Examination of Witnesses (Questions 1
- 19)
TUESDAY 7 NOVEMBER 2006
UKTI
Q1 Chairman: Gentlemen, welcome to
this opening evidence session on the Committee's inquiry into
trade and investment opportunities in Brazil. Although this particular
session and the Committee's visit next week are specifically related
to Brazil and to an extent Argentina, I think it is fair to say
that the evidence we will receive from you today and the questions
we will ask you where there are issues of principles will inform
our rather wider work into a separate inquiry into UKTI strategy
itself. I hope that does not alarm you unduly. Can I begin by
asking you to introduce yourselves for the record?
Mr Timmins: I am Ken Timmins.
I am Director, Developed Markets in UKTI, that is from the beginning
of October. I was previously Director, Europe and the Americas
which is why I am involved in this inquiry on Brazil.
Mr Hockney: I am Adrian Hockney,
I head up the unit responsible for Brazil and Latin America.
Mr Blackmore: I am Paul Blackmore.
I am the desk officer in UK Trade and Investment for Brazil and
Mexico.
Q2 Chairman: Thank you very much,
indeed. We are very grateful to you for your written evidence.
That was interesting and it showed that we are still, both with
exports and imports, the fourth largest EU trading partner with
Brazil. However, what worries this Committee is the Department
of Trade and Industry's investigation into the Trade and Investment
Opportunities with India response which we published a few days
ago. What worries us is that other people seem to be doing better.
Germany, France, Belgium and Spain all increased their trade at
a much higher rate than the British increased their trade. Why
do you think that is? Are we taking Brazil seriously enough by
the status in the BRIC economies?
Mr Timmins: I think that there
are a number of reasons for our performance in Brazil, some of
these relate to the view that British companies have of the market.
Brazil is very distant for a lot of companies, it is a market
that for some companies, indeed for many companies, poses difficulties
around language. There are issues around markets where British
companies feel that there are easier fish to fry, if you like,
around the world and also in relation to Brazil itself there are
perceived difficulties in trading with Brazil because of the tax
burden and the regulatory burden, as a general perception amongst
British companies that doing business with Brazil can be quite
problematic. Those are a range of reasons why companies perhaps
do not look at Brazil as positively as they ought to do.
Q3 Chairman: Just out of interest,
Portugal is on the list of countries that is doing better than
us. Do we know if Portugal is doing better? They do not have the
language problem, of course, that British businesses have.
Mr Timmins: There are all these
issues. What I have said about Brazil and about British companies'
perceptions about Brazil really is about where we are now but,
of course, as part of our new UKTI strategy, which we launched
back in July, we are adopting a rather new and different approach
to Brazil which I can explain to the Committee as you wish. Before
I do that, I think the other point which I ought to make is that
in UKTI and its predecessor body organisation—British Trade
International was formed in 1999, Trade Partners UK which succeeded
and we became UK Trade and Investment a couple of years ago—our
policy over these years has not been to promote markets. I think
I need to emphasise that our policy has been to help improve British
companies' competitiveness, so we have not had over the last few
years a particular focus on promoting Brazil in the same way that
we have not had a particular focus on promoting many other markets,
and China and India are the exception to that in recent times.
If you look at our headline objective for UKTI, our headline objective
for the spending review 2004, for those three years, was to achieve
a measurable improvement in the business performance of our customers.
That is rather different from an objective which is specifically
about promoting markets.
Q4 Chairman: The bottom line is that
British business is not doing as well as our competitors are doing?
Mr Timmins: Indeed.
Q5 Mr Binley: I just found your first
argument that Brazil is very distant in relation to the Chairman's
question to be quite surprising because it is just as distant,
it seems to me, for the other European countries and maybe a little
more distant. I did not quite understand that, quite frankly.
It does seem to me that our competitors are seizing opportunities
that we are missing. You then went on to say that your job was
not to highlight markets and help with specific markets with our
internal business. Is that one of the reasons why we are not being
as successful as other people? Have we got it wrong in that respect?
Mr Timmins: As I said, we have
gone through a period of several years where our objective has
not been to promote particular markets. There has been a very
good reason for that which is that British industry told us that
we had to stop promoting markets, it was confusing to British
industry, every desk within UKTI as you might imagine was promoting
its own markets, the opportunities in the markets and expecting
British industry to respond. The fact is that British industry
does not have the capability or the capacity to respond to every
opportunity and every market in the world. That was a message
which we took very seriously from British industry a few years
back. The message being, "Please, do not confuse us with
market promotion". We shifted from market promotion in the
main to what we call trade development. Trade development is essentially
about nurturing companies individually and through their sectors
to make them more ready to build their capability to tackle markets,
with the decision about which markets they tackle essentially
being the business of the customer, not the business of UKTI.
Our job is to get behind companies to provide them with the support
and advice they need, the intelligence and opportunities, build
their capability but allow them to decide where they wish to pursue
opportunities overseas.
Q6 Mr Binley: You still have not
answered my question about the opportunities our competitors are
taking with regard to Brazil and South America that we are not.
If we pursue that argument it means that we see a shrinking share
within the export market and we need to do something about it.
What are we missing?
Mr Timmins: I do not deny that
at all. I do not think anyone you speak to would deny that our
performance in Brazil is less impressive than it should be. I
do not think there is any doubt about that. I have given some
of the reasons for that. There are other reasons around the fact
that British companies can be quite risk averse to markets like
Brazil and that may be a difference between British companies
and companies in Germany, France or elsewhere. I think this is
quite a complex matrix, if you like, of reasons why we are not
performing as well as we should. I think what I would say is we
have recognised that is the case and in terms of our new approach
to Brazil, in terms of our approach to globalisation, we are going
to adopt a rather different approach for Brazil and have already
started on that.
Q7 Chairman: Can I interrupt for
a second because—and I agree with you by the way about this
risk averse issue in some markets, we said this about India in
our report and the Government says in its response, "The
Government's interaction with UK businesses does not suggest that
they are risk averse". You have just said what this Committee
believes to be the case. Brazil I understand, it is a concern
which we have and share with you, but the response that was published
by the Government says something rather different about India.
Mr Timmins: I cannot really comment
on India, but certainly that is a view that we have expressed
on Brazil and is one of the factors which we believe is affecting
our performance.
Q8 Mr Binley: I am sorry, I am a
businessman and I am very confused now. You must know what strategy
our competitors are pursuing to do better in the first place.
Can I ask if you have specifically talked to those people who
are exporting to Brazil to find out what they are doing to help
those other people who might be on the cusp of doing so?
Mr Timmins: We are about to embark
on that very process. What I am trying to explain to you is how
our policy in relation to Brazil is shifting in the way that we
address the globalisation agenda. We are putting in place some
quite specific work to understand why it is that businesses, particularly
businesses which are not SMEs—. This is another point I
should also raise, that SMEs have been a major focus of our attention
in the recent past and in many respects Brazil can be a very difficult
market for SMEs so we are beginning to look very carefully at
that cohort of companies which are not SMEs, which are above that
level in terms of employment, mid-corporate companies, and we
are addressing why their activity levels in relation to Brazil
are less than they arguably ought to be and there is some research
which is about to begin on that. It is very important that we
understand the reasons so that we can then put in place the various
mechanisms to address the problems. This is quite a bit of fine-tuning,
if I can put it that way, working with companies now as part of
the globalisation agenda.
Q9 Mr Binley: If my business were
not working it would be more than fine-tuning, quite frankly.
Let me go on to the second question which I wanted to ask. The
UK is lagging behind in terms of FDI into Brazil, as you will
know, in sharp contrast with its position vis-a"-vis
its competitors in China and so on. What sorts of businesses are
attracting investment from our EU partners?
Mr Timmins: In Brazil?
Q10 Mr Binley: Yes.
Mr Timmins: First of all, on FDI,
the UK has been an investor in Brazil from the end of the 19th
Century. We have a long history of investment in Brazil and there
are many British companies represented there, so that has been
a success story. There are companies such as Glaxo, Cadbury and
Shell who are all heavily involved in Brazil, so I think that
should be regarded as a success.
Q11 Mr Clapham: Mr Timmins, I want
to follow behind the question that Brian Binley asked and relate
it back to the last time that this Committee visited Argentina
and Brazil. I recall at that time, for example, Argentina was
going to import gas, I think from Chile, and British Gas were
very much involved in what was likely to be the connection to
the domestic system. At that time we were talking in terms of
British Gas helping joint ventures between smaller companies in
the UK who may go into a joint venture with an Argentinian company
to produce the manufacturers that would be required to help the
domestic gas link. We were talking at that time, and this was
10 years ago, about that being an example of the way in which
the Germans were getting their companies into the market and here
we are now 10 years after and it seems that we have learned no
lessons at all, that we are not doing that from what you are saying
and it just seems that we are allowing our competitors to steal
a march all the time.
Mr Hockney: Particularly in oil
and gas, I think that is a very good example of where we have
got a specific strategy to deal with getting British companies
out to Brazil. We have done a lot of piggy-backing to get some
small and medium enterprises—things like valve manufacturers,
I am not a specialist, but that sort of thing—onto the Shells,
the BPs, British Gas and so on. I think in that sector it is working.
Q12 Chairman: We are going to do
some more work on sectors later, so perhaps we should stick to
gas at present.
Mr Hockney: I think it is working
in that sense.
Q13 Judy Mallaber: Mr Timmins, I
did not quite understand one of your replies to Brian Binley earlier.
You said that companies were getting fed up with you overloading
them with too much stuff about markets in different countries,
but you then went on to say that it was up to businesses to decide
what opportunities they wanted to take up. I do not understand
how they know what opportunities there are if they are not being
told what the market is. Could you explain that?
Mr Timmins: There are two elements
to our trade work. One element is what we call "trade development"
which is essentially working with individual companies, building
their capability to export, giving them advice and essentially
allowing them to decide where it is they wish to export to, but
with the support that we have given them. That is our trade development.
The second aspect of our trade work is in the sectoral area and
what we are doing there is with each sector of British industry
we have a process whereby we present to British industry the opportunities
in individual markets around the world and sector by sector we
discuss with British industry which markets they regard as a priority.
This is quite a strategic approach and, of course, it involves
Brazil and there are several sectors of British industry that
see Brazil as a priority market.
Q14 Judy Mallaber: So you are telling
them what the markets are.
Mr Timmins: The sectoral approach
is a strategic approach to how we use our finite resource. What
we are saying to British industry is, "These are the markets.
These are the opportunities in the markets. You tell us across
the globe which markets you regard as a priority and UKTI support
will follow". It is customer-driven, it is informing British
industry about opportunities channelled through our posts in Brazil
and elsewhere, so there is an element of—I would not call
it "market promotion"—ensuring that British industry
is aware of what opportunities are available elsewhere, but it
leaves the decision to British companies and British sectors of
industry as to where they wish to take UKTI support.
Q15 Judy Mallaber: If you suddenly
saw an opportunity come up, say in a Brazilian market, would you
post it or go to the companies you thought might wish to take
it up?
Mr Timmins: Indeed. First of all,
if it was an opportunity in a sector that had been bubbling away
for some time and it looked as if there really was going to be
some potential business for British companies, we would be in
touch with the sector, with the trade association or whatever
body was responsible for the sector in the UK, we would present
that opportunity to them, discuss it with them and take their
view on the extent to which they saw it as important to them.
If it was a single opportunity, a Brazilian company needing to
import into a particular area, we would post that particular opportunity
on our website as a business opportunity and all the 12,000 or
14,000 companies which subscribe to that would be able to take
advantage of that opportunity.
Chairman: There are interesting questions
here we may return to if we have time later on, but we must move
on to progress the questioning. Peter Bone.
Q16 Mr Bone: I want to ask you about
something that seemed rather strange to me in your written evidence,
I think it appeared in 4.6 of the main memorandum. You said that
British companies investing in Brazil often do so through third
countries. I did not quite understand why they do that. Could
you explain?
Mr Hockney: Another British investment,
for example, that comes out of the Netherlands might be by a British
company but it is ascribed to the Netherlands' foreign direct
investment. That is one of the reasons the Netherlands is quite
high up in the table for foreign direct investment into Brazil.
It can be British companies that are investing, for example some
of Shell's investment goes under the Netherlands' outward investment
figures.
Q17 Mr Bone: That is even more confusing,
Chairman, because if it is British investment why does it come
under Dutch figures?
Mr Hockney: Because it would come
out of their offices in the Netherlands.
Q18 Mr Bone: I suppose I would go
back to the original question, why? Why do they do it that way?
What is so great about the Netherlands? We are part of this wonderful
organisation called the EU, it is a great single market, we are
dynamically getting investment for Britain, why do we have to
go through a third country?
Mr Timmins: These are issues for
British companies to decide on. It is not for us to dictate to
companies how they conduct their business, that decision must
be for them.
Q19 Mr Bone: I understand the decision
must be for them, but I do not understand the rationale at the
moment. If I am sitting in a head office in London, why on earth
would I send my money across to the Netherlands to go to Brazil?
Are they anti-British in Brazil ? Is that the reason?
Mr Timmins: No, not at all. I
think this is just a factor of how business is done. If you speak
to these companies individually each will have a different story
to tell about why they do it in that particular way. It certainly
does depress our trade figures.
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