Select Committee on Welsh Affairs Minutes of Evidence

Examination of Witnesses (Questions 267- 279)




  267. Good morning. Thank you for coming. I wonder if you could introduce yourself and your colleagues and tell us what kind of companies you represent. I remember that you held the fort single-handedly last time and I see you have some support with you this time.
  (Dr Haywood) You may have noticed, Chairman, that it scared me so much I have brought along some support this time. I hope the Committee know me well enough. I am Elizabeth Haywood, Director of CBI Wales. I have brought with me today the Chairman of CBI Wales, Ken Jones, the Vice Chairman, Ian Spratling and the Chairman of CBI North Wales, Jim O'Toole. I suggest, Chairman, if I may, I pass over to them to introduce themselves and their company.
  (Mr Jones) My name is Ken Jones. I am the Chairman of Takiron UK Limited. It is a Japanese company. We manufacture industrial plastics. We were the very first Japanese company that came into the principality. We are part of one of the largest groups in Japan called Itochu. We manufacture mostly extrusion sheeting, the kind you would have in steel, you would have in plastic, in PVC which goes into anything from your washing machine to the screen printing to the front of your microwave, to the cladding inside of a hospital, hotel, to water tanks. We also supply the agricultural market, the DIY market and also the builders' merchants. We export 60 per cent into Europe and into America.
  (Mr Spratling) Ian Spratling. I am Chief Executive of Wolff Steel Ltd, a Swansea-based company mainly involved in the supply of tin plate, ie, cans in a completely knocked down condition. We own a service centre in Fellindre which employs about 100 people, another one in Chicago and another one in Mexico City all in the same field, basically in supplying raw material to the canning industry.
  (Mr O'Toole) Jim O'Toole. I am the Managing Director of the Port of Mostyn. We are port owners and operators. We are a statutory authority and our main business is in stevedoring ships for trades within North Europe and indeed the Mediterranean.

  Chairman: Thank you very much. We will move on to questions now. Ms Lawrence?

Ms Lawrence

  268. You recommend in your memorandum that the WDA take over responsibility from the Welsh Office for export promotion so as to bring inward investment and trade promotion "under one roof". Do you think that these functions should be integrated or do you envisage a separate export bureau under the WDA roof?
  (Dr Haywood) One of the reasons that we suggest the export service that is currently within the Welsh Office is moved within the WDA is that we can foresee some economies of scale in terms of actually using the current inward investment network and export promotion. The other angle is that there are certain services to do with export which are run by the WDA as well, the export trade missions and so on that are run by the Welsh Office and it seems to make sense to us to put them all under one roof. Whether you have a separate group of people who are looking at export within the WDA and a separate group dealing with inward investment would be a management decision for the agency, but we would be keen to see joint use made of the facilities so you did not end up with, for example, a series of inward investment promotion offices in other countries inside the UK and a series of expert promotion offices. That would not be a good use of money.

  269. Would you see that requiring specialist staff both at home and abroad?

  (Dr Haywood) There would have to be a certain number of specialist staff, yes, because you could not have pure generalists trying to keep their antennae waving and picking up the right sort of noises from particular industrial sectors where there might be good contracts to be had. You need a certain amount of specialism in inward investment "sectors" to be able to find the right sorts of companies to promote Wales to them. There is a certain amount of generalism involved as well. It is a question of starting with the general and then leading down to the specific, so it would not mean a full team of expertise within each and every office.

  270. So you want a one-stop shop?
  (Dr Haywood) I think it is valuable, yes.
  (Mr Spratling) I think it is very near a one-stop shop. I would be very reluctant to throw resource at it. I think there is a pulling together that is probably more necessary. I think one needs to go, as we have collectively as the CBI, to Brussels and to other countries in the world where you have the more traditional trade secretaries or the Ambassador and even the bank and pull it altogether. With the knowledge of the Agency within Wales and if some sort of export intelligence, which already exists, was pulled together in almost a one-stop shop, I think there ought to be an export advice bureau or something similar within the principality. I would not say that would necessitate throwing a whole heap of resource at it. I think it is more a pulling together.
  (Mr Jones) I think it is a question of establishing relationships. It is quite an expert job establishing these export markets. It is something which you do not just do overnight. It sometimes can take longer than one or two years. You need that expertise there in order to make the right contacts, establish the right routes and getting the right links and the right people. I have also had experiences with different embassies throughout the world and you just do not get the response sometimes because they have not had the commercial experience and I think it is very much a specialised job.

Mr Llwyd

  271. You suggest in your memorandum that grant-assisted investors might be required, as a condition of grants, to have a local non-executive director whose role would be to encourage local sourcing. We have been in Ireland recently where we have seen, in connection with business start-ups, the idea of that actually happening and the state taking an equity share in the start-up. How would you think the multi-nationals, for example, would tolerate that kind of situation?
  (Dr Haywood) Generally speaking there would be no reason, if the system was explained to them, for a company to object to it. After all, it is not suggesting that they be there to take major decisions on overall investment by the company, for example, wherever they are in the world. They are there as a liaison to make sure that to some extent the grant that would be provided within Wales works and also to make sure that there are genuine links between the inward investment company and local companies. You may also note that we suggest that that would be a useful proposal in terms of indigenous companies getting the grant as well and to some extent what this followed from was our much earlier proposal which has now been picked up in terms of developing a Business Angels network in Wales because we saw that as being crucial not only in terms of providing finance but in terms of providing expertise. I do not think any inward investing company can be expected to have local knowledge. Therefore, providing somebody with local knowledge can actually cut an awful lot of corners in terms of bringing in local suppliers. I think to some extent that has been proven as far as LG investment in Wales is concerned with the project team that has been set up by the WDA. I think that has developed more local supply more quickly than might have otherwise been the case, so that is a step in that direction. I do not see a reason for companies necessarily to object to it if it is put clearly, but perhaps Ken would want to comment on that.
  (Mr Jones) I think it can be very confusing for the indigenous industries of Wales because they are unaware and they have not got this commercial knowledge sometimes of what is available to them, and they do it purely through the bank or some other sort of funding from some institution, but I do think in many ways that it is very confused and it is not clear to them actually what is available and what can be done. The big players which come into the country, they will get all of the advice, get all the grants which are available to them, but I think there is a distinct lack of knowledge on the part of some of the industries already based in Wales.

  272. Speaking personally, I think it is rather a good idea and I am not against it in any way, but I am just exploring it further, that is all.
  (Mr O'Toole) Could I mention one point? We have two excellent examples of how this works very well in North-East Wales where we have the BHP Petroleum, a non-executive director, and also Kronospan, two major employers, and coincidentally it happens to be the same person in this particular case, but it does work very well and in the initial stage certainly with the BHP project, which was a sunrise industry for North-East Wales and North Wales generally, there was a lot of hand-holding to be done and this one person was able to do that and show the new boy how to get round the problems that they would obviously encounter as newcomers, so two very good examples of how it does work.

  273. Can I just ask you not to name the person, but what background was he or she from?
  (Mr O'Toole) The Welsh Office.

Mr Thomas

  274. Looking at your memorandum, Dr Haywood, perhaps you could explain a little further this issue of how you improve the supplier network through the use of local non-executive directors. Forgive me if you have already touched upon that. Can I also ask you, because I know time is getting on, to deal with this question of account managers in relation to the public sector which you deal with on page 12 of your report?
  (Dr Haywood) Perhaps I could just touch briefly on the account managers first and then come back to the supplier development aspect. Account managers exist currently, for example, within the WDA for a large number of their inward investment companies, not for all of them. It is a bit like a customer service base and I am sure the WDA may have or maybe is going to be giving you some more information, but a sort of customer service approach in terms of those inward investors, so that once they are in, they actually have some kind of aftercare, if you like. In talking to a number of indigenous companies, medium to large indigenous companies in Wales, that sort of service is not necessarily being provided for them and the reason we suggested that this account management approach be standardised at least to medium and large companies, whether indigenous or inward, was really to make sure that there was a seamless service. A lot of our larger indigenous companies could also make good use of local supply networks and they might need assistance in terms of shortcuts, whether it is perhaps to do with expanding the business and finding new premises or whatever. That sort of service is not readily available to them, though it may be if they actually go and deliberately ask for it, but the service is not automatically provided, and we felt that it would actually help smaller firms within Wales because of the supply network angle and that is why we thought it would be a good idea. It seems to work very well for those inward investment companies where it exists and we simply suggest that it should be expanded and extended. On the issue of supply sourcing, I will just say a few words and then possibly pass over to Ian Spratling, if I may. We have mentioned Source Wales in our submission and the Source Wales programme and what it has done really to integrate inward investment and indigenous businesses in terms of developing the supply network is very important and we would certainly like to see that expanded. Clearly there are resourcing implications and it is probably not realistic to say that Source Wales should be doubled, trebled, quadrupled, quintupled or whatever in size. The idea of having as a prerequisite for grant allocation a non-executive director who could act as that local link within the companies which received grant, they would actually be able to liaise from outside Source Wales, but with Source Wales and probably make very good use of fairly limited resources and that was really the argument behind it.
  (Mr Spratling) There are two things, I suppose. On the non-executive directors, it is shareholders who appoint directors, as you all know, and I do not think you can legislate on putting in non-executive directors, but I think you could convince potential inward investors that it is a good idea just to get the Welshness implanted in the inward investor, so I support that view very strongly. On the inward investment and the supply chain, I am totally supportive of Source Wales, they have done a first-class job, but I would like to see it grow. About four years ago, the then Secretary of State collected most of the major inward investors or even the large indigenous companies, like BT, together in one room, and there were a lot of them. He got all the purchasing officers of those entities to stand up and explain the criteria by which they purchase their products and it was very critical and there was no rejection, but there was simply, "This is what we want. We are going out in the marketplace to buy it. We want it just in time. We want it at the right quality and there is no rejection". In the audience were 300 potential local supply chain companies, none of whom could meet the criteria of the Canadians, the Americans, the Japanese and even Ford and BT. The criteria they laid down for purchasing was such that it could not be sourced in Wales. It was sourced in other parts of the UK and thereafter in Europe. Now, anything I say is not derogatory to Source Wales because I support it and I would certainly throw a bit of resource at that because Welsh companies do need to get more innovative and more competitive and more quality-conscious if they are to meet the purchasing criteria of the multinationals and I say that as a fact that I feel very strongly about and it is proven by figures that local inward investment or large companies, never mind inward investment, are not buying enough through the Welsh sourcing route, so Source Wales is the right way to go and I hope that the new enlarged Agency will empower Source Wales to get out of that particular failing and do something about it.

  275. Can I ask you about preparing the ground in advance of an inward investment project. I think you do make reference in your memorandum, as a matter of fact, to the need to educate local suppliers in advance. Is that rather unrealistic in all the circumstances or is it something that could be done?
  (Mr Spratling) I think if you addressed it from the innovation and technology area, it is realistic to say that there are insufficient companies with knowledge in those particular cultures to deliver to the people I alluded to. Now, we have mentioned in here that there is a regional technology plan alive and well in Wales, doing well, in which there is a partnership arrangement that is implanting in Welsh companies the need to get technology and innovation at the top of the pile. It is working and there is penetration and it is a growing culture and the regional technology plan is a very good example of Welsh partnership, and I am talking here of the education sector, local government, the CBI (and it is a CBI initiative, as it happens), but also the WDA, so everyone is in it and it is managed at the moment by the Agency, but again it is the base of the triangle. The penetration is being made and I would say to you that the two areas that should be grown for the greater good of employment and everything else are those two areas, getting this technology awareness through to Welsh companies that if they are going to live in the 21st Century, they have got to have it, and, secondly, that Source Wales requires them not only to have the technology, but to have the machinery and pulling power which is necessary to drive it.

Mr Paterson

  276. Can we turn to the grants system. You make some interesting comments and you say that the RSA should be weighted more to commercial viability and importance to the locality, rather than simply cost per job. Could you expand on this? How do you see that working?
  (Dr Haywood) I will certainly try and expand on it a little bit. The RSA regime was developed some time ago and I think probably needs a bit of an overhaul. At the moment what we tend to find is, first of all, that there is a complaint from indigenous companies that they never seem to get much of a look in at RSA although in theory they are equally eligible for it. I know a number who have managed to obtain RSA, but I also know that there are a great many who find it very difficult because it is much harder for a local company to prove (a) additionality on the job and (b) to prove that they are are not going to pick up their company and move to Timbuktu if they do not get it, whereas an inward investor by their very nature would be coming in and therefore automatically adding jobs. One of the things that we have also found more recently, and I think this probably goes back to why the grant system was there in the first place, is in the days when Wales lost a huge number of jobs and therefore had to replace those jobs almost at any cost the RSA system was, quite rightly, aimed at a grant per job. What you have now is a system whereby if you want to have higher skilled, higher value added-type businesses you are probably looking, at least in the manufacturing sector, at high capital intensive businesses. The value of the grant in terms of the total project cost can be extremely minimal for an inward investor. Therefore, first of all, you are less likely to get the high capital intensive and therefore the high skilled, high value added businesses coming in. You are more likely to get the ones which are particularly job intensive, which may sound good at first, but you have to think in the long term and it is actually a lot harder to totally relocate a company, which is capital intensive and therefore has spent a huge amount locally of their own money, in another country than it is to close a job shed, if I can put it in those terms. There are a number of issues there that we think need to be addressed. One is to make sure that the grant is based on the value of the whole project cost rather than simply on a rather simplistic amount per job basis, which it is currently and, secondly, that there is some sort of a differential—and I will not say that we have gone into this in enormous detail and come up with a perfect blueprint for it—in the way that grants are awarded. I am sure Jackie Lawrence would back up the point that a smallish company starting up with perhaps 20 or 30 people in Pembrokeshire, say, is something that is cried out for. If you set something like that up in Cardiff it would not even hit the headlines in the Western Mail because it would not be seen as of such enormous value to the local economy. So a 20-person company setting up in Pembrokeshire, whatever the jobs might be, probably needs to be more heavily weighted in terms of the grant it gets than, say, a 20/30 job company setting up in the Cardiff area. That is what we are trying to get at, the fact that there should be some difference.

  277. You say that in the memorandum. Which agency do you think should best assess this?
  (Dr Haywood) Assess the level of grant?

  278. The merits of it.
  (Dr Haywood) In terms of having a one-stop shop, I think that the WDA has to be the primary port of call for inward investment projects. That has worked in the past and it should continue. We are very wary of any other body being able to take that over. That does not mean that the WDA should not work with other parties, clearly they have to, but there needs to be a primary point of contact and that should be the WDA. In terms of assessing the grant, I think the WIDAB system, the committee system, works quite well. There may need to be some changes to it. I would be perfectly happy to see that continue with some changes. For example, WIDAB should be given more teeth. At the moment a grant is given on the basis that a company actually provides the jobs that it says it is going to. That is monitored, but it is actually quite difficult for WIDAB to do an awful lot to ensure that the jobs are produced in the relevant time, that all of them are there, etcetera, etcetera and things do tend to move and slip. One company has said to me that there is a very different attitude towards the grant system in the UK from American companies who come in because in America their system does provide teeth for the monitoring process and if you do not produce the jobs within the time allocated you are in real trouble and there is some serious legal hassle and that money gets taken off you and there is no question about it. In other countries it is slightly different, so they have a slightly more lackadaisical attitude to the way that we are working. I think that is an area that could possibly be looked at. That was certainly an item that was raised with me by one of the companies.

  279. You go on to make a couple of other comments. You say that the "automatic expectation of further grant is dangerous" and that "the justification of financial constraint ... can lead to unscrupulous firms bleeding a local site dry". Could you explain that a little bit further?
  (Dr Haywood) It is not something I believe which has just happened recently. There have been in the past certainly cowboy companies who have gone around to different areas and who are quite simply grant junkies. They have literally made sure that they have bled the system dry in terms of grants. I think very often they have been very jobs intensive, so you are going back again to this ability to close a jobs shed which you cannot necessarily do nearly as easily with a capital intensive plant. I do not think it is something that necessarily exists now.
  (Mr Jones) We invested £1.6 million in the last two years but that only created 12 jobs and we had no grants whatsoever. On the other hand, had we invested something like £300,000 or £400,000 and created 27 or 30 jobs then we would probably have qualified for a grant. The criteria for selection on that basis, particularly in the modern era, mean companies are now looking at more capital investment. We are a capital intensive industry, we are not a screwdriver operation. The tendency and the trend has moved towards new investment, new machinery and this is really how it is moving in that respect, the capital investment is now demanding it and if you do not keep up the capital investment you will not keep up with your counterparts in Europe, like your French and your Germans and I think this is really where we are lacking quite considerably in this country, we are not investing in new machinery as much as our counterparts in Europe and in America.

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