1. The process of globalisation is fundamentally altering the way in which the UK does business with the rest of the world. New communication technologies and falling transport costs are reducing barriers to trade and, combined with the emergence of high growth economies, such as China and India, promoting greater economic integration.[1] These changes present both opportunities and challenges to UK business, and to policymakers. For many UK firms it has become increasingly important to internationalise in order to remain competitive. The range of potential export markets available to companies is expanding. At the same time, though, many firms are choosing to outsource production overseas, while retaining high-value work, such as R&D, design and after-sales service in the UK. Meanwhile, foreign businesses are increasingly looking to establish a presence outside their home country, either through exporting to, or by investing directly in production within, their target markets.

2. The Government has an important role to play in seeking to maximise the benefits that greater cross-border trade and investment can bring to the UK. The main way in which it can achieve this is to establish the economic conditions that allow business to flourish. These include, among others, ensuring macroeconomic stability, maintaining light regulatory burdens, encouraging a strong skills base, and promoting innovation.[2] In so doing, the UK can present an attractive location in which foreign investors wish to do business, while, at the same time, domestic producers of high-value goods and services are better able to compete effectively in overseas markets.

3. In recent years, the UK has had a reasonably strong record in providing the conditions for business to prosper. The OECD ranks it as having the most stable output growth and inflation, and the most liberal product market regulation amongst the G7 countries. It ranks comparatively poorly, however, on measures of skills provision (5^th) and R&D intensity (6^th).[3] This overall performance is reflected in the UK's foreign investment and trade figures. The total stock of inward investment to the UK stood at $817 billion in 2005—second only to the US.[4] The Government estimates that the financial year 2005-06 saw over 1,200 foreign investment projects in the UK, creating over 34,000 jobs and safeguarding another 55,000.[5] Meanwhile, 2005 also saw UK export growth to India and China at 28% and 24% respectively, compared to overall export growth of 13.5%.[6] The UK is the world's sixth largest exporter, with goods exports equivalent to 19% of annual GDP.[7] As globalisation continues apace, however, it will become increasingly important to market the UK's attractiveness to foreign investors and for domestic firms to continue seeking new export opportunities, if the UK is to stay ahead of its competitors.[8]

UK Trade & Investment

4. The lead government organisation responsible for supporting exporters and encouraging overseas firms to invest in this country is UK Trade & Investment (UKTI). UKTI draws 1,900 staff from its two parent departments, the Department of Trade and Industry (DTI) and the Foreign and Commonwealth Office (FCO). Around 600 are employed at its London headquarters, with the rest based either in its overseas network or within the English regional development agencies (RDAs). The RDAs also play a separate role in promoting inward investment. While Scotland, Wales and Northern Ireland have their own organisations for international trade development and investment promotion, UKTI retains overall responsibility for promoting the UK as a destination for foreign investors and operating its overseas network. The organisation offers a range of services to potential exporters and foreign investors, including sales leads, bespoke research, advice on location and access to the UK's international network of Embassies, High Commissions and Consulates. For example, in 2005-06 UKTI helped more than 6,000 companies to move into markets that were new to them, and dealt with over 35,000 trade and inward investment related enquiries.[9]

5. In the 2006 Budget statement the Chancellor announced an enhanced role for UKTI in helping business respond to the challenges of globalisation. Its then new Chief Executive, Andrew Cahn, was given the responsibility of turning UKTI into "the most successful organisation of its type in the world".[10] The cornerstone of the revamped body was to be the setting of a new strategy for the next five years. As a result, in July 2006 UKTI launched Prosperity in a changing world, outlining the lead role it would play in marketing the UK overseas; boosting trade with emerging economies, such as China and India; promoting the City of London as the world's leading financial centre; and targeting R&D intensive companies both for inward investment and as potential exporters.[11] In order to enact the new strategy, UKTI is implementing a number of internal reforms. It is becoming more client focused and is seeking to bring in new private sector skills. It is also reallocating resources to the most promising emerging and high growth markets. At the same time, the organisation is increasing the income it derives from charging for its services, while reducing the number of its headquarters staff.[12]

Our inquiry

6. This is our second Report in a series of inquiries into manufacturing that we launched in July 2006. The first of these looked at the availability and provision of skills in the sector.[13] We also looked at the role of public procurement in supporting industry. In light of UKTI's recently launched strategy, we thought it timely to take stock of the changes being put in place by the organisation, and the extent to which they will enable it to serve its customers better, not just in manufacturing, but across all sectors. The following chapter considers the economic rationale for UKTI's work and the changes it has undergone in recent years, both in terms of organisation and strategic direction. Chapter 3 then looks at those aspects of the new strategy which we believe are most important.

7. In the course of our inquiry we took oral evidence from representatives of employers and employees—the Confederation of British Industry; EEF, the Manufacturers' Organisation; the Trades Union Congress; and Amicus. We also took evidence from UKTI, and British Expertise, a trade association for exporters of professional services. We received 53 memoranda covering all three inquiries, including nine responses to a survey we sent to the English Regional Development Agencies (RDAs). We would like to express our thanks to all those who have contributed to our evidence-gathering.

2   HM Treasury, Long-term global economic challenges and opportunities for the UK, December 2004 Back

3   OECD, Economic Survey of the United Kingdom, 2005 Back

4   UNCTAD, World Investment Report, 2006 Back

5   UK Trade & Investment, UK Inward Investment 2005-06, July 2006  Back

6   www.uktradeinvest.gov.uk/ukti/appmanager/ukti/countries?_nfls=false&_nfpb=true#c; National Statistics Back

7   Office of National Statistics, Quarterly National Accounts, March 2007 and Balance of Payments, March 2007 Back

8   Appendices 10 (Confederation of British Industry) and 12 (Deloitte and Touche) Back

9   Appendix 15 (Department of Trade and Industry) Back

10   Ibid. Back

11   UK Trade & Investment, Press Notice 2006/47, July 2006  Back

12   Appendix 15 (Department of Trade and Industry) Back

13   House of Commons Trade and Industry Committee, Fifth Report of Session 2006-07, Better skills for manufacturing, HC 493 Back