House of Commons - Exporting out of recession - Business, Innovation and Skills Committee

Exporting out of recession - Business, Innovation and Skills Committee Contents

3 Work of UKTI: Policy and Strategy

27. UK Trade & Investment (UKTI) is the government body which provides expert advice and support to UK-based businesses wishing to trade internationally, as well as support to businesses based overseas looking to invest in the United Kingdom. It provides a range of services to companies looking to export including market intelligence, advice on regulations, sales leads and financial and practical support.

28. UKTI employs around 2,400 staff, 1,300 of whom are based overseas. Its budget for 2008-09 was in the region of £316 million.[23] To put this figure in context, the combined expenditure of all the RDAs for the same period was £1,779 million and UKTI's budget is smaller than that of the largest RDA.[24] According to the latest UKTI Performance and Impact Monitory Survey Report, which was published in September 2009, UKTI assisted 21,800 businesses, of which 18,000 were innovative.[25] Of those companies, 50% responded that they had improved their performance as a result of the help they received; and 1,860 businesses increased their R&D activity as a result of trade and inward investment support.[26] The net result of that support, in terms of additional profit attributed by UKTI clients specifically to the support received, was £3.6 billion—a return of £16 for every £1 UKTI spends on trade support services.[27]

29. A recent National Audit Office (NAO) report on the work of UKTI was broadly positive, stating that UKTI was "making good progress against its target and has in place a robust system of assessing delivery."[28] This assessment of its work was also reflected in a joint publication by the Taxpayers' Alliance and Institute of Directors—How to save £50 billion: Reducing spending for sustainable public finances. In that report, UKTI is one of the few organisations that is explicitly exempt from the recommended cuts in public spending.[29] These assessments confirm the general impression we have gained of UKTI during the course of this inquiry. We have received correspondence from several businesses which have been highly complimentary about the service that they have received. Furthermore, we have been impressed by the professionalism and dedication of UKTI staff we have met during our visits abroad.[30] This does not mean that there is no room for improvement—and our attention has been drawn to some apparently serious variation in quality between Posts—but the recommendations that we make are offered in the spirit of constructive criticism.

Current Strategy

30. UKTI's current five-year strategy was outlined in Prosperity in a Changing World, published in 2006. The strategy was intended to:

deliver, by 2011, measurable improvement in the business performance of UK Trade and Investment's international trade customers, with an emphasis on innovative and R&D firms; increase the contribution of foreign direct investment to knowledge-intensive economic activity in the UK, including research and development; and develop a measurable improvement in the reputation of the UK in leading overseas markets as the international business partner of choice.[31]

The Strategy also committed the UKTI to a number of changes, including the establishment of a new R&D programme, the creation of priority sector strategies, reforms to instigate culture change within UKTI, and the agreement of new targets. It also outlined how UKTI would work in partnership with the Regional Development Agencies, devolved administrations and national bodies, and set out six factors which formed (according to UKTI) the basis of the UK's competitive advantage. These were:

a stable business environment;
a flexible and pragmatic approach to business;
a climate of creativity;
a capital city that is a magnet for the rest of the world;
English as the language of commerce, finance and law, and
a multicultural population.

The long-term vision which the strategy set out was seen as a much-needed source of stability for an organisation that had experienced regular, dislocating change over the previous seven years.

31. However, since the publication of the strategy the world economy has experienced dramatic difficulties, raising the question as to whether a change in strategy before 2011 would be prudent. In its evidence, the British Chambers of Commerce (BCC) argued that while the decrease in the value of Sterling opened up better opportunities to trade with the Eurozone and United States, "UKTI has not been able to shift its resource allocation nearly quickly enough" to take advantage of that change.[32] The CBI disagreed with that analysis, arguing that "a policy that relied on Sterling weakness alone to support export competitiveness […] would not be optimal" both due to the inherit instability of the currency market and because the current rate had increased the cost of many key industrial inputs.[33]

32. When we explored with witnesses whether the recent economic uncertainty required a fundamental change in UKTI's strategy we found little appetite for such an exercise. Lord Jones told us that he did not believe it would make sense to significantly change UKTI's strategy in response to the recession, saying that "the last thing you do if you are trying to lead something in difficult times is chop and change."[34] Similarly, Mr Andy Scott, Director of International and UK Operations, CBI, said that when UKTI had asked them and the Chambers of Commerce if it was time to rethink their strategy "both of our views at the time was that this was certainly not the occasion to do a fundamental review of the strategy. The strategy in terms of overall direction was right when it was set and we believe it is right going forward."[35] We agree with our witnesses that there is currently no need for UKTI to engage in a fundamental re-evaluation of its strategy. UKTI has been forced to undergo too many changes in recent years and it now needs time to improve incrementally. A period of relative stability is needed to allow it to address its remaining shortcomings. We agree that the current position of the pound, which has made it more attractive for some companies to export, can be accommodated within UKTI's existing framework. That said that it would be prudent for UKTI to consult with industry, in advance of 2011, on whether or not it will deliver on its strategy.

Choosing Priorities

33. The initial memorandum from UKTI identified 17 high growth markets: Brazil, China, India, Indonesia, Mexico, Russia, South Africa, Turkey, Saudi Arabia, UAE, Malaysia, Qatar, Singapore, South Korea, Taiwan, Thailand and Vietnam.[36] These differ from the list of key emerging markets—China, India, Russia, Brazil, Indonesia, Mexico, Saudi Arabia, Turkey and United Arab Emirates—which were set out in Prosperity in a Changing World.[37]

34. The same submission identifies 11 priority sectors: Advanced Engineering; Construction and Major Sporting Events; Creative Industries; Education and Skills; Energy; Environment and Water; Financial Services; ICT; Life Sciences; Mass Transport; and Agri-Technology. It separately references cross-cutting initiatives around Aid-Funded Business; Low Carbon; the Olympics; and Science & Technology."[38]

35. When asked about the array of different priority sectors and countries, Lord Davies told the Committee that the 17 high growth markets were identified on the basis of "market size, potential for growth, political and economic importance and the strength of their scientific and research base." The markets were then matched against the UK's capabilities to identify the priority sectors. He said there was a "clear strategy to focus and deliver business and trade with the high growth markets" without losing touch with established markets such as the US and EU.[39] Sir Andrew Cahn, Chief Executive of UKTI, added that the high growth markets were priorities "in the sense that we put new resource in there."[40]

36. In our discussions with industry representatives about UKTI's choice of priorities one recurring theme was the importance of UKTI listening to its customers when making such decisions.

The companies within the sectors and the industry bodies within those sectors have a good track record of identifying opportunities. The individual companies and the trade associations in those sectors know, generally speaking, how to assess markets so they can do that.[41]

I think at the end of the day what it boils down to in its simplest form is listening to customers.[42]

It is up to organisations like ours [British Chambers of Commerce] that are much closer to the businesses in question to bring those views in so that UKTI strategy is not remote and not seen as being detached from customers.[43]

37. We gained a sense that industry was worried that the focus on emerging and high growth markets would cause UKTI to neglect more established, developed markets with which the UK does the majority of its trade.[44] In its evidence the Chemical Industries Association argued that "it is highly unlikely that a SME will exhaust all of its potential business opportunities in a market like the USA—surely tax payers will get a better return by encouraging the company to focus on doing even more business in established markets rather than chase the proverbial Golden Dragon in developing Asian markets."[45] The British Chambers of Commerce also expressed a concern that too many resources were being directed at the BRIC [Brazil, Russia, India and China] countries:

The Government's focus on BRIC leads to too little support in areas where profits are to be made. Priority in the distribution of resource is dictated in order to meet government targets rather than towards markets that offer them the best chance of success.[46]

Mr Marshall from the British Chambers of Commerce expanded on these remarks. He commented that there had been "too much focus on the BRIC countries at a time when exports closer to home might have been a better way of focusing resource."[47]

38. The Government has acknowledged the importance of retaining a strong presence in established markets. As Lord Davies himself said:

one should never forget that the UK trades with the US in a huge way. When you look at foreign direct investment into the UK about 35% of all the projects are still coming from the US. The danger is that we put all out eggs into some high growth markets but forget the euro and the US. I think we have got a clear strategy to focus and develop business and trade with the high growth markets; but at the same time we need to make sure that we are not losing touch and contact with the US.[48]

Sir Andrew Cahn, Chief Executive UKTI, also emphasised that there was a careful balancing act involved in dividing resources between established markets and emerging markets:

The key issue for us is how much resource do we put into Europe? […] Many of our exporters want us to keep that resource there; but if we are to help our exporters explore new markets and get into the growth markets of the future we have got to look to those markets and not just to Europe. It is, of course, trading things off, but we do have a clear set of priorities as to where we shift our new resource to."[49]

39. The Department's supplementary evidence reinforced this position. It argued that the emphasis on emerging markets did not mean that UKTI would ignore markets which were not on its list of priorities: "UKTI emphasises emerging markets because they are the fastest growing economies and can provide opportunities now, during the recession in the UK's traditional export markets, and increasingly for UK business in the years to come. This does not mean that we are neglecting more developed markets."[50]

40. Having spoken to many SMEs who have used UKTI services it is clear to us that UKTI has an important role to play helping companies enter existing markets.[51] There is a real need and demand for these services. UKTI's presence in Europe is not a luxury. It makes a real difference to businesses looking to establish themselves in those markets.

41. However, it is necessary to strike the right balance between focusing on the immediate prospects presented by established markets and the potential of emerging markets, which may not be fully realised for several years. We saw for ourselves during our visit to the Middle East that these markets represent huge opportunities for British businesses—opportunities that many businesses are not aware of. UKTI's involvement in these markets is particularly valuable when a company is attempting to sell to the national government. We heard that in these situations the support of a government agency is essential if a company is to have any chance arranging meetings with decision makers. Opportunities in these markets are not always obvious to companies based in the United Kingdom and UKTI has an important role to play in drawing these to the attention of exporters, For example, despite the current difficulties in Dubai, there are clearly good opportunities in Abu Dhabi. And the rapid improvement in the ease of doing business in Saudi Arabia, coupled with the high standing of the United Kingdom in that country, create opportunities in an oil-rich country, that could easily go ignored. UKTI is well positioned to promote these opportunities in the United Kingdom, and often does so, but it should be encouraged to do more.

42. Judging the relative needs of established and emerging markets is a delicate balancing act. It is understandable that companies want UKTI to prioritise countries which offer the prospect of immediate new business. However, it would be unacceptable for a narrow focus on the European and American markets to leave UKTI unprepared to take advantage of opportunities available in the BRIC countries. Indeed, in previous reports we have highlighted the need to take advantage of opportunities in India, Brazil and Turkey.[52] We believe that a government agency is best placed to decide exactly how resources should be split. We fully support the increasing emphasis that UKTI is placing on emerging markets, including Abu Dhabi and Saudi Arabia. Neglecting these markets would not be in the long term interest of British business.

43. During our visit to Saudi Arabia, UKTI staff told us that they felt there was a lack of clarity about what difference it made to be designated a priority market. They felt they were not receiving sufficient resources and that staff were becoming overstretched. We wrote to Lord Davies on 30 April 2009 to raise these concerns with him. We received a prompt reply from the Minister which stated that:

We are aware of the pressures on the UKTI team in Saudi Arabia at the moment and are already looking creatively at how that team can be reinforced within the bounds of existing resources […] I would like to reassure you that we are dealing with the issue of UKTI staffing in Saudi Arabia as a matter of urgency.[53]

Since this correspondence Lord Davies wrote to us again to provide an update on the situation. Following our visit, UKTI has authorised the recruitment of 2 additional locally-engaged members of staff in Saudi Arabia and created a new Middle East marketing hub team in Dubai. In addition, UKTI's Middle East team in London has also been expanded through the recruitment of one BIS "fast-streamer" and one other graduate-entrant to the Department. Lord Davies reiterated that resources were kept under review and that the Department was considering whether the UKTI team in Abu Dhabi should also be expanded.[54] We are grateful to the Minister for acting on our concerns about a lack of staffing for UKTI operating in the Middle East. We anticipate that the additional staff will assist the office, providing a more effective service to British businesses in a market which presents companies with a large number of opportunities, but recommend that the situation is kept under review.

44. We wished to explore whether this was an isolated incident of a priority market not receiving enough resources, or if it was a systematic problem. However, when we explored this with business representatives they reported that their members did notice a difference in the quality of service they received from UKTI in those markets. Mr Campkin of the CBI told us that "if you are a priority that has meant that you get […], more resources".[55] This was also the view of the National Audit Office, which reported that there had been a significant increase in resources allocated to those markets and subsequently the work delivered by UKTI operations. It highlighted the fact that the total number of staff providing trade support in those markets had increased by 21% between July 2006 and July 2008, and that there was "some evidence that the refocusing of resource by UK Trade & Investment is having an impact on the number of services delivered to UK-based businesses wishing to trade in the high-growth markets."[56] It continued "In 2008, the number of OMIS [Overseas Market Introduction Service][57] commissions delivered by staff in the 17 countries in the high-growth markets was 179 per cent higher than in 2006. In all but one of those countries the increase was in excess of the average of 92 per cent in the remaining markets."[58]

45. It is obviously sensible for UKTI to direct its resources to the locations where it can have the maximum possible impact. However, the plethora of different priority and high growth markets and sectors that UKTI has set itself could easily cause confusion. UKTI needs greater clarity in explaining its priorities to industry. Furthermore, UKTI needs to reassure business that concentrating on these strategic priorities will not undermine the level of service provided in established markets where the majority of the UK's trade is conducted.

23 Ev 58 Back

24 HC Deb, 10 November 2009, col 322-324W Back

25 UKTI define "innovative" firms as those that: have more than one employee engaged either wholly or partly in research and development (R&D) activity and have more than one employee engaged either wholly or partly in new product or service development; or have employed someone external to the business to conduct new product or service development activity in the last year; or derive some of their turnover from products and services introduced in the last three years. The definition excludes firms established in the last two years. Back

26 UKTI Performance and Impact Monitoring Survey Report, March 2009 (available from the UKTI website, www.uktradeinvest.gov.uk). Back

27 Ev 60 Back

28 National Audit Office, UK Trade and Investment: Trade Support, para 7, HC 297 Back

29 Institute of Directors and the TaxPayers' Alliance, How to save £50 billion: Reducing spending for sustainable public finances, September 2009, p49 Back

30 For details of our visits, see Annex. Back

31 National Audit Office, UK Trade and Investment: Trade Support, para 3, HC 297 Back

32 Ev 82 Back

33 Ev 96 Back

34 Q 91 Back