q135 Chair: Has the Boeing legal action helped or Paul Skinner: Just a small point. I think that one of hindered the development of your British footprint? the issues we have, in relation to Britain’s export Sir Roger Bone: It has no impact. The dispute at the performance and capability, is that there is a general WTO is a highly complex issue, which is running its unawareness of the data. The car industry is an course at the moment. It is an intergovernmental issue excellent example; we are a very large manufacturer at this stage, rather than an inter-company issue. There of automotive vehicles in this country. We export a are very strong views on both sides of the fence; I huge fraction of the number produced. That does not Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
Ev 38 Business, Innovation and Skills Committee: Evidence
1 February 2011 Nick Fry, Sir Roger Bone, Lord Charles Powell and Paul Skinner have the transparency or visibility that would help to Sir Roger Bone: I would endorse that, Chair. The area dispel concerns that we may have lost our appetite for of British industry that I know most about is the global trade and manufacturing. So I think one of the aerospace sector. That is still very much a jewel in things we need to focus on is lifting the transparency our crown; we have something like 16% of global of hard data like that. I do agree with Charles Powell’s markets for exports in the aerospace sector. That is an comment that there is a tendency to talk ourselves extraordinary achievement for industry here. Certainly down in this area, when I think we have every reason from my own company’s point of view, we still come to talk ourselves up. That is one of the primary roles to the UK for the cutting edge of high technology of business ambassadors, given the opportunity on that we find here. We are just launching the new 787 public platforms in overseas markets. Dreamliner aeroplane, and there is a very substantial contribution to that by British industry. The issue that Q138 Chair: Could I just follow that point in the confronts UK industry is how we go forward, and context of the motor industry? whether we can maintain the levels of investment in Paul Skinner: In which I am not an expert. research, development and human resource, to enable Chair: Because we have foreign-owned, British us to maintain that cutting edge. manufacturing of cars, there is a domestic perception that we don’t produce cars any more. Is that reflected Q140 Chair: Thank you. Lord Powell, did you abroad as well? Does that impact on the ability of our indicate? No? That’s fine. British-based manufacturers to export even more cars You have spoken about talking up British business than they do? excellence, and I don’t think anybody could quibble Paul Skinner: Well, I think it is a positive point about that. Is there anything more specific that you because if you flip the argument, the reason that a feel defines your role as a British business number of these foreign owned car manufacturers are ambassador? Perhaps if you have done something here is because we have created the conditions for particular you could tell us about it. Lord Powell? them to come here, invest, create jobs and export Lord Powell: Yes, I think there are very special things value. that all of us can do. In a sense I feel that I have been doing what needs to be done for quite a few years, Q139 Chair: I agree with that, but it is not really the even though I have only been a British business point of my question. What I am trying to get at is: ambassador for a few months. First of all, we can does this prevailing perception that we no longer focus on our areas of particular expertise and actually produce cars in this country affect our knowledge, and I have tried to do that in Asia. In potential for foreign purchases of cars made in this Asian markets I have been preaching the China country, albeit by foreign-owned companies? message for 20 years now—the potential of China’s Paul Skinner: Personally I don’t think so, but there is growth and its markets. I have been engaged in setting certainly clarity to be added to explaining why a up the Singapore British Business Council, I have number of our major manufacturers in this country been chair of the China-Britain Business Council for are foreign owned. I don’t think that diminishes the about 11 years. I now chair this Asia Task Force and economic value of their presence here. that I think is a role for a British business ambassador, Nick Fry: As the car guy, maybe I can add a little bit? because it is really trying to get more British Regarding your first point, I think we have severely companies out there, to export to the market. So in underestimated what I consider to be the competitive one sense it is an inward facing role. It is getting out threats. Maybe the penny is now dropping that there are a lot of countries out there that are winning a lot the message, and we have been doing it through of business, notably in Asia. Hopefully, with organising a series of events right round the UK, initiatives like this, we can up the ante in doing which usually a senior Minister and I will address. something about it. Regarding the car business and a Then we organise what are called country clinics. We more general point about advertising what we are get our Ambassadors or High Commissioners from the good at, I think there are a lot of untold stories. Not Asian region, or the Trade Advisers from the many people seem to realise that last year we made Embassies and High Commissions if they are back in about 1.2 million cars in this country. The majority of the UK, to come and run these clinics. Companies can Ford’s diesel engines globally are made here. A large go there for 45 minutes and get real first-hand percentage of their gasoline engines—about a quarter, expertise about the markets. They can ask questions I think—are made here. Not many people in or about and get knowledge about what help is available. That my business seem to realise that Michael is a very specific role that one can play, and I try to Schumacher’s Mercedes-Benz is made in do that. Northamptonshire, as is the engine. That is a point Of course, abroad there are many other roles you can that we made last week to the Prime Minister. There do: lobbying on behalf of British companies, lobbying are a lot of good stories. Going back to the question for better market access and for overcoming specific you asked, because we don’t tend to talk ourselves up business problems. I was down in Indonesia last week enough and we tend to be a bit self-deprecating, it for three days and saw several Government Ministers. does reflect on how people perceive us. The brand of There are a lot of obstacles in Indonesia to British, the UK is extremely strong, and we are the ones that and other, companies. It is telling the Indonesian need to get out there and talk it up, because a lot of Government, and making them recognise these sorts people do think very well of us and, in many ways, of problems that I think is a helpful role for business we seem to be our own worst enemy. ambassadors to do. Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 39
1 February 2011 Nick Fry, Sir Roger Bone, Lord Charles Powell and Paul Skinner
Q141 Chair: That is interesting, because I would this initiative is to be a success we do need to follow have thought that was a political role as well. through from general advertising about how good we Lord Powell: I don’t think one has to distinguish in are, to setting out the things we hope to achieve with this case; it is a political role, and Ministers do it as very clear targets. Then we can get back to measuring well, but I think it does not hurt at all to have whether we achieved these and if not, why not. businessmen doing it alongside them. Possibly it has not been the case in the past, but we need to be a lot more focused about this and be clear Q142 Chair: Any other comments on that? on what we are trying to achieve and measure whether Sir Roger Bone: Chair, I look back over the last 15 we do it or not. If we don’t, then we need to improve to 20 years of my professional activities, and before I the situation for the future. went into the private sector eight years ago I had a Paul Skinner: I have a brief addition to the points decade as a British Ambassador overseas. Much of that have been made. In periods where I have been in what I do now I see as a kind of continuation of the a leadership role in a global corporation hosted in the work that I was doing with UKTI in its infancy, 10 to UK, there have been occasions where, in overseas 15 years ago. It is a mixture of advocacy, of targeting markets, it has been possible to get a public platform potential inward investors, as well as helping, in a because of the recognition of the company I have been hands-on way, potential exporters overseas. In my associated with at the time. That has been a helpful own case, as an ambassador for British business, I supplement to local diplomatic or trade representation, have both interacted with business men on the west who might otherwise have found it more difficult to coast of the United States, potential investors here, pull a large gathering of local businesses and other and spoken at a forum of SMEs at Loughborough interested people together. That is something that I University in the West Midlands, preparing to invest think our larger companies can do. Also, I think there overseas in emerging markets for the first time. is a role for our leading global corporations, hosted in the UK, to play a supportive role towards small and Q143 Chair: You talk collectively about lobbying medium-sized enterprises, who are trying to get more and making connections and so on. Can you give any involved in overseas markets. The larger companies evidence of where there is a definite, measurable are perhaps going to have a better understanding of impact of something you have done as ambassadors? the ways those markets work, and they will probably Or maybe something one of the other ambassadors be operating supply chains from which smaller UK- you know may have done? based companies can benefit, all other things being Lord Powell: I think the question of specific impact equal. is always very hard to measure in the whole trade Chair: Just before I go on to my final question, field. This applies not just to business ambassadors, Nadhim Zahawi would like to come in. but to UKTI and to Ministers too, because at the end of the day, we don’t do the business. It is the Q145 Nadhim Zahawi: I just want to pick up on companies that do the business and that is where the Nick Fry’s point. I completely get the idea that it is impact is felt. I would say that yes, I think I have hard to measure the work of the ambassadors, and contributed to raising awareness of Asian I also understand the narrative—that we should talk opportunities across the UK, particularly amongst ourselves up not down. However, there is a bit of a SMEs. That is quite specific but you cannot measure it rude awakening in what is happening elsewhere in the in pounds gained in export orders. You can see export world because of competition. What I would like to figures for Britain go up, and you can think “Maybe I ask the rest of the panel is whether they agree with helped with that”, but you cannot give anyone credit the newcomer, i.e. that there should be real targets for that other than the companies that actually make based on outcomes? We have heard in previous the sales. evidence sessions that most of these targets are about how many people you can get to a particular Q144 Chair: Have you actually had any companies conference, rather than outcomes of real deals on the tell you that, arising from your advice, they have other side. What are the views of the rest of panel on managed to do this? the point Nick Fry has raised? Lord Powell: Yes, comments come in two ways. One Sir Roger Bone: I agree with the comments Nick has is through our Embassies and posts in the area, who made. I think one should always try to be as specific say they are getting many more inquiries from smaller as one can about the achievements. As a business man British companies now and they are seeing more too, I am very focused on concrete achievements, coming out of trade missions and so on. In terms of concrete targets—how you meet those targets and how specific company comments, again, yes, through you don’t. If I could recall my time as an Ambassador things like the China-Britain Business Council you do overseas, it was actually much easier to set specific hear that these efforts are helpful and supportive. Are targets and to measure your achievement in that role they ever clinching in a deal? Very rarely. because you were there the whole time and you could Nick Fry: I have only been involved in this for one follow through a process that you might initiate. You month, so maybe I could just comment on what I hope could actually see on the ground the consequences of should be the case and what I hope we can achieve. I what you were doing. The role of British business think we do need very specific targets; I think the ambassadors is slightly different, in the sense that we business ambassadors need a clear mandate, and to be dip in and out of the process. We give of our time as given objectives. The way we run our business is with and when we are somewhere, and when we can add an almost laser-like focus on achieving results, and if value to an ongoing process. Looking back on it, I Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
Ev 40 Business, Innovation and Skills Committee: Evidence
1 February 2011 Nick Fry, Sir Roger Bone, Lord Charles Powell and Paul Skinner sometimes feel that it is difficult for us to get a feel Q148 Mr Binley: Forgive me Lord Powell, that is as to how much our personal contribution has been to not what I said. I said how can you, using your the process or target. So, more feedback from UKTI expertise, get UKTI and the Government to recognise on how we have done would certainly be welcome. they need to monitor outcomes? We need to be aware Lord Powell: I do not think you can set specific of how successful we are being; otherwise this is financial targets for something you are not in control simply an accolade bestowed upon you, a sort of of. I am not in control of selling motor cars in a honour in another way. specific market. If I was in my own business I would Paul Skinner: I would like to go back to the response be able to set a target, but you cannot if you are just I gave to an earlier question, if I may? I think there is a business ambassador. So, I think in terms of specific scope for more dialogue, not only in policy and targets, you cannot do much more than the number of strategy formation, but the way in which UKTI itself, visits you have made to a market, the number of which is the accountable agency in this case, goes events you have spoken at or chaired and that sort of about the business of setting sensible priorities and, thing. That may sound a little amorphous but it is perhaps, targets. However, they are the prime quite useful. I do not think it is feasible to have accountable organisation. We can and should help specific financial targets. You cannot do it in them in that, but we do need to arrive at some kind of more structured engagement with them in order to Government in this sort of role either. deliver that. I think we could do that. Paul Skinner: Just one point. I think what the group Sir Roger Bone: To echo a point I made earlier, we of business ambassadors does constitute is a resource do need more feedback from UKTI as to how available to Government and UKTI to shape the effective our own contribution has been. I can assure priorities for trade and investment policy as a the Committee that that is a point I have raised with collective. I think perhaps this is something that, in Ministers. my experience, has not been particularly well utilised in the past. Within the ambassador network there is Q149 Chair: That is just the cue I want to move on quite a lot of useful opinion that could be a valuable to the relationship between the business ambassadors, input into the policy formation. UKTI, BIS and No. 10. It has been put to me that some of the ministerial visits happen at the conclusion Q146 Nadhim Zahawi: So do you need to structure of what may have been a lengthy round of that? negotiations, in effect to crown contracts that were Paul Skinner: You do. going to happen anyway. In comparison, Angela Merkel and President Sarkozy will dash out to a Q147 Mr Binley: We have had the great privilege of foreign country in order to facilitate a deal, not just to going to a sizeable number of countries looking at crown it. First of all, do you think there is something UKTI, and if I hear the word “process” again I shall in that? Secondly, as ambassadors, do you feel that go mad. They are for ever giving us figures about the you have a role in your interaction with BIS and No. numbers of people that attend this and that, and the 10 to set a foreign business agenda that may benefit number of exhibitors they have. When I say “Okay, from a political intervention, in some cases from the what is the outcome?” they haven’t got a clue. I must most senior level? Lord Powell? tell you that process is only a part of the game, and Lord Powell: I think the answer to your last question Nick Fry is absolutely right—and I am delighted that is yes. I don’t think there is a great difference between he mentioned Northamptonshire, my home county. We what British Prime Ministers do and what other are interested in outcomes, and there are ways of countries’ Heads of Government do. Part of it depends measuring outcomes. One of the things I hoped you on the nature of the market you are dealing with. In would do is inject into UKTI the concept that, China it is still the habit to sign contracts at the time of senior visits; in other markets it is not at all a part although process is fine, it is not the be all and end of a prime ministerial visit just to be there to sign all, it is only the start of the game; outcomes are the deals. In my experience, different Prime Ministers real game. How can we do that, recognising your have done it in different ways. I worked for many experience? years for a very active Prime Minister in the contract Lord Powell: Well as you heard from my last answer field, who was very keen to know, everywhere she I am sceptical when it comes to very specific went, who the specific British companies that were outcomes for people fulfilling the sort of function we trying to win a contract were. She would belabour the are asked to do. We would all like to see exports Governments concerned to make sure that we did win increase; we know that in some markets there is a them. Others, perhaps, have not been quite so active. definite target. For instance, when the Chinese My impression, from the breakfast that all of us Premier met the Prime Minister in Beijing, they attended at No. 10 the other day, was that this agreed to set a target for two-way trade between Government seems very committed to help British Britain and China of $100 billion by a specific date. companies and make supporting British companies in That is a general target, it is not one that we find in winning contracts a major part of all its foreign many countries, and it is very much related to the Ministerial visits. They want to be briefed every time nature of the Chinese system. To say that every they go to markets, as do we, on what are the pending business ambassador should be able to deliver negotiations that could lead to a successful contract. I $5 million or $10 million worth of contracts, is have lived and worked in Germany and I see quite a something I think you cannot make work. bit of France these days, in a business sense, and I do Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 41
1 February 2011 Nick Fry, Sir Roger Bone, Lord Charles Powell and Paul Skinner not think there is a great difference between what is expressed, then they tend to follow that lead. This done there. In fact, in some ways I think we are Government has said that commercial diplomacy is actually more effective in the process—I know Mr right at the top of its list of priorities, so I would Binley doesn’t like the word; it’s the first time I’ve expect the machine to fall in behind that, and rightly used it—but maybe not in the results. That is more so. Your first point is a very important one. The down to the sort of products where agreements are French have a much bigger and better nuclear power being signed than it is to the nature of the political industry than we do. Big deals tend to get signed effort. because they tend to be Government-to-Government or have a high Government component. Germany, Q150 Chair: Is there anybody who wishes to add to obviously, in the machine tools and automobile that? industry is extremely strong. Those are things that Nick Fry: Regarding the first part of your question, many of the main markets are looking for at the I don’t know enough about it to make any accurate moment, particularly in Asia. If you look at China, comparisons, so that is for others to comment on. I Korea and markets like that, those are the big-ticket think the meeting we had with the Prime Minister a items that you will see. Ours often tend to be less couple of weeks ago was very good as what I would headline-catching deals, outside the aerospace consider a kick-off meeting. I think the scene was set industry and Rolls-Royce in which I am heavily very well. Subsequent conversations with Lord Green involved—we do get very large orders in the aero- were promising in following up on that. The important engine business and perhaps we don’t make enough thing is what we do next, and putting in place a very of them publicly as we should. I would not denigrate structured plan to come back with clear objectives as what the City of London and our services sector do, to what we are supposed to achieve. but it is not just financial services: our engineering specialists, our consultants and so on do very good Q151 Chair: You talk about a structured plan, is business. It is not as visible, you cannot have such a there any formal process of interacting with senior big contract signed under the glare of the television Ministers and the Prime Minister? lights, but it is there underneath. I cannot escape the Sir Roger Bone: Chair, there is no formal process at overall point that yes, our export performance is not the moment for that. We interact with Ministers as and as good as it should be, we need to improve it and when we do so as part of our normal activities, and the Government are quite right to make this a very where there is a specific point to discuss in relation to high priority. our trade ambassador role. There is no formal structure for doing that, as such. Q153 Nadhim Zahawi: Thank you for that. Lord Powell: There are some exceptions. With the Returning to the meeting on the 11th, I just want to Asia Task Force we meet with Ministers two or three go further into the detail about what was discussed times a year. and your impressions, specifically Lord Powell. Is this Paul Skinner: I think in the meeting that took place Prime Minister like Margaret Thatcher or is he like recently with the Prime Minister he made it very clear other Prime Ministers? where his expectation level sat in relation to the Lord Powell: Well he was certainly very vigorous in activities of this network, and that he would expect to expressing himself at this meeting, in setting the be engaged at intervals with the network to understand priorities. I was with him on his visit to China in what they were managing to do. October or November and he certainly seemed to give a very high priority to business there. He travelled Q152 Nadhim Zahawi: I want to ask you about the with the business delegation and spent a lot of time meeting itself. Before I get to that, I think you raised with us on the aeroplane. He took us to his meeting an important point about the attitude of the Prime with the Chinese Premier, he attended a reception and Minister to business development, Lord Powell. You he spoke at the China-Britain Business Summit. So gave the example of Margaret Thatcher wanting to the evidence I have is that he is very strongly know every deal that was on the table with a particular committed to supporting British business. I don’t country, and then badgering the other side to make think anyone would pretend to emulate the precise sure that deal got signed. One of the things that we style of Margaret Thatcher. I notice that you used the have been aware of, and I think the Chair alluded to word that she would “badger” foreign Governments— it, is that we are very good as a nation when it comes I think that is a very diplomatic term for what used to the service industries and selling those abroad, yet to happen. we have been much weaker when it comes to manufacturing, construction and so on. The French Q154 Nadhim Zahawi: Just on that point—Paul certainly have been much more proactive in pushing Skinner, you mentioned that the Prime Minister other sectors beyond just the service industries. outlined the details of what he expected from the Aerospace is probably the only exception to that rule. ambassadors at the meeting. Can you just shed a bit Do you think it is a trickle-down effect from the Prime of light on that expectation, or more detail on that? Minister downwards, and that it is the attitude of Paul Skinner: Well, he opened the meeting and spoke saying, “I want to know every deal” which makes with intensity and passion about delivering superior the difference? trade and investment performance, and made it very Lord Powell: I think it is a very important influence. clear that he was relying on this network to help If Government servants and business know what the facilitate this. Lord Green, who had only been a day Prime Minister’s priorities are, and they are clearly in office at the point of this meeting, was also able to Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
Ev 42 Business, Innovation and Skills Committee: Evidence
1 February 2011 Nick Fry, Sir Roger Bone, Lord Charles Powell and Paul Skinner demonstrate that from experience. The key point, for Nick Fry: To add to what has just been said, my me, was that the Prime Minister made it very clear experience so far is that all the admin, support and that he expected all our overseas representation to briefing is first-class; there is no issue with support. start to develop an increasing trade and investment As to what has just been said on budget, I do not think bias, and that he was going to show regular interest in I have called for anything so far. I think they would the progress that was being made. I don’t think you be extraordinary circumstances if one had to ask for could have wished for a more enthusiastic expression something special because it fits into our normal of intention in this area. schedule. My only “could do better”, which we have to move towards, from what I have seen so far, is that Q155 Nadhim Zahawi: Thank you for that. Could I briefings need to be taken down to an absolute focus, move on to the role of UKTI when it comes to you which comes back to: what are we trying to achieve fulfilling your role? Are you briefed by UKTI before here? In my business I am used to very specific you go on a visit? When you give an answer to that objectives. When we go out to get sponsorship or do question could you also shed some light on how business it is very focused indeed. When we go to a helpful you find those briefs from UKTI, and say if reception obviously we target certain individuals to there is anything else that you would like from them. whom we need to speak with a certain outcome in What is the level of administrative support that you mind. From what I have seen, at the moment the are getting from BIS? How are you funded? Is briefings could probably be honed a little more adequate funding there for you to carry out the role? towards, “This is the mission. What do we want to Sir Roger Bone: Perhaps I could go first on that? come out of this with?” Every time we undertake a commitment, UKTI produce a brief on the issues that they think might Q156 Nadhim Zahawi: I think that is coming come up. In my case they produce a background brief through from the responses we have had up to now, on the current state of play within the UK aerospace i.e. it would be helpful to have a bit more structure supply chain, and any issues currently arising that I using all the experience and backgrounds. Last week might need to know about. I am given good we heard from the CBI that the previous ambassador administrative support. The understanding is, with the scheme had worked very well but had tapered off. commitments that we undertake, that they are done in How can we avoid that tapering off and continue the the margins of our existing travel and our existing momentum of this scheme? Everything we have heard diaries. So the onus really rests with us to tell UKTI up to now is incredibly positive, but the danger is that where we are going to be at any particular point, and obviously these things fade away and nothing really it is then for them to decide and to advise whether is achieved. there is anything we can do for them, as part of our Sir Roger Bone: My only comment is to say that I regular travel. So in that context we find the joined the scheme halfway through 2009, so I was not administrative support quite sufficient. On funding— one of the original members of the group but I did do there is no specific funding for us on this. We give of this with the previous Administration. We came to a our time free. We receive no payment for this; very point early last year when I suspect the Department occasionally a minor expense might be incurred, for felt it was not quite sure what would happen on the example an additional night in a hotel in order to political scene and whether there would be an appetite undertake a commitment, but that is the extent of it. to continue this through any change. I undertook one Lord Powell: Could I just amplify that in one small commitment for UKTI in July of last year which was way? When you are talking about briefing by UKTI I pretty soon after the election, but it had been in the think you also have to comprehend it as briefing by diary for some time and was linked to the UKTI staff in our posts overseas. That is a very Farnborough Airshow. There was a slight hiatus while important part of it. I find it absolutely essential and the new Administration got to grips with exactly how invaluable to go to the Embassy or High Commission and get briefed there, when I am in the country. They they would like the scheme to continue. are really up to date on how matters stand, trade Paul Skinner: I think you have to put in place a obstacles, progress with specific contract negotiations regular set of interactions between the trade interests and so on. So UKTI in the wider sense, I would say, in Government and this network, which is something are very good about briefing. that happens regularly. Perhaps not everybody can Paul Skinner: I would agree that the briefing received participate every time but at least to maintain the more than meets the requirement. I think the challenge currency of the arrangement and its vibrancy is for this network, and the way it will become effective, critically important. The only way to do that is to is if it can personalise the messaging. That is the merit make sure you have things happening with a regular of having people from various fields active in this drumbeat. way, so it is a question of taking the core messaging Nick Fry: I believe Lord Green is planning to set up as to the UK position and intentions, but somehow a follow-up meeting every two or three months. It is packaging it in a way that will add to the credibility imperative that that happens to keep the momentum and impact of the message by virtue of the people going. who are delivering it so that they are not, as it were, from the mainstream Government organisations; they Q157 Rebecca Harris: Lord Powell, from your have come from the side with a special, experienced experience what has been your advice, and perhaps point of view, which, hopefully, will add to the was at the meeting on the 11th, to the Government on credibility of the message. how to improve both our trade exports and inward Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 43
1 February 2011 Nick Fry, Sir Roger Bone, Lord Charles Powell and Paul Skinner investment? We talked earlier about the brand but I and transport systems, for example. We need to ensure mean beyond that. that the opportunities which are there are widely Lord Powell: The first point must always be that in understood in international markets. If we do not do exports it is the domestic base that counts. Exports that we are at some risk of a shortfall occurring. will happen as a result of how companies are Chair: Can I just bring in Margot? performing in this country and the conditions in which Margot James: My question was rather general. they operate, so it is getting the economy right, Chair: Okay, we’ll finish with yours then, and then reducing the burden of regulation, improving we’ll give you a chance. education, vocational education, training and all these Sir Roger Bone: If I may come at this in a rather things which make companies more effectively specific way through the aerospace manufacturing generally and which can also contribute to making sector. As has been acknowledged already we have a them more effective exporters. In that sense that is a first-class UK aerospace supply chain. Companies like very broad bit of advice but it is probably one that we mine continue to do enormous business with the UK would all tender to Government of whichever political aerospace industry. If I am frank, I worry about how party. Beyond that, the second point is that the it will look in four or five years’ time. By that I mean political backing is very important. We have just been that the aerospace industry is a hugely competitive discussing that. This kind of campaign does not work global marketplace. The reason why in the past unless the Government are wholeheartedly, visibly Boeing has come to the UK is because of the cutting- and audibly committed to it and giving a lead in it, edge technology we find here. We are an industry that that Ministers travel to markets and when they are works in huge cycles, so the key thing is what happens there they are thoroughly briefed to raise issues of the next time we launch a new generation of products interest to business and perhaps take business or build a new aircraft. Perhaps that will be the delegations with them and so on. That also helps the replacement for the single-aisle aircraft. I do not effort. Over the years it has rather fluctuated. It has know. That might be in a number of years’ time. I not always been as good as it should be, so the would like to think that when we get to that point UK standard needs to be kept up. Following on Mr industry will be as competitive as it has been in the Zahawi’s point, it is very easy for momentum to flag past in winning contracts with big companies like after a bit. Any Government perhaps tires towards the mine. If UK industry is to be in that position the end of an electoral period, but it must keep up the absolute priority at this stage is investment in the pace. That is another bit of advice we would give research and technology base and the human resource them. Then there are more specific points but I think to ensure that those standards are maintained. As a it would be tiresome to go into all the details. To give UK citizen sometimes I worry as to whether we will just one example, I think very large trade delegations maintain that cutting-edge position. I like what I see do not really work because so much effort is devoted in terms of the new Government’s policies in this area; to shepherding them, getting them onto coaches and I like the emphasis they are putting on investment in saying who is going to which meeting and so on. I research; and I like the ideas of technology innovation experienced several very large delegations and I centres with which no doubt the Committee is thought their effectiveness was much less than a high familiar. I am also personally familiar with a number level but quite small business delegation supporting a of excellent, world-class research centres in the UK. Prime Minister or Minister. For example, at Sheffield university there is an Paul Skinner: For me, the overriding consideration is absolutely first-class advanced manufacturing research to ensure that between Government and the business centre with which we are very proud to be associated. community and the network of ambassadors there is Therefore, we can do it. There is progress there, but real clarity as to what the priorities are, certainly in it is absolutely vital that that should be sustained as export markets. One thing we have not talked about we go forward. at all in this conversation is inward investment, which Nick Fry: I think that success or failure of the is another important dimension in this. Currently, I am initiative will come down to consistent leadership working in the field of infrastructure where we have from the top and keeping up the level of energy and a potential investment gap and where encouraging keeping things going. The other important thing is inward investment is critically important but also in availability of senior people to break down barriers manufacturing. For me, it is: how do we make the when they occur. From a business point of view priorities clearer so that everybody across our business sometimes one can easily get bogged down. When one community in the UK is clear about what we want asks for help it is very dependent on whom you get. to do? Sometimes it is very successful if an individual takes up the cause and pushes it through; at other times a Q158 Rebecca Harris: What have we been getting lot of people get involved and nothing happens to the wrong? Why is there an investment gap? point where business tends to give up asking for Paul Skinner: In terms of inward investment? support. When there are issues and we have objectives, if there are barriers they need to be Q159 Rebecca Harris: Yes. addressed in a very timely fashion. Paul Skinner: I think we have had remarkable success. Let’s not view this negatively, but in certain Q160 Gregg McClymont: This is also a broad, areas, of which infrastructure is a good example, there general question. Reference was made to our is potentially a significant investment gap as a result manufacturing capability. Do you think we have a of the requirement to renew large tracts of our energy problem in this country with the breadth and depth Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
Ev 44 Business, Innovation and Skills Committee: Evidence
1 February 2011 Nick Fry, Sir Roger Bone, Lord Charles Powell and Paul Skinner of our manufacturing base? Supply chains have been who aspire to them. That is where we have to start mentioned. Obviously, in aerospace we have that scale our thinking. and capacity, but is there a problem? Do we have Sir Roger Bone: I referred earlier to the technology enough sectors of that kind that can support the innovation centres, which the Government are keen to supply chain? promote. I think that is one way to encourage Sir Roger Bone: I can talk only about the sector I developments in the industrial base to which you refer, know about. Nick may be able to talk about the but private industry too is doing its bit. For example, automotive sector a little more. just two weeks ago I was privileged to attend the Nick Fry: If I take advanced engineering, which I opening of an advanced forming research centre at the guess is what I represent, we have 4,500-odd University of Strathclyde which will be absolutely companies, all small and medium-size, that operate in state of the art in that aspect of advanced the sector. It is of a reasonable size: I think it has a manufacturing. That is a very encouraging sign. We turnover of about £6 billion of which about £4 billion and a number of other big companies are certainly is exported, so it is quite important. The slightly participating in that. worrying thing is that although a lot of the companies Chair: We are moving slightly away from the role of involved in the sector continue to exist, from our ambassadors. Perhaps we can refocus it. Nadhim, perspective there has been a noticeable shrinkage in Brian and Margot have indicated that they want to ask their capabilities. When we go out to our supply base questions on this section, but first I ask Rebecca to this year versus last year or previous years, it is conclude her questions. noticeable that they have fewer people and less capability to cope. We need to reverse that and Q163 Rebecca Harris: Nick Fry said at the outset encourage those businesses somehow to get out there, that the UK plc brand was quite strong. I just wonder win more business and employ more people. At the whether everybody agrees with that. From your moment it is tending to slip in the opposite direction. travels how do you feel we compare with our Paul Skinner: I would like to comment on competitors in terms of our brand and the effort we opportunity. I remember very well the way in which put into inward investment and exports? the UK developed the North Sea as a hydrocarbon Lord Powell: Broadly, our brand is still pretty strong basin and created a supply chain which is still printing but not as strong, particularly in the manufacturing value for the UK in global markets. It is diminishing sector, as the German brand. There is no point in a bit but it is there. I think that in the energy ducking that. German manufacturing industry, transformations ahead of us we have the opportunity particularly engineering, is very strong and exports with very large levels of expenditure in prospect to hugely across some big product sectors and is very create new supply chains in renewable energy and respected. But I do not think that should make us parts of the nuclear industry if we choose. Those disheartened. Our brand is still a very recognisable opportunities do not come along very often, so we one. A lot of progress has been made in recent years should think very hard about how we seize the in getting away from Beefeaters, red London buses, opportunity to create new economic platforms that processions and that sort of thing. The brand has been will be valuable to us for a long time. But they need refocused quite successfully on what we are actually skills. The point made earlier, which I endorse, is that doing in advanced materials, information technology the flow of science and technology skills into our and so on. To give you one example, in the World economy is something about which we should be very Expo in Shanghai the British pavilion won the golden concerned. We had better not miss that as something award for being the best and showed very much the that will influence the outcome. sort of brand that one would want Britain to have. I have a terrible memory of the 1980s of going with Margaret Thatcher to various Expos and the British Q161 Gregg McClymont: Has the flow been pavilions were awful. The prime exhibit was usually disrupted, or is this a longer-standing problem? a cardboard model of Concorde with a rather bent Paul Skinner: I think we have seen an erosion of the nose and it did not really tell you very much about number of those engaged in science, technology and what Britain was really offering. I think that side of engineering, not only graduates but at different levels things has improved greatly. of professionalism, flowing into UK industry in recent Nick Fry: My view would be that we need to do more years. A lot of people have switched their ambition work to hone what we actually are. I think the brand is towards services activities. In some way we have to reasonably strong but, looking at it from the marketing recreate the enthusiasm for those core technical skills perspective, it needs to be defined better than it is at on which so many of our great industries in the past the moment. What are we good at? What are we going have been built. out there to sell? Almost in advertising terms, what is the elevator speech about what we are good at? I do Q162 Gregg McClymont: How do we go about not think we have honed it down to that level. As Lord doing that if, as I understand what you say, a lot of Powell says, there is a bunch of things from which we our better graduates in these fields now migrate have moved away. But what are we? The only other towards the City and financial services? What observation I make is that, with all due respect to practically do we do to redirect that talent? everyone, possibly we are a little too polite. We go Paul Skinner: Ultimately, the market will determine back to places with our Grand Prix schedule every those flows. In some way we as employers have to year. It is quite a nice cadence because you can see create careers that are attractive in price for people the level of change, which in most parts of Asia is Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 45
1 February 2011 Nick Fry, Sir Roger Bone, Lord Charles Powell and Paul Skinner immense. The people are very young, enthusiastic and Sir Roger Bone: I am not sure I heard all of that, but committed to commercial success. perhaps it comes to the same thing in the sense that when we are successful it helps the export potential Q164 Rebecca Harris: We are not pushy enough? of those SMEs. Nick Fry: We are not pushy enough, absolutely; we are a little, “After you.” I think that has changed but— Q168 Rebecca Harris: Lord Powell? I refer to it again—compared with what the Lord Powell: On the last point, I do not think we have competition are doing, we are not focused enough. done as well as we should. For many years I have heard about how big companies were bringing in Q165 Rebecca Harris: What should we be learning SMEs in their wake. They do not, or almost never, or from the competition? certainly not in a targeted way, in that they bring in Nick Fry: I come back to the point I have made whoever is the most efficient supplier or the people several times. I think we need very clear objectives of they believe are best adapted to the particular contract. what we are trying to achieve. We cannot be good at Generally, SMEs are great users of Government everything. Quite a lot of business analysis needs to services through UKTI and the various business be done of our strengths and weaknesses. Where do councils and things like the Asia Task Force. At our we need to focus? Then we should lay out clearly events over the past two years we have had close to what we are trying to achieve. I come back to 3,000 companies of which 98% will be small and measuring it. As Mr Binley said, we need some medium-sized companies. We certainly interact with measurable objectives. them. Of course, they need different help from the big Paul Skinner: We have underlying brand strength, but companies. First, they need to have their eyes opened our brand identity has become a little blurred. There to the opportunities, through just telling them about is confusion in the minds of a number of our the opportunities in Asia for instance which are not international trade counterparties about what the UK always very apparent; second, it is telling them about economy is all about these days. Have we lost our the kind of help they can get in accessing the market: manufacturing base? The answer is that we have not, trade missions, various financial grants and advice but there is a perception that it has gone. Therefore, through UKTI and others that they can get. Lastly, it there must be something about the way the brand is is a matter of supporting them when they get out into the area. For instance, the China-Britain Business being projected for that confusion to endure. Council has offices in 11 or 12 cities in China where a small company trying to get started in China can set Q166 Rebecca Harris: My last question is about up for the first two or three months and can have a SMEs. In our session last week we talked about some desk, telephone, access to a secretary, advice and so of the difficulties SMEs had in exporting or attracting on. We can give them very specific kinds of help and inward investment. Some of those were possibly down that needs to be done. The interesting question is: to their own lack of confidence or knowledge about however many SMEs you help, in the end will it make the possibilities. How are you as ambassadors able a huge difference to British exports? The honest to relate to them and promote them? What kind of answer is that British exports depend predominantly relationship do you have with, for example, different on the very big companies; those are where the real trade bodies and that kind of thing? figures come from. Paul Skinner: I made the point earlier that our larger global companies with big international networks and Q169 Mr Binley: I put two questions just to mop up. that typically have extensive experience of operating The first relates to Sir Roger’s comments about the in many countries can be more helpful to small and state of technology in four, five, six or seven years’ medium size-enterprises than historically they have time, which is vitally important in the aerospace and been. That can be good business in the sense that the motorsport industries. We did a review of both more a large company is creating a supply chain and industries, which are becoming increasingly allied—I partnership opportunity for small businesses the better suppose that was one of our surprises when we did that will be for all concerned. That is one priority I the review. But we were under the impression that would have for this network. How can it positively quite a lot was happening. For example, the help our smaller and medium-size enterprises that Composites Centre at Bristol was important. Where aspire to play a role in international markets? are our weaknesses? Can you point to specific Sir Roger Bone: I am very conscious speaking from weaknesses in this respect? We still have time to pick the point of view of a large multinational company those up and your advice on it would be very helpful. that we are wholly dependent on SMEs for our Sir Roger Bone: In my view, it is not so much a business. In this country we have links with more than question of spotting where the weaknesses are but 250 companies altogether that feed into our supply those areas into which research should be put at this chain, so whenever I speak about the aerospace particular point to ensure we maintain that cutting community here I am very conscious that I speak on edge in four or five years’ time. Composites is one behalf of all those SMEs whose livelihoods depend very good example. I am absolutely delighted that we upon our success. have that emphasis at the Bristol centre. In my business, any aspects of research on improving Q167 Rebecca Harris: Is it more about big performance in aerodynamics, environmental impact, businesses bringing in others in their wake rather than fuel consumption and emissions are the touch-points directly helping them import or export? that matter to us. In many of those areas there is Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
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1 February 2011 Nick Fry, Sir Roger Bone, Lord Charles Powell and Paul Skinner excellent research under way in the UK. I would not about inward investment. Part of the new world in want you to conclude from what I have said that there which we exist, certainly in the motor industry, is to are necessarily huge, glaring weaknesses. My concern attract inward investment so we can export more is that those efforts should be sustained in the period through the companies investing here. Paul Skinner, ahead. you picked up this point earlier. In the league table of inward investment we have fallen from second to fifth. Q170 Mr Binley: I think that is a helpful message One area of which you will be very aware is that when we can pass on to the Minister from this Committee. you travel around the world, as many of us have done, My final question is about the make-up of the the competition is now not necessarily from the usual ambassador team. You will know that there has been suspects, i.e. there are new entrants who are building some criticism, not least from the British Chambers infrastructure to be able to attract that kind of inward of Commerce, about the fact that genuine SME investment, certainly in transport infrastructure. There creators are not properly represented. Do you agree are lots of good things happening on transport but I with that? If you do, how can we improve that? They would love to hear your view on airport infrastructure. tend not to be the stars in the way that you are, I was staggered to see the new airport being built gentlemen. outside Dubai. It has five runways on top of what they Lord Powell: One simple point is: if they are very currently have. I refer to Singapore and other places. small SMEs will they have time to do this kind of If we are to attract that kind of inward investment— thing? we have real advantages in terms of language, time Paul Skinner: I am very supportive of the role that zone and so on—what is the panel’s view on SME companies can play in our domestic economy infrastructure? but also in our export markets. As a matter of pure Paul Skinner: It is an area in which I am currently practicality, I guess that they will perhaps not have the working. I do think that it is a very important driver resource available to them and the corporate of economic growth and competitiveness. When you recognition to enable platforms to be created through talk to potential foreign investors, whether they are which the ambassadors can become effective and corporates, sovereign wealth funds or institutions, the amplify the UKTI messaging. That is just the way quality of infrastructure, and the infrastructure life is, I think. For this network to lose sight of the investment opportunity, is rising on the agenda. I think importance of SMEs would be to miss a beat. As to we have to be very mindful as a country that we whether or not the network should be more populated maintain competitive economic infrastructure if we by SMEs, I think you come down to some very want to attract investment in the wider sectors of the practical considerations. economy and not fall behind our competitors. To some Nick Fry: Perhaps a way of achieving a good result extent, we have slipped a bit behind the curve. I think in this area would be to engage rather better through there is a serious attempt in energy, transport, water, some of the trade associations. In motorsports we are waste, digital—across the whole spectrum—to blessed. We have the Motorsport Industry Association re-establish our position, and I think the spending which represents a large number of companies. I think review recently reflected those priorities, relatively that engaging with them as a vehicle to get to those speaking. It is important and we had better not lose smaller companies, which probably do not necessarily sight of it. have the time to deploy personnel first hand on this, Chair: Thank you very much. It has been a good might be a way to achieve the objective. session. I thank you for your attendance. Again, if Chair: I think Margot’s question has been covered, so there are any comments you would like to make that I will bring in Nadhim. you have not had the opportunity to make please feel free to send us further evidence, and if we feel there Q171 Nadhim Zahawi: Very quickly Chairman— is a question that for some reason we have not asked thank you very much—I want to pick up the point but would like to we will do likewise.
Examination of Witnesses
Witnesses: Graham Chisnall, Managing Director, Commercial Aerospace and Operations, ADS, Stephen Phipson CBE, Vice-President of Security, ADS, and President of Smiths Detection, Bob Keen, Head of Government Relations, BAE Systems plc, and Katherine Bennett OBE, Vice-President, Airbus, gave evidence.
Q172 Chair: Good morning, and thank you very Stephen Phipson CBE: I am Stephen Phipson, much for agreeing to speak to us. Will you just president of Smiths Detection and vice-president of introduce yourselves for transcription purposes and security within the ADS trade association. voice levels? Katherine Bennett OBE: I am Katherine Bennett, Graham Chisnall: My name is Graham Chisnall. I vice-president and head of political affairs for Airbus am managing director of ADS, which is the trade worldwide. association that covers aerospace, defence, space and Bob Keen: I am Bob Keen, head of government security. relations for BAE Systems.
Q173 Chair: Thank you very much. Perhaps I may start off with the reverse of the question I asked the Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
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1 February 2011 Graham Chisnall, Stephen Phipson CBE, Bob Keen and Katherine Bennett OBE representative of Boeing. Given the lawsuits flying Graham Chisnall: There is nothing really unusual around internationally between Boeing and Airbus, about that in the industries in which we work. For a how does Airbus feel about having a Boeing long time now we have got well used to competing representative as a British business ambassador? on certain programmes and partnering and co- Katherine Bennett OBE: I have to say it caused a operating on others. There are fairly well established few raised eyebrows in our factories in Bristol and practices about how to keep Chinese walls between Broughton. On Friday I spoke to our Unite convenor these kinds of arrangements. I think it could be in Bristol. There was some surprise but, listening to overplayed as an issue in that regard. Sir Roger, I could not really disagree with a lot of what he said about the importance of promoting Q179 Mr Binley: Well, that is our judgment, is it technology and aerospace. We shall have to be very not? careful in any briefings we provide to UKTI on Airbus Graham Chisnall: Yes. sales campaigns, but it was an interesting appointment and we look forward to working with all the business Q180 Gregg McClymont: Together you represent a ambassadors. There are three others from aerospace British success story, it would be fair to say. First, and defence as well, so we are used to working what is the secret of your success? together on a lot of these issues. Graham Chisnall: I think we are an outstanding British success. We represent about 20% of the Q174 Chair: You have hinted that there might be advanced engineering and manufacturing sector by some difficulties for you. value in the country; we turn over about £60 billion a Katherine Bennett OBE: A lot of the time in our year; we have about 500,000 employees; the average work with UKTI, when the Minister goes abroad we salaries in our sector are higher than the provide briefings on sales campaigns. Therefore, if Sir manufacturing average, and so on. These successes Roger is on a particular trade mission where there is are not built overnight. For example, the commercial a big sales campaign going on obviously we would aerospace field sailed through the recession and grew not particularly want him to be involved. Aside from employment and salary levels all the way through and that, developing aerospace SMEs, British technology is now growing very rapidly again, but it is building etc., etc., is a message we would share, but maybe and delivering products that depend upon investments we need some levels of secrecy, careful briefing and that go back 25 years or more. I think that Sir Roger so on. in his evidence tried to indicate quite strongly that the research and technology investment that led to this Q175 Chair: It would be unfortunate, given the outstandingly successful set of sectors needs ambassadorial role to sell British manufacturing, if a continuous replenishment. Aerospace is, probably key British manufacturer could not provide, if you more than any other manufacturing sector, truly like, the necessary briefs and back-up to enable the global. The large companies choose their suppliers on ambassador to do that. a global basis almost without regard. If we are to Katherine Bennett OBE: We would provide briefings maintain our share of that future prosperity and on sales in terms of supplier relations, but we would growth we have to do the research and development now that captures the next programmes. Therefore, it not be providing briefings on any sales issues. is research and development. We have good skills. Chair: This is not a criticism of Airbus; it is just a There are concerns about skills which I am sure we comment on the situation, which is less than will talk about in due course, but we are an educated, satisfactory. highly skilled population and we have some very good, big companies. As you heard from the previous Q176 Mr Binley: This concerned me right from the testimony, a lot of this sector is driven by the success beginning, quite frankly. I think that your interests of big companies that go out there and capture long- need to be protected. Maybe our Great British civil term big contracts. This is a very long-term business. service has missed a point here. Would it be helpful It is about capturing large-scale contracts which, to you if this sensitivity, particularly in relation to certainly for aerospace programmes, can then run on sales to overseas markets, is highlighted? I think there for 30 years in terms of the manufacturing and is a degree of sensitivity, which perhaps has been support afterwards. missed and it might be useful if we highlighted that. Stephen Phipson CBE: If I may add a point from the Katherine Bennett OBE: I am treading carefully security perspective, it is a relatively new sector in because there’s an element of “She would say that, terms of defining a sector for ADS and industry as a wouldn’t she?” whole. I think three things underpin our success in a rapidly growing market. One is innovation, which is Q177 Mr Binley: I agree with you. our preserve: we are seen as a world leader in terms Katherine Bennett OBE: Frankly, as I said, Sir Roger of security technologies in this country. That takes me is a very able business man and former diplomat; he to the second point. We have a long track record in has a lot of strengths. It is no particular comment on counter-terrorism and experience industrially as to that, but if the Committee would like to highlight it how to cope with that. Third, something to be then, yes, we would welcome it. recognised here is our very strong counter-terrorism strategy, as produced by the Home Office, CONTEST, Q178 Chair: Before I bring in Graham Chisnall, yes, which is seen as a world-leading model for how to you would say that, but it is fair to say so would we. deal with this in many countries around the world. Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
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1 February 2011 Graham Chisnall, Stephen Phipson CBE, Bob Keen and Katherine Bennett OBE
Therefore, they look to British industry to supply the aerospace, making sure that we have UK-based technology to support that and it really does help. It products that we can take into the export market is is a fantastic export tool for us. absolutely crucial. For the long term the key objective for us is to have, in the maritime sector, Royal Navy Q181 Gregg McClymont: Perhaps I can ask ships that we can take into the export market in a way Katherine and Bob what the basis is of our success in we have not really successfully been able to do in the this field. past. For us it is an absolutely symbiotic relationship Katherine Bennett OBE: I will not repeat it, because with the UK Government. I agree with what has been said. Engineering is the Stephen Phipson CBE: If you look at the security crown jewels: the aerospace engineering in this sector the majority of our export customers are related country, whether it is BAE Systems, ourselves, GKN to the Ministries of the Interior in foreign or Spirit, the aerodynamicists or the very clever fuel Governments, so that relationship is a key part of how integration experts. Why are they here in the UK? It we sell. It is about products and innovation but also is a historical thing. The most important thing is that the relationship with those government agencies is we need them to remain here by supporting them very important going forward. through infrastructure, investment, etc. It is hard to Katherine Bennett OBE: I once heard a great quote, create new aerospace engineers. They are educated at Gregg: aerospace is politics with wings on it. The two our universities but also abroad. There is a core base parts are totally interlinked, whether we like it or not of them. We have a slight fear, as Graham said, that sometimes. Before joining Airbus I worked in the perhaps it is slipping away. We need to maintain it automotive sector and there was nowhere near the and keep the momentum going. amount of involvement. The most important thing for Bob Keen: To look at some of the specifics of the us in the industry is to work with that the right way. defence sector, BAE Systems is the largest Sometimes it can get in the way but it is usually manufacturing-based employer in the UK. We employ beneficial. Therefore, the two are definitely about 40,000 people here, about half of whom, to interlinked. reinforce Katherine’s point, are engineers. Engineering is absolutely at the core of our company. Q183 Gregg McClymont: You may have heard at Of course, you do not succeed without terrific the beginning of the previous evidence session a products, and we think we have terrific products. In reference to our loss of mercantile spirit, but the export market the defence sector is different from mercantilism as properly defined seems to be exactly the commercial one, in the sense that all of your what this sector has been doing for many years. customers are Governments. Therefore, it is not just Graham Chisnall: I think that is true. We have a track good enough to have terrific products, absolutely record of being very proactive, taking a very long- necessary though that is; you also require absolutely term view, developing well in advance of others key joined-up support of the British Government because technologies and spotting market opportunities that the overseas customer is buying into the relationship generate very long-term pay-offs. with the UK Government. The key to our success has been strong political support; it has also been strong Q184 Margot James: What would you say is the support from the UK Armed Forces, the reputation of main hurdle that holds back exports in your field? which is absolutely a key discriminator for the UK in Graham Chisnall: We export very successfully. 70% the defence market. Therefore, in addition to all the by value of aerospace products out of the UK is stuff that the other panellists have said I would exported. I think we have a very strong track record. highlight those key issues as being important for our One could always do more, and some of the evidence success in the export market. you took earlier pointed to some of those issues. It would be nice perhaps to have a bit more of a joined- Q182 Gregg McClymont: Finally, is it fair to say up plan that brought together the various facets of that this British success story across these sectors ministerial visits to countries, efforts going on by involves a closer, entwined relationship between the members of the industry within those countries and so state and the industry relative to other sectors of the on. We are working hard at that. There is a reference economy? in your questions to ambassadors’ packs and so on. I Graham Chisnall: Absolutely. There really is not a think we are improving on that as we go along. completely open, pure market in that sense with any Inevitably, there is an issue about finance aid. This is of these sectors. They are either heavily influenced a global business with global competition and by Government or Government is the market. That is everything must be looked at relative to what other clearly so in defence products, but even in the field of countries are doing in offering their own domestic commercial aerospace the Chinese Government suppliers and so on. We have some very good centrally procures its airliners and allocates them to organisations in place. UKTI does a super job. We the airlines. Therefore, it is impossible to access the work very closely with them. There are concerns growth prospects and maintain the prosperity we about the future funding of some of these enabling currently generate without working very closely with organisations with which we work closely and on the Government. which we depend. Bob Keen: One additional point is that in the UK defence sector the Government is also our customer. Q185 Margot James: We saw in the written For us, our future exports are absolutely predicated on evidence that there was a fear about theft of sustaining capability in the UK; in terms of military intellectual property essentially in exporting to some Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
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1 February 2011 Graham Chisnall, Stephen Phipson CBE, Bob Keen and Katherine Bennett OBE markets. China was a market mentioned often in this Our sector is due to double in size over the next 10 context. To what extent is that a problem for your years. Looking back over the past 12 months, we have industry? Is there anything that the Government can seen approximately a 14% increase in exports from do to help you deal with it? the UK most of which have to go through export Graham Chisnall: We are a very high technology control. The Export Control Organisation within BIS industry. All companies that work in this area have is critical to that. We need to realise that if this very strong IPR protection policies. It is a very rapidly continued pace of expansion and export is to be moving feast on the technology side. I think the first maintained we must ensure they have sufficient thing to say about IPR is that if you are trying to resources to be able to service these export control protect IPR you generated 10 or 15 years ago you requests in a timely fashion, and that is something that have probably lost the plot because your future concerns us. business is not coming from it. Therefore, staying ahead of the game in this global technology race is Q187 Chair: Just on that point, you said there had absolutely vital. Future business is driven by your R been an expansion of about 14%. Was the licensing and T programmes that you are now engaged in, not system an impediment to even greater expansion? Is your R and T that you had in the bank for 10 years or this in spite of or because of that? more. On the defence side, I hand over to my British Stephen Phipson CBE: My sense is that we are Aerospace colleague to talk about that in particular reaching absolute capacity in the system we have. If and the security side. we are to continue our export drive we need to make Bob Keen: From a defence perspective, exporting to sure they have resources to be able to do it properly. any new customer obviously gives rise to a risk that Export control is very important to the country but we you will lose intellectual property. In defence need to make sure that those resources do not start to particularly the Government have an interest in hinder the drive for exports. ensuring that any intellectual property does not give rise to concerns about national security. We have been Q188 Chair: What you are saying—I do not want to pretty good at managing that and making sure we put words into your mouth—is that in effect this an address the needs of our overseas customers while we expanding market that is potentially huge and we have ensure that the UK Government are happy with what reached the limit of our ability to process applications we are doing. If you look at our record in comparison in time to capture the full potential of it. Is that with others, our ability to transfer technology to new reasonable? markets has been a key discriminator for the UK. For Stephen Phipson CBE: That is a reasonable example, if you look at what we as a company have statement. done in Australia, the Kingdom of Saudi Arabia and the United States, our ability to transfer technology Q189 Nadhim Zahawi: Before I ask my question I has been a key issue in achieving export success. want to pick up Stephen’s point with a particular There is a risk, which in the defence field certainly example where the end user licence was delayed for needs to be managed, and for us that requires a close a UK manufacturer to deliver a security product to the relationship with the Government to make sure that Ministry of Home Affairs in Iraq; the Germans their interests are properly protected. provided the same equipment because their end user licence came through quicker and the customer was Q186 Margot James: Mr Keen, perhaps I may ask under time pressure. Is that your experience? you a follow-up question as you represent one part of Stephen Phipson CBE: It is. If you look at the the defence industry. Some of us sit on the Committee differences between defence and security one of them on Arms Export Controls. We had a session at the end is time. We need to respond quicker to these types of of last year with representatives of your industry who inquiries, particularly for Ministries of the Interior in were very critical of the export licensing system of those sorts of examples. We need to keep that in mind BIS. What is your view of that? We heard a lot about and have a system that is responsive. Sometimes there bureaucracy, delays and all sorts of things. Would you are very good reasons why we do not grant export like to comment on that? licences or there needs to be further investigation Bob Keen: Export licensing is a perennial issue. The before we do. We need to make sure, however, that targets which BIS have in meeting export licences the resources are there, and our fear is that we are have varied over time and there have been varying now at maximum capacity. degrees of success or otherwise. For us, at the moment we are managing it and it is not an overriding issue in Q190 Nadhim Zahawi: I think Katherine has already achieving success in the export market, but the mentioned it, but in your submission, Mr Chisnall, process is a pretty cumbersome one and involves the you highlight the importance of a skilled worker base MoD and other organisations. Therefore, managing to create the products that are worth exporting. How that process is a difficult task. It is not an overriding much of a concern is this for you? Are you worried issue for us but we have to keep our eye on it by the proposed changes to the immigration rules? constantly and keep pressure on the organisations Graham Chisnall: It is a worry. We are worried about involved to ensure that our customer-facing the changes to immigration rules. We are a high-tech requirements—getting bids in and exhibiting business and depend upon a high level of skills at both equipments—are properly met. graduate and technician level. We do not have enough Stephen Phipson CBE: If I may add a comment from of those in the industry, and it hampers growth the security sector, we are a rapidly growing sector. prospects to a degree. In our submission we said that Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
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1 February 2011 Graham Chisnall, Stephen Phipson CBE, Bob Keen and Katherine Bennett OBE
6% of those who graduated last year from British few weeks on this issue, so we would really like the universities were engineering graduates; in Singapore Committee to look at this. it is 40%. 25% of graduate engineering positions in companies last year went unfilled. This seems to be a Q191 Nadhim Zahawi: To probe it a little further, it system that is not in balance with need and demand. is worrying that the Home Office does not respond to We also have the issue of ageing in the sense that a Airbus for seven weeks. Is there no discrimination in lot of our critical skills depend upon people who will terms of applications, i.e. those that come from bona retire in the next 10 or 15 years. There is concern fide corporates like yourselves? about skills and the capability of the skills that come Katherine Bennett OBE: Maybe they are just out of the education system these days, and we have inundated with applications because of the changes. also made submissions on that. We are not talking here about massive numbers, but it Coming to the issue of immigration, in an ideal world goes back to what we are all talking about today: the it would be wonderful if all our needs were supplied perception of the UK overseas. Are we a really within the UK through the UK education system. We burdensome bureaucratic place in which to do hope that effective measures will improve the business? This is just not helping. We are happy to numbers and quality of students who come through continue to make representations in the usual way, and the system, but if the prospect of improvement is there we will get through it. BIS have been listening and it will take quite some time to generate the numbers Vince Cable has been supporting us word-wise, but we need. We depend greatly on highly-skilled people. we need some action because we want people to do We use both intra-company transfers and those who work on Airbus products whom we just cannot bring come in to do particular specialist jobs. Changing the in. rules on that and significantly reducing the number of Bob Keen: To say a word about our position, those in a very short period of time causes skill generally speaking in the short term perhaps we have shortages. less concern about skills in our company than perhaps Katherine Bennett OBE: I absolutely agree with what others, largely because we grow our own. We have Graham says about engineering skill shortages. It is a 1,000 apprentices and 400 graduate trainees in the UK duty on all of us within aerospace and defence to do in BAE Systems at any one time. We run the largest our bit to show that engineering is a great job. God, I apprentice school in Scotland and the North West. wish I could have done it. The engineers I work with Therefore, we have a pipeline of youngsters coming love finding solutions; they are very clever and through. The concern is about the long term. As to creative. My colleagues from other parts of Airbus in Katherine’s point about doing our bit, clearly we have other countries admire British engineers because they a responsibility. We are out there with schools are very pragmatic and are good at being diplomatic. roadshows on a regular basis. We sponsor the Big Sometimes you need that in international companies. Bang. In general terms, working with universities for We do our bit working with what is called the Pegasus example, we have been trying to shape the diploma of universities, which are those that specialise in engineering to make sure it meets the long-term needs aerospace. I know lots of other members here. We of industry. But there is a long-term concern about do competitions with university students to promote skills in the UK. We have to find a way to enthuse aerospace and engineering. Last week there was the youngsters about engineering, science and technology. launch of an advanced manufacturing strategy at We have a collective responsibility to do that and I which the Deputy Prime Minister said that perhaps think the Government have to set the right education people did not realise engineering was quite well paid. framework to make sure we have the right people for You do not always have to go to the City. Therefore, the long term. we need to do our part to promote it. As Graham said, there is a problem with the highly skilled, perhaps Q192 Nadhim Zahawi: Just to push you a little those people who have two or three years’ experience. further on that, you mentioned the Big Bang. Do you Leading on to the issue of immigration, it is a really think BIS has the right STEM strategy in place? big problem for us. The immigration rules have been Bob Keen: Broadly speaking, I think so. The Big changed. The problem is that we have made offers to Bang is obviously a good example; thousands of kids people and the Home Office are not answering calls. in Manchester last year had an opportunity to see what We have written a letter to the Border Agency which engineering could offer. But constantly pressing the has not replied for seven weeks; we have made education point is something we have to do. I do not representations to Ministers. They are listening. I think they are far wrong. Others, perhaps Graham, appreciate the issues about immigration but it is really might have a different view. affecting us who need highly-skilled people. There are Graham Chisnall: I should like to make a point that only one or two lightning experts in the world and is related to that. There are people who work in this sometimes we have to bring them in to work on our space to encourage youngsters to consider STEM- wing issues. Don’t get worried about that, but it is based careers. I chair the largest national charity that something which we have to get engineers to help on. does this. It brokers relationships between companies We talked about composites earlier, which is a very and schools and has a fantastic uptake of girls. 40% specialist area, and we do not always have composite of girls go onto these schemes, and 90%-odd of these stress engineers at home, much as we would love to. students go on to do a STEM-based career. There are We spend £3.5 million a year on training our UK some very effective mechanisms. One thing of which engineers. As to immigration, I have never had our we would like a bit more recognition in this space is HR director on my back as much as I have in the past to build on what is already working there rather than, Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
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1 February 2011 Graham Chisnall, Stephen Phipson CBE, Bob Keen and Katherine Bennett OBE as seems to happen so often in this space, reinvent the sometimes support them as well. Sometimes the wheel. The newest bicycle is always the most demand goes up when there is an economic crisis in attractive. There are things that can be built on in that world finance as there has been. If you are asking space. It is not a completely hopeless situation in that about other sectors and why they do not get more case. We can enthuse youngsters when we show them support, we would not have a problem with that. I what engineering really is: that it is creative, exciting believe that the chief executive of ECGD, Patrick and very well remunerated these days in this country. Crawford, is to come before you soon, and that is a We just have to do it on a much broader scale. question to put to him. From the perspective of Airbus, we are very pleased with the support we get Q193 Nadhim Zahawi: I absolutely concur that from ECGD. 34% per cent of our deliveries last year there is no point in having just another new initiative, were through export credit and the procedure went but learning from experience of what works and what well. We have had some challenges, but other sectors does not and supporting things that work is probably should apply, as I said. I also understand from ECGD right. What is the charity to which you referred? that other sectors went down last year because of Graham Chisnall: Thank you for the question. The exactly the same problem—the economic crisis—so charity is called EDT. You will not have heard of it, maybe some of the big infrastructure problems like but EDT stands for Engineering Development Trust. dams in overseas countries that construction firms in Its website is etrust.org.uk. It runs a number of the UK would apply for just have not happened. programmes for different age groups. The one you Therefore, it may arise just because of the present may have heard of is Year in Industry, which is the economic situation. programme it does for gap year students. Stephen Phipson CBE: Just a small point. If you look Q195 Katy Clark: Do you think that it is just to do at the security sector in particular, we have about with the economic situation we have been through, or 8,000 companies in the UK involved in it, the majority is there a general issue about commercial banks being of which are innovative SMEs. The support for new unwilling perhaps to back aviation projects whereas people coming into those industries is vital for the other sectors might find it easier? lifeblood and growth of those going forward. We have Katherine Bennett OBE: I cannot put everything seen an increase in companies trying to invest in their down to the economic crisis, but we work very closely own apprenticeship schemes as well over the past with the banks; we keep them informed of aerospace couple of years. We have just heard of the BAE business. Maybe Graham has some comments on example, but, on a much smaller scale, many of these private finance looking at aerospace. As we have all companies are trying to do those training programmes said, it is a very long-term industry. Our products take themselves as well. Of course, the funding and 10 to 12 years to design, so lots of venture capital support of those is also vitally important to stimulate funds or private investors will say, “Oh, that’s a long this innovation going forward. Therefore, the point payback time. We won’t bother with that. ” It is a about SMEs is important. message we have to get over. We have talked a lot to Katherine Bennett OBE: To add one thing on the Treasury about the need to remind people that apprenticeships, it is interesting how they are Airbus and aerospace is a good bet; it is a risk worth developing, especially some of the challenges taking, but maybe it has a longer-term payback. presented by university tuition fees. Last Saturday in our factory in Broughton in North Wales we had an Chair: Nadhim Zahawi wants to come back. open day. 4,000 youngsters and parents came. Maybe Nadhim Zahawi: I am pretty much done. The way they wanted to look round the fantastic factory, but the panel was animated over the skills agenda leads they were interested in engineering and manufacturing me to believe that that is an area for us to focus upon. as a career. 4,000 people came to our factory on Saturday, so some good messages must be getting Q196 Simon Kirby: I am very interested to listen to through. the four of you today. You share a lot of common Chair: Nadhim, just before you continue, Katy Clark ground. We understand that defence and security have has to leave soon, so I invite her to ask a question their own separate part of UKTI, which is then we will come back to you. conveniently called the Defence and Security Organisation, but aerospace sits outside within Q194 Katy Clark: The question I wanted to ask is advanced engineering. Surely, that is not sensible, or about finance. We have been told that Airbus is calling is that the best way forward? on the Government to press commercial banks to Graham Chisnall: For us, the question is: who is the provide financing for airlines so that the percentage of end user and customer? It works fine. The defence and the export credit agency’s support that is required is security customer base is a very different one from reduced. Can you comment on that and outline commercial aerospace, so from that point of view we whether you think there is a greater role for private see no problem with that separation. One aspect of finance particularly for exports? which we would like more recognition is that defence Katherine Bennett OBE: To be clear, ECGD is a very often gets overlooked in terms of its advanced guarantee to bank loans to our airline customers. The manufacturing and engineering contribution to that rates at which we used ECGD for our airline deals sector. Therefore, some recognition that defence is in last year went up considerably because of the itself of very advanced manufacturing value and a economic issues. Airbus would much prefer it if our contributor and generator of high-value jobs would be customers were able to go to the banks directly. We a step forward from that point of view. Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
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1 February 2011 Graham Chisnall, Stephen Phipson CBE, Bob Keen and Katherine Bennett OBE
Q197 Simon Kirby: Perhaps I may ask it from the Q199 Simon Kirby: Therefore, if the Department is other side: aerospace. not careful there are specific areas that are more risky Katherine Bennett OBE: I have to declare an interest. than others? I sit on the advanced engineering board of UKTI. We Graham Chisnall: Yes. talk about defence quite a lot in the board meetings I go to. Airbus is owned by the defence company Q200 Simon Kirby: It is not the concept of cuts per EADS, so I see a lot of defence issues on the table. se that presents a risk but where those cuts fall within My defence colleagues in EADS work closely with the Department? DSO. There is a bit of interconnectedness, although Graham Chisnall: Yes, absolutely. We understand we once made the general comment that there could that these are straitened times and resources are not be better coordination. As to advanced engineering, I necessarily all that we would wish them to be, but that just emphasises the need to make sure that you put sit round the table with crane manufacturers and high- your resources where they contribute the most. If end automotive engineers like the gentleman from the export is one of the highest priorities then one has to motorsport industry earlier. There are lots of common pay attention to those enabling mechanisms. issues, as we talked about before. Composites are used by all sectors, so it makes sense for us on the civil or Q201 Mr Binley: One concern that I have pursued commercial side to sit round the table with those since I came into Parliament is the SME sector. You people. As to UKTI, they have aerospace experts are pretty much dependent in your supply chains on based in Glasgow to whom I talk regularly. They that sector. It tends to have great difficulty in opening follow the sector and issues. They ring me up and up new markets. It is reasonably well established in sometimes tell me things that I do not know are the EU and North America, but the emerging markets happening within my own company. They do make an are a real problem to them and yet you are there. How effort to follow the issues in the right way, but I can those SMEs be helped to move away from the appreciate that having two separate organisations may safety zone and open up those new markets to allow bring some challenges. I will let Bob answer on them to grow and provide the jobs that will justify the defence. growth agenda, quite frankly? How can you help Bob Keen: From our perspective, to echo Graham’s them? Can you piggyback? Can you do other things point, defence and security is very different from the and, if so, are you doing them? In what areas can you aerospace sector. The overseas customers are work to help them in that respect? Governments. For all the reasons I outlined earlier, the Graham Chisnall: We are doing a lot of things. The kind of support we need is different from the needs of first thing I want to get across is that the supply chain the civil aerospace companies. I think there is perfect within aerospace and defence is the best outside the logic in keeping the two organisations separate. United States and it is a national competitive advantage. I firmly believe that we get business from the big global primes because we have such a strong Q198 Simon Kirby: That is quite clear and once supply chain in the country. To maintain the health of again unanimous. We have common ground even that is an absolute priority. We are doing a number of when we do not have common organisations. ADS things. There is a strong impetus to try to help SMEs says in its submission that there is concern that a cluster together so they can group their natural reduction in BIS’s budget could pose risks to the UK’s capabilities and be able to do larger jobs, and there is export agenda. What do you mean by that? Can you inexorable pressure on them from their customers and elaborate on the risks that are posed? their customers’ customers to group together, be more Graham Chisnall: They fall into two areas. First, we efficient and have one contract rather than five and so have a national aerospace technology strategy that has on. Therefore, clustering is an important thing. We in been in place for about five years. It is a very thorough ADS on behalf of our members have submitted piece of work which has been adopted by both BIS proposals and requests to the regional growth fund and industry and is funded jointly by them. These that BIS has set up aimed specifically at putting in days the BIS funding tends to be via the Technology place mechanisms to allow SMEs to develop and Strategy Board. As you heard in the previous session exploit technology to capture more market share. One part of that would be more export business through of evidence, we have to maintain that R and D funding those mechanisms. The other thing is that within the in the sector if we are to win a similar market share sectors in which we work the supply chain must be on the next programmes. There are obvious concerns seen as an entity in itself. No one part of the supply in the current climate given the state of the chain can operate independently of the rest. Therefore, Government’s finances about how we maintain that enabling the big, medium-sized and small companies momentum, which we consider absolutely vital. The to extend themselves overseas will be vital going second area of concern is about the enabling forward. Funding is an issue. The further you go down mechanisms that BIS has in place like the export the supply chain and get to the SMEs, funding still credit organisation, ECGD funding mechanisms and hampers their ability to make the investments so on, because we all want to grow our exports but necessary to extend themselves offshore. we have to will the means as well as the end. It will hamper our growth prospects if the cuts come through Q202 Mr Binley: Perhaps I may pursue that point a in the way we touched on earlier in terms of getting little further. Are you talking about working capital to timely export approvals in place and so on. sustain growth? Is that a problem for them? Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
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1 February 2011 Graham Chisnall, Stephen Phipson CBE, Bob Keen and Katherine Bennett OBE
Graham Chisnall: I think it is working capital and Government we need to help SMEs have better investment in new products and processes and also in management; they need to study more about balance opening up new markets. It costs money. If you are a sheets, etc.” That is where they often lose out with small company, £50,000 just to try to open up a companies abroad. We have some very strong first-tier business line in Brazil or somewhere, particularly at suppliers in the UK and we need them to continue this point in the cycle, is something you shy away and grow. from. I think it is all of those things. Q205 Mr Binley: You raise a very important point Q203 Mr Binley: Forgive me for my final point on about the basic need to have a monthly P and L, aged this issue which is vital in this place. Are you saying debt analysis and cash flow analysis. I understand that that despite all the fine words our banks do not all of those things are absolutely vital, but should not understand the need in real terms? the banks be playing a much more active role in this Graham Chisnall: We have gone on record a number and they are not doing it? of times in a lot of different forums as saying that Katherine Bennett OBE: I tried to mention that access to appropriately priced funds is still an issue earlier. I have noticed it also in the automotive sector. for our SMEs. We often need investment in our SMEs to help them win business from big companies like us and Q204 Mr Binley: Let me push the two large encourage them to get them into partnership with each companies on the whole point about helping people in other, perhaps by means of more consortia, etc. The their supply chain to open up new markets that are R and D process in the UK encourages that now; lots there and we can exploit but need some help. How of bids are being put in by companies working jointly. can you do that? Some of the UK companies are so small that they are Bob Keen: I should make a general point. Using often like third-tier suppliers to us. Maybe Katherine’s earlier point—“I would say this, wouldn’t conglomeration and more business management can I?”—the reality is that our success in the export help, but we do not have a particular point to make market benefits our supply chain hugely in the UK, so about banking and finance here. that is not to be overlooked in all of this. We can and do help our supply chain to develop relationships in a Q206 Mr Binley: I was talking about banking and number of our markets particularly where we have an education. established indigenous position. We are already doing Katherine Bennett OBE: Yes. that. Although this is perhaps not quite your point, I Stephen Phipson CBE: From the security perspective also believe that UKTI can help smaller companies Smiths provides a lot of the security systems to the US with some of the entrées to markets that they need. Government. You see it in all the airports and DoD. In Some of this is pretty simple; it is understanding the many of those arrangements increasingly companies marketplace and local industrial scene and putting like ours team with SMEs and take them into those them in contact with the right people. I see some of programmes. In particular, the US Government is a that happening. It might not be to the degree that you large funder of R and D in the security sector. We or I would want, but ultimately it is for the SMEs to have been able to benefit a number of SMEs in this make the risk/reward calculation of whether or not country by bringing them into that programme. It they want to invest to develop a position in a new helps us as a company and helps the SME base. That market. From our point of view, the marketing costs teaming arrangement and the role played by the trade of developing a position in a market in which you association in making sure the rules of engagement have not operated can be very significant even for a around that are clear is important. Another point I company the size of BAE Systems, so ultimately it make is about UKTI. If you look at DSO and security must be for the SMEs to decide. in particular over the past two years of focus, bearing Katherine Bennett OBE: From the perspective of in mind it is a new focus and new sector, there has Airbus, we have 2,000 suppliers in the UK. That is been a high degree of focus on encouraging SMEs in probably not as many as BAE Systems, but 2,000 is a export markets, being able to provide for them the lot to look after in terms of helping all of them to get right kinds of facilities. As we have said numerous into emerging markets. I agree with Bob that our times here, it is very difficult and expensive for an success reaps success for them, too. We are very SME to go to India to try to get a major contract from supportive of the new supply chain development the Ministry of Home Affairs there. DSO has been initiatives that Graham has outlined. A good example working through some very good tools to enable is China. We have built a final assembly line in China. SMEs to be successful in those environments. A The UK took wing work to China. These are wings number of trade shows and relationship building that will go on Chinese aircraft, so you can see some events are tailored specifically to those small of the politics at play there. But we encouraged UK companies. It is important to encourage that to go suppliers whom we desperately needed alongside us forward. to develop in China as well. Therefore, when we are working on a particular project we do all we can to Q207 Mr Binley: You are producing ambassador help them. To take a step back and forget the subject packs. You have not sent them out yet. of the inquiry for a minute, for SMEs to get business Graham Chisnall: Not yet, but I have one you can from Airbus they need to be run efficiently and have have a look at.1 top-level management. So many times my procurement colleagues say to me, “Please say to 1 Ev 152 Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
Ev 54 Business, Innovation and Skills Committee: Evidence
1 February 2011 Graham Chisnall, Stephen Phipson CBE, Bob Keen and Katherine Bennett OBE
Q208 Mr Binley: That would be very helpful. In my because that is so powerful. As you said, Mr Bailey, travels I have found that the whole issue of the we need eyes and ears as to what is going on in that effectiveness of UKTI in a given country is almost country. entirely dependent on the quality of the individual staff in that operation. I have found tremendous Q211 Chair: In a way, you are making my point. You differences in quality. One connecting point is that contacted the embassy. Is there a role for embassies where people have had business experience they are to identify market opportunities and then proactively usually better at the job than those who have not had look to get British businesses to meetings? that business experience. Is that your view? How can Katherine Bennett OBE: Yes, and to a certain extent we encourage more business people to get into UKTI, they are doing that. In two weeks’ time there is an and when will you send out the packs? event in Mexico which a high-level Government Graham Chisnall: The packs are going out as we Minister is to attend working with Airbus. That came speak. We are doing them by priority country. They about as a result of the Monterrey consulate will go through a series of information, such as what contacting us, which is great. I have been going on are the opportunities in that country and who within and on to the British Government about how they our supply base would benefit from those need to be a little more aggressive and proactive. opportunities and so on; and there is some information Therefore, they do it but certainly more of it should about who the actual agents are in that country who be encouraged. would be holding those opportunities. Therefore, the Bob Keen: On your point about people, if you get the aim is to encourage a much broader campaign of right people in an embassy the extent to which they joining up all the dots on this, which I think was can help British industry in that market is huge. There touched on in the previous conversation as well as is also the trickle-down point. You talked to Lord this. We think that a lot is to be gained by getting a Powell earlier about the extent to which government plan in place country by country which is specific emphasises trade as a key part of a foreign mission. It about the objectives we seek to achieve in that is absolutely essential that ambassadors see that role country, and then focusing ministerial visits through as being just as important as their traditional that process where industry gets a good view of the diplomatic one. I think that is absolutely crucial, but ministerial visit rather than one at short notice. We in the end people are the medium through which have a joined-up programme between industry, UKTI industry, particularly SMEs, gets access. and the main Government Departments, so there are clear objectives. There is a pack of information about Q212 Mr Binley: Would your company consider those objectives and what we are trying to achieve secondment to UKTI? Do you do that? jointly through those various initiatives, and we can Katherine Bennett OBE: Yes. see ahead by, say, 12 months as to who is doing what around those objectives. I think that is achievable and Q213 Mr Binley: That happens quite regularly. Is it would be a significant step forward. working well? Katherine Bennett OBE: Yes. I know that when BAE Q209 Chair: Before we move on, can I pick up two Systems owned part of us there was a gentleman, with things? First, you compiled these ambassador packs. whom I have worked quite a lot, who worked in the Do you think it would be helpful if ambassadors had embassy in Japan for a year and then went back to business packs? BAE Systems. UKTI really liked working with him. Graham Chisnall: Basically, these are business packs; We have been looking at other opportunities. they are exactly that. Bob Keen: To be honest, it is not as easy as it sounds. My experience over the years is that it has been quite Q210 Chair: To clarify what I mean—I put it in difficult to get the kind of interchange between shorthand—as I understand it, you are assessing what government and industry that most of us collectively your industry has to offer a particular country. What I would believe was beneficial, but it does happen. am trying to get at is: would it not be helpful if ambassadors, the Diplomatic Service and UKTI had a Q214 Paul Blomfield: I want to explore the role of pack demonstrating the business opportunities in the UKTI in a little more detail particularly in relation to particular country and proactively tried to get British larger companies. It follows on the view expressed to business to meet them? us by the CBI that UKTI needs to move beyond the Graham Chisnall: It would certainly be highly work it does with SMEs to provide better support to beneficial if we could achieve a joint view of the larger companies. If I may turn first to Katherine opportunities in a particular country and both Bennett, Airbus has told us that it has a sophisticated contributed to that view. network of sales people across the world and in a Katherine Bennett OBE: They do do that. I was in sense it does not need the kind of support that UKTI Brazil last year and contacted the São Paulo consulate can offer. Does that mean it should move away from which sent me brilliant information, often on SMEs the focus on supporting larger companies or that it actually. It contained useful things that I did not know need to develop a more sophisticated role? about and was very useful. The point I would really Katherine Bennett OBE: As to the focus on the larger like to make to the Committee in this Inquiry is the companies, I talked about the people in Glasgow who importance of ambassadors working together—so, the were aerospace experts. They are based in the UK and French, German, Spanish and British ambassadors: we keep them informed of things going on, but in the four Airbus home countries—on sales campaigns, embassies around the world there are commercial Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 55
1 February 2011 Graham Chisnall, Stephen Phipson CBE, Bob Keen and Katherine Bennett OBE attachés who spend their lives dealing with all sectors; Graham Chisnall: We feel we have that they do not focus just on aerospace. Maybe moving sophistication in the relationship and that it works up a level, we want ambassadors, as Bob said, to fight well. There is little point in our commenting on other their corner and realise that they also have a role in sectors that sit outside our immediate expertise, but promoting trade and business as well as a diplomatic the implication seems to be that other sectors might one. I was interested that the CBI said that perhaps benefit from the kind of sophisticated relationship that there should be account managers. Maybe we do we think we enjoy with UKTI. already in aerospace. I deal with the guys in Glasgow, Katherine Bennett OBE: If the question is more and we also have an account relationship with BIS as about what we can get from UKTI, it is really the co- well in the aerospace team. Therefore, it is already ordination of ministerial visits abroad which I think is there and maybe it could be spread across other alluded to in the ADS submission. UKTI said to me sectors. the other day that they did not know that so and so Bob Keen: Certainly in the defence sector we have a from the Foreign Office was to go to some foreign formal key account management process with the country. In my new job I deal with the French and DSO, but beyond that we have a very good, German Governments, who open their diaries to us. constructive, integrated relationship which goes from We know when Christine Lagarde is going to the the top of the organisation through to the sort of Middle East. To get that information out of our people we have been talking about: the UKTI Government is a nightmare. I know we have security representatives in the markets who have a good issues, but we ought to know well in advance. We relationship with our people but based there. That is can then provide the briefing. That is where joined-up the sort of support we want from UKTI. One other thinking is perhaps not working as well as it could. thing is to assure the interests of the industry across Whitehall and some of the stuff I talked about earlier: Q217 Chair: That is an interesting point which ties the extent to which we make sure Ministers get around into a question I put to the previous witnesses about to markets and we can offer training packages to the coordination of ministerial visits and business overseas customers; and also the extent to which we agendas in other countries. I gather there is room for get ECGD support, which we will probably come on improvement. to. All of that is debated within Whitehall, and to have Graham Chisnall: Yes. a champion in UKTI to recognise the importance of these issues to industry is an important aspect of our Q218 Margot James: I want to ask about the Export relationship with them. Therefore, it is both external Credit Guarantee Department. We understand that facing but also internal facing in Government. 90% of its work is to the benefit of the aerospace Stephen Phipson CBE: It is probably important to industry, which must please some of you. How do the keep in mind the direction of travel with UKTI. There defence and security industries fare by comparison? has been a lot of improvement over the past couple of Obviously, there is something wrong in the operation years with Andrew Cahn and Richard Paniguian at the moment. running DSO and UKTI and being able to differentiate Stephen Phipson CBE: To start on the security side, between the large companies with key account the industry is a relatively new one; it is growing very management, on which they have clearly focused and rapidly, and it is a certain size of contract for which to which they provide a lot of support, and the whole we need the support of ECGD. That is not quite there raft of support measures that go to support SMEs. yet but it is coming. Therefore, we can see that Therefore, there is clear differentiation about how they coming towards us. Although it is not an immediate issue for the industry now, I think that in another support those two different sectors. If you look at it couple of years as the contracts with these different from the industry’s perspective over the past couple Ministries of the Interior around the world grow of years, there has been a great deal of improvement substantially it will be important to have an efficient in the way UKTI manages that. and competitive ECGD agency in place to support that growth as well. I will leave my colleagues to comment Q215 Paul Blomfield: I guess that the issue behind on the aerospace side. I think there are specific the CBI’s comment was a concern that perhaps there reasons why it looks as though it is dominant in the was a need for greater support for larger companies aerospace industry at the moment. and greater focus on SMEs—I would not want that to Bob Keen: As far as concerns defence, ECGD support be reduced in any way—but to offer an enhanced and is absolutely essential to BAE Systems in a number different kind of support for larger companies beyond of markets. Many of our customers require it both their specific comments about account managers. I from the perspective of straightforward financing wonder whether you agree with that. Can you suggest issues but also from the point of view of the extent to any more that could be done? which it demonstrates the British Government’s Stephen Phipson CBE: We are looking at it through commitment to the deal that is being done. From BAE the lens of DSO, are we not? Our sector is looking at Systems’ point of view we need it, first, to meet our DSO and the improvements it has made. Perhaps customers’ requirements but, second, to be able to CBI’s comments are on a wider basis. offer competitive packages that compare well with overseas export credit agencies which are aggressive Q216 Paul Blomfield: I am sure they were, and I in the marketplace. Over the past few years when the wonder whether all of you would respond on that capacity in the commercial insurance market has been wider basis. less because of the credit crunch ECGD support has Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
Ev 56 Business, Innovation and Skills Committee: Evidence
1 February 2011 Graham Chisnall, Stephen Phipson CBE, Bob Keen and Katherine Bennett OBE been particularly important. If you look at what we legislation are too wide and do not offer sufficient have done over the past 10 years, bearing in mind guidance to industry. We would welcome greater there is a degree to which this is cyclical, we have clarity on those definitions. Second, there is a paid premiums significantly in excess of £100 million nervousness that this is very leading-edge legislation; to ECGD for the kinds of support we have had from it is probably tighter than anywhere else with which them. What I am absolutely clear about—perhaps the we are in active competition, and we seek reassurance past couple of years have been unrepresentative in that that as we comply with this legislation, as obviously sense and there has been less ECGD support for we will, people who come from overseas to trade defence—is that in terms of some of the major within the UK are also subject to the same rigour. prospects we are pursuing at the moment for all the reasons I have described we will absolutely need Q222 Chair: Are there any other comments? ECGD support. Bob Keen: I echo a couple of points. Certainly we from the BAE Systems perspective have supported the Q219 Margot James: Why do you think that support Bribery Act. We made clear that we supported the Bill has been falling off in recent years? in its progress through Parliament. We gave evidence Bob Keen: Partly it is because we have not made the to the Joint Scrutiny Committee and made clear our applications we have made in the past. Also, there are support. From a company perspective, for reasons you examples of deals we have done, for example one we will understand we have done a huge amount over the did in Chile, where the customer did not require it and past few years to put in place robust and, to use it made more sense for us to use the commercial Graham’s term, leading-edge anti-bribery practices. If market. Therefore, it is partly a cyclical thing. There the Committee has not read it I would commend the are some issues; I think that when she gave evidence Woolf report. A few years ago we commissioned Lord to you Susan Ross spoke about the impact of NGOs Woolf to do a review of our business practices and the on ECGD. It is certainly our sense that ECGD is ethical nature of them. That set out the kind of stuff concerned in the defence sector that NGOs may we had been doing over the past couple of years. As mount legal challenges to any positive decision they to Graham’s point, there is an issue around the clarity might make in the defence sector. We have to be of the guidance. For us, we are already well in sensitive to that. We also have to work with ECGD as advance of what the Act requires. The concern we we go through the major prospects I am talking about expressed to the Committee, which we still have, is to make sure that between us we follow the approved that for SMEs there is a need for absolute clarity in and appropriate policies and processes so that the guidance in a general sense. We think there is more to scope for legal challenge is minimised. We have a be done when there is ambiguity about a particular joint responsibility to make sure that works. issue on which they want help, but we are absolutely committed to the Act and will continue to be in that Q220 Margot James: That is very useful. Does respect. anyone else want to say anything? I have one further question on this issue. The CBI has suggested that Q223 Chair: That triggers my next question. What there is a review of the governance of our export do you think needs to be done going forward on this? credit guarantee function. Would you support that? If Bob Keen: There are some aspects of the guidance so, what kinds of terms would you like to see in such that need to be tightened. We think that the whole a review? issue of adequate procedures could do with some Graham Chisnall: Things can always be improved. clarification. Probably some tinkering is to be done in We would not have any issue at all with a review of relation to things like gifts and hospitality and, from the arrangements. Our chief input would almost a big company perspective, our responsibilities for our certainly be to ensure that the available funds are used supply chain in particular markets. It is also in a sense in the most efficient way possible and if they are an ongoing issue. It is not just establishing guidance extended to new sectors or deployed in different ways up front; it is being able to help small companies in that is not done in a way that hampers our sector’s particular to know where the boundary between what growth prospects. We think that at this particular point is and what is not acceptable behaviour within the Act in the business cycle backing the winners with scarce actually lies. That is what we would say, but for us as funds seems to be a sensible policy. Therefore, we a company we are very confident that we are already would be happy to support and contribute to a review ahead of the Act. of that nature, but we would have concerns if that took away some of the benefit to our sectors that deploy Q224 Chair: Perhaps I may finish with something good value on the back of those ECGD arrangements. entirely different. I go back to some comments made by Katherine Bennett about immigration and the Q221 Chair: Can I conclude with a couple of Home Office. First, she said there had been no questions? First, regarding the Bribery Act, the CBI is response from the Home Office. In a subsequent very concerned about the guidance and implications response I think you said that perhaps there had been this might have for British business. Do you share an overwhelming number of applications. Is there a these concerns? problem with the actual process or are there too few Graham Chisnall: We are a very strong supporter of places available for the number of people who want the need to be seen to be taking a lead position in this to come in? area, so we support the legislation. First, we share the Katherine Bennett OBE: The answer is yes to both CBI’s concerns that the definitions within the questions. You are allocated a quota. Source: /MILES/PKU/INPUT/010554/010554_o003_kathy_No 3 1 Feb 2011 [CORRECTED].xml
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1 February 2011 Graham Chisnall, Stephen Phipson CBE, Bob Keen and Katherine Bennett OBE
Q225 Chair: Can I interrupt? Am I right that you Chair: That is very helpful indeed. We will make would be affected by the tier 1 quota, which I think representations about this. I thank you all for your is 1,000? contributions which have been very helpful. I repeat Katherine Bennett OBE: We are talking about tier 2 what I said to the previous panel. If you feel our now. They have reduced the quota and then questions have not enabled you to cover anything abandoned it altogether, so we have no visa allocation please submit further evidence to us. Thank you very at all. They have told us that we must apply each time. much indeed. We are applying each time and not getting any answers. cobber Pack: U PL: COE1 [SE] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
Ev 58 Business, Innovation and Skills Committee: Evidence
Tuesday 8 February 2011
Members present: Adrian Bailey (Chair)
Mr Brian Binley Simon Kirby Paul Blomfield Nadhim Zahawi Rebecca Harris ______
Examination of Witnesses
Witnesses: Mr John McVay, Chief Executive, PACT, Mr Feargal Sharkey, Chief Executive Officer, UK Music, Mr Paul Redding, International Managing Director, Beggars Group, and Richard Mollett, Chief Executive Officer, The Publishers Association Limited, gave evidence.
Q226 Chair: Good morning and thanks very much John McVay: I think in the 21st century, we are for agreeing to speak to us. Feargal, we have had you looking forward to how we create value for our before us before and so enjoyable was it, we could economy, and at the root of it is intellectual property, not resist inviting you again. Just to reiterate what I whether that is patents or copyrights in the works that say to all panels, obviously we will be asking you my members create. The UK is pretty good at questions. In the interests of brevity, if someone else inventing stuff and inventing intellectual property, so makes the point that you wished to, do not feel the we share a lot of similarities with our colleagues in need to repeat them, but obviously if you have manufacturing industries. Dyson has a licence to make something to add then we want to hear it. Just for products, which brings money back to the UK. It is transcription purposes, if we could just go from my the licensing of IP that we are very good at and what left to right, could introduce yourselves to get voice we should be looking to protect going forward. volumes correct and everything. John McVay: Thank you very much Chair. My name Q228 Mr Binley: Can I ask just a very quick is John McVay. I am the Chief Executive of PACT, supplementary, Chairman? Is it because most of your which is the trade association representing businesses are SMEs? independent feature film, television, children’s and Feargal Sharkey: In is this convoluted world that we animation producers. live in, and if there is attempted brevity on this Feargal Sharkey: I am Feargal Sharkey. I am the occasion, in certain places it is still, to quote one Chief Executive of UK Music, which represents the rather senior economist of my acquaintance, “Oh, the collective interests of the British Music Industry. creative industries; that’s that fluffy stuff.” Well, in the Paul Redding: I am Paul Redding. I am Managing case of the music industry, it is fluffy stuff that Director of Beggars Group, a large independent actually generates quite a lot of revenue and taxable record company. income for UK plc. So I am sure it is again just some Richard Mollett: I am Richard Mollett, the Chief old, rather preconceived notional ideas that are rather Executive of the Publishers Association, outdated and outmoded in the modern world in which representative body for the book, journal and audio we live. and electronic publishers in the UK. Richard Mollett: Just on the publishing side, for the 115 members of the Publishers’ Association, 11% of Q227 Chair: Thanks. Can I just start with a very them have revenues over £34 million, so you are right. general question? Having read the speeches and the That means, by extension, the rest of them are smaller submissions of various people concerned about businesses. It tends to be those ones above £34 million promoting economic growth and our manufacturing that are doing the exporting, that have the capacity, it has been put to me that this distinction international operations. between the creative industries and the manufacturing industry is an unhelpful and misleading one. What do Q229 Chair: What you said is very interesting you feel? Do you think that is correct? because I feel instinctively that this description of Feargal Sharkey: I think we would probably share creative industries, as I think Feargal said, gives a that view. Certainly in terms of the music industry, we vaguely fluffy presentation as opposed to are as a nation one of only three net exporters of manufacturing, where you think of hard, tangible end music in the world. Number one is North America, products. In terms of measuring the economic growth the UK is number two and Sweden is currently potential, the profile of our exports, the number of number three. So we do possibly look with some envy people employed, it effectively downgrades in the in many ways at some of the strategies, policies and public mind the contribution that is made by them. It help and assistance provided to other sectors of British may well be an area that we come back to. Can I just Industry—with some admiration. We would be move on slightly? You are already successful ambitious to have the same kind of very cohesive, exporting industries. It might be argued that, as you strategic, well-managed approach to developing our are already doing so well, there is very little capacity export base and delivering and developing our for you to improve. What is your feeling about that? businesses overseas. Where do you think you could make greater impact if cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
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8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett you had more Government support or indeed more “Well, job done.” So the changes we would like to see support from the financial services sector? are spoken not from a position of saying, “The system John McVay: It is not necessarily a matter of greater isn’t working; it needs to be greatly reformed,” but Government support. We run a number of trade that there are enhancements that can be made. Like missions to help start-up SMEs go to various TV John and Feargal, we work very closely with UKTI markets in the world. What we really need is greater and the support they are provide in-country is very Government clarity and strategy so that we have a strong, but we identify ways where we think it could clear, long-running strategy for the creative industries. be stronger. One of them I have written to you about For instance, we work very closely with UKTI, as and I am sure you may go on to discuss: the concept indeed my colleagues do, and over the past few years of IP attachés to just give that extra kick to British we have been on an annual planning cycle for which intellectual property to get even more growth. markets will or will not be supported and which budget may or may not be available. That mitigates Q230 Chair: Yes, we will be coming on to that in against our ability to work with start-up companies, a moment. and companies who want to export, to plan to enter Paul Redding: I will give you a few practical markets. It takes about two to three years to go to a examples of what we have been doing and the way new market with a new product, and it is impossible that out company has expanded its international to give any company we work with any guarantee profile. Between 2003 and 2008 we grew our exports there will be any support for them in the three years by over 80% but in the past we used to license our from the time that they have planned to go to that rights to other companies. In 2003 we decided that market. that was not the right way forward and we needed to We would actually ask for what has become a invest in setting up associate offices in most of the devolved approach to trade support across England to major markets around the world. That took a lot of become more centralised, more strategic and to have money and a lot of work. We now have a 35-person a specific view towards the creative industries so that office in the United States, we have offices in all of myself and other trade associations who do this at the major markets, and we are able to sign American marginal cost can actually plan to get our start-up talent through the US office and deliver that across companies to market. The reality in the creative the globe. We are also able to sign UK artists and industries now is that, if you want to make a great take them to all of the major markets and they are creative product for the British public, you have to go incredibly successful. and find other people’s money to invest in that product One of the current examples that we have is that we to deliver it in your own domestic market. In the past, signed a girl called Adele a few years ago. She is now you would make it in the UK, and then you would number one in Germany and number one in Holland, sell it to the rest of the world and that would be cream number 4 in France, and she is breaking all of the on the cake. Actually, from the off you have to go and smaller European markets as well as further afield. raise money in other markets to deficit finance your The record is about to come out in America, where it product. That brings money and value back in for the will undoubtedly go to number one, and all of that British public but also internationalises the British income flows back to the UK and is taxable income. creative industries and that is a good thing, but we It is a huge benefit to the UK economy. We are in a need a clearer, longer term strategy to do that. kind of privileged position; we are not really in a Feargal Sharkey: In terms of the music industry, it is position of need because we have never taken outside true: we are internationally quite successful. However, investment, but there are hundreds and hundreds of as an industry we published a strategy outline paper small record companies who just can’t get the for the industry almost 12 months ago and made our investment. We are phoned up on a monthly basis by ambition very clear in that. We want to be number smaller companies wanting to come under our wing one: we want to become the number one exporter of and give them infrastructure and back office support music in the world. We are positioned to do that. To and take them to the international markets, and we give you some specifics, PRS for Music at the minute just don’t have the capacity to be able to do that. are currently forecasting potentially 40% growth within their sector over the next five years. So we are Q231 Chair: Can I just follow up this question of incredibly fortunate to be blessed with all of these investment? John McVay raised this earlier, but in things. It falls back on the quality of British talent and effect bringing companies to export market readiness. the records and the music they create, and thank God, Obviously the British Banker’s Association has set up we have a long and fine pedigree and history of this business growth fund and are training mentors to producing some globally recognised, remarkable work with SMEs in order that they can overcome this talent. As long as we have that base to work from, problem. Now again, I think there is the perception there is no absolutely no reason on earth that we that this is appropriate for the manufacturing industry. should not come pretty close if not deliver on that Can you tell me whether the creative industries have objective and ambition the industry has. had any connection with the BBA and the scheme or Richard Mollett: From the publishing side, yes the not, and do you feel it is appropriate you should be sector is undoubtedly successful. 40% of our revenues included in it? come from export. At the moment we are happily the Feargal Sharkey: Certainly to the best of my leading exporting country of publishing content in the knowledge the answer to the first part would be no. I world and our growth last year was some 2.5%, but I am not aware that we have been approached, had any do not think any sector, any company can ever think, discussions or indeed been asked. In fact, if I have cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
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8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett even been aware it was taking part, I think I would the Singapore Government and are delivering on their have gone out of my way to provide with them with strategy for the creative industries. South Africa: there some input and thought, because clearly if there is any is a copy of it, and it is robust, it is clear, it is coherent form of support network structure being envisaged or and it is the process being delivered. We still have yet put in place, I have a responsibility and feel an to get round to having the conversation about what we obligation back to my industry that we would be might possibly do. engaged in that and delivering whatever help and Chair: I inadvertently allowed Mr Binley to basically support we could. In short, the answer is no, but I pre-empt my next question— will clearly pursue that conversation external to this Mr Binley: Sorry. meeting this afternoon with some considerable vigour. Richard Mollett: I would echo both of those Q235 Chair: —which was in effect to make a responses, no and yes. comparison with what other countries doing in Chair: That is coming across the board is it? promoting creative industries, so unless there is John McVay: Absolutely. anything that you wish to add to it— Richard Mollett: On the point you raise, I would just Q232 Chair: Right, the point has been made and we add, as I am sure the Committee is aware, there is will be progressing it. Just on another issue, looking such a thing as the Creative Industries Marketing at that the broader issue of science and innovation— Strategy Board, which is a load of creative the technology and innovation centres and so on— industries—advertising, music, publishing—that sit knowledge transfer partnerships, now again, these are around and decide what the marketing strategy should perceived as high value-added manufacturing issues. be. In a previous job I represented the BPI on that Do you think there is any room for your sectors of panel and I have to say, apart from preparing show industry to engage with these? reels for embassies and trade missions, it didn’t do a Richard Mollett: Yes and we do so increasingly. The great deal in terms of the strategy of supporting creative industries knowledge transfer network has a experts. It is very good on the tactical stuff and very publishing branch to it and in fact we are talking with good around the expo last year, but I think it could the operator of that on a project called IC Tomorrow, have done more. which is looking at ways of bringing publishers’ John McVay: Thank you for the question because I content to technology companies and finding ways to think it also adds to my previous comment about a partner and to develop new services. It is early days lack of strategy and joined up thinking. The creative but I am happy to say those conversations are industries have long been lauded by various happening. governments about how important we are and we are nearly 8% of GDP. That is all fantastic; we are 8% of Q233 Chair: Yes, I am trying to satisfy myself that GDP primarily because the businesses are getting on this is not being missed out, but on the basis of what with doing business, but we could be a lot more. I you said can I take that, in effect, this is being suppose the opportunity in the current review and the addressed? growth review is: if this country is serious about these Richard Mollett: Certainly for us. industries represented here, then be serious because Chair: Good. we are serious businesses. We would like to see some serious policies which we will engage with and help Q234 Mr Binley: Would you allow me another finesse and develop, but I think your comment about supplementary, Mr Chairman? You will know of the whether or not we have an ambassador or are involved British Ambassadors Scheme. I don’t think you were with the bankers is to me a sad reflection of the fact represented at all are you? there is a good talk the talk but not much walk the Feargal Sharkey: I think you may be correct in that walk. assumption. Feargal Sharkey: Just to highlight specifically, clearly Mr Binley: That seems crazy to me that here we have we are all asking everyone to be rather sensitive to the a very high profile business selling British talent all notion that that pretty much every other market-led the time and you haven’t got one British ambassador economy in the world is now developing and in the list. implementing very competitive, very aggressive Feargal Sharkey: Looking right across the whole support strategies for their domestic creative piece and the whole approach, I think it is fair to say industries, and the UK is falling somewhat behind on that it is something of a irony that the UK has one of the international stage. By way of example, the strongest, most creative, most capable, most able, throughout the whole development of an artist’s career globally most successful creative industries but we in somewhere like Canada, you can be provided with have yet to develop what might be identified as a support, from doing an initial demo, to highlight and cohesive strategic, well-managed approach in how we develop your songs, through to touring, marketing, deal with that. To give you some flavour behind that, promotions and all early stages of the development of Brian, looking through a list of other countries who an artist’s career. They have some very sophisticated, post-credit crunch/recession are looking at their very robust support networks in place and we are, creative industries to deliver fairly explosive growth quite frankly, falling considerably behind. and have developed high-level policies and strategies—and that is outside of the traditional Q236 Chair: Thank you. Before I bring in Nadim Canada and France—I find it somewhat ironic that a Zahawi, just very briefly, what should we be doing company like Deloitte, based in the UK, is advising that we are not? cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
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8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett
John McVay: Firstly, develop a clear cohesive language is a massive advantage. I think that in the strategy for the creative industries. Secondly, make next 10 years there will be more people speaking sure that there is the right export support over a long English in China than there are in all the English period of time to allow businesses to plan. Thirdly, speaking countries in the world. make sure we have the most robust copyright regime Feargal Sharkey: I think potentially you may find in the UK that protects our intellectual property. there is a parallel—well, there is—across all of the Without that we can’t raise investment because there creative industries. You are right; English is an will be a diminished return on that investment. international language, certainly in terms of pop Fourthly, get the marketing right; get the actual music. More specifically, however, the unique thing strategy right to the rest of the market, so I can go out we create that has the real asset value is the copyright. to my members—a small start-up company in Dundee That it is then either exploited as physical media or that wants to get to Brazil—and actually show them a direct sales of programming or the format or licensing route map to get to that market. That is very, very by some other partner to exploit and monetise that difficult at present, and it is very hard to communicate asset that is a copyright that has been created and to those markets. On the TV side, we are the second invested in in this country. That same foundation largest exporter of TV programmes and formats in the probably runs across all of the creative industries. world. You can go anywhere in the world and you will see a British programme on those channels or a format Q239 Nadhim Zahawi: Feargal, I am going to ask based on our ingenuity, so we have seen that those you to think beyond your industry. You have said that markets are wide open to us going in and doing more. the UK music sector has a culture of international For me, that is my key point. trade. We have also heard in the last few weeks that Feargal Sharkey: I think I would share a consensus as a nation, we have generally lost our trading culture. with John. The only possible thing I would add, and What could other industries learn from your own not to distract you because John summed it up industry? fantastically well, is that I am sensitive to the notion Feargal Sharkey: Paul can actually give you more that the Government are possibly contemplating specifics on this. In fact, I will defer to Paul because developing a cross-British industry strategy towards he is at the coal face, running the company and doing emerging markets: China, India, Brazil. I would again this every day. just caution everyone that, in terms of the music Paul Redding: For me it is not just about selling industry, yes we want to be in those markets but we music, physical product or digital files; we are are starting from zero. It will take a long haul, nigh a developing a business that is worldwide that is based five- to ten-year investment, to get the systems in on the synchronisation of our rights and receiving place, both in terms of IP and administration systems, performance income from radio and TV playing it and while we are doing that, we ignore North across the world. America, the largest music market in the world, at our peril. Q240 Nadhim Zahawi: I am just thinking of other Chair: Right, that is the cue for bringing in Nadhim industries. The British music brand has helped the Zahawi. industry tremendously. Do you think that could work in other industries? Is there something they could Q237 Nadhim Zahawi: Before I get on to my learn from you as to how they can trade on this brand? question, one thought I had is that obviously the Feargal Sharkey: I do have to caveat this, as we economic model for you and your members, John, is touched upon: we do, in terms of music, have two very different to your members, Feargal, and distinct advantages. Firstly English is the international obviously those of Richard. You look at the television language of pop music; secondly, we do have an programming industry and America has a massive extraordinarily rare pool of talent to call upon in this advantage in the sense that, when they produce new country; and thirdly, and it is a very sweeping formats, the whole market is so massive. Although, generalisation, quite frequently the domestic market is the risk there again is very high. I understand that not not large enough to sustain the investment needed to a single format worked last year and out of hundreds develop talent in this country. So as company, from a of pilots not one became a big hit. very early stage you are constantly looking at John McVay: To give you some comfort, the UK international markets, driving your income, opening leads the world in selling formats. We account for up new revenue streams, purely to underpin the 53% of all global format sales and British independent investment you have to make. producers account for 80% of that. We are really good Paul Redding: You have to do that on a territorial at it and it is actually what is driving value in all the basis. You have to get into the markets and you have new emerging markets. We don’t sell them a to have your own people to develop those markets in programme; we sell them the bible called the format, a sufficient way. which tells you how to make the programme, the most Richard Mollett: From the publishing side, I think the successful being Who Wants to be a Millionaire?, two factors in our success that are historical accidents: which sold to 187 territories around the word and was the English language and the heritage—the literary culturally specific to each territory. So we do beat the canon that is still read and loved around the world. Americans at that game. But you still have to export on the back of that and for me it is the absolute insistence upon excellence Q238 Nadhim Zahawi: That is very good to hear. and quality content. That is what continues to sell, Obviously in the emerging markets, the English particularly in the academic research world where we cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
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8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett punch way above our weight in terms of the number to make any money, when actually it has backed both of journals produced and the number of research some pretty successful films and directors. articles that are in them. We are lucky, you might say, John McVay: I think we have to look at why you get to have the research universities of Oxford, into film, and I said this to Ed Vaizey recently: like Cambridge and others that are able to keep that quality all industries, we are in a hits business and even the content going out there. The prime lesson I would get studios plan for one hit in 10 to recoup their losses. from that is a focus on quality and that sells. So if Film4 have backed 20 films and they have not yet got a hit, they might get two hits the next time Q241 Nadhim Zahawi: Just on that point, because and recoup all their money. It is very hard to say over there was a link with the scientific research budgets, which period they have made money, because film what is your view in terms of us ring-fencing that or does not really work like that. In fact, a lot of the the Government ring-fencing it? creative industries do not work like that because we Richard Mollett: Well we could have another debate, are high risk, we are prototypical and then we are hits I am sure, about university funding. The university based. I used to be a musician—unlike Feargal, I presses that are linked to Oxford and Cambridge are wasn’t successful—I made records, they weren’t hits both member companies of the Publishers’ so I gave it up and got a job. So I think one of the Association. In Oxford’s case, I was up there differences for the creative industries is that we are yesterday and they are a charitable company and they hits based and recoup on the hits but we have to take provide millions of pounds back to the university risks to get to the hits. Without that, we don’t get every year in return for curating excellence. anywhere. Therefore, any money that goes out of that ecosystem is a loss but they have enough heft and enough Q244 Nadhim Zahawi: That is an interesting point, excellence that they at least are not overly concerned but do you think that perception of high risk is what about what is happening in that budget at the moment. creates a disconnect with the likes of the bankers? John McVay: Well clearly it does, but the bankers Q242 Nadhim Zahawi: And finally, John, it says in could change their view about that and actually your submission, and you have told us today, the UK engage with industry a bit more and understand it a television production sector has become a real success bit more. I had a conversation recently with someone story. What creative industries have not done so well who was looking to make a programme for a in your view and is that reversible in any way? broadcaster. They couldn’t raise deficit in the market John McVay: That is hard to answer because my job and they were looking to go to the bank to get debt is to look after mine, so if you want to ask other trade finance, and the bank said, “No.” This was a bodies how un-well they are doing— commission; it was just some deficit finance to top up Nadhim Zahawi: Well maybe we should open it up the budget, and she was looking to remortgage her to the panel. house. I said, “Do you really want to remortgage your house for a commercial broadcaster? You may not get John McVay: What I would do is reflect on film, that money back. If you don’t make any sales, you which we also represent. In fact, we have had lots of won’t get that money back and you’ve just lumbered hits in film; the King’s Speech is up for an Oscar, your family with more debt because the bank just was which is fantastic. A lot of public money has been not interested.” It wasn’t a huge amount of money— invested in film through the National Lottery Fund, we are talking about £30,000—and I think there is a which is all lovely; we have had more products and real issue there and you are right to bring it up. better quality products. The big problem for film is it Paul Redding: From my sector, there are lots of is not delivered IP back to the people who create the examples of small, privately owned record companies film. Most of the IP is extracted through the financing who have done exactly that and remortgaged their process, and we hope in the forthcoming Government house to fund development into overseas markets and review of film policy and announced by Ed Vaizey to develop the UK market as well. There are lots of before Christmas that we will be able to look at how them and they are the type of people who are phoning public funds are used in a more intelligent way to us up on a monthly basis to try and get support from optimise the economic outcome and IP retention for us. British feature film producers. Feargal Sharkey: In terms of failure—and this is a So in spite of having a generation of world-renowned purely personal observation—I think the games feature film producers who can produce industry, particularly, in this country feels quite let Oscar-winning films, the value they retain is virtually down by Government policy. Particularly again, going zero. That is something that can change. It will take back to the more aggressive and competitive nature of time to change it and I think we need an approach that other nations, the end result is that asset value, in is more organic because the feature film industries are terms of copyright and intellectual property, invariably multinational financing structures. If we get things ends up transferring out of the UK. Therefore any real right in our own domestic structure, then that will give monetary value and assets attachéd to it flows to some those entrepreneurs an opportunity to retain more other nation and the benefit of someone else and not value and bring that back into investing in more UK plc. I think Government needs to be very careful British films. and very sensitive in what policies it develops from this point out, because clearly we need to ensure that Q243 Nadhim Zahawi: That in interesting. So you we are benefitting from that real, genuine creativity think there is a way? I was shocked that Film4 has yet we have in this country. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
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8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett
Chair: That brings us right on cue to Rebecca Harris’s Rebecca Harris: Mind you, I have heard of people question on intellectual property. applying for jobs in the industry being told, “Give us some ideas before your interview for new shows,” Q245 Rebecca Harris: Yes, this very key to all your and never— industries. In my very excellent brief here, I am told John McVay: That is the sort of baptism-by-fire type that UKTI website says, “The UK’s intellectual of player. property regime and regulatory framework give Feargal Sharkey: It was possibly a slightly coded creative businesses the protection they need to grow.” reference I made to Government strategy towards I wondered to what extent do you agree with that and emerging markets; ie China, India and Brazil. As you how much your industries are hampered by fear of have probably already gathered, across all of the exporting and intellectual property rights. creative industries represented here, it is emerging Richard Mollett: In terms of the UK framework, that markets where we have some difficulties and is pretty true, up to a point, and I think we would all challenges trying to maintain control of the copyright identify gaps for our various sectors in the UK regime. and the IP and the asset value in terms of monetising Without getting into a huge discussion about online it and returning the income back to the UK. infringement and the ability of people to reproduce and distribute content online, there is a big problem Q246 Rebecca Harris: And that is genuinely there that I do not think the current IP framework is deterring people from trying to export then? quite up to speed with. We have the Digital Economy Paul Redding: Fear of piracy is a huge issue for us. Act to hopefully address some of that, but we could From the independent music sector, we are very probably talk about that for a long time. willing to license legitimate services. We are going Other than that online piece, broadly speaking, in the out there trying to find legitimate services to license, UK and in Europe, we have a robust framework that but the fear of piracy is a real issue for us. allows people to do the deals, make the negotiations Richard Mollett: I would just be slightly wary of and develop the services, but it is also flexible because tarring all emerging markets with the same brush, it can accommodate changes in consumer demand and however. change in technology. From our own base, we are Feargal Sharkey: Speaking figuratively. strong, but it is when you go into other countries that Richard Mollett: Yes, exactly, but just so we have the we start to see bigger problems. It is invidious to pick right impression, last year publishing grew strongest on other territories but one in particular where British in Africa and the Middle East and in Asia and South publishers are struggling to make headway at the East Asia, where we have grown something like 56% moment is Pakistan, where some 70% of the market since 2005. Clearly the IP regime is strong in some of for books there is pirate. There are open-air markets the territories, in others it is not. As I say, we can selling knock-off copies. We need the help of the identify where it is weak and we work on it, and enforcement agencies and the Government in that where it is strong, we go in there and sell pretty well. country, and clearly that is difficult for a number of reasons. So when we go abroad and there is a strong Q247 Mr Binley: Can I just probe Paul and maybe IP regime, we can sell our stuff and it sells well. When Feargal a little? I don’t quite understand. Is it a lack we identify markets like that, that is when we need of will in the countries you are talking about or is it help, both from UKTI and the host Government. that there are submarkets because the countries are so John McVay: Feargal’s point about games raises big? What is the real problem? another interesting question. Korea is so mad about Paul Redding: I think the real problem is games that you can actually be a professional gamer infrastructure. It is infrastructure within those markets. and be like a rock star in Korea because they respect It is very difficult. These new emerging markets are copyright. They are also console-based games, so the not physical markets; you do not sell CDs there. It is Xbox, the Playstation etc. In China you can play trying to develop an effective, legitimate digital games but you won’t be able to buy them as a disk to market, and it is very, very difficult. There is a lot of put into an Xbox because they would be copied. So red tape to get through. It is very difficult to deal games are subscription based and they played on the direct with services; you often have to have agents to cloud, so you sign on to the internet and play games get to those companies. It is problematic and it takes through the internet. The reason for that is games a lot of time and a fair amount of money. We have publishers want to protect their revenues from piracy. been trying to get into those markets for a number of So I would echo the point here that some territories years and we are employing consultants to try to steer are fantastic, whilst other territories, because they a path towards the market, but it is still very, very don’t respect copyright to the extent that we do in difficult and we have had no financial return for that North America and Europe, are very difficult to move investment thus far. into. Last year we have two fishing expeditions from two Chinese broadcasters, who wanted to hold a Q248 Rebecca Harris: I wanted to ask all of you: meeting with all my independent TV producers and what more could the UK do? Specifically, Richard, get them to send tapes of their new shows. You can could you just expand on your proposal for IP imagine how popular that was. Of course those attachés? meetings never happened because the worry was that Richard Mollett: Certainly. The idea of the creation we will provide the intellectual property and then it of an IP attaché network is something that the United will be copied straight away, and we will see States Government has pioneered. The idea is that you absolutely no return on our investment. have a government official in post in your key export cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
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8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett territories who is really the point of focus for IP what a lot of UK trade associations do. So in other companies, from the UK in this case, to go to when words, UKTI sit there and say, “We will tee up the they are in that market. This aims to ensure that they meetings for you.” Well, actually, the Publishers have the right contacts, the right knowledge of what Association tries to do that for our members too and is going on the ground and the ability to bring together sometimes we do it in conjunction with UKTI. So you different enforcement agencies if that is needed. It is can see bits of the budget where maybe they can take also to be a permanent presence in that country the pedal off doing some of that stuff and leave that advocating a strong IP regime and to make sure that to industry to do, because we can do that, but what it is top of the agenda when a visiting Minister might we cannot do is be in those Government-to- be there or at any trade discussions. There are a whole Government meetings. host of things that obviously go on in those talks, and if you have an IP attaché there, he can ensure that IP Q251 Rebecca Harris: And put pressure on foreign is always on that agenda. There has been an American governments to tighten up their own regimes? Senate review into how the programme has worked Richard Mollett: Yes. and one of the benefits they found is the point of focus and the ability to energise all of the various agencies Q252 Rebecca Harris: Could we not be joining up that have a role to play in export. with American IP attachés or a proposed new one? Were the UK to develop that idea—and I am afraid Why do we need our own? we have not gone into working out the detail on that— Richard Mollett: We can but only up to a point. I think we would be looking at our key export markets—India, Pakistan, Egypt and perhaps Turkey Q253 Rebecca Harris: Don’t call me a cheapskate. and Nigeria—where we know there is a problem with Richard Mollett: Well, there is a certain ignobility to IP being respected, and we would have that expert on that. We are fiercely competitive with America in a the ground. None of that is to decry what UKTI are lot of markets and ultimately they are going to pursue doing. As I said earlier, we have a very strong their interests. Now, there are a number of publishers relationship with them and work well, but this is about who have American parents; Pearson is able to go enhancing what they do. It is not just about under the American wing, but of course they are publishing; it is about benefitting all IP companies. rather an exception. We rub along with them very well where they are in countries where we are operating, Q249 Rebecca Harris: How much support are you but you know in the final analysis, that when it is the getting in that regard from either the FCO or UKTI at British publisher versus an American publisher, we the moment? are going to lose out, I’m afraid. Richard Mollett: It is very good. Obviously it varies Feargal Sharkey: Indeed, and I have to say that I country to country; it is particularly strong in China. think the whole notion the IP attaché is actually quite In fact, in March we are hosting, with UKTI, a session a fantastic one. It is a really, really good idea and I in China with Chinese librarians about the importance would certainly suspect it would receive quite a lot of of IP. That is being done jointly with UKTI and with support from the music industry. Potentially, as Paul UKTI funding. I think that all of us on the Panel just described, if there were also an opportunity there access the Trade Access Fund, the TAP Programme to provide local expertise in terms of signposting the that UKTI operates; we had something like £120,000 routes of entry into the market and that kind of worth of support for our small members through that, networking and support that would go along with that which the PA is an accredited coordinator of. We have kind of role and function, I think it would be great relationships. Emma, who is sitting behind me, welcomed, certainly by the music industry in support our Director of Trade and International, goes around of the book industry. the world to places like Russia and Egypt and meets John McVay: We would welcome it as well. I think with UKTI offices there and there is very strong what you see before you, and indeed other people in support in-country, but it is about taking that to the the creative industries, is we work with the businesses next level and giving IP a better focus. every day, so we know what they want, how they want it and when they want it. Connecting that with Q250 Rebecca Harris: You talked about funding, something like an IP attaché or market knowledge is which was going to be my next question. Money is a really powerful connection, and I feel we are not as tight; how would you envisage that we are going to connected as we could be fund this? Would the industry be prepared to support this with their own money? Q254 Chair: Could I just follow up on this? It is Richard Mollett: Well the industry does a heck of a interesting because in effect you said that the IP lot already and I would be wary of saying that we infrastructure in some countries is weak. In Britain it could do a lot more. What the industry already does, is generally acknowledged to be strong. Is there as well as going over there to whatever country, potential for us to develop a service industry to export setting up offices, being involved in the enforcement a robust model to countries where hitherto it is weak, and awareness raising campaigns, is we also support or do you think it actually suits these countries to have British companies going out to trade fairs. What the a weak regime? British Government does already is strong. Feargal Sharkey: I am trying to think of a diplomatic It is doing some things in-country that perhaps it way to say this and I am not sure if I am able to. doesn’t need to do, so there is a scheme called the There may be an impression in some countries that a Overseas Introduction Service, which looks a lot like weakened IP system is advantageous to them in the cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
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8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett short term, because clearly in some circumstances it to fill the screens and you will need to fill the screens might provide a driver to their economy as they have with content. That is a huge opportunity. Provided I not had to invest in, develop and nurture the creation am sure I can get return on that, then I know of that IP. However, I gather that one country has companies that will want to sell their products into taken quite a different shift in the last six months from those markets. being quite lackadaisical over the last 10 years to now suddenly deciding that IP and copyright are really Q257 Chair: Moving on to the discussion on the fantastic. It tends to be swings and merry-go-rounds Communications Act, what would you like to see in but I would suspect there could well be some it? foundation to the notion that, for some nations, a John McVay: For my sector, one of the most weakened IP system is potentially a driver to their significant interventions, which has doubled exports local economy. in five years, was the regulations that require the four Richard Mollett: It is also probably very hard to main public sector broadcasters—the BBC, Channel4, export that sort of service. The British road ITV and Five—to ensure that producers, when they infrastructure is very good and in some countries it is make a programme for those broadcasters, retain the very bad, but you can’t go to one of those countries intellectual property rights for those programmes. I and say, “Here’s how to have good roads.” There are would like to see the next Communications Act lots of things going on there, and it is the same with having similar regulation to ensure that our IP regimes. Why is Pakistan, in particular, a tricky independent TV sector remains one of the best in the market for us? Well it comes down to the enforcement world. agencies, public attitudes towards IP, of course pricing Chair: Yes, anything to add? must come in there somewhere, the general attitudes Richard Mollett: I suspect it is a long way off but, as towards infringement, and I do not think one could go the Committee will know, Ofcom are currently over and say, “Please do it this way.” It needs a far reviewing Section 17 of the Digital Economy Act, longer term answer. which is the clause that deals with the ability to block web services or online locations that have infringing Q255 Chair: In effect, do you feel that an IP attaché content. If in its review Ofcom finds that that clause could have that in his or her job spec? isn’t going to work for whatever reason, I strongly Richard Mollett: I think so. They would be the focal hope it comes up with something that it thinks will point for galvanising all of those agencies in-country, work and I suppose the Communications Bill might so that when you have those trade bilaterals at an EU then be the vehicle for taking that forward. Hopefully level or from the UK, it is, “Don’t forget to press them it won’t be needed but I would like to see that in it. on IP,” and that can start to change attitudes. Feargal Sharkey: Personally, the extension I would like to see is a commitment and a focus from Q256 Chair: Yes, okay. Can I just move on to a Government, as was the first stage of it back in 2003, slightly different issue? This is to John McVay. In to deliver a converged, competitive, open your submission you said, “A competitive market for telecommunications system in the UK. We would like IP exports is the key to whether the UK content sector to see a shift towards developing a competitive, becomes a leading global player for the digital age or functional, valuable, profitable and sustainable online is left behind.” Can you explain what you mean? business. That is right across all of the UK services John McVay: I was trying to reflect what we have and clearly content, and it is no disrespect to our been saying: if we can export into markets where we cousins in the pipes business, but ultimately the piece know we can get value, then we can do better. I would that everybody wants is the content. We are going to echo Feargal’s point about North America and the have to work on that together, jointly, supportive and core markets that we are very competitive in, but we collaboratively. For me personally, that would be a want more growth. That growth is not going to come very ambitious but worthwhile achievement in there. from the UK, which is going to be limited in the short term. It will come from new markets. My ability to Q258 Chair: Can we just move on to the role of have confidence to invest and take a product to some UKTI? It has created a creative industries marketing of those territories we have just been discussing will toolkit website. First of all were you aware of this, stop us being globally competitive. On the other hand, and do you know if any of your members actually they are exactly the same markets that our biggest use it? competitor, America, is looking to secure as well, and John McVay: We are aware of it and we participate if we are not able to get to those markets then the in that. I am not sure any of my main distribution Americans will. members use it. One of the other things is that, as we see those Richard Mollett: Ditto. economies develop, they will leapfrog a lot of the Feargal Sharkey: I think I will just rubber stamp the technology we currently have in the UK. Where we previous two comments. have legacy technology like analog television, they will go straight to digital and the technology will be a Q259 Chair: Obviously it is well intentioned. What lot cheaper because it has been developed and IP has needs to be done to make it more effective? been paid for in other territories. The goods are then Feargal Sharkey: If I were to suggest, Chair, I think sold into those markets, and as soon as you get to a there may be an opportunity, where we are just in the point where you have large parts of Africa covered by cycle of politics and the economy and global markets, digital television or mobile television, you will need to review all of that kind of support. Clearly it was cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
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8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett ambitious, it is well intended, but I think we all agree bureaucratic vision and not a business vision, and I that it may not be delivering on all of its potential and think there is a really serious problem at the very core promise, and that perhaps we all need to sit down and in that respect. Secondly, I believe it bases its whole have a very joined-up adult conversation and make assessment of its performance on process and not sure that it is delivering on the aims and on objectives. outcomes. Thirdly, I think the variability is totally Richard Mollett: I would seriously like to ask my dependent upon personnel when an organisation of international board that question, Chair. We meet that kind should not be so dependent upon personnel. fairly regularly, and I think we should sit down and Can I ask if you think that we ought to push for much look at it and find out why they are not using it. As more business involvement in the whole direction of far as I know, most of them are not. We should be UKTI? glad it is there; it is an example of where the British Feargal Sharkey: Personally, I think that is always a Government is trying to step in and help creative good thing. In fact I spend quite a lot of my working companies with their exporting. If it is not fit for day trying to ensure that commercial people from my purpose, it is quite easy for us just to say, “Oh well, industry are deeply involved in discussions and let’s ignore that and get on with what we are doing,” involved in process. Hence, for example, Paul being but actually, why don’t we try and make it work? I here today at your very kind invitation, so the short would like to undertake to get a detailed answer to answer to that one Brian is, absolutely yes, without that. any question. Ultimately if we are not delivering the John McVay: It goes back to my other comment, if it support needed for the entrepreneurs that are out there is part of a complete, joined-up strategy, it might be delivering commercial businesses, then what is it we more effective. All credit to the people at UKTI, with are trying to achieve? whom we work closely; they have put a lot of effort Richard Mollett: I would go along with that. UKTI is in, they do engage with industry, but sometimes we not there to promote the British Government; it is feel that it is not as joined up across government as it there to promote British business, and of course we could be. We would like to see more effort from us need to be closely involved in any directions it takes. and UKTI going forward, but it has to be part of However, I would say again that perhaps we are better joined-up approach. served in the publishing sector, I don’t know, but some One of the things we do at the key TV markets is of the relationships we have with officials, particularly we have a pavilion for small start-up companies. We here in London, are good, are strong, and we are wondered what to call it and we ended up calling it pleased with the work we do with the Trade Access UK Indies. Of course the most powerful brand is not Programme. That is not to say it could not be better the word Indies, it is UK, because we are mobbed by and I agree that the focus on process not on outcomes buyers from around the world who come to that stand is something I would recognise. But yes, if there is a because the UK is recognised as the most creative way for us as a sector to get more involved, then we country on the planet. I have had delegations from would support that. Korea, Singapore, France, all coming to say, “Why are you so good at doing TV? What is it that you have Q261 Mr Binley: Richard if I may push you a little that we do not?” So we are more than happy there; it further, you did not mention UKTI once in your is going the next bit to take advantage of it and I think submission. that is true of all the content people represented here Richard Mollett: Well no. I suppose I did allude to today. UK is a really powerful brand. it though when I talked about working with various Feargal Sharkey: I would share that and I do have to agencies. I did not pick them out. caveat this in that, in terms of the music industry, some of my colleagues and peer group have invested Q262 Mr Binley: I’m not criticising you. a huge amount of time and effort in working in Richard Mollett: Not it is a good point. It wasn’t collaboration with UKTI over the last 10 years. In intended to be a dismissive omission but we do work many ways, it is working reasonably well at the with them, as I have said. moment, but clearly there are things we can do to Feargal Sharkey: I think it is a daily occurrence, make it better, make it more robust, make it more particularly for the commercial sector, that clearly we effective and there is an opportunity for a are under quite tight pressures, quite clear objectives conversation, as John indicated. I have heard similar and turnaround times and it is a daily frictional comments about this annual planning cycle, which pressure point, with the world of Whitehall against the should perhaps become bi- if not tri-annual so that world of commerce. I think we would all recognise, people can plan and coordinate better. They have been in any number of other circumstances, the focus on fantastically supportive of things like the British outputs as opposed to outcomes, and clearly we are *inaudible* [53:27] and the British at South by representing industries that are quite focused on Southwest, but if we are clearly expressing the outcomes: did it make money? Was it successful? Can ambitions to do more and to be bigger and better, then we reinvest back into next year’s products? In which there may now be an opportunity to review it and case, that’s good, otherwise the conversation— make sure we are all delivering. Q263 Mr Binley: Thank you for that. Can I move Q260 Mr Binley: Let me give me my overview of on to John? You mentioned in your submission the what I have learnt of UKTI from visiting it in a disparate nature of export funding from the regional number of countries and from a business perspective, development agencies. Now of course, they cease to which is where my background is. First, I think it is a figure on your horizon for obvious reasons. Now that cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
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8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett they have been scrapped, who do members go to for there seemed to be a general impression that it was grants and support for exporting? intended that industry be engaged from a very early John McVay: Well now that you come to ask, we go stage in this process. That is not the impression I am to UKTI to get TAP funds or to get some small getting. In fact it is leaving a question mark, putting amounts of core funding to help us take stands at the on my Chief Executive head again. There was some key markets. Prior to the creation of RDAs, we inconsistency across the RDAs. Some were absolutely basically got a three-year allocation of targets by fantastic and very engaged and very supportive. That UKTI or whatever it was called before, and then we was not necessarily the case in all circumstances and went and delivered that. It was a central application I gather we are already looking at something in the for any company across Britain; there was no region of 54 expressions of interest into setting up the postcode lottery. Basically if you wanted to go to LEP schemes. I have to admit it causes some anxiety market, you applied for support through us as a knowing that we were finding it quite challenging private-sector trade body, and then we would go a dealing with nine regional bodies, and now potentially deliver it; it was very easy and clear and cost efficient. we are looking at anything up to 54. Again, the steer During the era of the RDAs we had a postcode lottery that I am getting is that business has not been involved where no company ever knew whether they would get or particularly actively engaged in that early part of support or not. You had local applications and local the process. bureaucracy, and then eventually you might then get TAP support, but it was all devolved down to local Q267 Paul Blomfield: I am interested, Feargal, in trade officers, some of whom didn’t like television, exploring that particular issue because I recognise the for instance, and would scorn TV companies. regional variations that there were with RDAs. But I But we are the second best in the world at exporting am also aware in my area, up in Sheffield, when television, and the markets don’t care whether you talking to managers of local banks, how Yorkshire come from Norfolk, Dundee or Glasgow. They only Forward was actually quite sensitive in being able to care about whether or not you have a great product nuance support to individual bands to break into the and that is all we should be thinking about. We should American market and so on. A concern, talking to be focusing on getting great creative entrepreneurs to those same managers, is that those areas of support the market quickly and easily and with the least simply are not going to be available under the new bureaucracy, because that interrupts the business regime. I just wondered if you were at all aware, from process. any of the initial submissions that are coming in from the first wave of LEPs or any of the discussions any Q264 Mr Binley: Thank you for that. Can I go on to of you have been having, whether their bids for ask how UKTI have received your suggestion of a support from the Regional Growth Fund are capturing single creative industry export grants body, and do any aspirations for the creative industry? you fear this is something that could come out in the Feargal Sharkey: The direct answer to that is “no”. White Paper or are not quite so hopeful? In fact, in terms of the Regional Growth Fund, we John McVay: We would hope so and we will be have been partnering up with existing bodies, partners making our views known to the review that Stephen we have had in the past, and making those Green is overseeing. We do think this is an applications directly. So in terms of the LEPs opportunity, and going back to my opening statement, themselves, to the best of my knowledge none have centralised export support for the creative industries any of them had any discussion with my industry or as part of a coherent strategy would be a fantastic engagement or involvement with them. Clearly, again, development. If there is a certain amount of money we would very much like to. and it is clear what you have to work with over this Having said that, I think that when I was here just period, then we know we have it and we can go off before Christmas there was a discussion around this and do it. I can raise more support through my private- notion of the Creative Industries Council, etc, and for sector companies to help deliver that if I know it is me it just reinforces the argument for why perhaps going to be there three years from now. that sort of structure should exist. Where something like that becomes a fruition, should it then be able to Q265 Mr Binley: Okay. Richard you were nodding, act on behalf in coordinating and ensuring that kind I assume that you agree with that? of ground-up engagement so that any area of support, Richard Mollett: I agree with everything that John whether it was local, national, regional or otherwise, said and we have also submitted the IP attaché both is delivering on everybody’s expectations? Lord Green and also to Baroness Wilcox, the Minister for IP. Q268 Paul Blomfield: I wonder if I could follow through on whether that is John and Richard’s Q266 Mr Binley: That is important for the record experience as well in terms of engagement with and I am grateful for that. Are any of your members LEPs? getting involved in the LEPs? Do any of your John McVay: Absolutely. members take a leadership role in that respect? Feargal Sharkey: If I might, I can possibly just slip Q269 Paul Blomfield: But also a further question, into another possible hat on this in that I sit on one of following up on Feargal’s point, which is when we the regional councils for the CBI. We have in fact were talking before Christmas, we were talking about been having some discussion about this, and I am not sector councils and the potential for a creative by any means speaking on behalf of the CBI here, but industries sector council. I wonder if that ties into a cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
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8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett number of comments that you have been making— Q270 Chair: UKTI: do you think any potential going back to your point John about the need for some spending cuts could affect you? sort of strategic approach—and whether you all feel Feargal Sharkey: On the basis of the music industry, that that would be a useful step forward. if any decision was be to made about the UKTI, John McVay: I would reflect a bit about the LEPs and funnily enough it would be exactly the opposite. contrast that with what is happening in Wales, Certainly in the relationship with the music industry, Northern Ireland and Scotland, where there are they are very supportive but within very constrained, effectively single agencies for the creative industries. very limited circumstances. Again, if we are to fulfil I can go to Creative Scotland and ask them what they this ambition of developing our overseas markets and are doing for the entirety of the creative industries pushing and expanding, that is going to take more Scotland. There is one point of contact, one place for time, more effort, more in the way of resource and business to go and one place for me to go and try and more investment. So quite clearly, if anything was going to scale back or put further pressure on that, it work with them. is quite clearly going to have an impact and my I have not had any contact with anyone who is bidding instinct would be that it would be a negative one. for any of the Local Enterprise Funding. Too often in Richard Mollett: Yes, and as I said earlier, we the past two years, private-sector bodies like mine accessed £130,000 worth of trade show access tend to get bypassed in those conversations. We did a funding last year. That is money that the PA survey of all the screen agencies at the beginning of coordinates but goes out to our SME members. If that last year and it was not pretty reading to be quite figure goes down, that is fewer British publishers and honest. Most of our companies in England had chosen trade shows in Beijing, in Sharjah, in Frankfurt that not to work with the screen agencies because they are exhibiting their wares to the rest of the world and were bureaucratic, very difficult to engage with and that is not money that the rest of industry can stump they basically just walked away and decided they up. It is not the job of big publishers to help the would just go and do the day job and try and win a smaller ones along; that is not how the market commission from ITV. economy should operate. But where the government So I think there are two parts to the question about a is giving that money, we need those levels to be sector council—I think yes, provided it right has the sustained or exporters will suffer. right muscle and the right powers to make a difference. We are always in danger of setting up Q271 Chair: Interestingly your observations are committees, excusing this Committee obviously, pretty consistent with those that we have had from where we set up a lot of people who will talk about other sectors—manufacturing industries as well. I how important we are in the creative industries but it think I know the answer to this but I will still get it won’t result in action. I am actually more interested on the record. Basically, is the research and statistics in action because I have spent a lot of my years they do on behalf of the creative industries robust and working at PACT, talking about the creative industries useful in terms of what you do? and I would like to get to a point where we recognise Feargal Sharkey: We may have previously touched this is a really important part of the British economy, upon the whole notion of the SIC and SOC codes and we can do better and looking at the growth strategy, certainly in terms of the music industry, they are it is our golden opportunity to actually get this right. somewhat flawed. I can give you a perfect illustration Richard Mollett: I am afraid I have nothing to of that. Not two weeks ago, as part of some other contribute on the discussion on LEPs. It hasn’t crossed work, we asked the Intellectual Property Office to my radar and I don’t know if any of our member provide us with an assessment of what they felt the companies are involved—I suspect not. But on the contribution of music copyright to GDP was. The idea of a council for creative industries or a cabinet number I got back was £154 million. It took me about committee, we would absolutely be fully supportive 30 seconds on the back of a short envelope to figure out that that simple fact alone should probably look of that because it is not just the economic aspects, something more like £1.7 billion as opposed to as we have been talking about here, that need to be £154 million. So as it happens, since our last coordinated. There is also skills piece, the argument conversation, there is a very bright young economist about visas and whether you can bring in the right within our industry working very closely with the skills and touring musicians, for instance, into the Treasury right now, checking the methodology, and country. There is a schools piece as well—the role of hopefully we are independently going to put some literacy in schools. We are seeing funding numbers together that are more reflective. At the programmes such as Bookstart being cut and there is moment it is gearing up to look something like the a coordination point there. Also even around things music industry contributes £6.6 billion to GDP and to like accessibility—a big issue for publishing—so the economy in the UK. visually impaired people and their ability to read, and that requires input from all different bits of Q272 Chair: So how have you responded to UKTI Government. So somewhere in Whitehall—as John to point this out? says, it must not be a talking shop—that looked at Feargal Sharkey: I was as gentle as I possibly could actual policy changes that need to be made, either to be. There has been a long and historical conversation the benefit of the industries or for the people who use going on regarding coding—SIC codes and SOC our various products, I think it would be a very codes and industry standardisation codes. I suspect useful development. that everybody has known for possibly getting on for cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
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8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett the best part of a decade that there are some flaws, statistics right, then we will be repeating that cycle inconsistencies and inadequacies there. However, it is going forward because you will want to know if the again just one of those conversations that never seems public investment has delivered any value, and we to resolve itself, hence my rationale for simply just have to answer that question. going directly to the Treasury and saying, “Let’s come Richard Mollett: If I may, Chairman, that reads up with a system and make this work and deliver strongly across into the Hargreaves review of IP, some monies.” which is looking at that link between intellectual property and growth. You cannot answer that question Q273 Chair: Just before I bring in John McVay, early really unless you know about growth, and you cannot you effectively said you wanted more investment in answer that question unless you have an accurate UKTI. What is the benefit of the Government putting picture of the economy. So it is not just important more money into UKTI if, at the end of it, all they are for the export picture but whatever Hargreaves might doing is producing inaccurate statistics anyway? suggest on IP as well. Feargal Sharkey: It is not specifically because UKTI Chair: Yes, okay. I think we have broadly covered has to call back on the industry standardisation codes the issue of IP and the emerging markets. Paul, is like everybody else, and it is those that are at basis there anything you want to add to them before we of where there are inconsistencies and flaws. So it is move on to trade finance? certainly all of Government calling back on the original data that is collated and the data is flawed. Q275 Paul Blomfield: Just to talk a little more about By way of example, from what I gather the music the emerging markets. We focused very much on the industry is in the same categorisation as performing problems in relation to IP and the understandable arts and arts and crafts. There is no way of separating apprehension that that creates. Nevertheless, I think it or breaking out the data, so in a year’s time, we will was either Brian or Nadhim earlier who pointed out not be able to make an assessment of the impact of the growth in English language speakers in China. The the Adele album, overseas sales and the benefit to the Chinese middle class is now estimated at about UK economy from someone providing needlepoint in 300 million. We have fairly special access to building a cottage in Yorkshire—not that I am being relations through the huge number of Chinese students disrespectful to people doing needlepoint in cottages in our universities coming to the UK and going back, in Yorkshire. so there seem to be great opportunities there. So Richard Mollett: It is the Office of National Statistics, moving away perhaps from the IP problems, I just to be fair to UKTI, isn’t it? You should not lay all of wondered how you thought we could begin to that at their door. As you say, they are working on approach the development of those opportunities in what they are given by the ONS. emerging markets? Paul Redding: For me it is about infrastructure there. Q274 Chair: It is useful for us to tease out these The infrastructure doesn’t exist at the moment. It is factors because, at the end of the day, if we are to very difficult to get into those markets and we have invest more money in a service is using a flawed tried for the last four or five years, as I said, with no methodology for statistics and basic future plans then financial returns at all and quite heavy investment. So something needs to be done— we need some more robust infrastructure. Feargal Sharkey: Just to be clear, it is purely the Richard Mollett: China is a very special case in that, mechanisms sitting behind that that all Government as a foreign company, you are not allowed to publish departments have to call upon that we clearly feel has a book in China. You will not be issued with the some considerable inaccuracies to it. ISBN, so you have to partner with a Chinese publisher Richard Mollett: Exactly, if UKTI was there purely and effectively do a licensing deal, which may have a to produce export and trade stats and it was doing it royalty feature to it. Now that is a problem that I am wrong, I would agree, why invest in it? But that is not sure that will be with us for some time. British, its primary function; it is there doing a pretty good job American and other publishers are there for the long in foreign territories helping us export and working off haul. We do not think it will always be that way but the back of what have historically been pretty we are making sure we have the partnerships on the shoddy figures. ground So China is a slightly difficult one. But around Chair: Okay, you have made your case and analysed the world, where they can British publishers are the problem. working to provide international students with John McVay: Just to make another point, if it is about high-quality material in English. They are also being efficient with public money and public producing cut-price or low-price editions for those investment, I remember when Chris Smith was the markets where there is not a lot of income amongst Secretary of State for Culture, Media and Sport and the non-middle class bit of the population and making one of the first things he did was a mapping document sure that they can still access English language about the creative industries because no one knew literature. what they were. He went to the Treasury and he went John McVay: We are doing positive things with to Government and said, “Right, this is really China, notably with the state-funded Chinese important. What are they worth?” Because of the broadcasters, because we can actually get a bit more problems with ONS coding, they couldn’t find out. traction with them on issues around copyright. Indeed, They then had to commission a separate report, we will be doing a session with them and a number funded by the public, to find out what that was. It was of our companies in a number or months or so. So we a very useful report but I fear unless we get the central are very keen to do more. Once you go outside of that, cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
Ev 70 Business, Innovation and Skills Committee: Evidence
8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett and clearly where the British Government may have markets, which is, again, just another borrowing some influence, there are not trading standards officers obstacle. or people who look at any of that in the Chinese economy as far as we can make out, and you will find Q281 Chair: Would it be fair to say that in effect, your programmes happily pirated on day one. So it is the problems that you have is that in access finance to not a lack of willingness to engage; it is just where develop your domestic businesses, that is one issue. you engage and how far you can go with that. But, having developed the business, made the foreign contacts and got the contracts, the inability to access Q276 Chair: Can we just move on to trade finance. money to take the risk out of default of those contracts I suppose first of all, in your industries, it there is not really a problem in your industry? actually a need for Government support in trade Richard Mollett: It has certainly not been brought to finance for export? my attention by our smaller company members. Paul Redding: We are sort of in a slightly different position because we don’t need it, but there is a whole Q282 Chair: It is a huge problem in other areas of layer of companies that exist that do need help getting manufacturing but we are trying to bottom out into those markets. So yes, I think they do. whether it is the same experience— Feargal Sharkey: It is potentially a gross Q277 Chair: Which layer of companies? oversimplification to illustrate how the relationship Paul Redding: Well, the smaller companies below us. would work. Clearly if I have created a record, a We turn over £35 million plus; it is not those types of licence or a potential commercial partner in another companies that need that assistance. It is the smaller territory will be exercising their own professional companies who employ 10 or 12 people that are trying judgment as to the quality of that work and what they to get into these overseas markets that need assistance, feel it will do in their domestic market. Clearly as part and how that assistance comes is obviously up for of that negotiation of that licence, we would be discussion. looking for advanced payments on royalty income etc, etc. So in effect, they will become as exposed because of the investment they are making in that licence in Q278 Chair: How is that affecting your other obtaining that work and that copyright. So it is not industries? something I have really come across as an issue within John McVay: Well without the TAP scheme, a lot of my industry. my small companies and start-up companies would John McVay: I have seen it in TV markets where a not be able go into market; they could not afford to buyer has defaulted on agreements but then they tend do it. I agree with Paul. We have very large British not to get many other products brought their way, so independent producers who distribute globally and that is how the business works. People know who they don’t get any support. They don’t really need it; they trust and want to deal with and then you also know are making enough money from the titles they are people who you would have to be very careful with. selling into the markets. But for the smaller companies Paul Redding: In terms of income flowing back to the who might not be distributors, it is very important for UK, as I mentioned earlier, we started off by licensing them to develop networks of buyers for the future and our rights on short-term licences, which gave us a that takes time. It takes at least two years to develop very small margin on the small amounts of royalties those relationships so that you know the next time you that came back to the UK, but we changed our model are making a documentary about *inaudible* to straight distribution deals with local representation. [1:17:42] Williams for instance, the French or Russian That took a lot of investment. We were able to do it buyer might be the two people who would co-invest because we have been in business for more than 30 in that to make the product. You have to build those years and so we had a huge catalogue of rights that relationships up over time and you need to do that at we were about to exploit. But it was that single fact the beginning. that increased our exports by 80% over six or seven years. Q279 Chair: Having built those relationships, is there a need to actually have export trade credit to Q283 Chair: To your knowledge, have any of your take out the risk? That is what I am getting at. members tried to use the Export Credits Guarantee John McVay: No we will go and finance it from Department? buyers. That is straight commercial deals under Richard Mollett: No. commercial conditions. What companies need is to get John McVay: Not to my knowledge. to the environments to meet those buyers. Feargal Sharkey: No.
Q280 Mr Binley: I am simply nodding my head Q284 Mr Binley: Are we really talking about unit because I know that it impacts upon you actually. I cost here? Your stuff is low unit cost in the main, isn’t think it is relevant. it? There are television programmes that are slightly Feargal Sharkey: To be honest, I think if you were to more but it is still relatively low unit cost and is an throw the concept of a holding tax up into air, you export finance credit really about big money items? might get a much more vigorous response than export Richard Mollett: I suspect that is right, yes. trade finance and everything else. It seems to be a Mr Binley: I think that is the case in truth. much bigger concern, a much bigger issue, Chair: Right, I think that just about concludes our particularly in *exporting* [1:18:42] and developing questioning. As ever, if there are issues that you feel cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG04 Source: /MILES/PKU/INPUT/010554/010554_o004_kathy_No4-8Feb2011 [CORRECTED].xml
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8 February 2011 Mr John McVay, Mr Feargal Sharkey, Mr Paul Redding and Richard Mollett that we haven’t covered that you think are relevant to with Feargal and in the session here, I have learnt an our inquiry, please feel free to submit supplementary awful lot about the contribution that the industry evidence to us. Of course, on reflection we may think makes and hopefully we can make recommendations that there are one or two questions that we should that will enable you to do even better in the future. have asked but didn’t, and we may well approach you Thank you very much. We will be pursuing this and to seek clarification. That is incredibly helpful and I you will see the outcome of our deliberations in due think it is fair to say that in the previous session I had course. cobber Pack: U PL: COE1 [SE] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
Ev 72 Business, Innovation and Skills Committee: Evidence
Tuesday 15 February 2011
Members present: Mr Adrian Bailey (Chair)
Mr Brian Binley Gregg McClymont Paul Blomfield Ian Murray Rebecca Harris Nadhim Zahawi Simon Kirby ______
Examination of Witnesses
Witnesses: Stephen Phillips, Chief Executive, China-Britain Business Council, Dr Kerry Brown, Head of Asia Programme, Chatham House, and Professor Peter Nolan, Cambridge University, gave evidence.
Q285 Chair: Good morning and thank you for Q287 Chair: Would it be fair to say that arising from agreeing to respond to our questions. Can I apologise this growth there has been a rather unequal for being slightly late? We have already had one distribution of benefits from it, which has to be meeting, which ran over slightly. It would be helpful addressed in future? if you could just start by introducing yourselves for Stephen Phillips: Certainly there has been uneven transcription purposes, perhaps starting with Stephen. distribution of the benefits of that growth. The vast Stephen Phillips: My name is Stephen Phillips, the majority of the economic growth has taken place in Chief Executive at the China- Britain Business the eastern coastal provinces and has led to a Council. population there that is much wealthier than those that Dr Brown: Kerry Brown, Head of Asia Programme live in the central and western provinces. It is clearly at Chatham House. a Chinese Government priority to even out that balance of economic prosperity. There is a lot of Professor Nolan: Peter Nolan, Judge Business Chinese Government policy that attracts investment to School, University of Cambridge. the central provinces, to the provinces in the north- east in Dongbei and to the south-west and to the Q286 Chair: Thanks very much. We will start with north-west. What we are seeing is this migration of a couple of general questions. First of all, China’s economic activity into the lesser developed provinces growth rate has really been sustaining the world to address this very issue of unequal incomes and economy. How has it managed to achieve this growth economic disparity. rate and is it sustainable? You do not all have to answer the same question, but do so if you feel that Q288 Chair: Thank you. Was it Churchill who said you can add something to anything that any other socialism is the equal sharing of miseries and speaker has said. So who is going to lead off on it? capitalism the unequal sharing of benefits? I have Dr Brown: Well I think the Chinese data say that the paraphrased that slightly. Here we have a communist growth rate has been 9.5% to 10% over the last 30 country that seems to have managed to capture the years, so since 1978. There was a decent growth rate essence of capitalism. Looking ahead to the People’s during the Maoist period, this is often forgotten, from Congress in March, and you have alluded to this the 1960s onwards when the five-year plans were first tangentially, what will be the implications in terms of introduced—I think the first was 1953—but since policy decisions made there for UK trade with China? 1978, it has been a very different kind of model, with Dr Brown: Well I think the problem in the last 10 the use of special economic zones, of which there years, and Peter knows this better than I do, is really were 14, and heavy industrialisation. Now the whole that consumption has fallen as a proportion of GDP. I country is like a special economic zone. think 50% of GDP was consumption, maybe even as little as 17 years ago; now it is something like 36%. I Most people say that the imminent five-year plan, the think part of the five-year plan is going to address draft of which is going to be introduced in March and how to create more consumption to do something which will be the 12th five-year plan, is probably about these massive trade deficits, which are going to promise less growth and go for quality of becoming a political problem; to start implementing growth. The Chinese Government now knows that the Copenhagen Agreement, so a 40% to 45% since entry to WTO in 2001, this really unleashed reduction of carbon emissions by 2020; and finally forces of productivity, which, when I was a diplomat really to keep China on track to increase its per capita at the time in Beijing, we didn’t expect to be so huge. GDP to middle-income status by 2020, which would It has sort of been a victim of its own success. be about $6,000 to $7,000 per capita. At the moment, Inflation is now nearly 5% and therefore there China’s per capita GDP is about $4,000 so that would probably is the need to look more at issues of quality be to quadruple it from $2,000 over 20 years by 2020 and balance of growth, rather than just being a GDP to become a middle-income country. That is the key factory. Finally, the one thing you can say is that, for objective but Peter knows more about this. the last 30 years, the one thing everyone agrees with Professor Nolan: Right. I will try to link together the is that China has been a factory of GDP growth. There three issues about why China has grown, whether it is is no dispute about that. sustainable and what is going to happen in March. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 73
15 February 2011 Stephen Phillips, Dr Kerry Brown and Professor Peter Nolan
China is on a very unusual path of late development, about this. It is certainly getting to that point; how and it is a curious fact of history that each late- quickly and how sharply it bites is fundamentally developing country that gets on the escalator and is important as it will affect the whole character of successful grows faster than the previous generation— China’s political economy. The point at which China from Britain through to America, Germany, France, reaches the end of the Lewis development path is a Japan, Korea and now China. So the advantage of the huge question for debate amongst Chinese scholars latecomer is enormous. The ability to benefit from the and politicians. information technology revolution has been If you look at the institutional structure of China’s fantastically important. business, it is very unusual. It is three intersecting Chair: Could you just speak up a little? segments. You have small and medium-sized Professor Nolan: Each latecomer country has grown enterprises, which many of you have visited or will faster than previous latecomers—from Britain, visit, which are extremely vibrant, quasi-private, very through to America, through to Japan, through to dynamic. You have an extremely important segment Korea and Taiwan and now China. Now in this case, of foreign and direct investment, bringing in high the advantage of the latecomer for China is many- technology. The third segment is China’s state-owned fold, but if you want to single out one, I would say enterprise, and they co-exist in an extraordinarily the information technology revolution has had a powerful interdependent, and up until this point, fantastically positive impact on everything in China. unique relationship. I will stop there, perhaps; I If you want a few points to encapsulate why China wanted to lead into the Congress in March but I do has grown so fast, the first point I would make is not want to speak too much. people have mostly predicted wrongly, and so we must be very careful when we think about where Q289 Chair: Thanks very much. That is very helpful. China is going today. It does not mean things will be You talked about quasi-SMEs— bad but we should be very careful about where the Professor Nolan: Quasi-private. Let me give you an herd is moving in terms of their perspectives. In the example; one of the many companies that I visited is late 1980s, if you go back to the conventional wisdom a very famous company called Haier. The head of about China, it was up the creek to nowhere—in the Haier is man called Zhang Ruimin. The Royal Bank words of one famous commentator—it was a halfway has touted Haier as the exemplar of private enterprise house, socialist market, neither one thing nor the other in China. Talking to Zhang Ruimin—a bit closer than and it had no prospects. That is the late 1980s. After you are to me—I said, “Who owns your company?” Tiananmen, with very few exceptions, everybody He said, “I haven’t got a clue. I really don’t know. It thought China had no serious growth prospects at all is so complicated. I have so many entities. I have got and that the Communist Party could not survive. So plants across China. This one is owned by local the ability to get China wrong is fairly substantial. government; this one is owned by a bit of this and a So the question is where are we now? How has it got bit of that; so my ownership structure is extremely to where it is? Political stability is absolutely complicated. One of my major tasks as the leader of fundamental and Kerry can talk for equally as long as this powerful enterprise is to deal with the I can about the importance of the Party. We think complicated ownership structure that arises from about the Party in different ways but it is a very, very operating in this country. That is one of my skills.” capable organisation and it has got more and more So there is very little successful business above a capable. It is intensely competitive, meritocratic in certain size that is a pure private enterprise in a fundamental senses, and if you want a single Western sense. institutional reason that is probably the most important reason. Q290 Chair: So there must be a body of legislation China also has a very, very powerful capitalist that defines corporate organisations. tradition. People talk in Chinese economic history Professor Nolan: Absolutely. about what is called the “Capitalist sprouts”—it is a rather ugly term—and places that many of you have Q291 Chair: Are you saying that the legislation is so visited or will visit, places like the delta area around wide-ranging and complex that people don’t Shanghai, the Pearl River Delta in southern China, understand it, or that the actual corporates that grow have for many hundreds of years been vibrant bases up don’t necessarily conform to any of those legal of capitalism. Of course, it is well known that in 1800 models? China’s industrial output was far greater than that of Dr Brown: Yasheng Huang, an economist in America Europe and this was the basis of it: capitalism, who is originally from China, described it as like a markets and trade. Therefore, that has in a sense been political pecking order. In fact, if you look at the allowed to flourish in the mixed economy since the political system, there is the Government, the state, 1970s. and then there is the Party and the Constitution does A deeply important question is what the Nobel prize- not spell out where the division lies. The way you winning columnist Arthur Lewis calls “economic express it is that activity all happens under the development with unlimited supplies of labour”, and leadership of the Communist Party, but there are rules China has, up until this point, had huge unlimited that look very much like the legal system in the West. supplies of labour pulling workers into the urban The problem is that that is under a sort of political areas, supplying us with cheap goods. A big question order where that will trump any kind of legal decision. is when will this surplus army of labour dry up, and On the role of entrepreneurs that Peter referred to and there is a lot of debate amongst Chinese economists state-owned enterprises and entrepreneurial cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
Ev 74 Business, Innovation and Skills Committee: Evidence
15 February 2011 Stephen Phillips, Dr Kerry Brown and Professor Peter Nolan companies, in fact it was a long battle from the 1980s Professor Nolan: It is a famous company called to the 1990s to really recognise entrepreneurs. They Haier. It makes white goods and is very successful. It were in a kind of legal grey area and under the is in Qingdao but it has branches across the whole previous President and Party Secretary, Jiang Zemin, country; it is a very interesting example, much praised they were given a legal status so they could join the by the World Bank and much written about. There is Communist Party. In fact if you look at the nothing secret, in that sense, about it. entrepreneurs—private business people, non-state business people—a third of them are Party members Q294 Chair: You have spoken about the fairly now, which is the highest figure of any social group. unusual interlocking of the private sector and For the usual supporters of the Communist Party, politicians—the Party structure. Logically, if there is farmers, urban workers or professional classes, it is a change in leadership in 2012, how do you think that about 5% to 6%. Membership of the Communist Party could affect business relations with the UK? as a whole is about 6% of China’s population, so Stephen Phillips: Perhaps I could build upon some of entrepreneurs are big supporters of the Party and the the answers and also address the point, if that is okay. idea that they will be agents of political change is Everything that my colleagues have said is absolutely probably a little naïve. true. Looking at it from a more pragmatic, business Finally, on this issue of state and non-state, Marx said point of view in dealing with these organisations— anything above eight members in an organisation was whether they are large state-owned enterprises or, already capitalist because it would involve some kind indeed, genuine SMEs in the context that we think of of capital exploitation. In China, once you get beyond them—you are dealing with businesses that behave in an enterprise of eight people, then the State will be a very commercial way, and in a way that is very involved by having a resident party secretary. So it familiar to UK businesses. Behind what you see on is very difficult to do business without state or Party the surface is this political dynamic going on, but I involvement, without political involvement. would say that it is not that alien to a business dealing with a Chinese business on a day-to-day basis. Q292 Mr Binley: We are used to seeing the SME In terms of the likely change of leadership, all sector as the home of thrusting creativity. In this indications are at the moment that there will be a country, about 70% of Britain’s creativity comes from continuation of the continued opening up and reform that particular sector. Normally, that degree of of China, which will continue to offer increasing creativity presupposes a degree of independence, not opportunities for collaboration. There will be a change least political independence. Some of the most of emphasis; China won’t be looking to attract the awkward buggers in the country are small- and type of investment that it has been looking for in the medium-sized business people. So I do need to try to past and there will be much more focus on clean-tech, understand what you mean by this quasi element, how high-tech industries and so forth. So there is going to that impacts upon creativity and how that relates to a be a changing shape in the opportunity for business degree of independence, which you suggest, because but that opportunity will continue to exist. of Party involvement and so forth, does not exist, or Dr Brown: I think America has gone to the WTO in perhaps does not exist in the same way that it does in the last couple of days about credit card payments this country. because at the moment only one organisation, Professor Nolan: It certainly does not exist in the UnionPay, is allowed to take credit card payments in same way as in this country. The answer is this is a China. creative combination. For example, in many people’s Chair: Just on this issue, I was going to invite view Haier is the most successful business in China. Nadhim Zahawi to come in. To a certain extent, you I would say that is a rather exaggerated view, but it is have anticipated our next question. certainly very, very successful and very creative in terms of new technology and dealing with customers. Q295 Nadhim Zahawi: Thank you very much. That But it is a fact that a substantial part of its ownership is precisely my question: how well do you think China is very difficult for the leader to identify, it is very is keeping up with its WTO commitments? complicated—spread across the whole country—but Dr Brown: Well, I think it has fulfilled them all and there is sufficient incentive left for him and for those managed to protect what it wants to protect who work for him to enable him to be creative. It is a completely legally. These will be big battles in the highly creative body, even though a large body of its WTO because it is not entirely clear that they violated shareholders are various kinds of government entities any of their conditions, and I think they have across the country. There is sufficient left on the table. scrupulously fulfilled them. I have to say, I was in After all, the manager of a global bank or a global the Embassy in Beijing as a diplomat when the WTO business does not have a very large stake in agreement was signed and if remember rightly at the ownership, just a tiny fraction. So the state is a very time, 10 years ago in November 2001, we were kind important part of the ownership, but there are of sceptical that China would be able to meet its sufficient incentives left on the table for the obligations. We did not think it would be able to do entrepreneurial leader and those around him or her— much on retail banking. We thought it would expose usually, it is him—to be very creative. its state-owned enterprises to fierce international competition. We thought five years for the Q293 Chair: Could I just ask, which was the implementation of most of the commitments was company you referred to? pretty ambitious. Well, like it has with the Millennium cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
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15 February 2011 Stephen Phillips, Dr Kerry Brown and Professor Peter Nolan
Goals, it has reached these much earlier than we However, more fundamentally in the UK, our expected and it has fulfilled them. education system doesn’t support young people The problem really now is that it has become the getting a good knowledge of what is going on in victim of its own success, in a way, because it has China and, indeed, Asia more generally, and that surpassed what it promised. It is getting into very needs to be addressed at an earlier stage. technical areas at a time when it is also having to look It would also be helpful if there was more coverage at—as the Five-Year Plan is probably going to in the UK media about what is going on in Asia and cover—all sorts of more gritty areas of social and indeed in China. A lot of the coverage tends to be on political change, which I do not think the Party has the negative side as opposed to actually setting out got a very clear route to deal with. The problem is it what is going on in the country. It may be rather silly is in a transitional phase, as Peter referred to, where to think that the media would pick up that they have the economy has in a sense been successful but a responsibility to address this. Generally speaking, political change, the changes between the state and however, from the companies that we see coming to the Party and political structures—how to deal with this, their level of knowledge is incredibly basic to having contention in society; how to deal with having begin with and it is a risk to the UK if UK business independent unions; how to deal with having a proper people do not understand what is going on in the legal status for civil society; how to deal with political second largest economy in the world. Somehow, opposition in a more creative way than just banging through many different means—and I think it is people up—is becoming much more of a priority. It is through multiple means—we have got to improve the more difficult to build consensus there. knowledge of what is going on in China and Asia The Standing Committee of the Politburo, the nine more generally in our country. members, exists for one reason: to create consensus. Therefore, as we move towards 2012, the issue is that Q298 Nadhim Zahawi: Do you concur with that each of the people on that must have a clear political view? role to look after certain constituencies and also a Dr Brown: We have a problem because in a relatively clear political role to look after certain economic short space of time the dynamics have changed quite constituencies, including state-owned oil companies, a lot in the UK and China. The priority up until 1997 certain monopolies like the tobacco monopoly, and was the hand-back of Hong Kong. This was a huge, certain areas of economic activity, including contentious issue and we dealt with it, but since 1997 provincial economic activity—Guangdong, for China’s economy has grown exponentially and the UK instance, is about 20% of China’s GDP. You follow has become a relatively small partner, in some ways, the money. With the Politburo, you look at each for what China is. That means that going through the person who is likely to come on to it, you look at their EU for a lot of issues is important, and there we do economic function, their political function and the do a lot of negotiation multilaterally and that is just constituency they look after. There is the consensus going to have to continue. and there is the political and economic roadmap for Secondly, it means a lot of the tools for our diplomatic China for the next five years. It is all about dialogue with China have got to become much more individuals. sophisticated. We need to have pretty knowledgeable people to interact with China. As a final example, the Q296 Nadhim Zahawi: How important is China’s life of a politician in China is one where you are control of the rare earth metals to the world economy highly trained. You end up as a Minister after many, and ultimately to UK growth? many years of going through provinces, going through Stephen Phillips: Perhaps if I can just answer from specific technical departments. These are very the UK perspective. Obviously this is a hot topic, formidable negotiators—very, very formidable—as certainly in terms of the media. I have checked with we learnt at Copenhagen, and as you well know, for a the CBBC network of 20 offices and also the British British politician, the path is different: it is very Chamber across China and as far as I know, we have diverse. I am not saying one is better than the other not had one single inquiry about this issue from UK but it just means that, in a sense, a politician from companies. That perhaps puts it in the context of the China and a politician from a Western democracy are UK. Clearly for other countries, it is a much more quite different; they can be quite different. serious issue, and certainly if you look at countries like Taiwan, Korea, Japan, it is a much hotter issue. Q299 Nadhim Zahawi: So are you saying that we But from the UK point of view at the moment, it does are paying the price for Hong Kong? not seem to be a major issue. Dr Brown: Well no, not at all. I don’t think we are. We are still the brand carrier for colonisation and Q297 Nadhim Zahawi: Stephen, a question for you: imperialism, and we get beaten over the head by that in your submission you say that “the level of and there is a big historic grievance. But in the end, understanding and awareness of modern China in the the policy is very pragmatic where we are of use to UK is not as good as it needs to be,” but isn’t it your China and its enormous internal needs. That is the job to improve the situation? bottom line. Stephen Phillips: Of course that is part of our job, Professor Nolan: We have a big problem about and for that reason we run something like 200 events populations’ understanding and perceptions and the across the UK every year to raise awareness amongst role of the mass media. This hysterical, widely read the big business community of modern China and article in the American magazine Fortune is a very what it means for companies by way of opportunity. good example: “China buys the World”. People cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
Ev 76 Business, Innovation and Skills Committee: Evidence
15 February 2011 Stephen Phillips, Dr Kerry Brown and Professor Peter Nolan reading that, just seeing the headline, would think and up to 900 people were mown down by troops as China is buying the world. They would not have any the prelude to our industrialisation, so we should keep understanding at all of the role of multinational that in mind when we think about our values and the companies in China or, in fact, how limited China’s role of the middle class. The middle class were very outflow of direct investment is. The media serve us unhappy indeed, and didn’t give people the vote for very, very badly, I regret to say. over 100 years. The fact is, if we go back to the question about where So where does China stand? The first thing is, when China stands in terms of fulfilling its WTO we define the Chinese middle class, we should be commitments, the US in the 19th century, Britain in very, very careful. The Chinese Premier came to my the 18th century, Japan right through to the present university, the University of Cambridge, and he gave day, Korea and Taiwan: none of them remotely would a speech almost two years ago, which ended meet WTO commitments today. China has met its catastrophically and said all sorts of things about WTO commitments. Kerry was in the middle of the many things. The title of his speech was Looking at discussion in the Foreign Office, I was part of the China from the Angle of Development, and in terms wider network of discussions around that issue, and of the global standard of the middle class, China does today it is an extraordinary reality that China is the not have 300 million people. It may have 100 million most deeply engaged of all latecomer countries in people; it may grow to 1.3 billion people, but that is world trade. Exports plus imports are nearly 70% of entirely speculative. Today it is still a relatively small GDP—that is a fantastic depth of integration. middle class and prospects are good and one hopes it Even less well understood is the role of multinational does grow but China is still a poor country. companies in China. Foreign direct investment in When we talk about China catching up, the Chinese China has increased from less than $30 billion in the middle class and how China views the world, we year 2000, just before China entered the WTO, to should remember some very simple facts. China $500 billion today. Last year it increased by probably produces more chocolate than Belgium—I $106 billion. Foreign-invested enterprises in China, am not sure about that—and it may produce more foreign firms in China, account for 55% of China’s cuckoo clocks that Switzerland; that is almost exports, so who are we? Who are China? Who are certainly true, but those are not very interesting they that are exporting to us when we think about comparisons. The fact is China has 1.3 billion people trade imbalances? Some 55% of China’s exports come and when we talk about China catching up, the role from foreign firms in China and most of these are of the Chinese middle class in the world, we should exports that are based around processed goods from remember that we, the whole of the high-income imported components. Two thirds of China’s countries, have 1 billion people or less. China has high-technology outputs—things like electronic 1.3 billion people. goods, medical equipment—come from foreign- If you look at China’s gross national income in invested enterprises in China. If you look at China’s purchasing power parity—which I still think exports of high-technology products, 90%-plus come overestimates China’s national product because so from foreign firms in China: East Asian, European many products are of low standard—it is less than one and American. fifth of that of the high-income countries, and that is So when we think about who they are and try to probably an exaggeration. It is growing faster but we understand them, the media have a very, very high can all speculate about the future. China’s household duty and we have a duty in our different roles—in the consumption, because China’s household business sector; in government; and in my own job, consumption share is relatively low and stands at less in universities—continually to put things in balance than the total volume of household consumption in and explain just exactly where China is on this path purchasing power parity dollars, which is rather of development. One of the important issues is how questionable and maybe overstates it, is less than one open it has been and I entirely concur with Kerry’s tenth of us in the high-income countries. view. So the middle classes are growing and that is good news for everybody and it is good news for this Q300 Mr Binley: I think your comments there, country, but we should bear in mind the Premier’s Professor, lead nicely on to my concern. We talk speech, Looking at China from the Angle of glibly about the middle class and we have a perception Development. It still has a long, long way to go. There of the middle class that is both cultural and economic are 800 million people in China who are by any and may even be a wider perception in many respects. Western standards very poor people. Yet we note that there are 300 million people defined as middle class in China. How does our perception Q301 Mr Binley: Thank you for that because it is and the reality of that group of people merge? Is it the easy to take into your head so-called facts that do not same thing or are we talking about different things? really relate, and that is why I wanted to ask that Professor Nolan: Well it is quite curious to come here question. Let me then go on because it seems to me today because I am reading Barnaby Rudge at the that Britain’s export potential is not totally but well moment, and in 1780 we had a very interesting event weighted towards middle-class consumption, and this that took place in these buildings in the centre of leads me on to the real thrust of my question. Given London. We have our own complicated political that the middle class is not the glib size that we have evolution and the position of the middle class in that just talked about—I have just put that to you and it is quite an interesting one. Just to remind people, in has been destroyed—how difficult does that make it June 1780, we had our own Tiananmen in this country for British industry and British export to take cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 77
15 February 2011 Stephen Phillips, Dr Kerry Brown and Professor Peter Nolan advantage of that particular sector, bearing in mind signed deals of $2.4 billion. Of course there are still a the reliance upon middle-class consumption? lot of other things going on and in fact the UK is still Professor Nolan: I am happy to talk about it but I the largest destination for Chinese investment. That is think my colleagues should have a further comment. the real battleground. Stephen Phillips: A middle class of 300 million The second thing is that we have two strategies. I people is not an insubstantial customer base. suppose we can say that we go through the EU as trade partners, and the EU and China are the biggest Q302 Mr Binley: But we know it is not 300 million trade partners in the world—bigger than the US and people. That is the very point. China—so we can go that route, but at the end of the Stephen Phillips: It may or not be 300 million people; day we still have to fight bilaterally for job creation it may be 100 million people. The reality from a in our countries and it is very, very tough. The EU business point of view is there is a middle class and a can fight generic battles, like whether we get proper consumer class that is buying luxury goods, quality market access for key strategic areas, and for the UK goods, quality services from Western enterprises. it is obviously financial services that we feel we are There is a very real market there and it is growing locked out of at the moment. However, it is unlikely substantially. For instance, if we just look at the last we are going to be able to hold hands about 12 months of car sales in China, certainly some of manufacturing, more because Germany still has a big the companies I have spoken to have seen growth of advantage there. Stephen mentioned car between 50% and 70%. Clearly that is not sustainable manufacturing, and Germany’s exports of cars to but it is real and that includes truly luxury car brands. China are still pretty significant. As you go round Chinese second and third-tier cities, It is a pretty competitive market within the EU to you will see branded shops selling European export to China, and we are at a disadvantage because high-quality goods that you do not see in cities across the things that we may want to export, like financial Europe. That is real; people are buying these goods services, are not quite there at the moment. But I do in China. not think it is the wrong strategy for us to hope that So whether or not it is 100 million, 300 million or there will be very viable financial services markets in 500 million people, there is a class of consumer who China with an emerging professional, urban class that is buying stuff from the UK, and that is only going to is pretty significant and has quite a lot of purchasing increase in the future. That does not get away from power. the point, though, that the UK is still, at least on the Professor Nolan: Obviously, in some important surface, underperforming in China: second largest senses we are a part of Europe, but in other important economy, but only the ninth largest export market. senses we are not. We are not in the Eurozone and we What balances that out a little bit is that the UK, are perceived by China as being a very different compared with Germany for instance, has invested as animal, obviously, from the United States and also much money in China as Germany has. Therefore, on from Continental Europe, and that is to our advantage. a per capita basis, to a certain extent the UK has put The nature of our political economy and of our its money where its mouth is in China, in a way that business system has evolved in a very different way perhaps other countries from Europe have not. It is from that of France, and particularly from that of quite a complicated picture. Germany. We have gone down a different path and Chair: Yes, we are going to come on to that in a the possibility for engaging with this country in wider moment. issues of mutual benefit and of common interest for the whole world puts the United Kingdom in an Q303 Simon Kirby: Are you aware of any interesting position. We are by the far the most open discussion within Government about replacing the of all the high-income countries. If we have time, existing Framework for Engagement strategy, and if a perhaps we can talk a bit more later about the degree new strategy were to be created, what do you think of our openness. Just today, GE has bought Wood, should be in it? which is one of the most important manufacturers in Dr Brown: Do you meant the one from 2009? its niche in the oilfield services sector. Every day there Simon Kirby: Yes, that’s right. is a story of this kind, which is not a good or a bad Dr Brown: That set out three or four benchmarks, thing, but it differentiates us sharply from Germany such as helping China with its internal reform, and to some degree from France. increasing economic co-operation, and educational In terms of this Framework for Engagement that you tourism, and I doubt whether they would be changed. are talking about, business needs to be seen within a The current Government has said that it will stick to wider context of relationship to China, one in which the policy of the previous Labour Government the Foreign Office and our Government fully because it was successful engagement, and what is the appreciate that China still is a developing country. alternative? You cannot really have disengagement, so When we talk about what is going to happen in the I think it is unlikely it would change. Congress in March, issues of how China becomes However, the battleground still remains to really more efficient in its use of energy, how Chinese attract more Chinese investment to the UK. As an people can live in more pleasant urban environments example, when Li Keqiang, who is likely to be the and how the living standards of poor Chinese people replacement of Wen Jiabao as Premier, came to the can be raised are central questions. UK in January, he bought Eurobonds in Spain and so I applaud the Framework for Engagement because it maybe $6 billion worth of investment, in Germany I goes beyond the mentality of pigs and troughs and is think it was $9 billion, and in the UK I think we a wonderful opportunity for us to clean up in China. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
Ev 78 Business, Innovation and Skills Committee: Evidence
15 February 2011 Stephen Phillips, Dr Kerry Brown and Professor Peter Nolan
We must have profit and benefit from our businesses, we have been successful, which Stephen will know but we can have a most fruitful relationship for China about better than me. In certain carbon-capture in a wider context of political relationship, and we are technology areas or high-tech areas and education in a very advantageous position because of our provision we have been very successful, but our focus history, both past and recent. The Framework for has really been on financial services and banking, and Engagement is good and China perceives us as an that is still being developed in China. important part of the story of trying to establish a Germany has put a lot of effort in. Its political sustainable development path for itself and for the relations with China were good. Chancellor Schröeder world. For example, we still face a crisis in the global went there every year, while I think Tony Blair only financial system, which we can argue was caused to went there twice in 10 years. So there was a difference a considerable degree by policies originating in this in political emphasis, but I have to say that the country, but we are at the forefront of efforts to try to previous Prime Minister, Gordon Brown, and now correct that to improve the regulation of the global David Cameron have been going there annually, and financial system. they have put a lot of political effort into it. Goodness In other words, we are in a position to co-operate with knows how many ministerial visits there are to China China on issues of financial regulation, issues of each year, so the politics since 1997 is dealing with climate change, issues of dealing with straightforward. It is not all about one issue. our natural environment. We face the prospect, as The perception of the UK in China is quite Edward Wilson puts it, of an “age of loneliness” ambiguous. On the one hand, we are obviously because we are destroying our species at such a wild successful in getting Chinese students to come here; rate. All these senses should situate business in a about 100,000 are here, which is almost as much or wider context of a longer-term relationship with maybe more than America. We have been China, which goes beyond the last 30 years of what I tremendously successful, although it will be very would call wild capitalism—or whatever you want to important to look at the impact of tuition fees on that call it—into a more intelligently regulated capitalism. as it might be a huge negative area. However, despite As the document for engagement outlines in a very many years of effort by the British Council, the British interesting way, China views us as a very important Embassy and many others, the UK is regarded as partner in that endeavour. being a conservative, old-fashioned, traditional place where you can maybe come for a holiday; there has Q304 Mr Binley: I just want to ask a very quick been an increase in tourism to about 175,000. Finally, question because you did say we had some advantage for Chinese visitors to the UK, of course it is a big and that was based on history. Was the work in Hong problem that they cannot get a unified EU visa—they Kong and the changeover pretty important in that have to get separate visas—and there are restrictions respect? on that, so these perceptions are quite difficult to shift. Professor Nolan: It was important; it was part of that Stephen Phillips: Perhaps I could just add a few tapestry of trust and relationship. For example, Chris points to that. In terms of why Germany has Patten is a welcome speaker at the Party School, and outperformed the UK, the reality is Germany has been that was a very important part of trust. It was not the making what China has needed as it has gone through only thing. a rapid period of industrialisation. It manufactures the kit and the machines that China has needed to build Q305 Mr Binley: But it is that sort of thing, is it, the factories that have allowed China to develop that you think helps to create— rapidly. Professor Nolan: It does help and, to be blunt, the One of the things that the UK has is very advanced tradition of our universities, the tradition of the engineering but, from a Chinese point of view, what English language and globalisation all help as well. I that means is that the UK makes something that tends do not want to speak too much, but I hope that later to go into somebody else’s kit, so they do not see on in the discussion we will have time to talk about the UK element. What China wants overall is turnkey some common challenges in terms of their business solutions, and the UK isn’t great at offering that. Other structure when we come to talk about foreign direct countries tend to be a little bit better about giving an investment. I think in some curious ways, there are a end-customer in China the whole kit that they’re lot of symmetries in the challenges that China faces looking for. in its large business sector with those that we face, Picking up on one point that you mentioned, Kerry, and that are rather different from those of Germany, another thing that I hear quite frequently when I go America and France. around China, from both Government officials and from businesses, is that UK businesses do not come Q306 Simon Kirby: Professor Nolan, if, as you say, across as being as hungry for business as their the UK is in an advantageous position and if, as you counterparts from the US, other parts of Continental say, Dr Brown, both a bilateral and multilateral twin- Europe and other parts of Asia. There is an issue, pronged approach is working, why is it that Germany perhaps, in the way in which UK businesses are a does so much better than us? They export five times, little more low-key; if they were a bit pushier, they possibly six times, as much as we do. How can you might get a bit more traction. square that? Professor Nolan: The global business system has Dr Brown: As I said before, the UK’s economic gone through an extraordinary revolution in the last strengths as I understand it are really in things that 30 years and in my evaluation, which I think is just China is not quite ready for. There are things where unarguable, at the head of the global business system cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 79
15 February 2011 Stephen Phillips, Dr Kerry Brown and Professor Peter Nolan in almost every sector is a small group of oligopolists, Q308 Chair: And British? basically, who are giant global systems integrators. Professor Nolan: I don’t know. If you asked me to The path of development, for very complicated guess, I would say 500. reasons of history in recent decades, has left Germany Chair: Right. in the enviable position that it has a mighty group of Professor Nolan: It is just a wild guess. very, very powerful industrial manufacturing systems Stephen Phillips: I think the MOFCOM statistics say integrators. I was in Siemens last Friday, and one of that there are 6,500 UK companies operating in China, my PhD students is studying the evolution of the value but that may include things like BVIs. chain at Siemens as an example. Companies such as Professor Nolan: It needs to be carefully investigated. Daimler, Siemens, VW, BMW, ThyssenKrupp, Chair: Could you project your voice this way? I am BASF—the list goes on and on and it is a very long having difficulty hearing. list indeed—have engineering, manufacturing, and Stephen Phillips: Yes. I think statistics from systems integration prowess. They connect very MOFCOM, the Chinese Ministry of Commerce, show closely with the Mittelstand, the small and medium- there are about 6,500 UK-registered companies sized enterprises in Germany, which connects with the operating in China, but that needs to be taken with a German education system, its technical school system pinch of salt and would need delving into. and many other features of the German political Dr Brown: I did research this about five years ago. If economy. We have sold almost all of our systems you go to provinces, they will give you lists of joint integrators to companies from other countries, and ventures. For instance, in Inner Mongolia I think there that is neither good nor bad but that is a reality. are 44 official UK investments including the German firms do not just export to China; they Taiwan-London Cake Factory. They are offshore so produce in China in huge volumes. Those firms that there are probably about two authentic British are capable of doing it—and many are—have taken investments of that 44, so I think the figure is right— with them their SMEs within their supply chain. We 6,500 joint ventures. have a problem in the disconnect between our own About the components, if you think of Airbus, firms and global systems integrators. It is very hard obviously a part of Airbuses are British—maybe 20% for something like CBBC or another branch of to 30% sometimes—and if they have Rolls-Royce Government policy to say that we will do something engines then it might be 50%, but the engines and the to resolve that. It relates to the fundamental structure wings are put on our exports to Germany and then the of our political economy, and Germany has evolved complete plane is put on German statistics, so that is out of the last 20 or 30 years with a huge advantage a huge amount. That is the real cream of your export in that respect in terms of high-technology systems figures, and they go on Germany’s, and there are a lot integrators, their predominantly German supply chain other examples that do not go on our figures. and the incentives for people to attend university or technical school and become engineers and work in Q309 Chair: It obviously distorts the figures. I do those companies. not know how many Rolls-Royce cars are actually My own view, which I have thought about a great deal exported to China, maybe none. They are obviously in terms of where our country is going, is that we German-owned but British-built. How does that figure cannot reinvent the wheel; we are where we are. As in the statistics? Charles Powell and Mrs Thatcher put it, we have Dr Brown: Bentley has been much more successful, become a mercantile society, and we are jolly good at and I have not got a clue about Rolls-Royce, but there it and our companies have very high market are some really odd things. For example, the world’s capitalisations. We have to think of a way of engaging biggest Louis Vuitton shop is in Taiyuan, which is in with an economy where the commanding heights are the middle of China, but it is subsidised by the local services, retail, banking, media and marketing. We government as a flag carrier. The luxury trades area is have to accept that and find a way of finding our place pretty complicated and, as I say, I think Bentley sell in the world, not by reinventing German or French out within an hour of taking their stuff over there, but style manufacturing but by building on that does that really contribute a huge amount? uniqueness and that difference, and engaging with China around that foundation that we have, which is Q310 Mr Binley: I seek clarification really. I have very different from that of Germany. been in business all my life, it is my prime interest and I have been selling for most of my life. You made Q307 Chair: Just a couple of follow-up questions. a strange comment about Britain not being pushy First of all, and I think this has been alluded to, we enough, and yet we were told that you only do may be exporting far more manufacturing to China business with China if they like you. There is actually than the statistics would convey because in fact we a bit of a dichotomy there, and I want therefore to manufacture a part of finished goods that are know a little more about what you really mean at the denominated as coming from other countries. Is this a coalface about how we can be more successful at reasonable observation, and could anybody give a selling. rough estimate of what sort of additional wealth is Stephen Phillips: That is a very fair point and created by that? My second question is: do we know obviously building a relationship is absolutely critical how many German firms are operating in China as to doing successful business in China. I was merely compared with British firms? reporting what I hear very frequently as I go round Professor Nolan: There are 5,000 German companies China. One of the questions I ask quite often of people operating and producing things in China. I meet is, “What could the UK do better?” One of the cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
Ev 80 Business, Innovation and Skills Committee: Evidence
15 February 2011 Stephen Phillips, Dr Kerry Brown and Professor Peter Nolan most common answers I get back is that UK business other organisations, covering every sector of the UK people could be hungrier for business, and they are economy. Certainly from work at CBBC, I can assure making the comparison with American or German you that it is very, very broadly based. We touch salespeople. almost every sector of the economy across the whole of the UK. Q311 Mr Binley: Okay. Without prolonging the Chair: This is a very important issue and we are pre- discussion, it seems to me this is a pretty important empting the questions I know Rebecca Harris is going point that really matters. Could you come back to us to ask. We will just go on and deal with intellectual with a more considered view of how we could property before I come to Rebecca’s questions. improve that situation? Stephen Phillips: Certainly. When I go round I will Q313 Paul Blomfield: We have heard in the course ask further probing questions as to exactly what these of this inquiry that there are specific concerns in people mean. Yes, of course. relation to intellectual property rights, and they are often cited as a barrier or as a contributing factor to Q312 Simon Kirby: Those were fascinating answers caution from British business in engaging with China. about the mismatch between the sectors that China is Do you think those are real concerns? interested in and perhaps the sectors that the UK can Stephen Phillips: Perhaps I can take that in the first provide. That having been said, do you think the instance. IP concerns are legitimate, they are real. Prime Minister’s Trade Mission—where he prioritised Perhaps the perception of the issue in the marketplace sectors of high-end manufacturing, advanced is lagging the reality. China has made a great deal manufacturing, financial services, which you say are of progress, as it has around WTO commitments for still developing in China, low-carbon urban instance, in terms of improving the environment in development and digital media—prioritised the right China. Certainly the legal framework is very well sectors, and where does that leave the other sectors in developed now; the biggest issue is the enforcement the UK? of IP judgments. It is very notable, though, that in Dr Brown: It is really important to have senior excess of 90% of IP cases in China are Chinese political leaders from the UK open doors. That is still against Chinese, and as China moves further up the important and that is really why the CBBC has an value curve there is a vested interest in China having important function, because it has political leverage. an environment that is supportive of developing IP. It You have to pick your battles, really, so to have those is quite a rapidly changing situation but it is a sectors there is realistic. We are not going to be able legitimate concern. to export certain manufactured objects, because they There are lots of legal and commercial ways in which make 70% of the world’s toys or something. We are companies can tackle IP risk. You can keep certain not going to succeed unless we are really, really elements of your technology offshore; you can keep careful about what we choose to engage in. certain bits of your technology in Hong Kong, for The only point about trying to do business in China instance, if you want something very close to the is, obviously, it is a long way away, it has a very mainland market. There are lots of ways to overcome different culture and it takes a lot of time, and I guess the issue. What we see at CBBC is that there is almost a lot of SMEs do not have that time. It is a pretty big a presumption by every business that they have an IP choice for them to go and do it; they must be sure that issue, when perhaps businesses do not even have IP they are going to succeed before they go, or have a to protect. good likelihood of success, and the question I would ask is whether the Government should not do more Q314 Paul Blomfield: I think you have probably now to support small and medium-sized enterprises in answered the question I was going to ask you about this battle. I am sure that the big boys like BP and the submission comments you made to us about Rolls-Royce and all the rest will be okay—they will interior improvements over the last decade. So the be able to fight their battles—but SMEs need quite a material improvements are that the legal framework is lot of help. It is there that certainly the British getting better, and the weakness remains enforcement. Government and the European Union have a lot that It is a very interesting point you make about the they can do to help them. internal dynamic leading to a requirement to tackle Stephen Phillips: Mr Chairman, might I add the issue, because that is certainly not the perception something to that? CBBC was very actively involved we have heard from some of those who have given in the Prime Minister’s visit and the business evidence to us. delegation. The choice of those sectors was actually Stephen Phillips: I think maybe, if I could add to it, really driven by needing a focus for an event, so you that there is an absolute commitment by the central get the right businesses to meet the right businesses. Government to getting this right. The further you go If you just try to take a very scattergun approach in away from Beijing, the more diluted it becomes and terms of tackling all sectors of the economy, then it is the more local vested interest—which goes back to the very difficult to get businesses from one sector to meet early comments about Government being connected to businesses from the same sector in China. That is why business—comes into play when actual cases get there was a focus on particular sectors. The sectors heard in the judicial system. chosen were ones where we believe there is genuine Paul Blomfield: Okay. Thank you. potential. What I would say is that, throughout the Professor Nolan: Again, I am very fond of the now year, there is a whole range of activity that goes on, late historian Christopher Hill, who wrote a book either from UKTI, the CBBC or a whole range of called The World Turned Upside Down. I think we cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
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15 February 2011 Stephen Phillips, Dr Kerry Brown and Professor Peter Nolan have continually to balance our own legitimate Take for example Rexam. Most people here are interests and hopes against looking at things from familiar with Rexam. It is a UK-based/headquartered China’s angle, and how they see the world. China is a company, a very high-technology company indeed, large country in population terms and it is growing producing beverage cans. They produced a few very fast, but one of the most useful pieces of research beverage cans last year—65 billion beverage cans. that the Government has conducted in this country, Most people are unaware of that. It is a UK-based and which is sadly now to be stopped, is the company, but it produces almost nothing in the UK. Department for Business, Innovation and Skills However, it is part of the value chain of Coca-Cola, annual report on the top 1,400 companies in the world PepsiCo, Anheuser-Busch InBev, as it now is, and by research and development. It is an exceptionally SAB Miller. We cannot help them. It is beyond an useful document. SME. However, their relationship does not depend on In the last 30 years the process of concentration of the UK Government or another Government. It research and development in the hands of a very small depends on their relationship with a leading global number of immensely powerful and capable global company. companies has been palpable. They report that the top 1,400 companies spend $600 billion per year on R and Q316 Rebecca Harris: You are saying we cannot D. That is all the intellectual property. That is the core encourage— of the world’s intellectual property. The top 100 Professor Nolan: I think it is quite difficult— companies, according to the BIS estimate, have 60% Rebecca Harris: —to come in on the tails of— of the expenditure of the top 1,400 companies. These Professor Nolan: I think it is quite difficult. The most are the companies that we all know: Siemens, GE, important function of Government is in a wider Rolls-Royce, Boeing—it just goes on. There are no discourse with China about the broad pattern and Chinese companies among that at all—not one. If you direction of development. There is a limited amount go further down the list, there are a tiny handful of that the Government can do, given the nature of the Chinese companies. global business system. IMI makes post-mix machines If you look at international competition in for fizzy drinks, but the Government cannot say, “We high-technology products, Chinese firms are really will help you go into China.” It is, I think, technically nowhere. They are selling lots and lots of things to a medium-sized enterprise, but its advance into the developing countries—low-end mobile phones, world economy, which is very successful, producing maybe there’s an IP issue there, but it is low-end. It across the world, including in China, comes not is not the top end. There is a famous study of the iPod. because the Government has helped it but because it It is a tiny proportion of value-added in China. Out of has built, on its own, a powerful relationship with $244, something like $3 is added in China through Coca-Cola and PepsiCo and other global soft drinks assembly. In the statistics, it appears like a Chinese producers. high-tech export, but it is not. The high technology is I think the Government’s most important functions are all embedded in multinational companies, in what it does in the wider context here, especially investment in research and development. Global education, in providing a place that global companies companies fight: they do not just have to think about want to come and produce in, have their headquarters IP in China; they have to think about Western activity, their R and D, their procurement functions, companies trying to capture their knowledge. It is one their branding functions, and that is something where thing to get a blueprint, and another thing to produce the Government can be really crucial. We have such a product. I think that China is a long, long way a disconnect between the global business system and behind. It is making progress, but it has a long, long systems integrators and SMEs. There is obviously not way to go. We ought to look at things from their angle, nothing, but there is less that the Government can do and then that will help us to have a more fruitful than one might imagine. conversation. Stephen Phillips: The supply chain is obviously an Chair: Can I just move on to Rebecca Harris on important route for SMEs to get into the market, but SMEs and inward investment? it is not the only route. There are many companies that CBBC have worked with that have gone in direct. Q315 Rebecca Harris: Yes, as the Chairman said, The fast-changing nature of the Chinese economy, the we are starting to pick up on those. What sort of emergence of private-sector SMEs in China, does specific recommendations would you have for how we mean that there are new opportunities almost to create can encourage more SMEs to engage with investing markets that do not exist. in China and Chinese companies, and do you think One example is a company from Hampshire that we this is a role for Government to do more, or for trade have worked with, who were actually found on the associations? internet. They have sludge treatment equipment, and Professor Nolan: Is this us going into China—our they are now manufacturing that under licence in firms going into China? I have a different view from Shenyang. That is a micro-business—fewer than 10 most people. I think that the most successful SMEs employees. They have done this in a period of less going into China are going into China because they than 10 months, and are now doing good business. are successful in the value chain of existing global Another company with which we have worked is now companies. Let me give you two examples, although selling software to Chinese hospitals to track MRSA they may not be strictly SMEs; they have grown into in hospitals. Again, it is a micro-company. There are something else. opportunities. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
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15 February 2011 Stephen Phillips, Dr Kerry Brown and Professor Peter Nolan
I think the biggest challenge for SMEs is the lack of genuinely think that we have to use as many routes to resource in the broader sense: both money and number market as possible. In my written submission I also of hours in the day. SME business owners tend to mentioned that I wrote to all MPs after the election, be pulled in multiple directions. That is the biggest just to let you know that we exist. I genuinely believe challenge in the context of China, because it is a long that we need people on the ground, across the country, way away and it costs a great deal of money to making companies aware that there is support develop the market. You do need to build those available to help them. relationships that were mentioned earlier, and that requires a huge amount of investment, both time-wise Q318 Rebecca Harris: The flip side of that is, how and capital-wise. There are good opportunities, do we encourage more investment from China into the however. UK economy? Dr Brown: Just a very specific thing, but Government Dr Brown: We decide what we want. It has been a procurement in China is very important. The state is constant problem to have a clear policy from the UK a big buyer. One of the battles, both through the WTO about what kind of investments are wanted and where and also through the EU, is to get fair treatment in they go. I think Japan invests something like $100 Government procurement. This is something that German companies, when they were with Angela billion into the UK, and China at the moment invests Merkel last year, complained about—including BASF about $1 billion. It is a very small amount. In terms and I think BMW—to Wen Jiabao, the Chinese of job creation, as Peter said, the fact that China, from Premier. There is not a lot of transparency, and there a low base, has increased its overseas investment by is a suspicion that Government procurement tender a huge amount is true. It is probably now some $250 processes in China are not entirely easy. They are very billion globally, and $50 billion of that was added in weighted against foreign companies, but they are huge the last year. and they are sometimes hospitals, sometimes If you look at where it goes, a huge amount goes to education provision, sometimes big projects for Hong Kong, because that is still considered an infrastructure. They are really the commanding overseas territory for investment figures. Some 90% heights of the economy, and to have a fair of it is state-directed, central money, so we are dealing procurement procedure would be pretty important. At with the state as an investor. Of course, in the United the moment there is a lot of evidence that that is not States that has caused huge political problems—do the case. you want a Chinese company to buy an energy Stephen Phillips: Mr Chairman, may I just make one company, as was thought to have nearly happened in more point? I think that there is also another issue for 2005? In the UK the biggest investor from China so SMEs. When you think about where the UK has got far is Huawei, which is a telecoms company. There strengths—in high-tech, in very innovative products— have been issues of security and issues of state one of the challenges is that most of the buyers of involvement. It is pretty complicated. those in China tend to be very large companies: SOEs. At the end of the day I think countries have to have The state-owned enterprises tend to have a desire to pretty clear policies for engaging with this money deal with Fortune 500 companies. For an SME that from China, because it can be problematic. It can have has something that these companies really need, all sorts of political issues, and yet, of course, it is a getting a foot in the door is actually quite hard. That pretty inevitable trajectory when you have $2.6 trillion is an area where the Government and CBBC can help of central reserves, most of which is in foreign debt and does help, because it does require convincing at the moment. That needs to be deployed. I think the these organisations that this titchy little company has biggest investment in Europe at the moment is something of tremendous value. The natural Volvo—basically, buying equity investment in Volvo. inclination, however, is, “If they are not Fortune 500 It is not a huge amount so far. then I do not want to talk to them.” Professor Nolan: Just to start at the end, which is China’s $2.6 trillion foreign exchange reserves, the Q317 Rebecca Harris: You have identified that there total assets under management by global asset are opportunities there, and you have particularly management companies—principally, but not referenced some firms that you have supported exclusively banks—is $63 trillion. It can move at the recently. How do we try and encourage more UK drop of a hat anywhere in the world. China’s foreign firms, given their time constraints or whatever, to look at it as a business opportunity and to get involved? exchange reserves cannot. They have to be managed Do we need the trade associations to help them with very carefully. Global banks, and entities such as the problems they might have, with the amount of Blackstone, can just move their money at the drop of time they could commit, or is it a role for a hat. They are far more damaging to global stability Government? than China’s foreign exchange reserves. That is just to Stephen Phillips: It has to be multi-pronged. pick up on the final point. Obviously there is a huge SME base in the UK. When we come to China’s position in the world, Government touches a proportion of that, but only a China’s companies are nowhere in building global relatively small proportion. CBBC itself touches a systems. Shell has over $200 billion of global assets. small proportion. We work very closely with CBI, the BP has about $200 billion. Vodafone has $200 billion. IOD—organisations like that—and then trade Those are just companies. Excluding Hong Kong, associations as well, to get the message out to help which is a very special case—or even including that— companies understand what it means for them. I China has $56 billion of foreign direct investment, cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
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15 February 2011 Stephen Phillips, Dr Kerry Brown and Professor Peter Nolan which is very small. The United States has $4.3 Q320 Chair: You said: “No, they cannot do it.” Who trillion. We have $1.7 trillion. In other words, even in blocked them? our little country, with 60 million people compared Professor Nolan: You would have to ask who blocked with 1.3 billion, we have more than 10 times China’s Marconi. In America we know it was the relevant total stock of FDI. China is nowhere, as Kerry Committee. China does not want to be whacked across correctly says. China’s foreign direct investment in the face. These are state-owned enterprises. It is very high-income countries totals $27 billion. That is a humiliating. I had a discussion in this building with a couple of transactions—or one transaction from a senior technologist who said, “We have to think single multinational. They are nowhere. If you look at carefully about this. Let us suppose, for example, that their FDI in America, it is $3 trillion. In Europe, it is in Nottingham University, Imperial College, Oxford $9 trillion. In the UK, as Kerry says, it is $1 billion. and Cambridge, Chinese companies were to say, ‘We The central question for us is, what do we want? How are trying to solve the future problems of the world— do we understand them? What is our relationship, transport systems, building technologies, energy especially with the giant 70 or 80 potentially globally efficiency, all these issues. Our 70 or 80 state-owned competitive enterprises? Do we welcome them? Do companies will be working together like a giant we want them to buy, for example, our start-up version of Siemens or GE.’ Let us say they said: ‘We high-tech companies through venture capital? We would like to partner your researchers. We would like have a lot of those around Cambridge. Do we to build research facilities in Nottingham, in Imperial, welcome that? We have not made up our mind. in Oxford, in Cambridge, share the IP and inject it Marconi told Huawei, “You cannot come in,” and so into our giant companies to solve our future and our Ericsson bought it because it is white and Finnish and common problems.’” We have not made up our minds good, and China is considered not to be. We have to on that. It would be great for my University, but is make up our mind. this something we want? We had better make up our Do we want Chinese companies to do share exchanges minds. with British companies? I have heard a private I welcome it. I think we are different from Germany, discussion between a leading Chinese company and a France or America politically and in terms of the leading UK business, saying, “Can we please structure of our business. We cannot reinvent the exchange shares? Can we buy 10% of you and you wheel. We have no choice. We are a mercantile buy 10% of us?” The answer was no. I am not going culture. We are very successful at it, and we must even to disclose who it was. Do we want it or do be open. That is my personal view. We have a great we not? opportunity to connect with China, but we cannot Do we want our businesses to co-operate with Chinese have one foot in—you know, the hokey-cokey. We businesses in other parts of the world? The main have to make up our minds: are we in or out? exports we have to China are not actually principally through Boeing or Airbus. They are principally what Q321 Chair: I think we have got the message. We we dig out of the ground and out of the sea around need to move on, but is there any further question you the world—Shell, BP, Rio Tinto, BHP Billiton, want to ask, Rebecca? Stephen? Anglo-American. We dig it up and then sell it to Stephen Phillips: From a practical business point of China. That is our main export to China. view, we need to recognise that Chinese companies, when they are looking at the UK, have exactly the Q319 Chair: Can I just stop you there? I am same fears that British companies have when they are intrigued with the thrust of what you are saying. Are looking at China. Addressing those issues is key. you implying that there is some sort of national Because the Government is so important in business aversion to this? Companies quite happily swap shares in China, the UK Government’s role in attracting with Russian companies, shall we say, but not with Chinese investment to the UK is absolutely and utterly China? Are you saying it is a cultural attitude amongst critical and vital. The demise of the RDAs does leave, British business? in the business community, a question mark as to how Professor Nolan: It is not British business; it is a this is going to be fulfilled until the new structures are wider context of apprehension on the part of the put in place. There is a concern in the marketplace at Chinese Government, with good reason. A Chinese the moment. firm attempted to buy Unocal. There was a storm of Chair: Can I thank you very much for your political animosity. Huawei attempted to buy 3Com, contribution? There is plenty of food for thought or partially buy 3Com. There was a storm of political there. If we have not asked a question that you think hostility. Huawei very quietly, but in the semi-public we ought to know the answer to, feel free to write in gaze, tried to buy Marconi. “No, you cannot do it.” and tell us. Similarly, if, in retrospect, we think of We have to make up our minds. Do we encourage it? anything that we did not ask you but should have, we I had a conversation with someone in this building— will contact you. Thank you very much. cobber Pack: U PL: CWE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05
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Examination of Witnesses
Witnesses: Simon Carter, fashion designer, Joan Turley, author, and Steve Young, Head of Business Development and Sales, Surrey Satellite Technology Ltd, gave evidence.
Q322 Chair: Thank you for waiting patiently. I am mine to do business in China. I think there is a lot of sorry we are a little late; we have been here since education to do; the Chinese consumer will become nine-thirty and lost a few minutes en route. Can I much more sophisticated, but it is a question of time. welcome you and thank you for agreeing to speak to Brands such as mine are not in any great hurry to get us? If you could just introduce yourselves for into China. There are problems and issues that were transcription purposes before we get into the covered to do with intellectual property that are a questions. concern, and brands such as mine are exploring the Steve Young: My name is Steve Young. I am the Head market far more; we are looking for trading partners of Business Development and Sales for Surrey to take us in there and I think that will be the route to Satellite Technology Ltd. market for us. Simon Carter: My name is Simon Carter. I own the menswear brand also called Simon Carter. Q324 Ian Murray: So essentially in that answer, is Joan Turley: My name is Joan Turley. I am a business it a trust issue or is it being, as you say, author specialising in how relationships assist the unsophisticated about products that may benefit them? creation of success with China. So they know the Louis Vuittons of this world but Chair: Yes, we have already impacted on your subject they do not know your product, so they might be a area to a certain extent. little bit less trusting of using it. Is that a fair Joan Turley: Yes, quite. assessment? Simon Carter: I think it is a reasonable assessment, Q323 Ian Murray: Welcome to the Committee. I yes. If you look in, say, Selfridges, the biggest queues was very interested in reading in the part of the brief at all the international stores within that are Chinese at that you wrote, Mr Carter, that, “I believe that it is a the moment. We have a store in Mayfair. Our biggest far harder market to trade with than many people proportion of overseas visitors is from Japan; after believe, and comparisons with Japan are unhelpful.” that, America and Canada and then Russia. I do not In that context, in terms of what we have heard from think we have ever had any Chinese visitors. the previous speakers this morning, in your experience Obviously we want to do business in China, but it how difficult is it for UK firms to do business in has to be right in terms of protecting our intellectual China? What are the main barriers? property, and there is a separate trust issue there from Simon Carter: I think it was interesting hearing the the one I think you were getting at. As I said, it will previous speakers and there was some debate and come in time. We are currently talking to two of our discussion around the real significance of the Chinese Japanese trading partners, both of whom have middle class. I think that a lot of people are saying— extensive business interests in China; they are two of this is what I refer to in my point—that China is the very big trading houses. That is a very accepted perhaps like Japan was 20 years ago in terms of and secure route to the Chinese market. I think anyone opening up an interest in Western brands, particularly who plans to do it alone and do their own thing may in my field of clothing and accessories. My experience run into problems in terms of what happens to their and that of my contemporaries in my own area is that brand once it is out of sight. Regrettably, I think there it is not the case. There are increasing amounts of are stories of that; we have certainly been a victim of wealth and disposable income in China, but the having our designs copied in China. Chinese are at this stage relatively unsophisticated in Chair: Yes, we will be coming on to that in just one terms of how and what they spend that money on. moment. One of the witnesses commented that the biggest Louis Vuitton shop in the world is in the middle of Q325 Mr Binley: I wish to pursue the question that China. Our experience has been that at this stage the I raised in terms of gaining business at the coalface Chinese are very much interested in what I would call and that “pushy” bit. I particularly wanted to ask Ms trophy brands; the things that have a global resonance Turley, but I would like others’ input too. It seems to and that they understand without actually having to me that we can talk at that level, when all of the action travel and explore. So someone said Bentley sells is actually down here and sometimes reports of this extremely well and in my field it is all the very, very kind miss where the action really is. I made the point big global brand names such as Prada, Gucci and about the difference between trying to be pushier and Louis Vuitton. The Chinese at this stage are not the need to be liked, and it seems to me that there is particularly inquiring of what they are purchasing; a dichotomy there. I want to know how I would sell they are more interested in the brand and the values in China. I want to know what I do at the coalface. associated with that. Can you just give me some insight into that? The analogy that I would give is Paul Smith. In terms Joan Turley: Yes. First, that is an excellent of my brand positioning, we sit a little bit below Paul question—right to the heart of the thing, if I may say Smith and where the great Paul Smith goes, we hope so. Essentially, doing business in China is to follow. He has just one store in China, whereas he relationship-based. This is a relationship-centric has, I think, over 100 in Japan. That is a measure of culture and relationships are the things that open how hard it is for relatively unknown brands such as doors; they are the things that facilitate and oil the cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
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15 February 2011 Simon Carter, Joan Turley and Steve Young momentum of a business dialogue; and they are the tremendous amount of time and risk to get there. So things that protect the deals when they get done and what could be learnt to help them through that guarantee the safety of those deals thereafter. They are process? absolutely at the core of the skill set we should be Steve Young: Perhaps I might start there. It is a lot trying to communicate and transmit to our companies. about trust in China and there is no question but that In terms of your question, let us take this right down it takes a lot of time, resource and effort to set up the to how we should be on the day. First, with the relationships and build those relationships to the point Chinese the concept of our not being pushy enough where the Chinese companies and authorities will trust is, I believe, a reticence that comes from the fact that you to do business. It depends on how large they are, the businesses we are sending out there have not been but for SMEs that is a significant investment. What prepared inter-culturally in terms of what to expect, is required is not only a long-term plan from their how to communicate and how to signal the right perspective, but also knowledge and a relationship things about their business, about their proposition with the UK agencies and support networks—part of and—equally important to the Chinese—about the Government—that help SMEs do that. For themselves. “Are these people we can do business example, the activities of the embassies in countries, with? Will they maintain our reputation? Will they some of the elements of UKTI and so on can provide keep our public face well?” These are central issues that support. They need to be readily accessible and, to the Chinese. They are deal-makers or deal-breakers. more importantly, responsive to those SMEs’ needs. So when the Chinese look at you, it is assumed that Time is a factor. There is also an issue about if you are in front of them, you have a very good commitment, whereby if you have that information business proposition, you have done your research and beforehand and then you go into China, that you have come with something that China wants to commitment from the UK Government agencies must buy. But who are you? How well is your company come with it and be there for the long term. underpinned? Do you understand the rules of Simon Carter: Yes, I totally echo that point about it partnering a Chinese company well? Will you be an being a very long-term process. Having said that active, savvy and relationship-knowledgeable partner analogies with Japan are perhaps unfair, I think in who will always create and maintain their reputation? terms of starting a business—which we did in Japan Reputation, public face and the whole concept of how 23 years ago—we did that really with the support of you appear to others is bottom-line collateral in China. the British Government. They sponsored a series of Chair: Very interesting. trade missions out there with a trade organisation that I think is now defunct and it was very heavily Q326 Mr Binley: Thank you. I think it is important subsidised. It was the only way we could afford to we have that on the record, because I think we are show there. Coming back to Steve’s point, it was often, as I say, up here and not down there. essential for the Japanese to see you there not once, Steve Young: If I may, Chair, we have had our not twice—maybe on the third occasion they might business relationship in China for approximately 10 order, on the fourth occasion they might order a little years and I would absolutely support what Joan said bit more and on your sixth visit they might talk about about it being fundamentally relationship-based. The establishing a distribution agreement. side of that where there is some reticence, which has been talked about, is where we have to show that not I think one of the issues that we have now is that only do we have a company that has the right there are some trade organisations and trade missions capability and right products that they want, but also available, but over recent years they seem to have that we have the support from the UK Government become somewhat the victim of political football and when we are doing business there. The Chinese there does not seem to be any long-term certainty companies and authorities want to see that we are a about those missions. I am talking about my own reputable company that will support them and have a sector. They are absolutely essential to keep going and long-term relationship that will maintain that face. If maintaining. Sometimes small companies like mine we do not have that overt Government support when will be eligible for one, maybe two grants and then we go into China, we find it very, very difficult to no more. Sometimes they were indefinite, but there continue that relationship. was no framework of certainty after a certain point, and I think that makes it extremely hard for firms to Q327 Ian Murray: There is a complex matrix of plan a slow, gradual entry into a complicated market what you have to do to get into the Chinese market, like China, where partnerships are essential, whether and some of the information you have already direct or indirect, perhaps routing through Japan. provided to us shows many different ways in. Mr Joan Turley: I would echo that. I think the most Carter, I think you mentioned that you are looking for important thing here is that it is very important to trust bag-carriers from Japan to be able to get you establish that you have something that China wants. entry to the market until you are established. I think It seems obvious, but I have dealt with a number of SSTL are very similar. But in saying that, what companies that are in China when there really is not lessons have been learnt? I think you said you have a need, or there is a need but they have not taken the been there for 10 years. What lessons have you time to think about how they could communicate what learned and what could we be doing in the report that they are offering, aligned with the distinctly Chinese we produce in terms of exporting into the Chinese preferences—the way in which they like to buy or market to produce a set of lessons that people can consume that particular thing. Again, we come back learn? Particularly for SMEs, it must take a to starting with an understanding of the culture and cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
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15 February 2011 Simon Carter, Joan Turley and Steve Young making that an aspect of your preparation and Joan Turley: Well, I was delighted to hear the Chief research. It is so neglected and so critical. Executive of the CBBC say that this has to be a Beyond that, the timelines in China are not quick. One multi-pronged approach. We do a very good job with could say this is of course potentially a problem for the early stages of preparing our companies for China. SMEs, but that depends. It depends how supported The CBBC, UKTI and the commercial departments they are. What the Chinese want to see is that an SME of our embassies provide wonderful information and comes in a good, solid condition with something that analysis to help companies know whether they really they want to buy and is able to participate sincerely should be in China. That is crucial, because when we and intensely in the business relationship for the long send companies out there who should not be there, term. That means that they want to see whether those we also lose face. It harms the dialogue; it harms the SMEs are really supported. Do they have real seriousness and gravitas with which we are perceived. stakeholder mandate? Do they have the right kind of But I think that we also need to think about the skills backing and funding? They like these prolonged for when it really matters on the ground, because at a timelines for a very good reason, because in China if certain point that particular business man will not you choose the wrong partner, it will have such an have the CBBC representative or the UKTI trade important effect on your reputation, on your brand and adviser beside him and it will become all about how on your whole personal and professional collateral in he communicates his character, how he develops trust business that the implications are beyond anything we with his potential Chinese partners, distributors or are used to having to imagine in the West. So the long suppliers and how he communicates that he timelines are a kind of extended due diligence, really, understands the way the Chinese built the business in advance, on not just the business proposition but relationships. the quality of the company. Now I think that instead of all the road shows that talk China refer to what they call briefcase companies, and about widgets—because we are very good at that—we they have been quite bitten in the gold rush mentality need to be talking about relationship skills. Let’s get that we had a few years ago by companies that came road shows out there with people who are passionate out and were not financially underpinned to be doing about the chances of British business in China and business in China, and wasted its time. There was a wanting to make them absolutely top flight, people trust issue there, and I think we all keep coming back who write about this, people who want to speak about to this point that trust is critical in a society and a it and people who have been there and let’s share culture that does business based on relationships and those experiences in a way that is practical and character. So we have an opportunity, I believe, to accessible. Let’s put those literally into distillations— support our SMEs, to make them look credible and to dos and don’ts—not just of behaviour, but also explain the timelines that are involved. explaining a little bit why the Chinese are that way. When you transfer knowledge with the correct cultural I have seen SMEs achieve incredible things in China. explanation, it readily becomes a skill because people I watched one SME within a very short time have the understand it. They see exactly what to do, why they opportunity to sign a joint venture with the largest need to do it and how they need to do it. Then you media company in the north of China, having arrived have buy-in for the engagement that you need. in that area as relative unknowns. But they were culturally prepared, they were well underpinned, they Q329 Nadhim Zahawi: Just before I ask my had good stakeholder backing, they had prepared their question, I want to pick up on the point that the panel stakeholders for the time that it might take for this has made that this is an issue of trust. I do not think extended getting-to-know process, so they could we have delved into this particularly deeply today, but participate well in the model, and they had given all it is a question I want to ask the practitioners—the the right signals to the Chinese in the way that they people on the ground. We heard in an earlier evidence built both relationships and joint reputation. session that the complexity of the ownership of So there are incredible opportunities. There is an corporates in China is one of the things you have to almost pioneer-type atmosphere in some sectors still, live with. We have heard about how we should treat but if we come with the right tools and, dare I say, the Chinese companies. In my own experience—I spent right skills—these skills, this independent variable 11 years in business—companies that have gone over that makes all the difference, lie in the area of to China have found that complexity difficult, but relationships. At the moment, we provide incredibly more importantly there was an element of corruption patchy training. So that lack of pushiness from our around it that was difficult for them to deal with and very brave and talented entrepreneurs and SME actually put them off—i.e. they got back on a plane leaders that we are sending out to China I think comes and came back thinking, “I cannot quite touch how from the knowledge that they have not got this very this thing works.” I just want to hear what your important skills base. They feel it almost from when experience is on the ground of corruption that is partly they arrive. That makes them perhaps more reticent in caused by that complexity of who owns what in the selling process and that gives others who are more China. prepared a competitive edge. This is important in Simon Carter: Well, speaking of my own example, I China, which is now one of the most highly solicited have had no specific instances of coming face to face markets in the world. So let us give our companies with corruption within business in China, because as that edge. I have explained previously, our strategy is a little bit arm’s length, a little bit third party, in that the Q328 Chair: How do we do it? Japanese companies that we are working with—one is cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
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15 February 2011 Simon Carter, Joan Turley and Steve Young a division of Toyota, the other one that we have had technology sector has moved on so quickly. So it discussions with is ITOCHU—have massive either really is a case of currentness of the IP. joint or totally owned companies that roll out stores Joan Turley: Could I come in on this IP issue? Stop under licence and franchise manufacturing within me if I go on too long, but this is such an important China. So the trust issues are more to do with how issue. This has become this insidious bête noire, you interface there with the Japanese. I am talking really—in many people’s minds, the impediment to about relationships—and, as you say, how valuable serious success with China. I think it is putting off a they are—that I have already got and built over a lot of companies that might just be beginning their number of years. journey usefully for this economy. Of course, as ever, My first-hand experience of some intellectual property only the negative stuff gets publicised. First of all, I issues in China, which are a little bit off-putting, is think it is very important to understand where the that we have become well known for our designs of problem comes from. If I may, I will just take this cufflinks over the years and every now and then— back to the cultural roots of this problem, because about every six months or so—we have to look at they are rarely touched on and it helps to take the somebody who is selling a load of our cufflinks that sensitivity out of the issue. have been copied in China. Actually, research has Essentially, if we think of Confucius—“I transmit shown that it is not someone taking them out to China; rather than create”—the Chinese believe that it is a Chinese factory that is copying them and selling knowledge is a universal value, something that exists them to anyone who wants to buy them. for the good of people, and that when knowledge is valued, it should be communicated widely. This is the Q330 Nadhim Zahawi: You have obviously 5,000-year cultural root that has this benevolent, anticipated my next question, which is, does that give sharing concept of knowledge. We in the West have you a problem with intellectual rights? perhaps gone down a different path, where knowledge Simon Carter: It does. It is a headache more than a and knowledge ownership tends to define us and to real disaster and as often as not, when you point it out define our competitive edge and our differentiators. to the companies concerned—whether it is here or in Now the thing is, therefore, that the Chinese are very the States, where we had a couple—they are very often interested in the transmission of knowledge understanding and a stern letter from an expensive rather than attributed sources or the protection of lawyer usually focuses their mind. But really we have provenance of knowledge. So there is a cultural shift been advised it is almost impractical to try to take to be made. action at the source of this problem, which is the But since China has realised how important this is for factory itself in China. us to make us feel safe as trading partners, it has done things in such a structured and magnificent way and I Steve Young: Perhaps I might come in on the think we can begin by making this more widely intellectual property question there. From our known to take some of the fear around this issue, perspective, we are operating in a very high-value, because I think the climate is going to become a lot very high-technology sector—the space industry. Our better for our businesses. They have tackled it on three intellectual property really is core to our business and levels: legislation, what you call administration, and the value of our business, but it is also part of the education. This is how seriously they have taken it. differentiator of how we can win business First of all, the State Council’s national IP strategy in competitively in the export market and particularly 2008 sought to tackle the creation of IP, to bring in in China. stronger measures against IP abuses and to nurture a We look at it in terms of the currentness of that respect for intellectual property. So the legislation has intellectual property. If you are looking at intellectual also become much more willing to widen its area so property from five or 10 years ago and you are that before it was just a question of a trademark; now concerned about where that might end up now, then it is much wider than that. It is brand image; it is you are probably looking in the wrong place, because domain names. They are really looking at much, much it is the IP that you develop now that is of value to more of a protective net and attacking this really you in the future and that is absolutely reliant on how seriously. They have found in favour in some very much research and development you do now to high-profile cases of IP infringement—one thinks of develop that IP. So we can use that IP essentially as Yamaha, $1 million; and Starbucks—where part of training and development for Chinese trademarks have been seriously infringed and they customers—because as we have heard from the earlier have publicised them to make them a deterrent. So panel, they are not necessarily in the same place we they are working really hard on legislation to say, are at the moment—but while retaining our cutting “This has to change.” edge IP with our R and D to make sure we are ahead They are working much more as well on the of the game. enforcement—the implementation, if you like—of the So I do detect a nervousness or a reticence—quite things that they have decided. But more importantly broad-ranging and quite often from the UK in China, they are trying to change the entire mind-set. Government—when we talk about approvals So in provinces such as Guangdong, they are actually processes and export licensing and that sort of activity, teaching IP respect at primary and middle-school level around exactly what it is we are transferring. When through projects. The notion is child, family, we look at what we are transferring, it is often the case society—that if they can get the children to that the concerns are founded on an understanding of understand why IP is important and why it is an the IP as it was, not as it now is, because the important value in terms of respect for people you cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
Ev 88 Business, Innovation and Skills Committee: Evidence
15 February 2011 Simon Carter, Joan Turley and Steve Young trade with in the world, they are taking this home to in Tokyo who is a legend and has been there for 35 their family and that is then influencing the wider years and knows everybody. When my licensees chose society. So that is creating a whole new level of to launch Simon Carter clothing in Japan, the venue understanding and respect on more of the Western they chose was the British Embassy; they could not model, perhaps, of what IP represents and how to think of anywhere more prestigious, and that would protect it. give it more authority. Then—and I think there is something very big for us So it is not quite answering your question—I am to learn here—in conjunction with people like Philips, sorry—but I wanted just to get that point in. In terms they have set up IP academies in some of the most of the support, I am not sure what current training is important universities in the country—Fudan, available—I can only draw on my own experience— Tshinghua, Renmin—and they are actually training but I did find it was there and it was extremely the next generation of business thinkers and invaluable. administrators to respect this and to know how to deal with it in a way that makes us feel safe in three, five, Q332 Mr Binley: Can I pursue that just a little? Are 10 years. This is the next generation of people who we really talking about the structure of sales will be responsible for making sure that the climate is presentation and “closing”, recognising this important right on IP for our British businesses. cultural difference? I really am talking about the very Now this is a serious, structured, comprehensive coalface, because if you go along and your response to our concerns. Does that always mean that presentation does not work, you are in serious trouble; someone like Simon’s goods are kept safe in rural that is the end and there is no chance of pulling the areas? No. But here is the difference. My experience sort of people we are talking about back. If I can link has been that there is something else that we can bring that with my second concern, that UKTI is about that we do terribly well that helps IP protection: process, not outcomes—that’s why I mentioned the relationships. Relationships help protect your IP. In word “closing”—is UKTI well-versed in taking almost all the cases where I saw IP infringements in people to the coalface in an effective way? mature dialogues, it was often where the relationship Steve Young: First, we get fantastic support from had been badly made or had broken down. Let me UKTI and from all the embassies around the world explain why. If you build a reputation and have a that we do business with. There are some fantastic public partnership with a Chinese partner, supplier or people there and as Simon has said, the knowledge distributor, you have become part of their public in-country is absolutely invaluable to us. That in itself, face—the single most important value to the Chinese: when you go and get a briefing from those people their reputation and the maintenance of their before you start doing business—or even while you reputation and dignity. They will often not risk such are doing business in that country—is absolutely an important thing for that extra bit of IP if it has been fundamental to helping you achieve success. There well made, if it has been a matter of record and if it may not be some of the—as you put it—coalface has been truly nurtured. I hope I am communicating business people who are used to closing commercial the point but it is something that people often do not deals, but if the goal of those organisations is to help take account of. Relationships tell you the progress of create the environment within which British your work in China, and they are the best guarantors companies can achieve success within the of anything that you have that is precious to you marketplace, the expertise some of those people have within the trading arena. is absolutely fundamental to helping us.
Q331 Chair: That brings me on to my next question. Q333 Mr Binley: Is it staffed with people who know In terms of the support that UKTI and the CBBC give the game at the coalface? Are the personnel in UKTI to businesses, are there any formal or indeed informal geared up to provide that level of information and processes by which the importance of relationships help? and any training element that might be given to British Steve Young: From our experience, we have found it businesses hoping to operate in China is incorporated is very much down to an individual level. There are into the package of support that is given? some individuals who do; there are some who do not; Simon Carter: If I could again draw on my own those who have had the industry experience, more so. experience, when we first began exporting to Japan there was a lot of background information. You had Q334 Mr Binley: So if there is a business to attend a briefing session all about etiquette and, in background there, that is very helpful to you. fact, relationship establishment before you were Steve Young: Yes. allowed to participate in the mission. That was extremely helpful for first-time visitors such as us to Q335 Mr Binley: And it is not quite so helpful if that go to Japan, and we really found that very useful. does not exist. I have also found the support from the embassy Steve Young: If it does not exist, then it is much more absolutely invaluable. They have such great local about the cultural understanding and the in-country knowledge and they are so highly respected. I think knowledge about what is happening and how you treat there may be a danger, as we move into an age where people and so on, as opposed to the other aspects. everything has to have a price tag attached to it, of Mr Binley: I am grateful for that. losing sight of the value of some of this stuff, because Joan Turley: I think we need to look at our provision you cannot actually put a price on the fact that you in terms of how it relates to different stages of the have got a lady in the Japanese Commercial Section business journey, so I really appreciate your question. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
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15 February 2011 Simon Carter, Joan Turley and Steve Young
UKTI and CBBC in my experience do an absolutely Q337 Chair: Is there any provision in the UK for fantastic job in analysing and adapting the business getting would-be exporters or potential joint venture offer for China. They also do an amazing job in terms operators on a course in an academy or something to of what one might call a soft landing for businesses— get this sort of training? absolutely critical in China, where being seen to be Steve Young: There is one aspect we come across backed by Government and having credibility and fairly regularly that UKTI do, which is essentially an status behind you already gives your reputation some open day where they have their experts in a particular weight; then, one can begin the dialogue already being venue and you can come and hear them speak all day taken more seriously. As a local route map and and then have one-to-one sessions with them. It is connections on the ground this is terribly important, usually “Doing business in…” a particular country. particularly the commercial departments of our For SMEs or companies that have not engaged in a embassies who are there all the time, who speak particular market yet or are just about to—or just a Mandarin, who have guanxi and who have networks small part—those sessions are often very, very useful of connections. Remember that in China, wealth is because it is a way of introducing you both to the defined as the networks of people that you know and market and to the people in UKTI that deal within that you possess, because that is how business will those markets. Simon Carter: largely be done. So those are all wonderful, wonderful I would definitely support that. At our level, our organisation is called UKFT—UK Fashion provisions, but now we are in business and we are and Textiles—and they have a wealth of experience doing China. within that organisation of people within different Yes, in my experience there are some excellent initial sectors of export. Where they feel they need to beef it briefings to prepare people for the contrast in business up, they will often bring an external speaker in and culture, protocol and so on. I would suggest humbly have a day’s seminar on a particular country. I was a that there is room to add to that and complement that guest speaker on the Japan day seminar, for instance, with some truly in-depth and rigorous training on but they do them country specific. I would totally what happens for the next stages of your business support what Steve says; I think those are completely journey. The negotiating skills, the ability to not just invaluable, whether or not they go as far as the build relationships but nurture them for the length of specific relationship-building courses. One could time you need in the right way in order to close the argue that that would be a great skill to layer on top deal, and communicating Chinese definitions of what of that, but in terms of briefing, talking to people who things are, like partnership, accountability and all of have already done it—which I think is absolutely these factors that will become part of the day-to-day critical; it is fine to theorise, but if you talk to people success of that business journey for that individual who have done it, they tell you what went wrong as company—these are not difficult skills to transfer, but well as what went right—to me has been absolutely they do have to become skills. We cannot simply pass invaluable. over a list and say, “There you are. You now know Joan Turley: I would second that. There is in fact one how to be in China”; we have to actually take that of these “Doing business in…” events tomorrow in knowledge and by role-playing it, by discussing it, by China led by Lord Powell. They are incredibly well giving live models and by actually practising it in organised, great for awareness-raising, fantastic in depth, ensure that that knowledge has been transferred providing access to prominent advisers within UKTI, as a workable business skill as important as your and certainly in my experience particularly wonderful knowledge of your proposition, and as important as at introducing some of the unsung heroes who are our the credibility that you bring with you. It will be commercial teams on the ground in China. The clinics increasingly the thing that differentiates our success, where one had a chance to meet them were absolutely or the lack of it. fascinating last year, and I would like to see more of that potential direct contact as well. But once again, if these sorts of things do their jobs Q336 Chair: You just touched on what my next well, then what do we have? Well, we have a number question was going to be. What can be done to of people leaving the room that day passionate about improve support? What is absent from the present doing business in China. Where is the next level of offer that should be there? You have obviously just skill? I am not talking about the trade advice— spoken about that. Is there anything else? Would other Chair: Can I just stop you there, because I really want speakers like to complement that? to bring in Paul Blomfield to explore this. Steve Young: The word “process” was brought up earlier and that is a necessary part of the way UKTI Q338 Paul Blomfield: Thank you, Chair. In the functions; and the other elements of the UK evidence that Simon Carter submitted to us, you Government support British business exporting— talked about the enormous importance that you placed there has to be a process in place. From our on trade fairs for SME penetration in the Chinese experience, that process functions but it is at or close market, but at the same time implied that there was to capacity in terms of the time it often takes to get not enough support for participation in those trade the necessary approvals and so on that we need to fairs, and you said that in relation to your sector, you proceed in the marketplace. If we want as a company were not aware of an opportunity that existed for a to engage more with countries like China and grow company like yours. I just wondered if you could our export activity, we need to look at that process develop that point and how far those points were and make sure that it is fit for future purpose. shared. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
Ev 90 Business, Innovation and Skills Committee: Evidence
15 February 2011 Simon Carter, Joan Turley and Steve Young
Simon Carter: Yes, very much so. I touched on it some really good cultural training so that they can earlier in answer to Ian’s question, in that I felt that make a strong impact in their own right, because they the trade fairs were a fantastic platform for selling. are the ones who are going to be going off and talking One follows on from the other: you go to the briefing, to prospective partners, buyers, suppliers or you get interested in the market, you speak to people distributors. It is also extremely important to leave with experience, you see if you have got the skills and time when you do these in China. I have seen people the product and then you go on the trade fair. The come in to trade fairs—not come in early for them— problem was we were in a slightly happier time in the be at the fair and then leave, leaving no time in the late 1980s, when I think the finance was a bit more day to develop potential relationships with people they secure, but later on it became very hit-and-miss as to have met, which is one of the most critical elements whether you would or would not qualify. For of planning trade fair participation in China. companies my size, even now but certainly then, that Secondly, it is very important in China that you come difference of a £1,500 travel grant or £1,000 subsidy with as much firepower as possible. So if you have for the show would make all the difference. got people you can deploy who are quite senior there, I think the continuity—I know I have said this once, if you have got people who were the science behind but I will repeat it—in terms of trade fair support and the thing that you make, bring them. This is an clarity on how long you will be able to show for is opportunity to impress, and people miss this a lot in absolutely essential, particularly for companies like China. That is what trade fairs are; they are great mine or smaller, where it is an enormous commitment celebrations of knowledge and expertise. But they are to do these things in terms of manpower, resources only as good as what one does next, and what one and finance. Yes, the fairs were very well documented does next in China is make sure that within a to Japan; they still go on, albeit in a slightly more relatively short period of time, you are back there— modest way. But I am not aware of a trade fair back there to take the business dialogue further and programme in the same way targeting China for my more seriously. But as a window, as an opportunity to product areas, which might perhaps principally be in make a very good beginning and as an opportunity to menswear or men’s accessories. Now if I am not source the beginnings of crucial relationships that will aware of it—and we are a reasonably established support your business dialogue, they are very player—it suggests that it is not being marketed important. But they are only important if they are properly. I have a feeling it is probably not there, but handled with an understanding of why the way we whether it is not there because of the reasons I said handle them has to be slightly different in China than earlier, in that we may be just a little bit early into in other markets. this sort of market and it might not be productive to Steve Young: If I may just add to that, Chair, the point do it, is another very interesting question. Joan made there highlights a very good point about commitment. There is a very real need to show Q339 Paul Blomfield: I wonder if Steve and Joan commitment to the Chinese market. We talk a lot also have reflections on that point, and whether it about relationships, we talk about exhibitions being applies to other sectors. Obviously we are talking the starting point and yes, absolutely, you have to take about a relatively niche sector, but is there a bigger in senior people and so on. That commitment does not problem of patchy provision? just come from the company by going there regularly, Steve Young: There is no question but that going to sending out your important people, showing that you trade fairs anywhere in the world is expensive. What want to be there and you want to do business with we tend to see where there are exhibitions we have China and get to know them and so on; it also requires decided are not of value, or which we do not have the the commitment from the UK—the UK Government resources to go to, is there is often a UKTI presence has to be showing that it wants this too. that we can then draw upon. For example, there is an The professor on the panel earlier talked about the UK export support team in the DSO, which is part of needing to make up its mind about whether we are in UKTI as I am sure you know, and we often have the or whether we are out. We would absolutely support opportunity to train those people and then send that view. We very much want to be in and we also models or brochures or examples of our capability out, would need HMG transmitting the same message so which then go on essentially a UKTI stand or presence that there is not a mixed message going to the Chinese at that exhibition. That is essential to us. The market, because the Chinese market is interwoven capability that gives us in terms of our market with the state in China as well. So if one part of it is penetration, market access and market exposure, for getting one message, that we are hungry to do the amount of money it costs us, is fantastic. business with you, and another part is getting a Joan Turley: Trade fairs, yes; in China they are the slightly different message, for whatever reason— beginning, and beginnings are important in China. So maybe that is the responsiveness of some of the yes, in my experience there is quite an active licensing processes or whatever it might be—then programme of trade fairs to China, organised and very, confusion is created regarding exactly what the UK very well supported by UKTI and with some very is about. savvy advisers who set them up and accompany. So Joan Turley: Can I just add very briefly that this that is wonderful. But I come back to the fact that it notion of commitment is absolutely crucial. The is only a beginning and as a beginning, it has to be attitudes we are showing and the climate we are handled with great care. It is very important for people creating in respect of China are what will make all the who go on those trade fairs, because they are being difference on the ground for our British businesses. accompanied by trade advisers, for that not to replace Hu Jintao, in his recent state visit to the US, said that cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
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15 February 2011 Simon Carter, Joan Turley and Steve Young
China now wished to create partnerships that were thinking that might result in our putting the support based on mutual respect and mutual benefit, which for where it is needed and effective, and perhaps looking me personally was extremely gratifying because I had at the distribution of where we spend our money in to fight very hard for that to be the subtitle of my supporting businesses in China. book last year on China. There is something very fundamental here: if we communicate that we are here Q341 Mr Binley: Therein lies a conundrum. SMEs in a new spirit of really strong mutual benefit, that we in particular have not got the level of finance that they understand the rules of partnership, that we are there can shove up front in the hope that they are going to to create value, that we know how to signal respect get it back. Isn’t that true? and build these relationships, which the Chinese value Joan Turley: Yes. above all else, we will create an incredibly comforting Steve Young: Yes. I would also say that if you look at terrain for businesses arriving. We will already have some of the current export financing arrangements we been the precursor; we will have done some of the have got in place—ECGD, for example—the work. perception is that there is a particular contract size that Then, if, in the way that we train our businesses, we is required before it is worth their getting involved. can find a way to communicate and behave to show Now I do understand that they have recently been some of that in their intentions—like Philips getting making a lot of effort to see what they can do to help involved in the creation of the solutions to the IP support SMEs, because when you look at the number problem—can you imagine China’s gratitude? Hence of SMEs together—group that as a whole—that is a the wonderful record Philips has in China. From here substantial sum and is then worthy of that finance on in, we can be part of the solution rather than the consideration. So although I would agree that there is problem in China, and we can change the prevailing a scale at which, at one end, it would be difficult attitudes of dare I say rather fearful apprehension and because the cost in itself is not as high as the value— stereotyping that has gone on uncomfortably in regard to China and say, “We have a new beginning here.” If Q342 Mr Binley: Can I stop you? I do not want it to we bring with us the right kind of attitudes and skills, be difficult. I do not want that cost not to be of value. our businesses will find the doors open, and that, with I am saying I want the whole situation to be not easier respect, is when we will do the same trading figures in terms of viability, but certainly easier in terms of as Germany. That is the thing that is going to make having the money up front so that they are not stopped the difference. by not having that finance to allow them to go forward. Q340 Chair: Thanks very much. I need to move on—time is running out—but I have got a few Q343 Chair: Obviously the Government is now questions on trade finance, because I think this was aware of this issue and is trying to address it. an issue raised by you, Steve. I gather you have had Joan Turley: Yes. problems accessing trade finance for exporting to China. Q344 Chair: Last week we had the announcement of Steve Young: Yes. It is not specifically China but changes in support for trade finance. Do you think broader as well. What we see when we look around these are going to address the problem? the world at our competitors, which are largely Steve Young: I think they will go a long way towards nationally based—European countries, American it, but we are going to need time. The idea of making countries, China itself—is that they seem to have it easier—absolutely, we have got to do that. It is all much more ready access to Government-supported about the responsiveness and making it fit for purpose finance mechanisms than we do. Now we have the and so on, and if we are at a point where the current ECGD and in some respects that can be very helpful, system is probably at or near capacity, then we have but really that is more about insurance on finance to look at what that is going to be like in the future. terms, as opposed to being able to provide finance For us it comes down to an alignment of policy. You itself directly. In some instances, we have actually cannot look at any one of these things in isolation. If found we have lost business because a competitor you look at ECGD, you have also got to look at things from a different country has had ready access to like BIS and what we are doing in terms of export Government-supplied preferential finance licensing—this even goes to export funding, FCO mechanisms, which ultimately have gone into contract activity, DFID and foreign development aid. If all value and therefore been paid for, but we do have those aspects are aligned with a similar drive to want difficulty in getting access to that. So levelling the to achieve export success in a particular market—in playing field in a number of areas would be of huge this case China—then we are much more likely to do benefit to us. so. Where these are separate or not quite aligned, then Joan Turley: They are in the early stages of getting we have this mixed message within Government and ready for China, particularly in terms of some of the within the marketplace, and it is that much more export market research grants and things that I have difficult to succeed. come across, and this may well have moved on, but certainly within the last couple of years I saw a Q345 Chair: One of the issues raised by the British number of companies struggle with the fact that they Exporters Association was where bonds are issued— had to spend and then be reimbursed. There were in effect, the splitting of the risk between the would-be caveats that made it really very difficult for some of exporter and the bank. Now in the proposals last our SMEs. With respect, this is the kind of joined-up week, that was specified as what they were going to cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG05 Source: /MILES/PKU/INPUT/010554/010554_o005_kathy_No5-15Feb2011 [CORRECTED].xml
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15 February 2011 Simon Carter, Joan Turley and Steve Young do, but the British Exporters Association said this was China? I am sure you have already got this covered, actually a deterrent. Could you give me your opinion? but— Steve Young: Yes. The bond issue is significant to our Chair: Yes, you are straying into a much bigger company and I suspect to many smaller companies, debate, which— because it is often quite a large value and there is risk Joan Turley: But my experience has been that it was in place associated with that. It is not unheard of for not just a matter of the stakeholders—the folks back a company not to pursue business because it does not home. It was the business bank not understanding want to have that risk. Therefore, from our Chinese timelines and so on. I have seen—and really perspective, any support we can get to help us with it is heart-breaking—people snatching failure from the that issue—if there is a risk share agreement or some jaws of success for the sake of a month of more solid other mechanism in place—we would welcome. underpinning from their business bank.
Q346 Chair: Do you think it goes far enough, the Q349 Mr Binley: Could we have a letter from you 50:50 split? to that effect, with a list of examples? Steve Young: The answer has probably got to be no, Joan Turley: Yes of course, with pleasure. but then we would always want it to be at one end of Chair: That would be helpful. the scale. But there has got to be a balance and if this Steve Young: Can I just make one last point, on the is where we start, then we would support that. point about investment then coming on to wider business? Ten years ago or thereabouts, it was UK Q347 Chair: There is a perfectly legitimate argument Government investment through what was then the that if a company finds it too risky to be prepared British National Space Council that directly led to one to underwrite it, why should the public or the bank of our first major contracts in China, which has do so? subsequently led to a recent very large contract for us. Steve Young: Yes. But there is no question but that You can trace it right back. Now unfortunately, that the idea of a company going in with what essentially investment has not happened since, but the return on is the backing of the British Government, even if that it has been more than tenfold when you actually look is in a risk share agreement, is a very powerful at the numbers. So the benefit to the UK economy message to the Chinese market. from that initial investment has been huge. It has not Joan Turley: And it offsets much of the risk already, happened again since. because of the credibility and the public face attached. Chair: Thank you—very useful. On that note we will conclude and I thank you and repeat what I said to the Q348 Mr Binley: But isn’t the truth of the matter previous panel: if you feel that there is anything else that growth costs money and small businesses cannot you would like to say to us, please write in; we will get money for growth anyway? So that has to be be pleased to receive it. Similarly, if we feel there is specifically taken into account. anything we did not ask you but should have, we may Steve Young: Absolutely, yes. well do so in a written form. Thank you very much. Joan Turley: Could I also ask whether we might That was much appreciated and very useful. invite our banks to support our companies better on Steve Young: Thank you for the opportunity. cobber Pack: U PL: COE1 [SO] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 93
Tuesday 8 March 2011
Members present: Mr Adrian Bailey (Chair)
Mr Brian Binley Simon Kirby Paul Blomfield Ian Murray Katy Clark Nadhim Zahawi Rebecca Harris ______
Examination of Witnesses
Witnesses: Dr Razeen Sally, London School of Economics, Professor Jim Rollo CMG, Sussex University, and Vanessa Rossi, Senior Research Fellow, International Economics, Chatham House, gave evidence.
Q350 Chair: Good morning and thank you for I think the difficulties arise in periods of fast agreeing to give evidence to the Committee. To start, turbulence, when there are very rapid changes, and it would be helpful if you could give your names and therefore this can create some dislocation effects. titles for voice levels and transcription purposes. Unfortunately those dislocation effects can be Vanessa Rossi: Vanessa Rossi, Senior Research prolonged, particularly in periods where we have Fellow at Chatham House in economics. economic recessions or weak growth. The difficulty Professor Rollo: Jim Rollo, Professor of European we face is to tide over people who are on the Economic Integration at Sussex and an Associate dislocation end of this process to move them on to a Fellow at Chatham House. better place. The people who are benefiting from this Dr Sally: Razeen Sally; I am Director of the European process, of which there are a large number in our Centre for International Political Economy and Senior economy, are obviously not waving the flag to tell Lecturer at the London School of Economics. everybody that they are benefiting in circumstances where somebody else is losing their job; nevertheless, Q351 Chair: I will be opening the questions. Can I that will be the case. There are wide numbers of make it clear that all of you are not obliged to answer consumers with jobs in our economy who are all every question? Some will be pitched at a particular benefiting from having lower prices for the goods they person for usually obvious reasons. If you feel that are buying. Even through the recession, many of the you need to add something, please do, but do not feel people who have retained jobs with good incomes obliged to as we have a lot of questions and not much have had, if you like, a good recession. It is not very time to get through it. First of all, could I start with easy to explain that fact to people who have not had a very general question? I am a politician and I am a good recession. answerable to my electorate. How I would explain to I think the same thing applies to the problem of China a constituent who may have lost his job due to the as has applied to the recession. The people who are factory that he is working in closing in the benefiting tend to be rather quiet and the people who constituency because of competition from China that are unfortunately on the brunt of it have to bear the this is actually very good for him and Britain? pain. As a government there is perhaps some Dr Sally: That is not directed at any one of us. obligation to consider how you alleviate that—how Chair: Who wants to lead on that? you reduce the timescale of dislocations and reduce Vanessa Rossi: Sorry, can I just be precise? You mean the effects. What one would hope for is that people how can you tell him that the fact he has lost his job will move on to higher value-added activities in which is good? You are not talking about how this White they will have gainful and better employment in the Paper illustrates that policies are nevertheless going to future as we change the patterns of our industries and help him to find a better solution? You are not relating trade. Those opportunities will return as growth your question to the White Paper? returns to the economy. Chair: Not specifically. I just want to know how in effect you see the changes that are taking place Q352 Chair: You have outlined an academic ultimately bringing benefit to the people of this argument. You did point to one thing that enables us country. You may say, “Well that is your department,” as politicians to demonstrate this, and that is lower but it is helpful to have your insight to see how we, prices in certain areas. Could you just amplify that by as politicians, can best handle this in our engagement telling us where you think consumers have benefited with constituents, who may not have the insight that in particular from? you have. Vanessa Rossi: If we just take the issue of the trade Vanessa Rossi: The typical arguments that I suppose with emerging markets, clearly many of the goods that economists have made and you have heard are that, in have come into this country from emerging markets— the greater realm of things, increasing world trade and this is not just China but a wide swath of emerging comparative advantage and economies of scale help markets—have helped to provide lower priced to give us greater productivity in the world economy, consumer goods: for example, clothing, other light lower consumer prices overall than would otherwise manufacturers and so forth. We can also look at be available, and that over a long term the overall electronic equipment, and the decreases that we have indications are that this is beneficial to all parties. seen in prices for equipment such as TVs and DVDs cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
Ev 94 Business, Innovation and Skills Committee: Evidence
8 March 2011 Dr Razeen Sally, Professor Jim Rollo CMG and Vanessa Rossi over the years, or overall at manufacturers’ prices over commercial world in looking for consultancy the last decade, which have actually been fairly flat or contracts and business to keep my colleagues even declining in some cases. These are all benefiting employed over time. The disciplines there are quite those people who are in employment and able to buy sharp—quite sharp indeed. In fact, departments close them because they are buying them at lower prices down all the time in universities because they cannot than they would otherwise do. get money in that way. Universities are one of the I think, particularly in these areas of trade, there will biggest services exporters in this country. My own be quite big benefits not only to the consumers but university gets about £5 million a year from attracting also to some extent to the retailers of these goods, who overseas students. That is a business. have then been able to continue sales and continue businesses, which they may not otherwise have been Q354 Mr Binley: So the answer is no, from your able to do. perspective. I understand that. Any other comments? Professor Rollo: I just want to try and nail this thought that this is a purely academic argument. The Vanessa Rossi: From my side in terms of my own story of the British economy from the Middle Ages background, I have worked in consulting companies has been one of increasing competition. Most of that where a larger proportion of the income has been competition has been generated domestically. generated from services sold abroad. We also, Competition has been one of the things that has driven relatively similar to James’ business, have had to go productivity growth in the long term, which has driven out to other countries and discuss potential research living standards and pushed them up. It is clear that projects, contracts and sell services that have counted this is a short-term/long-term issue. as part of the UK’s exports of services. It is perfectly The short term is there are adjustment costs and these true that it was not manufacturing but I think we can be quite severe. I was born and brought up in should be very careful about drawing distinctions. If Greenock, so you cannot tell me anything about the we are generating jobs and trade, whichever way it effect of a declining industry on a rather small and comes, from whichever goods or services it comes— concentrated area. I did one of the things that people do to adjust—I got out. Not everyone can get out but Q355 Mr Binley: I am not drawing distinctions; I am you have to think about things like that. You have to simply asking for your response to the question. think about retraining. You have to think about how Vanessa Rossi: In that context, in the sense of what you can ameliorate the short-term effects—that is why would help, certainly there have been times when we have a welfare state—and so on. Those flanking introductions have been useful, and also the backing policies have to be there to make this work. In the of having the UK business, where you see that your 19th century we did not have that in the same way own people, your own Government and so forth are and that is the power of the 20th century revolution in prepared to help back your company and projects. welfare states in particular. That gives a boost to confidence and also the prestige I think that is the set of issues, and we must allow when you are presenting your case to other people productivity to grow and the most efficient firms to outside the UK, which is also helpful. I think there is a grow, and what exporting does is it effectively selects realm of helpful things that are being proposed, partly the most efficient firms. We have got a long tail of low because of the White Paper, that are also ongoing in productivity firms in this country, but the exporters are terms of export credits and help with finance for small not among them. One of the reasons we export is to to medium-sized enterprises trying to go abroad and buy imports. So we have to be efficient at that level. seek business there; these are all extremely helpful I think that trade in the long term is one of the things things. that improves the effectiveness of the economy; it improves living standards, employability and Dr Sally: I am an academic. I would not pretend to employment. have had anything like full-time business experience, let alone political experience. I also happen to run a Q353 Mr Binley: Adrian rightly describes himself as think-tank that depends primarily on funds from a politician; I would not dream to go that far. I am businesses and foundations, so that is a sort of primarily a businessman and have been proud to be entrepreneurial activity. so for most of my life. You are very influential people Let me say something in defence of the academic and in terms of your advice and reports on trade, and yet the analyst. We all have our specialisations with their I read only thumbnail sketches of your background strengths and weaknesses. I have come across rare and I do not see a lot of commercial activity in there, individuals who have managed to combine different although Ms Rossi’s thumbnail sketch does not allude backgrounds and retain a sharp analytical sense for to it in any sense—they are just bullet points. Can I the big picture. What I think the analyst brings to bear ask you whether you think a role out in the big wide on this is a sense of the bigger picture and how world of commerce and industry would help you do different things relate to each other. With respect, Sir, your job better? with your background, and with a politician’s Professor Rollo: Can I just make one point on this? I background, you bring your strengths to the table but am the finance director of a micro-company. perhaps you have not had time to reflect on some of Mr Binley: I noticed that. Started in? these bigger interrelationships, which is what we are Professor Rollo: 2009. The second thing I would say talking about today, just as I would not dream to is that while I was at Chatham House and while I assume that I have the entrepreneurial skills that you have been an academic I have had to live in a pretty have. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 95
8 March 2011 Dr Razeen Sally, Professor Jim Rollo CMG and Vanessa Rossi
Q356 Chair: The Trade White Paper does emphasise important link than fixes here and there on trade the importance of free and open markets. In the light promotion and so on. of that, do you think we really should have a UK trade promotion body or Government supported export Q358 Chair: Would you do away with UKTI or finance? export credit guarantee finance? Dr Sally: I think the White Paper presses a lot of the Dr Sally: I am not sure I would go that far. I think right buttons. It emphasises the importance not just of there is a role for something like UKTI. There is a exports but also of imports, of inward investment, of role for commercial offices in our embassies and having an open door—a non-discriminatory trade high commissions around the world. But I think we policy. Most of our trade policy is conducted in have to draw a line somewhere, because when we go Brussels and it is a pretty centralised operation. In that beyond that line, not only do we create extra sense the UK does not have a trade policy. Rather we bureaucracy and spend unnecessary money but we have an input into EU trade policy made in Brussels. also create conflicts of interest. Can we do things on the flanks, like trade promotion Do we really want prime ministers, the Duke of York and having export guarantees? To some extent, and others going around the world batting for perhaps. I think in this White Paper, as in previous particular companies when some companies clearly White Papers, there is an over-emphasis on trade have more influence on public policy than others? promotion with SMEs in mind, as well as with big Who are they representing? Are they representing an corporates in mind and perhaps on export guarantees individual company’s interest or the national interest? as well, one of the arguments being that others are It is very easy in these circumstances to conflict the doing it and so have we. Up to a point perhaps, but I interest of one particular company with the national do not think one should—to use former President interest, just as it was said that the interest of General Bush’s famous words—mis-overestimate the Motors was the interest of the United States—well, importance of these things. Their track record in most look at GM today. countries is that they create extra bureaucracy, they Professor Rollo: I would agree with all of what cost money and they support certain interests who Razeen has just said. I would just say that, for export lobby in their favour. You would expect organisations promotion in itself, I think there are two sides to this representing small and medium-sized enterprises, as where there is clearly room for the state to be well as of course big multinationals, to lobby for involved. One is when British companies are bidding Government favours here and there. I think it would for big projects that are essentially public sector or do us well to put these things in perspective and keep heavily public sector influenced in foreign markets; a lid on them while concentrating on bigger priorities. then it may be necessary to have some Government- to-Government contact and the embassy may be a Q357 Chair: That is a very interesting point because useful source of information and indeed influence it runs counter to an enormous amount of evidence because, to be blunt, that is what matters in these that was put to us, particularly from manufacturing contexts. It is about giving yourself credibility in it but from other sectors as well. Can I clarify: you are all, and often for places where state procurement is saying that the perceived benefit that other countries, an important issue, particularly for infrastructure, they particularly European countries, have, from perceived want to see the involvement of the state in the better backing from Government and the finance supplying country as an element of credibility. market, is essentially illusory? Dr Sally: I think it is to a large extent illusory and Q359 Chair: So Prince Andrew may have a role in that these perceptions are distorted, just as the former that? Secretary of State for Business’ perceptions—I am of Professor Rollo: It is not impossible that he may have course referring to Lord Mandelson—that industrial a role in that. Clearly that depends on effectiveness. policy worked in France and some other places, and The other side of it is there are beachhead costs of that we have some lessons to learn to promote exporting. You need to learn quite a lot about foreign manufacturing here or there, are also distorted. markets. Heaven knows, domestic markets are hard I think there is a much more important link, which the enough to understand. The market penalises you very White Paper does mention but could be emphasised quickly and very sharply for mistakes. It is much more. What is really important to attract quality easier to make mistakes in foreign markets than it is in imports and quality inward investment, as well as domestic markets, and it is easy enough—and I know promote our exporters and the reach of our because we have made some—to make mistakes in multinationals around the world, is competition and domestic markets. It is useful to help those small firms efficiency in the domestic and wider European in particular that do not have the infrastructure to do markets. In other words, trade policy is inextricably that investigative work easily and quickly. Now, linked to getting economic conditions right at home. where you draw the line on that is a very interesting That is much more important than specific trade question and is something that Razeen has pointed to. promotion activities or export finance. The other end of it is also that it is about the That leads to a whole domestic agenda of competiveness of the domestic economy, and I think reconstructing our public finances, of slimming down that focuses very much on what economists call, the public sector and of creating better conditions rather crudely I think, human capital—training and above all for our private sector, which leads to an skills. At the heart of it, going back to your original agenda of deregulation. All of these things are linked question, Chairman, this is about employment, the to trade, and I think that is, as I said, a much more incomes of our citizens and raising them to the cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Dr Razeen Sally, Professor Jim Rollo CMG and Vanessa Rossi maximum we can given what resources we have. For Q361 Nadhim Zahawi: I think it is a very good the life of me, I cannot imagine why we should think point, to pick up Dr Sally’s point of view, about the that British workers are less capable than workers emphasis of trade policy. Before I ask my question anywhere else in the world, but it seems to me we are about the relationship with the European Union, let not getting the best out of them at this point. I would me just push you a little bit further on your point rather we spent a lot more time thinking about that set about how far you would go, because I get your of issues. I do not think they are easy issues by any argument; i.e. if we focus on competition and stretch of the imagination, but I think that is a key deregulation there is a Darwinian effect to make us element in all of this. that much sharper and better than the rest of the world The other thing is that competition sharpens the and therefore improve our ability to export and do responses of management and so on. There is some better in terms of our international trade. But how far very interesting research around at the moment that would you go? You said you would not go as far as points, with quantitative backing, to the importance of getting rid of UKTI and the idea of bidding for competition and sharpness of competition in particular particular industries. There are some industries, for markets in making firms more effective and raising example the defence industry, where it is those political relationships that are actually the pivotal their game on the management side, therefore raising factor between winning and losing. Where do you their profitability, productivity and their overall draw the line? effectiveness. I think that is the sort of area we need Dr Sally: I have no exact answer to your question to be looking at very closely in all of this. here. I would agree with Jim’s qualifications. I think that trade promotion bodies have a role in providing Q360 Chair: Vanessa, have you anything you wish some market intelligence, not to big multinationals— to add? they do not need it—but to smaller and medium-sized Vanessa Rossi: I would only add that, to a large players who have that potential of entering or extent, these arguments have come to what I would expanding in international trade, particularly in see as the heart of what I did not really like about the faraway markets. White Paper. I feel it is treating a very broad range of Now that is not to presume that bureaucrats and topics, perhaps with some muddle as to what is really politicians have superior intelligence of the market a UK business issue of how you develop business and place. That is clearly not the case in nearly all competition in a very general sense, other issues to do circumstances, although the conventional wisdom with development of developing countries and trade might be otherwise. If one can have a reasonably with developing countries, and then issues to deal with bounded area of these activities, preferably with some the broad mainstream of trade. Personally, if this was kind of horizontal spread where you are not furthering intended to be about openness and trade and cross- the interests of particular companies, that would be border investment, I would have felt there could have ideal. In certain circumstances, and you mentioned been more focus on very particular issues to do with one particular sector, defence, it is of course that, which are some of the points that have just come impossible to think of these things in a horizontal, out. I would also emphasise that I think there are some non-discriminatory way. That is unfortunately my “on very specific points here to be treated. Similarly to the one hand, on the other hand” answer. Jim’s plea, for certain scales of companies it can be very costly and risky to move abroad. If we are Q362 Nadhim Zahawi: Just going back to your point looking at the risk factor, increasingly if you take the about the European Union and the single market, in step to try to move abroad, you may need some what sense can the UK really have its own trade assistance to get over those first hurdles. policy? I think we have heard from you that it almost There are also issues such as economies of scale. cannot in the sense that it is a contributor to a greater Certain types of businesses simply cannot survive on machine of trade policy. With the increased powers the domestic market alone and be competitive; it is now of the European Parliament, which has now an simply not possible. For example the German car equal say to the Council, how does that affect our trade policy? industry would not survive that way if it had to Dr Sally: The first thing to say is that our hands are survive only off its domestic market. However tied. We are members of the European Union; successful it was in the domestic market and however therefore we are part of a common commercial policy. competitive, it has to be global and it has to sell We have a common external tariff and we now have globally. There are issues with specific industries that new areas of pooled competence, such as investment, therefore need attention, and the reason why they are intellectual property and services in particular. Our focused on in areas such as trade policy and priority should be to lead on setting certain priorities competition internationally is because you need to for the single market and external trade that are of have that extended market and be successful there to interest to us as well as the other Member States, and be successful at all. I think there is a whole range of build coalitions with like-minded members, who are reasons why you come back in with strategies for mainly in the north, with some in Eastern Europe. trade, which we need in order to pay our way in the This sounds like commonsense, but the reality is that world for what we would also like to import. I do not under the last Government and previous Governments think I would throw out the whole idea of having trade as well Britain was punching well below its weight. policies, but I feel that they need to be far more By default we left the field open to the French and focused than I see here. others to take trade policy and some aspects of single cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
Business, Innovation and Skills Committee: Evidence Ev 97
8 March 2011 Dr Razeen Sally, Professor Jim Rollo CMG and Vanessa Rossi market policy in the wrong direction. Our priorities of a liberal instinct than certainly the French, Italians should be to be much more active in a much more or Spaniards in this context, but it is a very targeted way in Brussels in setting our policy priorities complicated game that is being played. and building those coalitions. What should those priorities be? For the single Q363 Nadhim Zahawi: Should companies then not market—some of them are mentioned in the White focus on lobbying here but focus on lobbying over Paper—there should be an agenda of further there? deregulation of services in particular. A lot has been Professor Rollo: They have to lobby everywhere. done in manufacturing, much less in services; for They are going to have to lobby in the European example, on digital economy issues. We need a Parliament, they are going to have to lobby in the common set of rules on intellectual property. That is Commission, they need to get in there early and talk not quite the case in Brussels. We need to deregulate to people before policy is determined. They need to our energy markets. There is a whole lot to do on lobby here; they need to lobby other Member States single market policy; some of it is defence. There are where they have important interests and presences. some regulations going through the pipeline in You cannot deny it. That is the truth of the matter. Brussels on financial regulation that probably over- Dr Sally: If I may come back quickly on the issue of regulate. We have to be careful on that score. the European Parliament: you are right. The European On external trade there are a whole host of priorities Parliament as a result of the Lisbon Treaty has much in terms of key bilateral relationships with our main more power in trade policy. There is a potential trading partners, with the United States, China, Japan problem here. The Parliament now has powers to and some others; there is the WTO and there are block. It has got to be taken into account in terms of FTAs. On a whole host of these issues, Britain as a trade policy-making. Globalisation-sceptical Member State should be leading because some of constituencies find support amongst certain members these issues are natural issues for us, like single of the European Parliament, and some of them are market deregulation and making Europe more open to actually on the International Trade Committee. Actual the wider world. But we are not playing that knowledge about international trade is sadly lacking, leadership role as we should be. and that is also true of many members of the Trade Professor Rollo: Again, I agree with much of what Committee. I think it is important for the British Razeen has said. I think I would nuance it a bit more, Government and for companies and indeed for however, because one thing you have to reckon is that parliamentarians to have much closer contact with the the EU is not internally an obviously liberal and European Parliament and, on these issues, with the liberalising place, by instinct, for a large number of International Trade Committee in particular, partly to members. Take agriculture, which has been the educate them as to the facts of the world and to have bugbear of our relationship on trade and on various trade policy go in the right direction, and not be other things with the EU for a very long time. The derailed by this or that often non-trade issue that last enlargement of the EU brought in a large number might hijack a trade agenda. of agriculturally intensive countries. The French Chair: We have got 10 minutes and we have five President can find 14 other Member States who do questions that we need to cover in that. I am asking not want to reform the CAP at this stage and are not for both questioners and respondents to be as brief as interested in a big liberalising agenda in Geneva on they can. I am sorry because there are a number of tariffs on agriculture, which are huge in some cases— issues that I would really love to explore further but in some cases over 200% and 300%. It is the last perhaps you may wish to send further information to bastion of that very heavy protectionism. So there is us in a written form. that element in it. There is also the whole question of the fear of Q364 Nadhim Zahawi: How important is the Doha globalisation, which is not absent in this country round and how difficult will it be for us if it is not either, which in France particularly was expressed as concluded in 2011? a fear of the extension of the single market, Dr Sally: The world is not going to fall off a cliff if particularly on services. What looked like an agenda Doha is not completed this year. I think the odds are that was going forward quite fast suddenly came to a still against completion, partly because it is not grinding halt over a referendum in France in considered important enough by the major capitals. It particular. The politics of this are really quite is worth having a go to complete it this year. Next complicated. Later this month I am going to Warsaw year is going to be next to impossible. Even if to talk about the EU budget, which for a Brit is like completed, and contrary to some of the talking up, it going into the lion’s den on this sort of issue because is not going to deliver big bucks. In other words, the the Poles have exactly the opposite set of priorities to conclusions of this round, the results of this round, us on that particular thing and part of that is about will be modest. The main thing is to do a deal and get agriculture. I think there is a lot of difficult stuff. it out of the way so that the WTO can finally tackle The other thing I would say is that the Commission, 21st century trade business realities. the Trade Directorate and the UK have been much Professor Rollo: The reality of the WTO is that it closer together. This is the Directorate to which the always lags behind what is happening in the real UK is actually closest, I would say. The instincts of world. The market always moves faster than any the Commission and the UK are much the same on political institution you can think of. I think the this. To some extent it is slipstreaming behind and importance at this point, if we could complete Doha supporting the Commission, because it has got more this year, would be psychological, not least because cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Dr Razeen Sally, Professor Jim Rollo CMG and Vanessa Rossi implementation would take at least another five years less the same conditions, at least at the umbrella level after that. It is not going to hit anyone’s pocket for world trade agreements and European trade anytime soon. I think the gains, I agree again, look agreements. There may be some specific things that pretty feeble in current terms. I think they probably German Governments do, although I think we underestimate some of the gains that are there, but I probably know those and do a lot of them ourselves. think the doing of it is more important than anything The answer to what is going on here, and how you else. can be successful when there is a very large growth I must admit, I am puzzled as to whether it is simply in world trade going on and you are not having a share deep-frozen or it is actually dead and we cannot smell of that, is that we have to come back to issues that are the corpse because it is deep-frozen. The lack of not necessarily about those other points of the trade progress has been absolutely frustrating. I was an agreements in Brussels. official during the time of the Uruguay round and I recognised “the language about the need to complete Q365 Paul Blomfield: Not withstanding your Doha this year” when I was in Whitehall in the 1980s reservations and interesting position, the Government and 90s, every year for G7 summits we used to write has set the conclusion of Doha this year as their a similar paragraph about how we needed to make overarching strategic priority. Putting aside your progress on the Uruguay Round and then complete the reservations, given that this is their objective— Uruguay Round. For four years we wrote that we perhaps one point from each of you—what could they needed to complete the Uruguay Round very soon, effectively do to achieve that objective? and it is much the same now except that Doha is going Professor Rollo: Let me say the first thing: the UK on for even longer. The question is, once we get there, do not sit at the negotiating table for completing is it worth it? Doha. The EU commission sits there, albeit with the Vanessa Rossi: I think it is very important to keep Council sitting on its shoulder like 27 parrots trying hold of this idea, though, that the numbers could all to whisper in its ear. Nonetheless, that is the issue in be wrong. I think this is something that has stood out all of this. We can go around and talk to people; jaw to me over many years about the estimates that people boning is always a good thing to do if you want give you for the importance of trade rounds. For something to happen in a political sense, but the example, the figures quoted as being the annual bottom line is that it is not within our gift to complete benefits of the Doha round were about £110 billion, this. It is only in our gift to try and influence the and I have seen similar types of numbers in the past people who are at the negotiating table in that from completed trade rounds. Really, when you think direction. It sounds like—I am sorry, I am showing how important we see trade and the growth that has my Foreign Office background—old fashioned been in trade, the size of trade, the potential trade over diplomacy is what is at work here. And engaging the the future, I think these numbers are way too small. private sector: I think the private-sector voice in this It reminds me of an important point to come to, which over a long haul on Doha has not been as loud as I is on a slightly different track and that will perhaps think I would have liked it to be or as it was during move us into a slightly different area, which is that the Uruguay round. numbers and analysis can be important. If you want a single piece of evidence, just look back at how poor Q366 Mr Binley: As I understand it, the whole of an we can be at understanding what is going on in the Airbus is a part of German statistics. Up to 50% can world of trade. It does not just have to be from my actually be British, but of course they take the credit. own remarks; you can easily see the evidence that was That is not surprising; they always do. How do we provided by OECD studies. Following China’s WTO change that? entry they did a very good survey of all the material Professor Rollo: Sorry, we get the money. Their that was submitted as evidence on what the effects of imports reflect our bit of the Airbus that is sent to China joining the WTO would be in trade them or France or wherever. liberalisation. Of the large numbers of studies, hardly any got it right. Most of them blithered on about all Q367 Mr Binley: But world trade figures have an kinds of problems with import and export prices, input in terms of perception. Do we need to change which were never a factor of the problem in the end. it? Is it that important? Most of them missed the big rise in exports from Professor Rollo: I frankly do not think it is that China that actually came through. important. Someone will tell you that by and large the Chair: I think we have got the message. Chinese get $3 out of every $150 that an iPod costs, Vanessa Rossi: Just my final point, and it brings me and most of the money actually goes on marketing back to numbers being important and not getting too and design and all that side of stuff, which actually all wedded into complicated stories when you can see the resides in the US. That is what is happening in the blindingly obvious coming for you. On trade issues, modern world. We have now integrated supply chains; in spite of the fact that we have problems about the basically we have just-in-time production chains, way Europe works or the way Doha is working and which used to be localised but have now been so on, look at the numbers that have been emerging internationalised. The bottom line is if you are in the last year. Why is it that Germany has been able exporting you are doing well in all of this. The to increase its exports to China and emerging markets Germans could not export anything without our at rates of 50% or 60%, outstripping most of the rest wings, they pay us money for our wings, and in fact of Europe—not just the UK, but other parts of there is a transfer across the exchanges on that, and it Europe? They have been able to do it under more or shows up on our balance of payments. Our balance of cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Dr Razeen Sally, Professor Jim Rollo CMG and Vanessa Rossi payments would be worse if we did not get that. We Chair: If you can log that, I will bring in Rebecca. can boast about these things; there is no reason to stop us doing that. I do not think the statistics are Q369 Rebecca Harris: It is sort of a bit of a round- the problem. up question here really, which is, with your analyst Dr Sally: I think it is important in this sense. We talk viewpoints, people who have had time to look at the a lot these days about global imbalances, particularly bigger picture, how do you view Britain’s position in about the Chinese current account surplus, measured the global trading arena? How do we compare? Our along the lines that you indicated. That of course gives relative position perhaps. What could we be doing to no indication of the often minute value-added that is improve? Where have we perhaps fallen down against contributed in China to a lot of these products, like our competitors? Perhaps we could have your the mobile phones we are carrying around with us. If concluding comments on the Trade White Paper? You you factor that into account, the Chinese current have already touched on what you perhaps think some account surplus would probably shrink considerably of the strengths and weaknesses are, but where do you because half of China’s trade is this kind of trade in think the Government has got it right and wrong global supply chains. there? The Americans in particular, when they look at this Chair: Do not feel obliged to answer every one, but Chinese current account surplus, talk about fixing it, again, if you feel on reflection after you have left here limiting it and threatening trade sanctions on the basis that there is something that you would like to add to of a misleading perception of how large this surplus it, please feel free to write in. is. In that sense, yes, our current ways of measuring Professor Rollo: Can I just start on the whole question international trade may lead to wrong diagnoses, and of the general policy context? I think if there is one wrong and sometimes dangerous policy conclusions. area where we really do need to up our game in a big Is there a quick-fix alternative in terms of way it is education—not the higher education sector, measurement? No there is not because it is much more but actually the middle education sector in some difficult to trace and measure value-added across a sense. What happens after school and at school that whole range of products and come up with aggregate allows, for example, people in other counties to numbers. provide children who can speak more than one Professor Rollo: In my view in all of this, the global language, children who have some sense of the imbalance is a diversion. That is a macro-economic technical world out there and can engage with it in problem; it is not a micro-economic problem. It is not straightforward ways? The Scandinavians speak four the problem that we are talking about today. If there languages, and English is basically one of the is a problem with statistics, I think it is the lack of Scandinavian languages at the end of it all. Why can statistics on services trade. We do not have any we not speak more languages? That sort of thing is detailed numbers by country, by type of output and so the real lack of ability to engage with the world either on. That absolutely undervalues what is going on in a as competitors or as sales people in that sense, going tremendous way, because services, just like out there and doing things. I think that is the key set manufacturing, provides a lot of high value-added of issues here. We need to have a better workforce at jobs. the end of all this. My own industry, Higher Education, heavens, you Vanessa Rossi: I will just come back to something we would like to think we are the most highly skilled have not mentioned as much as I thought we might, people in the economy in the universities overall. I which is the investment side in foreign investment. I will leave you to answer that question in this context. should remind you of the contribution to the UK’s Or the legal profession—all right, maybe I will take economy growth in the last decade from external that one back as well. There is real ground there. I demand, both investment and exports: around about a always get a bit worried when people start to say, “It third of the growth of our economy has come from is manufacturing or services.” It is the traded sector. that and two-thirds from our domestic demand—a Anything that can be traded we have to look to make third of our growth in business that is. This roughly sure we have got the skills and we have got the divides a third, a third between manufacturers’ effective markets that will allow us to prosper in that exports, services exports, and FDI, with actually the context. services export component being particularly Chair: We have got several more questions that in prominent and the growth in overall business services reality I have got very little time for. What I am going being particularly prominent. I think to me this should to do is ask the Members to ask the questions and have been the initial focus of what the motivation is. then if you could pick out those issues that you think These are the really crucial statistics and this is why you need to, just to speed things up for a bit. we need to look at those different areas and give them each a fair weighting and a fair airing as to what we Q368 Nadhim Zahawi: What advantage does UK think is happening and what we can do about it. plc get from UKTI helping companies such as Tesco When it comes to the issue of what we do about these go into emerging markets like China for example? areas, I think it falls into different categories. There Considering that companies like Tesco have a budget are some short-term issues that we can try and tackle. that is bigger than the whole of the Department for There are the nuisance-value problems—some of the Business, Innovation and Skills, what is the advantage issues I think your questioning earlier in the year for UKTI doing that sort of work? brought out from businesses about the difficulty of cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Dr Razeen Sally, Professor Jim Rollo CMG and Vanessa Rossi rules. For example, there are some issues over visas Professor Rollo: Can I just say one thing about visa and so forth, which are irritating to business because regimes in all of this? We have to be careful not to do the rules are not very easy to work with and somehow harm for other reasons. I think we have a real problem interfere with what would otherwise be sensible plans. coming up on the treatment of overseas students. Some of this can simply be in the way. Overseas students are customers but the regime is It is particularly an issue, I would say, in the FDI area about to start treating them as if they are potential when I have been looking recently at the trend for FDI criminals. That is not a good way to get business in to Germany versus the UK for example, within any sort of general sense. Europe. We know we are the two big competitors for Chair: You will not be aware, but we are actually FDI into Europe, and many of the comments I have painfully aware of this and going to take this up. heard back are that businesses have been tending to Nadhim Zahawi: Very seriously. privilege Germany over the UK, particularly businesses coming from emerging markets in China, Q370 Chair: Dr Sally, is there anything quickly you because once you have a visa within Germany you are want to add? within the Schengen area and you can travel across Dr Sally: I will just take the general question on the Europe easily without any other questions or problems role of the UK in global trade. On policy, I think the with visas. From the UK we have a problem that even emphasis has to be on as non-discriminatory a trade though somebody has the visa and lives here, they policy as possible and tackling regulatory barriers then have to apply every time they want to visit both at home and abroad. As to the future of the UK another country and it is a huge irritant. I would give and its businesses in global trade, I think if we move that enormous prominence as a relatively short-term in the right direction both on trade and domestic issue that can be tackled in that particular area and we policy—and, by the way, I think domestic policy can get on with it. should be as non-discriminatory as possible, The same things apply in these other areas, I think, especially between manufacturing and the other parts for services and manufacturers, as to why we do need of the economy—we will see UK business flourishing to look at the areas of export credit and guarantees so in the world in certain high-value areas of forth. Much of this need not cost Government a lot of manufacturing—certain niches. Much more money in actual out-payments; it is about guarantees importantly, that will be in a whole range of present or agreements with banks and help in that sense of and future services. That is where our future lies, both being constructive about how businesses can go about at home and abroad. taking those extra risks that are involved in going There is a danger, and this is more about domestic abroad and doing business. We can help companies policy, if we go for ideas on promoting manufacturing over those hurdles. I am all in favour of those issues. here and there that we will cause all sorts of Then we need to think more so of this broader context distortions in the economy. That will be to the of these big three areas in which we see UK business detriment of our services potential, not just at home, developing and the meaning in the economy. We need but also abroad. The next wave of Chinese opening to be quite rational as well about how we see the up should actually benefit British businesses more linkage of the FDI coming into the country to what than other businesses in Europe because it is about the may be foreign operations perhaps in some ways opening up of the services economy in China, where displacing the imports, because some of these our companies are strongest and stronger than German operations may bring businesses to the UK that then companies; they or course have greater strengths in develop into manufacturing operations. For example, certain parts of manufacturing. They have benefited we have seen this in the past with the car industry and from the first wave; we should benefit much more I think that model can apply in certain other areas, from the second wave. perhaps in electronics and so forth. There are Chair: Thank you. I am sorry I had to rush you at the emerging signs that that can happen. We have to be end, I was a bit self-indulgent at the beginning, largely aware that there is also this import substitution I may say because of the challenging nature of one or methodology that can take place in conjunction with two of the comments that you made. That has been FDI and it is important. I thought there should be a enormously helpful, not least because it does actually bit more prominence perhaps given to some of those challenge some of the other lobbying and other ideas and the importance of those, along with the idea evidence that we have been given. Can I thank you of what we have to go out and do in the rest of the for your contribution? As I say, if you wish to send world to pay our way in the world. further evidence we will be very pleased to receive it.
Examination of Witnesses
Witnesses: Susan Haird, Acting Chief Executive, UKTI, Patrick Crawford, Chief Executive , ECGD, and David Frost CMG, Director for Europe, Trade and International Affairs, BIS, gave evidence.
Q371 Chair: Can I welcome you and thank you for will try to lead by example and be a bit more concise agreeing to give evidence? I do apologise that it is in my questions to you than I was with the predecessor slightly delayed. You may or may not have heard the panel. Before we start, just for transcription purposes, contributions previously; they were somewhat could you introduce yourselves before we get into the challenging and provoked quite a bit of discussion. I main body of the questions? cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Susan Haird, Patrick Crawford and David Frost CMG
Susan Haird: I am Susan Haird. Thank you for that you are starting to realign that view and think inviting us here today. I am the Acting Chief much more about outcomes, but in your briefing paper Executive of UK Trade & Investment. you said that the work you do represents £19 of Patrick Crawford: Patrick Crawford; Chief Executive benefit for every pound of government money spent, of the Export Credits Guarantee Department. but you do not give any examples of how that figure David Frost: I am David Frost, Director for Europe, is arrived at. Could you give us a little flavour of how Trade and International Affairs, Department for it is arrived at? Business, Innovation and Skills. Susan Haird: Yes, I shall be glad to. First of all we have something called the Performance Impact Q372 Chair: I am getting straight in: Susan, why is Monitoring Survey, which since it was introduced UKTI’s strategy so delayed? about four years ago, has always contained qualitative Susan Haird: We have been preparing a strategy for measures as well as measures to do with the number the last few months but we wanted to set out the of exporters helped. So we have had a targeting strategy in the context, first of all, of the Trade and framework that required us under the previous Investment for Growth White Paper, which was spending review to help 20,000 companies on the published in February this year, and also in the context trade side, of whom 12,000 could be innovative of the Growth Reviews; we have been feeding companies; the reason for the focus on innovative is strongly into both of those processes. There will be they benefit more from exporting and from our announcements relating to the Growth Reviews in the assistance. There was a further target that 50% of budget and our own strategy will follow shortly after those companies should see a business impact as a that. result of working with us. We further measured, though we did not target, the benefits that companies Q373 Chair: You have possibly pre-empted my next acquired in terms of increased productivity and question, it was not published at the same time as the competitiveness. The figures that we obtained for that Trade White Paper because you wanted to delay until are just under 70% of companies that we helped do the Growth Review, is that correct? increase productivity and competiveness as a result of Susan Haird: It was partly that we wanted to set the working with us. strategy in the context of the White Paper so we We have further sets of targets around 80% quality wanted to await publication, but yes, the reason for and satisfaction scores that we should achieve from the further delay was primarily the need to work our customers. This is measured quarterly by going alongside the Growth Reviews. back to a sample of our customers and each year we ask about 4,000 of our customers. We go back six Q374 Chair: Would it be a joint strategy with months at about 18 months after our interventions. ECGD? The interview lasts about 20 minutes and we ask a Susan Haird: It will not be a joint strategy with whole set of questions, which include questions ECGD, but ECGD have been very much involved in relating to the additional profit that the customers the process of our preparation of the strategy. As you expect to realise as a result of working with us. That will know, we are beginning to work much more additional profit figure, which has gone up from closely with the Export Credits Guarantee £2.5 billion four years ago to just over £5 billion now, Department. As Patrick will tell you, they have reflects the additional profits the customers tell us launched four new products and these products are about divided by the money that we spend. It has been very relevant to many of our exporters. So we are audited by the National Audit Office and they have making joint presentations to groups of exporters around the country, giving them information about the endorsed it as an appropriate method of evaluation. new products, and our frontline staff are being trained in the new products so they can bring them to the Q377 Mr Binley: Just to pursue this a little further. attention of exporters. One of my colleagues now sits If a large corporate goes, for instance, to China and on the ECGD board, and Patrick Crawford sits on the their normal activity would engender a given amount UKTI board. We are planning to co-locate in 1 of turnover or profit in a given year, do you take that Victoria Street when that becomes possible—when whole lot or do you just take the bit that your help space is free there. We are also doing joint marketing achieves? How is that measured? As a businessman I of the new products. find that figure particularly difficult to arrive at. How specifically is that measured? Q375 Chair: We will come on to ECGD in a minute, Susan Haird: We ask the customer what additional but will the new strategy actually state targets for profit they would expect to achieve as a result of UKTI? working with us. I do not think that evaluation of Susan Haird: Yes, it is our plan that the new strategy business support can ever be a totally exact science will state targets for UKTI. because we are not ourselves measuring directly; we are measuring through the views of our customers. Q376 Mr Binley: Let me just pick up on the Chair’s question, because I read your paper with interest. I am Q378 Mr Binley: And yet, with respect, you quote, sure that you will know that I have been very “For every pound spent, £19 return.” You are using concerned that many performance indicators have quite a precise figure there and it seems to me that the relied upon process rather than outcomes, and that has formulation of that figure has to be equally precise, bothered me. I have seen evidence of late to suggest and I have doubts about it. Could you write to us cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Susan Haird, Patrick Crawford and David Frost CMG about this and let us know exactly how you arrive at concentrate on SMEs, there is help over in China, for those particular figures. I would be grateful. instance, but I am concerned about the lack of help in Susan Haird: I would be happy to write to you. I the UK before they make the leap. Perhaps we can would just like to add that the methodology has been come to that a little later. endorsed by the National Audit Office. Mr Binley: I am sure it has, but that does not give Q381 Paul Blomfield: Almost building on that point, me very much confidence at all. the Trade White Paper has a number of very specific initiatives in terms of driving trade. For example, Q379 Simon Kirby: I am very interested in this there is the new prize for successful first-time particular issue, and I wonder sometimes whether it is exporter. Is that an evidence-based decision? It seems just a tick-box exercise. We can talk about numbers to me that those sorts of prizes are easy to put in place. that companies help, but surely the only two things Does that actually drive motivation of potential we should be concerned about as the UK are exporters? employment and also tax revenue in this country. If Susan Haird: I think one set of evidence that we have we help a company overseas, they pay tax overseas, is the Queen’s Award for International Trade, which they employ people overseas. There is no tangible does generate a lot of interest from companies and a benefit other than perhaps more stability for that lot of applications. I think it is a symbolic thing to do. company. There is no tangible benefit in this country, We are very keen to encourage more companies to which at the end of the day is what our taxpayers pay export. I think prizes are motivating: they generate a their money for. Would I be wrong thinking they lot of interest, they generate a buzz and they generate would be the kind of measurable targets we should try publicity. I think it will be a helpful thing to do. and measure? We have a product called Passport to Export, which is Susan Haird: In our targeting we do not differentiate delivered by our frontline staff in the English regions between the sorts of help the company wants us to working with our overseas posts. This brings me back give them. About 7% of the companies that we help to your question. We have over 300 international trade are seeking assistance with outward investment; the advisers in the English regions, and they work with remainder are seeking help with exporting. So the vast our companies to take them on a journey. We call it majority of the companies that we help are seeking “Bradford to Beijing” for short, but wherever you are help with exporting goods and services out of the in England you can work with us and go on a journey country. About 90% of our companies are SMEs and to any one of our 96 markets. We work obviously very they are less likely than bigger companies to be closely with the devolved administrations for seeking help to do with outward investment; they are Scotland, Wales and Northern Ireland as well. To more likely to be in the exporting market. But outward come back to your question, regionally we have quite investment does generate benefits for the UK frequently held award ceremonies for the best economy. Either it adds to the stock of wealth of the company that was a Passport to Export customer, and country and/or profits and dividends are repatriated again they generate interest in the region and they back to the United Kingdom. generate press coverage. I believe they do drive new customers to us. Q380 Simon Kirby: That assumes the ownership is in the UK, which in the case of large global Q382 Paul Blomfield: Developing on Brian’s point, companies is not necessarily the case. there is something that I am sure would be welcomed Susan Haird: We help any company that has a base by businesses that I have talked to, which is the peer- in the UK. As far as we are concerned, if the company to-peer trade service. I just wondered if you could has invested here, obviously they are a huge benefit develop that concept a little bit more. What is being to the economy in inward investment, and we view planned? What is the timeline for launching it? Is it them as a UK-based company and we would give replacing something that is already there or building them help. on the existing services that, for example, Business I was going to go on to say, if I might, that when a Link provided? company invests overseas it does so for very good Susan Haird: What we are developing is an SME-to- reasons to do with its business. For example, it might SME networking site that will enable them to share be because it reduces its costs and makes it a much their experiences of exporting and comment on how bigger producer and global company. What you tend to do things in particular markets. It will be introduced to find in those situations is that the company grows later this year. It is not replacing anything that we and you can end up back in the UK with more jobs offer at the moment; it is new. than you started with, even if some jobs have been created overseas as well, and higher value-added jobs Q383 Paul Blomfield: New in the sense of what sort in the UK—for example, research and development or of value-added function? the headquarters functions of a much bigger company. Susan Haird: We have a website already that It is not an easy thing to say that there are not benefits companies can use to draw down information on from helping companies’ outward investment and particular markets or sectors. That website also there are benefits from helping exporters. Both are includes something called Business Opportunities, well worth the Government helping. whereby our staff overseas will hunt out and identify Mr Binley: I would just like to come back at some opportunities for exporters—particular projects, stage, and I think there is an opportunity to do so, on particular requirements of overseas importers. They this whole way of helping, because if we are going to put them on the website and, if you are a company, cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Susan Haird, Patrick Crawford and David Frost CMG you can preselect if you are interested in a particular project. Could you perhaps write to us to tell us about sector or product or markets, and an email alert comes that detail? through. Several thousand of those kinds of Susan Haird: Yes. Can I just comment very briefly opportunities are put on our website every year, and now, as well? they are used by our customers. That is drawing down Mr Binley: Of course. Of course. or being pushed particular information in a kind of Susan Haird: We have, as I said, frontline staff in the static way. This enables the SMEs to network one- English regions, and there are parallel frontline staff to-one, or indeed many-to-many, and learn from one in Scotland, Wales and Northern Ireland. They another’s experiences. That is what is new about it. basically offer a strategic consultancy role to small businesses. They will meet them many times, and they Q384 Paul Blomfield: I can see that that is hugely will give them advice on whether they are ready to valuable. However, how are you going to harness the export, and if so what markets they might go to. They engagement of both the UK diaspora working in those will put the full range of our services at their disposal, markets at the moment and those within this country which includes Passport to Export, which builds from the potential market? It is a great concept, but capacity to export. It includes Gateway to Global how are you bringing it to life? Growth, which helps more experienced exporters to Susan Haird: There is something else that the diversify into new markets. That would include, Minister, Stephen Green, launched yesterday, which perhaps, commissioning market research through our we are calling Catalyst. Again, this was trailed in the chargeable service OMIS in any one of our 96 White Paper. Catalyst will be similar to something markets. It might include a trade mission or a grant to called Global Scots, if you have heard of that. The exhibit at a trade fair overseas. We are definitely not Australians and New Zealanders, for example, do aiming to let companies loose without having done a something similar. It will be a network, a kind of lot of research and work with them in the first place. diaspora, if you like, of people in the UK and around the world. They may be people who were born here, Q386 Mr Binley: Let me push this further, because I are British and are now expats, or people from am a founder and non-executive chairman of a overseas who are well disposed towards the UK. They company employing 140 people, which is in the will form a network of people who can work as service industry and provides services to a number of ambassadors for the UK, and they will do two things: companies in the States, Australia, France and they will market the UK overseas and in the UK as Germany. Not once have we had such an approach— the international business partner of choice, and they not once. The lack of outreach is perhaps concerning, will mentor SMEs. They have been drawn very widely but equally we are finding the gap between RDAs and from the field of successful international business LEPs is creating a big hole. I am concerned that the people. Catalyst will sit alongside the Business stuff that looks good on paper in reality is not working Ambassador scheme. We now have just over 30 at the coalface. Business Ambassadors, appointed by the Prime Susan Haird: Our trade services have always been Minister, again, going around the world, often using delivered by a contracted-out service in the English their existing business travel plans, but sometimes at regions, so it is not particularly affected by the our behest. They are speaking at events, promoting abolition of the RDAs. On the inward investment side, the benefits of the UK as the international business the RDAs did deliver some services for us, and those partner of choice. These are ways in which exporting are being replaced by an outsourced contract. But I has been brought to life, and the UK has been would like to rise to the challenge that you have set promoted. me, and if you can give me the name of the company, I shall— Q385 Mr Binley: Can I pursue this? It really is about the detail at the coalface that matters. We can talk in Q387 Mr Binley: BCC Marketing Services, overarching terms, but it does not really get to the Wellingborough. I am happy to have you come back. point of the coalface. We have just got back from Susan Haird: I shall set somebody straight away on China, as you know, and it was a very successful visit. to offering our services to you. It was incredible. We were told by almost everybody Mr Binley: I will be interested to see it. out there, “For God’s sake, we are not doing enough to prepare people in this country to be able to make Q388 Nadhim Zahawi: I want to talk a little bit the decision about whether they should go out to more about the staff that you currently have, and the China or not.” It is the research of a market, the detail training, and their background. Could you shed a bit here, before the decision is made to go out, that is more light on what the training procedures are, and important. I am perfectly welcoming of peer-to-peer what the backgrounds are? For example, do they read and clearly Catalyst, but we would like to know about the financial papers? Do they have business that specific detail. I am not sure that we are giving backgrounds? I would echo my colleague’s comments enough money and help. It is all right having a mentor as an ex-businessman, who built an international saying, “Relationships are very important,” in those business. Not once were we approached by UKTI for rather broad terms. However, it is the actual detail of any kind of help at the business that I built up. I also market information that concerns me, because without sit on the board of a FTSE 250, and again, it is that an SME that does not have a big organisation to international, but all our research is done in-house gather it cannot make a proper decision. Some will go without that outreach coming from UKTI. We heard seriously wrong, and that will be bad for the whole from an earlier evidence session how hard it is to cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Susan Haird, Patrick Crawford and David Frost CMG collect evidence, and I know that personally from my need us. I would say that most of our proactive own experience. At the coalface, as Brian mentioned, marketing is designed to get into the net, as our what is the training that you have for your own staff, customer base, SMEs who we think really would so that they are really good at picking up this stuff? benefit from working with us. They may be companies Susan Haird: Just very briefly on the outreach, we who perhaps have not exported before, or have do a whole host of events right around the county exported only reactively, responding to enquiries, encouraging companies to export to, for example, the which is quite common, or have exported only to markets of Asia and the Middle East. We work with developed markets and could benefit from taking steps banks and similar intermediaries to reach their into Asia or Latin America. We do help big customers. We have had a very big marketing companies, and the value that they add to the British campaign: I do not know whether you can recall the economy is considerable, and they will often bring big “Take it to the World” banners from a year or so supply chains in behind them. ago. We also advertise through the regional papers, and have done a lot of that in the past. We do a lot of Q391 Simon Kirby: We spoke to BT, and we were outreach, but I accept that we do not reach all of the very interested in China and the concept of companies. In terms of staff training, if I could talk piggy-backing small and medium-sized enterprises briefly about three sorts of staff. Overseas, about 15% onto the bigger corporates. BT were quite clear that of our staff are diplomats from the Foreign Office. they had no interest in doing that at all, and they wanted to deal with local companies to establish Q389 Nadhim Zahawi: 15%? themselves further in the China market. It is easy to Susan Haird: Yes, 15%. Some 85% are locally get carried away with the rhetoric, but I put it to you engaged staff, engaged for their market knowledge. that the reality is somewhat different. Many of them will have business backgrounds. In the Susan Haird: I think it is for individual companies to English regions our services are contracted out to decide what suits them best. We do a lot of work, organisations such as Business Links and Chambers particularly for example in the oil and gas sector, in of Commerce. The majority of the international trade helping the supply chain to form part of the bid. I advisers, our frontline staff in the English regions, are have mentioned that in our new strategy we are people from business. In headquarters we are civil launching this High Value Opportunities scheme. It is servants, who are, in the main, drawn from the designed to find the top 50 opportunities around the Department for Business, Innovation and Skills and world that we think Britain has the right capability to the Foreign Office, but we also make use of a large deliver. There we will very proactively identify the number of business specialists. For example, our R& companies who will want to bid, including not just the D scheme has a business specialist running it. Our primes, if I can call them that, but the supply chain. sector champions are drawn from business We do a lot, but ultimately it is the companies’ backgrounds. The staff working on our new decision what they want to do. high-value opportunities were aimed at bringing back really high-value opportunities and matching them Q392 Chair: Before we go on to the UKTI budget, proactively with the capabilities of British companies. just a very quick question. Earlier, in a response to These are all business specialists. We are a mix. Paul Blomfield, you mentioned the UKTI website. In terms of training, our staff in the English regions Can you tell me whether there is the facility on that work through formal accreditation processes through website for feedback? the Institute of Export and other bodies. We run a lot Susan Haird: Yes, there is a facility for feedback. of our own training, which has been developed for our own particular purposes. For example, we do a course Q393 Mr Binley: When will you be publishing the in building successful client relationships, which is UKTI’s future budget for overseas posts? delivered for us by a training provider. That has been Susan Haird: The Spending Review set the totals for taken to our staff around the world, and we can the overseas network for the next four years, so those actually see improvements in our performance against figures are available. In terms of the amount available the qualitative targets once the staff have had the to individual overseas posts, that will be coming out training. There is more training on the investor shortly, jointly between the Foreign Office and us. I journey for staff on the inward investment side. There am wondering if I have missed the question slightly. is a lot of training that is done that is very specific to our own needs. Q394 Mr Binley: No, you have not, because we are looking to spend in given countries, from the UK’s Q390 Simon Kirby: Is it not the case that you are perspective. That seems to us to be very important to just picking the low-hanging fruit? Once again, the relate to your targets, quite frankly. I repeat the easy wins, the big companies—Tesco with its question, when will that budget be published? £2 billion planned investment in China, BP, BT—all Susan Haird: I do not think that we formally publish of these companies would be there anyway. Should the budgets at the level of individual countries, but you not be focusing your effort on the smaller and there is no reason for it not to be made available to medium-sized businesses more than you currently do? the Committee, if you would find that helpful. Susan Haird: 90% of our customers are SMEs, and that reflects their representation in the economy. The Q395 Mr Binley: I think that we would find it very customer base that we have is quite appropriate. helpful, and I think that we would like to know when Bigger companies tend to use us when they think they that would be available. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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Susan Haird: Within the next few weeks. I would of money for which they had bid. This is not an estimate by the turn of the financial year, but I am uncommon occurrence. slightly in the hands of the Foreign Office. In terms of the email to which you refer, I would like to put the record straight. In fact, in the end, no money Q396 Mr Binley: Could you kick the Foreign Office? was drawn down against any end-of-year underspend I understand that they have a number of things on that might have been available, but what was being their minds at this moment. But could you kick them? thought about was more business-facing activity by I think we do need to see that to include that UKTI staff. information in our thinking when we draw up our Report, to be quite honest. Q401 Mr Binley: I assume it is a practice that you Susan Haird: I will certainly make it available. would not endorse. Perhaps I could just add that the way we set our Susan Haird: I would never endorse spending targets is that they are set proportionate to the number Government money in a way that was not good value of staff in markets. We have a concept of productivity for money. At no time did Sir Andrew Cahn, or per full-time equivalent, and we set the targets to myself, or anybody else in UKTI, think of any ways match that. We allocate budgets in line with the of spending money that would not give value to the activity that we expect to see in the market, as well as taxpayer. We are very attached to our £19 for £1. in terms of the type of events that they will be having. There is an opportunity for them to bid for money Q402 Mr Binley: I will push you further. I will push held centrally and devolved out to the overseas posts. you further. You simply would not endorse the old They receive that money in accordance with the county council habit of saying, “For God’s sake, number of events that they are planning to hold over spend your money before the budget year ends”? the year, which they have agreed with us. If we find Susan Haird: I would not endorse spending any that posts are not performing well against their targets, money at any time of the year, unless it could be then we would move money away and put it where it shown to provide good value. could be used more productively. Q403 Mr Binley: That is bureaucrat-speak, isn’t it? Q397 Mr Binley: Then your answer gives me even Will you simply say yes or no to my question? more reason to think that it is important to us in our Susan Haird: I am a bureaucrat, so I am going to rest thinking. on the bureaucratic answer. Susan Haird: That is fine, I am very happy to make the information available to you. Q404 Ian Murray: We are all heading towards our year-end budgets. It will be very interesting to see Q398 Mr Binley: We look forward to that. When what Members of Parliament do with their particular will you be making the cuts in UKTI to allow for the budgets that they have left, but never mind—let us £11 million cut to your own programme, and the £6 leave that statement alone. You are going to write to us in response to Mr Binley’s comments about what million cut through BIS Vote, which was announced cuts you may have to make in terms of the as part of the 2010 Spending Review? Comprehensive Spending Review settlement you Susan Haird: We are making cuts as they fall upon have. Will you be making cuts directly to services, or us, so we have a gradual decline over the Spending will you be refocusing services? I asked a question Review period. We go down, for example, £16 million pretty much along the lines of Mr Kirby’s question in 2011–12 compared with 2010–11. The answer is about whether you should be helping multinationals that we already have those cuts in mind to enable us or should be completely focused on the SME sector, to meet the spending total for 2011–12, and we will which requires the most help to get into emerging be in a similar position next year for 2012–13. markets. Susan Haird: If I could just start by explaining what Q399 Mr Binley: Can you share those with us, too? our funding is, we have three funding streams. We Susan Haird: Yes, no problem. have a vote from the Department for Business, Innovation and Skills, which essentially pays for staff Q400 Mr Binley: We think that that would be in our headquarters in London and Glasgow. Most of helpful. Finally, it was reported in The Guardian last them are drawn from the Department for Business, month that UKTI received a £20 million “fine” from Innovation and Skills. We have a Foreign Office the Treasury because of comments made by, I think, budget that pays for our people overseas in our 96 this Committee and your predecessor, Mr Cahn. Those markets, and we have a programme budget. comments were to the effect that an email went out The programme budget is essentially the money that saying, “Please spend the money, because the budget is spent directly with customers. For example, it round is coming to an end.” How true, if at all, was includes the grants that are given to companies to the report? exhibit at trade fairs overseas and the grants given to Susan Haird: There is no truth in the suggestion that companies going through Passport to Export. It that £20 million was a fine. The allegation was that includes provision for our frontline staff in the English the Foreign Office had been fined £20 million. In fact, regions, who are paid for out of programme. It the Foreign Office had applied to draw down some includes the money that used to go to the Regional money in the spring supplementaries, I believe it was, Development Agencies, and will now be spent on the and was allocated by the Treasury less that the amount National Contract for delivering inward investment cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Susan Haird, Patrick Crawford and David Frost CMG services in England, minus London. Those things paid I think we understand very well in UKTI that both for out of programme spend are indeed frontline spend trade and investment are extremely important jobs. on customers, and they are being cut because our When exporters begin to export, they experience a programme budget is being cut. There is nothing that 34% boost to productivity. That obviously makes can be done about it. them a more competitive company. As they go into Obviously we are seeking to minimise the impact of export markets they also gain economies of scale. cuts on our customers. We have, over the last four They are exposed to new ideas. As they become more years, dramatically driven up productivity in the globally competitive, they tend to grow. We are organisation, so we are now helping many more planning to focus our attention, to a greater extent customers and bringing in many more inward than before, on high-growth companies, and again that investment projects than we used to. We will seek to will be very instrumental in generating jobs. On the continue to do that, but I cannot deny the fact that inward investment side, inward investment obviously programme money has been cut. generates a large number of jobs every year, and it also safeguards jobs. Jobs are very important. They Q405 Chair: Just before we go on, I am conscious of are really important spin-offs from both trade and the fact that this, so far, has been a one-person show. investment. Susan Haird: So am I. Chair: Not because you are hogging it, but because Q409 Ian Murray: Okay. We will give you a rest— the questions, obviously, have been specifically Susan Haird: Thank you. targeted at your Department. I can assure the other Ian Murray: —and see whether Mr Crawford would members of the panel that your time will be coming like to answer a couple of questions. The Financial very shortly. Times reported recently that ECGD would not be receiving any further funds to help implement some Q406 Simon Kirby: Very quickly, will the cuts of the specifications following the publication of the change the emphasis between inward investment, Trade White Paper. Is this correct, and how will we outward investment and exports? Will there be a shift achieve more with the same level of funding—again, of priority? particularly looking at any refocusing of activities that Susan Haird: No, there will not be a shift of priority. may be taking place? We have specific targets for inward investment, and Patrick Crawford: The Financial Times article was we have something similar on the trade side. I wanted not correct. We are an unusual Department because just to make clear that there has never been a specific we cover our costs from our premium income. Those target on the trade side for outward investment. We are costs of risk and our administrative costs, but we help a certain number of customers, and if some of are equally under the departmental expenditure rules. those customers want help with outward investment The DEL settlement, for us, in the Comprehensive then we give them that help, but there is no target. Spending Review, defined that spending through to 2014–15. Underlying it, however, was an Q407 Simon Kirby: No, but there must be a cost understanding with Ministers that, while we had put attached to it. That is my point. forward assumptions on our business volumes, and Susan Haird: There is a cost attached, of course, yes. derived costs from that, we were not in a position to predict demand. However, we were in a position to Q408 Ian Murray: The Comprehensive Spending say that if demand grew, then our income would grow, Review itself made reference specifically to the FCO and we would be able to go back and justify an with regard to increasing its focus on championing increase in the settlement. British companies to win exports and secure jobs at The basis on which we are operating is that we can home—working closely with UKTI, obviously—and revisit that settlement, particularly if business levels to increase business links and market information for grow or we introduce new products, or we have an UK exporters. That really is pushing you towards a increase in claims. Since then, as you know, the Trade refocusing, isn’t it, in terms of purely exports and White Paper announced that we would be introducing creating jobs here. That would be a slightly different new products, and to the extent that we generate focus from what you just suggested to Mr Kirby in higher levels of income, we then have the ability to terms of the three-pronged approach go back and make the case for more resources. This Susan Haird: I do not think that there has been any could, in fact, mean a greater headcount. shift in focus. We are reactive in the help that we give, according to what the customer wants. If the customer Q410 Ian Murray: But you would have to make the wants to go to China, we do not suddenly say, “You case for it? It would not be automatic? ought to be going to India.” We might well point up Patrick Crawford: We would have to make a case. the opportunities in India as well, but it is not for us But I think it is quite clear that Ministers have to say to a company, “Do not invest overseas, you recognised that there could be such a case. Papers should be exporting.” For many companies—take issued by the Treasury last year, in July and October, someone like Tesco—the natural way of expanding is both contained statements that the Government to open stores overseas. That does generate wealth for recognised that demand for ECGD support was going the UK. There has been no refocusing as between up, and that the Government would ensure that it had trade and investment, or as between exports and adequate resources with which to respond. The outward investment. general context has been set by those statements, cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Susan Haird, Patrick Crawford and David Frost CMG which give comfort that if we had a good case, it Patrick Crawford: We were fit for the purpose that would be looked at favourably. we were asked to deliver at that time. Can I explain briefly? In the downturn we found civil projects Q411 Ian Murray: Okay, thank you. Finally, it is falling away very rapidly. Investment decisions were crystal-ball time. What do you expect in terms of new postponed or delayed, or projects were cancelled. By announcements in the Budget? Has there been any contrast, in the aircraft-manufacturing sector, Airbus, discussion directly with the Treasury about how your in our case, enters into long-term contracts to deliver organisations require additional funds to take forward aeroplanes, with dates certain. Throughout the the Government’s programme for growth? downturn, financial markets were strained, finance for Patrick Crawford: I am not in a position to comment aircraft was very limited, and the export credit on what may or may not be in the Budget. The Trade agencies were turned to for extra support, which was White Paper was very clear that we would be what we delivered. That resulted, that year, in 90% of introducing three new products and extending an our business volume just being limited to Airbus. existing product. But we have to both deliver those The situation has changed fundamentally since then. and secondly determine the amount of demand to Our best estimate for this year, 2010–11, is that we which they give rise, with the associated resource will be delivering about 62% for civil aerospace, a implications. very small percentage for defence, and the balance Finally I would say to the Committee that, alongside will be for civil business. Our pipeline as far as we the announcement of new products and their delivery, can assess it for 2011–12, will be an increase in our there has to be a very active exercise to reintroduce civil volumes and an increase in our total volumes. It ECGD to exporters, particularly smaller firms. The is quite possible that for 2011–12 we will be 1991 privatisation of our short-term products was a supporting civil aerospace for, say, 50%, and civil for long time ago, and there is a whole generation of 50%. That is in accord with the balance before the exporters for whom ECGD is not known, not downturn. It takes no account of volumes from the recognised, or for whom its products are not thought new products and is not out of line with other export to be relevant. The announcements have changed that credit agencies. I have in mind the US one, which fundamentally, and ECGD has to reintroduce itself to supports Boeing and which, over recent years, has the exporting community. Susan has paid tribute to supported somewhere between 50% and 75% of their the way in which UKTI and ECGD will be going business volume for Boeing aircraft. about doing that. But we will also be seeking to work with private sector partners across the board. We want Q415 Nadhim Zahawi: Going back to that specific to ensure that, when we make these announcements, period, and you mentioned specific circumstances, they are followed up by increased understanding in why do you think that equivalent organisations in the exporting community as to what these amount to Europe were increasing their support for civil and how they can assist exporters. business? Patrick Crawford: There was a very significant Q412 Nadhim Zahawi: Mr Crawford, we have heard defence order that France obtained from Brazil, which throughout this inquiry a large amount of criticism of meant that their numbers in 2009 were exceptionally ECGD. It has been described as “not fit for purpose”, large by historic standards. Secondly, in France and “stuck in a rut”, and “not really sure what its function Germany they introduced interventions to support is”. How did this situation occur? short-term credit insurance in what are called Patrick Crawford: I do not accept the criticisms that “marketable risk” countries, which essentially means have been made to the Committee that you cite. the EU and most, but not all, OECD markets. We did ECGD has been fit for purpose in delivering the not do so. But that generated additional demand, purposes set for it by Ministers, and that has meant particularly in Germany. It reflects the different that historically our products have been limited to trading patterns, different manufacturing sectors, and medium- and long-term products. These have been of different responses of financial markets in those greatest interest to larger exporters, although available countries, but what we are seeing is a return to a much to SME firms and sometimes used by them. The more balanced portfolio of activity, for the reasons announcement in the Trade White Paper indicated a that I have mentioned. fundamental change in our role, which is to deliver additional products, which we ceased to deliver in Q416 Nadhim Zahawi: So it is nothing to do with 1991. These will be of much greater interest to the behaviour of your own people in going for the smaller firms. low-hanging fruit? Patrick Crawford: Absolutely not. Q413 Nadhim Zahawi: Do you think that ECGD is fit for purpose when 90% of what it does is just with Q417 Nadhim Zahawi: The easy deals, or the easy the aerospace industry, and the additional 10% with big deals. the rest of the business community has been falling Patrick Crawford: Absolutely not. We were charged by 40%? with supporting capital and semi-capital exporters. Patrick Crawford: The figures that you cite reflect the That is what our products were designed for since particular conditions that prevailed in 2009–10. 1991, and that is what we did. When we did it, we saw increases in volume from £1.46 billion in 2007/ Q414 Nadhim Zahawi: Does that make them fit for 08 to £2.21 billion the following year. This year our purpose? estimate, and it is not certain, even on the 8th of cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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March, is that it will be roughly £3 billion. We have us that they are in no doubt that conditions stabilised more than doubled over that period. It is a substantive in their market by early 2010. Capacity has returned response, even with our existing and standard to the market, and they believe that they are meeting products, without any regard for the new ones that we all creditworthy demand. That is not our perception have announced. and that is not the perception of exporter representative bodies, which have made the case to us Q418 Nadhim Zahawi: Let me just push a little bit that there is unsatisfied demand out there. further. Do you believe that there is a perception gap We intend to put that to the test. In extending our between businesses and their representatives? The short-term credit insurance policy to a much wider SMMT, EAMA, and all these other organisations have range of goods in emerging markets, we will be come here and told us the remarks that I have just testing whether there is creditworthy demand that quoted to you. Is there a perception gap between what should be being met by the private sector but is not you do and what they think you do? finding its way there, and where it is perfectly proper Patrick Crawford: I think there is. for ECGD to step in and provide cover. To the extent there is no take-up of our product, despite our best Q419 Nadhim Zahawi: And how are you going to efforts in making sure that there is awareness, then the bridge that gap, if you believe there is one? taxpayer will not be put at risk. It will be evident that Patrick Crawford: It is absolutely correct that our what the credit insurers state, which is that they are products have not been designed or available for meeting all reasonable demand, is in fact true. But short-term credit insurance and short-term working there is a body of opinion that says that that is not capital, which have been the interests of the members correct, and we have heard that from credit insurance of those organisations. That is changed by the brokers and from the British Chambers of Commerce announcements in the Trade White Paper, and we and other parties. The Government decided that if need to change the perceptions, which I accept are there was possible market failure, it should be tested, that ECGD is not relevant to many sectors and many and we should introduce an extension of our product small firms. We intend to change that perception, and accordingly. we intend to change it in the ways that I have already mentioned. Q422 Chair: That brings us on to a couple of questions that I have. It does seem to me that in effect Q420 Nadhim Zahawi: What happened to the there are echoes of the issues surrounding the banking business that was sold off to the Dutch company and financial services industry and manufacturing. On NCM? the one hand you have the provider saying that Patrick Crawford: That business is now part of everything is okay and they have the money. On the Atradius, which is a Dutch-based insurance company other, you have the business community saying that but majority owned now by Spanish insurance their products are not fit for purpose, if indeed they companies. That business that went to NCM has been are available at all. On the basis of this, and going subsumed. NCM was bought, and it is now part of the back to the very strongly worded criticisms of ECGD Atradius Group. from the business community, do you think that what you are offering is going to silence the business Q421 Nadhim Zahawi: Do you think that the community? Do you think that in effect it will meet Government has learnt any lessons from this? their demand? Patrick Crawford: The privatisation, in its own terms Patrick Crawford: Two points, if I may. The first is was, I think, highly successful, in the sense that it that we are addressing product gaps that exporter helped to create a private market for credit insurance. representative bodies have said to us exist. We will be It demonstrated that you did not need state agencies testing them with these new products. We are providing that short-term credit insurance. For 17 introducing them on a basis that is intended to be years, British exporters benefited from more additional to that already available, not a substitute for competition in the provision of short-term credit that available from the banking sector. We are insurance, more choice and lower prices. The 2008–09 intending to add value. We intend to learn by downturn showed that there was a price to pay. ECGD experience. If in fact the design of these particular no longer had the systems, the resources or the skills products needs to be improved, to make them more to deliver short-term credit insurance directly. In effective or respond better to market failure, then we responding to the downturn, from the spring through are very open to doing so. But we will not succeed in to the summer and autumn of 2008 and into the first changing those perceptions if we do not work very half of 2009, SME exporters, and indeed larger firms, hard to ensure that there is as full a market awareness were concerned at the abrupt withdrawal of cover of these products as possible. I can only give you that from the private insurers. That presented quite assurance at a time when we have tested both the significant challenges to smaller firms, particularly market and the design of the products on the one hand, where they might have been over-dependant on one and we have demonstrated that we work hard to buyer on whose cover there was a withdrawal of a ensure that there is awareness amongst the business limit. It certainly had difficult consequence. community about these products, alongside private- The Government is certainly much more aware now sector products, I might add. of the potential volatility in the credit insurance It is not only a function of ECGD inserting itself with market, and the effect that that may have on smaller new products. It is a matter of making sure that firms. What I can say is that the credit insurers say to exporters, both existing exporters and companies new cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Susan Haird, Patrick Crawford and David Frost CMG to exporting, are made aware of the full panoply of Patrick Crawford: Ministers encouraged us, towards products available from the public sector and the the end of last year, to respond to concerns over access private sector. They can then make an informed choice to finance, and to respond to expressed concerns about about what best suits their risk mitigation needs and difficulties that some exporters were finding in their export strategy. We will be trying to ensure, relation to short-term credit insurance. We accordingly through our work with UKTI and other parts of developed these products that were announced on the Government, and with the private sector, that 9th of February, and we very much look forward to exporters are made fully aware of the full range of delivering them. products, including our own. Q426 Nadhim Zahawi: Were they developed Q423 Chair: You are making reassuring noises. I proactively by your Department, or top-down, with understand that you are actually working with the the Minister saying, “You are not fit for purpose”? British Insurance Brokers Association to, in effect, Patrick Crawford: We were invited to come up with develop products that will be appropriate. First of all, suggestions as to how we could improve the product how is that work going? Secondly, are you working slate. We developed the products. We engaged with with organisations like the British Exporters the banks prior to the announcement to road test what Association to ensure that you do not come up with we were doing, because they depend, in three products that may seem safe and to meet demand in instances, on the banks delivering them. The banks terms of perception, but are not tailored to what were enthusiastic and supportive, and I am pleased to business needs? say that we have every reason to expect the bond Patrick Crawford: First of all, in the design of our support product to be delivered on time and by the products, we have sought to introduce them on a basis 31st of March. They were not forced upon us. that is genuinely additional to that already available. We intend to learn from experience to make sure that Q427 Nadhim Zahawi: So your Department the design makes a difference in practice. In doing so, proactively said to Ministers, “We do not think that we will always have to take into account the interests we are doing a good enough job here. We need to of taxpayers as much as exporters. There has to be a change like this.” balance between accepting risk, setting a price for that Patrick Crawford: Ministers have sought to respond risk that is attractive to exporters on the one hand, but to the difficulties that the private sector was also protects the interests of taxpayers. expressing about access to finance and about credit insurance. Q424 Chair: Are exporters involved in the design of these products? Q428 Nadhim Zahawi: So it came from Ministers? Patrick Crawford: We have talked informally to the Patrick Crawford: The context was set by Ministers British Exporters Association, BExA, and their in seeking to respond to what the economy needs, and response is that they believe our bond support product the need to support exporters and grow exports in and our working capital product are both designed in 2011 and beyond. principle to meet real needs. To be fair, until we have made these available and they have been tested in Q429 Nadhim Zahawi: My point is that you did not practice, it is difficult for us or for representative proactively come up with the red light, saying, “We bodies to make a judgment, which is why I put the have a problem here.” Which way did it go? My stress on improving and adapting as we go. question is, which way was the direction of flow? You made reference to the British Insurance Brokers Patrick Crawford: There was a mutual understanding Association, BIBA. The answer is that in the that there were difficulties of access to finance, that extension of our short-term credit insurance policy we an export credit agency could be an instrument for have sought to simplify the policy wording, and we responding in part, and the result has been the have actively engaged with them to get their views of announcements that were made. whether that is consistent with their experience of market practice. But equally, the Association of Q430 Nadhim Zahawi: So which way was it? Was British Insurers have concerns about us extending our it proactive by your Department, or the Minister activity into the market, which they argue that they suggesting it first? are fully meeting. We have an active discussion with Patrick Crawford: I think it was a combination of both the brokers and the credit insurers to try to ensure both. If you want to do something, we have provided that, where we intervene, we do not do so in a way the means of achieving that. that does not compete with market providers but Nadhim Zahawi: Okay, so they wanted to do complements them. something.
Q425 Nadhim Zahawi: Mr Crawford, I just wanted Q431 Chair: Can I just come in here? Mr Frost has to come back on a point that you made earlier, that been waiting very patiently, and as a member of the you waited until the announcement by the Secretary Department for Business, Innovation and Skills, he of State for you to change within the Department. Was may well be able to shed some light on this. Could that at the behest of your people going to the you just outline what your engagement has been with politicians and saying, “We need to change,” or was the British Exporters Association and other bodies that that forced upon you by the Ministers? have highlighted this issue? Why has it taken so long cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Susan Haird, Patrick Crawford and David Frost CMG for BIS to take this up and, if you like, work with the David Frost: It is kind of you to ask to bring me in, ECGD in order to develop a set of products? but I am afraid that the question is probably better David Frost: Thank you, Chair. To be honest, I do not addressed to Susan. I will come in at the end. have a lot to add to what Patrick was saying. I only Susan Haird: On the trade side, as I explained, the came into the Department for Business, Innovation services are contracted out to Business Links and and Skills towards the end of last year when some of Chambers of Commerce. While we used to work with these discussions were already under way. My team, Regional Development Agencies to develop regional because of our interest in promoting market access and international trade strategies, and while they did overseas for British companies, works closely with top up funding that we provided, there is not a ECGD and UKTI. It was aware, when I arrived, of fundamental problem with our continuing. The the beginnings of the discussions that have culminated funding that they used to top up is gone, of course. in the announcements in the White Paper. My On the inward investment side, the RDAs did provide understanding is, as Patrick said, it was a kind of a service in the English regions for us, and that service—outside London, which has separate mutual process of realising that something needed to arrangements—will be provided by an outsourced be done, and beginning to put in place the sinews to contractor. There is a procurement under way at the get it done. moment to identify a contractor to do that. Our absolute aim is to ensure continuity of service on both Q432 Chair: Can I just finish off with this? ECGD the trade and the inward investment side despite the has been described as a rogue department that acts abolition of the RDAs, and we believe we are well with impunity, fuelling human rights abuses and placed to do that. environmental destruction. The Jubilee Debt Campaign has described it as “the Department for Q434 Rebecca Harris: There is also a loss of the Dodgy Deals”. How would you respond? From my finance that was coming from the RDAs. Is the perspective, as the Chair of the Business, Innovation funding for these roles, which came from the RDAs, and Skills Committee, I am concerned that this body, a net loss? which is so potentially strategic to Britain’s business Susan Haird: It is a net loss; on both the trade and interests, is being portrayed in this way. How can you the inward investment side, it is a net loss. There can respond to counter that? be, I believe, some scope for efficiency savings on the Patrick Crawford: What the critics say on ECGD inward investment side, because instead of nine does not take into account fundamental changes that regions offering inward investment service, we will have taken place in government policy and in the rules have a national offering for England, minus London. for export credit agencies since 2000. The Jubilee That will enable us, for example, to have fewer Debt Campaign indeed issued a report on ECGD as specialists in particular sectors, because they will not “the Department for Dodgy Deals”, but the examples be bound by geography. They will be able to travel cited in that report are highly selective and very dated. and help the inward investor outside the area where Since 2000, the OECD has introduced a whole set of they live or are based. But there is a net loss in terms new standards and agreements with which export of money available. credit agencies must comply, and ECGD takes those agreements very seriously and does comply with Q435 Rebecca Harris: Did you get direct funding them. They cover environmental, social and human from the RDAs? rights impacts. They cover sustainable development Susan Haird: It did work that way. On the inward investment side we used to put money from the UKTI for poorer countries, and they also cover anti-bribery programme into the so-called RDA “single pot”. We rules. We take these rules very seriously and we apply have got that money back, subject to the spending cuts them in all our business. That is not properly that were imposed as part of the Comprehensive recognised by some of the special interest groups that Spending Review. But the RDAs used to top up the focus on ECGD. I very much hope that they will money we gave them with money of their own, and continue to pay attention to the facts of our current that money has gone. On the trade side, we fund these activities and the current standards that we use in contracts that deliver our international trade advice in conducting our business. the English regions, and the RDAs used to put more money into the delivery partners that we have there. Q433 Rebecca Harris: We touched on the abolition That money also has gone as a result of the abolition of RDAs earlier today. We have had quite a lot of of the RDAs. We will be working with the Local concerns throughout the inquiry about the impact that Enterprise Partnerships. this will have. You have already said that you have 300 representatives in the regions, who will be largely Q436 Rebecca Harris: So do you envisage that unaffected by the end of Regional Development financial support from the LEPs can be used in some Agencies. Perhaps I will bring in David Frost at this way? point, again, to give him a bit more of an opportunity Susan Haird: I do not believe that is that likely. for an airing, and to ask him what the current situation is. Where do you think companies in the regions who Q437 Rebecca Harris: Would Mr Frost like to add have previously relied on RDAs for support, either anything? inward investment or trade support, will be turning to David Frost: No, I think that covers it all. in the future? Rebecca Harris: Okay. Thank you. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Susan Haird, Patrick Crawford and David Frost CMG
Mr Binley: He is learning very quickly. Susan Haird: But the RDAs were not part of the trade offer to customers. Q438 Chair: Just to develop this, how are you going to work with the LEPs? Q442 Mr Binley: No, I understand that, but they are Susan Haird: That is to be worked out in detail, a wider part of the whole wellbeing of trade in the obviously, once they are fully up and running. We UK, on which export is dependent. would envisage that on the investment side, for Susan Haird: The Government has taken a decision— example, they would bring a huge amount of local knowledge to the inward investor, both as the inward Q443 Mr Binley: Ah, now you are playing that investor is seeking something in the UK for the first game. time, and as the inward investor then seeks to grow Susan Haird: —which was to abolish the Regional out of the UK base. The kind of things that are Development Agencies, and it wishes to have Local important for inward investors to do, and to have help Enterprise Partnerships. We shall look forward to with, can be very local in their dimensions. They can working with the LEPs when they are fully up and be to do with access roads, local transport in terms of running services and that sort of thing, as well as bigger issues Mr Binley: I admire the way you did it, but I am not that also are local. We shall be working very closely sure that I am happy with the answer. with them. Q444 Nadhim Zahawi: One final question, just on Q439 Chair: Can I just ask: at the moment, in effect that point. I know that certainly in my patch, in we have got a patchwork quilt of coverage from LEPs. Coventry and Warwickshire, we have a very dynamic How are you going to work with potential LEP up and running. Did any of you attend the opportunities in those areas that are not covered by conference yesterday on the LEPs, with the Prime LEPs? Minister, the Secretary of State for BIS and the Susan Haird: A number of LEPs, something over 30, Secretary of State for DCLG in the Ricoh Arena have been set up already, and more will be in the yesterday, where they had all the LEPs together? pipeline. We will be working in the first instance with Susan Haird: I did not, and I am not sure whether our post overseas and the outsourced contractor for anybody did, I am afraid. I cannot answer that the English regions. As and when there are LEPS question. available, we shall bring in that extent of local knowledge. The idea is that the outsourced contractors Q445 Nadhim Zahawi: Mr Crawford? in the English regions will be able to do a lot of what Patrick Crawford: No. inward investors need at the regional level. They will work with whatever local partners there are. Q446 Nadhim Zahawi: Mr Frost? David Frost: No. Q440 Mr Binley: We have already talked about the import of RDAs in partnership working with you in Q447 Nadhim Zahawi: No one attended the the UK, not least in that early briefing of potential conference for the LEPs? exporters to China and people who potentially wish to Susan Haird: None of the three of us. set up businesses in China. There is a lot of joint working there. I just wonder whether you are Q448 Nadhim Zahawi: Or anyone from your concerned about what appears to many to be an Department? unhelpful gap between their demise and LEPs not only having good geographical coverage but also Susan Haird: That I do not know. becoming effective. We seem to be taking quite a bit of time to set them up and get them moving. Does Q449 Chair: Can I just go back to the point that you that bother you? made about the outsourced contractor to provide Susan Haird: I think it will be good for the country advice to LEPs and other regions? when the LEPs are up and running and fully Susan Haird: Advice to inward investors? Yes. functioning. However, regarding our own trade delivery, and working with customers, as you have Q450 Chair: Yes. Where are you with the described it, wanting advice on going to China, for appointment of the outside contractor? example, those same staff are there in the English Susan Haird: We expect the appointment to be made regions. Our frontline staff, the international trade later this month. advisers, are there, 300 or so of them, under this outsourced delivery function. That was not dependent Q451 Chair: Right. Okay. on the Regional Development Agencies. Q452 Mr Binley: Do you have any inside Q441 Mr Binley: I understand. My point is slightly information on that? deeper. My point is about whether you are really Susan Haird: I have not. happy that potential businesses are getting the help that they need on the whole project of exporting, of Q453 Chair: I am tempted to press you further, but overseas aid—all that sort of stuff. There does seem I realise that obviously there is a limit to what you can to be a lengthening gap between the demise of RDAs say on that. Later this month is when we can expect an and LEPs really becoming active. announcement? cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG06 Source: /MILES/PKU/INPUT/010554/010554_o006_kathy_No6-8Mar2011 [CORRECTED].xml
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8 March 2011 Susan Haird, Patrick Crawford and David Frost CMG
Susan Haird: Yes, there need to be interviews, and important, and encouraging our teams to reach out and then, as I understand it, there is a cooling off period. seek to help more customers. I think that the better use of e-delivery will also help. The website is now Q454 Chair: Can I just finish with a question that improved and we are seeking to encourage our posts refers back to some comments you made about the to make more use of the Business Opportunities value for money that UKTI provides? I believe the scheme, which is the web-based system that I was quote that you gave me was that for every £1 invested describing earlier. You post the opportunity, and it in UKTI, it is estimated that there was a £19 return. goes out by email to people who are interested. They What calculations have you made on the amount of can then either go direct, or they can come via the money lost on that reduction by the reductions in post if they want more help. The SME-to-SME UKTI’s budget? By definition, if you are going to get networking site that I mentioned is another way of a chop in your budget, then it is reasonable to assume extending our reach in a light-touch way. Those are that it will be that times 19. the kind of ways in which we are seeking to drive Susan Haird: I think that would be a reasonable up productivity. assumption, if one simply did the maths. If you build in our aspiration of increased productivity, you might Q456 Chair: We will see. Can I thank you all for hope for less of a reduction. your attendance and contribution, and reiterate what I said to the previous panel: if you feel there is anything Q455 Chair: I was rather expecting that response, that you want to add in response to any of the but can you just elaborate on how you might questions that we have given, and that you did not increase productivity? respond, then please feel free to send us some further Susan Haird: I know that targets are controversial, written evidence. Thank you very much. but we have found the setting of targets to be helpful Susan Haird: Thank you. in encouraging staff to focus on things that are cobber Pack: U PL: COE1 [SO] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
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Thursday 10 March 2011
Members present: Mr Adrian Bailey (Chair)
Mr Brian Binley Simon Kirby Paul Blomfield Ian Murray Katy Clark Nadhim Zahawi Rebecca Harris ______
Examination of Witnesses
Witnesses: Lord Green of Hurstpierpoint, Minister for Trade and Investment, Edward Davey MP, Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills, Susan Haird, Acting Chief Executive, UKTI, and Patrick Crawford, Chief Executive, Export Credits Guarantee Department, gave evidence.
Q457 Chair: Welcome, and thank you for agreeing position from being over time a net drag on growth to to appear before the Committee. I know that for two a net contributor to it. of you this is a repeat appearance. For transcription We have lost share in world markets; so have all the purposes, perhaps you would introduce yourselves other major countries except Germany, but we have with your titles to the Committee, and then we will lost it faster than most. This is a significant challenge. get into the questions. Let us go from my left to right. I do not know whether that is messianic, but I think Susan Haird: I am Susan Haird, Acting Chief this is a collective challenge that is very important for Executive of UK Trade and Investment. the country as a whole. I do not think there are magic Lord Green: I am Stephen Green, Minister of State wands to be waved. If there were, they would have for Trade and Investment. been waved by now. An important key to this lies Edward Davey: I am Edward Davey, Minister for in SMEs. I am sure you will want to talk about this Employment Relations, Consumer Affairs and Postal later on. Affairs, but I also have some responsibility for trade On investment, we have a good story. We are one of issues, particularly EU multilateral. the two or three most popular destinations for foreign Patrick Crawford: I am Patrick Crawford, Chief direct investment, but our challenge is to make sure Executive of the Export Credits Guarantee we do not lose ground there. We have specific Department. investment needs, notably in public infrastructure, that we need to finance over the next 10 years, so there is a lot of work to be done in encouraging a continued Q458 Chair: Thank you. I would reiterate what I flow of foreign direct investment. That perhaps have said to other panellists: some of the questions includes looking at newer sources of foreign direct will be specific to one of you. If any of the other investment, particularly into the economic panellists wish to add anything, they are welcome, but infrastructure of the country. do not feel that everybody has to contribute to a The White Paper sets out some directions for UKTI, response to every question. We have a lot of questions which I am sure you will want to explore; some and we need to finish at a reasonably civilised time. I important new products for ECGD, which I think is a shall start with one or two pretty general questions, significant step; a refocused FCO commercial the first to Lord Green. Welcome to your appointment. diplomacy effort, which is also important; and, last How are you going to be “messianic” in promoting but not least, the establishment of a Cabinet sub- UK trade? committee on trade and investment is a crucial Lord Green: I am not sure what the force of the word development. This is something to which the Prime “messianic” is; sometimes it has to do with Minister is committed. Indeed, when he was talking apocalypses. First, I am nine weeks into the job and to me about the job it was something that I thought enjoying it enormously. I think this is a huge was a particularly important component of the challenge. We all recognise that the pattern of growth Government’s commitment, because it enables us on in this economy before the crisis was not sustainable; a once-a-month basis to bring Ministers from all the it was driven too much by consumption fuelled by Departments relevant to this task—not only the debt and by Government borrowing, and we know that Foreign Office and BIS but also the likes of the Home cannot continue. The economic textbooks tell you that Office, Treasury, Department of Energy and Climate the only other sources of demand in any economy are Change, Defence, the Department for Environment, the net external position, i.e. trade, and investment, so Food and Rural Affairs and so forth—round the table I think this is absolutely crucial to any meaningful with pretty detailed action plans to see through the understanding of a sustainable growth path for the implications of the White Paper. economy. The trade position of this country has been weak for a long time. The last time the current account Q459 Chair: Thank you very much. It was of course was not in deficit was 1984, and for most of the period the Prime Minister who said that the Government since the war it has been fragile, to say the least, and would be messianic. We have heard from a number of getting worse. The challenge is to turn the trade witnesses in this inquiry that the UK has somehow cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
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10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford lost its mercantile spirit. It seems to me that we are investors, and how we tackle the SME challenge on talking ourselves down. How do you think you can the other. reverse this? Edward Davey: I think the UKTI strategy needs to be Lord Green: I do not think anybody can reverse this seen in the context of the Trade and Investment White single-handedly, but there is an element of truth in Paper itself. The whole of Government has been it. “Mercantile” is a word with historical baggage, of working on that paper and the strategies and analytical course. In particular, if you use the version papers that will follow it. The Trade and Investment “mercantilist” it has some negative connotations. The White Paper, which we conceived back in June/July, fact is, however, that we need to improve our has taken up a huge amount of my time, the Secretary competitive strength in international markets and do a of State’s time, Lord Brittan’s time, Lord Green’s time better job of net external position, for the reasons I since he has been here and that of other Government have stated. I think that in this there is an issue of Departments. We have had extensive consultation collective self-belief about the British. with business, NGOs and investors; we have had our To use an anecdote to make the point, since I knew I posts across the world feed back information about would take on this job in September of last year I where other Governments are with respect to trade have tried to ask friends and acquaintances of mine, and investment policy. All that has fed into the paper, even the occasional journalist, how many cars they so in many ways this gives a very comprehensive thought we made in this country. The answer is overview of the British Government’s position on consistently wrong by a wide margin. There is a trade and investment. In the annex you will see a widespread impression that we are a de-industrialised proposal for 18 analytical papers to promote the economy and it is nonsense. While the glass is not debate as well as strategies for UKTI. If you read the full, it is definitely half-full and not half-empty. foreword by the Secretary of State, he talks about the Chair: Yesterday morning at a breakfast meeting I great trade investment challenge. corrected members of the London Chamber of What we are trying to set out here, as Lord Green Commerce on this very point. says, is that the Government from the Prime Minister Lord Green: Good. down believes that improving our performance here is really important for the whole growth story. That is Q460 Mr Binley: I want to pursue that, because I am why we have put so much effort into this paper. I not sure that Governments of all hues have done believe both from press cuttings and the responses enough to talk up Britain in this respect. It looks like from around the world that it is having its effect, manufacturing is settling down in almost every because while we often focus on the fantastic work country except Germany at about 15%. Britain is well that I believe UKTI does to help British business within that range. Our manufacturing base is larger improve its export drive, it must also think about FDI than that of France, and if you look at our export base, plus trying to improve the multilateral game, whether so much of it is claimed by Germany but is, in truth, that is within the single market of the EU, with Doha British export, so we ought to talk up this whole thing or EU FTAs. This White Paper seeks to set out the more. Will you do so? Government’s position in all of those areas. Lord Green: I shall certainly play my part in this, but needless to say this is a part that we collectively have Q462 Nadhim Zahawi: Lord Green, you mentioned to play, too. No one person can do this, but we all that the current account had not been positive since have to. 1984. Are you confident that you can turn that round and make it positive? Q461 Chair: As a businessman, you will be very Lord Green: To be clear, I do not think any one well aware that we need some kind of comprehensive person can turn this round. This is a major challenge strategy to achieve our objectives. So far, we have not for the economy as a whole. If may I use what may had the UKTI strategy. When will it be released, and sound like a cliché, this is definitely a marathon and what would we be expecting to see in it? not a sprint. This is something that will take the Lord Green: I would expect it to be released in April. economy some time to turn round, in my view It has been a little later than originally intended, partly probably well beyond the life of this Parliament. If we because the White Paper itself was a little later than are to work this, what we need is, first, clearly a originally intended and partly because I was new in cohesive Government approach but also continuity the job and it seemed sensible to give us a bit of space and a sustained effort over quite a long period of time. to get it right. I think that when it emerges it will not Do I think it is doable? The answer is yes. Do I think be a revolution. I do not think a revolution is required this marathon can be run? in UKTI; it is a matter of some refocusing, retargeting and refinement, and one or two particular new Q463 Nadhim Zahawi: How long is that marathon? initiatives. For instance, I think we need to have a Let me push you a bit further on that. more disciplined and structured approach to what you Lord Green: This is something that has been around might call relationship management of major since the war one way or another, and in stark form exporters and inward investors, and the UKTI should since 1984, so, for the sake of argument, let’s say 10 establish a little unit to support that. I am happy to years. talk more about that because I think it is an important initiative. There are two ends of the scale: on the one Q464 Nadhim Zahawi: 10 years? hand, there is what we do for big exporters, Lord Green: Yes—not less. Do I think we can make multinational companies based here and big inward some visible improvement earlier than that? Yes, of cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
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10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford course. I think there are some quite encouraging signs proximity countries as being far more important than now, but to be clear, a robust trade position for this some of the sexier ones. country will not come overnight. Lord Green: As first steps.
Q465 Nadhim Zahawi: Perhaps we can move on to Q467 Nadhim Zahawi: Lord Green, you mentioned, the Trade and Investment White Paper. The British quite rightly, identifying that gap, and you are Chambers of Commerce in response to the White beginning to fill that gap. Did that come to you Paper has said that, even with the improvements the proactively from ECGD or did Ministers essentially coalition Government has made, it does not offer the identify that gap? same level of support to SMEs that some of our Lord Green: At the time I got engaged in this, the competitors do. How do you respond to that? In which process of producing the White Paper was well under areas do you think we are lagging behind? way. By the time I got engaged in it, those product Lord Green: First, historically I think we have lagged definitions were largely there. I think there was a behind in credit insurance support. For reasons now widespread consensus. I remember meeting with lost in the mists of time, ECGD was taken out of Patrick when I was still in my previous incarnation providing services that were meaningful for SMEs and familiarising myself with the issues. He was back in the early 1990s, I think. It is clearly visible talking about the products then with a great deal of on any chart of competitive products from their enthusiasm. I remember meeting Leon Brittan on the analogues in France, Germany and elsewhere where same basis, and in Treasury too there was clear the gaps were. support. So, this is one of those ideas whose time One of the most concrete things in the White Paper is clearly has come. You may say it is a little late, but it the filling of those gaps with products such as the has come anyway. short-term credit insurance product being rolled out for non-capital goods instead of just capital goods; Q468 Mr Binley: I am deeply concerned about this working capital finance for exports, i.e. pre-shipment because Governments of both hues have talked at and pre-contract; contract bond insurance and foreign length about providing working capital for SMEs. You exchange cover. These are all basic products available mentioned the import of working capital in your across the channel and are now being rolled out by remarks, yet it has not happened; the banks have not ECGD this month and next on a pilot basis. I think responded. I speak as chairman of a company in that that is significant. Time will tell exactly what the level sector. The banks have made the whole thing much more difficult; conditions have been hardened of demand for it is. Indeed, if the level of demand is sizeably, and we have reached the point where SMEs very high, ECGD will have to gear up its own HR. Its are now not fearful but very apprehensive of going to headcount has been run down and building it up is a banks to seek loans. Why is that? matter of skilled resources and that will be a Lord Green: I am just a retired banker. challenge, but it is something we have to do. Edward Davey: If we are talking about support for Q469 Mr Binley: I know that; that is why I ask you SMEs, it is not simply about those sorts of products, the question. critical though they are; it is making sure that in key Lord Green: Clearly, it has been an issue, and I have markets SMEs have access to them. If you look at the now seen it through both ends of the telescope, European single market, though it has been a great because in recent weeks I, who spent a good deal of success, there is huge potential yet to be unlocked, my career travelling around the world, have said I particularly for SMEs. That is why the White Paper want to focus on travelling around this country. I have talks about our welcome for President Sarkozy’s met a number of SMEs in different parts of the initiative of the Small Business Act back in 2008—the country on a series of regional visits, which I intend Think Small First approach—but says that we have to to continue. It is clear that there are some issues about try to make sure this is implemented. finance. Sometimes they are about banks and In the Single Market Act debate that is under way, the sometimes they are about venture capital, which I British Government is making absolutely clear that think is another subject we need to address. small businesses need to be at the heart of that As far as the banks are concerned, my sense from the discussion and that getting rid of obstacles to trade for past eight weeks, not my previous incarnation, is that SMEs across the single market is critical. If we are there are some difficulties that we need to address. talking about increasing the trade of SMEs currently Project Merlin committed the high street banks to a exporting and trying to get those that have not 15% increase in commitments for SMEs specifically. exported to do so for the first time, clearly the single That is a chunk of change. I think you can rest assured market is the obvious place for them to start. Maybe that the Government will be breathing down their it is more difficult for them to go to Beijing first necks to make sure that those commitments are before going to Berlin or Brussels. Therefore, I think delivered. the support that BIS, UKTI and the whole of the I get the impression—this is anecdotal and it is early Government can give to ensure that those markets that weeks for me—that the issue comes into focus should be unlocked across the European Union are particularly when a company is trying to expand its unlocked is critical. business. The existing relationship ticks over but, for example, when you have a wealth of overseas orders Q466 Nadhim Zahawi: That is absolutely right. coming in and you need to buy a new machine, extend Surveys of SME organisations talk about the your plant or do something like that, i.e. take a step cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
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10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford function change in the scale of the business, that is programme is going forward. In terms of the general when you run into the problem of getting financial approach, again there is a whole Government support, and I think we need to look at that. approach to this, so all Departments are making an effort at pushing trade globally but also within the EU. Q470 Mr Binley: I am glad you talked about that Ministers such as myself, Lord Green and others are because growth costs money, but my experience with paying particular attention. For my own part, I have the banks now is that they do not have the people who met Commissioner De Gucht; I speak regularly to understand that. That is a major weakness right at the Trade Ministers, and just this morning I talked to coalface, if you like, of our banking system. What can Dr Pfaffenbach from Germany; there are regular you do as an ex-banker to improve that understanding meetings at the Council; and I speak to members of and make sure that banks understand that growth the INTA Committee, so it is a key part of the work needs financing, and it needs financing early on in that I do. the process? You are right to stress the fact that not only does the Lord Green: Indeed, it needs financing early on in the EU have competence for trade policy but, post- process. Just to park an important point, I think there Lisbon, for investment policy; there is also the are also some issues about venture capital that we increased role for INTA. I would encourage this need to explore, because it is not always a matter of Committee to do a little more work on EU trade bank finance to get things started. policy post-Lisbon and the role of the INTA Mr Binley: I understand that. Committee in that. I do not necessarily agree with you Lord Green: In the case of the banks, there is no that they are all globalisation sceptics. doubt that there is a trend towards more centralised decision making and more credit scoring. We all know Q472 Rebecca Harris: I said some were. that. We also understand why that is to some extent Edward Davey: That may well be true, but I am inevitable, given the complexity of modern life. I need pleased to say there are people who share this to speak generally and constantly remind myself and Government’s and, I think, this Parliament’s view that you that I am a retired banker; I am not going to speak we need to have a liberal approach to free trade. I for any particular institution. I do know that there is a think that members in the Parliament often reflect real commitment on the part of the senior their Governments’ overall approach—not entirely— managements of the commercial banking arms of the and we need to work very hard to try to persuade companies concerned to get this right. I have met with member states for the Council of Ministers input, and some; I will continue to do so. of course the Commission, and ensure that Members One specific initiative I want to get under way on a in the European Parliament understand the huge more structured basis than has existed hitherto is some benefit of trade to this country and the EU as a whole. form of structured relationship with UKTI around the country. This exists in some places because the people Q473 Rebecca Harris: But presumably, previous on the ground have made it exist, but I think we can Administrations also had plenty of meetings and tried institutionalise this a bit more where there is a to have some influence. Is there anything in relationship between the local UKTI international particular? Do we have a new approach and focus? Is trade director and the ITAs and the relevant there anything that you think you can do better? commercial banking managers in the key centres. Edward Davey: As Lord Green said about trade in Mr Binley: I am grateful that you are where you are, general, there is no magic wand, but I think it is a because you know the business inside out and that is question of intensity and getting in early. One of the a plus. If I may make one final comment, the need is reasons we were keen to do the Trade and Investment absolutely urgent if the growth agenda is to succeed. White Paper was to get out a statement that the It is absolutely vital. I heard all the fine words, and Government’s policy was comprehensive and dealt they are fine words. I am not saying they are just that; with issues that had been raised in the Commission’s I am not accusing you of that, but there is a real need own paper on trade policy. While we broadly welcome for a deeper understanding in banks and Government the thrust of that—and Commissioner De Gucht has a has to use some sticks. By golly, if it does not have very liberal, open approach to trade, which is to be the sticks now, it never will. welcomed—there are suggestions in the paper about concerns about reciprocity. We are worried that that Q471 Rebecca Harris: We talked on Tuesday about could be a Trojan horse for protectionist measures, the implications of trade policy being an EU and I think we should be arguing against that competence. Our witnesses said they considered that particular aspect of the Commission’s paper. we had been punching below our weight under Obviously, the proof of the pudding will be in the previous Administrations. How do you think you can eating, but so far the work that UKREP and the do more to increase our power in the EU realistically, previous and present British Governments have done in particular to influence some EU members and to try to promote the single market agenda is members of the International Trade Committee who important. were characterised as globalisation sceptics? We shall soon be celebrating 20 years of the single Edward Davey: I am really pleased that you have market. If you look back at the estimates of the raised the issue because it is absolutely critical, not potential impact on growth that were made more than least because some of the potentially easier low- 20 years ago in the run-up to the launch of the single hanging fruit for boosting trade is within the EU, market in 1992, some of the more optimistic particularly now that the Single Market Act predictions have not been realised. A recent report cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
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10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford showed that there was huge untapped potential—7% That comes back to some of the things I said earlier. of GDP for the UK—if we could manage to unblock This is about FCO commercial diplomacy; it is about all the barriers and obstacles to trade across the single UKTI’s services here, in terms of encouraging market, so there is a really massive prize to win. We exporters to get into the market, and there, in terms of have been playing our part to promote that single helping them wade through the thickets and market agenda. undergrowth. It is very much, in the case of China, When we talk to Ministers, Commissioners and about city coverage, and not just being in Beijing and others, we have been trying to communicate a sense of Shanghai. I think one way or another we cover seven urgency about the Single Market Act. The European cities either directly or through CBBC. economy is not exactly in the fittest state it could be; Susan Haird: We have staff in four; CBBC more. it needs to have all engines of growth working as hard Lord Green: I have picked up no evidence to believe as they can, finely tuned and fuelled. The worst that we fall short of what our obvious peers do in possible thing is that we should put obstacles in the these kinds of markets. On the contrary, in many ways way of trade among ourselves, so we have to focus I think we get quite a lot of plaudits for how well we on the enforcement of existing agreements. That is the do it, which is not to say it is perfect, but the fact is core message that we will try to get over in the Single that customer satisfaction surveys produce pretty Market Act. Some of the agreements made have not strong responses; just shy of 80% are either satisfied been properly enforced for a long time. A much or very satisfied. You could say it ought to be 95%, bigger push on business-to-business services and and that is true; you cannot rest on 80%, but it sounds mutual recognition of professional qualifications is like it is something to be enhanced rather than a major very much in British interests but also the interests of problem to be fixed, if I can put it that way, but plainly the single market. There are new areas like low carbon it is a very competitive business. and digital, and there is obviously the emphasis on SMEs for trade in the single market. We have been Q476 Nadhim Zahawi: I was thinking more about pushing this very hard. I am slightly loth to say that balancing the role of negotiating through the EU and the previous Government would not have done that; I then negotiating bilaterally. think it was doing that. I do not want to try to make Lord Green: I see what you mean. this a partisan issue, but I think we are going about it Edward Davey: I think Lord Green answered the with, I hope, some verve and passion. question in the correct way, in terms of the Rebecca Harris: It was our witnesses who said they competencies. The EU has competence on market thought we had been punching below our weight access, effectively, and multilateral trade, whether it previously. is Doha or EU FTAs with individual countries or regions, but it does not have competence with respect Q474 Chair: You mentioned the potential role of the to trade promotion, which is UKTI. BIS Select Committee in that. We have noted that. Lord Green: One of the aspects of trade promotion— May I also say that I think Ministers have a part to this falls to the Foreign Office and commercial play in advertising the role of the EU in our trade diplomacy—is to identify key specific market access policy as well, which is not always as well advertised barriers of a non-price kind, which are often informal as it might be. access barriers, and lobby to get those removed on Edward Davey: On that point, I hope that the coalition behalf of specific businesses in specific areas. Government’s Trade and Investment White Paper cannot have that criticism made against it. Europe is Q477 Rebecca Harris: How much influence do you very clearly placed as a key part of the potential think we can have on the WTO through the EU as growth prospects. well? I know you have a strong aspiration that Doha Chair: Shall we say I am not sure it has been fully should be completed by the end of 2011. It is not in appreciated? your gift to do that. Some of our witnesses have joked that they are not sure whether Doha is dead or in the Q475 Nadhim Zahawi: What you are doing in terms freezer, which is rather worrying, so the question is of the single market is all great and good news. really about how much direct power you think you Perhaps I may take you beyond that in terms of the have to achieve that aspiration. rest of the world. Obviously, we want to negotiate Edward Davey: We have certainly argued within the through the EU, because we then carry more clout EU that Doha should be a top priority. We have had with the rest of the world, but how do you balance very willing partners in that across the EU. When I that with going up against some of our EU partners in speak to Trade Ministers and the Commission they places like China, in terms of support for our own also agree that Doha should be a priority. I would not businesses versus, say, German businesses? say the chances are great but they are there; there is a Lord Green: I think that is about trade promotion, real window of opportunity this year. Therefore, we which is not an EU competence; that is up to us as a and other member states and the EU are working hard Government and the individual businesses to promote to try to bring it about. It featured very highly in the their goods and services in China. We are in G20 in Seoul; the activity in Geneva has increased competition with all of our EU partners as well this year. Americans, Japanese, Koreans and so on. It is up to We are taking note of all the different key players: the us to ensure that the support we offer in Beijing, US, China, Brazil and India. We note the different Chongqing or wherever it might be is as good as it meetings that different key players have with each can be. other as we try to create momentum. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
Ev 118 Business, Innovation and Skills Committee: Evidence
10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford
I can assure you that Lord Green, myself, the and continually refreshing it. That is the central work Secretary of State, the Chancellor, the Prime of the committee, supported by the officials. Minister—the whole of Government—have this in our There are two other standing items. I do not say they sights. You are right that it is not in our control, but are currently in place in the way I want to see them; we are working with the EU, not against it, and we we have been going for only two meetings. I want to think it is worth really trying because the potential of see a grid of ministerial overseas visits so we can £110 billion to the global economy is clearly massive. induce an element of co-ordination of that and ensure Lord Green: There are some things we should be that every Minister who goes overseas, with whatever working for in the case of the WTO irrespective of primary purpose—let’s say it is the Health Minister whether Doha is completed: the speeding up of going to Indonesia for a health conference or dispute resolution procedures for one thing; getting something—carries with him a brief with the key Russia into the WTO for another. I think that allowing points we want that Minister to raise on the trade and the WTO to have competence in overseeing export investment front in Indonesia in that example, and so controls as well as import barriers will be a helpful forth. Everybody tells me that co-ordinating new initiative. ministerial visits is not as easy as saying it, but it is I do not know whether Doha will get done. I agree important to do it. with what Ed has said: this is worth the effort. The I also see the possibility—it is still a gleam in my chances are not zero; they are certainly not 100%; eye—of being proactive about this; that is to say, they are probably not 50%, but they are not trivial and identifying a country that we deem to be important it is worth the effort. But there are other things we and has not had a ministerial visit for some time and should be doing in respect of strengthening the WTO tee-ing that up. These are early days but that is a that we should not forget about, whatever happens to second standing item that I intend to be a central focus the Doha round. We would also support the EU of the work of the committee. The third standing item continuing on the parallel track of free trade is of a different kind: a monthly report on the most agreements. recent trade statistics just to remind us how we are Edward Davey: We could talk an awful lot about the doing, or not doing, and why it is important. In FTAs if you would like because, as we go through the addition, there will be ad hoc items. The next one will different regions and key countries of the world in the be to focus on the multilateral issues that Ed has just Trade and Investment White Paper, there are a number been talking about, and so forth. But we have been of opportunities in that regard. going for two meetings so far. I have to report that the atmosphere on them is very good. You might say that this is still a honeymoon period as far as I am Q478 Nadhim Zahawi: Lord Green, you mentioned concerned, and of course that is true. Nevertheless, I the Cabinet sub-committee that you chair. Can you start with a very strong sense that everybody wants to share with our Committee some of the details of what work together to get this right, and I hope and believe work you have been doing with that committee and it will continue that way. how you are encouraging colleagues within their Edward Davey: Clearly, we will not be publishing all Departments to do the right thing and compel them to the work on the action plans in great detail, but to give growth the priority it should have? You know as give you an idea, chapter 4 of the Trade and well as I do that it is about human behaviour. When Investment White Paper talks about the action of the you are running a big organisation everyone says great first steps and there are 62 different actions there. That things in a meeting, but what makes a difference is is feeding very much into Lord Green’s committee. getting stuff done on the ground. Are you feeding Chair: I welcome all the comments you have made. back to the Departments what UKTI are telling you The Government seems to be making all the right inward investors and businesses want in terms of noises about this. However, I continually get feedback exports? What is that process so you get beyond just from the business community, saying, “Yes, we a talking shop? welcome it, but why is there this policy on visas? Why Lord Green: It is a very well-taken point. First, it is is there this policy on localism and planning? Why is new. The committee has had two meetings, the first of there this policy on higher education?” In effect there which was to sign off on the White Paper. The second is a gap between those policies and what they see meeting was the week before last, when it looked at other Departments doing that impacts both on their the beginnings of some action plans, and I will come business potential and the declared growth objectives back to that. I am chairing it; Ed is the deputy chair, of the Government. and it has all of the relevant Government Departments represented at ministerial level on it. It is underpinned Q479 Nadhim Zahawi: Chairman, may I pick up by an official cross-Departmental committee, which is that point and make a suggestion? Maybe one of the important for obvious reasons. items that the sub-committee looks at could be It meets monthly and it will have three standing items Government Departments not doing damage, rather on its agenda. One is an action plan. What I mean by than just doing good, and just flagging up by an amber that is something with which one is familiar, certainly or red light the damage that they could do. Also, from my previous incarnation. When you want to without wanting to add to the complexity of your grid, achieve some change within a complex organisation many parliamentarians and all-party groups go round you have to convert the policy statement into 800 the world. Some parliamentarians have expertise in action steps, assign responsibilities, timelines and so particular countries, which could help. Both Rebecca forth, and then it is the drudgery of overseeing that and I had a particular experience of a very good cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
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10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford ambassador and UKTI representative, who briefed us can we do to maximise the benefit from it? When can for three hours before we began our meetings with we expect a dialogue and strategy on it? officials; we were able basically to talk the same talk, Lord Green: First, I recognise that the creative so it was joined up in terms of the priority areas we industries are extremely important. I have seen it with were looking at and so on. Those kinds of meetings my own eyes. I went on the Prime Minister’s trip are very useful for parliamentarians. You have a much round the Middle East a couple of weeks ago and bigger group of people. there were a number of representatives of not the Lord Green: I am glad you mentioned the last point. music industry but the design industry. I have seen it Last night I was by invitation in one of these for myself also in Shanghai where last year I visited committee rooms with a group of Conservative and the Expo three times. The British pavilion was a Lib Dem MPs talking about this agenda and exactly brilliant example of the product of British creative the same point was made. There was a chairman of industries and was awarded the gold award for best an all-party parliamentary group present—the group foreign pavilion; 7 million visitors, 95% of whom on Saudi Arabia, as it happens. We should make sure would have been Chinese, went through it over a four- that we support parliamentarians on a systematic month period. Thus, for an extremely good cost it basis, because I see this as a non-partisan issue. We enabled a large swathe of the Chinese population to are all in the same boat on this, and clearly there is an see what we mean by British creative strengths. It is opportunity to make use of all representation that this apparent to me that this is extremely important; country has overseas, whether it is parliamentary or indeed, it is part of a more general point—that governmental. services are a higher proportion of our exports than of If I may respond to the Chairman’s point about other almost any of our competitors, which is a real issues impacting businesses, of course this is a reflection of the underlying strength of this sector. I complex issue. It is part of the agenda of the BIS have to say I do not know whether there is a specific Department as a whole to make sure that regulation strategy for creative industry. does not unnecessarily get in the way of growth in the Susan Haird: Yes, there is. We have a creative business sector. You do not need me to tell you that industries marketing strategy, which UKTI has this is often a complex matter. You mentioned visas developed in consultation with the sector advisory in particular. We all know that it is a sensitive and group, led by Sir John Sorrell. Under that we seek to difficult issue. The Government has outlined its promote the UK creative industries sector as a generic framework on work permits; it has yet to do so on the group, but also look at sub-sectors beneath it. The educational side. As to the former, I would say we number of companies in the creative sector that we have landed in a reasonable space but it has to bed have helped has gone up from 350 in 2007–08 to down. There are plenty of specific problems that we about 1,000 last year. We support a lot of companies ought not to allow to happen and we need to find a exhibiting at major trade fairs overseas. I believe there way to see if we can ensure it beds down in a sensible is a music fair in Cannes that we have supported in manner and does not cause unwanted side effects. the past; there is one called South by Southwest in On the educational side, I do not think it would be the US. appropriate for me to anticipate what the Government We do a lot for the music industry within the context says beyond the general recognition that education is of marketing the creative sector generally. We have important both directly as an earner of foreign produced a film called Love and Money, which has exchange—as an export—and also as a longer-term been given wide acclaim. That is a multi-screen film generator of relationships that are valuable to this that can be used by our teams around the world and country. If I may provide just one anecdote in that in the UK to promote the creative industry sector. respect coming from my previous incarnation, the head of the Chinese banking regulator was a product Q481 Chair: I welcome the comments you make, but of the Cass Business School. He speaks fluent English they highlight a matter of profound concern to me: with an English accent. That kind of long-term notwithstanding the fact that Lord Green has been in relationship is clearly extremely valuable to all post for only a short time, although there is a strategy, concerned. the Minister who is to promote that strategy is not aware of it. That is a matter of real concern that needs Q480 Chair: I have also seen it in all sorts of areas. to be addressed as a matter of urgency. Obviously, I welcome your remarks, in particular the Lord Green: I will make sure that I am next time. idea of briefing Ministers from other Departments when they are paying visits abroad. We may well want Q482 Chair: Lord Green, I believe that you chair a to come back to monitor the impact at future meetings sub-committee on trade and industry but there is no as well. I go on to the specific area of the creative DCMS Minister on it. Would you be prepared to look industries. Again, if our manufacturing performance is at that, in order to look at the potential for developing under-recognised, that is equally true of the enormous that strategy? contribution the creative industries make to the Lord Green: I do not think that is correct; there is one. economy. Feargal Sharkey of UK Music was interviewed by us. He was concerned because he did Q483 Chair: I understand that you chair a Cabinet not seem to think that there was any sort of export sub-committee on trade and industry. strategy for the music industry. Given the enormous Lord Green: That is the one. earner that this is for Britain and the fact that by all Susan Haird: Investment. assessments Britain is a world leader in this area, what Lord Green: Trade and investment. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
Ev 120 Business, Innovation and Skills Committee: Evidence
10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford
Chair: I have “trade and industry”, but whether it is our multilateral trade negotiations. I would have trade and investment or trade and industry— thought that was a fundamental issue for the creative Lord Green: John Penrose is a member of it. industries.
Q484 Chair: John Penrose is on it, is he? Q490 Chair: We understand this. We will probably Lord Green: Yes. be looking at IP as a separate issue. To finish off on the creative industries, I want to turn to the issue of Q485 Paul Blomfield: I want to follow up the financial support. This appears to be a real problem in Chairman’s point about the creative industries strategy this sector because, if you like, intellectual property is and express a slightly different concern. It is much more difficult to assess in terms of asset value reassuring from the discussions we have had with the than other assets. Do the creative industries qualify sector to know that is in place. It is a little concerning for the business growth fund? that the representatives from the sector to whom we Edward Davey: I have to say I am not absolutely sure. spoke were not aware of it. I just wondered what I do not see why they should not. consultation or engagement there was with them in developing it. Q491 Chair: Anybody else? Susan Haird: This was done through the Marketing Susan Haird: Is this the fund of which Michael Strategy Board for the creative industries, which Sir Heseltine is in charge? John Sorrell chairs. There is a wide range of people on the Marketing Strategy Board drawn from different Q492 Chair: That is the Regional Growth Fund. This parts of the industry. Obviously, it is difficult to is the one the bankers are putting up. consult everybody when you are doing things, but we Lord Green: Oh, that one. I do not know the answer; do work with architects, designers and the creative I do not see why they should not. sector generally: music, film—a wide range. I am not sure who was giving evidence. Q493 Chair: May I ask Ministers to look at this? The evidence that we received from Feargal Sharkey in Q486 Paul Blomfield: Feargal Sharkey, head of UK particular, but backed up by others, was that the Music, for example. creative growth sector seems to find it almost Susan Haird: If I remember rightly, there are a impossible to access finance from our existing number of different bodies that represent different financial services. Obviously, if a business growth parts of the music industry. It may just be that that fund is to do what it says on the tin, it may need to individual was not part of it. address that issue. Lord Green: As I am the chairman, I will make sure Lord Green: This is the first time I have done this, that I get myself up the learning curve before we but it seems to me the appropriate thing is to look into meet again. it and write to you. I have seen nothing to suggest that Chair: Paul, do you wish to develop this? the bank fund would not support creative industries. We should seek to get that confirmed for you. I would Q487 Paul Blomfield: I will not, but I think it is want to end this part of the discussion by echoing something we ought to follow up, if not at this stage. what Ed has said: I think this is manifestly an Susan Haird: Would you like me to write to you important part of the economy. By its nature it is a about the creative industries’ marketing strategy and very broad sector—we have talked a bit about music how the consultation process was done? but actually it is about architecture, creative design, Paul Blomfield: On the consultation, that would be fashion—and a fairly diffuse one, too. very helpful. Q494 Chair: I should like to move to another issue, Q488 Simon Kirby: If I may mention British on which you have probably had some feedback. business ambassadors, which fits in at this point, There are concerns in the business community about clearly there is some design expertise and also some the Bribery Act. Can you reassure us that the business fashion expertise, but if you look at film, video, video concerns about this are understood and recognised, games or music, there is a gaping hole. It might be an that the guidance to the Act will be clearer than it is idea to look carefully at that. at the moment, and that it will not impact upon the Lord Green: We should look at that. ability of British companies to trade and invest abroad? Q489 Chair: I think the general point is that this is Lord Green: I can assure this Committee that the a major part of the British economy that is under- Government is committed to the Bribery Act and is recognised in the policy-making structures that we aware that the challenge is to produce guidance that is seem to have within Government. helpful to businesses and is expressed in lay people’s Edward Davey: Sometimes it is the label that is terminology, such that businesses can make use of it. attached to them. An awful lot of work is done by The clear intent is to ensure that businesses can carry the whole of Government in the different elements of on their normal business in an appropriate manner intellectual property, which is critical to the creative without feeling circumscribed by the Bribery Act in industries. I do not want this Committee to be under ways that were not intended. The Ministry of Justice any illusion. We place massive emphasis on protecting is working on the guidelines. When they are finalised and promoting intellectual property rights, whether it they will be issued and there will be a three-month is within the EU or through the EU competences in period during which businesses will have the cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
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10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford opportunity to digest their implications, and the Act Lord Green: I am not aware that it is taking a will then come into force. I do not think there is any particularly high hit. I think it is taking the kinds of real voice for saying we should go back on the specific reductions that many other Government activities commitment to implement the Bribery Act. face. Susan Haird: It is about 25%. Q495 Simon Kirby: If I may make a small Lord Green: It is 25% over the time frame. There are observation, which will be a continuing theme in most plenty of other Government activities facing that. In of what I say this morning, the Bribery Act is the ideal world you would want a larger budget, probably less of a problem for big corporations and because the evidence is that the more you do, the businesses, because they will have lawyers and greater the payoff. That would not be true all the way experts who will tell them what is permissible and up the curve, but it looks as though we are at a point they will have a strategy in place pretty quickly. I am in the curve where that would be true, but there is the just worried about small and medium-sized real world in which UKTI operates. I think it is true businesses, which will not have that support. That is of any organisation of 2,500 people that there are my only observation to you. likely to be opportunities to get more efficient in the Lord Green: I quite agree with you. I think it is likely context of straitened times. to be a bigger challenge for SMEs just because they do not have the administrative apparatus to put in Q498 Paul Blomfield: Perhaps I may press you on place the framework necessary to ensure that they are that specifically in terms of what those efficiencies comfortable complying with it. I am afraid it is an might look like. You have said you have in mind a inevitable challenge because you cannot get round the number of new initiatives, which presumably will fact that the Bribery Act is coming into being. I do require resources. The CBI has made the case that, for not think there is any real constituency for saying that example, the Passport to Export programme should be Britain should go back to looking and feeling on the expanded. What is the impact of the changed shape of international side as though it is a bit behind its peers UKTI to meet the 25% cut—what programmes are in terms of legislation in this regard. to be reduced or cut—and accommodate your other Edward Davey: It is worth saying that there are many new initiatives? parts of British business that welcome the Bribery Lord Green: First, Passport to Export is not Act, and indeed championed it, because they want the something that should be cut. I think there is scope to enhanced reputation from strong ethical standards and use more internet-based assisted networking and reduced costs to ensure that we play on a level playing sharing of experience among SMEs as they get field with other countries. I do not detect across engaged in international markets. I do not think as Parliament or the business community actual much of that has happened as could do, and that is an opposition to the fundamental principles behind the area that is extremely cost efficient. We will face a Bribery Act, but we need to make sure that the reduction of the country coverage through ITAs, guidance is correct, as Lord Green says. Rushing it particularly given what is happening in the RDAs. Nevertheless, UKTI has set itself a target for assisting would be a really bad mistake, particularly for more companies this year than last year; in other SMEs—as you said, Simon. words, we still believe that you can, if you will, wring the sponge and make it more efficient. Q496 Paul Blomfield: Clearly, we all share the The completely new initiatives have to do with things agenda of promoting trade and investment and growth that are quite low-cost in absolute terms, even if they to drive the economy. Also, UKTI is clearly a key are quite high unit cost. Relationship management, body in delivering that agenda. Are you not concerned which we talked about a while ago, effectively that the reduction in its budget will undermine our involves the creation of a new unit, but it is a small ability to deliver? number of people. They might be quite high-cost, but Lord Green: It will provide challenges, of course. In they are a small unit of people to support the the ideal world you would have more money and relationship management of big-ticket exporters and therefore be able to support a larger effort, but we inward investors. I do not think e-networking has a are in the context of a spending review, the overall particularly high cost to it, but there is no doubt that parameters of which we are well aware, where it is if you cut the budget like that you will put the regional felt clearly appropriate that UKTI should play its part network under some stress. alongside essentially all other Government activities. It is up to UKTI to ensure that it does the job as Q499 Nadhim Zahawi: Ms Haird, you told us on efficiently as possible, which means looking at its Tuesday that the Foreign Office funds for UKTI were back office and protecting the front line as much as published as part of the comprehensive spending possible within the context of resources, which are review. Your officials have since told us otherwise. constrained. Can you shed some light on the situation when it comes to the UKTI overseas budget? Q497 Paul Blomfield: We have been trying to look Susan Haird: As I understand it, they have sent to at the actual numbers involved. From the you the overall totals for the spending review. That conversations we have been having, it seems to us that was sent in yesterday evening. What I said I would UKTI is taking a particularly high hit. The question is give—it was not published, nor would it be, although whether that is counter-intuitive in terms of what we I am very happy to make it available to you—was the are trying to achieve in delivering growth. information post by post, about how much money cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
Ev 122 Business, Innovation and Skills Committee: Evidence
10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford
UKTI would have to deploy in China, India, Brazil There are ways in which we can save quite a bit of and so on. That is what I will send to you as soon as money overseas without cutting headcount, including it is settled, which will be in a few weeks’ time. That in particular continuing the policy we have pursued is settled in consultation with the Foreign Office, as I for a number of years of localising posts where explained yesterday. possible. I think I explained when I was here on Tuesday that Q500 Nadhim Zahawi: We were told that these were we have a mix of UK-based diplomats who are posted just assumptions and estimates by UKTI but not overseas for a period and locally engaged staff who published, contrary to what we were told on Tuesday are recruited for the local knowledge that they bring. by you. Many of them have business backgrounds. For some Susan Haird: Maybe I did not use the word years now we have been localising fairly significantly, “published” in a strictly correct manner. I meant that and many of our posts overseas are now headed by they were available. They will be in the accounts and locally engaged staff, including the Baltics as a region, so on. The way funding works between us and the which is run jointly out of Estonia and is headed by Foreign Office is complex. We have some money somebody locally engaged. It is much more cost allocated through a ring-fenced budget, which pays effective where you can do it. It is not possible to for certain things; we have some money allocated localise every post in every market, nor would we direct to post, which pays for other things; and there ever want to do that. are overheads to do with accommodation, the cost of As to the English regions, where there is a loss not school fees and so on. [Interruption.] only of UKTI funding as a result of the spending Nadhim Zahawi: That is probably them on the review but also, as I explained on Tuesday, a loss of phone, telling you something else. RDA funding because the RDA has topped up the Susan Haird: That is an overhead. It is complex. spending on trade in those regions, it looks like we What I undertook to do yesterday was disentangle the will lose about 50 international trade advisers. We complexity and give you what I understood you believe that there are efficiencies that can be achieved wanted, which was the amount of money available both through smarter use of e-delivery, as the Minister country by country. That money will be a mix of the said, and also, for example, by trying to reduce the money allocated to pay for staff and the money number of times that trade advisers visit companies allocated, as I explained yesterday, to pay for events and encouraging them to visit the office. There are that posts have agreed with us they will do to promote ways of doing things smartly that will drive up particular sectors, like the creative industry sector. efficiencies. Lord Green: I make two comments, if I may. First, I Q501 Nadhim Zahawi: Are the assumptions welcome the trend to engage staff locally, not merely estimates or real figures? on cost grounds, because I think that as a general Susan Haird: What I am going to give you is getting proposition it is probably more effective in getting a a lot closer to real money. It is not a completely real feeling for what is going on in a local market. separated out budget; we do not have separate Secondly, on the English regions we will do what we accounting officer responsibility for the Foreign can in terms of efficiency, but I do not think we should Office money. The chief executive is responsible for be assuming that there is a kind of alchemy to be UKTI’s programme money that is allocated direct by Parliament. The BIS permanent secretary is performed here. The fact that we are spending less responsible for the BIS admin, and the Foreign Office over the timeframe of the spending review will mean permanent secretary is responsible for the Foreign a reduction of coverage. Office admin budget. We are given money, and it is relatively complex on the Foreign Office side. Q504 Paul Blomfield: To ask a brief supplementary, 50 are being lost out of a total headcount of how Q502 Nadhim Zahawi: I can tell because you have many currently? already lost me. Susan Haird: The total number of international trade Susan Haird: I lose myself at times. advisers at the moment is 265. That number is Lord Green: May I go back quickly to a point with augmented by the regional trade directors and their information hot off the press? Creative industries do deputies, so the total number of staff employed in the qualify for the growth fund; it is open to all industries. regions, as I think I said on Tuesday, is about 300. The Chair: We will note that with interest. Again, we will international trade directors and their deputies will be monitor that. customer-facing. There will then be a small support team, not all of whom will be customer-facing. It is a Q503 Paul Blomfield: I want to follow on from 19% reduction. Nadhim’s point, referencing it back to my previous Lord Green: It is a non-trivial reduction. point. I guess that it may not be possible to answer Susan Haird: But we are nevertheless aiming to keep this—perhaps Susan could provide us with the the number of companies we help constant, and information subsequently—but how many regional indeed increase it, over the spending review period. trade advisers in posts overseas will be lost through the cuts made in the Budget? Q505 Simon Kirby: Will the increase in local Susan Haird: Overseas we hope not to lose headcount employment and the loss of RDA money overseas. The decline through the spending review is disproportionately affect the inward investment part lower on the Foreign Office side than elsewhere. of the business? cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
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10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford
Lord Green: Susan might want to add to this, but international trade advisers on the ground who were shifting overseas to locally engaged staff should not employed by the chamber of commerce, let’s say, in affect inward investment promotion. The brief is a particular region. We would have placed a contract exactly the same whether the person is locally with that chamber of commerce, or more commonly a engaged or a UK expatriate. As far as this country’s group of chambers of commerce, and those coverage of FDI support is concerned, with the arrangements are unaffected by the demise of the abolition of the RDAs we are now in a transition, as RDAs, except that the RDAs put in extra funding, you will be well aware, from them to the local which paid for additional international trade advisers. enterprise partnerships. As you may have gathered on Tuesday, UKTI is in the process of awarding a Q508 Chair: So the structural arrangements should contract—the bids are in process at the moment—to at least still be there, but will have less funding than cover FDI support for England excluding London, before? which will bridge or replace the services of the RDAs Susan Haird: Exactly. domestically, but there is no doubt that we are in a bit of a transition. Q509 Chair: Could it impact on the structure? The structure may in part be dependent on that funding. Q506 Chair: We had some discussion on this issue Susan Haird: It will not impact on the structure of on Tuesday with the acting chief executive. This is to delivery, no. The contracts will continue. Susan Haird: to pick up one point arising from Lord Green: It will impact, however, on headcount. Tuesday, you did say in your evidence that some of Susan Haird: It will impact on headcount, yes. the UKTI’s work was being contracted out to Business Link. Business Link is being closed, so what arrangements actually are being made? Q510 Chair: That was my next question. Will there Susan Haird: What I said on Tuesday referred to the be as many trade advisers? trade side of the house. We have contracts at the Susan Haird: No. This is the 19% reduction in the moment in the English regions with the likes of number of international trade advisers that I described chambers of commerce, as I think I described them, a moment ago. There is no escaping from the fact that Business Link and similar bodies. The arrangements there will be fewer people on the ground in the are different according to each region. In the main, the English regions delivering trade services. organisations are associated with Business Link rather than Business Link direct. “Business Link” is a bit of Q511 Chair: There will be fewer people delivering an umbrella term. The contract in the English regions that service to companies in the region. will continue. Susan Haird: There will, but we are planning to serve Just to amplify what was said just now, on the inward more companies over the spending review period, and investment side I think I explained on Tuesday that to do that by smarter methods of working, including we were looking to get efficiencies there as well. e-delivery and the SME-to-SME networking site. We Although there is less money because the regional will make greater use of outreach events. To describe development agencies will have gone, by letting a what they are, they are held in the English regions national contract for the English regions the sector sometimes at a time when we have people from specialists that we will use to promote inward overseas posts back home. Take, for example, Asia investment and handle actual and potential inward taskforce events, which we have run in a number of investors will not be bound by geography. They can cities around the country. They are designed to travel around the UK and put their expertise to use in encourage companies to export to Asian markets. different regions. They will take the form of a plenary session followed I do not think that on Tuesday we discussed the by clinics in small groups and then one-to-one overseas network. The RDAs currently have quite a surgeries, almost, where the SME can meet people number of people overseas. Again, there I think we from our post overseas. That can then lead them to go can achieve considerable efficiencies, because a direct to be served overseas as opposed necessarily, potential Chinese inward investor, to take an example, unless they so wish, to working with a regional does not need to get very specific about regions too international trade adviser. early on. I think what we can have are a smaller The regional international trade advisers work very number of specialists who can cover a broader number much with companies that are new to exports through of regions, and we can get considerable efficiencies Passport to Export and companies that are moving on, that way. perhaps after a couple of years of export experience, and want to diversify. But a number of SMEs and Q507 Chair: It comes down to the core issue: exactly companies more generally will go direct to our how will trade advice be given to companies in the overseas posts either off their own bat or because they region with the demise of the RDAs and Business will have met us at one of these clinics. There are a Link? Could you explain how that will happen? number of ways in which we can circumvent the Susan Haird: Yes. The RDAs were not involved in potential impact of the reduced number of direct delivery on the trade side. What we had was a international trade advisers, and we shall make every system where the international trade directors were effort to ensure that our customers see no deterioration co-located with the regional development agency; of service. they agreed jointly a regional international trade Chair: Again, that is something the Committee will strategy. The trade strategy was delivered by want to monitor. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
Ev 124 Business, Innovation and Skills Committee: Evidence
10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford
Q512 Nadhim Zahawi: We have heard throughout appraisals and so forth focused on the degree to which this inquiry that there is a real need for people in they are able to be proactive and get all the way to foreign posts at UKTI to have a business background closing deals, or support a company all the way to and to be from business. With the budgetary restraints, closing deals, so there is a real sense that you are not do you think it is realistic that you will attract those just about policy; you are about getting things done. kinds of people from business and pay the salaries that The other area that it is important to dwell on for a they will command? moment or two is the Foreign Office in commercial Lord Green: As far as the overseas representation is diplomacy. Something of a cultural change needs to concerned, the shift to locally employed means that be embedded in the Foreign Office. Cultural change quite a lot of the people we do locally employ have in any organisation takes a bit of time and consistent business backgrounds, and you can do that pushing. One of the work programmes being simultaneously at reduced cost as compared with an embarked on this year in the Foreign Office is a expatriate. I think that is where the challenge comes. programme of seminars and support for basically the Here I have met a number of ITAs and many have bulk of the desk officers in King Charles Street, such business backgrounds. that they become alert to the implications of I think the real issue arises when you want levels of commercial diplomacy and what it takes to be senior leadership within UKTI. I believe that we need successful, both as an individual and as an entity more people from the private sector engaged in key supporting the British trade effort. I think there is positions in UKTI. For example, I would like to see quite a lot of work we need to do in that general area. the unit that we have described a couple of times that My overall impression of Foreign Office ambassadors supports relationship management and big-ticket in the field is that, if you compare the position now inward investment headed by somebody we recruit with 10 years ago, we would all say it is much, from the private sector, and there plainly you are into much better. considerations of cost per head. Chair: We shall be talking about ambassadors in a moment. We now come to the role of large companies Q513 Chair: A representative from Mercedes, a and Ministers in UKTI. British business ambassador, said we needed to be more aggressive and pushy in selling ourselves. How Q514 Simon Kirby: The Trade White Paper talked do you think you can get this across to your staff? about a change in emphasis, and Ministers cosying up There are I suppose two levels: the governmental level with certain big businesses. We heard on Tuesday and particularly UKTI level. from academics that this had the potential to distort Lord Green: I think this affects governmental, UKTI trade. Do you understand that fear? and ECGD level—and British business ambassadors, Lord Green: I think it is important to do it right, but not to mention the businesses themselves, where part this is not a radical departure; to some extent it is a of the challenge here is to get them to take the risk of systematisation of some things that tended to happen crossing the water. The first time an SME does it there naturally. In a way, from my perspective it is taking a is a risk involved and it can require some imagination leaf out of the way in which any large services and drive. At ministerial level you can be assured that company, whether it is a bank or another kind of from the Prime Minister downwards there is a real services company, go about their relationship intent here. The Prime Minister barely loses an management of key clients. Of course a large exporter opportunity in the public domain to ram home the is not a key client of the Government in the same way importance of trade and investment. Last weekend he that a large company will be a key client of a bank, was effectively saying we should not be ashamed to but there are some parallels. be called salesmen, so this is a cultural change led What does a large exporter want? It will want from the top. particular support in a particular country when it is In the case of UKTI, we are looking at the contract coming up to landing an important business deal. I do that we have described as being in the process of not know what academic said this but, frankly, it is a being awarded. A decision has not yet been made. An rather purist view to say that you do not need that element of performance-based incentive will be built support, because the absolute reality is that the into the contract. To the extent that we are successful French, Germans, Americans and everybody else do in recruiting some key private sector people into this. If we do not do it we are effectively condemning UKTI, we have to look at their packages and make our big exporters to have one hand tied behind their sure they are competitive, and maybe those have to back as they do it. We absolutely need this. have some kind of performance-related component. It has been going on. I certainly would not want to We have to work on the detail of that. I come from an imply that nothing of this kind has been happening industry where I know how sensitive that topic can over the years. We all know it has been going on. I be. We have to get it right, but clearly you have to be think there is a case for a more structured approach to competitive, and the fact is that most industry has a it without bureaucratising it such that, for example, component of incentive performance in people’s you would have a Minister who, on the basis of compensation. departmental responsibility plus knowing the person, More broadly through UKTI, my general impression would be the principal point of contact at ministerial is that there are many people in it who are energetic, level for the chief executive or chairman of this marketing-oriented folk. It is the job of the company when he had an issue in the export domain. management of UKTI to ensure that those people are It might be any kind of issue, from the trivial to the brought into the key positions, with performance important. He or she needs to know who to ring up. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
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10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford
It is almost as if he has his mobile phone number. The investing or exporting. We need to ensure that we do Minister says, “Look, I hear you; I’ll see what I can as good a job of this as we possibly can.2 do,” and then there will also be a senior official who Edward Davey: The White Paper talks about two works with the Minister to whom the Minister can initiatives that UKTI will be taking forward: the peer- turn and say, “How can we sort this out for this to-peer online mentoring proposal and the catalyst company?” That is how I see it operating. proposal, trying to use business and academics to champion British business and investment Q515 Simon Kirby: To press you, should the opportunities. emphasis be on big manufacturers who create tax and employment in this country or on global businesses Q517 Chair: To ask a supplementary, is the that are based in this country—or is there a Government looking at what Germany does in order difference? to get this success relative to the performance of Lord Green: I do not think there is much of a British business? If not, will it do so? difference in this day and age. First, we should start Lord Green: I can assure you that I personally look by not trying to boil the ocean; we should start with very carefully at the German model. Germany the top 10 exporters from this country, or a modest happens to be a country I know well. As recently as number to start with—they do not have to be British two days ago I attended a dinner where we had a owned—and inward investors, actual and potential. senior consultant from one of the best known German You are looking at inward investors, some of whom consultancies talking about Mittelstand and how that may not already be here but who we clearly would has prospered and what are the conditions within like to be here, and again you would have that which it operates, with a view to seeing what lessons relationship management approach in place. we can learn. I think there are some lessons that it is I give one named example. Recently I was in Belfast important to learn. as part of my regional visits. I called on Bombardier We also have to recognise that we are not Germany while I was there. They have a major investment there and will not become the kind of economic and social and also in Derby. They are a major company structure that Germany is. For instance, as I am sure worldwide; they are a major employer in this country; you are aware, all German companies are required by and, what’s more, they are very high-tech in the case law to be a member of their local Handelskammer. I of Belfast. I know the CEO from a long time back. I cannot imagine it being acceptable within British think it would be appropriate for him to know that he society to mandate something like that. Therefore, it can always call me if he has any particular issues, but is just a fact about the way Britain operates that we there ought to be the same close relationship with the are into the kinds of arrangements that Susan British High Commissioner in Ottawa and on the described, where you are operating round the country ground with the relevant person in Invest Northern with different patterns of support depending on what Ireland, Belfast and the nearest point of contact for works in a particular area because you do not have Derby—and a senior civil servant to whom I can talk. that kind of uniform structure that Germany has had If he does call me up to say he has this or that problem for decades. I can say to the appropriate official, “Let’s see what I think there are some lessons to be learned about the we can do to help.” There is a risk of making this way they do trade delegations. It appears to be the sound more bureaucratic than I would intend it to be; case that when they do trade delegations they take not it is actually practical help. only the big companies—I think this goes to your point, Simon—but also a group of SMEs alongside them. We have tended to do it as one or the other, and Q516 Simon Kirby: I understand that entirely. Some we may be missing a trick there, which is why I say other countries, for instance Germany—perhaps you I think we may have some lessons to learn. spoke about this on the telephone this morning—seem to have far more success than the UK in encouraging their large companies to piggyback small- and Q518 Simon Kirby: There are developing medium-sized businesses. If they open up in China, economies around the world. As these economies for instance, they take those businesses with them. I mature and look to more service businesses, which we are strong at—it is our ace card—there is went to China last week. We heard from BT that that complacency in thinking that there will just be a was not their intention at all and that they would sudden switch. involve themselves almost entirely with local Lord Green: That would indeed be a complacency. businesses. Do you not think we could learn something from Germany? Lord Green: We can certainly learn something from Q519 Simon Kirby: What I am saying is that even that, because I think big companies have a though the German example might be heavy engineering, there is still a lesson to be learned from responsibility to their supply chain. We can swap it. stories of course, but I think many of the companies I Lord Green: I quite agree with that. While I do think know take their responsibilities to their supply chain services are a distinctive competence in this country— very seriously. There are opportunities to help SMEs it is evident in the numbers—it is 60:40 between the that are part of the supply chain; indeed, I would have two, so it is still 60 for goods exports, and a good thought it would be in the interests of a big company proportion of that is SMEs. There is plenty of scope to help the SMEs that are part of its supply chain. to do a better job. To answer the Chairman’s question, Some of that help can take the form of helping them to get into the foreign markets where they are 2 Ev 213 cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
Ev 126 Business, Innovation and Skills Committee: Evidence
10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford
first we are on the case; secondly, I do not think that can go round the different FTAs and each time the a simple-minded replication of Germany is possible, element of services—not just legal and accountancy but thirdly, there are clear lessons to be learnt. but financial services more broadly—is critical. So, Edward Davey: May I say something in addition to market access. everything Lord Green has said? This relates to multilateral trade deals that we need to do and our Q522 Chair: With UKTI and ECGD working with priorities and focus within those. Quite a lot of sectoral trade associations and chambers of previous multilateral trade deals have focused on the commerce, basically how can you maintain a export of goods, much less so on the export of consistent message without duplication of effort? services. For example, in the EU-India FTA it is very Edward Davey: From the UKTI’s point of view, are important that we get greater openness, for the legal you talking about Government assistance and profession, the accountancy profession and so on. In promotion as opposed to market access? all those deals, not just Doha but all the EU FTAs, the Chair: Promotion. importance of service liberalisation is critical. Lord Green: I am not quite sure I understand the thrust of the question. Q520 Chair: That leads very nicely to my next Chair: We have various trade associations to do with question, but just before I move to it perhaps I may service industries. Basically, how can Government, make the point that, in terms of what Lord Green said, ECGD and UKTI co-ordinate their relationships with I fully understand that you cannot effectively them in order to achieve better promotion? transplant a business culture from one country to Lord Green: I am with you. This is one area where I another. I seek reassurance, however, that we are will plead that I am still in my first nine weeks, but I looking at those elements of a different business have met a number of the major ones and I am culture that could be transplanted. working my way through a list of meetings that I want Lord Green: I am happy to give you that assurance. to arrange with individual trade associations for One other obvious area of difference between different sectors. I have a large meeting with a group Germany and this country, which is perhaps worth of them shortly, and will continue that. I am still tabling—this is a tricky one that will not be a quick formulating my ideas on what opportunities there are fix—is that they have famously a superb vocational to improve and structure relationships and support training and apprenticeship system. We allowed our industry in the process. apprenticeship schemes effectively to collapse in the I have already mentioned one area where I think there 1970s. We are now painstakingly starting to rebuild is a real possibility for an improvement, which is that. That started under the previous Administration structuring the relationship with banks around the and it has continued under this Government. We have country, from local and regional commercial banking a long way to go. If you could turn the clock back, manager to local investment and trade director. There we would all wish we had never allowed it to happen will probably be other things. I mentioned venture but we did. One of the things we have to learn from capital a while back. That is another area where I Germany is to get back a culture of apprenticeship think UKTI could usefully structure a relationship and the sense that apprenticeship to the engineering with the venture capital industry that enables us to be industry in particular, or manufacturing more more helpful to SMEs who want venture capital and generally, is an aspiration to be looked for. find it difficult to access it. We have not talked about this theme at all, but I think Q521 Chair: I want to follow Minister Davey’s point it is quite an important one. If you will forgive me, I about service industries. Just how is the Government would just like to elaborate on that point briefly. This looking to support and increase exports of UK country does a better job of using venture capital than services? some of our continental competitors, but a Edward Davey: I think the fundamental issue is to significantly worse job than America. There are pools make sure our companies have access. That starts at of venture capital sitting in America. I do not see why EU level. When we talked previously about the Single we should not work to help the appropriate SMEs— Market Act I focused, as did our submission to the this is appropriate for only some—access American Commission, on services, making sure that the capital in a way they would find difficult without some services directive is implemented and that the points guidance from UKTI. To do that UKTI probably of single contact actually happen and are of high needs to equip itself with some specialist resource. quality, particularly the interrelationship between the That is one of the initiatives that we are currently services directive and the directive on the mutual looking at. recognition of professional qualifications, which is a Chair: That is very interesting. very important part of that. Susan Haird: A couple of UKTI services are Going beyond that, we have on the table various EU contracted out and delivered for us by British FTAs. Our argument is that in those we should focus chambers of commerce. We do work with chambers on service liberalisation. Obviously, of particular of commerce around the country on outreach events, importance is EU-India, but not a lot of attention has ensuring that we are tapping into their members. As I been paid to the EU-Canada FTA, which is incredibly mentioned, the chambers of commerce deliver the valuable to us, particularly with intellectual property trade services in some parts of the UK for us. rights and the regulatory arrangements between the federal and provincial Governments. That is an area Q523 Chair: Perhaps I may move on to a specific where service liberalisation is very important. But you issue. 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10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford fast. There has been a complaint that there appears to alter that either. That said, why has inward investment be a lack of capacity in the export control department fallen in the UK? to deal with this rising level of exports. Are you aware Lord Green: I do not know specifically from one year of this? Is the Government doing anything about it? to the next why it has fallen. Overall, it continues to Lord Green: I am not aware of a lack of capacity but be the case that Britain does a reasonable job of if there were we would have to address it, because attracting inward investment. Some of that is clearly security exports are rising fast. I think they are a very with the support of UKTI. Something like 50% of good export industry for us. It is a sad commentary inward investment projects have some support from on the times that there is a big market for them, but UKTI but not all. We need to ensure that we continue this is an area where very high-tech competencies in to be an attractive destination for inward investment. Britain are finding very profitable business overseas, That is about a variety of things, some of which are and we should definitely make sure that we do not readily within the power of Government and some stand in the way of support for them. which are broader. Clearly, corporation tax is a Edward Davey: The export control organisation feature. I think the story the Government has to tell reports to Mark Prisk. I am not sure whether you have on corporation tax is one that is widely welcomed. had any evidence from him in any of your inquiries. I The UK Patent Box announcement was extremely know that he wants to ensure that it is operating as helpful in regard to the overall tax profile as an effectively as possible and that there is efficiency attractive destination of choice. where it needs to be. He is the Minister overseeing There are other matters like public infrastructure. The this. kindest friends of this country would not say we have a world-class public infrastructure, and there is a Q524 Chair: We will ask him in due course. I move task—this goes back to something I said earlier—over to RDAs and LEPs. Some of this we have already the next 10 years to make sure we invest adequately covered, and I will not repeat it. Is there any concern in our public infrastructure: transport, energy, water, that there is mission creep in the role of LEPs, waste and broadband. Broadband is very important to particularly with their proposed role in inward the SME world, though not particularly relevant to investment? We have had some discussion on this FDI. One way or another we need to make sure that already. Given that this was a constant complaint we are not complacent and continue to support about the RDAs, can you see this happening with the inward investment. LEPs? I do not think there is any good reason to believe that Lord Green: Obviously, it is early days for the LEPs. we are on a downward trend in terms of loss of share I have met with three chairmen of LEPs. That is only of opportunity. It is the case that the UK brand, if I can use that phrase, is still widely regarded and respected a subset of them of course, but I have been very around the world. People do want to invest in this impressed by the way they are coming together. They country. When I was on a trip two weeks ago to the are chairmen who clearly know which way is up and Middle East with the Prime Minister I met, together have good business representation. By their accounts, with the chairman of Infrastructure UK, the Qatar there is good and supportive local authority Investment Authority. It is very clear that there is representation. In all three of the particular cases I potential interest there. have met, there is very good representation of the relevant university engineering faculty on the LEP. It Q526 Simon Kirby: To play devil’s advocate, does is early days but I think that in those cases they are Pfizer pulling out of the UK and businesses’ concerns off to a good start. about airport capacity tell us something about our Would mission creep mean that they would get in the inward investment strategy? way of the contract that UKTI let on inward Lord Green: I do not think Pfizer does. I think the investment? In some senses it would be a nice position of Pfizer was rather specific to that problem to have, because it would mean everybody company’s particular circumstances. I think there is a was becoming focused on the topic. Overseas, I think wider issue about the pharmaceutical industry and the it is rather less likely that there would be the kind of way in which it goes about supporting primary problem that we have experienced with the RDAs in research that affects the whole of the pharmaceutical some parts of the world, where RDAs have industry and will impact the research base in this established overseas offices or sent out missions, often country that is owned by the major pharmaceutical not on a properly co-ordinated basis. I have to say—I companies. Work is being done on that. David Willetts would have said it even before I got into this job— is the Minister responsible for that. I do not know that the evidence of the external impact of the RDAs whether you have taken evidence from him, but there was distinctly mixed. I am not a pessimist in this. It is no point in denying that there are significant shifts is my view that as the thing beds down, LEPs are going on in the way that industry supports primary probably a genuine improvement from the point of research that have implications for the UK. We need view of trade and investment. to attend to that. I do not think that is evidence of a wider dissatisfaction with the UK as an investment Q525 Simon Kirby: On inward investment, we heard base. from Susan Haird on Tuesday that in trade and We all know the position on the third runway. The investment, there was to be no refocusing between Government has made a decision about Heathrow in inward and outward investment, and you have said particular. I do not think that is up for re-examination. today that the changes in the money available will not The transport infrastructure ambitions set out in cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
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10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford
Infrastructure UK make a lot of sense to me. We need Edward Davey: A point often missed when we are to work at it. As I have said, I am afraid there is no talking about trade and infrastructure is that our ports magic wand on transport. A lot of things are going are very important. I think we will see significant on, for example things like Crossrail. We took a long improvements in the infrastructure round our ports time to get there, but the fact it is now being done and also the services that facilitate trade at the helps the image of London. borders, particularly the ports. A lot of work is being done, which is covered in the White Paper, but I think Q527 Nadhim Zahawi: I want to push you a little that sometimes we should put rather more emphasis further on that. We talk about the UK as being a global on that kind of thing than is done normally. hub. I think there is credibility in that claim because we have many things here that are incredibly Q529 Simon Kirby: Lord Green, are you aware—I attractive to inward investors. Not least among them am sure you are—of the widespread worry amongst are the fact that we own the language of international universities and businesses about the change in trade, and the time zone. immigration rules? Lord Green: The system of law. Lord Green: Yes. Nadhim Zahawi: Quite right. But Mr Kirby touched on one thing that I think is problematic: transport Q530 Simon Kirby: And have you had—this is infrastructure, particularly airports. Heathrow is not fit possibly the most important and significant question for purpose. You talk to many businesses. In my of the morning—some fairly robust conversations previous life in business, you would do anything to with your Cabinet colleagues? avoid going through that hub. The competition will Lord Green: To be clear, I am not a member of not come from Frankfurt or Paris; it will come from Cabinet. Singapore, Dubai and elsewhere, where they are building five-runway airports on top of what they have Q531 Simon Kirby: No, but you chair a sub- currently. We seem to be treading water when it comes committee of it. to our claim to be a true global hub. I hear what you Lord Green: Yes, and Damian Green is a member of have just said in response to Simon, but perhaps I may that committee. The process of consultation on push you a bit further. If we are serious about it, we education has been completed. The Government is ought to look at this at some point. If not, we should working out what it wants to say and it will announce stop attempting to compete with these other hubs. when it is ready. I think there has been an extremely Lord Green: Let me push back a bit. I do not think robust dialogue and conversation amongst the various Heathrow is not fit for purpose. I have travelled Government Departments involved in this about through Heathrow more times than I have had hot making sure we land in a reasonable space given the dinners. It is not the world’s leading airport, plainly, overall objective of the Government to reduce net but to say it is not fit for purpose— immigration significantly. I think we are all aware of the background to this: the public desire for an approach that the coalition Q528 Nadhim Zahawi: How many times have you Government now seeks to implement. On work been stuck in the air circling Heathrow? permits, I think we have landed in a reasonable space Lord Green: More times than I have had hot dinners. but we need to ensure that this beds down in a way Nadhim Zahawi: There you go. that does not create unnecessary or ridiculous hard Lord Green: But also over other major airports, too. cases, and that we do not shoot ourselves in the foot. It is a feature of modern life. I happen to believe that We are at an earlier stage in that in education. I can Terminal 5 is one of the best terminals there are. I assure you that both I and Vince Cable are very well think that by the time they finish the redevelopment aware of this as an issue. of Terminal 2, the terminal situation in Heathrow will not be too bad at all. The issue clearly is the third Q532 Chair: I want to move on to a very important runway. The Government has made a decision on that. specialist area: trade finance, in particular the We will not be in a position where we can compete implications of Basel III. We have had evidence from with airports that have five runways, and we have to bankers about their concerns on how trade finance will be realistic about it. be treated under Basel III. What representations is the The second comment is that you are dead right: we UK making to the Basel Committee to prevent a are a global hub, and we trade on some very deep- potential reduction in available finance for business? seated advantages in that; you have mentioned some Lord Green: First, it is the Treasury that represents— already—there are those that have to do with Chair: I recognise that, but obviously BIS has a very geography, the time zone, and the English language. I strong interest. think the legal system is important, as is critical mass. Lord Green: Basel III does indeed have a potential, The prevalence of foreign language schools for not necessarily an actual, implication for trade finance. expatriates who want to come here is important. There Other things being equal, it would require more is a whole variety of things that add up to a hub. We capital to be held against a trade finance instrument will not score top in the class in every single than would have been the case hitherto, and we may parameter. Frankly, we are unlikely to score top of the need to make sure that does not have perverse effects. class in airports, but it is only one of the parameters. Negotiating over Basel III has some characteristics in We have to be careful not to undersell ourselves, if I common with negotiating about Doha through the may say so. Heathrow is not that bad. 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10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford will not necessarily win it. It is our job to represent the 35 countries. There are now more business interests of getting this right. The interests are quite ambassadors than there were before, so one would complex. There is a public interest in making sure the expect that number to go up quite considerably. We financial system learns its lessons and is taken forward also have the Catalyst organisation that I described on on a basis that is stable, profitable and liquid, as well Tuesday, which by next year will consist of 500 as serving the needs of the real economy, and people who also fulfil ambassadorial roles for the UK. weighing up all the considerations that lie behind that Lord Green: And a further opportunity yet to be apparently simple phrase is not easy. I can assure you developed—an idea that came from Ed, in fact—is the that the Treasury is well aware of the issue and, in the notion of using the diaspora in this country of people process of discussions, continues to make the point. with connections. South Asia is an obvious part of Would we want to see the whole Basel III agreement the world but not the only one. Making use of their unravelling by starting to unpick it, with others connections with and enthusiasm for being in this unpicking other bits of it? No, we would not, because country as part of support for exports into their it is in our interests to have Basel III in and bedded countries of origin is something we have not tapped down. and we should look at. Edward Davey: I borrowed it from the Swedish Q533 Chair: I assume you are aware of the research Trade Minister. done by BAFT-IFSA on the default ratios of trade Lord Green: We are all busy handing out finance, which were much lower than any other areas, compliments to somebody else. and that these points are being made. Lord Green: Yes. Q536 Chair: I was going to raise the issue of a representative from the creative industry, but that has Q534 Chair: I turn to a subject that has been much previously been made by Simon Kirby and I think it in the news of late: British business ambassadors. To is understood. I would be pleased if you could look at start with perhaps the obvious one, can you provide that. I think it is fair to say there were some concerns us with an assessment of the level of work undertaken from Airbus about Sir Roger Bone of Boeing being by Prince Andrew in his role as a British business made a British business ambassador. How do you ambassador? justify that role when Boeing is an American company Lord Green: Yes, I can. I think Prince Andrew works with legal cases before the WTO against the EU that very hard for the cause. He is an energetic traveller; profoundly affect Airbus UK? he has done a number of missions. I have seen him Lord Green: I might point out that we also have a myself; when I was in Davos he was there hosting representative of Mercedes as a British business what I thought was a very successful reception for ambassador. British business. Q537 Chair: Yes, but I do not think it is bringing Q535 Chair: I stress that my next question is in court cases against a British company. effect to cover the effectiveness of the full team of Lord Green: That’s as may be, but one should not British business ambassadors. Basically, how do you think you can measure their success and the strategy? prejudge court cases. I should like to make three Do you think you are making the most of them? comments that I believe are quite important. First, it is a strength of this country that, when we develop Lord Green: First, I do not think you can easily measure the success of that kind of role. We are representation like that, we are able to have it as a kidding ourselves if we think we can use hard metrics very international representation. It precisely speaks and say that in year x a particular ambassador to the international openness of the hub that we talked achieved y and therefore did or did not perform about a few minutes ago, which is its distinguishing according to standard. This is a much more intangible characteristic. Secondly, they are all members in their thing than that. We have refreshed the membership of personal capacity. Thirdly, Boeing is a significant the British business ambassadors. I had a breakfast investor in this country, and provides quite a lot of with them yesterday, because I chair them on behalf jobs here and awards quite a lot of business to British of the Prime Minister. They are a broad-based group. companies, so I would not make any apologies for By the way, they do cover at least some members of having Roger Bone amongst the ambassadors. the creative industry, although we may want to see whether we can add one or two. Q538 Chair: That may be a fair point, but equally it What I can report to you from that meeting and a seems odd that there is no Airbus representative there. previous meeting last year is that there is an immense Lord Green: Like I say, they act in their personal amount of enthusiasm and commitment to devote capacity. We do not have all the car-makers personal time to it. We need to remind ourselves every represented there either. If we started saying that, we now and then that they are unremunerated. There is would have a very large group of business huge enthusiasm for the cause, if I may use that ambassadors. We just have to manage this sensibly. word—the task of making sure that Britain’s trade and investment performance is as strong as it can be. I am Q539 Chair: I think it is fair to say that there is some very energised and excited by the contribution they concern that this area is not being managed as appear to be willing to make. effectively as it might be. Susan Haird: Since they were set up in October 2008, Lord Green: I do not think I would accept that, with between them they have done 120 events in more than respect. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG07 Source: /MILES/PKU/INPUT/010554/010554_o007_kathy_No7-10Mar. 2011 [CORRECTED].xml
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10 March 2011 Lord Green of Hurstpierpoint, Edward Davey MP, Susan Haird and Patrick Crawford
Q540 Nadhim Zahawi: One point that appears quite personal capacity to support British business in stark to us is that the number of people employed in general. the UK at Airbus is 15,000, whereas Boeing employs 800 or 900. Q542 Chair: I am giving you the opportunity to Lord Green: We have to guard against what happens challenge that perception. if Bombardier then says, “Well, in that case we would Edward Davey: Thank you. like to be on it, too.” What happens if you say, “Since Chair: I think it is incumbent on this Committee to Mercedes is on it, let’s have…” You can see where make it clear to you that there is some disquiet about this goes if you are not careful. that. I think that concludes our questioning. I finish by saying that if on reflection you feel that there is any Q541 Chair: But I think it misses the point. This is further evidence you would like to give us in response a much higher public profile issue than the others, and to any of the questions we have asked, please feel free it creates a perception that is perhaps at odds with to do so. Thank you for a very helpful and what we wish to achieve with the British business comprehensive range of responses to a very ambassadors. comprehensive range of questions. I also emphasise Edward Davey: It is important to challenge that that we will probably want to come back to you on perception when it is wrongly taken. I emphasise what one or two elements to see how it is actually working. Lord Green says: these people are operating in their Thank you very much. cobber Pack: U PL: CWE1 [SO] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08
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Written evidence
Written evidence from the Department for Business, Innovation and Skills (UKTI and ECGD) 1. Executive Summary Steps to encourage exports and inward investment The Government appreciates the key role that exports and investment will play in driving growth over the next few years. As outlined in section 5 of this evidence, actions are being taken to encourage exports and inward investment, recognising that they provide significant benefits to the UK economy through boosting productivity, innovation, R&D, and generating increased profit, sales and jobs. UK Trade & Investment (UKTI) helps UK-based companies to develop their capacity to trade and to maximise their international success. UKTI also helps bring high quality inward investment to the UK’s economy, providing support and advice to investors at all stages of their business decision-making. The focus of UKTI’s support; the range and effectiveness of trade and inward investment services it offers; the overseas and UK networks it has established; and relationships with the Regional Development Agencies and Devolved Administrations, are detailed in section 5.1, along with an overview of UKTI’s effectiveness and efficiency. The Export Credits Guarantee Department (ECGD) provides assistance to industry in two main ways: first, by supporting loans to overseas buyers to purchase goods and services from UK exporters, and, second, through providing insurance directly to exporters and investors overseas against the risks of not being paid. ECGD principally supports exporters of capital goods and services and has a small customer base, although hundreds of companies, including SMEs, indirectly benefit from that support through the supply chains of these exporters. The recent economic downturn has seen an increase in demand for ECGD support. ECGD’s response included introducing its first new product for many years. Its levels of new business have risen materially (more than 50%) over the last year; this looks set to continue. Although the business supported by ECGD represents less than 1% of UK exports, ECGD remains an important source of support for certain industrial sectors, such as civil aerospace and process engineering for the oil and gas sectors. The Government is clear that exports and investment will be the key drivers of growth in the next few years, providing significant benefits to the UK economy through boosting productivity, innovation, R&D, and generating increased profit, sales and jobs.
UK Trade & Investment UK Trade & Investment (UKTI) is the government organisation that helps UK-based companies succeed in the global economy, tailoring its services to the needs of individual businesses to help them maximise their international success. UKTI also helps bring high quality inward investment to the UK’s economy, providing support and advice to investors at all stages of their business decision-making. Current economic challenges mean that UK businesses must be flexible, innovative and able to seek out opportunities throughout the world. UKTI services help to position UK companies as the global trading partners of choice, promoting and building the UK’s reputation, and working to attract high-value investment to the UK, with support focused on: — strengthening the social networks (contacts, knowledge, advice, etc) that underpin international trade and investment flows, helping individual businesses to gain access to key contact networks by acting as a trusted intermediary; — building and strengthening the capability of innovative and high growth businesses to maximise their chances of succeeding in international markets; — providing access to information and advice the private sector alone would not or could not provide, both to inward investors and to potential UK exporters; — building UK reputation as a backdrop for potential investors/overseas buyers; and — facilitating co-operation among businesses, enabling them to work together to overcome barriers and develop international trade and investment opportunities.
Trade Services UKTI trade services help companies from all sectors who can lead sustainable UK growth. Helping these companies to gain access to new business overseas enables them to generate additional revenues and to maximise the returns on their investment in R&D and innovation, thereby increasing resources available for them to invest in growth and innovation. Many customers also improve their products and services by gaining exposure to new contacts and new ideas. UKTI offers a range of support services to UK companies, providing individually tailored packages of practical assistance to help them develop the capacity needed to trade internationally, including: — Access to a local International Trade Advisor to help develop a plan of action; cobber Pack: U PL: CWE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08
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— Specialist help with tackling cultural and language issues; — Advice on how to go about market research; and — Ongoing support to help businesses continue to develop their export potential and enter new and more sophisticated markets. Once the initial research has been done, UKTI can assist new and experienced exporters with information, contacts, practical assistance, advice, mentoring and ongoing help before they go overseas and while they are there, including: — Tailored information and advice about the market (normally a chargeable service), which can include identification of relevant business contacts, and facilitation of introductions, for example through arranging meetings or networking opportunities on the client’s behalf; — Alerts to the latest business opportunities through its website; — Support to participate in trade fairs overseas; — Opportunities to participate in sector-based trade missions and seminars; — Access to major buyers, governments and supply chains in overseas markets; — Advice on forming international joint ventures and partnerships; — Exploratory visits to new markets; — Access to marketing toolkits and support on marketing overseas. Independent evaluations of the effectiveness of trade services carried out for UKTI consistently find strong firm-level impacts and high benefit:cost ratios, demonstrating a very cost effective means of enabling UK exporters to exploit overseas markets and facilitating stronger growth. UKTI helped 23,600 UK businesses in 2009–10, with the latest independent surveys showing that: — British companies attributed an additional £5 billion to their bottom line profits as a result of working with UKTI, up from £3.6 billion the previous year, representing £19 benefit for each £1 spent on UKTI trade services, up from £16:£1 the previous year. — The £5 billion additional profit reported by UKTI clients represents over £35 billion additional UK exports generated as a direct result of the support UKTI provided. — 41% of UK companies reported new or safeguarded jobs as a result of using UKTI trade services, with 23% reporting the former. — 67% of UKTI customers reported significant business benefit from upgrading their approach to overseas markets, gaining access to contacts and information not otherwise accessible, and overcoming legal or regulatory difficulties or cultural differences affecting access to opportunities overseas. — 39% of UKTI clients expect substantial growth over the next five years compared with 23% of other UK exporters. Some 87% of UKTI trade clients expect at least moderate growth, as compared with 78% non-user exporters. UKTI users are also more likely to have grown substantially over the previous five years. — On average, UKTI trade support generates an additional £65k of R&D per trade client. This reflects the important role trade support plays in increasing UK innovation capability and R&D; — Some 53% of all businesses assisted through UKTI trade services, to the end FY 2009/10, improved their business performance as a direct result of UKTI support. — UKTI helped 23,600 UK businesses during 2009–10, up from 20,700 the previous year. Combined with the increasing average impact, this reflects a real rise in productivity. — 60% of UKTI users, and 40% of non-user exporters expect to be selling to a larger number of markets within three years. 66% of UKTI trade clients, and only 43% of non-user exporters, expect to increase the export proportion of their turnover over this period. — Users are much more likely to be in high growth markets (61% vs. 44%), and also to be giving these markets more attention in response to the downturn (33% vs. 23%); — UKTI users are more likely to plan to increase exports in response to the Sterling depreciation (47% vs. 37%), and more likely to have benefited from the depreciation overall (33% vs. 25%);
Inward Investment Services High quality inward investment creates jobs and stimulates productivity growth in other firms, via competition effects and knowledge spillovers. UKTI is the national lead for delivering foreign direct investment, providing a free, bespoke and confidential service to potential inward investors on a range of issues, dependent on the company/project nature and requirements, and the stage of development. UKTI Account management teams are constantly working with some 2000 investment projects that are in the pipeline for the UK at any one time. Investment services include: — Segmentation and bespoke proposition development—to ensure a tight focus on the needs of high value investors in making global location decisions. cobber Pack: U PL: CWE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08
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— Outstanding access to Government and other networks relevant to the success of investment projects and ensured by client relationship management of the 200 most strategically important investors led at a senior level in UKTI, BIS or another directly relevant Government Department. — Targeted marketing to cover subjects such as the UK business environment, sectoral and sub- sectoral information, and bespoke sales information, all the way to key information needed to reach the final decision to invest in the UK. — A systematic investor development programme to ensure UKTI remains a high value-adding partner for those investors growing their business in and from the UK. Foreign-headquartered companies that have a UK presence can also avail themselves of the full range of UKTI export services. UKTI’s investment network helps Government to develop a better understanding of investor concerns and ensure that investment drivers are considered in all areas of policy development. UKTI regularly raise with Whitehall Departments issues such as planning, transport infrastructure, migration, and skills availability. Evidence shows that help from UKTI can have significant influence on investor decisions, resulting in a more than seven fold increase in High Value Foreign Direct Investment (FDI) over the past four years, helping to maintain the UK as a top location in Europe for inward investment, and globally second only to the USA. In 2009–10, UKTI played a role in securing 759 investment projects into the UK—almost half the total UK figure of 1,619 and a 26.5% increase on the previous year. These projects have helped create some 47,000 jobs (more than 32,000 new jobs created and some 14,000 jobs safeguarded), a 61% increase on 2008–09. Over 70% of inward investors report some significant influence from working with UKTI, most often through enabling the inward investor to overcome barriers to accessing information and contacts. Within this, 49% said UKTI had influenced their decision to locate in the UK. Some 57% report significant business benefits as a result of UKTI help enabling them to overcome such barriers.
Overseas and UK Networks UKTI works across both BIS and the FCO, with some 1,300 people delivering services in 162 locations in 96 overseas markets, covering in excess of 98% of global Gross Domestic Product (GDP). This overseas presence is bolstered by the formation of a new UKTI-FCO Commercial Task Force that will drive a central commercial imperative into all aspects of FCO activity to support the whole of government to deliver for UK business. In the UK, UKTI works with businesses in a variety of ways, including engaging private sector organisations to deploy local networks of specialist trade advisers who are able to offer help to exporters and potential exporters across England. UKTI also has sector-based teams working closely with key industry partners nationally to direct the UK’s export efforts in a number of important sectors. UKTI also works closely with external partners, engaging with Chambers of Commerce, Universities, banks and the business representative organisations such as the CBI and IoD. Nationally, UKTI sector teams work closely with a wide variety of trade associations, major UK corporate businesses and key people from the sectors with global business experience.
Regional Development Agencies and Devolved Administrations UKTI’s local networks are currently organised regionally along the same geographic lines as the RDAs. While UKTI delivers trade development support as part of a UK strategy, our teams in the English regions have always maintained a close dialogue with RDAs, ensuring trade development work is aligned with the economic development work of the RDAs and giving UKTI visibility of the broader economic strategies being pursued by the RDAs. UKTI expects to maintain these close working relationships locally once the new Local Enterprise Partnerships are created. UKTI is already working with BIS and the RDAs to establish the most effective and efficient way of continuing to provide essential support at a sub-national and local level for foreign direct investors. Detailed structures, functionality and costings of a new delivery model will be developed, with the aim of implementing the new arrangements from 1 April 2011. At the BIS Select Committee session of 20 July, the point was raised that a disproportionate number of UKTI involved projects went to London and the South East compared with the regions in the North (North West & East and Yorkshire & Humberside). Historically, London has taken around 40% of all involved investment projects. However, many of these would be an initial footprint, creating a small number of jobs; expansion to other regions would often follow. The Devolved Administrations (DAs) have fully devolved powers for all trade and investment activities. As well as delivering their own suite of services to local businesses, the DAs have access to the majority of UKTI services, including the resources available from the commercial teams in overseas Posts. UKTI maintains good working links with all three DAs and co-ordinates UK wide activities through the International Business Development Forum, on which the DAs play an active role. cobber Pack: U PL: CWE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08
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UKTI Effectiveness and Efficiency UKTI is assisting more businesses than ever at a diminishing cost to the taxpayer. Over the last three years, UKTI has cut the average cost of assisting business by 25% from around £14k to around £10.5k now. Over this same period, the quality of our work and the satisfaction of our trade customers have remained steady, and the number of businesses who have recorded improved performance as a result of working with UKTI has increased. Taken together this is a strong demonstration that UKTI is becoming more efficient and effective while maintaining the standard of service to our trade customers. UKTI supports overseas companies looking to invest or expand their operations in the UK, through managing relationships and working closely with key clients. Consequently, efficiency and productivity are not measured in exactly the same way as trade services. We undertake an extensive analysis of the effectiveness of our Inward Investment network, providing a rigorous assessment of performance that allows us to optimise our use of resources. The average cost of UKTI’s support to each inward investment project has greatly reduced over the last three years, dropping by 27% from around £147K to £107K. This is set against a backdrop of continuing delivery of high value inward investment wins, which further demonstrates UKTI’s efficiency and effectiveness.
Export Credits Guarantee Department Introduction ECGD is the UK export credit agency (ECA). ECGD supports UK exports and investments made overseas by issuing insurance contracts to exporters and investors and guarantees to banks that make loans to overseas borrowers. ECGD does not lend directly. Most industrialised nations have an ECA that supports exports by providing government-backed guarantees, insurance and sometimes loans. The status of ECAs varies: in some countries private companies write business for the government account (France, Germany), while in others they are public bodies (the Canadian ECA is a Crown corporation). ECGD is, uniquely, a government department.
Regulatory framework ECGD’s operations are bound by: (i) statute (the Export and Investment Guarantees Act 1991, as amended by the Industry and Exports (Financial Support) Act 2009) and its standing consent from HM Treasury; (ii) government policy that ECGD should: (a) complement, not compete with, the private market; (b) price to risk and to comply with its financial objectives; (c) operate at no net cost to the taxpayer; (d) seek to achieve a level playing field internationally among government-backed ECAs; and (e) take account of the Government’s wider policies in the exercise of its primary purpose of supporting UK exports and overseas investments; (iii) international agreements that emanate from the WTO (the Agreement on Subsidies and Countervailing Measures), the OECD (principally the Arrangement on Officially Supported Export Credits), and the EU (the Short Term Communication). As a public body, ECGD must also comply with the Freedom of Information Act and the Environmental Information Regulations. Exporters, banks, buyers, project sponsors and overseas governments who seek ECGD support must be aware that information provided to ECGD may be disclosable publicly in accordance with the terms of freedom of information legislation, even where that party may consider it to be sensitive or commercially confidential. Although ECGD enters into private law contracts with exporters and banks, as a public body ECGD’s decision-making must comply with its public law obligations and, accordingly, can be challenged through Judicial Review.
Business Operations Operating model Unlike a private sector insurer or bank, ECGD does not seek to create demand but to respond to it (see also customer base and market awareness below). ECGD must be satisfied that the transactions it supports are acceptable in terms of: — Credit risk—transactions are assessed in order that ECGD can be satisfied they meet its minimum risk standards, which are set with the aim that ECGD will meet its financial objectives. ECGD charges premiums that reflect the risk and to recover its operating costs; cobber Pack: U PL: CWE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08
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— Environmental and social impacts—transactions must meet international standards as required by the OECD Revised Council Recommendation on Common Approaches on the Environment and Officially Supported Export Credits; — Bribery and corruption—ECGD takes precautions that no corruption is involved in the transaction as far as ECGD can reasonably ascertain, in compliance with the OECD Council Recommendation on Bribery and Officially Export Credits; and — Sustainable lending—where the export is to an IDA-only1 country or to a country subject to the non-concessional borrowing policy of the IMF, ECGD must satisfy itself that the provision of export credits reflect sustainable lending practices (that it supports a borrowing country’s economic and social progress without endangering its financial future and long-term development prospects), while at the same time preserving the country’s debt sustainability. This is in accordance with the OECD Principles and Guidelines to Promote Sustainable Lending Practices in the Provision of Official Export Credits to Low-Income Countries. These requirements may constrain ECGD’s ability to be flexible in the provision of its support for exports.
Business domain Since 1991, following the privatisation of ECGD’s Insurance Services Group which was responsible for providing trade credit insurance for exports such as raw materials, consumer durables, components or light manufactures, sold on short terms of credit (usually up to 180 days), ECGD’s role has been principally to support exports of capital and semi-capital goods and services, normally, but not exclusively, sold with medium/ long-term credit (two to 15 years). Such exports include commercial aircraft, construction projects, defence, and hydrocarbon and telecommunications-related equipment and services. In common with most other ECAs, ECGD is able to support “foreign content” included in an exporter’s contract, usually in situations where certain goods cannot be sourced domestically, the buyer requires certain goods to be sourced from other countries, or UK prices are too expensive. ECGD requires a minimum of 20% UK content.
Volumes of exports supported Over the past decade there was a gradual decline in the amount of exports supported by ECGD (see Annex A), largely as a result of the changes in the pattern of capital goods manufactured in the UK, and the benign risk conditions that prevailed over most of this period causing support to be provided by private markets and not from ECGD. The economic downturn in 2008–09, however, led to a material increase in demand for ECGD support, largely due to the scarcity and increased cost of credit internationally and to a deterioration in the global risk environment. As well as receiving more applications for support in emerging markets, ECGD has also been requested to provide support for exports to developed markets which previously had not required such support because insurance and finance could be readily obtained from private markets. In 2009–10, ECGD supported £2.21 billion of new business (up from £1.46 billion in 2008–09), due primarily to an increase in Airbus transactions. ECGD expects to see a further material increase in the amount of exports it supports by the end of this financial year (March 2011), possibly by over 50% by comparison with the previous financial year. The increase in demand has been across a number of sectors, led principally by civil aerospace and the oil, gas and civil construction sectors. ECGD’s total exposure to credit risk is just under £16.5 billion (July 2010). A consequence of the downward trend in business over the last decade was a reduction in ECGD’s premium income, part of which finances the cost of its operations. ECGD accordingly took steps to increase its operational efficiency and effectiveness and to cut its cost base, including reducing staff numbers from an average of 366 in 2003–04 to 207 in 2009–10. Despite the recent increase in demand, ECGD expects, without negatively impacting on its ability to support exporters, to reduce its staff numbers further over the lifetime of this Parliament in compliance with government policy to reduce the costs of the public sector.
Customer base and market awareness ECGD mainly supports a core of large exporters, particularly Airbus and Rolls-Royce. It does provide support to SMEs under the Sovereign Star Trade Finance facility, which is a financing programme aimed primarily at supporting SME export contracts. The exporters supported since April 2000, including SMEs, are detailed at Annex B. Many hundreds of other companies, however, have benefited from ECGD support indirectly through supply chains. Since the onset of the economic downturn, ECGD has received inquiries and applications for support from a wider range of exporters than in previous years. 1 IDA-only: countries that are only eligible for concessional loans from the IDA, International Development Association of the World Bank group cobber Pack: U PL: CWE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08
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Within the resources available to it and consistent with not competing with the private sector, ECGD actively promotes its products to the exporting community, both directly and through trade bodies and banks, with the aim that exporters should be aware of them and, where appropriate, take advantage of them. Over the last two years, ECGD has particularly sought to make contact with UK renewable energy companies so that they are aware of how ECGD may assist them to expand their export efforts. ECGD also promotes its products overseas, particularly to project sponsors engaging in substantial investment programmes with the aim that their procurement decisions should take into account the availability of ECGD-backed finance in order to assist UK exporters pursuing business.
Collaboration with UKTI Although much of UKTI’s business is not directly related to ECGD, the two organisations collaborate, both domestically and overseas, to exploit opportunities for UK exporters. This has been especially close in the oil and gas sectors.
Other Issues Trade credit and short-term credit insurance Before ECGD privatised its Insurance Services Group operations, it was effectively a monopoly provider of short-term trade credit insurance. Following the sale of the business to NCM (now Atradius) in 1991, other private credit insurers, including Coface and Euler Hermes, entered the UK credit insurance market. This brought more competition, leading to greater choice, more products and lower premiums for UK exporters than previously available from ECGD. The economic downturn in 2008 and 2009 saw a global reduction in the availability of private trade credit insurance, principally because of the deterioration in the risk environment that led to a sharp increase in claims and related underwriting losses for insurers. As a result, UK exporters experienced sudden withdrawals and/or reductions of insurance limits on their buyers and an increase in premiums which hampered their ability to fulfil export orders. Moreover, some exporters faced constraints on obtaining finance from banks that had relied on the existence of short-term trade credit insurance as a form of risk mitigation for their lending. In the face of the problems that existed in the short-term trade credit insurance market, the European Commission issued a temporary waiver of its Short Term Communication in 2009. This Communication bans governments of Member States from providing short-term (below two years credit) support for commercial and political risks involving trade within the European Union and exports to certain “rich” OECD markets (including Australia, Canada, Japan and USA), these being the dominant destinations for UK exports. Of the total £227.5 billion UK exports of goods to all destinations in 20092, around 75% of goods exports went to this group of markets. Total exports of goods to the EU were £124.3 billion (54.7% of the total) and total exports to Australia, Canada, Japan and the USA were £43.8 billion (19.3%). The waiver allowed EU governments to seek approval from the Commission for interventions that addressed this shortfall in short-term credit risk capacity, subject to meeting certain tests that demonstrated market failure. A number of Member States (but not the UK) obtained such approval. The waiver is due to expire at the end of 2010; the Commission is expected to engage with Member States on exit arrangements. The Communication is also due to expire at the end of 2010 and the Commission is considering the basis of its renewal. More recently, the trade credit insurers have advised the Government that new capacity has been entering the reinsurance market for trade-related risks, so that they have been able to reinstate cover that had been withdrawn or reduced subject, as previously, to the acceptability of risks on individual markets and buyers. Although there are reports that problems still persist for some exporters, there are currently no plans for ECGD to intervene, whether on a direct basis (which would be very difficult as it does not have the staff, products or systems to provide such support without substantial investment) or indirectly through private trade credit insurers by way of reinsurance.
Letter of Credit Guarantee Scheme Following a Public Consultation, ECGD launched a Letter of Credit Guarantee Scheme (LCGS) in October 2009. This provides support for exporters who export on short terms of credit to countries not covered by the EU Short Term Communication with the benefit of payment security under letters of credit. Under the scheme ECGD provides partial guarantees to banks against the non-payment of letters of credit opened by foreign banks on behalf of buyers which they confirm, thereby providing a secure means of payment for exporters. This product was designed to provide additional risk capacity to UK banks who confirm letters of credit for UK exporters in response to capacity constraints in the trade finance market. Six UK-based banks are participating in the scheme, which covers more than 300 overseas banks in more than 30 countries. So far, the LCGS has supported five UK export transactions involving confirmed letters of credit totalling just under £3 million. The scheme is due to close on 31 March 2011. 2 Source: ONS Pink Book 2010. cobber Pack: U PL: CWE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08
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Possible bond support scheme ECGD provides insurance for exporters against the unfair calling of performance and related bonds issued on their behalf by UK banks and in favour of overseas buyers. Exporter organisations have pressed ECGD to provide support for the raising of such bonds, where banks are unwilling to do so. There appears to be some evidence that some exporters are facing constraints in obtaining such bonds from banks and that there may be insufficient bank lending capacity to support very large value bonds involving creditworthy mid-sized companies. ECGD is exploring whether and on what terms it might provide assistance. A decision is expected later this year.
Fixed Rate Export Finance Under its Fixed Rate Export Finance (FREF) scheme, ECGD provides interest make-up support to banks which fund export credit loans to buyers at internationally agreed fixed rates of interest. The future of the FREF scheme is under review, given that it is now little used and there are market alternatives. This review has included a public consultation launched in January 2008 with an interim response from the Government and with successive extensions to the scheme until 31 March 2011 (unless exhaustion of its remaining budget requires earlier closure). A decision is expected later this year.
Public Consultation on Business Principles In 2000, ECGD adopted certain Business Principles to guide the way in which it conducted its business. Earlier this year, following a public consultation, these principles were substantially revised, largely because the international agreements (see above), which govern the activities of ECAs, had been adopted since 2000. Moreover, the Government decided that ECGD should no longer operate policies which separately and additionally went beyond those international agreements in order that UK exporters should not be put at a competitive disadvantage.
Sovereign debt and debt forgiveness Debt is owed to ECGD where it has supported business with overseas governments and subsequently claims have been paid. The UK is committed to providing 100% debt relief to countries qualifying for the World Bank/IMF HIPC3 Initiative. For this group, ECGD has already written off about £1.5 billion of debt. The remaining £750 million owed to ECGD by HIPC-qualifying countries is expected to be written off as countries comply with the terms of the Initiative. In the meantime, these countries are not required to make interest payments on their debts. This means that resources that would otherwise have been spent on debt service to ECGD can be directed at poverty reduction.
New claims Despite the economic downturn in 2008 and 2009, to date ECGD has continued to face a low level of new authorised claims over the last five years: none in 2005–06 or 2006–07; two new claims totalling £4.6 million in 2007–08; one new claim for £4.1 million in 2008–09; and one new claim for £0.5 million in 2009–10.
Developments over 2008–09 Given the importance to Airbus of export credit support from France, Germany and the UK, ECGD continued to work with its French and German counterparts to align their working practices more closely to improve their service. During 2008–09, ECGD was able to take forward its co-operation arrangements on this business, involving the provision of a form of re-insurance support in most cases. Under these arrangements, one of the three ECAs fronts the transactions with the buyer; the other two provide support to the lead ECA. Airbus has welcomed the efficiency benefits from these measures. In the economic downturn of 2008 and 2009, there were concerns about the availability of sufficient funding from bank markets for guaranteed export credits. In the event no ECGD-supported export failed to be put in place due to insufficiency of bank funding. ECGD has further agreed to support for funding from capital markets to supplement finance available to exporters; the first such issue took place in June 2010. As a result of the economic downturn and an increase in enquiries from exporters, ECGD adopted in November 2009 a more open policy towards medium-term business in rich markets4, which it had hitherto left to the private sector.
Conclusion ECGD support for industry is concentrated on those companies that export, and particularly those which export capital goods and services. Despite its very low proportion of total UK exports, ECGD support is of 3 Heavily Indebted Poor Country 4 A “rich market”, also known as a “category zero” market, is a high income OECD or non-OECD country as defined by the World Bank for the purposes of the OECD Arrangement. cobber Pack: U PL: CWE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08
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key importance to several leading sectors. ECGD is responding to higher levels of new business in response to the needs of exporters where the risks to the taxpayer are acceptable. 24 September 2010 cobber Pack: U PL: CWE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08
Business, Innovation and Skills Committee: Evidence Ev 139 2010–11 Annex A 50 million and which do not have a parent that falls outside of this criteria. SME at time of € ECGD BUSINESS: FY 2000–10 3273240231 2 underwriting may have been taken over later by a larger company. — A small— number of insurance SMEs policies/guarantees refers issued to have enterprises not with been fewer disclosed than for 250 reasons staff of and commercial turnover confidentiality. of less than AerospaceCivilDefence 22% 48% 30% 22% 31% 47% 15% 50% 35% 23% 39% 38% 32% 38% 30% 47% 23% 30% 29% 42% 29% 30% 57% 13% 73% 26% 1% 90% 9% 1% 55% 42% 3% Value of business supportedValue of business supported by Sector: £5,662m £3,298m £3,532mNumber of Guarantees/Policies issued in £2,991m FY of which were issuedSMEs: to £1,995m £2,230m 250 £1,798m £1,830m 190 £1,460m £2,206m 150 £3,283m 155 113 151 91 96 136 198 163 Financial Year 2000–01 2001–02 2002–03 2003–04 2004–05 2005–06 2006–07 2007–08 2008–09 2009–10 Projected Notes: cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Annex B
EXPORTERS WHO HAVE BENEFITED FROM ECGD SUPPORT: FY 2000–10 Exporter Sector
Aedas Architects Ltd Architectural services Aeromatic-Fielder Ltd Manufacturer of pharmaceutical processing equipment Airbus S.A.S Aircraft manufacturer Air Products plc Manufacturer of industrial gases and speciality chemicals Alderley Systems Ltd Manufacturer of metering systems and processing equipment to oil and gas industry Alstom Power UK Ltd Supplier of power generation equipment and technology Alvis plc Manufacturer of armoured vehicles Angloco Ltd * Manufacturer of fire fighting and rescue vehicles and equipment BAE Systems Defence contractor Balcke Marley UK Ltd Manufacturer of cooling towers Balfour Beatty Rail Projects Ltd Rail engineering, equipment and supplier of rail infrastructure services Battenfield Gloucester Europe Ltd Manufacturer of plastic products Bombardier Incorporated Aircraft manufacturer BP Exploration (Caspian Sea) Limited Oil and gas contractor Brackett Green Ltd Manufacturer of water filtration, treatment and desalination equipment Capital Valves Ltd * Supplier of valves to the oil, gas, petrochemical, power and industrial gases industries Carillion Construction (West Indies) Ltd Construction services Caterpillar (UK) Ltd Manufacturer of construction and mining equipment CB&I John Brown Limited Oil and gas contractor Cementation Skanska Building, civil engineering and infrastructure services Chinook Sciences Ltd Provider of technology and equipment to the metal, industrial gases and environmental industries Cleveland Potash Ltd Producer and supplier of potash fertilizers for agriculture and industry uses Corus UK Ltd Manufacturer of steel products and services CRI Catalyst Company UK Ltd Provider of catalyst technology to the refining and petrochemical industry Crown Agents Services Ltd International development consultancy services Demag Delaval Industrial Turbomachinery Ltd Manufacturer of gas turbine engines Dennis Specialist Vehicles Ltd Vehicle manufacturer Diamond Offshore Drilling (UK) Ltd Drilling services contractor Doncasters Middle East Ltd Manufacturer of turbines and turbine generator sets Dunlop Oil & Marine Limited Manufacturer and supplier of hoses for the oil, gas, petrochemical and dredging industries Europa Crown Ltd * Supplier of processing and edible oil refining equipment European Marine Contractors Ltd Pipeline and piping installation contractor Fairbank Brearley Ltd Manufacturer of spring making machinery and rapid heat gas furnaces Faun Municipal Vehicles Ltd * Vehicle manufacturer Fernau Avionics Ltd * Supplier of ground based navigation aids for military, naval and civil aviation needs Findel Education Ltd Supplier of educational products to schools, nurseries and learning environments Fira International Ltd * Consultancy service and testing of the furniture supply chain Fitzpatrick Contractors Ltd Civil engineering, building and property development Flakt Woods Ltd Supplier of energy-efficient air solutions Fluor Limited Engineering, procurement construction, maintenance and project management services The Football Association Premier League Ltd Football broadcaster Foster Wheeler (GB) Ltd Engineering and construction contractor and power equipment supplier Gall Thomson Environmental plc * Supplier of marine breakaway couplings to oil and gas industries Gateway (Textiles) Ltd Manufacturer of machinery for the bedding trade cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Exporter Sector
GEA Process Engineering Ltd Supplier of engineering services and complete process plants and equipment within the pharmaceutical and chemical industries Gentec Energy Plc * Engineering, procurement and construction contractor in the gas and diesel power generation industry Greys Exports Ltd * Supplier of explosive ordnance disposal equipment Guralp Systems Ltd * Manufacturer of seismic instrumentation systems Hawker Beechcraft Inc Aircraft manufacturer Howden Power Ltd Manufacturer of regenerative air heaters and associated equipment Hydroflow Europe Ltd * Manufacturer of industrial filtration equipment and supplier of services Invsat Ltd * Supplier of integrated telecommunication services to the oil and gas industry John Gordon Ltd * Manufacturer of coffee plantation machinery Johnson Matthey Plc Manufacturer of chemical products and precious metals and supplier of catalysts and related technologies Lagan International Ltd Civil engineering and construction contractor Leafield Logistics & Technical Services Ltd * Supplier of equipment and logistics services to defence and commercial organisations Kellogg Brown & Root Ltd Engineering and construction services Kelton Engineering Ltd * Engineering consultancy on oil and gas flow measurement and specialist software Kier International Ltd Building and civil engineering services Koch Chemical Technology Group Ltd Manufacturer of process and pollution-control equipment and provider of other process technologies and related specialty services to refinery and chemical plants Mabey & Johnson Ltd Manufacturer of bridges MAN B&W Diesel Limited Manufacturer of diesel engines MAN Ltd Supplier of mechanical, piping and electrical engineering equipment Marlborough Communications Ltd * Producer and supplier of radio and telecommunications systems Martin-Baker Aircraft Company Ltd Manufacturer of ejection seats and related survival equipment MBDA UK Ltd Defence contractor Motherwell Bridge Engineering Ltd Engineering services Motorola Ltd Telecommunications manufacturer MRB Schumag Ltd Designer and supplier of equipment to the copper tube industry M W Kellogg Ltd Engineering, procurement and construction services within the process plant industries Northey Technologies Ltd * Manufacturer of rotary compression and vacuum pumps NSG Exports Ltd * Purchaser and supplier of equipment and services Odebrecht Oil and Gas Services Limited Oil and gas exploration and production contractor Pipeline Tube and Casing Ltd * Supplier of tubular products and accessories P W Ltd Civil engineering and mining contractor Reviss Services (UK) Ltd * Manufacturer and supplier of sealed radiation sources, radioisotope technologies and services Rolls-Royce Plc Manufacturer of aero-engines and power generation systems Rolls Wood Group (Repair and Overhaul) Ltd Gas turbine repair and overhaul specialist Saipem UK Limited Engineering and operational services for offshore oilfield design and installation Salzgitter Mannesmann (UK) Ltd Supplier of steel-related products Saywell International Ltd * Supplier of aircraft spares and components Sedgewall Communications Group Ltd * Manufacturer of communications equipment Sembcorp Simon-Carves Ltd Engineering services Shell Research Limited Oil research and development Siemens VAI Metals Technologies Ltd Engineering and construction of ironmaking and steelmaking plants Sir William Halcrow & Partners Ltd Engineering consultancy SLP Engineering Limited Engineering services SMS Mevac UK Ltd Supplier of vacuum degassing and secondary steel making plant and equipment cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Exporter Sector
Snamprogetti Ltd Engineering design and consultancy services Surrey Satellite Technology Ltd Manufacturer and supplier of small satellites and related services Telspec Europe Limited Manufacturer of telecommunications equipment Thales ATM Ltd Manufacturer of navigation and aeronautical equipment Traffic Safety Systems Ltd Manufacturer of traffic safety systems VAI Industries (UK) Ltd Manufacturer of steelworks plant and equipment Vikoma International Ltd * Manufacturer of oil spill containment and recovery equipment Voith Paper Ltd Paper manufacturer Volvo Bus Exports (UK) Ltd Vehicle manufacturer VT Shipbuilding International Ltd Defence contractor VWS Westgarth Ltd Designer and constructor of water treatment and desalination plants and supplier/operator of sulphate reduction membrane systems Wellstream Ltd Manufacturer and supplier of flexible pipe systems and solutions to the offshore oil and gas industry York International Ltd Manufacturer of air conditioning, refrigeration and heating equipment * SME January 2011
Further written evidence from UK Trade & Investment Introduction 1. This paper supplements the written evidence submitted jointly by the Department for Business, Innovation & Skills (BIS), UK Trade & Investment (UKTI), and the Export Credits Guarantee Department (ECGD) in September 2010, to the BIS Select Committee’s “Government Assistance to Industry” Inquiry. The evidence submitted here responds to the Select Committee Announcement No. 24, 24 November 2010, of its new Inquiry, “Rebalancing the Economy: Trade and Investment.” 2. This paper presents responses from UKTI to the points being considered by the Select Committee. BIS has advised that the Committee is being provided with copies of the Trade and Investment for Growth White Paper (CM 8015), and that this covers the questions relating to BIS and ECGD on providing support for exports and investment. 3. The points relating to UKTI are now considered in turn.
How the Government Measures Success in its Support for Trade & Investment 4. UKTI has developed the Performance and Impact Monitoring Survey, PIMS, to measure the impact of its trade services on the companies using them, and UKTI’s performance in delivering these services. 5. PIMS enables UKTI to evaluate the benefits that its customers derive from using its trade services. An independent market research company carries out quarterly telephone surveys of a statistically representative group of users of UKTI services. Altogether, some 4,000 businesses are interviewed each year. An annual survey of UK exporters who have not used UKTI services is also carried out, as an additional way of assessing the difference UKTI’s services can make to companies. 6. In a 20 minute interview, the PIMS survey asks business owners a series of questions about the benefits their company has experienced as a result of using UKTI’s services. This includes both qualitative and quantitative business benefits; financial benefits; access to information/contacts not otherwise available; improvements to overseas marketing strategy; and their assessment of the quality of, and overall satisfaction with, UKTI services. 7. The PIMS survey covering 2009–10 show that UKTI helped some 23,600 UK businesses, with the following specific impacts: — British companies attributed an additional £5bn to their bottom line profits as a result of working with UKTI, up from £3.6 billion the previous year. — This represents £19 benefit for each £1 of Government spend on UKTI trade services, up from £16:£1 the previous year. — The £5bn additional profit reported by UKTI clients represents over £35 billion additional UK exports generated as a direct result of the support UKTI provided. — 41% of companies reported new or safeguarded jobs as a result of using UKTI trade services. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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— 67% of UKTI customers reported significant business benefit from upgrading their approach to overseas markets, gaining access to contacts and information not otherwise accessible, and overcoming legal or regulatory difficulties or cultural differences affecting access to opportunities overseas. — 39% of UKTI clients expect substantial growth over the next five years compared with 23% of other UK exporters. Some 87% of UKTI trade clients expect at least moderate growth, compared with 78% non-user exporters. — On average, UKTI trade support generates an additional £65k of research and development (R& D) per trade client. This reflects the role trade support can play in increasing the UK’s overall innovation capability and R&D. — Some 53% of all businesses assisted through UKTI trade services improved their business performance as a direct result of UKTI support. — Around 70% of businesses assisted reported improved productivity and competitiveness. — Users of UKTI services are much more likely than non users to be in high growth markets (61% vs. 44% for non users); are more likely to plan to increase exports in response to the depreciation of Sterling (47% vs. 37%); and are more likely to have benefited from the depreciation overall (33% vs. 25%).
8. On inward investment, UKTI supports overseas companies looking to invest or expand their operations in the UK, through managing relationships and working closely with key clients. Consequently, efficiency and productivity are not measured in exactly the same way as trade services. We undertake an extensive analysis of the effectiveness of our inward investment network, providing a rigorous assessment of performance that allows us to optimise our use of resources. Nearly half—758 of the 1,619 inward investment projects landed by the UK in 2009–10—were assisted by UKTI. Of these, nearly 80% agreed that UKTI (or its RDA delivery partners) had a significant, favourable influence on the decision to locate or expand in the UK, or on the scale or scope of the project. This assessment, that UKTI has assisted in the decision made by a company, is arrived at by satisfying a set of criteria, populated by data from investing companies and agreed with UKTI’s partners in the English Regions and the Devolved Administrations. Other data analysing the decision to invest, made by companies assisted by UKTI, is taken from PIMS’ inward investment survey, October 2010.
The role of UKTI with regard to identifying opportunities in: — Established markets; — Emerging markets; — Key sectors; and working with businesses both large and small to take advantage of these opportunities.
9. The economic crisis and globalisation have shifted economic weight east and south. This means that the emerging powers in Asia, Latin America and the Gulf are essential to our interests.
10. UKTI uses a range of criteria—including market size and potential for growth, strategic importance and match to UK capability—to assess the importance of individual markets and the likelihood of UKTI helping British business interests. In this way we can determine which high growth and emerging markets to prioritise in order to deploy our resources to best effect.
11. In prioritising emerging and high growth markets we need to be mindful that 70 per cent of Britain’s exports in 2009 went to the European Union, North America, Japan and Australasia. These markets also generated over 70% of our new investment projects. So we need to retain a proportionate presence in developed markets where real barriers still exist.
12. UKTI’s new strategy will, therefore, confirm that we will maintain a proportionate presence in important developed markets, but over time additional resources will be moved to the high growth and emerging markets, in order to match both the opportunities and the demands from our customers.
13. One of the aims of Government policy is to rebalance the economy to achieve sustainable growth. This means focusing efforts on the sectors where we add most value, in the markets where the potential for growth is highest, and on the businesses of tomorrow. UKTI has undertaken a comprehensive review of its sector focus, in cooperation with BIS sector teams and economists, so we can target resources where they will have the greatest impact. The results will be available in the near future.
14. Promoting UK companies and institutions that provide environmental solutions and technologies in response to climate change, with green export campaigns in the markets where research has identified the greatest potential, will be at the heart of UKTI’s sector focus.
15. In order to take advantage of the opportunities arising in these markets and across these Sectors, UKTI will step up its efforts to support UK companies through an expanded programme of outreach events: cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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— A new High Value Opportunities programme will target carefully selected large scale opportunities around the globe, such as telecommunications, railways, ports, hospitals and education, covering construction, supply and maintenance. These major projects also offer niche opportunities to SMEs. This will enable the UK to compete in a space traditionally dominated by other major European countries and marks a shift in government trade support towards “bringing opportunities home”. — There will also be a new online “peer-to-peer” self-help community network where UK companies can share knowledge and mentor each other to build international capability. — Catalyst UK is a global network of 100 “advocates for Britain” from the business and academic communities, which we aim to grow to 500 by summer 2012. The network is made up of people who are trusted in their fields and can make a compelling case for investing in the UK and doing business with UK companies. They are able to share valuable know how and insights with less experienced exporters. In this way they will mentor companies, especially SMEs, taking their first steps into new markets. — UKTI will make best use of the new UKTI website to raise awareness of global opportunities among UK businesses. — The Government is increasing its support for all exporters, especially SMEs, through an expanded range of ECGD products to complement the private sector. UKTI and ECGD will forge an operating partnership to promote the new products to UK businesses through UKTI’s regional network.
How Other Countries, Similar to the UK, Export to Emerging Markets and What Our Government Could Learn, If Anything From Them 16. Broadly speaking, the Trade and Investment Promotion Organisations (TPOs) of other Countries provide equivalent services for businesses in their markets. There are always variations and UKTI examines the case for new ideas based on services delivered by other TPOs, against its existing portfolio of services and the resources available to deliver them. 17. UKTI takes part in regular informal and formal meetings with counterparts. In the last year we have discussed our trade services with counterparts from the Netherlands, who were undertaking a review of trade support for Dutch companies. UKTI is represented at both European Trade Promotion Organisation and the World Trade Promotion Organisation meetings, and is a regular presenter at them. In 2010, UKTI was judged the best TPO from a developed country, at the International Trade Centre’s TPO Network Awards, recognising excellence in export development initiatives for our “Gateway to Global Growth” service. 18. UKTI also meets with its counterparts in Canada, Australia and New Zealand, at annual CANZUK meetings. As an example of the benefits gained from these meetings, UKTI has adopted a management tool developed by the Canadian Trade Commissioner Service. In turn, other TPOs have looked at adapting UKTI’s PIMS survey to monitor and evaluate their performance. PIMS is very highly regarded by other TPOs; no other comparable system exists and other countries have expressed envy at the rigour of our system, and we believe we are world leaders in this field of performance measurement. 19. However, direct comparisons between TPOs are difficult to make. Some are highly centralised, others are regionally-based. Some offer predominantly on-line access to services. Some combine trade and investment, others keep their trade and inward investment services separate. Some offer services free of charge, others raise a significant proportion of their income through charging. 20. For these reasons, although we meet and have regular contacts with other TPOs, benchmarking UKTI’s performance against them using formal metrics based on impact is difficult, as organisations have different structures and evaluation systems. In addition, specific evidence detailing how they export to emerging markets is not clearly available.
The Business Ambassadors Network 21. The Business Ambassadors Network, supported by UKTI, is made up of 32 of the top leaders from the business world and academia, who bring with them a wealth of commercial experience and knowledge from a wide range of sectors, within the UK and overseas. 22. Members of the Business Ambassador Network act as powerful advocates of the UK companies overseas, especially SMEs, and help to promote the UK as the international trade and inward investment partner of choice. At home, they promote the benefits that can be gained from pursuing overseas business opportunities. 23. The key objectives for the Network are to use each Business Ambassador’s individual experience of doing business internationally, and their unique market and sector knowledge, to: — Promote the UK’s excellence and the UK’s favourable business environment; — Help UK businesses recognise and exploit overseas opportunities; and — Support UK businesses, Heads of Mission (HM Ambassadors and High Commissioners) and UKTI trade teams overseas. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:19] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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24. Since the network’s creation in October 2008, Business Ambassadors have provided a tremendous impetus to the UK’s trade and investment activities, encouraging UK companies to explore overseas business opportunities and helping to secure inward investment projects. The new, expanded, network, launched by the Prime Minister in November 2010, includes a wider range of expertise and experience and a new generation of entrepreneurs and business leaders. The new Network will continue to complement and support the work of UKTI in marketing the UK as the international business partner of choice, and is expected to help increase our reach to wider audiences, countries and sectors.
25. The role and extent of activities undertaken by individual Business Ambassadors will be flexible, taking into account their availability. UKTI seeks to tailor activities to the relevant interests and expertise of Business Ambassadors, both geographically and sectorally.
26. The Business Ambassadors Network will continue to complement the work of the Duke of York in his role as UK Special Representative for International Trade and Investment, the Minister for Trade and Investment, and the work of other Departments and Ministers across Government in support of trade and inward investment. 23 February 2011
Further written evidence from UK Trade and Investment
FDI Project—Announcement of Successful Bidder for New National Contractor
Mark Prisk, the Minister of State for Business & Enterprise, wrote to the Chair in early December highlighting that the procurement for the new national FDI contractor was about to start. I am pleased to tell you that this process has now finished. UKTI today announced that PA Consulting Services Ltd in partnership with OCO Consulting and the British Chambers of Commerce has been successful in winning the contract to, as part of UKTI’s global network: — Coordinate and manage the delivery of FDI support for the United Kingdom with prospective foreign direct investors, working with local partners across England, the devolved administrations of Scotland, Wales and Northern Ireland, the Greater London Authority, and the UKTI and wider FDI network. — Provide a geographically dispersed resource to support the delivery arm for England (outside London). — Provide direct relationship management and investor development, in association with international, national and local stakeholders to nominated existing investors in England (outside London) as agreed with UKTI.
The transition to PA Consulting has now begun with the view to them fully taking on responsibility for the above functions as early as possible in the 2011–12 Financial Year.
Background
Last year Ministers announced the decision to abolish, by March 2012, the eight Regional Development Agencies (RDAs) outside London, and separately the Mayor of London has announced the abolition of the London Development Agency. Ministers have also announced that responsibility for inward investment will move to the national level, to UKTI.
The new inward investment framework will deliver focussed countrywide support for inward investors. It will be a vital part of improving the experience for companies wishing to invest in the UK. The new arrangements will provide expert advice for every business sector. The new framework will be considerably more cost effective.
UKTI recognises the important role that local enterprise partnerships (LEPs) will have to play in support of FDI promotion. We have invited LEPs to meet us to discuss these new arrangements and how we will work together. The British Chambers of Commerce is heavily involved and will provide important local knowledge that will benefit inward investors, as well as providing strong links into LEPs. Staff will be based in PA Consulting’s extensive network of existing offices and will also have access to certain Chamber of Commerce offices throughout the country. Martin Cook Director, Regions 4 April 2011 cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Supplementary written evidence from the Department for Business, Innovation and Skills Committee 1. At the oral session for the BIS Committee on Tuesday 8 March, and again on Thursday 10 March, I agreed to write to you following up on a number of specific issues raised in our discussion. These are set out below.
To Provide Information on How UKTI Arrives at the £19: £1 Benefit to Cost Ratio 2. UKTI’s Performance and Impact Monitoring Survey (PIMS) covers some 1,000 customers each quarter (4,000 each year) who have received services from UKTI in the previous four to seven months. They are asked about their experience of the quality of and satisfaction with these services, and the outcome they expect for their business. 3. The PIMS interview is designed to ensure that clients think very carefully about the concrete ways in which the specific UKTI support they received has helped their business. Following questions on the qualitative benefits of the support—such as whether it gave them access to useful contacts or information not otherwise available, and whether it enabled them to improve their approach to an overseas market—they are asked specifically whether the help resulted in financial benefit. If it had, they are asked to quantify this benefit. After they have provided a quantified estimate, they are asked what proportion of this profit they believe they would have achieved without the help provided by UKTI. This proportion is discounted in the final estimated benefits. 4. The estimate, therefore, reflects customers’ own judgements about the value of additional exports and additional profit they expect to achieve as a direct result of UKTI support. 5. Following various robustness checks, a mean benefit was calculated which, when multiplied by the total number of businesses who said they had been significantly assisted by UKTI, gave a figure of £5.2 billion additional profit. This represents an estimated £35 billion of total additional exports resulting from UKTI’s support. These calculations are made by the independent research company which conducts the PIMS surveys, and the number of businesses is carefully de-duplicated, so that no business is counted twice, irrespective of the number of markets in which they received UKTI help. 6. The £19:£1 ratio was then calculated by dividing the £5.2bn additional profit by the total cost of UKTI’s trade service support in 2009–10. 7. In April 2009, the National Audit Office completed their value-for-money report on UKTI’s Trade Support. They found that “UK Trade & Investment is making good progress against its targets and has in place a robust system (PIMS) of assessing delivery”. They also noted that “UK Trade & Investment has put in place extensive arrangements to obtain regular and systematic feedback on the quality of its services”. 8. In addition, as part of their annual work on reviewing the appropriateness of Departmental performance measurement systems, the National Audit Office concluded that the UKTI performance measurement system (PIMS) merited their highest assessment, which is “fit for purpose”.
Explain What Support is Available to Businesses in the UK to Provide Market Information and Ready Them for Exporting 9. There are two programmes run by UKTI that provide intensive, tailored help for companies wanting to develop, or improve on, their exporting capabilities. Both programmes are delivered locally by International Trade Advisers, most of who have private sector backgrounds and have been exporters themselves, and understand the practical problems firms face. 10. For new to export SMEs, Passport to Export provides flexible help designed to meet individual companies’ needs. Typically, a company will receive an assessment of their ability to export, help with an action plan to get them started, training to help develop their capability, and help to put their plans into action, including support to find the right market and to make their first visit. Since Passport was introduced in 2001, some 14,000 companies have benefitted. 11. A good illustration of the type of help provided is the mandatory two-day developmental workshop delivered to Passport companies in the East of England region, as a first step in their 12 month programme. 12. The workshop tackles SMEs’ lack of focus and planning for doing business internationally at the early stage of exporting. It gives them intensive, focused, structured management time in which to analyse their business, identify key issues, learn about approaches and solutions, begin to make decisions and commit to an export strategy. Full use is made of delegates’ own experience and knowledge and clients are challenged to focus on and address key strategic decisions such as: — Is export right for our business? (And is now the right time?) — Where should our priority geographical focus be? — What is/are the most appropriate route(s) to market for us? — What type of partner(s) do we need and how many? — What will our proposition to the market be? — What resources do we need to put in place to make it happen? cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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13. This requires research and delegates need to document their thinking throughout, identify issues they face and decide what actions they need to take.
14. As well as strategy, discussion and learning often include issues such as raising funding, getting paid, Intellectual Property issues, cultural issues and logistics, depending on the needs of the group. All these topics are covered in the workshop materials.
15. Gateway to Global Growth was launched on 1 April 2009. It is aimed at helping SMEs, with exporting experience, to raise their game, including entering more challenging markets overseas. The offer differs from Passport by focusing on capabilities for widening and diversifying overseas business, and placing greater emphasis on referrals to other services, including charged-for help from private sector providers. Nearly 3,000 companies had been signed on to this programme by the end of February 2011.
16. UKTI also has a number of specific services which are often accessed as part of the above programmes but which can also stand alone. These include free advice from professional market researchers on how to conduct market research, as well as the option of a grant towards approved market research projects and a subsidised review from a communications expert on how to overcome cultural barriers to exporting. This includes advice on labelling and website design.
17. In addition, UKTI’s Tradeshow Access Programme helps new to export and new to market companies to participate in trade fairs. Applicants are referred to an International Trade Adviser who can help them prepare and make the most of their participation.
18. UKTI is also able to provide detailed, bespoke subsidised help from UKTI staff, many of them locally engaged with local knowledge, in our Embassies, High Commissions and Consulates overseas. Help includes tailored information, contacts and on the spot assistance, as well as help to launch a product or host events for potential customers.
19. UKTI has made considerable efforts to raise awareness of services through its web site and through appropriate marketing activities, and through organisations such as Chambers of Commerce and Trade Associations, links with banks and through press articles.
20. UKTI also runs a variety of outreach events based on regions, markets and sectors. These are both helpful in themselves and enable companies to meet UKTI staff based in the UK and overseas, who can provide them with more detailed help.
To Provide UKTI Budget Information Along with Details of the Individual Allocation to Countries
21. Further information on budget allocations will be available over the course of the next month, and I will write to the Committee again when this information is available. In the meantime, I thought the Committee might find it useful if I explained: how UKTI is funded; how it funds the services it provides; and what further information will be available in the coming weeks.
How UKTI is funded
22. UKTI has three main funding streams: — Its own directly funded UKTI Programme vote for which the UKTI Chief Executive is the Accounting Officer and has overall financial authority; and — Funding contained within the Department for Business, Innovation and Skills (BIS) and the Foreign & Commonwealth Office (FCO), for which the UKTI Chief Executive has a level of delegated budgetary control cascaded from the BIS and FCO Accounting Officers as appropriate.
23. The funding in UKTI’s Programme vote pays for front line trade and foreign direct investment activity including grants and business support services, for example Passport and the Trade Show Access Programme (TAP).
24. UKTI’s BIS administration funding is ring-fenced within BIS, and pays for staff based in the UK, and their associated costs.
25. UKTI’s FCO funding is contained within the FCO vote, and the UKTI element pays for front line staff based overseas.
26. UKTI’s budget profile for 2010–11 through to 2014–15 is set out below. UKTI Budget Baseline Profile for 2010–11 and SR10 (2011–12 to 2014–15) on a cash basis (NB: not including inflationary impacts) cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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2010–11 2011–12 2012–13 2013–14 2014–15 difference £m's difference %
UKTI programme Gross 94 91 88 86 85 -9 -10% Income 5789116120% Net 89 84 80 77 74 -15 -17%
FCO total resource* 204
BIS ring fenced admin 40 39 38 36 33 -7 -18%
Total resources 333 327 322 317 277 -56 -17% *No further figures are currently available for FCO resource.
How UKTI funds its services 27. The UKTI programme vote funds our full range of Trade and Investment activity, which includes: Support for China Britain Business Council, UK India Business Council, Tradeshow Access Programme, High Value Opportunities, Sector Events, Trade Missions, Export Market Research Scheme, Export Communication Review, Passport, and Gateway to Global Growth. Management of these funds is via the UKTI HQ groups or through the regional network of International Trade Advisors. 28. UKTI business planning enables the business-led Sector Advisory Groups to provide a steer for the key trade activities for the year ahead and enables UKTI to agree funding for activity in market which best reflects sector priorities.
What further information will be available in the coming weeks? 29. We will shortly complete our planning process for 2011–12, at which time we will be able to provide some specific information by country. This will include: Numbers of staff (both UK based and locally employed); funding for sector events in country; funding for business development visits (visits by staff in post to meet UK businesses in the UK); ring-fenced budgets to meet some elements of local expenditure; and targets.
To Provide Information on the Creative Industries Strategy, Responding to a Perceived Lack of Focus and Support 30. The Creative Industries International Marketing Strategy, launched in September 2007 under the Chairmanship of Sir John Sorrell, was developed as a partnership between the public and private sectors. 31. Organisations and practitioners across the sector were involved in its early development; this included conducting 66 in-depth interviews with key stakeholders plus a wider email consultation. This consultation flagged a need for UKTI to develop closer relationships with the sector, and establish an overarching senior level Board representing the wider creative sector. Both BPI (Geoff Taylor) and Simon Bell (Publishers Association) were involved in early workshops on the approach and each organisation has continued to sit on the Board. Music is also represented on the Board by Doug D’Arcy (from Music Exports Group and Songlines). (NB: Feargal Sharkey, UK Music, attended the meeting of the Board on 31 January.) 32. The aim of the Creative Industries marketing strategy is to enhance the international competitive position of the UK’s creative industries, by raising awareness and improving perceptions of the UK’s creative offer; working with partner organisations in the sector to develop the messages and activities; and to market the creative industries as a whole as well as at cluster or sub-sector level. 33. Successes of the strategy include: — Sector-led marketing messages on UK creative strengths backed by evidence, case studies and imagery, delivered via a web-based toolkit, as a resource for UK business and government; — A multi-screen film exhibition “Love & Money—50 Years of Creative Britain” which has been used extensively internationally (currently being updated); — High impact events including a series of business focused workshops around the Shanghai Expo covering advertising, architecture, branding and corporate communications; — Introducing a wider number of creative sectors and customers to UKTI and the development of international strategies eg advertising, architecture, designer fashion, and — Delivery of UKTI support to 1000+ creative companies per year (up from approx 350 in 2007–08). 34. There is a commitment from Board members to publicise the messages and activities developed under the strategy to their members and sectors, but no specific requirement to publicise the strategy itself. The Board has acted as a critical friend to UKTI in helping to enhance activities under the strategy. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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35. The strategy is time limited and due to end with showcasing activities at the Olympics in August 2012. It has laid a foundation for the sector to take forward any further strategic marketing work. Sir John Sorrell and the Board are currently considering options for post-2012 activities.
To Consider Representation of the Creative Industries Across our Business Ambassadors 36. We are considering the question of further Creative Industries representation in the Business Ambassadors Network and I will write to the Committee on this in due course. 18 March 2011
Written evidence from A|D|S A|D|S is the trade organisation advancing the UK Aerospace, Defence, Security and Space industries. Farnborough International Limited (FIL), which runs the Farnborough International Airshow, is a wholly- owned subsidiary. A|D|S has offices in England, Scotland, Northern Ireland, France, the Middle East and India. A|D|S was formed from the merger of the Association of Police and Public Security Suppliers (APPSS), the Defence Manufacturers Association (DMA) and the Society of British Aerospace Companies (SBAC) in October 2009. A|D|S also encompasses the British Aviation Group (BAG). Together with its regional partners, A|D|S represents over 2,600 companies. A|D|S also supports SC21, Sustainable Aviation, Defence Industries Council, RISC, Flying Matters, Defence Matters and hosts the Aerospace & Defence Knowledge Transfer Network. A|D|S is a member of ASD, the trade association that represents the European Aeronautics, Space, Defence and Security industries. It has strong links with relevant Trade Associations in many countries including the USA and has signed MOUs with many other national Trade Associations. A|D|S welcomes this inquiry and the opportunity to make its input into the Business, Innovation and Skills Select Committee’s call for evidence.
1. The Role of BIS in Providing Support for Exports and Investment 1.1 The UK is a world leader in the supply of Aerospace, Defence, Security and Space capabilities and services. The Aerospace sector in particular is one of the UK’s largest exporters, delivering exports worth over £15 billion annually, and has achieved a consistent balance of payments surplus for more than 10 years. The UK Defence sector is the largest exporter of Defence products to the United States and the largest global exporter amongst European Union Member States. Defence export revenue averages £5 billion annually, with the 2009–10 total at £7.2 billion. The UK security industry also offers the country the opportunity to generate significant new levels of economic growth. Figures issued in March 2010 by the UKTI Defence & Security Organisation (DSO) stated that the UK Security industry’s exports were valued at £1.36 billion, an increase of more than 14% on previous years. Finally, the UK Space industry recorded a total turnover of over £7.5 billion. in 2008–09. This represented a real growth of 8% between 2007–08 and 2008–09 and the global market is anticipated to continue to grow at 5% on average in the next decade. 1.2 The Department for Business, Innovation and Skills (BIS) plays a crucial role in supporting exports, particularly through UK Trade and Investment (UKTI) which A|D|S commends for the invaluable support it provides to industry. The support for exports that has been shown in recent months by the BIS Ministerial team on overseas trips to China and India for example is to be warmly welcomed. There is a concern however that a reduction in the budget of the Department could pose risks to the impact it has in this respect. A|D|S would ask that UK Government considers where it can best make the necessary savings without losing the resources affiliated with the UK’s export agenda that can help rebalance and grow the UK economy. A|D|S furthermore welcomes the appointment of Lord Green as Trade Minister and the review being led by Lord Brittan is an encouraging sign. 1.3 A|D|S welcomes the announcement of the Growth Review for Advanced Manufacturing as the first stream of the Growth Review. A|D|S shares the goals that the Government has outlined in the Advanced Manufacturing review to grow manufacturing in the UK; make the UK Europe’s leading exporter of high value goods and related services and increase the proportion of the workforce seeking, and capable of, a career in manufacturing. A|D|S understand that there will be a focus on specific sectors and ask Government to consider it represents as candidates for this. 1.4 All responsible Defence and Security companies rightly face export controls and regulations. Because these are so variable in their policies, systems and procedures, the bureaucratic burden within (especially multinational) companies is often increased in attempting to conform to them. The UK Government should work at bilateral and regional levels to establish a greater degree of harmony between national control systems. A|D|S believes that the proposed international Arms Trade Treaty (ATT) is a potential initiative that could assist greatly in addressing this if it reaches full implementation. 1.5 A|D|S would welcome the establishment of a cross-departmental Government authority with the remit to drive forward the policy measures that are necessary to realise the economic benefits that the UK Security cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Industry can bring, at home and internationally. An authority of this nature should include representation from BIS and all the other relevant Government departments that are involved in National Security and Resilience. The global Security market is growing and is estimated to be worth around $140–180 billion annually. Industry welcomes Rt Hon Baroness Neville-Jones' wish to see “a major uplift in the performance of UK Security exports” (currently estimated to be worth around 4% globally) with the Government playing the sort of role it has assumed in the past in relation to Defence exports.
2. How the Government Measures Success in its Support for Trade and Investment 2.1 A|D|S believes it is important to measure both qualitatively and quantitatively the level of support for trade and investment for UK industry. The Trade Promotion Organisation (TPO) Network has independently rated UKTI as the Best Trade Promotion Organization from a Developed Country, but A|D|S is not aware of measurements in this area. 2.2 A|D|S proposes one future measure of success, particularly as part of the Government’s drive to aid SMEs (Small and Medium sized Enterprises) would be an improved rate of engagement for SMEs and especially the rate of SMEs which become first time exporters.
3. The Government Trade White Paper 3.1 A|D|S has submitted evidence to the Government’s Trade White Paper. A|D|S looks forward to the Department’s Trade White Paper, and welcomes the Government’s recognition that exports can help rebalance the UK economy. A|D|S closely associates itself with the Government’s commitment to free and fair markets which it believes will be in the interests of its members which have demonstrated that they are very competitive in global markets. A|D|S also looks forward to working with Government on the US-UK Defence Trade Cooperation Treaty and the Anglo-French Declaration on Defence and Security Cooperation to improve bilateral trade with the United States and France respectively. 3.1.1 Among the key subjects covered in the key recommendations were skills. Making long-term plans in the skills area is essential for the Aerospace, Defence, Security and Space sectors. Many projects run over years rather than months. Uncertainty over whether companies can recruit and retain the right staff to complete these projects is a major concern. An inability to find highly skilled workers could hamper performance on existing programmes, reduce participation in future bids and proposals and companies may reconsider their investment in the UK and take their operations to other countries. 3.1.2 The need for more affordable advice and greater support to attend overseas trade missions for SMEs was also highlighted in the A|D|S submission. Sustainment of the excellent level of support already seen from the Prime Minister and other senior ministers with their overseas counterparts to boost trade would also be welcome. The potential return on this investment through increased economic growth is considerable. 3.1.3 The submission pressed the need for the UK Government to increase pressure on other governments around the world to root out extortion and the tacit or overt encouragement of corrupt practices by officials and government-owned companies. UK effort could be targeted at helping some governments implement OECD and UN conventions on bribery and corruption. 3.1.4 Finally the submission emphasised the need for strengthening the political and economic relationships with emerging markets, such as the BRIC countries—Brazil, Russia, India and China. However there are also further markets alongside those such as Korea, Taiwan, Mexico and Australia which are also likely to be economically significant in the future.
4. The Role of UKTI with Regard to Identifying Opportunities in Established Markets, Emerging Markets and Key Sectors 4.1 In UKTI, UK business has a dedicated trade and investment body, which is the responsibility of both the Department for Business, Innovation and Skills (BIS) and the Foreign and Commonwealth Office (FCO). With UKTI and UKTI DSO joined together, A|D|S believes that there is an appropriately joined up attempt to pursue trade and investment objectives in the defence and security markets. The concern A|D|S has is that in attempting to reduce both Departments’ budgets as set out in the Comprehensive Spending Review, crucial resources may be at risk with implications for the Government’s commercial objectives. 4.2 A|D|S supports the principle of charging for UKTI export services. But the cost of export support services have risen to a level that companies, especially SMEs have difficulty affording. At a time when the Government has made it one of its priorities to support SMEs, the level of charges should be reconsidered. 4.3 A|D|S would welcome greater financial support for SMEs to go to markets on Trade Missions or to exhibit at overseas Trade Exhibitions. This is a potentially beneficial investment as the sums involved are small compared to the potential benefits in terms of revenue and jobs in the UK. 4.4 With UKTI, A|D|S has helped put together trade missions on behalf of UK AeroSpace companies interested in opportunities in China, Brazil, India, Mexico and Russia. A|D|S believes that Government can help provide more information about the business opportunities in emerging markets, both through UKTI and the Embassies/High Commissions in such countries. It is also important that UK representatives on the ground cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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are able to raise awareness of the products and services that UK companies can offer, particularly if the customer has traditionally turned to another country for the same products and services. To this end, A|D|S has put together “Ambassadors’ Packs” to help inform the diplomatic community about the strengths of the sectors it represents.
4.5 In the Defence and Security arena UKTI DSO has accurate sight of “up and coming” markets and the potential opportunities that they might present for UK Industry. We welcome the important work of the UKTI DSO and look forward to continuing our close work with them.
5. The Effectiveness of the Exports Credit Guarantee Department and the Flow of Trade Credit
5.1 ECGD is currently used by a limited number of A|D|S Members; this is primarily because the cover provided is for large-scale sales. Of those Members that have extensive experience of working with ECGD, there is a feeling that the level of bureaucracy has increased in recent years.
5.2 ECGD is, in some instances, less competitive on price both with commercially available Export Credit Insurance and with equivalent Government facilities in other countries, for example France, Italy, Sweden and the US. Additionally, ECGD requires stringent terms which no longer fit today’s business requirements nor those of many customers. Specifically, defence customers require flexibility in payment terms depending on performance of the contract, whereas ECGD seeks to minimise its risk to such a degree that it becomes inflexible (eg requirement for backstop provisions and/or bonds from customers).
5.3 There is a feeling amongst A|D|S Members that ECGD tends to implement internationally-agreed guidelines in a more stringent way than international counterparts. This makes ECGD less competitive internationally. A|D|S, CBI and BEXA have made many representations about these steps.
5.4 ECGD’s operating statute does not allow it to fund directly in situations where its guarantee cannot secure commercial bank funding. This was an issue during the financial crisis, not because banks were reluctant to accept the sovereign credit risk of the UK Government, but because they were shrinking their balance sheets and preserving liquidity. Although this situation was averted as banking liquidity improved, it still remains a risk and one that should be addressed. A|D|S believes that ECGD, along with its European counterparts, should look to specifically address this situation and establish a comparable mechanism to US ExIm, allowing for direct loans to be made in circumstances when commercial bank funding is not available.
5.5 ECGD remains an important partner for UK exports and there are steps that could be taken to improve performance. The Business Principal’s consultation process, which is currently underway, presents an ideal opportunity for changes that allow ECGD to focus on helping to increase UK exports. A|D|S would also note that the recent negotiations with the OECD on the Aviation Sector Understanding resulted in positive outcomes and industry was pleased with the role played by UK officials.
6. How other Countries Similar to the UK Export to Emerging Markets and what our Government could Learn
6.1 A|D|S wholeheartedly welcomes Government vocal support of UK exports and applauds the way that, through recent high-level visits to India and China, the Government has demonstrated a real commitment to the export drive. A|D|S would like to see this support go beyond elected politicians to civil servants across Government, particularly in UKTI, MoD, Home Office, FCO and BIS and diplomatic staff. As things stand, many competing countries, particularly Germany, France and the USA continue to enjoy higher levels of Government support at most levels. It would also be beneficial to have more advance notice issued of when and where Ministers are visiting in order that companies can better prepare. 6.1.1 The Defence market, more than any other, is driven by political considerations, since governments are the customer in all cases. The relationship between the customer government, and that of the exporting nation, is of real consequence in the successful conclusion of major export deals. The most successful exporting nations devote significant political effort in achieving major sales, and each of them has developed systems and infrastructure to support this activity. 6.1.2 The MOD and the Armed Forces have a key role to play in promoting exports, through the provision of training and advice to overseas militaries and Ministries of Defence. The MOD and Armed Forces are respected and their support of UK made Defence equipment makes it more attractive to overseas buyers. A|D|S urges Government to recognize this contribution and ensure their continued support to the export drive.
6.2 At trade shows, A|D|S is aware that the French and German Governments, among others, frequently help support a smarter and more enhanced presence for their companies. In view of the returns and the extent to which similar funding from the UK Government will help boost export potential, and more importantly bring UK SMEs into the export market, A|D|S believes this is a small step that would immediately assist the Aerospace, Defence, Security and Space industries. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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7. The Role of British Business Ambassadors 7.1 A|D|S welcomes the Government’s appointment of British Business Ambassadors and supports the idea of championing British products around the world. A|D|S also welcomes the wealth and breadth of experience that the Business Ambassadors represent, including representatives from the Aerospace and Defence industries. Industry particularly supports the focus that the Ambassadors have on championing UK business which face greater hurdles in seeking to export. 7.1.1 A|D|S would welcome greater clarity and guidance from Government as to the remit of each Ambassador and the process by which trade associations can represent their members, particularly SMEs. January 2011
Supplementary written evidence from A|D|S
Supplementary Evidence - Rebalancing the Economy “Trade & Investment” Inquiry Session
I am writing to you on behalf of ADS. Our Managing Director Graham Chisnall gave evidence to the Committee on 1 February alongside Airbus, BAE and Smiths Detection.
Mr. Chisnall informed the Committee that ADS was creating “Ambassador’s Pack” which would equip British Ambassadors in target countries with the key facts about the Aerospace, Defence, Security and Space industries that we represent. MPs asked to see this, and I have attached the top-level brief to the British High Commissioner in India that we are providing as part of this Pack.
The evidence session also focussed on our supply chain. ADS runs the 21st Century Supply Chains (SC21), a change programme designed to accelerate the competitiveness of the Aerospace and Defence industry by raising the performance of its supply chains. I have attached a briefing note and the “SC21 Benefits Guide” for your reference. 6 April 2011
India : British High Commissioner’s Briefing A|D|S
A|D|S is the trade organisation advancing the UK Aerospace, Defence, Security and Space sectors, nationally ad internationally with over 900 UK based members.
A|D|S has offices in England, Scotland, Northern Ireland, France and India (Bangalore and New Delhi) with new offices planned in China and the Middle East. Together with its Regional Trade Association partners, A|D|S represents over 2,600 companies spanning the whole value chain from Prime contractors through to SMEs, and involving almost all of the major global companies in the four sectors.
Farnborough International Limited (FIL), a wholly-owned subsidiary and is the exhibition and events arm of AIDIS and organisers of the world famous Farnborough International Airshow held in the UK biennially. FIL is also the joint organisers of the Bahrain International Airshow working in partnership with the Civil Aviation Authority of Bahrain and India Aviation, working with the Ministry of Civil Aviation and the Federation of Indian Chambers of Commerce and Industry (FICCI).
FIL has a long and strong pedigree of working on air shows in India and our involvement dates back to 2006. In 2006 we assisted in the organisation of Aero India 2007, working closely with the Ministry of Defence, Government of India and the Federation of Indian Chambers of Commerce and Industries (FICCI) to deliver a very successful show. Since that time FIL has continued to be very active in the Indian air show market and has been working closely with the Indian Ministry of Civil Aviation, Government of India and FICCI as the international sales and marketing arm of India Aviation, India’s leading civil aviation show. The show due to take place in 2012 will be the third successive India Aviation that FIL will have been involved in and the show in 2012 will be a special one for UK industry as this is the year when the UK has been awarded partner country status.
A|D|S also encompasses the British Aviation Group (BAG) the leading representative body for UK companies involved in the airport and aviation development sector. It consists of companies of all sizes whose products and services are required in the strategic planning, finance, design, construction, equipping, securing, management and operation of airports and air traffic control systems. BAG's primary role is to assist UK companies win business in the UK and overseas, helping clients identify UK suppliers of goods and services that will meet their requirements. We provide support for UK businesses seeking to export products and services to new markets, deliver intelligence reporting of airport and aviation events, statistics and news as well as provide information on aviation and airport tenders and sales opportunities. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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UK Aerospace, Defence, Security & Space Sectors These sectors are an ongoing success story for the British economy. They generate an estimated £60Billion in revenues, employ 500,000 in high technology, high paid jobs and collectively represent 25% of the total Advanced Engineering and Manufacturing sector within the UK. These sectors play a vital role in the UK Government’s agenda for rebalancing the economy and driving export-driven growth. Given the growth opportunities forecast in India, the UK sectors we represent are looking to grow their businesses in India and have a consistent track record of investment in country, led by companies such as BAE Systems, Martin Baker, GKN Aerospace, Cobham, Meggitt, Goodrich, Honeywell etc.
ADS Presence in India In order to maximise the opportunities for UK companies A|D|S has partnered in the setting up of two fully staffed offices in India. The office in New Delhi was established to focus mainly on the defence and security sectors and is a joint venture between A|D|S and UKTI, through their Overseas Market Information Scheme (OMIS). In 2009 A|D|S established a second, cross sectoral office that complements the New Delhi office. This Advanced Engineering office enables in country representatives to market advanced engineering companies in aerospace, automotive and advanced manufacture; to grow Indian knowledge of UK capability; and to help UK companies to collaborate/partner with Indian companies, identified via OMIS work. The office is based in Bangalore, the heart of the aerospace and space sector in India.
Opportunities for ADS Sectors in India Defence India is among the top 10 Defence spenders in the world and is embarking upon on major acquisition programmes to replace the ageing and obsolete defence equipment and hardware and also midlife upgrades on existing platforms and weapon systems. UK companies have benefited from this already (eg BAE Systems supply of Hawk advanced jet trainers), but there is much more to do. UK Defence exports to India in general involve significant “Offset”, which is a form of economic and industrial compensation provided by an offshore supplier to a purchasing nation. Indian companies should benefit through added business and investment stemming from the fact that India is likely to be one of the largest available markets for defence in the World, with some US$100 billion (or Rs 4,50,000 crore) worth of equipment purchases to be made over the next decade, many of which will undoubtedly involve overseas suppliers. Whilst widely perceived as a burden on UK exporters due to its bureaucratic operation within India, offset provisions are also an opportunity for the UK firms to develop long-term partnerships with their Indian counterparts, giving them longer term access to the Indian market, and vice versa. India is in need of massive investment and the offset rules are one means by which it is seeking to meet its target for 30% of GDP to be derived from manufacturing (currently 16%) over the next 20 years. Nearly 70 Indian companies in large and medium categories are authorised by the Ministry of Defence, Government of India to bid on Indian government Defence contracts. Several of these are actively looking for UK partners to build capacity and capability to take on offset work. Major current and future programmes: 1. The Medium Multi-Role Combat Aircraft (MMRCA) the medium combat fighter requirement for 126 aircraft at a value of $10–12 billion. The UK is competing with the Eurofighter Typhoon, against competition from the French, USA and Russia. This is the largest open competition for combat jets active in the world and is a key priority for BAE Systems and Rolls-Royce; currently things are looking good for the UK with the Typhoon as the front runner. 2. Light Utility Helicopter (LUH) a competition for 397 aircraft with 197 to be imported and the final 200 to be developed and built in India. 3. Light Combat Helicopter (LCH) forecast is for approximately 100 aircraft to be developed and built by Hindustan Aeronautics (HAL). 4. Advanced Light Helicopters (ALH) forecast for this aircraft exceed 1,000. 5. In addition to the above platforms there are plans to develop and build Medium Lift and Heavy Lift Helicopters to be developed and built in India over the coming 20 years. 6. Forecast for 99 ab-Initio trainers to be imported with a further 100 planned to be built in India. 7. The Indian Government plan to purchase under FMS C17 Globemaster, C130J Hercules and P8I Long Range maritime aircraft at a value of $10 billion. 8. The 12 additional BAE Systems Hawk aircraft are already signed with BAE Systems. 9. Plans for Network Centric Warfare and proposals for force multipliers, night fighting capability and simulators provide huge opportunities for a vast range of equipment. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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10. Development of various naval vessels including Stealth Frigates, Air Defence Ships with Integrated weapon and control / management system along with a newly designed submarine.
Aerospace As one of the fastest growing countries, India is forecast to require 1,000 new commercial airliners over the next 10 years. Most of these will be supplied by the large Primes such as Airbus and Boeing; whilst national regional aircraft programmes may contribute to these totals should they be successfully brought to market. A key requirement for the UK is to be able to establish partnerships with the appropriate Indian companies so that indigenous Indian companies can benefit from their growing aviation sector without this proving to be a barrier to UK company access in due course. In the aerospace sector, Hindustan Aeronautics Limited (HAL) is planning to outsource 35% of its manufacturing capacity to the local market, and is looking to international partnerships and expertise to help to undertake this. The increase in world aerospace requirements for low cost manufacturing is predicted to result in Indian participation in aerospace growing globally from US$20m in 2007 to over US$ 2Billion by 2015. India is also predicted to grow its engineering services sector to US$5Billion in the same period. For India to be truly successful in its ambitions it will need to develop its supply chain. The UK supply chain is well equipped and able to support this growth by partnering with the Indian industry. A significant barrier to this is the restriction of Foreign Direct Investment which limits the equity for foreign companies to invest, see later paragraph. Air passenger growth in India has been one of the highest in the world; India’s civil aviation market has recently grown at a compound annual growth rate (CAGR) of 18 percent. The Airports Authority of India (AAI), a Ministry Of Civil Aviation organisation has the mandate to develop Airport Infrastructure in India to meet the challenges of growing passenger traffic and cargo volumes. AAI manages 125 Airports, which include 11 International Airports, 8 Customs Airports, 81 Domestic Airports and 25 Civil Enclaves at Defence Airfields. AAI also provides Air Traffic Management Services (ATMS) over entire Indian Air Space and adjoining oceanic areas with ground installations at all Airports and 25 other locations to ensure safety of Aircraft operations. Keeping in line with policy of liberalisation, the Government of India has decided to modernise the major International Airports and attract private participation in order to induct the much-needed capital for expansion and modernisation of metro airports to world class standards. Four metro airports at Delhi, Mumbai, Bangalore and Hyderabad have, or are being, developed and operated by private entities through Public Private Partnerships (PPP) concessions while Kolkata and Chennai are being developed by the Airport Authority of India. The Indian Maintenance, Repair and Overhaul market as a support industry, will continue to expand steadily as the growth in passenger and cargo traffic increases current predictions are that it will grow from $1.17 Billion per annum in 2010 to $2.6 Billion per annum by 2020.
Security India is expected to spend US$10Billion on Homeland Security over the next two-three years and India’s private security industry plans to invest US$12.3Billion by 2016. Expenditure related to airport security is estimated to be in excess of US$3.2Billion by 2016. In the Cyber Security sector, India’s vibrant ICT sector needs a secure and strong corporate business environment and the UK can provide it. E-commerce and online data protection and identity assurance is key and India recognises that the UK can offer much needed capabilities and skills.
Space The successful launch of HYLAS (Highly Adaptable Satellite) in November, in reaching geostationary orbit on the European Ariane-5 V198 launch vehicle was also good news for ISRO and the Indian space sector because HYLAS was jointly built by ISRO/Antrix and EADS/Astrium for the UK’s Avanti Communications of UK. After HYLAS launched, ISROs Master Control Facility at Hassan took over the control and command operations of the satellite and successfully guided it to its geostationary orbit. The HYLAS Satellite remains in good health and in continuous radio-visibility from Hassan. This bodes well for future UK and European joint ventures with India and already discussions have begun between the respective industries and space agencies to determine a programme of follow-up to HYLAS. A|D|S used the opportunity presented by AeroIndia in February to brief the A|D|S office in Bangalore on developments with planning for FIA12, in order for the Bangalore Office to approach ISRO to invite them to attend the show and take a stand in the expanded FIA12 Space Zone (double the size of 2010). The A|D|S Bangalore Office intends to brief ISRO with a detailed presentation of the space zone proposal put together by A|D|S and FIL. If successful the attendance of ISRO at FIA12 with the attendant Indian space companies to the zone including Antrix, and would be good for both Farnborough and UK industry, presenting an opportunity to build on cooperation on HYLAS. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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To assist the development of this two-way business, the following obstacles need to be addressed:
Foreign Direct Investment (FDI) Limits Foreign companies can invest only up to 26% equity into Indian defence companies. UK companies are reluctant to license their proprietary technology to an Indian company in which their equity is restricted to a minority of just 26%. Eliminating or significantly raising the ceiling on FDI would encourage greater cooperation and information sharing between international Defence manufacturers, which have finite funds with which to execute offset contracts) and Indian Defence companies
Offset The current Indian Offset Regulations are not proving to be as effective as they should be in generating the benefits sought for India, and have also proven to be hugely bureaucratically burdensome for the offshore companies involved. This is why A|D|S and five other international trade organisations from across the USA and Europe came together and submitted an unsolicited letter to the Indian MoD in August 2010 outlining some constructive suggestions for how the Indian Offset Policy could be changed to achieve the desired outcome. It must also be remembered that through offsets Indian companies should benefit with added business and the introduction of high end technologies and substantial investments. Major Indian Organisations looking for or already have relationships with UK companies Indian Company Indian Company
Larsen and Toibro Ltd TCS Ltd Mahindra and Mahindra Ltd INFOSYS Tata Motors Ltd MAX Aerospace Ltd Tata Power company Taneja Aerospace Punj Lloyd Ltd Dynamatic Technologies Vectra Engineering Pvt Ltd Hindustan Aeronautics Ltd Godrej and Boyce Manufacturing Co Ltd Bharat Electronics Ltd Rolta India Ltd Bharat Dynamics Ltd HCL Information Systems Mishra Dhatu Ltd WiPRo Electronic Corporation of India Ltd Bharat Heavy Electricals Ltd
A|D|S and its Member companies wish to work with the British High Commission to overcome these business obstacles, to benefit from these opportunities in the Indian market, and to more closely link the industries in the two countries. Close active support from the High Commission will be vital to the success of these efforts and we would welcome the opportunity to brief you and your staff more fully on these opportunities with the aim of developing plans together directed at capturing more of this business potential for UK companies in due course.
Additional Note - 21st Century Supply Chains (SC21) What is SC21? The 21st Century Supply Chains (SC21) is a change programme designed to accelerate the competitiveness of the Aerospace & Defence industry by raising the performance of its supply chains. At a time when international competition necessitates rapid improvement in the effectiveness of our supply chains, SC21 positions UK Aerospace and Defence companies to deliver competitive exports and makes the UK a more attractive place to those wanting to invest in the sector. At the same time, industry must ensure that it delivers competitive solutions for customers whilst maintaining profitable business growth. Since the launch of the programme, SC21 has been endorsed by companies of all sizes from the prime movers to SMEs in the UK Aerospace & Defence industry, including the UK Ministry of Defence. To date there are over 500 businesses committed to improving the performance of their business and thereby positively impacting the competitiveness of the UK Aerospace & Defence supply chain. Large and small companies alike are, and can be signatories to the SC21, which commits companies to: A new SC21 business culture: no matter what our role or position in a supply chain, we are determined to effect fundamental business transformation. We will work openly and transparently, through sharing information and working collaboratively, to deliver benefits across the industry. We will avoid duplication and waste. Delivering innovation: we will build on success to enable our industry to be a leader in the development of competitive value chains. We will pursue the most competitive solutions for our customers, by accessing innovation and specialist expertise. We will encourage innovation and investment of all types throughout the supply chain, achieved through providing a more trusting and open environment. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Through-life solutions: total through-life cost is of paramount importance to our customers. We will involve all functions of the supply chain, for example: procurement, engineering and finance, throughout the project, product or service lifecycle. Transparency will be encouraged, with more planning and forecast data made available using bid conferences, project conferences and other means of communication. Delivering the SC21 plan: as a signatory to this action plan, we accept that our adherence to the commitments will be tested annually and that our performance will be measured and published. We will help in the development of this plan by sharing experiences. Leadership: we will encourage colleagues in the industry, including our customers and suppliers, to join SC21 as both signatories and active participants. Ethical practices: we will ensure that all business is conducted in a principled manner, with the highest degree of personal and business integrity. Increased pace of change: our rate of change and improvement will be at an accelerated pace. Signatories will work together to harmonise how supply chains are developed, how accreditation occurs, how performance is measured and how relationships are improved.
SC21 Partners Developing a more efficient supply chain network involves tapping into networks throughout the UK. SC21 for instance has relationships with several partners, including: — Regional Trade Associations (RTAs). — Manufacturing Advisory Service (MAS). — Business Links. — Regional development agencies & devolved administrations. — Department for Business, Innovation and Skills (BIS). — CIPS (Chartered Institute of Purchasing and supply). — Trade unions. — Regulatory bodies e.g. EASA, CAA.
Key success — SC21 has over 50 award winning companies that have evidenced improved efficiency and driving towards world class supply chain performance to there customers. The customers have seen greatly improved performance and greater supply chain flexibility. SC21 is now seen as a significant change in business culture and will help retain a competitive manufacturing industry in the UK. — SC21 companies are also recognized internationally with global companies looking to source work with companies that are world class performers. The programme has been endorsed by the Australian Innovation Minister Kim Carr. SC21 can aid the export drive within the country to demonstrate this countries world class manufacturing. The industry collaboration within SC21 is clear to see and gives us a clear advantage over global competitors.
Key challenge — ADS works with the RTAs and MAS to secure funding. Inconsistency of funding across the regions is a problem. Compounding this is different processes, procedures and criteria for funding in each region, thereby creating a confused picture. ADS proposes SC21 needs national funding to support and sustain the benefits of the programme.
Written evidence from Airbus Airbus is a global company, and one of the world’s leading aircraft manufacturers, Airbus consistently captures approximately half of all orders for airliners with more than 100 seats. Airbus in the UK is world- renowned for its centres of excellence for both wing design, integration and manufacture. Airbus has two UK sites located at Filton near Bristol and Broughton in North Wales, with a current workforce of more than 10,000 people. These sites are responsible for wing research and technology development, wing design, manufacture, management of the wing supply chain and wing integration. The Broughton plant is widely acknowledged to be the world’s leading manufacturer of large civil aircraft wings. The principal focus at Broughton is on high value adding tasks that include long-bed machining of large-scale components such as wing skins and spars and the assembly and equipping of complete wings. Any audit of UK technological performance would rank the Airbus wing technology developed over the last three decades as among the country’s most significant achievements. This has given the UK and Europe a lead in wing technology that has played a major role in the market success of Airbus. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Airbus works closely with the Department of Business, Innovation and Skills and UKTI on trade and investment issues and are happy to submit comments to the Committee’s inquiry. We also support the submission made by our trade association, ADS to the Committee.
1. General Background to Airbus’ Contribution to UK In the UK, Airbus currently has a workforce in excess of 10,000 people. More than 400 companies are part of its UK supply chain located across the length and breadth of the UK. Currently Airbus programmes are supporting around 135,000 jobs in Airbus in the UK, its UK supply chain companies and from induced employment in the local economies. Aerospace generates high quality, high value adding jobs that require well-qualified people. Industry analysis shows that 31% of UK aerospace industry employees held a university degree or equivalent. Additionally, many of the “manual” or “other” categories (which includes technicians and draughtsmen) frequently have some form of specialized, non-university training, either within the Aerospace industry or from external bodies. Training—Airbus devotes considerable time and money to the training of its people and has excellent apprenticeship and graduate training schemes. Currently some 640 apprentices and 100 graduate trainees are receiving training under these schemes. More than 6,000 apprentices have been trained under the Airbus apprenticeship scheme over the last three decades. Infrastructure Development—Airbus UK has invested more than £2 billion in capital expenditure projects over the last decade in upgrading the company’s UK facilities in areas such as new engineering design equipment, the latest production equipment and jigs and tools. R&D Investment—It is widely recognised the important role that innovation and research and development will play in improving productivity and supporting economic growth. The UK Aerospace sector is one of the UK’s biggest investors in research and development and is making a significant contribution towards the Government’s R&D investment goals. Airbus is one of the UK’s biggest inward investors in R&D. The company has been ranked in the top ten UK R&D investors in the DTI’s R&D Scoreboard for the last four years. Airbus in the UK has a particularly good track record in terms of the level of R&D investment per employee, with the R&D investment intensity averaging over £30,000 per head in recent years.
2. Role of BIS in Providing Support for Exports and Investment It is clear that the role of BIS on this issue is absolutely key in the current economic climate. Government support for UK companies and the products they produce can make an important difference to the success of sales campaigns. As a global company with sites located in several other companies, Airbus has the benefit of the support of other governments too. The UK Government is a key player in this support as it has a strong reputation for diplomatic relations and reliability. Airbus regularly provides BIS and UKTI with update on key sales campaigns around the world and on a regular basis the Government shares with us information on sales missions they are organising. Over the last few years this process has been tightened up, Airbus is always keen to find when Minister are on visits to other countries as far in advance as possible which can therefore give Airbus the opportunity to provide a briefing or facilitate events or visits. Other governments share the planning of their Ministers more extensively. There is a question as to whether the different government departments are as joined up on this issue as they could be as this would certainly allow the creation of a more coherent and sophisticated messages around British business. These messages could be formed and then advocated in the full knowledge of other relevant foreign trips to potential partner countries and customers. There is a concern that budget reductions within UKTI will lead to a reduction in the trade advisers based not only in the UK but also in the Embassies abroad. They play an important role in briefing the Ambassador on industry issues.
3. Role of UKTI with Regard to Identifying Opportunities It is clear that UKTI have significant resources in terms of expertise and people who undertake the role of export promotion and inward investment. The aerospace and defence team play an active role in keeping in touch with issues affecting their sector and regularly provide opportunities for Airbus to interact with potential suppliers and other important stakeholders. Airbus has a sophisticated network of sales people across the globe so they do not need to use most of the resources of the advisory service provided. However, on occasions the British Ambassador gets involved in promoting UK aerospace sales campaigns. The UK—China Working Group is a good example of activity undertaken by the UKTI when a number of useful meetings have been arranged. UKTI also consults with Airbus and other aerospace companies on key strategic markets and then develops a programme focused in that area. Airbus is happy to support this strategy but appreciates that resources are stretched and priorities have to be made. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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4. ECGD Over the last decades the support of export credit agencies such as ECGD and US Eximbank support have allowed aviation to grow and thus supported growth of global GDP. At the same time airlines were therewith enabled to constantly modernise their fleets with more eco-efficient aircraft driving down emissions and environmental impact. All things considered, ECA funding has been a win-win situation for airlines, manufacturers and governments alike over many, many years. In the many years of relatively strong commercial financing available, many airlines chose not to utilise any ECA or US Eximbank support. Even in 2010, only a minority of Airbus customers made use of this instrument. During the economic crisis, the support of ECA and US Eximbank has brought stability to aviation, secured thousands of jobs, avoided know-how losses and allowed for continued modernisation. As the economy recovers Airbus sees absolutely no excess capacity but rather growth and profitability returning There are certain key priorities for Airbus in terms of future partnership with the ECAs in Europe: — To carry on the implementation of fronting between the ECAs so that it becomes a common feature in Europe. This means in essence that one of the 3 ECAs with whom Airbus works would lead on a particular aircraft deal and thus save Airbus and its customers from going to individual ECAs. — Market allowing, to press for capital market solutions that would put Airbus customers in the same situation as they can have with US Eximbank. — To press the commercial banks to provide financing for airlines so that the percentage of ECAs support will be reduced. It is clear that a very high percentage of ECGD’s recent activity has been directed towards aviation projects. Whilst this support has been vital, other forms of financing support should become available in an increasingly stable economy.
5. The Role of the British Business Ambassadors It is clear that businesses considering investment often seek the views of other business people so the strategy is sensible. We will be interested in seeing how this new arrangement works. 26 January 2011
Written evidence from the British Chambers of Commerce British Chambers of Commerce (BCC) response to the Business, Innovation, and Skills Select Committee inquiry into Rebalancing the economy—trade and investment We welcome the Business, Innovation, and Skills Select Committee’s interest in international trade and its recognition of the importance that exporting has to play in the rebalancing of the British economy. The BCC and the Chamber of Commerce Network have a long-standing commitment to helping British business access international markets. The BCC is an influential network of fifty five Accredited Chambers across the UK. No other business organisation has the geographic spread or multi size, multi sector membership that characterises the Chamber Network. Every Chamber sits at the heart of its local business community, providing representation, services, information and guidance to member businesses and the wider local business community. In summary, our position is the following: — That British businesses must take a more proactive approach to finding new international customers; — The services provided by UK Trade and Investment (UKTI) are vital for encouraging British exporters and in order to offer levels of support comparable to other major trading nations; — The Government must also look at ways to incentivise companies to trade abroad for the first time, or at a higher rate; — The Government and other bodies providing trade services must offer a more joined-up approach; — The completion of the Doha round of the WTO negotiations will be a real boost for British exporters, and must be completed as soon as possible; — The lack of intervention into the export trade finance and export trade credit insurance markets, which have caused serious problems for British exporters during the past two years, has stood in stark contrast to other European countries. This has placed British exporters at a competitive disadvantage; — The Bribery Act has the potential to create a serious disincentive to SME exporters who are worried about compliance with complicated regulations. We would also like to see plans for informing businesses of their new obligations under the act—especially given the current marketing freeze; cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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— Inward investment has been a success story during the past decade, but the government must ensure that efforts are not duplicated by competing regional and national bodies.
1. Export Spirit 1.1 Research from the BCC has shown that many businesses take an overly passive approach to exporting and international markets.5 The BCC therefore believes that British industry needs to recover its mercantile spirit, and become far more proactive when it comes to exporting. While we are currently the 10th largest exporter of goods in the world we need to work hard to maintain our position.6 There is much more that the UK produces of value than is exported currently. 1.2 Our survey Exporting Britain in 2009 illustrated that the main reason why businesses export is because they have been approached by their customers (58%), or by an agent/distributor (19%). Nearly half also said they exported because they already had connections in the market into which they were exporting (49%).7 This illustrates the lack of tenacity and forwardness in the approach taken by many British businesses to exporting. We therefore recommend that manufacturing companies themselves become far more proactive in seeking out export markets—especially in the high-growth developing markets. 1.3 Many British businesspeople who are already exporting to countries around the globe are very willing to offer advice and guidance to new exporters or those wishing to enter new markets—providing that it does not conflict with their own business interests.8 A manufacturing and exporting mentoring network should be created and facilitated through UKTI and the Chamber Network.
2. Helping Companies Export More (5–6, 11) 2.1 UKTI programmes such as Passport to Export have encouraged a number of companies to export for the first time, and it is vital that UKTI continues to fund such support schemes for SME businesses. Despite such programme-based help, currently there is little in the way of direct incentives for companies wishing to export for the first time—which is often a costly and difficult process, despite the possible rewards. We would like to see investigation into the feasibility of tax-breaks on exporting-derived profit for a limited period of time in order to encourage businesses to enter their first foreign markets. 2.2 Incentives that encouraged both first time and existing exporters to enter new markets have been gradually removed over the past 20 years. For example, taxation allowances can have a role in encouraging exports, but many such facilities have been withdrawn over the past twenty years. Prior to the early 1990s, companies were able to offset entertainment of foreign clients at home and abroad against Corporation Tax. We believe that exporters could be spurred into exploring new markets if companies were able to offset the considerable costs of exploring new markets against Corporation Tax in the same way as capital investments. 2.3 Previously, export salesmen were also able to claim Income Tax rebates if they had spent over thirty days in a row outside the UK. This acted both as an incentive for British firms to send their employees out into the world, and as a recruiting tool for a role that involves spending long amounts of time away from their home and families. 2.4 The UK Government provides very little in the way of state-backed export trade finance and insurance compared to all of Britain’s major competitors. During the recession, the private market withdrew support from many British companies—often with little notice. Conversely, many European companies have been able to benefit from the relaxation of State Aid rules around export trade credit insurance, which has meant that they have been able to access state-backed products for developed markets. Our research has shown that even before the recession, British companies suffered from a structural disadvantage when attempting to access state-backed trade finance and insurance support for high-value high-growth developing markets which the private insurance market considered as too risky. Conversely, although exporters from Germany, France, Italy, Japan and the United States (among others) were also unable to access trade finance and insurance on the private markets, but could access state-backed schemes. This has naturally given them a real advantage over British companies in such markets. The true cost of this is difficult to quantify, because anecdotal evidence suggests that many companies are put off from entering such markets in the first place because they know that they cannot obtain the necessary trade credit insurance or bonding support to be competitive against better-supported exporters from other nations. 2.5 The BCC believes that the Government should create a state-backed export trade credit insurance scheme run through a private company, who would share the risk and the profits. Both France and Germany have successfully applied this model, with benefits for exporters and their respective exchequers. The application of such a model would mean that exporters would not be dependent on the private market for exporting into emerging markets, or during periods of recession or economic uncertainty. We also believe that the Government needs to remain vigilant to ensure that other countries are not extending support to their exporters that would infringe upon State Aid rules. 5 Exporting Britain, June 2009 6 Source—WTO—http://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=E&Country=GB 7 Exporting Britain 2009 p. 11 8 Supporting UK business: The report of the Business Finance Taskforce October 2010 p.9 cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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3. UK Trade and Investment 3.1 UKTI performs many vital functions for British companies that wish to engage in trade, such as organising delegations into different markets, funding tradeshow access and creating British pavilions, providing market research, and running schemes to help SMEs export for the first time. October’s spending review has cut UKTI’s programme budget by 25% over the next four years, and this will undoubtedly have an impact on the range and quality of services offered.9 Further cuts to UKTI’s budget could also take place once departmental spending reviews have taken place at the Foreign and Commonwealth Office (FCO), and Department for Business, Innovation and Skills—both of whom provide other parts of the budget for trade promotion. In order to remedy the effects of the cuts, the FCO must make good the Prime Minister’s announcements that British missions abroad will spend more time and resource on international trade. 3.2 In our recent manufacturing research, while many exporting manufacturers that we spoke to had used UKTI and saw its services as vital, they often had mixed views about its effectiveness and efficiency. While some found it useful, especially for its investigative work into new markets, the majority felt that it could be further rationalised with a more joined-up service offered, and that its quality could be variable. Our survey showed that 32.7% of businesses responded that they felt that better export support from the Government would be one of their top three policy changes to help manufacturers. The number of different Government organisations that attempt to help exporters also added to confusion, such as UKTI, ECGD, Chambers of Commerce and RDAs. 3.3 UKTI now charges for many of the services that it once offered free of charge. A number of companies commented on this, and also said that they felt UK staff were very keen to sell them charged-for services whenever they came into contact with them. Despite these charges, such as for the Overseas Market Introduction Service (OMIS), companies have often reported receiving variable quality work. One interviewee from an SME technology company commented that a bad OMIS can set a small business’s growth back considerably. Firms such as these often only a have a small marketing budget, which dictates a gradual approach to new market entry; a bad OMIS and in-market service from UKTI has the potential to damage growth strategies based on exporting for a considerable time period. 3.4 It is clear that charges at UKTI will increase after the Spending Review, and that the number of charged- for services will increase. We understand the need to recoup some costs from businesses, both because of the current state of the public finances, and to act as a gate-keeper to make sure companies genuinely have a commitment to exporting. However, fees should be set at a level that encourages and supports new SME exporters without strong cash-flows. Furthermore, UKTI must ensure that the raising of funds through collecting fees for services does not detract from qualitative help for exporters. Businesses also have a right to expect that services that are paying for are of a consistent high quality. 3.5 Despite the problems identified by our business case studies, companies thought that UKTI services could often be effective. The UKTI organised British presence at international trade shows was considered a particular success. Such events were often made especially effective by the attendance of a Government minister. As such, BCC welcomes the appointment of Stephen Green as Minister for Trade and Investment, and hope that he will play a critical role leading trade delegations and helping to open new markets for sometimes risk-averse UK exporters. 3.6 There are also a number of things that UKTI could do differently. For example, currently it operates under a quantitative, target driven culture, where the number of companies assisted and £3.7 million value of revenue generated to UKTI take precedence over the outcomes of help offered to both new and existing exporting companies. BCC therefore believes that UKTI’s targets should be changed to monitor the value of results associated with help given, such as growth in export sales and employment generated, rather than purely on the number of companies assisted.
4. Other Government Resources (7) 4.1 The UK Government generally has not taken a joined-up approach to trade and investment, both within itself and with other organisations in the UK who offer export promotion and support services. However, since the Coalition Government came into office, there has been a change in discourse around this, and we welcome the increased emphasis of on the use of Foreign and Commonwealth Office and its foreign missions to better promote British commercial interests abroad. Aside from assigning greater resource to trade promotion within British embassies and high commissions abroad, the promotion of British commercial interests must also be the prime goal of British foreign policy. 4.2 More work still needs to be done on linking up Government-provided services such as UKTI, and the work of other organisations working in the field of export promotion and support. The Government therefore needs to develop one stop shops for trade promotion and investment by pursuing the integration of business support agencies such as Business Link, UKTI, and Enterprise Europe Network. It must also take into account the trade promotion and support work undertaken by Chambers of Commerce and other private sector bodies such as trade associations. Many of their services are complementary and are more accessible to business if can be found in one place (whether physically or electronically). Moreover substantial sums of money have 9 Spending Review 2010, HM Treasury p.84 cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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been invested in the UK Welcomes Business site, and the UK is participating in an EU project to develop one stop shops for the future. The Government should aim to use this as a springboard for more coordinated trade promotion activities.
5. Boosting Global Trade—EU, WTO and FTAs (8, 14, 15, 22, 26 8, 22) 5.1 The Chamber Network supports free trade and believes that the best way to achieve this is through multilateral channels at the WTO. The Doha round of the WTO negotiations has the potential to greatly benefit the UK through its liberalisation of trade in services—in which the UK is the world’s second largest exporter. The UK Government should maintain its pressure on counties that are holding up a successful conclusion to the round. 5.2 In the absence of a formal conclusion, it is right that the EU pursues bilateral FTAs with high-value markets. However, an undisciplined and bilateral approach can serve to complicate international trade and add to its considerable costs. As a priority, the UK should press for the conclusion of FTAs with markets that offer the highest potential commercial returns for British businesses, pushing for further liberalisation of trade in services to be included in any agreements reached. 5.3 The BCC believes that the following actions are key to boosting global trade: — Speed up the negotiations to conclude the Doha Round of multilateral trade talks. Governments must commit to a clear and ambitious roadmap and calendar for technical negotiations to open markets and create new trade flows while consolidating the progress achieved so far. This would provide much needed stability and predictability to companies conducting business internationally, give added impetus to the recovery and spur long-term economic growth; — Avoid a perpetuation or aggravation of the global current account-financial imbalances that marked the past decade, by collaborating with their G20 counterparts. Their correction must be supported, inter alia, with policies aimed at achieving, where needed, a consolidation of public and private sector balances in advanced economies. This is crucial to ensuring macroeconomic and financial stability, and restoring global confidence in the rules-based free trade and investment system; — Stop trade restrictive measures, which now total almost 300 worldwide. More importantly, it is imperative that they remove the ones which were introduced at the beginning of the global economic crisis. Indeed, according to the European Commission, only 10% of the measures introduced since the beginning of the monitoring exercise have actually been removed. These two factors (the overall increase and the very low level of removal of existing restrictions) could lead to a high risk of entrenchment and institutionalisation of trade-restrictive measures in the post crisis period; — Explore the possibilities of harmonizing the existing rules of origin of the bilateral and/or regional free trade agreements signed so far for the benefit of businesses and especially SMEs; — Include the issue of raw materials in international trade agreements. An unhampered access to raw materials without export barriers and clearly formulated trading rules must appear on every agenda of regional, bilateral and multilateral trade negotiations. Existing trading regulations should be recognized and enforced by all states possessing raw materials; and — Strengthen and ensure the effective protection of intellectual property (IP) rights, which is crucial to driving growth and innovation in the increasingly knowledge-based G20 economies.
6. The Bribery Act and its Potential Impact on Trade Impact assessment and cost to business 6.1 We do not currently believe that enough investigation has been undertaken by the Government to assess the financial and commercial impact that the Act will have upon British businesses trading internationally. This is especially true for smaller and medium sized businesses (SMEs) who are considering entry into difficult, but high-value markets. For example, the Regulatory Impact Assessment does not properly define the cost of implementation of the Act to UK business. This must be undertaken as a matter of urgency—and then subjected to the “One In, One Out” (OIOO) regulation costing policy, with commensurate savings for business established elsewhere.
Competitive disadvantage 6.2 British companies are against bribery because it is against the law, counter to the interests of people living in countries where it happens, and has a distorting effect on markets which directly harms business interests. However, business and government cultures are different across the world, and British companies cannot work against the grain of such markets if they are to win business in competition with companies from countries with less stringent bribery laws. For example, the Act’s stipulation that “where the performance of the function or activity is not subject to UK law (for example it takes place in a country outside UK jurisdiction) then any local custom or practice must be disregarded” will put British companies at a disadvantage when trading in markets with widely varying business practices to the UK. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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6.3 Further examples of the impact upon British competitiveness can be seen in the treatment of common “facilitation payments”, which are an offence under Section 6 and Section 1 of the Act. Here British business will be uncompetitive with American firms who are not subject to such a prohibition. Furthermore, as the guidance recognises, many smaller businesses do not undertake foreign trade directly, instead working through intermediaries such as agents and in-market distributors, where control over their behaviour can be limited. Elements of the Draft Guidance are therefore unrealistic given the prevailing conditions of doing business— such as “modification of sales incentives to give credit for orders refused where bribery is suspected”.
SMEs and burden of proof
6.4 We are concerned that for SMEs, the burden of proof requiring adequate anti-bribery procedures to be in place will act as a deterrent for new market entry and to accessing lucrative government contracts. While we appreciate that the guidance stipulates that procedures are likely to vary for companies of differing sizes, many smaller companies wanting to bid for such contracts are likely to face a similar range of issues to larger companies, such as where forms of bribery are part of an accepted form of foreign public officials’ behaviour. Smaller companies will therefore feel it necessary to implement costly, time-consuming and complex procedures that make market-entry uneconomical, or too great a risk for their businesses—leaving valuable business to the exporters of other Western countries who have less stringent or less enforced bribery laws. We therefore believe that the Act could have a damaging effect on British exports through discouraging SMEs from international trade, thus running counter to the Government’s desire to rebalance the UK economy.
Marketing
6.5 Considering the impact that implementation will have upon businesses, we would expect the Government to undertake a marketing campaign to make companies aware of their new obligations under the Act. However, we know that Government marketing budgets are frozen at present and therefore a proper campaign might not be possible. We would therefore like to better understand the Ministry of Justice’s plans for the dissemination of information about the Act.
Implementation
6.6 We believe that the problems highlighted here suggest that an implementation date of April 2011 is unrealistic given the extra work that needs to take place in coming to a sensible assessment of the cost to British business. Implementation should be delayed until this is done. Implementation should also not be undertaken until the Government can give assurances that SME businesses will not be subjected to significant new burdens that effectively prevent them from exporting to new markets in the developing world.
7. Inward Investment
7.1 Central government clearly has an important role to play in attracting inward investment into the UK; indeed, this has been a particular success of the UK during the past decade, partially down to government action in this area co-ordinated through UKTI and the Regional Development Agencies (RDAs). However, despite these successes, there are a number of issues that the Government should take into account around duplication of effort among the different regions and nations of the UK. During the past few years RDAs have sometimes competed against each other to win investment for their regions. The UK brand abroad is watered down by separate representation from all three devolved nations and nine English regions. Separate efforts from Scotland, Wales, Northern Ireland and the English RDAs only serve to confuse potential investors who are likely to be unaware of the constitutional particulars of the UK.
7.2 Now that RDAs are being wound down, and the functions of Local Economic Partnerships (LEPs) are being determined, there is a discussion about how these functions should be delivered. Many Chambers in the North and Midlands (including the North East, North West and Yorkshire and the Humber) believe that there is a continued need to retain control over some of the strategic economic functions presently exercised by RDAs, notably around inward investment and place marketing. When establishing these functions, central government must ensure that provision is made to reduce externally visible competition between different organisations. January 2011 cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Written evidence from the British Exporters Association 1. BExA is pleased to have this opportunity to comment on The BIS Select Committee Inquiry into Rebalancing the Economy10. BExA membership is drawn predominantly from larger capital goods exporters— although we do have some SMEs members—and their advisors, financiers, insurers and other service providers.
2. Executive Summary Other countries see support for export as a necessity rather than a nice-to-have. BExA’s own research demonstrates the gulf between what is available to UK exporters in comparison with those of other OECD countries. Support for export should be seen as investment—to generate productivitiy, employment, and more tax receipts and improve the balance of payments—rather than a service which, especially in these necessarily austere times, is vulnerable to indiscriminate cuts. A chain being only as strong as its weakest link, our UK export agencies must all step up to the mark to provide good service. This does not mean that they must necessarily take on more work, rather they can work smarter, principally by understanding their role within the commercial framework, working together, and recommending external commercial agencies where available. The role of government should be to provide services which are long-term beneficial to the country but uneconomic for commercial entities to provide without some form of government assistance.
BExA Detailed Response 3. BExA concurs that a rebalancing of the economy is necessary. BExA has written a detailed commentary11 on the trade finance aspects of the Select Committee’s consultation “Government Assistance to Industry” in September 2010. 4. UKTI research12 demonstrates that companies that export tend to invest in developing their products, and this has benefits in terms of productivity and employment. 5. There should be a concentration of encouragement of exports to those key growth markets where the UK has realistic opportunities of establishing and growing commercial ties, and where export credit insurance and trade finance facilities are available or where ECGD is prepared to provide accessible, cost-effective, and flexible covers. 6. UKTI’s role in assisting companies to find new markets is particularly useful for SMEs. UKTI this year won “Best Trade Promotion Body” in the developed world13, recognising its key role. Arguably, the greatest area of potential in terms of exports is from our 4.7 million SMEs. These smaller exporters have been disappointed that grants to encourage attendance on delegations at trade shows have been diminished in recent years. 7. The Minister for Trade should lead delegations and encourage other high level trade delegations. 8. Overseas embassy staff should be consistently knowledgeable about what commercial support is available, and be keen to provide practical assistance to exporters. Embassy buildings should be utilized to showcase British goods and services. Export support should be seen as a stepping stone for diplomacy. 9. On the ground in the UK, the team that supports business should have regular out-placements within the commercial sector, and be able to offer commercial solutions where these are available. Website information should be regularly reviewed and be accessible, concentrated, up-to-date and co-ordinated. 10. Trade promotion is only part of the sales process. To be competitive, our exporters will also need to agree competitive commercial terms with prospective overseas customers. Letters of credit, while secure, are expensive and not suitable for all trade, so will make some export offerings uncompetitive. For the majority of SME exports, short term open account terms will be suitable—they are cost effective and flexible for the customer. It will therefore be necessary for the exporter to buy export credit insurance. 11. Other EU export credit agencies are very active in supporting their exporters, with specific services for SMEs, as demonstrated in the BExA research14. Some EU agencies applied to the Commission to be allowed to supply credit insurance for cash contracts / short term transactions where, as a result of the recession, the commercial export credit insurers had limited appetites on OECD, the “temporarily non-marketable risks”15. The UK did not apply to extend ECGD’s business in this way or provide other export assistance to SMEs. In fact, in 2009–10, ECGD’s non-aerospace business declined by nearly 90%. 10 http://www.parliament.uk/business/committees/committees-a-z/commons-select/business-innovation-and-skills/inquiries/trade- and-investment/ 11 http://www.publications.parliament.uk/pa/cm201011/cmselect/cmbis/memo/561/contents.htm (BExA has received assurance that the omission of BExA’s submission will be corrected) 12 http://www.ukti.gov.uk/uktihome/aboutukti/ourperformance/research/benefitsofinternationalisation.html 13 http://www.newsroom.uktradeinvest.gov.uk/export/countries/oceania/australianewzealand/australia/item/119271.html 14 http://bexa.co.uk/docs/Final%20-%202010–07–26%20bexa%20research%20- %20eca%20benchmarking%20report%20(final)1.pdf 15 http://www.europadecentraal.nl/documents/dossiers/Staatssteun/wet_regelgeving/medtijdraamwdec08en.pdf cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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12. At the other end of the scale, larger businesses are also finding that ECGD is deficient. In many international tender competitions for capital projects with medium repayment terms, it is necessary to provide a fixed interest rate option supported by the exporter’s government. In such competitions, bids without a fixed interest rate option can be thrown out, even if they are the most technically suitable. Often the fixed-rate offer enables the bid to be considered, but a floating rate may eventually be chosen. ECGD has announced it will be phasing out its Fixed Rate Export Finance facility in March 2011, claiming that Treasury’s requirement to buy maximum hedging made it expensive, and also because of low usage. This attitude to risk is inconsistent with ECGD’s portfolio—because of its lack of diversification, 90% of ECGD’s portfolio is exposed to the commercial airline industry—which is not balanced. 13. More recognition should be made that ECGD has been a net contributor to Treasury since 2001 and it should be empowered to be more active in support of UK exports. ECGD should aim to provide at minimum a range of covers that are comparable with those offered by other OECD nations’ Export Credit Agencies. BExA’s research16 highlights the current deficiencies. A particular shortcoming is that of bond issue support. 14. The Government should create an insurer of last resort, to be run on commercial lines yet backed by the government rather than commercial reinsurers, to be activated, if necessary at short notice, at times of market distress, to cover export bonding risks plus domestic trade credit risks, flood risk and terrorism. 15. In order to re-balance the economy, the Government must have a co-ordinated strategy for support for trade. It should aim to provide seamless support for all sizes of business in all sectors, from the bottom to the top, from first enquiries on the website through to economic advice, marketing support, local contacts, trade delegations, working capital/bond support, export credit insurances and advise where commercial services can be accessed. 10 January 2011
Further written evidence from the British Exporters Association 1. BExA is grateful for the invitation to submit further evidence to the BIS Select Committee following publication of the Trade White Paper. 2. BExA welcomes the Trade White Paper, the co-ordinated approach for support for trade, and the new facilities from BIS and ECGD to finance and protect exports, including bond issue support. We see these new facilities as good stepping stones in the encouragement of exports. 3. BExA would like ECGD to discuss with exporters and their representative bodies the design, implementation and distribution of the new facilities to ensure they have a good take-up, are workable, and that commercial finance can be provided on the back of them. BExA has instigated a working party with ECGD to discuss structures and wordings 4. The Trade White Paper addresses key export concerns, and we are pleased that a new Cabinet sub- Committee under the Minister for Trade & Investment has been established to ensure implementation of the White Paper’s recommendations. 5. There is one bond issue support matter that has not been addressed. The ECGD bond support facility will be for export only. UK infrastructure projects also regularly require suppliers to provide on-demand bonds guaranteeing performance and this is particularly prevalent in publicly- sponsored transportation projects. Either the requirement from public and governmental bodies for high levels of bonding in such projects should be scaled back, or a domestic bond support facility should be provided to enable domestic UK suppliers to compete for UK contracts on a level playing field with continental suppliers that have government support for their bond issuance. 4th March 2011
Written evidence from the CBI Summary 1. The CBI is the UK’s leading business organisation, speaking for some 240,000 businesses that together employ around a third of the private sector workforce. With offices across the UK as well as representation in Brussels, Washington, Beijing and Delhi the CBI communicates the British business voice around the world. 2. The CBI welcomes the opportunity to give evidence to on the effectiveness of government policy and actions on trade and investment. As the UK continues to emerge from a painful recession, our future economic prosperity will be very much determined by our success in overseas markets—in exports of both goods and services, and our ability to attract and supply foreign direct investment (FDI) in ways that will let our companies succeed in multiple markets. 16 http://bexa.co.uk/docs/Final%20-%202010–07–26%20bexa%20research%20- %20eca%20benchmarking%20report%20(final)1.pdf cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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3. Competitiveness overseas depends on competitiveness at home. Although outside the scope of this particular enquiry, the CBI would like to reiterate that companies’ ability to compete globally requires the right building blocks in the UK: macroeconomic stability, the right regulatory climate, competitive taxation, skills development and labour market flexibility. Companies must have these conditions in their home market if they are to be strong enough to win abroad.
4. The UK government must continue its efforts to set the right trade policy framework at an international level—even though the process of negotiating these can be painful. The CBI strongly advocates a timely conclusion of the Doha Development Agenda (DDA) negotiations in the WTO, and urges the UK government to do all it can, eg within the EU and in groupings such as the G20, to secure political support for this. The CBI also strongly supports bilateral free trade agreements (FTAs), as building blocks towards a multilateral agreement.
5. In terms of direct support for companies, the CBI believes there is a vital ongoing role for UKTI. We accept that UKTI must bear its share of cuts in funding at this particular time, and believe that the spending levels announced in the Comprehensive Spending Review of October 2010 were acceptable. They do, of course, increase the pressure on UKTI to deliver as efficiently as possible. In order to do this, we suggest that UKTI should: (a) Put a particular focus on a more limited number of priority markets. Given the current imperative to look for growth, these are likely to be developing, rather than developed, countries. (b) Continue their vital support to SMEs, and in particular ensure that the move from RDAs to LEPs does not reduce company understanding of how to access export support. (c) Move away from overemphasising targets for new-to-market exporters. (d) Develop a more sophisticated relationship with their larger client companies. For many in this group, the support they need is not financial, but political/economic intelligence. (e) Focus in particular on major project work, and how UK companies might work in consortia to access such contracts. (f) Work more closely with key trade associations, to enable a better understanding of, and tailoring of services to, the appropriate economic sectors.
6. Ensuring an available and affordable supply of trade and export finance and ancillary facilities is essential to securing an export-led recovery. The ECGD can play a key role. However, the CBI believes that the ECGD needs further reform, including: (g) A review of the governance and application of the rules that ECGD operates under to ensure greater flexibility and responsiveness to future financial shocks; and (h) An overhaul of the marketing and product range of ECGD, starting with a study to understand the potential demand for further government-backed export finance, to help boost the UK’s export performance.
7. The involvement of key ministers in supporting UK business in overseas markets—eg by leading delegations on foreign trips, attending JETCOs, welcoming incoming delegations—is very helpful. More advance scheduling and better logistical support could maximise the impact of these efforts.
8. The CBI has always supported the British Business Ambassadors scheme, and we welcomed its relaunch in November 2010. We also commend the government for securing the involvement of some very significant figures in the UK business community. However, in the past it has been difficult to identify exactly what the impact of the scheme has been. The Secretariat will need to be extremely proactive in terms of co-ordinating with the Ambassadors about their travel schedules and possible opportunities. The Ambassadors will also require first class briefings to fulfil this role.
Introduction
9. The UK is still in the early stages of a modest and gradual recovery. The CBI’s latest economic forecast predicts growth of only 2% in 2011, and 2.4% in 2012. We expect net trade to be a key driver of that limited growth: household spending restraint and cuts in government expenditure will constrain the momentum of domestic economic activity. There will be some greater momentum from business investment as recovery and confidence gather pace, but much of the desired growth will have to come from overseas markets.
10. The CBI strongly supports, therefore, this government’s emphasis on trade and investment. We welcomed the Prime Minister’s commitment to be “messianic in wanting to see free trade and open markets around the world” and to step up the commercial focus of the UK’s foreign policy. We welcome the efforts by Foreign Secretary William Hague, Business Secretary Vince Cable and their departmental Ministers to reinvigorate the UK’s overarching trade and investment strategy. We are pleased to see all Ambassadors and UK government representatives overseas putting support for business as their key priority. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Success Overseas can only be Built on a Strong Base at Home 11. It is probably outside the focussed remit of this enquiry, but the CBI would begin by pointing out that in order to be competitive in overseas markets, British companies must have the right conditions at home. We have previously highlighted five basic requirements for economic growth in the UK: (a) Macroeconomic stability; (b) The right regulatory climate; (c) Competitive taxation; (d) Skills development; and (e) Labour market flexibility. 12. A conducive environment for growth is the essential prerequisite for enhancing the UK’s export and FDI performance. If we get those basics right, we will, in turn, enable many more SME and mid-cap companies to gain scale and to target new markets. Much of the improved international performance that we seek will ride on this. 13. More details of the CBI’s views on these fundamentals can be found in our submissions to last year’s comprehensive spending review, BIS consultations and our 2010 election manifesto. They can be downloaded from www.cbi.org.uk.
The Government Must Act to Get the Multilateral Policy Frameworks for Trade and Investment Right 14. The next step must be for the government to work to ensure the right policy frameworks are in place. Post the Lisbon Treaty, this must be done, for the most part, via the European Union, which has competence in both areas. 15. The CBI continues to advocate for a successful conclusion of the Doha Development Agenda (DDA) negotiations in the WTO. We strongly believe that an effective multilateral trade agreement is by far the best way to create a level playing field, increase market access and enforce global rules. Even though the negotiating process can be tiresome and drawn out, this should continue to be the government’s main focus. 16. We also support bilateral free-trade agreements (FTAs) as building blocks to a successful multilateral agreement. These are particularly important for increasing market access to some key fast-growing markets in the developing world, such as India and Mercosur. 17. In all negotiations—multilateral and bilateral—the CBI believes the EU must give priority to economic objectives, strongly promoting the export and investment interests of European business. The EU should also look to prioritise those FTAs that can deliver best opportunity. 18. UK government officials must play an instrumental role in shaping the EU’s negotiating FTA mandate, taking into account the potential benefits and costs to all UK sectors through comprehensive impact assessments, and seeking to balance offensive and defensive interests. It is not acceptable for sectors to be traded off against each over, effectively sacrificing one sector’s interests in order to seal a deal. In all negotiations the UK must consider the impact each agreement will have on UK business as a whole and seek to defend this interest robustly. 19. In parallel to the trade negotiations, the UK should work within the EU to secure a strong framework of international investment rules. The CBI broadly welcomed the Commission’s communication on a comprehensive European international investment policy. However, we would like to stress the importance of grandfathering existing bilateral investment treaties (BITs). To ensure legal certainty and strengthen investor confidence, existing BITS must be allowed to remain in force until such a time as a new EU-wide treaty is signed, or where an existing BIT is deemed incompatible with EU law. It is not enough to annul existing treaties on the basis of incompatibility with political goals, which are open to wide interpretation. 20. Additionally, future BITs, negotiated by the EU, must guarantee the same level of protection by preserving the most favoured nation (MFN) clause, covering direct as well as indirect investment, and maintaining investor-state arbitration clauses. 21. For more information on the CBI’s position on trade and investment policy, see our submission to the European Commission’s consultation on the Future of Trade. This is also available from the CBI website, www.cbi.org.uk.
The Role of Direct Government Support: UKTI 22. Beyond setting the right policy frameworks, government has a key role to play in providing direct support for companies looking to expand their presence overseas. At a time of extremely constrained public finances, it is understandable that funding for these efforts will have to be somewhat restricted. Nevertheless, the CBI believes that government support for UKTI is extremely valuable; delivers a significant return on investment for the economy, and should be preserved as far as possible. We believe that the spending levels announced in the Comprehensive Spending Review of October 2010 were tough but acceptable. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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23. Reduced resources do, of course, increase the pressure on UKTI to deliver as efficiently as possible— the classic “do more with less”. The CBI supports the direction that UKTI has been moving in over the last 18 months. We are hopeful that when their next five year strategy is published in a few weeks, it will continue to move UKTI down the same path, recognising the need for a more tailored offering that precisely identifies priority markets and sectors, and particular business needs.
24. In the short term, when the government’s priority is very much on rapid growth , the CBI supports a greater focus on a smaller number of high growth export markets alongside work to build on success in more developed markets especially in innovation, UKTI has identified seventeen high growth markets; amongst these it should prioritise markets such as China, India and Brazil to ensure the greatest return possible on taxpayer investment.
25. When measuring their return on investment, UKTI needs to use more sophisticated metrics than headline “new entrant to market” numbers. Quantitative targets are useful—and necessary when dealing with public monies—but should not become a sole end in themselves. They should be complemented with qualitative targets in terms of work provided and outcomes in terms of business won.
26. Similarly, UKTI’s focus on meeting numerical quotas for chargeable services should be qualified by other metrics. An over-focus on the targets has, we believe, led to a disincentive for UKTI staff to pursue more proactive work such as pinpointing further opportunities arising from these schemes and developing the export activity of successful users.
27. The “classic” UKTI offerings of basic market information, limited funding support, and consultancy services focused on early stage exporting skills, are of most use to SMEs—and are valued by this group of companies. They must be continued, and in particular UKTI must be careful to ensure that in the shift from RDAs to LEPs, companies don’t lose their link to export expertise.
28. Although the UKTI funding for regional international trade directors is still in place, several of these posts were housed within RDAs, and some of their activities were part-funded. It seems inevitable, then, that the £8 million loss of RDA funding support will impact them in some way. This need not cause cutbacks in services—eg sharing international trade directors across regions could be a more cost-effective way of acting— but it will require careful management.
29. The Passport to Export and Gateway to Global Growth (G3) programmes are valued by new and established exporters respectively. The OMIS (Overseas Market Introduction Service) is also broadly supported by business. However, given that it is a bespoke service it vitally important that there are effective quality controls in place.
30. UKTI also needs to continue expanding beyond its core SME customer base, and reach out to mid-cap and larger companies. Many of these don’t need the classic UKTI offerings; instead, they need up-to-the- minute and informed economic and political intelligence. To deliver this, UKTI must ensure it is thoroughly integrated into the broader staff capabilities of the Embassies and consulates around the world in which it is housed. Excellent communication between UKTI and “pure” Foreign Office staff on the ground could deliver a really valuable intelligence product for UKTI clients. (An example of best practice here would be the US network’s work on business opportunities from the US Stimulus package, which involved staff from the Embassy in Washington, DC, as well as the Science & Technology network and all UKTI posts in the US.)
31. UKTI should also move to a more account management style of interaction with its largest client companies. This would enable it to have a much better understanding of companies’ needs and market strategies and thereby match the UKTI/FCO offering more precisely. It is also important that there is close liaison between UKTI and BIS sector teams, who perform similar account management roles.
32. An area of particular opportunity that UKTI has already identified is large-scale projects requiring multiple company involvement. UKTI has estimated that there is currently a potential of around £700 billion of non-defence contracts and projects that could be secured in this way, with UKTI helping to pull together consortia. It should be noted that this is also a very good way of helping SMEs into new markets, by plugging them into supply chain relationships.
33. Major infrastructure developments in the high growth economies and international sports events such as the World Cup and Olympic Games in Brazil will provide interesting test cases for these project and consortia approaches.
34. UKTI has been shifting towards a more sectoral based approach, both at a national level and via sectoral dimensions to all regional and overseas staff. The CBI believes this can be an effective approach. We would urge UKTI to build better relationships with key trade associations in the relevant areas in support of this. We also believe there could be an improvement in the relationship between business sector advisory groups and staff covering priority markets, to ensure there is no duplication of effort between regional/national or sectoral/ market levels. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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The Role of Direct Government Support: ECGD 35. The second major strand to direct government support for trade and investment is the provision of trade finance and ancillary services via the ECGD. Research from the International Chamber of Commerce suggests there are continuing constraints on the availability of trade finance around the world. In the UK in particular, the ECGD is currently playing a very limited role with a very limited number of business customers albeit for the customers this can be very significant. 36. The CBI has previously recommended a two-pronged approach, leading to a radical overhaul of export finance in the UK. 37. First, a review of the governance and application of the rules that ECGD operates under to ensure greater flexibility and responsiveness to future financial shocks. The ECGD operates under a myriad of rules and regulations set out by the OECD and state aid rules under the EU. Notwithstanding this, other competitor nations were able to put in place short-term additional export trade credit support during the financial crisis when the UK was either not able or willing to match. This situation needs to be addressed so that UK exporters are not put at a competitive disadvantage in the future. 38. Second, an overhaul of the marketing and product range of ECGD, starting with a study to understand the potential demand for further government-backed export finance. This should include a detailed study of whether the export potential for SME and mid-cap firms is being held back by lack of available or affordable trade credit finance; and what form of export financing would help meet their needs. Depending on the outcome of this study, the UK may need an overhaul of the ECGD product range to ensure it is more accessible and better suited to the financing needs of SME and mid-cap exporters. 39. The ECGD also needs to build beyond its focus on aerospace markets. As a means to this end, it should significantly improve the marketing of its current, and potentially expanded, product range to ensure greater awareness of the facilities it offers. 40. There are two additional considerations that the CBI will be pursuing in the next few months. First, do the new international standards on capital and liquidity, supported by the G20 (the “Basel III” accords) treat trade finance in an appropriate way? BAFT-IFSA, an international financial services trade association, suggests that trade finance is penalised under Basel III. For example, it points out that trade finance exposures are smaller in value, shorter in duration and self-liquidating, compared to other transactions. Yet they are covered by one asset value correlation (AVC) for the whole of corporate banking. The overall effect of Basel III may be to raise the costs of transaction banking, and thereby restrict the provision of trade financing. 41. Second, the CBI will be looking into the relative competitiveness of export credit agencies (ECAs) within and outside the OECD. ECAs from countries that are not within the OECD framework are able to offer terms and conditions that are not acceptable under OECD rules, and this may mean that companies from those countries are given a competitive edge. It is not obvious what restraints can be put on these activities, beyond the OECD’s current dialogue with non-member ECAs, but the issue is worthy of further consideration.
High-level Involvement: Ministerial Delegations and the British Business Ambassadors Programme 42. The involvement of key ministers in supporting UK business in overseas markets—eg by leading delegations on foreign trips, attending JETCOs, welcoming incoming delegations—is very helpful, and we commend the Government for the priority it has given to these. 43. The CBI believes that there is potential for prioritising this commitment further. Greater partnership working between the FCO and UK business in briefing ministers as well as direct ministerial briefings by companies on the ground can further increase the effectiveness of ministerial interventions. Learning from the approach of other European countries could also be helpful. 44. While we understand the difficulties in scheduling overseas visits especially for ministers with parliamentary commitments, more advance warning of dates and visit plans would facilitate greater senior- level input and involvement by companies. 45. It would also help in securing senior-level commitment if visit programmes can be made available as early as possible, and demonstrate that business leaders involved in ministerial delegations will get real value for their time input. Delegations where the minister has significant bilateral meetings, and the business “input” is restricted to little more than providing an audience at a speaking opportunity or attending a networking reception, will not secure the right level of business involvement. 46. We would also suggest that UKTI and the FCO review the coverage and content of the UK’s high-level dialogues. It is not clear to us why some countries have a JETCO or similar dialogue and others do not—what is the guiding strategy? Also, the existing JETCOs vary widely in their substance. At their best, they are very valuable forums for focusing political attention on key business issues. At the other end of the spectrum, they can seem little more than “going through the motions”. 47. The CBI has always supported the British Business Ambassadors scheme, and we welcomed its relaunch in November 2010. We also commend the government for securing the involvement of some very significant cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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figures in the UK business community. However, in the past it has been difficult to identify exactly what the impact of the scheme has been. The Secretariat will need to be extremely proactive in terms of co-ordinating with the Ambassadors about their travel schedules and possible opportunities. The Ambassadors will also require first class briefings to fulfil this role to their best ability. January 2011
Written evidence from China-Britain Business Council
Summary
1. The China-Britain Business Council (CBBC) is the UK’s leading source of China business information, advice, consultancy and services. CBBC enjoys strong support from the UK government and industry, and has a proven track record of successfully developing British trade in China dating back to the 1950s. CBBC is recognised and respected at the highest levels of both the Chinese and British Governments. CBBC is UK Trade and Investment’s (UKTI) delivery partner in China for UKTI-branded services and works closely with UKTI in China and the UK.
2. CBBC welcomes the opportunity to give this evidence. In this memorandum we address a number of China-specific issues which we understand may be of interest to the Committee.
3. CBBC believes the government’s strategy for China remains broadly relevant although a refresh would be timely.
4. Since accession to WTO considerable progress has been made, although there is scope for more. UK businesses operating in China are generally optimistic about their prospects. The greatest concern is the availability of qualified staff, although transparency of laws and regulations, bureaucracy, IP protection and a level playing field remain concerns. There are well established government-to-government mechanisms where commercial issues are raised.
5. The transformation of the Chinese economy and the opportunities that creates needs to be far better understood by business. CBBC, in partnership with UKTI, has an extensive events programme to raise awareness and offers in-depth research on opportunities. This is in addition to tailored services for individual companies.
6. CBBC is the delivery partner for UKTI in China and approximately 80% of the work is for SMEs. However, intermediaries need to be more effectively harnessed to raise awareness of the support available.
7. A well coordinated and coherent EU-wide engagement in synch with bilateral relations would be beneficial.
8. Good political relations are an important foundation for good commercial relations. The coalition’s trade delegation to China was viewed by business as successful. The more recent visit by the Vice Premier Li Keqiang to the UK was also successful.
9. There is excellent potential to collaborate in R&D and innovation. CBBC has a specific programme “China Tomorrow” in this field.
10. The scale and extent of China’s science parks is impressive. Undoubtedly there are lessons to be learned.
11. CBBC believes British companies have access to as much support as from anywhere else. Comparative trade performance relates closely to domestic industrial make-up and China’s needs.
12. Chinese companies will increasingly become players on the global stage. This is an important opportunity for the UK, although uncertainties surrounding inward investment support exist.
Is the FCO Document: The UK and China: A Framework for Engagement still relevant and fit for purpose?
13. We believe that the pillars of the FCO document “The UK and China: Framework for Engagement” remain relevant, namely: — Getting the best for the UK from China’s growth. — Fostering China’s emergence as a responsible global player. — Promoting sustainable development, modernisation and internal reform in China.
14. Given the government’s greater focus on supporting British business overseas and somewhat improved global economic conditions the document should be refreshed. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Are the issues raised by the Trade and Industry Committee in their 2003 report still relevant? Has the environment improved since China joined WTO? Is China keeping to its commitments? If not what could the UK Government do to encourage compliance What barriers are there to trade and investment with China? How can these be lifted? 15. Many of the issues raised in 2003 are still relevant, although there have undoubtedly been many positive developments. The continued growth and changing nature of the Chinese economy presents a wide range of exciting opportunities for UK businesses. 16. The EU Chamber of Commerce in China (EUCCC) produces a comprehensive annual “European Business in China Position Paper”17 (the latest version runs to 642 pages). The Paper is presented to the Chinese Government and EU authorities with the aim of improving the investment climate in China. It details the key concerns and recommendations in regard to WTO implementation issues, trade issues and broader policy-related issues. The 2010–11 paper asserts that improved market access and a more level playing field are necessary to achieve China’s transition to a more balanced growth model. 17. CBBC and its partner, the British Chamber of Commerce in China, recently conducted a Business Climate Survey18 of British companies in China. Some key headlines are as follows: — 84% are “positive” or “very positive” about the outlook for 2011. — 36% expect demand for their products/services to increase significantly. A further 44% expect a more modest increase. — 51% reported that China was outperforming other markets and a further 25% saw China in line with other markets. — 77% expect an increase in revenues in China in the coming 12 months. — 68% expect to increase employment of local staff in China in the next 12 months. — 59% expect to increase their investments in R&D in China and 40% plan to keep them at the same level. 18. The following issues ranked mostly highly as having an impact on business performance: — retention of high quality / skilled personnel; — availability of high quality / skilled personnel; — transparency of laws and regulations; — legal and regulatory systems; — staff remuneration / pay levels; and — market access. Factors causing greatest concern are: — pollution and the environment; — level of bureaucracy; — protection of IPR,; — level playing field for foreign firms vs. domestic competitors; and — transparency and legal/regulatory systems. 19. In relation to specific market access issues, companies can engage with CBBC and UKTI to assist with lobbying. On a regular basis, CBBC and UKTI consult companies to identify specific market access issues. These issues are taken up as part of the regular Joint Economic and Trade Commission dialogues or during ministerial visits. Cases are also taken up with the Ministry of Commerce or at a municipal/provincial level or with the Commercial Team at the Chinese Embassy in London. Other government-to-government mechanisms exist, including the Economic and Financial Dialogue, as well as a number of sector-based working groups. Similar dialogues also exist at the EU level. 20. In 2003 the Committee identified breaches of IPR as a specific barrier. There have been material improvements in the last decade. The commitment of the Chinese government cannot be underestimated and it has recognised that a full IP system—from efficient and effective trade mark and patent examination to high quality judges sitting in dedicated IP chambers—is not only necessary but critical for China’s own development. So whilst IP protection is still an important consideration and companies need to develop a strategy to manage it, the picture is not as bleak as it was.
How can UK improve trade and investment with China? Should the Government have a greater role? 21. The level of understanding and awareness of modern China in the UK is not as good as it needs to be. The way China is portrayed in the media tends to be quite negative, and little is taught throughout our education system. This needs addressing. 17 See http://www.europeanchamber.com.cn/view/media/publications. 18 See http://www.cbbc.org/guide/downloads/china-business-climate-survey cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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22. Improved trade and investment relations require, inter alia, a much enhanced understanding of China today amongst the British business community. CBBC’s remit includes helping UK companies understand the opportunity. Each year we offer more than 200 events across the country to help companies understand opportunities in specific sectors or regions, as well as understand key business issues. We also host around 80 inward delegations from China each year, introducing them to UK companies. 23. CBBC, together with UKTI, has published a range of informative reports over the last two years that provide companies with a wealth of information about the changing shape of the Chinese economy and the opportunities arising therefrom. CBBC/UKTI offer a range of tailored services to help individual companies succeed in China. 24. China’s fast growing regional cities present exciting opportunities for UK companies. In 2008 UKTI commissioned CBBC and the University of Leeds to prepare a report “Opportunities for UK Businesses in China’s Regional Cities”19. Of 274 cities with a population of more than one million, 35 cities were identified as having the best business prospects for UK business. These cities account for approximately 16% of China’s population and 36% of GDP. 25. More recent research20 available to all UK companies includes: — Creative Industries in China: Opportunities for business. — Software Industries in China: Opportunities for business. — Financial Services in China: Opportunities for business. — Opportunities in Shandong. 26. UKTI has also led a successful “Doing Business in Asia” series of events across the UK under the auspices of the Asia Task Force. CBBC has actively contributed to these. 27. The fact remains that only a small proportion of the UK business base attends these events and/or accesses the research. Further enhanced partnership working can help widen dissemination and for this reason CBBC works closely with the CBI, BCC, IoD and Trade Associations and a wide range of professional advisers. It is also why CBBC wrote to all MPs.
Is UKTI set up to help small businessman to do business in China? Are UKTI mechanisms to support SMEs fit for purpose? Is it easy for SME’s to access support from UKTI? 28. CBBC is the delivery partner for UKTI for the majority of UKTI’s business-to-business services in China. The vast majority of the work we undertake (ca. 80%) is for SMEs. 29. Accessing UKTI’s services for China is no different to accessing them for any other market. In addition, CBBC’s nine offices in the UK offer additional entry points and we actively seek to engage with companies. 30. UKTI and CBBC seek to leverage the networks of other intermediaries. Despite these efforts, anecdotally, many companies still find it hard to know where to go to find support. A search on a number of popular search engines of “China Business” and “business in China” at the time of writing placed CBBC in the first, second or third slots. 31. UKTI and CBBC have recently both re-launched their websites to make information about doing business with China more readily accessible. On the ground in China, the UK has one of the largest support networks in China of any of its major competitors. With 11 CBBC offices and four UKTI teams across China (five including Hong Kong) the UK is well placed to make the necessary contacts for the benefit of UK business. 32. It is of some concern that the restructuring of the UK regional landscape (i.e. closure of RDAs and Government Offices) is leading to a reduction in the number of international trade advisers at a time when increased trade and investment targets have been agreed by both governments.
Should UK be approaching China alone or as part of the EU? 33. CBBC believes that the UK and all member states would benefit from a more coordinated and coherent EU-wide approach to China. 34. EUCCC’s annual position paper states “EU and Member State China policies are still fragmented and uncoordinated to the detriment of European business. A more coherent approach would avoid mixed messages and misunderstandings”.
How successful was the coalition’s trade delegation to China? 35. CBBC and its members consider the visit a success. Good political relations are an important foundation for good commercial relations. The visit built upon an already sound political relationship forged by the previous government. It is up to individual businesses to make the most of these good relations, accessing support from government and organisations like CBBC. 19 The full report can be viewed at www.uktradeinvest.gov.uk/ukti/chinacities 20 Copies of these reports can be found at http://cbbc.org/guide/public-reports cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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36. This visit was swiftly followed by a visit to the UK of Executive Vice Premier Li Keqiang, widely expected to become China’s next Premier. This visit went very well and had a major commercial focus.
How can UK tap into Chinese innovation? What can UK learn from Chinese growth? 37. CBBC believes there is great scope for collaboration in innovation and R&D, so much so that CBBC instigated a specific programme. CBBC’s China Tomorrow initiative is a programme to encourage UK organisations to work more closely with their counterparts in China to promote: — Joint technology development between the UK and China. — Opportunities for technology exchange. — The commercialisation of scientific knowledge. 38. The main aims of China Tomorrow to better equip UK & Chinese organisations with the “tools” to work together effectively; and to bring new products and services to market. 39. So far a series of events has been organised in the UK focusing on: — Best practice / dos & don’ts. — The cross-cultural issues of collaboration. — IPR and legal considerations. — Funding opportunities, finding partners & routes to commercialisation. — Case studies. 40. Over 350 senior representatives from business, academic institutions and UK & Chinese Government departments have participated at these events with speakers from a wide range of Chinese organisations. 41. For the next phase, CBBC will work with its members and partners to: — Secure formal support for the initiative from the Chinese Ministry of Science & Technology at the national level. — Engage with provincial and regional authorities to establish local, pilot China Tomorrow programmes and events. 42. Subject to funding being secured, CBBC would like to establish a database of expertise and contact details of CBBC members qualified to provide advice in this field—eg IP & patent attorneys, VCs etc. This database could be expanded to include: — Details of IP available for licensing. — The capabilities & technological strengths of Chinese universities, research institutes etc. — Information on existing collaborations with UK counterparts. — IP currently protected. 43. Research Councils UK is also actively tapping into Chinese innovation, opening its China Office in Beijing in 2007. Key elements of it’s strategy are to align the research funding systems in both countries to facilitate joint research activities; to explore research priorities in both countries, so opportunities can be developed for collaboration on topics important to both China and the UK; and to provide information about the research systems of both countries and policies, up to date information about UK-China collaborative activities and funding opportunities. 44. On a more practical level, if we are to realise the potential of Chinese inventions/innovations we need a mechanism to identify them. At present there is no coordinated mechanism for capturing these inventions and publicising them to potential UK partners. What would be useful would be a portal whereby both UK and Chinese organisations can market their inventions in a benefit sharing way. CBBC could deliver this, if resources were made available.
Can UK innovation, research and development make us more competitive with China? 45. Innovation, research & development in the UK should make us competitive with all countries, not just China.
What can UK learn from Chinese science parks? 46. It is not yet easy to get a clear picture of real, substantive benefits to the economy from the Chinese government’s huge investment in a network of science parks and high-tech industrial zones around the country. However, the scale of the programme and its scope are undoubtedly impressive. There are certainly lessons that can and should be learned. 47. A major goal of this programme was to redesign the economic architecture by creating institutions that would improve China's innovation system. Establishing science parks with on site business incubators, following the western model, were considered an appropriate way to do this. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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48. According to the Ministry of Science and Technology now has 56 leading high-tech industrial zones that are home to more than 50% of China’s high-tech firms and provide jobs for more than 8 million people. With more than 700 research centres and laboratories, R&D expenditure at the zones was more than one-third of the national budget for R&D. About 16,000 patents were granted to companies in the zones in 2009, accounting for nearly half of all patents registered to enterprises that year. The high-tech zones' overall output reached 6.7% of 2009 GDP.
Chinese inward investment to the UK. How can this be encouraged and increased? 49. CBBC plays a supporting role in attracting inward investment from China. It is widely anticipated that there will be a surge in such investment given the strong encouragement and support of the Chinese government to encourage Chinese companies to “go global”. The UK Government’s role is critically important in this regard. The closure of the RDAs without an immediate replacement mechanism is cause for concern and is likely to result in some disruption. Concern also exists if LEPs and cities decide to “go it alone” and cause confusion and fragmentation of the UK’s marketing message.
What can the UK learn from other countries such as Germany who have a higher level of trade with China? 50. The UK can and does learn from the experience of other countries. There are many factors that impact upon the relative performance of countries. Germany, for instance, has benefitted from the stage of China’s development and need for the goods that Germany excels in as China has built its industrial capacity. Whilst Germany exports more to China, the UK and Germany are neck-to-neck in terms of investing in China, which means comparatively the UK out-performs Germany. CBBC also notes that bi-lateral trade statistics in a globalised world have limitations. What should be most important is the contribution that China activity of British firms makes their overall performance. 51. CBBC seeks to learn through its engagement in two initiatives: — leading a consortium for a newly established EU-funded SME centre in Beijing. CBBC is working with analogous organisations from other member states; and — as a leading member of the EU China Business Association. Through this work, which includes the sharing of best (and ineffective) practice, it is evident that the size, scope and nature of support available to British companies is more extensive than for most other EU countries. 2 February 2011
Written evidence from Engineering and Machinery Alliance (EAMA) A. Summary 1. UK mechanical engineering is very export oriented (70% of sales). It’s a powerful net contributor (£3–5 billion annually) to the balance of payments and has been for many years. 2. Our five top export markets are USA, Germany, France, Singapore and China. Sector trade associations play a major role in many export activities including trade shows, missions, and in-country market support through their own offices. 3. The sector is dominated by SMEs. Selling capital equipment into a new export market generally takes three to six years. 4. Trade shows and missions are vital to SME exporters. But UKTI support for these activities has been cut. 5. Today trade shows receive £8 million in support out of a UKTI activity programme of £100 million and an overall budget of £350 million. 6. Budgetary pressures could force BIS and UKTI to become too introspective, when they should be engaging with partners. Some trade associations could help in this if given the chance, but it would require a more open sharing of information round export activity. 7. BIS needs to be a strong voice for competitive business inside Government, promoting an export oriented vision based on good evidence, not industrial fashion or solely on internal management information systems. 8. UK export finance and guarantee support is weak compared to most of the UK’s competitors. It needs a radical overhaul. 9. UKTI has achieved much particularly when its budget restrictions are taken into account. It needs to have the freedom to act more flexibly to meet different sectors different needs.
B. Background to the Alliance and the Sector 10. The Engineering and Machinery Alliance (EAMA) represents the following trade associations: — Agricultural Engineers Association. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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— British Automation and Robot Association. — British Paper Machinery Suppliers Association. — British Plastics Federation. — British Turned Part Manufacturers Association. — Confederation of British Metalforming. — Gauge and Toolmakers Association. — Manufacturing Technologies Association. — Polymer Machinery Manufacturers and Distributors Association. — Printing Industry Confederation. — Processing and Packaging Machinery Association. — UK Industrial Vision Association. 11. They represent circa 1,700 firms in the mechanical engineering sector with sales of some £8 billion. 12. Based on the Office of National Statistics (ONS) new criteria for the sector they represent a quarter of the UK’s mechanical engineering output. 13. Using HM Customs’ data, sector exports account for about 70% of sector sales. 14. Typically, our companies supply “enabling technologies” to other sectors (eg automotive, aerospace, medical, power and food industries) in the form of machinery or packages combining services and products. 15. In the UK much, but by no means all, of this is carried out in small and medium sized niche or specialist companies (SMEs) —innovative, entrepreneurial companies pushing the boundaries of factory performance, extending the envelope of the physically feasible to new levels in terms of speed, precision and migration into novel technologies and materials. 16. The UK market for these types of products is small, hence the sector’s strong export performance —it runs a positive trade balance for the UK year after year of between three and five billion pounds Sterling according to ONS’s Monthly Review of External Trade. The only other UK manufacturing sector to achieve the same sort of record is the chemicals industry. UK MECHANICAL ENGINEERING IS A MAJOR EXPORTING SECTOR AND NET CONTRIBUTOR TO THE UK BALANCE OF TRADE (£ BILLION) Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Exports 22.1 24.2 22.7 24.2 23.8 25.8 28.22 28.9 32.3 29.4 Balance 4.3 5.6 3.8 5.3 4.1 3.9 5.6 3.2 3.4 5.1 Source: Monthly Review of External Trade October 2010 ONE OF THE MAIN CHARACTERISTICS THAT SET MECHANICAL ENGINEERING APART FROM THE OTHER MAIN EXPORTERS IS THE AVERAGE SIZE OF THE COMPANIES INVOLVED. Sector (2009) Mechanical Chemicals Pharmaceuticals Motor Air and engineering vehicles space craft
Number of companies 9,175 2,702 461 707 439 Turnover £ billion 31.7 38.7 16.3 28.4 22.1 Average firm sales £ million 3.4 14.3 35.4 40.1 50.3 Source: Annual Business Survey 16 November 2010 17. But there are other important sector considerations too: — Selling (large scale) capital plant depends on the company’s ability to establish its reputation for quality, delivery and commitment to the market in question. — Trade Shows are therefore absolutely central to exporting in our sector, a factor amplified by globalisation which is tending to promote global “super-shows”.
C Response to Issues Raised in the News Release Announcing the Inquiry The Government Trade White Paper From our submission for the White Paper the elements most directly relevant to this Inquiry are the following: 18. A strategy to rebalance the economy, to produce jobs and growth through industrial investment (in part) should be shared by all Government departments so the cumulative effort produces a comprehensive plan without conflicting spillovers and pressures other than at the extreme margin. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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19. Most potential investors coming to the UK will consider a sales office if they are looking at the UK exclusively as a market. It’s only if they want to export competitively from the UK into Europe or elsewhere that they’ll consider something more substantial and invest in manufacturing premises. 20. Successful exporting is not a straightforward extension of home sales. 21. In capital goods, the three basics that differentiate the economics of exporting from home sales are: — The cost of sales in export markets is usually much higher than in the home market (e.g. cost of delivery, translation and maybe some local adaptation). — The sales price is often reduced by the local competition in the export market. — Exchange rates. 22. This means that the margin on export business will almost always be lower, but there are two very significant, boosting benefits: — First, more stable order income from sales in several different markets: this helps iron out the volatile highs and lows that inevitably apply if a company sells into a single (home) market; — Second, increased volume through the factory: this allows the manufacturer to spread the overheads across higher output and therefore reduces manufacturing costs per item. 23. Access to finance, decent trade cover and encouragement to invest for the long term are vital for exporters. 24. UK SME manufacturers won’t outperform the competition in export markets if their financing packages are uncompetitive. The three priority needs are: — Better access to finance for investment and growth so that they can improve productive capacity and increase their market presence. — Customer deposits paid to confirm their order should be treated as a source of working capital for the manufacturer/supplier not the bank. — Trade credit schemes along the lines of our competitors in countries such as the USA and Germany.
The role of BIS in providing support for exports and investment 25. The current picture is blurred on several counts. 26. Trade associations and business chambers play important roles in exporting—as did the RDAs. It’s not clear, what role if any LEPs are to take on in this area. 27. In the Coalition Government, the post of Trade Minister has only been filled fulltime since 1 January 2011. In the previous Government, there were 11 trade ministers in 13 years. The role deserves better than that. 28. And it’s noteworthy that although manufacturing’s roles in rebalancing the economy and helping to drive exports are generally well recognised, specific new action in the UK to get exports moving has been less conspicuous than initiatives taken elsewhere, e.g. in the USA, the Obama administration’s plan to double exports in five years, including the creation of an “Export Cabinet” reporting directly to the president with a strong focus on helping SMEs. 29. In the UK, schemes such the Enterprise Finance Guarantee were specifically targeted at firms selling in the UK. EU state aid rules were thought to preclude exporters, but as the Business Committee pointed out, referring to trade credit and ECGD, in its report Exporting out of Recession: “since the onset of the global recession, other Member States have been able to get a time limited waiver from the Short Term Communication (which bans support for intra EU trade and exports to certain OECD countries). Several European countries have taken the opportunity to extend the cover they offer their exporters.” 30. At the very least this sort of tentative UK approach reinforces the impression amongst overseas customers and UK exporters that the UK isn’t really serious about exporting. (If it was would it allow itself to be bested in this way?) 31. At worst, it makes buying UK goods more difficult for overseas customers and several companies tell us that they place work with their factories in the USA and Germany rather than the UK to overcome these problems. 32. We need a strong BIS department, less of the introspection, which understandably comes with repeated reorganisations and cuts, and more of the powerful vision and aligned policy framework deeply furthering UK’s international competitiveness across Government. 33. We earnestly hope that the current Departmental Business Plan (November 2010), which summarises its goals for exporting and inward investment as to “Promote open and fair global markets, improve UK Trade & Investment’s focus on generating high-value inward investment, and strengthen the capability of UK exporters”, will have the necessary bite to deliver world beating trade promotion. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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How the Government measures success in its support for trade and investment 34. UK exporters have to compete with the best in the world. To create a confident exporting base the UK’s export agency should aim to equal or better the delivery of competing agencies and measure its performance accordingly. 35. There is still a lot of confusion about the way UKTI is funded and how its funds are allocated to trade promotion and inward investment activities. 36. It is clearly important that Government should be able to analyse how public funds are spent promoting exports and FDI and the system used seems to be fit for that purpose as an internal management information tool. 37. But it isn’t as useful to interested external observers seeking to encourage sector exports. 38. For example in Resource Accounts 2009–10, the total UKTI budget is put at £350 million, £81 million of which is staff costs (UKTI, BIS, FCO). £100 million is spent on UKTI programmes (including £6 million from OMIS21 charges to users and £8 million on supporting trade shows) and the remaining 50% goes on BIS and FCO administration. These costs are then placed against some impressive outputs/outcomes to provide some management measurement. 39. Trade associations and other organisations involved in promoting export and developing links with UKTI would probably find other information more useful, e.g. breakdown of companies by size and sector, activity type and service rating. After all as partners working with UKTI, their members are the exporters. 40. Mechanical engineering companies are successful exporters, but according to a recent BIS publication UK trade performance: Patterns in UK and global trade growth, British trade in goods and services grew an average of 10% a year over the six years up to 2008. In our sector exports grew 42%. 41. We need better information to understand what works for companies and help UKTI ensure it delivers more of it.
The role of UKTI working with businesses both large and small to take advantage of opportunities. Support services for exporters 42. Budgetary pressure on UKTI has reduced its capacity and limited its capabilities. 43. There’s plenty of good work going on at UKTI and elsewhere to help exporters, but unfortunately companies often say that the paring back makes the UK presence look smaller, less professional and therefore less competitive when compared to the likes of Germany, France and Italy. 44. Their governments are investing heavily in support at trade shows and on missions. Their ambassadors attend the shows and extol the strengths of their countries’ manufacturing capabilities. In short they sell themselves very well. 45. HM Treasury pressure is forcing posts to dream up ways of charging exporters for their services. While there may be some merit in this (e.g. when it tests the seriousness of the information or market enquiry), some initiatives border on the surreal. 46. Here are a couple of examples. “This week I came across an extraordinary paradox from UKTI the organisation that is there to assist small UK companies to do business overseas. I was invited on a trade mission to the US to meet some senior officials in NASA. To my amazement when I enquired the details I found we are to be charged for the introductions being provided. I quote ‘The British consulate offices in Washington and Los Angeles will charge a fee for making the connections within NASA and the prime contractors, taking care of logistics and for aspects of mission organisation that will be passed onto mission delegates. We have agreed with the consulate offices on a per company charge of £480 + VAT for the mission.’ “I would end by making the point that these guys are the very same ones who regularly contact me asking for names and introductions to various contacts that I have around the world. Can you imagine them ever paying me/ us for such information?” 47. “For me this comes on top of recently having to pay the Consulate in Taiwan £500 to validate an electronic signature on a UK Export Licence—because the new electronic signature had not been agreed with the countries to which it applied. Our customer, the Taiwanese Government, wouldn’t believe the signature.” 48. Overall UKTI has done a pretty good job promoting UK exports when allowance is made for its vastly reduced expenditure on support activities such as the Trade Show Access Programme (TAP), which particularly affects SME exporters. As stated earlier, trade shows are vitally important for companies selling capital goods overseas. Prospects need to have seen the goods and get to know and trust the company behind the product before they will spend £300,000 or more on a new piece of machinery for their plant. The process can therefore often take time (three to five years) as commitment to the market as well as technical competence have to be demonstrated. 21 OMIS = Overseas Market Information Service under which firms pay for services supplied. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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49. BIS needs to do more to ensure that UK participation doesn’t compare unfavourably with our major competitors. That doesn’t necessarily mean having contingents of a similar size. But we do need to show that the UK has the depth of supply chain and manufacturing to match others. Key sector events are one route to achieving this and may be under threat of further budgetary cuts. 50. We would like to see: (a) Clear and consistent guidelines about charging and the levels applicable. The guideline ought to be to ensure the best quality result, not to raise revenue. (b) An export policy framework flexible enough to: (i) Encourage different sectors (eg consumer, investment and industrial goods producers) to tackle what they see as their most prospective markets. (ii) Task the export agency with delivering a high profile British branded presence at prestigious trade shows around the world. (iii) Provide sensible exhibition and seminar support, advice and guidance (ie no open cheque book), so that firms taking advantage of Government support are vetted to ensure that they are able to make the most of the opportunities (eg at a trade show). (iv) Ensure UK Trade has a range of alternative services to create a wider and more confident exporting presence at exhibitions, trade shows and missions. (v) Cut out prescription (eg three visits might arguably be OK for a medium priced consumer goods exporter in a European market, but it certainly won’t do for specialist machinery manufacturers establishing their credentials in a market like the USA or China. That can easily take several years. (vi) Ensure that the agency works with trade associations that are able to demonstrate existing export promotion expertise or a willingness to develop it. — The major trade associations know their industries. — Some trade associations have their own overseas trade offices to support their members (eg in Russia, China, Brazil and the USA). These might be harnessed to strengthen the UK offering with UKTI and the association bringing their specialist knowledge, networks and information to help exporters.
The effectiveness of the Export Credit Guarantee Department and the flow of trade credit 51. It is increasingly apparent, despite HMG’s intention that exports and manufacturing will play major roles in getting the UK out of the recession, that the problems for the exporter begin back in the UK when it comes to how to supply the order, because the UK is simply uncompetitive when it comes to putting finance in place around export orders.
Using the customer’s 30% deposit confirming the export order 52. In mechanical engineering it is standard practice for a customer to pay a 20–30% deposit to confirm their order. It happens all over Europe and in the USA. In return for the deposit, the customer expects to receive a guarantee, normally from a bank, that they will either receive the machine they have ordered or their money back. 53. If the company making the machine is any good, this is all very low risk, for which the banks make a charge. 54. The difference is felt particularly by SMEs: whereas French, German and US governments have bond support facilities that enable banks to provide the guarantee for a small charge, UK banks take the deposit as security or allocate it against the company’s overdraft and still charge for the guarantee. The result is that the manufacturer is no better off for having received the deposit in the first place. There’s no benefit to company cash flow. 55. According to a benchmarking report produced by the British Exporters Association (BExA), Export Credit Agencies April 2010, Australia, Canada, China, France Germany, Italy, the Netherlands, Spain and the USA all offer bond support schemes. In fact within the OECD, the UK is in a very small minority not offering such support. 56. But that’s not all. It means that foreign companies based in most of those countries, exporting into the UK market, are actually at an advantage over a UK-based company using a typical British bank. Thanks to bond support the foreign firms will get access to the 25% deposit and use it as working capital. In all likelihood, if a guarantee is required, the British-based company won’t. The deposit will probably be taken by the bank and held against the company’s overdraft.
Letters of Credit 57. Letters of credit are ‘negotiable documents’ in other countries. That is, banks will advance proportions of the final sum in the contract at certain stages as work moves towards completion of the contract (e.g. at the start, completion of a specific module, and then when ready to ship). So in other countries the letter of credit cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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is another important route to maintain positive asset-backed and therefore cheap cash flow through the business. But it’s not available in the same way here. And foreign banks are catching on to what this means for otherwise successful UK firms. 58. One SME reports being recently wooed by the Bank of China to put all his firm’s letters of credit through the bank’s Hong Kong branch to access the funds on more favourable terms there than those offered in the UK. 59. The attraction was not enough this time. But you can see where it’s headed. Once the finance is taken up locally, why not consider moving the production facilities too.
Export Credit Agency 60. There is a general perception that the UK’s Export Credit Guarantee Department does a good job on large scale orders, such as the Airbus related business and medium to long term repayment projects such as power stations and hydro electric type projects. 61. Now the Export Credit Guarantees Department’s cover needs to catch up to be at a competitive rate for exported goods starting at £250,000. 62. BExA’s benchmarking study mentioned earlier compared the services offered by 38 export credit agencies around the world, allocating a “point” for each service provided across 10 basic services from short-term export credit insurance through bond support to letters of credit guarantee schemes. 63. The average score across all 38 organisations was 7.1 with Canada and the USA achieving 10 out of 10. Thirty-three countries scored higher than five. Five scored five or lower. UK’s ECGD scored 5.
How other countries, similar to the UK, export to emerging markets and what our Government could learn, if anything from them; 64. One member points out that both the German Hermes Bank and the US Ex-Im schemes are much more flexible, easier to apply for, have better commercial risk assessment and are cheaper to apply. In his opinion the current ECGD scheme is making the UK uncompetitive in the world markets. 65. ECGD sold its short term credit insurance business to Atradius twenty odd years ago and is therefore absent from that business and is virtually unknown to SME exporters. 66. The closure of SITPRO (Simpler Trade Procedures Board) in the cull of QUANGOs means that the UK is no longer represented on electronic trade documentation in the EU as it once was. 67. Machinery exporters need to be able to offer customers finance at fixed interest rates as a service that our competitors tend to provide to help clinch the deal, even if clients decide to do the business on floating interest rates. ECGD will be withdrawing this fixed rate export finance offer in March 2011. 68. A study (2007) by the International Consultancy Group for the Manufacturing Technologies Association (an EAMA member) comparing the UK’s support for exporters at international exhibitions with French, German, Italian, Spanish, Turkish and Chinese practice found that: (a) UK’s competitors offer more funding and attend the same number or more exhibitions. (b) The competition is very strong and more adept at involving all “stakeholders”. It is also growing fast in places like Turkey and China. (c) Other countries don’t restrict support to categories such as “new to export”, or SMEs. Unlike the UK, they use their support to have a broad swath of industry represented. (d) France and Germany in particular have a range of schemes that support companies under a variety of different scenarios, for example encouraging prospecting in markets over time or supply chain co- operation at exhibitions. January 2011
Written evidence from the Federation of Small Businesses 1. In responding to this consultation, the FSB would like to draw exclusively on its recently published report on exporting Made in the UK: Small businesses and an export led recovery, which we attach for your reference. — Just under a quarter of FSB members export their goods or services overseas. 59 % export manufactured goods and 42 % services. — 73 % of those not currently exporting claim they lack a suitable product or service to export while 17 % claim adequate business in the domestic market. Less than 10 % give other reasons. — 48 % of exporters cite fluctuating exchange rates/foreign currency and 32 % red tape/bureaucracy as their most common challenges to exporting. — The EEA (European Economic Area) is by far the most popular region to export to; this is a market for 87 % of exporters. This is followed by the USA (45%) and Canada (25%). cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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— Looking at future export markets, just over a third would consider the EEA, while 27 % cite the USA and 21 % would look to Canada. — More than four in five members are aware of high street banks and Business Link as business support services; just under a third are aware of trade missions (32%). — 45 % have used a high street bank and 44 % Business Link for business support services. Just six per cent have used UKTI (UK Trade and Investment). — 83 % of those who have used UKTI state it has been useful. 73 % say the same for Business Link and 55 % for high street banks. — Better promotion of support available, tax breaks and tailor-made information for small firms are considered the best measures to encourage exporting among small businesses.
2. The Report’s Key Recommendations were — More effective promotion of Government assistance in this area, particularly around the Passport to Export scheme which helps businesses exporting for the first time. — UKTI should give more priority to the Gateway to Global Growth programme and improve the consistency shown by the OMIS (Overseas Market Introduction Service) to give businesses greater confidence in using the service. — The Services Directive holds huge growth potential for small businesses. An information campaign about the benefits and availability of the web portals should be targeted at SMEs to help them realise the possibilities. — The Letters of Credit Guarantee Scheme needs to be reviewed and removed if necessary, and instead a more thorough package considered. — The Government, along with the private sector, should look at starting a trade credit scheme for small businesses.
3. Manufacturing — More effective promotion of the support available to small manufacturers from UKTI, Enterprise Europe Network (EEN) and high street banks, making it straightforward to understand. — UKTI should be more target driven for small manufacturers with subvention payments linked to business orders obtained. — Banks should start to offer bespoke help for small businesses in a way that is offered to large businesses, including better promotion of the availability of finance.
4. Defence — Establish an Industrial Participation clearing house within the Ministry of Defence (MoD) or UKTI to share offset commitments, with a percentage set aside for small businesses. — The MoD and UKTI Defence and Security Organisation should work closely with small business organisations like the FSB to disseminate information relating to business opportunities in defence export to a wider range of businesses. — There should be a more joined up approach between UKTI, the Foreign and Commonwealth Office (FCO), Department for International Development (DfID) and high street banks so that there is more continuity in advice to businesses.
5. Tourism — Increasing public funding for international tourism marketing with a targeted focus on the BRIC (Brazil, Russia, India & China) countries. — Review Air Passenger Duty, VAT and visas to make the UK more competitive for international tourists. January 2011
Written evidence from Food and Drink Federation 1. The Food and Drink Federation (FDF) represents the UK’s food and drink manufacturing industry, the largest manufacturing sector in the country, with a Gross Value Added of about £21.6 billion and plays a vital role in underpinning the economy through our ongoing efforts to create jobs, add value and boost exports. The UK is also the world’s eighth largest exporter of value-added food and non-alcoholic drink products, with nearly £10 billion of overseas sales. FDF shares the Coalition Government’s view that export-led growth will be key to boosting the UK economy and supports efforts to develop an ambitious and overarching trade and investment strategy for the UK. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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2. We need sufficient clarity, coherence and consistency in policy making across Government to give companies the confidence to make the kinds of investments that will enable us to pursue our international trade objectives. 3. The most important challenge will be feeding a growing world population22 under ever-increasing pressure on key resources such as energy, water and land, exacerbated by the likely effects of climate change. The UK food system cannot be seen in isolation from the wider global challenge of increasing supply and ensuring that people have access to sufficient, safe, sustainable and nutritious food. In this context we consider that the UK has an obligation to exploit its own productive potential, particularly where the effects of climate change could increase our comparative advantage in growing certain types of food. International trade will have a key role to play in helping to balance global supply and demand and mitigating risk. 4. Given these challenges and opportunities, the UK’s future international export advantages must lie in strategic industries such as food and drink manufacturing. The UK food and drink industry is demonstrating leadership through maximising efficient resource use23 and has a key role to play in the transition to low carbon growth to meet the future challenges of food security and climate change.
The Role of BIS in Providing Support for Exports and Investment 5. We believe that the Department for Business, Innovation and Skills (BIS) must address certain domestic factors that prevent businesses from competing internationally such as: regulatory burden; access to finance and skills; and investment in R&D. FDF believes that some of these factors can be addressed in the following ways: — We need a positive business environment where Government pursues alternatives to regulation and for new policies to encourage growth rather than impede it. Much of the legislation that impacts our sector comes from Europe. Government needs to engage early enough in negotiations to influence outcomes in a way that benefits the industry in this country; — The Government must maintain pressure on finance providers to increase the level of credit facilities available to ensure their actions do not hold back British businesses. Where finance providers are more risk averse, they should distinguish between different manufacturing industries and companies, since the risk may be less in the food and drink sector as oppose to the other manufacturing sectors; — The Government must continue to work with industry to promote manufacturing as a career destination of choice, and use every opportunity available to talk up the importance of manufacturing, including the food and drink sector; — The UK must address some of the barriers to innovation to ensure that we are not left behind our global competitors. For example, the use of new technologies will be increasingly important for the future and the bureaucracy needed to comply with increasingly complex regulations, such as Novel Food Regulation applications, needs to be tackled to prevent innovation from being stifled; and — We need to remove potential future barriers to innovation through showing leadership in debates about the use of technologies such as GM and nanotechnologies. 6. One of the greatest trade barriers faced by exporters of food and drink products are related to food safety and animal and plant health—Sanitary and Phytosanitary (SPS) measures—which go beyond international standards without providing necessary scientific evidence. FDF supports the continued efforts of the UK Government to enhance the legal framework for harmonised international standards which address issues such as food safety to achieve a level playing field. Where regulatory changes have been notified to the WTO, we would ask BIS to ensure relevant stakeholders are informed in a straightforward and timely fashion, providing ample opportunity to provide feedback on potential impacts. 7. The closure of SITPRO could also have a significant impact on trade facilitation—it is vital that its most fundamental functions are adequately covered within BIS.
How the Government Measures Success in its Support for Trade and Investment 8. The Government should pay particular attention to the volumes of exports, growth rate and the global ranking of sectors. This can help to ensure UK trade and investment activity is better targeted towards strategically important sectors, in which the UK holds a particular comparative advantage, and is well placed to deliver export growth to emerging economies. 9. As the world’s 8th largest exporter of food and drink24, the UK food and drink manufacturing industry is well positioned to compete internationally. Our sector’s exports have risen by approximately 15% over the past decade, showing a strong demand for UK high value-added food products abroad. 22 According to the UN Food and Agricultural Organisation, global food production will need to increase by 70% by 2050 23 FDF Five-fold Environmental Ambition 24 UK Food and Drink Export Performance 2009; Leatherhead Food Research cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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10. In the first half of 2010, UK exports of food and non-alcoholic drink grew to more than £5 billion—a rise of 4.3% on the same period in 2009—with full-year sales to overseas markets forecast to break the £10 billion barrier for the first time. This will be our 6th consecutive full year of growth.
The Role of UKTI with Regard to Identifying Opportunities in Established & Emerging Markets; Key Sectors; and Working with Industry to take Advantage of Opportunities 11. UK Trade & Investment (UKTI) must include food and drink as one of its export priority sectors and help identify potential growth opportunities for small and medium sized enterprises (SMEs) to explore. SMEs represent nearly 99% of enterprises in the UK food and drink manufacturing sector and often they are not aware of the opportunities in exporting overseas. Of those companies that do decide to export overseas, many find it consistently difficult to break into certain foreign markets due to the legal, linguistic and cultural complexities of doing business overseas. 12. UKTI must takes a more proactive role, encouraging manufacturers to export and helping to tackle the key challenges that prevent businesses from trading overseas, namely finding customers overseas, building relationships with decision-makers as well as handling legal, tax and intellectual property issues in foreign markets. The UKTI must ensure that their services are visible to all UK businesses especially SMEs; provide expert advice; and work with its European and global counterparts to help businesses make the right connections.
The Effectiveness of the Export Credit Guarantee Department and the Flow of Trade Credit 13. Whilst the food and drink manufacturing industry has remained very stable through the credit crisis and the recent economic downturn, the lack of access to trade finance remains a concern for many food and drink manufacturers, particularly SMEs. The Government must maintain pressure on finance providers to increase the level of credit facilities available to ensure their actions do not hold back British businesses. Where finance providers are more risk averse, they should distinguish between different manufacturing industries and companies, since the risk may be less in the food and drink sector as oppose to the other manufacturing sectors.
How Other Countries, Similar to the UK, Export to Emerging Markets and What our Government Could Learn, If Anything from Them 14. It is clear that trade promotion is a top priority for Italy, France and other European countries. Chinese Commerce Minister Chen Denming was recently reported in the press during the UK trade visit to China saying that British brands are far less familiar to Chinese consumers than Italian and French ones, and need to be promoted much better. The UK must prioritise key export sectors for trade promotion in emerging markets to compete with our European counterparts but also other global trade partners.
The Role of the British Business Ambassadors 15. FDF welcomes Government’s commitment to international trade and its decision to appoint Business Ambassadors to promote UK trade in overseas markets. However, as the UK’s largest manufacturing sector and with annual turnover of over £72.8 billion, accounting for 15% of the total manufacturing sector, it is disappointing that the Government has not appointed any representatives from UK food and drink manufacturers as Business Ambassadors. January 2011
Written evidence from the Forum of Private Business Summary Using our recent research25 on exporting, in association with Global Reach Partners, the Forum of Private Business has put together some evidence for the Business Innovation and Skills Select Committee enquiry: Rebalancing the economy: Trade and Investment. In this paper we identify the main barriers to exporting for small and medium-sized businesses; lack of information on markets, cash flow risk and foreign exchange support. We recommend that if the Government wants to increase the number of SME exporters, it must tackle these issues by providing training and support for businesses, improving business support from financial institutions and taking greater control over currency trades.
Key barriers and policy changes required to encourage export In our recent research on exporting, we found that out of the 49% of companies who did not export, only 11% were considering exporting in future (see Figure 1). This is a low number and there are a number of steps that could be taken to increase this figure. 25 Forum of Private Business & GlobalReach Partners—research report on exporting and foreign exchange http://www.fpb.org/ images/surveys/FPB_Report-Exporting_and_Foreign_Exchange.pdf cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Figure 1
INTEREST IN EXPORTING We have no interest in exporting, 38% Yes, we currently export, 51%
No, but we are considering exporting in the future, 11%
There is risk involved in exporting which can put businesses off from exporting for the first time, as well as prevent exporters from exporting to new markets. The risks are:
Lack of Information on Markets
Lack of information on markets was the most frequently cited reason as a barrier for developing their business by the seasoned exporters surveyed, with 36% mentioning this. It was also a concern for non-exporters, particularly those who are considering exporting in the future (see fig.2), along with a lack of local presence. To some extent these are provided already through UKTI, however in the case of around a quarter of those who see the lack of a local presence as an issue, they also cite a localised client base which would tend to indicate a more manpower-intensive solution than using trade fairs and embassies to tap into a local distribution network.
Figure 2
BARRIERS TO EXPORTING FOR NON-EXPORTERS Current Survey Base Considering No interest 2009 exporting in Innovation in the future exporting Survey7
Our business model requires a local customer/ client 49% 22% 57% 41%a base Our products/ services fulfil a local or UK specific 45% 15% 55% base Direct cost of exporting too high 11% 22% 8% 17%b Excessive cash-flow risks 14% 32% 8% n/a Excessive economic risks 10% 20% 7% 15% Cost of finance 7% 17% 4% 17% Access to finance 8% 22% 3% 16% Lack of qualified personnel 8% 20% 4% 7% Lack of information on markets 19% 42% 12% 3% Lack of information on technology 2% 2% 2% 3% Lack of local presence 18% 42% 11% n/a Lack of language skills 15% 27% 12% n/a Uncertain demand for services 20% 29% 17% 8% Uncertainty caused by currency fluctuations 14% 22% 11% n/a Concerns over insurance cover 9% 17% 7% n/a UK regulatory markets 6% 10% 5% 8% Non-UK regulation 8% 22% 4% 7%c a Proportion of businesses that do not feel the need for innovation b Cost of innovation rather than cost of exporting in the innovation survey cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Cash Flow Risk Currency fluctuations were considered the most significant risk in terms of the cost of doing business internationally, with 63% of those surveyed considering this to be a significant risk for their business. Increased shipping costs (31%) and payment of additional duty (28%) were the next most significant risks. 57% of businesses carry out credit checks on customers to reduce risk; Retention to Title clauses in customer contracts were used by 44% of businesses and a similar proportion are actively managing foreign currency risk. Just 18% have taken out credit insurance and 18% check that their suppliers have credit insurance.
Figure 3 IMPACT OF CURRENCY FLUCTUATIONS
Overall profitability of the business -44% 26%
Planning for the future -35% 13%
Increasing of exports -18% 36%
Increasing of imports -36% 7%
Strength of the supply chain -26% 7%
-50% -40% -30% -20% -10% 0% 10% 20% 30% 40%
Currency fluctuations have an impact on business profitability, as shown in Figure 3. In our research we found 72% of SMEs had seen a noticeable difference to their profitability as a result of currency fluctuations. 26% have seen an increase in the overall profitability of their business, and 44% had seen a decrease. Exporters tended to see a positive outcome of the weakening of sterling with 36% seeing an increase, however 18% saw a decrease in exports as international trade declined. These businesses also reported an increase in import/raw material costs. In total, 36% saw a decrease in imports as a result of the higher costs of importing although 7% saw an increase. Overall, the supply chain seems to have weakened with 19% more seeing a decrease in the strength of their supply chain compared to 7% who saw it improve. Assessing credit risk is important for businesses, as late payment and bad debt can be exacerbated by national boundaries. Compared to currency fluctuations, businesses involved in international trade seemed to be more concerned by late payment (net balance of 42%) and customer insolvency (41%). Figure 4 COMPARISON OF OTHER FINANCIAL RISKS WITH CURRENCY FLUCTUATIONS Greater impact Less of an impact Similar impact Do not know Balance
Late payment 60% 18% 18% 3% 41% Interest rate fluctuation 24% 42% 30% 5% −17% Supplier insolvency 34% 36% 21% 9% −2% Customer insolvency 60% 19% 18% 3% 42% Refinancing bank debt 18% 40% 21% 21% −21%
Foreign Exchange Support 36% spoke to their current bank about the provision of foreign exchange services and 30% contacted a specialist foreign exchange broker. Trusted sources of information such as accountants (25%) UKTI (20%) and trade associations (19%) were also contacted whilst 19% used the internet to find the ideal supplier. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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While 63% felt that the best rate was a significant factor in choosing the provider, 42% felt that speed and convenience of exchange was important as the person responsible for foreign currency (the business owner or financial director) has a multitude of other responsibilities. Control (41%) and competitive rates of commission (33%) were also considered. Security was not offered to respondents as an option but was reported by 2% of respondents of their own accord. Exporting is particularly risky for start-ups as they do not have the cash reserves to fall back on. Small firms would like to see better systems in place to assess credit risk and providing these would help start-ups as well as existing exporters, or existing businesses looking to grow. Those already involved in international trade are more likely to be planning the introduction of new products or services. In the current economic environment, businesses need to achieve value for money with tailored support designed to help them grow, particularly as weak domestic demand and the difficulty for businesses in attracting a price premium in the UK indicates that international trade is a key way to increase profitability. Greater support is needed from Government support agencies for businesses internationalising their business: — Training and support is needed for businesses in internationalising their business in order to increase their turnover. 67% of UK companies that were not exporting felt that their business model was not conducive to exporting or that the business only satisfied a local need. However, as Starbucks has shown, there are potential solutions such as franchising or joint ventures that can be used to overcome these issues. — UKTI provides support for both businesses looking to export for the first time and for experienced exporters. However, the research indicates that there is greater demand than supply in this area and that additional funding would help in developing UKTI’s services further. — Support agencies must ensure that they are working cohesively and not duplicating support already available from the public sector. For example, a small business which is not able to attend a trade show because they cannot afford the time away from their business could be supported with a translation service and key distribution contacts. Improved support to businesses from financial institutions is also required: — Better protection for importers and exporters is needed from international credit ratings agencies. Businesses frequently complain that it is difficult to assess credit risk internationally and the information available is not always current enough to allow them to make an informed decision on the level of credit they should extend to trading partners. — Overseas customers must be encouraged to pay invoices promptly. — A greater range of financial products that support international trade—such as a greater range of choice on international merchant services, web-based foreign exchange products or products to effectively reduce the risk of international trading—is also needed. Greater financial discipline is needed from businesses themselves: — Businesses must be prepared to agree to greater financial transparency in order to improve their credit rating. To some extent this is already happening as a by-product of the credit crunch. — Businesses must also ensure that they research potential suppliers and overseas customers and look at a variety of sources of information. — In addition businesses should also pay closer attention to detail on contracts so that businesses have recourse to legal redress in case of a contractual dispute. Take greater control over currency trades to reduce the risk of international trade: — With currency fluctuations a key concern for businesses even before the sovereign debt crisis Global Reach Partners says that there are a number of steps that businesses can take to manage their foreign exchange risk and retain control over their currency management. — Need to provide more info on emerging markets. Exporters are less likely than UK only traders to expand their current customer base. UK traders see new customers as an important area for growth, where as exporters see selling more to current countries as more important, rather than expanding to new markets.
Differing regulatory systems, the barriers they create and steps required to reduce such barriers Differing regulatory systems do provide barriers to exporting. One of our members, an exporter of cryogenic storage vessels, has found excessive red tape a barrier to accessing some target markets. For example, they been unable to export to the Canadian market because of the bureaucracy involved in its technical licensing requirements. The UK Government should provide businesses with more information on the regulatory systems of other countries, particularly those outside the EU, in order that firms know what steps they need to take to comply. This will also help them calculate costs, as the costs of compliance can be factored in to profit margin calculations. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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The European Union has done some work on enabling businesses to access information for trading within the EU. One of the outcomes of the Services Directive was that each EU country must “Set up ‘Points of Single Contact’ through which businesses will be able to obtain information and complete procedures required for doing business.” We believe that this has the potential to be useful for businesses but the signposting to the “Points of Single Contact” must be very clear so that businesses know of their existence. At the moment we have no knowledge of the numbers of businesses who are even aware of the Points of Single Contact, which could prove to be a good resource to small and medium-sized businesses wanting to trade in other European Union countries.
Benefits of the European Single Market Figure 5 TARGETED LOCATION FOR INCREASES IN EXPORTS 76% Within the European Union 75% 78% 52% Elsewhere in Europe 65% 17% 43% Middle East and Africa 50% 24% 42% North America 47% 29% 38% Far East and Asia 47% 12% 29% Australasia 35% 12% 12% Elsewhere 13% 10% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Considering exporting Looking to increase exports Base
Europe is the key market for both those who are looking to increase their exports and those that are considering exporting. Close proximity is one of the main reasons for this trend, however businesses have benefited from the similarity of the regulatory systems in member states, which has made trade easier. In addition, the single currency has benefited exporters, as it is easier to trade with the single currency, as opposed to multiple currencies, as was the case before the creation of the Euro.
About the Forum of Private Business The Forum of Private Business is a proactive, not-for-profit organisation, providing comprehensive support, protection and reassurance to small businesses. The organisation aims to deliver an exceptional service to its members, adding value through the provision of practical, tailored solutions that promote business success, and by being their voice in government. January 2011
Further written evidence from the Forum of Private Business The Forum would like to provide further evidence to the inquiry into Trade and Investment, to supplement the evidence already submitted on 10 January.
Export Credit Guarantee Anecdotal evidence from our members suggests small firms are struggling to access the Export Credit Guarantee Scheme (ECGS). Delta Design Systems LTD, based in Essex, is an example of one such business. After securing a £57 million contract in Iraq they repeatedly contacted the ECG Department for help in delivering the contract. They received no support and were told that if they were a larger company such as BAE they probably would have been able to help. However, because they were an SME and because the country in question was Iraq they were deemed too risky. Other members have also reported problems, with cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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one firm saying that when they did meet with the ECG Department they were only interested in selling them insurance and stated that they ‘gave up the ECG Department a long time ago’ although they would ‘welcome another look at it’. Another business felt that Governments in other countries, such as Australia and South Africa, were more supportive of their exporters and thought the UK Government could do more, particularly by considering the importance of smaller £30–100 million projects.
VAT Members have also experienced problems with VAT registration when trading with the EU. Sole traders are not required by UK law to be VAT registered. However, in the EU they are which has angered the EU companies they are trading with, as they have to pay extra tax as a result. Addressing this legislative gap would help sole traders who export overseas.
About the Forum of Private Business The Forum of Private Business is a proactive, not-for-profit organisation, providing comprehensive support, protection and reassurance to small businesses. The organisation aims to deliver an exceptional service to its members, adding value through the provision of practical, tailored solutions that promote business success, and by being their voice in government. 21 January 2011
Written evidence from Institute of Directors Following on from today’s evidence session (and as requested) I attach the cross-tabulations of the data that I volunteered at the closing on proceedings (on the global regions IoD members expect to see export growth in from 2011–16). The data is derived from all those that export and that indicated they expected to see growth in their export activity over this fiveyear period I have cross-tabulated the data against service/goods splits and also high level sectoral groupings. You’ll note that the overall figure is broadly supported by the sectoral subsets, indeed the propensity to cite the EU as the growth market is stronger than the overall figure in surprising sectors such manufacturing and business services, as well as in goods more broadly. 26 January 2011 cobber Pack: U PL: CWE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08
Business, Innovation and Skills Committee: Evidence Ev 187 Hotels, Other— Banking/ Business Energy Retail and Minerals Transport and please Q4 62 0 2 18 4 3 6 2 4 0 2 21 392 2 14 114 15 8 38 15 58 3 12 113 227 1153 5 70 03% 8 6 41 0 3 7% 6 16 3% 4 11 0 18 0 41 1 3% 3 0 25 7 1 2% 64 0 4 45 0 5% 58% 50%21%33% 36% 50%39% 61% 034% 7% 0 40% 26% 21% 38% 0 57% 34% 13%15% 36% 36% 42% 25%16% 33% 31% 50% 25% 40%14% 73% 13% 50% 14% 0 53% 29% 10% 38% 0 14% 27% 47% 71% 16% 100% 13% 7% 7% 47% 38% 7% 22% 11% 27% 38% 47% 58% 0 0 32% 13% 43% 33% 57% 38% 16% 33% 7% 34% 25% 18% 13% 33% 42% 19% 33% 19% 31% 20% 40% 7% 42% 0 34% 17% 0 33% 25% 10% 17% 8% 19% 13% Total Agriculture Finance Services Construction Supply Engineering Distribution Manufacturing and Ores Communications specify 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% — Live Data — English (US) In what industry is your primary organisation engaged? Market increase demand From 2011–16, in which of the following marketsBase do you expect to see the greatest increase in demand for your exports? Europe (EU) Europe(Non- EU) NorthAmerica 83Asia Middle 129East (including 1Turkey) 133CentralAmerica 0and the 1Caribbean South 12 0America 3 30Africa Australia 57and 39 5 0Oceania 56 2 35 1 1 5 2 0 3 2 8 2 5 1 3 11 11 0 13 4 0 18 2 1 2 3 1 0 13 3 27 12 0 0 20 7 1 1 1 3 1 3 5 22 11 0 35 5 10 0 38 1 0 3 6 1 11 15 Business Activity Cell Contents: cobber Pack: U PL: CWE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08
Ev 188 Business, Innovation and Skills Committee: Evidence Column Percentage — Count — Statistical Tests: Tuesday, 25 January 2011 8:59 am cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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What Exports Staying with the subject of your organisation’s international trade in the last 12 months, were those exports: Both goods Total Goods Services and services
Market increase demand increase in demand for your exports? 392 121 199 72 Base 100% 100% 100% 100% 227 81 110 36 Europe (EU) 58% 67% 55% 50% 83 23 46 14 Europe (Non-EU) 21% 1`9% 23% 19% 129 44 62 23 North America 33% 36% 31% 32% 153 49 81 23 Asia 39% 40% 41% 32% 133 40 69 24 Middle East (including Turkey) 34% 33% 35% 33% 12 1 9 2 Central America and the Caribbean 3% 1% 5% 3% 57 17 24 16 South America 15% 14% 12% 22% 62 12 32 18 Africa 16% 10% 16% 25% 56 21 276 8 Australia and Oceania 14% 17% 14% 11%
Cell Contents — Live Data — English (US) — Count — Column Percentage Statistical Tests: Tuesday 25 January 2011 8.59 am
Written evidence from Pact Executive Summary 1) Total exports of UK television content have doubled since 2003,26 helped by strong growth in the independent production sector (ie production companies that are not part of broadcasters). For example, the UK is a world leader in format exports (the sale of programme remake rights),27 and independently-made programmes account for as much as 81% of such sales by volume.28 2) The success of the independent production sector in helping drive export growth is in large part down to the Codes of Practice set out in the 2003 Communications. Before the 2003 Communications Act, companies in the independent television production sector were constrained by the structure of the programme supply market from exploiting those programmes. The four public or state-licensed public-service broadcasters (PSBs)—the BBC, ITV1, Channel 4 and Five—controlled over 90%29 of investment in new UK programmes, and were consequently able to demand all rights to programmes, including ones they did not use. 3) The 2003 Communications Act introduced the principle that producers should be able to re-use the IP rights to their programme. This created an IP market, enabling producers to sell those rights around the world. 4) The digital era is ushering in a structural shift in content delivery, as audiences increasingly take control of when and how they access content. This evolution creates challenges and opportunities. Investment in UK content from broadcasters is falling due to advertising fragmenting across the different services that are emerging with digital technology. Yet exploiting IP via emerging digital services opens up potential new revenue streams that can be used to fund the production of content and offset declining investment from UK broadcasters. Independents are already using the revenues generated from exploiting rights to reinvest in the 26 Annual export figures, complied by TRP for Pact/UKTI, indicate that, since the 2003 Communications Act, exports of UK TV content (in-house and external) have grown from £524 million in 2004 to £1.3 billion in 2009. 27 Rights of Passage, report by TRP for UKTI/Pact, states that the UK has a 53% share of global format sales, compared to the US on 14%. 28 Research by Fremantle 29 Ofcom’s Second Public Service Broadcasting Review, Putting Viewers First, January 2009, Section 4.23 cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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production of UK content. The independent sector now invests up to £200 million per year in the creation of UK television content—more than some of the UK’s major broadcasters.30 5) The key danger in our view is that, although there is likely to be a decline in broadcaster spend on UK content, the proportion of this spend controlled by the four public service broadcasters is not forecast to change. Ofcom’s most recent forecast predicts the PSBs will continue to account for more than 90% of UK commissioning through to 2020, comparable to 2003 levels.31 6) Without intervention, there is therefore a high risk that PSBs will be able to use their continuing market power to warehouse rights in the digital era. How we approach IP is key to whether the UK content sector becomes a leading global player in the digital age, or is left behind. 7) To create the conditions for growth, we must have a balance between the legitimate needs of broadcasters and producers, and we must not lose sight of the overriding goals of maximising economic growth, creating high quality UK content, and increasing consumer choice. We have therefore asked the Government, in its development of a new Communications Act, to ensure that there continues to be a healthy and competitive market for the exploitation of UK television content, with a range of players, including independent producers and broadcasters, competing to sell their programmes around the world. We ask the Committee to support this request. 8) In addition, Government support for exports has in our view often been fragmented. Grants are often spread across relatively small initiatives that are not necessarily coordinated. Also, under the current system, disparate national and regional development agencies use different criteria for making grants to support exports, and even compete against each other. We therefore believe support for companies to attend export markets should be part of a single, national strategy coordinated centrally. We have suggested to UKTI that trade associations within the creative sector should group to form a single group that could take strategic responsibility for helping UK exporters attend and promote their businesses at global trade fairs throughout the year. This group would administer the budgets set for all markets and festivals for the creative industries, with appropriate oversight by UKTI.
Introduction 1) Pact is the trade association that represents the commercial interests of the independent production sector. The sector produces and distributes half of all new UK television programmes,32 as well as content in digital media and feature film. 2) The independent television sector contributes £4.3 billion per year to the UK economy (GVA),33 and employs 20,950 people—more than the television divisions of the BBC, ITV, Channel 4 and Five combined.34 3) The sector has helped double exports of UK television since 2003,35 and uses much of the resulting revenues to invest £200 million per year in the development and production UK content. 4) For further information, please contact Pact’s director of policy, Adam Minns, at [email protected] or on 020 7380 8232.
Response to Questions The role of BIS in providing support for exports and investment 1) We deal with funding for companies to reach export markets in the question below relating to UKTI. In broader terms, we would like to highlight in this answer how the UK television production sector has become one of the creative industries’ export success stories over recent years, and Government and Parliament’s role in this. 2) Total exports of UK television content have doubled since 2003,36 helped by strong growth in the independent production sector (ie production companies that are not part of broadcasters). For example, the UK is a world leader in format exports (the sale of programme remake rights),37 and independently-made programmes account for as much as 81% of such sales by volume.38 Leading independents now generate up to half of total profits from making programmes directly for the US television networks. 30 Pact annual census 2010, O&O Associates for Pact 31 Ofcom’s Second Public Service Broadcasting Review, Phase One: The Digital Opportunity, page 66 32 Ofcom, Communications Market Report, 2008 33 The Economic Impact of the BBC 2009, Deloitte for the BBC 34 Employment Census 2006, Skillset 35 Annual export figures, TRP for Pact/UKTI, indicate that, since the 2003 Communications Act, exports of UK TV content (in- house and external) have grown from £524 million in 2004 to £1.3 billion in 2009. 36 Annual export figures, complied by TRP for Pact/UKTI, indicate that, since the 2003 Communications Act, exports of UK TV content (in-house and external) have grown from £524 million in 2004 to £1.3 billion in 2009. 37 Rights of Passage, report by TRP for UKTI/Pact, states that the UK has a 53% share of global format sales, compared to the US on 14%. 38 Research by Fremantle cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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3) The success of the independent production sector in helping drive export growth is in large part down to the Codes of Practice set out in the 2003 Communications. Before the 2003 Communications Act, companies in the independent television production sector were constrained by the structure of the programme supply market from exploiting those programmes. The four public or state-licensed public-service broadcasters (PSBs)—the BBC, ITV1, Channel 4 and Five—controlled over 90%39 of investment in new UK programmes, and were consequently able to demand all rights to programmes, including ones they did not use, with independent suppliers working for hire.
4) The 2003 Communications Act introduced the principle that producers should be able to re-use the IP rights to their programme. The Act enshrined Codes of Practice for producers and commissioners, whereby a broadcaster licensed certain rights from the producer, but the producer retained secondary and overseas rights. This created an IP market, enabling producers to sell those rights around the world, as well as to new digital services at home, and build globally successful businesses on the back of that exploitation.
5) The growth of the independent sector has in part been characterised by the emergence of companies of some scale, which are able to attract private investment and establish a genuinely global presence—for some UK-based independents, for example, more revenues are now generated by production through their US offices for US television networks than from the UK. In addition, the UK production sector now has a mixed economy, with some companies owned by overseas companies and others wholly UK-owned. Pact’s view is that it is a mistake to impose restrictions on foreign ownership in this area as a mixed economy is proving healthy, bringing in production investment from overseas companies while allowing UK companies to grow and flourish. The Codes of Practice introduced by the Communications Act have helped create the conditions for UK companies to develop in a range of ways, taking advantage of different opportunities in terms of attracting investment or exploiting digital media.
6) At the same time, however, the vast majority of companies in the independent sector remain relatively small. As a whole, the sector is therefore able to ensure that commissioners at UK broadcasters are offered a wide range of ideas and viewpoints in many different genres, alongside different funding models for production and flexibility in pricing.
7) The digital era is ushering in a structural shift in content delivery, as audiences increasingly take control of when and how they access content. This evolution creates challenges and opportunities. Investment in UK content from broadcasters is falling due to advertising fragmenting across the different services that are emerging with digital technology. Ofcom predicts a decline in investment in UK content by broadcasters of up to £235 million per annum by 2012.40 Yet these digital services also offer choice and creative innovation for audiences. Licensing re-use rights to such services, so they can make UK content available, can help them develop.
8) In addition, exploiting IP via emerging digital services opens up potential new revenue streams that can be used to fund the production of content and offset declining investment from UK broadcasters. Independents are already using the revenues generated from exploiting rights to reinvest in the production of UK content. The independent sector now invests up to £200 million per year in the creation of UK television content— more than some of the UK’s major broadcasters.41
9) The key danger in our view is that, although there is likely to be a decline in broadcaster spend on UK content, the proportion of this spend controlled by the four public service broadcasters is not forecast to change. Ofcom’s most recent forecast predicts the PSBs will continue to account for more than 90% of UK commissioning through to 2020, comparable to 2003 levels.42 This spend may be spread across more channels and platforms, but it will ultimately be controlled by the same four PSB groups.
10) Without intervention, there is therefore a high risk that PSBs will be able to use their continuing market power to warehouse rights in the digital era. How we approach IP is key to whether the UK content sector becomes a leading global player in the digital age, or is left behind. Ensuring that there is a competitive market for IP exports will be all the more important in taking advantage of different opportunities for exploiting content that are emerging in the digital era.
11) To create the conditions for growth, we must have a balance between the legitimate needs of broadcasters and producers, and we must not lose sight of the overriding goals of maximising economic growth, creating high quality UK content, and increasing consumer choice. It will be critical to ensure that the UK has a healthy range of agents that are able to own and exploit rights globally. As noted above, the 2003 Communications Act was fundamental to delivering this, and we have therefore asked the Government, in its development of a new Communications Act, to ensure that there continues to be a healthy and competitive market for the exploitation of UK television content, with a range of players, including independent producers and broadcasters, competing to sell their programmes around the world. We ask the Committee to support this request. 39 Ofcom’s Second Public Service Broadcasting Review, Putting Viewers First, January 2009, Section 4.23 40 Second Public Service Broadcasting review, Phase 2: Preparing for the Digital Future, Ofcom, September 2008, page 5 41 Pact annual census 2010, O&O Associates for Pact 42 Ofcom’s Second Public Service Broadcasting Review, Phase One: The Digital Opportunity, page 66 cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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How the Government measures success in its support for trade and investment 1) UKTI part funds an annual review of UK television exports which is commissioned by Pact, with match- funding from industry (Pact, BBC Worldwide and ITV Global). This review is carried out by an established media research firm, TRP, and successfully provides a snapshot of sector-specific performance. 2) We have looked at all other available figures for annual exports of UK television content by Government, including ONS data, and are concerned that their usefulness is limited, as the definition of activities tends to be too broad.
The Government Trade White Paper 1) We have responded separately to the Government White Paper and can provide a copy on request.
The role of UKTI with regard to identifying opportunities in established markets, emerging markets, key sectors and working with businesses both large and small to take advantage of these opportunities 1) Government support for exports has in our view often been fragmented. Grants are often spread across relatively small initiatives that are not necessarily coordinated. Also, under the current system, disparate national and regional development agencies use different criteria for making grants to support exports, and even compete against each other. 2) Although a level of flexibility is important, the current approach in our view wastes resources, is often not effective or joined up, and creates a postcode lottery for funding that disadvantages certain companies purely on where they are based. For example, only two English regions currently provide funding for companies to attend the leading global trade fair for television content, MIP TV, disadvantaging producers in other regions in terms of reaching global markets. 3) We therefore believe support for companies to attend export markets should be part of a single, national strategy coordinated centrally. We have suggested to UKTI that trade associations within the creative sector should group to form a single group that could take strategic responsibility for helping UK exporters attend and promote their businesses at global trade fairs throughout the year. This group would administer the budgets set for all markets and festivals for the creative industries, with appropriate oversight by UKTI. 4) In addition, budgets need to be in place for planning over three year periods and not awarded market by market as this stifles industry’s ability to develop its exports business on a strategic basis. 5) Our reasoning for creating a genuinely empowered industry group is that: — Trade associations understand the industries they represent and the key events and markets for UK exports, and, as membership organisations, mean that industry would be having direct input into decision making. — Trade associations can provide support strategies for our members for long term growth. — We have a proven track record in providing credible platforms and structured support for each market. For example, UK companies generated record revenues of more than £18 million at this year’s Mipcom market in Cannes, where Pact ran the UK Indies Pavilion with support from UKTI. — Such a group would offer the potential to create a uniformed export brand that could give a the UK a stronger presence in the global market. — The group would be able to share intelligence across sectors. — As a group, companies and trade associations would have greater buying and negotiating power when booking stands and facilities at international events on behalf of UK companies, delivering potential cost-efficiency savings for the Government. — Trade associations are better placed to market to their member and access member databases to ensure that UK companies are aware of opportunities.
The effectiveness of the Export Credit Guarantee Department and the flow of trade credit; 1) Pact has not had any direct involvement with the Export Credit Guarantee Department and therefore we are not able to comment.
How other countries, similar to the UK, export to emerging markets and what our Government could learn, if anything from them 1) One noteworthy example is Canada, whose state-funded Telefilm pays for an umbrella stand at leading global export markets in full, instead of charging companies to attend the stand, as the UK does. Although companies are able to attend the Canadian stand free in charge, only those that meet certain criteria are able to qualify. In our view, this lowers barriers to market for businesses and incentivises more companies to develop exports strategies. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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The role of the British Business Ambassadors 1) Again, we do not have experience in this area and so cannot comment. January 2011
Written evidence from PRS for Music Executive Summary 1. PRS for Music welcomes the opportunity to comment on how best to deliver international export advantages as the Government seeks to rebalance the economy. A comprehensive strategy for increased growth through trade requires positive approaches to intellectual property rights (IPR) as a successful world trading system depends on a robust framework and adequate enforcement regimes. Policy should support a system in which the UK has export advantage but also allow for recognition of the importance of IPR to all countries for foreign direct investment purposes and for the success of their own creative and manufacturing industries.43 2. The UK music industry (in which PRS for Music represents composers, songwriters and music publishers) has enjoyed considerable success abroad—the UK is the second export nation after the US. In 2009, the total net value of (performing and mechanical) rights collected for the use of our members’ works by our partner collecting societies was in the region of £415 million. PRS for Music currently seeks to grow revenues from British music use abroad by another 40% over the next five years. 3. In this submission we outline our key markets today and the key potential markets for growth. Through the network of reciprocal contracts with similar societies overseas supported by a sub-publishing network, we have access to over 150 markets and have appointed societies to license our members’ rights. For PRS for Music, the key to growth is appropriate legal and operational infrastructure which supports the licensing of music rights in those countries, and to ensure that there is value for IP in those markets. 4. Maintaining today’s inward income flows and securing our commercial potential in new markets will be assisted by Government acting to both reduce regulatory barriers and strengthen the international copyright system to protect the rights and royalties which can be paid to British writers. Key obstacles to enhanced growth include the following factors: — Legal issues—copyright exceptions reducing income to rights owners, low tariff rates being set which significantly limits the potential for revenue returns; or out of date copyright laws; — Double taxation—the impact of withholding tax (income tax withheld at source), especially where no bi-lateral treaty with the UK is in place; — Weak Governmental support or infrastructure in place for collective rights management; — Piracy (both physical goods and digital music); — Low copyright awareness and compliance; — Access to market restrictions imposed by foreign Governments. 5. PRS for Music proposes several recommendations with respect to how Government can provide support for our export agenda: — Greater policy coordination across Government departments with respect to trade policy and a specific need for greater cross-departmental input across IPO, FCO, HM Treasury, BIS, and DCMS; — Government (BIS, FCO and the IPO) to liaise with its equivalent Ministries to actively play a leading role in highlighting the importance of retaining the value of a robust IP framework for trade purposes and for local cultural and creative industries; — Greater scope for industry to contribute input into the BIS Trade Team and engage officials via clearer channels of communications and notice of outbound Ministerial trade delegations, as appropriate; — For UKTI to be continually funded at an appropriate level (with due support for the creative / digital sectors in particular); — The creation of a network of “IP attachés” located within embassies in nations throughout the world, who would assist in championing IP rights in the territories for which they held responsibility, as advocated by the Publisher Association; — Government to give much greater consider regarding how copyright and intellectual property provisions might feature more prominently in bi-lateral and regional trade framework agreements and discussions. Furthermore, additional intellectual property action plans could be developed in key markets; — Government to support our case for redress in relation to persistent U.S non-compliance with the WTO ruling on the “Bars and Grills” exception; 43 We would like to draw particular attention to the good work being undertaken by the International Policy Network which has in past publications highlighted the importance of IP for both developed and developing countries’ economies. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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— Reform of the onerous withholding tax rules to reduce compliance costs and delay in processing and administration, which may include developing bi-lateral treaties double taxation agreements where they do not currently exist, a reduction to zero of any retention even where such Treaties do exist, and specific fiscal policy measures which support the competitiveness of the UK as a conducive business environment for the provision of multi-territory licensing services.
Introduction to PRS for Music 6. PRS for Music is a collecting society with 75,000 songwriter, composer and music publisher members (including 5,000 non-UK resident members), including some of the world’s best known writers. The membership of PRS for Music has grown significantly in the last five to 10 years, up from 34,000 in 2003 which is indicative of significant growth in activity and interest in writing music and in awareness of licensing as a route to monetising that creativity. Similarly PRS for Music has seen the emergence of several significant new independent publishing companies in the market. Our membership continues to expand. 7. PRS for Music is one of the world’s most efficient music licensing operations, offering its members more money, more often, at less cost and its customers the most efficient means by which they can use music. PRS for Music has played a pivotal role in provided legal solutions for music online for over a decade. The first ever Joint Online Licence was issued in 2002, long before the launch of iTunes or the Pirate Bay44. Since then, PRS for Music has been at the heart of enabling the legal online music marketplace through our licensing deals. To date, we have issued online licences to 40 major music services and in total to 1,400 online services using music in 2010 (up from only 400 in 2006). Through our licensing contacts with businesses we also educate new entrants to the market about copyright and music licensing solutions. 8. In March 2010 PRS for Music announced its 2009 financial results. Total income collected for distribution was £623 million—a significant part of the UK music industry. Collective management of rights (business-to- business licensing) forms a growing percentage of the total value of the music industry in the UK.
Comparative Advantage of the UK 9. The UK’s musical talent has dominated the world stage for decades and is truly an enduring global success story in every genre. UK talent represents a highly valuable and exportable economic asset for the UK, which, in value terms, has the largest music market in Europe, and the third largest in the world.45 PRS for Music and its members make a positive contribution towards UK growth. The UK is one of only three net exporters of musical repertoire in the world, the others being USA and Sweden. This achievement highlights important points—music copyright is a highly valued good in the UK, and that UK Music is highly valued overseas. 10. The UK’s international export advantage lies in the ability to exploit our creative capital as the Government seeks to rebalance the economy. With respect to the relative performance of creative industries exports, it is notable that royalty and license fees feature particularly strongly, which reflects the strength of the UK as a source of ideas.46 Furthermore, not only is UK music a distinctive international brand, the underlying musical rights in TV, film, video games and advertising greatly contribute to the success of other creative sectors and provide significant spill-over benefits, as indicated in a recent Work Foundation report.47 PRS for Music’s composer, songwriters and music publishers lie at the heart of this success. 11. The call for evidence in the Government’s Trade White Paper consultation acknowledges that “the best possible regulatory infrastructure, such as effective and flexible Intellectual Property Rights (IPR) systems are necessary, as supported by effective enforcement mechanisms, relevant to our digital and technological age”. The music sector and the wider creative industries are underpinned by copyright both domestically and in global valuation. For money to flow back into the UK, it is vital that the copyright system in those countries protects the rights and that royalties can be paid to British writers. Despite our continued overseas growth there remain even further opportunities for revenues to come back into the UK and Government policy has a key role to play, as we have indicated in our response. 12. British composers and songwriters have access to all global markets through the international infrastructure of music rights collecting societies, which PRS for Music is part of. In many of these markets, their creative industries and access to technology are growing substantially and our composers will benefit from that growth. The international infrastructure is made up of a network of reciprocal representation contracts and PRS for Music actively manages relations with a network of collecting societies in over 100 countries. 13. PRS for Music undertakes direct licensing where no collecting society is established or where a collecting society is not able to license the market (such as in Malta, Cyprus, and the Bahamas). We also license on a multi-territorial basis for online rights, to assist music users seeking access to multiple markets. 44 Joint Online Licence combining the communication to the public rights administered by PRS and reproduction rights administered by MCPS in a single global licence. 45 IFPI The Recorded Industry, 2010 46 See the Technology Strategy Board report using UNCTAD data (World Creative Economy Report, 2008) http://www.innovateuk.org/_assets/pdf/corporate-publications/creative%20industries%20strategy.pdf 47 A Creative Block: The Future of the UK Creative Industries. The Work Foundation. 2010. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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14. In 2009 there was a significant increase in PRS for Music revenues from British music use abroad (up 19.4% to £166.9 million) which were buoyed by both exchange rate gains and by increased activity in key markets. For historical context, the total income (performing rights) collected in 2008 was £139.7 million; in 2003 it was £92.1 million; and in 1998 it stood at £62.5 million. 16. However, in the wider context, in 2009, the total net value of (performing and mechanical) rights collected for the use of our members’ works by our partner collecting societies was in the region of £415 million. Royalty payments are made by our collecting society partners to the local sub-publisher of the musical work, so approximately 50% of the income stays overseas or is brought back to the UK through the sub- publishing network rather than through PRS for Music, so is not measured by us. 17. The most significant demand comes from the US, France, Germany, Japan and Holland, although there is a growing appetite from emerging markets, including both Central and Eastern Europe and Latin (South) America. PRS for Music recently responded to a UKTI request regarding our key market priority markets, which highlights that there is significant potential to grow our international revenues, partly due to high potential growth in emerging and developing markets. 18. PRS for Music currently projects to grow revenues from British music use abroad by another 40% in the next five years to just short of £250 million. If Government continues to develop the reciprocal IPR dialogue with all the UK’s trading partners, and to reduce the barriers and obstacles referenced below, this will have a significant boost to PRS for Music being able to increase the export value of music created by Britain’s writers, the result of which would be to bring additional taxable revenue back into the UK.
The Role of Government—Reducing Barriers to Growth in Key Markets 19. PRS for Music faces significant challenges in securing existing and potential global revenues for the UK. Standing in the path of further growth are a range of regulatory obstacles as well as existing barriers and challenges which exist to prevent PRS for Music from securing further overseas income. Typically these problems include: — Legal issues—copyright exceptions reducing income to rights owners, low tariff rates being set which significantly limits the potential for revenue returns; or out of date copyright laws; — Double taxation—the impact of withholding tax (income tax withheld at source), especially where no treaty with the UK is in place; — Piracy (both physical goods and digital music); — Low copyright awareness and compliance; — Access to market restrictions imposed by foreign Governments.
Recommendations for Government Support 20. Accordingly, we suggest that further efforts are required by Government to help ensure that intellectual property rights are substantively protected and that they are valued appropriately (and not lowered unnecessarily) in an international context to strengthen UK competitiveness. 21. There is an ever increasing need for greater policy coordination across Government departments with respect to trade policy and a specific need for greater cross-departmental input across IPO, FCO, HM Treasury, BIS, and DCMS. The recently issued BIS / HM Treasury Growth Review has aims to “improve international competitiveness and greater opportunities for exports as well as encouraging inward investment, particularly in digital content, which is an ongoing area of strength for the UK”. 22. The Government recently commissioned Professor Ian Hargreaves to conduct an “Intellectual Property and Growth Review”, which is currently considering questions regarding what short and medium term measures can be taken now within the international framework to give the UK a competitive advantage. We believe that the UK already has a competitive advantage in the creative sector so instead the focus should be on how to maintain our export strength and work with other Governments to ensure the value of intellectual property rights is both enhanced and protected. 23. A number of key countries are in the process of amending their copyright laws—Brazil, India and Canada—being the most notable. We encourage Government (BIS, FCO, and the IPO) to liaise with its equivalent Ministries to actively play a leading role in highlighting the importance of retaining the value of a robust IP framework for trade purposes and for local cultural and creative industries. 24. The Government must be able to adequately reflect the priorities of industry in trade discussions. PRS for Music believes there is greater scope for industry to contribute input into the BIS Trade Team and engage officials via: — Clearer channels of communications being made available to feed into the BIS trade officials regarding the UK Government negotiating position; and related to this, it would be helpful to have much further advanced notice of bi-lateral / regional trade negotiations with specific countries and opportunities to input accordingly; — Notice of outbound Ministerial trade delegations, as appropriate. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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25. Where industry has experienced barriers to trade, issues around compliance with international IP rights obligations or other concerns affecting the trade within a specific territory, these issues need to be fed into any bilateral and multilateral negotiations being undertaken. By making the process more open and transparent, trade policy will more accurately reflect the needs of UK businesses and which is adaptable to the local trading conditions within overseas markets.
The Role of UKTI 26. PRS for Music recognises the important role that UKTI plays in providing support for companies looking to develop their international business through offering business advice and introducing companies to new markets. It is vital that UKTI continues to be appropriately funded by Government in light of the decisions made in the October Comprehensive Spending Review. 27. We also propose that additional UKTI Creative Industries / Digital Experts are sought, especially in key emerging market territories, in order to support further growth potential in these sector areas. 28. We also support the proposal from the Publishers Association for a creation of a network of “IP attachés” located within embassies in nations throughout the world, who would assist in championing IP rights in the territories for which they held responsibility. This would seem highly valuable and consistent with the establishment of a new FCO Commercial and Economic Diplomacy Group. IP attachés could be able to act on the ground with the capacity to liaise with both industry and officials on a regular basis. This would include facilitating meetings for visiting industry professionals from the UK, enabling high-level talks between industry and overseas officials, and representing the interests of UK IP owners to the government of the country in which they were posted. A system such as this would significantly enhance the UK trade function overseas and provide embassies and trade officials with the expertise and capacity to fulfil this very important role. 29. PRS for Music welcomes the changing role of the Foreign Office and Embassies towards trade promotion so far as they will link more closely with the existing UKTI teams, as a driver of economic recovery. Our international team are now in the process of developing their relationships with UKTI offices and embassies in various territories; and we are incorporating such engagement into our licensing strategy to open up partnership opportunities in specific markets to facilitate trade and bring more revenue back to the UK. It is crucial that the BIS Trade White Paper aligns appropriately with UKTI strategy, which according to the BIS Structural Reform Plan, will be published early in 2011. 30. As it stands, the Creative Export Group (and Music Export Group), which are currently run by UKTI, have operational focus. We would like to see them link to the wider public policy agenda. Both groups could consider how to work much closer with BIS Trade Policy team and the IPO. We also believe that the Creative Export Group could further develop its role of cross-promoting and marketing each of the UK’s creative industries. 31. The direct benefit of promoting access can be demonstrated. The PRS for Music Foundation works to raise the profile of new music in the UK and abroad and does this in part through f the British Music Abroad mission. As an example, 51 emerging acts went to eight international showcases in 2008. We have supported numerous “up and coming” acts—including Bat for Lashes, who attended SXSW in 2007 which led to success including ASCAP award, Mercury and Brit award nominations and supporting Radiohead on tour; and Rap act Sway who was supported to attend SXSW in 2008, which enabled him to break into the US market leading a distribution deal for North America with Akon’s label KLD. Our grants support international income, as indicated by the increase in overseas writer royalties following funding for acts at one US trade event, SXSW.
Global Priorities 32. The multi-lateral system for intellectual property rights and norms is governed by as the World Intellectual Property Organisation (WIPO) and the World Trade Organisation (WTO). Other bodies have relevant roles such as the World Customs Organisation (WCO), and the Organisation for Economic Co- operation and Development (OECD). As an example of international best practice, we point to the U.S. Government, which places great emphasis on strengthening international intellectual property enforcement efforts and increasing cross-border diplomatic and law enforcement co-operation—it is now exploring opportunities for joint training, sharing of best practices and lessons learned and coordinated law enforcement action. It would be encouraging to see the UK Government learn from this experience and aspire to put in place appropriate mechanisms and resources which reflect a similarly high level of commitment. 33. We believe that UK Government could give much greater consider regarding how copyright and intellectual property provisions might feature more prominently in bi-lateral and regional trade framework agreements and discussions. 34. We applaud the recent Memorandum of Understanding signed by the IPO and the equivalent Chinese Ministry in September 2010 and the subsequent BIS action plan, reference by the Secretary of State during his most recent visit to China in November. Further consideration should be given to developing additional intellectual property action plans in key markets, as guided appropriately by input from industry. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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35. The WTO rules based system is supposed to provide for global standards and compliance. We would like to draw attention to the persistent US non-compliance with the WTO ruling on the “Bars and Grills” exception which not only deprives European (as well as U.S) music creators and publishers of the remuneration they are due. As a result of Section 110(5)b of the US Copyright Act, there is an exemption which allows more than 70% of bars, restaurants and other retail outlets to escape paying royalties for broadcasting copyright works. A WTO ruling held that Section 110(5) was illegal and should be amended. The relevance of the bars and grills case highlight is the precedent offered by a key WTO proponent ignoring a decision against it. We believe this decision can only have long-term negative implications for the entire system and therefore needs to be addressed. 36. Whilst that there is ongoing dialogue between the European Commission and U.S Trade Representative to resolve this matter unfortunately the issue remains blocked. We encourage UK Government to support our case for redress and put pressure on the US via bi-lateral discussions to help resolve this case at the earliest opportunity.
Withholding Tax 37. The call for evidence takes into account how the UK will work with the rest of the EU to ensure a fully functioning single market in light of the EC consultation, “Towards a Single Market Act—for a highly competitive social market economy”. We would like to briefly draw attention to the issue of withholding tax (income tax withheld at source) and this has implications for the UK’s international competitiveness as a location to provide services. 38. The Monti Strategy for the Single Market identified the tax system as a barrier to the success and speed of delivering the single market, and specifically highlighted this in connection with the digital agenda. Withholding taxes (tax withheld at source) present a major obstacle to cross border licensing, which we can identify as resulting from shifts to multi-territory licensing, from structural changes in the collective management of rights and lastly from divergence of the interpretation and application of tax rules by different member states. 39. Songwriters, composers, music publishers deal everyday with the processes of dealing with income tax withheld at source on royalties earned overseas and the administration of managing taxes for accounting purposes. The music business is heavily made up of individuals and SME’s who cannot benefit from the cross border transfer exemptions of the Royalties Directive. Tax policy remains a national competence. Income tax withheld at source in another country can be claimed back but that incurs compliance costs and delays, complex administration to deal with multiple different systems across the EU and, if appropriate taxation treaties are not in place, exposure to double taxation. There is also a further complexity for collective licensing of rights on a multi-territory basis. National tax systems are impeding or interfering with the design of the best and most effective cross border licensing models. The international success of British music industry and its strength as an export means that these problems are more acute for them in Europe than perhaps for residents of other countries. The number of individuals and SMEs all exposed to the issue also means the issue is widespread. 40. Specifically, we seek improvements to the system that can reduce compliance costs and delay in processing and administration for agents managing rights, including collecting societies. Our objectives in this area are ultimately to: — Reduce the exposure to irrecoverable losses; — Remove the barriers that the current systems poses to the speed and flow of royalties into the UK for resident and national songwriters and composers; — Consider how changes in the operation or transparency of the cross border tax rules could assist with the development of improved copyright licensing solutions for digital services; — Level the playing field for individual rightsholders, SMEs and their agents with larger companies who needs have been addressed through directives at the European level. 41. Given PRS for Music seeks to become a key hub for rights to be located in a competitive European market, we believe that onerous withholding tax rates, processes and rules do not support such a future ambition; rather they impede the development of models for collective multi-territorial licensing of music rights and subsequently increase their cost. 42. We have requested to HM Treasury that their recent “Taxation of Innovation and Intellectual Property” review consider the effect of withholding tax when applied to cross border licensing and distribution of copyright royalties, to focus on compliance costs and their impact on the success and growth of the creative industries and of the competitiveness of the UK as a location for IP businesses. In terms of specific solutions, we propose that: — Government put in place appropriate bi-lateral double taxation agreements where they do not currently exist and a reduction to zero of any retention even where such Treaties do exist. — Government facilitate greater coordination with Member States regarding the application of tax rules, including further transparency, support for streamlined processing, and guidelines which are appropriate to assist cross-border rights and royalty flows both in and out of the UK within the EU and also between the UK and non EU countries. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Other Developing Countries and Emerging Economies 43. The UNCTAD Creative Economy Report 2010 notes how the creative economy offers developing countries a feasible option to leapfrog into emerging high-growth areas of the world economy.48 The report “Nashville in Africa: Culture, Institutions, Entrepreneurship and Development” by the International Policy Network49 highlights how several developing countries have many lessons to learn from the success of Nashville, Tennessee, once one of the poorest regions in the United States. Specifically, it suggests that creative clusters, such the country music sector, can be powerful drivers of development for several reasons because: — They play to local strengths, taking advantage of knowledge, skills and forms of expression that arise from local culture, and are thus, by definition, largely unique and non-duplicable; — For the most part they do not require cutting-edge technology, large capital investments, or a robust infrastructure; — Although creative work often requires a significant personal investment in training and development, it typically does not require the sort of extensive formal educational system that still remains unavailable to the poor in many less developed countries. 44. As a result of Nashville’s success, the music industry has engendered a substantial tourism industry, with the additional transportation and lodging infrastructure that come with it. In order to ensure strong and credible institutions that support the emergence of local creative industries, the authors of the report recommend that Governments should: — Enact, implement and enforce effective copyright laws; — Reduce government intervention in royalty collection to create appropriate incentives and remove the problem that royalties being collected are often diverted by political interests; — Reduce taxes and regulatory burdens. 45. One of the suggestions within this report is that by increasing the private sector’s responsibility to collect royalties this would serve to free up scarce resources for the local government and, crucially, improve the accountability between competitive CROs and local artists. 46. PRS for Music recognises its need to play a leadership role in terms of international best practice and we have an obligation and a direct interest in helping foreign collecting societies to make their operations both effective and efficient. A few illustrations of how that educational and training experience is rolled out have been highlighted below: — Our International Department has been hosting three Open Training Seminars for foreign societies over the past three years. These two-day seminars aimed at developing collecting societies. Our experts give presentations on their areas of expertise, answer questions and give advice through Q & A sessions. The seminars have been attended by senior management (up to CEO level). Over the course of the last three years, we’ve had 83 representatives from 16 collecting societies attend our seminars. — PRS for Music sponsors and supports the British Copyright Council training course in copyright and related rights, which is intended mainly for government officials from developing countries. This two week training course is organised on behalf of the WIPO Worldwide Academy and in association with the IPO. Through educating sister societies, our objective is to improve a much greater understanding of the benefits and processes related to collective rights management overseas. — PRS for Music supports WIPO’s training and education programmes for collecting societies in developing countries through the provision of executive expertise and training. 31 January 2011
Written evidence from The Publishers Association THE CASE FOR THE IP ATTACHÉ 1. The Publishers Association is the representative body for the book, journal, audio and electronic publishers in the UK. Our membership of 115 companies spans the academic, education and trade sectors, comprising small and medium enterprises through to globally successful companies. The PA’s members annually account for around £5 billion of revenue, with £3.5 billion derived from the sales of books and £1.5 billion from the sales of learned journals. The PA greatly welcomes this opportunity to contribute to the Select Committee’s inquiry into government policy and actions on trade and investment. 2. Publishing is a sector in which the UK has a clear competitive advantage: — the UK is the largest exporter and re-exporter of books, with 16% of global book exports, followed by the US with 15.7%; 48 Creative Economy Report 2010 (UNCTAD) http://www.unctad.org/Templates/webflyer.asp?docid=14229&intItemID=2068& lang=1 49 See: http://www.copyrightalliance.org/files/nashville_in_africa.pdf cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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— five of the top 25 book publishers in the world are headquartered in the UK; — the UK is one of four countries (with USA, China and Russia) that produces over 100,000 new and revised titles a year; — 40% of UK publishing revenues are derived from exports; — the UK publishes over 20% of the world’s scholarly journals, and UK researchers produce 7% of the global supply of journal articles; and — The value of book exports from the UK grew by 2.6% in 2010, with the strongest growth coming from the Middle East / North Africa and East / South East Asian markets. 3. At the root of the publishing sector’s international and domestic success lies intellectual property. The creation, ownership and exploitation of published content provides publishers with the asset base upon which globally competitive businesses can be maintained and grown. The copyright law which gives rise to this is, therefore, of fundamental and critical importance. In order to be successful internationally, it is vital that intellectual property rights are recognised, respected and enforced in the key export markets in which our companies compete. This need—and through that the interests of the British economy—would be better served, we maintain, through the creation of a network of IP Attachés.
The Role of the IP Attaché 4. The IP Attaché would be a British government official, based in the British embassies or consulates in key foreign markets, who would be tasked with providing political and technical assistance in championing the intellectual property rights in their host territory. They would act as a conduit between British industry, British Government, the host government and industry, in order to communicate the importance of IP and to uphold and enforce IP rights under international law. 5. The IP Attaché would be a specialist, with a profound understanding of both the legal and commercial dimensions of IP, capable of articulating the importance of respecting copyright and the impact of copyright infringement on business interests. Their key strategic roles would be: — to promote the UK government’s policy on IP law; — to secure strong IP laws in the host country and in international law; and — to ensure strong IP protection and enforcement by international government with respect to infringement taking place in their own territories. 6. The IP Attaché would also have a role in communicating to UK creative industry professionals policy and legal developments in the host country or region, and in ensuring a strong communications flow with relevant government officials and counterparts in the host country’s creative sector. 7. The main benefits of such a system would be: — A clear point of contact for UK creative sectors with whom to discuss and make representation on IP issues; — A source of expertise on the development of policy in foreign territories and advice on political communications; and — An expert advisor and participant in trade negotiations covering IP issues;
The Need for IP Attachés 8. Through its International Board, The PA is an active advocate of publishers’ interests in a number of key export territories. This activity takes two main forms: (i) trade promotion, such as through trade delegations, book fairs and exhibitions; and (ii) anti-infringement initiatives, tackling large-scale commercial counterfeiting in overseas markets. To be truly effective, this latter function requires the close collaboration with host country law enforcement authorities. The PA is operating on-going campaigns in India, Bangladesh, China, Pakistan, Egypt, United Arab Emirates, Saudi Arabia, Turkey, with operations being considered in Nigeria and Russia. The campaigns are funded by participating publishers contributing to a dedicated budget. This is then used to fund activities, such as physical raids on premises where infringement is taking place, follow-up legal proceedings, media and political specialists, training for enforcement officers and awareness raising campaigns. 9. The PA’s extensive experience of conducting these operations over many years and in many different territories gives us a well-informed insight into the current capabilities of British international trade support and as to where improvements may be made. In particular, we believe there are the following gaps in expertise and service: — On-the-ground knowledge of the state of development in IP legislation and the need for representative action (this was particularly lacking in the on-going case of the Indian Copyright Amendment Bill—legislation which will be very harmful to British and Indian publishing interests); — Gaining access to key policy-makers and influencers—a very important function in markets with closed political systems such as China; cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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— Developing training and awareness-raising programmes and co-ordinating local enforcement agencies. 10. Whilst each of these roles can, to some extent, be covered by existing UK representation and / or industry engagement as is presently the case, experience shows that this leads to inconsistent effort, patchy results and no “ownership” of the overall programme and its results. The creation of an IP Attaché network would bring dedicated and focused and strategic resources to these (and possibly other) activities, to the wider benefit of British creative exporters.
The US Network 11. The US government already has such a network in place. If the British creative sector is to maintain its globally competitive position in the creative industries, and in publishing in particular, it must compete effectively with the US. America’s decision to invest in an attaché network speaks to the merits of the policy and points to the need for British interests to be similarly well-served in order that the UK maintains its competitive position. 12. US IP Attachés are managed through the US Patent and Trademark Office (USPTO) and are present in offices in China (Beijing and Guangzhou), India, Brazil, Egypt, Thailand and Switzerland. These offices are hubs from which policy for the region is managed. Further information on the US network can be found at the following website: http://www.uspto.gov/ip/global/Attaché /index.jsp. 13. For some British publishers which have US operations, the US IP Attachés act on their behalf, and to this extent The PA enjoys a close working relationship with them (indeed, they have been very helpful to us in preparing this submission). But ultimately, they are responsible to the American government and primarily have the interests of that economy at heart. It may be argued that British interests could “free ride” on the strength of American representation; however, not only is this an ignoble policy, it will also fail to deliver returns for the UK when American and British commercial interests are in conflict. In publishing, a great deal of copyright is governed by territoriality, whereby a publisher may have the rights to sell and distribute works only in particular specified territories. Hence, as the leading publishers of English language works, the UK and US will very often find their interests diverging on the issue of territoriality—subsuming our interests with theirs on an international scale is not a sustainable long-term strategy. 14. The European Union is also considering the establishment of an IP Attaché network and is trialling it in a small number of territories. However, we do not see that this initiative, even if it were to be developed more widely, obviates the need for the British government to improve its function in this area. The UK holds a competitive advantage over all of its European partners in the world of publishing, as the statistics noted above demonstrate. The needs of British creators will coincide with those of other Member States to a considerable degree, but in the final analysis we are in competition with those economies; our international activity is more prolific and our capability of a more specialised nature. Dedicated British IP Attachés would be one, important, means of cementing this advantage.
Concluding Remarks 15. Creating a network of IP Attachés would derive considerable benefits to British creative companies who would be able to call upon their expertise, and in so doing help maintain the UK’s competitive advantage in this sector, thus boosting growth. This paper has not analysed the financial impact of creating the network, which would require detailed knowledge of pay structures and consular running costs. However, we hope that the concept has sufficient merit to encourage the Committee, and in turn the Department for Business, Innovation and Skills and relevant agencies to subject it to further analysis and eventual implementation. 16. If it would be helpful to the Committee, I would be delighted to provide further evidence in either written or oral form. 31 January 2011
Written evidence from UK Music About UK Music UK Music is the umbrella organisation which represents the collective interests of the UK’s commercial music industry—from artists, musicians, studio producers, songwriters and composers, to record labels, music managers, music publishers, music licensing organisations and collective licensing companies. UK Music consists of: — Association of Independent Music representing 850 small and medium sized independent music companies; — British Academy of Songwriters, Composers and Authors with over 2,200 songwriter and composer members; — BPI representing over 440 record company members; cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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— Music Managers Forum representing 425 managers throughout the music industry; — Music Producers Guild representing and promoting the interests of all those involved in the production of recorded music—including producers, engineers, mixers, re-mixers, programmers and mastering engineers; — Music Publishers Association, with more than 250 major and independent music publishers representing close to 4,000 catalogues; — Musicians Union representing 32,000 musicians; — PPL representing 46,000 performer members and 5,750 record company members; — PRS for Music representing 73,000 songwriters, composers and music publishers.
Introduction 1. As a nation, the UK is the second largest producer of music repertoire in the world and one of only three countries that can claim to be net exporters of music. Last year approximately one in every ten albums sold in North America and Canada was made by a British artist. Earlier this year UK Music published our vision of the future, an industrial manifesto for growth, “Liberating Creativity”. It unveils our single ambition for the next decade: to challenge the United States as the largest music-producing nation in the world. We know that there is a desire for high-quality, well-produced, musical content; it is this demand, which will be core to our ability to deliver on our growth potential. 2. Exports in the music sector take a variety of forms. We have a long history of exporting music on physical formats such as CD. Other types of international income that music generates include online and mobile music sales; licensing of music rights to international broadcasters; licensing of music rights to international partners for distribution; licensing of music rights to film, televison and games—particularly in the USA; touring and live performance; and professional services (eg music production, recording services). Particular strengths in recent years have been collective international music rights licensing, licensing to film, tv and games, and live music (through both touring and the tourists that it attracts). For example Visit Britain suggest that music is the second most popular reason that tourists choose Britain, after our museums. 3. The ratio of international to domestic income will vary depending on the product and the partnerships of the company selling or licensing it. In the case of recorded music, international income can be a substantial slice. Where the product and trading partners are exceptionally strong, it can be over 50% of the income generated. 4. The music sector has a culture of international trade. For example, a survey conducted by the Association of Independent Music showed that a very high proportion were exporting, with 65% in the EU, 62% in the USA and 36% in Japan. The majority of the companies surveyed are micro-businesses, and the figure is high when compared with other small businesses. For example under a quarter of Federation of Small Business members export. 5. However accessing the finance and market access to fully exploit international opportunities is a problem. Companies who have been able to establish a base have been very successful. British record company and music publisher Beggars Group have established a 35 person office in the USA, which has allowed them to achieve great success in the American market.
The Government Trade White Paper 6. UK Music did not make a submission to the Government’s Trade White Paper, and refers the committee to the submissions by our members PRS for Music and the BPI. 7. We highlight the calls of the collection society PRS for Music for “an appropriate legal and operational infrastructure which supports the licensing of music rights [internationally], and to ensure that there is value for IP in those markets”. They forecast that there is significant potential international revenue growth for their members, which could be boosted by Government placing IP prominently in the UK’s trade negotiations and reducing barriers to trade. 8. We also highlight the BPI’s comments from the perspective of recording companies that it can be challenging in both emerging and established music markets to realise the value of their exports where there is widespread unlicensed use of British music, and where their rights are not always recognised or respected.
The role of UKTI with regard to identifying opportunities in established markets, emerging markets, key sectors and working with businesses both large and small to take advantage of these opportunities 9. UK Music recognises the vital role provided by the specialist team at UK Trade & Investment. Through the Music Export Group, and close relationships with employers and trade associations, UKTI have developed a strategy that works well for our industry. UKTI prioritise the USA, Japan, France and Germany as the essential established markets for music. They have also been instrumental in offering intelligence on our sector to the international trade teams around the UK and within the commercial divisions in key embassies. We would hope that with the abolition of the Regional Development Agencies, and introduction of Local Economic cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Partnerships, that these effective support systems for businesses that want to trade internationally are maintained. 10. UK Music recognises that there is a strategy to prioritise emerging markets and large infrastructure projects or major contracts. However this will not deliver export growth in our sector. Our industry, which is made up of mainly micro and small businesses, has asked that in a climate of limited resources that UKTI focus on established markets where firms can guarantee returns. In emerging markets, we would urge Government to support the development of strong IP frameworks. This will provide the base from which music exports can subsequently develop. 11. UKTI and the Music Industry have worked together effectively to maximise the value of their investment. They have created a collective “British Music @” brand which has been used to promote British Music at trade fairs, used the collective buying power of the industry to drive down trade fair costs, and run pre- exporting workshops at no cost to ensure that firms accessing support are market-ready. 12. UK Music suggests that Government benchmark its support for creative industries with those of other nations. For example, that France have a French Music Export Bureau with a staff of 22 including offices in Paris, Tokyo, New York, London, Berlin and Sao Paulo. The US has IP attachés in key territories to champion their IP based industries.
The effectiveness of the Export Credit Guarantee Department and the flow of trade credit 13. UK Music members have made little use of the Export Credit Guarantee Scheme, due to our industry structure. How other countries, similar to the UK, export to emerging markets and what our Government could learn, if anything, from them. 14. UK Music refers the committee to the work done by the EU and USA to champion IP frameworks internationally, as detailed in the written evidence provided by PRS for Music and the BPI.
The role of the British Business Ambassadors 15. UK Music members have had little experience of the British Business Ambassadors. However we are interested in the Publisher’s Association proposal that IP attachés be used to champion and co-ordinate support for British IP internationally. 3 February 2011
Written evidence from Simon Carter 1. Background. I founded my business in 1985. Originally called Simon Carter Accessories, it sold brooches for men. Early stockists included Harrods and Selfridges. The business expanded to include cufflinks and watches, and gradually became a specialist in men’s accessories, with cufflinks in particular. Early products were manufactured in England, including the cufflinks and brooches, and handmade sunglasses. By the mid 1990s these industries were becoming increasingly uncompetitive and so production was moved to China. The business continued to expand through product licensing. Around 10 years ago the brand name was licensed for clothing, and this has continued to grow. The name was changed to reflect the full menswear portfolio, and is now know as Simon Carter. The brand is stocked in around 35 countries, has two own run stores in London, and a franchised store in Toronto. Total retail sales are around £12 million. The brand is positioned at the middle to top end of the market. 2. Export. From the earliest days in business the brand has exhibited at trade shows. Initially these were gift fairs in the UK, then as the business grew, SEHM menswear fair in Paris (now defunct). This fair was an excellent platform to reach European buyers. Since it’s demise the company now shows at Pitti L’Uomo in Florence, which is the premier men’s clothing and fashion trade event. From the start in the 1980s, the brand has attracted enormous interest in Japan. The English heritage and attitude of the designs, especially the accessories, has made them popular with the Japanese market. The business became associated with one importer into Japan, Fujikawa &Co, and they began to distribute for the Japanese market. We still trade with them today. 3. Trade Fairs. It became clear in around 1990 that to fully succeed in the Japanese market, we would need to visit Tokyo and Osaka. However, at that time, the business was not in a financial position to finance such a sales trip. Fortunately, there existed a heavily subsidised trade fair run by the British Knitting and Clothing Export Council. I believe that it received it’s grant from the DTI. It organised two days of selling exhibition in Tokyo, and two in Osaka, at prestigious central hotels. In addition, there was excellent pre trip briefing and logistical support. The event, simply called the British Fashion Fair, had been running successfully for a number of years and was heavily subscribed. However, we were fortunate enough to secure a place. The company took more orders at that one event than all previous trade shows combined. Many of the customers who placed business still trade with us today. The criteria of eligibility were fairly strict, though I now don’t recall how much product had to be made in Britain I believe a certain proportion was required. The subsidy equalled cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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around 50% of the total invoice and enabled start up companies, like ours, to try the market. The event was also very well supported by the commercial section of the British Embassy, who continue to have an enviable reputation for local knowledge and support to this day. Funding continued to be available for a limited number of trips; the exact number I don’t recall. The event suffered massively in the early to mid 1990s as the global recession, and particularly Japan’s economic woes, took its toll and we withdrew from participating in around 1994. However, we had established a very successful business from which we expanded to include a licensing range, mirroring that which had been established in the UK. Although business in Japan has suffered since 2007, and the brand is now represented by a new partner, it is now recovering and prospects for 2011 look good. There is absolutely no doubt that Simon Carter, as a business and a brand, would not be in the position of strength that is now without the British Fashion Fair. At its peak three years ago, exports to Japan accounted for 20% of the entire turnover of the business. 4. China. At present, the business imports the majority of the accessories from China. I am on record as having the opinion that British manufacturing industry-at least in my sector-really has no one else to blame for itself here. Failure to invest, adapt, invigorate and understand the needs of customers are all to blame, with a complacency that is ill judged. Poor quality is also a major issue. Like any business, it is our aim to export to China. However, I believe that it is a far harder market to trade with than many people believe, and comparisons with Japan are unhelpful. At present, the brand is only represented in China through branches of Lane Crawford, a Hong Kong based up market department store. Currently, we are in talks with a major Japanese trading house, which has global representation, including China. It is my firm belief that the Chinese market cannot be successfully entered without a local partner. That may be a Chinese licensee or distributor, or in our case, a Japanese master licensee who can carefully control and supervise the brand in China. It is a vast and exciting market, but IP law is not as stringently observed as it could be, and brands need to be prepared to adapt to the Chinese market. This can be terms of price positioning, styling, and fit. To try to do this directly, as a small company, without representation “on the ground”, would be extremely hard. 5. The future. At present, I am not aware of any trade fairs for my sized business, in my sector, that exhibit in China. It is my belief that the most effective use of government resources is to support viable, focussed, small to medium companies through subsidised trade fairs. It is the best way to showcase product, and meet both customers and prospective business partners. It is also vital to have continuity with such a programme. One criticism often levied in the past is that there is no certainty as to the subsidy for a certain trade fair and the policy seems to be at the whim of politics. It takes time to establish a market. Limiting subsidies to two or three showing is never enough. The role of the commercial department of the Embassies is also essential. It is perhaps often overlooked, in this age of clear return on investment, quite how much gravitas our outposts still hold and their ability to add value to events should not be under estimated.
Written evidence from The Society of Motor Manufacturers and Traders (SMMT) Introduction 1. The Society of Motor Manufacturers and Traders (SMMT) is the leading trade association for the UK motor industry, providing expert advice and information to its members as well as to external organisations. It represents companies throughout the automotive sector ranging from vehicle manufacturers, component and material suppliers to power train providers and design engineers. The motor industry is a crucial sector of the UK economy, generating a manufacturing turnover of £51 billion, and contributing well over 10% of the UK’s total exports. 2. SMMT welcomes the opportunity to provide written evidence to the House of Commons Business, Innovation and Skills Select Committee inquiry on rebalancing the economy: trade and investment. SMMT responded to the Department for Business, Innovation and Skills (BIS) call for evidence on the government’s forthcoming Trade White Paper, in which we stressed the need for government to pursue a positive trade policy that looks to encourage manufacturing in the UK and promote the UK as an attractive business location for international investors. Government’s ability to provide long-term certainty for investors will be a key factor in leveraging investment in the UK. An open trade policy that is fair to all sectors is a crucial element in implementing government’s objectives to rebalance the economy and stimulating export and private sector- led growth.
Government’s Trade White Paper 3. As outlined above, the automotive industry is a vital part of the UK and European economy, being the largest investor in research and development (R&D) in Europe at €20 billion, with UK manufacturers supplying over 100 markets worldwide. The automotive sector is a strategic industry in the UK, where the value of UK automotive exports is £26.6 billion. Government should consider automotive as a strength and as an area of comparative advantage within their White Paper. 4. Government must provide long-term certainty to investors that the UK is an attractive business proposition and implement coherent policies that look to leverage investment in the UK. Crucial in this is for government to demonstrate through the White Paper how it will coordinate policies across government departments to create a positive business environment. Government’s approach in its White Paper should take into account cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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how the UK is seen as an investment location compared to other competing locations across Europe and globally. Where specific policies on manufacturing and R&D are key to industrial growth, policies around taxation, business rates and intra-company transfers, for example, are as equally important tools that government can use to attract investment. 5. The White Paper must set out a policy approach that demonstrates not only government’s commitment to their objective of export-led growth but ways in which it plans to work with businesses across sectors in creating value-added opportunities. The White Paper must complement government’s overarching policies that look to encourage sustainable, low carbon growth, and a rebalanced economy.
The Role of the Department for Business, Innovation and Skills in Supporting Exports and Investment 6. UK government’s role in trade policy on a national, European and international basis should promote the UK’s export industries, encourage foreign direct investment into the UK to build sustainable industrial capacity, as well as contributing to open, fair and balanced discussions in trade negotiations for UK exporters to take advantage of new markets. 7. As the government department responsible for trade policy, BIS must take into account the opportunities within the automotive sector and how a positive trade and investment policy can assist the industry in taking advantage of opportunities to increase investment in design, development and manufacture of vehicles and components. BIS should ensure that its formation of trade policy and the White Paper complements work being taken forward in government’s framework for advanced manufacturing and growth review. 8. The UK automotive industry has benefitted greatly from direct foreign investment, particularly in low and ultra-low carbon vehicles, as well as supporting the UK production of premium and luxury vehicles. Decisions by global vehicle manufacturers to invest in UK manufacturing and R&D facilities is a credit to successive government policy that has supported improvements in conventional technology and ultra-low carbon vehicles. The automotive industry is at the forefront of the low carbon economy; a trade and investment policy that looks to build on this success and future new opportunities is crucial for the UK to establish itself as the European leader in low carbon industrial and research capacity. This approach will bolster the UK’s competitive advantage, continue to enable automotive to add significant value to the UK economy, as well as having the potential to spur further large scale investments in the sector. Future export capability lies in the successful growth of advanced manufacturing sectors such as automotive. 9. The role of BIS in WTO and EU negotiations on trade is vitally important. In discussions with European Commission officials, BIS should use automotive as an example of an important sector of the economy, where growth potential through exports and investment in manufacturing is communicated as key UK industrial strength. SMMT calls on government and BIS to prioritise an effective, balanced and fair conclusion to the Doha Development Round of WTO trade talks, which mean that improvements to the flexibilities in the Non- Agricultural Market Access (NAMA) chapter should be encouraged. The opportunities to increase international competition as a result of a fair agreement for all sectors will benefit the industry and increase market access for our members. 10. The European automotive industry voiced concerns over elements of the EU-South Korea Free Trade Agreement (FTA), where concessions were given to other sectors of the economy at the potential detriment to automotive. Trade agreements must not look to negotiate sector by sector—a comprehensive assessment of the impacts of trade deals on all economic sectors must be undertaken by UK government before the European Commission opens negotiations with third countries looking to enter into economic partnerships or trade agreements. UK government should call on the European Commission to review its procedures in trade negotiations that have resulted in the South Korea agreement being unbalanced for the automotive industry, with a likely negative impact on the sector. BIS should ensure that unbalanced duty drawback mechanisms and other articles related to Rules of Origin do not set a precedent for future negotiations, particularly in the current negotiation process looking to form a Free Trade Agreement with India. 11. Where the EU seeks to open Free Trade Agreements or Economic Partnership Agreements, BIS has a responsibility to ensure the agreements are truly ‘free’ and include full elimination of all tariff lines and address non tariff barriers. The UK automotive industry is supportive of efforts at a European and international level to facilitate free trade, but the mechanisms by which trade agreements operate must be transparent and truly beneficially reciprocal. Impact assessments should be used to formulate government positions in trade negotiations; ensuring economic sectors such as automotive are not unduly harmed or put at risk. It is crucial that UK government is thoroughly consulting the automotive industry prior and during negotiations. Enabling a positive and coherent approach to EU trade policy will ensure that market and investment opportunities are utilised to full potential.
The Role of UKTI 12. The work of UK Trade & Investment (UKTI) is crucial in supporting businesses expand overseas and promoting the UK as a leading location to invest. SMMT has a close working relationship with UKTI and is a key delivery arm for the UKTI Automotive Sector Group as an Accredited Trade Organisation (ATO), providing contract delivery, project management and matched funding for inward and outward trade missions, cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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overseas seminars, trade shows and exhibitions. SMMT supports UKTI activities that support SMEs, and develop market opportunities, particularly though the Overseas Market Introduction Service (OMIS), Export Market Research Study (EMRS), and Tradeshow Access Program (TAP).
The Effectiveness of the Export Credit Guarantee Department and the Flow of Trade Credit 13. In the review of support for exporters through the Export Credit Guarantee Department, government should commit to providing assistance as firms emerge from recession and look to diversify and expand their business presence. This type of support should be more accessible than it has been in the past and reflect the constrained business conditions firms have been operating in. This is a key example of where government facilitation can support businesses throughout the automotive supply chain. 14. Other EU member states such as Germany have implemented greater levels of support to increase the flow of trade credit for domestic exporters, as well as providing more substantial support in assisting with export trade credit insurance. Government should review its position in assisting those firms in the UK that are looking to expand their operations and further increase export value. Support to enable more accessible export trade credit insurance for smaller firms is a particularly important in the automotive sector, where many suppliers operate in international markets, and experienced a tightening of the availability of products from financial institutions.
Securing Opportunities for Growth 15. Government has an opportunity to implement a set of positive business priorities in its White Paper that will present the UK as a leading location for investment, and provide the opportunity for private sector growth. Investments being made in the automotive industry, particularly around low carbon vehicles and technology are key. SMMT hopes that government uses its White Paper to demonstrate how it will spur further investments, strengthening industrial, manufacturing, research, design and development bases. 16. Promoting trade facilitation and supporting businesses through mechanisms such as export trade credit insurance are practical ways in which government can assist firms as they emerge from difficult financial conditions, as well as those companies that are looking to expand overseas. Continued support through UKTI is a crucial element of government’s trade policy, identifying market opportunities for UK business. 17. Government should pursue a considered, balanced and fair trade policy at an EU and international level. The promotion of government’s objectives to rebalance the economy, reinvigorate manufacturing and promote sustainable growth should be communicated through its involvement with European and WTO trade negotiations. January 2011
Supplementary written evidence from the Society of Motor Manufacturers and Traders (SMMT) Supporting Manufacturing through an Active and Balanced Trade Policy Following the oral evidence I gave at the Business, Innovation and Skills Committee inquiry on trade and investment on 18 January, I am writing to outline a number of issues in relation to recent developments on trade policy. I have written to Edward Davey MP, the minister responsible for government’s trade policy, to outline concerns the automotive sector has in relation to current trade issues. The letter is enclosed and I highlight the key points below. As supplementary evidence to your inquiry, I have enclosed an annex highlighting UK automotive exports for 2010. I hope you will find this information useful. Government is currently engaged with the European Commission in its negotiations with India on a Free Trade Agreement. There is a huge trade imbalance in terms of automotive products with India. Less than 5,000 vehicles from the EU are exported to India; however India exports around 200,000 cars annually into Europe. Of the European exports in 2010, a fifth, 1,015 vehicles exported to India were UK built. India represents a significant growth market for the UK automotive industry, and the dismantling of tariff and non-tariff barriers are vital to exploit the growth potential. In taking forward its policy to support manufacturing, rebalance the economy and create export-led growth, opportunities for sectors such as automotive to export to key growth markets such as India are central to government’s objectives for overall economic growth. Within its negotiations on such trade agreements, government’s growth strategy should be followed through in each avenue of policy making, including trade policy. Particular attention to tariff dismantling on a ‘zero-for-zero’ basis should be a central aim for government, as well as a comprehensive analysis of the non-tariff barriers inhibiting trade. At a recent meeting with the Department for Business, Innovation and Skills’ Trade Policy Unit, the lack of transparency in European negotiations was noted. In our view, it is vital that there is proper scrutiny given to government’s analysis and positions that are sent to Brussels, to ensure that government is striving for the best possible deal for the UK’s growth sectors. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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It would be useful to meet with you to outline in further detail key issues from an automotive sector point of view on trade policy, and wider issues that are currently on the agenda. My colleague Jonathan Hawkings will be in touch to make appropriate arrangements. I look forward to hearing from you soon. The enclosed data outlines UK automotive exports in terms of cars and commercial vehicles on a country- by-country basis (ordered by region) in 2010. Please see a summary of this data by region below expressed in units. Additional totals for UK engine production are also outlined:
Cars Exports to the EU: 588,832 (representing 62% of all car exports) Exports to non-EU European countries: 83,051 Exports to the Americas: 119,362 Exports to Africa: 25,255 Exports to the Middle East: 108,915 Exports to Oceania: 17,783 Exports to other: 4624 Total 2010 UK car production: 1,270,444 Total 2010 UK car exports: 947,822 (representing 75% of production)
Commercial Vehicles Exports to the EU: 78,416 (representing 91% of all CV exports) Exports to non-EU European countries: 732 Exports to the Americas: 3,714 Exports to Africa: 363 Exports to Asia: 2,370 Exports to Oceania: 677 Exports to other: 91 Total 2010 UK commercial vehicle production: 123,019 Total 2010 UK commercial vehicle exports: 86,363 (representing 70% of production)
Engines Total 210 UK engine production: 2,386,717 Total 210 UK engine exports: 1,721,490 (representing 72% of production) 3 March 2011
Written evidence from Surrey Satellite Technology Limited Executive Summary SSTL is a vibrant SME with a primarily export based space sector business that has spun out from the University of Surrey. From small beginnings and with some government help at key times, SSTL now employs over 300 people and has a turnover of £50 million per annum. Elements of that key help at the emergent phase of this business in the early 1990s are regrettably no longer available to this business and to today’s new start-ups. This submission is focused on just three topics: (a) The inferior scope of Export Credit Guarantees available through ECGD, by comparison with other ECAs of our international competitors; (b) The apparent reluctance of UK government Departments to enter into new Memoranda of Understanding (MOUs) with other national governments in the International Space Sector; (c) The current minimal level of support for National Space Technology that is urgently required to stimulate innovation in export markets and to help match firms to opportunities in the collaborative and research programmes of the European Space Agency (ESA) and the European Union’s Framework and pre-operational programmes. cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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The recent Innovation and Growth Team report on UK Space [ Ref 1] includes a strong recommendation that UK government provide comparable credit guarantees and other financial services for exporters and for non UK purchasers, ie ones that are comparable to those available to UK competitors in the Space sector. However, this problem seems to apply to all sectors, other than civil aviation and construction, and applies particularly to SMEs. The IGT Working Group on Finance [Ref 2] compares the range of services available from the ECAs of the our leading Space sector competitors, awarding scores out of ten. The three ECA of Canada, France and the USA score 10 while the ECGD scores five equating it with the scope and contribution of those in Greece and Turkey. Specific detail is provided. We have welcomed recent direct discussion with ECGD, which clearly has able staff that could play a greater part in the Space sector. We draw the Committees attention to the apparently restricted mandate of ECGD : (a) Primarily limited to Aerospace and Civil infrastructure (not including Space and most other sectors); (b) Modest staff resources effectively limiting significant contact with SMEs; (c) Modest range of services by comparison with other ECAs; (d) No direct loans. Unwillingness to support credit to UK telecommunication operators for purchase of European satellites, even though services from those satellites are supplied at significant risk into international markets. Due to the commercial importance and foreign National strategic significance of many exports from the UK Space sector, HMG is often the only actor in a position to offer assistance to UK firms in the Space sector, primarily through agreement on Memorandum of Understanding (MOU) with those governments. Such MOUs are government to government agreements, ie Treaties having the full force of government, rather than simple letters of agreement between their Space Agencies. By comparison with most other Space capable nations, the UK appears to other Space Agencies to be reluctant to enter into government to government agreements (Treaties) in the Space sector. This appears to have been a consequence of two issues, first the non executive status of the British National Space Agency BNSC, during the last 25 years, ie inability to act or lead due to Departmental constraints, and second a fear that MOUs might encourage bilateral commitments in support of industry for which BNSC has inadequate running costs. The welcome decision of the last government—endorsed by the current coalition—to create an Executive Space Agency (UKSA) might create the conditions needed to sweep away both constraints and provide an essential stimulus to industry from a National Technology programme, but at first sight this reluctance to reach inter-Departmental agreement seems rather deeply engrained in the action of government officials, particularly so in DBIS, its Research Councils and in HMT/HMRC. Negotiation of a full MOU, a Treaty, necessarily requires agreement with HMT/HMRC about tax and duty implications and with FCO and MOD if there are any political sensitivities. This is not yet happening.
Introduction SSTL is a vibrant SME with a primarily Space export based business that has spun out from the University of Surrey. From small beginnings and with some government help at key times, SSTL now employs more than 300 people and has a turnover of £50 million per annum. Elements of that key help at the emergent phase of this business in the early 1990s are regrettably no longer available to this business and to today’s new start-ups. Noting that another Committee is currently looking at the (rather slow) implementation of a new Executive Space Agency (UKSA) and that government is working (again rather slowly) to implement some Recommendations from an Innovation and Growth Team Report on the UK Space sector, this submission will deal primarily with a small number of issues within this Committee’s focus of Inquiry that are of particular importance and are based solidly on SSTL’s direct experience at the interface to BIS and BNSC (now UKSA) and in the Space export and collaboration marketplaces. These three topics are as follows: (d) The inferior scope of Export Credit Guarantees and associated services available through ECGD, by comparison with other ECAs of our international competitors; (e) The apparent reluctance of UK government Departments to enter into new Memoranda of Understanding with other national governments in the International Space Sector; (f) The current minimal level of support for National Space Technology that is required to stimulate innovation in export markets, to exploit bilateral opportunities enabled by MOUs and to help match firms to opportunities in the collaborative and research programmes of the European Space Agency (ESA) and the European Union. We wish to draw the Committee’s attention to the substantial body of very recent work created by the Innovation and Growth Team Working Groups on Space that lead to the publication of the IGT report in October 2009, and to the previous Government’s response to that report in March 2010. In particular, we draw attention to the Working Group report on Space Finance and Procurement which highlights the need for creation of and access to key enabling technologies alongside key sources of finance at both the start-up and investment stages of new businesses and during challenging national and international opportunities. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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The IGT Recommendations No 3, 4 and 11 deal with our three topics above but have lost some of the sharp edged detail that underpins them in the Working Group reports. Likewise, Government’s response is generally positive, but lacks discussion of some important topics that are grouped together under some ”Umbrella” Recommendations, eg the topic of MOUs is being ignored under R11. In addition we perceive that government’s implementation of the accepted recommendations is near glacial even in those cases where government action is not constrained by uncertainties about the level of significant budget lines resulting from the current Comprehensive Spending Review.
Export Credit Introduction The UK’s Export Credit Guarantee Department (ECGD) is the current manifestation of the world’s oldest Export Credit Agency (ECA). Set up just after WW1, the UK’s ECA has a long history of providing export credit guarantees for exporters in the aviation industry and facilitating financing for overseas purchasers. ECGD’s current actions are deemed rather narrow; limited primarily to credit guarantees (insurance) to the aviation and construction industry. A glance at its latest report on-line (2007–08) shows that ECGD is primarily focused on these two sectors: There is no specific mention of the “Other” sectors in the supporting text, though helpful graphs show that support for “Other” civil and Defence sectors languishes at about 2%. The overall number of guarantees is measured in 100’s showing clearly that this body lacks the mandate and manpower resources to deal with Space or a significant number of SMEs from all sectors. The recent Innovation and Growth Team report on UK Space includes a strong recommendation (No 4) that UK government provide comparable credit guarantees and other financial services for exporters and for non UK purchasers, ie ones that are comparable to those available to UK competitors in the Space sector. However, this problem seems to apply to all sectors, other than civil aviation and construction, and applies particularly to SMEs. The IGT Working Group on Finance compares the range of services available from the ECAs of the our leading Space sector competitors, awarding scores out of 10. The three ECA of Canada, France and the USA score 10 while the ECGD scores five equating it with the scope and contribution of those in Greece and Turkey. We add more detail below: The ECA role is crucial to many sales, especially but not exclusively in the case of developing countries. ECA guarantees arranged by ECGD (ExIM, Coface etc) are usually provided in conjunction with debt financing by one of more national commercial banks who are willing to lend at a lower interest rate because ECGD (government) is prepared to share through insurance some of that risk. In addition, ECGD can facilitate further financial engineering by those banks to pay the invoices during production direct to the exporter, while repackaging the loan seen by the purchaser for a longer term and sometimes one at a fixed interest rate. Although commercial merchant banks are always prepared to consider such deals, they generally do so at higher rates of interest, and will decline to do so where there is significant political risk. In addition, most other ECA’s will offer loans of last resort when banks are still unwilling to share the risk, even with government. In addition, ECAs frequently offer a range of financial services to the exporter and or to the purchaser to improve the financial management and transparency of a major project, and if required to manage the project on behalf of the purchaser.
Examples of actions by ECAs outside the UK that do act in the Space Sector This submission will now discuss three of those top scoring ECA’s, ie those in the USA (ExIm bank), France (COFACE) and Canada (EDA). They operate industry wide and in recent years have expanded in mandate, manpower and financial resource terms to pay much more attention to SMEs. ExIm Bank is the official ECA of the USA. It should come as no surprise that ExIm is a major player in both the Aviation and the Space sectors; given that the USA declares export and strategic goals to dominate in the Aerospace and Space sectors. While it offers export guarantees (insurance) to US exporters, ExIm bank— by comparison with ECGD—appears to be a much more pro-active financial engineer, taking the lead to arrange credit “lines” for the actual debt financing for exporters from cooperating banks. For the largest projects, ExIm Bank will work with international banks, usually in conjunction with other ECA’s , in particular in the Space sector with COFACE (France). Recent examples of ExIm bank action in the Space sector are easy to find and very significant, eg first working in support of Orbital Sciences (US) to secure financing and project success to supply the second satellite HYLAS 2 for the UK AIM listed satellite telecommunications operator, Avanti and second, in conjunction with Coface, to secure financing for the Thales Alenia ( Fr/It) successful bid to supply a multi-billion dollar replacement constellation of more than 50 satellites to Iridium Inc. Coface is the official ECA of France, though its national presence is to a degree disguised by a commercial veneer. Coface is actually a commercial insurance company owned by a single shareholder, but crucially it has an outsourced contract from the French Treasury to run the French ECA schemes. The insurance and on occasion direct debt financing arranged by Coface is underwritten by the French Treasury. Coface has offices around the world and is pro-active on a significant scale in the Space Sector, i.e. wherever there is a sustained sales interest for French exporters. Like ExIm, Coface will cooperate with other ESAs to secure major export cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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sales for French firms, ensuring sufficient local content to satisfy market rules in key export markets. Coface’s involvement and associated success for Thales with Iridium Inc is particularly notable when observing that the major competitor was a US company, Lockheed Martin.
EDC is the ECA of Canada and is state owned. EDA is recognised in the Space sector as the provider of the most flexible packages of export insurance (to Canadian exporters) and of managed finance to purchasers of Canadian goods. Whereas ExIm and Coface will only arrange and/or provide direct finance to exporters as a lender of last resort—when commercial insurance and longer term finance is not available—EDA can and does provide more regular direct loans, including significant numbers of loan guarantees to SMEs.
The purchase by a small German start-up of the RapidEye constellation offers a detailed example of EDC involvement in the Space sector, and particular evidence of significant loss of business to UK firms. RapidEye is a constellation of four small satellites and is based on a concept pioneered by SSTL, ie its Disaster Management Constellation (DMC) and evidence of greater capability validated by the QinetiQ/SSTL TopSat small satellite. Both DMC and TopSat were cofunded at a key moments by UK government (BNSC) technology funds. RapidEye secured funding from its Space Agency DLR, German regional government and German commercial banks. Initially, the RapidEye start-up advised that SSTL would be its most likely prime contractor following an open competition. This proved to be an unsound assumption, because financial guarantees required by the German banks could not be secured in support of SSTL. QinetiQ then put forward a bid as prime contractor with SSTL as a sub contractor; but it appears that despite being the largest R&D laboratory in Europe, it was unable to satisfy guarantees for the project team as a whole. However, a white knight soon appeared in the form of the Canadian ECA (EDC) which secured guarantees on behalf of the Canadian space contractor MDA, which took over QinetiQ’s role and reduced SSTL’s involvement to supply of the small satellite bus which was in any case crucial to the project. This resulted in a substantial loss of business to the UK, especially so given significant prior UK government investment by BIS and MOD and clear UK competitive advantage.
We have welcomed recent direct discussion with ECGD, which clearly has able staff that could play a greater part in the Space sector. We draw the Committee’s attention to the apparently restricted mandate of ECGD: (e) Primarily limited to Aerospace and Civil infrastructure (not including Space or most other sectors); (f) Modest staff resources effectively limiting significant contact with SMEs; (g) Modest range of services by comparison with other ECAs; (h) No direct loans; and (i) Unwillingness to support credit to UK telecommunication operators for purchase of European satellites, even though services from those satellites are supplied into international markets (refers to case of Hylas two see above).
Memorandum of Understanding in the Space Sector
Introduction
Due to the commercial importance and foreign National strategic significance of many exports from the UK Space sector, HMG is often the only actor in a position to offer assistance to UK firms in the Space sector, primarily through agreement on Memorandum of Understanding (MOU) with those governments. Such MOUs are government to government agreements, ie Treaties having the full force of government, rather than simple letters of agreement between their Space Agencies.
Recommendation 11 from the UK Innovation and Growth Team Report calls for prompt and consistent action by HMG to create a competitive environment for UK Space exporters through better regulation and prompt provision of effective MOUs. Thus far, UK government’s official response and subsequent actions to the IGT have ignored the important point about MOUs. In addition, Recommendation three seeks to rejuvenate a national technology programme without which bilateral activities enabled by MOUs cannot be fully exploited by UK firms.
By comparison with most other Space capable nations, the UK appears to other Space Agencies to be reluctant to enter into government to government agreements (Treaties) in the Space sector. This appears to have been a consequence of two issues, first the non executive status of the British National Space Agency BNSC, i.e. its apparent inability to act or lead due to Departmental constraints, and second its fear that MOUs might encourage bilateral commitments in support of industry for which BNSC has inadequate running costs. The decision of the last government—endorsed by the current coalition—to create an Executive Space Agency (UKSA) might create the conditions needed to sweep away both constraints and provide an essential stimulus to industry from a National Technology programme, but at first sight this reluctance to reach inter-Departmental agreement seems rather deeply engrained in the action of government officials, particularly so in DBIS, its Research Councils and in HMT/HMRC. Negotiation of a full MOU, a Treaty, necessarily requires agreement with HMT/HMRC about tax and duty implications and with FCO and MOD if there are any political sensitivities. This is not yet happening. cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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The particular case of a MOU with Russia A particularly unwelcome example of glacial negotiation has occurred in response to requests from UK industry and Russia that a new Treaty level MOU should be negotiated between the UK and the Russian Federal Space Agency ROSCOSMOS, which does have the status in Russia of a full government Department. Following the break-up of the USSR and the subsequent evolution from the FSU to today’s Russian Federation, the Russian Space Agency and UK industry have sought a new MOU consistent with that negotiated by Russia with about 40 other Space fairing Nations, (including France, Germany, Italy , Korea etc). Between 2003 and 2008, the apparent response of some UK government Departments was to argue that a MOU signed in 1987 with the USSR was still valid, thereby snubbing the overture from a full Department of the new Russia. This reluctance to negotiate by UK Departments appeared to lead BNSC to reject requests for almost all new MOUs, the only exceptions being a number of non treaty level MOUs (Lite MOUs) , eg with Algeria. Though called MOUs, those agreements contained no clauses about methods of procurement, control of IP, reciprocal management of tax and duty etc. Lack of any mutually recognised Treaty level MOU with Russia had a number of significant impacts on UK firms. The most important from a financial viewpoint being as follows: — Inability for UK exporters and Russian importers to predict the level of duty to be levied by Russian authorities; thereby making UK bidders uncompetitive for Russian customers with their European and International Competitors; — Inability of UK firms and their customers (Russian and non Russian) to predict the level of duty to be paid on goods arriving in Russia, including satellite equipments, payloads and satellites, that are shipped for launch by Russian launch service providers; — Similar inability to predict the duty liabilities and unpredictable transit delays, when goods need to pass through Russia prior to launched by other launch service suppliers, eg from the Ukraine. Following a partial easing of this slow negotiation process in 2008–09 and the decision in 2009 by the former Labour government to form a new Executive Agency, UKSA, BNSC began negotiation with ROSCOSMOS about a Lite MOU, which was signed this July at Farnborough International. While overcoming the problem of lack of recognition by the UK of the Russian Agency, that Lite MOU does not contain solutions to any of the procurement problems; continuing to leave UK bidders and exporters at a severe disadvantage. A second phase of negotiation is needed urgently. In particular, it is apparent that pressure needs to be applied to HMT and HMRC so that a few clauses concerning Tax and Duty can be agreed, either on the basis of those already concluded by ROSCOSMOS with many other nations, or through negotiation about mutually acceptable alternatives. We understand that BNSC , in conjunction with UKTI, did forward such prior text to HMT and HMRC in June/July 2009 but HMT and then HMRC appear to have refused to provide feedback or to open formal discussions. It is important to note that all Space goods and a majority of services exported from the UK to Russia are not subject to UK export duty, so the balance of advantage gained from a MOU would be with UK exporters, without any significant revenue implication for HMT. The topic of MOUs is covered by Recommendation 11 and action item 11.1 of the IGT. Government has accepted Recommendation 11, but its response makes no explicit mention of MOUs. The main stumbling block appears to be unwillingness of HMT/HMRC to discuss tax and duty issues and of DBIS to raise MOUs with HMT while it is considering DBIS budgets during a CSR. That could be deemed understandable had not the problem pre-dated this CSR by many years! This problem requires some inter-Departmental discussion, is not dependent on significant resources from a CSR and remains a barrier significant to export business valued at approximately £50 million per annum.
Access to National Technology Funding at Key Moments in the Development of Firms and Projects Access to intellectual property relating to key enabling technology is valuable in all sectors, but is of particular importance in the Space sector due to its strategic as well as commercial significance. The previous government’s acceptance of the Case for Space in 2007 and by this government of the IGT report on Space suggests that government should be pushing ahead to ensure the necessary creative linkages between firms and key technologies, both through National and European Technology actions and access to credit at key moments, but the reality of the last three years has been very different. The old DTI, then DBERR and now DBIS plays at least two key roles. First, to ensure an effective bridge between the University and Industrial sectors for the vehicles of innovation and second, to stimulate access for both of them to national, ESA and EU led efforts needed to create that technology and IP, and to bilateral opportunities opened up by MOUs. The arguments about the importance of balanced National, bilateral and European Technology efforts are likewise discussed in IGT working group reports and the NAO report on the UK Space Activites [Ref 3]. Acceptance of the arguments has not ensured effective inter and intra-Department solutions, especially by the BNSC partners within DBIS. Coincident with government acceptance of the Case for Space in 2007, STFC made a bid on behalf of the whole BNSC community into CSR 2007 for a National Space Technology Budget cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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and this was approved by HMT. However, subsequent unanticipated turmoil in the STFC budget eventually resulted in the NSTP being zero funded for the three years of that CSR. The planned budget would have provided equal 1/3rd distribution of funds to national technology, ESA technology (GSTP) and national small missions, ie ensuring some balance across UK technology efforts. The Finance WG report of the IGT confirms that well argued and accepted triangle of technology funding was zero funded under the CSR which ends at 31 March 2011. We very much hope that the current CSR outcome will resolve the consequences of the current lack of a National Space Technology programme without which UK firms are unable to proceed at key moments to develop key enabling technology, to exploit bilateral opportunities opened by MOUs and to subsequently outwit their competitors in commercially valuable markets. SSTL faces serious competition from French, German, Italian and Belgium firms who benefit from much higher levels of consistent technology support, and national small mission opportunities. Reliance upon the often financially frail intentions of individual partners in BNSC has often dogged DBIS (Space) Ministers, particularly so when preparing the UK strategy for investments in Space technology and Missions at the three yearly ESA Council meetings at Ministerial level. We understand that part of the motivation of the previous government to create an Executive Space Agency was to ensure a single focus for government decision making and implementation of UK Space activities, to resolve once and for all such inter- Departmental problems. When looking at the effectiveness of DBIS support to industry, the Committee is asked to look at the role of DBIS and other Departments at the interface to UKSA, in particular concerning the distribution of responsibilities when bidding for new R&D activities and new projects at the start of each CSR, before Ministerials and for EU projects, all of which have cross Departmental interests. We understand that UKSA may gain financial responsibility for upstream Space technology, but not for civil operations or for the downstream services and products. As the prior host of BNSC, DBIS should be aware that a previous set of mixed responsibilities has not proved effective. We ask the Committee to be assured that the new Agency will have clear and effective lines of financial and appropriate managerial responsibility, without which solutions to current shortfalls in Space R&D activities and decision about investment in missions seem unlikely to be resolved.
References 1. A UK Space Innovation and Growth Strategy 2010–30: www.spaceigs.co.uk 2. Space IGS Working Group Report on Finance and Procurement: www.spaceigs.co.uk/documents; 3. The United Kingdom’s Civil Space Activities, NAO Report HC 359, 16 March 2004. January 2011
Written evidence from UK Music About UK Music UK Music is the umbrella organisation which represents the collective interests of the UK’s commercial music industry—from artists, musicians, studio producers, songwriters and composers, to record labels, music managers, music publishers, music licensing organisations and collective licensing companies. UK Music consists of: — Association of Independent Music representing 850 small and medium sized independent music companies; — British Academy of Songwriters, Composers and Authors with over 2,200 songwriter and composer members; — BPI representing over 440 record company members; — Music Managers Forum representing 425 managers throughout the music industry; — Music Producers Guild representing and promoting the interests of all those involved in the production of recorded music—including producers, engineers, mixers, re-mixers, programmers and mastering engineers; — Music Publishers Association, with more than 250 major and independent music publishers representing close to 4,000 catalogues; — Musicians Union representing 32,000 musicians; — PPL representing 46,000 performer members and 5,750 record company members; — PRS for Music representing 73,000 songwriters, composers and music publishers.
Introduction 1. As a nation, the UK is the second largest producer of music repertoire in the world and one of only three countries that can claim to be net exporters of music. Last year approximately one in every ten albums sold in cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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North America and Canada was made by a British artist. Earlier this year UK Music published our vision of the future, an industrial manifesto for growth, “Liberating Creativity”. It unveils our single ambition for the next decade: to challenge the United States as the largest music-producing nation in the world. We know that there is a desire for high-quality, well-produced, musical content; it is this demand, which will be core to our ability to deliver on our growth potential. 2. Exports in the music sector take a variety of forms. We have a long history of exporting music on physical formats such as CD. Other types of international income that music generates include online and mobile music sales; licensing of music rights to international broadcasters; licensing of music rights to international partners for distribution; licensing of music rights to film, televison and games—particularly in the USA; touring and live performance; and professional services (eg music production, recording services). Particular strengths in recent years have been collective international music rights licensing, licensing to film, tv and games, and live music (through both touring and the tourists that it attracts). For example Visit Britain suggest that music is the second most popular reason that tourists choose Britain, after our museums. 3. The ratio of international to domestic income will vary depending on the product and the partnerships of the company selling or licensing it. In the case of recorded music, international income can be a substantial slice. Where the product and trading partners are exceptionally strong, it can be over 50% of the income generated. 4. The music sector has a culture of international trade. For example, a survey conducted by the Association of Independent Music showed that a very high proportion were exporting, with 65% in the EU, 62% in the USA and 36% in Japan. The majority of the companies surveyed are micro-businesses, and the figure is high when compared with other small businesses. For example under a quarter of Federation of Small Business members export. 5. However accessing the finance and market access to fully exploit international opportunities is a problem. Companies who have been able to establish a base have been very successful. British record company and music publisher Beggars Group have established a 35 person office in the USA, which has allowed them to achieve great success in the American market.
The Government Trade White Paper 6. UK Music did not make a submission to the Government’s Trade White Paper, and refers the committee to the submissions by our members PRS for Music and the BPI. 7. We highlight the calls of the collection society PRS for Music for “an appropriate legal and operational infrastructure which supports the licensing of music rights [internationally], and to ensure that there is value for IP in those markets”. They forecast that there is significant potential international revenue growth for their members, which could be boosted by Government placing IP prominently in the UK’s trade negotiations and reducing barriers to trade. 8. We also highlight the BPI’s comments from the perspective of recording companies that it can be challenging in both emerging and established music markets to realise the value of their exports where there is widespread unlicensed use of British music, and where their rights are not always recognised or respected.
The role of UKTI with regard to identifying opportunities in established markets, emerging markets, key sectors and working with businesses both large and small to take advantage of these opportunities 9. UK Music recognises the vital role provided by the specialist team at UK Trade & Investment. Through the Music Export Group, and close relationships with employers and trade associations, UKTI have developed a strategy that works well for our industry. UKTI prioritise the USA, Japan, France and Germany as the essential established markets for music. They have also been instrumental in offering intelligence on our sector to the international trade teams around the UK and within the commercial divisions in key embassies. We would hope that with the abolition of the Regional Development Agencies, and introduction of Local Economic Partnerships, that these effective support systems for businesses that want to trade internationally are maintained. 10. UK Music recognises that there is a strategy to prioritise emerging markets and large infrastructure projects or major contracts. However this will not deliver export growth in our sector. Our industry, which is made up of mainly micro and small businesses, has asked that in a climate of limited resources that UKTI focus on established markets where firms can guarantee returns. In emerging markets, we would urge Government to support the development of strong IP frameworks. This will provide the base from which music exports can subsequently develop. 11. UKTI and the Music Industry have worked together effectively to maximise the value of their investment. They have created a collective “British Music @” brand which has been used to promote British Music at trade fairs, used the collective buying power of the industry to drive down trade fair costs, and run pre- exporting workshops at no cost to ensure that firms accessing support are market-ready. 12. UK Music suggests that Government benchmark its support for creative industries with those of other nations. For example, that France have a French Music Export Bureau with a staff of 22 including offices in cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Paris, Tokyo, New York, London, Berlin and Sao Paulo. The US has IP attachés in key territories to champion their IP based industries.
The effectiveness of the Export Credit Guarantee Department and the flow of trade credit 13. UK Music members have made little use of the Export Credit Guarantee Scheme, due to our industry structure. How other countries, similar to the UK, export to emerging markets and what our Government could learn, if anything, from them. 14. UK Music refers the committee to the work done by the EU and USA to champion IP frameworks internationally, as detailed in the written evidence provided by PRS for Music and the BPI.
The role of the British Business Ambassadors 15. UK Music members have had little experience of the British Business Ambassadors. However we are interested in the Publisher’s Association proposal that IP attachés be used to champion and co-ordinate support for British IP internationally. 3 February 2011
Supplementary written evidence from UKTI During the evidence session attended by Lord Green; Edward Davey; Susan Haird and Patrick Crawford on 10 March 2011 a point about BT Group plc’s involvement in China was raised. Q516 Simon Kirby: I understand that entirely. Some other countries, for instance Germany-perhaps you spoke about this on the telephone this morning-seem to have far more success than the UK in encouraging their large companies to piggyback small- and medium-sized businesses. If they open up in China, for instance, they take those businesses with them. I went to China last week. We heard from BT that that was not their intention at all and that they would involve themselves almost entirely with local businesses. Do you not think we could learn something from Germany? Lord Green: We can certainly learn something from that, because I think big companies have a responsibility to their supply chain. We can swap stories of course, but I think many of the companies I know take their responsibilities to their supply chain very seriously. There are opportunities to help SMEs that are part of the supply chain; indeed, I would have thought it would be in the interests of a big company to help the SMEs that are part of its supply chain. Some of that help can take the form of helping them to get into the foreign markets where they are investing or exporting. We need to ensure that we do as good a job of this as we possibly can. Larry Stone, President: Group Public &Government Affairs, BT Group plc has written to Susan Haird about BTs marketing role in China and with the company’s agreement I am forwarding their letter to you for information. Your Committee Members might wish to see Mr Stone’s letter and the company are aware that the Committee might choose to publish their letter as part of the evidence base findings for your inquiry. I am sending a copy of this letter to Qin Li at the British Embassy in Beijing and to Ian Lawrence at UKTI. 12 April 2011
Annex Letter to Susan Haird, Chief Executive Officer, UK Trade & Investment, from Larry Stone, President Group Public & Government Affairs, BT Group plc I wanted to write about a possible misunderstanding on one specific point which arose from the otherwise very helpful discussion when the BIS Select Committee visited BT in Beijing recently. BT does focus on sales to multi-national companies and major national corporates outside the UK through our Global Services Division. We tend to contract outside of China for these clients for business and regulatory reasons. China does not have a fully liberalised communications market and we act largely via local partners for delivery of services to our MNC and corporate customers. I understand that we were asked how and if, including via our Beijing customer technology showcase, BT might help to support UK SMEs looking to operate in the Chinese market. We do not sell lCT services to SMEs in China, but Kevin Taylor (our President AsiaPac) and his team would be delighted to act as a sort of UK-to-China bridge in our sector. We might offer—along with other companies—some advice and guidance. Please do let me know if this would be helpful. A copy of this letter goes to Qin li at the UK Embassy in Beijing. 22 March 2011 cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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Written evidence from The International Chamber of Commerce UK (“ICC UK”) ICC UK Comments on UKTI Strategy “Britain Open for Business” Overview 1. The International Chamber of Commerce UK (“ICC UK”) supports the Government’s recent efforts to realise fully the contribution that UKTI can make to improving UK export performance and driving inward investment. 2. Whilst we welcome the core elements of the “Britain Open for Business” strategy, we think that more detail is required about how the proposals will work in practice—and specifically what needs to change to deliver a better service. In this connection, it is our view that careful consideration needs to be given to how the various strands of the strategy can best be implemented to provide real “value-added” for UK businesses. 3. In this context, a number of recommendations are set out below with specific reference to individual elements of UKTI’s revised strategy. Our core messages can be summarised as follows: (a) it is not immediately clear how some of the services will be rolled out and how they will be priced (eg bespoke services for high value deals). This makes an analysis of likely take-up and impact difficult; (b) the OMIS is a valuable resource for businesses but delivery is patchy. Government needs to identify areas of weakness and ensure a high-quality service for all markets. This should be a real priority; (c) UKTI needs to ensure that the skills and knowledge of its staff are sufficiently high to deliver existing and planned services. Previous commercial experience and high quality staff training are essential in this regard; (d) UKTI needs to look carefully at how it can better raise awareness of its services. Partnering with business associations can play a key role in this regard; (e) the strategy has too narrow a conception of “commercial diplomacy”. Government needs to look at using its overseas network to address a wider range of issue which affect companies when operating internationally (eg non-tariff barriers); and (f) the strategy to boost inward investment is to be commended, but domestic policies need to be improved to encourage multinational firms to invest in the UK (CFCs, top rate of income tax). UKTI should look to feed in recommendations to Whitehall about policies that deter (or by contrast encourage) investment.
Free Business Mentoring 4. It is certainly good to see Government looking at innovative ways to help SMEs start trading internationally—including through the provision of free business mentoring for first time exporters. 5. Delivery and coverage. We are, however, unclear as to how the new “Catalyst UK” network will work to deliver this mentoring service. Three questions arise in particular: one, will this network of circa 100 business ambassadors be able to provide sufficient market coverage? Two, is the aim to target a small number of SMEs, rather than having an “open door” policy for companies which are thinking about getting into international markets? Three, how will this service fit/complement support currently provided (free-of-charge) by UKTI’s International Trade Advisors? 6. Awareness. UKTI will need to think carefully about how it can ensure that SMEs are made aware of this service. In this connection we think that there is scope to work more effectively with key business organisations, trade press and other multipliers, eg freight forwarders.
Overseas Market Introduction Service (OMIS) 7. Quality of product. Many SMEs tell us that the OMIS is at best very patchy. A common complaint is that reports from some posts do not offer substantially more intelligence on overseas markets than a simple internet search. Government needs to think carefully about how to raise standards across the network in order to enhance the support given to UK exporters. 8. Content of OMIS reports. From an SME perspective, we think that the OMIS should provide companies with: (a) a quick and accurate snapshot of the prospects for their exports so that a company can decide whether to explore the market seriously; (b) first-hand knowledge of potential partners (eg distributors) whom overseas posts should speak to in preparing a list of potential partners; (c) insight on the subtle differences between markets which look superficially alike; and (d) hidden pitfalls (tariffs are easy to get information on, but companies also need to know about relevant non-tariff barriers (eg environmental standards)). cobber Pack: U PL: COE1 [O] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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9. Cost vs quality. Whilst some companies complain about the cost of OMIS reports, we think this would be less of an issue if the quality of reports were higher across the board. The OMIS needs to be positioned as a premium service, but to do so the consistency of the product needs to be improved. 10. Need for benchmarking of delivery. We think there would be merit in conducting an assessment of OMIS reports currently provided by posts with a view to benchmarking best practice. Industry bodies (such as ICC) may be able to assist with such an exercise. 11. Global service. The proposal to develop a “Global OMIS” should be an attractive proposition for firms operating in multiple markets; however, this should not be seen to obviate the need for an upgrading of the service provided by some posts. Indeed, if companies are paying for a global service they should be entitled to expect a consistently high-quality product across all markets.
Bespoke Service 12. The planned introduction of a bespoke service to support companies to win major trade contracts is to be welcomed, and represents a useful extension of the existing UKTI services. 13. Need for greater clarity. However, in order to comment in more detail, it would be helpful to receive further information on: (i) the type of contracts for which UKTI envisages providing this service; (ii) the kinds of support UKTI will provide under the bespoke programme. 14. Pricing. As a general comment, we welcome the plan to introduce performance related fees for bespoke services. We acknowledge that “success fees” could provide a useful performance incentive for UKTI, but would welcome greater clarity about how these will be calculated. We would also note that the service should be priced in such a way to make it an attractive proposition for mid-market firms in particular.
Expertise 15. The strategy rightly notes that UKTI needs to ensure that it has the right in-house expertise and skills. Indeed, is our view that is the single most important element of the new strategy—particularly given that some of the planned services (eg bespoke support) will require real expertise in a range of markets and sectors. 16. Developing contacts is also critical. For example in providing lists of potential partners, as referred to in paragraph 7b above, it is not enough to list a few candidate partners. Rather, staff need to get under the skin of potential partners to understand how the chemistry would work—eg what makes a really good partner for product x? Management within UKTI need to encourage a more proactive approach to developing contacts with overseas industry to help with this. 17. Notwithstanding budgetary constraints, we think that better training is absolutely key. Previous commercial expertise should also be a pre-requisite for front line posts—ultimately businesses want to be advised by people who have “walked the walk” before them!
Investment Promotion 18. The strategy to boost inward investment is to be commended, but “talking up” Britain abroad needs to be backed by domestic policies that help reposition the UK as a centre for international business. 19. We understand that the UK’s tax regime—and in particular the framework for taxing companies overseas profits—remains a deterrent for many multinational firms. The Government needs to ensure that planned reforms in this area make the UK a more attractive place to locate international operations. Moreover, the personal tax burden for senior executives remains an issue that needs to be addressed as a matter of urgency. 20. We think that UKTI should look to feed in recommendations to Whitehall departments about policies that deter investment based on discussions with overseas firms. This should help provide a sound evidence base for domestic policies aimed at enhancing the competitive position of the UK.
Government/Government Contacts 21. Wider conception of trade diplomacy needed. We believe that there is a real opportunity to create openings for UK businesses operating (or looking to operate) internationally through government to government contacts. But to do so, we think that UKTI’s work must embrace trade diplomacy in the widest sense. This means going further than simply trying to help strike deals with overseas authorities. Instead, the focus should be on how UKTI and the FCO contribute to all barriers facing UK firms in overseas markets. 22. NTBs are a major problem. Non Tariff Barriers (or technical barriers) to trade are currently one of the biggest current problems facing UK business operating in overseas markets. A number of markets use local regulatory approvals processes—such as requirements for environmental standards certification—to impede the free flow of foreign goods and services. 23. Need for a professional and pro-active response. UKTI and the FCO need to be properly equipped to respond to these problems. This means placing staff with specialist expertise (eg IP, tax) in overseas posts with a view to engaging with local officials where problems arise. Posts need to be alert to the impact regulations cobber Pack: U PL: COE1 [E] Processed: [06-07-2011 13:20] Job: 010554 Unit: PG08 Source: /MILES/PKU/INPUT/010554/010554_w029_MP International Chamber of Commerce.xml
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could have on international trade. Ideally they need to be ahead of the curve so that there is a chance of diplomatic intervention before a new regulation is adopted. ICC UK would be happy to work with the FCO/ UKTI in developing key indicators in this area. 24. We would like to see UKTI positioned as the primary point of call in cases where companies face barriers doing business in overseas markets. Currently many companies do not know who they should speak to when issues arise, and likewise how Government can help. This could be remedied by having a proper system in place to allow companies to lodge their concerns with officials in local markets. 10 June 2011
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