House of Commons - Business and Enterprise

Select Committee on Business and Enterprise Fifth Report

2 UK Trade & Investment in India

12. UKTI's presence in India is its second largest after its operations in the US. The Government's response to the previous Report stated that "India is a high priority and the team will be strengthened as resources are released from other markets"[30] under UKTI's strategy, which was to focus on key emerging markets.[31]

13. We are pleased that this has indeed happened. At the time of the first Report there were 74 front-line commercial staff in India.[32] During this inquiry we were told there were expected to be 91 people in 'Team India' by the end of the 2007/08 financial year. This increase, of almost 23%,[33] modestly exceeds UKTI's stated aim of strengthening its resources in India by one fifth.[34] The 91 UKTI staff in India consists of 17 'UK-based' staff and a majority (74) employed on locally-engaged terms.[35] UKTI noted the India team had seen the appointment of a new Deputy Director, a Delhi-based Trade and Investment Director (now entirely dedicated to trade and investment work, rather than this being 40% of their job),[36] and a new First Secretary Commercial focused on financial services and UKTI's financial services 'City Strategy', based in Mumbai.[37] In addition, the Government is doubling the resources of its Science and Innovation Network, "critical to identifying and delivering R&D opportunities", from 5 to 10 staff.[38] The Trade and Investment Minister, Lord Jones, said that the additional resource "is already showing benefit".[39] On one measure, UK missions to India, there were 23 visits in the first quarter of 2007, compared with 19 in the same quarter in 2006.[40] We raised the issue of possible cuts to UKTI services following the 2007 Comprehensive Spending Review, but were assured by UKTI officials that India "certainly will not be affected in an adverse way",[41] and that their "starting position is that markets like India, China and other high priority areas will be left unaffected in the first period of our review."[42]

14. The Trade and Industry Committee warned that an underresourced UKTI team risked the UK missing the 'last train' in India.[43] We wholeheartedly welcome the increased resources available to UKTI in India. Their Report also identified a lack of familiarity with India and/or an inability to take advantage of the opportunities in India among UK businesses.[44] We believe that these additional resources will help to address remaining issues in this area. We also warmly welcome UKTI's reassurances that its India activity will be protected from any cuts from the 2007 Comprehensive Spending Review settlement.[45]

Salaries

15. The quality of staff matters as much as, or perhaps even more than, the number employed, and it may be necessary to pay more to ensure good people are retained. British Expertise, the body promoting UK professional services, said that rapid growth and competition for talented staff in India were leading to difficulties in recruitment and retention in India.[46] The Trade and Investment Minister, Lord Jones, also noted that "skilled labour is becoming scarce" and that pay rates "are going up",[47] while UKTI officials said its staff were "highly qualified and very much in demand, so they are taken by other employers".[48] The Minister explained that a UKTI salary review has resulted in increases for most Indian posts this year (Mumbai excepted), and appeared to suggest that, in future, salaries would respond to local market pressures.[49] We welcome the improvements in salaries following UKTI's review, and expect the situation to be closely monitored in future. Locally engaged staff account for over 80% of UKTI's human resource in India, and it is vital that UKTI is able to employ and retain the best.

India's 'second cities'

16. The previous Report noted that skills shortages, along with infrastructure limitations, could lead to "the emergence of new centres of economic activity in less well known states and cities", and that UKTI must prepare companies considering India to "look to some of the less well-known cities."[50] The UK Government recognised the increasing importance of India's "second cities" in its response.[51] Apart from Mumbai and Bangalore for IT, Lord Jones also highlighted Chennai, Kolkata, and Hyderabad.[52] IBPN/UKIBC highlighted research that suggested development of India's 'Golden Quadrilateral', an area linked by roads between Delhi, Kolkata, Chennai and Mumbai, would put "less well-known states and cities on the business map."[53] The City of London noted that delegates on the Lord Mayor's May 2007 visit were impressed by the opportunities emerging in Kolkata.[54] UKTI believes its current geographical coverage, in nine cities across India,[55] is appropriate for now, but said it would consider shifting resources "if there was demand."[56] The UKIBC is also commissioning research into India's second cities, which will help identify opportunities for UK businesses in them, with a report expected by the end of May 2008.[57] India's growth continues, making the previous Report's conclusions on India's 'second cities' increasingly pertinent. UKTI believes its resources to be appropriately distributed at present, but it must be capable of moving resources in India rapidly as and when regional markets develop. We look to UKTI to take the results of the UKIBC research project into 'second cities' into account in due course.

17. The Trade and Industry Committee examined UKTI's new strategy, focusing on emerging markets, in detail. Part of that strategy is the High Growth Markets Programme (HGMP), launched in early 2007 with £2.4 million funding to help medium-sized companies—or 'midcorporates'[58]—enter 17 key emerging markets. This was intended to complement UKTI's traditional support for SMEs and large corporations, and UKTI's Asia Director noted that it was a "primary concern" that "it is the mid-corporate sector in the UK that needs more work".[59] We understand that 12 out of the planned 15 specialists, "recruited from the private sector and chosen for their business acumen",[60] have now been appointed.[61] Two HGMP specialists—one of the 12 appointed so far, and another yet to be appointed—have what UKTI's Asia Director called "a particular India focus",[62] but their portfolios are wider than India alone.[63] By contrast, there appear to be specialists dedicated to China, South Africa and Russia.[64] Nevertheless, UKTI highlighted three projects, mainly in the IT sector, that had already benefited from the HGMP: "a UK business trying to find an India partner to co-develop their product", another "trying to outsource some of their deliveries in India", and a third "attracting an Indian business into the UK as a partner."[65]

18. We welcome, as the Trade and Industry Committee previously welcomed, the strengthened focus on emerging markets adopted by UKTI under its new strategy. We also welcome the new resources from the High Growth Markets Programme, and look forward to India being given due weight in the Programme once the remaining specialists have been appointed. It is very important that UKTI carries out an assessment of their effectiveness in engaging the mid-sized corporate sector at the earliest appropriate moment.

19. The British Chambers of Commerce told us that "large companies, rather than the SME community have been the main beneficiaries" of developments since the original Report.[66] The Trade and Industry Committee expressed the view that India was not necessarily a market for new-to-export SMEs.[67] The Minister for Trade and Investment, Lord Jones, agreed, saying that "we should not have too high an expectation" for SMEs in India, but that the "heat" of international competition should nonetheless be kept on them.[68] The UKIBC told us that "once we start to look at SMEs the conversion from awareness to intent to action will need much work by all stakeholders."[69] We emphasise the importance of UKTI continuing to ensure that the SME sector is kept aware of appropriate opportunities in the Indian market, including any arising from supply chains supporting contracts secured by larger companies. We welcome the recent signing of a memorandum of understanding between the British Chambers of Commerce and its Indian counterpart, and hope that this will lead to a substantial increase in bilateral SMEto-SME contacts.[70]

RDAs and other institutions in India

20. The Trade and Industry Committee highlighted the profusion of UK regional agencies' representation in India, which caused confusion for Indian companies in particular. It said that such direct representation was not necessary to promote trade or raise awareness, and that these bodies should use the existing UKTI network, with which Indians were more familiar and which they understood.[71]

21. The new UKTI strategy included a commitment to work with the regional development agencies and devolved administration representations overseas "to review their representation overseas and maximise effectiveness, ensuring that they deliver what is the best for the UK in a coherent manner"[72] by March 2008. In January 2008, the Trade and Investment Minister, Lord Jones, told us that while the review was complete, its findings were still being considered, suggesting final decisions might take "between three and six months".[73] He also said that he felt the UKTI-Regional Development Agency (RDA) relationship had "improved in the last six months quite a lot", and that he was now "a bit more optimistic" than he had been six months before.[74] In fact the review was published on 5 March. The Chief Executive of UKTI, Andrew Cahn, told us that the review had found that co-ordination could be improved, and UKTI will now "lead the co-ordination of a fully integrated overseas network", across England, while working alongside the devolved administrations.[75] These arrangements are to be trialled in three pilot—or 'pathfinder'—markets in mid2008, and then fully implemented by April 2009. While we are pleased that UKTI has acted promptly on its review of regional inward investment and trade support arrangements, we have not yet studied in detail the substantial pieces of analytical work on which the review was based. It is very likely that the Committee will return to this issue in the future.

22. In India specifically, UKTI told us that two regional bodies had decided to 'co-locate' their offices with diplomatic posts.[76] The RDAs representing South East and South West England are to colocate with the British High Commission in Mumbai.[77] Invest Northern Ireland had also expressed interest in co-location.[78] No RDA has established offices in India since our previous Report.[79] We support co-location of Regional Development Agency and devolved administration offices with posts, as appears to be happening in India, as this is likely to reduce confusion and duplication of effort. We also recommend that India be one of the three pilot markets suggested for trialling new inward investment arrangements.

23. Since the last Report, several other organisations have established new offices in India. These include ThinkLondon, London's inward investment agency, the Mayor of London (in Mumbai and Delhi) and the City of London Corporation (in Mumbai). We also understand that UKIBC has appointed its first representative in India,[80] while the CBI has also been considering an office in India.[81] One of the analytical reports supporting UKTI's review of inward investment notes that the Committee on Overseas Promotion has an agreed cooperation framework between UKTI, RDAs and devolved administrations, but that this "does not include other parties who may also be involved in inward investment activity such as City Regions, Local Authorities, Chambers of Commerce or industry bodies."[82] While the establishment of offices by different public and private sector organisations in India is a sign of genuine and committed UK interest, we are concerned that the influx of organisations, if not properly co-ordinated, will increase confusion, with too many bodies with overlapping objectives. We welcome the City of London's commitment to continue to liaise with UKTI and avoid duplication of effort.[83] We believe all organisations should co-ordinate with UKTI to ensure their work complements UKTI's effort and does not duplicate or compete with it. We note the finding in the UKTI review that bodies involved in inward investment other than Regional Development Agencies and devolved administrations are not part of coordinated arrangements through the Committee on Overseas Promotion. UKTI should seek to bring these other bodies within the co-ordinating framework.

The UK-India Business Council

24. The Trade and Industry Committee recommended that the IndoBritish Partnership Network (IBPN) become "the leading player for the private sector in the UK" and "the de facto Indo-British Chamber of Commerce and so the natural voice of commerce in relation to Indian trade and investment issues."[84] This recommendation has been fully implemented.[85] As we noted above the Government has delivered a massive increase in the IBPN's annual funding from £75,000 to £1 million from financial year 2007/08.[86] This increase in funding has enabled the IBPN to become the UK-India Business Council (UKIBC). The Trade and Investment Minister, Lord Jones, told us that the Government had given the UKIBC "the proper recognition and funding to really drive forward bilateral trade", and that it was "a fantastic vehicle for giving British business practical assistance and also access to key Indian policy makers to help deepen their understanding of the massive opportunities."[87] The increased funding has so far these been used to establish new offices, meet legal fees, and hire more staff,[88] with an increase from two to six persons (including a new Chief Executive),[89] and project-based work which accounted for around 40% of the total funding.[90]

25. The Trade and Industry Committee's Report planted the seed for the new UK-India Business Council (UKIBC), and we warmly welcome its birth. We hope that it will continue to enhance bilateral trade and investment relations between UK and India. We thank all the members of the former Indo-British Partnership Network for their work, which has enabled its evolution into the more ambitious UKIBC.

26. The Government expects UKIBC to match its increased funding with income from sponsorship, charging for its services, and membership charges (with a tiered model having been adopted in recognition of different members' ability to pay).[91] UKIBC's approach is to matchfund one third of the increased funding in year one, then two thirds in year two, before fully matching the funding in year three.[92] We agree that the Government's increased financial commitment should be matched by a contribution from industry. We welcome the tiered cost approach to membership costs that has been adopted, but we urge the UKIBC to monitor the extent to which SMEs are effectively engaged in its activities. We expect the new UKIBC to build its membership across all sectors and sizes of UK and Indian businesses, and so truly become the de facto IndoBritish Chamber of Commerce which the Trade and Industry Committee envisaged.

27. Although there are legitimate demands for financial accountability from government, these must be managed in a way which does not compromise the independence of the UKIBC. The new organisation is not an arm of government: if it is perceived as such it will not be able to raise the necessary matchfunding from the private sector. The UKIBC should be a voice for business and enterprise in government—both in India and the UK—and not vice versa. Any perception that it is simply an adjunct to UKTI will undermine its effectiveness. We expect UKTI and BERR to recognise this in their work with the UKIBC and accept that, if it is to flourish and build its reputation in the commercial world its freedom must not be unduly constrained.

28. The ChinaBritain Business Council (CBBC)—a non-profit body, funded by UKTI—formed the template for the UKIBC. We note with interest that from 1 June 2007 the CBBC took over UKTI's provision of some China-related services. CBBC now deals with routine enquiries from UK companies on China, provides the Overseas Market Introduction Service (OMIS), delivers Market Selection Service Requests, and organises trade missions, seminars and events. UKTI continues to deal with market access and regulation issues, and Government-level interaction.[93]

29. UKTI officials said that they saw the UKIBC "potentially as an extension of our own delivery arm in the longer term, as we have achieved with the China British Business Council."[94] However, the Trade and Investment Minister said that the UKIBC would have "a completely different persona", as it was operating in a democracy, in a different way to the CBBC "on the ground", and with a different membership make-up.[95] When we asked the Trade and Investment Minister whether there was any prospect of UKIBC developing to deliver services in the same way as the CBBC, he said that "at this moment we do not think there is a need and, secondly, it [the UKIBC] is very new on the ground"— the CBBC has been operating for nearly 50 years[96]—"So will that happen in the future? I would not count it out. Is it in my plans, as I speak, for the next 12 months? No."[97] During evidence taking, we speculated that providing UKTI services through the ChinaBritain Business Council rather than through UKTI could be interpreted as quiet 'privatisation' of UKTI services. This was not fully rebutted.[98] If such a process developed, it would represent a significant shift in UKTI policy, and one which, if successful, could raise major issues for the way in which the organisation delivers its services. This is a matter to which the Committee may return in the future.