Oral evidence: Exports and the role of UKTI, HC 741Tuesday 1 March 2016
Oral evidence, 1 March 2016.
Witnesses
Lee Hopley, Chief Economist, EEF, Ian Wright, Director General, Food and Drink Federation, Robert Keen, Director General, British International Freight Association, gave evidence.
Chair
Colleagues, thank you very much for attending our Select Committee. We are very grateful for your time. Could I ask you to introduce yourself and tell us where you have come from, in terms of the organisation?
Ian Wright
I am Ian Wright—not that one but this one.
Chair
This might get confusing, not least for me.
Ian Wright
I get your mail and I cash them quickly. I am the Chief Executive of the Food and Drink Federation, which is the body that represents the food manufacturing industry across the UK. I have only been in this role for 10 months. Before that, I was the Corporate Affairs Director of Diageo, the world’s leading premium drinks business, for 15 years, so some of my evidence will be based on my experience at Diageo.
Robert Keen
Robert Keen, Director General of the British International Freight Association. I have been there for about 15 years in various roles, and before that I was a practising freight forwarder, moving people’s goods around. Our sector represents mainly those putting containers on ships and packages on aircrafts, although there is a separate trade body for the fast parcel operators. I will leave it at that.
Lee Hopley
Lee Hopley. I am Chief Economist at EEF, the manufacturers’ organisation.
Chair
May I begin by asking a general question to all of you, which is one I have tried to ask all of our witnesses? The Government have targets on the number of exporters and the value of exports. Do you have a view as to whether the Government will hit those targets?
Lee Hopley
The consensus view is that it is unlikely that we will hit £1 trillion worth of exports by 2020. That is probably putting it diplomatically. That will require something in the region of 12% year‑on‑year growth in exports; in the context of the current state of the global economy, that looks extremely challenging. Like the witnesses that spoke before us, it is a bit more difficult to get a read‑out on the number of new exporters. I do not have good information about the likelihood of achieving growth in that part of the target.
Robert Keen
It would not seem likely looking at the statistics. I will keep my answer fairly short there, but looking at how far behind the targets they are at present for exports, it seems extremely unlikely they are going to be met.
Ian Wright
It is not unreasonable to have an ambition and a stretching ambition is a good thing to have. I would pay more attention to the target for the number of exporters than the overall value of the total, because a dynamic economy is characterised by a growing number of firms wanting to export. That is a better measure of the vitality of our export efforts.
Chair
This is a question to Ian and Lee, in terms of the ambition of exporters or potential exporters. Do you find, with you various members, that there is a reluctance to export? People think, “There is a domestic market there that can be well served. I have a good living. Why would I want to risk that by trying to grow, scale‑up and maybe export?” Do you find that the domestic economy provides quite a good living for many of your companies?
Lee Hopley
I am going to say no to that. I should say a little bit, perhaps, about the shape of EEF’s membership. We tend to be more mid‑size and large businesses. 90% of our members export something. The 10% that do not export directly will be in supply chains that are ultimately exporting to some part of the world. We surveyed our members at the end of last year, asking about the risks and opportunities in 2016. There were lots of concerns about risks in major markets and exchange rate volatility. Their answer to that is not to batten down the hatches but to look at investing in innovation and going out and diversifying their export portfolio, so there is definitely an understanding within EEF’s membership that exporting is about achieving growth, being more productive and survival in what is a difficult operating environment at the moment.
Ian Wright
In food and drink there are two different groups. As I think you were saying in the earlier evidence, there are the mid to large companies and then there are a myriad of others; about 95% of the food and drink industry is small and micro businesses. For the mid‑cap, mid‑sized and large businesses, exports is something that they do routinely or, if they are UK manufacturers of international global brands, perhaps they do not because that is catered for somewhere else in their business. For smaller businesses, it is a huge effort and it is a very intimidating thing to do. It is not about the UK economy being comfortable. It is simply that the effort involved to get on a plane or get in your car and go somewhere else and set up a business is really quite challenging. That is where the help, which I am sure we are going to talk about, from UKTI and others comes in.
Chair
That brings me on to my next point. Given those barriers, given that hassle and given the difficulty in that ecosystem that is often quite complex, what is your assessment of the current provision provided by UKTI? Does it help or hinder? Are businesses’ hands held as a means of trying to navigate that complex international environment?
Ian Wright
If I look back to my Diageo time, I would be extremely complimentary about UKTI helping a big business trying to grow much bigger. The UKTI provision is uneven. In some markets it is absolutely excellent and in other markets it is less effective. UKTI has suffered a bit from a continuous change of leadership. There was a period stability under Nick Baird. The last 18 months before Catherine Raines was less impressive. I have a lot of time for Catherine Raines, who comes from a business background and understands what business wants. For small and medium-sized businesses, some of the provision is not exactly what those businesses need and there is a bit of a time taken to fit together before the partnership can be effective. It is uneven.
Lee Hopley
If we think about the sorts of issues that companies face when they are exporting, they need to find customers, they need to understand the rules of the market they are going to be selling into and then there are a lot of risks that they need to manage. Some of those will be financial or exchange rates, for example. UKTI helps with some of those things, and there is not a requirement for UKTI to step in and hold companies’ hands in all of those areas, but when it comes to providing good intelligence on the ground and helping companies make contacts the general feedback from our members over quite a long period that I have been talking to our members about UKTI is that UKTI helps them achieve those things quicker than they would in the absence of any kind of support. As I have given evidence to Select Committees previously, there is a frustration that things move around and that the strategy is not particularly stable. It is sometimes, “We are very focused on getting companies to export for the first time”, then the strategy shifts to one of mid‑sized businesses or high-value opportunities. When you are looking at companies that have long investment horizons, this chop and change in what is out there and what the priorities of UKTI are is not helpful. If you switch a company off to something that has successfully been offered by the UKTI, it is very hard to bring them back into the fold again and say, “We have stopped providing that but a couple of years later we have something that feels the same, but under a different brand name”. That does not help encourage more potential exporters to come to UKTI looking for help.
Robert Keen
I cannot particularly help you too much on that, representing intermediaries who handle work for exporters. In personal dealings with UKTI on inward invest where, for example, you have somebody looking to move to the UK, I have found them particularly helpful and co-operative. They quite happily call us in for technical assistance on procedures on getting goods into the UK. On exports we have had the regional chaps turn up at our regional meetings all around the UK, but they are preaching to the wrong audience there because our people are already knowledgeable about procedures. I cannot really help you much further on that.
Chair
You were invited in for specific reasons. We are very grateful for your expertise. In respect of a sectoral approach, in terms of manufacturing and different parts within manufacturing—aerospace, automotive, and of course food and drink is the biggest manufacturing sector we have—I would be very interested to get your experience about whether a sectoral approach works. Certainly in respect of you, Ian, we have heard that, in terms of that whole‑of‑Government approach, DEFRA is very well joined-up, relative to other Departments, in championing food and drink export, so I would not mind you giving us some degree of your experience in terms of what has been working well in terms of a sectoral approach. I will start with you, Lee, and I will come on to you, Ian, if I may.
Lee Hopley
It is not as straightforward a question as it might seem. Some of the move to give individual Government Departments a bit more responsibility for working with businesses, helping them to identify opportunities, is potentially positive in theory, depending on how easily you can cut different sectors. Once you get away from the big OEMs in things like automotive and aerospace, and even food and drink, you start getting into companies that are extremely diversified and they may be selling into oil and gas supply chains or aerospace, for example. You are looking at a mix of capabilities where that handholding or putting them into a particular Department bucket gets a bit more complicated. Having a mix of understanding about where the opportunities are within different Government Departments is fine, but you need to have something that is bit more broad-based that can make sure that you are not missing out on the rump of the manufacturing supply chain that do not fit neatly into those boxes.
Chair
Ian, what is happening with food and drink, which seems to be a really growth area for British exports?
Ian Wright
Yes. We would have to say that the fact that DEFRA has brought the UKTI in to it and we have much more cohesion between the DEFRA activities and the UKTI activities is a real bonus. We also have a Secretary of State who is seized by the notion of the opportunity that exports create. The Great British Food and Farming Plan, although it is now I suspect delayed until after events in June, is going to be an important milestone on that route. We are lucky in this country to have a dynamic food and drink industry. The enthusiasm for exports reflects that, rather than being the creator of that. Slightly back to your earlier question, I found the influence of some of the Trade Ministers very helpful. I would pay a bit of tribute to Stephen Green, who was the Trade Minister under the coalition, who I thought, given that he had a fantastic business pedigree himself, did a really brilliant job at absorbing understanding of the food and drink sector and, although he came from banking, was a tremendous champion of it. I am really rather hopeful that Mark Price—I cannot imagine somebody who is more clued up on food and drink—will be a good ambassador. That is quite an important role, because you would be surprised how effective having a significant cheerleader for the sector is, particularly unlocking some of the opportunities in India and China.
Chair
Do you have to have a cheerleader as Secretary of State? You mentioned the present Environment Secretary, who has really grasped this. What pointers can you give us in terms of, if we want a whole‑of‑Government approach to exports, really succeeding? In respect of DEFRA and food and drink, where has it worked well and what advice can you give the Committee in terms of what we can then amplify to other Departments?
Ian Wright
We are at the start of this with the Secretary of State, focusing on exports. It is very welcome. It is important that we understand that the whole of Government must get behind this. It is not just a DEFRA and a UKTI effort. It sounds a bit like special pleading, but one issue the food and drink industry has is that quite often it is not seen as sexy for some Ministers and some overseas visits. If I can just make this point, which is perhaps a bit unfair, I went on several trade delegations under the coalition, many of them with the Prime Minister or the Deputy Prime Minister, and you could guarantee that the first photo call was JCB because it was a big yellow thing. Ministers absolutely love photo calls with big yellow things or, as we know, some Ministers love putting on hard hats.
Chair
It is not just Ministers.
Ian Wright
What they are not so keen on—this is not as frivolous as it sounds—is putting on little white trilbies and hair nets. There is a bit of a misunderstanding about the size of the food and drink industry and the absolute opportunity it creates. We have to be better at selling that to all Ministers. The joined-up approach is really important. It is important that Ministers outside DEFRA and outside the Foreign Office get behind this but that they get behind the real power of the industry—it is not just our sector; it is all sectors—and that they get an understanding of each sector and its importance to the UK economy.
Chair
You mentioned join‑up and good collaboration. In terms of the different nations of the United Kingdom—I am particularly fond of Scotch whisky—and making sure there is a good single voice for the UK, is that working well?
Ian Wright
Sorry to jump in there but I have one concern about this. If you look at the export targets that each of the devolved assemblies have taken to themselves—Scotland, Wales and Northern Ireland—they all have very, very clear, differently expressed targets for exports. There is a bit of a danger that the English part of that gets lost. I am not clear that this Government have quite such a clear agenda for English firms as the special help that Scottish and Welsh and Irish firms will get. There is no doubt that the Scottish export drive for food and drink, which is very cleverly hooked on to the back of the provenance of Scotch whisky in this artisanal approach, is working and is really, really effective. We need to develop one for England.
Chair
Is that true of manufacturing on general across the UK, Lee?
Lee Hopley
I do not have good evidence on how England compares with the devolved administrations.
Chris White
This one is to Ian. I asked a similar question to Lord Maude when he was in front of the Committee. It is really regarding your evidence on Chambers of Commerce when they are mandatory in other countries. Do you think this should be the case in the UK?
Ian Wright
I am perhaps not surprisingly not a great lover of mandatory most things. There is no doubt that Germany, France and even Ireland are more effective at exports generally than we are. You have to look at some of the structural reasons for that. I am not sure that mandatory Chambers of Commerce are the answer, though. I am a fan of the Chambers of Commerce where they are effective, but I am not sure that being forced to be a member of an ineffective Chamber of Commerce would necessarily be anything other than a real break on exports and dynamism.
Chris White
I am just interested in your view, but do you think they would be more effective if they were mandatory?
Ian Wright
I do not but that might not be a view that is held across my industry. My experience is that they are not; I do not imagine that they would be more effective.
Chris White
Would you like to add anything?
Lee Hopley
It is difficult to see where the introduction of mandatory membership of the Chambers of Commerce would move the needle on this. What would they be doing significantly more of that they are not doing now? To what extent would they be more effective in addressing some of the issues that I mentioned around finding new customers and understanding the market? It is not obvious to me that that is the answer.
Chris White
This is just a supplementary question, but do you think there are too many different bodies trying to do the same thing at the moment?
Ian Wright
Yes. I am not sure that is a helpful answer. Our sector is incredibly fragmented. If I look at the trade associations there are hundreds. I come from a different industry and I obviously have a party interest when I say that now, so you have to take what I say with a large pinch of salt. The fragmentation, both on the trade association side and frankly in Government previously, has been a barrier. The fact that we are seeing a more cohesive approach in Government is a very good thing.
Robert Keen
I agree with that. To apply for an export licence for dual-use items, it is different in method to ship a valuable antique or *inaudible* [10:42:04] good at different Government Departments you go to. That is tacitly acknowledged because of Customs’ one‑border project, which is gaining some momentum. Information is fragmented as well. There used to be a body called SITPRO, which was marvellous in its early days, although it lost its way and was abolished in about 2010. In its early days it was a great one-stop shop for exporters and a good point where you could find consolidated information. HM Revenue and Customs have been criticised particularly, mainly on the Revenue side, on telephone answering but also their information lines have been poor. We pick up a number of calls at our secretariat where Customs have diverted people to us and we are explaining customs regulations to them, so there could be a great deal of improvement in the provision of information and where you find it easily.
Lee Hopley
There are lots of different organisations out there all trying to help with exports because it is an important outcome that we need to be achieving as an economy. There is a risk that simplification is always the answer, so if we just make it easy then more companies will do it, but exporting is not an easy undertaking. There are lots of different markets that all have different rules. There will be lots of companies at different stages of the export journey, and if you just boil that down to a small number of support products or organisations then you will probably have a lot more companies slipping through the cracks of those things. It seems that Government need to focus on what their strategy is as far as UKTI goes and making sure that that is well communicated to business and perhaps just letting the trade associations all sort themselves out. There are a lot of trade organisations trying to do lots of different things. There are lots of overlaps. This has been the case for many decades. Where the Government will make the biggest difference is if they figure out UKTI’s own offering.
Amanda Milling
I want to talk about freight, but I just want to pick up on your point, Ms Hopley. It goes back to a comment you made earlier and a comment that has been made beforehand, which is this constant flux and change in UKTI. I am just interested to know what you think the focus of UKTI should be?
Lee Hopley
The UK’s net trade performance is woeful. It has not made a positive contribution to UK economic growth for many years, in the last couple of decades, and that needs to change. UKTI should be ambitious in having a presence on the ground in key markets where UK companies can be successful. It should be helping experienced exporters get into difficult markets because that is where you are going to get your volume growth. There is probably a good case for helping new-to-export companies get started. We should not be forced into making a false choice about whether we should help medium-sized exporters do more or small companies. If we are serious about growing exports and that being an important outcome for the UK economy to achieve then it should be looking to do all three of those things.
Amanda Milling
Do you feel the reforms that are on the table are going to achieve those end goals?
Lee Hopley
Some of the reforms that are on the table seem to be trying to make those trade‑offs and some of that is around the fact that there is belt-tightening that needs to be done. We seem to be in a constant conversation about where the focus should be and it always seems to be an either/or question, and it is not clear to me that you get the best outcomes by always choosing between one or other of those outcomes when it could be both, if it is that important to the economy.
Amanda Milling
We could discuss this for hours. I did want to ask some questions around the whole freight industry. Mr Keen, in terms of the freight industry, what are the key challenges in terms of exporting?
Robert Keen
Perhaps fragmentation at the border. You have a number of bodies treading on each other’s toes; if it is not Customs, it is the Border Force. It used to be one body; now you have two. There is a different attitude. Customs are very facilitative to trade. The Border Force do have a more concerned look at guarding the borders so are not so open. There is a lack of communication, I guess; when something is pulled for examination or pushed to one side, it can just disappear into a black hole at Felixstowe for a week or so with no knowledge.
Amanda Milling
Do you believe that is a barrier to exporting from a customer perspective?
Robert Keen
It is just an obstacle. It is not massive barrier but it is an obstacle when things go wrong.
Amanda Milling
Do you feel that your customers really understand the processes, the UK borders and the licensing? Do they understand that or can it put them off exporting?
Robert Keen
Exporters do not understand at all. The days of companies employing shipping managers who are knowledgeable are long gone. It is all subcontracted out. They pay their money; they take their choice.
Amanda Milling
What do you think can be done to simplify the process?
Robert Keen
More exporters need to deal with the forwarding industry. There is a great deal of resource out there. They need to be careful as well. They need to shop around and talk to more than one of us, but there is a great wealth of information available free of charge to anybody who phones a freight forwarder.
Amanda Milling
How do you help navigate them to that point? You can have lots of information but it does not necessarily mean that people are gathering that information, so what can be done to address that?
Robert Keen
The industry is doing it itself. I mentioned earlier there is another trade association that deals more with the fast parcel operators. They are putting a tremendous amount of resource—this is the DHLs, the UPSs, people like that—into advertising to potential exporters that they can simplify the barriers and make exporting easier for them and can provide the information. Some of our members who are traditionally the more heavyweight type are doing the same thing, although it is not quite so dynamic as the fast parcel operators. UKTI could pick up on this. The UKTI do tend to deal more with exporters and are perhaps unaware of the role of the forwarding industry.
Amanda Milling
If you had your wish list, are there any things that you feel would help in terms of exporting, from your industry’s perspective?
Robert Keen
I do not think so not now. The old says of SITPRO were good; we had a one-stop shop there. I am sorry to repeat myself. They are long gone and, as I say, they lost their way and started to try to take on other projects to try to justify their existence and perhaps got away from their core role. If there is no commitment from Government to put another quango in the place of SITPRO, then UKTI could be modernised a little bit to take on some of that knowledge and information role.
Michelle Thomson
Just to pick up on a point you made, Ian, referencing Scotch whisky, which I now understand is the number one net contributor to the balance of trades, I am wondering whether there is sufficient recognition of how exports contribute to the macroeconomic picture, both from UKTI but also Treasury, because it is something that we have not yet talked a great deal about. I would be interested in particularly your view, Lee, and yourself, Ian, given the Scotch whisky contribution.
Ian Wright
The message has got across now. If you had asked in 2000 or 2005 which was the largest export from Scotland everybody would have said oil, and in fact it was Scotch whisky then and it is Scotch whisky now. Some people have a concern about that because they have a particular view of alcohol, and that is a perfectly respectable positon to adopt, although not one I happen to share. The Scottish Government, and indeed the UK Government, have got behind that as a symbol of Britain’s export industry and they have done well on that. I think this is fair. Back to my big-yellow-tractor point, there is a bit of a lack of understanding of the real importance of consumer goods. There is a bit of sense in the Treasury that there is a serious export area, which is oil, gas, big capital projects, and then there is consumer goods, and consumer goods is somehow a bit more frivolous. That is just wrong. That is the - we need to do some work on.
Lee Hopley
In terms of how seriously the Treasury takes the need to increase exports, we moved towards a consensus around that after the financial crisis that that was a bit of an Achilles heel for the UK economy. The extent to which the Treasury gets behind individual sectors is a very good question, but it is not obvious to me that they have put an enormous amount of thought into which sectors are going to deliver on the export target, for example. Distinguishing between yellow goods, consumer goods, services for example—
Michelle Thomson
Strategy, if you like.
Lee Hopley
Indeed. I am sure lots of people think manufacturing is just goods, but a lot of manufacture is also export services as well. It is not clear that an understanding of where the strengths and competitive advantages are in the UK economy has been given a lot of thinking.
Chair
Our next session in about two minutes’ time is with bankers’ representatives. Is export finance a real barrier in ensuring that we can boost exports?
Lee Hopley
It is for some companies. Where it is a barrier it is one that is extremely difficult to traverse, but my sense is that those companies are relatively few and far between. For the sorts of companies that we talk to day-to-day about their export challenges, it is not the first item that is identified. That also speaks to the fact that in compiling our evidence it has not been easy to track down lots and lots of companies that have experience of UK Export Finance. For some that have made contact with UKEF, they have been very helpful but those kinds of solutions have not really been right for the issue that they faced at the time. Undoubtedly it is going to be an issue for some companies—it is going to be a massive one—but that is not what sits behind the lack of progress on the UK’s export target.
Chair
Is that true in the food and drink sector?
Ian Wright
Ahead of this we went and asked our members about this and it is not an issue that comes up a lot, which is perhaps a bit surprising, but it is not something that they say to us is a major barrier.
Chair
Okay. Colleagues, thank you very much for your time. We really appreciate it. Examination of Witnesses
Witnesses
Eric Leenders, Managing Director, Retail and Commercial, British Bankers’ Association, and Steve Childs, Head of International, Barclays, gave evidence.
Chair
Gentlemen, thank you for your time. Welcome to the Select Committee. Could you, for the purposes of the record, tell us who you are and where you come from.
Steve Childs
Mr Chairman, my name is Steve Childs. I am Head of International for Barclays Business. Primarily my focus is the smaller end of business and helping get going internationally.
Eric Leenders
I am Eric Leenders, the Managing Director responsible for retail and commercial banking at the British Bankers’ Association
Chair
Given the response to my question to the last panel, this could be a very short session because there does not seem to be a problem. In terms of making sure that we can boost exports and the role of export finance, what else needs to be done? Perhaps as a precursor to that, what is the current state of play when it comes to export finance? Eric, can I start with you?
Eric Leenders
Chairman, you asked the previous witnesses to give some thought to the effectiveness of UKTI, so perhaps I will start there. First, in the broadest sense the BBA absolutely supports the policy objectives. The members report broadly positive relationships with UKTI. We have seen independent research that shows that UKTI has a positive effect on those businesses that it touches, but equally other witnesses earlier this morning have identified the reach and the extent to which maybe UKTI and others are necessarily getting to SMEs and other businesses that might want to consider exporting.
Chair
Steve, is that true?
Steve Childs
I would agree. We have a very productive and positive relationship with UKTI. We have recently announced, you will be aware, a strategic partnership that we have agreed to, where we have aligned on several key initiatives that will add real energy and pace to the things that we want to do to encourage more and more exporters. To the point around export finance particularly, I would agree with one of the points made earlier. We do not see finance as the first thing on the list. In fact, what we see is a psychological barrier to getting involved in international trade, particularly for those smaller businesses. I remind my team often that we are in the fear removal business around international trade and we always say that is difficult with a face like mine. That is definitely where we focus our efforts. It is definitely getting those businesses over the hump of understanding the opportunity and where they want to take their business.
Chair
This is really interesting. Do you think you have a role as Barclays in terms of just providing that wide provision of banking services to get rid of that fear factor and say, “Do you know what? You bank with us. We think that you are a really good potential for export and we could perhaps provide you with export finance services.” Talk us through what happens for you to be able to identify good potential exporters.
Steve Childs
I entirely agree that we have a role. In fact, our relationship managers that deal with small businesses are trained to deepen the relationship with the client to the level that we can make that suggestion to them, so not to just, if you like, react on a transactional basis when they have a need, but to say to them, “You could take this business internationally. Have you thought about how you would grow your business?” We have also professionalised that workforce on that basis and we have organised it in that way. In every area of the country now, there is a professionally qualified international business manager. My own team are professional international managers. We have built a centre of excellence so that we can scale up the operation and have lots of those broad, initial conversations that just bring alive the opportunity for the client. We are often dealing with a group of businesses that have yet to consider that international has a part to play in their growth story. We are also dealing with a group of businesses quite often who become accidental international traders. I remember when I started in this role 18 months ago I ran into a young chap at an event who had spent a couple of years travelling, came back and wanted to set up a business selling tents for music festivals. He set up a Facebook page and within four weeks he had an order from China. He did not wake up that morning thinking, “I am an international trader”, but there is definitely then a positon for us to help join the dots. “How are you going to take this business forward? What is your business plan?” Quite often we find that that is something that is missing. We have a role to play in helping with that.
Chair
Do you make money from export finance? That is not a criticism, by the way. I am not going to challenge you in that; making money in business is a good and positive thing. Do you make money out of export finance?
Steve Childs
In the part of the business that I look after, export finance as a product is little more, often, than simple overdrafts. That is a commercial arrangement with a client. We work very hard to agree those terms with the client. In terms of the export finance products and UKEF, the types of clients that I deal with on a day-to-day basis are not often in the type of space where that sort of product offering or support is necessarily appropriate or something that they would necessarily go to.
Chair
The reason I ask, and it might be slightly unfair, is Barclays announced their financial results today: a drop in profits, a cut in the dividend and significantly the sale of the African subsidiary. We have just heard from the CBI this morning that Africa could be the new Asia. You are paring down to the UK and US operations; from our perspective, looking at this inquiry, does that mean that, in terms of the scale of your advice and the scale or your reach for potential export markets to your customers, that could be restricted? Should we be worried about that in respect of trying to boost exports?
Steve Childs
We should not be worried. I have yet to see all of the detail of that announcement. It landed as I was on my way here today, so I am perfectly happy to write to the Committee with a more full response on that. The way that I organised my business is that we stand shoulder to shoulder with businesses. Whatever the circumstances, our job is to help those businesses explore the international opportunities that are available to them.
Chris White
It was just a bit more depth—not a terribly technical question—about how the process worked. You said that your relationship managers made suggestions. What do you think the balance is? Are you making more suggestions or are more people coming through your door and saying, “How can you help?”? What is the process like? How difficult or challenging is it?
Steve Childs
You have broadly two groups of clients that I see in my part of the business. You have the more mature business, the more traditional lifecycle almost, where you would argue it is the way we used to look at international trade. Business would trade three, four years, hit the UK domestic border buffer, “Where do I grow next? Now I need help.” Those are probably much easier for us because when we can start to talk about the opportunities we will have a deeper relationship with the client. That is one group. The relationship managers are very skilled at identifying that stuff and having those conversations and are very linked in locally with UKTI on the ground for when we need to develop that support. There is another group of clients that are almost born global. We are starting to see more and more start‑up businesses go international straight away. In fact, some of our data suggests that 65% of our start‑up businesses that we are seeing will go international in their first year, largely driven by the digital capabilities that they have. We have been working very hard through the relationship managers that look after them, and also, frankly, with UKTI we have been developing some online tools. We have a thing called the digital driving licence. I do not know if the Committee is aware of this, but it is an enabler. It is not just for businesses but for anybody. It is an open application that people can download and teach themselves how to operate online and stay safe, cyber security, and how websites work. We have just developed one with UKTI around e‑commerce and helping those smaller businesses navigate the world of e‑commerce. That was in the strategic partnership we have just announced. We are about to launch another one, which is how to navigate e‑marketplaces. We recognise a real need to help join the dots from a digital perspective in that space. We are seeing more and more of that at the smaller end.
Chris White
Just two quick questions, Chair: you are saying that your first port of reference would be UKTI for anything outside our particular skillset?
Steve Childs
We introduced 800 clients from my own business last year alone to UKTI international trade advisers for more support.
Chris White
What is your level of confidence in them? Are they responsive? Are they helpful?
Steve Childs
Yes, hugely. Really positive. We take a totally anonymised advocacy score from the whole of our international relationship with the client, which oftentimes will include UKTI. Clients are giving us a 92% advocacy. 92% of them would tell their peers to come and talk to us, and part of that is our signposting of the support that UKTI offer, which we see as very positive on the ground. The problem, though, is one of being able to scale that up. It is a very boots-on-the-ground operation. I have always been struck by how flexible UKTI are to learn and think about the model. At the moment we are embedding someone from UKTI alongside my centre of operations up in Gadbrook Park, which I would invite any of you to visit; come and see what we are doing. They are there to learn about the way that we are scaling up the amount of advice that we are able to give and the support that we are able to give.
Chris White
You clearly see UKTI as advantageous to your business. Do you think that you should support their work in any way by investing in various projects or secondments or even financial support for the work the UKTI does not just in the UK but abroad?
Steve Childs
As I say, we are embedding a member of their team alongside my operation up in Gadbrook Park. We have partnered with them with UKTI on the Exporting is GREAT programme. We are a partner of that. We have invested a lot previously in our workshop and clinic programmes offered through Barclays Business Abroad, which again is a joint operation where we stand with UKTI with small businesspeople, trying to open up this world to them through workshops and clinics the rest of it. We have put a lot of real energy into that.
Chris White
That is a really helpful answer. Thank you.
Richard Fuller
Mr Leenders, this is maybe a question to you. The UK is a very open society. We have had many people come to the United Kingdom over the last 20 years and before who call the United Kingdom home, but they have connections back to their countries of origin and the diaspora has great potential, does it not, for leading exports, particularly smaller businesspeople just starting up? What is your experience of the role of the banking sector in supporting that? Do you think it is a significant area for growth in exports?
Eric Leenders
Yes, it has potential. Ultimately it is a demand-led point. It is for the small businesses themselves. Steve is absolutely right. When I was a business manager down in Brighton some 20 years ago, there were clear lifecycles through start to first employment to potentially export when turnover had reached a particular ceiling. That is changing very much. Some of the potential export markets are not necessarily the clear cut bordered geographies that we might have known from 10 or 20 years ago. I think of fora such as eBay and other international channels to market that change that perspective. A number of the banks are very active in looking at those new approaches and helping customers to understand. Previously with my former employer we did a lot of work around supporting black, Asian, minority, ethnic businesses. There are some very strong support organisations. I mention Yorkshire Asian Business Association just as one example. They would be very good conduits, for example, for some of the work that Steve has mentioned about UKTI.
Richard Fuller
One other aspect on that is also the opportunity for people to use investment, so they can go, “I am here but my family is in Nigeria and I want to set up a business in Lagos and I can invest money in that”. Do you think there is an opportunity for the Treasury to look more creatively at the tax advantages for people to do that as a prelude to ultimately creating a dividend stream back to the United Kingdom?
Eric Leenders
The feedback we had from our members was not specifically around tax advantages. However, investor visas have been an issue on the agenda perhaps from the other side, in terms of inward investment. Theoretically at least, the converse presumably is somewhat true. I would have thought there is some potential to look at that further.
Richard Fuller
Can I just turn to talk about Export Finance—the old ECGD as we know it. Do we need it? Should we have it? There is a controversy, both in the United Kingdom and for the Ex-Im Bank in the USA, that, first, it is not needed and that it does crowd out the private sector despite saying it does not do that, and then some concerns about some of the ethics involved in what essentially has the Government stamp of approval on finance. What are the thoughts of the two of you on how Export Finance is doing and whether we need it in the long term?
Steve Childs
What I see from my clients—remember they are at the smaller end—is we see little demand from those clients for the export finance product. As I understand it from my colleagues that operate more in that space, it does a good job of helping those perhaps more mature, bigger, more complex businesses. Clearly there is a role to help us lend more to those clients where we want to lend more. What we might change about that is I tend to hear—and this is anecdotal—that where Export Finance, ECGD, get involved in a deal we would like to understand the terms of their involvement and the level of their commitment earlier on in the process. Oftentimes we find we understand the full extent of their appetite at the back end of the deal. That might be somewhat different to what we thought at the start, which just makes things more difficult than they should for the client and us to get to where we want to be. That is all I can offer on that because I do not see a lot of that in the space that I look after.
Richard Fuller
As a businessperson yourself, if you run a business where you are losing money and you need to cut costs, which is essentially the circumstance central Government is in, would this be one of the Departments that you would look at and say, “I am not really convinced it is worth the money we spend on it. Let us just shut it down.”
Steve Childs
I am not sure I have enough involvement with UKEF and ECGD to give meaningful response to that.
Richard Fuller
From the perspective of your members, as you have just explained, you do not see for a smaller business that it is really material at all.
Steve Childs
I do not see a huge amount of demand for that from smaller businesses that I deal with day in, day out.
Richard Fuller
Mr Leenders, would you agree with that?
Eric Leenders
Yes, for the smaller businesses, frankly, to the point that Steve made, overdraft is the primary finance vehicle. Also, eight of 10 smaller businesses typically export into Europe, and significantly that would include Ireland, Northern Ireland‑Ireland being our only land border. Therefore, the pattern of trade is altogether a lot different and therefore some of the solutions UKEF supplies are not necessarily as relevant. As you get to larger businesses, so 50-plus employees to 250-plus employees, there is a significant step change. There some of the product services that UKEF provides have been proven to be very helpful. The point about earlier awareness of what a bank might be financing versus UKEF and how that might be better co‑ordinated is a point well made. Certainly the products fit toward the mid end of the SME spectrum and not the smaller end.
Peter Kyle
Steve, I should declare an interest at the outset because I co‑founded a business in 2004, and the relationship adviser from Barclays at the outset was absolutely fantastic for our company. I did pause before I said it. It helped us provide the foundations on what was built—a really fantastic local business that is doing incredibly well to this day, probably because I am not involved in it anymore but that is a different story altogether. I can see the advantage of having great relationship advice from banks in the front line. You described the psychological barriers to trading abroad and your job as fear removal. You just have to explain this to me. Down in the extreme south‑east where I am based, and in Brighton and Hove where I set a business up and now represent, which is a very entrepreneurial city and is dominated by new media companies, for us when we started to see demand for our products and services, which was multimedia, abroad it was a sense of extreme excitement for us, not fear. Who is experiencing this fear? Are there trends that indicate that the fear is in particular sectors and subsectors, or in the private sector and in small and medium business? If so, can UKTI focus its resources in partnership with you?
Steve Childs
Definitely yes, they can focus the resources in partnership with us. I can give my own example here. When I came in to build the international business within Barclays, I spent a lot of time at international trade events talking to people in the industry. I heard Dr Adam Marshall make the comment that I am probably about to make here. The way that the industry talks about itself—the jargon and the language that it uses—is not helpful. It is probably a slightly tongue-in-cheek use of the word “fear”, but I took that feedback from clients, customers and we came up with a very, very simple proposition at Barclays, which is, “We will help you do business internationally. We are going to hold off a conversation that is too product-led, too jargon-led and we are just going to have a conversation with you about how you are going to grow that business and we are going to share the excitement with you on taking that business forwards.” If you like, that has become an organisation principle for the part of the business that I run. What do we do in that? Funnily enough with a lot of support from UKTI in the early days, we have created a suite of solutions under our banner, which is Business Abroad, where we offer the client access to my team, lots of workshops and lots of clinics. There is a big educational agenda here—a skills gap, one would argue. We offer them lots of negotiated discounts into freight forwarders, credit insurance, document preparation people. If you like, our role is helping them align all of the important stakeholders that collectively can help them take that business beyond our UK domestic borders, and UKTI have a very firm part in that relationship.
Peter Kyle
Can I ask you this then? In terms of the psychology or mentality of people who are running small businesses or micro businesses, what is different in the psychology of that business to trading abroad, particularly in the EU where it is a free trade area? Why is it different psychologically than trading domestically?
Steve Childs
It is perception. There is a perception that it is too difficult: “I do not know where I am going to get the lead from. I do not know where the opportunity is. There is too much to negotiate. There are too many risks in the process.” Our role is simplifying that and helping talk through that. I am not even saying it is a real problem. I believe that is a perception. I believe that it is partly cultural as well, by the way. Just as an aside, my daughter has just finished GCSE Business Studies, and I was slightly surprised at the lack of time spent in the syllabus on international trade. I wonder, just from a cultural perspective, there is more we can do with our young people to get us thinking internationally that it is not such the problem that we think it is perhaps.
Peter Kyle
That is fascinating.
Amanda Milling
Just thinking from your sector and the role in exports, I am just interested to hear both of your views in terms of the shift from a UKTI perspective towards the digital platform. I might have a couple of supplementaries on that if that is okay.
Eric Leenders
In terms of UKTI we see a spectrum from the generic to the perhaps more specific of what it does and what more it could do. In the context of largely what we have discussed around export readiness, there is probably a lot of good generic material there. In terms of expansion for existing exporters there is probably a lot of good information there. Where I personally spotted something of a gap is that the other leg of exporting, the import markets, are fluid markets. They are cyclical as well, so it is not just about expansion, it is about retaining those contacts, building those longer term relationships and helping whoever it is—the SME—to continue those established relationships. As we look at what more UKTI might do, there is probably more on export promotion. We talked about some of those growth markets, BRICS and then MINT—Morocco, Indonesia, Nigeria and Turkey—that were pointed out to us by our members as potential priorities as well. I thought the DEFRA case study was a good example earlier on. There is something around interdepartmental co-ordination with particular sectors. Our responsible ministry is HM Treasury. If it is about supporting the export of financial services then bringing them in in an interdepartmental way was seen as quite a positive. We understand that UKTI has quite extensive databases. Free access might provide the sort of background research materials that would help SMEs potentially to define target markets if they are thinking of taking that next step.
Amanda Milling
Is there not a danger, going back to Peter’s point, that we are not catching people early in the chain, in terms of getting them to consider exporting in the first place?
Eric Leenders
I would not disagree. The point about including finance, foreign trade and exporting in the national curriculum in further and higher education is a very good one that I had not personally considered myself. It changes the outlook from the very outset. Equally, others in previous sessions have mentioned how a number of businesses establish a local market and get comfortable within that market. That is still a predominant way for businesses to set up. Cracking that nut might create more incentive to export.
Steve Childs
There is definitely that group of businesses that will never get involved in international trade for just that reason. I ran an interesting exercise with my team some time ago where I asked them to think of themselves as almost a dummy business: “You want to export, so go jump online and see where that takes you”. It will not surprise you that if 10 people ran that exercise I got 10 different answers. Therein lies the problem. I believe there is a real need for a digital platform that brings the relevant information into one place. I was looking at the Open to Export site the other day. It strikes me that is an excellent resource. To my earlier point, a lot of businesses we see are accidental international traders. They have got on with it. They do not have a plan. The Open to Export site enables a business to build a business plan for international trade, and it strikes me that for a business that is motivated to do it, that is the secret. That type of resource is really important but it is not the be all and end all, and there will always be the need for that human interaction—the arm around the business to help the take that step.
Amanda Milling
To that point, when you outlined some of the services that you provide to your customers, it struck me that you are providing that face‑to‑face advice that UKTI has historically done through its trade advisers. Am I right in thinking that?
Steve Childs
It takes it to a different level. There will be a level that a relationship manager would not be able to go beyond. Many international trade advisers that have worked all around the world and are businesspeople themselves will have different perspectives and different connections, so therefore we see that it is part of the overall offering rather than an either/or.
Amanda Milling
Why are you more qualified to offer that service than UKTI? Why are your advisers more qualified?
Steve Childs
No, I am saying by introducing to UKTI we are then taking that to another level. We recognise that there comes a point when we need to bring in that different level of expertise.
Amanda Solloway
Around the sustaining of exports success, I just wondered what it was you were both able to offer. Is there more that maybe should be done to keep that success sustained?
Eric Leenders
When we look at UKEF there are a couple of developments that we very much welcome. Extending the export working capital scheme to tier one within the supply chain is very helpful. We are also interested in the development of delegated authorities, so there is not a duplication of paperwork and red tape that has been the bête noire of SMEs since records began. There are also some other things that probably could be looked at. We would like to see that promotion presence in key countries and buyer markets. We would also like to see increased digitisation; that £24 million commitment is very welcome. I would be interested in a review of country risk coverage—whether there are other markets that could be supported or existing markets supported a little further, and whether indeed we could look at EU state aid rules to see if there was more that could be done for SMEs, particularly for short‑term overseas or export finance, starting to touch a little on the accidental exporter points. Third party coverage is another important area where at the moment you can only really get a letter of credit guarantee scheme for exports from the UK, but you might have, as we heard earlier, manufacture in one geography and a market in the other. You are not eligible unless that trade passes through the UK, and that would be a useful addition along with some currency risk cover as well.
Chair
I was struck, Mr Leenders, by your comment earlier about departmental champions and DEFRA being a good case study. A final brief question from me, if I may. Does the Treasury do enough to champion the export of financial services?
Eric Leenders
We are very positive about the relationship that we have with the Treasury. I meet with them very regularly, on a monthly basis. We have worked on what we consider to be the key issues that face the sector. I would be happy to provide a copy of that report to you offline.
Chair
That would be very helpful. Gentlemen, that has been really positive for us. Thank you very much for your time. We really appreciate it. Oral evidence: The Productivity Plan, HC 466-iii 34