Scottish agencies
35. At the Scottish level, the leading agencies charged
with promoting economic development are Scottish Enterprise and
Highlands and Islands Enterprise (HIE). Both came into existence
under the Enterprise and New Towns (Scotland) Act 1990, replacing
respectively the Scottish Development Agency and the Highlands
and Islands Development Board. Scottish Enterprise's budget for
the year 1999/2000 was £427 million at 1998 prices; for Highlands
and Islands Enterprise the figure was £77 million.[59]
Scottish Enterprise tends to have a higher profile, particularly
abroad, mainly because it is larger; nonetheless HIE has a good
record, particularly in terms of attracting call-centres. Two
joint agencies (joint that is between Scottish Enterprise and
The Scottish Office) are responsible for attracting investment
into Scotland and promoting trade; they are respectively Locate
in Scotland and Scottish Trade International (STI). Scottish Trade
International has also sponsored the marketing campaign 'Scotland
the Brand'. At an area level in Scotland there are the local Enterprise
Companies (LECs), whose boards include local business people but
which are funded and staffed by Scottish Enterprise. Their most
significant role in inward investment is in preparing sites and
training staff.[60]
Local authorities and Chambers of Commerce also have a role. The
quality of the relationships between these various bodies is not
consistent across Scotland.[61]
It is important that full co-operation applies and we welcome
the emphasis on 'partnership' that we encountered on our visits
and in our evidence.
36. The Scottish bodies are long-established and
well thought of. Locate in Scotland was established in 1981 with
staff seconded from The Scottish Office and the then Scottish
Development Agency as 'the first one-door inward investment agency
in the UK'.[62]
As well as being early into the field, we were told by staff from
the commercial section of the New York Consulate, it is highly
professional. This positive view of Locate in Scotland is held
by officials and clients alike. The British Ambassador in Washington
told us, as an example of how good Locate in Scotland was that
the Embassy did less work for Locate in Scotland than for any
other UK agency; this was not for lack of willingness but of need.
Nonetheless Locate in Scotland's advantage is being eroded by
other agencies worldwide.
37. Locate in Scotland is headquartered in Glasgow
and has offices in North America, Asia and Europe, reflecting
the relative importance of particular countries as sources of
foreign direct investment.[63]
The US offices are in Stamford (Connecticut), which we visited,
Houston (Texas), Chicago (Illinois) and Redwood Shores (California).
Its US based staff number about 20;[64]
IBB's total overseas staff is 60.[65]
It works on the basis of 'home' and 'away' teams for each geographic
sector and there is constant communication between them. To illustrate
the complexity of their work, the Connecticut team told us that
there were about 10 million companies in corporate America and
that, in a good year, Locate in Scotland might attract 30 projects.
A lot of the work consists of painstakingly creating and maintaining
databases and regularly contacting and visiting prospects; it
can take years of work for a successful outcome. Even so, luck
may play a role, as we learned from IBM who told us that Locate
in Scotland staff
'surfing the net' had uncovered a possibility that
brought 500 jobs to Scotland.
38. The Scottish trade promotion agency is Scottish
Trade International set up in 1991, which also works both in Scotland
and abroad. It is a later initiative than Locate in Scotland,
with more modest resources. Of its 60 staff 10 are based abroad.
Its budget is £13.8 million which funds the agency itself
and the local export partnerships (which have recently been set
up to try to simplify getting access to help for would-be exporters
but which, in view of one witness, may merely have added another
level to the bureaucratic system).[66]
Historically there has been no central co-ordination of outward
investment, but in the context of encouraging Scottish companies
to internationalise, STI is moving in that direction.[67]
39. The register of STI's activities is certainly
impressive: in 1997-98 they estimate £130 million additional
company sales/forecast sales, 230 companies introduced to new
markets, 411 chargeable overseas trade services commissioned,
31 offers of financial support made to companies to assist market
entry, 13 export partnerships throughout Scotland, 10 export partnership
counsellors in place and 33 exhibitions organised with 270 companies
represented.
40. While in the USA we visited the STAR centre,
a very new facility designed to provide a temporary home and facilities
(on a rental basis) for Scottish companies wishing to expand into
the US market. It was too early to say how effective this will
be but it was being greeted with enthusiasm by its first tenants.
We also visited the Virginia-Scotland Partnership, run from the
Scottish end by STI. Formed in 1996 as a co-operation between
STI and the Virginia Economic Development Department it exists
to 'stimulate international trade in the key sectors of software,
information technology and telecommunications'.[68]
Virginia is one of the world's most vibrant high technology economies
and one of the most prosperous areas of the world; it is now beginning
to experience skills shortages and the partnership offers excellent
opportunities for Scottish firms to benefit. It impressed us as
an example of a genuine two-way street on investment and trade,
and a further indication of how the distinctions between inward
and outward investment are becoming blurred.
41. Locate in Scotland's methods have certainly served
Scotland well in the past, but several witnesses felt that changing
business practices and the increasing importance of re-investment
made a change of approach necessary. Professors Young and Hood
referred to the need for Locate in Scotland to move more towards
understanding the internal dynamics of modern corporations.[69]
Robert Crawford of Ernst and Young referred to the need to 'go
into the bowels of a company to find out the opportunities that
exist to supply a whole raft of products'.[70]
He pointed out that in many cases, inward investors made their
procurement decisions at headquarters; he commented 'for a local
company ... to get access to those individuals, to understand
what the spend is going to be over the next five or six years
is very difficult... The more industries move towards global sourcing
... the more that will become the big issue... I would like to
see more Internet-based relationships... I would like to see more
benchmarking against the better procurement programmes that are
running internationally ... the reason [such activity] is important
is that it transfers technology, that is what is called indirect
exporting which frequently can lead to direct exporting and to
globalisation; local companies become much more adept at understanding
market changes ... we could go to the best Scottish companies
and take examples from them and try to make that information available
to other suppliers as to how they can copy them'.[71]
We agree with his point of view and therefore agree with those
who argue that in future it will be necessary for Locate in Scotland,
while retaining a small, highly-focused core team to develop long-term
relationships with potential inward investors and to compete successfully
for new greenfield projects, to acquire greater business knowledge
and acumen to understand multinational networks and build projects
and alliances and that it will need to work more closely with
private sector teams and consultancies. We recommend that Locate
in Scotland concentrate on these aspects of its approach.
42. Sir Ian Wood said, 'the two still have quite
separate functions, but actually, and this is looking ahead a
little bit, if you consider the implications of globalisation,
it is possible in two or three years time that the kind of activities
carried out by STI on the export side and Locate in Scotland will
actually come together, and therefore, there might actually be
a case to integrate them together. I said that over a year ago
and got a lot of raised eyebrows. I actually think it is more
likely now than it was over a year ago that the two apparently
different functions actually will come together because ... they
are very closely related. But we are getting not economies of
scale, that was not the prime driving factor at all, but we are
now getting the communication and hopefully the complete co-operation
and collaboration between these two'.[72]
43. Locate in Scotland and STI have over the last
couple of years started to work closely together where it is appropriate
to do so and some witnesses, notably Sir Ian Wood, felt they should
merge. We asked Scottish Enterprise, on the second occasion on
which we heard evidence from them, whether there was any reason
why the organisations should not merge; in the Republic of Ireland
one organisation now handles both functions. Mrs Macfarlane reminded
us that while in certain locations there was both inward investment
and trade work to be done, in other countries where trade promotion
was appropriate there was little likelihood of winning inward
investment. We are not convinced by this argument, especially
since Scottish Enterprise had earlier told us that 'as a pilot
exercise in the United States, Scottish Trade International and
other parts of Scottish Enterprise will be more closely integrated
and will work together where appropriate to provide the full range
of relevant economic development opportunity available in that
market. This will allow the further development of services and
support to assist Scottish businesses who are considering establishing
an international presence of whatever sort [our
italics] by investment in the USA'.[73]
We feel, quite apart from the arguments cited by Sir Ian, a merged
organisation would help to present a unified image of Scotland
abroad. We recommend that the Scottish Parliament give serious
consideration to merging Locate in Scotland and STI.
44. We received the strong impression from talking
to Locate in Scotland and STI staff in post in the USA that additional
resources would pay dividends in terms of additional investment
into Scotland and more trading opportunities for Scottish firms
and we therefore recommend that more funds should be made available
to support these bodies, whether or not they are merged.
Managing conflict
45. A certain amount of overlap between all-UK and
regional agencies, and overlap and competition between the agency
which covers the whole of the UK and those which cover only parts
thereof (and indeed among the latter) is inevitable, particularly
in the field of inward investment, which is more of a zero-sum
game; staff try to manage it as best they can. Locate in Scotland
told us that they tell the IBB about the visits they plan but
are only rarely asked not to make them. Nonetheless, competition
is bound to increase after devolution as the other UK regional
agencies get into gear and become more professional. It is clearly
not to the benefit of UK plc that US companies are besieged by
agencies all pressing the claims of their own areas, but equally
there may, ultimately, be little to be done about it. There is
a reasonable expectation by the UK government that public money
should not be spent needlessly; all the same, there is an inherent
dynamic pushing expenditure up.
46. Since, as The Scottish Office reminded us, 'the
attraction of inward investment is an area of considerable potential
difficulty...[where] in practice there is little difficulty but
there is a lot of potential for aggro ... we need to have proper
co-operation arrangements and the requirement obviously is that
these are not stifling and they do not create practical difficulties
that put us at a disadvantage by comparison with our competitors
abroad, but equally it is important that we avoid bidding up and
competing in a financial sense against each other among the regions
of the UK'.[74]
A level playing field is thought desirable and devolution throughout
the UK implies that more formal methods may be needed to enforce
it. Measures currently used to mitigate the possible conflict
include the Committee on Overseas Promotion (whose guidelines
are currently being revised) and the handling of negotiations
on RSA (normally handled for Scotland by the Industry Department
of the Scottish Office) by the Industrial Development Unit of
the DTI on those occasions when a prospective inward investor
is interested in more than one part of the UK.
47. Existing arrangements within the United Kingdom
have not been without difficulties. The example of Viasystems,
which acquired Exacta Circuits in the Scottish Borders and ISL
in north Tyneside, highlights severe problems with competition
between regions and countries of the United Kingdom. Substantial
sums of public money were made available to ISL to create a state-of-the-art
printed circuit board facility, justified because the investment
might otherwise have gone to the Iberian peninsula. No equivalent
funds were available in the south of Scotland. The effects of
availability of public assistance for the ISL factory and common
ownership by Viasystems have had very serious consequences for
the Borders. In the past year the facilities have been run down
with the loss of 1,000 jobs and the work transferred to north
Tyneside. The Corporation has actively sought to attract Borders
employees to north Tyneside to fill skills gaps, reinforcing the
assessment that jobs in one part of the United Kingdom have been
displaced to somewhere else. Concerns at the time about the use
of public money have been sharpened by the refusal of ministers
to revise the funding given to ISL or to publish the results of
internal investigations into the affair by The Scottish Office
and the Department of Trade and Industry.
48. Although the provision of financial assistance
to industry is devolved it is to be 'subject to common UK guidelines
and consultation arrangements to be set out in a published concordat'.[75]
Although these concordats, as a witness said, will 'not replace
nothing'[76]
a certain amount of anxiety was expressed to us about their effects;
there was an element of fear that Scotland's freedom of action
might be inhibited or that an extra layer of bureaucracy might
delay decision-making to the advantage of, probably, the Republic
of Ireland.[77]
When we took evidence from Mr Henry McLeish on 1 July 1998 in
the course of our inquiry into the operation of multi-layer democracy
we were told that 'the Secretary of State, I think, will want
to publish that as a draft but ... any of these concordats ...
will not come into effect until they are signed by both the new
Executive of the Scottish Parliament and the Westminster Government
after 6 May [1999]'.[78]
When we took evidence from the Scottish Office on 6 May 1998 we
were told that 'we have been in discussion departmentally since
last autumn ... and when agreement is reached it will be enshrined
in a concordat which will in due course be published and which
will become a legacy to the new Scottish administration... We
do hope that we will have an agreement on this in a fairly short
time.'[79]
We understood from these two exchanges that the concordat was
expected to be available, at least in draft, before the Scottish
elections, but in the event this did not happen and we have not
therefore been able to comment on it as we would have wished.
We find this regrettable. We believe there is a case for the concordat
to be considered by both Parliaments and intend to take evidence
on it once it has been published.
56 Evidence, p 328. Back
57 Evidence,
p 305. Back
58 See
First Report of Trade & Industry Committee, HC (1997-98) 355. Back
59 Q
294. Back
60 eg
Q 421. Back
61 See
HC (1998-99) 84 iii and vi. Back
62 Evidence,
p 1. Back
63 ibid. Back
64 Evidence,
p 41. Back
65 Q
1227. Back
66 Q
752. Back
67 Evidence,
p 11. Back
68 Evidence,
p 11. Back
69 HC
(1998-99) 84-II, p 16. Back
70 Q
1027. Back
71 Q
1027. Back
72 Q
808. Back
73 Evidence,
p 11. Back
74 Q
32. Back
75 Scotland's
Parliament, Cm 3658, p 4. Back
76 Q
118. Back
77 Q
455. Back
78 HC
(1997-98) 460, Q 299. Back
79 Q
117. Back
