Examination of Witnesses (Questions 40-59)
UKTI, DTI AND FCO
24 FEBRUARY 2004
Q40 Sir Robert Smith: No, not on taxation
but why is there a role for the State?
Mr Holmes: The role we would ascribe
to ourselves is really to cope with market failure. In a sense,
the company that goes off its own bat and is creative and innovative
and does the work is not evidence of a market failure, but perhaps
the company which could export but does not and could export with
a little bit of assistance is where there is an element of market
failure. I know that is a jargon term but I think that is the
one we would probably stick with.
Q41 Sir Robert Smith: One of the specific
things we have been looking at is the British Business Councils
and you decided that you are going to provide the secretariat.
Will that be a core activity of your staff?
Mr Holmes: No, it is not a core
activity. As I said before, our core activity is the development
of the British companies, but at the same time we have what you
might call an operating concept which says that core business—which
is what our PSA targets are about, which is what the Treasury
gives us our money for—is about the trade development work.
We have a public service function, if you like. The company comes
to us and says they want to do business. Regardless of whether
they are a priority sector or not, that is our public service
element, and we would have what I would describe as a strategic
function in creating the right environment for British business
and this would be where the British councils would fit in.
Q42 Sir Robert Smith: We were looking
at the trade data and Thailand seems to have coped quite well
without one.
Mr Holmes: Yes. Our view about
business councils is that if business tells us they fulfil a viable
role and they are useful, then fine, but we are not going to go
out of our way to support what is a non-core activity. In the
case of Singapore it has actually done a lot of good. With Malaysia
we are in a slightly different position, but the politics in Malaysia
seem to indicate that the Malaysians like the business council,
and British businessmen tell us there is still some benefit to
be got out of it, so we will carry on. But the moment they tell
us to stop, we will.
Chairman: If we may move on to country-specific
issues.
Q43 Linda Perham: As you know, we are
focusing on three countries. Could you tell us how UK investment
in Malaysia compares to investment in the other two, Singapore
and Thailand?
Mr Holmes: The big problem about
giving you any sensible specific answer about figures on investment
is that we do not really know what the exact figures are. We do
not keep them ourselves because a lot of investment decisions
are taken entirely independently of anything government does.
We have a rough idea from the stats that the individual countries
maintain but if you look at UK investment in Singapore, for example,
quite a large proportion of investment in Singapore may come from
British companies elsewhere in the region. Ditto Malaysia. Therefore,
I cannot really give you a straight answer, except to say that
in all three countries British investment is, we guess, pretty
substantial.
Q44 Linda Perham: Are there sectors perhaps
in Malaysia in which there is more investment in a particular
area? I think in each of the three that services like education
and health were mentioned, but there was a difference in the briefing
we got from you in some sectors between them. Can you see any
trends or patterns in Malaysia as opposed to the other two? Are
you aware that there is more interest in investing in those particular
areas or there is the prospect of developing British business
than there is compared to the other two countries at any time?
Mr Holmes: To some extent, it
depends on the policies of the host country. If we look at Singapore,
for example, we know that the Singaporeans are very keen on developing
Singapore as a hub for educational services, for biotechnology
and information communications technology. They want to encourage
investment in those fields and they would give some advantages.
Similarly, with Malaysia. They also have policies towards encouraging
investment in specific sectors. To a certain extent, where British
companies are looking to invest overseas, they will look at the
opportunities that the governments of those countries provide
in support. Just as we have incentives for inward investment in
this country, so too do those countries. There is also the historic
investment: petrochemicals, for example, and the range of service
investment related to Singapore's role as an international transport
hub is all there. In the case of Thailand, there has been some
investment in the agriculture sector which is a particular strength
of Thailand. The problem with outward investment, as it were,
from the UK into these countries, is that companies have different
reasons for doing it. Financial services, as I mentioned earlier,
is historically an area where there is a lot of investment, in
the region as a whole but in the three countries particularly,
although in Thailand probably slightly less than the other two,
again largely for historic reasons.
Q45 Richard Burden: If I may pursue that
a bit more. In the paper you have put in, you describe Singapore
as a communications and business hub of South East Asia.
Mr Holmes: Yes. Well, that is
certainly their ambition.
Q46 Richard Burden: You say that UK companies
see Malaysia as a natural hub for the region. Does that indicate
that there are contradictory views about whether there is an overall
hub for the region?
Mr Holmes: Yes. I think there
are contradictory views. If you talk to a Malaysian he will tell
you one thing; if you talk to a Singaporean he will tell you another;
if you go to Australia, the Australians will tell you that they
are a natural hub for the region; and so on and so on. It is a
question of local ambition and perception, I suppose.
Q47 Richard Burden: What do you think?
Do you think it is sectorally specific?
Mr Holmes: I think it is pretty
much sectorally specific, although in the case of Malaysia and
Singapore there is a limit to what Singapore can actually do because
of the geography. They are not going to be looking for huge industrial
projects any more, they do not have the land to allow them to
do that, so Singaporeans are focusing their own interests on becoming
. . . They are already a transportation hub. Kuala Lumpur Airport,
the new airport, has tried to be an alternative to that, but essentially
Singapore remains the main regional transport hub. It is still
the main port in the region by a long, long way. Depending on
what you are looking at, yes, you can say that one country is
a hub as opposed to another but I think it is fair to say that
for most intents and purposes Singapore is the communications
hub and Malaysia offers a more varied range of opportunities.
Mr Mumford: May I add one thing
to the argument. The background to it all is this threat of China.
The countries are all losing their manufacturing base to China,
so they are aggressively looking at how they can deal with this
threat. The main way they are looking at is developing niche markets
and becoming regional hubs. That is why you get this contradictory
view, because they are basically competing with each other to
be the regional hub: Thailand in health and tourism; Singapore
in education and biomedicine, hi-tech, high finance. Thailand
is looking at now becoming the hub for fashion and Bangkok Airport
is actually competing with Singapore Airport to become the hub
for aviation, so that is why you are getting these conflicting
messages about which is actually the hub.
Q48 Richard Burden: Do you think they
are in competition across the board? Is there starting to be a
sort of shake out of areas? Your point about being a niche hub,
I can see that on communication, and on transport there is competition
between KL and Singapore there, but what you were saying about
Thailand and fashion, just looking through, would not particularly
apply in the same way to the other two. Manufacturing, presumably
you would be looking in other areas of manufacturing.
Mr Mumford: Thailand is certainly
having some success at the moment as being a regional hub for
car manufacturing, so it is doing very well. But, as far as I
am aware, the Thai government has an active strategy of competing
with Singapore to develop Bangkok as the regional aviation hub.
Mr Holmes: I think that is true.
They are definitely competing. Malaysia and Singapore compete,
for example, in IT and—
Mr Mumford: All ports as well.
Mr Holmes: —ports increasingly.
Q49 Richard Burden: Manufacturing, branching
out from widgets to other areas, how do you guide British companies
through what in a sense is quite an intense political problem
potentially?
Mr Holmes: We guide them by giving
them the best possible information about the relative situations.
But, ultimately, as in all business decisions, it will be down
to them to see where their best advantage lies.
Q50 Richard Burden: Do you think you
might try to steer them in one way or the other, if you start
to see that the strengths in Malaysia are in this area, the strengths
in Singapore are in that area? Even if Kuala Lumpur can develop
quite a lot more, is it ever really going to rival Singapore?
Would you try to be persuasive?
Mr Holmes: I think we would stick
to giving them the best objective information and responding to
questions. I think ultimately we would always say that the decision
has to rest with the businesses themselves. But we would respond
in the best possible way to all questions and that would possibly
end up doing exactly what you have said because inevitably one's
answers will lead in one direction or another.
Q51 Richard Burden: Could I ask you one
other question specifically on Malaysia and Singapore? What involvement
have you had with British manufacturers expanding joint venture
operations in Malaysia?
Mr Holmes: Do you mean by that
how do we support investment?
Q52 Richard Burden: I am asking you what
you have done recently in that area.
Mr Holmes: In the case of Malaysia,
I do not think I can put my hand on my heart and say we have done
anything specific recently because, certainly in cases of manufacturing
decisions, by and large, they are made on the basis of what the
company sees as its immediate requirements regardless of what
we say. We might never know about an investment until it has happened
and the decision will have been made in the company boardroom
for reasons best known to the company.
Q53 Richard Burden: Would you then try
to find out what that decision was all about?
Mr Holmes: Certainly. Part of
knowing the markets is understanding why a company would make
a particular investment decision there.
Q54 Richard Burden: What do you think
the difference is between MG Rover and Proton?
Mr Holmes: I am afraid I have
no idea but it is a question you might well ask the post.
Q55 Chairman: I think we will do. What
about Dyson? They have shut up shop here and gone over to Malaysia.
Are the fingerprints of you or your predecessor organisation on
that?
Mr Holmes: Not at all, as far
as I know. As I understand it—and it was before I was doing
the present job—it was a decision made by Mr Dyson on the
basis of manufacturing costs and his inability to produce his
product as cheaply as he wanted. You perhaps know better than
I do.
Q56 Chairman: In the sense of investment
some people might not have regarded it as in the interest of UK
plc in every respect. Are you telling us that as far as you are
aware your predecessor organisation did not play any part in facilitating
the investment out of the UK into Malaysia?
Mr Holmes: As far as I am aware,
that is so.
Q57 Chairman: It is just that it is one
of the big pieces of investment of which people are aware that
went there.
Mr Holmes: Indeed.
Q58 Mr Evans: Following on from that,
Chairman, if any company that is based in the UK comes to you
and says, "We are thinking of shutting shop here and setting
up shop somewhere else abroad," what do you do? Do you just
give them the best advice?
Mr Holmes: Certainly our position
on overseas investments is that we do not proactively support
it. We do not encourage companies to go and do that. It is very
much not part of our operation. But ministers have said in the
past in the House, and policy is, that where British companies
have taken that decision for their own reasons and come to us
in post for support, then we would give them the support we had
to but recognising that politically of course for the Government
and so on it is an extremely sensitive issue. It is one that is
currently being pored over at great length within the DTI and
Foreign Office and elsewhere.
Q59 Chairman: Could we move on to the
question of market potential. You have said that you are dealing
with these matters and trying to spot the areas, either geographical
or industrial, which would be the greatest opportunities for Britain.
How do you alert UK businesses to potential? Are you proactive
or do you wait for British companies to come along and say that
they fancy going to South East Asia?
Mr Holmes: We have had a system
of market information which is available through our UKTI website.
As part of the sectoral team approach of course we do bring these
opportunities directly to the attention of sector groups as part
of the process of working up a global sector strategy for the
industry. It will depend.
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