Examination of Witnesses (Questions 260-279)
MR WARRICK MALCOLM, MR ANDY LEATHER, MR JOHN COLES AND MR HANS PUNG
11 MARCH 2008
Q260 Mr Davidson: So you are saying to us, are you, that there is European money available but it is too difficult to access; that there is British money available but it is too difficult to access. These are valuable points.
Mr Leather: I did not say it is too difficult, I said it is a difficult process and it could be made easier, and there is a lot of work ongoing to ensure that if you are trying to access this money that you have a common process, for example. So there is still more that can be done.
Q261 Mr Davidson: I think it would be helpful if you give us a note specifically indicating what you thought could be done and should be done because otherwise we will not write it in the report. We are trying to be helpful here but it is a bit like dragging teeth on occasions. Mr Pung, do you want to add anything to that?
Mr Pung: No, because I have to say that I am not familiar with the Scottish training schemes.
Q262 Mr Walker: Just going back to your personal observation, Mr Coles, can you just run that by me again. You are saying that who in Scotland has not been as aggressive or upfront?
Mr Coles: If you are running a major project in the UK—and I am speaking from my previous employment—then you not only deal with the MoD you deal with all sorts of regional authorities who want to come and talk to you about what they can do—
Q263 Mr Walker: When you say regional authorities—local authorities?
Mr Coles: Regional Development Authorities, those sorts of things. And you get them coming to see you and I would say from my experience in running major programmes over the last 30 years that certainly in the northwest, from the Barrow area, from the northeast from the Newcastle area and some from the southwest were much more aggressive in wanting to see me, what they had to offer, would invite me up to present to their local companies to say what the opportunities were. So they had a much better insight in what was going on for their local companies, SMEs, repeatedly.
Q264 Mr Walker: Why do you think that is? Why did you not hear it in Scotland?
Mr Coles: I do not know the answer to that; I suggest that is a question for the Scottish—
Q265 Mr Walker: I think we need to find out. I think this is quite serious; I think we need to get people into this Committee who should have been making these observations.
Mr Coles: That is my observation.
Mr Walker: That is fairly devastating and we need to ask them why there is this view out there, because after all it has a Select Committee and Scotland should be selling itself.
Q266 Mr Davidson: I think it is fair to say that lots of defence contractors in the past have been, as somebody described to me, fat and lazy and they just assume that it is the government's job to keep them in work and they did not actually bother competing in the way that some other areas did.
Mr Coles: It is just an observation but—
Mr Walker: We might ask some of our MSP colleagues to come down and have a chat with us.
Q267 Mr Carmichael: Mr Coles, you were offering us a suggestion and I missed it.
Mr Coles: I would say what is the solution? I think you need to ask your Scottish colleagues up there why are they not pressurising the way that they do things, where as the regional development authorities in the rest of the UK were certainly pressing hard all the time.
Q268 Mr Wallace: I am a northwest MP but I also used to also represent Scottish northeast and I used to see Scottish Enterprise in action—or not, as the case may be. I have also had personal experience briefly in the ranges of European monies with no profit to all these issues. I think it is important, Chair, that we perhaps ask Scottish Enterprise because I can tell you that in the northwest they have an aerospace cluster; they do their best to ensure that that is supported and given a front foot either at national level or whatever, and I think it would be perfectly right to understand why left wingers have been ashamed of Scotland's aerospace industry for so long, and we perhaps ask them. I wanted to ask one issue, though. My feeling is that I do not think the aerospace industry has been lazy. It is a highly globalised world; you do not survive with these issues. But I do want to know, you have the big boys, the Thales, the BAs, et cetera, and you have a lot of spin-offs, start up smaller companies based often on a few but very exceptional technologies and there are plenty of them in Scotland and they cross the sector—not just defence aerospace but they might be into wind and the environmental issues and technology, all those sorts of things. How successful are they in being able to access the venture capital money or contracts or support from Scottish Enterprise, etcetera, when it comes to reducing overheads and trading, to allow them grow to the next stage? Are you finding that a number of these individuals, the SBAC type of membership, smaller membership are not getting the help to exports markets that they might need and not getting the help with the skills base and consequently are being blotted out, maybe intentionally or not intentionally, by the bigger boys? Because that partly is the future in a lot of those sectors and I wondered what your view is of that?
Mr Leather: Certainly if I look at the initiatives that we have launched, whether it be SC21 or whether it be skills, if you look at the data the uptake in Scotland is not as high as some other regions. There may be a myriad of answers to why that is, but certainly as a generality it has proved more difficult in Scotland to kick off SC21, for example; there does not appear to have been the same level of appetite as we would wish, and that could be for a whole myriad of reasons which I do not have. In terms of accessing R & T manning, I do not see Scotland as being differentiated against, per se; it just depends on what the technologies are and whether or not they are relevant. But, as I said earlier, I think there is still more that can be done just to make people aware and to help people.
Q269 Mr Wallace: It is pretty easy to be aware through the websites. It is not hard for a small business to find out where the contracts are; the difficulty is winning the contracts, finding a consortium.
Mr Leather: The difficulty is putting together the right consortiums; the difficulty is making sure that you put in the winning bid, actually.
Q270 Mr Walker: And there is a heavy cost attached to putting a bid in, which as a small company can be very difficult to bear.
Mr Leather: Which is why we would encourage people getting together collaboratively.
Q271 Mr Wallace: That is where Scottish Enterprise or something like that could come in?
Mr Leather: I believe so, yes.
Mr Malcolm: I think what we said earlier, that historically the sector has not had a forum where it can actually meet to discuss opportunities and share experiences, which is so important to SMEs. I think with the creation of SBAC we have provided that now and we have certainly seen the beginnings of a change in approaching things like preparing a strategy and sitting down with Scottish Enterprise and the Scottish Government to discuss the opportunities collectively and having a forum where the opportunities can be exchanged, and experiences, and when someone is going out, for example, to export to India there is someone that you can actually discuss that with now—there is a forum where you can have that discussion. In the future we will be sitting down with the Scottish Government, with Scottish Enterprise, with the unions, with academia to discuss the opportunities so that the sector, rather than sitting back, which was previously mentioned, and being big, fat and lazy, is actually taking responsibility for its own future and saying, "We see this opportunity, this is what we are going to do, and if we are going to achieve that this is what we need from you," and have that discussion and start to drive its own future.
Q272 Mr Wallace: Given that the Scottish Government has absolutely no coherent defence policy—the SMP would not know a rubber dingy from a frigate—how supportive have they been to your group, to SBAC? They will not let the Army recruit in schools so how supportive are the SMP going to be to an aerospace industry that they used to lobby to be turned into ploughs?
Mr Malcolm: I think we would say to be fair that the Enterprise Minister, Jim Mather, has been extremely supportive so far. He was at the Paris air show last summer and was extremely impressed by the work that was going on there from Scottish companies, and within Scotland he has been extremely encouraging and has a number of meetings with the sector and there is another one already scheduled to sit down with the sector and to spend a few hours discussing the future. Jack Perry as well has been extremely keen and indeed to some extent set down the gauntlet for the sector and said, "If you guys see a bright future for yourselves, you see opportunities, tell me about it, be demanding of Scottish Enterprise, be demanding of me and I will respond to that; I want to be industry led," which is a very easy thing to say but it does put the onus on the sector to contact Scottish Enterprise and be demanding, and certainly from our perspective that is what we are now doing, saying that we want to achieve this and seeing how they respond to that; and to be fair, so far all the feedback has been extremely positive and encouraging.
Q273 Mr Carmichael: This leads on quite nicely—and this may even be a question for Mr Pung because it is a statistic that is derived from a report by RAND Europe. The differences between military and commercial shipbuilding implications for the United Kingdom's Ministry of Defence. I do not know if you are familiar with those terms or not?
Mr Pung: I am indeed, and I am one of the authors.
Q274 Mr Carmichael: The figure that we have taken from that, 60% of the military export market being held by France and Germany, is this still the case?
Mr Pung: I think the first thing to say is that that would have been the case four or five years ago when we did the work. I am not sure what the current figures are but it probably would not have changed significantly.
Q275 Mr Carmichael: You have no reason to think that it is radically different?
Mr Pung: Certainly when you look across Europe at a lot of the military naval shipbuilders for export you will have countries like Germany, France and Spain are probably three of the key, and the Italians are probably interested. But the three that have probably been the most successful are those first three.
Q276 Mr Carmichael: You will no doubt put me right if I summarise the conclusion that you reached incorrectly, but effectively one of the conclusions that seems to come from your report is that the prospect of UK countries entering the broadly commercial market is—"daunting" is the word you use. Whereas you see an export market which is smaller but more attractive. If we are looking at maximising the benefit of the future carrier programme is this one of the possible future benefits? I am also mindful of Mr Leather's comments about IP, which have caught my imagination.
Mr Pung: I will take the question in two bits, if I could. I will talk about the commercial maritime industry first and then talk about exports because, although they share similar characteristics, they are very different. Certainly one of the things that we found when we did this research a couple of years ago was that it would be very difficult—and "daunting" would be a very appropriate word to use—for the UK to get into the commercial shipbuilding market. By that we mean probably the simple, big empty type ships—liquid gas ships, even extending out to ships like fast ferries. Certainly what we find in the market today the simpler the ship the more it is dominated by the Far East—Korea, Japan and increasingly China. What you see is that as each of those new countries enter the market—the Chinese in the most simple ships, they push the Japanese and the Koreans off into more complex, commercial ship types. So, whereas Europe was much more successful in developing complex commercial ships—fast ferries, roll-on roll-off ships—you can see a great eroding of that market by the Far East and there is no reason to believe that that is not going to continue. They tend to be able to operate much more of an assembly line system; wages are considerably lower in those countries and the cost of employing people is not what we have come to expect in the UK. Certainly around the naval export ships, ie ships that built by UK companies or other nations for other non-UK navies the UK as a whole, I would say, has had mixed success in that market, and other countries have had more success. I think there is probably a few reasons for that and, again, I do not think that the reasons for that have changed significantly over time. Firstly, if you look at countries like Germany, France, Spain, a lot of the ships that they sell to other countries are almost designed for export—they design a warship with the intent of exporting it initially and then they may add some of their own systems to the ship. The UK does not tend to do that; we tend to build very bespoke, very complex ships that take a high degree of training for the sailors that are in the Royal Navy. So what you find is that you have a product that is very appropriate for the UK's requirements but may not be appropriate for other navies that are actually looking for something that is probably a bit simpler and not quite as difficult to operate.
Q277 Chairman: So that means it is a failure on the industry's part in the UK?
Mr Pung: I am not sure that I would say a failure on industry's part; I think what I would say is that there is a misalignment of the market for export ships and the requirement of the MoD for the sorts of naval warships that are produced.
Q278 Chairman: If France and Germany can have higher exports—up to 60%—why is British industry not meeting that obligation? Of course you cannot be dependent on the MoD in ten years or 20 years' time, industry has to take this opportunity to be globally competitive and to make sure that we win the contracts from overseas to keep the jobs and the prosperity here.
Mr Pung: I think to be fair to UK naval shipbuilders it is not that they are neglecting the export market. VT shipbuilding has been extremely successful in their export work, particularly in the last two or three years, particularly sales that they have made since we have published this particular report. Certainly BAE Surface Fleet Solutions up in Glasgow on the Clyde have been successful in doing some export work. The point I was trying to make is that one of the reasons for the export success of countries like Germany, France and Spain, for example, is that their navies tend to operate the same sorts of ships that they export—ships that probably tend to be simpler, less expensive and do not take the same degree of training that is required within their navies, and the UK does not do that.
Q279 Chairman: I am very interested to know what is the percentage of orders from the MoD and what percentage comes from exports in the defence industry?
Mr Pung: That is probably a question that is more appropriate for BAE Systems or VT Shipbuilding, but I would say that up on the Clyde, for example, you would have the vast, vast majority of the orders will be MoD orders. Probably down in Portsmouth, where VT Shipbuilding work, it is probably much more balanced, the work they are doing there for the MoD or the Type 45s and some offshore patrol vessels, but they are also doing a larger portion of export work. That said, if you look at the work that they do, the ships that they produce for the MoD, they tend to be smaller ships, they tend to be simpler ships, they tend to be the type of ships that are actually easier to export as opposed to some of the large, complex surface warships that the MoD places a requirement on BAE Systems on the Clyde to produce, for example.
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