Examination of Witnesses (Questions 284
WEDNESDAY 10 JANUARY 2001
284. Good afternoon. Could I apologise for the
fact that the first session slightly over-ran our estimated time
but I am aware of the fact that you were sitting in the audience
and I hope you found it enjoyable. Can I ask you first of all,
in welcoming you to the Committee, to introduce yourselves to
(Mr Duff) Thank you, Chairman. Firstly,
my name is Iain Duff, I am the Economist and Policy Manager of
the Scottish Council for Development and Industry.
(Mr Diggens) Good afternoon, everybody. My name is
Roland Diggens, I am the Government Affairs Manager for SCDI and
as a fairly small organisation we do a bit of multi-tasking so
Iain and I make up the core of the policy team as well.
285. Thank you for that. Are there any opening
submissions that either or both of you would like to make to the
Committee, appealing to you not to disrupt the structured agenda
(Mr Duff) Thank you for inviting SCDI to meet with
the Committee today. It has been quite some time since SCDI has
appeared before the Committee. As a brief introduction I will
just describe SCDI and then touch on our submission. SCDI is an
independent, broadly based membership network which seeks to strengthen
its members', and hopefully Scotland's, economic competitiveness
by formulating policies that encourage sustainable economic prosperity.
As far as this particular inquiry is concerned, SCDI's submission
concentrated on the Scotch whisky industry although, as you are
aware from this morning and other evidence, there is much more
to the Scottish drinks industry than that product. However, SCDI
has traditionally given support to the whisky industry given its
intrinsic place in the Scottish economy and Scottish industry.
Our membership also boasts many of the major whisky producing
companies. It is also an area where we have built up some degree
of knowledge and felt most confident in presenting views that
we hoped would add some value to the inquiry. Therefore, whilst
recognising the significant contribution that is made by other
drinks products to the Scottish economy, we felt that it most
appropriate to concentrate on whisky. Since the memorandum was
submitted late in 1999 I have to inform the Committee that when
preparing for this meeting I was rather shocked to discover there
is a bit of an error in paragraph four on page two of the memorandum.
I can only apologise to the Committee for any confusion and I
can clear that up either now or in later questioning. Furthermore,
the figures in the submission have been updated since it was originally
sent and obviously any updated figures can be presented to the
286. We would be grateful for that. Mr Diggens,
do you want to add anything?
(Mr Diggens) Perhaps I could just add, although Members
of the Committee probably already know this, that SCDI is well
known for the production of the Scottish Export Surveys particularly
of long standing manufacturing exports but also the primary and
service sectors as well, so we will try to provide additional
information along those lines if that is interesting.
287. Although you said that it has been some
time since the SCDI appeared before the Committee, it has regularly
submitted written evidence to us on various inquiries and you
do circulate all Members on a regular basis with packs of information,
which is appreciated and thank you for that. Can I begin by saying,
as you yourself said, you stressed the importance in your memorandum
of several aspects of the importance of whisky to the Scottish
economy in terms of, for example, employment. However, it is clear
that employment in whisky has fallen in recent years and the Scottish
Whisky Association figures suggest that total employment in whisky
fell by 19 per cent between 1994 and 1999. In common with other
manufacturing sectors, most of this reduction in employment has
been driven by the need to increase productivity. Has the economic
importance of whisky to Scotland fallen in recent years? Would
you agree that, because there is a continuing need to seek increased
productivity, it is likely that employment in the whisky industry,
as in most other manufacturing sectors, will fall even further
in the future? Do you have any concerns about this?
(Mr Duff) Yes, I think the trend is certainly downwards,
and even when you include the linkages, which are fairly substantial
for the Scotch whisky industry, into other areas, such as agriculture,
then the impact, certainly in the rural areas, will be a downward
trend and, as for any industry as it starts to contract, it is
a concern as to where the jobs are going. The Scottish economy
as a whole is doing fairly well, it is a healthy economy. Manufacturing
in general has been under some pressure over the last few years
but the downward trend is there and we have to always look at
how the economy balances out these trends in industries and how
the aggregate employment can be kept buoyant. The downward trend
is there and, as a Scottish economic development organisation,
we would be concerned with that trend.
288. Is the continuing downward trend inevitable
or can anything be done to stop it or reverse it?
(Mr Diggens) It is probably fairly obvious and certainly
previous witnesses giving evidence have mentioned that in employment
that is related to the industry, for example in pubs, restaurants,
hotels, there is a shift away perhaps from employment in the manufacturing
side of the industry into employment in the service side, tourism
related employment, and obviously there is quite a lot of marketing
employment involved in the urban areas as well now.
Chairman: Mr Duff, you referred to the linkages
to other sectors and it would be an appropriate point to bring
in Mohammad Sarwar.
289. Thank you, Chairman. The Scottish Council's
memorandum also mentioned that whisky is important because it
is "strongly tied to other sectors" in Scotland. It
noted that whisky buys 82 per cent of its purchases from other
Scottish sectors compared to an average 56 per cent for Scottish
industry as a whole. Would it be fair to say that because the
whisky industry is mostly composed of large multinationals, their
commitment to Scotland is uncertain? Does it have any concerns
about the ownership structure of the whisky industry?
(Mr Duff) Well, whisky by definition has to be made
in Scotland, so in terms of distilling the product and the distilleries
will continue to have to have a Scottish base. The ownership and
in terms of where it sources its marketing, say, does not necessarily
have to be in Scotland. As your previous witnesses said, there
is a certain Scottish image in a Scottish brand, so if there were
linkages there, that they want to be seen as a Scottish product,
the advantage there then I would hopehopeis that
the owners of the individual companies would see that advantage
in being associated with the Scottish economy and with Scotland.
It is more a hope rather than whether we as an organisation can
do anything about it and what the industry themselves can do.
Industries in a competitive market always have to be aware of
the cost pressures of being an efficient industry. Hopefully the
Scottish economy and other Scottish industries can provide the
services they need at the appropriate costs and will be able to
compete but, as with any other industry, it is a global industry
and the pressure to source their products worldwide is always
on them. In terms of the agricultural content, the glass that
goes to the bottles, the packaging, there are lots of good, high
quality suppliers to the industry already in Scotland. Those figures
that are taken from the Scottish input/output tables on the linkages,
are much higher than the Scottish average. I am hopeful that the
industry and the industry owners are aware of what the rest of
the Scottish economy can offer them. We, as SCDI, would have to
monitor that situation and interact with the industry to ensure
how they go about that and take that forward.
290. Scotland is known worldwide because of
Scotch whisky and it sometimes surprises me that even when you
go to Third World countries the one thing they ask about Scotland
is the Scotch whisky. What concerns me is that in future with
these competitions and takeovers and the competitiveness of the
industry, would it be possible that other people would start manufacturing
this in other parts of Britain or worldwide somewhere else?
(Mr Duff) Legally they cannot do that for Scotch.
That part of the industry is insulated from that. There are pressures
globally and it is the same for any manufacturing industry. For
companies that are marketing, producing and selling in a global
marketplace there are always pressures and they have to look at
how well they do that so their impact on their home market, wherever
they choose to base themselves, is how they see themselves and
how they want to interact with that home base.
291. Following up Mr Sarwar's point, the Committee
has already heard from the soft drinks industry that all the cans
are manufactured in England. We were also told on a visit that
it would be quite feasible to bottle the product in England and
presumably label it, so you could have the admin staff, marketing
staff, labelling and bottling all carried out in England with
disastrous consequences for many parts of Scotland. In my own
constituency in the early 1980s they closed a factory that made
glass bottles for the whisky industry and several hundred people
lost their jobs and they switched to production elsewhere. How
worried are you about that possibility coming about?
(Mr Diggens) It is interesting that it can sometimes
work in the other direction as well. There is a very large bottling
plant in the Fife area which is a spirits production plant, gin,
rather than a whisky production plant. Sometimes the strength
of our large companies can help to actually grow brands and grow
portfolios in Scotland. There are specific skill sets in Scotland,
particularly on the distilling side of things, perhaps less so
in the technical manufacturing process, the supply process, for
things like glass and bottling. There is a cluster of activity
in spirits and whisky in particular in Scotland and it has a certain
strength about it. I think the major companies that operate in
Scotland actually appreciate that and do their best to make the
most of it.
(Mr Duff) I think the days of, if you like, protectionism
in this day and age have to have gone and it is up to individual
companies, suppliers, right through the supply chain, to compete
to ensure that they are producing the goods and services that
the ultimate purchaser wants to buy. There are two sides to this,
as Roland said. If we can compete with the best in the world,
which we should be aspiring to do, then there should not be a
problem. That would be SCDI's approach to the global market, if
you like, with any company in any industry.
Sir Robert Smith
292. In your memorandum you make the point that
much of the initial spirit production has the virtue of providing
"a few well paid jobs in rural areas of limited population
and alternative employment opportunities", but we see in
the industry a lot of consolidation and the concentration of production
in terms of driving forward economies. Employment, therefore,
has been dropping off and in Grampian it has fallen by 25 per
cent between 1994-99 and in Tayside by 64 per cent. Do you think
that the increased concentration of production means that the
economic support whisky provides for fragile communities has decreased?
Is this a process that will continue? What concerns does the Council
have about this?
(Mr Duff) As I said in answer to the previous question
the trend is down, there is no doubt about that. There was a very
good report done by the Aberdeen Council, I think it was, on the
future of the Aberdeen economies which showed that rural areas
are particularly under pressure. Rural areas throughout Scotland
are particular policy issues and particular problems going from
the Borders right up to the Highlands and Islands into rural Aberdeenshire.
We are concerned. In SCDI we have regional committees which hear
first hand the pressures that these communities are under. As
far as whisky is concerned, the trends are downward. How we, or
anyone indeed, can resist that change, as it is to do with efficiency
gains to keep in a competitive market, is very difficult. You
will have to ask the individual industries how they feel about
what is the best way to take that forward. Yes, SCDI is concerned
about the fragility of rural economies in general and what opportunities
are available to the people there to keep sustainable communities
there and where are the alternative employment opportunities and,
indeed, education, skill levels. We have the University of the
Highlands and Islands coming on stream. Initiatives such as that
across the economy have to be supported to keep the rural communities
sustainable and to keep employment opportunities in there. Whisky
will have a continuing role in that but it is a concern. It is
knowing where we, as an organisation, can add value to support
the local authorities and the Scottish Executive in general to
keep these issues at the forefront to do something about them.
(Mr Diggens) Certainly the evidence that we collect
from the Primary Sector Export Study has pointed to very, very
hard years right through the mid-1990s for agriculture; less so
for forestry but perhaps also for fisheries. I think there is
a feeling among these industrial sectors that they do not any
longer control their own destiny but they are heavily regulated
from outside. There is a feeling that smaller producers are very,
very hard pressed, very, very pushed.
Chairman: That is perhaps an appropriate point
at which to turn to ownership.
293. Thank you very much, Chairman. In recent
years we have obviously seen both Diageo and Allied Distillers
who seem to have moved high quality jobs from Scotland south of
the border to England. Between 1994 and 1999, employment in whisky
outside Scotland grew by 114 per cent because of the transfer
of sales, marketing and obviously admin and office jobs. I appreciate
you have partly touched on this but do you think that Scotland
has lost management and marketing jobs because the whisky industry
is owned outside Scotland? If so, is this a trend that is really
(Mr Duff) Again, the ownership of any company in any
industry is one that is increasingly under the pressure of globalisation.
Although we have concerns and we would like to see more core functions
retained in Scotland where there is decision making, and that
is an ideal hope we would have for Scottish industry and the Scottish
economy, it is very difficult to resist those pressures in this
day and age. Where you might question whether a particular takeover
should go ahead based on what can be very complex company decisions
about how they will make the organisation or that product in a
global market, it is very difficult to resist that in this day
and age. We would certainly hopethis applies to any industrywhen
there is a takeover that for the new owners, or the new company
that it becomes, the Scottish workforce, the Scottish economy
in general and suppliers will be there, they will be the best
in the world, there will be a cluster, to use the in-term, of
skills there that will ensure that those sorts of opportunities
for senior management, decision making, research and development,
those core functions, are kept in Scotland. It is very difficult
to resist that, I think, other than to make sure that our economy
and our businesses are competing effectively already to ensure
that there is no reason for them to move and they are kept within
the local area.
294. You have described the vulnerability of
one of Scotland's major industries and you have said that international
trends are difficult to resist. Are you really saying that resistance
is futile? One possible consequence of external ownership is the
apparent loss of high quality jobs and this would have an adverse
effect on the local economies and individuals who want a senior
management position probably would have to leave Scotland to do
so. Can I ask you, in general business decisions would it be true
to say that many of the important business decisions which affect
the industry are now largely taken outside of Scotland? If that
is so, what effect has this had on the Scottish economy?
(Mr Duff) I think historically if you look at the
figures even in terms of depopulation, within the economics community
and the academic community there is a notion that Scotland has
lost some of the more entrepreneurial, high potential people to
depopulation. That is a now fairly well recognised issue. Part
of that will be because the opportunities for senior management
positions just are not in Scotland. What can we do to try to resist
that from now? That has already happened, that is an historical
fact. What can we do to try to bring people back in, to try to
make the opportunities available to our graduates or other people?
It is all to do with how the individual companies, I think, the
processes and the way they produce and market themselves, enable
people to want to stay in Scotland. It is how to break that vicious
circle of opportunities outwith Scotland and to bring those back
in, to keep those. It is a very difficult issue which I certainly
do not have an answer to, I have to say. I do not think resistance
is futile in that we should not be trying to ensure that the Scottish
economy gives companies the opportunity to be successful and,
therefore, leaves no reason, or reduces the reasons, for moving
management posts and other jobs outwith Scotland. It is a very
difficult situation when you are talking about individual company
decisions. We have to ensure, as I have said, that the economy
is healthy enough to reduce that pressure on companies to move
295. Would it be accurate to now describe the
Scotch whisky industry as a branch-plant economy?
(Mr Diggens) I think that might be a little unfair.
In relation to Diageo's activity, it has a new headquarters building
in Edinburgh, for example. There has perhaps been a move from
smaller plant locations towards a control location that is more
central, in the case of Diageo that is in Edinburgh. As some of
the companies that were here giving evidence before us mentioned,
there is still a lot of headquarters activity in Scotland.
296. I am a bit concerned about the vulnerability.
What can SCDI do about it? You have said whisky has to be manufactured
here but an international company can then take that product elsewhere,
they can do anything they like with it, they can close down the
distillery that produces it if it does not suit them. If the warehousing,
management decisions, investment, and other activities are taken
elsewhere surely this leaves even the remaining production in
danger? I am asking you, is the whisky industry therefore due
to suffer the usual consequences of a branch factory situation?
What effect would that have on employment prospects in Scotland?
(Mr Duff) These are individual company decisions.
It would be very difficult for anyone from the Scottish Executive,
the UK Government or SCDI, to alter any of those decisions. We
would see our role as ensuring that there are policies in place
to make decisions of that type less necessary. If companies want
to move those types of opportunities outwith Scotland there has
to be a reason for that. Is it because it is more efficient elsewhere?
What we want to ensure is that from a pub policy point of view
there is no reason from that source for companies to do that.
The support should be there so that they wish to remain within
Scotland to make their decisions there, they have the people available
coming out, the high quality graduates and other employees in
Scotland so they can keep those jobs there. That is how I would
see SCDI's role, in ensuring that the policy is in place so that
pressure is not great and Scotland can be shown to give opportunities
to people and that the decision is not necessary.
297. I am glad that you want to see the maximum
jobs retained in Scotland. What you are describing is a situation
where there is a danger that we can arrive at a position where
Scotland produces a product but with no added value to it. What
can be done about that?
(Mr Duff) That is a risk. We see the connections,
the linkages, in, say, the computer industry. Although there is
work to try to keep value added within Scotland and increase the
value added there are still quite a few assembly type jobs. What
can be done to stop that happening in the whisky industry? Again,
it is ensuring that the reasons that these functions may be moved
are as low as possible, that there is no pressure to do that because
they can all be serviced through some sort of cluster support,
so each of the supplying networks are there, they are efficient,
the transport networks are there, the people are available to
fill those posts and progress within them, those functions can
be met and carried out efficiently within Scotland. The policies
in place for that have to be the taxation regime from a UK level,
that Scotland's economy is seen as a nice, stable base in which
to do business and that the standard of living is high. There
is a wide range of measures that can be taken in order to make
the Scottish economy attractive for companies to do business within
and keep those functions in Scotland.
(Mr Diggens) I think also in terms of the international
ownership of the assets, it is perhaps quite a bleak picture that
you are painting. A company like Diageo has plants internationally
and I could not give you specific details of the example but I
do know of one plant, a bottling plant, which has received investment
in the last few years and is actually an award winning plant within
the Diageo group and would, therefore, hope to compete and attract
some of the work if not from other parts of the world, other parts
of Britain for other types of spirits that need to be bottled.
There is the potential for a competitive Scottish plant to actually
attract work in as well as potentially to lose it. Obviously,
it depends on the performance of the individual plants, and that
depends on levels of company investment and the skills of the
workers involved. We would argue that in Scotland it is important
to try to raise skill levels particularly. It is certainly the
case that there are very competitive Scottish plants in an international
Chairman: We will move on to tourism and image
298. The Council have noted that "Whisky's
long-standing traditions and reputation give it a special place
within Scottish culture". There has been an increase in "whisky
tourism" in Scotland, however the Scottish Whisky Association
figures show that visitor centres only employ around 300 people
in Scotland, that is about 2.7 per cent of all jobs in the whisky
industry. How important do you believe whisky tourism is to Scotland,
especially in rural areas? Do you see its importance increasing
in the future?
(Mr Duff) I think the tourist industry as a whole
is a significant industry for Scotland and, recent events with
Visit Scotland notwithstanding, I think it holds a lot of potential.
In relation to the tourism concerning whisky, because of whisky's
well known global image and brand, I would hope that the potential
for that side of the whisky industry is high and will help to
bring tourists to the outlying, peripheral areas of Scotland based
on the already good image that the industry has through the core
product. I am quite confident that with the right marketing that
is an area where there is potential to increase the value added,
if you like, from the whisky industry based on a more service
oriented experience that the distilleries and the tours can provide.
(Mr Diggens) Whisky is obviously a completely distinctive
product so it gives one more unique, distinctive product and service
for the Scottish tourism industry to use to try to attract visitors,
it is one more string to their bow.
299. Would you like to hazard a guess at the
growth you could see with the right marketing conditions with
regard to job opportunities in other tourist sectors?
(Mr Duff) The tourism figures rely on so many other
types of data. It could be that the strong pound has deterred
visitors. It is so difficult to put a figure on what the potential
demand could be. I would not like to hazard a guess, even a ball
park figure, on the growth. All I will say is that it is something
that is marketed and you just have to go to the north-east of
Scotland, there are links with the local tourist boards up there.
It is marketed as a tourist trail, if you like, where there is
signage and things to push that. I hope that there is substantial
potential for growth but I would not like to hazard a figure on
how good it could be.
8 Note: The accompanying memorandum pp 104-107 includes
the correct version of paragraph 4. Back