Examination of Witnesses (Questions 760
- 779)
MONDAY 10 MAY 2004
DR DAVID
GRANT CBE AND
MR BRIAN
MORGAN
Q760 Dr Francis: This is a question
for Mr Morgan. In relation to academic support for manufacturing,
are there targets and initiatives in the Entrepreneurship Action
Plan for growth firms realistic?
Mr Morgan: I was given forewarning
that this might be on the agenda, so I went back to the original
and had a look at them. I was involved in setting up the original
piece of research in terms of giving the research group at the
time the facts and figures for Wales as it was in 1999 and I indicated
that we had 150,000 companies in Wales, and how they were broken
down and what the ratio was for growth companies. I mentioned
at the time that in the work that I have been undertaking, only
20% of companies have a realistic chance of growing, and less
than 2% have a realistic chance of growing to any significant
size—say 50 companies or thereabouts. They took these figures
and said, "this is where we are now"; "where do
we want to get to?" I think there was some political pressure
then to go for some large numbers. In fact, when they produced
the report they were going to raise those figures from 20% growth
to almost 40% of the companies by 2010, and they were going to
be growth companies. That is a very big challenge to succeed in.
If you look at the figures I gave at the outset, we were supposed
to be on a completely different path for the last three years,
according to the Entrepreneurship Action Plan. So we are now starting
from a much lower base than that plan. The original objectives
are completely out of the water now and we are never going to
be able to achieve those. The question is whether we can get back
on track on this lower base and still rise at that sort of rate.
Q761 Dr Francis: Who takes the lead
in the Action Plan?
Mr Morgan: The Assembly Government
definitely, the Assembly Government strategy. The lead has been
devolved to the WDA to achieve. I think there is an understanding
now that those original targets are just not feasible. The idea
was that we would have had an extra 35,000 companies in Wales
by 2008.
Q762 Dr Francis: Have those targets
been revised? What process of re-evaluation is taking place?
Mr Morgan: I do not think they
have actually been revised, but I think the WDA would like to
see them revised because if they are still on the table as being
their targets and if they are being evaluated against the targets,
there will be some real problems. They should definitely be revised
because four years down the track they are going to be going in
the opposite direction to the direction in which the targets were
set.
Q763 Dr Francis: I do not quite understand
your answer. Do you mean that they are not doing anything about
it?
Mr Morgan: I have not heard they
are doing anything about it in the sense of revising the targets.
I have not been party to any discussions, but they are now out
of kilter with those original targets set in 1999.
Q764 Dr Francis: Dr Grant, in your
memorandum you cite the Cardiff University Innovation Network
as a successful innovation that encourages business-to-business
collaboration as well as business to university links. Can you
give us some more practical examples of the benefits of that?
Dr Grant: I think the scale of
it is very important. We have 2,500 members, and these are active
members because annually we ask whether people have participated
in events and whether they want to maintain their membership;
so it is 2,500 and growing. This involves people from over 800
companies, generally small companies, not just locally within
Cardiff but from a 50-60 mile radius. We hold a meeting every
month with a theme—sometimes entrepreneurs talking about
what they have achieved, or sometimes we have people from WDA
or other agencies. We sometimes have people from the University
talking about some idea they think might be exploited. It is a
hugely successful network, and I would say that it is one of the
best that I know in the UK, because when I was in business I used
to join in some networks of other universities, and I would say
that the Cardiff University Innovation Network is one of the best
in the UK. Last Thursday, at their annual prize-awarding, they
had people from the DTI there who were really confirming my belief
that this is a thriving network. The success stories are considerable.
There are very many cases where people have either met other companies
when they have come to network events and found that they can
work together, or they have met academics. It is done in a very
friendly fashion. I think that what differentiates it from many
other networks is that we are not pushing science and technology
on companies; we are giving them an opportunity to network with
us and talk about common issues. A lot of the issues we talk about
are not just the hard science but about how you do business and
what is the most effective way. Therefore, we have a long list
of companies that are benefiting in all sorts of ways. One of
our challenges is measuring that and the economic impact of it.
We do not really know. We know that Professor Pham is working
with very many companies, and many of those companies he would
meet for the first time at an Innovation Network event. They would
be introduced to Professor Pham. The Manufacturing and Engineering
Centre was host for one of last year's meetings, so that people
could walk around and see all the fascinating work going on and
the facilities. We try to do that to encourage companies to come
to us. I could give you more examples, but in just about every
discipline, from pharmaceuticals through to manufacturing and
engineering, through to business help, we have got success stories.
Q765 Dr Francis: When we were in
the US we were very impressed by the way the University of Georgia
worked with the private sector and government in a triangular
relationship. Would you see that as a model that you would use
and, if so, which university in the UK or overseas is a good example
of what you would wish to replicate?
Dr Grant: I have been involved
in very many such exercises world-wide, as I have already said,
and I would really say that the model we have at Cardiff is as
good a model as I have seen elsewhere. At one end of the spectrum
you have MIT. As a former member of the MIT Industrial Liaison
Program. If I recall it was about $60,000 a year membership to
join the MIT network. Inevitably, large companies were the only
ones who could afford to pay that money. In Cardiff, in contrast,
this is free. People come along and give up their time, which
has value; but it is essentially a free networking event. It is
attractive irrespective of whether you are a large company or
a small company. We are not distinguishing ourselves in the way
that MIT did, just on the basis of it being a nice income generator.
As I look around, taking your point about involvement with government,
we have the strong involvement of the WDA, and Finance Wales and
other interested parties from Wales. They take part in this and
have part sponsored it.
Q766 Dr Francis: I was looking at
your evidence again and I cannot see whether it is defined by
region. Is the network coterminous with a region or is it much
broader than that?
Dr Grant: It is much broader than
that. It has never had a boundary drawn around it, and I do not
think we should. We circulate information across a very large
area and we get members turning up from south-west England, just
as we get members from far distant parts of Wales. I do not think
it is important. I think we just give people an opportunity, irrespective
of where they are. Some will only come to certain events of particular
interest.
Q767 Albert Owen: Still on the subject
of academic support for manufacturing in Wales, what data is available
to evaluate public sector initiatives in manufacturing and how
can this data be improved?
Mr Morgan: In terms of public
sector initiatives, we have a series of fora that the public sector
has supported, for example like the electronics forum, and they
have tended to be a bit like the Innovation Network. They are
essentially networking events for organisations and they put on
events every couple of months. I do not think there is a lot of
data on the impact they are having on their particular sector.
I know that their sector rises and falls with the business cycle,
so it is not possible to be independent of that. Recently, the
Welsh Assembly Government set up a manufacturing task force to
look into ways in which they could monitor what was going on at
the sectoral level far better than they are at the moment, and
they are due to report this month. I have not seen that report
yet. That is a manufacturing task force that will report on those
issues.
Dr Grant: I cannot add anything
to that.
Q768 Albert Owen: There has been
previous evidence that it is difficult to quantify the value of
the public sector generating wealth and GDP, and in your opening
remarks, Mr Morgan, you talked about the GDP dip in Wales. All
this extra resource is not really filtering through to help the
companies to produce a higher level quality of jobs and the GDP
rise that we all want. Is that a fair analysis?
Mr Morgan: Yes. We are missing
a trick in this area. The big issue here is that there are well
over 100,000 firms in Wales. If you try to help everybody without
discrimination of any sort, the resources are so limited that
you end up helping nobody. Governments have difficulty, I think,
targeting resources in such a way that they focus on those companies
that are best placed to make the most effective use of that scarce
resource. I, for one, have not been able to get the support of
the WDA or the Welsh Assembly Government to undertake this type
of proactive research into the company base. If you are going
to make a difference, you probably have about 2,000-3,000 companies
at the most in Wales that could really grow and therefore could
really make effective use of the resource, the very expensive
resource, that is available to companies. How do you target and
identify those companies? There are well known ways in which you
can do it, but you have to have leadership from the Welsh Assembly
Government to go out and say, "that is what we are going
to do; we are going to look for companies that can really kick-start
that economic regeneration pattern". At the moment we are
not in a position to do that.
Dr Grant: It is a question of
investing in success. There are examples, I am pleased to say.
We have had quite a number of spin-out companies from our institution,
and Swansea is an example of another institution, with the Technium.
There are excellent examples around in Wales, but they are not
yet of a large enough size to have a significant economic effect.
I am sure you are aware that investment at this level has been
taking place, as far as I can tell, over a relatively short period
of time. If we really can help some of these companies get beyond
the small size, I would be confident that we will, in the next
five to 10 years, see a few success stories. We must target the
investment on those most likely to succeed.
Q769 Albert Owen: In your submission
to us you seem, Dr Grant, to imply that better research equals
better economy. That is what you said, and you have enhanced that
view today. Is this really the case, or does the university management
need to actively encourage development of entrepreneurial skills
et cetera?
Dr Grant: We have to do that,
of course; that is part of our role, to encourage members of staff,
where they are working in disciplines that can connect externally,
not just in the economic but also the social and cultural side
of the university's role. It is really to help members of the
staff understand the impact that their work can have locally,
nationally and internationally. There is a role for us to encourage
that. Giving skills that are relevant for entrepreneurship is
an example where it may have economic impact, but that is something
that we must do. It is not something that would come naturally
in an academic career path, and that is why we have to take whatever
measures we can. I am well aware that with a business school we
have people who are able to help in other parts of the university.
I do not know whether Professor Pham mentioned this morning, but
we have recently won a big 3.25 million contract from the Research
Council that involves people from the business school and people
from the engineering school; those who are looking at the hard
end of technology and those who are looking at how you turn technology
into business. That sort of internal collaboration, which we as
managers of the institution have encouraged, is an example of
how you give people that broader skill set.
Q770 Albert Owen: What role have
you played in the development of the Technium Programme? Does
the fact that you are outside Objective 1 preclude you from involvement?
Mr Morgan: We were not involved
in the original setting-up of the Technium projects in West Wales.
Dr Grant: I do not think we should
be disappointed because we are not in an Objective 1 area. The
point is that there are opportunities. We are looking at a bio-technium
in Cardiff Bay as one example that would go nicely with the Gene
Park. We are engaged in discussions at present with the Welsh
Assembly Government on that as an opportunity.
Q771 Albert Owen: But you were not
involved in the main roll-out programme across Wales.
Dr Grant: The ones that are happening
elsewhere, no, not directly.
Q772 Albert Owen: But the fact that
you are not in an Objective 1 area does not stop you from getting
involved in other projects.
Dr Grant: No.
Q773 Albert Owen: So there is no
hard and fast barrier.
Mr Morgan: It did originally.
It was very narrowly interpreted at the outset, rule 12. If you
were not physically located in an Objective 1 area, you were ineligible
for any of the work that was going on in Objective 1. It took
the EU to intervene to say, "you do not have to interpret
it that narrowly and people adjacent to Objective 1 who have the
skills to raise GDP are just as eligible." For the first
year or two we were excluded.
Q774 Albert Owen: Presently you could
be a lead partner in a consortium.
Dr Grant: That is right, and we
are, in one or two related areas.
Q775 Julie Morgan: I apologise for
arriving late and missing your opening remarks, so I hope you
have not covered this point. Mr Morgan, as a director yourself
of a small firm, what support could the public sector offer to
improve your firm's growth?
Mr Morgan: One of the key things
that governments can do is to help in the transition. If firms
are in sectors that are declining, government can help transition
and reduce the transaction costs. In general, from our own point
of view, because we have been in a fairly stable sector, the most
important thing for the Government to do for us is to help with
things like training. We were in a new sector with very few skills
available to us. We had to import those skills and train up individuals,
and we really needed a lot of support on the training side. That
was one particular area. If you are in an Objective 1 area, which
is where the Welsh Whisky distillery is, in these deprived areas
you find that if you are an expanding company and want to build
a new property or extend your existing area, the cost of building
the property, say £300,000, has only a value of £200,000
because it is built in an area where banks do not perceive you
can re-sell or do something with. If you build something for £300,000,
you then get a valuation from the bank of £200,000, which
means you could only raise £100,000 mortgage for a £300,000
building or something like that. You are greatly disadvantaged
by building something in an Objective 1 deprived area because
of the problems of raising finance, and the Government needs to
come in here with a property grant that makes up the difference
between the value as perceived when it is built by an independent
assessor and the cost to the company to build it. Finally, it
is in the area of marketing and sales for regional products and
regional companies. To some extent the WDA has done bits of work
in this area. As we know, the multiples are very difficult to
deal with: Tesco and Sainsbury for example. They have been encouraged
to take more regional produce but they just pay lip service to
it. They say they are going to take local produce, but the big
decisions about where everything goes on the shelf for example
is all decided at head office. Everything is exactly the same
in Tesco Cardiff as it is in Tesco London, except you will have
a regional produce shelf stuffed around the corner somewhere that
hardly anybody goes to. They say, "we take on these products",
but there is no real support for those products to be put there
against their competitors, so you do not get the sales that you
would expect. Marketing and sales support in that sense, and training
are probably the main areas that government can give support in.
Q776 Julie Morgan: Is your experience
that you have not been able to get into the Tesco, the big multinationals?
Mr Morgan: We have got in there,
but only round the corner. We have got a fantastic product that
can stand up against Glenmorangie, Glenfiddich and Jameson's of
Ireland, and it should be there on the shelves, next to those
products. It is not; it is stacked around the corner with strawberry
jam and everything else, the cheese that comes out of Wales. They
should be putting our products where the competition is. That
is where Tesco put their own products of course. For example,
we put a gin and vodka, and Tesco immediately copied the style
of the gin and vodka; it is now Tesco's Finest. All the Tesco
products are up there competing with the others, but if you are
a regional product, you are round the corner. People keep saying,
"I can't find it". I say, "no, neither can I!"
Q777 Julie Morgan: On the training
aspect, is there no mechanism by which you can be helped with
the training?
Mr Morgan: Yes. ELWa have two
schemes in place, but we were unfortunate in starting up and needing
the support when ELWa was going through its growth pangs, and
we would be far better off with the old TEC (Training and Enterprise
Councils) arrangement, where the TECs were much more embedded
with the local businesses and knew what was going on. It has taken
ELWa quite some time to get up to that level, and that re-organisation
coming on stream at the same time as Objective 1, at the same
time as the National Assembly, caused so much upheaval and it
was very difficult to get the sort of training support at that
time that we needed.
Q778 Julie Morgan: Would a similar
sort of firm be able to get more support now?
Mr Morgan: I think so now, yes.
ELWa is getting its act together now in that area, and we do have
some support now with a new trainee distiller coming on board,
funded by a graduate support scheme.
Q779 Julie Morgan: What about Finance
Wales? Does that behave any differently from any other bank?
Mr Morgan: Interestingly, it is
subsidised to act differently from other banks. The subsidy is
there for two reasons; first, to enable Finance Wales to provide
money with management support, so as well as offering finance
it will also offer some sort of support to get the management
structure and skills in place to effectively utilise that support,
so that is one element of subsidy. The other element is that if
it is acting as a venture capitalist, as it is supposed to do
in a way because that is really why Finance Wales was set up—we
already have a banking system—it was also given a subsidy
to look at smaller `deals'. The problem with venture capital is
that the due diligence on a £20 million venture is exactly
the same as the due diligence on a £20,000 venture; you still
have to invest the resources to do the due diligence. Venture
capitalists are typically not interested in doing small deals,
and that is why Finance Wales was set up, to plug the gap between
a £1 million venture capital investment and a £100,000
venture capital investment. To do that, you have to take some
risks, and risks unfortunately involve failure. I think what has
happened is that there is such a risk-averse attitude that very
little has been invested in that gap area.
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