Enterprise and Lifelong Learning Committee, 13 Sep 2000

Meeting date: Wednesday, September 13, 2000

Official Report 301KB pdf

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The New Economy

Good morning. Let us bring the 19th meeting of the Enterprise and Lifelong Learning Committee to order. Bearing in mind the fact that we have a gathering of high-tech communicating individuals, I would ask that all pagers and mobile phones be switched off as they cause dreadful interference with the sound system.

I welcome everyone to the meeting. We have a somewhat unusual seminar format for our discussion this morning, involving members of the committee and a number of entrepreneurs who have joined us to contribute to our inquiry on the preparedness of Scotland for the new economy. I plan to have a fairly open round-table discussion. Before I ask Ian Ritchie, who is advising the committee on its inquiry, to say a few words, I would like everyone to give a brief introduction of who they are and the companies and interests that they represent.

I will start: I am the member of the Scottish Parliament for North Tayside and convener of the committee.

I am the member for Argyll and Bute.

I am the Labour member for Cunninghame North.

I am a high-tech entrepreneur.

I am clerk to the committee.

I am a West of Scotland MSP and deputy convener of the committee.

I am a Mid Scotland and Fife MSP.

I am a South of Scotland MSP.

I am a North-East Scotland MSP.

I am the member for Aberdeen North.

I am the member for Kirkcaldy.

I am the member for Greenock and Inverclyde.

I am the member for the Dumfries constituency.

I am the MSP for Inverness East, Nairn and Lochaber.

I am the managing director of two internet companies—one that makes software available to people who are running online stores, and another, Scotch Corner Ltd, that owns and manages 20 online internet stores.

I represent bring-a-bottle.com, which is an internet wine retailer.

I represent Saw-You.com, which is a start-up youth communications wireless application protocol company in Glasgow.

I represent Pulsion Technology. I am involved with Saw-You.com and with an application service provider called Pro-Pulse.

Until the beginning of this year, I was the general manager of Adobe Systems, which is a billion dollar American company in the graphics design marketplace. I am now a high-tech investor.

I am an e-commerce consultant and a director of an online learning company, and I run the First Tuesday e-commerce network in Glasgow and the Wireless Wednesday Scotland network.

I am top banana at Banana Brothers Ltd, which is a soup and sandwich bar in Glasgow. We take orders for local delivery online, and we are looking to expand in both Glasgow and Edinburgh in the next six months.

I am from all-hotels.com. We provide online booking for about 60,000 hotels all around the world. We have a business-to-consumer site and a business-to-business site. We are enabling hotels with internet technology to make best use of it as a distribution medium.

I represent Sinclair McCormick & Giusti Martin solicitors. I am also one of the organisers of First Tuesday in Glasgow.

Good morning. I am the managing director of Scarlet Training. We are a high-technology classroom training company and an e-learning training company.

I am from globalfarmers.com. We are an internet trading exchange for the agriculture sector, looking at ways of driving costs out of the farming industry.

Thank you all for those brief introductions. The committee is undertaking an inquiry into the preparedness of Scotland for the new economy. So far, we have undertaken a number of case studies in different parts of Scotland to establish the degree of interest and involvement in e-commerce and in new ways of trading. We also want to establish the ways in which some of the more traditional sectors of the economy are adapting to the challenges of the new economy.

We have recruited Ian Ritchie as an adviser to the committee. Much of the input to this inquiry has come from debates in committee and from an event that was held in the Parliament chamber in February, at which we gathered information and ideas from a number of businesspeople about the whole process of business development in Scotland. During those discussions, we heard thoughts that focused specifically on the new economy sector.

We are part way through our inquiry. After today's discussion, we will go into something of a hiatus, because we are undertaking more urgent inquiry work into the Scottish Qualifications Authority in connection with the exams situation over the summer. However, we will come back to this inquiry in October.

The committee has talked about the extent to which Scotland is prepared to operate in the environment of e-commerce. At our previous meeting, we had a fairly lengthy discussion about the establishment of an infrastructure to allow the Scottish economy to adapt to e-trading and e-commerce. We are especially interested in how we compare with other countries. We want to find out what all of this means for the competitive position of the Scottish economy, and how our economy can perform in this environment.

We would welcome the input of today's witnesses to our inquiry, and I hope that we will have a fairly free-flowing discussion. Before I open up the discussion, I will ask Ian Ritchie to set the scene.

There is no shortage of inquiries into the territory of the new economy. In preparation, I have had a look at all the various papers that have been produced. On the UK economy, Westminster has produced a few papers and Scotland has had the Digital Scotland task force. There are plenty of reports; most of their conclusions are fairly sensible and there is a lot that we could pick up and run with.

In this inquiry, our practical MSPs want to work out in a practical way the state of affairs in Scotland today. They have set up a number of contacts with various industries. They have also set up working parties and made four trips to various industries—for example, textiles companies and high-tech companies at the Cadence centre. Part of the process of consultation has been with what we believe to be the companies in the new economy industries, which, by and large, are innovative young companies.

Start-up companies are, naturally, preoccupied with the problems of starting up, funding and growth. That subject is worthy of investigation by this committee on another day. However, the focus of the committee today is the new economy—Scotland's readiness for it and effectiveness in it. We are primarily concerned with our effectiveness in competing with the rest of the world in the new economy. We want to consider the implications of that and the economic forces and conditions. We are not specifically concerned with how easy or otherwise it is to get start-up support or funding. That is another issue, although it obviously impinges on our inquiry.

Scotland is relatively famous—at least, we think it is—for its silicon glen. A look at the map will show that there are 34 silicon something-or-other wannabes around the world. All of them are trying to copy silicon valley and to be the hot spots in their area for high-tech activity. There is the research triangle in Austin, Texas; North Carolina; silicon fen in Cambridge; silicon bog in Ireland; and so on.

It is interesting to compare Scotland with other silicon wannabes. It is generally assumed that we are in the second or third division of that league table. Silicon valley is in the first division; Austin and North Carolina might be in the second division. People consider Cambridge and perhaps Dublin to be in the second or third division; we are probably below that. The most relevant comparison is probably Cambridge, as it has the same fiscal environment as us. It is interesting to note that, of the top 15 companies in Cambridge, 13 are new technology companies, including ARM and Autonomy, which are in the FTSE 250. In fact, earlier this year ARM overtook Scottish Power, our largest company, in market capitalisation.

Of the top 10 companies in Scotland, eight are industrial revolution companies—power generation, banks and transportation. The only two new economy companies in the top 10 in Scotland are telecommunications companies. Scotland is not growing the new economy—certainly not in terms of corporate power—in the way that Cambridge is. That is an interesting comparison, because Cambridge has the same fiscal conditions as we do.

Which other conditions are relevant? It is difficult to say that we are less technically literate here than people are in Cambridge or that the research base is poorer. If we count the major Scottish research universities collectively, I am sure that they compete quite effectively with Cambridge. It is difficult to say that funding is any different here from what it is in Cambridge. French capitalists have to get on a train for an hour to get to Cambridge or a plane for an hour to get to Edinburgh, Glasgow or Aberdeen.

We have many of the right characteristics: the same open and competitive economy; technological literacy; a good research base; intelligent people; and access to funding. Why then is Scotland not competing with the rest of the world, or even with Cambridge? That is the kind of topic that the committee should be trying to get to the bottom of.

The key issue that the committee is interested in is how we can make a difference in this area of policy. What can the committee recommend that would make a tangible difference to the competitive conditions that Ian Ritchie has talked about and in which you all operate? That is the focus of the discussion that preoccupies us.

We have been joined by Margo MacDonald, one of our colleagues in the committee.

A minor point: the acoustics in this room are very poor, so it would be helpful if our guests spoke up.

People should signal to me if they cannot hear.

I open up the discussion—who wants to start the ball rolling?

I will give it a go. As one of the few lawyers here, I will try to stick to what the law says. As most members will know, two acts relating to e-commerce were recently passed in the UK: the Electronic Communications Act 2000 and the Regulation of Investigatory Powers Act 2000. The Government's stated intention with both acts has been to facilitate e-commerce. If we consider the ECA, we find that it makes provision for the regulation of cryptography service providers and digital signatures. The problem with the latter is that it could take years to implement, through further regulation.

To give some world comparisons, India and the Czech Republic have also passed digital signature acts—they are slightly ahead of the UK in bringing that matter into line. By no means is the UK ahead—or even in the middle—of the game.

The Regulation of Investigatory Powers Act 2000 was introduced specifically to intercept communications, to bring investigatory techniques online and to give access to encrypted data. The problem is that the UK is third only to the great democracies of Russia and Malaysia in permitting the official surveillance of internet traffic. In my legal opinion, neither act will facilitate e-commerce. Some commentators are saying that, by 2001, £2 billion in e-commerce will be lost because companies will say, "We will not allow our cryptography services to be tapped by the Government when it slaps a warrant on us just because it thinks we might be selling arms to the IRA."

Germany opposes restrictions on cryptography. Ireland is just about to pass an e-commerce bill making it illegal for the Government to access cryptographic keys. The UK is becoming one of the most heavily regulated regimes in Europe. Given the nature of the devolutionary settlement on e-commerce, Scotland has to go along with the regulatory regime dictated at UK level.

This committee should consider the recent Home Office draft code of practice, which addresses the ground-level aspects of the legislation on investigatory powers. The committee should help to ensure that the code of practice is conducive to businesses in Scotland and the rest of the UK—for example, that it does not make them decide to set up their internet service providers in Dublin or Berlin rather than in Glasgow, Edinburgh or London.

One of the questions that the committee has asked is what can be done to enhance Scotland's competitive position. I spoke to some people at Motorola recently, which, as far as I am aware, is the largest private employer in Scotland, with nearly 11,000 employees. As the committee will know, the company recently bought a site in Fife, which could lead to almost £2 billion coming into Scotland in the next few years. Motorola's stated intention for the future is that it will interface only with those suppliers—small or large—that can invoice and accept transactions electronically. It has already begun to implement that. Even small and medium-sized enterprises that are excellent at their job may be regarded as e-incapable of supplying Motorola, which will mean that the company will simply stop using them. That will happen not only with Motorola but with other large companies in silicon glen. That is an excellent example of why the Scottish Parliament must help SMEs in particular and realise the opportunities to assist them with training.

From the legal point of view, the devolution settlement seriously restricts the Scottish Parliament from using Scots law to create a better, unique e-commerce environment. The Scottish Parliament must lobby Westminster to ensure that any future UK acts on e-commerce contain specific Scottish provisions that suit Scots law. Some American companies have said that one of the reasons they come to Scotland is that the legal and commercial environment is conducive to business. That will not continue if UK acts of Parliament are not sympathetic to Scots law, the Scottish way of doing business or the banking law. If that is not addressed at a UK level, we will lose out.

In my experience, Scottish business has moved very little to take up e-commerce. The response has been pretty patchy and the quality of most of the stuff around is poor. As for the infrastructure that is necessary in the next five years to allow us to exploit the e-economy, I am not sure that we exploited the old economy very well, let alone the new one. I will come to that in a moment.

We are better than some in our preparedness to compete with global competitors. However, we seem to be behind countries such as Finland, Denmark and Sweden, which are of comparable size. The committee asks what can be done to enhance our competitive position, which I take to mean, "What can the Parliament do?" The Parliament should encourage more people to study or learn about computer science. I do not mean only the bits and bytes, but all the activities associated with computer science. The curriculum could be changed, so that when people are studying for computer science standard grades, highers and so on, they learn about server technology and how e-business works.

There is a tremendous dearth of talent and of enthusiasm for sales and marketing. That is one of the biggest issues in London—many people are starting up businesses and wanting to get going. There are some such folk here today, although they are definitely in the minority. For some reason, the Scots' attitude to life and business seems to be pretty dour: "We will work in a satanic factory and we will make things that have to be bashed with hammers." Going out and selling intangible items does not seem to appeal. It is not viewed as something we should get involved in. I do not know whether the Scottish Parliament can change that.

The answer would be to change the environment. The drive will be commercial—Motorola and other companies are the ones that will change. We must ensure that we have the people and the skills to effect change. We should lobby BT and Mercury Communications and so on, to ensure that they put in the infrastructure for change, although I do not know whether that is within the powers of the Scottish Parliament.

A final suggestion would be for the Scottish Parliament to start using e-commerce for procuring and to set the standard for its implementation. The Parliament could provide an interesting showcase, as Scotland is a relatively small country with a small Parliament, in comparison to Westminster. That would show that the Parliament means what it says and it would help to educate others.

My first suggestion is to increase awareness of the individual learning accounts. Awareness of those accounts seems to be more widespread in England than in Scotland. Awareness of the Scottish university for industry also seems not to be as great as for the equivalent institution in England. Chancellor Brown's proclamation of the 1,000 information technology learning centres does not seem to be as widely known about up here as it is down south.

Here is some feedback from our research. In 1996, we conducted a study into technical computer training—as opposed to end-user computer training—and found that 40 per cent of Scotland's technical training was being delivered south of the border. We have conducted more research over the past six months, which has shown that that figure has dropped to 15 per cent. That is a good sign that more technical computer training is being conducted in Scotland.

A lot of kudos is placed on the call centres that are being established in Scotland. I do not want to rub in the point too hard, but our knowledge of numerous call centres is that they are akin to the sweat shops of 200 years ago. One should not feel that fantastic jobs are being created in those environments, because they are not. Many Scottish people are being pushed to perform tasks for four hours at a stretch, with only a 10-minute break before working for another four hours. Hard labour is being forced on people.

On the positive side, the Royal Bank of Scotland has made progress with e-learning. Every branch of the Royal Bank of Scotland in the UK can download or access any of the corporate headquarter learning facilities across the network, and can conduct that training itself. Not only is the demand for technical training in our Edinburgh and Glasgow training centres increasing, but the shift is being made from plain operating systems and basic programming languages to technicians wanting to understand web technologies.

On education and training, Derek Gray mentioned awareness in schools. That is important, as we hear a lot about the knowledge economy.

In our inquiry into e-commerce in the new economy, we have taken evidence from the oil and gas industry in Aberdeen. Two of the organisations that we interviewed were universities, and one of the questions that I put to them—and I would like to ask the same question of you—was whether they thought that universities, colleges of further and higher education and other training establishments in Scotland are in a position to react to the needs of the new economy and whether they are reacting well. We talked to them about courses that were delivered online, via the web, and about the competition. If someone wants to study for an MSc in lifelong learning, for example, they can get the information online not only from Scottish universities, but from institutions worldwide.

I am interested to know whether we are ready: whether companies will give enough support to our universities to provide the learning that will be necessary. Secondly, how competitive are we with other countries, in providing learning down the line?

I do not want to hog the debate, but I would like to give some pertinent feedback.

An American investment bank recently hired 200 people in Glasgow. It deliberately shifted its European technology headquarters from London to Glasgow because of the availability of IT graduates there. When we conducted the first course for the bank, we were amazed by the differential between the skills that we expected computer science graduates from a Scottish university to have and the skills that they actually had. We had to close quite a significant gap. On the plus side, the MScs graduating from Scottish universities have, to my mind, greater technical ability, and more mature people in their 30s and 40s are studying for those MScs before coming to us.

Scottish Knowledge, the body that is attempting to congregate the universities and colleges of Scotland, needs to move a little bit faster on an e-learning solution, as it has the knowledge and the large contracts—with Shell and BP—but no electronic means of conveying the information.

We will take evidence from Scottish Knowledge immediately after this debate, as it is an organisation that we would like to hear a great deal more about.

There are simply not enough computer science graduates. Some courses should be cancelled and the universities should be paid more to create more places on computer science courses. There is no unemployment in the high-tech business, and thousands of jobs could be relocated here if we had the talent.

The curriculum in secondary schools could also be changed. Both my children studied GCE computing. I am not a great technical person, but I have been in the business for a while and know that most of the course involves learning how to programme in BASIC—who goddamn cares? Why has it taken so long to change the basic curriculum in schools—which I would have thought would be relatively straightforward—to include, as part of the course, transaction with a website or a pretend business? We seem to be far too slow in changing those courses. Unlike mathematics and English, which are more staid, computing has to be changed and refreshed all the time. The last time that I looked at a computing course was three years ago, and I thought that it was about 10 years out of date.

Those are interesting points about the education system.

Technical skills are important, but we must also focus on entrepreneurial skills. If a large number of computer science graduates is attracting lots of inward investors, that is great as long as the economy is booming. However, we know that, when times get hard, inward investors move away. We must encourage entrepreneurialism. I was not taught it at school. My first experience at Scottish Enterprise was somebody shaking their head saying, "No, that will never work."

Encouraging, then?

Yes. As well as focusing on technical skills, we must focus on entrepreneurial skills.

This country must decide what it is going to do. Are we going to support every business and let every business have its own web page, as people have suggested, or are we going to pick winners? We have limited resources, so we must make a decision. At the moment, we are trying to convince everybody to set up shortbread.com, or whatever. However, if we are going to grow large businesses, we must have some sort of focus.

You have latched on to a question that we agonise over all the time—how can winners be picked? Can you advise us on that, from your experience? I accept what you are saying; it is a fundamental question that is never easy to answer.

I do not know the answer. If I knew how to pick winners, I would get funding from the European Union and make a fortune.

Enterprise companies and parts of Government are trying to persuade companies to take up e-business. However, if they need to be persuaded, they are probably not going to take e-commerce to its logical conclusion, as they will skimp on what they are doing. It is like trying to persuade somebody 50 years ago to buy a telephone by saying that their business would suffer if they did not. We should try to persuade everybody, but some people are just not going to pick up on the new technology. We must accept that some businesses will die.

My question links two of the points that have been made. Alan Park said that suppliers for Motorola, for example, need to be online. Is there a suggestion that Scottish Enterprise or one of the other public funding bodies might help individual companies to go online? Is it your view that they should not be helped if they do not have the nous to go online themselves, by begging, borrowing or stealing the money, and that they should be left alone?

I will respond to that question, as we did some work for a company that interfaces with Motorola. The company saw that it could get a contract with Motorola to repair mobile phones, and recognised that it needed an electronic system in order to communicate with Motorola. It saw that if it developed the software, it would get that contract, and was visionary enough to get the software developed. In fact, the software saved the company some money, as it does much of the billing that otherwise would have been done by a team of people sitting in an office.

Many people who see an opportunity will seize it, although they may have to wait for a specific trigger in their business. For example, Motorola might say, "We will tender a contract, but to get this contract, you will have to put systems in place". We work for various electronic companies that are waiting for large triggers, such as IBM, Compaq or whatever, to award them a contract and then they will put the systems in place. That approach is relatively sensible for those companies.

The difficulty is with those people whom we have to persuade to install business-to-business links, as they do not recognise the benefits of such links. There are some business people who just will not get online. That cannot be helped—we will just have to accept it.

But that may be because of the cultural change. Companies such as Motorola may say, "That is how we are going to operate. You either do it or you don't get a contract".

To pick up on comments made by John McGuire, this is a question of what is appropriate. My company has been selling online for the best part of four years, and over that period we have had expert input into the local enterprise companies and Scottish Enterprise. The numbers game—how many businesses we get a website for—seems to be flavour of the month. However, a website is entirely inappropriate for an awful lot of small local businesses. I am concerned that a lot of resources are being wasted inappropriately in that numbers game, with enterprise companies out-bidding one another on the number of websites that are being created within a particular time scale. That has not changed over the three-year period, and I have been repeating exactly the same thing: "Stop doing it".

Our company is, more or less, shortbread.com, and there is nothing very exciting about what we do. We sell hundreds of thousands of Scottish gifts, primarily over the internet to Americans, at a profit, and have been doing so for three years. It can be done—we are doing it and we make a profit—but it will not work for every company. In particular, it will not work for a lot of companies that are trying to do it now, because, to be frank, they are too late. People who advise small businesses must have a better understanding of appropriate, and inappropriate, use of technology. They should not force people to spend hundreds, thousands or tens of thousands of pounds on a website to boost their own numbers.

While I have some space, I will go back a bit. From the discussions that we have had over the past three years, we identified three issues, which have remained unchanged during that period and which have a stifling effect on new companies. The feedback that I have had is that neither the Parliament nor Scottish Enterprise can do anything about those issues directly, but the Parliament should use its influence in relation to them.

The first issue is communications. In the larger part of Scotland, the population is much more spread out than in England. My company is in Crieff, which is not at the edge of the world by any stretch of the imagination. Through the advisory committee that involves Scottish Enterprise Tayside and the local councils, we met British Telecom, which told us in no uncertain terms that we would not get access to asymmetric digital subscriber line. ADSL will come to Perth, but it will not reach Crieff. What chance has a business that is starting up further north than Perth or Dundee? British Telecom is a commercial company and I understand its arguments—I have heard them hundreds of times—but that huge problem must be addressed, as it is stifling businesses.

The second issue has to do with the banking sector. As I indicated, we have been online profitably for three years, paying bank and merchant servicing charges. We are changing to online banking transactions but have been advised that the bank wants to take between £60,000 and £100,000 as a bond against our trading, despite the fact that we have been trading successfully for three years. Goodness knows what the banks are telling brand-new businesses that are just getting started.

The third, longer-term, issue is distribution. The products that we deal with are not particularly price sensitive, but companies that deal in the global environment may be able to distribute their products more cheaply from European or US sources, which makes UK and Scottish businesses uncompetitive.

Those issues must be addressed and while they may not fall under the direct influence of the Parliament, members should shout loudly at the people who can make a difference.

Thank you, Karen. That was helpful.

I want to get views from our witnesses before I come back to committee members.

A couple of issues have arisen from this discussion. More than anything, I am frightened by the fact that people do not understand what the internet is about. People think of high-profile websites, such as the site that we run, which has had about 12 million visitors this year. We also do online transactions—this month, we will do more than $1 million-worth of bookings. However, that is not what the long-term future of e-commerce is about. While we are first movers and we have a site, we cannot expect other businesses to create new opportunities in the same way. We must recognise that e-commerce is about supporting existing businesses, or new businesses that come up, and making them more efficient.

For example, I am in the process of setting up another business that provides an e-commerce consultancy. That business has a customer who manufactures in India and distributes in the UK and who wants an integrated accounts package with an invoicing system. In the old economy, that could not be done easily, as it would have cost thousands of pounds in leased lines. However, my customer can have that system with the internet. We can produce programmes that run through a browser, hosting those programmes for the customer on our server and acting as an ISP.

The Enterprise and Lifelong Learning Committee must look beyond the hype produced by organisations such as Microsoft that say that the internet is all-singing and all-dancing. That is not where the real e-commerce is. Real e-commerce will be business within businesses, making businesses more efficient and more competitive. When the committee examines e-commerce, it must consider which businesses in Scotland can be supported and made more competitive.

Another issue worries me. My brother-in-law is in Customs and Excise, and his attitude towards financial transactions is "If it moves, tax it". We must recognise that we exist in a global economy and that companies such as mine are quite capable of moving our equipment, which may be worth a few thousand pounds, from one place to another without any difficulty. If European, UK or Scottish legislation interferes with our business, there will be no incentive for us to stay in Scotland.

We have stayed in Scotland because of the excellence of the universities. Many first-rate people from the University of Edinburgh now work for us, which is absolutely brilliant. I love this place and I do not want to move. However, if legislation is introduced that makes it impossible for us to compete, we will have no choice but to move that functionality out of Scotland. We must take lessons from the rest of the world and consider regulation as appropriate rather than stifling.

Karen Birch mentioned the banks. I am a recent start-up and have been trading for only 10 or 11 weeks. Getting merchant services was the most difficult barrier to overcome in setting up, and an online consumer company has to be able to take credit cards. The Royal Bank of Scotland was helpful up to a point, but it required a bond from me and my family that was larger than my entire start-up capital. I was able to come up with that money, but a lot of people are not. If someone has an idea and wants to go out there and realise it, the need for such a bond will kill their plans before they begin.

Is that situation peculiar to the mode of trading that you are involved in as an online company? If you had been setting up a wine merchants company with a traditional shop and a van, would the bank have asked you for the same bond?

No, it would not have done. All cardholder-not-present transactions are keyed in and the banks conduct no security verification except to check that the card has not been reported stolen and that there are sufficient funds. Transactions are not even cross-checked against addresses, and personal identification numbers are not used. Such checks are coming, as I know from reading trade publications and keeping my eyes open, but the Royal Bank of Scotland has not told me that.

As Karen Birch said, Scottish Enterprise plays a numbers game, saying, "We've got more websites than you have." At the Confederation of British Industry conference last week, speakers were talking about making Scotland global, with the main focus being on e-commerce and the future. They compared Scotland with other silicon business cultures around the world. Scotland may not be big, but does that matter? Does being bigger matter in the game, or should we be thinking about being smarter rather than bigger?

That was the main thrust of the conference. One does not have to go in big to do things properly. At the moment, people seem to think that only a company in the FTSE 250 can create employment or carry the thrust of the economy. In fact, there could be a groundswell from smaller companies.

The point about web page numbers is an interesting one and I agree with what Karen Birch and Richard Irwin have said about that. As an e-commerce consultant, I have advised companies not to set up web pages, and the idea of everybody in Scotland getting a web page built is ludicrous. For many companies, the first stage in e-commerce is to start with internal e-mail, so that there can be quicker communication between salespeople in the field and their production and quality control people and managing directors.

We should not talk only about e-commerce. We should talk about how internet technologies can improve business systems. Alan Park mentioned Motorola, and I know that it costs Motorola £65 to process and chase up a paper-based invoice, compared with £3.50 to do it electronically. When one considers how many invoices Motorola issues every year, one can understand why it does things electronically.

A few years ago I was sales and marketing manager for the bakery division of Northern Foods, which was a FTSE 100 company at the time. We did not have e-mail or a website and we did not trade electronically at all. However, Sainsbury's and Marks and Spencer, which bought about £18 million worth of baked goods from us, insisted that they would cancel all their orders if we did not upgrade to an electronic system. We resisted and resisted until eventually we gave in and got all the right systems in place. We then found that all the other small manufacturers that we were competing with were dying on their feet and we were picking up their business left, right and centre, simply because we could e-mail the buyers and tell them where our trucks were.

As Motorola has said, e-commerce is an opportunity for Scotland, but it could also be a hazard, as the small companies that lose out might well be Scottish ones and the ones that have the right systems in place might not be. One of the barriers is that we have the wrong business culture in Scotland for e-commerce and networking is extremely poor. Scotland is a very small nation and everyone can know everyone else in certain industrial sectors, but it just does not seem to happen.

I am a lead organiser of the First Tuesday network in Glasgow and of Wireless Wednesday for the whole of Scotland. When we get 400 people in one room, we find that individuals seem to stay with a group of just three or four people. Among today's witnesses there are quite a few members of First Tuesday. They are all smiling. They are not the ones who do that, which is why they are successful. Chris Risbey turns up at meetings with an inflatable banana and waves it above his head so that people can see who he is—it is very effective.

That would have been an interesting diversion today.

I was looking for it when I came into the room.

First Tuesday and Wireless Wednesday are beginning to introduce a culture of networking. There is also a fear-of-failure culture in Scotland, and we do not have a great reputation for starting businesses. I am a director of two companies that are involved in e-commerce and yesterday I was offered the opportunity of becoming chairman of a funded e-commerce start-up. The first thing that I did was to phone Alan Park and ask what would happen if one of those companies was to go under. Might I be restricted from being a director of my other successful companies?

Non-executives who play a major role in driving forward new-start businesses, particularly young entrepreneurs who are starting their first business, must be guided by people cleverer than themselves—I do not know why they would ask me to do that. Many angels who invest money and become non-executives already have directorships in lots of different companies, all of which could be affected if they were to take a non-executive directorship of a high-risk business such as an e-commerce start-up. Something must be done about that UK-wide legal issue.

Entrepreneurism is not in the genes. We have missed out on new economy opportunities in e-commerce. Angels do not invest in e-commerce because they did not make their money in e-commerce. They invest in what they know. I would like a public commitment to aiding risk-taking. There are some great funds, such as the Strathclyde and East of Scotland investment funds, which take European structural finance and add it to private money. I would like that concept to be increased, because there is a lack of funding for dotcom start-ups, particularly wireless start-ups.

I would like a Government fund to take some of the risk. If someone needs £4 million, such a fund could kick in £1 million, providing that the entrepreneurs could get venture capitalists to validate their business plans and put up the rest of the funding. That might help angels to see that e-commerce is not such a risky investment. One can ask, "How do you pick winners?" Venture capitalists pick winners every single day. Ask them to do it and that mechanism would work, because they know what businesses will work, what qualities and ideas work, and how competitive positioning and strategies should be put in place. The VCs pick the winners; we should pick their brains. Derek Gray is the only investor in the room.

Ian Ritchie is also one.

Yes, Ian Ritchie is one of the very people you should ask about investment.

Quite a lot of dotcom incubators are springing up in Scotland, but they do not have any real e-commerce experience. We are far behind in e-commerce. We have missed that wave. The next wave will be the wireless revolution. Ian Ritchie has expertise in that as well. Wireless Wednesday has 120 members in Scotland. We are just about to hold our second meeting. We have 3,000 people on our list for First Tuesday, which is the e-commerce network. If we do not get behind e-commerce and drive wireless area networking, WAP, third generation, blue tooth protocols, programming and pervasive computing now, we will miss out again, because of all the factor conditions that are missing, such as the culture, angels who have made their money in the field, support and risk taking.

There are wireless incubators in Ireland. Mike Kinsella from Saw-you.com was making the point on the train here that we are very close to Scandinavia, which is miles ahead of us on wireless start-ups. We could tie in with Scandinavia and Ireland. We ought to be considering supporting business through wireless incubation projects in Scotland.

My view is that we are poor on e-commerce—we are way behind. We lack the factor conditions, the right people with the right attitude. There is a fear of failure. We do not have the right networking. There is not as much investment in Scotland in e-commerce and there never was, even in the heyday of e-commerce investment. The right advice is not available—there are just not as many good e-commerce consultancies around as there are in Dublin and London. Also, roughly 50 per cent of the e-commerce start-ups that I have spoken to are seriously considering leaving Scotland once the Regulation of Investigatory Powers (Scotland) Bill, which has been mentioned by quite a few people, is enacted.

What do we need to do? What infrastructure is necessary to provide support to e-commerce? Wireless incubation would be a good start. We should force connections by taking our leading e-commerce and wireless start-ups to Ireland. The fund would be another good idea, as well as listening to the community.

I am a small businessman. We started Banana Brothers a year ago. We have gone from four to 14 staff. We have done the website. This year, we have been funded by Strathclyde investment fund. It is nice that someone else mentioned them. We have found them very useful and will sign funding with them this week.

Last week, I heard Tom Farmer speaking about the fact that an internet business is the same as any other business—it needs to make sales. I try to do that more efficiently through the internet, but I need to make a margin. The focus for me in the next year will be linking with better suppliers, finding out who is out there, finding out what everyone else is doing through talking online and checking out other companies and competitors online. I need to control my costs, which is vital for a small business. I can do that through better accounting and admin and using the technologies that are out there in the best way possible.

Looking after your people is important for new and old businesses. I can look after my people better if I can train them online. I am putting my staff through Investors in People. It would be perfect if IIP was online so that I could give people an hour at the PC and say, "Do the next course". Instead, all the stuff is in books and files, which becomes very cumbersome. I would like to have all my training, all the IIP stuff and all my personnel files online. Then we could start to grow the business, because the systems would be set up.

I agree with what Richard Irwin, Gordon MacIntyre-Kemp and John McGuire have said. It is not just about the front-end website—that is definitely true for a small business such as mine. We have spent money on a website, which has been recouped, but we grow our staff from four to 14 to 1,000 to 40,000 by getting everything linked together in a seamless, cost-effective system, which ensures that we can expand quickly once the groundwork has been done. Once we have tackled Glasgow, we will be able to move to Edinburgh, Leeds, Durham or Newcastle, because the groundwork will be there.

I speak to lots of small businesses and tiny little suppliers who would benefit from understanding the technology better. I agree that not every business needs a website, but there is a general lack of awareness. My suppliers are always asking me about my website. Who did it? Has it been good? They are hungry for information. But some people who have been in business for a long time feel very uncomfortable. They do not think that Scottish Enterprise or enterprise companies in general are for them. They do not see the easy routes to getting basic information—a day out somewhere where they could see all the equipment in action, see computer systems and touch and feel them. Those people have never used them before.

I get a lot of feedback from my suppliers. I want to bring some of them along with me. I want my organic vegetable grower in Scotland still to be supplying me vegetables when we have 40 sites rather than two sites.

We mentioned the banks. I send out 500 e-mails a day to people who are interested in what food is on the menu that day. The one big company I do not send an e-mail to is my bank because it does not have the facility. When my bank manager tells me that I do not keep him informed, I tell him to get e-mail and then he would be informed every day. That strikes me as really strange.

Which bank is it? Name and shame.

It is the Clydesdale Bank. For a lot of really small businesses—one or two-man bands—the bank manager is also their business adviser. For the bank not to have any information about e-commerce is terrible. We still cannot transact online, although we hope to change that in the next couple of months, thanks to the credit card issues that we talked about earlier.

I have to disagree with the person who mentioned call centres. I deal with call centres a lot. Teletech in Glasgow, which runs call centres for Ford, Hewlett-Packard and Ryanair, is a fantastic place to work. If I was not doing so well, I might get a job there myself.

I have already talked about Scottish Enterprise. I have used Scottish Enterprise. After a year in business, I have just about managed to find out whom I need to contact for different things, but it is an awful way of doing things. I have private sector advisers, but I would like someone to say: "Here is your public sector adviser. Anything you need, that will be your person." It would be someone who could fire off in all different directions and be aware of what is going on.

I seem to be doing a hell of a lot of the groundwork and missing opportunities as a result. Strathclyde investment fund has just invested more than £250,000. I just happened to see a flyer about them somewhere else. I could still be rushing around on my moped—that is how we delivered our sandwiches before we got funded; now we have a van, but that is another story—if that had not happened. Why are those things left to chance?

Strathclyde investment fund has apparently got lots of money to invest and the guys are falling over themselves to try and give it away. I am sure that there are lots of people with good ideas out there who do not know what is available. The problem is awareness.

There was a business breakfast in Glasgow to kick off e-commerce week. There were 400 or 500 people there, who were all hyped up. They turned up at 8 o'clock in the morning for breakfast at the Hilton, which was not that fantastic so they must have come for the e-commerce. When they all walked out the door, I wondered what they would do that day to get into the new economy and who would be there to tell them what they could do, however small the step. People want to make small steps in that direction. It is up to you guys to make that process as easy as possible.

Thank you. That was very interesting. I will take Jonathon Land followed by Mike Kinsella, but then I had better let my colleagues say something, or I will be lynched.

To give a bit of background, I came back from the United States deliberately to set up an e-commerce company in Scotland because I had the vision and thought that there was a real opportunity. We raised £4 million of start-up funding to make it happen, but it was a massive uphill struggle. I came back pretty enthusiastic, but it is not nearly as easy as one might imagine. You ask to what extent Scottish businesses have moved into e-commerce. We have hardly moved at all when one sees what is happening abroad.

That really came home to me once I had been back for about a year and went to the States to see some friends in Seattle. The States are so much further forward in the take-up of e-commerce. When I explained where we were and what we had done, business leaders would say, "My goodness, that's amazing." Over here, people just do not get it.

You asked what infrastructure we need. This is not really my expertise, but one classic thing is that our connectivity is still not what it ought to be. I have to have my guys fly to London to sort out internet connectivity. I know that we are getting there and that Iomart and AboveNet are working on it, but it is a big thing and a big reason why we should not be here. We have a long way to go. We have great potential. The interesting thing is that many Scottish people go to the States and work very hard. Why does that not happen here? How do we make it happen here? That is a good question.

We have grown from four people to 40, which is a steep increase. Quality technical people are very difficult to find. We need people with good, relevant training, for example, in systems architecture, but it is almost impossible to find such people.

I had a vision—I wanted to start a company, to float it and so on. I have had three offers to buy my company in the past week, and am starting to ask whether that is the way to go. People say that we have a Scottish focus, and I wonder why that is a problem—there would be no problem if I were based in Cambridge, so why is there a problem because I am based in Scotland? We have to deal with the issue of perception.

It is telling that the second question is:

"What infrastructure will be necessary in the next five years . . .?"

I would have asked about the next five minutes. My understanding of the issue comes from infrastructure in colleges and universities. There is a two-track system. First, in view of our present position, we need to build infrastructure as damage limitation. I am an ex-silicon bog man. The Irish are doing some interesting things, as well as giving corporate tax breaks. They have always invested in technical education—I am a result of that investment.

Ian Ritchie talked about silicon glen. How tired is everyone in the room of hearing that term? The secret of branding is that the brand should have some sort of effervescent appeal—it should enthuse people and pull them together under one banner. Silicon bog and silicon glen are dead terms for what we are talking about, as they relate to PC assembly and microprocessor fabrication. We—I have lived in Glasgow for 16 years, and Scotland is very much my home—need a brand.

The Irish are selling themselves as the second largest exporter of software outside the USA. That is complete nonsense, as largely they recountrify Microsoft software and sell it to the European market, but it is true that they are the fifth largest exporter of software. Scotland has to become a little less embarrassed about what we are doing, and do what everyone else does—get out there and hype the concept, talk a little nonsense to people and sell the idea. The idea can catch fire if people talk a good game and talk it up, rather than sitting around moaning about how bad everything is.

As Richard Emmanuel of DX Communications said to me a couple of weeks ago, if you can see the bandwagon, you have missed it. That is our philosophy. It is fair enough to become involved in the internet, e-commerce and so on, but moving up to division 1 is a tough aim to set ourselves. We have to set ourselves targets for the mobile internet. How many times has Motorola been mentioned today? We have dealt with Motorola, and it looks as if we will run a Motorola advertising campaign throughout the UK in the next couple of months.

Geographically, Scotland is very close to the Nordic countries, which are the home of telecommunications at the moment. For the new wave of technology, we should look east rather than west—we should not look to silicon valley. Guys from silicon valley are in Europe looking at what the hell is going on in Norway and Finland. We have an opportunity to mix with the Nordic countries, find out what they are doing, and dovetail what we do with what is happening there.

I thank all the witnesses for their fascinating thoughts.

I will open the session up to my colleagues for brief points—I do not want long questions and tales.

We have heard about all the negative points: lack of an enterprise culture, fear of failure, the wrong school curriculum, inappropriate university courses and lack of funding for start-up companies. Given all those negative factors, how did all the entrepreneurs here achieve what they have achieved? Were they lucky with schools and universities and in talking to the right people to access funds?

We have heard much about how businesses have to use e-commerce so that we are not left behind. However—I speak as someone who runs a business—unless e-commerce affects the bottom line, I will not become involved. The hype is all very well, but we must deliver the product that is being sourced on the internet at a lower price than the current structures allow. Often, there are major questions about delivery—where will the product come from and what guarantees are there that it will arrive on time? For us to leap from face-to-face business to e-commerce, you guys have to deliver reliably on time every single time.

I will answer that, as I am sure that it is aimed at me.

It was a general question.

George Lyon has a farm, so his business is closely related to what my company does.

George Lyon has made a couple of good points. I think that most of us have profited from a combination of a lot of hard work and a lot of luck. One needs both of those in Scotland at the moment to make things happen—it is kidding oneself to think otherwise.

It is true that e-commerce has to deliver benefits. Distribution and so on are big issues that have to be tackled properly. There are companies out there which are managing those issues and delivering benefits to many companies. The attitude that should be adopted is to look for the benefits, rather than criticising and jumping on the downside of e-commerce.

I was interested in what Jonathon Land said about speaking to his friends back in Seattle. Derek Gray referred to what is happening in our schools. Does Jonathon have any information about what is done by schools in the States?

The great thing about the States is that everyone knows somebody who drives a Porsche and has made a pile of money on an internet or technology company. Every kid has the goal of being a start-up entrepreneur—they all have their own business plans. That is the culture and philosophy there.

If Kevin Dorren or whoever get their company floated and make some money, and that success is visible, it will be an enormous help, as suddenly it will become incredibly trendy to be an entrepreneur. That needs to become the thing to do. A culture change is needed. The culture of making money has to feed down, and people have to be supported.

That answer addressed culture. What about the technical side of what goes on in schools? Derek Gray mentioned the curriculum.

Most of the people who make it in life are articulate—they speak well. Anyone who is dealing with the Americans and does not speak well will have a tough time, because America is not a written society. We seem to be persisting with the written society in schools. Should not there be more emphasis on teaching people to talk on the telephone, to interact, and to stand up and express themselves?

Gordon MacIntyre-Kemp spoke about networking. Although I think that networking is over the top in America, where I spend a lot of time, people in America are not shy and are perfectly prepared to stand up and speak. There is even a marked difference between doing business here and doing business in London. We need to arm our children with greater confidence and the skills to be articulate and express themselves verbally. I am not aware of such activity in schools.

Is the Strathclyde investment fund a public sector fund?

It is supported by European structural funding, but it is run by fund managers from the private sector.

I am familiar with a superannuation fund investment panel which set up a venture capital fund with the aim of ensuring that public sector funds were invested in start-up businesses. Is there any distinction, in your eyes, between public and private sector willingness to invest venture capital in such enterprises?

Yes. Scottish Development Finance, which has recently changed its name, has never invested in an e-commerce start-up, has it?

It invested in us.

I would still argue that it does not consider e-commerce start-ups as readily as others do. I do not cast a good eye over it either. Funds such as the Strathclyde investment fund and the East of Scotland investment fund might well invest in an entrepreneur rather than a business plan, but other VCs will not. It is about sharing the risk, and that should be rolled out across the whole of Scotland and supported with more money.

One area in which the new economy is becoming increasingly important is tourism. More than half the clientele of many small bed and breakfasts that are online come from America, simply because they are online. Others, which are not online, are losing out.

I should like to hear Richard Irwin's views on where we are going in Scotland and what we can do about it. The Ossian project is one area where Scottish block money has been invested in the new economy infrastructure, but I hear rather alarming reports about the proposed booking system that is part of Ossian. Without going into detail, I should be interested to hear Richard's views on that.

I have not followed the Ossian project very closely. Representatives of the project came to see me about two years ago, when our first online reservation system was made available. One of the reasons why I am not fond of the project is that I am quite angry about it. We built up a business from a relatively small base, but now around 60,000 properties are bookable online through our site. The investment that was required to get to that position was around £200,000. Investment in the Ossian project has been many times more than that, and still nothing has been delivered. We could have provided the project with that technology for a small proportion of what has been spent so far. I am rather angry about the Ossian project.

Places such as Gleneagles, where our technology is used—we have just delivered a new reservation system there, and in the first two months, £100,000 of bookings were taken through it—are absolutely over the moon. Small properties in Edinburgh are using our reservation systems and are over the moon. One hotel owner told us that their hotel took more reservations in six weeks than traditional advertising brought in six months.

Somebody earlier made a comment about spending money on new technology. There seems to be a feeling that it requires a lot of money, but that is not true. Efficient systems can be produced very cheaply using the new technology, which is one of its main benefits. Vast numbers of people, with vastly expensive pieces of computer equipment, are not necessary to produce such systems. The key point about e-commerce systems is that an internet company can be set up for £1,000 or so—that is what we did. We bought our first server for £1,500 and built a business from that from our front room. We were running the business out of our front room last year; now we have 35 to 40 people in Leith, and we are conducting millions of pounds' worth of business. That has all come from small investments.

The key is having the vision to know what is relevant and knowing how to apply that vision to make things work, rather than going to some of the bigger players and saying, "Here is my million pound budget. What can you produce for it?" We can produce things incredibly cheaply and efficiently if someone has the right attitude and knowledge of what they want to achieve.

Thank you. That is helpful.

I return to the point about how we develop entrepreneurial skills among younger people. Several people have mentioned the reluctance to engage in sales and marketing, poor networking, the fear of failure, the lack of ability to talk a good game, the lack of verbal articulacy and confidence, and so on. In Scotland, we tend always to look on the dull side of life, and we have a willnae-work attitude rather than a can-do attitude. How can we change that in young people?

For years, Scottish Enterprise has conducted young entrepreneur programmes in schools, when youngsters make painted plant pots and clocks out of CDs and have fun selling them. However, is that the best way in which to develop entrepreneurial skills, or should people such as you be in schools talking to people about your experiences and trying to inspire them as role models? Should people think about undertaking work experience in companies such as yours, instead of in more traditional companies and professions? How can we access the aspiring m-commerce entrepreneurs who are coming through the education system?

I went to school with Tommy Sheridan, in Pollok. My reason for setting up a business and getting into university was to escape a life of poverty. Tommy obviously chose politics.

One of the best things that Scottish Enterprise did was sponsor the business programme on TV.

"Business Bites".

"Business Bites" and the business programme. When I was about to start up a business, I used to look at the people on TV and say, "If they can do it, so can I." That is leading by example. Many entrepreneurs in Scotland could take students and school leavers into their businesses, if the time could be found for them to do that. I would love to go back to schools in Pollok and say, "You can do it if you apply yourself and have the vision to do it."

I shall allow four members to speak briefly, concluding at around 11.30 am, when I shall ask Ian Ritchie to sum up.

We heard earlier that Motorola will insist that all its transactions take place online, and that much of the growth and many of the opportunities to strip the cost for companies are in business to business. Purchase orders, sales orders and so on will be issued over the web, although traditionally they always had to be signed to be legal. To what extent is the legislative framework in place—or not going to be in place—to allow such online transactions?

Motorola is happy to receive certain billing and invoices online, without the necessary signatures, when it has a secure transaction base with a company and after a contract has been signed conventionally. That is how it is operating at the moment, but it would like a better framework to be in place.

In Ireland—Mike Kinsella raised the Irish issue—the Government talks a good fight, but it is also putting the right legal regime in place. A bill was introduced and facilitated, and digital signatures will be up and running pretty soon there. During the passage of the bill, there was a website with a chat forum, where anyone in Ireland could say, "We like this," or "We do not like this," "Could you do that?" or "Could you do this?" I do not envisage such a chat forum being used on any of the Government websites in Scotland or England, as traditional methods of contact are preferred.

Countries such as India and Malaysia are passing digital signature acts and wanting to implement them now, whereas we are talking about introducing a bill that will allow digital signatures, but digital signatures are not yet valid in this country. They will be as soon as the appropriate secondary legislation is introduced, but no framework has been set in place by statutory instrument.

People have already made the point that the internet world moves very quickly. People will go where digital signatures are already valid and working within a proper legal framework. We have passed two acts in the UK; Germany is currently considering 15 bills on the subject.

I have a general question on the relationship between business and Government. I have just come back from the United States and I was very struck by the way in which business engages with the Government at all levels. That engagement is not necessarily political, but is much more interactive.

I was at the business breakfast to launch e-commerce week, which Chris Risbey mentioned. Many people stood up and said, "We are having an e-commerce week and it's going to be great; after that, Scotland will be online". After that, everyone went away and e-commerce seemed to have been ticked off the list as having been done. In the US, there seemed to be a much more on-going relationship at all levels of government. There was a continuing dialogue, which does not seem to be taking place in Scotland.

In my experience, we do not have a relationship between Government and business. There cannot be that many e-commerce companies in Scotland; there is an opportunity for people such as MSPs to have quite a lot of interaction and take an active interest in such companies. That relationship is much more common in the United States.

I wish that we had more time, because I would have loved to ask Gordon MacIntyre-Kemp whether, on reflection, he felt the same way about his answers and then to have asked everyone else at the meeting whether they agreed with him. However, I presume that we do not have time to do that.

No. We have time for a wee question.

I have a practical question. Underlying everything that has been said on the lack of confidence in marketing and the lack of analysis of what Scotland is marketing—both externally and business to business inside Scotland—is our provincial nature. If you want to think big, you have to get big. Wireless area networking is the next bandwagon to come round the corner and we want to be on it before it disappears. Do we have the legal framework to allow us to connect with Ireland and Scandinavia, or would that be a matter for British regulations?

British regulations.

Yet we are talking about having a Scottish solution to British problems.

That was brief.

I recognise risk takers when I see them, but Governments tend not to take risks. Is there one thing that you would like the Government to do to stimulate the industry? Is it a case of the Government carrying out its business online or is there something else that it should be doing? People have not talked much about infrastructure today.

I will not take the hint about infrastructure. The one thing that I would suggest is more teacher training.

I agree.

I cannot believe that we have finished with such short exchanges. That is very refreshing and an example to us all.

I will ask Ian Ritchie to sum up today's interesting discussion.

We have had a very profitable hour and a half. Most of you will share my attitude, which is that most of the time the Government is pretty bad news; when the Government gets involved, it usually makes things worse—we know that from both Greenwich and project Ossian. There are lots of things that the Government can do wrong, so we should concentrate on the areas where it can have a positive effect. There are some things that the Government can do which the private sector cannot. In practice, only Government can affect education, infrastructure, the legal framework and the operation of enterprise support.

We have heard about education and there is a clear issue. We educate more technologists in Scotland than they do in England—we export many of them. That is the good news. The bad news is that only 3 or 4 per cent of technology education is undertaken by girls, whereas in Ireland the take-up by girls is about 30 per cent. That is something which we are getting wrong—we are not putting it across to half our population that technology is an exciting career.

There are other education issues. I see that Stephen Beere has just arrived, and I am sure that he could wax lyrical about the fact that Scotland's education system is split into 13 fiefdoms that do not work collectively. Perhaps the reason why Cambridge is successful and Scotland is not is that Cambridge operates as a unit that believes in its local economy, whereas Scotland is made up of 13 competitive parts, none of which has the critical mass needed to provide the online delivery that is about to become available internationally.

Bandwidth is an obvious issue. The city of Palo Alto in California is hardly a hotbed of socialism, but five years ago it invested to ensure very high-capacity bandwidth throughout the area. We are still fighting—Crieff will get it in about 2008. Frankly, I do not know why Karen Birch's company is in Crieff because it is impossible to do business there. That is a problem which we must take on board. There is no point pretending that British Telecommunications is still a public sector company because it is not. We must consider other ways to ensure that the bandwidth is supplied.

We have heard about the real new economy, which centres not on websites, but on taking the costs out of the systems. That is critical. If a company does not remove its costs, its competitors will flatten it.

We have heard a little bit about Scottish Enterprise. I am a board member, so I should be careful what I say. People say that it is difficult to contact Scottish Enterprise, difficult to deal with Scottish Enterprise and that it plays the numbers game—the usual things. One of the things that Scottish Enterprise finds difficult is to know whether it is in the business of backing winners or social inclusion.

The main instrument of Government intervention, the regional development fund, is directed towards capital expenditure and job creation and is geared towards factories. That is a 20-year-old concept of industrial support. Yesterday, one of my young entrepreneurs suggested that we set up an overseas subsidiary and apply for a grant to come into Scotland. Another of my companies—it is based in Dunfermline—called up and said that it would not get a regional development fund grant because it had raised £10 million of venture capital. Motorola will get a lot of money in Dunfermline, and it could probably find £10 million in an afternoon if it wanted to.

The Government could examine the climate of competition between indigenous companies that are trying to create 40 to 50 high-quality jobs, and incoming investment—such as J P Morgan—that is also creating jobs, but is being supported in doing so. It is a good idea to support those companies, but it might be a bad idea to discriminate against indigenous start-ups.

I disagree with a few people here about the difficulty of starting up a business in Scotland—it is difficult to start up a business everywhere. I remind Jonathon Land that it would have been difficult to start up a business in Seattle.

I agree.

It is tough and Scotland is not much different from anywhere else. Scotland has a good business angel community; people such as Tom Hunter, John Boyle and Brian Souter are putting their money back into Scotland. They are putting money into e-commerce and new technology companies.

Attitude is the core issue. It has been a fact in Scotland for the past 150 years that the people with get up and go have got up and gone—we export good people. The world is now a global community and we need to network much more, not just among ourselves, but throughout the world. We must encourage people—not just the Scots—to forge links and build businesses. We are a rather insular nation, or as Margo MacDonald said, provincial.

Ireland has been working on that, and the Irish Government has done a lot to try to bring its people back. The Irish are returning to Ireland. I do not know whether Mike Kinsella is going back, but many American-Irish are returning to Ireland; it now has net immigration. It is impossible to have a fast-growing economy and a diminishing population.

I thank Ian Ritchie and the witnesses for coming to the committee. I realise that you all have very busy working lives, and we appreciate the time that you have spent with us. The committee's inquiry into the new economy will pause for a few weeks while we carry out our inquiry into the Scottish Qualifications Authority, but we will return to it in mid-October. The points that you have made will be recorded in the Official Report and will form part of our later discussions.

Meeting adjourned.

On resuming—

If Margo MacDonald sits down next to the witnesses, she may end up being scrutinised by the committee—that would be a welcome departure.

We continue with evidence for our inquiry into the new economy. I welcome Stephen Beere, the chief executive of Scottish Knowledge plc, to our discussions. Stephen has circulated a paper to members. I invite him to make some opening remarks, after which we will ask questions.

Good morning. Scottish Knowledge's aim as an organisation is to promote Scotland and, in particular, Scottish education internationally. Although we have some peripheral involvement in the UK and, to a lesser extent, Europe as markets, our primary focus is on markets outside the UK and Europe.

From the brief paper that I have given the committee, members will note that we have decided to be niche focused and to try to capitalise on the strengths of Scottish universities. Our aim is, first, to bring universities together in a more collaborative way, and secondly, to provide a sharp focus. As Ian Ritchie said earlier, universities are diverse organisations—it is hard to get a focus in one university, let alone to get four or five of them to work together. That has been the challenge in the three and a half years that I have been at Scottish Knowledge. Some of the issues that are raised in my paper reflect that.

Despite my strange accent from the southern hemisphere, it is relatively easy for me to stand in a foreign country and sell Scottish education and training. It is a little confusing for people when I start talking, because they are not sure what part of Scotland my accent comes from, but I have no problem selling my product. My problem is delivering it to interested customers. That is a key issue that I hope will come out in the few minutes that I have to talk to you today.

Thank you. Some weeks ago, we were in Aberdeen on a case study visit in connection with this inquiry, where we talked to the principal of Robert Gordon University, Bill Stevely. We questioned him about the availability of online courses at Scottish universities, and he made the point—I hope that I am representing his views accurately—that it is no cheaper to provide courses online than face to face in a tuition room. That means that universities are offering courses on a worldwide stage in an environment of intense competition, in which many other universities are offering a similar product. If that is an accurate representation of the marketplace, what does the Scottish university sector need to do that it is not doing at the moment? Do universities need to draw closer together to ensure that they are offering a world-class product that can be marketed successfully through Scottish Knowledge?

Bill Stevely is correct to say that, generally, delivery of courses online is not cheaper than delivery face to face. However, people can take online courses flexibly, in their own time. They do not, for example, need to leave their full-time job to take two years out for a master's degree, or to travel from Singapore to Aberdeen to study. Considerable cost savings are involved in that. The cost of a course may be the standard £6,000 to £8,000 for a master's degree, whether someone takes it here or in Singapore. However, the added costs of studying abroad and the benefits of being able to study flexibly and to stay in one's own country and in work need to be borne in mind. That is the appeal of distance learning courses.

You asked what else universities could do. First, they need to grapple with the issues that I have mentioned and to be more aware of the importance of marketing them as part of the competitive edge of taking a distance learning course rather than coming to Aberdeen for two years. I am not sure that the universities, at this stage, do not feel that they would rather have the students here, in situ, than half a world away. There are issues to do with controlling quality and standards, maintaining interaction with students, and keeping up the level and pace of study. Very few distance learning courses have reached that point in their development. Usually they involve taking a paper-based course and turning it into an interesting web-based course. All the issues concerning the environment of studying, teaching and learning have still to be grappled with. The first challenge for universities is to examine how the model of delivery can be changed.

Secondly, although some universities, such as Strathclyde, have been successful in international activities for a long time, others are still struggling to find their niche in the international marketplace. They may find 50 or 100 students in Hong Kong, which may look like a nice business, but if another 50 or 100 students do not come on to the programme next year and the year after that, the universities will get nervous about how they will continue to fund that; suddenly, we are looking to west Africa or somewhere in Europe. There is no strategic focus. In other words, the university should have such a focus and stick with it.

Does that have to happen university by university, or is there a requirement for an organisation to promote effectively Scottish higher education institutions and their niche markets in a number of places? I appreciate that that would be incredibly difficult to deliver among 13 disparate institutions.

I would hope that that is why the institutions invested in Scottish Knowledge in the first place. We are very much about strategic, long-term markets. I have said to everybody, time and time again, that our business is about having patience but being strategically focused. When I talk to an individual university, I tell it that I realise that it may be under pressure and unable to take a long-term, strategic focus, but that its investment in Scottish Knowledge will provide it with the funding, the marketing and the other support that it needs to do that. To my pleasure, some universities have done that but, to my dismay, others have ignored the opportunity. There are complex issues behind that, but I am not really the right person to ask.

Your paper is interesting and I am sure we could spend a lot of time discussing it. There are models in Scotland of universities working together. On the Crichton campus in Dumfries, a number of universities work together to deliver courses. The students work with all the universities to access the courses that they want, and use distance learning techniques. The situation is not bleak. Ian Ritchie suggested that there was no collaboration between universities in Scotland, but new models are developing.

Your submission mentions the accreditation of a nursing course. How do you deal with the delivery of practical courses? I know from experience that delivery of the academic side is easier. Some subjects can be more difficult. Could you say a little about how that is dealt with?

Your submission also makes a number of suggestions for the Scottish Parliament. The second last one is that there is duplication and overlap in the commercial activities of a number of "government and semi-government agencies." Will you expand on the problems there?

On the first point, as an organisation we are trying to address the issues that you raise at a strategic level. The key markets we operate in are north America, the middle east, and south-east Asia. To maintain standards, quality and delivery, all the agreements that Scottish Knowledge has put in place on behalf of the universities are with large, Government-backed, high-quality, high-profile universities, or with Government agencies.

We try to establish Government to Government relationships between the Scottish education system—in our case, the higher education system—and, say, the Malaysian education system. That is underpinned by all the elements that both systems want, for example that standards and quality are maintained on a course-by-course basis. That means the University of Strathclyde working closely with the University of Malaya or the University of Glasgow working closely with the university at Al Ain in the middle east.

We do not try to get in the way if universities want to sell their own courses. The University of Strathclyde has a great name internationally and does a lot of work in distance education. All power to it—it should continue to do that. We are trying to identify new opportunities but at the same time establish a long-term infrastructure through which the universities can work. Such an infrastructure should allow both parties to address issues such as how to maintain quality and standards on courses and what sort of infrastructure is needed to allow students to study through distance learning.

The investment that Scottish Knowledge makes with the universities is not only about converting courses from paper-based to online, but setting up relationships with the Government, bringing people from the United Arab Emirates and Malaysia to meet Government and university people and establishing quality standards agreements between each pair of organisations. It is about us having a strategic, as well as a commercial, market-driven focus to our business.

That leads me to the second point, about duplication. When I go to Malaysia, saying "I am here as Scottish Knowledge, representing all the universities in Scotland," I find, coming in behind me, three different Government agencies, all on missions, exhibitions, round-robin visits and so on. They are selling their own products. I am not saying that they should not do that, but no one talks to anybody else about co-ordination. I talk to representatives of the British Council and Scottish education + training, but we are all doing our own thing. If we really want to make an impact on the market in the long term, we must work as one system, or at least co-ordinate as one system, despite the fact that we may then pick our own niches to work in.

You may have answered my question—I planned to ask who your national competitors are. Presumably they are funded from the same public pot as you are. My first question is, who are your international competitors?

Secondly, how have your competitors resolved the problem of verifying standards in distance learning—for practical or other courses—especially in communities where communications are not as developed?

On the first point, my competitors are the various Government agencies, but also the universities themselves. In some cases, the universities have good international offices or divisions that are out there selling their own universities. I suppose the disappointment for me is that those universities decided to compete with the very company that they have invested in. It does not make much business sense to me, but I have had that debate many times and it goes on and on. That is life, I guess.

The real international competitors are north America and Australia. Increasingly, the private universities, corporate universities and ivy league universities—the Harvards, Yales and so on, with big endowments—have the money, the horsepower and, importantly, the brand, to get out there and convince people to take their online courses.

To return to my opening comment, the Scottish brand is powerful and stands up against the Harvards and the Yales of this world. However, we are not always able to follow through, and that is the issue that we must address. If Harvard decides to go for a market, it does so in a big way and does not stop until it has captured it. If I take Scottish universities through the door, I need to know that I have back-up right to the last. I do not have that at the moment, in many cases.

To clarify, is the problem that you do not have back-up as far as resources are concerned, or as far as the organisation and operation is concerned?

It is a bit of both. The universities are struggling for resources and we try to plug that gap by providing funding through Scottish Knowledge. However, not all the universities are committed to the idea of one brand—Scottish Knowledge—selling their distance learning courses. They make that decision themselves; they do not have to commit.

On standards, of all our competitors, the Australian model is very similar to the UK model. The Australians address standards at government level and, through the Australian National Training Authority or ANTA, fund universities to address such issues and deliver on quality issues.

America has a much more free market environment. Many private sector players are joining up with universities such as Harvard, Stanford and Yale and one either accepts the standards that are set by those international universities or does not. I have just come back from the US, where I did not find many attempts to implement standards across the board. The only organisation that is trying to do so is called the United States Distance Learning Association; however, I do not know its official status at this stage.

I have two brief, related questions. First, I notice that the company's turnover increased to just under £500,000 in June 2000. What is your projection for performance? You must have some target for growth to create a dynamic for interfacing with the university shareholders. What are your objectives?

Our objectives are modest at the moment, because we realise that unless you have very good products and penetration of the market, you will not achieve fantastic turnovers. However, we should double our potential every year. The latest figures suggest that online education is projected to be a £50 billion a year business by 2003. There is no reason why the Scottish education system should not be a major player, as the marketplace does not yet have a dominant player. If I picked a figure such as £50 million, my board might hang me for making projections that I could never meet. However, there is no reason why we should not double our turnover every year for the next three or four years.

Given that projected rate of expansion, it could be said that much of what you do is done to market Scottish higher education, even though your purpose is to provide online distance learning materials; as you say, you have been to Malaysia and Australia. At some point, might it make sense to conjoin the individual marketing that universities undertake abroad for their courses quite separate from their online provision? I know of one university—not Strathclyde—that will set up a location in another country to market its courses there. If we are trying to keep an integrated marketing core for higher education from Scotland, we could be heading towards a duplication of skill, facility and resource.

That is exactly my point. In March, Scottish Knowledge on behalf of the universities signed an agreement endorsed by the Malaysian Minister for Education with 11 public universities in Malaysia. The agreement creates a beach-head in that country that will allow every university to participate.

However, individual universities, for whatever reasons, are making their own commercial decisions to establish separate beach-heads. I cannot force them to turn around those decisions; all I can do is encourage them by letting them know that Scottish Knowledge gives access to Malaysia's 11 biggest universities that enrol 300,000 to 400,000 students a year. The potential market is there.

Someone mentioned accreditation of the world's first foreign nursing course, which has been approved by the American Nursing Association. There are about 6 million nurses in America. At the moment, Dundee University is the only foreign accredited university in the world that is allowed to deliver degree programmes into north America, and the challenge is to get four or five of the other universities with good nursing schools to join Dundee University to address a market with 6 million potential customers.

I have two questions.

I have knowledge of your company because I worked in further and higher education in a previous life. How are further and higher education colleges responding? Have they moved on, or are we in the same position with the further and higher education colleges as with the universities?

I know that there has been interest in marketing the Scottish educational system—I am talking about vocational education and training—to countries abroad. My authority and colleges worked with Namibia. Are you involved in the marketing of more than materials? Are you involved in the marketing of the design of the programmes? If so, will you give me an update on where we are?

On your first point, I am pleased to say that we have one FE college that is a shareholder. We are actively working with five FE colleges on projects. Although we were primarily set up to promote higher education, I said from the outset that I felt that there was as much potential for FE and the vocational sector around the world. The issue for the FE colleges is that they have great difficulties in mobilising people and systems from their internal resources to convert courses into online flexible delivery, although many of them are doing a fantastic job of that with their limited resources. We are happy to market and promote their courses around the world.

What about the higher end of further and higher education colleges, such as higher national certificates, higher national diplomas and postgraduate courses?

The Abu Dhabi Petroleum Institute project is a good example of the work that we are doing on that. It is about linking the HNC and HND programmes directly into the undergraduate and postgraduate programmes. It gives students a pathway. Many of the students graduating with local diplomas and degrees in the middle east and in parts of south-east Asia need to do a bridging or transition programme. Therefore, the articulation between the FE sector and the HE sector in Scotland, which is probably the best in the world at the moment, is very good in addressing that market. That is a unique point, which we ought to continue to sell.

I have tried to work with the individual universities and the various educational systems and bodies to promote not only individual courses but the Scottish education system. It is a well-regarded system.

I was with John Swinney and Marilyn Livingstone on the Aberdeen case study visit. One of the points that came through was that all the higher and further education colleges are under much more pressure in terms of global competitiveness. Is each university or college in Scotland providing too many courses? Is it necessary to take a more strategic look at what each university and college is doing and say that perhaps only the best two universities should provide this course and the others should stop doing it? That would help global competitiveness.

I am trying to identify the competitive or strategic advantage both within individual universities and within the system, then to market and promote that. You are right. For instance, there are probably a dozen mechanical engineering courses relating to the oil and gas sector. The market that I am addressing in the oil and gas sector probably only requires a couple of mechanical engineering courses. If all the universities came and said that they wanted to put their mechanical engineering courses online, that would create a problem. The market would not be big enough to sustain all those programmes. In a roundabout way, my answer is that there are indeed a number of courses that look exactly the same across the universities. It is probably for people other than me to decide whether they should be rationalised. I try to encourage people to work together when there is a synergy of interest in business or IT.

The great challenge is not only to look at existing courses, but also to give universities a push towards developing new areas such as e-commerce and business. Much of our work is with the corporate sector. We recently signed a very large deal with Shell, and the sorts of courses that Shell wants are not off-the-shelf standard mechanical, electrical and drilling engineering courses. Shell wants courses that will have an immediate impact on employees and relate to their working environment. It might want a business course from Heriot-Watt University, but that should be very closely focused on the oil and gas sector. In such cases, we need to bring together two or three universities that can pool their expertise.

The next issue to consider is cross-accreditation. If Heriot-Watt University and the University of Aberdeen are working together, which one awards the degree?

You are selling things and you obviously want educational products to support that. I want to ask you about investment. We have talked about how the new economy enables us to raise the quality of the products we sell and lower the costs. The same is true of higher education. The way we deliver higher education is still the same as the way we delivered it in medieval times, although the smarter universities are getting smarter. The effect of the Heriot-Watt scholar programme on the university itself and on schools at higher still level has been quite a revelation.

How are institutions to run such courses and re-engineer them to enable more effective interactive communication with students throughout the course, so that you can in turn provide more saleable products? Universities cannot lay their hands on the £5 million or £10 million needed to re-engineer courses. Is there a solution to that problem? Universities can get money to build new residences, so why can they not get money to build new courses that will turn into more efficient products, saving them money and paying back the investment?

In the short term, there is a problem with universities raising money from external sources for a very commercial activity. The banking and investment sectors do not see the universities as commercially focused or driven. They have almost a paranoia about investing £5 million or £10 million, fearing that they will never see any results at the other end. That kind of investment is not like doing research, which may never have an end point but just goes on and on, as pure research should.

We have a number of large projects for which we are just at the beginning of the funding cycle. Some large international banks are asking us to provide seed funding. On the basis of success at that stage, those banks will come in and provide substantial amounts of money—millions of pounds—for the commercialisation of those products. The quality of the university and the fact that it is committed to taking a commercial, businesslike approach to the product will affect the willingness of banks to invest.

Some of our universities, to their great credit, are getting much more business focused, although others are not yet business focused at all. Heriot-Watt University is a good example of a university that realises that it must think about its position in 10 years' time. If it needs to shake the tree and shake it hard, it will do so. Collaboration between universities and business is a must, and already happens in the United States.

You mentioned mechanical engineering in the oil and gas sector and nursing in the health sector. How would you commercially exploit a niche market opportunity that presented itself outside the five key sectors that you identified—in engineering or creative media, for example?

Because we are a small company the most effective way is to stay quite focused, but if a new area is opening up, we will spend money on market research and market development work. If we felt that there was then a clear opportunity, for example, in the creative media sector, there would be nothing to prevent us either looking seriously at that opportunity as a new part of our business or looking for a partner with which to collaborate.

There are many big organisations, as most of you know, that will do that. News International plc did not invest in Scottish Knowledge because it thought that it was a philanthropic thing to do. It did so because it was looking for us to do exactly what you said, which is identify new opportunities and then come in behind us and put in some horsepower in terms of funding, marketing and distribution, so that we can capitalise on it. That is the approach that we would take—a purely commercial approach.

Thank you for your appearance at the committee this morning, Stephen, and for answering the great number of questions that have been posed. We are part of the way through the inquiry on the new economy, and we will be reflecting on the conclusions once we have dealt with the Scottish Qualifications Authority in the next few weeks.

Item 3 on the agenda is the report back on the recent case study visits. We had a brief word last time about whether we would have those discussions with the written reports in front of us. Do the reporters have their draft written reports?

They are not complete.

Will we hold over this item until later in the inquiry?

Members indicated agreement.

We will leave item 3 until later in the inquiry, when the written reports are prepared.