Examination of Witnesses (Questions 100
WEDNESDAY 16 FEBRUARY 2000
100. Mr Johnston and Mr Smyth, you are very
welcome. The pattern which we follow is that should at any stage
you want to gloss anything you have said, either here or later
in writing, you should feel entirely free to do so, if perhaps
we have misunderstood something or there was something you wanted
to add on reflection. Equally, we will reserve the right, if we
may, to send you some supplementary questions in writing, if on
reviewing the evidence it occurs to us that there is something
which we ought to have asked you but we did not. We will try to
make the order of questions follow a logical pattern but that
does not necessarily mean that individuals around the horseshoe
may come in, in the strict order, in which we are sitting. I will
also encourage my colleagues that if after one of our colleagues
has concluded a particular line of questioning, anybody in the
Committee wants to ask you a supplementary question in relation
to that particular matter, if they catch my eye they will come
in. I do not know whether there is anything you would like to
say before we embark on questions. If there is, please do not
hesitate to do so.
(Mr Johnston) Initially, the first thing
I would like to say is to thank you for seeing us this afternoon,
Chairman. It is a pleasure for us to be here and a privilege.
I actually chair the Economic Affairs Committee of CBI Northern
Ireland and Nigel Smyth is the Director. We have submitted a document
to you. Before any questions, would you want us to refer to that
document or elaborate on any point at all?
101. I will test whether anybody in the Committee
would like to add something or whether there is anything you wanted
to highlight. We were very grateful to you for sending it to us.
(Mr Johnston) I do not think we have anything to add.
102. Let me ask an initial question. What assessment
has the CBI Northern Ireland themselves made of the contribution
to date by inward investment to the Northern Ireland economy?
I will ask that question first and then I have a further question
arising out of it.
(Mr Smyth) We have not done a detailed evaluation.
Many of our members would be inward investors. Many of them, Du
Pont and Gallaghers, have been here a very long time indeed. Others
have been in Northern Ireland more recently. In our evidence,
from an economic perspective, we believe that the focus tends
to be on direct job creation, which is obviously important, but
we believe inward investment is much more in terms of developing
the economy, both in terms of its impact on indirect job creation;
in terms of the sub-supply potential; in terms of links with the
universities and the R&D, etc. It is fair to say that there
has been no specific evaluation of those much broader aspects
of inward investment. Indeed, we would say (and our evidence highlights
this), that the companies, the multinationals which come in, tend
to be working in more world-class practices. We support and we
spread those skills and knowledge out among the broader business
community. That is done in a number of ways, partly through the
supply chain, but also by managers who work for multinationals
who are now working for indigenous medium and small sized companies.
We have many of those successful indigenous companies whose managers
would have had experience in a multinational sector. As such,
we have not done a detailed evaluation. We do look at economic
development policy on a regular basis and we have made recommendations
to Government in the past.
(Mr Johnston) Although we have not done any evaluation,
there is no doubt that inward investment has made a significant
contribution to the Northern Ireland economy. I think it is important
also that perhaps more careful evaluation be done of the issues
which Mr Smyth has raised. What is important is the skills which
these people outside bring with them, and the knowledge of the
industries which may not previously have had a base in Northern
Ireland. Those skills and that knowledge should be transmitted
onwards to the working population and to the policy makers within
the Province. There is no evaluation, either of the level to which
that has been done, and what success there has been in it.
103. I can see that the act of attracting inward
investment could vary significantly, according to the state of
either security or of political development in the Province. Does
the impact of inward investors in the Province vary significantly,
according to what the surrounding political or security situation
(Mr Johnston) I think there is little doubt that they
react significantly to the image, as perceived by them, of the
likelihood of particularly security problems in the Province.
On many occasions we know that there has been reluctance by people
to engage in contracts if there is a doubt about the regularity
of supply or the supply of goods being hindered by any security
incidents. So I think that the issue is one of perception, and
the perception in the eyes of many is the reality. We have to
accept it as such. At this moment, I do not know whether we have
had any time to evaluate the present situationit is merely
a matter of a few daysthere has been a change in the political
process but, as yet, the peace has not been shattered, so to speak,
on any scale which, at the moment, will affect others. But who
knows? The potential of that may well do so.
104. So do you think the events of the last
few days may lead potentially to a catastrophic decline in the
prospects for the development of the Northern Ireland economy,
leading to widespread unemployment and other things, or do you
think that will be too alarmist a prognosis?
(Mr Johnston) I certainly feel that would be too alarmist
a prognosis. We are still basically in a peaceful situation. There
has been a change in the constitutional arrangements but I do
not think that at this early stage one can possibly say that it
will have an effect on any inward investment. We will have to
see what flows from it.
(Mr Smyth) Over the last four to five years we have
seen a significant increase in interest, particularly from the
United States. I understand from speaking with IDB and the Chamber
of Commerce, that there is still a weekly flow of people coming
through Northern Ireland, where previously we were just not on
their agenda whatsoever. I would agree with Mr Johnston. At the
moment, this is a very short-term issue and hopefully it will
be resolved. But certainly within inward investment projects,
they are taking 12 to 18 months actually to go through. Some hold
back a little bit more. Some are probably in the pipeline but
there have been others, such as from recent announcements, Nortel,
and Fujitsu last week, which will go ahead. This is because the
message we have been sending out is that the fundamentals for
investing in Northern Ireland have not changed; and actually getting
people here for the first time to speak with people who have been
here for several years.
(Mr Johnston) There is an important point in that
the Fujitsus and the Nortels are companies which are, in fact,
established. The other important issue is to bring as many representatives
of target companies to the Province as is logical and possible
in such projects, to ensure that they see what we see as the reality
in the situation and to make a judgment upon that, and not to
make judgments at second hand. So it is very important to get
people to the Province, and to get to the Province those whom
you wish to attract.
105. This is a general question in three parts,
in terms of your views on what it is that attracts investors into
Northern Ireland from three different categories. First of all,
those investing from the United Kingdom. Secondly, those investing
from Europe. Thirdly, of course, as already has been mentioned,
those investing in other parts of the world. What are your views
of what the attractions are for those three specific groups? Are
they the same or are they very different?
(Mr Smyth) My own view of this is from Great Britain.
There has been quite a strong targeting, particularly of call
centres, back office type of activities. The IDB focus has been
very much on London, City, financial institutions. In the last
couple of years we have had a number of successes: Prudential,
Abbey National, Halifax this year, fairly significant jobs. It
is true to say that in our call centres most of it has been English
speaking. What they witness in Northern Ireland is our language
skills. If you compare that with the Republic, most of that is
international call centres. So there is a very distinct difference.
In the United States the focus may be more on the high technology
sectors, software, health technologies, plus the potential for
the call centres. The big selling point there is a big part of
the single European market and English speaking. In the EU, Germany
and France, in particular, you are looking at what would be auto
components and those sorts of sectors; the way the IDB have cemented
their marketplace by this targeting.
(Mr Johnston) That is what is happening. You asked
the question: what actually attracts? We tend to pride ourselves
on an educational system which produces very good people at the
top end. There are certain problems with regard to the educational
system at the lower end but there are high educational standards.
We would believe as well, and one must particularly congratulate
BT on this, on the communications infrastructure, which is already
in place. The roads are of a high standard. We would tend to believe
also that there are various other (shall we say) social activities
that people may engage in. They are able to do this because of
the relatively small size of the Province and the relatively low
density of population and the easy access of so many facilities.
These are obviously selling points at this end. There is also
the fact that there are good employee relations, low strikes,
and a good work ethic. There are factors such as these which will
attract people once they have been made clearly aware of their
106. A question in three parts and an answer
in two parts. You rightly say, Mr Johnston, what attracts. Mr
Smyth was very interested in answering in terms of different sectors
being attracted from different parts, be it British and those
from America, which you said were high-tech, as opposed to call
centres. That could be very powerful for you in terms of managing
which industries and which sectors gain access to the Northern
Ireland economy, or is it still a case of all are welcome? Are
you trying to attract particular groups?
(Mr Smyth) We are looking for the high quality. In
call centres it is a very big range. It is a fairly basic job
to fairly sophisticated, particularly in financial services. Certainly
a lot of the jobs in the Halifax and Abbey National would be very
highly trained financial service providers selling financial products.
Indeed, if we look at a company in the north west, Stream International,
they are selling technical back-up. Hopefully, at some stage,
they would start to see individuals spinning off but there is
a very high level of call centre services there. On the call centre
side it is the people's skills. The surveys indicate that people
like hearing Northern Ireland accents. They are reassuring, which
is very comforting. There has been a focus. Certainly we have
been encouraging IDB in recent years to be focusing on the quality
of the jobs. The labour market in Northern Ireland has been tightening
up. In terms of economic development you want to raise earnings
levels, so you want to get away from the assembly operations.
We think it is true to say that in the 1970's and 1980's we did
not have much chance, we really did take everything, but certainly
in the last five or six years the IDB's focus has been much more
on higher quality jobs. We certainly would be encouraging that.
107. I am suitably reassured by your answer.
(Mr Johnston) Also, when you were talking about other
parts of the world, there is no doubt that one of the reasons
why they come to Northern Ireland is access to Europe. In some
ways, if they see that as outweighing the advantages or disadvantages
they see elsewhere, they will come.
108. I wanted to probe a little bit further
the comments made earlier about the current situation and matters
relating to the suspension of the devolved institutions. Do you
see that having a significant impact, the suspension of the devolved
institutions, or were you saying that in the wider issue people
should look at the general security situation rather than necessarily
the day-to-day issues, such as this, with the suspension of the
(Mr Johnston) I personally think the suspension of
the devolved institutions is something which hit the world press
initially. If you have a continuous number of incidents reported
on the news media throughout the world, then they perceive the
situation as one to be returning to violenceI would hope
that does not occur. However the changes in the constitutional
arrangements may, in fact, be ones which will not have too detrimental
an effect or none at all. But that is an aspiration. One would
have to see what, in fact, occurs.
109. May I ask you about the impact of devolution.
The devolution arrangements which are, of course, in abeyance
at the moment, are in suspension. It introduced a concordat on
financial assistance to industry. What impact do you expect this
to have on Northern Ireland's ability, vis a" vis
other parts of the United Kingdom, to attract inward investment?
Is this likely to reduce the flow of inward investment to the
Province from Great Britain?
(Mr Johnston) If I could take your first point, I
think we would have noticed in the early stages of the Stormont
Assembly, that the Ministers in the devolved Government were setting
about their tasks with an enthusiasm and industry which were quite
impressive. In that devolved administration there were more Ministers
than were involved in any form of direct rule, so we got more
specific ministerial involvement in specific activities. There
has not been much time to see results coming from it but the approach
and the methodology and the accessibility of the Ministers, and
their desire to have meetings with organisations such as with
CBI and other business organisations, was extremely encouraging.
So from that point of view, the suspension in itself will be bound
to be detrimental to the progress that we have felt was being
(Mr Smyth) On the concordat, up to now, we assume
that there has been some agreement or consultation between the
various parts of the United Kingdom, particularly with major investment
projects. Certainly it would have made sense to avoid regions
outbidding even other and competing with each other on a taxpayer's
perspective. It is fair to say that grant rates have been reducing.
We would like to see them continue to reduce. Some of the recent
investments in Nortel earlier this week yesterday and in Fujitsu
were down on 10 or 12 per cent. Obviously it is to focus on and
to encourage people to come in on the fundamentals. That is going
to be largely around the skills base, the R&D, etc, on the
back of that. From our perspective, we are not going to be particularly
clear on what liaison went on before, so what impact the current
concordat will perhaps actually have.
110. If we look at the Regional Development
Agencies in England, and obviously Scotland and Wales with their
devolved administrations, do you think that the competitiveness
of those areas or regions of the United Kingdom is going to inhibit
the flow of inward investment from Great Britain to Northern Ireland?
(Mr Smyth) I do not think so. Having had eight weeks
or so of the Assembly, anyone I have spoken to in the business
community, their expectations have been by what we have seen or
heard from Ministers. I believe we can really make things happen
in Northern Ireland. I would agree that competition is going to
increase from these RDA's, although it is probably unlikely thatobviously
Scotland and Wales have fairly significant inward investment units
which would compete with IDB. I was thinking of bringing in United
States investment, where maybe we have some additional links in
terms of the Irish connections. From Great Britain itself, most
of those investments have been in the call centre areas. There
has been competition all along in that area. I think in Northern
Ireland the surveys have indicated that there would be a very
low turnover, so I think the fundamentals are so good for Northern
Ireland that no doubt there will be an increased element of competition.
111. Do you think that Government, whether it
is direct or in devolution, needs to do more to provide for that
competition? Is there more that you feel can be done to increase
the competitiveness of packages offered by the IDB to inward investors,
that may give Northern Ireland an edge over other regions in the
(Mr Smyth) In terms of competition, I think the feeling
in Northern Ireland is that our biggest competitor, and this would
probably be for the international investmentI said Great
Britain would be for the Republic with its taxation regime, etcthat
really our biggest concern is looking forward. That in 2003, the
Republic is going to offer twelve and a half per cent Corporation
Tax for every company in the Republic. We see their personal tax
rates coming down. So you are getting a very attractive environment,
plus being part of the euro, the lower interest rates. So that
is where maybe the general concern would be on that area. In Northern
Ireland, the package has to be attractive. One of the problems
is that when we do comparisons in Great Britain there is sometimes
a lack of transparency in this. We know that local authorities
in England have bigger powers and can get involved in terms of
property and various things. Certainly one or two companies said
to me that they have invested in Great Britain rather than Northern
Ireland because there was a more competitive package. But if you
are getting down to individual plants, it is very difficult for
us in terms of what packages are on offer.
112. Has the political situation in Northern
Ireland impacted on the long-term involvement in Northern Ireland
of inward investors? Has this affected the character of businesses
willing to invest, i.e. the kind of businesses that have been
investing in terms of the sustainability of that investment? Do
you think that has been impacted by the political situation and
do you see that changing?
(Mr Smyth) I certainly believe in the last four to
five years that both the quality of the organisationsand
we have been getting in some very blue chip names in the last
few yearsand the quality of the jobs, which has reflected
the nature of the sectors, have now become our target. These have
indicated that with both peace and political stability we will
have a better quality overall. Inward investment will make a bigger
impact on the economy. I think there is a short-term issue. It
all depends on what has happened. We all have to see what happens
in the coming weeks and months. Certainly if we go back to political
instabilityand a perceived higher risk of violence may
be associated with thatobviously that is not good for attracting
inward investors. Indeed, at our last council meeting one of our
members, who is now a joint venture and a United States parent,
said that if we go back to political unrest, if there is trouble
on the streets, if the logistics unit cannot move their goods,
they will have to get out of Northern Ireland and go to the rest
in the United Kingdom or elsewhere.
113. In terms of the character of inward investment,
what do you think Northern Ireland needs to do to try and attract
investors who are there for the long term? One of the concerns
that has been expressed about the spate of call centre type of
investments is that the nature of that kind of business is changing,
and as there are advances in modern technology the need for manpower
levels in call centres will reduce. Therefore, there is an argument
that says, "Well, that fills a gap." So what do you
think we need to be doing in Northern Ireland to try to attract
investment that is long-term in its character?
(Mr Johnston) Could I come back on an earlier point,
which Mr Donaldson was indicating, because I think it is relevant.
You were talking about the competition with Scotland and Wales
and the RDA's there. In the United Kingdom I am sure that in terms
of incentives, differential tax regimes, and the like, the opportunities
for giving an edge to one area are going to be limited. I think
the most important thing that a government in Northern Ireland
can do is to go back to the basics. The quality of the education.
The quality of the labour market. The skills. The links with universities.
I am not trying to be exhaustive in this because there are many
more but I think it is those factors which will tempt people once
they are made more aware that they do exist. I would have thought
that considerable efforts should go into those areas, particularly
the basics which will attract industry and make it clearly seen
that there are advantages, in those terms, in being located in
114. So to summarise, you would suggest, Mr
Johnston, that the greater resource is the skills and the people
rather than some kind of tax incentives. I suppose that implies
there is a greater discernment amongst investors today. That,
in fact, perhaps it is skills shortages in other countries that
drives companies to look to other markets to invest, or locations
within those markets, rather than fiscal benefits and grant packages?
(Mr Johnston) I am not necessarily saying that. I
am working on the basis that within the United Kingdom it may
not be feasible to have differentials between the regions. If
one is competing region by region it is going to be on the basis
of the perceived best location. However, as Mr Smyth said, we
would certainly see one of our biggest competitorsindeed,
the biggest competitor in the area for inward investmentas
the Republic. There is not the slightest doubt in our minds that
the much lower tax regime has had a significant effect on encouraging
companies to locate there.
(Mr Smyth) Skills are fundamental. There is no point
in having a good fiscal regime if you do not have the skills there
in the first place. Skills are key. Obviously the attraction in
Northern Ireland is that we have very high quality graduates.
We are losing a lot of those graduates still, many to the Republic
and many to the rest of the United Kingdom. There is potential
to bring some of those people back. But I think it is fundamentally
skills in the first place. What we are saying, at the moment,
because skills are going up, is that in the local indigenous companies
and indeed some of the existing investors, wages are going up
in the IT sector. They probably are around the world in terms
of the demand for them. From an economic perspective that is probably
good for an earnings level but it does mean that those companies
are constantly going to be having to add more value to their products
if they are going to increase their productivity.
115. Does CBI have any access to figures in
terms of graduates who are actually leaving Northern Ireland?
(Mr Smyth) We do not have any access ourselves. Through
the Software Industry Federation I have seen figures. There are
figures certainly available because these are monitored in terms
of what are produced in various universities and where they go.
I may have heard a figure of something like 40 per cent of our
graduates leaving in the past. I think the software companies
here are recognising that they have to provide more placements.
The companies in the Republic have really got their act together
in terms of linking in with the universities, providing work placements
for the summer, etc. I think it is only in the last year or two
that the Northern Ireland companies have been trying to get their
act together on that; to make it attractive to come and join local
Mr Donaldson: Chairman, it would be useful if
we were able to get access to those figures because they are in
fact pretty important.
116. In your opening remarks you made reference,
in paragraph 5 of your memorandum, to best practice being more
prevalent amongst the multinational computer inward investors
than within the indigenous firms. Why do you think that is? Is
that a question of state-of-the-art equipment and new operations
setting up, or is it more fundamental than that? Is this something
that is peculiar to Northern Ireland or is it United Kingdom wide,
that this difference in world practice is noticeable?
(Mr Smyth) I think there are two questions there.
I suppose the first one is to do so with leadership and management.
One would anticipate that the multinationals will have managers
who are coming in who have been well trained; a lot of time and
money has been spent on training them. They have the processes
in place. They have brought in the consultants. That is the key
one on that. On your second point, I would not expect this to
be very much different from anywhere else in the rest of the United
Kingdom or the Republic or anywhere else in Europe. I just think
that large companies have the resources and management expertise
to put these processes into practice.
(Mr Johnston) Just to elaborate a little upon that.
When you have such a large percentage of businesses in Northern
Ireland which are small in terms of employing less than ten people,
the managing director may also be the production director, the
sales director, the secretary, and every other part of the business
rolled into one. When you are having to give your attention to
running the business, you can so easily make the urgent the enemy
of the important. You can be so totally focused on making certain
the business continues and ignoring what it is that you need as
an individual, and your labour force needs as a group, to acquire
in terms of skills and knowledge to ensure the company can progress.
So I think that the prevalent smallness of the average company
in Northern Ireland is a factor which causes this. In the CBI
in recent years we did introduce a programme which we called the
Company Fitness Analysis; basically trying to get companies to
benchmark themselves against the best practice in their industry;
not necessarily the industry in Northern Ireland or the United
Kingdom but on a world-wide basis. This was unfortunately, in
some ways, rather a new concept to too many people. We have been
focusing very heavily on best practice and, of course, the Northern
Ireland Quality Centre, which has been established, is also focussing
very heavily on this in the attempts to raise these levels of
117. You mentioned earlier that there was some
transfer between inward investors and your indigenous industries.
Sometimes there will be a work transfer. People will work for
the multinational for a bit and then move sideways to an indigenous
industry. But to what extent does the CBI seek to encourage the
transfer of knowledge and expertise between different companies
in other ways, apart from that rather haphazard or unintentioned
(Mr Smyth) We do that a certain amount ourselves but
it is fair to say that we have limited resources ourselves. We
see the IDB and LEDU, the Local Enterprise Development Unit, having
more facilities and programmes to encourage that. Mr Johnston
said about the Quality Centre which, in particular, would be promoting
total quality management. There are a number of processes on that
front. I think that there have been some schemes in place. We
certainly see the supply chain as a key way of driving that. There
have been programmes in which Shorts have been actively involved,
with their supply base improving the capability within those companies
supplying them. Currently, this is through the Northern Ireland
Growth Challenge, where there is a supplier and development programme,
which the IDB and Growth Challenge are working with. Also, there
is some sectoral work undertaken through some of the sectoral
organisations. There is an initiative called Expertise Exchange
within the textile industry, where some of the larger companies
and the large indigenous companies, who believe they have a world-class
practice on various aspects of design or logistics, are making
that available for other companies to link into. There are also
various mentoring programmes in place between large companies
and firms. I think there are a range of mechanisms out there to
try and do that. One of the issues is that you need to ensure
that you have smaller companies which are motivated and have a
desire to go down this route because it is a very competitive
world out there. The largest companies having to look at reducing
their cost basis is very competitive, and small companies are
going to have to meet up to the standards that they require and
the costs needed.
Chairman: I fear I should have said this before
we embarked on this series of questions. We are on a running whip
today. Sometimes we are in a situation where we vote at 7 pm or
10 pm or whenever. On this occasion votes can occur at any moment
because we are taking continuous business. We have such a division
at this moment. What I will do is to suspend the Committee.
The Committee suspended from 16.52 pm to17.02
pm for a division in the House.
Chairman: Mr McWalter, I think we may have cut
one of the witnesses off, almost in mid-sentence, but perhaps
you could help him in remembering where we had got to.
118. We were talking about the transfer of knowledge
and experience between inward investors and indigenous companies.
We had arrived at the conclusion that CBI resources themselves
were very limited, although you were very grateful for the work
that is done in this regard by the IDB, including various mentoring
schemes and other such things. You also mentioned in your response
that there was a competitive dimension to this, however, I was
wondering to what extent you feel that the overall Northern Ireland
economy might not be able to participate in the wisdom contained
within the different companies within Northern Ireland, either
because of the demands of competitiveness or the demands of confidentiality.
To what extent do you see these as barriers to the sharing of
expertise on best practice and indeed the expertise more widely,
the technical expertise and so on?
(Mr Johnston) Those have been problems in the past.
Certainly some years ago we had meetings with various sectoral
groups. It was very clear that although they knew each other,
they certainly did not talk very much to each other. They would
not tell each other what they were doing and there were considerable
barriers. Our efforts have been to try to break down those barriers.
We have been somewhat informal in our contacts with them but we
would believe that with such things as the emergence and the success
of the Quality Centre, and the large multinationals coming in,
they have been able to introduce, or are in the position to introduce,
a greater degree of realism and have been doing so. I believe
also with the inward investment that there is actually a mutuality
to all of this because of what are undoubtedly the greater skills,
especially management skills, coming from those inward investors.
They may well have some junior manager who would benefit from
being seconded or placed with some small firm. It will give him,
albeit on a smaller scale, a wider framework for his expertise
to be exercised and his knowledge to be increased. That will be
a benefit to the multinational but one would feel as well that
in those circumstances there would be considerable benefit to
the indigenous company which was utilising that individual's skills.
(Mr Smyth) I agree entirely with Mr Johnston. In the
early part of the 1990's, and before that, there was very little
co-operation between companies, even in sectors. But through a
range of initiatives, including the Northern Ireland Growth Challenge,
companies have been sitting down looking at the sectors, assessing
their strengths and weaknesses, and what needs to happen within
that. Over the last five or six years there has been an increasing
amount of co-operation and the realisation that the real competitors
are not other guys down the roadthis is in the Far East
or wherever elsethere have been increasing levels of co-operation
and sharing. I also think there is a lot more which can be done
but we have certainly been moving in the right direction in recent
119. So to summarise your comment there, you
are very much more committed to what you might call "co-operation"
rather than "defensive competition" between companies
in some sectors, is that right?
(Mr Johnston) I think there is a phrase, which I have
heard coined elsewhere, called "co-operative competition"
or "competitive co-operation". It is a matter of trying
to ensure that where a firm can do something on its own, then
it will do so, but if a project is too large for it, then, for
the benefit of the area as a whole, it should co-operate with
others. To do that they really must exchange information, exchange
ideas, and ensure that they work together.