TUESDAY 27 FEBRUARY 2007

UKTI

  Q500  Chairman: That is what civil servants do; they shuffle paper. How do you change an organisation full of paper shufflers?

  Mr Cahn: That is one of the reasons that I have slimmed down the headquarters very substantially, by almost 40% by the end of Spending ReviewO4, specifically to recognise that what we need is front-line staff. By the end of SRO4 I will have about 90% of my staff on the front line, and I have also been bearing down heavily on my unit costs so that there is a low unit cost for the front-line people, but of course, I think, Chairman, your question is really focused on how we inculcate in the staff a go-getting mentality and a selling mentality. It is partly by training, and we are putting a lot of effort into training and retraining our staff. Part of it is selecting the right staff and for some of the new schemes, like the new high-growth market scheme, like the R&D scheme, we are either recruiting people from outside or we are contracting with external companies to get them to have external people, people with a lot of business experience. In the regions, of course, a substantial number of my staff are businessmen.

  Q501  Chairman: Can you just tell us about the international business specialist role? You have these staff under secondment, I think, into the private sector.

  Mr Cahn: We have some specialists in particular sectors who are brought in from the outside and whose role is to promote that sector and to network with that sector.

  Q502  Chairman: What sectors do you have those people in? Could you give us a note of which sectors?

  Mr Cahn: We will send you a note on that. Can I make one other point, Chairman, which is that we have over the last year shifted the organisation to being a target-based organisation. Targets drive behaviour. We are setting very clear targets to our staff. In other words, we are giving them very clear signals for what we want them to do. Not only that, we are in parallel developing a performance impact measurement so that we know what the result or the outcomes of our activity is. It is relatively easy to do that with inward investment---.

  Q503  Chairman: You are putting some commercial pressures on the organisation.

  Mr Cahn: Exactly so, Chairman.

  Q504  Chairman: What are these new client account managers going to do?

  Mr Cahn: They are going to relate specifically to individual large companies where we can provide them with particular help. We have a global network. We relate to some global companies, and quite often in the past we have found we have had a number of different people relating to a big company in different parts of the world. We now have a mechanism called CRM, a client relationship management system, an IT system in which we have invested quite a lot of resource, and it is designed to enable us to have a clear, constructive and helpful relationship with individual clients.

  Q505  Chairman: What sort of seniority will those people be at?

  Mr Cahn: They will be in middle management.

  Q506  Chairman: The reason I ask is and I do not know how to ask this question without sounding pejorative but the kind of people in middle ranking civil service jobs are not the kind of people that chief executive officers of big companies like dealing with.

  Mr Cahn: I think that is a very fair point. Dealing with chief executive level tends to be my senior team and myself and, of course, particularly Ministers. The client relationship managers will be slightly lower down in the company but will be able to bring in the senior people in the company when necessary.

  Q507  Chairman: It is difficult to get that one right because the Civil Service does not attract typically people of the same mindset as people who are working in business and there could be a culture clash.

  Mr Cahn: It is a challenge that I find myself every day, deciding how to devote my time, how much of it do I spend actually talking to chief executives of companies and doing promotional business, how much time do I spend overseas promoting the UK, and how much time do I spend managing the organisation? Like everybody else, it is a difficult judgement to make.

  Q508  Chairman: Before I hand over to Peter Bone for the next set of questions, one quick cheap shot. It has been drawn to my attention; you say you do not like the phrase "culture change" but in the strategy document you are quoted as saying "We must now do much more. We must change our culture and raise our game."

  Mr Cahn: I think I have learnt since I wrote those words that when my staff see the word "culture", they reach for, if not their gun, at least their flak jacket. We do need to change the culture of the organisation, we do need to create both a clearer identity for what is a rather disparate, almost virtual organisation, and we also need to encourage more entrepreneurial and commercial attitudes, but I think the way to do that is not to tell the staff that we are going to have a grand culture change programme, because then the flak jackets come out. The way to do that is to offer them the opportunity to re-skill, retrain and be re-energised by our targets and our success.

  Q509  Mr Bone: This session is really about marketing UK plc, and I guess that means getting the most industrial output for the whole country and moving forward. We have established that point about marketing UK plc, and we have also established through the evidence session that we are pretty good at doing it at the moment. Given those two, and given that 80% of UK exports go to developed countries and the vast majority of inward investment comes from the USA or Japan, so we are doing that all rather well, why are we cutting resources there and switching to emerging markets?

  Mr Fletcher: As Andrew Cahn said previously, we manage the overseas network within a kind of fixed overall envelope, so everything we do is part of a wider zero sum game. The evidence that we have from the economics work that we have done is that we do proportionately more good for individual companies in the so-called emerging markets, where some of the kind of government to government and market-opening work can be done, than we necessarily do in the more developed markets, where companies are more readily able to help themselves and where there is a better developed commercial infrastructure, the internet is better and so on. We have a good base for the conclusion that we are likely to derive more marginal benefit for UK companies from the emerging markets than we necessarily are from the developed ones. That said, it is important to put the shift of resources from developed markets to emerging markets in perspective. We are looking at about 5.6% of total network being moved over the next two and a half to three years from developed markets to emerging markets, so it would be wrong to characterise that as a kind of wholesale retreat from what you rightly see as markets of continuing major economic significance for us.

  Q510  Mr Bone: Where this has happened already, where we have shifted resources across, have we seen an increased demand for UKTI resources or are we doing better because of that? Have you some evidence?

  Mr Fletcher: What we have certainly seen in the emerging markets is that demand for UKTI services in terms of the number of companies seeking our help has been going up significantly. Certainly, the evidence we have from China and India in particular, but also some of the other emerging markets, Turkey, South Africa, Brazil, Mexico is that in each case we seem to be at the beginning of what we suspect is a reasonably sustained period of growth. At the same time, it is worth saying that we are using the CRM, the client relationship management system that Mr Cahn referred to, to ensure that we get a little bit more efficient in our handling of UK-based customers in markets like the United States and Western Europe through better signposting, better use of standardised information and so on. So we are looking to make sure that we continue to provide a good service there and we are continuing to monitor and, as I said before, to evaluate that and make sure that the quality as well as the quantity of support stays up.

  Q511  Mr Bone: Chairman, I understand the marginal shift in resources and all you have said so far, but as I understand it, you have roughly 110 staff in India, say, and roughly 110 staff in China, yet you get vastly significantly better returns from the USA. So while you have said there is only a marginal shift of resources, it seems as though we have an awful lot in China already.

  Mr Fletcher: The point I was trying to make is that yes, indeed, those numbers are about right. I think it is slightly more than 110 in the United States but it is only five or six more. What we have a good indication of is that when we look at the experience of individual firms, we are able to do them a great deal more good in China or India or the other emerging markets than we necessarily can in the United States, where there are other forms of support available to them. It is worth putting it in perspective. We are still in a position where our trade, even in goods, with the United States is many times more than our trade with China. The number of UK-based companies involved in trade with the United States is very large. The vast majority of them largely get there and are successful under their own efforts. What we are finding is, because markets like China and India are much more taxing in terms of the culture, the business environment, the regulatory environment, there is much more call for the sort of value-added services, the sort of government to government role and the embassy role in those markets, and that is the basis of the marginal argument, so I still think we are probably doing the right thing.

  Mr Cahn: If I may add a thought to address Mr Bone's question, if you take Britain's trade with China and add it to our trade with India and with Brazil and with Mexico, it remains smaller than our trade with Ireland, but that does not mean to say we should have more staff in Ireland. The question is where we can add value. The high-growth, more risky, more difficult markets of India and China are ones where we particularly feel we can add value, and that is why we are putting resource there, as well as into Brazil and Mexico and some other markets. It is all a question of the judgement where we can add most value.

  Q512  Chairman: Of course, India is our second largest inward investor now, which is a huge change. A cheap shot: I could not help noticing you are cutting resource in Canada and on your website this morning, the example of a business opportunity offered if you click on the example is a Canadian business opportunity. There is a certain degree of inconsistency there, I thought.

  Mr Cahn: We have substantial resource in Canada, and we are increasing our resource in western Canada, which is a high-growth market. In fact, Ian Fletcher has specifically done that. He has been out there himself and seen the enormous opportunities in western Canada and I think I am right in saying we have opened a sub-office in Calgary.

  Q513  Mr Weir: You have stated your intention to double the amount of revenue that UKTI generates from charging for its services. Given that charging currently represents less than 1% of your budget, do you think there is scope to be much more ambitious in this aim?

  Mr Fletcher: Chairman, the short answer to that question is yes, there is clearly scope for us to be significantly more ambitious. In the calendar year 2006 we collected £1.4 million, which, as Mr Weir rightly points out, I think I would be prepared to say is a trivial proportion of our costs. We are currently on track to collect twice that in the current year but that still will not get us to a very large number.

  Q514  Mr Weir: What is stopping you going further than that?

  Mr Fletcher: Really, this goes back to the conversation we had previously about culture change. We have a good and flexible revenue collection mechanism. We are going through the process of using the targets and the kind of target-driven culture that we have been talking about to give for the first time in the coming financial year every market around the world and all of our regional teams will for the first time have a specific income target. That will be the beginning of getting some of the behaviour changes that we think would enable us to recover rather more. Why is there this issue? We have staff around the world who have historically been there to provide a service which was free; moving to a point where we charge even modest amounts for some of the support that we provide has turned out to be quite a big step in changing their behaviour. We believe that setting these targets and it is beginning to change the quality of conversation that we have with the posts will be the beginning.

  Q515  Mr Weir: Does it not give you the opportunity to be more innovative in the range of services you offer to exporters? On our travels we have heard different stories about the type of service offered from almost a photocopy of a business directive to something much more detailed as to the local market. I just wonder if you see charging as a way to provide that more detail for companies wishing to move into particularly emerging markets.

  Mr Fletcher: Yes, that is almost exactly the message we are giving them. The charging framework that we have actually allows us to provide companies with a much more exciting range of services and, exactly as you say, we are encouraging posts and regional teams to be much more imaginative along precisely those lines.

  Q516  Mr Weir: What was your rationale for outsourcing of the aid-funded business service? Did it have anything to do with your requirement to reduce the headcount at UKTI headquarters?

  Mr Fletcher: It was a combination of a recognition that some of the work that was done by the business development teams around the world was work that we could more efficiently do through a private contractor, but it is important to point out we have not contracted out the entire thing; we still have aid-funded business teams in Washington, Geneva and Brussels. To go back to your earlier point about charging, they turn out to be some of the most imaginative, and so that process of working together with a private contractor has in fact worked, I think, so far extremely well, though it is only a year or so old.

  Q517  Mr Weir: Do you have any plans to outsource any other parts of UKTI's activities?

  Mr Fletcher: Other than the reference Mr Cahn made to using contract staff for the R&D scheme and some of the high-growth markets schemes, I know of no other plans.

  Q518  Mr Bone: I do not think you answered Mr Weir's question about whether it had anything to do with reducing the headcount.

  Mr Fletcher: I cannot recall the exact circumstances but there may have been a headcount consideration. The decision to outsource part of the work of the development business teams was taken at the end of calendar year 2005, which was at the point where we were still implementing the SRO4 process, and headcount may have been a consideration.

  Q519  Mr Weir: Is there any pressure to continue to reduce headcount at UKTI?

  Mr Cahn: I put myself under pressure continuously to look at our headcount, and we have made the reductions that we need to implement SRO4. We will have to see what happens in the Comprehensive Spending Review, what the outcome of that is, as to whether there will be pressure to reduce headcount further to implement that. Decisions have not yet been taken.