House of Commons - Business, Innovation and Skills Committee

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

Memorandum submitted by The Design Council

INTRODUCTION

The Design Council welcomes the opportunity to respond to the House of Commons Business and Enterprise Committee inquiry into exporting out of recession.

The Design Council is the national strategic body for design. Its role is to inspire and enable the best use of design in business and public services. While our work mainly focuses on industry's demand for design, we also seek to address supply side barriers to growth of the design sector. Here we want to highlight how the Government and UKTI export strategy could support UK design sector better as the area where the UK has a significant competitive advantage.

Our views are drawn from our work in the areas of business and public service innovation and the Design Council's research into the impact of design on business performance, Value of Design Factfinder[21] and Design Industry survey[22], 2005 and 2007.

UK BUSINESSES ARE INCREASINGLY USING DESIGN TO COMPETE

Design is among the UK's strongest creative sectors, and ranks highly against international competition.[23] When businesses exploit the skills of UK designers, significant performance benefits have been demonstrated—for example, manufacturers who invest in design see significant outcomes as a result, including improved quality of goods and services, and increased market share.[24] And companies that spend double the average amount on creative inputs, including design, are 25% more likely to introduce product innovations.[25]

In 2002, 51% of Queen's Award for Export winners directly attributed overseas sales success to their investment in design; over 90% said design was valued by their international customers; and 86% reported that design helps them to compete internationally.[26]

In its brochure on UK Creative industries UKTI notes: "UK designers are renowned throughout the world for their ability to deliver effective design solutions. They also have a unique ability to design for the international marketplace. The UK is a creative hotbed and an ideal gateway into the international market."[27] However, with the current economic downturn and increasing global competition it is important—now more than ever—that the UK remains a leading resource of world class design research and knowledge and the UK design sector is step ahead of international rivals in global markets.

RECESSIONS DEMAND CREATIVE RESPONSES

In the middle of a recession, businesses can be tempted to save money by cutting marketing budgets, delaying new product development and reducing R&D. In the 1990s recession, R&D spending dropped across the industrialised world, falling as a proportion of GDP from 1990 to 1995.[28] However, research shows that companies that don't invest in growth, research and development during a recession are 2.5 times more likely to fail than those that do—the latter often emerging stronger and more competitive than before the recession.[29]

Some of the world's strongest economies, such as the United States and Finland, established their economic strength during profound downturns by identifying new markets. Design plays a major role here: for example, Nokia found new markets by developing products with an emphasis on high quality design.[30]

DESIGN AND THE CREATIVE SECTORS WILL DRIVE GROWTH

Creative sectors such as design are seen as drivers of innovation and growth throughout the UK economy[31] Policymakers and academics have recently moved beyond focussing on technical and research activities to recognise the importance of design and creativity to innovation activities.[32] Design catalyses business innovation by applying a formal approach to creativity, and plays a key role in developing new products, services and processes.[33]

Businesses will need to compete during the recession by adding value to their offerings and responding to changing customer demands: this means improving current products and services—and designing new ones. Businesses will also need to find smarter ways of working, which can be helped by using design thinking as a strategic tool. There is evidence that these approaches are taking root, with 54% of UK firms planning to use design to stay competitive during the recession.[34]

GLOBAL CHALLENGES FOR UK DESIGN SECTOR

When we surveyed the Design Industry in 2005, 17% of UK design businesses said their main competition comes from outside the UK. So in 2007 we asked 285 design businesses that are already competing against overseas designers to tell us more about their experiences. When asked in 2007 where the competition is coming from, the 78% of designers reporting overseas competition for the same work say that it's from designers in Asia (56%)—in particular India (38%) and China (26%)—and Western Europe (30%).

The research[35] also showed that almost half (47%) of all the design businesses we spoke to expect that the amount of overseas work they undertake will increase over the next three years. Of those already doing this work 57% expect it to increase: currently, 61% derive just 25% or less of their fee income from work for overseas markets.

The findings, which appear in a new report examining international design capabilities,[36] could have significant implications for the UK, where high-value activities such as design are regarded as essential to future competitiveness.

The "International Design Scoreboard" produced by a consortium of UK universities led by the University of Cambridge and supported by the UK Design Council, shows East Asian countries such as Korea and Singapore are beginning to shift their economic emphasis away from low-cost production and into design.

The results suggest that western nations are under increasing threat from emerging East Asian "powerhouses" as they develop their design sectors, invest in national design promotion and produce skilled design graduates. The report confirms conclusions made in the Cox Report of Creativity in Business that strong manufacturing bases in the Far East are also developing strong design capabilities.

If their ambition is successful, countries such as Korea will become even more competitive in areas such as design. They will also have the added advantage over many Western countries of a close production base, which in many cases has already shifted to the East.

RECOMMENDATIONS FOR A NEW UKTI EXPORT STRATEGY:

1) Align export strategy with government priorities for economic recovery

A new UKTI export strategy needs to be aligned with Government priorities in skills, enterprise, innovation and low-carbon economy as outlined in its strategy for economic recovery "Building Britain's Future—New Industry, New Jobs".[37]

In UK businesses where design is integral to operations, 84% say they've increased their competitiveness through design; and 79% think that design's importance to competitiveness has risen over the past decade.[38] These trends look set to continue—a recent CBI survey showed that 55% of manufacturing firms see design and development as one of their most important sources of competitive advantage in five years' time.[39]

The new UKTI strategy should support design-led businesses and stimulate investment in intangibles such as design, branding and R&D.

2) Design a sector specific export strategy for creative industries

In July 2007 UKTI published its Creative UK: Towards an international marketing strategy for the UK's creative industries. It was a welcome first step to recognise the importance of creative industries in UKTI export strategy. However, the current economic climate requires a more sector specific approach and a new strategy needs to consider that different sectors within creative industries have different commercial value eg. fashion and design vs. theatre.

3) Recruit UK Brand Ambassadors

The UK's strong design reputation in the international marketplace is considered likely to help design businesses to expand into overseas markets. 82% of designers who have worked for overseas clients, or are considering it, say UK's reputation in design makes a positive contribution to winning work from international clients. Some of the leading UK designers run successful global business operations—such as Paul Smith in China, Richard Seymour of SeymourPowell in Singapore and Jonathan Sands in Australia and the US, to mention just a few.

To enhance the UK Plc brand internationally, UKTI should develop a roster of high-profile creative industry representatives to head the overseas missions, particularly in emerging, "brand greenfield" markets such as Russian and Asian markets.

4) Encourage greater understanding of overseas markets

The Design Council research[40] shows that around a quarter of designers have undertaken overseas visits (26%) or trend research (25%) to better understand overseas markets, or are planning to do so. But about a fifth (19%) do not know what they will do to better understand overseas markets. Also, two-fifths of design businesses who are either working for overseas markets or considering doing so believe that language or translations issues are a barrier to winning work, while 16% believe cultural issues or practical communications problems are barriers.

Government needs to measure, value, understand and monitor over time the input of creative industries to exports. More evidence is needed that overseas missions are delivering tangible outcomes. In particular, how current Passport to Export scheme supports design sector.

5) Target and incentivise inward investment in value-added activities such as design

A new strategy needs to target and incentivise global companies—their accounts are transparent, so it's easy to identify them! London is a global creative hub and over the last five years some of the market leaders such as Nokia and Nissan set their design HQs in London. In 2006, Nissan Design Europe has won a tax relief claim for design work dating back two years, using the research and development tax credit system recommended by Government-backed Cox Review of Creativity in Business. The move was worth "hundreds of thousands of pounds" to Nissan and pointed the way to millions of pounds of potential claims from other global design-led businesses.

6) Raise awareness of IP in emerging markets

Lack of respect and understanding of for Intellectual Property rights such as brand, trademark and copyright is a disincentive for UK design firms to work in emerging markets. The UKTI should work closely with the IPO to raise awareness of the importance of Intellectual Property to investment.

23 April 2009