The IET s response to the Department of Business, Innovation and Skills consultation on Exports and the role of UKTI

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1 The Institution of Engineering and Technology Michael Faraday House Six Hills Way, Stevenage Hertfordshire, SG1 2AY United Kingdom T +44 (0) F +44 (0) December 2015 Business, Innovation and Skills Committee House of Commons London SW1A 0AA Dear Sir/Madam, The IET s response to the Department of Business, Innovation and Skills consultation on Exports and the role of UKTI In response to your call for evidence, we would like to submit our comments to the enquiry questions on the above topic. The Institution of Engineering and Technology is Europe's largest professional engineering and technology organisation. The members represent a wide range of expertise, from technical experts to business leaders, encompassing a wealth of professional experience and knowledge. This response has been compiled on behalf of the IET Board of Trustees by the IET s Manufacturing Policy Panel. The Panel consists of senior representatives from manufacturing industry, academia and SMEs. If the IET can be of any further assistance please do not hesitate to contact me. Yours faithfully, Paul Davies Head of Policy The Institution of Engineering and Technology pdavies@theiet.org Telephone:

2 1. What policies are required to help meet the Government s headline targets of 1 trillion exports and 100,000 more companies exporting by 2020? In particular, what further support should be provided to help SMEs meet their export potential? UKTI should become aligned and integrated with the numerous other relevant government (and appropriate non-government) bodies in order to provide the concept of a one stop shop to businesses with a special focus on small, medium and large-medium companies. One unifying policy is required across government departments to smooth the pathway from innovation to market. At the moment government support for this pathway is fragmented because the agencies are separately incentivised, data is not shared and the fragmented offerings are not aligned with the innovation value chain. The question should not be about better support but rather about better alignment. Complexity needs to be reduced by fostering collaboration between SMEs and partners that can help them at each stage. SMEs represent a significant proportion of our manufacturing sectors but some are reluctant to ask for assistance in moving their businesses forward. Understanding export control can be a challenge and some SMEs have difficulty identifying and using best practice and accessing international markets and managing exports. There needs to be a more analytical approach to determining how many and which companies have a realistic export offering rather than arbitrarily deciding to help 100,000 more companies. Finding an additional 100,000 companies that have an opportunity, and the will, to export could be very challenging. Research should be undertaken to identify companies and categorise the actions needed to make them export ready. This information should be then used by UKTI to target companies with specific resources and services. In many cases there is a need to help SME s develop overall capability and growth. A part of this should be developing their export ability (the Goldman Sachs 10,000 SME growth programme 1 is a good example of how to do this). Also there is a need to develop the entrepreneurial aspiration of those SME s that have either migrated to life style companies or have a need for more visionary leadership. There is an argument that more should be done to stimulate mergers and acquisitions within the UK SME community through UK based investment, to create larger, better managed, aspirational companies capable of taking on international competition. Currently UKTI aims to gain business wins through the High Value Opportunity programme. This programme focuses on introducing and supporting UK companies in winning contracts from large overseas projects. As a result UKTI tends to focus its efforts on the larger companies where high value results can easily be obtained. This often leaves the SME 1 The Institution of Engineering and Technology Page 2 of 6

3 unattended as the value of their contracts, won either directly or indirectly, is not of high enough value to attract UKTI resources. The policy should be modified to reflect not just value but also the relative benefit. UKTI efficiency suffers significantly from the continued rotation of staff at all levels. This policy creates a culture of changing things for change sake and creates inconsistent relationships with UK companies and overseas customers. A long term commitment to roles needs to be established. There needs to be a more open policy in linking trade with aid and how this is communicated to the industrial base. The UK is losing out significantly in this area as other nations are more direct in this approach. There is also the need to undertake a review of UK implementation of European export regulations and sanctions compared to other European countries to ensure that the UK interpretation is not placing UK companies at a disadvantage. UKTI s policy on what is considered as Foreign Direct Investment (FDI) is unclear when it comes to acquisition of the equity of UK companies. UKTI needs to be clear under what conditions it supports the acquisition of UK company equity and under what conditions it does not. In some cases foreign acquisition of a UK company has led to a hollowing out of the UK based influence on the future of the company and its foreign trade aspirations. While in other cases it has provided the investment needed to create new products for the export market. The classification of the value of these acquisitions needs to be clarified. The large-medium companies ( million turnover p.a.) constitute a large part of the UK Mittelstand and are mostly already exporters seeking new opportunities in new geographies. These companies can become the growth engine towards the 1 trillion headline target and would benefit from a coordinated one-stop shop UKTI team, each with a dedicated team leader who can become each company s consultant in their new export markets. This would involve the team manager visiting and understanding each company s niche, leadership skills, core competences and aspirations as well as their product and industry nuances which can be summarised in a customised Export health-check report and scorecard. This can lead to targeted market research and matching specific overseas projects with relevant content that is aligned with each company s core strengths and ambitions. In return UKTI could ask each one of the large-mediums to help with mentoring 2-5 small companies in their own community and facilitate the creation of regional International Trade Forums. A good example of such a forum can be found in South Yorkshire where business members help each other to grow through exports. The Institution of Engineering and Technology Page 3 of 6

4 2. Is UK Trade and Investment (UKTI) fit for purpose? Are the indicators used to measure its performance the right ones? How could UKTI be better held to account? One of the biggest challenges UKTI faces is that it is accountable for the export target but does not influence all the activities in the innovation value chain that are necessary for success. Exports need to be driven with concerted effort across stakeholders in the public and private sectors and hence it is unhelpful to focus only on UKTI's fitness. UKTI needs to influence what goes on in other government agencies and in other supporters eg. banks. The Reshore initiative with MAS (admittedly for inward investment not exports) is an example of this. The basic measure of the value of exports is a clear way of showing UKTI impact, however, measuring the impact is uncertain and in some instances. It would be better to couple the value of export with a UKTI benefit offered score. Measurements between different parts of UKTI can often be different. For example POST are measured on OMIS sales, the UKDSO on Service Delivers and ITA s on the sale of services packages such as Passport to Export. While it is recognised that different parts of the organisation has different roles, there should be top level common and overriding measurements. That way all players will pull in the same direction. By building and maintaining alliances in industrial sectors there will then be a clear basis of measures to consider future strategies for growth and evolution. An annual report and case studies by industry sector showcasing success stories and access routes could be a useful publication. 3. What UKTI activities are most effective at increasing exports? What more could it do? UKTI is very good at engaging potential suppliers with actual buyers through trade fairs and tailored eventsin iconic venues eg embassies. More events in the UK with inbound buyers (ie of exported products and services) could be effective. For example, did the recent Chinese delegation meet smaller UK suppliers of nuclear technologies? UKTI is particularly effective at gaining access at the right level to overseas customers and converting that into introductions and opportunities for UK companies. The trade mission, when targeted and organised correctly, is still a very effective way of getting UK companies in front of the right customers in a very short timeframe, something that lots of UK companies would struggle with achieving. This coupled with market awareness briefings and programmes such as Passport to Export are liked and welcomed by industry. However, there is still a wide swath of industry that are not even aware of the UKTI offering 2. This needs to be addressed through national and international advertising. 2 The Manufacturing Support Scheme Survey 2013 carried out by GAMBICA (the UK Trade Association for Instrumentation, Control, Automation and Laboratory Technology) in conjunction with the Department for Business, Innovation & Skills. The Institution of Engineering and Technology Page 4 of 6

5 UKTI could do more to stimulate the market by undertaking jointly funded international projects (possibly linked with aid or other budgets such as climate change). These projects act as an invaluable stimulus to get UK companies into the market. This is an approach often used by other countries. Following introducing UK businesses to relevant foreign business contacts, there is a need to provide support in dealing with red tape, guidance with local product conformity standards and taxation, translation services and help with writing, negotiating and notarising contracts. Furthermore, support and guidance on how to set up a local trading entity, assisting with entry into local bonded warehouses and how to access the provision of credit and working capital guarantees are vital components for a successful start in a new territory. The provision of market research which UKTI offers is usually expensive and of variable quality this needs improvement and auditing. There is also a need for trade-missions to be planned well in advance (i.e. annual calendar of events a year in advance) with lower entry fees and adequate mentoring of the cohort of participants prior and during the events. This form of planning could go a long way to ensure greater participation of SMEs in trademissions and make UKTI a very appealing resource. Coordination and seamless partnering with other government bodies is paramount in order to achieve this. If we want exports to grow dramatically, we need to recognise that SMEs are going to have to be a part of it. However, the early-stage costs and risks are often prohibitive to a small business without some assistance. Long-term investment into manufacturing businesses is required to make it competitive in a global market. Successive changes of initiatives make it so difficult that in the end it does not make economic sense for SMEs to engage. 4. What more can other bodies, such as the banks and UK Export Finance, do to provide financial assistance to companies seeking to export? Banks, UKEF and other financial enablers need to be more joined up in their strategy and strive towards a common goal and not solely attempt to maximise their own performance. Sharing data and joining up forces with other agencies to optimise support to innovators will help new companies to become exporters. More specifically the financial enablers need to find ways to reduce the debt burden on innovators, either through delaying the payment liability to a point closer to the sales and income stream or by replacing debt with equity (as is more common in the USA). UK Export Finance has moved forward significantly in recent times but still does not have the ability to consider providing launch aid to companies or foreign projects. UKTI s relationship with a number of the trade associations has degraded as a result of the policy to procure event services through a single large scale contractor. These relationships, and their involvement in UKTI events, are a key part of UKTI interfacing with industry. This policy needs to be reversed. Only a small amount of UK banks are offering comprehensive export-growth facilitation and finance. Partnering with UKTI they can sponsor trade missions, seminars and export health- The Institution of Engineering and Technology Page 5 of 6

6 check reports for businesses seeking to export. They can also play the role of introducing SMEs to relevant UKTI contacts and participating in the scoping of opportunities. Santander is currently leading this field in the UK and is an example for other UK banks to follow and the UKTI to encourage. Lloyds Banking Group have heavily invested in educating their managers and decision makers about manufacturing. They have had a programme developed at WMG, University of Warwick specifically for their managers managing the manufacturing finances. Seemingly the other institutions have not moved forward in this way and companies still find it hard to access capital. Without having our financial services educated they cannot make informed decisions about new business ventures or know how to mitigate risks and simply refuse funding. The Institution of Engineering and Technology Page 6 of 6