APPENDIX 40
Memorandum submitted by the Scottish Council
for Development and Industry
The Scottish Council for Development and Industry
(SCDI) is pleased to submit views to the Committee's Inquiry into
the Future of Manufacturing Industry in the UK. SCDI's submission
is in response to the first inquiry within the overall theme,
namely: "Marketing UK plc: The work of UK Trade and Investment
in supporting exporters and encouraging inward investment".
SCDI is experienced in the delivery of projects sponsored by UKTI,
and many of its manufacturing members are direct users of UKTI
services.
Given the devolved arrangements in Scotland,
and the responsibility of the Scottish Executive for skills and
public procurement policies relating to Scotland's economy, our
submission does not address these elements of the Committee's
Inquiry.
1. BACKGROUND
The Scottish Council for Development and Industry
is an independent membership network, which strengthens Scotland's
competitiveness by influencing Government policies to encourage
sustainable economic prosperity. SCDI's membership encompasses
a diverse range of interests across Scotland's economy, including
manufacturing companies of all sizes and from a wide range of
sectors.
Amongst its broad range of activities, SCDI
has a longstanding track record in international trade development,
having organised 343 trade missions since 1960, to more than 60
markets worldwide. These include a number of pioneering projects,
including organisation of the first trade mission from the West
to be invited to the People's Republic of China in 1971; organisation
of the UK's official mission to New South Wales during Australia's
bicentennial year in 1988; one of the first missions to South
Africa following the first democratic elections of 1994; and some
15 missions to eight of the EU's New Member States and Accession
States in Central and Eastern Europe during the last five years.
SCDI is an accredited trade mission organiser
under the accreditation scheme introduced by UKTI some years ago,
and counts a wide range of internationally-focused businesses
and organisations within its membership.
With this level of experience and active engagement,
SCDI considers that it is a key stakeholder in the strategy discussions
of UK Trade and Investment.
UKTI's strategy and current operation has been
the subject of discussion at recent meetings of SCDI's International
Business Committee, and some of the issues raised in this submission
reflect concerns expressed by this Committee.
2. UKTIS ROLE
SCDI considers it vital that the UK has a strong
Government department capable of giving practical and professional
support to the UK's export and inward investment efforts. The
department should also be marketing the UK's capability vigorously,
and representing the interests of UK businesses, in overseas markets.
SCDI therefore welcomes the explicit commitment to this in UKTI's
recently published five-year strategy "Prosperity in a Changing
World".
It is important that UK Trade and Investment
achieves a stronger identity in the UK, as well as a high reputation
in overseas markets. The Government export promotion and inward
investment functions have undergone frequent changes in branding
and operations in recent years. Some of these have been confusing,
or have been lost on many of the businesses which could benefit
from a clearly recognised Government department which exists to
underpin their ambitions in global markets. It is important that
UKTI maintains a greater degree of stability and consistency in
its strategy and operations, in order to achieve a higher degree
of brand awareness amongst UK companies, and a deeper understanding
of its core function and its support services.
UKTI should play a full and active role in lobbying
on behalf of UK companies and industries, particularly where there
are perceptions of unfair competition or protectionist policies;
or where the support of the UK Government can make a difference
in opening doors for British businesses. For example, the Scotch
Whisky industry - one of the UK's highest value export sectors
- experiences on-going examples of protectionist policies and
intellectual property infringements in global markets, and needs
the active support of Government at all levels in addressing these
issues.
3. SUPPORT FOR
MANUFACTURING COMPANIES
The impact of rapidly accelerating globalisation
has transformed the prospects for winning new international business,
as well as the threats to loss of established market share. The
UK, as with all developed economies, is having to respond imaginatively
to the new scenarios presented by globalisation. This is happening
through product and process innovation, as well as strengthened
marketing. The manufacturing sector faces the most acute challenges
in maintaining international competitiveness, and is responding
through value-added, knowledge-driven activity; through diversification;
and through more effective sourcing, outsourcing, supply chain
management and, where appropriate, offshore production.
It is vital to re-inforce recognition of the
value contributed by the manufacturing sector to the UK's external
trade accounts. SCDI's own annual survey of Scottish Manufactured
Exports confirms the value of manufacturing output to Scotland's
exports, with some £15 billion generated by direct exports
alone, across many key sectors from Electronics industries, Chemicals
and Life Sciences to Food and Drink. The latter includes Scotch
Whisky, which alone contributes over £2 billion in export
income. SCDI's Survey of International Activity in the Oil and
Gas Sector reports an additional £3.6 billion derived from
international sales, including both direct exports from Scottish-based
operations as well as sales derived via subsidiary companies.
This activity depends again on a vibrant manufacturing engineering
and technology sector.
The cost of production is undoubtedly a key
issue for UK manufacturers in maintaining international competitiveness.
However, it is not the only issue. UK manufacturing depends on
high skills levels across a range of disciplines including science,
engineering and technology, as well as the management and marketing
skills necessary to conduct successful business.
UKTI can do much to underline and promote the
value of the manufacturing sector in the UK's international business,
and should seek to influence other Government departments responsible
for the education, skills and training agenda with a view to ensuring
that there is the requisite supply of skills to underpin international
competitiveness in manufacturing as well as other sectors of the
economy.
4. UKTI PRIORITY
MARKETS AND
CUSTOMERS
4.1 Priority Markets
SCDI agrees with the UKTI strategy that particular
efforts should be made to ensure that UK business is achieving
success in the rapidly emerging economies of China and India.
Additional resources to tackle the challenges of these markets
are vital and are included in UKTI's plans.
At the same time, UKTI must be encouraged not
to put too many eggs in too few baskets. The opportunities for
UK business are truly worldwide. Opportunities in Europe (especially
the still-developing markets of Central and Eastern Europe), North
America, South-East and East Asia must not be overshadowed by
an overly keen focus on China and India alone. Opportunities in
developing markets, whether in the Middle East, Central Asia,
Latin America or Africa, are also critical to many companies in
the manufacturing sector. UKTI's strategy now incorporates ten
key markets, with a further six to be added in due course if resources
permit. UK manufacturing business will continue to need UKTI support
in other developed and developing markets, and therefore the focus
on priority markets should not be exclusive.
4.2 Market Knowledge
One of the issues which has been raised consistently
with SCDI is the apparent diminishing market experience within
UKTI - expertise on particular geographic markets is not as readily
available within the UK-based staff as used to be the case, and
this is regretted by many businesses. At the same time, budget
cuts in UK embassies often seem to impact on the locally-engaged
staff first, reducing the depth of experience and local knowledge
which is vital in assisting exporters to enter markets successfully.
Companies are usually aware of issues in their own sector, but
need to fully appreciate the cultural expectations and unique
aspects of the business environment they are seeking to enter.
4.3 Support for New/Established Exporters
Manufacturing companies seeking to enter new
markets or to grow existing business can benefit from the high
level of support provided by showcase activities such as Trade
Missions, Trade Fairs and Exhibitions, and Overseas Seminars.
SCDI believes the balance of support in favour of New Exporters
and New to Market Exporters is wrong, and needs to be redressed.
As suggested in the evidence produced by the DTI Evaluation Study
2004/05 of UKTI Support for Trade and Inward Investment, "within
trade development, the evidence suggests..….financial benefits
are greater relative to costs for more experienced exporters than
for inexperienced exporters, while learning benefits resulting
from support are similar for the two groups".
It is entirely right that new exporters should
receive appropriate support in undertaking their first efforts
in international markets. However, this should not constitute
preferential or exclusive access to government support. There
is a question of sustainability, and support schemes should be
balanced across the board to assist businesses with varying degrees
of experience.
4.4 Support for varying sizes of business
While State Aid Rules are no doubt a consideration
in the construction of support schemes, SCDI believes that there
is a case for a more balanced approach to the customer base for
Government assistance between small, medium-sized and larger organisations.
While the DTI Evaluation Study states that "the vast majority
of businesses using UKTI trade development services are small
firms", that is self- evidently the outcome when so many
services are restricted to smaller firms and new exporters. Medium-sized
companies with a track record of exporting should still be able
to benefit from assistance, allowing the UK economy to benefit
from the generation of additional, sustainable new business. Helping
established manufacturing companies to diversify into new markets
or to move further up the global ladder is more likely to achieve
positive returns on public investment and to accelerate the overall
contribution to the UK economy.
4.5 Support for inward and outward investment
Whether right or wrong, there remains a perception
amongst many companies that the attraction of inward investment
is a higher priority for Government than the active support of
indigenous businesses in export markets. UKTI needs to reiterate
that it will be as supportive of UK companies in pursuing export
business, as is the perception of Governments in many competitor
economies.
Furthermore, UKTI should be more explicit and
active in its support for UK businesses undertaking outward investment
projects, where this has clear benefits to the UK economy and
the strengthening of individual UK manufacturing businesses. In
this respect, practical assistance to companies in identifying
offices, warehousing, recruitment services, and so on, would be
a valuable service where it supports retention of employment in
the UK as well as the overseas market.
The attraction of manufacturing inward investment
projects continues to evolve in response to changing global circumstances.
Opportunities for the UK to benefit from manufacturing investment
rely on the value-added contribution we can offer, the skills
and adaptibility of our people, and a supportive business environment.
UKTI needs to be at the forefront of identifying and nurturing
potential opportunities for investment projects, which are likely
to be in niche, high-value manufacturing sectors outwith the reach
of mass-manufacturing operations, which are now destined more
often for lower-cost, developing economies. While UKTI has a significant
role to play in marketing UK capabilities to global investors,
the changed global environment makes its support for the international
growth of indigenous UK manufacturers all the more essential.
September 2006
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