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

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

4 Work of UKTI: Programmes

Programmes

46. UKTI offers a range of services to UK-based companies looking to expand into overseas markets. These services include mentoring new or inexperienced exporters, providing advice about entering a new market and identifying and arranging meetings with potential business contacts. It also offers direct financial support for companies to attend trade shows. Feedback from businesses on the services received has generally been positive: in 2008 75% of customers said they were either "satisfied" or "very satisfied" with the service they received.[59] Lord Davies was also highly complimentary about UKTI's work saying that in his experience UKTI "does a great job. It produces £16 for every £1 invested; it is very focused and adding a great amount of value to the economy."[60]

47. In this section we explore three of the services which businesses mentioned most frequently to us in their evidence; the Overseas Market Introduction Service (OMIS), the Passport to Export Scheme and the Tradeshow Access Programme (TAP).

OVERSEAS MARKET INTRODUCTION SERVICE

48. A traditional OMIS report provides individual companies with tailored advice and information about a market, and support to that company during an overseas visit. The service includes an analysis of possible market entry strategies and the identification of possible business partners. It can also include arranging for companies to meet with key contacts when visiting the overseas market. The service is normally accessed through a local adviser, based in the United Kingdom and then delivered by UKTI staff based in overseas markets. That said it can also be accessed directly through overseas staff.[61] The price of the service depends upon the exact nature of the request that is made and can range from a few hundred pounds up to £9,800.[62]

49. We saw during our visit to Paris and Milan that an OMIS can cover much more than the writing of a report on a potential market. It can also be used more broadly a mechanism for providing services to businesses and charging them for the use of Post resources. For example, if a company used a room in an Embassy to host an event the cost of the room hire would be charged to them as an OMIS. We saw particularly innovative uses of OMIS in Milan, where the mechanism was used to charge companies which had their products promoted at an evening with the singer Paulo Nutini. We welcome the more innovative use of OMIS highlighted to us in Milan and recommend that this creative approach be disseminated across UKTI on the basis of best practice.

50. Industry's opinion as to the value of a traditional OMIS report has been mixed. According to the NAO, 69% of customers who commissioned an OMIS were satisfied with the service they received and 55% felt that it had helped improve their business performance.[63] Sir Andrew Cahn (UKTI) told us that "OMIS reports are highly valued by our customers" and that "they add a great value to British exporting."[64] However, the Sponsors' Alliance was concerned about the variable quality of OMIS reports: "feedback from exporters regularly suggests that the quality of OMIS reports is variable and often does not meet customers' expectations."[65] This view was repeated during oral evidence: "There is excellence and there is poor quality."[66] Mr Scott of the CBI agreed with this view, saying "clearly the quality of them will vary and it will very much depend upon the knowledge and expertise of the individuals on the ground."[67]

51. In its supplementary memorandum UKTI explicitly addressed criticism about the varying quality of OMIS reports. It argued:

In terms of inconsistency, these exist because Posts tailor their response very much to customer requirements. Also, conditions and business cultures vary from market to market so that in some places it takes very much longer to achieve the same result than in others. The amount of information easily available can also vary considerably between markets, even neighbouring ones. The view of what constitutes quality will also vary from company to company and individual to individual. Where differences or lack of customer focus cannot be justified, we are working hard to minimise problems and spread best practice.[68]

We hope that this assessment does not reflect institutional complacency. Any accusation of complacency could certainly not be applied to the many excellent UKTI staff we have met who have frankly identified, in private conversation, Posts which are simply underperforming.

52. Having seen a number of OMIS reports we can ourselves vouch for the fact that the quality can vary widely.[69] We have seen some extremely detailed and well researched pieces of work that provided a great deal of information and the contact details of key decision makers in potential business partners. However this is not always the case and other reports we have seen contained little extra information beyond what a quick search on the internet would reveal. While we understand that each OMIS presents UKTI with a different challenge such extreme variation in quality is unacceptable, especially given that businesses are paying for this service.

53. A well written OMIS can, and often does, provide businesses with a wealth of opportunities to take advantage of, while a poor one is a costly waste of a company's time and money and a disincentive for first time users to commission future reports. While we understand that complete uniformity in the quality of the product is not possible to achieve, the current gulf between the best and the worst is too wide. UKTI needs to take steps honestly to address performance in its Posts where business is providing negative feedback on the support they are given. If poor quality is due partly to companies commissioning vague and unfocused reports, UKTI needs to be more willing to recommend that businesses not use this service when it believes they would be able to add little value to a company's operations—a recommendation there may be disincentives to implement, given the target set for UKTI Posts.

Charging Policy

54. Perhaps unsurprisingly some industry representatives have been critical about the decision of UKTI to charge for its OMIS services. The Middle East Association argued that the practice of charging for OMIS reports increased the cost for SME exporters which would "only discourage potential exporters and reduce the competitiveness of established exporters". They recommended that, at a time when businesses are facing increased costs and reduced availability of credit the fees should, at least temporarily, be removed.[70] This point was echoed by the British Marine Federation which advocated "a significant reduction in fees for the Overseas Market Information Service be introduced in recognition of the difficult financial climate."[71] In oral evidence, Mr Josypenko, from the Sponsors' Alliance, went further:

I would expect - and perhaps this is naive - a Post to give a general background overview on the market in relation to the sector as something free of charge, whether it is done as a physical piece of paper or as a briefing or as a report that is accessible on the UKTI website.[72]

Others, while not wanting charges abolished, recommended a change in the charging structure. The Midland World Trade Forum recommended that "the structure of OMIS […] should be reviewed—its upfront payment without guaranteed return makes it an unattractive commercial proposition to many companies."[73]

55. Lord Davies defended the decision to charge for OMIS reports, arguing that charging had "improved the performance culture"[74] in UKTI. "I know it is a small amount but it has had a profound impact on the culture and made people realise the value of their services. The team is very keen to maintain it."[75] This view was repeated by the UKTI staff we met in Milan, one of whom commented: "You want to make sure you're providing something of value when a business is paying for the work you do." The CBI also argued that charging for reports stopped companies making speculative requests. Mr Campkin remarked:

The CBI has always supported charging as a filter mechanism and I think our members would feel that a reasonable charge which does not discourage them from doing what they wish to do in terms of market access and export opportunities makes sense. The debate is more to be had around the level and the quality and the value that you get for what you pay.[76]

The Department also made this point in its supplementary evidence. It noted that previously "companies were commissioning unpaid reports and contact lists from a number of Posts and then choosing one or not bothering to use them at all." Furthermore, the Department argued that a willingness to pay a charge demonstrated that a company was seriously interested in exporting.[77]

56. The National Audit Office report, UK Trade and Investment: Trade Support, investigated the current charging structure at UKTI. It concluded that the organisation "lacks clarity on the objectives governing the charges it makes for its services." It continued: "we found a lack of clarity in the financial objectives related to each of the UK Trade and Investment's services, such as those that should be subsidised, by how much; and those which should be subject to full cost recovery."[78]

57. The NAO was also of the opinion that previous estimates of how much of its costs UKTI recovered were incorrect. The audited account for 2007-08 indicated that 70% of costs incurred were recovered through fees. Subsequent work by UKTI has estimated that only 7% of the total OMIS costs and 33% of the marginal costs were recovered. This is probably due to the delivery of OMIS services requiring more time than was initially predicted when the OMIS was commissioned. There is also a belief that there was a reluctance by staff to quote the actual cost when the commission has been fully worked out. UKTI has said that it encourages staff and managers to ensure that the costs charged reflect the time involved but believed that it will be some years before it will be able to routinely recover the full marginal cost of its OMIS service.[79]

58. We agree with the NAO that there is a lack of clarity about the aim of UKTI's charging structure. However we do not believe that UKTI should aim for full cost recovery, but instead that charges should be set at a level that is of the most benefit to UK companies and the economy as a whole. This means the charge should be as high as is required to discourage speculative requests and no higher. In the long term the additional taxable revenue generated will more than cover the cost of providing the initial service. We also believe that there is scope for UKTI to be more creative in the way it uses the charging system. For example, a lower price could be charged to companies that wish to export into priority markets to encourage them to do so. Cost recovery should be an incentive to both UKTI staff and those who commission the report to use them effectively. They should not be a Treasury-driven way of reducing the costs of UKTI.

OMIS Targets

59. As part of the last Comprehensive Spending Review settlement UKTI agreed with the Treasury to increase its revenue from £2 million per annum in 2007-08 to £4 million in 2010-11. UKTI then set revenue targets for its Posts based on this agreement. As we have already indicated we are unhappy with this approach.[80]

60. Companies have argued that the existence of OMIS targets have had a distorting effect on the services that UKTI provide, and that they also impact upon the ability of staff to get out of their offices and network with key contacts on the ground. When we explored this issue with Mr Scott of the CBI he said that this was a "real risk":

[If UKTI] are driven by delivering a certain number to meet a certain target that has to be at the expense of something else […] those Posts have a key role in terms of the market intelligence, the networking opportunities and the proactive identification of where there are some emerging trends which they can then be cascading back into the business community in the UK. [81]

The British Chambers of Commerce's written evidence made a similar point about the target driven nature of some of UKTI's work. It believed "such targets clearly stand in the way of staff getting on with the day to day task of helping businesses export, and serve to cloud serious analysis of UKTI's successes and failures."[82]

61. Some UKTI staff also raised the issue of targets during our visit to UKTI's operations in the Middle East. The officials told us that OMIS reports were valued by their customers, but that the work was excessively target driven and that efforts to meet revenue targets for OMIS meant that staff had less time to spend out in the business community.

62. When we put these concerns to Sir Andrew, Chief Executive of UKTI, he replied that the problem had been "overstated"[83] and that OMIS reports were built upon networking and knowledge of the local markets. In particular, he believed that to gain such knowledge staff needed to leave the office and interact with local businesses.[84]

63. The Sponsors' Alliance raised a specific criticism that the OMIS targets had led to the "forced sales" of OMIS reports in connection with overseas events. When we explored with Mr Josypenko how the process of forced sales worked in practice, he explained:

If an association wants to do a trade mission in a particular market, an important element of that would normally be a briefing in the market and usually a reception or some sort of event, preferably at the Embassy where possible, so the organising body will be asked to commission an OMIS to cover the Embassy's time both for room hire and organisational costs, and quite often they will be asked to commission another OMIS for the formalities of identifying and inviting guests to attend an event. The feedback we have had in many instances is that does not provide very good value for money, but the organiser is quite often in the situation where they feel obliged to do it as part of the process.

He continued:

I had an instance given to me yesterday by one of my members based around an exhibition where they have historically brought in a commercial officer from the local Embassy on the eve of the exhibition to do a sector specific briefing to the companies who are in their group at that exhibition. Five years ago that would have been done free of charge by the commercial officer. Up until recently they charged £250. Now they are charging up to £500 for what is effectively a 20-minute briefing in a room which is already being paid for by the trade association at an exhibition. Effectively the trade association is inviting in the commercial officer to meet those companies to give him sales opportunities to produce OMIS reports and they are being charged a substantial amount of money for 20 minutes' time.[85]

In its supplementary evidence UKTI provided the following defence of its decision to charge for such services.

We charge for time in organising and participating in receptions IF they are appropriate to the market and sector and IF the organiser wants one, because a proper focussed reception requires the presence of potential customers and intermediaries relevant to the missioners business objectives. This entails a level of research and effort in putting the right people together, equivalent to researching contacts.[86]

64. This disagreement appears to stem from the new definition of what constitutes an OMIS, which now covers a wider range of activity than previously was the case. UKTI operations that we have visited made clear to us that they viewed OMIS as a charging mechanism for their time and resource, whether or not it involved the production of a formal report. It also partly reflects UKTI's new policy of charging "for most activities overseas where a private company or group of companies stands to profit from the help it provides."[87]

65. We do not believe that there should be a fundamental tension between the need for staff to meet centrally-set targets for OMIS revenue and their ability to network and make contacts with local businesses. Indeed without those contacts OMIS reports would be of a much poorer quality. However we are alert to the pressures on UKTI staff and the fact that OMIS targets have the potential to trap staff behind their desks and skew their priorities. We recommend that the Department monitor this issue and where necessary, empower UKTI management to intervene and ensure that staff workloads do not prevent them from developing the local and sector knowledge necessary for them to provide a vital aspect of UKTI service.

PASSPORT TO EXPORT

66. The Passport to Export scheme supports first-time exporters, providing them with a broad range of services including: free capability assessments, support during visits to potential markets, mentoring from a local export professional, free action plans, customised and subsidised training, and ongoing support once they have established themselves in the market.[88] The scheme has received a 90% quality rating from businesses that used it.[89] This positive evaluation was reflected in the written evidence we received. For example the Sponsors' Alliance described the scheme as an "excellent service, providing a systematic approach to ongoing mentoring."[90]

67. The scheme is only available to new exporters and does not provide assistance to help existing SME exporters expand into new markets and sectors.[91] This restriction leaves an important gap in the current service provisions, especially given UKTI's focus on high growth emerging markets, an area where we are currently being out-performed by some of our key European competitors.[92] As we heard from the British Chambers of Commerce "so many businesses especially at the smaller and medium-sized end of the market find it easier and more comfortable to begin their exporting life in Europe or in North America".[93] This is a problem because SMEs which are first-time exporters do not automatically look for opportunities in the high growth countries which UKTI has designated as a priority.

68. In his appearance before us Lord Jones made clear the difficulties faced in getting business to consider these countries as potential markets for their products. Using the example of potential markets for UK exports in one Asian country he said:

If you said to small businesses in Manchester, 'Tell me some exporting markets you think you could go at', a country with 160 million Muslims is not somewhere where they think of and yet it is teeming with people who are getting richer every day and who would love to buy our goods and services […] You have got a big job to do to get certain markets with huge potential onto the radar screen of the British business population.[94]

In addition businesses face a range of additional practical challenges when trying to export to unfamiliar high growth markets including: understanding the local business culture and language; coping with the distance; sourcing a reliable local partner, and developing products and services tailed to meet the specific needs of that market.[95] As one witness put it "there are enormous obstacles and complexities that no new exporter ought to be faced with."[96]

69. The Government has acknowledged this problem and in March 2009 launched its 'Gateway to Global Growth' package of support for experienced exporters—especially innovative SMEs—to diversify into new markets. The Gateway to Global Growth programme has received £3.5 million of funding. The Department's memorandum describes the scheme as being "based on UKTI's 'Passport to Export' programme for new exporters, but recognises the potentially more complex demands facing experienced exporters, especially those seeking to enter high growth markets for the first time, or to enter global supply/value chains."[97]

70. When we asked business representatives about the scheme, they welcomed the intention but had some concerns about its implementation. Mr Marshall said that "our members have reported quite a bit of confusion about that programme. They say that in different regions of the country there are different levels of financing available or a different offering available. If that is intended to be the follow-on to Passport to Export a lot of members do not feel as if it is living up to that particular description."[98]

71. If UKTI is committed to increasing the number of companies exporting to its priority high growth markets it needs to accommodate all companies who are interested in entering those markets, regardless of whether or not they are new to exporting. We welcome the aims behind the "Gateway to Global Growth" programme but are concerned about reports from industry that it is not living up to its billing as a follow-on to the highly successful Passport to Export scheme. The Government should re-examine the support the Gateway provides to ensure it provides a properly tailored service to the needs of business. We invite the Government to provide more information about the operation of this scheme in its response to our report.

TRADESHOW ACCESS PROGRAMME

72. The Tradeshow Access Programme (TAP) provides support for small and medium-sized enterprises to exhibit at trade shows overseas, either as part of business delegations or on an individual basis. Each delegation is led by an accredited trade organisation. In 2008-09, the TAP Group programme comprised of 416 events. Grant support is primarily aimed at new-to-export SMEs but established SMEs can apply if they are going to a trade fair where they have not recently exhibited. Grants range from £1,000 to £1,800. In the 12 months up to December 2008, 2,742 grants were awarded under this programme.[99]

73. Almost all evidence submitted by business groups to the Committee emphasised the importance of trade shows to their members. Equally they voiced their disappointment in the recent reductions in UKTI budget for tradeshow support. For example in its written submission the BCC stated that:

The Missions Programme takes exporters into potential markets and introduces them to potential customers. It has always been highly valued by businesses, who have found missions incredibly successful in helping them find new markets. However, funding for missions has been slashed by UKTI, and the current regional Market Visit Scheme does not give companies the wide range of dates for assisted market visits that they could have from access to a national scheme.[100]

74. In 2006-07, £10.5 million was available to help SMEs attend trade shows.[101] In 2008-09, this was reduced to £7.7 million.[102] The Energy Industries Council submission stated that "the Government has whittled down TAP funding over the past five years, to the point where it makes very little difference to our members."[103] The BCC argued that funding available for UK SMEs to attend tradeshows compared unfavourably with the UK's major competitors, describing it as "inconsistent, unreliable and falling."[104] The British Marine Federation argued that the "volume of administration" and "significant lead times" that SMEs face in accessing this funding discourages many from applying.[105] Several submissions set out the view that the reduction in funding for the TAP has led to a noticeable impact upon the representation of Britain at several key trade shows.[106]

75. The Government's supplementary evidence stated that £300,000 was added to the TAP 2009-10 budget of £8.2m in September 2009.[107] The Government also highlighted the fact the number of financial grants for which an individual company could apply had increased from three to six, subject to the grants being used in at least two markets.[108] We were told that the initial reasons for restricting the number was because "there were some companies who were, if you like, living on grants for years and years […] we wanted to attract more companies and I think we decided that perhaps we had tightened the screw a little bit too much."[109] We also note that some of the events being funded by the Strategic Investment Fund[110] (SIF), such as the £2.8 million being spent on showcase events, may help—at least temporarily—to address businesses' concerns about the lack of funding for trade show events.

76. We explored with Sir Andrew Cahn, Chief Executive of UKTI, how UKTI supported businesses in making the most effective use of trade shows. When questioned as to whether past performance at tradeshow gave companies an advantage in gaining future funding he replied: "No. If a company is eligible it is eligible. It is a good question and I do not think I have a very good answer for you. What we certainly do do is try and follow up on where we see things have not worked properly and try and change things."[111]

77. Companies clearly feel that the Tradeshow Access Programme makes a valuable contribution to their ability to export successfully. However, given the current constraints on public finances it is difficult to recommend that the Programme's budget is increased. Rather we see an opportunity to make the use of existing resources more efficient by developing a better evaluation mechanism for determining future grants, the need for which was alluded to us by the Chief Executive of UKTI. We call on the Government to protect the existing levels of funding and to explore innovative ways of maximising the effective use of the resources allocated to this scheme.

GAPS IN CURRENT PROGRAMME PROVISION

78. As part of this inquiry we explored how the support the Government provides to its exporters compares with support offered by some of our main competitors. On the whole we were impressed by the UKTI system. Indeed, parts of the UKTI programme are seen as a model for other countries. However, we saw one scheme run by UBIFrance[112] which we think that UKTI could learn from—"Volontariat International en Entreprise" (VIE), which roughly translates as the international internship programme.

79. VIE places highly skilled recent graduates[113] in French companies that are operating abroad, and pays a proportion of their salary. Young people, up to the age of 28, can apply for internships working for SMEs. The programme has been running for five years and so far UBIFrance has received 40,000 applications to join it. At present, there are 6,366 young people on assignment in 139 countries. UBiFrance estimate that 11,500 SMEs have benefited from the programme.

80. We learnt about this programme rather late in the course of our inquiry and therefore have not had the chance to gather formally the opinion of industry or Government about the possibility or desirability of developing a similar scheme in the United Kingdom. However, our first impressions are favourable. VIE appears to provide highly skilled graduates with an entry into business in a way which is tailored to meet companies' needs and offers graduates valuable experience working both in the private sector and in a foreign country. The Government should study VIE closely, identifying the benefits provided by the French system, and investigate the possibility of running a similar scheme in the United Kingdom.

Monitoring the impact of programmes

81. UKTI has set up several mechanisms to monitor the impact of its programmes on business performance. Since July 2005, the main system of monitoring is through a quarterly Performance and Impact Monitoring Survey (PIMS). Each year, approximately 3,400 businesses are randomly sampled some four to seven months after they have used a specific service. A smaller sample of 400 are contacted again a year later for a follow up interview.[114] The results of these questionnaires form the basis of the PIMS reports.

82. These interviews attempt both to measure whether UKTI services have improved the performance of businesses, and also to assess the financial benefit businesses received as a result of these services. UKTI classifies a business as having improved its performance if they:

Expect that in five years time the support will have had a positive impact on their productivity (in terms of sales per employee); and
Expect a positive impact on the profitability of the firm (in terms of the proportion of turnover accounted for by profit), and
Expect to either win new orders, be invited to tender or quote for work or see a 'significant increase' in total sales as a result of the support.[115]

83. The PIMS questionnaire also asks for information about the financial benefit that UKTI services have delivered. This is how the often quoted figure of a "£16 return for every £1 spent" has been calculated.[116] However, the NAO had concerns about this figure. Referring to the 2007-08 cost ratio the NAO noted that:

The underlying survey data demonstrates that 29 per cent either did not know or declined to provide an estimate [of direct financial benefit] […] and 41 per cent forecast no financial benefit.[117]

This suggests that UKTI is not getting a complete picture of the benefits of its services to users. In some cases this may be because not enough time has elapsed to allow businesses to fully realise the impact of the support they had received.

84. The NAO's analysis of the survey data also highlights an interesting point about the additionality achieved by the range of services offered. When asked "Do you think you would probably or definitely achieve similar results without UK Trade & Investment support?", almost half replied either "yes" (19%) or "yes but not as quickly" (27%). SMEs perceived a higher level of additionality than larger businesses, possibly because SMEs tend to have less experience in working in overseas markets.[118]

85. While these figures are interesting we believe that they should be treated with caution. It will always be difficult to accurately assign responsibility for new business between UKTI and the businesses they support. Precise figures which assign an exact figure to UKTI support should always be treated with a degree of scepticism. Judging the benefit that UKTI adds to a company will necessarily be more of an art than a science.

86. We explored the difficulties of measuring the financial impact of UKTI services with officials during our visits to UKTI Posts. We were told that there was no systemic monitoring of additional revenue that businesses received beyond the PIMS mechanism. Furthermore companies were not required to inform UKTI about any additional business they secured as a result of the support they received. We discussed the possibility of requiring all companies to report back to UKTI on the financial benefit of their services as part of the initial agreement to commission support from UKTI. The staff we talked to were supportive of this idea and believed it would give them a better understanding of the effectiveness of their work.

87. We believe that the effectiveness of UKTI support to companies must be, as much as possible, measured by its "bottom line" impact, that is the direct additional financial benefit to companies—and to the United Kingdom—as a result of the services that they received. Being able to demonstrate more fully the value it adds to companies activities will help UKTI defend its budgets during continuing pressure on public finances. We therefore recommend that businesses who use UKTI services should be required to keep UKTI updated about the benefit that they receive, over the medium term as part of the agreement they enter into when using UKTI services. This should not have to be an onerous process, a short e-mail or phone call to their UKTI contact after a successful business deal had been signed would be sufficient. We also recommend that the timescale of the PIMS system is lengthened to allow companies responding the time to realise the full impact of the support they have received. Done well, this process should also enhance relationships between UKTI and the businesses using its services.

Delivery of programmes

88. The delivery of many UKTI regional services within the United Kingdom is contracted out to other organisations. Traditionally this was a role played by the local Chamber of Commerce, but more recently contracts have been awarded to "bodies which are closer to government."[119] The British Chambers of Commerce (BCC) argued that the effect of this change was to "take trade services from a single roof which employers knew and understood [and] spread them among many different organisations."[120] In Devon, Cornwall and Somerset, UKTI regional services are now delivered by Serco, which also provides services to local government and the private sector in the following areas: home affairs, defence, science, nuclear, health, education, welfare to work, and IT.[121] In its supplementary memorandum, the Government set out its partnership arrangements with the private sector and describes how those partnerships provided the benefits of a business perspective, increased credibility and innovative working methods:

In UKTI's English regional network we have a private sector delivery partner in each of the nine regions which employs more than 300 people in international trade teams (including International Trade Advisers) who are deployed on UKTI work. While UKTI offers a national suite of services, our advisers work with businesses locally to develop a deep understanding of the diverse range of business needs that exist across the English regions.

In each region UKTI seeks delivery partners that have a capability to deliver for UKTI, can generate synergy with other business support services and offer value for money. […] UKTI will select the best value suppliers i.e. the best quality at the most competitive price, to work with. [122]

89. The Government should obviously award contracts to those organisations which can provide highest quality services at the best possible price. This will not necessarily always be local Chambers of Commerce, especially in areas where the Chamber movement is less well developed, as is the case in the South West. However, there are many advantages to local Chambers acting as UKTI's primary delivery partner. Local Chambers provide businesses with one location to access these and other services, and they are already established in the locality. Local Chambers are also in a position to use their knowledge of local businesses to promote UKTI's services more effectively. While we have no doubt that private companies, such as Serco, are very effective administrators, it is clear to us that UKTI would benefit from having its UK-based operations delivered by an organisation that has detailed knowledge of, and regular contact with, local businesses.

90. Value for money and high quality services should be the criteria used by UKTI when it awards contracts for its UK operations. However a partner with knowledge of local businesses and ability to promote UKTI service to the widest possible range of companies—such as a Chamber of Commerce—will be able to add a great deal of value to UKTI UK-based operations. These are considerations that UKTI should bear in mind when deciding who to partner with for local service delivery. We also believe that the Government should seek to strengthen local Chambers as a matter of policy.

STAFF COSTS

91. UKTI currently employs 2,400 staff, of which 1,400 of which are based overseas.[123] Some groups have questioned the relative amounts spent on direct business support and staff costs. Sponsors' Alliance argued that its analysis of UKTI's overall operating costs for the 2007-08 budget year revealed that staff costs for directly employed staff (by BIS and FCO) "amounted to approximately £63 million, with an additional £16.4 million to maintain the International Trade Teams in the English regions, plus a further £0.5 million for international business specialists, seconded from industry."[124] Administrative and overhead costs, both in the UK and overseas, accounted for a further £144.1 million. According to Sponsors' Alliance:

Altogether, UKTI staff, administrative and overheads expenses amount to approximately £224 million, which is around 76% of its overall operating budget […] UKTI spent less than £1 in £9 of its overall operating budget on direct customer-facing international business schemes in 2007-08.[125]

92. Mr Josypenko reiterated this point in oral evidence: "UKTI is very intensive in staff and overheads costs and it seems to me that the proportion is wrong. The figure I heard most recently is that the amount of UKTI budget that goes to business schemes which directly benefit exporters is in the region of £30 million for the year just passed, out of a budget of £320 million."

93. When we asked the Department to comment on these figures we received the following reply:

Mr Josypenko is contrasting a figure for programme spend (£30 million) which relates to his definition of direct support (Trade Access Programme, Passports etc) against the total resource consumed by UKTI (£323 million). UKTI's total budget of £323 million is split between Trade Services £250 million and Foreign Direct Investment £73 million.

UKTI's Departmental Report and Resource Accounts 2008-09 (HC 482) show that direct support to business on trade support amounted to £201 million (this figure excludes BIS admin). [126]

The Government also argued that 90% of all UKTI staff were either working overseas, in the regions or engaged in "customer-facing work" at their Headquarters, and that there had been a 40% reduction in HQ (that are London-based) staff since 2004.[127]

94. Having seen for ourselves the services that UKTI provides we agree that it is very staff intensive. The on-the-ground contacts, knowledge and mentoring services that UK businesses value require the UKTI operations to have significant numbers of staff to research and provide this information. This is especially true of the traditional OMIS reports and the Passport to Export mentoring programme.

95. Given the value that business place on these services, which require a significant number of staff to be on the ground in overseas markets, resources need to be, where possible, concentrated in those Posts. However, care must be taken to ensure that efficiency savings result in real efficiencies. Too often, short sighted attempts to make savings lead to a unforeseen long terms costs. For example, in Italy we saw that reductions in the numbers of support staff had forced highly skilled, front-line staff to fulfil functions such as office cleaning, reducing the time they spent supporting businesses.

96. In the current climate of constrained public finances it is especially important that the maximum possible amount of resource is directed to front-line services. However, we do not believe that wasteful spending exists to the extent suggested by some of our witnesses. Neither do we believe that UKTI needs to fundamentally re-evaluate the balance it strikes between direct cash support it provides to business and the amount it spends on staff, the majority of whom deliver front line services to companies. However changes imposed on UKTI have played their part in creating a top-heavy bureaucracy which is now being slimmed down. This process must continue—the evidence we have heard suggests that the real value to British business of UKTI is its presence at the local level both in the UK and overseas.

THE FCO ESTATE

97. We are also concerned about pressure from the Treasury for the FCO to sell those of its embassies in high profile locations in an attempt to reduce costs. Selling these buildings would not only represent a downgrading of the UK's presence overseas but would sacrifice an important weapon in UKTI's arsenal. The ability of UKTI to offer companies the opportunity to host meetings and events in such impressive locations can make a real difference to their ability to win new business.

98. The importance of these buildings was brought home to us during our visit to Paris. The location and grandeur of the Embassy is seen as an incentive for people to attend UKTI meetings and functions held there. In this way the Embassy acts as an asset which allows the excellent UKTI staff in Paris to sell the United Kingdom more effectively. Without it, it would be more difficult for UKTI to reach its intended audience.

99. In the current financial situation there will naturally be the desire to reduce expenditure and make savings. However, to do so by selling parts of the FCO estate, especially those based in such prestigious surroundings, would be a short sighted decision and in the long run could cost UK plc much more than was saved.

59 NAO, UK Trade and Investment: Trade Support, HC 297, April 2009, p21. Although this was short of their target of 80% customer satisfaction. Back

60 Q197 Back

61 NAO, UK Trade and Investment: Trade Support, HC 297, April 2009, p11 Back

62 https://www.uktradeinvest.gov.uk/ Back

63 NAO, UK Trade and Investment: Trade Support, HC 297, April 2009, p21 Back

64 Q 228 Back

65 Ev 134 Back

66 Q 310 Back

67 Q 312 [Mr Scott] Back

68 Ev 72 Back

69 The OMIS reports seen by the Committee were done so under the conditional of commercial confidentiality and therefore have not been reproduced in the evidence volume. Back

70 Ev 119 Back