Written evidence from Clyde Blowers Ltd
We are a global engineering business with c.87 companies
in 28 different countries. We have a history of buying Western
European based businesses with engineering products which are
"mission critical" as part of a larger process, e.g.
Pumps for Nuclear Power Plants or Sea-Water Injection Pumps for
offshore oil wells. Without these pumps the whole process comes
to a halt. Pumps are only one example of the engineered products
which we have in our portfolio. We employ circa 5,500 people worldwide.
Typically we acquire UK engineering companies with
a proud heritage which have been shrinking in size over the past
20-30 years. Two examples of this would be the Weir Pumps business
based in Cathcart Glasgow and David Brown Engineering based in
Huddersfield. Both of these companies can trace their histories
back to the 19th century and both were world leaders in their
field in the early 20th century. We have transformed both of these
companies by successfully implementing a plan to globalise them,
with a particular emphasis on the emerging markets of China, India
and Brazil.
This is a strategy which we have been employing successfully
since 1992 when I personally purchased a major shareholding in
Clyde Blowers.
Our strategy focuses on moving these companies from
an exporting only model to establishing bases in the major markets
of the emerging economies where we wish to grow our business.
To use our pump business as an example: - we bought the Weir Pumps
business in Glasgow in May 2007. This business had been operating
from one large manufacturing facility in Glasgow and exporting
its products all over the world. In order to remain profitable,
the business, prior to our ownership, had been focusing on products
which it could make profitably and cutting out those which it
could not compete with on price. This strategy was leading to
fewer and fewer products being manufactured and as a result of
this strategy the company was unable to bid for projects where
the customer wanted to go to one supplier for all the pumps required
on the project. Post acquisition in 2007 our strategy was to establish
a presence in China, India, Brazil and the USA.
In China, India and Brazil we focused on finding
joint venture partners and in China and India we also set up wholly
foreign owned enterprises. In the US our strategy was to acquire
an established US business.
I am absolutely convinced that this is the best strategy
for UK manufacturing. We have employed this strategy with great
success for more than 20 years in a number of businesses. Since
2007 we have grown our pump business, based in Glasgow, from one
manufacturing plant in the UK to eight manufacturing plants worldwide
including China, India, Brazil and the US and 27 Service Centres
worldwide.
We have grown the turnover of the business from £77
million pounds in 2007 to £369 million pounds this year.
The number of employees in the UK in the pump business alone has
grown from 550 in 2007 to 965 today.
The Business Innovation and Skills Committee should
in my view find a way to support S.M.E's in developing an appropriate
global growth strategy. For many S.M.E's, particularly manufacturing
companies, exporting on its own is not the right model. I am sure
that a lot of time, effort and money is wasted pursuing a strategy
which is inappropriate. More effort should go into analysing the
global market for each company and developing a tailored growth
strategy. A simple exporting model no longer works in the way
it did when we had the British Empire. Globalisation has changed
the way we need to approach international trade. The measure of
success should be growth in turnover and profitability of the
UK based business and growth in number of employees.
UKTI can be a good source of market intelligence
particularly in emerging markets, helping with the identification
of local J.V. partners, arranging appointments and providing translators.
The role of British Ambassadors should not be that
of visiting dignitaries. They should have a more hands-on role
with individual companies as a mentor and guide, helping to establish
the correct strategy for each company - a more "sleeves rolled
up" approach.
The effective provision of trade credit is the one
area where the government could have a huge impact on international
trade. This is the single biggest constraint on our growth at
the present and is impacting many companies like us throughout
the UK. If this was the only thing the government did it would
have a significant impact.
The Coalition Government clearly understand that
the way to economic recovery is through growth in the private
sector and that it also has to be focused on businesses other
than Banking and The City. The recent trips to India and China
by high level government and business delegations show a high
degree of commitment to helping UK companies win a bigger share
of the business generated by these very important emerging markets.
To fully exploit the opportunities created by these visits, UK
companies need to have access to a reliable source of trade credit.
Unfortunately UK companies are at a significant disadvantage to
their foreign counterparts when it comes to the availability and
cost of trade credit. The UK banks are restricting the availability
of trade credit and are charging a penal rate ranging from 60%
to 150% higher than our European competitors.
The UK banks acting in a oligopolistic way treat
trade credit (bonds) as core debt, which it is not, it is a contingent
obligation with a low risk. The UK banks charge 3.75% plus an
arrangement fee for each bank guarantee (bond) which takes the
cost up to over 4%. We have a number of companies in our group
which are based in other countries. We have recently re-banked
a Swiss and German based company from our UK banks to UBS and
Credit Suisse. Our trade credit (bank bonding) facility has dropped
from a cost of 4% with the UK banks to a cost of 1% with the Swiss
banks. With another company in our group based in Germany, we
have been able to get a bonding facility from Commerce Bank backed
by an insurance policy from Zurich Insurance which is costing
us 1.5% compared to UK banks 4%. Zurich charge 0.9% for insuring
the bond and Commerce Bank charge 0.6% for issuing the bond, i.e.
a total cost of 1.5%.
Unfortunately our Clyde Union Pump business is based
in the UK. Our major European competitors are based in Switzerland
and Germany and as a result have a significant advantage in terms
of trade credit availability and cost.
We have subsidiaries of our pump business in France
and Canada where the governments provide assisted bonding schemes.
The French scheme is managed by COFACE - a world
leading credit insurance and credit management provider. This
scheme is only open to companies incorporated in France and the
bonds must be issued by a bank in France. The French government
counter-guarantee up to 85% of the value of the bond.
We can move work from our UK companies in Glasgow
and Penistone to our factory in Annecy, France and benefit from
the trade credit facilities provided by the French government
assisted bonding scheme. HSBC in France have agreed to issue these
bonds at a cost of 2.35% vs. 4% in the UK. Capacity is not an
issue.
Similarly in Canada where the government assisted
bonding scheme is being run by Export Development Canada. EDC
under-write 100% of the bonds issued under the Canadian scheme.
We have an arrangement with HSBC in Canada to issue these bonds
at a cost of 2.35%. Again work would have to be moved to our factory
in Toronto to qualify for the Canadian scheme.
If we are unable to access competitive trade credit
facilities in the UK we will be forced to move more of our business
from the UK factories to France and Canada. This is not something
we wish to do but may be forced to in the absence of supportive
trade credit facilities in the UK.
18 January 2011
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