Memorandum submitted by Chemical Industries
Association
BACKGROUND
1. The Chemical Industries Association is
pleased to have the opportunity to make a submission to the Committee
and highlight our continuing concern over the high and volatile
prices prevailing in UK wholesale energy markets.
2. The Chemical Industries Association is
the trade association for chemical businesses in the United Kingdom.
The 150 members range from large multinationals to small
start up businesses, 70% of the membership is headquartered abroad.
3. Turnover exceeds £57 billion,
and over 180,000 employees work for 3000 organisations,
although only 160 employ more than 250 people—not
all chemicals activity is large scale. It is internationally competitive,
as demonstrated by a regular surplus on overseas trade and the
sector is ideally placed to build on export opportunities.
UKTI
4. The UK chemicals sector, which represents
almost 12% of all manufacturing value added has become more and
more detached from UKTI policy in recent years. The industry has
developed its own "bottom-up strategy" because this
association believes that its members rather than Government are
best placed to determine the industry's own export promotion priorities.
Unfortunately, UKTI's priorities are fundamentally determined
by PES rounds and regional policy considerations, not by the priorities
of industry.
5. That is not to say that UKTI does not
have some pearls within its oyster shell. The network of Commercial
Departments in overseas post do a great job but unfortunately
these have now become expensive quasi-commercial cost centres
that are more focused on delivering OMIS targets than giving local
direction to exporters. We were recently quoted from a post in
Asia that they would have to charge £2k under OMIS to arrange
a reception (venue, food and drink extra) at a trade fair for
a group of five UK SME exhibitors. These exporters are already
facing additional costs imposed by Her Majesty's Government through
the Climate Change Levy, the Pension Protection Fund and substantial
regulatory charges that their global competitors do not pay.
6. Until now, grant levels for exhibiting
at overseas trade fairs have been systematically reduced or left
to wither on the vine. Eight years ago, companies could claim
up to £3k per exhibition, now the maximum is £1.8k but
most grants are limited to £1k or £1.4k. Support for
industry organisations that administer and organise official trade
fair activities has similarly dwindled.
7. There has been a recent shift in UKTI
resources away from trade promotion to inward investment activity
that often involves acquisition of existing assets rather than
investment in new assets. There is now a very strong argument
that it will be trade, not foreign investment, which will dig
the UK out of its current economic predicament. The Government
should therefore realign its UKTI programmes accordingly.
8. If and when they do so, Ministers should
look at the relationship between UKTI programme budgets and UKTI
running cost budgets. The programme budgets provide direct export
incentives for industry; the running cost budgets cover the advisory
services and overheads. At present UKTI running costs vastly exceed
the direct financial support on offer to UK exporters. A significant
proportion of the running costs does sustain the valuable work
of overseas posts and should therefore be safeguarded. However,
the running costs of UKTI and regional agency export promotion
staff based in the UK still exceeds the direct support on offer
to industry. One questions whether the UKTI budget is there to
employ an army of public sector advisers rather than provide more
direct help to the UK's hard pressed exporters. By re-adjusting
internal UKTI budgets, more cash positive support could be provided
to industry without any change to UKTI's financial call on the
Treasury.
9. Leaving ECGD aside, the Government has
deliberately shunned most of UK's exporters by diverting all of
its resource to assisting new or small exporters. It has failed
to recognise that (as a rule of thumb) it takes ten times more
resources to find a new customer than to hold onto existing ones.
It has steadfastly refused to support stalwart exporters and has
focused on "hi-tech" SMEs with no track record. The
budgets allocated to supporting biotechnology and nanotechnology
sectors (which themselves received substantial industrial development
funding) are not driven by market need, but are driven by Government
policy. Adding more taxpayers money to well-funded sectors at
the expense of existing exporters is questionable.
10. What follows is an outline of the UK
chemical industry export promotion strategy. It highlights these
and other consequences of the current UKTI approach to export
promotion support. This particular strategy has been developed
according to the needs of industry rather than to a Central or
Regional Government plan.
2009-10 EXPORT PROMOTION STRATEGY FOR
THE UK CHEMICALS SECTOR
INTRODUCTION
11. The following strategy paper has been
prepared for UKTI by regionally based international trade advisers
with a special interest in chemicals and the Chemical 12 12 Industries
Association's International Business Promotion Network. It has
been produced is to ensure that any official support assistance
provided to the chemicals industry is distributed in the most
cost effective way in terms of new business introductions and
helping companies retain existing overseas customers in an extremely
competitive global environment.
13. The proposals arising from this paper
are largely the results of widespread consultation within the
speciality and fine chemicals sector.
FACTORS BEHIND
THE RECOMMENDATIONS
14. This strategy is self-financing in parts
but is also contingent upon UKTI funding through the Trade Fair
Access programme and to UKTI regional programme budgets.
15. The contribution of the UK chemical
industry to the balance of trade is unsurpassed by any other manufacturing
sector. The chemical industry is UK manufacturing's number one
exporter too. With exports of £37.1 billion and imports
of £30.4 billion, it earned a trade surplus of £6.7 billion
in 2006. This trade surplus is expected to have narrowed to about
£5 billion in 2008.
16. When the overall trade balance is broken
down and the statistics analysed in more detail it is clear that
most of the trade surplus is generated by large multi-nationals
trading amongst themselves. Therefore this strategy deliberately
ignores inter-multinational trading, as it is highly unlikely
to influence it in any way. In this context making the UK a more
attractive place to manufacture would of itself ensure higher
export levels. Instead the focus of this export promotion strategy
is on meeting the needs of smaller speciality and fine chemical
companies that live by being innovative and die by not competing
effectively.
17. The customer base of this specialised
sector of the chemicals industry is absolutely huge. Every manufacturing
sector in every country uses chemicals to produce desired effects
and outcomes. Often, it is the underlying chemistry and production
techniques that give a chemical product its value. Innovation
is the key to find sustainable and cost effective solutions for
customers.
18. So whilst virtually all chemical companies
undertake business in other sectors such as food, automotive,
electronics, textiles, consumer products etc etc most business
is actually conducted within the chemicals sector itself. The
difficulty in producing a strategy to help these companies is
to determine where to get most bangs for the limited bucks that
are available. Rather than chase opportunities in a diverse range
of sectors, the main focus of the strategy should be to help these
companies pick up more business in the chemicals sector, which
comprises various sub-sectors (eg pharmaceuticals, rubber, plastics,
personal care chemicals, etc).
19. The industry is fundamentally research-based.
Its relative high growth is based on a constant flow of new products;
in many cases these products have unique specifications as required
in the contract. In 2007, R&D expenditure, at £5.1 billion,
was equivalent of 14% of UK sales (pharmaceuticals/chemicals combined).
The recent change in UKTI TAP rules to extend support to innovation
companies is welcomed and is one of the underpinning tenets of
this strategy.
20. In order to get more value for money
UKTI support activities and funding would be more effective if
it was applied to existing exporters as well as new exporters.
This has partially been accommodated by recent changes in UKTI
policy and it is strongly recommended that UKTI rules of engagement
be further amended in order to accommodate a much larger number
of existing exporters.
21. What is the purpose of UKTI intervention?
To co-ordinate industry activity? To fund industry activity? To
broker business introductions? To inform industry? To stimulate
trade activity? It is probably all these things. But there is
danger is that in trying to support industry in all of these ways
UKTI spreads its support too thinly to be effective. With TAP
budget cuts, UKTI staff cuts, Embassy staff cuts this danger is
more than ever present.
22. At the Leeds Chemicals Export Forum
in June 2006, there seemed to be a prevailing view that there
was a confusing array of public sector trade-related initiatives,
each with their own mission statement. A harmonisation of mission
statements of regional, specialist and other development agencies
was considered to be essential. Individual companies seek a single
contact point. Since industry is the customer of these agencies,
the national trade promotion body, UKTI, should do more to simplify
the interface at company level between industry and these official
trade services.
23. There was also a common view expressed
by experienced export managers that collective activities produce
more synergy and offer better value than supporting individual
companies or dealing with ad hoc requests for support. Therefore
the recommendations of this paper are based around collective
activities and networking within the recognised boundaries of
the chemicals sector.
24. In recent years new funding streams
have been made available to new so-called sectors such as nanotechnology.
In reality this is not a distinct sector; it is a microscopic
part of mainstream chemistry. The so-called nanotechnology sector
gets more UKTI support than all the rest of the sector put together.
This anomaly needs addressing.
25. Not surprisingly industry wants cash
positive support, particularly SMEs seeking new business in existing
and new markets. The UKTI policy of categorising new exporters
or new-to-market exporters is confusing and is unlikely to yield
as much value as supporting companies in existing markets. Perversely,
UKTI's TAP grant scheme is encouraging companies to take on unnecessary
new costs and new risks. 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.
26. This is an important point because according
to economists that specialise in the chemicals sector, although
there is double digit growth in the Chinese and Indian chemicals
markets, it will be at least eight years before the size of these
markets match those of the USA or Europe or Japan. In other words,
there will be more market opportunities in Developed Markets than
in Developing Markets for the foreseeable future, although there
are exceptions in generic life science chemistry where India and
to a lesser extent China have dominant global market positions.
Therefore the primary focus of the strategy should be on USA,
Europe, Japan and India (where the UK has an unique language/cultural
advantage).
24 February 2009
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