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I apologise for the slightly late start. We have apologies from Stuart McMillan; from Rob Gibson, who has another commitment; and from Wendy Alexander, who is tied up with Scotland Bill Committee business, as is our clerk, Stephen Imrie. I think that he was up all night preparing that committee’s report, so he cannot be with us today. Nigel Don, our regular substitute, is here. I am pleased to see him back. David Whitton might turn up as a substitute, too.
Thank you for inviting me to attend the meeting. I am here with Ed Payne, who is one of our senior managers in Scottish Development International.
Thank you very much for those opening remarks.
We work very much on the approach of raising Scottish companies’ ambition and their awareness of the benefits of internationalising. We look at companies’ capability and capacity, we help them to prepare an international business strategy and then we look at how they can best exploit the opportunities and expand their reach internationally. That is the approach: awareness and ambition; capability; expansion and exploitation.
You mentioned that the first of the three steps is raising awareness and ambition. How do you get that message through to the whole of the enterprise network, right down to the business gateway, so that all businesses are encouraged to look at their ambition and to realise that the barriers to international trade are not as great as they are perceived to be?
We have been working hard to look at how we make that message much more widely known. We are also working hard to ensure that accessibility to the services that we provide is as far-reaching as possible. It is about broadening the scope of the services that we provide to Scottish companies that are looking to internationalise. Raising companies’ awareness and ambition is about helping them to think about developing their international mindset.
Could you explain a bit more about what services the smart exporter scheme provides? It was being introduced as we were concluding our inquiry, so we were not able to consider it. How will the success of that scheme be measured?
The smart exporter scheme was launched in September last year. It is a partnership that we are operating with Scottish Chambers International and it is open to all Scottish companies. We have, for example, put in place a series of 39 seminars, which will run right across Scotland this year. They are intended to bring together Scottish companies that are interested in internationalising, to put them in front of some of our experts who know and understand exporting, and to give them the opportunity to ask questions and think about the areas of exporting that they could get involved in. The scheme is also going to be launched in the HIE area next week, which will open up the market even more.
I am sure that members would welcome that.
During our inquiry, we discovered that, although some sectors are strongly engaged with export opportunities and are active overseas, other sectors appear not to have thought about or actively considered export opportunities. The percentage of Scottish companies that are engaged in exporting is something like 5 per cent of the total number of United Kingdom companies, but we have 8 per cent of the UK companies that pay VAT. That is probably quite a good indicator of the deficiency in export orientation in Scotland compared with other parts of Britain. Do you have a view on the roots of that disengagement? Why is it that many smaller companies simply see exporting as something that someone else does and not something that they should be part of?
I have just taken part in two recent events. At the Scottish construction forum I spoke about internationalisation as a route to economic recovery in the construction sector. The other event was the Publishing Scotland conference, which took place last week. I focus on those two sectors as examples of areas in which we think that there is much greater scope for developing exporting.
That confidence issue can in part be addressed by businesses that have already successfully made that move. Do the presentations and engagements that you have described involve exporting companies alongside SDI in conversations with potential exporters?
We put companies in touch with as many organisations as possible that have already taken that step. An example is a recent event on doing business in Asia that took place in Murrayfield in Edinburgh in February, which we ran in partnership with UK Trade & Investment and at which I spoke. We had more than 70 companies at the event. One of the key speakers was one of our global Scots—a chap who now lives and works in Scotland, but who has done a significant amount of business in Singapore and throughout Asia. He is a good role model, as he has been there, done that and seen it. Putting him in front of that audience and providing access to such individuals is important to break down barriers to exporting, which are often more perceived than real.
I mentioned one measure of the level of export activity in the economy. Do you use that measure, or others, to track improvement or otherwise in the level of exporting?
That is a useful measure of where we are now and where we want to go. Scottish Development International is working on its strategic plan for the next five years, from 2011 to 2015, and considering the key areas of business that we want to grow and develop in Scotland. That measure is one of the tracking measures that we are considering using as a measure of performance. Another measure is to look at the number of companies that we assist to upskill in the international arena. That involves the number of companies that we work with on the international preparedness programme; the number of companies and individuals who access the manager for hire programme; and the number of companies that attend exhibitions and missions. Importantly, we consider the impact of all those activities and how they translate into sales, increased growth and profit for those organisations. We track all those measures carefully with our companies.
That is helpful. The question of how you work with business in overseas markets and with UKTI, which has a broader network in some parts of the world than SDI does, came up firmly during the inquiry. Do you foresee changes in that? In particular, are there ways in which SDI can make more use of Scottish companies that already operate in emerging markets, alongside UKTI, as potential centres or focal points for your activity and the activity of new exporters that go into those markets?
We are actively considering how we make the most of our overseas presence. At present, SDI has 22 offices overseas, with just over 80 staff. We are actively considering how to develop the reach of our network, particularly through the UKTI network. There are 150 UKTI offices overseas, covering 96 countries that account for 98 per cent of gross domestic product. If you imagine using that level of leverage to help Scottish businesses consider how they can develop further contacts and work more closely in market, you will appreciate that that is a very important part of what we are doing.
A number of people have told us that there are global Scots and established exporters who would be quite happy to provide a work base for people arriving in the country for the first time. Are you engaged in facilitating or encouraging that?
Absolutely. We are considering how we can use some office spaces as touchdown points. We have incubator offices over in the States: in Boston, Houston and in San José, on the west coast. Those incubator offices can serve as touchdown facilities for companies that are looking to get into the market and understand it better, or companies can take on a semi-permanent lease in those offices. More than 100 businesses have gone through our incubator spaces over in the States, with more than a 30 per cent success rate among the businesses as they go on to trade in the markets there.
In your opening remarks, you rightly suggested that we need to increase the number of active exporters in Scotland. How many active exporters do we have today in Scotland?
We estimate that about 5,500 businesses are currently exporting overseas, which represents 5 per cent of the total number in the UK—a figure that tells us that we are punching below our weight when it comes to the number of Scottish businesses that are exporting. Under our strategy plan and our business plan for this year, and on a strategic, medium to long-term basis over the next five years, we will consider, through the measures that we will be tracking, how we increase that scope and develop from 5 per cent up to 6, 7 or 8 per cent. That will be important. There is a recognition that the number is below the level that we think it should be at, and there is a lot more scope and capacity in the market to develop that work further.
I am not sure that there is an easy answer to this question, but let us take 8 per cent as the desired figure—the committee was reluctant to specify a fixed target, although we coalesced around the idea that we should be punching at our weight, which is 8 per cent. You have been producing plans. Do you have a rough feel for how long it might take us to get to 8 per cent, or is that a question that we simply cannot answer right now? I will not hold you to a year, but you might have a rough feel for how long it might take.
Sure. I will give you the example of one of the key measures around the smart exporter initiative. It was launched in September, and the measures will take place over the next three years, when we want 8,000 more organisations to be exporting and developing markets overseas. That is an example of a figure that we are currently looking at.
We talked about having a step change in the number of companies that export—it would be fair to describe increasing the figure from 5 to 8 per cent as a step change. We have the smart exporter initiative, and you have touched on one or two other areas. Is the totality of what you have described to us today enough to create that step change, or will other ideas have to come forward?
My first response is that a medium to long-term strategy is required. Such a step change cannot be delivered overnight. Although the number of companies that are taking an interest in internationalisation is really starting to ramp up, that will not happen in the space of a year. It is realistic to look at three to five years and beyond.
Smart exporter has been going only since September, so we have had only five months or so of it. I accept entirely that this is a medium-term problem, but have there been any early quick wins from companies that have been involved with smart exporter and have suddenly taken the plunge, or is it too early to say that?
Many companies have come through that are now equipped with the skills to develop international markets. It is too early to be able to demonstrate quick wins, but a number of companies that three or four months ago had no international strategy, no idea of the markets in which they were looking to trade and no idea of the budget or capacity that they needed now have a much more focused approach to their strategy, the key markets that they want to target first and the budget and capacity that they need to deliver that. The first results that are coming through relate to upskilling what companies do.
Last week, there was an announcement about the export support initiative. Can you give us more details on that?
The export support initiative is a new project. It is a one-year intensive programme for small and medium-sized businesses that are new to exporting, so it is a new, innovative way of focusing on the issue. The idea is to work with around 100 companies. We will develop a comprehensive programme with those companies to help them to develop the capacity and skills to exploit international opportunities. The programme will include measures such as one-to-one support from specialist advisers; delivery of tailored services, depending on what companies are looking for; training; research, on which we work in partnership with UKTI; and market entry strategies and plans.
The details were announced only last week, but when do you hope that the 100 companies will be on board and the programme will be operational?
We hope to ramp it up quickly, so we are working hard to put in place our plans to launch the programme and to open the door for applications from companies that want to come on board. We realise that the programme is intensive and that we have a small window of opportunity in which to make it happen. We are working hard to ensure that it does.
I have a question about operating budgets. The committee understands that the Government has cut next year’s grant-in-aid budget by 7 per cent for SE, by 18 per cent for HIE and by 12 per cent for VisitScotland. It is hard for us to ascertain what SDI’s budget is, because it is incorporated. What is your operating budget for 2010-11 and how is that changing for 2011-12?
You are right that SDI’s budget is integrated into the Scottish Enterprise budget, so staffing costs, salaries and so on in some budget lines are integrated. Our budget for next year is £25,933,000. That represents a modest reduction from last year’s budget, so we are not immune to the budget cuts that everyone across the public sector has experienced. However, the importance of the internationalisation agenda for Scottish Enterprise—it is one of Scottish Enterprise’s cornerstones for growth and development along with innovation, for example—has meant that the cuts that have come our way are smaller than in some of the other areas. That is because of the scope and opportunity that we believe exist for internationalisation and inward investment to be a route to economic recovery for Scotland.
As the convener outlined, partnership working obviously goes on outside your organisation throughout the whole enterprise network. It has to be a team event. I presume that the budget cuts will hurt. Even though your organisation may have fared better, the cuts have implications. In particular, the 18 per cent cut to HIE and the 7 per cent cut to SE must have an impact. What representations have you made to the SE board or ministers about that? Have you been in any discussions about the need to sustain budgets if you are to achieve the ambitious targets that Gavin Brown explored with you?
The SE board clearly recognises the importance of internationalisation for the whole of Scotland. Scottish Development International is the international arm of Scottish Enterprise, the Scottish Government and Highlands and Islands Enterprise, so it is a pan-Scotland organisation that responds as a specialist service on internationalisation to all companies throughout Scotland.
Have you had to make any reductions to staff or cut back any projects because of budget reductions?
There have not really been specifics around staff reductions. We recognise that the overseas office network of 22 offices and just below 80 staff is critical to retaining and developing further internationalisation for Scotland. I have been careful about ensuring that the people, knowledge and experience that we have within SDI are fully retained.
I will ask about four areas. The first may have been asked about earlier. How much are you affected by fluctuations in currency levels when it comes to planning an export strategy? It has been extremely difficult to call the shots over the past three years.
We recognise that currency exchange rates can go up as well as down. We are sensitive to that and ensure that all the companies with which we work also understand what that looks like.
I could have done with a bit of narrative about specific company experiences in your report. There are a lot of generalised statistics in it, but not information about how particular companies fared in particular markets.
That is a good question. We looked carefully at the Scandinavian region over the past 18 months. We felt that we wanted to increase the level of resource in that region and that resulted in the appointment in August last year of a new senior executive. She is based in Denmark in Copenhagen, but she works flexibly across the Nordic region. We put that individual in place at no cost, which is an example of driving efficiencies around facilities. She is home based, but she taps into all the UKTI offices across that region and works closely with them to help drive inward investment in areas such as life sciences and energy, which are the two key areas in that region that are important to the Scottish economy on the inward investment side of things.
We had interesting interviews with people from small businesses who said that exporting was not the problem. Some of them preferred to export because it meant that they were not being held to ransom by supermarkets. Those who said that were Lossie Seafoods Ltd, Mackay’s Ltd, which makes jams, and the irrepressible Boyd Tunnock. This ought to be a major area for intervention pressure because we are so dependent in Scotland on a few major retailers that small and medium-sized enterprises require a counter-strategy to cope with the inevitable attempt to drive down prices. Can you do anything about that?
That is a valid point. You mentioned Mackay’s of Arbroath, which is now a globally competitive, family-run business that has been making marmalade and jams for 70 years. They have grown over the past 10 years and employ about 90 people. They have won a significant share of the international retail market by changing their strategy and looking boldly at where the opportunity is for growth overseas. Mackay’s is a fantastic example and we continue to communicate with them and with a number of other companies. The salmon industry is another excellent area of growth and export that has developed well, particularly over the past year.
I have one further point and it, too, relates to mindset. I am a former university person, and I have had lots of university people on to me in the past couple of weeks about the behaviour of one particular university in Scotland about its modern language programmes. We are succeeding rather well in exporting Scottish university education, but it looks as if we are stripping out, at a very important level, Polish, Russian and other languages that could be very important for exporters in Scotland.
Language skills can be an important element of the mix that companies can use to help them to develop their international strategy, to get under the skin of distributors and buyers, and to understand their culture and work with it. It can depend on the market, and SDI can help. For example, in our overseas offices we have a mix of ex-pat Scots—like me, when I was out there—and people hired locally. In Asia, we have a number of locally hired people right across Japan, China, Taiwan and so on. They really understand the culture and obviously have the language skills as well. It is exactly the same in Germany and France. SDI offers language skills as a support element to companies.
I still see some of my students when I go back and do compacts in Tübingen. One or two of them have said to me, “We like coming to your lectures because they are the only ones where someone talks to us about real situations and real economists like Adam Smith or Keynes,” because what they will have been taught in the economics faculty is the higher algebra directed at algorithms and all the marvellous trades that have totally wrecked the Scottish financial sector in the past two years. I was quite proud of my notion of an integrated international economics course that stressed society, economic history and the study of industry.
It is a core objective of SDI to look at how we leverage the Scottish education sector to develop further internationally. We recognise the contribution that Scottish universities and colleges make to the international dimension of Scotland. High-quality learning and teaching, research, knowledge transfer—all those areas are key.
I have met some of the interns—they are very good.
That is good to hear. Thank you.
Good morning. I endorse Christopher Harvie’s comments about the teaching of economics. I have a degree in engineering and my mathematical skills were good enough to get me through that; however, I had to abandon an attempt to get a diploma in economics because it demanded statistical skills that seemed completely irrelevant to me and wanted me to analyse data that surely did not exist.
That is a matter of opinion.
That raises a few hackles—sorry. I just wanted to wake everybody else up.
As you rightly say, tourism is a key sector for Scotland’s economy. We have a dedicated tourism team within SDI whose focus is on attracting inward investment that will help to develop the tourism infrastructure in Scotland.
I am trying to get a handle on how we improve what I will describe, for want of a better phrase, as general tourism. I see your point about getting in someone who wants to develop a golf course. Much of that has happened: people build a hotel but, sadly, they then build some high-value houses that they may or may not be able to sell in order to make the whole thing add up—but that is another problem.
In Scottish Development International our focus is twofold. It is about economic development and attracting inward investment to Scotland from the key sectors of industry in which we have strengths—one of those sectors is tourism. It is also about helping Scottish companies to internationalise.
I want to go back to where we started, which in a sense is nothing to do with visitors. You mentioned earlier many things about working with Scottish companies to try to get them to export, but I do not recall your saying how you tried to identify or make contact with those companies in the first place.
We work in tandem with the whole Scottish Enterprise network, including the business gateway, and with Scottish Chambers International, as those organisations are in touch with companies on a daily basis. We try to ensure that any opportunities that they spot in relation to companies that are either currently exporting or that have an opportunity to export are channelled into SDI so that we can provide those companies with extra support and assistance. Therefore, there is an overall network effort to ensure that that happens. We cannot possibly work in isolation around such an important area, and we do not have the reach to do that. We recognise that the other agencies on the ground have a big and important role to play in ensuring that they identify opportunities, and we work with them to ensure that we are not missing any of those opportunities.
I will touch on a couple of areas that we have not covered yet. We have talked a lot about exports, which the committee has stressed are key, but we have not talked much about inward investment. The committee has received evidence that, over the past decade, Scotland’s performance relative to other regions and nations in the United Kingdom has not been as good as it once was. Have you had an opportunity since you took over as chief executive to review SDI’s inward investment strategy? Will you propose any significant changes to it?
I have had an opportunity to review it. We have carefully considered the evidence on how Scotland fares with inward investment. It has maintained its position as second in the UK for attracting it—it has been beaten only by the south-east, which includes London. Scotland also has a very good track record in attracting a higher proportion of research and development projects in comparison with the rest of the UK. In 2009, Scotland attracted 21 per cent of the UK figure for research and development projects. Those are the latest data that we have.
At the top of that list is obviously the renewable energy sector, which is crucial. Can you give us a little bit more information about the work that Scottish Development International is doing in the energy sector, particularly to attract inward investment in renewables and in the supply chain for renewables? How is SDI trying to ensure that we have a long supply chain for the renewables sector and that things are not simply bolted together in Scotland before they are floated out to sea?
Renewable energy is obviously a key issue for Scotland and we are working carefully with a number of partners to ensure that Scotland grows the size and scale of the opportunity that exists as well as it possibly can. We have identified some high priorities, such as offshore wind and marine energy, which includes wave and tidal energy. There is a lot of competition for attracting new projects, but we think that Scotland has a strong proposition.
One issue that we identified in our enterprise network review was disjointedness in the skills sector. When you are considering inward investment opportunities, do you take an active role in trying to ensure that the education side is in place? For example, a major issue in the past year has been Siemens and wind turbine modern apprenticeships. If Siemens had gone to SDI and said what it was trying to do, would you have been able to assist at all, even by just banging heads together?
We would work with Skills Development Scotland on such issues to ensure that there was a join up between the demand for skills and what inward investors were looking for.
I have a question about finance. One of the barriers facing companies that might be looking to export is the initial finance that they need to set up and there have clearly been some problems with export guarantee schemes and so on during the past few years. Does SDI have any thoughts about how Scotland can help companies to get over the initial costs of getting into exporting?
Part of any company’s business plan must be to consider the budget that will allow it to access new international markets. One part of the smart exporter programme that will help considerably is the international manager for hire programme. Small companies often say that the barrier for them is that they do not have an in-house, dedicated resource to help them to look at how they get into market X, Y or Z. They cannot afford to pay for someone new to come in to do that and the international manager for hire programme provides such companies with that resource. That clearly means that there is a financial implication for the company.
One of the issues is that it is harder to get finance from the banks for such schemes than it might have been three or four years ago. Could the Scottish Investment Bank play a role in helping companies to develop internationally?
Indeed. The Scottish Investment Bank has provided £55 million of cornerstone funding to the Scottish loan fund, which is partly funded by the European regional development fund. We are looking at how that can be an instrument that will help Scottish companies to grow.
I will conclude by welcoming your report to the committee on increasing our overseas footprint. That report is clearly a direct result of the committee’s inquiry. How will it change the way in which we operate on the ground?
That piece of work was spurred on by your committee’s findings. It is an evidence-based way of helping us to understand what Scotland’s overseas footprint looks like and what areas or opportunities there are to grow it.
That concludes our questions. I thank Ed Payne and Anne MacColl for coming along this morning. I am sure that our successor committee, whatever it might be, will keep a watching brief on the issue. As part of our legacy paper, we will recommend that it does so.
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