MEMORANDUM SUBMITTED BY CBI WALES

Globalisation - Impact on Wales

1 Wales, as a Western industrialised economy is impacted by globalisation. The CBI's submission to the Treasury Select Committee inquiry into globalisation covers many of the generic issues.

2 Globalisation offers challenges and opportunities for both individuals and consumers.

3 For consumers, the increased availability of low-cost centres of production, whether of goods or services, has resulted in low inflation and increasing standards of living. However, for individuals in the UK it also demands the skills levels necessary to be able to partake in the higher value end of the economy, which is where most opportunities will be created in future. For those individuals with higher skills, opportunities overseas are now more readily available.

4 For businesses, globalisation offers the potential for lower-cost sourcing of components and services, and significant new markets. China has developed from a competitive threat to a vast new market for many companies. But globalisation also greatly increases sources of competition. Companies that fail to constantly innovate will suffer. The cycle time from a new product, carrying premium margins, to a commodity selling on cost, is shortening for most companies.

5 Wales has a significant proportion of its larger private-sector employers, which are subsidiaries of international businesses - the consequence of a successful inward investment strategy - and few indigenous companies of any size. Whilst indigenous companies will pursue a strategy of overseas sourcing, or setting up offshore subsidiaries in order to compete, they will be less prone to the complete relocation of their operations from Wales than international companies. The Welsh subsidiaries of global companies that have to compete for investment within the group are more vulnerable to the speeding up of product life cycles.

6 However, it is important to stress that globalisation impacts the location decisions of both indigenous companies and inward investors. It is just more visible for the latter.

Government Interventions

7 The priorities for governments must be to underpin the attractiveness of a location to businesses, which now have greater choices available to them. Some of these interventions are within the power of the UK Government and some are for the Welsh Assembly Government to deliver.

8 Amongst the responsibilities of the UK Government are to provide a competitive tax system, both for companies and their employees. The creation of a legal and fiscal environment that encourages free trade and movement of labour is important; as is ensuring that the administrative ease of doing business from the UK is maximised.

9 Assisting Welsh companies to take up the opportunities offered by overseas markets can be facilitated both by UKTI and International Business Wales.

10 Areas of focus for the Welsh Assembly Government should be the skills and knowledge base of individuals and companies, and the flexibility within the labour force. It is concerning that basic skills levels within the existing workforce and school leavers are still not high enough when the prospects for low-skilled employment will diminish.

11 The funding gap for Welsh universities (compared to those in England), currently c. £40m pa, needs to be addressed. The HE base should be the source of both knowledge transfer to companies and also a skilled workforce.

12 And the proximity of areas with high levels of economic inactivity and employers who are increasingly dependent on migrant workforces raises questions about the barriers to individuals entering the workforce.

13 Connectivity with markets will also increase in importance with globalisation. Road, rail and air connections from Wales all require upgrading.

14 With increasing powers flowing to the Welsh Assembly Government with the Government of Wales Act, the onus will now also be on WAG to ensure a light-touch to regulation that affects business. The CBI would call for Regulatory Impact Assessments for proposed new legislation.

15 Government interventions should not be made to try to resist the effects of globalisation, rather to enable businesses and individuals to react to and cope with its challenges. Preserving low-cost manufacturing operations in Wales is ultimately a fruitless exercise that can only buy time - the focus must be on helping individuals left behind by this process to re-train, and businesses to invest in productivity and innovation.

Migrant Workers

16 Migrant workers are now used by employers across Wales, including in those areas commonly regarded as unemployment black-spots. They are used to fill relatively low-skilled positions that do not attract local workers, but also to fill skilled positions. Polish engineers and surveyors are in Wales as well as plumbers and fruit pickers.

17 The employer experience of migrant workforces is almost entirely positive, with comments around work ethic featuring strongly. There are now some anecdotal reports of tensions in smaller communities where a high number of migrant workers settle - typically rural communities - which may warrant further examination.

Conclusion

18 Overall globalisation is having a positive effect on Wales, but it is undoubtedly challenging. It will highlight and reward the companies and individuals who are best placed to rise to the challenges, with consequences for those who do not, or cannot, adapt.

23 January 2007