APPENDIX 5
Memorandum submitted by British Expertise
INTRODUCTION
1. British Expertise is the leading UK private
sector organisation for promotion and development of international
business in the knowledge-based sector. Our 270 member companies
span a wide range of market sectors, and are active in almost
every country in the world. We therefore feel well qualified to
comment on this particular aspect of the present enquiry.
THE UK TRADE
AND INVESTMENT
FIVE YEAR
STRATEGY
2. The new five year strategy for UK Trade
and Investment, which we have influenced, contains much that is
positive and sensible. In particular we welcome the recognition
that it is only the larger and more experienced companies that
can win large projects abroad; and that they need energetic support
from UKTI in overseas posts to help win such projects against
the increasing competition that is a natural result of globalisation.
As well as benefiting the economy directly, such project wins
bring considerable supply chain opportunities for smaller UK businesses.
3. The new policy of outsourcing trade promotion
work to private sector organisations such as British Expertise
is also welcome, and we will continue to bid competitively for
this work where it is within our experience and capacity.
4. However we do have concerns. For years,
the work of UK Trade and Investment and its predecessor organisations
have been hampered by Treasury dogma. It was the Treasury that
previously instructed UKTI to focus its efforts on bringing small
and medium enterprises (SMEs) into exporting, because it was at
this level that research suggested civil servants could make the
greatest difference to a company's efforts. This was no doubt
correct, but it was hitting the wrong target. The policy ignored
the fact that exports by SMEs are economically much less significant
than those of the larger companies.
5. The present Public Service Agreement
(PSA) target for UKTI is "a measurable improvement in the
business performance of UK Trade and Investment's international
trade customers." This also stems from Treasury doctrine,
based on the fairly obvious fact that exporting sets new challenges,
and is therefore likely to sharpen any company's business focus.
But what companies need from UKTI is not help to improve how they
do business, but direct help in winning overseas business. The
PSA target should therefore be focussed much more directly; for
example: "a measurable improvement in the contribution of
international business to the profitability of specific UK companies."
TRADE PROMOTION
V INWARD
INVESTMENT
6. Similarly, the belief persists within
HM Treasury that inward investment is of greater value to the
economy than is international trade by British companies. The
speech by the Rt Hon John Healey MP at the UKTI New Strategy launch
focussed entirely on inward investment, with no mention of trade
promotion. This bias flies in the face of common sense, but is
deeply rooted. It seems to be based on the fact that the benefits
of inward investment can be measured accurately, whereas manufacturing
exports are in historical decline, and while the UK leads the
world in exporting knowledge-based services, the decentralising
effect of globalisation is making it more and more difficult to
measure the contribution this makes to the economy. The Treasury
motto seems to be "if you cannot measure it accurately, it
is not worth anything."
7. On that point, and as the Financial Times
has recently observed, inward investment statistics are as capable
of false interpretation as any other statistics. We believe that
genuine inward investment is indeed economically important; but
only investment that actually creates a real economic benefit
should be counted within the statistics. More importantly, the
greatest value to the economy is realised if the company concerned
then makes the UK a springboard for international success. UKTI
should seek to integrate support for trade promotion generally
with support for companies that have come to the UK for this purpose.
THE EMERGING
MARKETS
8. The emphasis on the "emerging markets"
in the UKTI Five-year Strategy is once again imposed by the Treasury.
This focus is perfectly sensible in itself, but even here there
are serious problems. The first is that despite the budget for
UKTI having been slashed in the 2004 Spending Round, the new focus
is not being funded by even a partial restoration of the resources
cut. It is being funded by a further reduction in the numbers
of commercial officers in London and in the more established markets
for UK companies. This ignores two facts:
— That the established markets
continue to offer lucrative opportunities for UK business, but
are not necessarily "easy" to enter or operate in, so
that UKTI support is needed.
— That emerging markets may not
always be the most appropriate ones for the sophisticated techniques
British Expertise companies and many others have to offer. As
an example of this, the UK leads the world in the application
of so-called "green build" techniques. While there is
growing interest in this from China, the most lucrative market
will continue to be the US for the foreseeable future. Yet the
UKTI effort in the US is being cut.
9. There now appears to be a notion within
UKTI that "concentration" of commercial officers is
necessary for the proper support of British business in the emerging
markets. In fact, "concentration of forces" is a military
doctrine that has no relevance to trade promotion. A single well-trained
and motivated commercial officer in a market will be highly cost-effective.
Yet many more smaller markets are now being left with no UKTI
capacity at all.
10. Perhaps the most serious problem is
that British Expertise is seeing only a limited correlation between
the interests expressed by our member companies, and the emerging
markets that have been made the priorities for UKTI. For example
there is little interest from knowledge-based companies in the
markets of Brazil or Vietnam. On the other hand, the West Indies
is an example of an area of strong interest to British companies,
no doubt in some cases helped by our Commonwealth ties; but UKTI
staffs are nevertheless being cut there. This is a direct result
of the unfortunate failure of Government to ask business which
emerging markets—indeed markets more generally—are
important to it. It is hard to escape the conclusion that this
happened because UKTI would have received the "wrong"
answer.
11. We understand that the remaining commercial
sections in our diplomatic posts abroad were consulted, and asked
to complete a questionnaire to assist a judgement on which should
be included in the emerging markets list. We believe this is a
poor substitute for asking British business—both services
and manufacturing—for its opinion.
24 October 2006
| 
