Memorandum submitted by Rolls-Royce plc
REGIONAL PRODUCTIVITY: UK COMPETITIVENESS
1. ROLLS-ROYCE
IS A
GLOBAL COMPANY
(i) Rolls-Royce is the UK's leading engineering
company and sole aero-engine manufacturer. The Company also has
strong positions in propulsion-related sectors. It is No 2 in
the world aero-engine market competing against GE and UTC—a
position that has strengthened substantially since privatisation
in 1987.
(ii) The Company's contribution to the UK
is significant. R&D intensity and new capital investment are
high. We own and control critical intellectual property; have
access to a range of global markets; and, provide a route to market
for around 300 first tier suppliers in the UK. The competitiveness
of the UK is important to maintaining our global position.
2. ABILITY OF
UK LOCATIONS TO
COMPETE INTERNATIONALLY
(i) Some 60% of our employees and 45% of
our suppliers are based in the UK—and 59% of Rolls-Royce's
turnover is UK based. However, around 60% of our total turnover
is in US$, with only 25% in £ sterling.
(ii) A number of factors determine the international
competitiveness of our UK operations. These include the quality
and productivity of the UK supply base; availability of a skilled
and flexible workforce; the quality of industrial relations, a
stable economic climate; a supportive tax regime, effective central
and regional government support mechanisms; and, our ability to
generate and retain IPR within the UK.
3. INVESTMENT
(i) Our productivity has improved systematically
over the last decade or more—with value added per employee
growing at well beyond the UK manufacturing industry average.
This is supported by a high level of new product investment, new
capital facilities and modernised working practices.
(ii) Rolls-Royce has shown strong commitment
to the UK—in the last two years we have announced £230
million of investment in our UK facilities and in the last five
years we have invested over £3 billion in R&D, which
includes investment in technology as well as new product development.
(iii) However, the Company's technology acquisition
activities (R&T) have moved increasingly overseas. In 1987,
at privatisation, 98% of the R&T investment was undertaken
in the UK, compared with some 35% today.
4. VALUE OF
HIGH R&D INTENSITY
INDUSTRIES
(i) We believe that high R&D intensity
companies like Rolls-Royce give rise to substantial economic spill-over
benefits within the wider economy. Social returns to R&D can
far exceed the private returns to investing companies—an
important market failure in the context of Government policy making.
(ii) There is evidence that high R&D
(as a % GDP) economies are high productivity economies. Supply
chain relationships in the development and manufacture of new
products may be a key channel through which these large economic
benefits are realised—with prime producers such as RR providing
access to international markets and driving the adoption of new
technologies and processes.
5. THE ENVIRONMENT
FOR INVESTMENT
(i) Government policy has recently highlighted
the importance of science and innovation and its role in contributing
to economic prosperity. Following the Lisbon Agenda, a UK target
has been established to reverse the decline in UK R&D—the
Government's objective is for R&D to reach 2.5% of GDP over
the next ten years.
(ii) At the same time, HMG is increasingly
devolving responsibilities to the regions. The ability of regional
government to respond to the challenge of delivering national
technology and other economic strategies is a major challenge.
The essential role for central government must be to provide direction
and co-ordination to enable these goals to be realised in practice.
Industry requires a stable and predictable support environment
as a backdrop for long run investment decisions.
November 2004
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