Written evidence from Delcam
DELCAM CONCERNS
RE GOVERNMENT
FUNDING
Delcam's roots lie in research carried out at
Cambridge University in the 1970's that was successfully spun
out into industry to create a small technology company that grew
into a profitable business turning over £35 million world-wide
developing and licensing software for advanced manufacturing.
The reason for Delcam's success is not only the excellent technology
that it develops but also critically the extensive overseas sales
and support network that it has developed to generate the revenue
to support the R&D necessary to stay at the forefront of its
field. If the UK is to be a leading knowledge-based economy, attention
should be paid to the issues facing companies such as Delcam.
LOST SME BENEFITS
AS STAFF
NUMBERS INCREASED
R&D tax allowances
Delcam needs to sell its software internationally
in order to generate sufficient income to fund our R&D activities.
To do this, we have established subsidiaries in key territories.
As a result we no longer qualify as an SME due to our Group staff
numbers. (An SME is currently defined as a company or organisation
with fewer than 500 employees and either an annual turnover not
exceeding €100 million or a balance sheet not exceeding €86
million).
If our level of R&D tax allowances were
based on UK staff only, we would get 175% allowance rather than
130%. The difference is £742,000 in tax saving. A fairer
alternative might be to base the allowances on percentage of turnover
spent on R&D or to use UK staff only to determine the level
of allowances. It might also be better if relief tapered rather
than dropping suddenly as a company switches from the SME Scheme
to the Large Company scheme.
UKTI Support
In contrast to the tax credits, we are told
that UKTI support is based on UK staff numbers so we are still
receiving these funds. However, it is likely that our UK number
will soon exceed 250 as we increase our development staff. While
the value of the lost support will be small compared to the tax
impact detailed above, it will still amount to several thousand
£ each year.
SOFTWARE PIRACY
This is a major issue, and not to be confused
with illegal music downloads or pirated computer games. Delcam
produces professional software that is only useful if you have
invested in manufacturing equipment costing tens of thousands
of pounds.
Delcam has invested heavily in software protection
measures and currently spends $100,000 per annum licensing protection
technology. However, it is difficult to recover this investment
while illegal users can simply steal a competing product instead
of buying ours.
The problem is not taken seriously in many developing
countries, where there appears almost to be official approval
of boosting GDP by stealing foreign software. It is prohibitively
expensive for individual companies to try to pursue this in all
the relevant jurisdictions.
TECHNOLOGY CENTRES
Technology centres provide an excellent mechanism
for transferring academic research conducted within universities
and other institutions to industry, as well as coordinating funded
research activities and ensuring the results can benefit as many
industrial enterprises in each key sector as possible. This ensures
the benefit of UK Government & European funded research is
spread as widely as possible within the economy creating the maximum
impact.
The challenge comes when the focus moves from
industrialising research into developing new processes or improving
existing commercial processes (from commercialising R to providing
D). The conflict is magnified within a knowledge economy where
organisations leverage the intellectual assets they have developed
by selling products, services and consultancy based on the assets
to larger enterprises further up the value chain. This risks placing
Technology Centres as subsidised competitors to SMEs.
Technology centres function well as "showcases"
for hardware vendors and provide an environment where manufacturing
companies can develop processes without the disruption and capital
cost of using their own facilities. Hardware vendors benefit because
an investment in hardware is essential for processes to move into
production. However, the centres cannot perform the same function
for companies selling consultancy and knowhow as a product; because
once it has been shared the value of knowhow is immediately diminished.
(In many cases Delcam cannot sell software to large corporations,
because their IT strategy favours competing products). The problem
is made worse because the technology centres are encouraged to
raise funds by offering specific consultancy on a commercial basis.
We can therefore find ourselves in the position of teaching them
how to compete with us. The risks of this approach are:
1. Technology companies like Delcam minimise
their interaction with Technology Centres to minimise the risk
of leaking IP, and
2. The development of manufacturing technology
only happens in the state-subsidised academic sector, to the benefit
of large commercial sponsors.
We need to find a strategy for exploiting academic
research that recognises that in many cases the technological
leading edge lies in private industry rather than universities.
UKTI FOCUS ON
MANUFACTURING
We are very pleased with the current UKTI focus
on manufacturing exports, which has been beneficial to Delcam's
business. We have a concern that any recovery in areas like financial
services will lead to less prominence for manufacturing in future.
FUTURE WORKFORCE
There are concerns over the number of high-quality
graduates that are available for our development activities, in
particular the number of high-level mathematics graduates. Many
students now at British universities are from overseas and these
may be difficult to recruit (see below).
Although we believe that the EU does produce
appropriately skilled graduates, Delcam finds it hard to attract
good applicants in competition with better-funded household names
like Rolls-Royce, Microsoft etc. We have invested heavily in placement
and graduate training schemes recently, but this is very expensive,
with no guarantee of a good outcome. In many cases we will be
providing experience for people who will then work elsewhere.
Delcam also participates in school awareness
schemes like STEM. There's little incentive to do this other than
a belief it is the right thing. It is demoralising to find that
staff in schools often underestimate the effort involved, frequently
changing or cancelling arrangements at the last minute.
IMMIGRATION CAPS
It appears that the immigration caps will make
it difficult for us to recruit international students that have
graduated from British universities. The caps will also make it
difficult for us to arrange long-term training of overseas engineering
staff. These employees can be most easily trained in the UK but
this takes several months. They are unlikely to meet the salary
levels predicted to be required for visas, especially if they
are from countries like India or China.
In our recent campaign for graduate trainees,
around 80% of applicants will be using post-study work visas.
Given the uncertainty surrounding the ability to extend their
visas beyond one year, we have little choice but to reject them
all.
PATENTS
Trolling—this is a particular problem
in the USA, where plaintiffs have no liability for defendants'
costs, even if a claim turns out to be unfounded, and shell companies
are used to avoid counter-actions. The only efficient resolution
is to submit to blackmail and settle out of court. This is the
corporate equivalent of private wheel-clampers!
Patents in software seem principally to be used
as a way to obstruct competitors rather than to promote innovation.
Unlike a mechanism or even a drug, software cannot easily be analysed,
measured and replicated. Copyright protection discourages plagiarism
without putting barriers in the way of improvements that owe nothing
to the internal operation of a competing product.
Many software patents have been granted for
well-established or even "textbook" techniques. This
is because prior art is not easily established in an industry
that has previously relied mainly on copyright and non-disclosure
for IP protection rather than publication and patents.
10 December 2010
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