Examination of Witnesses (Questions 440
- 459)
WEDNESDAY 14 JANUARY 2009
PETER FIELDER,
BOB DOVER
AND NICK
WORRALL
Q440 Dr Harris: If you accept that
it is doing a good job in encouraging increased investment in
R&D then even despite that the UK's performance in getting
anywhere near its own 2.5 per cent target investment in R&D
is disappointing, on the verge of depressing, let alone the Lisbon
aspirations of three per cent. Why is it that we are failing,
even if you accept that R&D tax credits are a significant
help, and falling so far short of that target and doing not as
well as many of our competitor countries, despite efforts that
I think we would all accept the Government is making to encourage
it?
Mr Dover: First of all the Lisbon
target is a very tough target, one has to agree.
Q441 Dr Harris: But 2.5 per cent
is 0.5 per cent less than that and that is our own target and
we are flatlining at 1.8 or 1.9.
Mr Dover: Secondly, I did say
that the R&D tax credit applies only to small companies, and
my point was if you extended that then you can have a fairly significant
effect by people saying, "I can't spend this on research
because I am going to go out of business if I do; I am going to
spend it on other things I need to do", but to encourage
R&D spending in the medium-sized firms is a great possibility
using that type of mechanism. That is the point I was making.
Q442 Dr Harris: But in a sense that
is public subsidy of R&D is it not, so it is a relatively
inefficient way of public funding of R&D. I do not say that
is not important and useful but how do we encourage, as other
countries seem to do, industry's own investment, not subsidised,
and not essentially direct from the taxpayer, into R&D? Is
there a trick we are missing that other countries are doing? Famously
Japan but not only Japan, Germany as well.
Mr Dover: I think we have mentioned
three things this morning. One is picking winners, and some of
the other evidence you have had is about the difficulty and time
consumed by peer reviews in order to make sure that we are doing
the right things. I am not sure that is necessarily the most effective
way of getting money into the grand challenges, as the EPSRC described
them and I think that is something to which further thought could
be given.
Q443 Dr Harris: Can you just explain—and
I will bring the others in in a minute on a different question—what
you mean by the process of peer review being a barrier or disincentive?
Mr Dover: I did not say it was
a disincentive. I think it is a very slow way of making sure that
money is applied fairly using the physical research councils type
of process. I am not sure it is the most effective way of focusing
on key programmes, key projects and key challenges.
Q444 Dr Harris: So that process is
a competitive one where an independent panel, slowly you would
say, tests which is the best and funds just the best. The alternative
would be what?
Mr Dover: It would be a process
with stronger leadership which could identify, with advice from
engineers, where money was likely to have the biggest impact in
manufacturing or in industry or in changing the world.
Q445 Dr Harris: Do you all support
and do you think your colleagues in your sector support the 2.5
per cent target?
Mr Fielder: Yes.
Q446 Dr Harris: And how does falling
short of it impact? In other words, if we reach 2.5 per cent,
would that have a small, medium-sized or large impact on the viability
and future prospects of the engineering sector? Is it a critical
factor or is it just a useful thing to reach?
Mr Fielder: I think as a headline
metric it is kind of quite helpful because it must be a step in
the right direction. The supplementary question behind the headline
metric is how effective is that expenditure or investment being
in addressing the issues that could fundamentally help the economy,
if you like, so I think certainly from our perspective there is
a lot around the range of mechanisms that help to liberate innovation.
At the top end, and by way of an example, there is certainly a
lot that we have observed in understanding a more comprehensive
perspective of the problem, eg through life total cost of ownership
on the one hand, that takes you down a path under which you can
look into adjusting the boundaries of the established business
models. That then gives you a broader range of challenges that
the engineering people can look at, so they start to engineer
solutions to a slightly broader range of problems. That, in turn,
focuses attention on the solution perhaps of particular technology
issues. Am I making any sense?
Dr Harris: Yes, I am hanging in there!
Chairman: Can you hang in very quickly!
Q447 Dr Harris: My last question
really is about the growing of large companies. We are said to
be good at growing small companies, Mr Dover is doing that now,
and even medium sized companies, and good at basic research, but
it is said that we are not very good at growing those into larger
companies, so from the perspective of successful large companies
do you accept that is a problem in the UK and from the perspective
of large companies what would you say we should be doing better
to be more successful there?
Mr Worrall: Certainly I come from
a large company and we employ 10,000 in the UK and 27,000 across
the UK and US, so I speak as an employee of a large organisation.
Obviously we are a regulated business and therefore with the levels
of R&D investment we need to choose very carefully where we
do invest. R&D-wise we sponsor university research which is
very specific to us, so the High Voltage Research Centre at Manchester
University and that kind of thing. We will sponsor as appropriate
but we need to target it very specifically to our industry and
to our specific organisation's requirements and recognising, as
Peter said earlier, we have a scarce commodity called funding
around now, so we need to target it very specifically. That is
where we would target our R&D spend in that area.
Q448 Dr Harris: That was an answer
to my last but one question. My last question was: how do we better
grow small companies, through medium-sized companies into large
companies? Do you accept that we are relatively poor at that in
this country, Mr Dover, and what could we do better?
Mr Dover: No, I do not accept
that we are relatively poor at that; I think in a global economy
it is just tougher. One can think of examples of small companies
growing into larger companies. When I ran Aston Martin it was
400 people and it is now several times bigger than that and the
output is several times as much. I cannot say the same about the
profit because I have no access to that, but I suspect they are
struggling as others are at the moment. I do not accept that that
is the case and I do not think there are any organic barriers
to growth at all. I think there is a reluctance to perhaps move
into new technology and there are barriers there, regulators as
we mentioned earlier, but I do not accept the general premise.
Mr Fielder: I do not think there
is a single answer to the question, to be truthful. If I take
our organisation we have grown through a combination of organic
and aquisitive growth. Those things depend quite a lot on market
conditions. I think certainly in both cases there are issues that
surround partnering and how one partners into the supply chain
and ultimately whether that is better vertically integrated or
is it better managed as a supply chain. It depends on the conditions
in a particular market and I think that through that partnering,
whether it is vertically integrated or not, there is an issue
around how one brokers solutions through the academic institutions,
for example, if it is a technology thing, or through small and
medium enterprises, and how we can get to the point where that
can be leveraged in terms of an opportunity to grow.
Dr Iddon: Dr Harris has mentioned this
modest 2.5 per cent target of GDP for R&D investment. Do you
believe that each of your three organisations are meeting that
target or like the rest of British industry are you lagging behind
the public sector in contributing to that?
Q449 Chairman:: Nick, are you meeting
the target?
Mr Worrall: I do not know. I will
need to come back to you on that specific point.
Mr Dover: Jaguar Land Rover were
certainly exceeding that target substantially. The next question
is whether that is globally competitive. I think Toyota, which
would be in most people's view the most successful company in
the industry, its spend would be seven or eight per cent of their
turnover per annum.
Q450 Dr Iddon: Peter, are you well
towards the target?
Mr Fielder: I would need to come
back to you with the absolute in terms of a factual figure as
against 2.5 and I am happy to do that. What I would say is that
over the last probably three to four years it is something that
we have paid much more attention to, and we have drawn out from
our various business plans the range of investments that we are
making, and we look more systematically across the group at that
now than we have ever done and we do do calibrations against our
industry peer groups, so it is something that is a focus of attention
in my organisation.
Q451 Dr Iddon: Can I ask each of
you what proportion of your budget, if you know, falls in-house
for R&D and within the university sector? How do you balance
it between yourselves and universities?
Mr Fielder: We have a blend of
things that we do in-house. We have a range of university partnerships
which I think we have covered for you in the written submissions
and we also have a range of school initiatives which we do. Can
I tell you whether that is one-third/one-third/one-third? Probably
not but I can give you a detailed split if that would help.
Mr Dover: It is about 12 to 15
per cent externally with the universities and that includes setting
up things like the International Automotive Research Centre at
Warwick University and our contribution to that, which is designed
not only to do pure R&D but to act as a feeder stream for
engineers coming out of academia and into industry.
Q452 Dr Iddon: Do you have a figure?
Mr Worrall: I do not have a specific
figure. The majority is academic-based and the previous answer
I gave around our partnership with the University of Manchester,
for example, and other universities, so it tends to be in academia.
Q453 Dr Iddon: Thank you. Do any
of you see any barriers against investing in the universities?
Is it difficult or is it fairly easy to engage universities in
your R&D work?
Mr Worrall: I certainly have not
seen any barriers, and universities need funding perhaps more
than most institutions, so large organisations coming to them
with a potential proposal certainly tend to be listened to.
Mr Dover: None whatever.
Q454 Dr Iddon: And finally Peter?
Mr Fielder: No, I do not see any
fundamental barriers.
Q455 Dr Iddon: No barriers, that
is good to know. We have covered a little of this earlier, but
I am putting a more specific question to you now, how do you see
Britain ranking in terms of innovation on the international scene?
Are we at the top somewhere or are we lagging behind in engineering?
Mr Dover: I think you would have
to look sector-by-sector. I think each sector is very different.
Clearly there are some areas where we are absolutely in a worldwide
competitive position, and some of those have been represented
by the evidence you have had on plastic electronics, aero engines,
aerospace, materials development, and there are some areas where
we are clearly lagging, for whatever reason. I think you have
to look sector-by-sector. I find it a really difficult question
to answer, I am so sorry.
Q456 Dr Iddon: That is a sensible
answer. Peter?
Mr Fielder: From personal experience
in rail transport, telecommunications, and for a large part now
defence, I would observe those sectors have competed pretty effectively
internationally. If I observe contrasts, if you like, on the defence
side between UK and US, then I would say that our products compete
pretty effectively in an environment where clearly defence expenditure
is hugely greater in the US than it is in the UK. We do seem to
be able to engineer products that can compete internationally.
Q457 Dr Iddon: Finally Nick?
Mr Worrall: Certainly from an
international perspective we have a regulatory barrier to overcome
in terms of work to move into mainland Europe, for example. We
are very much welcome by our presence in terms of thought leadership
around the utility space and engineering in that kind of space,
and based on our growth agenda in the US where we have acquired
companies over there and we have been welcomed for doing so, it
has worked very well, so we seem to be well-respected in the markets
in which we operate.
Dr Iddon: Thank you.
Q458 Ian Stewart: Keeping on that
international line, do you think that governments in other countries—and
you have heard about Japan and China this morning—take engineering
more seriously and allow better access to government for engineers?
Mr Dover: Yes I do. I think you
have already had evidence to look at the US system where there
are engineering advisers at the highest level to make sure that
the numbers add up before policy is made let alone specific project
decisions.
Q459 Ian Stewart: That was my next
question.
Mr Dover: I beg your pardon, I
stand corrected.
Dr Gibson: Same answer.
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