House of Commons - Scottish Affairs

Select Committee on Scottish Affairs First Report

INWARD/OUTWARD INVESTMENT IN SCOTLAND

INDIGENOUS FIRMS

89. The view that indigenous firms were less well-treated than inward investors was reflected in a good deal of the evidence we received though we were unable to persuade any companies to give us chapter and verse. Scottish Enterprise told us that they typically spent about 9.4 per cent of their budget on securing inward investment (though in some years it might be up to 17 per cent) and 45 per cent on indigenous businesses;[131] HIE also spent much more in total on indigenous than incoming firms. These figures relate to the cost and the work of supporting these firms rather than the value of assistance given.[132] Both, of course, also spend money in ways that benefit both kinds. There is, however, a presentational problem in that the amounts given to individual firms are usually larger in the case of incomers. This also applied to RSA, reflecting the typically higher capital investment (and bargaining power—see paragraph 90), but the Scottish Office emphasised that 'no Scottish company has ever had an application for RSA turned down because of the assistance offered to help secure an inward investment project'.[133] They also told us that the Scottish CBI had commissioned a survey covering the possibility that indigenous firms suffered by comparison to inward investors but that this had 'uncovered no evidence'.[134] It should be remembered, however, that while RSA was originally not cash-limited, it is now; even if there have historically been no adverse effects on indigenous firms, problems might arise in future.

90. Nonetheless, the perception of unfair treatment remains and, as the STUC among others reminded us 'perceptions are important'.[135] It may be attributable to the fact that inward investment projects tend to get red-carpet treatment and to be large and headline-grabbing whereas incremental growth in pre-existing indigenous firms is less spectacular; we note that in the Republic of Ireland the promotion of inward investment has been separated from the encouragement of indigenous firms in order that staff should not concentrate on the more glamorous projects. It may also be easier for incomers to prove additionality, that is to persuade the grant-givers that the project would not go ahead or not on the same scale, without the grant[136] than it is for a pre-existing firm to convince the authorities that assistance is necessary for expansion; indeed, one witness told us that it was tempting to lie.[137] It is also true that the cost per job of inward investment projects is typically higher for inward investment than for indigenous projects. Last but not least, the very perception that incomers get better treatment may discourage indigenous concerns from even applying for help.

91. Another factor is that indigenous firms do not benefit from the 'one-stop shop' for inward investors provided by Locate in Scotland; their main source of support is the LECs. These, of course, do vary in quality[138] despite Scottish Enterprise's efforts to encourage best practice and the system of allocating more money to the best performers. Furthermore, while Locate in Scotland help all inward investors, LECs have to choose which concerns to support.[139] The proliferation of schemes for helping indigenous companies may be another source of confusion.

92. Scottish Enterprise defended the LEC system, explaining that 'the idea of setting up the local enterprise companies was that they would have freedom and flexibility in their local areas to respond to their customer base in the way they best saw fit. It is probably more manageable than it seems when you look at the top-down approach. I think if you were in a local enterprise area you could, for example, go to a business shop or go to a local enterprise company and ask for help and they would tell you what is available and how. However, we have been doing some analysis of the services that we provide for companies in the network and there is a difference in performance. So while a difference of approach and flexibility are good things, a difference in performance, if it implies that some places are better than others, is not quite so good and so we think it is very important that the local enterprise companies learn from each other and follow best practice. We have begun a process in the network of highlighting best practice and encouraging all the local enterprise companies to follow what is recognised as being the best way to do things and that will help'.[140] They also explained how they were trying to help indigenous firms, especially small and medium-sized enterprises. 'We have recently been involved in a review with the Scottish Office Small Business Unit which has looked at this very point, proliferation of schemes and they have come up with certain actions which the network is now considering and will obviously be taking action on. We will also look to see the provision of better information. We are considering producing some sort of index of services. There is already a one-line telephone number for the business shops and we will look to see whether we should be doing more of a call-centre approach for more services and see if that will streamline things and make it easier. So we have in train a number of things that will help, first of all, to streamline the service and, secondly, make it much more accessible and transparent'.[141] We recommend that Scottish Enterprise provide a central service to advise indigenous firms seeking advice or assistance.

93. One respect in which indigenous firms may not be as well-served as they might be is the area of venture capital. In the USA we heard it suggested that this was more accessible there, prompting one of our number to suggest that Scotland contained too many accountants with clipboards and not enough entrepreneurs with vision. The evidence of the British Venture Capital Association (BVCA) and 3i[142] painted a rather more complex picture and also suggested that within Europe Scotland was served better than anywhere else except for the South-East of England.[143] There is clearly a problem in some areas, particularly in getting sums of less than £250,000 because the cost to the venture capitalist of the necessary due diligence was disproportionate to the potential profit. It is pleasing to note therefore that Scottish Enterprise has set up a fund (in partnership with the private sector) for this purpose and that other initiatives are afoot.[144]

94. There is among some indigenous companies a feeling that they are disadvantaged when it comes to planning applications. According to CBI Scotland 'planning decisions is an area where indigenous business feels frustrated. Few inward investment proposals have planning difficulties, largely because public officials in charge of the project smooth their paths'.[145] We put this suggestion to Renfrewshire Council, who had written that 'small, high-value projects do not present any problems to the planning system whereas major semi-conductor plants involving greenfield intrusion do'.[146] The reply from the Director of Planning and Transport was 'I have worked in a number of areas' planning authorities and each time the Council I have worked with has given a high priority to assisting companies to expand whether they are inward investors or local companies. In fact our relations are often strongest with local companies... I am not sure, but sometimes there are problems with the legal aspects of the planning system itself and it is certainly true with respect to certain types of development ... and I am thinking particularly of those kinds of development which would be likely to give rise to public objection by their nature, but in the main both planning consent and building control given for factory expansions and developments and so on go through very quickly'.[147] A Councillor, however, added 'the significance of the investment would obviously give you some incentive to make sure that you moved quickly ... but it would not be true to say in Renfrewshire that inward investors going into greenfield sites are seen in some way as a priority or are given any particular advantage over others. Our priority, as a Council, has been to develop the brownfield sites which so far we have only been partially successful in'.[148]

95. The same witnesses pointed out that inward investors had the benefit of advice from Locate in Scotland to help them with their planning applications and also that there seemed to be a cultural difference between them and indigenous concerns; the inward investors expected things to move faster. The Director of Planning and Transport added that he thought 'the difference between companies which get through the system quickly and those which 'stumble' (whether indigenous or not) lay in the management of the companies, and that he had a special remit to try to assist the stumblers to understand the issue.'[149]

131 Q 303. Back

132 Evidence, p 100. Back

133 Evidence, p 6. Back

134 Q 141. Back

135 Q 198. Back

136 Q 1025. Back

137 Q 570. Back

138 Evidence, p 331. Back

139 Q 1349. Back

140 Q 1348. Back

141 Q 1349. Back

142 Evidence, p 322 at seq. Back