5th Report, 2015 (Session 4): Internationalising Scottish Business

SP Paper 719

Contents

Executive Summary
Key recommendations
Introduction
Support for Scottish exporters

Background
Wilson Review of Support for Scottish Exporting

Wilson Review recommendations
A single portal
Conclusion

The role of Scottish Development International
Co-operation with UKTI
Smart Exporter

A new export support programme

Account management and export support

Tracking international performance

Capturing data on exports

Scotland Performs
Conclusion

Collaboration and industry leadership

Scottish Government position
Conclusions

Trade missions

Background
SCDI delivery
Co-ordination with other organisations
Committee participation in trade mission to Saudi Arabia
Cross-sector mission
Developing other cross sectoral opportunities
Scottish Government position
Conclusions

Developing the GlobalScot network

Export mentoring
Conclusions

Education – building links and seizing opportunities

Conclusions

Ethical considerations

Scottish Government position
Conclusion

Transportation issues

Infrastructure development
Air Passenger Duty

Annexe A

Extracts from the minutes of the Economy, Energy and Tourism Committee and associated written and supplementary evidence

Annexe B

List of other written evidence
Supplementary Written Evidence

Remit and membership

Remit:

The remit of the Committee is to consider and report on the Scottish economy, enterprise, energy, tourism, renewables and other matters falling within the responsibility of the Cabinet Secretary for Finance, Constitution and Economy (apart from those covered by the remit of the Infrastructure and Capital Investment Committee), and matters relating to cities.

Membership:

Murdo Fraser (Convener)
Dennis Robertson (Deputy Convener)
Chic Brodie
Patrick Harvie
Johann Lamont
Richard Lyle
Gordon MacDonald
Lewis Macdonald
Joan McAlpine

Internationalising Scottish Business

Executive Summary

1. The Economy, Energy and Tourism Committee inquiry into Internationalising Scottish Business has explored the reasons why many Scottish firms, particularly SMEs, do not export at present and considered what more can be done to encourage them to enter and grow in international markets.

2. Significant progress has been made towards the Scottish Government’s target to increase exports by 50 per cent by 2017, but we were concerned by the fact that these are concentrated heavily with a limited number of large firms; around 100 companies account for 60 per cent of Scotland’s exports. With access to the right guidance and support, we believe many more Scottish companies could trade successfully in international markets.

3. The Committee examined the work of Scottish Development International (SDI), the international arm of Scotland's economic development agencies. We found many positive examples of SDI work; its interventions and programmes are valued highly by many companies around Scotland. But, if Scotland is to make a step change in its international export performance, we believe SDI can and must do more. We have recommended that SDI should have within its operating plan a renewed emphasis on promoting internationalisation and supporting Scottish exporters, backed by more challenging targets.

4. Our report recognises that the pursuit of international business opportunities should be set within an ethical as well as an economic context. It is important therefore that there is a direct connection between the priorities and wider policy commitments of government and actions taken by government agencies. For that reason we have asked SDI to set out how it contributes to the Strategic Objectives contained in the Scottish Government’s National Performance Framework.

5. We have also recommended that, as part of the future development of the Scotland Performs national reporting framework, a performance indicator should be established which measures the increase in the number of businesses in Scotland which are active exporters, not just the overall value of exports.

6. We looked also at how well SDI collaborates with other organisations which offer support to exporters, including UK Trade & Investment (UKTI). The picture here is one of improvement, but again more can be done to enhance partnership working and avoid duplication of effort.

7. Several witnesses suggested to us that prospective exporters would benefit from having access to information and support services through a single portal. This online resource would draw together information from a number of agencies and signpost users to appropriate sources of advice and support based upon their particular needs. We endorse this suggestion and recommend that a clearly identifiable brand for the portal should be created, building on work already started by the Scottish Government, local authorities and the enterprise agencies.

8. We were impressed by industry led efforts to increase exports, such as that led by Scotland Food & Drink, which has been supported and facilitated by SDI and the Scottish Government. We believe that this model has the potential to be replicated in other key sectors and look forward to a review of its success after its initial period of operation.

9. We look forward to the Scottish Government’s response to the recommendations contained in this report.

Key recommendations

Scottish Development International is to be congratulated for the recent significant increase in the number of companies it has supported with advice and assistance on internationalisation. Building on this, we recommend that it should have within its operating plan a renewed emphasis on promoting internationalisation and supporting Scottish exporters, backed by more challenging targets in the forthcoming update to Scotland’s International Trade and Investment Strategy. (Paragraph 49)

We recommend that the single portal already established at business.scotland.gov.uk should be developed further and promoted actively to businesses. To assist this process we further recommend that a clearly identifiable brand for the portal should be created. As part of its future development, export advice and assistance from both public and private sector organisations, should feature prominently on the portal. (Paragraph 42)

We recommend that Scottish Development International should review the annual targets set for its new export support programme after 18 months of operation in order to establish the outcomes delivered to date and to determine whether targets for the remainder of the programme should be made more challenging. (Paragraph 73)

We further recommend that Scottish Development International should capture as a key performance indicator the increase in export sales generated by companies as a result of participation in its new export support programme. (Paragraph 74)

As part of the future development of the Scotland Performs reporting framework, we recommend that a performance indicator be established which measures, from an appropriate baseline, the increase in the number of businesses in Scotland which are active exporters. Scottish Development International should then report performance against this indicator through Scotland Performs. (Paragraph 98)

We consider that overall responsibility for co-ordination and leadership of export strategy and initiatives should rest with Scottish Development International. We support strongly sectoral initiatives to increase exports, such as that led by Scotland Food & Drink, where industry leadership has been supported and facilitated by Scottish Development International and the Scottish Government. We recommend that Scottish Development International review the success of this initiative after its initial period of operation in order to assess the potential for this model to be replicated in other key sectors. (Paragraph 111)

We recognise the expertise, and support the role, of organisations such as SCDI, chambers of commerce and trade associations in leading trade missions to key markets overseas. We recommend that SDI explore with private sector partners a greater co-ordination of effort in this area in order to minimise duplication and unnecessary competition and maximise the benefits to businesses in Scotland. (Paragraph 142)

We recommend that Scottish Development International review the means by which businesses can access the GlobalScot network in order to maximise the opportunities for Scottish companies to gain a competitive advantage in international markets. (Paragraph 156)

We recommend that Scottish Development International explore ways to utilise more effectively the extensive international networks established and managed by Scotland’s universities and colleges in order to boost opportunities for Scottish businesses. (Paragraph 167)

We recommend that the core advice and guidance offered to businesses in Scotland seeking to internationalise, whether produced by the Scottish Government, the UK Government, or their respective agencies, should address directly specific issues associated with doing business internationally to promote good practice in relation to social, environmental and human rights standards. We recommend, therefore, that SDI set out in its response to this report the steps it intends to take to address these issues. (Paragraph 178)

Introduction

10. The Economy, Energy and Tourism Committee launched its inquiry into Internationalising Scottish Business to examine the opportunities and challenges faced by Scotland’s existing and aspiring exporters and the support available to them from the Scottish Government, through Scottish Development International (SDI), Scottish Enterprise (SE) and Highlands and Islands Enterprise (HIE), and from the UK Government via UK Trade & Investment (UKTI).

11. ‘Increasing Scottish exports’ is one of the Scottish Government’s National Performance Framework national indicators, supported by a target in the Government’s Economic Strategy, published originally in 2007, to deliver a 50 per cent increase in the value of international exports between 2010 and 2017.

12. Our inquiry sought to explore the reasons why many Scottish firms, particularly SMEs, do not export and what more can be done to encourage them to enter and grow in international markets.

Acknowledgements

13. We wish to thank all of those individuals and organisations who submitted written evidence and provided oral evidence during this inquiry, as well as those who met with Members during fact-finding visits. Their views have helped to shape the recommendations within this report.

14. We are also grateful for the support provided by Jane Gotts, Director of International Business Development, Glasgow Caledonian University, who acted as adviser for the inquiry.

Visits

15. As part of our inquiry, we arranged a number of fact-finding visits. In conjunction with colleagues from the Infrastructure and Capital Investment Committee, we visited Forth Ports and WH Malcolm Group at Grangemouth in order to gain a better understanding of some of the freight transport issues associated with the export of goods from Scotland. We also visited Aberdeen and Grampian Chamber of Commerce to discuss the export support services the Chamber provides to its members. Finally, three Members of the Committee shadowed a group of companies participating in a trade mission to Saudi-British Energy Week from 9 to 12 February 2015. We wish to thank all those who facilitated these very useful visits.

Support for Scottish exporters

Background

16. According to the Scottish Government’s most recent Global Connection Survey, the value of Scotland’s international exports increased by around 20 per cent between 2010 and 2013. 1

The annual value of Scottish international exports, 2002 to 2013 (£bn cash terms)

Source: Scottish Parliament Information Centre (2015) Scotland’s International Exports

17. The recent N-56 report on Scottish exports argues that Scotland is currently operating at a trade surplus once exports of oil and gas from the Scottish section of the UK Continental Shelf are included. Experimental statistics from the Scottish Government’s Scottish National Accounts Project (SNAP) appear to confirm this view, with the most recent estimates showing a net trade surplus of £6.3 billion in 2013. 2,3

18. However, exports are concentrated with a limited number of firms, with around 100 companies accounting for 60 per cent of Scotland’s exports. 4

19. In 2013 only 16 per cent of all international exports were from small companies (those employing less than 50 people). There was a reduction of £135 million in the value of international exports from small companies between 2012 and 2013, representing a three per cent decrease. However, medium-sized companies (employing between 50 and 249 people) increased their international exports by £1.1 billion (17%) over the year. 5

Destinations of Scottish exports

Source: Scottish Parliament Information Centre (2015) Scotland’s International Exports

20. Data from the Federation of Small Businesses also suggested that under a fifth of small businesses in Scotland are exporters, with relatively few considering exporting in future plans. For the vast majority, this was because they felt exporting was not possible or relevant for their products or services. 6

21. Support for Scottish businesses seeking to internationalise is available from a number of sources, both public and private sector: SDI (the international trade and investment arm of SE and HIE); UKTI; chambers of commerce; trade associations; and the Scottish Council for Development and Industry (SCDI), are all active in this arena.

Wilson Review of Support for Scottish Exporting

22. In 2012, the then Secretary of State for Scotland, Rt Hon Michael Moore MP, asked Brian Wilson, the Chairman of Harris Tweed Hebrides and a former UK trade and energy minister, to carry out a review of Scottish international trade and analyse the challenges faced by businesses. Mr Wilson reported his findings in May 2014. 7

23. The Wilson Review found that the export support landscape is confused by the existence of a “plethora” of bodies with a stake in the promotion of exports. The Review stated—

All have legitimate roles to play but it is essential that they should do so within a framework that is clear and comprehensible to the businesses that they are seeking to serve. 8

Wilson Review recommendations

24. A key recommendation of the Review was the establishment of a “single portal” approach, to be branded Scottish Exports, which would “provide a uniform “front door” to potential exporters throughout Scotland that will guide companies to the most appropriate source of advice, and where appropriate, support”. 9

25. Other recommendations of the Review included—

  • improving access to finance for Scottish exporters
  • addressing skill shortages in areas required to support exports, for example sales and marketing, and language competence
  • continuing the ‘sector-led’ approach currently followed by Scottish Enterprise, HIE and SDI
  • a focus on the potential of services – for example financial, accounting and legal – as growth Scottish exports
  • improving air links with Europe and the rest of the world
  • the need to ensure greater consistency of help available from the Global Scots network

26. When he appeared before the Committee, Mr Wilson told us that a working group between SDI, UKTI and the Scotland Office had been recently established to take forward the review’s recommendations. 10

27. Subsequently, we were informed by SDI that the remit of the group is to work together on a number of shared actions on recommendations in the review, to deliver more effective support to Scottish exporters. The group will also consider mechanisms for building on current, and strengthening future, collaboration between UKTI and SDI. In terms of timescales for this work, we were told—

The group initially aimed to develop a joint action plan by the end of this financial year. Although this timescale will now not be met, work to develop and implement the action plan will continue as a collective endeavour under Scotland Office’s stewardship, informed by the preparatory work set out above. The Scottish Government is committed to this joint approach. 11

28. John Swinney acknowledged the helpful range of suggestions contained in the Review, but considered that it did not contain a “magic bullet”. He gave a commitment that the Wilson Review would be materially considered as the Scottish Government formulated a new trade and investment strategy for publication in autumn 2015. 12

29. We recommend that the Wilson Review Working Group publish, on a quarterly basis, a record of its decisions and progress made towards implementation of the recommendations of that Review.

A single portal

30. Discussing the recommendation in his Review proposing the creation of a “single portal”, Mr Wilson described a complex current situation with many different organisations providing support and assistance for potential exporters—

The problem just now is that there is not only a plethora of organisations but a lack of co-ordination among them, so the person or business that enters the system has no sense that they are into a single channel that will lead them to a definitive conclusion. 13

31. In order to address this, Mr Wilson confirmed that his call for a single portal was a priority for action which he believed could be driven forward by Government. 14

32. There was general support for this recommendation from other witnesses we heard from during the inquiry. Garry Clark, Scottish Chambers of Commerce, argued that a single point of contact was “absolutely essential” to “point people towards where they need to go”. 15

33. Iain McTaggart acknowledged that the Wilson review had suggested that SCDI could be contracted to take on the portal’s development and management. He explained that his organisation had not so far had extensive discussions about this, although it was willing to explore the possibilities. 16

34. Professor Jim Love of the Enterprise Research Centre told us that the idea of having a single portal to help SMEs in internationalising and innovation had been talked about at a UK level for at least 20 years but had not so far been implemented. He outlined the problem as he saw it—

Businesses are confused and they do not know where to start. They are worried about the risks and costs that are involved and they desperately need advice. Once they get into the right framework—either SDI in Scotland or the UKTI in the UK—they often get good advice, but the trouble is that they do not know where to go. They are crying out for a one-stop shop. 17

35. Guy Warrington, UKTI, stated that this issue was not unique to Scotland. He pointed to “growth hubs” in England as places where people can access the entirety of business support in one place. However, he also advocated a “no-wrong-door policy”—

There should be a place where people can get everything that they need, but we should accept that people will go through other doors, which should take them to the same place—they should arrive at the same process whereby their needs are diagnosed and they are fed out to the people who can help them. 18

36. Jane Martin told us that Scottish Enterprise, Highlands and Islands Enterprise, Business Gateway, local authorities and Skills Development Scotland, were working jointly on a business portal programme—business.scotland.gov.uk—that is intended to be where businesses can go to access a range of support that is available across the public sector—

The portal is under development, but it is already live and we will continue to improve it. It is about to be integrated into the Scottish Government’s mygov.scot portal, which is a one-stop shop for all services for both citizens and businesses. That work is under way. 19

37. Responding to this evidence, John Swinney agreed that there was merit in exploring further the suggestion about a single portal—

Generally, the more convenient and practical we can make it for companies to access consolidated authoritative information that can help them to undertake their exporting activity, the better. 20

38. In response to the suggestion of establishing an “Export Scotland” brand. Mr Swinney said that he was “less convinced”—

We have Scottish Development International out there; it is pretty well recognised within the marketplace. I would take a lot of persuading that we should tamper with that. 21

39. He expressed confidence that a company interested in exporting that makes the connection with SDI would get a “co-ordinated and consolidated support service that enables it to enter a particular market”. 22

Conclusion

40. We recognise that the establishment of an online portal dedicated to export advice and assistance will not, in isolation, solve all of the problems faced by fledgling exporters. Nonetheless, we think such an undertaking would be an important step forward in encouraging more Scottish businesses to consider trading internationally.

41. We acknowledge the work that is already underway, led by the Scottish Government, to develop an online business development portal at business.scotland.gov.uk, with the strapline of “the place where businesses in Scotland can find support and information”. Although at present the functionality of the site and the information available, particularly in respect of exporting, is incomplete, it is clear that the potential exists for this to form the basis of a very useful online resource for businesses.

42. We recommend that the single portal already established at business.scotland.gov.uk should be developed further and promoted actively to businesses. To assist this process we further recommend that a clearly identifiable brand for the portal should be created. As part of its future development, export advice and assistance from both public and private sector organisations, should feature prominently on the portal.

The role of Scottish Development International

43. Scottish Development International is the international arm of Scotland’s development agencies. It has a dual role to encourage inward investment and promote internationalisation by Scottish companies.

44. SDI is almost entirely funded by Scottish Enterprise, with a budget of £35.1 million in 2014-15 and a planned budget of £34.1 million in 2015-16. 23 The largest areas of SDI expenditure are on programme costs (including grant funding, events and trade missions), staff costs and the costs of running overseas trade and investment offices. 24

45. SDI has a network of 28 overseas offices which businesses can use to access local market intelligence. Since 2012, it has opened new offices in Norway, Saudi Arabia, Ghana, Canada, Brazil, China and India. 25

46. Since 2010-11, SDI offices have recorded 9,180 instances of support to companies, of which, 4,859 were SE/HIE Account Managed. The network of offices costs approximately £10 million per year to staff and run. 26

Scottish Development International office locations

47. SDI doubled its international support to companies, from supporting 1,380 businesses in 2011-12 to 2,708 in 2013-14. 27

48. Neil Francis, Director of International Operations at SDI, told us that it sought to balance its efforts between attracting inward investment and supporting the existing company base to internationalise—

The reason why those issues are closely linked is that many of our largest exporters are also inward investors. Many of the companies that we attract here come to Scotland not simply to access our domestic market, which is small, but to use our country as a launch pad into Europe, the Middle East and Africa. 28

49. Scottish Development International is to be congratulated for the recent significant increase in the number of companies it has supported with advice and assistance on internationalisation. Building on this, we recommend that it should have within its operating plan a renewed emphasis on promoting internationalisation and supporting Scottish exporters, backed by more challenging targets in the forthcoming update to Scotland’s International Trade and Investment Strategy.

Co-operation with UKTI

50. UK Trade & Investment is a joint, non-Ministerial Government Department of the Foreign and Commonwealth Office and the Department for Business, Innovation and Skills (BIS). It has over 1,200 officers based in more than 160 offices, in over 100 countries across the globe. In some countries SDI offices are co-located with UKTI. 29

51. In its written submission, UKTI told us that in 2013-14 it had helped over 2,300 Scottish companies to export abroad with services including trade missions, market entry support, access to trade shows and opportunities to meet overseas buyers. This included a Commonwealth focussed Business Conference in Glasgow at the start of the Commonwealth Games, delivered in partnership with Scottish Enterprise. 30

52. However, we received evidence both formally and informally from businesses and other organisations that co-ordination between SDI and UKTI was not as strong as it could be and that this was limiting the effectiveness of support available to Scottish companies.

53. Garry Clark, Scottish Chambers of Commerce, reported that the relationship between SDI and UKTI was “disjointed”. While SDI provided in Scotland a number of UKTI products to businesses, there were occasions when a business had approached SDI for support only to be told that there was no funding available, but then, on approaching UKTI, had been told that there was such funding. He commented—

If I walk in one door to a place that provides SDI and UKTI services, why do I not get consistent answers? Why do I have to go to two places? There is definitely scope for the relationship to be far more smooth and streamlined. 31

54. In a written submission, Triogen Ltd., a design and manufacturing company, based in East Kilbride, expressed the view that many companies may be unaware of what the UKTI, SDI, and similar bodies, can offer prospective exporters to help them “get their foot in the door”. 32

55. Professor Love, Enterprise Research Centre, told us—

From my experience of working with people at UKTI, I can say that they typically regard trade support as having been devolved to the Scottish Government to administer through SDI, and that is pretty much it. 33

56. Garry Clark also said that the UKTI brand was “pretty much invisible” to most Scottish Chambers. 34

57. Brian Wilson was generally full of praise for the work carried out by SDI. However, he told us that during his review he had found evidence that businesses that did not fall within the SDI matrix of priority markets and sectors were not necessarily referred instead to UKTI—

That is one area in which a gap exists. If a company is trying to sell a product in a market in which SDI is not represented, that company should at least be referred to UKTI and told what it can offer. 35

58. Iain McTaggart, SCDI, spoke positively about SDI, Scottish Enterprise and UKTI collaboration on an ExploreExport event held at Murrayfield, Edinburgh, in November 2014, at which around 400 companies attended seminars and held one-to-one meetings with market specialists from UKTI and British Chambers of Commerce. 36

59. Guy Warrington, UKTI, told us that it had an excellent working relationship with SDI and sought to explain the lack of visibility of UKTI in Scotland as a consequence of branding at the point of service delivery—

We do not sell our products actively as UKTI in Scotland; we rely on SDI to sell our product range, so to speak. 37

60. Neil Francis, SDI, expressed the view that the important thing was that companies in Scotland could access the full range of support available to help them to maximise the impact of their internationalising efforts—

Our approach is not to duplicate. We try our hardest not to duplicate products that are available through UKTI. It is about complementarity. 38

61. Asked whether focusing the delivery of services under the SDI brand was the best approach, John Swinney expressed the view that the question should be considered from the consumer’s perspective—

They might meet someone from SDI who supports them with exporting, and the question whether they are being given a UKTI product or an SDI product is rather irrelevant to them. All that matters is that they are getting the right product. That is the benefit of the current arrangements. 39

62. With respect to co-location of SDI and UKTI offices in overseas markets, Mr Swinney acknowledged that benefits arise from co-location in certain circumstances, but he stated—

There will be areas in which we attach a very high priority to market presence and we will have a distinct SDI presence to undertake that work. 40

Smart Exporter

63. Between 2010-11 and 2014-15 Scottish Development International provided training to potential and existing exporters through its “Smart Exporter” programme, which helped firms to develop the skills, knowledge and confidence to “go international”. Smart Exporter had an original budget of £6 million over the 4 years of its existence, comprising a £2.6 million European Social Fund contribution and £3.3 million Scottish Enterprise match funding.

64. Since October 2014 Scottish Enterprise and SDI no longer use the Smart Exporter brand. Instead, all existing and proposed international support services will come under the banner of SDI. This support is either free or heavily subsidised and available to any company based in Scotland. The Smart Exporter brand will continue to exist in the Highlands and Islands Enterprise area until June 2015.

65. Between 2011-12 and 2014-15 over 4,700 companies across the SE and HIE areas participated in Smart Exporter training. Evaluations showed that participating companies were generally satisfied with the programme, although data showing increased international sales as a result of participating in Smart Exporter was not available. The Smart Exporter Highlands and Islands 2011-13 Review concluded—

The programme has met most business’ needs. It has imparted new skills and knowledge to individual participants many of which have been applied in their business. As a result most businesses have moved along the export ladder. These benefits apply to both existing exporter and those who were not exporting before taking part in the programme. 41

66. The Scottish Enterprise evaluation stated—

The main benefits identified were a better understanding of exporting and what is required; a better understanding of how to research target markets; a better understanding of how to protect company e.g. legal issues, good information to help build business/export plans and being more prepared to export. The majority of participants had developed or started to develop an export action plan as part of attendance on the workshops and it was clear from the action plans that the majority already had an idea of target markets with many indicating the locations of interest. 42

67. The consultants who carried out the review for Scottish Enterprise recommended a range of process improvements to help maximise the effectiveness of the programme. These included—

  • instigation of a formal feedback process to help understand the value and impact of the support provided
  • improvements to the company database held by SE in order to reach out to the full population of Scottish companies as there was a need to increase the number of contacts on the database
  • the establishment of an export baseline for all programme participants as a crucial metric to show the impact that Smart Exporter had on attracting participants that are non-exporters. 43

68. The Highlands and Islands review recommended that a future programme should include follow ups with non-HIE account managed businesses, possibly by Business Gateway or Enterprise Europe. 44

69. We invite Scottish Enterprise and Highlands and Islands Enterprise to confirm that recommendations made in reviews of the Smart Exporter programme have been implemented.

A new export support programme

70. The new export support programme commenced in October 2014 and will run until 2020. All activities in the new programme, for example, workshops, and market awareness events, will be branded with the three brands: SDI, SE and HIE. SDI told us that this approach would “help reduce the number of brands in the market place, reducing potential confusion amongst customers”. 45

71. The following targets have been set for the new export support programme—

  • Support 1,000 companies per year – through Awareness and Ambition, Capacity and Capability, Execution and Entry programme activity
  • In doing so will convert 200 non exporters to new exporters per year
  • Convert 200 passive exporters to active exporters per year

72. We believe that the continuation and expansion of export support services by the enterprise agencies is of vital importance if Scotland’s export performance is to be improved significantly. We note the concentration of 60 per cent of Scotland’s exports with around 100 larger companies in only a handful of sectors. We are concerned, therefore, at the relatively modest targets set for the new programme given the numbers of companies assisted through the predecessor Smart Exporter. Consequently, we make the following recommendations—

73. We recommend that Scottish Development International should review the annual targets set for its new export support programme after 18 months of operation in order to establish the outcomes delivered to date and to determine whether targets for the remainder of the programme should be made more challenging.

74. We further recommend that Scottish Development International should capture as a key performance indicator the increase in export sales generated by companies as a result of participation in its new export support programme.

Account management and export support

75. Both SE and HIE operate an account management system which seeks to identify and facilitate the development of Scotland’s growth companies in line with the strategic objectives of the Government Economic Strategy.

76. According to SE, approximately 60 per cent of its account managed growth companies are exporters. Europe is the main export market for more than half of account managed companies, with North America the main market for 20 per cent and Asia the main market for 12 per cent. 46,47 50 per cent of HIE’s account managed businesses export outwith the UK, and a further fifth (19 per cent) are on the export ladder, preparing to export. 48

77. When we raised the issue of support for SME exporters as part of our scrutiny of the Scottish Government’s draft budget 2015-16, SE responded that for all of its support, growth potential, not size, was the criteria. We were told that figures from the 2013 Account Management evaluation showed that approximately 70 per cent of SE Account Managed companies were SMEs. 49

78. The tables below show the regional spread of account managed companies across Scotland which presently export.

Table 1: Geographical breakdown of exporting growth companies (SE area)

 

Percentage of total SE growth company exporters (%)

Edinburgh and Lothians

20.0

Grampian

16.8

Glasgow

12.7

Lanarkshire

11.8

Tayside

9.8

Ayrshire

5.5

Fife

5.5

Forth Valley

5.5

Renfrewshire

5.2

Borders

3.5

Dunbartonshire

1.9

Dumfries and Galloway

1.8

Total

100

Source: SPICe correspondence with Scottish Enterprise officials, 2014.

Table 2: Geographical breakdown of exporting growth companies (HIE area)

 

Percentage of total HIE account managed exporters (%)

Inner Moray Firth

23

Argyll

18

Caithness and Sutherland

14

Moray

14

Shetland

12

Orkney

8

Lochaber, Skye and Wester Ross

7

Na h-Eileanan an Iar

4

Total

100

Source: HIE account managers’ assessment: August 2014.

79. SCDI and Scottish Chambers of Commerce expressed some concerns that not all Scottish companies would get the export support that they needed, if they fell outside key sectors or were not account managed. Iain McTaggart told us—

Not all companies can be account managed, but we need to recognise that there is export potential in other companies that are excluded from that network, and we need to think about ways in which we, collectively, can help them to make progress on their own objectives. 50

80. Responding to concerns raised about companies being excluded from account managed status in rural parts of the Scottish Enterprise area due to higher turnover requirements than in the HIE region, Jane Martin told us that SE was working with the local authorities in the south of Scotland to look at this as part of a wider review—

We want to assess companies on the basis of potential and their opportunity for growth as opposed to just using a threshold, which is a bit of a blunt instrument.51

81. James Withers, Scotland Food & Drink, explained that of approximately 200 account managed food and drink companies most are large-scale. As 80 per cent of food and drink companies operating in Scotland employ fewer than 10 people, he argued that it was critical to engage with companies at that end of the spectrum. 52

82. Based on experience from his sector of collaboration between micro-businesses, James Withers also advocated greater flexibility in the account management system—

It is easy to account manage a company; it is a bit more complex to account manage a collaboration of companies. We will have to learn how to do that in Scotland, given the SME base. 53

83. Professor Love, Enterprise Research Centre, argued that it was possible from existing survey data to identify firms that export occasionally but not continuously, or have characteristics that mean that they are more likely to become exporters, in order to target support at them rather than taking a scattergun approach to all firms in Scotland. 54

84. John Swinney responded to these concerns in oral evidence and gave a firm commitment regarding the availability of support from SDI—

If companies that are not account managed and have gone through the business gateway are identified as having the necessary characteristics and strengths that could make them successful exporters, SDI’s mandate is to support those companies. That is about identifying growth potential. I think that that gives us reassurance that we have the arrangements in place that can do that comprehensively. 55

85. We welcome the confirmation from the Cabinet Secretary for Finance, Constitution and Economy that Scottish Development International has a mandate to support all companies with the potential to become successful exporters.

86. In order to ensure that enterprise agency support for potential exporters reaches the maximum number of companies, we recommend that Scottish Enterprise and Highlands and Islands Enterprise conduct a review of their respective criteria for account managed status with a view to giving greater emphasis to the export potential of businesses. The conclusions and recommendations from these reviews should be published in order to make clear to businesses the criteria for account management.

Tracking international performance

87. Currently neither Scottish Enterprise nor Highlands and Islands Enterprise track the international sales performance of account managed companies. It is therefore difficult for SE and HIE to demonstrate how many account managed companies have increased their exports as a result of agency interventions.

88. In order to make it easier to assess the effectiveness of export support interventions and identify areas where additional support is required, we recommend that Scottish Enterprise and Highlands and Islands Enterprise institute improved recording and reporting of the export performance of account managed companies. Data should be published regularly showing export performance at sector, company size and regional level.

89. We note the figures provided to SPICe by Scottish Enterprise that only 60 per cent of its account managed growth companies are presently exporters. We invite Scottish Enterprise and Highlands and Islands Enterprise, in their responses to this report, to provide additional information about the initiatives they are taking to increase the percentage of its account managed companies which trade internationally.

Capturing data on exports

90. The Scottish Government conducts two surveys which measure Scotland’s export performance – the annual Global Connections Survey (GCS) and the Index of Manufactured Exports (IME) which is updated every quarter.

91. The GCS collects information on exports and international connections of companies in Scotland covering all sectors of the Scottish economy. Data has been collected annually since 2002. The 2013 GCS analysed data from a total of 1856 companies: a response rate of 34 per cent. 56

92. According to the most recent GCS, the top five export sectors in 2013 were food and drink (£5bn), petroleum and chemicals (£3.5bn), professional services (£1.9bn), machinery (£1.8bn) and computers/electronics (£1.4bn). Four of these sectors have seen increases in international sales since 2002. For example, the value of ‘legal, accounting, architecture, technical testing and analysis services’ exports has increased by 140%, or £1.1bn, since 2002. Food and drink saw an increase in international sales of £2.2bn, or 81%, since 2002, with most of this increase due to a £2.0bn increase in whisky sales. Only one of the top five export sectors witnessed a reduction in international sales over the decade; the computer and electronic products sector, which saw a reduction of £4 billion in export value over the decade. This fall was mostly between 2002 and 2006, coinciding with the demise of “Silicon Glen”. 57

93. We recognise the substantial progress which has been made towards the Scottish Government’s target to increase exports by 50 per cent by 2017. However, this data can be skewed significantly by a change in export performance by one or two key sectors. For example, the recently reported decline in export sales of whisky 58 may distort overall export performance in next year’s Global Connections Survey. This highlights the limitations of the current export sales target which is based solely on an increase in total value of export sales.

94. We recommend that the Scottish Government consider how the sample size of the Global Connections Survey can be increased in order to enhance the data captured on Scottish exports and international connections. A particular emphasis should be given to identify and survey new export businesses.

Scotland Performs

95. Scotland Performs measures and reports on progress of government in Scotland based on national priorities set out in the National Performance Framework. The National Performance Framework was last updated in December 2011.

96. ‘Increasing Scottish exports’ is one of the Scottish Government’s National Performance Framework national indicators, supported by a target in the Government’s Economic Strategy, published originally in 2007, to deliver a 50 per cent increase in the value of international exports over the ten years to 2017.

97. As we have described above, an export sales target based solely on an increase in total value of export sales tells us only part of the story about Scotland’s export performance. We consider that it would be valuable to supplement the existing target with another which measures the change in the number of businesses which are active exporters.

Conclusion

98. As part of the future development of the Scotland Performs reporting framework, we recommend that a performance indicator be established which measures, from an appropriate baseline, the increase in the number of businesses in Scotland which are active exporters. Scottish Development International should then report performance against this indicator through Scotland Performs.

Collaboration and industry leadership

99. We explored with witnesses the potential for businesses and representative bodies to lead efforts to boost international trade and export sales, supported by the enterprise agencies.

100. Iain McTaggart, SCDI, argued that it was important to listen to the voice of industry—

Scotland benefits from many successful and established businesses that have done it all themselves; although they are now beyond the need for Government help, they are willing to contribute something back to the debate. 59

101. He continued—

It all comes down to leadership. Our organisation, and others, need to engage with the Government and vice versa to raise the debate further and to discuss how we can create greater capacity to support Scottish businesses in this arena. We need to have that dialogue and ensure that concrete solutions come out of it. 60

102. Garry Clark, SCC, argued in favour of “a coherent exporting strategy” to ensure co-ordination of public and private sector efforts at a Scottish level—

Regardless of whether we are talking about Scottish Chambers of Commerce, the SCDI, Scottish Development International or whatever, competing against one another in a horse race is not the most productive use of those horses. They should be pulling together. 61

Industry leadership groups

103. Scotland Food & Drink, the industry leadership organisation for the sector, launched in March 2014 a new export strategy focused on 15 key markets which “represent the best cross-sectoral opportunity for further export development”. In the seven highest priority markets (France, Germany, North America, Middle East, China, Japan and Singapore), new food and drink trade specialists will be recruited to join the existing SDI field teams. By the end of 2015, the team will comprise 16 dedicated specialists (eight already in post and a further eight to be recruited). 62

104. Neil Francis, SDI, told us that it would be interesting to see the additional impact that this approach would have in the next few years on the performance of food and drink industry exports. 63

105. Reflecting on the importance of industry leadership groups and his organisation’s engagement with them, Neil Francis said—

There are industry leadership groups for all the key sectors. Our role is two-fold. One role is to support and encourage the groups to come together, and the other is to respond, as appropriate, to the recommendations that the industry leadership groups make. 64

106. James Withers, Chief Executive, Scotland Food & Drink, explained that his sector attached a huge value to SDI resources but it was industry’s responsibility to “help it to deliver better” by setting the framework so that there was “industry leadership and public sector alignment”. 65

Regional partnerships

107. When Members of the Committee met with Aberdeen and Grampian Chamber of Commerce, they were told about the North East Scotland Trade Group (NESTG) involving Aberdeen City Council, Aberdeenshire Council, AGCC, SDI, Scottish Enterprise, UKTI, Aberdeen and Robert Gordon universities and Subsea UK, all working together to share information and facilitate collaboration.

Scottish Government position

108. John Swinney agreed that industry-led organisations should be encouraged and motivated to play a part in promoting exporting. As an example he pointed to the industry leadership groups that Scottish Enterprise facilitated—

An invaluable amount of experience and knowledge comes from that industry dialogue, which then shapes our priorities as a Government and, organisationally, through SDI, to ensure that we act on the best available industry intelligence. 66

109. Mr Swinney also endorsed the approach of direct company-to-company support so that successful exporters can share their experience and expertise with other companies. In his opinion, the chambers of commerce were well placed to support such activity, because of their direct company networks in almost all localities in Scotland. 67

110. Asked whether he thought the NESTG model of regional collaboration could be usefully and successfully applied to other cities and parts of Scotland, Mr Swinney agreed—

The Aberdeen model is a perfect example of how collaboration can work effectively. 68

Conclusions

111. We consider that overall responsibility for co-ordination and leadership of export strategy and initiatives should rest with Scottish Development International. We support strongly sectoral initiatives to increase exports, such as that led by Scotland Food & Drink, where industry leadership has been supported and facilitated by SDI and the Scottish Government. We recommend that Scottish Development International review the success of this initiative after its initial period of operation in order to assess the potential for this model to be replicated in other key sectors.

112. We encourage the development of further company-to-company support networks whether on a sectoral or regional basis in order to encourage successful exporters to share their experience and expertise. In particular, we believe that Scottish Development International and the enterprise agencies should actively support the development of regional export partnerships similar to the North East Scotland Trade Group.

Trade missions

Background

113. In 2013-14 SDI trade mission and events expenditure was £7.6 million, and grant funding expenditure was £6 million. Since 2010-11, over 1,230 SE account managed companies have attended trade missions, overseas exhibitions or learning journeys funded by SDI. The most common destinations have been the USA, United Arab Emirates, Germany, China and Japan. 69

114. The majority of SDI trade missions have a specific sector focus, for example oil and gas or food and drink, in keeping with its general sectoral approach.

SCDI delivery

115. The Scottish Council for Development and Industry (SCDI) has since 1960, delivered more than 370 trade missions comprising 6,000 participants, to over 50 markets worldwide. More recently, having secured and successfully delivered a contract to deliver overseas trade projects on behalf of SDI on three previous occasions, in 2012 SCDI decided not to bid for a further contract due to issues around the nature of the tender. 70 The tender was ultimately awarded to the BE Group, an independent business services group with offices in England, Wales and Scotland.

116. In oral evidence Iain McTaggart explained the reasons SCDI had chosen not to bid—

For example, we would have been able to communicate with companies only through a dedicated Scottish Enterprise email address, and we would have had to signpost all companies to SDI for business advice in the lead-up to a visit whereas we felt that we had knowledge, insights and experience to bring to the table. Moreover, all publicity and the generation of profile and press releases were to be in SDI’s hands, as was the inviting of ministers, which is something that we have frequently done. In fact, the previous year, one of our trade missions had been led by the First Minister and another by the Secretary of State for Scotland. 71

117. Jane Martin, Scottish Enterprise, told us that the principal reason SCDI had decided not to bid was because SE and SDI “wanted all missions to be branded under the SDI banner”. She stated that it had been open for SCDI and others to tender on that basis. 72

Co-ordination with other organisations

118. ADS, the national trade organisation for the UK aerospace, defence, security and space industries recommended coordinating a forward plan of related trade missions between SDI, ADS, UKTI Defence & Security Organisation and others—

The current uncoordinated approach, which has resulted in many different missions to the same locations or at the same time, is confusing companies and unnecessarily duplicating effort. 73

119. James Withers, Scotland Food & Drink, told us that many other organisations also ran trade missions. He pointed to examples of private sector banks, such as Santander, lawyers and even accountants doing so. 74

120. Garry Clark, Scottish Chambers of Commerce, told us about several recent trade missions delivered by local chambers of commerce and his own organisation—

Aberdeen & Grampian Chamber of Commerce has had a number of trade missions going to Africa this year. Glasgow Chamber of Commerce has always had good connections with the US and with Germany and has run trade missions there recently. Scottish Chambers of Commerce has run some trade missions. We went to Mongolia last year, and this year we are going to Turkey.75

121. Asked about partnership working around trade missions delivered by other organisations such as SCDI and chambers of commerce, Jane Martin responded—

The part of my team that is responsible for cross-sectoral missions and running overseas exhibitions is looking at working with the SCDI and Scottish Chambers of Commerce to create a bit of a community of practice in Scotland and to get in place a much stronger partnership in which we meet once a quarter and share forward plans. Rather than have procurement-supplier relationships, we want to engage in a much more strategic dialogue about the future and how we can complement each other. 76

122. Following this evidence session, on 23 March 2015, three Members of the Committee had the opportunity to visit Aberdeen and Grampian Chamber of Commerce (AGCC) to discuss the export services it provides to its member companies. That week, AGCC, in partnership with London Chamber of Commerce and Industry and supported by UKTI, had organised a trade mission to Kenya and Uganda, focused on oil and gas opportunities in the region. The very same week, SDI, supported by UKTI and Aberdeen City Council, led an oil and gas mission to Mozambique and Tanzania. Given the common sectoral focus, we were concerned to learn that there had reportedly been virtually no co-ordination between the various organisations prior to the trade missions. Other anecdotal evidence suggests that this is not an isolated example.

123. At the time of our inquiry, SDI had not published on its website a list of forthcoming trade missions which it was promoting and supporting financially. In a supplementary written submission, SDI stated that there were 81 sector specific International Market Events (IMEs), both inward and outward, planned between April 2015 and December 2015. 77

Committee participation in trade mission to Saudi Arabia

124. Three members of the Committee, Murdo Fraser MSP, Gordon MacDonald MSP and Lewis Macdonald MSP, shadowed a group of companies participating in a trade mission to Saudi-British Energy Week from 9 to 12 February 2015. Saudi-British Energy Week is organised by UKTI as a showcase for UK companies seeking opportunities in the oil and gas and related sectors in Saudi Arabia.

125. The British Trade Office in Al Khobar, in association with Asharqia and Jubail Chambers of Commerce, facilitated exhibitions of UK energy-related companies at both Chambers during the week. The programme also included a series of briefings and seminars on challenges and opportunities for UK businesses in Saudi Arabia and networking opportunities with Saudi counterparts, including representatives of Saudi Aramco, the state owned Saudi Arabian Oil Company.

126. A total of seven Scottish companies participated in the mission; all received financial and practical support from Scottish Development International (SDI). During the mission, SDI also arranged an evening meeting with several GlobalScots working in the region. GlobalScots is a diverse network of business leaders, entrepreneurs and executives with a connection to Scotland.

127. The opportunity to shadow a trade mission was of considerable benefit as part of the Committee’s inquiry. During the visit, Members were able to meet with participating Scottish companies to discuss their objectives and the support they had received from SDI. Discussions with GlobalScots and SDI officials were of value too. Members also held discussions with UKTI officials about the support services it provides to Scottish businesses and the effectiveness of working relationships with SDI.

Company feedback

128. Following the mission, the Committee asked the participating companies to provide feedback on the support provided by SDI and UKTI before, during and after the trade mission. Participants were also asked whether they anticipated securing contracts in Saudi Arabia as a result of participation in the trade mission and whether they had any suggestions about how SDI and UKTI could improve their services in future.

129. Feedback was received from four of the participants: Think Tank Maths Ltd, Aberdeen Drilling School, Kelton Engineering Ltd, and Raeburn Energy Ltd. All were highly complementary of the support they had received. Each reported having made useful contacts with prospective partners in Saudi Arabia and, subject to further negotiation, contracts worth in excess of £2million were anticipated.

130. The Members who participated in the trade mission were impressed with the quality of support and information provided to participating companies by both SDI and UKTI staff.

131. The Committee is interested to learn from SDI, what further contact it has with participating companies following such trade missions and what support it offers in order to help to turn initial business contacts into confirmed contracts.

Cross-sector missions

132. Cross-sector trade missions allow companies from a variety of business sectors to participate in a visit to a particular overseas market. In recent years, in keeping with the strategic focus of SE and HIE on particular growth sectors, SDI has promoted and supported more single sector missions.

133. In oral evidence, Neil Francis, SDI, told us that recent experience of cross-sector missions had been that they were sometimes hard to recruit for and that the expectations of all the companies involved were not necessarily fully met. He took the view that such missions were useful for first-time exporters to near markets and for markets that have very different business environments such as China, India and the Middle East. 78

134. However, in a supplementary written submission, SDI stated that work was underway “to inform and develop an appropriate programme of cross-sector missions based on company demand for support in particular markets and opportunities that exist within those markets”. Since the appointment of BE Group, nine cross-sectoral missions have been delivered, attended by 125 companies, generating estimated sales revenue of over £13.5 million. 79

135. We received contradictory evidence from SDI about whether cross-sector trade missions are a priority for it or not. We invite SDI in its response to this report to provide absolute clarity on this point.

Developing other cross sectoral opportunities

136. James Withers, Scotland Food & Drink told us about his desire to develop cross-sectoral opportunities beyond food and drink—

We know that the markets that we are trying to sell food and drink products to are the same markets that VisitScotland and the Scottish Tourism Alliance are trying to attract visitors from and the same markets that overseas students are coming from. Whether that is done by team Scotland, one Scotland or whatever the phrase may be, the idea of cross-sectoral working is what the next phase of our journey looks like. 80

137. Andy Scott, designer of The Kelpies and other large-scale public artworks, told us that as a member of SCDI, and in partnership with Glasgow City Council, he had received a total of £1,200 to support three trips to explore new markets (USA twice and the Gulf). However, he expressed frustration with finding appropriate advice and assistance from the public agencies. 81

138. Mr Scott also expressed the view that more could have been done from a tourism promotion perspective to maximise the benefit from the exhibition of the one tenth scale model of the Kelpies sculptures in Bryant Park, central Manhattan, during Scotland Week 2014. 82

Scottish Government position

139. Responding to the evidence received by the Committee about a lack of co-ordination, John Swinney acknowledged that this was an important issue. He considered that there was a “co-operative operational relationship” between SDI and UKTI, and welcomed the activity by individual chambers of commerce. Mr Swinney felt that it was difficult to give a commitment to draw together all of this activity because those organisations “have their own agendas that they are quite entitled to pursue”. 83 He did, however, agree that a single calendar of international market events across the public and private sectors would be helpful.84

140. With respect to Scotland Week, Mr Swinney sought to differentiate it from trade missions, describing it as a more general ” awareness-raising and contact exercise” with an “extensive cultural programme”, although business connections and contacts were made in and around it. 85

Conclusions

141. In order to maximise the opportunities for companies, we believe that more must be done to improve co-ordination, avoid duplication and eliminate unnecessary competition between organisers of trade missions. We recognise that co-ordination of efforts in this area is a challenge, but, from a Scottish perspective, we consider that SDI should be far more pro-active in co-ordinating this activity.

142. We recognise the expertise, and support the role, of organisations such as SCDI, chambers of commerce and trade associations in leading trade missions to key markets overseas. We recommend that SDI explore with private sector partners a greater co-ordination of effort in this area in order to minimise duplication and unnecessary competition and maximise the benefits to businesses in Scotland.

143. We recommend that as part of the development of the single portal, Scottish Development International should co-ordinate with other bodies, including UKTI, chambers of commerce and trade associations, the regular compilation and publication of a forward programme of trade missions on the portal.

144. We consider that great potential exists to use platforms such as Scotland Week in the USA to generate export opportunities for Scottish businesses. We recommend that as part of its refreshed International Trade and Investment Strategy the Scottish Government should review its strategy for Scotland Week to make more explicit the connection to trade and investment.

Developing the GlobalScot network

145. According to its website, GlobalScot is a “diverse network of business leaders, entrepreneurs and executives with a connection to Scotland - and a strong desire to see Scottish businesses succeed locally and in the wider world”.

146. Managed by Scottish Enterprise, GlobalScot members offer their time, expertise, knowledge and access to their contacts to support Scottish companies and help them connect with new global marketplaces. 86

147. In a supplementary written submission, Scottish Development International confirmed that the network currently comprises over 600 senior business people based in 51 countries around the world – 34 per cent in the Americas, 30 per cent Europe, Middle East and Africa, 19 per cent Asia-Pacific and 17 per cent in Scotland. 87

148. SDI stated that GlobalScot is “open to all Scottish growth companies” with assistance ranging from market advice to deeper engagement including advisory roles on industry bodies and non-executive roles within companies. There have been record levels of activity over the last three years with 256 one-to-one engagements and a total of 1,032 connections made in 2013-14. 88

149. James Withers told us that the GlobalScot Network could be used by the food and drink sector more than it had been in the past—

Because we, SDI and the industry all have limited resources, we need to use the much broader network. Scotland has the most amazing expat community and we really need to use it. 89

150. John Swinney praised the GlobalScot Network but acknowledged that it could be strengthened and developed further. He told us that he had met GlobalScots who had expressed their “frustration at knowing that they could do more”. He indicated that SDI had been asked to work on strengthening the Network. 90

Export mentoring

151. Garry Clark told us about the business mentoring scheme delivered by the Scottish Chambers of Commerce network. Funded by SE and matched with EU funding, the service is available to any business in Scotland not just to chamber members. The chambers provide more than 1,000 business people as mentors for the scheme. However, Mr Clark explained that the mentoring services on offer are not targeted specifically at exporting—

They can address exporting, and we have a bank of mentors with international experience from which we can draw to match them with any company that has plans for international expansion. 91

152. Brian Wilson reflected on evidence he had heard, particularly from small businesses that wanted to become exporters, that mentoring is an important part of the process—

They told us that, where it works, it works well. If an experienced exporter is prepared to pass on its skills and experience—whether because it is looking for subcontractors or some other self-interested reason or whether it does it for purely pro bono reasons—that is a valued facility for the companies that benefit from it. 92

Conclusions

153. The GlobalScot network of business contacts who are experts in their field is an absolutely invaluable resource for Scottish businesses. We look forward to receiving from SDI more details of the work that it is undertaking to strengthen the GlobalScot network.

154. From the evidence we received from SDI it seems that access to the GlobalScot network is restricted to “Scottish growth companies”, but no clear definition of this term was provided.

155. As 17 per cent of GlobalScots are based here in Scotland a potential role exists for them to act in a mentoring capacity with companies at an early stage of their export journey. We believe that this could augment the highly valued but more general business mentoring scheme delivered by Scottish Chambers of Commerce.

156. We recommend that Scottish Development International review the means by which businesses can access the GlobalScot network in order to maximise the opportunities for Scottish companies to gain a competitive advantage in international markets.

157. We invite Scottish Development International to set out clearly the criteria its staff apply when deciding whether a company can be given access to the GlobalScot network. Scottish Enterprise should also publish the criteria used to determine who should participate as a GlobalScot.

158. We recommend that an annual target for one-to-one engagements between GlobalScots and companies should be established, set initially at 10 per cent above the number of engagements recorded in 2013-14.

159. We further recommend that Scottish Development International commission research to establish the value of GlobalScot interventions with companies, with a view to more effective measurement and evaluation in future.

Education – building links and seizing opportunities

160. As part of this inquiry we chose to have as our focus the specific needs of small and medium sized businesses starting out on a path towards internationalisation. Although we did not engage directly with Scotland’s further and higher education providers, we recognise the particular contribution that this sector makes to exporting, both through transnational delivery of education and training courses and the attraction of overseas students to study in Scotland.

161. In a written submission, Universities Scotland told us that it had a very close working relationship with SDI, Scottish Enterprise and Highlands and Islands Enterprise as demonstrated by their collaboration in Connected Scotland, a partnership with the goal of growing the higher education sector’s export income from £1.3 billion to £2 billion in 2017. 93

162. Universities Scotland also identified a role for higher education as an enabler of other key industry sectors through research and development partnerships. It argued—

Scotland will see export success where it is bringing new products or processes to market and greater engagement between universities and business can help to deliver that innovation. 94

163. SDI promotes Scotland’s universities and colleges in overseas markets as centres of excellence for teaching training and research.95 Several Scottish Universities have an overseas presence: for example, the University of Glasgow has formed a partnership with Singapore Institute of Technology; Glasgow Caledonian University has a campus in New York City; and Heriot Watt has campuses in Dubai and Malaysia.

164. The Wilson Review included a recommendation that Scotland’s colleges and universities should be encouraged to develop courses or course modules which have a specific international trade focus. In oral evidence, Brian Wilson went further, advocating the inclusion of an exporting dimension to any business courses that they run. 96

165. John Swinney acknowledged the active involvement of the higher and further education community in international markets, whether through the recruitment of students or other international collaboration. He stated that the Scottish Government would explore, in its revised international strategy, how further and higher education institutions and companies with a presence in different markets could communicate a consistent message about Scotland and the business opportunities that can be pursued here. 97

Conclusions

166. There is clear potential for Scottish universities with campuses in key overseas markets to be aligned more closely with building exporting expertise related to these countries. We recommend that this kind of aligned thinking should be pursued actively by Scottish Development International in partnership with Universities Scotland.

167. We recommend that Scottish Development International explore ways to utilise more effectively the extensive international networks established and managed by Scotland’s universities and colleges in order to boost opportunities for Scottish businesses.

168. We recommend that Scotland’s colleges and universities should develop courses or course modules which have a specific international trade focus as part of any business courses that they run.

Ethical considerations

169. During oral evidence, we asked witnesses from UKTI, SDI and Scottish Enterprise what practical steps their organisations take to encourage businesses to engage with the ethical dimensions that they will encounter as they begin to internationalise.

170. Neil Francis admitted that SDI needed to continue to build the expertise of its staff so that they can properly advise companies on these matters. Jane Martin, Scottish Enterprise, explained that before taking companies to market, sessions are held at which FCO advice on human rights and legalities is shared. 98 However, when asked whether SDI would not be keen to support a particular form of economic activity if, for example, it did not meet domestic environmental standards but met someone else’s lower standards, Jane Martin replied—

Across all the business support activities that we do, we aim to comply with Government policy and legality but, from a broader perspective, we tend not to take moral and ethical stances. 99

171. Guy Warrington, UKTI, told us that if someone participated in a UKTI trade mission or received a briefing at a British embassy on trade matters, the issues of bribery and corruption and human rights would always be discussed. 100

172. Following the oral evidence session, we asked UKTI to provide more details of the information UKTI provides to companies regarding ethical, social and environmental considerations associated with international trade.

173. The response received from UKTI focused again on human rights, bribery and corruption. The submission explained—

UKTI works to its parent departments, Business, Innovation & Skills and Foreign & Commonwealth Office: “ensuring responsible corporate behaviour” is a key theme for BIS, whilst “promoting our values, including human rights”, is a core strand of the FCO. 101

Scottish Government position

174. John Swinney was asked how the Scottish Government ensured that the economic developments and changes that arise particularly from trade and from internationalising business contribute to the Government’s wider economic priorities, such as the social solidarity and sustainability targets. He replied that the National Performance Framework and the surrounding policy framework “should be used as a discipline in relation to the particular developments and opportunities that we try to pursue”. He continued—

Essentially, we must ensure a direct connection between the Government’s priorities and commitments and what is done on our behalf to identify business development opportunities ... We must ensure constancy and consistency of action between the policy framework and what is done in our name. 102

Conclusion

175. On the basis of the evidence we have received, we consider that current practice to support companies with ethical decision making when operating overseas is insufficient. It appears that little information is provided until companies are briefed in market and the scope of that briefing has a quite narrow focus on bribery and corruption, and human rights. We believe that greater early stage awareness of social, environmental and human rights issues should be embedded in export support programmes in order to allow businesses to plan effectively and make informed decisions about market entry.

176. We consider that the pursuit of international business opportunities should be set within an ethical as well as an economic context. It is important therefore that there is a direct connection between the priorities and wider policy commitments of government and actions taken by government agencies.

177. We welcome the clear statement from the Cabinet Secretary that there must be a direct connection between the Scottish Government’s National Performance Framework and the operations of its agencies. We recommend that Scottish Development International set out in its response to this report how it contributes to the Strategic Objectives contained in the National Performance Framework, and how it can report its contribution towards relevant National Outcomes, through support to businesses seeking to internationalise.

178. We recommend that the core advice and guidance offered to businesses in Scotland seeking to internationalise, whether produced by the Scottish Government, the UK Government, or their respective agencies, should address directly specific issues associated with doing business internationally to promote good practice in relation to social, environmental and human rights standards. We recommend, therefore, that SDI set out in its response to this report the steps it intends to take to address these issues.

Transportation issues

Infrastructure development

179. Professor Alfred Baird, Professor of Maritime Business, Transport Research Institute, Edinburgh Napier University, made a written submission to our inquiry and also to the Infrastructure and Capital Investment Committee’s parallel inquiry into Freight Transport. In it he stated that there had been very little investment in new international port capacity in Scotland over the past 30 years and this had constrained significantly international trade and economic growth. He proposed the creation of a national Maritime Transport agency in order to address these issues. 103

180. In February 2015, Members of the Committee visited Forth Ports’ facility at Grangemouth, Scotland's largest container port, and also held discussions with representatives of WH Malcolm Group, a major Scottish logistics firm. Our conversations suggested that a lack of investment in key infrastructure, whether port facilities, rail or roads, was impacting on the cost and delivery times for the export of Scottish goods.

181. Following the visit to the Forth Ports facility at Grangemouth, we are concerned that investment in port infrastructure lags far behind that of continental container ports. In addition, the limited number of short sea shipping routes connecting Scotland with mainland Europe results in an unnecessary increase in lorry loads of goods travelling south for onward shipment from ports in England, adding extra time and expense to Scottish exporters.

182. We invite the Infrastructure and Capital Investment Committee to consider carefully the evidence received by both committees which suggests a lack of investment in key infrastructure may act as a constraint on efforts to boost Scottish exports. A step change in the level of investment in key transport infrastructure is necessary if Scottish goods are to be delivered to overseas markets quickly, cost effectively and with minimal environmental impact.

Air Passenger Duty

183. Under the terms of the Smith Commission Agreement, it has been proposed that the power to charge tax on air passengers leaving Scottish airports be devolved to the Scottish Parliament. The Scottish Government will be free to make its own arrangements with regard to the design and collection of any replacement tax, including consideration of the environmental impact. 104

184. The Scottish Government proposes a 50 per cent reduction in APD, with a view to the eventual abolition of the tax when public finances allow. The Scottish Government has said that it intends to design a replacement tax which better supports its objective to improve connectivity.105 The Deputy First Minister told us that the Scottish Government expected that the devolution of power over APD to the Scottish Government would be complete shortly after the 2016 Scottish parliamentary election. 106

185. We note the Scottish Government’s commitment to reduce Air Passenger Duty, following devolution of the tax to Scotland, and to design a replacement which better supports its objective to improve connectivity. We look forward to scrutinising the Scottish Government’s proposals for a replacement system of taxation in due course.

Annexe A

Extracts from the minutes of the Economy, Energy and Tourism Committee and associated written and supplementary evidence

28th Meeting, 2014 (Session 4) Wednesday 19 November 2014

6. Internationalising Scottish Business: The Committee will consider a list of candidates for the post of adviser in connection with its forthcoming Internationalising Scottish Business inquiry.

5th Meeting, 2015 (Session 4) Wednesday 18 February 2015

2. Internationalising Scottish Business: The Committee will take evidence from—

Iain McTaggart, General Manager and Company Secretary, Scottish Council for Development and Industry.

3. Internationalising Scottish Business: The Committee will hear feedback from Members who recently shadowed a trade mission to Saudi-British Energy Week, Saudi Arabia.

Written Submissions

Scottish Council for Development and Industry

6th Meeting, 2015 (Session 4) Wednesday 25 February 2015

2. Decision on taking business in private: The Committee will decide whether reviews of evidence and consideration of draft reports for its inquiry into Internationalising Scottish Business should be taken in private at future meetings.

3. Internationalising Scottish Business Inquiry - witness expenses: The Committee will be invited to delegate to the Convener responsibility for arranging for the SPCB to pay, under Rule 12.4.3, any expenses of witnesses in the inquiry.

4. Internationalising Scottish Business: The Committee will take evidence from—

Professor Jim Love, Professor of International Business and Innovation, Enterprise Research Centre;

Garry Clark, Head of Policy and Research, Scottish Chambers of Commerce.

5. Review of Evidence: The Committee will review the evidence heard at today's meeting.

Written Submissions

Scottish Chambers of Commerce

7th Meeting, 2015 (Session 4) Wednesday 4 March 2015

1. Internationalising Scottish Business: The Committee will take evidence from—

Brian Wilson, Author, Wilson Review of Support for Scottish Exporting.

2. Review of evidence heard (in private): The Committee will review the evidence heard at today's meeting.

9th Meeting, 2015 (Session 4) Wednesday 18 March 2015

1. Internationalising Scottish Business: The Committee will take evidence from—

Guy Warrington, Director, English Regions, UK Trade and Investment;

Neil Francis, Director of International Operations, Scottish Development International;

Jane Martin, Managing Director Customer Operations, Scottish Enterprise;

and then from—

James Withers, Chief Executive, Scotland Food and Drink.

2. Review of evidence heard (in private): The Committee will review the evidence heard at today's meeting.

Written Submissions

UK Trade and Investment
Scottish Enterprise and Highlands and Islands Enterprise
Scotland Food and Drink

10th Meeting, 2015 (Session 4) Wednesday 25 March 2015

1. Internationalising Scottish Business: The Committee will take evidence from—

Graeme Blackett, Director, BiGGAR Economics;

and then from—

John Swinney, Deputy First Minister and Cabinet Secretary for Finance, Constitution and Economy, and Jessie Laurie, Policy Manager, European and Structural Funds Division, Scottish Government.

3. Review of evidence heard (in private): The Committee will review the evidence heard at today's meeting.

Annexe B

List of other written evidence

ADS

Andy Scott

Craft Beer Clan of Scotland

Federation of Small Businesses

ICAEW

National Farmers Union Scotland

Professor Alfred Baird

Scotch Whisky Association

Triogen Ltd

Universities Scotland

Supplementary Written Evidence

Scottish Enterprise and Scottish Development International

UK Trade and Investment


Any links to external websites in this report were working correctly at the time of publication.  However, the Scottish Parliament cannot accept responsibility for content on external websites.

Footnotes:

1 Scottish Government. (2015) Global Connections Survey 2013.

2 N-56. (2015) Export Based Growth.

3 Scottish Government. (2015) SNAP: Oil and Gas.

4 Scottish Government. (2015) Scotland’s Economic Strategy, page 72.

5 Scottish Government. (2015) Global Connections Survey 2013.

6 Federation of Small Businesses. Written submission.

7 Scotland Office. (2014) Wilson Review of Support for Scottish Exporting.

8 Scotland Office. (2014) Wilson Review of Support for Scottish Exporting.

9 Scotland Office. (2014) Wilson Review of Support for Scottish Exporting.

10 Economy, Energy and Tourism Committee. Official Report, 4 March 2015, Col 1.

11 Scottish Enterprise and Scottish Development International. Supplementary Written submission.

12 Economy, Energy and Tourism Committee. Official Report, 25 February 2015, Col 17.

13 Economy, Energy and Tourism Committee. Official Report, 4 March 2015, Col 2.

14 Economy, Energy and Tourism Committee. Official Report, 4 March 2015, Col 12.

15 Economy, Energy and Tourism Committee. Official Report, 25 February 2015, Cols 16-17

16 Economy, Energy and Tourism Committee. Official Report, 18 February 2015, Col 5.

17 Economy, Energy and Tourism Committee. Official Report, 25 February 2015, Col 10.

18 Economy, Energy and Tourism Committee, Official Report, 18 March 2015, Col 6.

19 Economy, Energy and Tourism Committee, Official Report, 18 March 2015, Col 7.

20 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Col 16.

21 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Col 17.

22 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Col 16.

23 Scottish Enterprise and Scottish Development International. Supplementary written submission.

24 Scottish Parliament Information Centre. (2015) Scotland’s international exports. SPICe Briefing SB 15/09.

25 Scottish Enterprise and Highlands and Islands Enterprise. Written submission.

26 Scottish Parliament Information Centre. (2015) Scotland’s international exports. SPICe Briefing SB 15/09.

27 Scottish Enterprise and Highlands and Islands Enterprise. Written submission, page 11.

28 Economy, Energy and Tourism Committee, Official Report, 18 March 2015, Col 2.

29 UK Trade & Investment. Written submission.

30 UK Trade & Investment. Written submission.

31 Economy, Energy and Tourism Committee. Official Report, 25 February 2015, Col 10.

32 Triogen Ltd. Written submission.

33 Economy, Energy and Tourism Committee. Official Report, 25 February 2015, Col 11.

34 Economy, Energy and Tourism Committee. Official Report, 25 February 2015, Cols 10-11.

35 Economy, Energy and Tourism Committee. Official Report, 4 March 2015, Col 7.

36 Economy, Energy and Tourism Committee. Official Report, 18 February 2015, Col 18.

37 Economy, Energy and Tourism Committee, Official Report, 18 March 2015, Col 3.

38 Economy, Energy and Tourism Committee, Official Report, 18 March 2015, Col 4.

39 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Col 21.

40 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Col 20.

41 Highlands and Islands Enterprise. (2013) Review of Smart Exporter Highlands and Islands 2011-13.

42 Scottish Enterprise. (2014) Smart Exporter strategic review, page 3.

43 Scottish Enterprise. (2014) Smart Exporter strategic review, page 45.

44 Highlands and Islands Enterprise. (2013) Review of Smart Exporter Highlands and Islands 2011-13.

45 Scottish Enterprise and Scottish Development International. Supplementary written submission.

46 Scottish Parliament Information Centre. (2015) Scotland’s international exports. SPICe Briefing SB 15/09.

47 Scottish Enterprise, Monthly Economic Commentary, July 2014, page 2.

48 Scottish Enterprise and Highlands and Islands Enterprise. Written submission, page 14.

49 Scottish Government. Response to Report on draft budget 2015-16.

50 Economy, Energy and Tourism Committee. Official Report, 18 February 2015, Col 11.

51 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 17.

52 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 34.

53 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 38.

54 Economy, Energy and Tourism Committee. Official Report, 25 February 2015, Col 14.

55 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Col 37.

56 Scottish Government (2015) Global Connections Survey 2013.

57 Scottish Parliament Information Centre. (2015) Scotland’s international exports. SPICe Briefing SB 15/09.

58 BBC News, 1 April 2015. Scotch whisky exports fall by 7%.

59 Economy, Energy and Tourism Committee. Official Report, 18 February 2015, Col 3.

60 Economy, Energy and Tourism Committee. Official Report, 18 February 2015, Col 3.

61 Economy, Energy and Tourism Committee. Official Report, 25 February 2015, Col 14.

62 Scotland Food & Drink. Written submission.

63 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 9.

64 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 19.

65 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 39.

66 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Cols 30-31.

67 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Col 30.

68 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Col 34.

69 Scottish Parliament Information Centre. (2015) Scotland’s international exports. SPICe Briefing SB 15/09.

70 SCDI. Written submission.

71 Economy, Energy and Tourism Committee. Official Report, 18 February 2015, Col 6.

72 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 9.

73 ADS. Written submission.

74 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 32.

75 Economy, Energy and Tourism Committee. Official Report, 25 February 2015, Col 6.

76 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 10.

77 Scottish Enterprise and Scottish Development International. Supplementary written submission.

78 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 23.

79 Scottish Enterprise and Scottish Development International. Supplementary written submission.

80 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 36.

81 Andy Scott. Written submission.

82 Andy Scott. Written submission.

83 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Col 15.

84 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Col 34.

85 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Cols 22-23.

86 Scottish Enterprise and Highlands and Islands Enterprise. Written submission, page 16.

87 Scottish Enterprise and Scottish Development International. Supplementary written submission.

88 Scottish Enterprise and Scottish Development International. Supplementary written submission.

89 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 38.

90 Economy, Energy and Tourism Committee. Official Report, 25 February 2015, Cols 21-22.

91 Economy, Energy and Tourism Committee. Official Report, 25 February 2015, Cols 17-19.

92 Economy, Energy and Tourism Committee. Official Report, 4 March 2015, Col 4.

93 Universities Scotland. Written submission.

94 Universities Scotland. Written submission.

95 Scottish Development International. (2015) Scotland's education open to the world.

96 Economy, Energy and Tourism Committee. Official Report, 4 March 2015, Col 4.

97 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Cols 31-32.

98 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 25.

99 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 26.

100 Economy, Energy and Tourism Committee. Official Report, 18 March 2015, Col 27.

101 UKTI. Supplementary written submission.

102 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Col 25.

103 Professor Alfred Baird. Written submission.

104 The Smith Commission. (2014) Report of the Smith Commission for further devolution of powers to the Scottish Parliament, page 24.

105 Scottish Government. (2015) Scotland’s Economic Strategy, page 73.

106 Economy, Energy and Tourism Committee. Official Report, 25 March 2015, Col 28.

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