Examination of Witnesses (Questions 1-48)
Q1 Chair: Good
morning, and thank you very much for agreeing to attend this morning's
session. I apologise that it is a little on the chilly side;
I think it is all part of the Administration's efforts to cut
costs. I emphasise that we are all in this together. Can I just
ask you to introduce yourselves, so that we can get voice levels
for transcription purposes?
I am Adam Marshall. I am Director of Policy for the British Chambers
Susan Ross: I am
Susan Ross. I am Chairman of the British Exporters Association,
Q2 Chair: Thank
you very much. We will be asking you questions. If one of you
feels the other has covered the answer quite adequately, do not
feel obliged to supplement it, but there may be particular questions
to either one of you as appropriate. May I start with the British
Chambers of Commerce? Your submission to us makes the comment
that British industry needs to recover its "mercantile spirit".
First, can you define what you mean by that? Secondly, how do
you think we have lost it and, lastly, how can we get it back?
We define "mercantile spirit" as a willingness and an
interest in exporting both goods and services overseas. We did
some survey work during 2009, and a very large business sample
suggested that only about 30% were exporting, and six in ten were
doing so because they had been approached from overseas. They
had not proactively gone out to potential customers overseas and
sought out business. Whilst some of our largest companies are
indeed trading around the world and many of our mediumsized
manufacturers, because of their particular businesses, are also
trading around the world, there are many companies, especially
in the SME sector, whose sights are not set on foreign horizons.
We want them to look to those overseas markets in future.
Q3 Chair: Interestinglywe
were just having a conversation on the subject before you came
ina relatively small proportion of SMEs export, and of
those that do not, a very significant number do not even consider
exporting. What do you think are the reasons for this?
A lot of businesses will say to us that the home market is sufficient
for them to grow to the size to which they want to grow. We do
not believe that that is setting the bar particularly high, to
be honest with you. We would like to see more businesses converted
from lifestyle businesses or "big enough" businesses
into fastgrowing businesses. In many cases, companies will
simply say to us, "Look, I have got enough demand in the
domestic market. I do not really need to go overseas; it is too
much risk right now." What we would like to see is a cultural
shift to push businessesand this involves businesses helping
other businesses, in a lot of cases, to do soto internationalise
their operations and to look overseas for new markets. That also
involves the Government. We think that, in this country, we need
to see trade promotion activity on the ground with small and mediumsized
businesses, not as a "nice to have" or a luxury, but
as an absolutely core part of what Government funds.
Q4 Chair: Thank
you. Certainly I think there is a considerable body of survey
evidence to substantiate what you have said there. You have made
the point that it is a cultural difference. Government does have
a role. Now, I have to say that I think that SMEs have an instinctive
and, you could say, cultural aversion to having anything to do
with Government. How do you think you could bridge that gap and
what could the Government do to change this?
We want the Government to do three things. One is to reform and
boost trade promotion services for SMEs, to which I referred before.
It is not necessarily about simply increasing the budget of UK
Trade & Investment, for example, but helping companies in
a variety of different ways to get to overseas markets or to think
about exporting for the first time. For some it is as small as
a £2,000 travel grant to go on a trade mission. Those are
the kind of very small interventions that can make a very big
difference. Second is sorting some of the persistent problems
with trade finance and trade credit insurance that businesses
talk about as an obstacle, and that is something I know Susan
will come on to discuss in greater detail.
Chair: We are going to
go on to that in a moment.
The third one is around tax incentives and looking at ways to
use the tax system perhaps to encourage exporting amongst those
who are more reticent. There are certain ways you can use tax
allowances, both on the corporation tax side and on the income
tax side, to encourage both individuals and companies to look
to export markets. Clearly at a time like this, money is in short
supply and finding ways to pay for that could be difficult, but
it is something that should be considered over the medium to long-term.
Q5 Chair: That
is interesting. Have you actually put any proposals on that to
either this Government or the previous one?
Well, we have commented on the withdrawal of quite a large number
of allowances that favoured exporters over time. We have not
put forward proposals for new forms of allowances or new forms
of incentives. I think it is a bit early and, in general, our
companies are very supportive of consolidation of our fiscal position
before we get back to that stage of the game, but it is something
we would see as a medium to longterm priority.
Q6 Chair: What
products do you think we could export that we are not at the moment?
If you look at the UK economy, we have got manufacturers who tend
to be the backbone of our export population, as it were. A great
number of small and mediumsized manufacturing companies
are exporting their goods around the world. A big chunk of the
UK economymore than 75% of the economy overallis
services. We are the world's secondlargest services exporter
but, when you strip out financial services, where we are of course
one of the global hubs, our service businesses do not necessarily
get out there as much as we would want them to. With everything,
including professional servicesfor example, health and
safety consultants, or lawyersthere is more that could
be done to help these people export their services abroad.
Q7 Chair: Have
you put forward any proposals to do this?
The points that I made at the beginning were about trade promotion
and helping these companies really realise that there are markets
out there for their products, whether it is a nontangible
product, as in a service, or a tangible product, as in a manufactured
Q8 Mr Ward: Without
wanting to open too big a debate on the subject, it is quite topical
at the moment with all the things that are happening. I am quite
interested in this "mercantile spirit" and the culture.
Is language a problem? Most German, French, Italian, Chinese
and Japanese businesses and companies will all have English speakers.
It is not the same with many small manufacturers in particular
in the UK. Is that an issue?
I think it certainly is an issue. If you look at the outcomes
of our educational system, unfortunately we are not good in the
global league tables of speaking foreign languages. One of the
things that businesses say to us is a big problem for them going
into a new market is familiarisation with the local culture.
Language plays an important role in thatin making connections,
in building up the sorts of networks that turn into a new client
pipeline. It is something that could be improved. Indeed, a
past President of the British Chambers of Commerce some years
ago spent quite a bit of time working on this, because she herself
was in the language and translation business, working with a number
of companies, both at home and overseas. She said that this was
a deficiency that we needed to address.
Q9 Mr Binley:
Let me talk about something I know a little bit about. I am nonexecutive
Chairman of a company that provides a databasebuilding service
to businesstobusiness publishing. We are now doing
sizeable trade with the USA, sizeable trade with France, Belgium
and hopefully with Germany, and with Australia. The point about
it is that they all came to us; we did not go to them. That underlines
your point. I want to make a point about outreach. To my knowledge,
and I could be corrected on this by executive members of the company,
we have never had an approach from UKTI. How do we deal with
that outreach problem with the SME sector?
It is a difficult question, because of course we have 4.7 million
SMEs around the country, if I remember correctly, of which some
one million are companies of an appreciable size that might
have a service to export. That is a lot of people to target.
I am encouraged by the pronouncements by the newly appointed
Trade Minister, Stephen Green, who said that he will spend a lot
of time on the ground in the UK working with small and mediumsized
companies that have the potential to export. That is very important.
While of course you want a Trade Minister who is going overseas
regularly to bang the drum for businesses, it is also important
very important to work with SMEs at home. That is useful profileraising
of export possibilities among SMEs.
In a lot of cases, what businesses will say to us
is it is not about having an approach from UKTI; it is about having
some basic knowledge of markets. There is a big role for businesses
that are exporters to play here in working with those that are
not yet exporting andI hate using the word, "mentoring",
at the moment, because everything is about mentoring right now
and it seems to be getting devalued, to be honest with you. Exporting
businesses can mentor nonexporting businesses and help them
open their eyes to some of the possibilities. That would play
an important role in helping where government institutions have
not been able to contact some businesses. Chambers of Commerce
might play a role in that.
Mr Binley: Could I pass
this briefly to Ms Ross and get your impression?
Susan Ross: The
sales process is very difficult. We have seen advertising on
billboards for UKTI, maybe a year ago, which was excellent. I
do not suppose it brought in too much, because I think from business
we do tend to know our own world and we do not search out. The
first place you look though is the website. I do think, if we
could somehow have a better, more coordinated, refreshed, uptodate,
easytoaccess website, which pointed companies in good
directions, they might search for information about Brazil and
then realise actually there is a trade mission going, realise
if they are small that there may be a grant for something. To
me, accessibility is important.
On networking, you cannot just network; you
have to have sponsored networking. Maybe part of it is for UKTI,
or through the Chambers, to have events that bring in nonmembers
of the Chambers, people who have never exported before, but I
am afraid to say they will have to be dug out; they will have
to be invited. You cannot put a price on it, you cannot say that
it is £100, the commercial people charge £1,000 to join
a networking event.
Q10 Chair: Before
we move off this issue, I could come back to a point Adam made
earlier about small grants potentially for businesses to go abroad.
I am not aware of any government scheme that disburses such grants.
Has there ever been one and, if there hasn't, could you recommend
a model that would be appropriate?
There have been things like the Tradeshow Access Programme, which
have been very successful for a lot of small businesses, which
previously had no real incentive to go on a trade mission for
the first time. Those provided small grants of around £1,000
to £2,000, literally to help cover the airfare, so that they
could get out to a potential market and learn about what that
market might offer them. This is the sort of thing where we spend
considerably less, as a Government and as a country, than some
of our foreign competitors and counterparts. Trade missions and
trade promotion of that sort form a bigger part of the budgets
of export promotion agencies in many other countries. Having
a volume of support available that enables more companies to take
that first step or go on that first mission is very important.
Q11 Chair: Have
we got actually any sort of measurement of outcomes arising from
such missions, to give some sort of valueformoney
I would venture to say that the only agency that might have access
is UKTI itself, but you touch on a very big problem, a very big
issue, for us overall, which is that it is very difficult sometimes
to measure the outcomes of trade promotion generally. From our
perspective, we would like an emphasis on the measurement of outcomes
whereas, now, we very often have an emphasis on outputs. UKTI
measures the number of companies that have been through the front
door, for example, or the number of companies to which a chargeable
service has been sold. Those seem to be the metrics against which
our trade promotions agencies are judged right now, rather than
"Business X has got £5 million of exports going
out to China. Business Y did the same in Australia."
Q12 Nadhim Zahawi:
How important do you think the effect of the British Business
I think I would start by saying that it is a positive idea on
several fronts. It does help to increase the brand recognition
of a number of British companies abroad. You have heard comments
from the Chinese in recent weeks, for example, saying, "French,
German and Italian brands: we recognise them more because they
have got more people travelling abroad and because our consumers
are interested in their brands." These people can play a
role in boosting the profile of British business and British exports.
However, if you look at the list of Business Ambassadors, they
are almost all drawn from the very large companies and the very
notable and recognisable companies we have here in this country.
A lot of SMEs with which I come into contact from my membership
or even just from the wider SME community would say to me, "I
do not see how this person can help me represent my interests
overseas, because actually I manufacture mechanical parts for
combine harvesters and this person is the managing director of
a fashion company," for example. There is a bit of a disconnect
there and I do not think that the programme yet has got the SME
bit of the market taken care of.
Nadhim Zahawi: Ms Ross,
do you want to comment on that question?
Susan Ross: I think
they need to be active and visible.
Nadhim Zahawi: Have you
met any of them?
Susan Ross: No.
I would like to.
Nadhim Zahawi: Have you,
One or two.
Q13 Nadhim Zahawi:
Looking at the list, I counted companies that could be classed
as SMEs, but none from the manufacturing sector. You mentioned,
Adam, that there are 4.7 or 4.8 million SMEs. How would
you envisage getting that sort of representation among the Ambassadors?
I think it is a very good question and a very tough one. Business
organisations like my own might be aware of a number of very dynamic
SME owners or managers who might be interested in helping or taking
part in the programme. I am constantly surprised, going up and
down the country talking to our members, about the number of small
business-people who are worked off their feet, but who are still
willing to give up their time to help others, whether that is
through local economic development partnerships and things like
that, which are emerging, or doing something like this. Quite
a lot of them say, "I will do this. I would get involved,
but I do not know what the mechanism is. How do I get into it
in the first place?" That is the principal barrier, but
I think that business organisations would be very willing to work
with the Government to identify more SME Business Ambassadors
and SME export champions.
Q14 Nadhim Zahawi:
In the last couple of years, there has obviously been a focus
on the emerging markets. We have all heard of the acronym coined
by Goldman Sachsthe BRICs. Less well known is CIVETS,
which includes Colombia, Indonesia, Vietnam, Egypt, Turkey and
South Africa. Is this the right approach and targeting or should
we concentrate on more established markets?
I am thinking through the acronyms! Effectively we need a focus
on both established and emerging markets when we talk about trade
promotion. I would say that, wouldn't I? Very large numbers
of firsttime exporters will want to go somewhere familiar,
and that means generally Europe or North America, because they
are seen as the easiest markets, in many cases, to start out in.
They are often looking for a bit of support, a bit of advice
or a bit of help to move into those markets for the first time.
That said, however, these are markets whose economic growth levels
are relatively stagnant, whereas the BRICs, the CIVETS and any
other number of emerging markets are the ones where we are seeing
6%, 7% or 8% yearonyear growth and the potential for
new markets opening up. If I was sat in UKTI right now, I would
probably defend a focus on the emerging markets because of the
potential returns from their growth to British exporters. At
the same time, I would be saying, "I wonder how we could
unlock more resource or more money so that we could actually help
businesses get into established markets if they are first time
Susan Ross: I think
there should be a focus on markets where our UK products will
go down well. We sell leadingedge technologies in a whole
range, from fashion through to engineering, service industries
and project management. That is not going to go down so well
in some countries as it is in others. Let us concentrate on where
it will go down well, where perhaps trade might be a stepping
stone for diplomacy, so there might be a good reason to go there
and, lastly, where either there are commercial ways of helping
with the risk of nonpayment under the trade finance, or
where ECGD can come in and supply thata targeted, focused,
smart view on how to get there.
Q15 Nadhim Zahawi:
Are you saying that UKTI and UK plc need to segment betteri.e.
there is no point in having a broadbrush approach and running
around the world after the CIVETS, the BRICs or whatever acronym?
It is much better to think of what we are good at and what are
we good at exporting, and then target those towards those countries
that have those needs.
Susan Ross: It
could be for example that South America is more attuned to North
America than to Europe. Where do British products go down well?
In the Middle East, the Far East, so perhaps the "V"
rather than the "C".
I agree with Susan. At a time of limited resource and limited
capacity, we need to target our efforts on what generates the
most returns. However, I would caution against a retreat from
highergrowth markets where we currently do not have a presence,
because that effectively leaves the territory open to our major
international competitors, when in fact we may have something
within a very short time period that we could be selling into
those markets. It is a question of being a bit omnipresent, but
being smart when you are investing major resource.
Q16 Mr Ward: Something
we are trying to do in Bradford is to take advantage of the large
amount of immigration and harness that. To some degree, latterly,
East Europeans have come in, but of course there is a big Indian
community in this country. Have we done anything strategically
to build on that natural advantage that we have to get into markets
such as India?
The trade mission that is going to India at the moment and the
Prime Minister's prioritisation of India as a market are recognitions
of the importance of those links. There are two things that we
need to consider. One is historical links to a number of countries
that are either members of the Commonwealth or excolonies,
where the trading links survived long after the British departed.
The other thing that we have to think about is those countries
from which we have had recent immigration. You do not necessarily
think about a country like Poland, for example, from where we
have seen recent immigration, as a major export market for the
UK. That is a cultural problem. We would like to say we now
have a large number of Polish people in this country; we actually
do have good economic links with Poland now. Why isn't it a bigger
export market for UK companies and what can we do to make it so?
Q17 Nadhim Zahawi:
Can I now move on to thinking about UKTI? Following the announcement
of the budget cuts for BIS through the Comprehensive Spending
Review, which services would you be most worried about losing
at UKTI or being cut back? Mr Marshall, your own research survey
showed that most companies that you spoke to felt that UKTI needed
rationalisation and a more joinedup service. Can you expand
on those comments? What does UKTI need to do more of, stop doing
or scrap altogether?
I think I indicated earlier in my evidence that trade promotion
and promotion of exporting as a route to business growth is our
absolute top priority. In many cases, this needs to be done with
small and mediumsized business in the regions, rather than
necessarily large businesses in and around the capital. UKTI
is having significant cutbacks. What we would like to see protected
is frontline advice to businesses wherever possible. Now, that
also needs to be done in the context of a reform of how UKTI does
business. I mentioned earlier a focus on outcomes rather than
on number of businesses seen as being extremely important. Also,
there are possibilities for UKTI to work with other providers
of support for exportersChambers of Commerce is one of
manyto deliver a better service over time. What I do not
think we have taken into account here though is the fact that
UKTI's budget, or the trade promotion budget of UK plc, as
it were, was very small to begin with. When we went into the
Spending Review, we said there are only two things we need to
protect in this country in terms of budgets. One is our infrastructure
budget and the other is our trade promotion budget. Certainly
there are ways to reform how we spend both of them and spend them
both better, but those are the two things that will help our economy
Susan Ross: My
view is that, as companies get bigger and merge, they tend not
to keep the same HQ functions duplicated in the individual companies;
they tend to cut down on staff numbers in central functions, such
as human resources, IT and finance. I suggest that perhaps the
same could be achieved in order to keep plenty of frontline staff,
but just be a bit wiser about how the budget is spent.
Q18 Nadhim Zahawi: Thank
you for that. Do you think that diplomats can make good salesmen?
This is a question that has been doing the rounds for a number
of years. I think we have seen a number of successive Governments
say that they want to use our embassies better as shop windows
for potential exporters. The current Foreign Secretary is no
exception to that. He has gone at it with a good degree of zeal
and zest, which is very welcome. We need the reality though to
match the rhetoric. That means that we need qualified business-people,
often in these overseas posts, who understand the needs of a company,
whether it is an SME or a large company, coming to try to develop
a new market. I think our members would say there has been significant
improvement in very recent years in the quality of local, ontheground
staff, both of UKTI and the FCO, in those overseas posts, but
that that quality could still be significantly higher. You would
like to see more seasoned business-people, after a 30year
business career, perhaps becoming our representative in Delhi,
in Beijing, in Seoul, etc, rather than someone who has spent a
30year career within the diplomatic service.
Susan Ross: My
view is yes, I think they are important. I think overseas posts,
though, should not be trying to earn money out of making their
premises available for meetings or gettogethers, particularly
from SMEs, which are the ones that do not have a local presence.
If those embassy commercial staff were to spend time working
on secondment in business, they would get a much greater understanding
of what business-people need when they come to them overseas.
The reports that we have had back from members are that some
overseas embassies and consulates are fantastic and others are
not so good.
Q19 Mr Binley:
I would particularly like to follow that up. We have made a number
of visits to important potential export areas as a Committee,
and we have found exactly that: the point that you have just made
that, where we have good people it works very well; where we have
not, it is a pretty bureaucratic operation. The fact that you
concentrate your remarks on process and not outcomes is very much
a bureaucratic way of looking at the world and certainly not a
business way of looking at the world. While the quality has improved,
it is very patchy. How do we ensure in practical terms that we
get people involved in UKTI out in those countries who know about
business? How do we get them? It is not happening; it is accidentally
happening. When you get somebody, it is almost by accident and
not by design. How do we do that?
The first thing is to recognise that career diplomats are not
market makers, and that is something that UKTI, BIS and the FCO
need to agree between them. This is a classic Whitehall thing,
isn't it? The money comes from three separate sources and there
are three separate sets of personnel involved, three separate
sets of initial priorities, etc. On the ground, overseas, it
is FCO personnel very often and FCO money that has gone into that.
I think that secondments into business of FCO staff, over the
long-term, are one way we could get around this. Another way
is to bring people into the diplomatic service later in their
careers, on the express premise that they are there to perform
a commercial service rather than to be wellrounded diplomats
who are doing consular work, political representation, etc.
Q20 Nadhim Zahawi:
Do you think there is a cultural issue here? On a recent allparty
group visit to the Kurdish region of Iraq, some of the evidence
we got back was that, to compare and contrast us with the French,
the French Foreign Service would lead with business questions
or business development and then follow with the political questions
when meeting leaders of those countries, whereas we do the reverse.
Also, they are not shy about using their president. We had direct
evidence of two or three major contracts won because President
Sarkozy actually very directly led not just a general trade mission
but a very specific mission to win a contract or to deliver an
agreement for Carrefour or France Telecom, whereas we culturally
are more reticent about going out and actually selling specific
We must not be shy about banging the drum for our businesses,
and we must not beat about the bush if the principal reason for
us going overseas is to generate income for UK plc, generate
turnover for our businesses. The Prime Minister in his first
months has been positive on that front, in the sense that he has
been on a number of serious overseas visits with the express recognition
that his top priority was commercial relationships. That is quite
positive. What you need to see is that across the system, across
the variety of encounters that we have over time. Whenever any
politician goes overseas and, indeed, whenever any senior official
goes overseas, those commercial interests need to be front and
Susan Ross: I do
not think there is a recognition, in the diplomatic side, of the
value of commerce in winning over the hearts and minds of people.
If you see your products overseas, definitely you start to have
an appreciation of the tie between the countries.
Q21 Chair: Could
I just follow up this argument? It has been put to me that, valuable
though these headlinemaking trips are by senior politicians
and so onand yes, certainly when we visited the Gulf area
it was emphasised just how important it was for top people to
be going there to represent industrythere was a certain
feeling that, in effect, they were highlighting only deals that
would have happened anyway; and that there is a need for business
and Government to be engaged, if you like, at a level that would
enable, as Nadhim has just outlined, our senior politiciansGovernment
membersto go out and help prepare the ground abroad at
an earlier stage for the realisation of successful contracts.
I am not sure if that culture, as opposed to the headline PR
coronation culture, if you like, has really been developed. I
would welcome your comments on that.
I think unfortunately that goes back to the shorttermist
nature of our political system in this country, where shortterm
outcomes are often valued over the patient longterm work
required to make some of these deals a reality. I would not put
the blame for that on any single politician or any single party,
but really on the system itself. Any Prime Minister who goes
abroad is going to want to come back with a clutch of contracts
in hand, and I can understand that because that is what our newspapers
are after. Otherwise, the trip is a failure in media terms.
We in the business world, conversely, would not see the trip as
a failure if a Prime Minister, a Foreign Secretary, a Business
Minister indeed, went abroad and simply patiently met a wide variety
of companies to open markets. The two types of visits go hand
Q22 Chair: In
effect, what can you do to ensure that there is engagement at
a level that would enable that to take place?
It is a difficult question. We would certainly make that point
to senior Ministers and senior politicians in our conversations
with them. What we would also do is use the Chambers of Commerce
network itself; with a front door in towns and cities across the
world, you can also begin to make markets for SMEs without involving
Government. You have a lot of 'Bilateral Chambers', we call themChambers
of Commerce between Britain and single countries overseaswhose
effective job is to create those links between companies on the
ground. That is something that both the Chambers of Commerce
here in the UK and those Bilateral Chambers abroad will continue
Q23 Margot James:
Just before I ask my question, I wanted to follow up on the conversation
about diplomats and our embassies abroad. I would just like to
put on record, if I may, that on my recent trip to Japan at the
end of last year, I really was very impressed by the commercial
savvy of our diplomats in Japan whom I met. The British embassy
in Japan is a huge draw for local businesses, because it is such
a beautiful historic building of such renown, and our ambassador
there is thinking about business for much of the time. In the
evidence presented to us, it has been suggested that the lines
between the various Chambers, trade associations and UKTI that
are all charged with a mission to help exports are rather blurred,
and that businesses do not really know who to go to for help.
Do you see any truth in that? If so, what do you think could
be done about it?
I think the business support landscape for SMEs in general is
extremely crowded, though becoming less so day by day, as the
number of services are cut and as particular branded organisations
close their doors. Some competing routes of advice are starting
to fall away. SMEs want to be able to walk into a local institution,
where they have a certain level of trust, in order to ask first
questions about how to export, how to get overseas, how to meet
embassy staff in Japan, a commercial advisor in Delhi or whoever
else it might be.
Not to paddle my own canoe, as it were, but I think
Chambers of Commerce are those front doors in many places around
the country. They are the sorts of places where local business
can feel confident walking through the door and not feeling like
they have possibly gone to the wrong place. The Chambers of Commerce
that have international trade staff, which are the vast majority,
can either help them directly or signpost them to the right type
of assistance. We also provide quite a lot of training for inexperienced
exporters and for companies thinking about going abroad for the
first time. I think there is a role there for organisations like
the Chambers of Commerce in the private sector to do more of this
and to take on more of the role of helping SMEs get into exporting.
There are other organisations as well that could do that.
Susan Ross: I think
that the Chambers do a great job. I think UKTI does a great job
in broad terms. I would like to see UKTI getting to understand
what commercial solutions are out there. For example, export
trading houses can pick up and run with an export. Let us say
you want to develop the Libya market; you have never been there
before. You go to UKTI or you could go to a trading house that
says, "Yes, now then. Let us work it through. This is what
you need. This is the type of approach you need to make. This
is what you have got to put in your bid. This is going to tick
the boxes." UKTI can offer so much, but somebody who has
an office there on the ground, who knows how to collect money,
who knows the system, will take a commission but get the job done;
they will get the export done. I would like to see UKTI understanding
better what is available commercially and, dare I say it, making
it available, or more accessible, through their system for new
exporters to find those sorts of solutions.
Q24 Margot James:
What do you think about the addition of the Foreign Office in
their responsibilities on the export side now? Do you think there
is a danger that that might confuse businesses further or do you
see it as a wholly good thing?
I do not think that the Foreign Office is doing anything particularly
different from what it did before. It is just emphasising more
the export side and the commercial side of their role. I do not
think they are visible or tangible to most SMEs on the ground
as a player in that provision of advice. Businesses would be
more likely to think of UKTI, Chambers of Commerce, Regional Development
Agencies, local banks, accountants, etc. They would be looking
at a wide variety of far more local systems of support and wondering
who to go to.
Q25 Margot James: Moving
on to the UK brand, you have suggested that inward investment
has been quite successful in recent years, but has there been
any dilution of the UK as a country that all potential investors
see, with the RDAs promoting their own regions in different markets?
I remember giving evidence to an inquiry on exporting out of recession
about a year and a half ago, and one of the topics that we brought
up at the time was that there was too much ontheground
competition in major foreign markets looking for inward investment.
We wanted there to be a single front door to the UK in a major
overseas capital like Beijing, Delhi, Brasilia, wherever it may
be, for foreign inward investment into the UK; competing missions,
for example, of differing RDAs, UKTI or the devolved nations'
institutions makes us look a bit fragmented. We did campaign
quite hard at the time and continue to believe that we should
not have that level of fragmentation overseas, when it comes to
Susan Ross: The
British Exporters Association is less involved in inward investment,
except that it is worth noting that some of our biggest exporters
are international or multinational companies. Therefore, as a
separate but related issue, inward investment is important.
Q26 Margot James: Adam,
just following up on that, I think you have answered the question
I was going to ask you, which was: should LEPs have a role in
place of RDAs with trade and inward investment? I presume from
what you have said about the form of fragmentation that you would
not be in favour of that, but what would you say to LEPs, which
want to maximise inward investment into their regions? What advice
would you give them on how to maximise the inward investment opportunities?
Let's remember that LEPs are nonstatutory partnerships.
They do not have significant budgetary resources, so I seriously
doubt any of them will be creating their own inward-investment
missions and sending people over to foreign markets in order to
try to secure inward investment. If they do that, it is probably
a mistake, I would suggest. What I would like to see Local Enterprise
Partnerships doing, and particularly the business heads who are
leading those Local Enterprise Partnershipsnot necessarily
the local authoritiesis, when a foreign investor does come
calling in a city or town around the UK, to take that investor
by the hand, show them around the area, why it is dynamic, why
they should be there, etc. It is really the service on the ground
here in the UK where the LEPs may have a role in making sure that
a potential investor has seen the best of an area. That is something
that can be done both on a voluntary basis, i.e. businesses getting
involved and trying to get other businesses in to create a critical
mass in a particular area, and also using resources from the local
authorities where possible in order to provide data, etc, about
the attractiveness of the area.
Q27 Margot James:
Is there a danger that inward investment will revert to London
and the South-East as a default, now that we do not have this
regional representation abroad?
This is a difficult question. Company location decisions are
extremely complex. You have things like land prices, cost of
labour, etc, which go into a really complex set of calculations.
Companies that choose to locate in London and the South-East
know they are locating in one of the highestcost areas of
the world, and will probably be different from companies that
would locate in other regions of the UK, where that cost base
is lower. I do not intrinsically see this as a competition between
the South-East and the rest of the UK for inward investment; I
see this as a competition between UK regions and provincial cities,
and those on the continent and further afield. What we need to
be paying attention to is how Birmingham, for example, competes
with a city like Bordeauxor Bari in Italy, just to keep
the theme of the "Bs" goingrather than how it
competes with London for inward investment.
Q28 Chair: The
Committee has asked this question at various inquiries, and I
received correspondence from BIS advising me that UKTI will shortly
launch a procurement to identify a contractor to deliver the necessary
support. This procurement will seek to appoint a single organisation
to support the delivery of foreign direct investment within England.
Were you aware of this? Is BCC involved at all? Do you know
anything about it?
Yes, I am aware of it. I would not like to comment on ongoing
Q29 Mr Ward: Just to
bring this bit together, we have been talking, in Margot's previous
question, about blurring, and various organisations being available
to support a business that wants to export. I want to go a stage
before that. Take the example of a small manufacturing business
in, say, Bradford Eastwho takes the lead in going to that
business and saying, "Have you ever thought about exporting?"
Quite often, actually it will be the Chamber of Commerce. Bradford
Chamber, for example, might be the very first to contact that
business and say to them, first, "Are you a member?",
and second, "Are you interested in learning more about export
opportunities? Are you interested in getting trained up so that
you can go out into potential export markets?" Sometimes
it will be UKTI through its regional teams. The answer is that
there are various routes, and various people who may be the first
callers to ask that particular question. The thing that we hear
more than anything else, to be completely honest with you, is
it is the first time that that firm receives a telephone call
from an overseas market and someone interested in buying their
products; then they spring into action and other players become
Q30 Chair: Before
I go on to the next section, which is basically export credit
finance, we are getting into a very arcane area with financial
instruments that are not totally clear to laypersons. In particular,
we are told the UK does not offer bond support. I wonder if anybody
could clarify exactly what bonds are in this particular context.
Fixedrate export finance also, I think, would be useful.
Before we get to the detailed questions, would you like to give
a summary of what these particular instruments are and perhaps
what role they could play?
Susan Ross: Bonds
first: bonds are used to support export contracts. For capital
and semicapital goods, there is a little bit of development
work usually going on. The customer overseas has had to write
quite a complicated specification of what it needs, so it has
put an investment in just for the tendering process. It wants
to be sure that whoever it chooses, number one, is going to turn
up and do the job and, number two, is going to do it properly,
so they ask for a bond. They ask for a bid or tender bond to
cover the tender and make sure that, if they are selected, that
company will do the job. For the contract, once it is won, they
require a performance bond. More often than not, the exporter
will say, "Look, I am doing a lot of work here. I would
like an advance or mobilisation payment." The customer says,
"I will make that advance payment to you if you give me a
bond." That is called an advance payment guarantee.
Q31 Chair: How
are these bonds financed in other countries?
Susan Ross: For
an exporter to have a bond issued, it goes to its bank and says,
"Could you arrange for a bond to be issued to this overseas
entity?", which might be private sector or public sector.
The bank says, "Yes, of course I will arrange it for you,
but I would like a fee and I would also like some security."
In other countriesFrance, Germany, Canada, Australiayou
can go to your export credit agency, the equivalent of ECGD and,
although the fee is still there, the export credit agency solves
part of the security issue, so you are not having to take some
of your fixed assets and put them as security for the contract
Q32 Chair: Thank
you, that was very helpful. Fixedrate export finance, would
you like to do a quick explanation of that?
Susan Ross: Usually
overseas Governments, if they are putting out a tender for a big
project, say, "I would like to have a fixedrate interest.
I would like to pay over five years and I would like it to be
at a fixed rate of interest." When we bid, we need to provide
a bid that shows we have got a fixed rate of interest. If we
do not provide the bid with a fixed rate of interest, the bid
goes in the bin. Nobody's going to open it and look and see if
the goods and services are right or perfect for the job; the bid
goes in the bin before it is even looked at. The overseas customer
will require the fixedrate export finance, FREF, to come
from the export credit agency. It is a demonstration of the Government's
support for that project.
Q33 Simon Kirby:
You have been kind enough to explain some of the differences between
the ECGD and other countries' export credit agencies. Can you
expand on that and compare the service offered in this country
with our competitors elsewhere?
Susan Ross: Yes
I can, and I am afraid it makes dismal reading. We produced a
report in the summer, which set out where we are for UK exporters
with ECGD, and we looked at 38 different export credit agencies.
We picked 10 of the most important facilities that export credit
agencies provide, and ECGD ticked five. Of the 38, it was in
the bottom set. Some export credit agencies ticked all 10; some,
nine; some, eight. France and Germany were eight and nine; I
cannot remember which way round. We are down at five. We then
looked at something else; we looked at our world ranking for GDP
and our world ranking for exports. It became very clear that
those countries with effective export credit agencies actually
had a better ranking in export terms than their GDP would suggest.
Now, that might be circumstantial; we just make the observation.
Q34 Simon Kirby:
I am very interested in your answer to the question, because it
clearly is an area where there is considerable room for improvement.
Can you be specific about what changes you would like? You mention
10 targets and only five being achieved in your report. If you
were to tell us here, as a Committee, two or three areas that
you think specifically could result in improvements, what would
Susan Ross: I will
go back to something that David Ward mentioned: India. A company
that is setting out to export, has Indian ties, wants to export
to India and is selling something that is paid for normally at
60 or 90day termsa shortterm exportgoes
to a commercial credit insurer and says, "I have one contract.
It is for India." The commercial credit insurers will probably
say, "I am terribly sorry, but my minimum premium is going
to make the purchase of my offering uncompetitive." We need
ECGD to be able to offer shortterm covers where there are
good risks, but it is uneconomic for a commercial export credit
insurer to provide. That is the first thing: shortterm
export credit insurance.
In theory, ECGD can provide it; they have been allowed
to provide it for what is known as 'nonmarketable risks',
nonOECD risks, but they just have not been very active.
If you look at last year's financials to March 2010, 90% of ECGD's
business was aerospace. That is fantastic for aerospace, a brilliant
team, but the problem is we also need them to be there for other
industries. Germany has an enormous SME customer base, and the
turnover from Hermes Germany is way above ours.
Q35 Simon Kirby: Sorry,
we are having a conversation here, and I do apologise, Chair,
because I will stick to a questioning format. Why do you think
it was that the ECGD did not provide greater support to SMEs during
our recessionary times, when clearly competitors abroad did?
It doesn't make any sense to me at all.
Susan Ross: There
had been a general decline year on year. We looked at 10 years
and there was a decline of 60% odd in ECGD's business. At the
same time, other European ECAs (export credit agencies) were improving
by multipleshundreds of per cent. To me, that points to
a lack of political will. Maybe there are signs of change now,
but I think more needs to be done. If I can mention bonds as
wellI talked about bonds earlierwe really do need
ECGD to be there for small and mediumsized companies that
want to have bonds issued on their behalf, and for which they
do not want to hand over the security. We are having discussions
with ECGD at the moment about bond support, but they want a sharing
of security. If you have some security, you pledge it to the
bank; they pick up the calculator and give youthis is very
basic, I am sorrythey give you whatever in borrowings.
If you take half that security away to give it to ECGD, what
is going to happen to the calculation? It is the same percentage.
You are going to have a reduction in the available lending.
We need ECGD to be there, as other ECAs are, to support the security
aspect of bondissue support.
Our SME members say to us continuously that ECGD is not there
for them and that its products, whilst they may work for some
of our biggest exporters and some of our biggest companies, do
not really help at the SME level. A lot of that is a structural
problem because, since 1991, when ECGD privatised their shortterm
trade credit insurance business, a lot of their capacity to help
small and mediumsized businesses went away overnight. What
you do have are some teams of very good specialists, who can do
work for some of those big companies in particular markets like
aerospace, as Susan mentioned, but you simply do not have the
ability to help volumes of SMEs with a suite of products that
gives them the confidence to say, "My national export credit
agency is working on my behalf in the same way the Germans are,
the French are, etc."
Q36 Simon Kirby: That
is very interesting. We have had a number of interesting sessions
about the Enterprise Finance Guarantee scheme, and part of those
discussions came up with the idea that a similar scheme might
be useful for trade. Would you agree with that?
Absolutely. Our view on the EFG scheme generally was that, whilst
it had a slow start, it has become increasingly important and
has been very important to a large number of SMEs, both over the
course of the recession and as we have entered into recovery.
We have been pleased that the Government has extended it as well.
What a lot of companies did say to us, however, was that it was
not adapted properly to enable them to export or to get the sorts
of financing they needed for exportwhether it is bond support,
as Susan mentioned, or some other very technical forms of export
financing and export support. They would certainly welcome the
introduction of an exportfocused variant of EFG.
The questions I would ask are whether the price and
the terms are right and whether the Government and its partners
are willing to take a sufficiently longterm view on something
like this, rather than simply wrap it up in six months or a year
if there is not high take-up right away. All too often we create
quite a lot of support schemes, and Governments decide to stop
them or to discontinue them on the basis of very small amounts
of evidence. I think what we would like to see is the maximum
portfolio of support schemes possible, so that businesses operating
with particular problems or in particular niches can get the help
that they require and always have those schemes open. That is
what the Germans do and that is what others do as well to ensure
that they have got this broad portfolio and that all their SMEs
can get access.
Q37 Simon Kirby: If I
may, Chair, ask a final question just to pick up a point made
about having a suite of finance options, do you think that simplification
is the way forward? Companies are there and they know what is
available, and it is a straightforward process for them. Is that
an important element of changes to the current regime?
Susan is better placed to answer on the complexity of the structured
financing. All I will say is that companies will want to walk
through a door and speak to someone who can advise them on a wide
range of potential options that suit their needs, at a particular
time. Usually a company will walk into a conversation like this
and say, "I have a problem," and explain the problem
in terms of their business. What they cannot do is walk in and
say, "By the way, I need bond support for a nonmarketable
country," etc. That is what the specialists are here for.
Susan Ross: If
there are new facilities, and I understand they are going to happen,
they need to provide additionality. If you can go to the bank
and borrow, the Government needs to be there. It needs to focus
on what companies need. It needs to find out from the exporters
what they need; talk to the exporters. ECGD, of course, is going
to need a distribution method, because it hasn't got innumerable
staff on the ground, so use the banks for the administration of
distribution, but do not try also to use the banks' decision taking
and what they are doing on security, taking pledges of security,
because that is not going to provide additionality. ECGD acts
as an insurance company. It is profitable. ECGD should start
to think as an insurance company and to assess risk from an insurance
perspective. It can outsource that assessment to credit insurers,
for example, but it needs to think differently from what the banks
are doing and not require this sharing of security.
Q38 Mr Binley:
We have pretty much established by dint of your evidence that
the Government could do much more to help the SME sector. Indeed,
I talked to the Forum of Private Business, to your own organisation,
as you know, Adam, and to the FSB, and they all said that much
more could be done by Government to promote export credit guarantee
schemes and other schemes to aid the SME sector. The whole argument
is irrefutable and we need to make that point very firmly.
The Forum of Private Business gave me one example,
which I would like to read into the record. I apologise for doing
so. It takes just a little time, but I think it is very worthwhile.
"One of our members had real problems accessing these guarantees;
a company called Delta Design Systems Limited, near Clacton, Essex.
They needed help over a contract in Iraq worth £57 million.
They raised a performance bond of £1.27 million but,
despite repeatedly trying, received no support from the Export
Credit Guarantee Department, which told them that, if they were
a company such as BAE, they would probably have been able to help."
I think that comment absolutely makes the point you have been
stating, and we need that firmly stated, I believe, in our Report.
Forgive me for reading that out, but I assume that this is not
an isolated case.
Unfortunately, the number of members who have come to us reporting
similar stories is far too large for me to mention in the limited
time we have available. At the last inquiry of this nature, I
talked about a wallpaper manufacturer from Lancashire who could
not get short-term export credit insurance for Russia, and lost
market share to its German competitor. The number of stories
like that, which I can tell you, is quite large. Unfortunately,
what we come up against, time and time again, is a classic civil
service answer, which is, "Unless you can provide me with
evidence at scale of what the problem is, we do not think it is
necessary to take action." That is what we have been fighting
against for a number of years. We could simply say, "Look,
I can provide you with anecdote after anecdote after anecdote."
When they get to the scale that I have seen and problems
such as the one, Brian, that you have just described, it is very
obvious that there is a problem here. That is why we have recommended
a state backed short-term export credit insurance scheme. That
is why we have recommended that we always have something on the
shelf, in terms of export credit insurance, to activate when times
get tough for SMEs. Invariably they will get tough again, from
the lessons of the last two years. Yes, the situation has improved
in recent months, but that does not mean this could not happen
again at very short notice, and we are not doing enough as a country
to be prepared when those situations arise, so that we do not
get more horror stories like the one that you have just read out.
Q39 Mr Binley: That is
a pretty firm recommendation and I am grateful that you have given
it. Ms Ross, your figures show in that in 2009-10, and I think
you have already touched on this, ECGD's nonaerospace business
declined by nearly 90%. Can I ask what you think the reason for
Susan Ross: I think
they got into a rut. They are very good at aerospace, but they
were not out there looking for other business. As I say, I do
not think the will was there to do other than what they knew they
were good at. They also had the problem of their business principles,
which were set up at the beginning in 2000 or 2001, and which
meant that they had to have a consultation about anything new
they wanted to do. They have cleared those; we have got a new
set of business principles. I think, with help from folk such
as you, we might see a change. I hope it is going to be that the
figures are not going to be so dismal for nonaerospace next
Q40 Mr Binley:
Would I be being too robust by saying that the words that come
into my mind, from both the evidence and your answer, is that
they became lazy and complacent? Go on, push it.
Susan Ross: I think
they lost the understanding of their role. They were covered
in the problem of having always to explain to NGOs what they were
doing, and gradually withdrew to things that were tried and tested.
They were not prepared to stick their necks out and say, "No,
we have got good engineering businesses here. Why aren't we doing
enough of them? Why are we not taking a snapshot of all the capital
and semicapital goods in this country and helping these
companies to go abroad to new markets, such as Iraq, where surely
the export credit insurers on the commercial side are not going
to have acres of capacity?" I think they just did not have
Q41 Mr Binley:
One of the things we have got to do is kick this Government into
ensuring a greater diversification. You imply that privatisation
could be an idea. To be fair, I think that you both say that
a statebacked export trade credit insurance scheme can run
through a private company. Am I being overzealous?
Yes, but I would not characterise that as privatisation. What
both Susan and I are looking for is the state to step in where
the commercial market does not. The state can always work through
a private company but, at the end of the day, it is the state's
Q42 Mr Binley:
Thank you; that explains it for me. I am grateful. One of the
things we can do is highlight this matter very effectively and
robustly, and bring it to the attention of the Minister and the
Secretary of State, when we meet the Secretary of State, as we
do on a regular basis. What else can be done to achieve the objectives
I think there are three watchwords in terms of ECGD or any export
credit agency that you should be looking for, especially in terms
of their dealings with SMEs. The first is agility. Susan touched
on this when she said that, before, ECGD found it difficult to
react in short amounts of time in order to help SMEs when business
conditions changed. I think you should be looking for that.
The second is responsiveness. We should not see cases where someone
has proactively gone to our national export credit agency and
been told that there is no help available for them. The third
is capacity, at the end of the day, and of course that brings
on the question of how you resource it. ECGD needs to be able
to help SMEs in greater numbers but, unfortunately, it has a very
dedicated but very specialist team that cannot do that at the
moment. I would not like to say that they have gotten lazy in
any way, shape or form; they are just overly focused on a very
specific segment of the market, because that is what they have
the resource to do.
Q43 Mr Binley: Can I
conclude, Mr Chairman, by asking about the importance of ECGD's
fixedrate export finance, and what the consequences will
be of phasing it out for UK industry?
Susan Ross: The
consequences of throwing out, I am going to call it FREF, are
that big business will not be able to have a Governmentsupported
fixedinterestrate option on mediumterm projects
and contracts, which means that when the bids are assessed by
the overseas entity, only the fixedrate options will be
looked at. The ones that are noncompliant, because they
do not have a Government supported fixedinterestrate
option, will be thrown out. We then cut ourselves out of these
big projects. As you know, it is very important to support big
business with big projects, because a lot of the innovation that
they have is brought in from SMEs. Take Airbus, for example.
The Airbus wings business in Wales is responsible for about 10,000
Airbus jobs in the UK and 135,000 in the supply chain. The SME
aspect is there. The other aspect about big projects is, further
along the line, somebody is going to need spares, support, training,
services. If you have got the original project, 10 years down
the line, the phone call comes, "Can you supply the replacement
part for something or the upgrade?" If you do not have the
project, if the project has gone to France or Germany, we have
cut ourselves out of those followon orders.
Q44 Mr Binley:
A final supplementary question: do you think the Government simply
does not understand that any form of growth, be it in the manufacturing
sector or in the service sector, needs financing and that is a
major problem at this moment?
Susan Ross: I think
the interest in cuts, the time spent talking about cuts, has prevented
them from seeing the real world. You never get anywhere unless
you invest. You cannot grow without investment.
I would simply say that we need to have the maximum portfolio
of financing options available for businesses to draw on, when
they are required. It does not cost the Government a lot of money
to keep FREF going, for example. They cite low takeup as
a reason to discontinue it. That is because, at the end of the
day, it is simply a tick box thing that is needed in order to
tender for the contracts that Susan is talking about, but it is
still needed. That goes for a range of other schemes, whereby
there will be businesses that will lose out if they are closed.
Q45 Chair: Can
I just conclude this section with, quite frankly, rather frightening
figures? The ECGD reduced its staff numbers from an average of
366 in 2003-04 to 207 in 2009-10, so you are talking about something
like a 40% reduction in the last six years, which could have resulted
in some of the problems we have just heard or been a consequence
of them. It is not altogether clear. What is even more frightening
is that it expects to reduce its staff numbers further over the
lifetime of this Parliament, in compliance with Government policy
to reduce costs to the public sector. This has enormous implications
as far as I can see. Obviously we as a Committee can make representations.
Is there anything from the business community that you can do
or say that could, if you like, mitigate the potential consequences
of these reductions?
We have said, and we will continue to say, that export financing
is a bit like the National Health Service; it is a necessity,
not a "nice to have". That is a position that we have
taken for a long time. At the end of the day, jobs are dependent
on exports; company growth is dependent on exports, and tax revenue
is dependent on exports. What we have said to both the current
Government and the previous Government, and will say to successive
Governments, is that this may be a technical, difficult and longterm
set of issues, but it requires their full attention from day one.
Susan Ross: It
is very scary. I wonder, in the figures that you quoted, what
proportion was of frontline staff. What we have seen at ECGD
is a lot of retirements of very experienced personnel, and that
is a great shame, and they are not being replaced. Fair enough
if it is HQ staff merged with another Department, using somebody
else's HQ, but frontline staff are really important. I think
ECGD has the potential to have a great role and I think it could
outsource more, but it still needs proper frontline staff, who
can help exporters to get where they want to with contracts and
Q46 Chair: Arising
from what you have just said, Susan, it would appear that possibly
there might be a connection between the reduction in its role
with SMEs and the retirement of long-standing and experienced
personnel. Do you think that could be correct?
Susan Ross: ECGD
sold off its shortterm arm in December 1991, so it does
not really explain what has been going on in the last decade.
However, we have seen a decline in turnover for the UK: in 2003-04,
turnover was £3 billion; it was halved in 2009, but
came up to £2.2 billion. Heavens, inflation must have
run at some per cent over that period.
Q47 Chair: Do
you know if the comparable organisations in countries such as
France and Germany have had a reduction in staff?
Susan Ross: France
in the last decade: up 258%. Germany: up only 37%. If I may
quote you Italy: up 325%. Belgium is up 188%. There is a list.
Q48 Chair: Yes, that
could be very significant. Can I thank you for attending? That
really has been very helpful. Obviously we will be following
through the issues that you have raised rigorously with other
bodies. If I could just conclude, Adam, I refer to my earlier
question on foreign direct investment and you could not comment
on the tendering process. Is that because BCC is involved?
Yes. As I said, I would not want to comment on an ongoing tendering
Chair: Okay, thank you.
We have got the information we want. Thank you very much anyway.
Susan Ross: Thank
you. That was very encouraging.