WEDNESDAY 29 JULY 1998

MR CRAWFORD BEVERIDGE, MRS RAY MACFARLANE, MR IAIN ROBERTSON and DR MAURICE CANTLEY

  340.  There are no barriers in England and Wales, why are there barriers in Scotland?
  (Mr Beveridge)  I honestly do not know. It may be a case of just the fact that the market is so much bigger there that they have had an opportunity, even though they have not penetrated a large amount of it. In absolute terms it is a much better sale than they have managed to get in Scotland but we do not know and we will keep working on it.

  341.  Do you have any strategies to prevent this thing happening again and again in the future?
  (Mr Beveridge)  Part of what the Technology Ventures Group has been about has been very involved in trying to figure out how we get the technologies that are within Scotland. Scotland has a very good record here. In terms of statistics, somewhere in the region of 50 per cent higher than you might expect for our market share is spent in the Scottish universities on research. We have a tremendous research base of people like the people who went into places like Tweed Horizons. When you get to a Scottish company, we spend about a third less on design and development than we do in the rest of the UK. There has been no flow from universities out to the economy. There are two distinctly different sets of problems with that. One is we want to try to encourage more of our companies to do design and development that will suck this stuff out of the universities. Secondly, we need to get more of our people who are in universities to behave as they do in other universities around the world and try and take things out into spin out companies of their own. When they do that they will run into the kinds of barriers that Biofuels has and what we have to do is try to figure out on a case by case basis what we can do to smooth that transition, to be able to allow them to get a big enough market to survive.

  342.  Would you identify the problem as being with indigenous companies in Scotland not doing enough research themselves?
  (Mr Beveridge)  That is a very significant problem, yes.

  343.  Is that the same for the Highlands and Islands?
  (Mr Robertson)  Yes. Well, you mentioned particularly forest waste products, we have looked at that and the size of the plant required is a hindrance to any of the projects that we have seen, the cost of the plant required. However, we have a very exciting pilot project in Shetland where the Local Enterprise Company and the council and private sector have got together to instal an incinerator for the waste products of the island and indeed they are going to gather waste products from Orkney as well. That is linked to a district heating scheme. That programme was backed by the EU. It is an example of how Objective 1 money has been put to very good use in the Highlands with an extremely innovative project. We are monitoring that as it comes to start up just now. That is one of the most exciting projects we have got in that waste field. Also we have on Islay the distilleries getting together to look for ways of using the waste from their distilleries which again is an exciting community driven project. Lastly we have a programme under the Objective 1 scheme which we call HIE-Waste, for want of a better name, where we are giving grants for either research or for projects that look at innovative ways of dealing with waste in all its forms throughout our area and we are within the early stages of the spend under that scheme. We are very alive to the issue but, as Crawford says, it is a difficult area in which to make an impression but we are trying.

  344.  Can we move on. Scottish Enterprise also say in their evidence that inward investors provide more stable employment than UK companies. Do you maintain that argument in the face of the Lite-on and Hyundai disasters?
  (Mr Beveridge)  Yes. The last time we actually did a detailed study of this was unfortunately for the period 1987 to 1991 so I could not get any more detailed statistics of that, but during that period the workforce in our indigenous companies declined by approximately 23 per cent and those of our inward investors by 12. It was roughly half the rate of decline in employment amongst inward investors. Although there has been a flurry recently, like the issues like Lite-on, I think if you see that across the piece you will find those still remain fairly accurate.

  345.  The actual evidence which supports that claim you made in your evidence to us is based on figures which are outdated?
  (Mr Beveridge)  It is. We need to do updated research on that. We tried to get more recent research before we came but there was none publicly available.

  346.  Why has there not been any research into this since 1991?
  (Mr Beveridge)  I honestly cannot answer that. I do agree with you. We need to look and see what is going on.

  347.  It would be necessary to see if the strategy is right.
  (Mr Beveridge)  Yes, but I would lay bets now that the numbers will not be substantially different.

  348.  How much?
  (Mr Beveridge)  Anything you want to try.

  349.  Common sense, in a sense, tells us that indigenous firms are likely to be more committed to over funding than inward investors could be, particularly in the new field of electronics. We took evidence also in the Borders that some of the big electronic companies have been taken over and are beginning to rationalise and are pulling out.
  (Mr Beveridge)  I think if you look at some of the indigenous companies that have been taken over they are pulling out in equally large or larger numbers. It does not take long to look at places like United Distillers and the textile companies, what is going on with insurance companies and so on. There is just no evidence that there is any problem of stability of the inward investors compared with our indigenous group. You would expect that for a couple of reasons. One is that by and large when you are bringing in an inward investor you are bringing in a large company, larger than the average size company in Scotland. Secondly, one of the reasons we are in inward investment in the first place is to help offset some of the declining industries and so you would expect many of our companies who have been in decline in areas like steel and shipbuilding and now textiles and so on, those are industries that are going to be in decline. While you cannot bring companies in in a globalised economy and expect that they will never lay off people, I do not believe that you would find any evidence to say that puts our jobs here at any more substantial risk. It is not to do with commitment, it is nothing to do with commitment, it is just to do with the economic realities of life. If textiles go down or the distillery businesses are bought by outside sources, whether or not they are committed to here is irrelevant, if their business goes down they are going to be affected.

  350.  Surely if a company has its headquarters in Scotland it is much more likely to maintain employment in Scotland rather than if it has its headquarters in New York or Boston?
  (Mr Beveridge)  I think if its business goes away whether its headquarters are here or in Greenland the fact is people are going to get laid off.

  351.  Should Scottish Enterprise not be encouraging companies to have their headquarters in Scotland?
  (Mr Beveridge)  Absolutely. I have been very clear since I got here and for me inward investment is extraordinarily important, it is very fast growing. I want to get a reasonable share of it. It is not the prize, the prize is indigenous companies based in Scotland. That is the way in the long term you get to a stable economy, the kind that I was talking to Mr Moore about earlier on. If we cannot get to a reasonable number of global companies based here, and we are in the midst of a study now trying to understand what globalisation of Scottish companies would mean and what globalisation has meant to countries like Finland, for example, or Sweden or other countries not dissimilarly sized from ourselves, we all believe that it is absolutely crucial that we maintain a balanced number of headquarters companies in Scotland. That is where talent flows, that is where decisions about spending get made, where decisions about research and development get made, it is absolutely crucial. We have no argument on that at all.

  352.  One of the issues you highlighted a minute ago is that inward investment is expected to make up for the fact that some of our older industries are in decline. Without wishing to talk areas like the textile industry from the Borders down, (there is a lot of very important companies and organisations in that field), that is a phenomenon that people in the Borders will understand and yet there has been no substantial inward investment to the Borders since Locate in Scotland was established in the early 1980s. If that is one of its reasons for LIS existing, to make up for the decline in the traditional industries, clearly it has failed in that respect in an important part of Scotland. Is the fact that Locate in Scotland is to set up a new rural unit, announced by the then Minister, Brian Wilson, when he visited the Borders three weeks ago, an admission of a failure in that particular area and how do you think this new unit will begin to redress nearly 20 years of decline in the Borders with no substantial inward investment?
  (Mr Beveridge)  I might balk a little at the 20 years of no inward investment, we did have companies like Exacta——

  353.  That was in the early 1960s. That was nothing to do with Locate in Scotland.
  (Mr Beveridge)  I think you will see the decline was largely a case of the withdrawal of assisted area status in the Borders to some degree.

  354.  That is a very important issue, I am glad you have mentioned it.
  (Mr Beveridge)  Let me talk to you about what you said about the rural group. We do not know how that is going to do yet. In the last five years we have seen approximately 19 investments into rural areas in Scotland spread into different rural areas. Those have been of all sorts of things from seafood companies, to dairy product companies, to Inverness Medical in HIE and so on. What we have learned about that is that while you can definitely target to get people to come to rural areas, there is sometimes a coincidence of interest, a number of things often have put the company off because essentially it is the company who make the final decision where they want to go, not we who do that obviously. That is often because of a demand for labour or infrastructure. Also very few of the rural areas, with the exception of some of the ability that my colleagues in the Highlands have, have any form of assisted area status which always makes it much more difficult for us. What we decided to do was to try to get a small rural group together in which we hope HIE are going to second somebody and in which we will put somebody and the Scottish Office will put in somebody and we are going to sit down together and say "What might we do to see if we can chase some of those very specific projects that now might fit better into these rural areas?" We do not know how well that will work yet but we are going to give it a go and see what happens.

  355.  You accept that there are many aspects that you have mentioned there—assisted area status, infrastructure and skills or availability of labour—(and there are many skilled people in the Borders and plenty of young people who have to leave the Borders.)?
  (Mr Beveridge)  Yes.

  356.  If you look at the demographics, the 20 to 40 year old gap is the lowest in Scotland in terms of that proportion of the overall population, making the profile dangerously skewed. Mostly, however, that is because people do not have local job opportunities.
  (Mr Beveridge)  True.

  357.  It is a chicken and egg situation.
  (Mr Beveridge)  Right.

  358.  Are you saying Scottish Enterprise is inherently handicapped because of the assisted area status map and because of your inability to influence the development of infrastructure, be it road, rail or information technology?
  (Mr Beveridge)  I think if you look at the assisted areas map it does tend to discriminate against many of the rural areas. That is one of the important things to understand. I would have to say this I think, that if we had a project, and if we could convince that person that the suppliers they needed were in the Borders, that there was reasonable road or rail transport to the Borders, that there were enough skilled people in the Borders, then the assisted area issue would probably only be at the margin. If you cannot have those things and you still do not have assisted area, or if we only had assisted areas and many of these things did not exist, we still might be able to get them there. The combination of that makes it much more difficult and does restrict your projects. For example, I think few people would see somebody more committed to the Borders than Mike Gray of McQueens and yet when they came to set up their call centre, which would have been a very logical activity for a rural area, it ended up on the outskirts of Edinburgh because they could not get themselves convinced that the right flow of the right kind of qualified labour in the right numbers existed within the catchment area that they were going for.

  359.  It is fair to say that in that particular instance they were talking of highly specialist people.
  (Mr Beveridge)  That is correct.