Economy, Energy and Tourism Committee

Meeting date: Wednesday, April 28, 2010

Official Report 494KB pdf

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International Trade Inquiry

Thank you for inviting me along. I am delighted to be here. As is set out in the paper that I submitted to the committee, I founded the Airlink group at university and I have been involved in international business delegations for some time now. I have set out some points in my submission, which I would be more than happy to discuss further. I will also take any other questions that you may have.

I was introduced to the Estonian market in 2001, when the Baltic states were the hottest opportunity in Europe. Having been out to Estonia, I saw lots of opportunities not only in my sector but in many others.

There are language and cultural barriers. When a group of businesspeople got together on an informal trade mission, we decided that we needed someone on the ground—a local contact. It is easy for a huge company, which can headhunt somebody, open an office and incur the various expenses for what can often be an exploratory exercise. However, we identified a gap in the market. What was needed was someone pre the opening of an office—almost at the investigation stage—to help formulate whether there was a sound opportunity, whether one would be wasting money, or whether scarce resources of cash investment could be utilised.

We did some brainstorming and consultation, and decided that companies want somebody almost like a project manager, who can be taken on hourly, daily or weekly. We phoned a few companies—one guy was a window manufacturer. We said to him, “Estonia’s biggest output is wood and wooden products. Would you be interested in investigating whether you could have the windows for your building company manufactured cheaper here and would you be interested in the project manager approach?” The answer from him, and various others, was yes.

Basically, I was the principal who underwrote the Scotland House project in Estonia, with assistance from some other businesses. It is not a profitable enterprise. To date, it has probably cost me about £20,000 personally. However, that is what sponsoring such a project means. If we believe in it, we have to do it.

The Estonian market is perhaps not as buoyant as it was in 2001 to 2007-08. It has been a very useful learning experience, however, to find that the structure that I have described worked very well. The current First Minister—in 2005, prior to his becoming First Minister—came over on a visit to Estonia to open the official office. We had Tavish Scott over, when he was deputy finance minister, and we had Helen Liddell over when she was Secretary of State for Scotland.

The impact of seeing politicians such as those on foreign soil is quite surreal. We had an event called Scotland week, which aimed to create awareness. If I was being crude, I would say that it was almost like a mini-tartan day in New York. We flew the Dumbarton pipe band over. Every day at 12 noon, the town centre of Tallinn came to an absolute standstill. All those people who did not know that there was a Scottish trade delegation in town certainly knew that when they watched the news bulletins, on the hour every hour. The cost of doing that was not significant, and the impact was off the scale—the impact of bringing the entire town centre to a standstill was just great. Ministers, even the Prime Minister of Estonia, came down to see what was happening, as did the Speaker of the Parliament. There was a real buzz; the feeling was that the Scots were in town—in the best possible sense, thankfully.

As a tactic, that was a very good use of investment to get the maximum impact. Over the years, hundreds of companies in Tallinn have visited the market and a lot of good deals have been done. It has worked well for both the Estonian Government and the Scottish Government. Another tartan week is happening in September this year. The idea is not confined to history—we still do it on an on-going basis.

Good morning, John. The belief that it is good to get as many contacts as possible in other countries is obviously borne out by companies’ increasing interest in exporting. There has been an upturn in that in the past five years, with more and more people doing it. The Parliament has discussed the issue of how best to make contacts. Indeed, the Enterprise and Culture Committee suggested in 2004 and in 2006 that ministerial leadership of trade missions and efforts abroad ought to be much better co-ordinated. However, a 2004 report showed that there had been slightly fewer ministerial visits abroad than in the previous year. You have suggested to us that, when ministers and members of the Scottish Parliament make foreign trips and are accompanied by Scottish companies, they play their part in fighting for Scottish business and give a focus. You have already illustrated that. Do you think that the Government and Parliament can do more to give such leadership at the moment?

Back in 2006, the Enterprise and Culture Committee said in paragraph 150 of its report entitled “Business Growth—the next 10 years”, in a section on enhancing Scotland’s international outreach:

“The Committee also recommends that the Scottish Executive reviews its guidelines on the planning of ministerial visits overseas and, where possible in terms of itineraries, considers organising a parallel trade mission. In this respect, we welcome the recent moves in this direction by both the First Minister and the Deputy First Minister and we encourage more of the same.”

We do not seem to have moved on. Is it just the credit crunch and the recession that have prevented us from moving on, or do you see unwillingness officially to support foreign trade delegations?

I do not know which one of us members will feel more sorry for.

We will leave that question open.

The convener asked you about Scotland House. You said that you thought that there was a gap in the market, so a Scotland House was opened in Estonia. Should there be more Scotland Houses of the non-bricks-and-mortar variety around the former Baltic states, elsewhere in Europe or further afield? Are there gaps that are obvious to you in which there ought to be such a model now?

Perhaps we could put the term “Scotland House” to one side, as it is misleading in some ways. It suggests a bricks-and-mortar presence. We should definitely have a general support mechanism, ideally in every country in the world. According to the United Nations official list, there are 194 countries in the world. Our ambition, which may be deemed an ambitious, blue-sky ambition, should be to have a contact point in every single country.

I would like to touch on the globalscot network, as it is easier to answer your question in whole rather than in part. The globalscot network is probably one of the best initiatives that has ever been pulled together, but I confess that, until a year or perhaps six months ago, I did not know too much about it, although I was aware of its existence. That is possibly not the Government’s fault; it is probably my fault for not engaging and getting involved. However, somebody must co-ordinate things and join up the dots. They must co-ordinate those who organise such projects and those who could participate in them.

The answer to your question is that there must be more joined-up, co-ordinated support. However, let us consider what is on the table today. Various agencies do trade missions. I believe that there is a general acceptance by ministers and members that if they can add value, they would be happy to do so. The globalscot network has some A-list business contacts throughout the world, many of whom do not know what they can do to add value and to help. Some of those global Scots will have huge corporations that will have a desk and which might appoint a junior member of staff—perhaps a junior researcher in a huge company—as a part-time Scotland House officer, or in some other facilitator role. All that those people really want for that is a thank you—they do not want to be paid for it. People are willing to give their time and a little of their company’s resources to give something back. Such an initiative should not cost a huge sum of money. It is really a core donation role. It is about identifying who would like to give something back to Scotland and who is capable of providing a desk.

For example, I spoke to Jim McColl about the issue. He told me that he has various offices throughout the world, particularly in China, and that if someone picked up the telephone and asked him, he would be more than happy to provide a facilitation role at one of his offices. Given that bricks and mortar are probably the biggest cost, it is impressive that business figures are offering to do that. We could take that a step further so that there is a menu and someone who co-ordinates. Somebody has to be charged with co-ordinating ministers’ and members’ diaries with the diaries of people in the various business sectors.

The next thing is to drill down into the list of global Scots and consider who is willing to answer questions and do things. Most global Scots are willing to do that. We could then take a little step further and ask who has a spare desk in their office that could be used, or a spare meeting room. We could ask whether they could use any existing budget in what would almost be a public-private partnership. Whichever agency is charged with doing that might have a person in an office, but it does not have to be a bricks-and-mortar office that costs £100,000 a year.

So, that might be a different recipe that we could use. I like the phrase “the elastic pound”. Even looking back, things have been tough but, looking forward, they will be even tougher for the public and private sectors. We must have a different approach and consider how to stretch budgets. If people are willing to give something back, surely we must grasp that opportunity and not let it pass by.

I should also make the point that although I am currently an ambassador for business club Scotland, that is not my intention in being here today. I accepted that post only because I was involved in the thinking of business club Scotland and how it might evolve. I absolutely believed in the objectives of that organisation prior to being asked to be an ambassador for it. I thought it would be useful to make that clear.

I believe that business club Scotland is the most risk-free option that this Parliament has, because it has been modelled directly and very carefully on business club Australia. In business, we all like to do a pilot study before we make the core investment. Nobody likes to take risks and no one likes to lose money. We tend to look at something that has been very successful and see how we can replicate it. Sometimes we will take a business model that has worked in Australia or America, lift the blueprint and drop it into our own business. Business club Scotland has done that. Given the ethos of business club Scotland, it should be the lead agency. It really is a public-private partnership. I would not like to criticise agencies because I believe that it is parliaments and governments that set the guidelines on how public money is administered and spent. However, to be more flexible there has to be an external agency that is charged with leading the project.

The globalscot question is very interesting. The last time I checked the statistics, business club Scotland was up to something close to 2,000 members. It is remarkable that, in the space of a year to 15 months, the interest in business club Scotland has grown. The SCDI is actively involved in business club Scotland, so there is a natural link between learning from these very successful trade missions and how we can develop that. With regard to globalscot, there has to be a new recipe whereby all of this comes under the same umbrella. Business club Scotland is a fantastic brand and could be a world-leading brand. It could be the agency that co-ordinates with the Parliament in some way. For example, if the Minister for Enterprise, Energy and Tourism is going to Norway, business club Scotland may know of some energy companies that could benefit from being there. The minister’s diary may be busy but he may have a 45-minute breakfast slot and the business club could bring some companies along. That adds tremendous value.

The globalscot mix should, I feel, be part of the lead agency, which needs to be a non-direct-Government organisation. My proposal would be that business club Scotland should be charged with taking an umbrella role in co-ordinating matters. When trade missions or ministerial visits are being organised, business club Scotland should be told which ministers or members will take part and should be tasked with getting 10 companies from sectors that might have an interest in the trade mission to accompany them.

Business club Scotland should also be tasked with involving the globalscot network, which I feel should be integrated with business club Scotland. Having done its bit in Scotland by getting the 10 or 12 companies involved, business club Scotland should then look at what global Scots we have in, for example, Norway who could be called upon to facilitate the other end of the trade mission. Most people forget that every trade mission has two sides, both of which are equally important. I hate to sound flippant, but I think that that simple solution to the problem would actually be very effective.

The Scotland House element really just takes the globalscot network a stage further and should be developed in key markets. Really, I think that business club Scotland should be tasked with liaising with ministers and members on visits, choosing delegates to attend those visits and co-ordinating the other side. By doing that, we could get a magnification effect for success.

Perhaps I should also declare an interest, in that about 10 years ago I was made a global Scot, on the recommendation of Wendy Alexander. The globalscot network seemed to be a lot livelier in her day, although that perhaps just points to the incestuous nature of Scottish politics.

I want to ask first about your area of operation and then about the relationships between enterprise activity abroad and the nature of the industries that you represent. First, has Estonia greater similarities with Finland—which has long been part of the Nordic Council and was essentially part of Scandinavia—or with Lithuania, Latvia and Poland? I am asking in relation to matters such as entrepreneurial activity, reliability of contacts and so on.

How many of those advantages would also be found in Lithuania and Latvia? We tend to class all three nations together as the Baltic countries, but I would like to know more about the divergences.

To be honest, I am not familiar with the exact figures, but there seems to be a general rule that larger companies find it much easier to internationalise because they just create a budget, appoint the best people that money can buy and go and make it happen. I am a director of the Entrepreneurial Exchange and our mantra has always been, “Work hard, play hard and give something back.” Our general desire is to take a small company and help it to become a medium-sized company, to help the medium-sized company to become a large company and to help the large company to become a global company and a world leader.

We need a long-term strategy. The problem is that, if we task a Government agency directly, it will be under a lot of pressure to get results. I compare the situation to a public company versus a private company. A public company has to worry about its share price today, tomorrow and next week. Chief executives of public companies tend to have a two to three-year lifespan. I am tempted to use the comparison of an electoral cycle, which is four or five years. Few people will have the vision to consider longer-term planning.

Internationalisation is important for Scotland. The country has always led the world in internationalisation and foreign trade and I fear that we may be losing our ranking as the global leader in that area. We must think long term about that and we must ask how we get companies that are going through the business start-up network today to leave that network saying that they want to become global businesses. Not all of them will make it, but if people do not have that outlook and that vision, we can guarantee that it will never happen. More companies should aspire to internationalising themselves, but if we do not encourage people and give them initial support, that will never happen.

The Scandinavian banks have a good reputation as narrow banks that know their stuff and do not try to become masters of the universe.

It is a bit of both. An SME might hear that doing business abroad can be a good thing, whether that is because it can buy goods and services more cheaply direct from source or because it can sell its products into a foreign market. However, those are daunting tasks, particularly where there are language barriers, which is the case in the majority of countries. To get on a plane, get off at the other end and be on your own and not know anyone is quite a frightening experience the first time you do it. There is a role for an agency to say, “You know what? We as a country believe that this is what we should do. Here’s how we’re going to co-ordinate it, and here’s the support.”

All the things that I am suggesting should happen are already happening, but I just do not think that they are happening in the most effective way that adds maximum value. The funding of trade missions is always an issue because the cycles are far too short. Why would a company put a huge amount of time and effort into exporting to, or buying from, China or India if it has no guarantee that the support mechanism will be in place next year? That is why long-term investment is needed. Such support is strategically important to companies in Scotland and should not just be funded from year to year.

I return to my point about the contacts that people make on trade missions. If there is ministerial or elected member support for a trade mission, that generates a reason for Chinese companies, for example, to come and talk to it rather than to the trade mission from France or Germany that does not have such support. The recipe has to be right. However, I also reiterate the point about longevity of funding. We cannot just do things on a year-to-year basis or we will get less commitment from companies.

You said that long-term strategic planning is important, and you also make that point in your written submission. Is that the most important thing that the committee could recommend in the report that we will publish at the end of our inquiry?

I return to the menu system that I am proposing. Longevity is the major issue, provided that we have got everything else right. The right product can be in place, but lack of longevity is the thing that deters companies from getting involved. A non-direct-Government body should be charged with doing the work. If BusinessClub Scotland Ltd, for example, was charged with the task, with the globalscot network and the Scotland House model added to the mix, would that be enough? It would not be enough if there was not also forward thinking and longevity. Three years should be the minimum commitment. I am conscious of parliamentary cycles, so there might be some difficulty about the decisions of one Parliament being binding on another, but a three-year rolling commitment would be extremely helpful. Companies might find that there is a trade mission to India or China, but will ask whether it is a one-off event or do business agencies and Government agencies believe that there is a long-term future in those markets. A three-year cycle would help to make people focus and think, “That place has been identified as a key growing market, so we should get involved.” People would know that they would not be left on their own after the first year.

I have been on many trade missions with companies that are exporting for the first time and, to be frank, they have been terrified. I can almost see the terror on people’s faces when they get off the plane. They think, “What do we do now?” There is so much to do, and they cannot just phone their personal assistant, their friends in business organisations or others. They really are out on a limb. That is why I suggest that businesspeople who are willing to go the extra mile in supporting colleagues should go on such trips. My experience is that the multisector mission has never failed—I have never been on one that was bad and did not work and on which people did not interact and gain extra value. People can go and do business, which is great, but where do they find the extra value that provides the magnification effect and the return on capital?



The mix of all those aspects must be right. No unique answer can be said to be the most important out of five points. Mr Gibson said that some recommendations that committees had made had been adopted, but I say with respect that cherry picking one or two points will not result in overwhelming success.

I have a simple question on the Baltic market. We have heard from other witnesses how important Scotland’s educational reputation is in markets such as China and India. In your experience, does that apply in eastern Europe? Do we make as much of it there as we should?

Good morning. I am the site leader for the Dow plastic additives plant in Grangemouth. As you may know, Dow is either the biggest or second-biggest chemical company in the world. Our plant supports our plastics additives business, which is a global exporter from Scotland to not quite 194 countries, but to a significant number of those. Our role is to support that global business.

I am the Scottish adviser to the Chemical Industries Association. The three chemical companies that are represented today are members of the association. I wanted to bring them along so that you could hear directly from them.

I am the general manager of Bio-Rad Laboratories Europe Ltd. We are a manufacturing company in Perth. We manufacture kits for testing newborns. We manufacture about 7 million test kits a year, more than 99 per cent of which are exported.

I support that. INEOS has 17 companies around the globe and we already have our contacts. Our refining products are sold globally. Our European products—including ethylene, propylene, benzene—are sold throughout Europe, and some are sold in America. We have the contacts there, so trade missions are not our number 1 priority.

However, for some of the small and medium-sized enterprises that are just starting out in the chemicals sector, such as small spin-off businesses in the life sciences and biotech, there is value in having mixed trade missions. The chemicals sector supports and underpins a lot of the other manufacturing sectors and is about the biggest exporter, depending on which quarter you look at. The sectors are all interlinked—we serve into automotives, food and drink, the life sciences and a range of different sectors. So, if we are having trade missions for emerging businesses, it is important that they are cross-sectoral missions.

That is a good question. One of my remits is to attract people to Scotland and to the Grangemouth site. I do not have a lot of experience of going around the globe.

Currently, we attract people to Scotland through SDI and Scottish Enterprise. I have no contacts beyond those. SDI is an excellent link, and the coming together of Scottish Enterprise and SDI has helped. Scottish Enterprise helps us locally but SDI has the outward links to people who are considering coming to Scotland.

That is an important part of it; thank you.

To follow on from Deborah O’Neil’s remarks, it is clear that the universities are closely involved through the biotech industries and so on. Is that a network in the world that adds to our global reach?

There was an SDI mission to Japan in January, led by Professor Sir Ian Wilmut. For some of our members’ companies to be alongside someone who is the world leader in his field and to be associated with a Scottish university means that, when people come to the meetings, they feel that they are coming to see not only the world’s leading scientist in the field, but the world’s leading companies. It is fantastic to have such a springboard.

I agree that the level of expertise in life sciences and biotech is essential. Most of our members are quite small and cannot be on a plane all the time to visit all the different markets, but we can be on first-name terms with the individuals—for example, Vince is the SDI guy in Japan. When chasing up companies and contacts that need hand holding like that—India is another country in which it will take a lot of work to secure deals—having the expertise and someone who knows not only the company but the science is key.

Prior to a visit to India, SDI gave me a fantastic report on every VIP in Mumbai and New Delhi. It also gave me a list of the people who wanted to see me out there and asked me to tick the boxes. I ticked the boxes thinking that we would get half of them, but everyone said yes, so I was in Mumbai with 14 appointments in one day. SDI laid on a car for me, with a driver who took me around every hospital—I paid for the visit, but it was very well organised and SDI was very helpful.

So there is a combination—SDI brings in the expertise but the basic structure provided by the embassy is important from a logistical point of view.

I will give a lead-in to the answer and Ray Mountford, Peter Hodgson and Andrew Edwards may pick it up. The key thing for us is that in the chemicals sector, the marketplace is very competitive. Some of it is in existing technology, but aspects such as plant efficiency are always developing. The competitiveness element is very important to us, and any advantage that we can get in Scotland makes a huge difference to whether we can retain, develop and attract further investment or whether other locations are chosen over us.

Ray Mountford spoke briefly about trying to attract other companies. Perhaps he might wish to speak about the work of INEOS itself, and about some of his work with SDI and Scottish Enterprise.

Are you referring to regional selective assistance?

The message from a number of companies is that RSA really makes a difference. However, it is not the simplest of things to operate and there is a bureaucracy associated with it. For a large company, investment decisions often require things to move pretty quickly.

Peter Hodgson has some international experience that he might wish to mention.

We are trying to sustain our business here in Scotland. The key thing is for us to ensure that the infrastructure here is invested in. It is important to have transport links down the east and west coasts to the container ports. Better still would be to have a better container system out of Scotland. Indeed, 90 per cent of our material is exported, of which about 50 per cent goes to North America. We do not have a direct link from here to North America.

It is not just a matter of physical infrastructure; it is also about having the people infrastructure. We have a big difficulty these days recruiting what Scotland used to be famous for: technicians. Wherever we used to work in the world, we would find Scottish engineers and technicians. It is the opposite now, with Australian technicians supporting our operation, because we cannot find Scottish technicians. We need help from members and the Economy, Energy and Tourism Committee to direct the funds that create, sustain and improve the infrastructure in respect of both transport and people.

Are you aware of any other European countries or regions where RSA operates in a more bureaucratic or less bureaucratic way? In other words, do you know of anywhere else where these decisions are taken more quickly or where there is flexibility to allow the grant to be processed while other decisions are being made?

I am sure that I will give you the name.

On RSA, which has been dealt with in a number of questions, the Chemical Industries Association’s submission says:

“Our members have reported that”

RSA

“is an excellent mechanism to attract and support investment, but we would advocate greater simplicity and flexibility”.

Mr Richardson has already touched on that point. At the end of these evidence sessions, the committee will produce a report, and the more specific our recommendations are, the more effective the report will be in securing any kind of change. Do you have any specific ideas regarding “greater simplicity and flexibility” that we might be able to recommend in our report?

Yes. That question touches on RSA. I know what has happened with Phoenix Chemicals, which is excellent, but we do not want to get into a discussion about who gives the biggest grants and how to secure mobile research and development jobs. Other things will bring companies to Scotland. There are mechanisms other than research and development funding. Smaller and emerging companies benefit greatly from research and development grants and other fiscal mechanisms, but I do not think that things move forward as companies increase in size or are bought and there is a footprint, as we have in Aberdeen with Wyeth and now Pfizer. We must ensure that research and development grants are fit for purpose not just for small companies, but for bigger companies. We are discussing with the Scottish Government how they can be improved, slipstreamed and awarded more quickly. A small company may need more due diligence done on whether it will survive a year or two, but perhaps the bigger companies do not have to go through the same due diligence.

I would like to ask questions about the written submissions. My first question is to the Chemical Industries Association Scotland, whose submission states:

“On trade issues, our members believe that they are best placed to determine their own export promotion priorities.”

Will Ken Richardson provide a bit more information about that, please?

In your final bullet point, you highlight the fact that the quality of life in Scotland is

“a major selling point when attracting people”.

We have already heard that some Australian people are working at INEOS and Dow. Both Scotland and the UK are promoted but, unfortunately, some political parties take an anti-immigration stance. Some media organisations also go down that route, even if they do not promote whole-heartedly the views of the political parties concerned. Is that having or, if it continues, will it have a negative effect on efforts to encourage people to come to Scotland to set up home here?

I do not think that it will have a negative impact on the life science sector, because there is always an influx of the very skilled individuals whom we recruit. Unfortunately, that has to balance the brain drain that is still happening, with people leaving Scotland and the UK. The stance to which you refer is not an issue in our sector, because the best individuals for the job are already in the country, as part of our academic base—they may have studied here—or already working in the industry in the private sector.

My next set of questions is directed to Mr Johnstone. The final sentence of paragraph 5 of your submission states:

“Scotland needs to look at economic powers to ensure that this moves forward in the short term.”

Could you explain that statement in more detail?

With regard to international business angels, there are some key leaders in the business angel field in life science that invest in our early-stage companies. There are Archangel Informal Investment and TRI Cap. Aurora Private Equity, which is in Aberdeen, has dabbled. It is said that if Scotland was looked at globally in the angel sector, it would have the 11th biggest angel investor community in the world, but I would not like to be quoted on that statistic. You would have to ask LINC Scotland about that. Having people such as Nelson Gray, who was last year’s European business angel of the year, going abroad and talking up Scotland as a place to come and invest is a wonderful support. One of the issues arising from not having venture capitalists is that we do not have that investment leadership coming into companies such as NovaBiotics and saying, “We are the cornerstone investment in Scotland and we are leading on this.” If we had that, we would then get other global investors from the United States, Japan and elsewhere coming in to syndicate such a deal. What we are seeing in Scotland is the potential to do that, but with the business angel syndicates. That is a lead that could be taken.

Is that for SDI to sell, or is it for SDI to enable the angel biotech community to sell?

I think SDI should be enabling the angel community because these guys can pretty much go out and do what is required. SDI understands our companies. In the same way, it can understand the mechanics of how the syndicates work in Scotland. SDI should get the angel community out and get them centre stage, as the cornerstone investors.

Is that a Scottish Enterprise matter? Should the public agencies or the Scottish Government support that through the enterprise networks primarily?

Absolutely. The mix of having the local support from Scottish Enterprise, which knows the strengths of the local sectors, and the wider national support that we get from the life science team and so on is key to looking overall at how that super-cluster fits.

Dr O’Neil referred to Scottish Equity Partners, which was originally part of Scottish Enterprise as Scottish development finance. It grew to a position where the guys who led it decided, “This is a good business. We should spin it out.” They spun it out on the basis that they would look after the Scottish community by leading investments and bringing investments in, but that did not happen. A big hole was left because they did not fill the investment space; they were seen as the Scottish venture capitalist, but they did not invest in Scottish companies and nobody else came in. They almost had a monopoly, because they had so much contact with their investments through Scottish Enterprise. I believe that Scottish Enterprise and the Scottish Investment Bank would be wise to have a look at that model, see what worked and think about how they could retain something like that, with the Scottish Investment Bank acting as lead investor.

When I was involved in the management buyout from Axis-Shield in Dundee 12 years ago, the two investors were SEP and 3i; the latter has left Scotland and SEP is putting its money elsewhere. The business angels have been filling the gap left by those two.

11:30

I will indicate where I am coming from. As a professor I was a civil servant of the Government of Baden-Württemberg for nearly 30 years and I know the minister who is responsible for research and the universities there. They produce 10,000 technicians a year, compared with the 2,000 in Scotland. Theoretically, their training is funded 50 per cent by the Land and 50 per cent by the industry, although in practical terms it is funded 25 per cent by the Land and 75 per cent by the industry because it trains people up in its own academies, which are funded by Daimler-Benz, Bosch and so on. In comparison, Scotland is at a disadvantage in providing the pool of people that you mentioned.

That seems to be common to the basic chemical works of the big multinationals and the Scottish university spin-offs whose work reaches an advanced level of innovation. At one level, the difference between such companies looks like the difference between steel manufacturers and watchmakers—the technologies are different—but, on the other hand, the need for skilled workers who will enable a laboratory breakthrough to be transferred to the production line is common to both. That seems to be something that we are weak on.

I have two questions. Can we replicate the structures that exist in Germany with organisations such as the Steinbeis Foundation, which supplies a co-ordinated feed of research personnel and research funding for the advanced element? Here, financing could come from angels and venture capital, but in Germany it comes from the Land bank, the Sparkassen and the Rhenish system of industrial finance. Ideally, what structure would you look for from the standpoint of the large concerns and the frontier concerns?

We might be drifting away from internationalisation, but please feel free to comment.

I was involved in training for many years. The company that I worked for was one of the first to introduce competence-based training and an apprenticeship scheme.

There is no doubt that it is necessary to create a critical mass. That is what we are talking about. The success of the offshore sector has been hugely positive for Scotland, but it has had a bit of a negative effect on other industries because it just soaks up a lot of the skill resource. Many of the technicians we have lost have gone into the latest developments in the offshore sector. Our companies work away to keep their stock of technicians ticking over, then they suddenly lose another batch. It is a question of having a critical mass.

I do not know enough about the German system to be able to comment in detail, but I know that we have the makings of something with Forth Valley College, Heriot-Watt University and a number of companies. There are already upstream and downstream links into a range of sectors. I am sure that the core competences in the biotech and life science sectors are very similar to those in the chemical sector, so there must be some scope for action. It takes courage and vision, but we have an example on which to build.

My question is for the big boys. You have talked about infrastructural improvement, which would mean building roads or container terminals, for example, but that is a notoriously ambiguous issue, because if it is easy to take products out, it is also easy to bring them in. We could open ourselves up to even more low-cost competition in that way.

If one was aiming to achieve a laboratory-to-production-line shift, would it make sense to invest in bringing back people from the offshore industry? That is a logical idea, given that so many of the people in that industry are on relatively short-term contracts in places such as the gulf and Indonesia. They could be brought back into that area of skilled engineering. In the longer term, if we want to build up the frontier industries, would that not be a better investment than investing in a new motorway or a new bridge, which might make it easier for producers elsewhere to provide us with low-cost heavy chemicals and so on?

I welcome members to the 14th meeting in 2010 of the Economy, Energy and Tourism Committee. The first of our three agenda items is to continue our inquiry into public sector support for exporters, international trade and the attraction of inward investment. We have two witness panels this morning.

Our first witness is John McGlynn, the founder and chairman of the Airlink group of companies. I invite John to introduce himself and make some opening remarks, if he wishes. We will then have questions.

The evidence that we received last week from SDI is that it has not gone down the route of opening more Scotland Houses, because it believes that doing so would not necessarily be the best use of public money. It recognises the need to have a contact in the country, but not necessarily bricks and mortar. Do you accept that approach, or do you think that the Estonia project would suggest otherwise?

Before I ask a question, I should say for the record that John McGlynn and I studied together and that he is a good personal friend of mine.

This is a very sweeping statement but, in my experience, Estonia tends to be more advanced in business and technology thinking than Latvia, which tends to be slightly more advanced than Lithuania. That is just the general trend.

I will give a little snippet of information—forgive me if the figures are not entirely correct—from a trade mission to Lithuania that I was involved in some years ago, during which I met Colin Roberts, who was then British ambassador to Lithuania. He told me that he was having dinner with his French and German counterparts when he had just been given the post, and had mentioned that he was receiving a trade mission of, I think, seven people on one visit. His German counterpart said to him, “Yes, we’re having 24.” Colin Roberts thought that he meant 24 people, but he meant that 24 independent trade missions were going to Lithuania. That clarifies the scale: we sent seven individuals once and the Germans sent 24 trade missions. Perhaps geography makes it easier for Germany to do that, but there are other European nations whose internationalisation and thinking on how they make things happen are far in advance of ours.

That is linked to the other point that I wanted to ask about. We can be assured that many of those German trade missions would be made up of small and medium-sized enterprises. They are the ball-bearings on which German industry works. Does the non-SME sector in Scotland have the sort of success that it ought to have, proportionate to its level of capitalisation?

Estonia is a sort of east European Hong Kong. Then again, it was, in a sense, a linguistic part of another east European Hong Kong—Finland. Finland had to go through a process of reinvention with the breakup of the Soviet Union. One of the crucial points that I noticed on my trips to Finland was the importance of the Finnish banks—it is some time ago, but they have kept up, there—which operated virtually as a foreign ministry in the days when Finland could not have a foreign policy because of the Kekkonen agreement with Russia. When the present Government took over in Scotland, I surmised that the Scottish banks would play a rather similar role. Spectacularly, they have not done so. Has the malfunctioning of the banking system had any impact on Scotland’s Baltic connections?

Have your operations in the Baltic countries—Estonia in particular—been hit by the difficulties of the banks?

I agree—although we should also consider the Canadian banks, which are one of the best examples of banking that I have found. I have been in Canada quite a lot recently. Canadian banks never gave mortgages of more than two thirds and were conservative in their lending. To a degree, they are saying, “Global crisis? Sorry. What’s happening?” They have not been affected much.

To return to Chris Harvie’s point about SMEs, are the difficulties with internationalisation among SMEs more in the mindset of the businesses than in actual barriers to internationalisation? If so, what can we do about that?

My opinion on all things to do with overheads is that I want fewer of them. I encourage the committee to adopt a maximum-coverage, minimum-overheads approach. At some point in the future, if other activities were to be performed, it may or may not be appropriate to have a physical office presence, but currently it is more important to have good project managers on the ground. Some of those people would probably not cost the Parliament a penny.

I am quite convinced that if we talk frankly and openly to some of the global Scots, we will find that they will volunteer to do the work. I will give you an example. I had genuine reason to go and visit the Cook Islands on business. Nobody believes me, so I will not bore you with the details, but I promise you that I can prove that it was a genuine business trip to try to buy the domain name that I have been trying to buy for three years. When I got there, I spoke to the chap with whom I was dealing—in one of his beach villas—and he told me about the manganese deposits around the Cook Islands, which were about to be announced. There are billions of dollars’ worth of manganese, but it is 2km down, so you need deep-water experience to retrieve it.

Being proactive, the first thing that I did was send an e-mail to the minister to say that he might want to brief someone that huge manganese deposits were about to be announced and that a Scottish company could take advantage of that. That message was passed on to SDI, which I think has progressed the inquiry. That is a little example of having someone on the ground with a bit of local knowledge. If that could be fed back into the network, we would have a competitive advantage in securing potentially billions of dollars of international business.

I told the chap to whom I was speaking that that was an amazing discovery and asked whether he was aware of other opportunities, because I was not familiar with the topography and mineral deposits on the islands. He said that of course there were. I asked whether he would be willing to be a kind of ambassador for Scotland. I think that his family tree goes back to one of the people who were involved in Captain Cook’s travels. He was more than willing to be an ambassador for Scotland because he believes that he is of Scottish descent. There are a huge number of people around the world who would be more than happy to do that at no cost. If you have somebody who can say that they have been appointed by the Government to look into things but are not in the Government, you will maximise people’s interest and enthusiasm.

I would not suggest for a second that the committee could realistically recommend that we open an office in the Cook Islands, but we could have somebody there as Scotland’s man or woman in the islands, who would say that if they saw an opportunity, they would feed it into a network. That network and information would be critical. How we dress it up, what we call those people and how we accommodate them with offices and hot desks are details that whoever is charged with the work will probably get right. Budgets are tight and no one will spend money unnecessarily.

My experience in the Cook Islands is just a little example of a potentially billion-dollar deal on the other side of the world in which we could have an advantage, because we have the information network. If you multiply that to 194 countries and then add in all the other regions, a network of 250 people is the maximum that would be needed. Global Scots have more than that and BusinessClub Scotland has more than that. You could open up those networks’ networks. It is really about co-ordination. All the things that you need to maximise the success of the project are there; no new money is required and projects and budgets are in place. It is just a different recipe. I predict confidently that you would see an exponential return if things were co-ordinated just a little bit differently.

I am the global marketing director for Silberline inks products. Silberline is a United Kingdom company that is owned by a US company. We manufacture aluminium pigments, which go into the general coatings industry worldwide, so we export everywhere.

I represent the BioIndustry Association here in Scotland. As Ken Richardson did, we have brought two of our members—Gordon and Debs—along to represent the industry. Throughout the UK, we represent about 300 members ranging from emerging companies and one-man and two-man SMEs to some of the larger players, such as Wyeth, which is now Pfizer, up in Aberdeen.

The bulk of the chemical companies that are based in Scotland are multinationals and the supply chain tends to be fairly well defined in terms of both suppliers and customers. Trade missions are of less use to the larger companies, as they already have international contacts and customers. Ray Mountford may want to pick up on that.

Several different organisations are involved in the trade missions, including SDI, SCDI and UKTI. Are too many bodies involved? Is it too confusing? Does everybody know what is going on, or is there not enough co-ordination? Are you satisfied with the way in which trade missions are organised?

I have not been involved in trade missions; I am passing on what I have been told by a colleague who has been involved. There is sometimes a certain amount of confusion when there is both a Scottish presence and a United Kingdom presence. There is the potential for people who come along from the companies that have manufacturing or research interests in both Scotland and the UK to get a little bit confused. The focus that some of the organisations, including SDI, provide is good and we have had good feedback on that from companies, so I am not knocking what they do; I am just saying that we must be careful. We have had reports that English companies from a manufacturing area that have been present have sometimes been a bit surprised that Scottish companies from that area are present as well.

It is confusing. I have been on a UKTI trade mission this year, and a company with which I am involved has been on an SDI trade mission to Japan. However, for smaller companies, it is great to have the choice and they will use whatever they believe will best promote them. Taking one of those away would be taking away a tool that our members have. We are all global companies—when a company starts in the biotech sector, it is a global company and such trade missions are critical to its survival. Therefore, the more that such companies have to choose from, the better.



10:45

I am trying to build up a picture here. It is clearly different for companies that are rooted in Scotland and for international companies such as INEOS. What role do big, international companies, such as INEOS, have in helping to promote Scottish business?

I know the life science sector well because of its significant presence in my constituency. I know the chemicals sector less well, and the balance between existing and new technologies has a different character. How important is it for the life science sector to have a level of expertise in the public agencies with which it works? Does the level of expertise exist and is it readily accessible? As industry leaders and innovators, how far can you complement or feed in directly to that expertise?

It definitely exists, and I can give an example. The head of the Scottish Enterprise life science team, who will be with us next week at the BIO international conference as part of the SDI contingent for our mini mission, has set up meetings that we would not otherwise have been able to have. We can work with her and her team, which is great. The partnership and the expertise, both in Scottish Enterprise and SDI, certainly exist.

So the on-the-ground support exists. Is there also an understanding of the marketplace? For example, NovaBiotics is doing world-leading work, and that must be true for many other Scottish companies in the field. How far can you rely on the public sector to understand what the marketplace is and who you need to meet to maximise the market opportunities in different parts of the world?

It is good and it brings in a high quality of companies.

The chemical industry is clearly in a different place and, I guess, deals more with established technologies and markets. How important are the things that we have heard from the life science companies? For example, how important is an understanding in the public agencies of what the industry sells and does?

The attraction, retention and growth of jobs in Scotland is critical. The industrial base at Grangemouth offers an ideal location for that. We work very closely with our contacts at Scottish Enterprise and SDI, looking at all the possibilities, from someone who wants to come and just use a shed at our facility for blasting and painting structures to someone who wants to bring in green technology—it might be that we have established technology now, but we are always trying to improve it. People bring and develop their plant on our site and look for help in doing so—as everyone does. We have to attract such people here, because plenty of others would like them to go elsewhere.

One company—which has to remain nameless for now—has decided not to bother proceeding with the substantial grant aid that it could obtain, because it feels that the process is too bureaucratic. The grants are fantastic, but the system is indeed a little bit bureaucratic. It can take three months before being told, “Yes, okay, we will support you.” That three months can be critical.

Yes. If a company makes a commitment before that yes comes through, the bureaucracy will say that there is no point in providing the support, because the company is coming anyway. Also, any amount that is spent before the yes to the grant comes through is not covered. It might only be a small amount for feasibility-type work, but some companies are put off by that, especially by the timing. It is those little things that the committee should be examining.

I echo what Peter Hodgson and Ray Mountford have said. It is the same for us: 90 per cent of our product is exported, the majority of it to Europe, as we have manufacturing sites in Asia and the US. Infrastructure is key. It is a matter of being able to get the product out of the UK cheaply. At the moment, the majority of our material gets shipped down to Hull and put on containers there. Our particular concerns relate to the Forth road crossing and getting material into Europe.

Sometimes the chemical sector hides its light under a bushel, but it accounts for £2.2 billion of exports. The three companies that are represented here are all saying that a significant amount of what they make gets exported. The industry is of major added value to the Scottish and UK economy.

Issues around people and infrastructure have been discussed. There might be money available to spend to help the sector, and RSA does work, but it needs improved. If the key infrastructure can be addressed, that will benefit any business’s ability to get product to market as cheaply as possible.

11:00

No. We usually rely on our local management for that. In this country, I have to talk with Scottish Enterprise to prepare the groundwork so that we can get assistance easily. When I built plants in China and Mexico, I always felt that people were chasing us a lot more and showing us what we could get instead of our having to ask for it.

I cannot name it, but one of our members, whose headquarters are based in another European country, has found that it gets a lot more leverage there than it can get in Scotland. As I say, though, I cannot give the name of the company in public.

I will speak to you later.

I will make the first attempt at responding, and Peter Hodgson might join in afterwards.

INEOS has successfully obtained a significant RSA grant to modify one of its ethylene crackers to convert higher hydrocarbons into ethylene, which will help given the decline in the amount of ethane in the North Sea. The process of completing the form and finding the right people to talk to was not difficult; however, as the world turns, projects change. We will probably have to make slight changes to what we have to do and it will be difficult to explain that we need to spend the money in a slightly different way, even though the outcome will be the same. We will have to go through another loop to ensure that the money is spent in the right way—and quite rightly so—but surely if the outcome is the same it should not really matter if the project changes slightly.

We had exactly the same experience. We had a grant for a certain project that we did not go ahead with. We are now applying for another regional selective assistance grant, but it will take us three months to get the same amount of money and basically the same outcome.

The submission from the BioIndustry Association Scotland is pretty positive about SDI and Scottish Enterprise, but it mentions one area in which there is room for improvement: the retention of companies that are located here. Can Scott Johnstone expand on that point a bit?

That takes us back to the point that I made about many of the companies already being multinational organisations. There is a limited number of potential suppliers of certain products, and economies of scale and location make a difference. Those companies are often already very much aware of whom they can buy from and sell to. Let us take INEOS’s selling as an example. The plastics that are made at its Grangemouth site are not the plastics for end use that you and I would recognise; rather, they take the form of pellets or powder, which a downstream organisation will convert into useful products. The number of such organisations is limited, so the INEOS business team is very much aware of the customers and who it needs to chase. There might be opportunities for new markets from time to time but, generally speaking, companies are pretty much aware of the potential customers.

In paragraph 7 of your written evidence, in answer to question 4 in the committee’s call for evidence, you state that your members

“advocate a UK-wide approach to attracting inward investment”.

A point was made earlier about potential confusion if too many bodies are involved. I have been investigating how other countries and regions deal with the issue. In America, Kentucky has its own kind of world trade centre, which is a non-profit organisation that helps companies import and export. Indiana has the Indiana Economic Development Corporation. Those are just two examples from America. In Germany, Nordrhein-Westfalen has a similar body and there is Invest in Bavaria. So states or regions in other countries have bodies that do that kind of work. We could compare that to what goes on in Scotland and the UK. Is there potential confusion in trying to import from and export to Germany or America using the various routes there?

The confusion often occurs not so much between Scotland and the UK, but within the regions in the UK. The Chemical Industries Association, which is the trade association for the industry throughout the UK, seeks to get the regional groupings to work together. The north-east, north-west and Humberside regions, and others, all have a presence.

You referred to the United States and Germany. In the chemical industry, the US market is bigger than any other in the world and is still a long way bigger than many of the emerging markets in places such as China and India. The country and the value of the market are of a huge scale, so the regional focus there is not surprising. Germany has a massive chemical business—it is the biggest chemical market in the European market. So the regional focus in those areas is understandable.

We are not saying that we should not have a Scottish focus; we are saying that we need to be careful not to create problems by creating confusion among people. We need to be clear about how we work together and where we can leverage the value of Scotland. We have heard examples from the biotech sector, in which there is a strong leverage to be worked, and we should use that. In other situations, there is perhaps not the same requirement. That was what the comments in our written submission were aiming at.

My next questions are for Dr O’Neil. I want to focus on the final two bullet points in her written submission. The second-last one says that the funding culture in the private sector is

“completely at odds with the strength of the sector and focused on other sectors.”

Will you provide more background information on that?

The point goes back in part to Scott Johnstone’s comment about the need to retain companies in Scotland once they reach a certain size, perhaps even beyond the size at which grants are key. It is vital that we can get venture capital or angel money, so it is frustrating that that culture does not seem to exist in Scotland, even though the industry punches above its weight UK-wide. It is the opposite problem from the one that Cambridge has as another centre of excellence in biotech. Organisations in Cambridge find it hard to recruit or retain staff, but easy to raise funds. The situation is completely the opposite for us in that the expertise, the technology and the staff are here, but the VC community does not really play a part. Scottish Equity Partners was one of the last big VC players that we had, but it has now in effect bowed out of life science investments.







It is probably more frustrating in Aberdeen, as there is a significant amount of wealth and a strong entrepreneurial culture there but people recognise and understand only the energy sector and its business model. We are disadvantaged, as the biotech industry is seen as a bit newer and is not a model with which people are comfortable just yet. That is a hurdle that all life science companies face at a certain stage.

11:15

The BIA at national level is looking at the issue a great deal. A couple of proposals that we are considering and lobbying for are the R and D tax credit—I am not sure whether you are familiar with that—the patent box and consortium relief, which would allow a larger company to work with a smaller company on a research project and recycle its tax. It is more difficult to implement those changes and to get those powers at national level. For the patent box, we are looking at a level of 10 per cent for the UK, but other countries are considering setting one of 6 per cent, which would immediately put us at a disadvantage. The need for a level playing field across Europe has been highlighted. If Scotland had fiscal power in the area, it could consider the benefit, risk and reward of going for a level of 5 per cent. Making such a change would not be a great loss to the tax pot but would give Scotland a far greater presence globally.

My final question concerns paragraph 6 of your submission, in which you state:

“Scotland can now boast one of the most sophisticated business angel communities in the world.”

Is that a result of the fact that, as you say in the previous sentence,

“Scotland lacks a major venture capitalist”,

or are there other aspects to the issue?

Debs O’Neil pointed out that we had a venture capitalist, which has now left. The business angel community has stepped up to the plate. Like the globalscot network, but locally, it consists of a bunch of individuals who want to help Scotland and are reinvesting in Scotland in exciting sectors such as life science.

Thank you.

May I come back on the issue of finance and the biotech industries? The presentation refers to SDI doing more to promote our business angel community internationally in order to attract similar investment from elsewhere. I would be interested to hear more about that. Dr O’Neil made the point that the spin-outs in Scotland would be better networked strategically rather than simply geographically. Clearly these things go together because innovation and funding must be linked. I would be interested to understand that a little more clearly.

The public sector is likely to have reducing moneys in future years to support international trade and investment. Is it reasonable to ask that relatively established sectors with fairly large companies operating mainly in established markets are left to look after themselves while the public sector concentrates more on emerging markets in Brazil, Russia, India and China—the BRIC countries—and on small and medium-sized enterprises, which may not have the same resources?

It is said that it takes about 10 times as much effort to chase a new customer as to retain an existing one. It is the same with businesses. The chemical sector is of massive value to the Scottish economy. It would be wrong to say, “Leave it to itself.” It can do its own thing on trade and so on in certain areas, but other areas in the sector need support and encouragement, and existing know-how. I have heard companies say that people in the Scottish Enterprise network have been of good value to their organisations and have helped them. RSA works very well in certain areas in ensuring that we remain competitive, because there are areas that could be improved. We want to encourage, support and develop smaller and spin-off companies, and other sectors, but we should not ignore the existing base, because it supports the rest of the economy. That is the message from the chemical sector: We support the rest of the economy. The point is not just the value of our manufacturing exports; it is that other sectors would have difficulty without it.

In the chemical industry, Phoenix Chemicals is a good example of an up and coming company. I know Ian Low of that company very well, so I know that the company is in the process of becoming a member of the BIA. The company has seen the feed-through of some of the earlier-stage work. Many of our companies are small-molecule companies using chemicals that must be manufactured. If we could do that in Scotland, ideally for Scottish use—that is, get them into the NHS, which would be a whole separate inquiry altogether—and have local feed-through, we would attract money and get businesses growing. However, the issue is leveraging larger players such as Pfizer, Phoenix or INEOS to be able to come in and work together—that is what we would look for.

I apologise to Chris Harvie. I did not realise that he wanted to ask a question.

We have operated an apprenticeship scheme for a number of years. It would be easier if we could draw from a pool of people rather than having to make individual decisions about how many people we want. In some years we might want two and in others we might want six, and we have to make that decision four years in advance. It would be better if there was a pool of people—we would be prepared to provide part of the funding—that could supply us with groups of technical people as we need them.

Does INEOS share that view?

INEOS works closely with Falkirk College. We have our own modern apprenticeship scheme with the college. It employs the apprentices, but we fund them. Hopefully, we will find work for those people and they will fill the gap that is beginning to open up in the technician population. Our people are one of our strengths. People come to Scotland because we have the chemicals base, the utilities and the waste treatment, but we also have good, skilful engineers, managers and technicians. The technician population is waning slightly, but our modern apprenticeship scheme with Falkirk College is trying to fill that gap.

We also work with the college and Heriot-Watt University on our engineer of the future scheme, which is based on a German model. Rather than people just going to university and getting degrees, we bring them on to our sites to enable them to get experience there. They get practical knowledge of what we will want when they come out as engineers at the other end. If we are to attract inward investment in future, we will need skilful people. If there is limited funding, we need to consider how we will maintain the skills base.

How many people do you recruit each year?

For us, the number is between nought and 3. It is difficult to predict because our operation is not as big as INEOS’s.

There were about five questions there. The industry here has already won the battle for low-cost production. My company has. I led a project three years ago that was given as a kind of a mission statement, “Find a way of shutting the plant down at Grangemouth and sourcing it in the rest of the world.” Fortunately, I was unsuccessful and that was mainly because the infrastructure from the refinery supported our plant in Grangemouth. Now, we are going further to develop and optimise our low-cost position, which is why we are looking for infrastructure.

On bringing people back from Indonesia to work in the chemical industry in Grangemouth, a lot of the time, they have gone there because they earn twice the salary. We do not want to bring people back and pay them two and half times the salary because that would make us uncompetitive. It is a matter of supply and demand. We just need a bigger supply of people who would be in good, worthwhile jobs to sustain our industry. We need sustenance.

Infrastructure is not only about motorways but about local pipelines and local tankage. We share some of that with Dow. It uses our infrastructure to import some of its material rather than build its own tanks and cause more congestion on the jetties.

We have a pipeline that goes from our site across to the west coast. It is one-way but we might want, for the resilience of transport fuels, to be able to bring it the other way. We all remember—perhaps not all of us, but I do—that we had a strike two years ago. We have to consider how we can supply those fuels in future. We could bring that pipeline back the other way, but that infrastructure needs investment. The big question is whether we would like to spend our money there or somewhere else.

On whether we can bring people back from the rigs to work on our site, I echo Peter Hodgson’s point: we cannot do it if we have to pay them the amount of money that they get on the rigs.

Some of the major innovations made in North Sea oil in the 1970s and 1980s came from combining practical experience in the North Sea with theoretical and experimental innovations—for instance, positioning. We were able to do that from Scotland. I wonder how many people around the table even know about that, but it enabled bodies to remain absolutely static in the sea through a combination of satellites, thrusters and computers. That is a combination of the practical and theoretical that was developed offshore. Today, it seems to me to be common for companies to onshore that quality of entrepreneurialism and technical competence.

I wrote the history of North Sea oil, so I know what I am talking about.

Your written submission deals quite a bit with the situation in Estonia and the Scotland House issue. Could you expand a bit on your experiences in Estonia, on your conclusions and on any recommendations that you might have for the committee on the way forward for such operations?

What type of support did you get for your project from Scottish Development International and the Scottish Executive? How easy was it to secure that support?

Initially, there was no support whatever. I decided that we would not be critical of any of the agencies, but that we would simply get on and do our own thing as a really good pilot study. Following some meetings with SDI, it was heavily criticised in the press by other parties unconnected to us, who were considering the markets in Latvia and Lithuania more than Tallinn. They were not able to operate from an office in Germany. I gave evidence to the Enterprise and Culture Committee on that during the previous parliamentary session. As I said then, SDI eventually saw that having a contact in the Baltics would be a good thing.

To this day, SDI still makes a small contribution by buying some of the time of our project manager in Tallinn. The real problem is that any public agency or body has to be incredibly careful about how it spends any public money. As long as I am not bound by contract confidentiality in giving evidence, I can say that I believe that the contribution is something like £5,000. I can give you a categorical guarantee that the legal document that was produced for us to consider in that regard would have cost considerably more than that to produce. There is also all the time management to consider.

I would not like to seem critical—it is more of an observation that, sometimes, the cost of the support from the public sector can be grossly disproportionate to the actual support that is given. SDI has renewed the work of that project manager for some years now; we assume that it does so because it believes that it is good value for money. We have stringent audit processes on every pound that is spent. Clearly, SDI still sees some benefit in the Baltic markets.



09:45

I fully accept the sentiment that bricks and mortar are not needed. We no longer have bricks and mortar in Tallinn, which is fortunate in having lots of amazingly good hotels. When business people travel there, they tend to book a meeting room at one of the hotels or commandeer an area of the lobby, which in effect becomes the office. People stack up meetings there back to back. We spent a lot of money on a bricks-and-mortar office in the old town of Tallinn; that was great for the photographs, but people did not use our services there.

If I have learned anything from the Tallinn experience that I can share with the committee, it is that bricks and mortar are not essential but having a good, solid contact point in every country is. If we are going to invest in a country, we must have a local on the ground day in, day out. We have adopted that model. We no longer have office costs in Tallinn, because a Scottish businessman who has a large company sponsored a desk for us in his office complex. I believe that that model should be considered, because we do not need bricks-and-mortar, gold-plated fancy offices; we need only a laptop, a mobile phone and somewhere to serve as a base. If someone is doing their job properly, they should be mobile anyway. The hot-desk principle is not only good value for money but most effective for all parties.

Yes. The most depressing thing for me in the past 12 months, apart from the general credit crunch issues, has been the attack on anyone who dares to travel. That is an outrageous slur on not just politicians, but public servants and people who work in quangos and other organisations, who genuinely want to make a difference. To suggest that someone should go on a one-week trade delegation and not have a night off to go for dinner with colleagues or visit a world-class monument is a disgrace. People do not work 24 hours a day, seven days a week, when they work at home. There seem to be attacks on anyone who travels, and that is very damaging; I have raised that point with newspaper editors. I do not believe that the majority of foreign trips are junkets. There may be one or two that are, out of hundreds.

From personal experience, I know that when a minister, an MSP, a member of Parliament or a member of the European Parliament travels on a trade delegation, the impact magnifies by 10, as does the return on investment. The bottom line is that people on foreign soil want to meet politicians and senior executives of organisations. I would love to see this committee recommend to Parliament a change to the standing orders to the effect that when any member travels, whether they are a minister or not, the presumption should be that the best effort should be made to have an accompanying trade delegation. It may be a simple one-day trip, but ministers and members still have to have breakfast and lunch. With a bit of co-ordination, representatives of four or five companies could travel with a minister, and even such a small group would make a huge difference.

My experience has not been that there has been resistance. Indeed, anyone in any party to whom I have ever spoken has been very supportive of the idea of foreign trade delegations. It comes back to the machine of government and making things happen. Sometimes it is easier to do business abroad in today’s market, depending on the sector and whether one is exporting or importing. Somebody must be charged with responsibility.

The problem is that there is fragmentation in who deals with such matters. Scottish Enterprise has the account manager system, and SDI perhaps has a view on trade missions that is different from that which many of my colleagues and I have—that is, there is a single sector versus a multisector view. UK Trade and Investment has an input and there are various other bodies. Perhaps a Government agency is not the best organisation to make things happen and be accountable. Perhaps something else—my suggestion would probably be business club Scotland—should be charged with that task.

You talked about multisector trade missions. In the written evidence that we have received, some people have argued that multisector trade missions are preferable, but others have suggested that single-sector trade missions are a better approach. I suspect that the answer might be somewhere in between, but why do you say that multisector missions are better? What is the best way forward?

I agree with your comment. In my submission, I stated that I do not suggest that my answer is the only correct one. There is of course a role for single-sector trade missions, but I suggest that that is a niche part of the market. For globalisation and internationalisation, you have to identify companies that have leaders with the right state of mind. It is not about saying that we can take a huge company abroad; it is about considering how to get a small company to internationalise and become a medium-sized company, how to get a medium-sized company to be a large company and how we help large companies to be world class. When there are people with that mindset, I would hate to see a barrier that says, “You are not in one of the chosen few sectors, therefore we have nothing to offer you.”

To be fair, I am not involved in any sector that would go on a single-sector trade mission, but one of my sectors is self-storage. Let us hypothetically assume that an agency launches a self-storage single-sector mission, although it could be any sector. We go to a reception on foreign soil and someone there is interested in partnering with someone in my sector. If everyone in the room is more or less selling the same service, the only thing to differentiate us is personal style or price. I have seen some ludicrous single-sector missions in which there have been one or two people in a room and a queue has formed to speak to them.

We should think about how people interact and network on such trips. Personally, 50 per cent of the benefit that I receive is from the physical 9 to 5 trade mission programme, and the other 50 per cent is from networking with delegates and people whom delegates meet. Much business that is done on trade missions cannot be recorded. I may bump into somebody who is a delegate on a trade mission and would like to meet someone to do a deal or make a pitch and I might make that introduction. That piece of business will have happened because two parties were on a given trade mission, but it will not have been recorded in the official figures. If I am in the self-storage industry and another delegate is in the self-storage industry, I will—to be brutal—not do anything to help that guy grow his business because that would be to the detriment of mine. I am not suggesting that there is one right answer but, in my experience, the concentration should be something in the region of 20 per cent single sector and 80 per cent multisector, given the wide variety of companies that are in the multisector area.

10:00

John McGlynn’s company is headquartered in my constituency and has been a contributor to my constituency Christmas calendar on past occasions. I think that that counts as a declaration of interest, John’s personal political views notwithstanding.

Your submission is very interesting. One of our challenges is to offer some pointers to the organisations that are currently in the field. What should we be doing with globalscot? Can you give us a couple of ideas there? How would you like to see the work of the Scottish Council for Development and Industry evolve, given that it is the main contact point for trade missions for small and medium-sized companies across the board? SDI is the recipient of between £20 million and £25 million in this area. How should its role evolve? In those three areas, can you expand on what you said in your very interesting written submission?

Estonia is uniquely placed in that it straddles both areas very nicely. Culturally and socially, Estonia is absolutely a Scandinavian country; it has more in common with Scandinavia. From a business point of view, Estonia is one of the most advanced countries in the world. It was one of the first countries to abolish cheques. I was surprised by that on my first visit: I was asked why I would want a written piece of paper that needs to be processed and which involves a delay in payment. My reply was that they were missing the point, because that is the whole point of a cheque.

Estonia has electronic banking and is extremely advanced. People can pay for goods and services, including car parking, using their mobile telephones. Technology-wise, Estonia is way ahead. For some years, Estonia has had citizens entitlement cards, which are, in effect, identity cards that people can plug into their computers and which allow them to interact fully with all Government departments. Technologically, it is an amazing country. Perhaps as we get squeezed in future spending rounds, we could adopt some of the technology that Estonia has developed. Because it is a European Union nation, all that will have to have been approved in some way. We could learn a lot from Estonia’s technological advances. From a business point of view, Estonia is absolutely ahead of the pack. It is also a very nice place socially and culturally.

No—I have to say that I have not noticed any direct impact, at all. The only issue that we may have in the future is that the Financial Services Authority—or whatever the new governing body is—might put restrictions on the shares of market sectors. Both the nationalised banks have large exposure to the property sector and, in Scotland, that may become an issue. I have certainly not noticed anything that would have an impact on international trade.

They have been hit no more than have our operations elsewhere. The Scandinavian banks, which tend to be the major owners of the Estonian banks, have the same issues that every other European and, probably, global bank has, in that lending criteria and margins have changed. There is nothing that is peculiar to the Baltic market.

10:15

Thank you.

I apologise for the slight delay. We have been having technical problems with the broadcasting system. I hope that everyone has a functioning mike. The mikes will come on automatically, but it would be helpful if you would check that the red light is on before you start speaking, so that we can ensure that your words are properly recorded for posterity.

I welcome our second panel of witnesses this morning, who are representatives of the chemical and life sciences industries, which are important in respect of our export trade, inward investment and the potential for industries that are based here to expand abroad. We are interested to hear what you have to say. I ask you all briefly to introduce yourselves. If you wish to make opening remarks, feel free to do so.

We have discussed Scotland House. You talk about hot desking and not taking the bricks-and-mortar approach. In the likes of Estonia, which is a small country, having one contact person might well be sufficient. However, countries such as Germany or China are much larger. I will use Germany as the main example. Would you prefer to have one contact person allocated to each region in Germany, as opposed to trying to have one person cover the whole country, which would be extremely difficult?

That idea is good. I do not suggest that the committee should recommend ripping up everything that we have done when a network exists. I am considering how we can add value.

A budget of £X might be available to grow a new market, but we must consider office infrastructure and all such costs. In Germany, four project managers could hot desk at donors’ premises, for example. Members of the globalscot network or other people might say, “D’you know what? We have a spare office and we’d be more than happy to give something back by letting you use it.” That thinking might go too far for some people, but a person’s intellectual capital is what is in their mind.

I do not believe that a project manager role needs a fancy office, a nice reception and all those trappings. Many chief executive officers of companies whom I know have no office—they use hot desks in their premises, because they are out and about and have a laptop and a mobile phone. In an ideal world, having meeting rooms and offices could be deemed to add value, but meeting rooms and other facilities can be obtained elsewhere.

On a trade mission, I do not want to go to any of the official office networks around the world. As we will stay in a hotel, it is far better for the project manager or the person who is to brief us to come to the hotel’s meeting room, because travelling between meetings takes time. The arrangements work best if the project manager has a mobile phone and a laptop and can work in a mobile environment. If they are doing their job effectively, they should spend more time out of the office than in the office. Why pay for an office overhead that is not required?

On some occasions, an office is required. We could not have a hot-desk person in Beijing in China, because that would not be deemed to be correct. Once we understand custom and practice in China, such matters are important. Hot desking is not appropriate for every country, but why pay an overhead cost for a facility that we do not need, in most cases? To be frank, if somebody were willing to donate an office, I would take that and say, “Thanks very much. That was very kind of you.”

My final question is also about Scotland House. I firmly believe that Scotland will become an independent nation. Is the idea that Scotland House would not just be used for trade missions but could provide other ways of helping to promote Scotland elsewhere a benefit of bricks and mortar?

Yes—it applies there. Reid Kerr College was ahead of the game in that regard; it was out in the Baltic states with us very early on. It is fair to say that Sandy, who co-ordinated that for Reid Kerr College, mopped up all the opportunities to the exclusion of others. Motherwell College also came out there and, although I cannot remember their names, I am sure that a college from Dundee and a college from the Aberdeen area also came out.

Estonia’s biggest advantage is that it is a tiny country with a small market, so it is easy to do a pilot study there. Its biggest disadvantage is also that it is a tiny country with a small market, so it is easy to max out on an opportunity.

Christopher Harvie made the point that Estonia, Latvia and Lithuania are always bolted together as the Baltic states, but they have a population the same as that of Scotland. An industry sector might want to have a dominant position in the market, but it would be a tough gig to be the dominant supplier of something in Scotland. However, if you went to the Baltic states and said, “We’re going to do Estonia first, then Latvia, then Lithuania,” and did it in three chunks, that would be easier. That is where you get scaleability. It could be said that the disadvantage with the Baltic states is their size, but the point that I am making is that many companies in Scotland could really benefit from serving a market of 1.4 million people in Estonia and the same again in Latvia and Lithuania. If they do it step by step, it is almost like the starting guide to exporting.





There is great affinity with Scotland in some of the regions of Poland. Work does not have to be done country by country; it could be regional within larger countries such as Poland or Germany.

It sounds very clichéd, but the big advantage that Scots have when they travel is that they are genuinely welcomed the world over. Whenever I travel to any country, they say, “Oh, you’re from Scotland. That’s great.” There is a natural affinity with Scotland, which is very helpful, and we should make more of it.

That concludes our questions. Thank you very much for coming along and for your very helpful contribution to our inquiry. We will take a short break while we change panels.

10:31 Meeting suspended.

10:36 On resuming—

I am the commercial manager at the INEOS petrochemical plant at Grangemouth. Our sister company, the refining company, is also at Grangemouth. We make a large amount of base chemicals, as well as refining and transporting products out of Grangemouth. It is a global market.

I am from NovaBiotics, which is a clinical stage drug discovery and development biotechnology company that is based in Aberdeen.

Thank you for those opening remarks. We had some discussion earlier about the role of Scottish Development International and other agencies in undertaking trade missions and whether trade missions should be sector specific or more general. Do you have any views on that? You should feel free to answer any of our questions but you are not obliged to answer every question.

I have been on both multisector and single-sector trade missions and, unlike John McGlynn, I found them both very good. In the life sciences, we are perhaps less competitive with each other because we are all working in different sectors within the life sciences. I would not differentiate between the two types of mission.

Sector-specific trade missions are important for the life sciences. In the Scottish company base, we do not really compete among ourselves. John McGlynn mentioned how other people can help a business through their contacts. Being in an area among focused individuals who come to see us—for example, from the Indian biotechnology sector and Indian pharma-companies—is vital to our success. I have been on a number of well-attended trade missions. If they were made multisectoral, they could become too large and we would not get to meet everybody.

We heard evidence from previous witnesses that representatives of Scotland in the business club Scotland initiative and global Scots are important contact points and, indeed, potential organisations without any costs. Do any of your companies have a view of how you would play into the network to promote Scottish business abroad?

Absolutely. We have had good experience with members of the globalscot network coming to Scotland and taking back what we have. Particularly in the life science sector, there are a lot of fantastic global Scots in industry all over the world. It is good to have a chance to have them come and see four, five or six companies in a couple of days and take what we have here back with them. From that, we have made some fantastic contacts and made potential links into very big pharmaceutical companies.

We also go to key industry events. Next week, we are off to the BIO international convention in Chicago and have already set up meetings with global Scots there. It works for us as an emerging biotech company.

I went on a mission to China a couple of years ago and visited the international peace hospital. I was surprised to meet a global Scot—a Dr Cheng—who had been trained in Edinburgh. She was very helpful. It was excellent.

Absolutely. My own experience is of the University of Aberdeen, but other universities send annual academic missions to India and other key areas. With links through the Scottish universities life sciences alliance—SULSA—across Scotland, the universities are really punching above their weight, promoting the recognised academic excellence, and taking it out there internationally.

From the chemical sector’s perspective, the coming together of the different university departments in Scotland under the heading of Scotchem has made a huge difference—there is a lot of excellence in Scotland. The universities have a degree of presence when they operate as Scotchem compared with when they operate as individual university chemistry departments. It is important for them to get recognition.

Again, I have an example from experience this year. The person who heads up the SDI office in California is obviously there because of his expertise in life science, and the office’s San Jose base makes sense because of the life science cluster in California. We were not aware, but the office flagged it up, that there were key manufacturers of the compounds that we develop who we should see, and back in January it set up two visits that we would otherwise have missed. It has expertise not just in the sector but in the specific markets that we operate in. It identified some very good links for us.

Having the step between the offices of the high commissioners and ambassadors, who clearly do not have the understanding of the science or the companies, and an agency such as Scottish Development International, with people on the ground who have a background in the area, is essential to moving deals forward.

The committee is trying to identify best practice, wherever it is in the world, to inform our recommendations.

I echo Ken Richardson’s point that, as the pot is not limitless, the question is where the aid that is available is best spent. As we keep saying, we need to think hard about infrastructure. Many people ask how many jobs will be created, but we need to take a step back and think about the number of jobs that might be created if we were to build the infrastructure. In that light, we might well make a different decision.

In Saudi Arabia, they provide plots where you can simply hook your plant into existing utilities and infrastructure. I am not saying that we should do that in Grangemouth, but if we are going to attract business, we need to be able to say, “We have the infrastructure; we can give you your utilities; and we have good links to Europe and the world.” Most of our liquids are sent out of the country from our jetty at Finnart on the west coast, although we also send a substantial amount from Grangemouth. Some of our plastics go through Grangemouth, but we are considering going elsewhere because getting plastic from Scotland to Europe is two and a half times more expensive than getting it from England to Europe.

We are reporting success. RSA has made a difference in places. There is Phoenix Chemicals’s move into the old Annan site, and there have been issues to do with the restructuring of GlaxoSmithKline in Irvine. Both restructurings have been supported by RSA, which has secured those important sites. There are other examples, too.

Like any grant system, the RSA system needs to be looked at from the customer’s point of view from time to time. Sometimes systems are built up, safeguards and other things are put in place, and layers of bureaucracy build up around them over a period of time. I encourage the committee to suggest streamlining and reconsidering the process. Are there ways in which the comments that INEOS and Rohm and Haas—I mean Dow Chemical, which took over Rohm and Haas—have made can be addressed? Potential projects are sometimes lost because it becomes just a bit too difficult to fit things within timeframes. In the chemicals sector in particular, many companies are owned and have their headquarters overseas; that is simply the nature of multinationals. Flexibility and the ability to respond quickly to opportunities are critical in seizing investment opportunities.

I have a final comment to Gordon Hay. It was refreshing to find that his written submission was positive about what is already in the public sector. It is all too common for everyone in Scotland, both in public and private life, continually to knock what is available and to downplay the facilities and services that are in existence. Of course, we are here to look at how things can be improved, but his comments were very helpful.

On the spin-out question, the easy route is to have one centre where several spin-outs can come together geographically. However, wherever there is a cluster it is key that the infrastructure is there for the spin-outs to develop. Last week, we were delighted about the news in Aberdeen that we are to have a second incubator unit, which is great. In every major town or city, where the universities are, where we have already started to attract big pharmaceutical players and where we have support from the clinical services, the NHS and the clinical research organisations, there need to be the mini-clusters that then form part of the Scottish super-cluster. We must make sure there is local infrastructure to support that, which then fans out into a wider countrywide network.

My final question is on the lack of venture funding in Scotland. Is the way in which the public sector uses available funding other than RSA grants, such as the co-investment fund and equity funding, sufficient? If not, could such funding be used more imaginatively to leverage in more venture funding?

I want to ask INEOS and Dow what relationships they have with technical education in the Falkirk and Grangemouth area to help with the supply of a skilled workforce to their establishments there.

The figure for apprentice technicians can be 16 to 20.

Other companies in the industry are in a similar position to Dow. Syngenta has looked at technician recruitment as it has developed its site, whereas the KemFine site has shrunk a little, although it still needs some new people.

It is important to note the unique partnership between INEOS, Heriot-Watt University and Forth Valley College—it is no longer Falkirk College since the merger with Clackmannan College. A lot of work has been developed between those three bodies and they are willing to share it with others. With a little financial support, we can build on that. As Peter Hodgson said, there are ways in which we can look to make skilled people more available and accessible, rather than having a long lead time. At present, a company might decide that it needs someone but, by the time the person is qualified four years later, the company can be in a different market position.

Just before the recent economic crisis, most companies in the industry were looking to bring in technicians. In a short period of time, we found ourselves in a significant crisis. It is probably the worst economic position that many of the companies have been in. Things are beginning to pick up a little, but we are by no means out of the woods. In some cases, we are still very much at the bottom of the cycle, but the companies still have to try to look ahead. We should try to smooth out the process, using and building on the good work that has already been done.

That concludes the evidence-taking session. I thank the witnesses for coming along and for their helpful contributions to our inquiry. I am sure that we will take into our final report a number of useful lessons from what they have said.

We will suspend the meeting for a few minutes while we change witnesses.

11:43 Meeting suspended.

11:48 On resuming—