Annex A
SCOTTISH AFFAIRS SELECT COMMITTEE - ANNUAL
REPORT
UPDATE ON INWARD AND OUTWARD INVESTMENT
1. The Committee's Report on Inward and Outward
Investment expressed strong support for the strategy pursued by
Scottish Enterprise, Locate in Scotland (LIS) and Scottish Trade
International (STI), and made recommendations to further assist
the implementation of the strategy. In its response of December
1999, the Scottish Executive was able to report considerable early
progress on many of the suggestions. In the year following the
publication of the report, LIS was able to announce record inward
investment results, with an encouragingly high incidence of R,
D&D activity. The activities of Scottish Trade International
and the network of local Export Partnerships continue to add significantly
to the number of new exporters in Scotland and companies entering
new export markets. Initiatives also being undertaken to broaden
the export base, establish international networks and to develop
companies globally with assistance provided by STI to help companies
establish overseas operations.
2. The Scottish Executive and the UK Government
have concurrent powers to promote trade and inward investment
and LIS and STI work closely with Trade Partners UK and Invest
UK in the delivery of their activities.
Development of Locate in Scotland's Strategic
Knowledge and Partnerships
We believe 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
multi-national 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 (paragraph 41)
3. As outlined in the Scottish Executive's response,
LIS introduced a revised operational structure, which emphasises
the importance of sector knowledge and expertise, engagement with
the business community, and greater closeness to the corporate
strategic thinking of key global clients. This structure has already
impacted on the level and understanding within LIS of key clusters
and industries, which contributes to the matching of Scotland's
locational strengths and competitive advantage with the specific
needs of business clients.
4. LIS continues to establish close working relationships
with a range of partners: the Scottish Enterprise Network; Scottish
academia and higher education sectors; local authorities and relevant
private sector partners. These enhanced relationships not only
offer more integrated support for individual investors on specific
projects, but also support local initiatives to further strengthen
Scotland's locational attributes.
5. The role and remit of the proposed Strategy
and Knowledge Management team, mentioned in the December 1999
response, has recently been refined. In addition to improving
the acquisition and application of information on key sectors
and markets, gathered through both research and direct contact
in the field, this team (now renamed LIS EBusiness
Development Team) also provides a focus for implications of e-commerce
on the inward investment process. E-commerce is having a significant
impact on the types of activity targeted, how we attract the interest
of potential clients and how LIS delivers its service to clients.
Merger of Locate in Scotland and Scottish Trade
International
We recommend that the Scottish Parliament gives
serious consideration to merging Locate in Scotland and STI (paragraph
43)
6. In its response to the Report, the Scottish
Executive advised that it did not agree that a straightforward
merger of LIS and STI was appropriate, but made it clear that
greater operational synergy between the two organisations would
be sought. LIS and STI have substantially increased their operational
integration. Where appropriate, co-located Field Offices have
been established in e.g. North America (Houston); Asia (Tokyo,
Seoul, Taipei) and Europe (Dusseldorf). And in Singapore, the
Field Representative carries out activities for both STI (80%)
and LIS (20%).
7. Further progress towards integration will
arise out of the move by Scottish Enterprise to incorporate LIS
and STI, plus other functions covering globalisation, Europe and
international marketing, into a single directorate.
Additional Resources for LIS and STI
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 (paragraph
57)
8. There is substantial competition for scarce
resources in the economic development field. After a significant
cut in inward investment resources prior to the Committee's investigation,
LIS and STI have operated on a broadly "standstill"
budget. Against this background, excellent results have been delivered
and the issue of resources is under consideration.
Financial Assistance for Projects of Higher Value
It is clear that the system of financial assistance
to industry should be reorganised to put more emphasis on attracting
projects of high value and we recommend accordingly (paragraph
57)
9. There is a good deal of flexibility within current
incentives to respond to the particular parameters of high value
mobile projects. Scotland has, in fact, recorded substantial success
in the past year in securing high value, R, D&D projects and
jobs, but we shall keep the design of incentives under careful
review.
Improving the Competitiveness of the Scottish
Supply Base
There is great scope for improving the competitiveness
of Scottish companies as suppliers to inward investors (paragraph
65)
10. The December 1999 response noted the beneficial
impacts of the "supplier developer programme" implemented
by Scottish Enterprise. Although this is not, now, a discrete
programme, its principles are embedded in the wide range of business
development activities carried out by the Scottish Enterprise
Network. Reference was made in the response to the forthcoming
Scottish Executive initiatives concerning the Knowledge Economy
Task Force, focussing in business innovation and skills and "Making
It Work Together", which set targets for the establishment
of a new business mentoring scheme and Scottish Institute of Enterprise.
The Scottish Institute for Enterprise was opened in March 2000
and the business mentoring was launched in April 2000.
11. It needs to be recognised, however, that
the move to the global sourcing by large multi-nationals is making
it increasingly difficult for local suppliers - unless they are
prepared to "go global" themselves.
Greater Transparency in Publishing Financial Assistance
We believe that transparency informs public policy
making and recommend that the concordats should ensure that the
figures for the total assistance used to attract each project
are subsequently published (paragraph 78)
12. In our response in December 1999, Scottish
Executive expressed its conclusion that current arrangements strike
the correct balance between the right to know and commercial confidentiality
coupled with protecting the public purse. The question of openness
and accountability will continue to be kept under review.
Measurement of Success of Assisted Projects
We are glad to learn that Scottish Enterprise
are already working on more helpful ways of measuring the success
of assisted projects and we recommend that this continue (paragraph 81)
13. In our response in December 1999, we confirmed
additional data is collected and recorded by Locate in Scotland
regarding average salary of jobs in new projects and R,D&D
statistics. LIS now also records data on inward investment within
Scotland's rural areas to support their strategic theme of contributing
to the special challenges faced by the rural economies.
Aftercare of Existing Investors
We recommend that the agencies involved will continue
to attach the highest importance to aftercare (paragraph 109)
14. Locate in Scotland continues to place the
highest importance to aftercare and support to existing investors.
The LIS Investor Support Team, together with the Local Enterprise
Companies and networks of local partners, now provide an enhanced
support for the base of existing overseas investors in Scotland.
As well as more "tailored" advice, support and financial
packages for investors, there has been the introduction of joint
initiatives, improved communications and networking events. The
two key themes pursued in this investor support strategy are:
assisting the performance of the investor's current facility in
Scotland and encouraging the future development of that facility,
particularly into higher value functions. In 1999-2000, almost
50% of investment decisions represented new projects or expansions
by existing investors.
Update on Outward Investment
15. Scottish Trade International recognises the
increasing need for companies to establish overseas operations
in order to successfully globalise their activities. STI currently
operates an Outward Expansion Fund to support companies implement
an overseas investment strategy. Scottish Enterprise has also
established a Global Companies Development process and is currently
working with 10 companies with global aspirations.
16. At the time of the Committee's original report
STI had established the Scottish Technology and Research Centres
in California. A further 3 centres are now operating in Virginia,
Florida and in Houston. These have the dual purpose of acting
as STI in-market offices with adjoining incubator facilities for
Scottish SMEs. The location of the offices has been determined
in conjunction with industry and the Scottish Enterprise network
and is reflective of market potential within key priority industries,
i.e. software, optoelectronics, telecommunications, electronics,
biotechnology and healthcare.
November 2000
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