Government response
The Government welcomes the Business, Innovation
and Skills Committee's Report, "Re-balancing the Economy:
Trade & Investment". This paper sets out a detailed
response to each of the Committee's recommendations.
GOVERNMENT STRATEGY
UKTI is a key delivery body in the Government
plans for economic growth. The fact that it took a year to publish
its strategy—and that publication was delayed by five months—does
not reflect well on the Department. The Secretary of State told
us that the strategy was outlined in the Trade White Paper and
the Government's Plan for Growth. We therefore see no reason
why the Government did not publish the UKTI strategy alongside
either one of those documents. (Paragraph 20)
1. The coalition Government has made clear that exports
and inward investment are central to the recovery of the UK's
economy and therefore are a key priority for Government action.
Developing a new strategy for UKTI involved wide consultation
and was done in alignment with the Trade & Industry White
Paper (TIWP) and the Government's growth reviews. Indeed, it takes
forward the trade and investment promotion aspects of the White
Paper and 'The Plan for Growth, and provides more details on how
these will be delivered.
2. UKTI continued to perform strongly before the
strategy was published, delivering year-on-year productivity improvements.
In the year to 31 March 2011, we helped just under 24,000 UK
businesses to export and they tell us that this helped them generate
£6bn profit. We also helped UK companies secure £6bn
of new defence business, a 22% share of the global defence market.
And in attracting inward investment, we had record results in
securing 849 inward investment projects, which created 16,425
new jobs and safeguarded a further 33,472.
3. The Government was also committed to ensuring
that the Trade & Investment Minister, Lord Green, who took
up his appointment in January 2011, had the fullest opportunity
to consider what is a five year strategy, and for his views to
be taken fully into account in shaping the strategy before it
was launched.
While we welcome the Government's commitment to
rebalancing the economy through an increase focus on trade and
investment, its message and the perceived importance of this policy
has been weakened by the late publication of the key strategy
to deliver on this. We are concerned that this delay created
uncertainty within UKTI at a critical time in the economic recovery
and could have undermined its effective support for business.
(Paragraph 21)
4. We do not agree that the perceived importance
of the Government's policy on rebalancing the economy has been
weakened by the delay in publishing UKTI's strategy.
UKTI continually reviews the services and support
it offers for business and the timing of the launch of the new
UKTI strategy, 'Britain Open for Business', did not stop UKTI
from starting work on many of the initiatives that are set out
in the strategy. This included work on the Catalyst Network; the
Tech City initiative in London; setting up a Strategic Relations
Team; and awarding a contract to private sector firm PA Consulting
to undertake delivery of a national inward investment service
in England
It is also important to note that UKTI's new strategy
represents the rapid evolution of an already successful approach
to supporting exporters and investors, and targeting key markets
and key sectors. UKTI's Performance and Impact Monitoring Survey
(PIMS) shows that the organisation has continued to deliver effectively
for business since the 2010 Election, and that the effectiveness
of its services has not been undermined by the delay in publishing
the strategy.
MINISTERIAL RESPONSIBILITY AND WHITEHALL
For a Government to place such emphasis on trade
policy without providing either a clear strategy or a Minister
with responsibility for its delivery for so long was not a shining
example of clear and decisive policy-making. Furthermore, it did
not send out the right message to the business community. Given
that BIS is a key department tasked with rebalancing the economy,
we would have expected it to do better. (Paragraph 22)
5. UKTI has always followed a clear strategy. The
new strategy builds on UKTI's success to date. Over the next five
years, the new strategy will help to direct UKTI in a way that
ensures it continues to deliver maximum benefit for taxpayers
and business, in a rapidly changing domestic and international
economic environment.
6. We do not accept that the Government has sent
the wrong message to the business community. From immediately
after the 2010 Election, the Prime Minister and his Cabinet colleagues
have made clear that exports and inward investment are key to
rebalancing and rebuilding the UK economy, and are a high priority
for the Government. In Lord Green, we have a Minister for Trade
and Investment with a wealth of private sector experience at the
very highest level, and we welcome the Committee's recognition
of this in their very positive comments on his appointment in
paragraph 24 of its Report.
7. We also note the following comments from key business
leaders following the launch of UKTI's new strategy:
- David Frost, Director General
of the British Chambers of Commerce, said: "Britain's
recovery and long-term economic prosperity depend on improving
our international trading position, and so we welcome these measures
to put trade, investment and growth at the heart of UK foreign
policy"
- John Walker, National Chairman, Federation
of Small Businesses, said: "The Federation
of Small Businesses (FSB) welcomes the strategy from UKTI and
seven point charter from the FCO as they address many of the issues
that small businesses face when exporting and will go some way
to encouraging new firms to enter the export arena."
We recognise the importance of the ministerial
visits overseas and the impact that they have on the world image
of "Britain is open for Business". We welcome the appointment
of Lord Green as Minister for Trade and the start he has made
in this very important post. (Paragraph 24)
We welcome the establishment of the new cross-government
Strategic Relations Unit within the UKTI and a Cabinet sub-Committee
with responsibility for trade and investment. We trust that these
two new initiatives will link together to get the message across
Whitehall that all Departments, and all Ministers, should be thinking
about the role of trade and investment. (Paragraph 31)
8. As the Committee notes, the Strategic Relations
Team, based in UKTI, will coordinate activities across Government
and is tasked with improving communication between the various
government departments that deal with key investors and exporters.
It will support government teams and Ministers in developing long-term
strategies for the Government's relationship with these key investors
and exporters.
9. The Strategic Relations Team also has a major
role to play in managing relationships with key international
institutional investors (such as Sovereign Wealth Funds (SWFs)
and pension funds). This will help to ensure that UKTI has a clear
sense of their investment appetite; that appropriate propositions
are put to them; and that high-level/political relationships are
coordinated effectively.
10. The Economic Affairs Cabinet sub-committee on
Trade and Investment (EA (TI)), chaired by Lord Green, has a wide
cross-Government membership at Minister of State level. It aims
to ensure an integrated approach by all Government Departments
to trade and investment policy and promotion.
11. Much of EA (TI)'s focus so far has been on overseeing
the implementation of commitments made in the Trade and Investment
White Paper. It is also encouraging collaborative working across
Departments, to embed a 'whole-of Government' approach to trade
and investment issues. The Committee will also oversee a coordinated
approach to a major programme of overseas visits by Ministers
with commercial objectives often accompanied by business delegations.
The Prime Minister, Deputy Prime Minister and many other Ministers
are engaged in this. Even when the primary purpose of a visit
is not commercial, UKTI will ensure Ministers are carrying appropriate
commercial briefing. Lord Marland was invited by the Prime Minister,
in May 2011, to lead a series of SME business delegations over
the coming year.
We welcome the publication of the FCO's Charter
for Business and will monitor its implementation. We will expect
the Department for Business, Innovation and Skills to ensure that
progress towards implementation of the Charter complements its
own work on trade and exports. We recommend that in its response
to our Report the Department's sets out the Government's progress
in this regard. (Paragraph 34)
12. The Government's ongoing Growth Review and the
policies set out in the Trade and Investment Growth White Paper
make clear that promoting exports and winning inward investment
will require a whole of Government effort. As explained above,
the EA (TI) Committee, chaired by Lord Green, will help ensure
an integrated approach by all Government Departments to trade
and investment policy and promotion, providing accountability
through their assessment of Growth review measures.
13. FCO, BIS and UKTI officials are working jointly
to develop a more integrated approach to HMG's market access work.
UKTI and the FCO jointly produce a regular Ministerial Visits/Live
Commercial Issues paper for EA (TI) to ensure we are spotting
gaps and planning strategically. This helps to ensure FCO
and BIS Ministerial travel is strategically planned to further
economic and commercial priorities and that Ministers routinely
meet business and London-based foreign correspondents before their
overseas visits. FCO are also working closely with UKTI's new
Strategic Relations Team to ensure the FCO plays its full part
in developing priority business relationships, including with
SWFs.
14. From September, FCO, BIS and UKTI officials will
be jointly carrying out a stock take of how we handle market access
issues, and seek to ensure we are fully utilising the UK's diplomatic
network overseas and Ministerial visits to help address these
barriers. This work will kick off with an FCO scoping paper about
how to extract the best possible value from HMG's market access.
Beyond this we will extend the dialogue to other departments such
as DFID, DECC, etc. The three principal objectives of this work
will be to:
- To identify any significant
gaps in our assessment of barriers to trade facing UK companies
in our priority markets;
- To raise sufficient awareness of this work amongst
different government departments; and
- To create a robust mechanism to respond to issues
raised by businesses, chambers of commerce and other multilateral
organisations.
15. The outcome would be that HMG utilises fully
the UK's diplomatic network overseas and Ministerial visits to
assist in delivering value to UK business.
BRITISH BUSINESS AMBASSADORS
We recognise the concerns of SMEs, the creative
industries and the food and drink industry that they are not fully
represented on the Ambassador's Network. We recommend that the
Government ensure that all sectors of the UK economy have a representative
on the Network who can speak for their interests and that this
should not be limited to individuals from big business. (Paragraph
42)
16. The Business Ambassadors act as powerful advocates
of the UK abroad, championing the UK as the international trading
partner and inward investment location of choice. The network
includes amongst its numbers those who have built successful global
businesses from small company beginnings. As internationally recognised
business leaders, they use their experience of doing business
in the UK and overseas, and their unique market and sector knowledge
and insights, to promote the UK's excellence internationally.
17. The recently appointed Chairman of the Business
Ambassadors Network, Lord Marland of Odstock, aims to build on
the success of the Business Ambassadors Network. His plans include
adding two or three new members to increase its overall sectoral
coverage, and a programme of sectorally-focussed overseas missions.
The British Business Ambassadors Network is a
useful tool at the Department's disposal. While we appreciate
that the Ambassadors give their time for free, we agree with Nick
Fry (a member of the Network) that they should have both a clear
remit and measureable targets. We do not necessarily recommend
individual assessment but we believe that the effectiveness of
the Network would benefit from review. It may be that the Ambassadors
themselves would be best placed to judge their effectiveness against
the criteria set out by the Department. We recommend that the
Department publishes these assessments—in terms of activities
and outcomes—at regular intervals. (Paragraph 44)
18. The Network was reviewed after the 2010 Election
and was relaunched in November 2010, with a number of existing
members standing down whilst the overall size of the Network increased
to 33. The network is viewed by Ministers as adding value, and
plays an important role in promoting UK business excellence around
the world.
19. The Business Ambassadors are supported by a dedicated
UKTI-based Secretariat, which is responsible for managing the
overall programme and ensuring that Business Ambassadors are properly
briefed for each event with the main objectives, key facts and
lines to adopt on live issues if appropriate.
20. Measuring the impact of the Business Ambassadors
has included assessing the Network's effectiveness in communicating
core messages about the UK, and promoting UK excellence to as
many potential customers and inward investors as possible. This
includes where appropriate media coverage and feedback from UKTI
trade teams overseas on events; and from discussion with the Business
Ambassadors themselves to ensure we learn from each event and
tailor activities to the strengths and interests of each Business
Ambassador. A summary list of activities undertaken by the Business
Ambassadors throughout the year will be published annually, online,
at http://www.ukti.gov.uk/home.html.
CATALYST
We welcome the creation of 'Catalyst' as a useful
lever to attract inward investment. However, given the fact that
this was an existing activity in UKTI we see little merit in a
rebranding exercise which diverts valuable resources from delivering
meaningful services to business. If it is a different programme
then the Department should set out in detail how it has changed
and how it will utilise the diaspora in this country and alumni
of UK universities living abroad. (Paragraph 48)
21. Catalyst UK is a new programme and does not involve
rebranding of any existing activity. Catalyst UK was trialled
as a pilot for some months before its launch. Catalyst UK is an
international network of business leaders and influencers, located
around the world, who share a connection with the UK. The objectives
of the network include promoting and enhancing the UK's reputation
on the global stage; attracting high-quality foreign direct investment
(FDI) and increasing R&D activity; offering a broader industry
context to our customers; and assisting UK companies to internationalise
into new markets. There are currently 125 members in the UK and
overseas, including CEOs and Managing Directors of large corporations,
and established entrepreneurs. It adds a valuable dimension to
have such senior business figures highlighting the quality of
the UK as an inward investment destination and supporting exporters.
EXPORTING CULTURE
We take the view that the mercantile spirit in
the UK is alive and well, but we also recognise that in difficult
economic times hard-pressed small businessmen and women may be
so busy concentrating on domestic business that they do not have
the time or resources to consider the international market. In
this context additional support from UKTI is vital and we look
forward to hearing whether UKTI can deliver on its outreach target.
The Government should also consider what incentives could be put
in place or reintroduced to encourage companies to explore moving
into international markets. (Paragraph 55)
22. It is important to note that UKTI's 'reach' is
significantly larger than the 23,400 or so companies that it currently
assists each year. That figure is purely those we significantly
assist, but we raise awareness of export and exporting opportunities
with many more companies. UKTI plans to launch an online network—a
peer-to-peer self-help community —of UK companies, so that
they can support each other and share knowledge in order to internationalise
their businesses. The network will be run by a business partner
and the online content will include financial, sector and market
data, as well as information based on the practical experience
and wisdom of the users.
23. The journey for new exporters can be fairly long,
from raising awareness of overseas opportunities to actually taking
the first step to export. Consequently, we target potential exporters
to raise awareness both of the business opportunities that they
may be able to take advantage of, and of the support available
to them from UKTI to help them do this. This is backed up by access
to an appropriate programme of support services, such as Passport
to Export, trade missions and Gateway to Global Growth, to help
companies compete for and win business overseas. Help can include
attending significant trade events (regionally and nationally);
electronic-marketing; PR and news coverage generation; networking
and lead generation activity; outward missions to international
markets; and targeted marketing initiatives. Companies can also
use UKTI's website and social media activity, such as Twitter,
linked In and YouTube to drive enquiries.
24. To supplement the marketing and sales activity
delivered direct from UKTI, we also engage with our target audience
through a variety of intermediaries who have access to a larger
audience than we can reach on our own. These include organisations
such as the CBI, Institute of Directors (IoD), Federation of Small
Business (FSB) and trade associations. We also work with other
intermediaries such as professional service providers, banks,
accountants and lawyers, who have a client base that matches our
target audience both to broaden awareness of our services and
to support exporters with our complementary expertise. Lord Green
will be leading a big new push on the use of networks to promote
exporting among SMEs including at a major conference in November.
Additionally, UKTI will be holding a flagship event
in November, specifically aimed at those business intermediaries
and professional services whose target customers are SMEs, so
that we can reach their customers more effectively and help them
to respond to the export challenge.
The fact that survey data suggest that few businesses
are pro-actively pursuing export opportunities highlights the
importance of an aggressive marketing strategy, run by UKTI, to
highlight to SMES the benefits of exporting. In that respect,
the outreach target of UKTI developing contacts with 25,000 UK
companies represents a modest figure considering the fact that
there are just under five million SMEs in the UK. (Paragraph 56)
25. Marketing the benefits of exporting is crucial
to the successful delivery of the UKTI strategy. UKTI has developed
a new marketing and communications strategy which is focused on
increasing awareness of UKTI's services and driving the right
customers to access them. This involves UKTI maximising the use
of digital channels.
- Since UKTI's new website launched
in summer 2010 we have published over 4,000 business opportunities
to our clients. Over 80% of our users are SMEs, 71% of whom are
looking for such opportunities.
- Social media is integral to our activity, providing
a growing and effective two-way interaction with our customers.
We have 8,000 LinkedIn members and 11,000 Twitter followers, with
whom we market opportunities, share best practice and provide
advice and support.
- Our popular business magazine, Springboard, is
another key channel for promoting the benefits of exporting. It
has some 25,000 subscribers, is available in business class lounges
in airports around the world, and has an estimated readership
of 55,000.
26. In reality our outreach is significantly greater
than the 25,000 target as we are also reaching customers through
intermediaries and developing thought-leadership and partnership
programmes with third party multipliers as described above. To
date, we have held a series of successful seminars and fora in
partnership with the IoD under their International Trade Forum
umbrella. This has included the launch of a report on SMEs and
exporting titled "From surviving to thriving: doing business
overseas" which is based on research of their membership.
Lord Green's new push to multiply our reach through networks has
been described above. We will also facilitate a major programme
of business-to-business support with many of Britain's biggest
companies helping SMEs and mid-sized firms to export effectively,
as announced by the Chancellor in his speech to the Daily Telegraph
Festival of Business on 16 September.
GLOBAL FACTORS
We welcome the Government's assertion that it
will be more active in shaping EU trade policy. However, we note
that previous Governments have used similar rhetoric with mixed
rewards. The Government will be judged on its delivery of an EU
trade policy which benefits the United Kingdom. As a key negotiator
in world trade the EU will play an important role. (Paragraph
60)
We recognise the fact that the UK's influence
on the WTO can only be exercised through its membership of the
European Union. However, the lack of a direct influence should
not deter the Government from using established bilateral relations
to press for an early conclusion to the Doha round. This is a
complicated area of international agreement and we support the
Government's desire for an agreement which will deliver the right
environment for free trade. We look forward to an update on progress
when the Government responds to this Report. (Paragraph 65)
27. The Trade and Investment for Growth White Paper,
published in February 2011, sets out the Government's strategy
for securing the benefits of greater openness for the UK economy,
for the global economy and especially for the world's poorest
people. The White Paper outlines 62 new policies, actions and
positions which will enhance the UK's framework for trade and
investment. These actions are being implemented by Departments
working collaboratively in a 'whole-of Government' approach under
the oversight of the EA (TI) chaired by Lord Green, the Minister
for Trade & Investment.
28. Within the White Paper we set out our ambition
for delivering ambitious and comprehensive EU-Free Trade Agreements
(FTAs). On 1 July 2011 the EU-Korea FTA was applied. In concluding
this FTA, the EU has taken significant steps in expanding its
trade relationship with South Korea in what is the most comprehensive
FTA to date, worth up to £500 million a year to the UK economy.
We will continue to push within the EU for the conclusion of
ambitious FTAs which will deliver on UK priorities and generate
new market access for UK businesses in important international
markets, including India, Brazil, Singapore, Canada and Japan.
29. Doha WTO negotiations have once again stalled,
despite the commitments made by G20 leaders at the Seoul Summit
in November 2010 and the best efforts of the UK Government to
press all the key players to show the leadership and flexibility
needed to conclude the Round this year. At the WTO Trade Negotiations
Committee on 26 July 2011, Director General of the WTO, Pascal
Lamy, announced that attempts to conclude an early harvest package[1]
this year, rather than the full round, had failed. He believes
the WTO membership should now look at what non-Doha deliverables
(e.g. the Government Procurement Agreement) can be agreed at the
WTO Ministerial in December 2011, along with agreeing a post-December
Doha workplan. In parallel to this, work will continue on getting
as much as possible for the Least Developed Countries (LDCs).
30. The Government is obviously very disappointed
with the lack of progress, particularly on the issues for LDCs.
We will continue to work closely with the EU Commission, and other
key partners, to find the best way forward for Doha in 2012 and
beyond. Ministers will continue to raise Doha at all relevant
opportunities and particularly with the main players, i.e. the
US, China, Brazil and India, to ensure all contribute to the discussions,
and are as flexible as possible. We will continue to support the
WTO, and push for a substantive outcome at the December Ministerial
to ensure we maintain credibility in the multilateral system.
We are clear that the WTO membership must reach agreement on the
future of Doha at the December Ministerial, to prevent the DDA
simply drifting indefinitely.
UKTI FUNDING
We are concerned with the lack of clarity over
the FCO UKTI budget which pays for overseas posts. We find it
hard to believe that Ms Haird, the Acting Chief Executive of UKTI,
thought the figures had been published when they had not and still
refused to acknowledge they were not in the public domain even
when questioned on the matter. Furthermore, the Secretary of State
of BIS was also not aware that the figures had yet to be agreed
by the Foreign Office. It is disturbing that the Acting Chief
Executive of, and the responsible Secretary of State for, such
a highly important body do not have a grip on the details of the
UKTI's FCO budget. (Paragraph 77)
While we understand the need for all departments
to deliver cuts in their expenditure, we are not convinced that
the Department for Business, Innovation and Skills has given sufficient
thought to where its cuts will fall. UKTI is a key delivery agency
for the expansion of UK exports and a reduction to its budget
appears to be in direct contradiction to the Government's commitment
to increase growth through trade and investment. We concur with
our predecessor Committee that "care must be taken to ensure
that efficiency savings result in real efficiencies. Too often,
short-sighted attempts to make savings lead to unforeseen long
term costs". (Paragraph 84)
We welcome the candid acknowledgement of the Secretary
of State that budget reductions will result in a short-term decrease
in the number of companies supported through some of UKTI's programmes.
Equally, Ministers have assured us that in the longer term UKTI
will be able to do more with less. This is a bold statement and
the Department will have to demonstrate to us and the House that
it is delivering on that assertion. (Paragraph 85)
31. UKTI set out the position on the overseas resources
at the start of the spending review period in our letter to the
Committee dated 19 July 2011, attached at Annex A. The FCO agreed
that UKTI resources for overseas delivery would be held at existing
levels over the spending period. UKTI expects the total number
of people employed on UKTI activity overseas to remain at around
1,249 over the period. Savings delivered from a more efficient
use of the overseas platform (e.g. estates, IT and corporate
services savings) are expected to provide funding for any resource
pressures overseas such as in-country inflation.
32. UKTI has given considerable thought as to where
expenditure cuts will fall. Within overseas markets we plan to
increase support to high growth and emerging markets to deliver
more, and to reduce support in mature markets. Within the UK we
are reducing our back office support function by not replacing
staff that leave and through a small staff exit scheme. We are
maintaining staff on the front line and are focussing our resource
to those schemes which benefit business the most and deliver more
productivity for the UK economy.
33. In addition to expenditure cuts, UKTI aims significantly
to increase income generation through its charged-for Overseas
Market Information Service (OMIS), by extending the scope and
flexibility of this service and increasing the price of OMISs.
We are also targeting other areas of income generation, including
securing corporate sponsorship at key events, and negotiating
better prices for exhibition space.
34. UKTI also intends to achieve more with less,
including through the use of incentivised private sector delivery
contracts such as that signed with PA Consulting for our inward
investment activity.
UKTI STAFFING
If it is the Government's plan to get SMEs exporting
it seems incoherent to be cutting the number of trade advisers
at the 'coal face' by 19%. In the words of the Acting Chief Executive
these are the very advisers who work with those SMEs that are
new to exporting or that need help moving on and diversifying.
We are concerned that these short-term efficiency savings will
be at a long term cost of reducing the number of SMEs moving into
exports. (Paragraph 91)
35. The reduction in the number of International
Trade Advisers (ITAs) was due largely to a reduced level of funding.
UKTI continues to make efficiencies in running its business and,
since the start of this financial year, we have re-cycled savings
into the frontline and enabled our delivery partners to recruit
ITAs. This is starting to make good the shortfall following the
spending review. We believe we can achieve more with less through
the intelligent use of networks to multiply our impact and by
working in partnership with organisations who present a complementary
offer to exporters such as banks.
We support the Government's aim to make the UKTI
a more entrepreneurial organisation by bringing in private sector
expertise to UKTI posts. However, with UKTI managing significant
budget reductions cuts we are not convinced the Department will
be able to offer competitive packages to the business personnel
it hopes to attract. (Paragraph 95)
36. Recruitment to the civil service is regulated
by the Office of the Civil Service Commissioners and the Commissioners
ensure all recruitment is conducted in a fair and open manner.
Salary is not the only factor that attracts good candidates for
senior civil service positions. Those applying for these positions
tell us that the breadth of the experience gained by working in
central government is extremely valuable and is in itself an important
part of the overall package. We already have highly experienced
private sector figures in many of our leadership posts and have
recently recruited another to lead our strategic relationship
management work. UKTI's frontline is already strongly private
sector oriented. The overwhelming majority of our ITAs in the
regions and locally employed staff overseas have private sector
backgrounds. The new contract with PA Consulting for our inward
investment work demonstrates UKTI's determination to identify
further ways of developing our entrepreneurial approach.
We are disappointed that the office of Chief Executive
of UKTI was left vacant for four months before it was filled on
a permanent basis. This recruitment process should have run faster
at such a crucial time for the UKTI. (Paragraph 98)
37. The recruitment process for the new Chief Executive
of UKTI was focussed on recruiting the best candidate for the
post.
The strong leadership provided by the Acting Chief
Executive and the Senior Management Team since January 2011 means
that the organisation has maintained its unwavering focus on the
needs of its customers.
We welcome the appointment of Nick Baird as new
Chief Executive. That said, we were surprised that the post was
filled by a career civil servant rather than a business leader
with a track record of success in the private sector. (Paragraph
99)
38. The appointment was made through open competition.
The selection panel was chaired by a Civil Service Commissioner
and included representatives from business.
39. The recruitment process has succeeded in putting
in place a Chief Executive who has the experience and skills needed
to lead UKTI in delivering its new strategy, one that will place
the nation's commercial interests at the heart of its foreign
policy and help to create sustainable growth, jobs and future
prosperity for the UK. As well as working very closely with business
in his previous roles including as Ambassador to Turkey, Nick
Baird has a wide knowledge of emerging markets and a track record
of leading successful cross-government initiatives which will
be key to achieving a truly whole-of-government approach to the
trade and investment agenda.
We welcome the Government's ambition to make UKTI
more entrepreneurial. However, we remain unconvinced that UKTI
can attract suitable applicants from the business world at a time
when cuts to its funding will put a strain on its ability to offer
competitive packages to the business world. This may already be
evident in the recruitment of a career civil servant rather than
a business leader as the new Chief Executive of the UKTI. (Paragraph
100)
40. The new Chief Executive of UKTI competed successfully
against stiff competition from candidates from both the private
and public sectors. The recent recruitment of private sector figures
to senior roles within UKTI demonstrates an ability to attract
suitable applicants.
41. If it would be helpful to the Committee, the
new Chief Executive would be delighted to given an early presentation
of his plans for implementation of the new strategy.
UKTI TRADE SERVICES
Overall, Passport to Export is well-received by
business but there remains more to be done. We are concerned at
how this is to be achieved with fewer resources to pay for training
and fewer trade advisers out in the regions helping SMEs. The
Department, and UKTI in particular, must guard against relying
on statistics and process activity to demonstrate success in delivery.
Results for business is the only real measurement of the programme's
success. (Paragraph 107)
We received little, if any, evidence on the Gateway
to Global Growth we note that the programme was a key factor in
UKTI winning a global trade promotion award. We recommend the
Department provides us with details on its assessment of the service
in light of customer feedback. We remain concerned by the proposed
cut in companies being served over the spending review period.
(Paragraph 110)
42. As we mentioned earlier, in our response to Recommendation
2, UKTI monitors the benefit to business from using its trade
services through the independent Performance and Impact Monitoring
Survey (PIMS). This includes feedback on the Passport to Export
and Gateway for Global Growth services. At Annex B there is short
summary of PIMS trade results, in which a review of these programmes
can be found, notably in table 4.
43. At Annex C there is a summary table of results
over time for these two services, together with a further table
that is indicative of PIMS survey timings.
44. Examples of the success of Gateway for Global
Growth can be seen in the following:
- Ford, a family-owned company
based in the North east, produces precision engineered products
for the aerospace, automotive, power generation, construction
and defence markets. The company signed up to the Gateway for
Global Growth programme in 2010 in a bid to exploit business opportunities
in China.
Mark Podmore, Operations Director at Ford, explained:
"We've now completed the Gateway programme and its support
has been invaluable. It enabled us to make further visits to
China" …. "to date we've had enquiries about orders
in excess of £400,000 and we've secured and delivered orders
worth £80,000 for manufacturing components for two steel
mills in China in Handan and Chenggang. As a result we're now
investing in new machinery that….will be installed in January
and we're certainly hoping to win more orders in 2011."
Ford have since expanded further into China, appointing
agents in Anshan and Xian , and received their first order from
Xian Superb. Ford's strategy is to have at least £250,000
of sales p.a. in the next 5 years.
- Miller UK, which has its main
site in Cramlington, manufactures buckets, quick couplers and
other attachments for earthmoving equipment. Having established
a joint venture in North West China to manufacture its products,
it was keen to develop its Chinese market further and signed up
to the Gateway for Global Growth.
With support from UKTI, Miller UK carried out a review
of the potential opportunities in China, commissioning an Overseas
Market Introduction Service (OMIS) report to gain a more detailed
knowledge of the market, potential partners, customers, suppliers,
distributors and agents.
The company is now planning for selling into the
Chinese construction and earthmoving industries, and hopes to
open an office and storage facility near Shanghai.
Jacqui Miller, Director at Miller UK, explained:
"Although China is a huge market, as with any other investment
you really need to know what you want to achieve and what you're
prepared to put into it before you start, if you want to ensure
success. Bill, our UKTI adviser, has been supportive and his
help in identifying opportunities and funding to help us develop
the markets we're interested in has been very useful.
Although the services of UKTI are welcomed and
appreciated by businesses, there remains the concern that UKTI
still focuses more on processes than outcomes. Businesses want
to be able to assess before embarking on working with the UKTI,
clear evidence that it will benefit their bottom line. A more
entrepreneurial culture within UKTI should help improve this mindset,
but the challenge remains for UKTI to continue to demonstrate
its real value to UK businesses. (Paragraph 114)
45. As a service delivery organisation UKTI has a
strong commitment both to ensuring that our high quality services
and support make a real difference to companies, and to robust
independent evaluation of our activities. The results of this
evidence-based evaluation are at odds with those who appear to
be of the opinion that we are driven by process rather than outcomes.
46. PIMS results for 2010-11 clearly show the level
of benefit accrued to UK business as a direct benefit of UKTI
trade services. These results show that over 23,400 UK businesses
were able to exploit overseas opportunities through UKTI assistance,
generating an estimated £6 billion of additional profit and
that every £1 spent by UKTI on trade services helped generate
£22 additional profit for UK business.
47. Results also showed that we helped UK business
to secure defence exports of just under £6 billion, a 22%
share of the global market, with security exports valued at £2
billion.
48. In 2010/11 UKTI was involved in supporting 849
new inward investment projects—which created nearly 50,000
jobs—a six per cent increase on the previous year.
49. PIMS captures the views of clients as to the
benefits to their bottom line profit, as well as about the nature
and extent of qualitative benefits to their business. These benefits
include overcoming barriers to entering new markets; increasing
skills or changes to behaviour which are likely to increase the
productivity and competitiveness of the business, such as improvements
to products or services; and informing the company's approach
to doing business overseas. All PIMS results, including results
for UKTI trade clients' estimates of benefit to their bottom line
profit, and their views relating to the nature and extent of other
business benefits, are published on the UKTI website.
Business Link is still considered by many to be
the major deliverer of UKTI trade advice services despite the
fact that it is being closed by the Government and as yet has
no replacement. It is unclear who will be providing trade advice
services in the regions following the winding up of Business Links.
This is not an acceptable situation and clarity on how these services
will be provided, advertised and supported is urgently required
from Government. (Paragraph 118)
50. In every one of the nine English regions, the
Business Link service was contracted by the Regional Development
Agency. UKTI made separate arrangements for the delivery of its
own international trade services in each of these regions. In
five regions (Yorkshire and Humber, North East, East of England,
South West and East Midlands), the Business Link delivery contractor
was also UKTI's delivery partner. In these circumstances, UKTI
will ensure that the closure of the Business Link has no impact
on delivery of UKTI's services and support for business. We have
arrangements in place to 31 March 2012 to ensure continuity of
delivery through an offer of grant (as opposed to permanent contract)
to our various regional service delivery operators, such as Business
Enterprise North East. We are considering the need for any new
procurement activity to maintain UKTI delivery beyond 31 March
2012.
We have heard from a variety of industries the
importance of Trade Shows and therefore the invaluable services
of the UKTI's Trade Show Access Programme. A more selective approach
to supporting Trade Shows may be both beneficial and more efficient
but we recommend that funding from the programme is reviewed before
it is cut. We also look forward to detail from UKTI on how the
Trade Show Access Programme will be enhanced in 2012 with potentially
less funding. (Paragraph 124)
51. UKTI has reviewed its Tradeshow Access Programme
(TAP) with the aim of delivering a higher quality UK presence
within a more focused event programme. From 2012/13 TAP will provide
matched funding for eligible SMEs and a bespoke package of support
for all exhibitors in the UK group at selected fairs. The services
will come from a menu covering pre-event publicity, exhibitor
training, national branding (to provide a clear UK and UKTI identity),
matchmaking/networking activity and central meeting areas to facilitate
face-to-face interaction. TAP sector panels comprising UKTI and
business representatives will select both the overseas events
and the support model for each one. Accredited Trade Organisations
will deliver this support in partnership with UKTI. The dual aim
of these changes to TAP is to provide direct support for SMEs
and an improved presentation of UK capability to an international
audience.
We welcome the new services proposed in the White
Paper, but there is little detail on how these services will be
delivered, or what they will provide. First, it is unclear how
the peer-to-peer advice website will help prospective exporters
and how experienced exporters will be encouraged to provide advice.
Second, there is as yet no explanation of the business mentoring
scheme, or how it will be provided by Catalyst. The Department
needs to set out clearly, the role of mentors, the number of companies
they will be working with on average each and the outcomes on
which they will be judged. (Paragraph 127)
52. UKTI ran a grant competition over the summer
of 2011 for a proposal to design and deliver the online peer-to-peer
export service. UKTI is in discussion with a winning bidder and
expects to reach an agreement shortly on the delivery of the service
over the coming weeks. The service will be designed to provide
SMEs in the UK with current, wide-ranging information to help
them break into new markets faster and with a greater chance of
success. Individuals are likely to become contributors because
doing this will raise their own reputation as well as that of
their business, and help them forge stronger connections with
potential business partners or clients. Service providers (e.g.
law, accountancy, consultancy firms, UKTI staff, etc) are likely
to share content through the service. This will help SMEs with
information and contacts, and also serve as a platform for service
provider to make themselves known in their respective fields.
Further detail on the Project will be made available towards the
end of the year.
53. It is too early in the development of the Catalyst
network to judge how many companies will be touched by Catalyst
mentoring activity. In total we aim to recruit some 500 Catalyst
members by summer 2012. These are businessmen and women around
the world who have such a strong affinity for the UK that they
are willing to contribute their time to working with us to promote
the UK as a great place to do business. The majority of members
so far have also expressed a willingness to engage in mentoring
activity. Some are willing to participate in an ongoing 'traditional'
mentoring role, helping a small company over a considerable period.
Others have said that, while they would be happy to offer informal,
ad hoc advice and guidance to companies, they do not want the
ties of a more formal mentoring arrangement. We have therefore
decided to keep our approach within the Catalyst programme flexible
to allow the development of those mentoring relationships that
best fit the mentor and mentee. UKTI will track Catalyst member
activities and from this we will be able to assess the number
and value of mentoring interactions.
We believe that British Chambers of Commerce and
trade associations can play a larger role in promoting the importance
of exports to SMEs. We were concerned by the lack of active engagement
between business organisations and their members on the issue
of exporting. This situation has to improve. The provision of
export support should not solely be the responsibility of the
UKTI and the Government. We recommend that the Government and
UKTI work with the Chambers, trade associations and banks to project
a clear message on exporting with clear signposting on where to
go for help, advice and financing. (Paragraph 133)
54. We strongly believe it is a function of Government
to help other organisations to develop their capacity to help
exporters, as well as to deliver support services ourselves.
UKTI already undertakes a substantial amount of partnering with
Chambers and trade associations, as well as with banks. We value
these partnerships as their support provides an enhanced business
perspective, credibility and innovation to our service delivery.
In four of the nine English regions, Chambers of Commerce or their
representative bodies are partners in UKTI's trade delivery organisations.
In all regions, UKTI will partner with different Chambers on a
range of other activities such as business networking events or
overseas trade missions. UKTI has significant contact with some
100 trade associations, particularly in support of overseas exhibitions
via our Tradeshow Access Programme.
55. We recognise there is scope to do more, in reaching
out to SMEs and promoting the benefits of exporting. Consequently,
UKTI's new strategy highlights a range of support to help SMEs
including leveraging partner networks. In our strategy we said:
"…. we will leverage the communication
channels of business partners such as the British Chambers of
Commerce, the Confederation of British Industry, the Institute
of Directors, Trade Associations, business schools and Local Enterprise
Partnerships to reach the high growth and innovative companies
with the potential to benefit by exporting. We will also develop
outreach partnerships with the UK's major commercial banks and
with the accountancy and legal professions. And we will plug into
the business networks of communities with overseas connections
and activities."
56. We have already embarked on an extensive dialogue
with partner organisations which will lead to a major conference
in the autumn, bringing together partners to focus on the need
to encourage more SMEs to export.
We welcome the Department's commitment to refine
UKTI's relationship with larger companies and the development
of a more business-orientated account management style through
the High Value Opportunities scheme. Those companies have the
potential to help SMEs in their supply chain to also benefit from
exports by introducing them to overseas markets, though we note
that this relationship is a complex one. UKTI can play an important
role in providing incentives to larger companies to take their
supply chain with them, and we recommend that the Government consider
how companies receiving UKTI support through the scheme be encouraged
to help 'pull through' their SME supply chains. (Paragraph 141)
57. The High Value Opportunities (HVO) programme
is a key strand of the new UKTI strategy. It aims to identify,
prioritise and deliver support to companies of all sizes in pursuit
of opportunities from major, high-value projects overseas.
58. The potential value to UK SMEs through accessing
supply chains under the HVO programme is vast. A core element
of the programme seeks to assist UK SMEs to access supply chains,
even in situations where the prime contractors are located overseas.
We have undertaken initial research to identify many of the overseas
prime-contractors involved in major infrastructure projects globally
and are carrying out further work to analyse their supply chains
and procuring habits. We also recognise the important role of
major UK companies and the potential 'pull through' to UK SMEs
through their supply chains.
59. Our work to support SMEs in pursuit of supply
chain opportunities has three strands. The first focuses on raising
awareness among UK SMEs of potential supply chain opportunities
stemming from high value projects around the world. The second
seeks to raise awareness of UK supply chain capability among both
UK and foreign prime contractors as part of our developing strategic
relationship management function. The third looks at Government's
role as a 'facilitator' in bringing together prime contractors
and supply chain companies.
The Government is right to concentrate on emerging
markets but it needs to strike an appropriate balance between
new and existing markets. Many SMEs look to start exporting to
the EU and the USA as they are perceived to be both easier and
safer. The confidence which comes from exporting to existing markets
should not be underestimated and UKTI should be mindful of this
when it develops its market strategies. (Paragraph 152)
60. UKTI fully recognises the continued great importance
of developed markets to SMEs and also the shift in economic power
to high growth markets. UKTI's new strategy confirms that we will
continue maintain a proportionate presence in developed markets
whilst also moving more resources to high growth and emerging
markets over the lifetime of this strategy, to match both the
growing opportunities and the demands from our customers.
61. Our level of resource in developed and high growth
markets is closely linked to demand. This provides a strong indication
of where there is a potential mis-match between the level of resource
and customer demand, and gives an evidence base for moving resources
around the network. UKTI remains committed to ensuring that companies
who are interested in business in major developed markets and
those looking to high growth markets receive the support they
need.
The additional support necessary of SMEs to enter
the emerging markets has been recognised by Government and it
has increased UKTI staff in both China and India. There remains,
however, a gap between UKTI support for SMEs overseas and its
capacity in the UK to highlight the opportunities and advantages
of exporting to those markets. Budget constraints mean that it
will be difficult for UKTI to do both. In the UK, UKTI should
demonstrate to us how it will be utilising local partners, including
Chambers of Commerce, trade associations and local banks to provide
domestic support to SMEs. (Paragraph 153)
62. In our response to Recommendation 28 we explained
some of what we are doing with partner organisations to encourage
more SMEs to export. Lord Green has already held outreach events
with banks, accountants and lawyers on this subject. A partners'
event is scheduled for 10 November and as well as professional
bodies, it will include Chambers of Commerce, trade associations,
representative bodies such as the CBI, FSB, IoD and the Local
Enterprise Partnerships. Our response to Recommendation 10 also
explains the range of marketing and communications activity we
are undertaking to utilise local partners and networks.
We believe it is right for UKTI to have a sectoral
focus which will concentrate its efforts on those areas where
the UK has a competitive advantage We note the Department's plans
to establish Sector Group Task Forces and Sector Advisory Groups
staffed by the private sector. As we highlight earlier in this
Report, the Department will need to demonstrate how it will attract
suitably qualified personnel from the private sector at a time
when UKTI's funding is being reduced. (Paragraph 158)
63. UKTI draws great benefit from its network of
18 Sector Advisory Groups, which play a vital role in business
planning and implementation, advising, validating and challenging
sector teams on the markets and activities that will make the
biggest difference to business. A leading industrialist or business
specialist leads each group, with members drawn from major companies,
SMEs with a strong international focus and inward investors, all
on a pro bono basis. Together, this group of some 200 business
leaders keeps UKTI closely connected with the practical concerns
of business.
64. During the autumn, we shall also establish, and
integrate within this structure, the new Sector Group Task Forces
announced in the Strategy to further strengthen our business focus
and provide an additional steer on key cross-cutting themes.
65. We are confident that the nature and focus of
these groups will allow us to attract high quality candidates.
UKTI INWARD INVESTMENT SERVICES
We welcome the Government's recognition of the
importance of inward investment. However we are concerned with
the delay at announcing the contractor for regional inward investment
services in the UK. The Government needs to be more proactive
in attracting inward investment; the delay in awarding the inward
investment contract following the winding up of the RDA's has
not been convincing. In its response to this Report we will expect
to receive a detailed update on the structures which will be put
in place by the partnership arrangement with PA consulting, OCO
and British Chambers of Commerce to deliver a high level service
across the country. (Paragraph 164)
66. In recent years, UKTI has focused more of its
resource on attracting higher value investments, for example linked
to new technologies and services, R&D, headquarters functions
and high tech manufacturing. Our goal is to ensure that investment
projects which come to the UK deliver the greatest impact on UK
prosperity and jobs.
Setting up a national inward investment operation
67. UKTI's new five year strategy builds on the UK's
long-held position as the most attractive location in Europe for
FDI but recognises that international competition for investment
is increasingly fierce. It sets out the work UKTI is doing to
lead efforts across Government to ensure a strong and continuing
pipeline of investment projects to the UK. This will be achieved
by promoting UK strengths and capabilities to a global audience;
high impact sector showcasing; inward and outward missions; focussing
resource on markets of real opportunity; building enhanced relationships
with key potential investors; and encouraging global entrepreneurs
and early stage technology companies to globalise their businesses
from a UK hub.
68. Following the award of the UKTI contract on 31
March 2011, PA Consulting Services, now branded as the "UKTI
Investment Services Team" (UKTI IST) will be supported by
their delivery partners, OCO Consulting and the British Chambers
of Commerce. PA Consulting assumed full responsibility of the
former Regional Development Agency (RDA) network (minus London)
on 3 May 2011 for the sub national management and delivery of
attracting inward investment into England. From the start of this
"service transfer" (the 'Transition' phase of the contract),
resources were in place to manage the existing project pipeline
transferred from the RDA network, and to take the lead on handling
new projects entering the pipeline from a variety of sources,
including UKTI.
69. The contract's 'Transition' phase ended on 30
June, and a contract 'Stabilisation' phase began on 1 July. This
Stabilisation phase includes the deployment of professional and
expert staff resources, some transferred from the RDA network
under the Transfer of Undertakings (Protection of Employment)
Regulations (TUPE), to work on new and existing pipeline projects
to ensure a seamless delivery of investment support services to
clients. The 'Steady State' phase, effectively 'full-service'
delivery, is expected to commence in early October, when the remaining
vacancies in the UKTI IST, i.e. those not 'job matched' by those
RDA staff transferred under TUPE, have been filled through an
open recruitment process which is currently underway.
How UKTI IST will operate
70. UKTI IST is tasked with landing 476 new investment
projects in 2011/12 in England (excluding London) and with facilitating—with
UKTI's counterparts in the Devolved Administrations—the
wider national target of 750+ projects across the UK. To enable
this, the IST is entering into a series of Memoranda of Understanding
with the Devolved Administrations, London's own delivery organisation
(London & Partners) and the evolving cadre of Local Enterprise
Partnerships all of whom will be critical to UKTI meeting its
FDI targets.
71. UKTI's contract with PA Consulting includes a
financial incentive to exceed set targets and a 'gain-share' arrangement
where efficiencies and savings are identified and implemented
without compromising the achievement of numerical and quality
targets.
72. UKTI IST has established a cohesive sector based
delivery structure, comprising (by October 2011) a cohort of 70+
client facing business specialists, largely dispersed outside
London. These specialists combine a focus on a number of key target
sectors, those considered most likely to yield high quality investment
opportunities, together with a relationship management function
focusing on existing strategically important client companies.
These UKTI IST specialists are supported by a small FDI 'Hub'
management and sector support function. This Hub manages/coordinates
the newly established single national pipeline and provides research
and bespoke proposition development and account management functions
in support of the field force, all linked to UKTI's strategic
focus of attracting high quality inward investment.
73. UKTI's strategy ensures that the work of UKTI
IST is aligned with the whole of Government effort to rebuild
the UK economy in a balanced and sustainable way.
74. UKTI IST will work very closely (effectively
through a 'one team' approach) with UKTI's FDI teams overseas
and in those in HQ to ensure that we approach potential investors
with best options and opportunities based on a UK First approach
to winning new investment
75. Key to the longer term success of the contact
is the effective engagement with strategic partners involved in
attracting inward investment to the UK, in particular the three
Devolved Administrations of Scotland, Wales and Northern Ireland;
London & Partners and the developing network of Local Enterprise
Partnerships across England. UKTI IST is in the process of negotiating
a series of Memoranda of Understanding with each of these partners.
These memoranda will enable each partner to participate fully
in the national effort to attract new inward investment, ensuring
they have the opportunity to pitch for new projects entering the
pipeline where they have a competitive proposition to offer.
In doing so, IST will be fully compliant with its obligations
to UKTI and to clients around effective data security.
76. A governance structure is in place to ensure
that the UKTI IST delivers against its contract and meets its
obligations on how the project pipeline and success criteria are
effectively and efficiently managed. The FDI Executive Steering
Committee, which will meet quarterly, is chaired by UKTI's Managing
Director - Business. This Committee is supported by an FDI Operations
Group and an FDI Contract Management Group, both of which meet
monthly.
77. A BIS Internal Audit Review of UKTI's procurement
process in selecting PA Consulting for this contract received
a 'green' rating, identifying it as an example of best practice
delivered against a tight timescale. Similarly, a series of Gateway
Reviews gave an 'Amber/Green' rating for the procurement through
to the Transition Phase, recognising that a full 'Green' rating
could not be awarded until the project had entered "Steady
State" in the autumn.
We recommend that the Government set out its "rules
of engagement" in this area of Ministerial assistance to
inward investors and the criteria under which companies will be
eligible to receive this enhanced service. In the spirit of transparency,
we also recommend that the Department sets out the form of assistance
and access it provides to major investments, on a quarterly basis.
(Paragraph 168)
78. The Government is committed to a whole of government
approach to developing strategic relationships with major exporters
and investors. This is a key part of the Growth agenda and part
of a wider drive by Government to improve relationships with companies
of all sizes and from all sectors. Many companies have interests
that are covered by more than one Government Department. We are
aligning the way Government interacts with these businesses. Under
this approach Ministers will be responsible for ensuring that
issues raised by companies are shared across relevant departments.
By making sure that these issues are understood and by creating
and reinforcing connections across Government, all businesses
can benefit.
79. This approach is about benefits to the UK as
a whole, and the Government will be able to better placed to attract
investment to the UK if it takes a more strategic and long-term
approach to relationships with investors. The first set of targeted
companies has been chosen based on current and potential investment
or export capacity in the UK and the potential for the approach
to add value to our relationship. The list of companies will be
dynamic, and we anticipate it will grow with time.
80. Ministers have been assigned based on existing
relationships with industry and their current portfolio and will
be guided by the Ministerial Code in their interactions with selected
companies. As happens now, information on meetings between Ministers
and external organisations will be published. As is currently
the case, some details of these meetings will be limited due to
the obligation to protect commercially sensitive data.
Local knowledge is important and we recognise
the value of involving LEPs in giving an informed local view for
investors. However, until there is an established and comprehensive
coverage of LEPs across England, the Government will need to ensure
that valuable opportunities are not being missed by areas which
have yet to establish a LEP to promote their locality. There needs
to be greater clarity of what is expected of LEPs with regards
to attracting inward investment and their interaction with PA
consulting, the Foreign Direct Investment contractor. Although
PA Consulting holds the contract, it is for Government to set
the parameters for LEP involvement. We recommend that the Department
sets out in its Response a detailed explanation of the level,
range and extent of LEP involvement in delivering inward investment,
alongside the costs and resources necessary for them to carry
out this role. (Paragraph 176)
81. UKTI recognises the importance of local knowledge
and contacts in helping to secure and retain foreign direct investment
(FDI), and that local enterprise partnerships will be well positioned
to provide this. UKTI is in discussion with LEPs regarding their
potential roles and what they might need from UKTI. It will be
for individual LEPs to decide what their priorities are going
to be and what resources to commit. UKTI would welcome them using
their local knowledge to develop compelling sector-based propositions
on their local offer and the international comparative advantage
that it provides. This could include dealing with local issues
such as planning, site finding and dealing with utilities for
both potential investors, as well as managing relationships with
existing inward investors.
82. UKTI acknowledges the Committee's concern about
the risk of missing opportunities in those areas without an established
LEP. LEPs now cover 98 per cent of England but, in the few remaining
areas without an established LEP or in other areas where LEPs
are not yet sufficiently established (and with that LEPS agreement),
UKTI has been engaging directly with local authorities.
83. We note the Committee's view that there needs
to be greater clarity of what is expected of LEPs with regard
to inward investment. In recognition that LEPs are likely to need
help in understanding how they can best work in partnership with
UKTI, since April 2011 senior UKTI staff have been meeting LEPs
to explain UKTI's role and approach to inward investment and to
discuss with them how they would like to work with UKTI. These
meetings have been followed up with comprehensive briefing material
and meetings between UKTI's new Investment Services Team (IST,
led by PA Consulting) and individual LEPs. We are now discussing
with each LEP a Memorandum of Understanding (MoU) to cement our
working relationship and build a transparent network of organisations
bringing the best investment experience to individual foreign
companies. Where LEPs do not exist, UKTI's IST has been engaging
with the relevant local authorities to agree ways of working.
Although the IST is leading on the MoU discussions, UKTI centrally
has provided clear guidance on what is expected of them in terms
of LEP engagement, and senior UKTI officials continue to keep
close to these discussions with LEPs.
84. However, the Government's position is absolutely
clear that it is for LEPs themselves to decide what their priorities
should be and where they put their resources and individual LEPs
may want to work with UKTI on inward investment in different ways.
It is not, therefore, possible to meet the Committee's request
for clarity on the costs and resources necessary for LEPs to carry
out an inward investment role, as there will be many different
approaches taken by LEPs. UKTI will try to be as flexible as it
can, consistent with its national UK-first approach to inward
investment, in adapting its approach to individual LEPs. The IST
has nine offices around the country providing support to investors,
working closely with LEPs and local authorities, and this resource
will help ensure that there is comprehensive coverage of the country
regardless of the approach individual LEPs choose to take.
UK EFFECTIVENESS AND EFFICIENCY
We welcome the positive assessment of UKTI's trade
services work as set out in its PIMS performance measurement system.
The fact that the PIMS system is highly rated by the National
Audit Office gives greater credibility to the PIMS results. While
we cannot confirm the accuracy of the claim that UKTI generates
£22 benefit for each £1 of Government spend on UKTI
trade services, it is clear that UKTI does provide a service valuable
to UK companies. (Paragraph 187)
Reductions in its budget and resources will put
additional pressure on UKTI in maintaining its current performance
levels. While we recognise that UKTI will have to do more with
less, we believe that the Government should keep a close eye on
PIMS data. Any significant reduction in the satisfaction levels
of companies with UKTI's services will have to be addressed at
the earliest opportunity. (Paragraph 188)
85. UKTI will continue to track progress on all PIMS
measures over time. Latest results (July 2010 - June 2011) show
that value to business, in terms of reported additional bottom
line profit, continues to rise over time, as has quality. This
has been achieved in the context of a substantial increase in
the number of clients helped against no increase in resources
representing rising real productivity. PIMS results for services
delivered in the financial year 2011-12 will begin to be available
from December 2011, and UKTI will continue to track these trends
closely.
86. For ease of reference and for the Committee's
information, a short summary of PIMS trade results over time is
attached at Annex B.
The contracting out of the delivery of inward
investment services will make it more difficult to assess the
performance of UKTI in this area. However, that does not mean
that it is any less necessary. The PIMS system of monitoring export
support should be assessed as a possible vehicle for the monitoring
of all inward investment services. (Paragraph 191)
87. As an integral part of UKTI's inward investment
delivery operation, those services now delivered by UKTI's IST
will be monitored through PIMS, thus continuing PIMS monitoring
of UKTI's inward investment activities.
88. We would argue that the awarding of the single
contract for sub national delivery of FDI into England to PA Consulting
will not make it more difficult to assess performance. On the
contrary, the greater simplicity afforded by having a single contractor
as part of UKTI's overall ownership and responsibility for attracting
inward investment, in place of eight (excluding London) competing
regional agencies, improves our ability to assess and benchmark
performance across the UK. In addition to PIMS reporting, PA's
contract with UKTI, and the underpinning Service Level Agreement
which is soon to be finalised, will allow UKTI to have a clearer
view of their, and the overall network's, performance.
We are concerned that although companies that
use the services of the UKTI value them, only 6% of SMEs in the
FSB have accessed UKTI services. We recognise that the UKTI is
trying to reach out to these SMEs but we believe that more proactive
work can and should be done. This needs to be addressed if the
Government is to fulfil its growth aim of getting more SMEs exporting.
(Paragraph 195)
89. The Federation of Small Businesses (FSB) has
a large membership base of around 200,000 small and medium sized
enterprises (SMEs). The FSB published a survey called 'Made in
the UK - small businesses and an export led recovery' in December
2010 which showed that almost a quarter of their members (23%)
are exporting and there is an appetite among that group to do
more in the future, particularly to countries in the European
Economic Area), USA and Canada. This was a far higher number than
they had previously thought and they have been in discussion with
UKTI on how we can do more to support their members.
90. As part of a strategic programme of engagement
with our stakeholders and intermediaries, we have developed a
close working relationship at national level with the FSB. Specifically
we work with the FSB's public affairs and policy team and regular
dialogue occurs at a senior level between UKTI and FSB colleagues,
as well as at Ministerial level. This applies as well across BIS.
Specifically, we at UKTI are exploring how we can work collaboratively
on a number of upcoming projects in the next 6-12 months on the
exporting agenda, to include contributing to the FSB's upcoming
survey on exporting and our participation at their national conference
next March. Lord Green also hosted a FSB-led workshop on exporting
at the Business Start Up Show on 19 May to outline the government
support available to SMEs on exporting.
91. We have also engaged with the FSB on the initiative
led by Lord Green which looks at the contribution that intermediaries
can make, working alongside Government, to drive up the number
of SMEs who export. UKTI is to launch an online peer-to-peer network
of UK companies, so that they can support each other and share
knowledge in order to internationalise their businesses.
92. FSB has fed back on the proposed agenda and format
for the national event, scheduled to be held on 10 November, and
will be invited to this and the regional programme of events which
will follow.
EXPORT CREDIT GUARANTEE DEPARTMENT
Responses to general observations
93. The Committee commented that "ECGD has failed
to support the wider business community, and in particular SMEs
for far too long" and that "the majority of ECGD activity
supports a core of large aerospace exporters".
Support for SMEs
94. The Government considers that these particular
comments need to be set in context. The privatisation of ECGD's
Insurance Services Group in 1991 changed the landscape for the
provision of short-term trade credit insurance to exporters in
the UK. Until then, ECGD had been the dominant provider and it
served many thousands of exporters. The privatisation opened the
provision of credit insurance more widely to private sector insurers
and led to an expansion in the numbers and capacity of those insurers
seeking to support both domestic and export trade. This gave UK
companies much wider choice. Increased competition resulted in
innovation, with more products being made available, and to reductions
in the cost of insurance cover in the form of lower premium rates.
At the same time, substantial contingent liabilities for the Exchequer
and taxpayers were removed. Until the onset of the economic downturn
in 2008, the credit insurance needs of the vast majority of exporters
selling on short terms of payment (with most exports being sold
on terms of payment of up to 180 days) were being adequately met
by the private market and it was unnecessary for ECGD to intervene
(other than to provide reinsurance to the private sector
credit insurers in the first few years immediately following the
privatisation).
95. The privatisation led to ECGD focussing the provision
of its support on exports of capital and semi-capital goods and
related services. Buyers usually require medium/long-term finance
to pay given the high value of such exports; but, because of the
amount and tenor of the risks, private market provision may not
be available, especially for such exports to less developed countries.
96. This change of focus resulted in a marked reduction
in the number of exporters that required ECGD support and a concentration
of its support in certain sectors, e.g. civil aerospace, where
the UK has particular strengths. Although ECGD did not directly
support many SMEs, it continued to do so indirectly through
the supply chains of major exporters of capital equipment. Hence,
many companies have benefited from Government support since the
privatisation of ECGD's short-term trade credit insurance operations.
97. Against this background, the Government does
not accept that ECGD has "failed" the business community,
in particular SMEs, for too long. But the Government has recognised
that, as a result of the economic downturn in 2008/09 and the
dislocation to financial markets including the credit insurance
market, some exporters, mainly SMEs, still faced difficulties
in obtaining all the support they needed. The Government accordingly
asked ECGD to offer new products, particularly, but not exclusively,
targeted at SMEs; these were announced in the Trade and Investment
for Growth White Paper in February this year.
98. The aim of these products is to help to fill
gaps in the provision of credit insurance by the private insurers
and of the financing of exports by banks. In providing them, the
Government is not seeking to displace the private market; its
policy remains that ECGD should complement the private
market and not compete with it. This necessarily means that ECGD
will remain, in effect, an insurer of last resort, acting to address
specific market gaps without exposing taxpayers to undue risk.
As a result it will continue to have a narrower customer base
than the private market and be exposed to concentrations of risks.
The great majority of support for exporters will continue to be
met by the private sector. Hence it is not expected that ECGD
will see substantial increases in the volume of exports it supports,
bearing in mind that ECGD responds to demand, rather than seeks
to create it. Further, ECGD will not dilute its risk standards
in a way that would imperil the achievement of the financial objectives
set for it by the Government and, thereby, place an unacceptable
risk on the Exchequer and taxpayer.
Aerospace
99. Written and oral evidence to the Committee highlighted
that in 2009-10,
90 per cent of ECGD support was provided to exporters in the civil
aerospace sector, dominated by Airbus S.A.S. The very high level
of support in that particular year again needs to be put into
context; it reflected unusual economic conditions. The dislocation
in financial markets caused many projects in the civil non-aerospace
business sector to be delayed or cancelled, whereas Airbus had
firm contracts with specific delivery dates, but its customers
were unable to raise sufficient finance from market sources, so
the export credit agencies (ECAs) stepped in to fill the breach
and to maintain the delivery of exports. This included the Export-Import
Bank of the United States, the US export credit agency, in respect
of support for Boeing; 75 per cent of its support for medium/long-term
business in 2009 was provided to Boeing.
100. The average balance of ECGD exports supported
over the last eight years to March 2011 was: civil aerospace 46
per cent; civil non-aerospace projects 28 per cent; defence exports
26 per cent. ECGD's Annual Report and Accounts for 2010-11 which
were published in July reported that the sectoral breakdown of
its support in that year was: civil aerospace 62 per cent; civil
non-aerospace projects 34 per cent; defence exports 4 per cent.
ECGD expects that these levels will be broadly maintained in 2011-12.
Over the last two financial years ECGD has seen a significant
increase in the volumes of capital/semi-capital goods exports
that it has supported.
Responses to specific recommendations
We welcome the improvements to trade finance provided
by ECGD. As these products are new to the market we expect the
Department to update us on their availability and their take-up
by business in its Response to this Report. ECGD has failed to
support the wider business community, and in particular SMEs for
far too long. It will have to make significant efforts to restore
business faith in its operations and we expect it to demonstrate,
in detail, how it is going to re-engage with all sectors of the
economy and in particular with SMEs. Furthermore, we will expect
the Department to prove, through regular publication of statistics,
that ECGD is supporting more businesses from across the sectoral
spectrum. (Paragraph 211)
101. The Government considers that ECGD has an important
role to play in helping to improve and enhance the UK's export
performance. The Government is therefore pleased that the Committee
has welcomed the introduction by ECGD of its new products. These
were all launched by ECGD within the timescales set by the Government
in the Trade and Investment for Growth White Paper. As
stated earlier, these products will help to fill gaps in the provision
of support to exporters by the private market.
102. The Government also agrees that a challenge
for ECGD is to engage with a community of exporters which has
not needed its help for many years. In the few months since the
development and launch of the new products, ECGD has embarked
on an extensive programme to raise awareness of its new products
amongst exporters across much of the UK, working alongside such
bodies as UKTI, the banks, trade bodies, chambers of commerce
and professional service firms, to help market its services. To
date, ECGD has attended over fifty roadshow events around the
UK to publicise its new products; in doing so it has directly
engaged with over two thousand companies who already export or
are interested in starting to export. This has been accompanied
by publicity for the launch of the new products in the media,
particularly through the trade press and the publications of organisations
such as the British Chambers of Commerce and the Institute of
Directors.
103. This work will continue and widen over the coming
months. ECGD is mobilising staff resources to support the delivery
of the new products by intensifying its awareness campaign and
by responding to the enquiries and applications made to it for
support on particular export transactions. Since the new products
were launched, ECGD has received over one hundred new enquiries
about its revised short-term insurance product and it has provided
support for export transactions under its new Export Insurance
Policy and Bond Support Scheme that will facilitate exports of
over £40m.
104. The number of new enquiries to date in relation
to ECGD's new products and widened business domain is provided
below.
105. ECGD routinely publishes details of business
it has supported in its Annual Report and Accounts. In future,
this will include business supported under its new products. ECGD
will examine the possibility of publishing information more frequently
on the uptake of the new products on its website.
We find it surprising that an organisation tasked
with providing a wider range of services is doing so at the same
time as reducing its headcount. Efficiencies can always be found,
but should demand for ECGD services outstrip capacity further
reputational damage may be occur. We will expect to receive a
detailed assessment of potential demand for ECGD services and
an assurance that ECGD capacity can meet that demand in the Department's
response to this Report. (Paragraph 213)
106. In the face of public expenditure constraints,
the Government requires all departments and public bodies to reduce
operational costs and to improve efficiency, while maintaining
appropriate standards of service delivery. The Government expects
ECGD to play its part. The staff reductions made by ECGD in recent
years were focussed in its back office functions and were carried
out in order to secure efficiencies and to reflect its lower business
volumes up to 2008. While ECGD is charged with securing further
reductions in its operating costs in the period up to 31 March
2015, there are no plans to reduce the number of staff in the
exporter-facing part of ECGD.
107. The Government takes this opportunity to clarify
the comparison of ECGD's staffing levels with its European counterparts.
The British Exporters Association (BExA) witness quoted increases
in headcount over the past decade in respect of the French, German,
Italian and Belgian export credit agencies as follows "France
up 258%; Germany up 37%; Italy up 325%; and Belgium up 188%".
In fact, these figures relate to increases in business volumes
as stated in a BExA survey, rather than staff headcount. The correct
figures for changes in headcount (for state account business)
since 2005 are: France down 8 per cent, Germany up 7 per cent,
Italy up 18 per cent and Belgium up 16 per cent (since 2004).
In 2010-11, ECGD supported broadly the same volume of new business
as it did in 2003-04 with 41 per cent fewer staff, so staff productivity
has greatly improved.
108. It is difficult at this stage to determine the
likely level of future demand on ECGD particularly in relation
to business transacted under its new products. However, the Government
can assure the Committee that it will seek to ensure that ECGD
has the requisite level of staff resource to meet the demands
that are placed upon it, so that exporters receive the support
they need.
We support the OECD rules which govern all Export
Credit Agencies. We also acknowledge that many NGOs do not have
faith that all ECAs abide by them. We look to the Government to
work towards the highest level of transparency in ECGD transactions
so that all interested parties can have confidence that ECGD activities
abide by both the letter and the spirit of the OECD rules. (Paragraph
219)
109. It is ECGD's policy to comply with international
agreements that affect the operations of export credit agencies,
including those of the OECD.
110. In regards to transparency, ECGD is one of the
most transparent export credit agencies. It makes publicly available
large amounts of information about its operations and the business
it supports, in accordance with the Government's transparency
agenda and its obligations under the UK's Freedom of Information
Act. It will continue to consider what further information can
be made available while abiding by the law of confidence, which
sets an entitlement to confidentiality on the part of individuals
and businesses.
1 The early harvest package was exclusively focused
on the Least Developed Countries (LDCs) with the aim to implement
issues of interest to LDCs. Among its aims was to extend complete
duty-free quota-free trade access to the rich world's markets
for exports from the least developed countries, the world's 49
poorest nations, and make progress in reducing cotton subsidies. Back
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