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Taken before the Business Innovation and Skills Committee
on Tuesday 25 January 2011
Mr Adrian Bailey (Chair)
Examination of Witnesses
Witnesses: Mr Andy Scott, Director of International and UK Operations, CBI, Mr Andrew Cave, Head of Policy, Federation of Small Businesses, Mr Phil Orford, Chief Executive Officer, Forum of Private Business, and Mr Alexander Ehmann, Head of Parliamentary and Regulatory Affairs, Institute of Directors, gave evidence.
Q85 Chair: Good morning, and thank you for agreeing to speak to us this morning. Just before we start the formal part of the proceedings, if you could just introduce yourselves so that we can get sound levels okay, that would be helpful.
Andy Scott: Andy Scott, the Director of International and UK Operations, CBI.
Andrew Cave: Andrew Cave, Head of Policy for the Federation of Small Businesses.
Phil Orford: Phil Orford, Chief Executive for the Forum of Private Business.
Alexander Ehmann: Alexander Ehmann, Head of Parliamentary and Regulatory Affairs at the Institute of Directors.
Q86 Chair: Thanks very much. We’re fractionally early, but I think we’ll start. I’ll open the batting with a couple of fairly general questions. Last week-and you may well have either heard this or seen the transcript-we heard witnesses say that the UK was giving the wrong impression about its interest in and ability to export. Do you agree? Could I say that, in general, if somebody has answered in such a way as you feel there is nothing meaningful that you can add, please feel free to say so, so that we don’t just duplicate replies. Who would like to lead on it?
Andy Scott: I’ll kick off with a few thoughts. This is generally on the impression that externally the UK has as an exporter. I think that is a perception that we often hear around the world. People do compare and contrast UK performance in markets with those of our principal competitors. I’ve just come back from a week last week in India, and I heard there from Indian businesses that sometimes we see a more aggressive approach and a more export-driven approach coming through from some of our competitors. I have to say, when I sometimes talk to some of our sister organisations in other countries, I hear that those selfsame countries sometimes say the same things to them as well. So I do think sometimes that we have one country being played off against another. But I think there is some semblance of truth in the fact that there is more that we could and should be doing, and sometimes our markets abroad don’t always see the UK in the light that we would like to think that they should and could.
Chair: Is that a fairly representative view?
Andrew Cave: I think from our perspective, we would agree with that. We come at this from a slightly different angle, in that, obviously representing the smaller, microbusinesses, these are the businesses that want to be exporting and want to be getting out there and there are various impediments to that at the moment. So we would say that certainly the picture that is being portrayed abroad is not a true reflection of the ambition and desire to export of the business community across all sectors in the UK.
Alexander Ehmann: The only thing I’d add, Chairman, is that from the point of view of the Institute of Directors, Britain has lagged behind France and Germany in the export of goods to countries such as China and the Russian Federation, and even with the depreciation of pound sterling it still continues to lag. So I think on a factual basis we’re underperforming, and perhaps it’s better to deal with those facts rather than in general perceptions.
Q87 Chair: Yes. Could I just challenge your comment, Andrew Cave? You say that your businesses want to export; have you got any hard evidence of that? Because certainly-and I must confess I cannot remember the polling organisation-in fact a huge majority of SMEs were quite content to just retain their market in the domestic market and didn’t actually look to export. Have you got any hard evidence that contradicts that?
Andrew Cave: We have, and the evidence is the result of a survey that was conducted quite recently, and it surprised us as well about our own membership. We found that over 20% of small businesses are engaged in exporting. However, across the board that only represents 10% of trade for small businesses, so there is clearly an appetite there. But certainly, when you look into it in more detail and from anecdotal comments we get, exports make up a very small proportion of turnover of a small business. So from that we glean that there is a desire to do more, but they are held back by various obstacles that exist at the moment.
Phil Orford: If I could just add to that, Chairman, this may reflect some of the nuances within the different membership organisations, but our figures are quite different. From a poll taken at the back end of last year, 51% of our members currently export; 11% would like to export; and the remaining 38% have no interest in exporting. So certainly within our membership-I think we ought to identify that this may be a nuance in terms of quite well-established employer businesses-we have a majority who are already exporting.
Q88 Chair: So that 11% would be companies that currently do not export but would like to?
Phil Orford: Yes.
Chair: So there is 11% over and above those that would wish to?
Phil Orford: Yes, that’s right.
Q89 Chair: Yes. Did you wish to add something, Alexander?
Alexander Ehmann: I’ll add a third set of statistics to complicate things further. Of the IoD’s membership, 53% of our members are exporting at the moment, so a very high number in our membership. I won’t go in to all the details, but we’ve got plenty of survey data around the reasons why the membership that we have is not exporting. But 31% are exporting goods and 52% services, with a further 17% doing both. The thing I would say at this stage about those that don’t is that when asked whether they have plans to begin exporting, only 16% say they do. So there’s around 80% that aren’t quite sure; around four out of five businesses not exporting amongst our membership have no immediate plans to do so. I think there’s a subcategorisation, for want of a better expression, between those who don’t export, those who have the ambition to do so and those who don’t.
Andrew Cave: If I may add to that, Chairman, I think those figures reflect the difference of our memberships. Both the IoD and the FPB tend to represent larger SMEs. We represent the microbusinesses: our average business member employs six people, so I think that’s a reflection of this.
Andy Scott: I won’t add another set of statistics, but obviously from a CBI point of view we cover an additional part of the business community, which is the medium and the larger guys as well, and for many of those, particularly in the current economic climate, if they are not looking to international markets then they’re not going to be getting the growth that they’re going to need as they see themselves coming out of recession. So for many of those businesses they’re more mature markets, they’re established markets in the UK-they are growing but they’re growing relatively slowly-they’re mature markets in Europe and the States likewise. They are looking for those export markets and they’re looking for international investments to secure their growth going forward, so we would see the international dimension for those businesses as being a critical part of their future competitiveness.
Q90 Simon Kirby: FSB, you say that you found 73% of non-exporting businesses claim that they lack a suitable product or service to export. Do you think that is the case or do you think that perhaps there’s an ignorance of potential opportunities overseas?
Andrew Cave: You’ve hit the nail on the head. I think there is an ignorance factor there because a lot of them have not looked beyond their local markets. And I think that’s borne out in the other figures, which suggest that one of the main impediments is the lack of access to information and advice, and I think if that were opened up to those businesses then they would see those opportunities with more clarity.
Q91 Chair: That brings me on to the point I was going to make next. What are you as organisations doing to encourage your members to export? You just said lack of advice; surely that’s part of your respective roles?
Alexander Ehmann: From the point of view of the Institute of Directors, we run an information and advisory service, through which we take calls from our membership about a whole range of issues and we have skilled advisers on various different subjects. I found out today that roughly-and it’s been consistent over the last year or so-10% of those enquiries coming into us in a reactive way are about international trade, about export and overseas operations. The other activity that we really focus on is working in conjunction with UKTI and other partners on a range of events targeting specific nations and trying to inform people about how to get into those markets; so events on establishing business in China or Russia or India over the past year or two have been things that we’ve done with our membership to try to boost our involvement in foreign markets.
Andy Scott: I think we’d all be in a similar situation. We do some things independently: we will run various seminars and events around the country and here in London. Invariably, though, we will also do those jointly with UKTI and with other business organisations. I think there is considerable mileage in seeing that the business representative organisations, wherever possible, are joined up in this so that we present a connected outlook to the business community. We also get involved directly in external trade missions, sometimes supporting Ministers. We are represented on various regional, geographical, business councils, like business councils on China, India, Russia and Brazil, so we have a range of different approaches through which we try to make sure we get the message out to as wide an audience amongst our membership as we can.
Andrew Cave: In addition to obviously having an advice line, the FSB has been very active in the early stages of lobbying for the adoption of the Services Directive at EU level, but also in its implementation both nationally and across the country through local government, because we see that as probably the biggest opportunity for smaller microbusinesses in venturing into foreign markets and offering their services, particularly across the European Union. So that is our main thrust with regard to promoting exports to small businesses.
Q92 Chair: Have you done any evaluation of the actual outcomes of the advice that you’ve given? Have you got any measurement of how much the advice you’ve given to your members on exporting has translated into actual contracts or trade?
Phil Orford: We haven’t at the moment, but just linking that back to your previous question about what we’re doing to support members, we recently formulated what we call a panel of export members, made up of those exporters that I mentioned early on, and the idea there is to gain evidence of best practice and put that back out to the broader membership, perhaps more specifically the 11% that we’ve identified as wanting to take that step towards export. So I suppose we’re now in a position where we do have an evidence base, or we’re developing an evidence base, and clearly what we’ll do going forward is measure that against any improvement in the exporting within our membership.
If I may just also mention, in terms of trying to raise the awareness of trade in general-not just international trade-we’ve just launched a campaign called Get Britain Trading. The idea behind that is to bring in partner organisations to support initiatives around looking at trade beyond your traditional boundaries, whether that’s parochial or international. So I think probably all the bodies would agree that we’re all doing more to support our members in the export arena.
Q93 Chair: In terms of engagement with the Government to promote exports, how many of you are involved, or your members involved, in attending government trade delegations?
Alexander Ehmann: The Institute of Directors is involved.
Andy Scott: We are as the CBI-I participated in a visit last week that was partly linked to a delegation that Vince Cable was leading-but many of our members are also actively involved in those, whether they be on a sectoral basis or a geographical basis, sometimes supporting Ministers, sometimes very much driven by a sector initiative, which could well be driven by UKTI. So many of those companies are involved in them.
Andrew Cave: I would say there will be small businesses who are members of the FSB who are engaged in that small number, but certainly the FSB as an organisation is not.
Phil Orford: Similar to us. We know we’ve got members who do take part in delegations; we as an organisation so far haven’t asked to be involved in those, but neither have we been invited.
Q94 Chair: Do you think there’s any scope for improvement in that? I’m talking specifically to Andrew Cave and you, Phil, because you represent, if you like, the smaller businesses.
Andrew Cave: Certainly talking to members who have been involved in those activities there is scope for improvement, and one of our recommendations is that the way in which success of such activities is measured needs to change. The feedback we get at the moment from our members is that they’re concerned that success is gauged by how many meetings are organised rather than how many contracts come out as a result of those meetings, and for a small business, where every pound and every hour counts, they can’t really afford the time or the money to engage in such activities unless they know there’s going to be a measurable output at the end.
Phil Orford: I would agree with that absolutely. There are opportunities now of course with the growth review work streams to look at how these systems can be improved. There is obvious room for improvement. I think we’ve all acknowledged that right from the beginning, and in fact Lord Green said as much earlier this week. So we would clearly like to see more engagement to remove some of the barriers that exporters currently find in front of them.
Q95 Chair: Just moving on to the Government’s proposed Trade White Paper; can you summarise very briefly what you think the Government’s strategy should be for the future of UK trade?
Phil Orford: Shall I start?
Chair: Yes, you can kick off.
Phil Orford: Thank you. Well, export readiness is a terminology that we ought to start embracing. We talk about skills readiness and we talk about investment and finance readiness, but export readiness is as important, and the reason for that is that very often it’s a mindset; it’s a cultural issue within businesses. They just don’t perceive international markets as being relevant to them. Having said that, I obviously go back to the fact that we have got quite a substantial number of our members who are engaged in that. But there is a real difference in going from trading within your town, your county or your region, or even within the UK, to taking that step to international trade, and we certainly believe that there’s a lot more that could be done in terms of workshops on export readiness, bringing in practical mentors, those who do it day in day out, to try and break down some of the perception barriers that exist within businesses that have a desire to export but don’t really know how to take that next step.
Andrew Cave: I won’t repeat what has been said-we agree with all of that-but just to develop it slightly: whilst amongst our membership UKTI has very low visibility, when we drill down and look at those members who are aware of it and have used it, 83% find the services very useful and particularly the Passport to Export scheme, which is very much looking at readiness and getting businesses ready for exporting. So I think our plea would be not to try and reinvent the wheel. There are some good schemes there at the moment, and what we need to do is make sure that more businesses are aware of them.
Alexander Ehmann: Could I come in there, Chair? I echo the comments of my colleagues in terms of UKTI. I’m happy to go into more detail later if that’s useful, but generally our members are supportive of UKTI where they have access to services similar to Andrew’s membership…
Chair: We will be questioning you a little more about UKTI.
Alexander Ehmann: Sure. The only other point I’d make then, Chair, is that what we’d like to see in the Trade White Paper is a focus away from the narrow concept of trade, but actually to focus on the supply side improvements that need to be made to enable export activity to take place in the UK, particularly looking at deregulation and looking at greater infrastructure spending to assist businesses in export activity, rather than narrowly focused tools.
Andy Scott: From our broad perspective on the Trade White Paper, I think we would probably say there are three strands. One, I think it’s very important that there is a very clear commitment, which the Government is giving through a Trade White Paper and a trade strategy, on the importance of trade and investment to the UK’s overall competitiveness. If we aren’t out there in export markets and in international investment and encouraging investment into the UK, then we haven’t got one of the key ingredients of a successful economy. So I think that’s number one.
I think number two is you need to have the right conditions in the UK to enable businesses, small, medium and large, to flourish. If they can flourish they will then have the right environment in which they can be addressing some of those export markets and some of those international investment opportunities. So getting the conditions in the UK right is an important precursor to actually going out and addressing the export market itself.
Then thirdly, as I’m sure we’re going to come on to later, there are a number of quite specific ways in which, through UKTI and other such programmes, we can look to see what support we can give to those companies to get out and address those export markets. But I think there are those three conditions. I think the first one is that it is important to give a very clear message about the significance of international trade and investments to the UK’s prosperity, and that, I think, will be a clear commitment, which David Cameron and the Coalition Government have given already since they’ve been in power.
Q96 Chair: I will just conclude, and from what you’ve said, I can gauge the response. Basically, do you think Government should be involved in trade promotion, or should it just be left to private enterprise and the free market? And if you do think it should be involved, at what sort of level do you think it should be involved?
Andy Scott: From our perspective, as you would gather from my remarks, I think there is an important role that the Government can play. First of all-almost in partly trying to address that very first question that you raised about the perception of the UK-I think it’s very important indeed that the Government tries to redress what are some of the perceptions of the UK’s capabilities in international markets. Some of these external missions, which everyone from Cabinet Ministers downwards undertakes, are a very important part of that. In a White Paper, I think a statement of the UK’s strengths, the UK’s capabilities, the importance of trade and investment to our economic prosperity is important, so I think that is a key role. And I think there are absolutely areas where Government support of one sort or another, information and advice, providing and helping companies access into what are sometimes difficult markets is very important. I’m sure we’re going to come on to some of those questions later on. But at the end of the day, let’s be honest: the vast majority of international trade and investment will be undertaken without direct support from Government. What is most critical to ensure that that activity takes place is that they have a competitive environment in the UK in which and from which to undertake their businesses.
Andrew Cave: To add to that, Chairman, from the small business perspective, I think that engaging the smallest businesses is only possible with Government involvement. We would argue that there hasn’t been enough Government involvement, or rather the connection between the small businesses and what Government is doing is not strong enough at the moment, and certainly when you look at the situation for small businesses in other European countries, we believe they are given more support than they are here, so we would argue for increasing that.
Phil Orford: And if I can maybe perhaps bring an analogy to that, if you look at all the businesses out there exporting as sales managers, plying their trade internationally, what we need is a sales director, someone who defines strategy, someone who’s going to lead from the front, and I think that’s where the Government’s role should be. There absolutely needs to be a national strategy for international trade.
Alexander Ehmann: I am simply going to say I agree.
Q97 Chair: Just very briefly, are there any conspicuous examples of what other countries do that is successful and we don’t, from a Government perspective?
Andrew Cave: I think the financial support that businesses get in other European countries, something akin to the Export Credit Agency that used to exist in this country that provides insurance and guarantees. What we understand from talking to counterparts in France and Germany is that they have access to that; our members don’t, and that is a serious obstacle at the moment.
Chair: I can assure you, we’re on the case. Arising from that-well, I say arising-no doubt totally coincidentally, I believe Lord Green took up the issue the day after we raised it. Let us go on to British Business Ambassadors and I’ll bring in Nadhim Zahawi.
Q98 Nadhim Zahawi: Thank you very much, Chairman. Mr Scott, the CBI has always supported British Business Ambassadors, but you also highlight that it’s difficult to identify the impact of the Business Ambassadors. How do you think it could be measured, and do you think they could improve the branding of UK plc?
Andy Scott: I think they can improve the branding of plc. You’re right; we have supported the concept of British Business Ambassadors. As often is the way with schemes, it starts and initially there is a degree of enthusiasm within that scheme; there is always a challenge in any initiative in maintaining momentum, and I think that was the problem that arose in the predecessors to the now relaunched scheme, which has just been kicked off again. I think they can play a key role. I think part of the problem with the previous scheme was that when you spoke to a number of those people who were listed as Business Ambassadors, they weren’t 100% sure what their role was and what they were being required to do. As I think they would understand the role when they were asked to take it on, it would be: given that you are out regularly in international markets on your own business, will you then while you’re out there take some opportunity to promote the overall story about UK capability, the overall strengths of the UK economy, and to address some of these issues, which we raised in a couple of questions already, about the perception of the UK in international markets? And these people can do that, because invariably they are chosen because they are highly regarded and highly respected in terms of what they have done, individually, and their own businesses.
These sorts of schemes, however, are notoriously difficult to measure; that is the challenge with them. They needn’t be, necessarily, terribly resource intensive. So they needn’t be costly; it’s not as if we have a huge cost to then weigh on one side of the equation against the benefit of the other. They do, as you will have seen from our evidence, we would argue, require some small degree of a core team, most realistically I suspect in UKTI, which there is, to actually give them some briefing and to be able to see where these people are going so we can actually have a forward programme on a forward schedule. So I think the scheme has considerable merit, but it does require someone who is actively managing it. But as always, it is notoriously difficult to be able to put direct cause and effect between that particular Business Ambassador and a change in perceptions in the UK in international markets.
Q99 Nadhim Zahawi: So let me just push you a bit further on the briefing side, because you highlight that point as being one of the failures of previous schemes, that is, the Ambassadors themselves don’t know what they’re meant to be doing out being Ambassadors. You mentioned UKTI. Is UKTI the best body to be able to deliver those briefings, or should it be left to industry itself, and have you offered to deliver those briefings?
Andy Scott: No, we worked closely with them, because many of those Business Ambassadors are indeed people who are closely involved in our work, and our current Director General is one of those Business Ambassadors as well. So we work closely with them, and we have fed in our ideas and thoughts in our regular dialogue with UKTI. Yes, I think UKTI is probably the logical place to be as the core, but it can’t do these things in isolation: it needs to work closely with other organisations, ourselves and indeed other business organisations, and I think there is clearly an opportunity to be a bit smarter in just literally co-ordinating forward schedules. You’re not telling these people where to go, but identifying, when they are out in a market, whether their visits could be coincident with a major trade show or with when a Minister might be going out into a market?
The FCO is now asking all its posts around the world to identify the "Top 10 Asked", as they describe it, in each of those markets. Could those Business Ambassadors be given those Top 10 Asked, so when they’re going out and they meet businesses colleagues, they meet ministers in market x or market y, they could be saying exactly the same or singing from exactly the same hymn sheet as the Trade Minister or the BIS Minister might be when they are going out. So it’s trying to provide a bit more of a coherent and a co-ordinated message, and the fact that these people are prepared and willing to give of their time to be designated as Ambassadors shows that they’re prepared to do that, so I think we should capitalise on their willingness to engage.
Q100 Nadhim Zahawi: I think you’ve sort of answered the next bit of my question on that-what should the briefings concentrate on-and you think there should be a link with what the top ten priorities are for us in a particular market; some segmentation or some research work in terms of what are we trying to sell to that particular market?
Andy Scott: There could be a range of things. Little simple fact cards just to keep reiterating what the strengths of the UK are, so we’re trying to get over some of these points on perceptions. If you are in market x, what are some of those major market opportunities that you would want to make sure you were repeating if you were talking to a Minister? Those would be the sorts of specific things that I think are very useful for them to have.
The other thing is that many of them are larger companies, and one may say, "Well, how does that relate to the needs of the SMEs?" But I think the key route through which many SMEs do gain market access is thorough those supply chains, and many of those Business Ambassadors can be equally effective at demonstrating that, through the reach in their own businesses, they bring-if not directly, certainly indirectly-many SMEs to market.
Q101 Nadhim Zahawi: And you say that the head of your organisation is one of the Ambassadors. Is this happening, or are you seeing evidence of it happening, or has it never happened and it’s not happening now either?
Andy Scott: I think if you go back through history, as I said, you go through phases. When it first kicked off in a previous incarnation, I think there was a degree of enthusiasm and I think it was working quite well. As always, these things need to keep the momentum. We’ve now had it relaunched and redesignated. I think it’s far too early to be able to make any comment on that, but you’ve got people there who have agreed to continue, some of them, and some new people coming on board and some different people, which I think is also quite important to show the spread of different industries; many of them are now representative of creative industries, which probably weren’t as well represented in the previous grouping before. So I think it has the potential and I’m sure that when we see the new UKTI strategy emerging post the White Paper they will have an element within that showing how they’re going to take this forward in terms of the issues I’ve mentioned on briefing. I would certainly hope so.
Q102 Simon Kirby: On that specific point, you mentioned the creative industries-the two, as far as I can see, from the fashion industry-but the other creative industries, music and art, seem perhaps not quite so well represented. And in view of the fact that according to UKTI this country exports $2 billion worth of music alone, is that imbalance a good thing?
Andy Scott: On the designated list, it’s not a good thing in that sense because you’re absolutely right: the creative industries in as wide a definition as you could choose to use, whether it be music, fashion, design, architecture, or whatever else, are huge strengths for the UK. The response, I’m sure, that UKTI would make to that is you don’t have to restrict yourself entirely to that list of Business Ambassadors, important and helpful as they are. If that was the only route to market then I think there would be validity in being concerned, but I think there are other ways of doing that and I am sure they can extend that and add other ambassadors in. We certainly know from our experience of people that we take with us on these various missions that a wide spread from precisely those sorts of sectors is extremely important and it’s also why, within the CBI within the last 18 months, we have put a particular focus on an initiative to promote the creative industries for that very reason.
Q103 Nadhim Zahawi: Thank you, Chairman. Can we just move on to the subject of UKTI itself? Last week we heard from witnesses that UKTI has its strong points as well as its weaknesses. What does the panel think are its strong points and its weaknesses? What I would very much appreciate you addressing in answering that question is how the UKTI could engage more with the service sector and promote the exporting of services, because we heard some evidence of a weakness there, and what of the UKTI’s current work could be done by the private sector? For example, chambers of commerce infrastructure around the world?
Andrew Cave: I think from the Federation of Small Businesses’ perspective, as I have already alluded to, those businesses that have exposure to UKTI and make use of it overwhelmingly support the activities and particularly the main three programmes: the overseas marketing introduction service, the Passport that I mentioned and the trade access programme. Where the blockage comes is getting that information out to the vast majority of businesses, and that’s why we’re concerned that moving back from money being available for informing the business community of UKTI being available, but also the possibility of Business Link and the RDAs stepping back from that and serving, as we would have liked to have seen, as a conduit to UKTI. So we’d like UKTI to keep doing what it does, but with much more exposure.
Alexander Ehmann: Can I add, as with Andrew’s findings, our members that do use the service are supportive of it, broadly. There are obviously an awful lot of members who don’t and aren’t aware of the services. I think the thing I would say is that, around UKTI reform, our members want to see greater efficiency, greater bang for the buck, for want of a better expression. At the moment there’s an awful lot of spend on trade support and £80 million is spent on investment promotion. According to the studies that we’ve seen at the IoD, it’s much more effective for an export promotion agency like UKTI to focus their attempts on the support of businesses in the UK in exporting, rather than offshore functions that they have. Those tend to be less effective. And so it might be worth looking at greater collaboration with business networks that already exist abroad. The one thing I would urge, though, is that to choose one provider of international choice would be a concern, and it would block people from using potentially other sources. The Chambers network may well be useful in some cases but it might not in others. But using what’s there is obviously a way of gaining greater efficiency, and I think UKTI should look to do that in their offshore operations.
Phil Orford: Coming back to the research that I mentioned earlier on, I think perhaps the most pertinent point is that it was lack of information about prospective markets that was most frequently cited by members as a reason for their inability to export. If anything, we would like to see UKTI having a bigger brief on market intelligence. Market intelligence in the domestic market is increasingly important, whether that be related to customers’ credit ratings or sectors or demographics. I think it would be very useful to have a function coordinated by UKTI on an international level.
Andy Scott: I think colleagues have touched on a number of the areas on the strengths and I would agree with those, particularly for the smaller companies. In terms of some of the areas where we’ve been urging tightening up or reform within UKTI, we think that some of the measurements have been a bit too much driven, as Andrew mentioned earlier, by literally headcounts and boxticking. I think there has been a concern that when you talk, for instance, to some of the people on the ground in posts abroad, they find that what they are required to be doing is just in danger of becoming the numbers game, rather than focusing on the outcomes. I’ve been encouraged to hear UKTI say they recognise that and they need to do more to address it. We would encourage them to do even more of that.
And I think probably a second area-again, there are encouraging signs that they have been moving in this direction-is closer alignment between what UKTI does and what BIS do on some of their sector activities, so maybe making more of a connection. So although there is a sectoral approach within UKTI, which it is right and proper that there should be, and they are increasingly working with the BIS sector teams, I think there could be even more and greater connection on that front.
You raised a number of other points in your question; I don’t know whether you want to cover those now or come on to them in a moment or two, on the service sector?
Nadhim Zahawi: It would be useful if you could cover them now, because then we can move on to the next question.
Andy Scott: If I may make just a couple of comments on services, first of all it’s a key issue, and one that we would recognise, that when people talk about exporting, they tend to immediately think of exporting goods, physical goods. Actually, for the UK one of our key strengths is our wide range of services, not just in the financial and professional sectors but in all types of the services area, and that sometimes gets overlooked. I think there are two things that Government can do on that. One is that the reality of life is that for many service sector companies, there are still restrictions in certain international markets in terms of market access. You only need to look at the restrictions that there are for insurance companies, for the banking companies, for the legal companies, for accountancy, for retail in certain markets. Even with all the best promotion in the world for some of those companies, there are physical restrictions in terms of market access. That’s why Government has an absolutely critical role in pursuing, both at the multilateral and the bilateral level, individual market access and market opening. That is the first point.
The second thing that they can do is clearly they need to work as closely with some of those professional services organisations in the UK, the sector organisations in the UK, as they probably have been doing traditionally with some of the more traditional manufacturing trade associations. Again, that’s further evidence that UKTI really works well when it is engaging with and working in partnership with other organisations. There is some good evidence that it’s doing this with some of the individual professional organisations, but that is certainly an area where they can capitalise on working further with some of those sector bodies. So one is market access and two is the trade associations or the sector organisations.
Q104 Nadhim Zahawi: Thank you very much, that’s very useful. Can I just move on to thinking about the SME sector? Is the UKTI really set up to help an average small businessman wanting to export, say, to China, or is it much more focused, obviously, on the bigger businesses with the hope of a bigger return?
Andrew Cave: As I said, those businesses that do access it find it helpful, so we would say that it does perform that function. Where there is a problem for many small businesses is the charging arrangements that UKTI have at the moment in terms of upfront payments. It makes much more sense for a small business if those payments are staggered or there is a payment upon completion. So I think that would actually open up the floodgates to a lot more businesses engaging with UKTI.
Alexander Ehmann: The only thing I would add is that I think UKTI is set up relatively well to do that. I think the bigger issue with the difference of ability to export between SMEs and larger businesses is fundamentally down to the capacity of those businesses. Of those of our members who said they were not exporting, one of the key reasons for that was they felt they were not of a sufficient size to enter the export market. So the size is actually the issue, rather than it being necessarily an indicator of UKTI’s inability to work with those businesses.
Phil Orford: And something that we picked up from our research was that there was an indication of a greater demand than supply, so that UKTI anecdotally are unable to meet all the requirements of those seeking support.
Q105 Nadhim Zahawi: And is there anything that comes to your mind that UKTI can do better to help SMEs that it is not doing at the moment?
Andrew Cave: I think we’ve all touched on the various aspects: the charging arrangements; the way that success is measured. But also, making greater awareness of the services that are being provided. It’s staggering how few businesses are aware of what UKTI can do for them. So those would be the three main things that could be done differently.
Alexander Ehmann: The other thing I’d add is that UKTI could be more vocal within Government about the types of issues that businesses are facing when exporting to make sure that they are hearing that. That’s also from an inward investment perspective too. I think UKTI accumulate a lot of knowledge about the various reasons why businesses are not exporting or investing in the UK, and I’m not sure that that is being passed on to the Government.
Q106 Nadhim Zahawi: Mr Scott, you say in your submission that UKTI should manage the move from RDAs to LEPs, so that SMEs understand that the access to export support is not reduced. Is there are a clear understanding of the access to export support at the moment?
Andy Scott: I think we’re all saying the same thing. Information and awareness of what those services are is one of the biggest challenges to reaching into a wider network of the SME business community. Colleagues here have quoted the statistics in terms of awareness of UKTI services. I think we’re all agreed that, for those businesses, once they get access to those services, with certain provisos on charging etc, they find those services to be value-added services. But it’s how you reach those businesses, and that’s part of the difficulty. Structures like RDAs and LEPs in the future will be a route to market. I think there are multiple routes; I don’t think it can just be literally a UKTI solely driven marketing campaign per se. I think they need to look at how they engage with the various multipliers; how they engage with people that SMEs have to come into contact with every day of the week, or every day of the month. Banks, the accountant; how do you use some of those professional advisers as a route to make sure that when they’re going in and talking to a business that says, "Look, I’m struggling with finance," or "I’m struggling with growing," they say, "Okay, have you thought about where your opportunities might be? Have you actually gone and looked at and seen where you can get some help from UKTI?" Some of that exists, some of that happens, but I think a key part of their marketing drive is and must be and must continue to be how they use those multipliers as the route into the SMEs, because if you’re just going out cold and doing it straight from a marketing campaign, you can spend a huge amount of money and not get anywhere.
Q107 Nadhim Zahawi: The challenge, as you quite rightly set it out, is getting that information through about access to export support. Is the challenge not exacerbated by the number of organisations that are around, whether it’s the chambers or trade associations? Can some of those multipliers also add to the confusion? I’d love to hear from the FSB and everyone on the panel, really, what you think.
Alexander Ehmann: I’ll go first. Certainly, I wouldn’t recognise that picture. I think there are a number of bodies out there that offer advice, and that actually has been helpful. I don’t think there’s a great deal of complexity there. As I said, about 50% of our membership is aware of UKTI services; roughly 50% of our membership is exporting, and I think there’s a rough overlap there. There might be an issue about those that are not yet in the business of exporting and about how visible UKTI is to them. But when our membership was asked about what their preferable mode of advice was, I’m pleased to say that UKTI was the preferable mode of advice for 27% of our overall membership. We were second, as the IoD, at 9% and then the chambers at 7%.
I think the one thing I would urge some caution on though is that. If you look further down the list, Businesses Link and BIS respectively had 4%, RDAs managed 2%, and at present local authorities managed 0%. So in terms of transition to LEPs, which I’m sure we’ll get on to, there’s a serious issue about how much competency local authorities have to really work in this area.
Phil Orford: Moving on from that, I think that UKTI can play a role in co-ordinating it all. There has been criticism in the past of the conflict with the RDAs and UKTI in terms of their international presence. Clearly, that will no longer be an ongoing issue, but if you look at most current RDA regions, we’re going from one co-ordinator to many. The numbers vary, but sometimes there are as many as six or eight. Now, I think UKTI in the regions needs to grab that baton and make sure that this is not diluted in the way that you’re suggesting it could be, because I think that is a significant risk.
Andrew Cave: I don’t think the number of networks, as you point out, needs to be a problem, and I don’t think it needs to be a confusion as long as there’s a consistency of message that is filtered through that. Ironically, overwhelmingly our members will look to the banks for advice, and traditionally they will have gone to the banks for support and advice with exporting. That’s obviously fallen away to a greater or lesser extent, depending on which bank you bank with. But pushing more information through the banking networks I think is absolutely crucial. I don’t see that there is a problem that there are too many voices out there. What we are concerned about, and this reflects Phil’s comment, is that at the moment there is a certain unknown as to what is going to happen with RDAs and Business Link being removed from that space, and how LEPs can possibly take that forward. We’re very concerned about that.
Q108 Paul Blomfield: Perhaps we could talk a little more about that specific point. Certainly I’ve had concerns raised with me from small businesses in my patch, as wide ranging as from the music sector to light engineering, that already the practical support and advice that was available through RDAs is no longer there, and they are worried-these are businesses that are stepping into the export market and looking at others that might be- that’s going to have significant impact. I wondered if you could each reflect on how you felt the move from RDAs to LEPs, and you’ve already begun to do that, is going to affect the availability of trade support for SMEs in the regions?
Andy Scott: The first thing I think to look at is where we are now in terms of this transition from RDAs to LEPS? And I think we’re probably all going to say a similar sort of thing, which is we have not felt that the whole transition from RDAs to LEPs has been set out as a smooth transition, and we are still very much, to be generous, in the foothills of understanding what the new LEP environment is going to be like. So I think there was always going to be a risk without having a clearer definition as to initially what LEPs were going to do. That was a bit of a struggle in the early days of when the RDAs were abolished and then the bids were invited for LEPs; there wasn’t a clear enough definition as to precisely what those LEPs were going to do. Some of that is now settling down in the sense that those that have been awarded are now building their business plans, but I think there is going to inevitably be a hiatus as we go through this transition from the RDAs as were to the LEPs as they start to establish their roles. So I think that is a real risk.
What it will be like when the landscape settles down is a moot point. I think we still have to be able to judge that. At the moment we’re still in this interim period, when people are still not at all sure as to what their respective roles are. Many of these LEPS are still very much in the very early stages of being established, both in terms of what they’re going to do, the resources, the services and the roles that they will play, so I think that does create uncertainty, and I think certainly many of the companies that we talk to, whatever size, have been concerned about the way in which the regionalisation restructuring has unfolded and is unfolding.
Alexander Ehmann: Not to move this on to LEPs too squarely, but one of the things to recognise about LEPs and RDAs was that one of the failings of the RDA network from the IoD’s perspective, our membership’s perspective, was that activities kept getting added to the RDA’s remit. When LEPs were formed, we were very clear in saying what LEPs should do, what they must not do, and for us this is a function they should not do. They should not be involved in it, and the reason for that, as the evidence I just cited suggests, is that in terms of picking a winner here, UKTI is by far and away the most well regarded of the information resources available. So it’s playing to our strengths. We should make UKTI step forward. They should take up more of that responsibility on a local basis. They may need to recalibrate to do so. But coming from the stark comparison of a rather low 2% in terms of recognition of the value that RDAs played in terms of advice to businesses around export activity, and an even lower figure of 0% amongst our membership for local authorities, I think it’s a much safer game to try to make UKTI push down rather than build competency from the local authority level.
Paul Blomfield: And do you have confidence that UKTI are ready for that challenge?
Alexander Ehmann: I have more confidence than I do that local authorities are.
Phil Orford: I can’t add anything else. I agree with what Alex has said, and it supports what I said earlier about fears of dilution.
Q109 Paul Blomfield: Andy, may I come back to your comments, which focused on the uncertainty but also talked about the emerging role that some LEPs anticipate taking on: looking at that emerging role, do you think there are still significant gaps in relation to trade support for SMEs?
Andy Scott: I think there significant gaps. If you’re asking: does it look as if most of those LEPs that have been asked to develop their full business plans are going to deliver services, I would be with Alex on this, in that I don’t think that is where they should primarily be. I think we should be focusing our efforts more on doing exactly as Alexander said, which is to make sure that UKTI has the capability to do it. I agree entirely that they have got more of a chance of doing it than collectively the LEPs have. I think the reality will be, on a number of fronts and this will be but one of them, one or two of the more effective and larger LEPs as they get established will inevitably take on some of these things, and I think that will be something that we’ll just have to judge as time goes by. But would it be something that we would urge should be cascaded and delivered by all of them? I would agree no.
Andrew Cave: That is one of our major concerns: that there will be that inconsistency across the UK. There will be parts of the country where businesses do not have the same access because the LEP does not take that responsibility or is not strong enough in that area, hence coming back to the argument for a stronger UKTI.
Q110 Paul Blomfield: Thanks very much. If I could ask a different question, related, but to Andrew and Phil in particular. You both painted a picture of an appetite to export, and Phil you mentioned that 38% of your members perhaps didn’t have that appetite but suggested that with support they might broaden their horizons. I wondered how you both, as organisations, engaged with UKTI to promote the needs of small businesses, and, through that process, perhaps widen horizons for those that weren’t seeing themselves in the export market, but also supporting better those who did.
Phil Orford: I think first of all, being honest, we’ve probably not engaged as much as we could or should have done and indeed the amount we will be doing in the future. We try to do our best to communicate the information we get back from our membership, and obviously that comes from the research that we do. So the primary reasons are some of the ones I’ve mentioned earlier about the lack of information on markets, and clearly market intelligence would be very helpful there. There are clear issues related to cash flow risks that many small businesses face, and although not cited as the main reason, I think particularly at the moment, with the cash situation in many businesses remaining tight, there is a reluctance to put cash flow at further risk.
In terms of some other specifics, I think I mentioned earlier on that there is a mindset issue related to the number of companies that do not feel that their goods or their services, probably more specifically, are conducive to exporting, and that’s clearly both an educational issue, but also, at the risk of overdoing the word, a mentoring issue. These businesses owners do need to see practical examples of what’s going on on the ground, and the development of that sort of network would be very helpful. I think Andy mentioned early on about organisations working more cohesively. Our head office, as you may know, is in the North West, so certainly we have a regular engagement with the North West offices around issues of working more cohesively, not just with us as an organisation but with a lot of the trading organisations that also have regional representation across the country. So there are a whole range of mechanisms that we try and communicate across, and we do that on a continual basis, but I think, if I’m being honest, it’s fair to say we could have done more and we will be doing more to support export trade as part of the overall growth strategy for the UK.
Andrew Cave: I should probably be equally honest. As I said at the outset, we were quite surprised by our latest survey data that revealed so many of our members were engaged in exporting. That wasn’t the case years ago when we undertook similar research. So it’s an area that we as an organisation need to step up to, I think, and work much more closely with UKTI. But it’s not just UKTI; it’s Government departments as well. We’re looking increasingly at the role that the MOD, we believe, should be playing in promoting export opportunities for small businesses.
The one exception, I think, is probably in the services sector, where we have worked very closely with members in promoting the opportunities of the Services Directive. In our view the single market has been closed to small businesses for many years, and the Services Directive offers huge opportunity for a great number of our members, and we’ve been very active in promoting that. But we need to do more across the piece.
Q111 Margot James: Thank you very much for everything you’ve illuminated about the UKTI. I’ve only got one question left. We’re clear about the limitations of UKTI in terms of small businesses, but you all collectively seem to think that it has been, on the whole, a good thing and made a good contribution to exports. But the CBI, Mr Scott, has said that it needs to develop a more sophisticated relationship with larger companies. Could you elaborate further on that? What are its shortcomings in the way it deals with larger companies?
Andy Scott: I think quite rightly much of the focus of the questioning so far has been on some of the specific services and support for the SME community, and we will be the first to say that support for SMEs is both needed and vitally important. But, in terms of our overall trade figures, a lot of that is going to be driven by some of those major companies.
Now, those major companies do not need the same sort of support for services that we’ve been talking about and the UKTI generic services. What they need much more is information, intelligence and support from embassies and posts abroad in terms of helping them when they’re looking to set up meetings in those particular markets. They need good intelligence about the business environment in those markets-that’s the biggest thing that we hear from many of our companies-and where there might be regulatory issues emerging in that market that either they as companies would need to see Government helping to address-I mentioned before some of those things on market access-or where as a result of regulatory changes in those markets it might actually be opening up a new market opportunity. If you look at some of the areas in terms of publicprivate partnerships, which is increasingly an issue for many other countries as it has been here, they are going to be driven by public policy in those countries, and there will be opportunities arising out of that for many companies who are providing similar services here in the UK.
Now, in order to help UKTI and the posts to understand how they can best meet those needs for those sorts of companies, we’ve been suggesting something that any professional services organisation does, which is good account management: understand those larger businesses; understand what particular markets they’re interested in; understand their capability, and that is just down to good solid account management-somebody understanding what the business needs are, somebody being their key anchor point within them. And that is something that BIS had been doing and starting to do quite effectively with some of their sector teams, and is an approach that we have been hearing and seeing UKTI starting to do, and certainly some of the recommendations that we’ve been making to them. I would be hopeful of seeing that approach continuing when they come forward with the next five-year strategy. But it’s a different sort of service and it’s not classic support at all, and it’s certainly not financial support.
Q112 Margot James: Thank you. Is there any research that you’ve done that supports what you’ve just said, or is it member feedback?
Andy Scott: It’s member feedback. In all of these things, quantitative research is very difficult, but I think these are classic examples of: "Does the company feel that it is well engaged? Does it feel that is has somebody within UKTI who it can go to at a reasonably senior level, who will understand what their issues and their needs are?" It is important to do feedback on that, but it will be qualitative feedback rather than straightforward, classic quantitative feedback.
Chair: Can we move on to trade finance? It was touched on earlier.
Q113 Simon Kirby: We were told last week by the Engineering and Machinery Alliance that the ECGD was not fit for purpose. Would you agree with them?
Phil Orford: I think there are fairly widespread concerns about the scheme, and again it’s been in the news this week, and I know that the British Bankers Association are working hard on what might be called an export EFG. I think the main issues that most people are concerned about is the unfair playing field that appears to be in place not that far beyond our own boundaries, in fact within the European Union; that the state aid implications related to guarantees for export finance are treated quite differently in the UK, whereas in other countries like Spain, for example, it’s treated as de minimis, so they don’t see it as being an issue at all. The big issue for us as a nation in redressing this issue is we need to make a quick decision: are we going to tie our hands behind our back in terms of competitiveness, or are we going to follow the rest of Europe, and if repercussions come, accept those repercussions at some point in the future? But at the moment to sit here saying that we’re prepared to do it one way when the rest of Europe is doing it another is not very logical in terms of supporting our exporters.
Alexander Ehmann: Can I come in on the same point but in a slightly different way? I will touch on the finance issue more broadly, if I may, in one second, but I think our first point would be that we are supportive of the state aid rules, and if we’re not able to get to a situation where we can deliver a product that we feel is beneficial, it may be much more of a useful activity for the UK to be making sure that infraction proceedings are being taken against the other member states that are breaching these. We shouldn’t necessarily race to the bottom here. We might want instead to be making sure that we’ve got proper compliance going on across the European Union.
The other point I would make is that finance, to our membership anyway, is not the critical issue here. Seventy-five per cent of the businesses of our membership that are exporting are doing so with their own resources and their own retained profits, with a further 29% doing so through payment received in advance, 12% through letters of credit and 10% via trade credit. Only 3% actually finance their activities through the Export Credit Guarantee. It’s a negligible number of businesses amongst our membership that are actually using that finance. So I would urge the Government, or indeed the Committee, not to become too preoccupied with the impact that this will have.
Andrew Cave: From what I understand, something like 90% of global trade is conducted through some kind of trade financed product, and 40% of our members suggest that they would consider exporting if they could get the right kind of finance. So it’s clearly a block on the smallest businesses from even considering venturing into that.
Q114 Simon Kirby: In your particular case, are your members aware of the SOVEREIGN STAR Trade Finance, and is it a facility used by your members?
Andrew Cave: We’ve got over 200,000 members, so I’m sure there must be one or two out there who are aware of it, but I’ve not met them, and it’s not something that we’re aware of.
Simon Kirby: Because it was set up, was it not, in 2004 specifically for businesses such as those you represent?
Andrew Cave: Yes.
Q115 Chair: Just before you go on, Simon, could I just intervene? We’ve got an interesting difference of perspective, shall we say, between Andrew and Alexander. Alexander has said only a very tiny proportion actually use it, but isn’t this really a selffulfilling prophecy? If the money isn’t available, then they’re not going to use it anyway and that will show through in the statistics. What evidence have you got of the number of companies that might use it if adequate facilities were there?
Alexander Ehmann: Your point is well made, Chair, and it is possible that perhaps better-targeted, more responsive product would mean that more of our members would be using it. I only named the top two, three, four modes of finance that our members are using, but there does seem to be quite a wealth of ways that our members are financing export activities, and certainly, in the research that we conducted in the last couple of months, we didn’t get the feedback that the reason for them not exporting was anything to do with finance. In terms of the issues raised, they were much more to do with finding the time to export and finding the right networks and business contacts abroad. Finance came very, very low down the list of priorities.
Andy Scott: Could I just perhaps make a couple of points on ECGD itself, which I think was one of the very specific points that you were asking about: whether we felt ECGD as a structure and as a service that it provides is fit for purpose, I think acknowledging that even with a wider product portfolio and even with wider marketing or wider awareness, it would still be reaching and designed to reach only a relatively small part of the marketplace.
Having said that, though, it can and ought to be providing a service support through to particular parts of the market where they cannot get that finance from the normal financial provisions. That’s after all what an export credit agency is designed to do, and that’s what ECGD is there to do. It’s not to provide parallel funding, which you can get in the marketplace; it is to provide those sorts of credits, and in the UK we use it for more than two-year funding, which would not be available in the marketplace. There is a need for that sort of funding, as every major OECD country has an export credit agency of some sort or another to provide that degree of support that the market itself cannot do for a variety of reasons. And our concern has been that the ECGD in the UK, if you went back 10 years or more, would have been regarded as one of the premier of these export credit agencies internationally.
Now I have to say that, if you ask most people who are engaged, whether from the bank’s side or from the companies who engage in it, you cannot say that any longer. Over the last few years for a variety of reasons, they have been concerned about the response time from ECGD; they’ve been concerned about what progressively has been a much more overzealous approach to the things it has to do, quite rightly, on environmental and social issues, but a more aggressive approach than it has done from its competitor ECAs. Those have been factors which have undermined ECGD’s ability to be able to provide a service to the types of companies that are very important to it.
Just to give a quote-I mentioned that I was in this visit last week in India-we were talking to one of the major banks that provide substantial export finance across the world in India, and they said that, of the 23 ECAs that they deal with, they find dealing with ECGD one of the most difficult. That is quite a telling indictment of where we are. I think we take great encouragement from the fact that Lord Green has said that we now need to look quite closely at how ECGD itself operates and the range of products that it has available through to companies of all sizes.
Q116 Simon Kirby: On that point, I think there is a danger that British business or the health of British business can be blinkered to the relative success of ECGD with other country’s ECAs, because clearly ours has declined whereas theirs have all increased and the amount of business they’ve done. But specifically on the point, you mentioned Lord Green and the changes that I think last week he suggested in an interview in the Financial Times. Have you been involved as organisations? Have you been consulted on these changes and what it is that the businesses that you represent would like to see?
Andy Scott: We haven’t been involved since the announcement that Lord Green made only last week, but we have been actively involved, both directly with ECGD and with UKTI over a consistent period of time with various suggestions as to what we would like to see in terms of the way in which ECGD itself operates-the conditions within which it is required to operate. Part of the reason why we feel it has now slipped down in that pecking order is partly because of the environment that is has been required to operate in, frankly, by Government-the previous Government and throughout the 2000s, to be honest. So I think there is that issue. The second issue that he is referring to is whether they should be looking more closely at a range of different sorts of products, and we have had a longstanding view about the sort of things where we would like to see the ECGD operating: areas such as bonds supports and fixed rate export finance. These are areas where, for a variety of reasons, ECGD has not offered the sort of service that some of the equivalent organisations in other countries do, and I noticed that in his statement they were at least being referred to as ones they would be looking at again, so we take a degree of encouragement from that, and we will certainly be making sure that our views, which have been well documented, will be fed into any other review he is now doing.
Q117 Simon Kirby: He also said that he wanted to make it more relevant to SMEs; do you have any comments, Andrew?
Andrew Cave: Obviously we’d welcome that. We’ve not been involved, as the CBI’s already said. What we, and our members, would like to see, as Phil has already outlined, is an export EFG; that is something that is straightforward to understand, and in talking to our members anecdotally, it’s something that they would welcome.
Phil Orford: Just on that point, it is one of the outcomes of the British Banks Association’s taskforce document to try and deliver this, but with the current state of the issues, specifically on state aid law, as and when this product does become available, it is going to be premium priced as a result of that. That, frankly, doesn’t help. It might help, also, just to mention that Mark Prisk held a small business economic forum just yesterday, and you can feel reassured that this was on the agenda and that all the organisations were lobbying the Minister hard to address this issue as soon as possible.
Q118 Margot James: I just wanted to follow up, before I ask the question I’ve been allocated, on something we heard last week, which was that 90% of ECGD business was for the aerospace industry. Is that something you’re familiar with?
Andy Scott: Yes.
Margot James: That struck us as being…
Andy Scott: Unbalanced?
Margot James: Well, just beyond belief, really.
Andy Scott: It is, and I think we will happily provide the Committee with any further of the background papers that we have produced on this issue over a consistent period of time. Those facts are pretty much the case, and it’s a valuable service for those companies and for Airbus, because of the way Airbus is financed, by export credit finance, whether from here, or from France, Germany or from wherever else. It is an important and integral part of the funding of those major deals that they do. But the problem is that it has become-for all the reasons that I have described, which is why we have concerns over whether ECGD has been delivering for the broader business community-too focused in those sectors. It has been constrained from going out, frankly-from the way in which it is being required to operate-and actually looking at a broader range of the business community. If you talk to ECGD, and you will probably be having them before this Committee, I’m sure they will be saying, "We would like to have a wider portfolio; that is not a balanced portfolio in anybody’s definition," and there are one or two further examples coming through, I think, where they are getting back into a more diversified range of capital equipment, which is primarily what they’re there to finance. But if we were to address some of the fundamental issues that we think have undermined ECGD’s competitiveness, I think that would enable it to widen its portfolio too. But it is unbalanced at the moment, valuable though it is for that part of the community.
Q119 Margot James: Thank you. You, Mr Scott, did outline the need for the ECGD to perform the functions it should perform because the private sector is not able to provide sufficient finance on the right terms.
Andy Scott: Where there is the risk that the private sector would not normally finance.
Margot James: Notwithstanding that, do you think there is a greater role for the private sector in meeting some of this need?
Andy Scott: Sure, and indeed invariably even on ECGD-financed projects, there will always be an engagement with the banking sector, the private sector, because after all this is a provision of a guarantee through to the banks, so there will invariably be mixed financing within this. This is just providing, effectively, a Government guarantee for those elements where there is a risk that the marketplace will not otherwise cover itself. But I think, as colleagues have also said, even with a restructured and refocused ECGD and a wider product portfolio, the vast majority of the financing that is supporting international trade and investment is delivered through the private sector anyway. Colleagues have already mentioned whether there might be an export-driven EFG; that may have a role as well. Clearly, for the private sector, it is providing the lion’s share of the financing for international trade and investment in any case.
Q120 Margot James: Thank you, and a question, I think, for you, Mr Cave. You mentioned that you thought that the letter of credit guarantee system should be reviewed. Could you tell us why?
Andrew Cave: Simply because there are so few of our members who are taking it up or aware of it.
Margot James: Is it an awareness issue or is there something wrong with the product?
Andrew Cave: Well, it’s only available through the main high street banks, which obviously limits its scope somewhat, so I think it’s more about availability as much as anything that the take-up rates are so low amongst our members.
Chair: Isn’t that a case for reform rather than removal?
Andrew Cave: Quite possibly, yes.
Q121 Rebecca Harris: I’d just like to touch a bit on inward investment. We are told that the UK has slipped down the league tables for inward investment, and I want to know what you think the principal reasons for this are-I imagine some of them are not, strictly speaking, reasons within the scope of this inquiry-and what you think the Government should be doing to address it.
Andrew Cave: I think this is a probably a question that’s more for Andy.
Andy Scott: Well, I think the difficulty in taking snapshots of league tables at any one moment in time is you can be very heavily influenced by a range of economic factors. That I think is point one. Over the last two to three years, the total volume of mobile inward investment that is around globally has shrunk, understandably so. I think those are factors that clearly will have some impact and make it difficult to do immediate and direct comparisons one year with the next. Having said all of that, within the CBI we are actually doing a project as we speak under the strapline of "UK is a place in which to invest" to ensure we do maintain the UK’s attractiveness as an investment location, both for indigenous companies that are here and for internationally mobile companies. There are a number of factors that have led to a decline in what have been traditionally the UK’s strengths in attracting that inward investment. We still are attractive for it, but I don’t think we have been quite as attractive as we used to be. Levels of taxation, levels of regulation, and the way in which we address some of our employment regulations in the UK: these are all factors that have some impact on a company’s decisions when they’re looking at where they will locate. So whilst in absolute terms the UK is still an attractive location, in relative terms I think we have lost a little bit of ground.
Alexander Ehmann: The only thing I would add to that is that, absolutely on the indicators like labour market competitiveness, you’ve seen the UK slip down international comparison tables. Those are having the effect, so the issue is the product rather than the selling of the product itself.
Q122 Rebecca Harris: The Government has said that it is proposing to have a competition to appoint a private contractor to oversee inward investment, and I was wondering if you had any thoughts on that; whether you thought that was a good suggestion.
Andrew Cave: I think there may be a place for that, but what we seem to be saying is that if you get-and this is for small businesses as well-the conditions right for small business then inward investment will flow. Talk to any small business out there in the supply chain and it’s about skills, it’s about training, it’s about employment law and the regulation that they confront on a daily basis. Those conditions have to be right first of all, and if you then have a private organisation come in to promote inward investment, great, but there’s no point in doing that until you’ve got the groundwork right.
Alexander Ehmann: I would add to that the reductions in capital spending as well have not been beneficial for us in terms of our inward attractiveness.
Andy Scott: But in terms of the specific, I think we’re all agreeing that you need to get the groundwork right to make it attractive in the first place. I think what you’re specifically referring to is the proposals that are out now at the moment with organisations to bid for the management of the inward investment activity, and also once they come into the UK-back to the point that was made in response to an earlier question-how one account manages those, given the restructuring that is going on within the regions etc, which has been an activity that RDAs have been doing hitherto. At the moment I think there are a number of organisations that are bidding for this. I don’t see any reason at all why a private sector organisation, possibly in partnership with others, couldn’t be one of those that are successful. As always we would say, judge it on the criteria that have been set and on the proposals as presented if they deliver on those criteria. Whether it’s public or private sector is not necessarily the key issue; it’s whether they can deliver on what’s been set as the criteria.
Q123 Gregg McClymont: Just as a point of information, what’s the composition of the top four for inward investment?
Andy Scott: Countries? Well, the top one would be the US, and then-I don’t know whether I have them in the right order-you would have Japan, Germany and I suspect France. It would be that sort of thing, but by pretty much a country mile you have the US. China not yet: it is coming up on the rails, but certainly in terms of the legacy, it has been the US. We are the largest investor in the US, the US is the largest investor in us, so that’s by a huge factor, and because of our well-established links with Europe I’d be surprised if it probably didn’t go Germany, France and Japan. <
Q124 Rebecca Harris: You all expressed a certain amount of scepticism about the potential for the new LEPs to help with export, but what do you see as their role in terms of bringing in inward investment to their regions? Are you more positive about the potential for client management and that kind of thing?
Phil Orford: Clearly there’s the localism agenda to the strategy of LEPs. I originate from the North West, so I’ll perhaps just give specific examples there. There are fears within the North West that the strong cities, primarily those with city region status, Manchester perhaps more specifically than others, will potentially dominate the region in terms of attracting inward investment. There is a very powerful group of local authorities there, and that may be to the detriment of other parts of the region, for example, North and East Lancashire, possibly even Liverpool-although Liverpool itself is getting its act together in terms of looking now at a Greater Liverpool in the same way that Manchester has looked at a Greater Manchester. But the main fear, actually, is inter-region competition for investment that would have perhaps more holistically been spread out regionally, and may become more concentrated in the stronger leaderships. That would be our main concern.
Alexander Ehmann: The interaction between LEPs and the body bringing inward investment in, whether it be UKTI or any other, needs to be at that level. The absolute thing that must be stopped is allowing LEPs to have, like RDAs did, overseas offices or attempt to be effectively underbidding one another to the detriment of the UK. So I think it’s important for us to have a central point for bringing in that investment, and then for a good dialogue between LEPs and local authorities about where best to place that. We need to be very careful that that’s managed on the basis of facts and evidence and a much more holistic view, rather than necessarily allowing those with the most weight to swing it around.
Andrew Cave: I think it’s probably too early to tell. What we’re seeing, obviously with the way the LEPs are evolving, is that a lot depends on the leadership and the individuals concerned. I think there’s the danger of inter-regional rivalries opening up there, but also inconsistency across the UK. But, as I say, I think it’s too early to say how that will develop.
Andy Scott: I think we’re pretty similar. We would certainly not want to see the LEPs actively out there marketing in the international environment. We have all been concerned that we were seeing too much duplication when we had RDAs doing that in the marketplace, and frankly for many of these companies that are looking at a location, they are not looking at subsets of the parts of the UK; they are thinking about Europe versus East versus West. They then might think UK; they certainly aren’t getting into the minutiae of wherever we are countywise, let alone LEPwise, around the country. So we certainly won’t want to do that. Once an investor has made a decision to come to the UK, how and when and where that is supported I think when we see the landscape emerging, it will need to at least link with LEPs, but I don’t think LEPs are going to be the principal body for doing that. There’s just not going to be a resource to do it, and once they start to try to, as we said before, get into mission creep, there will be similar concerns to those we had with RDAs before them in terms of lacking focus on what they’re set up to do.
Q125 Rebecca Harris: Are you confident that if this function is left, for example, with the UKTI there will be a fair geographical spread in terms of our efforts to rebalance the economy? Will London and the South East not dominate?
Andy Scott: In the article where Lord Green was asked that same question, I think he was honest enough to say that will be something that they will need to guard against, because there might otherwise be a natural tendency, given the economic pull of London and the South East-for a variety of reasons that’s absolutely right and proper and we don’t want to force people to go to places which it is not economically sensible for them to go to-but I do think you need to have balanced options put in front of these companies so that we can then see that, where it makes sense to do so, there are some options around the rest of the UK. So I think he was honest enough to say that would be a challenge; however we choose to structure this with whatever body we award this to, we will make sure that that is an issue that we factor in and look at very carefully, and rightly so.
Alexander Ehmann: LEPs do have a role in trying to work out exactly what their strengths are, and really getting to the bottom of that sectorally, geographically, in terms of their populations, in terms of the different amenities they offer to a potential inward investor. And I think, having done that, they will provide a good basis for UKTI to understand how they can communicate the assets that they have to a potential inward investor. With that in mind we will hopefully see the restraint that will be necessary to stop everything being deposited in the South and London.
Q126 Chair: Do you think that immigration caps will have an impact on inward investment?
Andy Scott: I think it would have had an even more adverse impact on inward investment if the relaxations, which we have now seen, had not been introduced. We had real concerns from a number of well-established inward investors who, when looking at the UK market, were attracted to it because of the flexibility of our labour markets within the UK and their ability to bring people in and out as they need to meet company needs. One of our key concerns was to make sure that what are designated as intercompany transfers would not be caught by the immigration cap, and that, with a few minor points still to be resolved, has indeed been exempted. That I think has reassured, certainly, many of those companies who otherwise were saying to us, "This will be a real problem for us, and if I’m going back to my boardroom in Tokyo or wherever else and arguing for future investment, it’s not a tick in the box."
Andrew Cave: This is obviously less of an issue for the vast majority of our members, but just to reiterate what Andy said, the flexibility that looks to be introduced is obviously welcomed by those members who have expressed concerns in the past.
Phil Orford: Nothing else to add really.
Q127 Ian Murray: I’d like to talk a little bit about the thorny issue of world trade negotiations, and start with quite a wide question, which is really just what the priorities for the UK Government and in particular the BIS department should be in negotiations going forward?
Andy Scott: I don’t think any of us are claiming to be trade policy specialists, but we will, I’m sure, have some comments to make. I guess you’re talking particularly about the Doha Development Round, which I think is best described as being stalled at the moment or certainly limited progress. From a broad perspective, we have been very supportive of the Doha Round, long extended as it is becoming. We think that multilateral agreements, multilateral trading arrangements, are very important for opening up markets, and if we could get a successful conclusion of that Round it would provide real opportunities for many companies, both here and indeed internationally and in developing countries as well, which is after all what the Round was designated to be particularly helping, and that would be a real boost to world trade at a time when we need it. So I think conceptually we have argued very strongly, and continue to.
It has been stalled, it has been difficult, and it has been painful. Some of these negotiations-I’m pleased to say I’ve not been involved in them-from what you can see of them, are fairly drawn out and protracted. At the moment people would be saying that they are windows of opportunity, as it is often described, in the first half of this year to make some further progress. I have to say, we have had those words being use before and those windows have not opened, but maybe they might. Various discussions have been taking place, so we read and hear in the press and from our contacts with companies, in the margins of, for instance, ministerial meetings when they met at the G20 last year, when they’re meeting in Davos, so there is some progress to get some of those discussions back on track, but it will require a really concerted effort to do so, because they haven’t been going on for so long for no good reason; they are difficult and there are still some difficult issues to resolve to get a multilateral agreement of that nature resolved.
Ian Murray: But from your organisation’s perspective, what should the priority be? Just to get them moving and concluded, or should we be focusing in on certain aspects, particular with regards to the Doha Round?
Andy Scott: I think we would like to see it concluded, and we would certainly say, as I said before, that a successful conclusion of that Round could be a real fillip and a boost to world trade. Now, does that mean we want a conclusion of a Round at any cost? No. So you have to get the right Round, you have to make sure that in any concluding agreement there is genuinely reciprocal, opened access right across the spectrum of products and services that are being negotiated, and there are really three broad areas. There are the vexed issues that often attract a lot of the focus, which is around agricultural products; there is the manufacture of goods and the tariffs associated with those manufactured goods; and the one that we think hasn’t had enough attention, and which we touched on perhaps in earlier questions as well, is the services area, because that will be an area that will particularly be beneficial to the UK if there is equal focus. We wouldn’t want to see a conclusion of the Round unless there was, on the opening up of the services sector as well as industrial tariffs and on the agricultural products. So that would be our particular focus.
Alexander Ehmann: The only thing I’d add is that a welcome outcome would be a lessening of the number of bilateral free trade agreements that we currently have. As an example, the USSingapore free trade agreement contains 248 pages of product specific requirement, and actually that’s injecting an extra level of complexity into the marketplace. So these multilateral agreements are absolutely essential.
Q128 Ian Murray: That probably brings us seamlessly on to my next question. The Society of Motor Manufacturers and Traders, which we spoke to last week, raised concerns that the EUSouth Korea negotiations had traded off different sectors. They felt they had been unfairly traded with regards to financial services at that particular time, and Mr Scott mentioned that the third aspect that you’d be looking for is the service area in terms of opening up free trade in those areas. How can we go about making sure that when we conclude some of these agreements we’re not trading one sector off against another?
Andy Scott: These are the classic dilemmas in all these international trade agreements, bilateral or multilateral, because they have to involve degrees of give and take, one country with another, and looking at the complexities of all the different sectors within them. That is why these negotiations are invariably long and protracted. One is always trying to ensure that one sector is not, as you rightly describe it, traded off against another, but there will always have to be some degrees of give and take to get an agreement. The country in question will want something out of these agreements. These can’t all be oneway traffic; that’s the very nature of these agreements. So it’s really looking at it and seeing how one can strike the best agreement that is going to give the advantage to the biggest number of companies in both countries, because this has to be a two-way process. And you’re right: one of the most difficult and sensitive areas in the EUSouth Korea agreement was around auto products, and manufacturers here and certainly manufacturers in Europe were particularly concerned about the implications for their sectors. These are the challenges which inevitably one gets into on both bilateral as well as multilateral agreements.
Q129 Chair: Thank you. Is there anything that you would wish to add before we conclude? If there’s anything that you feel should be said that hasn’t been said, please feel free to do so, or of course if you subsequently feel that there’s some contribution that wasn’t covered that should be made, then we’re very happy to receive it in written form. Is there anything that anybody wishes to conclude on?
Alexander Ehmann: Can I just make a quick observation, again from the research we did? When we asked our members, of those that export, which areas they see the growth coming from in terms of their export activity, it was quite interesting that the majority of our membership felt that the European Union was the area over the next five years where they’d see the greatest growth. Now, I think that’s quite a surprising finding, and I think in some ways it means that it is necessary for the White Paper to address a dual-track approach here, between its focus on the emerging economies but also upon rather more traditional economies, with whom our members still believe there’s still a great deal of growth to be had.
Chair: Does anybody else wish to pick up on that? That’s an interesting observation.
Andy Scott: I was going to pick up on something else.
Chair: On this, that is particularly interesting given the fact that growth is likely to be slower than in the EU, and one would assume there is already a fairly high penetration level there compared with the emerging markets, where growth is potentially greater and lower levels of current penetration.
Alexander Ehmann: I think there are a whole range of factors clearly influencing that, some of which will be people’s comfort, I suppose, as much as anything else in terms of the nations they interact with. That does feed into, I think, UKTI’s approach to encouraging people to more exotic climes, perhaps, but it was an interesting finding; I thought the Committee might be interested.
Chair: Move out of their trading comfort zones.
Q130 Nadhim Zahawi: Have you segmented that into industries?
Alexander Ehmann: I haven’t done that at present, but we would be able to do that.
Nadhim Zahawi: It would be very useful if we could have that.
Q131 Chair: If we could have that evidence. Andy Scott, I think you wanted to come in?
Andy Scott: I just wanted to flag up one issue which we haven’t touched on, but one that is certainly giving us a lot of concern, and I think other organisations would share this, which is the implications of the Bribery Act and the way that that could well have, and is having, serious concerns for people who are looking both at their current arrangements and activities and who are uncertain, because the Act is lacking in clarity as to exactly how this will be implemented in certain areas. Clearly we all start from the premise of saying that this is nothing at all to do with anything other than stamping out corruption and extortion, but the way in which this Act is being implemented and the guidelines are giving great uncertainty, and these were due to be coming into force on the 1st of April, and is making a lot of companies think seriously about the way in which they will be able to conduct their business and still stay within the letter of the law, even though they, by anybody else’s standards, will be acting entirely legally.
Q132 Chair: This is an issue that I’ve become very much aware of in the last two or three weeks. It’s begun to really surface, and in fact I believe I’ve got a meeting scheduled to have a briefing on it. I will be looking at this and possibly we will be conducting further investigations into this.
Phil Orford: Can I just come back to Alex’s point earlier about having data on Europe in the research, because we’ve got similar data? Obviously proximity is one of the reasons, but interestingly the common currency is another, rather than multi-currencies, and the similarity of regulatory systems. We may not think that we’ve got similarities with the rest of Europe, but we have bigger differences with the rest of the world. In fact, a member of ours had a specific problem with North America in relation to pressure equipment recently. So that is just some examples of why businesses are looking more close to home, I think.
Chair: Thank you. That’s very helpful and it will certainly inform our discussions. If there are any further questions we may well contact you again. Thank you for your assistance.
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