TUESDAY 30 JANUARY 2007

BRITISH EXPERTISE

  Q380  Roger Berry: As an organisation that represents consultants, I am surprised that you do not have a consultant to do some work on the comparative benefits of UKTI for different forms of export promotion and different forms of inward investment. I find your comments in the memorandum very general, noting a prejudice in favour of export promotion. Another issue is the priorities. There is the size of the firm issue; there is the inward investment/export promotion issue. The other one is the focus on emerging markets. Do you think UKTI has taken the right approach in terms of focusing on emerging markets? It is a comment which I think our esteemed Chairman advised you not to reply to earlier, so now is the opportunity.

  Mr Hand: Do you have the fifth amendment?

  Q381  Chairman: No.

  Mr Hand: I think a lot of things about this. I started to say earlier that the origin of this policy was the Chancellor's statement that we have to do China and India. Who would object to that? That unfortunately put things into a narrow context so UK Trade and Investment, always as they are guided by the Treasury, were able to add one or two others from this. There are about 13 in total which come under this category now. Unfortunately, they include Brazil which business by and large has no great interest in because they have a sophisticated business structure themselves. They do not need us in the way that perhaps China and India do in some areas. Equally, Russia. Frankly, Russia is becoming more of a problem. China and India are becoming less of a problem. Corruption is being tackled. Bureaucracy is being tackled. Russia is getting worse. It is becoming dangerous to work in that country. Our companies are very disinclined to go for work in Russia unless there are lots of safeguards and lots of profits. There need to be. South Africa is on the list. I do not quite know why. I am sure we all wish South Africa well but a major emerging economy on the scale of China and India it ain't. There are problems with the focus. I also think that if for a moment UK Trade and Investment take their eye off the ball of the established markets and they are called "established" because British companies are doing well there this will be a mistake. Andrew Cahn assures me that this is not the case and that the diversion of resources has been marginal. Indeed, I counted up the number of countries they still have trade and investment sections in and it is 101. I do not want to exaggerate the effect. I just think there has to be a very careful balance between the emerging markets, excellent and good, and established markets where the money is being made. Let us not forget that the United States are still the biggest economy in the world.

  Q382  Chairman: I was very struck by one comment in your memorandum: "A single well-trained and motivated commercial officer in a market will be highly cost-effective. Yet many more smaller markets are now being left with no UKTI capacity at all." I agree with you that the one man band can have a very important part to play in certain smaller markets.

  Mr Hand: There is something which is going round UKTI which I really do not understand. It is the concept of concentration. I was a military man before I was a diplomat and I know about concentration of forces as perhaps some Members of the Committee do. It is about chucking twice or three times as many troops into an assault; otherwise you are not going to win. It does not work like that in trade promotion. It is about a few good, well chosen, well motivated people working hard. They can produce fantastic results. If you double them, you will not get double the result.

  Q383  Mr Clapham: One of the things you say in your memorandum indeed, you are a little critical of UKTI is that UKTI do not ask British firms what markets they want to focus on. Given that we are talking in terms of how we promote trade and given UKTI's role, should they not be looking to encourage firms perhaps to enter markets that they have not previously thought of?

  Mr Peters: The whole country prioritisation exercise is an interesting one. At present they have 13 or 14 sector teams advisory groups and they ask those sector groups to prioritise markets. All those sector groups are under pressure to have fewer priority markets. Therefore, they tend just to look at the big countries. Almost every sector team will prioritise China and India. The problem with that approach is that smaller countries which are often easier to do business in get neglected by this prioritisation exercise. Geographically, I look after Europe and the Americas. I mentioned Trinidad at the start of the evidence. There is more business to be done in Trinidad for our members than there is in the whole of Brazil or Mexico. I know Trinidad is not being prioritised in the way those markets are. It will have its resources cut. It is the same in central and eastern Europe. The Baltic states, for instance, Slovenia, those sorts of countries. The private sector tends to look at regions. It does not look at countries per se. UKTI will have a problem with resources going to China and India because sector advisory groups are looking at those but, coming back to the point about SMEs, it is often the smaller markets that are easier to enter for smaller companies.

  Q384  Mr Clapham: Why does this occur? A little earlier in the evidence Mr Hand referred to some of the embassies and the fact that the commercial teams have an impact. Is it that some of our embassies in the smaller emerging markets are failing to do the research that is required to give the information to UKTI so that we might be able to assist that smaller and medium size enterprise that wants to go into a smaller emerging market, where there is an opportunity to get in there?

  Mr Peters: You cannot have it both ways with the charging policy because in a small post they are increasingly under pressure to do chargeable services. That is where a company asks them to do something. The problem is looking at emerging sectors within that economy and finding time, or somebody to pay for the time, to do that sort of research. I see it through the Aid-Funded Business Service because I am arguing with some of the smaller posts in developing markets that the increase in aid funding to Sub-Saharan African countries or Caribbean countries, things like the water sector or the health service two years down the line, because the funding is starting to be put there the hospital will be built; they will be buying disposables or whatever. The problem with the system is it is hard to get people to focus now and start to research those areas because nobody is commissioning a report from them.

  Q385  Mr Clapham: There are two countries that seem to me to offer opportunities. Are you aware of the way in which UKTI may be developing in Estonia, for example, and Latvia? They seem to offer opportunities to SMEs; yet we do not see a great focus there and I wanted to hear your view about these two countries.

  Mr Peters: I do cover those countries. I have been there in the last two or three years. We have a contract from UKTI to hold an urban regeneration seminar in Estonia next month. There is a lot of interest for that. At the very start of this evidence, I gave Estonia as an example of where we had done a seminar three years ago. They are very entrepreneurial. I visited both countries in the Soviet era. It was clear to me, as soon as they got rid of the Soviet yoke that there were some very bright, keen people there and I was sure they would develop. We have very small embassies there and none of the sector teams, through doing the current round of prioritisation, is going to prioritise Estonia or Latvia. That will impact, I am sure, on the resources there. It is a problem. I agree with you. I think there are some very good opportunities. Indeed, I would add Lithuania as well. Most companies tend to look at those three together and there are certain sectors where, if you are in Estonia or Latvia, you can market in Sweden and Finland as well.

  Mr Hand: It is pretty hard to escape the conclusion that, for entirely understandable reasons, the responsible people in UKTI think that if a country does not have either a big population or a big GDP or both it cannot really be a priority. There is a lack of understanding that good British companies, big and small, will do good business in Estonia and they will continue doing it for many years to come. There is a feeling that if it is not Qatar, where there is a huge amount of money, or China, where there is a huge number of people, then somehow it is not admissible. This is a cultural problem. Perhaps it will settle over time but there does need to be this understanding that business is not, despite what I have said, all about building huge airport projects; it is about all kinds of things. Bear in mind that we cover professional services. We do not touch the supply of goods where again it would be fair to say that the SME is in a rather better position.

  Q386  Mr Weir: You touched on the cultural problem there. Earlier you talked about Andrew Cahn's ambition to charge more for UKTI services. There is also a new market-led focus for UKTI. Will that not require a much more entrepreneurial culture within the organisation? Do you feel that an organisation composed primarily of civil servants will be able to adapt to this new regime?

  Mr Hand: I was a sort of civil servant, a diplomatic one. I have adapted, I hope successfully, to the rigours of the private sector in the organisation that I run. It is perfectly possible for civil servants to understand very well what is required of the private sector and how to help it. Whether they will do this as well as a team of businessmen I am not sure but that would be asking for a pretty serious outsourcing exercise to say, "Let's give the whole lot to the private sector." I am not sure that would work.

  Q387  Mr Weir: If I put you in Andrew Cahn's position, what sort of performance measures would you set for the next five years to measure UKTI's new strategy and how to adapt to it?

  Mr Hand: Not the one that is being set which is a strange, Treasury imposed concept about improving the performance of British business. It has "Treasury" written all over it. The performance measure should be about direct, provable direct assistance to the profitability of X number of companies in Y sectors. I could not refine it any more than that but I am very doubtful about economic targets for a hands-on organisation like UKTI.

  Q388  Mr Weir: Do you think the information would be readily available to measure the improved profitability of companies in these sectors? Presumably much of what UKTI does may take some time to come to fruition. It could be fairly difficult to measure at least in the early years.

  Mr Hand: I am afraid that is correct. It is the old problem: what was it that produced the improvement? Was it the recruitment of extra people, excellent people? Was it the input that UK Trade and Investment made? If they are going to achieve a credible result in this area, they have to work at finding out what the impact was of their work. If the answer is nothing, get rid of them but if the answer is something then focus on that and multiply it.

  Q389  Mr Weir: I am getting the impression from you that the current measure which you say is Treasury inspired is likely to produce a measurable result in a relatively short period.

  Mr Hand: Ideally I would focus on the output which is what does it produce. At the very least they can focus on inputs. They can set themselves targets to do specific things with specific numbers of companies as they have done in the past. That will continue.

  Q390  Judy Mallaber: You were talking earlier about countries where we were not putting in the emphasis that we should. Do I get the impression that you think we should not be putting resources into the sectoral based work and that instead we should be concentrating on the geographical basis? What should be the balance between the sectoral based resources and the individual countries and regions?

  Mr Hand: I do not think that. In business terms it is a sectoral world. Unfortunately the world is divided up into geographical units. Each and every one of our companies—and, with apologies, especially the bigger ones who have this problem big time—has to grapple with the balance between sector activity and geographical activity. There are a number of ways of doing this. Some sort of matrix is always produced to cope with it. UK Trade and Investment have the same problem but they have it rather worse because a couple of years ago they did their sector priority exercise and it was what it was. We thought some of the results were a little strange but nevertheless it was done rigorously and with private sector input. Now of course they have had imposed upon them the emerging markets concept which is not wrong either. What they have to do is to try to harmonise the two so that it is going to work for the majority of British companies that are their clients.

  Q391  Judy Mallaber: You have given a bit of a mixed picture in terms of what you think about the objectives, how they have been set and what we have been doing in terms of trade promotion and the balance with inward investment as well. In broad terms, how do you think the UK is doing on export performance?

  Mr Peters: If you look at the figures we are doing quite well. The basic problem has been the strength of sterling over the last few years. When I was an export promoter in the mid-1990s I was wheeled out every time there was a devaluation because that was the way to export. Given the strength of sterling, I think the UK is doing reasonably well. We have had a lot of challenges. To me, the relatively small budget that UKTI has is a no-brainer. Properly focused, that is a sensible use of government money. It is small beer compared with other departments' spending. Where we have a challenge is in capital project work where traditionally this business in the emerging world is funded by mixed credit type financing which, in UK government terms, equates to the sorts of projects that the Export Credit Guarantee Department will fund, which is another area. Why ECGD were left out of UKTI when it was set up is another debate. The work of ECGD is so critical to the UK winning many of these projects. That is a separate debate but in the developing world, if you are taking to China and India, trade finance, mixed credits, will be an area that is critical. We also represent construction companies as well as consultants. Why has the British construction industry gone down and down in terms of what it does overseas? I worked for Taylor Woodrow for ten years in the 1980s and they did a lot of overseas work. They do virtually nothing now. One major reason for that is their perception that the UK is not competitive in its provision of mixed credit finance.

  Q392  Judy Mallaber: What is your view on how we are doing in developed countries and developing countries?

  Mr Peters: I think we do better in Commonwealth developing countries where English is the business language, where companies understand the culture and the ways of doing business. We have an historical basis and if we do well we can always do better. In countries like India, in South East Asia, in the Anglophone Caribbean, Sub-Saharan Africa, yes, we are doing well but you must never be complacent. The French in West Africa are always targeting the Anglophone markets of Ghana and Nigeria, for instance. As soon as we cut back on something you can bet your bottom dollar that the French will be looking to take that slack up.

  Q393  Judy Mallaber: That leads on to the final question, what can we learn from other countries in trade promotion? You have given an example of the French, are there other countries we can learn from and if so, what?

  Mr Hand: The first thing we should learn is that we need more joined-up government. Joined-up government in this country is—and I say this carefully—a joke. In France things are done differently: the Aid Ministry talks to the Treasury, talks to the Foreign Ministry, talks to business, talks to the voluntary sector. I went to a conference there a couple of years ago. It was a real eye-opener, there were lots and lots of government people, senior officials, lots and lots of businessmen, some voluntary sector, key ambassadors and key Frenchmen from the European Union and from the World Bank all discussing questions like, "the Tsunami, did we do well enough"? They did not mean did we do well enough in our assistance to recovery, they meant did we do well enough in getting contracts out of the funds available. Perhaps that is not a very British way to approach things, it sounded a bit blunt, it was at the time. The very idea that Whitehall would organise that kind of a conference to look at a specific subject—what can Hilary Benn do more, or how can the Home Office contribute by lightening up on a visa regime somewhere and this kind of thing—is absolutely impossible and I am sorry for it because I think it holds us back commercially in this country.

  Q394  Judy Mallaber: Do they get better results than us as a result of doing that? Does it lead to anything?

  Mr Hand: Subjectively, yes, it does. I have been in countries where French delegations have arrived and they are very highly organised, they do not do it like we do. We send in penny packets of exporters, six or ten people with myself or Nigel or one of our people leading it or one of a host of other people and hopefully, over time, business is done. The French attitude is to send in a jumbo jet, perhaps not a jumbo but a good product of Europe—.

  Q395  Chairman: Definitely an Airbus.

  Mr Hand: Yes, thank you, Chairman, with three ministers, 200 businessmen, assorted officials, and they really fill the place. I do not know if that produces a better result at the end of the day, but I do know that a lot of people in a lot of markets think that is a better kind of trade mission.

  Q396  Judy Mallaber: Has any analysis been done on whether they do get better results than us because there is not much point in saying it feels better and it looks like they are doing more if nothing happens at the end of it. You also said earlier that having the one good key guy over in a country could pay dividends which is almost the opposite of what you are saying about sending in the Airbus.

  Mr Hand: The Airbus flies back to Paris or wherever and everything settles, then you are back to the tenor of businessmen arriving or ringing the embassy and saying, "I would like to come and see someone" and make an appointment and get some facts. I do not think one should concern oneself too much with the highlights, I am much more concerned about whether the structure of UKTI overseas is effective. I am convinced that it is because I have managed people in posts whose job that was and they are good people. If they are not good people you have to do the painful thing and get rid of them and get good people and over recent years that is something that has been done. I am saddened by the cuts which were imposed on UKTI on a modest budget in the 2004 spending round, and I think quite wrongly. There is no sign that is even going to be arrested, never mind reversed, and it is not so much civil servants in London, I do not care how many of those they have, I care deeply about how many people there are on the frontline overseas helping British businessmen.

  Chairman: We are running badly out of time, Judy. Is there anything particularly you want to ask?

  Judy Mallaber: If there are any other things that you think we can learn from any other countries, perhaps you can let the Committee know.

  Q397  Chairman: If you think of anything else we ought to learn, if you can give us a written note about that, that would be helpful. It is worth reminding you that we are doing an inquiry at present into trade and investment relations with the Mercosur countries, particularly Brazil where the inquiry began, so some of the things you said today will be relevant to that inquiry too, indeed your written evidence is relevant to that inquiry too, and we will take note of that. If you wish to flesh out that evidence, in any sense, to add to that particular inquiry into Brazil, Argentina, Paraguay, Uruguay and now Venezuela, we would be interested to receive that too. I am sorry to cut you off in your prime, and Judy off in your prime, but we do need to move on to our next set of witnesses. Is there anything else you want to say?

  Mr Hand: Thank you, Chairman. We might well elaborate in writing a little bit on the reasons why some of these markets are not favoured by British companies.

  Chairman: That would be helpful. Thank you very much indeed.