TUESDAY 27 FEBRUARY 2007

UKTI

  Q461  Chairman: Gentlemen, I really apologise for having kept you waiting. It is nothing to do with this evidence session. We had some other business we had to clear away this morning. I am very grateful for your indulgence. Thank you very much indeed. Can I begin, as I always do, by asking you to introduce yourselves for the record.

  Mr Cahn: I am Andrew Cahn, Chief Executive of UK Trade & Investment.

  Mr Fletcher: I am Ian Fletcher. I am the Managing Director of UK Trade & Investment's International Group.

  Q462  Chairman: You are here largely because of this document, Prosperity in a Changing World, the new strategy you have, which refers to the Select Committee's report on India at one stage and we are very grateful for that reference, but it does seem UKTI is always launching new strategies and new directions. A member of your staff said to me recently that nothing ever lasts more than five months in this organisation. Why do you think you have had to produce a new strategy for UKTI only two years after the last one?

  Mr Cahn: Chairman, I think that is a fair comment about history; I hope it is not a fair comment for the future, and indeed, the strategy we launched last July is not a five-month strategy; it is specifically a five-year strategy, and I very much planned it that way because I was conscious of the legitimate criticism that UK Trade & Investment had been restructured rather often, its name had been changed rather often and its strategy and objectives changed rather too frequently. My intention is that the present strategy should have a substantial life and I certainly know that my Ministers look at it in that light as well.

  Q463  Chairman: The impression I get is of a headquarters office that is really rather battered by constant change, new demands, new priorities and which is almost demoralised as a result of that constant process of change. Out in the field you have some really good people getting on, doing their job, keeping their head down and promoting UK plc. Do you feel there is a morale problem at headquarters?

  Mr Cahn: I do not quite recognise that picture, Chairman. I certainly think there has been a challenge to morale over some years where there has been a substantial amount of change. That has primarily been in the head office here in London, where we have had a very substantial reduction in staff numbers; we have come down from about 800 three years ago to about 450 at the end of the Spending Review O4 period. That is a very substantial reduction in staff numbers and, inevitably, there is a hit on morale when you do squeeze out costs and staff in that way. I agree with you that overseas we have good morale, though even there we have had to have a significant reduction in staff numbers, around a 15% cut over the SRO4 period in UK Trade & Investment staff overseas. I agree with you that those cuts have led to a morale issue. I believe we have addressed that and I think the strategy we have produced is one of the ways we have addressed that. We have given our staff a clear way forward, a clear prospectus for the future, with strong ministerial support from Ministers from my two parent Departments, the DTI and the Foreign Office, and also from the Treasury. All of them were present at the launch, all of them have made public statements of strong support for the strategy going forward, so I think morale is now on its way up.

  Q464  Chairman: Do you think head office is well-organised and efficiently run now?

  Mr Cahn: It is better organised than it was. It is more efficiently run than it was. I think we still have a little way to go and I still have plans for improving it but I think I would defend our head office now as an effective head office.

  Q465  Chairman: I still hear reports that it operates with rather a silo mentality. People set up meetings and they are amazed to discover colleagues taking an interest in the same subject as they themselves thought they had responsibility for.

  Mr Cahn: That is, I hope, not a legitimate criticism. I restructured head office, in particular putting together much of the trade and investment work under a business group under Brian Shaw so that we do not do not have a completely separate inward investment part of the office. Indeed, it was run previously by somebody who was called Chief Executive Inward Investment. We now do not. I have put those together and the business group is structured on a sectoral basis, the sectors group liaises very closely, and Ian Fletcher, who is sitting next to me, and runs the International Group liaises very closely too. I do not believe that particular criticism is now fair.

  Q466  Mr Hoyle: This is very interesting. There is real planning, it is well-organised, now fit for purpose, as they say. How much do you think we have lost in business previously then?

  Mr Cahn: I do not think that is a question that one can answer because one simply cannot measure that. Also, I think the work of promoting exports overseas and attracting inward investment, but particularly trade development work, is as long is a piece of string. You can always use more resources, you can always do more, but my belief is that UK Trade & Investment in its different guises has been an effective organisation. If I may, Mr Hoyle, make a reflection, when I was named for this job in the couple of months before I took it up I made it my business to go around and ask a lot of people which were the best trade promotion organisations in the world. I wanted to go and learn from the best in class. Almost everybody said UKTI either is the best or one of the best. There are other organisations which are very good and we have gone and talked to them, and indeed, Ian Fletcher is currently involved in an exercise with his Australian, Canadian and New Zealand opposite numbers, all of whom run rather good organisations, and we seek to learn from them, and I think the Irish organisation is a very good one, but the general view out there amongst stakeholders is that UKTI is one of the best in the class. What I conclude from that is that we can always do better but I do not believe that we have failed the British people in the past.

  Q467  Mr Hoyle: So basically, you are the best but getting better?

  Mr Cahn: I would put it that we are one of the best, we are in the First Division and I think we can do better. We are improving. We are not there yet.

  Q468  Mr Hoyle: When do we get to Premiership?

  Mr Cahn: I hope we are in the Premiership but we are not winning the Premiership just yet.

  Chairman: This inquiry is mainly about manufacturing but we have some other questions about some of the other aspects of your work.

  Q469  Mr Weir: The UK's financial services sector is a success story and I believe there is some evidence that London is pulling ahead of New York. What additional value is UKTI hoping to add to its new City strategy?

  Mr Cahn: The financial services sector, defined rather broadly to include not only classic financial services but the insurance industry, legal services, accountancy services, maritime services and so forth, is one of the most successful industries in the country. It is contributing, depending on what figures you take and what definitions you take, around 10 to 12% of GDP. It is growing at twice the rate of the general economy. It is a very, very important, successful industry. Why does it need our help? It needs our help at least in part because, although there are a lot of very successful and indeed rather profitable companies there, many of them are global companies who regard the City as a platform, not as something they themselves need to promote. They also need our help because there are a lot of different players and I think we can provide a certain amount of coordination. I am not putting very much money into this; I am putting some staff time and I am putting some expertise but I am not putting very much new money into the strategy. I am putting a little bit. The last point is that what the City has is a tremendous brand and a tremendous reputation. It does not actually have a marketing strategy for the City. Most of all, that is what I hope we will provide.

  Q470  Mr Weir: You talked about the global companies involved in this and certain financial services and other companies are now global. What difference does it make to them to promote the City of London as opposed to Global Insurance Inc or whatever?

  Mr Cahn: The City is a tremendous platform for these companies. That is why they are here. They want the City to succeed because it allows them to continue to operate very profitably here and to grow here, and that is what we want to make sure happens—that London and the United Kingdom as a whole is seen as a place where global businesses can grow—but if you are a global financial company, you do not yourself want to promote London. After all, you also, as such a company, have operations in New York, in Tokyo, perhaps in Shanghai, perhaps in Dubai and therefore you do not yourself want to do the promotion.

  Q471  Mr Weir: If you are looking at emerging markets, in China, for example, anybody who is already established in Shanghai or Japan may see that as a better platform for growing than the City of London. I just wondered what specifically the City of London is going to do for these large-scale companies?

  Mr Cahn: It is important to us that that misperception, that a financial services company might do better in Shanghai than in London, is countered.

  Q472  Mr Weir: That is not the point. If it is already established. You said that many of these global companies will already be established in these markets like Shanghai. If you are talking about a global insurance company that is established in London, New York, Shanghai and Tokyo, I am at a bit of a loss to understand how a strategy promoting the City of London will make a great deal of difference to that company which is already working in markets throughout the world.

  Mr Cahn: It may not make a difference to that company, though the more successful the City is, the more it will continue to attract financial services companies to it and will encourage existing companies to expand their operations here, which is what we want to happen. There is a real value in a certain scale and London now has the scale and is powering ahead of other rival financial centres. But of course, what we are really trying to attract is not so much the global companies that are here already; we want to retain them but we are not trying to attract them. We are trying to attract Chinese companies to list in London, either on the main exchange or on the Alternative Investment Market exchange. We are trying to attract financial services operations from the Gulf region to come to London. We are trying to attract holders of large-scale assets to come to London to the asset management companies here. It is that sort of thing we are doing, plus we are trying to make sure that our lead in insurance, our lead in legal services, our lead in accountancy services is maintained and, if possible, extended. This sector is one of enormous strength for the UK economy. I think putting a quarter of a million pounds into developing a marketing strategy to assist this sector promote itself globally is money very well spent.

  Q473  Mr Weir: In your initial memorandum to us you stated that the new sector strategy would contain specific targets. What specific targets have you set UKTI to achieve under the City strategy?

  Mr Cahn: A number. We are going to publish within a few weeks specific country strategies for India and for China. We are developing promotional materials, including a brochure, including DVDs, promoting the City of London, which we can send out to posts overseas. I have allocated new resource overseas so that there are new posts, financial services officers, or rather, first secretaries focusing on financial services in Mumbai, in Shanghai, in Beijing, and they will be really focusing on those markets to promote Britain's financial services in those markets.

  Q474  Mr Weir: What targets have they been set to achieve within the strategy? You can set up offices but if they do not achieve anything, they are a waste of money. Do you have specific targets for bringing business to London?

  Mr Cahn: There are specific inward investment targets for India and for China and within those there are high-value companies. We do not at the moment have specific City-defined targets.

  Q475  Mr Weir: It is just part of a general target?

  Mr Cahn: It is part of a larger target.

  Q476  Mr Weir: You talked about India and China and you have set financial services strategies for them within your City strategy, which is itself part of the wider UKTI strategy. With all these different strategies at different levels and the promise of more to come for other sectors, are we not in danger of confusing the investors we are trying to attract, let alone the civil servants that have to implement them?

  Mr Cahn: I do not think so. I do not believe that we do have a plethora of strategies. What we have is an overarching strategy for running the organisation and marketing UK plc. Within that, we have selected five sectors where we will have individual marketing strategies, the first of which is financial services and we then move on to life sciences, ICT, energy and the creative industries. I believe that is a sensible set of choices and in each of those sectors we can really add value by having a strategy promoting that sector.

  Q477  Mr Weir: Are you setting separate targets within these various sectors for your posts in India and China, for example?

  Mr Cahn: No, I am not setting targets on a sectoral basis. I am setting targets on an inward investment basis, on the one hand—to get a certain number of inward investors of whom a certain proportion must be high-value and have an R&D component—and I am also setting other targets relating to trade development. I wonder whether Mr Fletcher would like to explain in more detail, because he has been deeply engaged in setting the targets.

  Mr Fletcher: Chairman, the overall approach we are taking to targets falls into broadly two groups. There is a series of very big targets related to the number of UK-based companies that we are looking to help in foreign markets, so that is essentially "exporters", if I can put that in quotes, because it includes service providers and outward investment as well. Then we have a global target to assist 20,000 companies per year to a level that it is likely that we have really helped them to improve their competitive performance. So that is a lot more depth of assistance than just showing them the way to the airport; this is 20,000 companies to whom we provide what we call significant assistance, and it is worth saying that we have what we think is a really excellent evaluation system in place which will help us measure quite confidently whether or not we have been successful in helping that number of companies. Our target when we do the evaluation is that at least 50% of them say that we have helped improve their performance either significantly or very substantially, so on a five-point scale that they tick the top two boxes. That is a level of evaluation rigour which is, I think, more demanding than other trade promotion organisations use around the world. That target of 20,000 companies is divided up so that it embraces the different ways that we use to get to market. In answer to Mr Weir's particular question, each overseas market where UKTI has staff has its own target, its own component of that 20,000. Equally, our teams in the English regions have a sub-target within that and each of our sector teams has a sub-target inside that and finally, the trade show access promotion scheme, which is a grant scheme, also has a similar target. That really accounts for the majority of the number of companies that we help but we also have some other more specific targets related to aspects of the UKTI strategy. Firstly, on foreign direct investment into the UK, we are looking to achieve at least 450 involved successes globally in the year from 1 April 2007 and, as Andrew Cahn has said, we have looked at that in terms of high-value companies that in particular value-add to the UK economy, and then look at the rest of it as well. Again, those targets are divided up between the different markets around the world where we have colleagues in the FCO side of UKTI doing inward investment work. Finally, we have a specific target related to the R&D programme which the strategy announced, where we are looking to support at least 200 businesses per year to increase their R&D activity in the UK. There are also some corporate targets below that that look at our own performance in terms of customer satisfaction and the quality of service that individual posts and individual teams provide, but they lie at a second layer.

  Q478  Chairman: I think that went well beyond the original question and anticipated some later questions. It was very helpful. Can I just ask you though why you have done India and China financial services and not Brazil, which is a JETCO country for the UK? We have heard quite a lot of complaint from Brazil about the inadequacy of UK financial services marketing in Brazil compared with New York.

  Mr Cahn: The focus on India and China stems from ministerial decisions and ministerial guidance. The Chancellor of the Exchequer in his Budget statement last year, for 2006, asked us to come up with a financial services sector strategy which focused in particular...

  Q479  Chairman: This is quite an interesting question actually. Mr Marris just said sotto voce "He is not the Secretary of State." Two-thirds of your staff come from the Foreign Office, one-third come from DTI, none of them, as far as I know, come from the Treasury. Why does the Chancellor keep on setting your strategy?

  Mr Cahn: I think the Chancellor gives guidance in close liaison with the Secretary of State for Trade and Industry and the Foreign and Commonwealth Secretary.