Britain and beyond
CBI: 50 Years of Business Innovation | chapter name
“Britain’s global businesses have become increasingly important in terms of leading the country’s economic progress. We have benefited enormously from investment and skills from overseas”
Sir Mike Rake Britain and Europe The global economy Climate change Wars and conflicts The next 50 years Brittany Ferries Malta Enterprise Scottish Enterprise Trade Finance Partners UK Export Finance
Britain and beyond
CBI: 50 Years of Business Innovation | Britain and beyond
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Sir Mike Rake | First person
A progressive United Kingdom in a global world Sir Mike Rake President of the CBI
Over the course of the decades since the end of
We have worked hard to ensure regular access to
Britain in Europe
the Second World War, the UK has made a positive
political leaders from all parties and have stressed
I am, however, deeply disturbed by the fact that in
decision to adopt an outward-facing view of the
the importance to UK business of resisting the
2015 we seem to be moving to a position where the
world and embrace globalisation in a whole-
temptation to embark on populist protectionist
UK might not play the role in the world that it has
hearted way. Britain, which has always been a
measures that would damage the UK’s position
played over the centuries — a small and global
trading nation, has opened itself up to the world
in the world economy.
player with an open and pragmatic society that
and thus to investment and people from overseas
The CBI has a real role to play in explaining
welcomes investment and immigration. While the
more than any other country in the world.
the benefits to the UK of immigration. And some
decision to offer a referendum on membership
During that period, Britain’s global
of the facts may be uncomfortable for politicians.
of the European Union is rightly a constitutional
businesses have become increasingly important
All the statistics, including government’s, show
matter for government, the uncertainty caused
in terms of leading the country’s economic
positive net benefit from skilled migration to
by proposing it cannot be underplayed.
progress. We have benefited enormously from
the UK, both in terms of fiscal contribution and
We need to be clear: a UK outside the
investment and skills from overseas. One only
overcoming skills shortages. Migrants are also
EU will be totally irrelevant from an economic,
has to look at our car industry, which employs
much less likely to claim benefits than native
political and military point of view. Membership of
700,000 skilled people, operates in key export
workers and tend to go home when they are
the EU’s single market remains fundamental to
markets and yet is almost 100 per cent foreign-
unemployed. As the baby boomer generation
our economic future and we should remain in a
owned. Companies such as Toyota, Nissan,
retires, we will need to ensure we have access
reformed EU, rather than outside with minimal
Honda and Jaguar Land Rover are all world-
to the skills needed to keep our world-leading
influence. We can contribute towards positive
class and British-based.
industries on the road. That means a revolution
change and push the business agenda for greater
The CBI has been a strong voice to both
in our vocational training system, where there is
investment and higher levels of productivity, which
government and the wider public on why
much still to do, but a global UK will also benefit
both the UK and other EU countries need to
globalisation and Britain’s place in it is important.
from the best talent from around the world.
compete in the world economy. »
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CBI: 50 Years of Business Innovation | Britain and beyond
It is therefore absolutely critical that the UK
(£1.6 billion) are traded bilaterally, promoting
to compete on a cost basis with eastern Europe
refines its approach towards the EU and embarks
economic growth and supporting millions of jobs in
and the emerging powerhouses of the southern
on constructive engagement with an economic
both economies. Independent studies estimate that
hemisphere on our own, which is why we will
bloc that includes some 500 million consumers.
TTIP could boost EU exports to the USA by 28 per
benefit from being part of trade partnerships
All of our key trading partners, from the USA to
cent and increase UK GDP by £10 billion a year.
with similar like-minded economies.
China, believe we should remain an influential
We would be the biggest beneficiaries of TTIP
part of a European economic union. The CBI
as part of the EU. It is fanciful to think that the
Global role
set out the arguments in its report, Our Global
USA would see the UK as a serious trading partner
Our job over the coming two years, as we debate
Future, which is a seminal and authoritative
outside Europe. The UK has an essential role of
the UK’s role in the EU and in the wider global
piece of work that makes clear there is no
being a bridge between the USA and the EU but
economy, is to help persuade our international
alternative to remaining in the EU that would
we can only do that from within the EU. This will
business and investment partners that the
leave us better off.
enable medium-sized businesses, which the CBI
vast majority of companies in the UK want the
has done so much work to promote, to treat the
country to play a global, sensible, pragmatic
World trade
EU as part of their domestic market and use that
and engaged role. We need to act as a voice
As we look forward to the next 50 years of the
platform as a springboard to exploit opportunities
for British business to ensure we engage with
CBI, I want the UK to be part of two key trade
in the USA and the emerging markets.
Europe as a constructive partner.
agreements that will open opportunities for
The Trans-Pacific Partnership (TPP), the
I want to see the UK remain a key player
British exporters. The Transatlantic Trade and
proposed regional free-trade agreement that
on the global stage, with a modest but real
Investment Partnership (TTIP), establishing
is being negotiated by 12 countries across the
international influence. History tells us that
free-trade agreements with the USA and the
Asia–Pacific region, the EU–India Partnership
our role in the world is as a small, influential
EU, should create a market of 800 million people.
and the Japan–EU Economic Partnership,
and respected bastion of pragmatism, creativity
Together, the EU and the USA account for nearly
includes trade deals from which we will benefit
and productivity. This has made us a genuinely
half of world GDP and 30 per cent of world trade.
as a member of the EU but would miss out
internationally focused country; it is unthinkable
Each day, goods and services worth €2 billion
on if we were outside it. We are never going
to consider backing away now.
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Sir Mike Rake | First person
“we need to act as a voice for british business to ensure we engage with europe as a constructive partner�
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CBI: 50 Years of Business Innovation | Britain and BEYOND
Continental Drift Britain and Europe
The recent history of Britain’s engagement with
immovable barrier to UK entry, his resignation
Common Market – something it said the
the rest of Europe spans almost perfectly the
in 1969 opened the door to renewed efforts
Conservatives had not offered. Labour leader
lifetime of the CBI. This sometimes tempestuous
by the government of Edward Heath to gain
Harold Wilson said he had embarked on “tough
relationship is currently going through another
membership. Finally, on 1 January 1973, Britain
negotiations” to ensure that membership did not
challenging phase.
became a fully-fledged member.
impoverish working people. When membership was put to a referendum in 1975, it had the support of Britain’s three main parties – although
In 1963 French President Charles de Gaulle vetoed the UK’s application to join what was then known as
CBI buffers up
the government set aside collective cabinet
the European Economic Community with the words
The CBI created an “Impact Europe” train that it
responsibility. The CBI was fully behind
“l’Angleterre, ce n’est plus grand chose” (“England
took around the country, a travelling exhibition
membership with president Ralph Bateman and
is not such a big thing”). The UK had applied to join
with videos – an innovation at the time – and
other leaders making hundreds of speeches,
in 1961 and, despite a concerted campaign by the
presentations to promote UK membership of the
press conferences and TV and radio broadcasts.
government, would be rejected again by France
EEC. It steamed out of London’s Euston station
“The CBI ran a thoroughly professional campaign
in 1967. As CBI President Sir Stephen Brown
on 27 April 1972 and travelled almost 3,000 miles
throughout the referendum debate to ensure that
said – with considerable understatement – in that
around the country presenting the seminars
industry’s case was understood,” said Bateman in
year’s annual report: “We experienced a serious
in some 30 towns and cities. The train was
the CBI’s Annual Report of 1975, “and to counter …
setback to our hopes and aspirations of joining
divided into an exhibition area, a restaurant
any misunderstanding over the effect of continued
the Common Market.”
car, a VIP lounge and four conference areas
EEC membership on jobs and prices.” The result
The government and the business community
where seminars could take place simultaneously,
was resounding – with more than 67 per cent
were united in wanting to secure British
seating 100 business executives.
voting in favour on a turnout of 65 per cent. The 1980s saw a reversion to the more hostile
membership of the EEC. While the UK would
relationship of the 1960s – but this time it was »
clearly gain, as it was suffering an economic slowdown at a time when France in particular
Role reversal
was enjoying a renaissance, they also recognised
Labour’s campaign manifesto for the October
Ted Heath (opposite, top) secured EEC entry in 1973;
the mutual benefit of being part of a larger
1974 election had included a pledge to give the
a 1975 referendum saw the decision approved
trading area. While de Gaulle was clearly an
electorate a vote on whether to stay inside the
(opposite, bottom)
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“ The CBI was behind EEC membership and led a campaign to ensure that industry’s case was understood”
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CBI: 50 Years of Business Innovation | Britain and BEYOND
the UK government that was more lukewarm
path towards closer integration with the rest
after the Treasury carried out a detailed analysis
about the rest of Europe rather than the other
of Europe. In 1992 Prime Minister John Major
showing that the disadvantages from joining at that
way round. The Conservative administration
signed the Maastricht Treaty, which laid the
stage outweighed the benefits, the idea was shelved.
of Margaret Thatcher disliked what it saw as
groundwork for the creation of the euro, added
a push towards a federal Europe and a single
the areas of justice and foreign policy, and
Second referendum?
currency under Jacques Delors, the socialist
introduced closer integration on employment
The issue fell off the domestic political agenda in
French politician who was President of the
and social issues. The treaty also introduced the
the 2000s and the euro debt crisis has probably put
European Commission. While she was praised
notion of European citizenship, giving citizens
paid to the idea of the UK joining in the foreseeable
for negotiating a permanent rebate from the
of EU countries the right to live in any other EU
future. The eurozone crisis forced Cyprus, Greece,
EU agricultural budget, she opened up splits
country and vote in its elections. However, the UK
Ireland, Portugal and Spain to seek financial
within her party in 1988 when she used a speech
secured an opt-out from the single currency and
bailouts. The crisis also exposed failures in the
in Bruges to reject “a European super-state
from the Social Chapter. Again the CBI made
economic governance of the EU, while the absence
exercising a new dominance from Brussels”.
clear its members were in no doubt that the
of a common banking system and a fiscal union
After Mrs Thatcher’s removal from power
UK’s long-term interest lay in ratification.
had left member states vulnerable to swings in
in 1990, the UK moved further down the
The incoming Labour government of Tony
financial markets.
Blair signed up the UK to the Social Chapter and
The scale of the crisis has led to a rise
initially set out a path towards adoption of the
in euroscepticism among both politicians and
euro, which was due to become the common
voters in the UK, marked most clearly by the
currency of Europe in 1999 but without the UK,
large vote for the UK Independence Party, which
Sweden or Denmark as members. The CBI had
campaigned for withdrawal from the EU, in the
declared its support for joining economic and
2014 European elections. Another factor behind
monetary union (EMU), as it was known then,
UKIP’s success was the sharp rise in the number
but only when the economic conditions were
of people coming to the UK from eight eastern
right. In July 1999 it backed UK entry under key
European and two Mediterranean countries that
conditions without a specific date, which it said
joined the EU on 1 May 2004. »
was a “compromise between the strongly held
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views of different members”. However, the then
Left: The 1992 Maastricht Treaty. Opposite: The Eurozone
Chancellor Gordon Brown was opposed and,
crash causes misery for Greek pensioners
Britain and Europe | in focus
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Britain and Europe | in focus
Reform of the EU is now on the agenda
platform to do that. We must not forget the
in the UK and in many other member states.
value to the British economy of having access
Prime Minister David Cameron has promised
to a market of over 500 million people.”
to hold a referendum on UK membership of
But just as the CBI has been a strong and
the EU in 2017 if he wins the general election
consistent advocate of British membership
in May 2015. He also pledged to negotiate the
of the EU, it has also maintained a strong
terms of Britain’s membership in order to
need for reform so that its institutions
repatriate powers from Brussels to London.
operate in the interests of the UK and the wider
The vast majority of British businesses
European community. A decade ago former
have been in favour of Britain remaining in the
director general Howard Davies warned that
EU but are keen to secure reforms to the way
a “struggle for the soul” of the European Union
that it operates. In a poll in September 2013, eight
was under way. Writing in the 1994 annual report,
out of 10 CBI members – including 77 per cent of
he said: “We are on the side of those who seek
SMEs – said they would vote for the UK to remain
an open, deregulated, competitive continent with
a member of the EU in a referendum if held now.
powers at the centre exercised only where they
In a landmark 180-page report entitled Our Global
are needed to ensure the effective operation
Future, published in November 2013, the CBI
of the market.”
set out why the benefits of EU membership
This debate has not prevented the CBI
to British business significantly outweighed
supporting the government in resisting the
the costs. The report stated that the UK’s EU
imposition of poorly framed regulations.
membership is worth approximately 4-5 per
For example it has opposed the Financial
cent of UK GDP annually, or between £62 billion
Transaction Tax that seeks to impose a levy
and £78 billion – equivalent to £3,000 for every
on share and bond trading and which the CBI
household. It also made clear that any alternative
has warned will damage growth, jobs and
to British membership of a reformed Europe
investment across Europe. But this is very
would not offer greater advantages or influence
different from arguing for a special relationship
for the UK.
for the UK alone, which could lead to the exit
As CBI Director-General John Cridland said
door by default. The CBI has long maintained
at the launch of the report: “The starting point
that only proactive, positive and permanent UK
for that vision is a global perspective: we need
engagement will secure the outcomes that can
to look outwards to the world as it changes.
support Britain’s global future. The next two
Our membership of a reformed EU is the best
years may well see whether the UK will remain part of a union that has served Britain well and
Left: The European Parliament in Strasbourg
•
increased its prosperity as a nation.
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CBI: 50 Years of Business Innovation | britain and beyond
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the Global economy | in focus
Britain’s global future The Global economy
Britain has looked to the rest of the world for
business needed to take advantage of global
a large area of the world to trade and investment
centuries, but the patterns of trade, migration
opportunities. As CBI president Maurice Laing
for the first time in more than 70 years. As CBI
and investment have constantly changed. An open
wrote in the 1965 annual report: “The whole future
president Sir Trevor Holdsworth noted at the
economy has long been – and must continue to
of Britain rests upon the success of industry,
end of that year: “It is becoming clear that
be – a crucial part of the British success story.
commerce and agriculture and especially on the
private enterprise will hold centre stage in
exporting firms which provide the wherewithal
this process. Cordial relations established
Britain has always been a globalised and
by which we all live.”
by the CBI should provide British business
globalising nation. For centuries it has reached
Global trade volumes had been rising
with a sound foundation on which to build.”
across the seas to find trading partners while at
steadily since 1947 when the major trading
The telecommunications revolution and
the same time being open to an influx of goods,
nations abandoned the protectionism of the
the admission of China into the WTO in 2001
services, money, people and ideas from overseas.
pre-war years and signed the General Agreement
combined to open up Asia as a source of
The UK has benefited from this two-way flow,
on Tariffs and Trade (GATT), the precursor to the
low-cost manufacturing and back-office IT.
yet globalisation has often been a controversial
World Trade Organisation (WTO). Membership of
The phenomenon became known as the “flat
and divisive issue.
the European Union became the centrepiece of
world” after the bestselling book by Thomas
When the CBI was set up, the UK was
Britain’s global trade policy, as it looked to secure
Friedman. It enabled UK companies to become »
looking to find a new role in the global economy.
openness by embracing multilateralism and
The Second World War had brought to an end
taking an active role in the setting of international
Britain’s era as the centre of a global empire
trade rules. Entry into the EEC and the emerging
based on industrial domination and naval
trend of globalisation saw the ratio of the sum
power. It now looked to build strong trading
of UK exports and imports to GDP hit 50 per
links with the Commonwealth countries while
cent in 1974 for the first time.
also seeking out closer integration with the European Common Market – something that
The “flat world” economy
would not happen until 1973.
Meanwhile the decisions by the incoming
With the domestic economy stuttering, the
Thatcher government in 1979 to abolish exchange
newly formed CBI was fully aware that British
controls and later, in 1986, to deregulate the financial services industry opened up Britain to
Opposite: Globalisation has opened markets, created
foreign capital. Even more significant would be
supply chains and enabled money to move more easily.
the changes that happened three years later.
Right: The leaders of the five BRICS economies meet
The fall of the Soviet Union in 1989 opened up
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CBI: 50 Years of Business Innovation | britain and beyond
more efficient by outsourcing production and
2014 proposed takeover of AstraZeneca by
countries joining the EU, primarily from eastern
back-office processes, such as web design
Pfizer of the US. BMW’s takeover of the Mini
Europe. This led to substantial immigration over
and call centres overseas. As many low-skilled
car company is an example of a deal that people
the following decade and has fuelled demands by
manufacturing activities headed east, the UK saw
recognise as leading to a better product while
voters for caps on migration. However, it is notable
its import bill go up and its trade deficit worsen.
preserving an iconic British brand. While there
that the number of European migrants in the UK
The loss of jobs to Asia also led to hostility,
are legitimate concerns over the taxation of
is almost exactly equal to the number of Britons
although rising employment showed that firms
foreign-owned companies, Britain has – by
living in other EU states.
were creating new jobs to offset those lost.
and large – benefited from foreign investment
More recently the government has realised
in terms of wealth and jobs.
that the next phase of globalisation should be
Money flows
Over the last three decades the UK has clearly
closer engagement with the BRICS economies
As well as opening up product markets and
favoured free trade and openness, where other
– Brazil, Russia, India, China and South Africa
creating a global supply chain, globalisation has
developed countries have resorted to protectionism
– and other fast-growing emerging economies.
also enabled money to move more easily across
in defence of their domestic markets. For instance,
While UK goods exports to the BRICS have risen
borders. Britain has been a key player in world
the French government blocked Pepsi from
in recent years they only made up 5 per cent of
investment markets. In the 10 years to 2011, the
acquiring Danone in 2005, declaring the yoghurt
all exports by 2011. In a 2013 report, The Only Way
UK was the third-largest recipient of foreign direct
maker a “strategic industry”; the United States
is Exports, the CBI warned that, at the current rate
investment (FDI) inflows in the world after the US
has acted to protect companies from Chinese
of growth, exports to the BRICS would not make
and China, and the largest in the EU, according to
takeovers; while Italy’s government has taken
up the majority of the UK total until around 2047.
the World Bank. Over the same period, the UK was
a protectionist stance when it comes to national
An embrace of “openness” – to trade and
also a prolific source of FDI abroad, having the
companies such as Alitalia and Parmalat being
people, to investment and ideas from abroad
third-largest net outward flows in the OECD.
taken over by foreign entities.
– has been the foundation of Britain’s success. There is no reason to suppose that the UK cannot
A sequence of well-known businesses such as Pilkington Glass, ICI and Cadbury have
Asia pivot
continue to thrive and prosper if it embraces
been taken over by foreign companies with little
As well as being open to global capital flows,
and harnesses the forces reshaping the global
popular or political opposition – until the
the UK has also welcomed international labour:
economy, using its influence and skills to further
14 per cent of workers in 2012 were born outside
develop the interdependent relationships that
Opposite: UK firms are increasingly outsourcing
Britain, and this share has been growing. In 2004
help to guide global practices and bring down
back-office processes to the Far East
the UK gave the freedom to move to eight new
barriers to trade in the modern economy.
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the Global economy | in focus
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CBI: 50 Years of Business Innovation | Britain and Beyond
As a consensus builds among scientists and politicians over the need to take action to tackle climate change, businesses are becoming confident that, with the right policies, the green agenda offers a commercial goldmine.
Benefiting from a climate of change
There is a common misunderstanding that concern over climate change is a relatively recent concern, perhaps starting in 2007 with the award of the Nobel peace prize to Al Gore. Or, for those with longer memories, it may be the 1988 speech
Climate Change
by UK Prime Minister Margaret Thatcher to the Royal Society in which she called for action against man-made global warming. In fact research into the causes and effects of global warning – and in particular the impact of human behaviour on climate change – has been ongoing for more than a century. Indeed in 1965, the year the CBI was set up, US President Lyndon B Johnson endorsed a report by his science advisory committee that warned of the potential of carbon dioxide to “raise the temperature of the lower air”. Seven years later, in 1972, the United Nations held its first environmental conference in Stockholm that led to the formation of the UN Environmental Programme (UNEP). In the same year in which Mrs Thatcher made her speech, the Intergovernmental Panel on Climate Change (IPCC) was formed to collate and assess evidence on climate change. Two years later the IPCC produced its first report, warning that temperatures had risen by 0.3–0.6 Celsius over the last century and that human activity would lead to further warming. A major breakthrough in the drive to coordinate collective governmental action on climate change came in 1992 at the Earth Summit in Rio de Janeiro, where governments agreed the United Framework Convention on Climate Change and rich countries committed to return their emissions to 1990 levels. Ambitious targets Whatever the progress – or lack of it – at international level, climate change is now as firmly on the radar of businesses as it is on The 1972 UN conference (left) started to address issues such as carbon emissions (opposite)
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Climate Change | in focus
that has run into opposition from politicians
those of politicians, lobby groups, think-tanks
target-based approach, but it has warned that
and consumers. There is a growing consensus
these policies must not undermine business
and businesses worried about the impact on
among scientists that human activity is a major
competitiveness. An independent study for the
their energy-intensive industries. An alternative
contributor to the changing climate. The UK
Energy-intensive Users Group estimated that
is to create a market to set a price for carbon
government has set an ambitious target for
energy accounted for between 25 and 60 per
emissions. While both present challenges for
2050 of cutting carbon emissions to 80 per cent,
cent of production costs for companies in energy-
carbon-intensive industries there is a trend
below 1990 levels.
intensive sectors such as steel and forging,
towards moving to market pricing.
Businesses have made clear that they want
ceramics and brick, fertiliser, aluminium and
The largest such scheme is the EU
to see policies that give them the confidence to
industrial gases.
Emission Trading System (ETS), which was
reduce their carbon emissions and incentives
There are many elements to this. One essential
launched in 2005 and applies to more than
to invest in low-carbon technology. The CBI
element is to find a way to put a price on pollution.
11,000 power stations and industrial plants
has consistently called for and welcomed a
One option is to put a tax on harmful activities but
in 31 countries, as well as airlines. It covers »
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CBI: 50 Years of Business Innovation | Britain and Beyond
“Businesses that use less power will see the benefit in their bottom line, especially if energy prices rise�
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Climate Change | in focus
around 45 per cent of the EU’s greenhouse
a capacity market that offers all capacity providers
future-proofing businesses against climate threats
gas emissions. The ETS works on the “cap and
a steady, predictable revenue stream on which
and moving business operations towards carbon
trade” principle. The EU imposes a limit on
they can base their future investments. In return
neutrality. Businesses that use less power will
the total amount of gases that can be emitted
for this revenue (capacity payments) they must
see the benefit in their own bottom line, especially
every year, which is reduced on an annual basis.
deliver energy when needed to keep the lights
if energy prices rise.
Within this Europe-wide cap, companies receive
on, or face penalties.
As the CBI’s 2012 report The Colour of Growth
or buy emission allowances that they can trade,
The strategy is to use market mechanisms
showed, maximising the potential of green
giving them an incentive to become more energy-
to attract investment into low-carbon generation
businesses could provide up to £20 billion to the
efficient and invest in low-carbon technology.
and help green energy become part of the
economy in the financial year to April 2015 alone.
However an initial over-supply of emissions
solution to increasing supply at a time of
In 2011/12, the UK green business sector had
permits and a drop in demand in the wake of
increased demand and the planned closure
an annual increase of 4.8 per cent and has carved
the global recession has led to a fall in the
of existing, more carbon-intensive electricity
out a £128 billion share of a world market worth
carbon price.
plants without imposing the financial burden
£3.4 trillion. This growth translates into investment
Closer to home the government unveiled
wholly on consumers.
and jobs on the ground, with government figures
plans for far-reaching reform of the electricity
Meanwhile the Green Deal scheme
showing that around 940,000 people were employed
market in 2011 as part of the emissions reductions
enables households to make energy-saving
in green business in 2011/12.
targets set out in 2008. The proposals, which are
improvements to their homes such as insulation,
The UK’s Green Investment Bank, the first of
part of the Energy Act that received Royal Assent
double-glazing and better heating systems and
its kind in the world, offers £3.8 billion of funding
in 2013, include a carbon price floor to underpin
find the best way to pay for them. It creates a
from the UK government to invest in sustainable
the ETS, long-term contracts with low-carbon
market for providers to deliver measures that
projects. The UK’s energy infrastructure needs
energy providers known as “Contracts for
will increase the energy efficiency of properties
£200 billion in investment over 20 years, which
Difference feed-in tariffs” and an emissions
at no up-front cost to the consumer.
provides a huge opportunity for businesses that can meet that demand. While the debate over climate
performance standard to restrict future use of the most carbon-intensive forms of power
Business opportunity
change has moved on leaps and bounds over
generation. Finally the reforms established
Businesses have realised that this agenda
the last 50 years, it is clear that finding a global
represents a major opportunity as long as the
agreement to achieve the reduction in emissions
Opposite: Businesses and households alike
right policies are in place. Tackling climate
needed to stem the rise in global temperatures
need to address the issue of energy efficiency
change means using energy more efficiently,
remains a real challenge.
•
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CBI: 50 Years of Business Innovation | Britain and beyond
British troops have been on active service in every year since the CBI was set up – indeed in every year since the start of the First World War in 1914. If 2015 proves to be a year of peace it will offer the opportunity of a peace dividend
From war to peace in 50 years?
at the same time as the challenge of falling military expenditure. As a result of its colonial heritage, its membership of the United Nations Security Council and its long tradition of using its armed forces to try to resolve
Wars and Conflicts
conflicts elsewhere in the world, the UK has spent the last five decades involved in disputes across the globe. It has also had to deal with terrorist outrages closer to home. All these factors have made defence policies and military expenditure a major part of UK political and economic debates during the past 50 years. When the CBI was established in 1965 – two decades after the end of the Second World War – British troops were on duty in three far-flung countries: • Since 1963 British troops had been trying to quell a rebellion in the former port colony of Aden that is now part of Yemen. The army withdrew in November 1967 from a territory it had controlled since 1839. • In nearby Oman, British troops helped support the rule of Sultan Said bin Taimur in counterinsurgency operations. • Meanwhile British and Commonwealth forces were involved in an undeclared war in Indonesia in what has been called the least reported conflict of the last 50 years. Peace dividend One of the most significant events over the past half-century has been the involvement of British troops in Northern Ireland. The army was deployed on the streets of Belfast and other major provincial cities in 1969, initially to help restore order amid widespread sectarian rioting. Operation Banner, as the armed forces operation was officially known, was not declared at an end until August 2007. The 38 years of British involvement represents the longest uninterrupted operation ever conducted by UK forces. Around 1,000 members of the security forces died, of whom half were serving in the British Army. The number of civilian casualties was estimated
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Wars and conflicts | in focus
“THE CBI identified the
at 1,855 with the loss of almost 550 members
Ireland and of the Republic of Ireland wished
of republican and loyalist paramilitary groups.
otherwise. Republicans and loyalists now share
The conflict had a huge social impact on those
power in a devolved government at Stormont.
Ulster: increased security
families not directly affected by the violence due
The agreement has brought a very tangible
costs, reduced investment
to chronic unemployment and a severe housing
peace dividend. Until the global financial crisis,
shortage that resulted from the upheaval of
unemployment had fallen from 5.1 per cent in
communities as cities become increasingly divided.
1998 to as low as 3.1 per cent. Between 1997
It was against that backdrop that the Good
and 2007, average house prices in Northern
Friday Agreement of 10 April 1998 was hailed
Ireland grew by 250 per cent, but have since
as a huge achievement by the British and Irish
been hit by the post-crisis crash more than »
economics of conflict in
and a brain drain”
governments and the major political parties or groupings from Northern Ireland. The agreement
British troops have been on active service for more
was that Northern Ireland would remain part of
than a century, from the First World War (opposite)
the UK until a majority of the people of Northern
to recent UN operations (above)
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CBI: 50 Years of Business Innovation | Britain and beyond
206
Wars and conflicts | in focus
any part of the UK. Tourism has also benefited
Spending cuts
greatly and overseas investors such as Canadian
Nevertheless, neither Northern Ireland nor the
aerospace manufacturer Bombardier, US
skirmishes the Army has been involved in since
insurer Allstate and Japanese medical firm
the mid-1960s are conflicts the average Briton
Terumo BTC have all recently created jobs.
would think of when asked about the UK’s military
Northern Ireland has also become a popular
history over the past 50 years. What will stand
destination for film companies such as HBO,
out for most people are the Falklands conflict,
which made part of the blockbuster TV series
the two Gulf wars, and the 13 years of military
Game of Thrones there.
presence in Afghanistan. British forces were deployed in 1982 in the operation to liberate the Falklands Islands after they were seized
“A challenging new era”
by Argentina. Forces were also involved in
The CBI chose to play a positive role in the
international peacekeeping operations in Bosnia
peace process that was emerging in the early
(1992–95), Kosovo (1999) and Sierra Leone (2000).
1990s. In 1994, CBI Northern Ireland produced a
The UK took part in the joint military
landmark publication, Peace – A Challenging New
operations with the United States and other allies
Era. Better known as the “peace dividend paper”,
in the first Gulf War in 1990 to liberate Kuwait after
the document spelled out in detail the economic
the Iraqi invasion. Thirteen years later the UK was
rationale for peace. It identified the economic
part of the controversial invasion of Iraq that led
costs of the conflict as increased security costs,
to the overthrow of Saddam Hussein but meant
reduced investment and a “brain drain” of the
that British troops remained in Iraq until 2008.
brightest young people. It argued that, if violence
Britain has now ended its formal presence
ceased, the money currently spent on law, order
in Afghanistan, which began in 2001 when it
and protective services could be reinvested in
joined the military operations to topple the
other sectors. In 1996, the CBI joined six other
Taliban regime that had hosted al-Qaida during
trade and business organisations in Northern
its plotting of the attacks of 11 September 2001.
Ireland to create the Group of Seven (GoS).
The government is reducing defence spending,
It invited representatives of all nine political
with a 20 per cent reduction in regular army
parties involved in the peace talks to a meeting
numbers from 102,000 to 82,000 between
in Belfast at which it stressed that the collapse
2010 and 2018. So the UK may need to take
of peace talks would be catastrophic and asked
a different role in the world in the future.
all parties to seek new solutions.
•
Left: British troops withdraw from Afghanistan
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CBI: 50 Years of Business Innovation | britain and beyond
Looking Ahead to 2065 The Next 50 Years
Prediction is very difficult, especially if it’s about
on the agenda in 2015 will be getting attention in
Speaking in 1992 after the previous UK recession,
the future, as Danish physicist Niels Bohr is said
2065. While a policy on prices and incomes, for
Sir David Lees, chairman of the CBI’s economic
to have joked almost a century ago. It is risky
instance, might have been consigned to the history
affairs committee said: “Steady growth can
to attempt to peer into the fog of the future and
books, some concerns are evergreen. The 1965
only be sustained over the longer term if there
imagine what business life might be like in 2065.
annual report reveals concern over incentives for
is sufficient investment in productive capacity,
business investment, trade relations with fellow
infrastructure, training and innovation.”
Fifty years ago this July, the leaders of the British
European countries, and the burden of red tape.
Looking beyond our shores it is clear that
Employers’ Confederation, the Federation of
All of these concern the CBI and its members
emerging markets will contribute an increasingly
British Industries and the National Association
today and will doubtless do so 50 years hence.
large share of global growth. While a few years
of British Manufacturing signed the CBI into
It is possible to identify some of the trends
ago people talked of the BRICS (Brazil, Russia,
existence. It is hard to imagine that they could
that may affect businesses over the coming
India, China and, since 2010, South Africa), new
have foretold any of the astonishing technological,
years — even if it is not possible to predict what
acronyms such as the MINTs (Mexico, Indonesia,
geopolitical and social changes that have taken
they will lead to. The first is the performance
Nigeria and Turkey) and the Next 11 (which
place over the ensuing decades. However it is
of the UK economy. While economic growth is
includes fast-growing economies such as
almost certain that some of the themes that
enjoying a recovery from the impact of the global
Bangladesh, Pakistan and the Philippines) show
were dominant in 1965 and which are still high
financial crisis, the recession and the austerity
that British businesses must focus more on the
programme to reduce the deficit, it is becoming
developing world and less on its traditional core
increasingly clear that it will not return to its
markets in Europe and North America.
pre-crisis growth rates. The period of strong
The second and connected issue is fairness.
growth in the mid-2000s now appears to be
One of the symptoms of the economic recovery
a blip rather than the norm.
after the crisis has been a rising level of inequality both between different regions of the UK and
Emerging markets
within them. A key challenge will be to ensure
The recovery will present an opportunity for the
that a return to growth raises the living standards
CBI to press home its campaign for action to
of all rather than just the few. The danger is that
deliver a rebalancing of the economy away from
a failure to tackle inequality will foment social
consumer spending and household debt as an
unrest and lead to calls for a return to political »
engine of growth towards higher net trade and
208
business investment. It can only be hoped that
The forerunners of the CBI (left) could scarcely have
policymakers seize the opportunity this time.
envisaged the shape of things to come (opposite)
The Next 50 Years | in focus
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CBI: 50 Years of Business Innovation | britain and beyond
“It is becoming increasingly clear that the economy will not return to its pre-crisis growth rates�
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The Next 50 Years | in focus
“isms” from the past that have been shown
The fifth and related issue will be a growing
their purpose is and what benefits they
to lead to more harm than good. The CBI will
diversity within the world of work, in terms
bring to the wider society. There has been
have a major role in contributing to that debate.
both of the make-up of the workforce and
a notable reaction against big business,
The third trend is energy and climate change.
of the business models entrepreneurs adopt.
whether they are major corporations such
It is almost certain that global temperatures will
While the UK has made progress to ensure that
as energy companies or media organisations.
continue to rise, at least in the short term, as
work and investment opportunities are open to
Businesses will have to become better at
world leaders struggle to agree on measures
all regardless of colour, gender or creed there is
engaging with and listening to their customers
to stem the rise in harmful greenhouse gas
still a long way to go. The challenge of the next
and to society in general.
emissions. At the same time, the UK must ensure
few decades will be to ensure that opportunities
It is impossible to imagine in what format
its long-term energy security while keeping bills
are open to all at every level of business and
and through what channel the CBI’s 2065 annual
manageable for households and businesses.
society and there are no glass ceilings. It should
report will be published. But it will certainly
The CBI will continue to use its voice to urge the
become less easy to define what a business or
include themes familiar to businesses of 100 years
UK government to push for a global deal in Paris
a business person looks like.
previously and these six more modern themes, as
in 2015 while being aware that it must work with
But the sixth and final shift is the hardest
well as others that no one can even guess. But the
consumers, who drive change, and businesses,
to define. One of the lessons of the crisis is
core mission of the CBI will remain: to promote
which will make the investments and deliver the
that businesses will need to become better
the long-run international competitiveness of
gains. The failure or success of these efforts will
at explaining to people what they do, what
British business.
have a huge impact on what life looks like in 2065.
•
Diversity agenda The fourth issue will be the continued challenge of ageing populations, both in the UK and in other developed economies. This will place an increasing burden on the government and taxpayers to fund long-term healthcare and retirement costs as people live for longer. At the same time, however, it will provide an incentive for those of pension age to adjust the way they plan their lives. One of the lessons of the recent recovery has been the sharp rise in the number of over-60s in the labour market. This trend will continue as workers deal with the decline of the defined-benefit pension scheme. Challenges for the future include increased urbanisation (opposite) and an ageing population (right)
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CBI: 50 Years of Business Innovation | BRITAIN AND BEYOND
212
Brittany Ferries | business profile
Growing the market “As in any other business,” says Steve Warner, Managing Director UK, “our response to economic challenges has been to improve efficiency and reduce costs. But we have had to
On course for continued progress
achieve this without any reduction in quality or choice for our customers. Indeed, we have also had to be more innovative, recently introducing a new product – Brittany Ferries économie – between Portsmouth and Le Havre, and Portsmouth and Santander to provide a ‘no-
Brittany Ferries www.brittanyferries.co.uk
frills’ service for those seeking a bargain and who are prepared to forego some of the benefits associated with the main brand. It has been a great success and has grown the market at both ends of the routes.” In pursuit of its policy of “responsible capitalism”, which avoids short-term gains at long-term cost, Brittany Ferries demonstrates great respect for the environment. The company is embarking on an ambitious plan to spend £60 million over the next two years modifying its fleet to reduce harmful emissions. The past 42 years have seen Brittany Ferries grow from just one route and one
Who’d have imagined that a small freight vessel
resilient, taking decisions based not on short-
freighter to a company linking Britain, Ireland,
transporting artichokes and cauliflowers from
term expediency but on long-term benefits.
France and Spain with nine routes and a fleet
Roscoff to Plymouth in 1973 would spawn
That is why, instead of using cheaper options,
that includes luxury cruise-ferries. It’s a far
a major force in UK tourism? But that’s how
Britanny Ferries operates under the French
cry from one boat transporting artichokes and
Brittany Ferries was born, conceived by Breton
flag and employs French crew, ensuring that
cauliflowers – but the same pioneering spirit
farmers wanting to ship their fresh produce to
British passengers’ holidays start the moment
and desire for efficiency survives, and its roots
the newest member of the Common Market –
they board. It’s also why, when many companies
remain very firmly in the West Country and
the UK. It has since grown to become one of the
have moved their call centres to India, it has
Brittany where it all began.
biggest providers of holidays – including gîtes,
maintained one operating to the highest
villas, campsites and hotels – to British people
standards in Plymouth. And it’s why the company
travelling to the Continent.
invests in original artworks for its ships (they
•
have over 2,000 pieces) in order to enrich their Taking the long view
customers’ experience. For Brittany Ferries,
Brittany Ferries is part of a portfolio of
quality cannot be compromised.
developments undertaken by the same farmers
Britanny Ferries has a small but growing
and their offspring who demonstrated such
clientele of French holidaymakers, but its major
vision four decades ago. Ferry operating and
market remains the UK. With 80 per cent of its
farming are both capital-intensive and depend
earnings derived in British sterling and most of
on many risky, uncontrollable factors, including
its costs borne in euros (for its French crews)
exchange rates, consumer demands and the
and dollars (for fuel), it can suffer when the
weather. This has made the company very
pound is weak.
“ Brittany Ferries employs French crew, ensuring that passengers’ holidays start the moment they board”
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CBI: 50 Years of Business Innovation | BRITAIN AND BEYOND
An island of opportunity Malta Enterprise www.maltaenterprise.com
Malta’s strategically valuable location at the
says Dr Mario Vella, Chairman of Malta Enterprise.
The country’s high levels of productivity are
heart of the Mediterranean Sea has led to it being
“We have a long and healthy history of attracting
a result of German investment in the 1970s
ruled by successive foreign powers for millennia.
investment via our predecessors – the Malta
and 1980s, which had a transformative effect
Lying around 90 km south of Sicily, midway between
Development Board and the London-based
on Malta’s businesses and workplace practices.
Gibraltar and Tel Aviv, Malta is well connected to
Industrial Development Board.”
Labour costs remain competitive in comparison to much of Europe, and the workforce continues
mainland Europe, North Africa and the Middle East – each of which has made an indelible impact on
Technical know-how
to grow as more and more women, who are
the island’s culture and history. An EU member
German investment in precision mechanical
currently under-represented, choose to enter
since 2004, and a Eurozone member since 2008,
engineering for the automotive industry took
the employment market.
Malta enjoys a high standard of living, relatively
place in Malta from an early stage, while the
low youth unemployment, and a highly skilled and
supplying of aviation services dates back to the
Talking business
educated workforce.
RAF’s presence in Malta in the 1940s. The island
The UK, too, has left a lasting cultural legacy
Having gained independence from Britain
state is home to Lufthansa Technik, one of the
and, together with the Arabic-derived Maltese,
in 1964, it has since attracted impressive levels
airline’s most important repair and refurbishment
English remains an official language, spoken by
of inward investment from the UK, Germany,
centres, and a number of related clusters
90 per cent of the population. “The fact that the
Italy, France, Spain and the USA. It also now hosts
working in composites and nanoengineering.
labour force here communicates in English at
multinationals, including Lufthansa Technik, Baxter, Other growth industries include financial
all levels, from management to shop floor, is an
Trelleborg and Cardinal Health. Between 2012
services, advanced manufacturing, life sciences,
enormous advantage,” says Dr Vella. “This has
and 2013, stock of foreign direct investment
ICT and creative industries.
been especially useful in high-growth areas such
within the manufacturing sector increased from
“Many people don’t realise that we are not
as IT, digital games and software production,
€799.6 million to €881.5 million, and no fewer
only, or even principally, a tourism or financial
and related activities such as producing software
than 17 new investment projects were approved
services location,” says Dr Vella. “The backbone
and gaming manuals.”
in the first half of 2014.
of foreign direct investment in Malta continues
For businesses looking to invest in Malta,
Much of the credit for this success goes
to be engineering – chemical, mechanical,
Malta Enterprise is the first point of contact,
to Malta Enterprise, which was established in
electrical and, increasingly, ICT engineering.”
offering investment aid and incentives in
2003 as the Maltese Government’s agency for
Malta has turned its smallness from a
the form of tax credits and access to finance.
supporting inward investment and developing
weakness into a strength. Communication is
With a low-tax and business-friendly environment,
Maltese businesses. “Malta is by no means
easy, applications for incentives are processed
Malta remains a magnet for foreign interest to
a new location for foreign direct investment,”
quickly and the authorities are accessible.
this day.
214
•
Malta Enterprise | business profile
“ Many people don’t realise that we are not only, or even principally, a tourism or financial services location”
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CBI: 50 Years of Business Innovation | BRITAIN AND BEYOND
thinks of when you mention the word, is technological innovation.” Scottish Enterprise certainly plays its part in assisting cutting-edge technological innovation. “However, innovation
Sowing the seeds of economic growth
doesn’t just mean science and technology,” he continues. “At its most basic, innovation is primarily about the development of new products and services. It can take many different forms.” Watson identifies four key strategic areas in
Scottish Enterprise www.scottish-enterprise.com
which companies can innovate. “Innovation can be wider, deeper, customer-led, or it can involve sector innovation. All four of these categories overlap with each other, but it helps to identify the characteristics of each.” Wider and deeper Wider innovation, says Watson, is simply about developing the broadest possible market for your product. “We have a Make It To Market grant for companies hoping to develop a new product or
“European Commission research suggests
help ambitious companies to develop in a rapidly
service,” he says. “The idea is to get them to
that, over the past five years, more than 60 per
changing global marketplace. And key to that
sell that product or service internationally, so
cent of sustainable growth is primarily down to
development is innovation – something that
that they’re not just restricting themselves to
innovation,” says Jim Watson, Head of Innovation
Scottish Enterprise is fostering through the use
local markets.” Eribé, a knitwear label based
at Scottish Enterprise. “The maxim of ‘innovate
of research-and-development grants, leadership
in Galashiels, was given support with ICT, hiring
or die’ has never been more relevant. You really
assistance and strategic partnerships.
and training by Scottish Enterprise to help develop its market overseas, while its founder Rosemary
do need to continually think about how to develop your products and services.”
Innovate or die
Eribé (pictured, opposite) attended Scottish
As Scotland’s main economic development
“The most obvious form of innovation,” says
Enterprise’s Leadership for Growth programme.
agency, it is the role of Scottish Enterprise to
Watson, “and the one that everyone immediately
Eribé’s hand-knitted clothing is now stocked in New York, Paris, Milan, Moscow and Tokyo. The second strategy is deeper innovation. “This is about working closely with companies and getting them to think at a strategic level,” says Watson. “How do they measure success when they’re innovating? How switched on are they to the generation of ideas from staff? Do they embrace external partners? Do they have expertise in selling? Does the response experienced by the sales force feed back to the people who are doing the innovation in the company? So we help them come up with an in-depth diagnostic with the company, so that they can benchmark their performance with hundreds of other companies of their size, in their sector, in their region or across Europe.” Dozens of firms have benefited from such strategic help, including Galloway & Macleod, a family-run animal feed »
216
Scottish Enterprise | business profile
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CBI: 50 Years of Business Innovation | BRITAIN AND BEYOND
218
Scottish Enterprise | business profile
and grain merchants from Lanarkshire, who developed a new management approach and appraisal system. Or Coretrax Technology
“ Scotland’s reputation as a nation of innovators spans centuries, and this legacy continues”
(pictured, page 216), an Aberdeen-based oilfield services firm that doubled its turnover
in its sector,” says Watson. “But, as well as
will own the intellectual property, and they’ll
and increased its workforce from two to 23.
being an early mover, you need an early user.
be free to sell it to other sectors.”
Companies and individuals can often only work Alleviating risk
as part of a broader infrastructure. A firm might
Great Scots
Thirdly, Scottish Enterprise specialises in what it
need to be introduced to a good university, or a
Scottish Enterprise will often work in conjunction
calls “customer-led innovation”. “Companies are
business school, or financial funding, and we’re
with UK-wide agencies, such as Innovate UK,
cautious about what they invest in, especially
here to facilitate that.”
and all of its projects are of benefit to UK plc.
since the recession,” says Watson. “They think
Some innovations will also have
There is, however, something uniquely Scottish
innovation will be risky, but research suggests
applications outside of the originally intended
about much of this innovation.
that if you don’t innovate, you won’t move forward,
sector. An example is Aberdeen-based Return
“Scotland’s reputation as a nation of
you’ll go backwards. So companies need an
To Scene (pictured, opposite), a subsidiary of
innovators spans centuries,” says Lena
incentive. Customer-led innovation sees us
Sea Energy PLC. It developed a technological
Wilson, Chief Executive of Scottish Enterprise.
working with a large firm – one that might be
innovation called R25 Visual Asset Management,
“This legacy continues with our newest
having problems innovating – and introducing
initially for police forces to log evidential
innovators who have the ambition to go
them to a smaller firm with big ideas. We help
information onto 360-degree images.
out into the global marketplace and make
to de-risk the enterprise.”
However, with the assistance of Scottish
their mark in a way that makes a positive
In this process, a big company will be
Enterprise, the technology was adapted and
and lasting difference.”
teamed up with a smaller firm and will invest
improved for use in the oil and gas industry.
And, as more and more Scottish firms
in early-phase development projects. “It works
“This is something we always do with
diversify their export base and enter new or
because it’s a win-win situation,” says Watson.
SMEs,” says Watson. “As an innovation develops,
emerging overseas markets, Scottish Enterprise
“The big firm gets a competitive advantage
we start to look at it and ask, what are the
is there to assist them.
through innovation. The small firm develops a
other applications? What else could we use
“Scotland’s long-standing reputation
product or service and also has a guaranteed
this for? Would this work in another sector?
for trust and transparency is why a lot of
buyer at the end of the process.”
Sometimes, if a bigger firm is helping to pay for
firms from around the world want to work
Finally, Scottish Enterprise has identified
the research, that firm might – understandably
with us,” says Wilson. “Careful, astute and
what it describes as “sector innovation”. “A firm
– prevent the SME from selling the technology
skilled, Scotland’s businesses personify the
might be ahead of the game in terms of innovating
to its industry competitors. However, the SME
notion of the ‘canny Scot’.”
•
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CBI: 50 Years of Business Innovation | BRITAIN AND BEYOND
is about working capital. It doesn’t matter how good a management team you have or how wonderful your product is – if you can’t fund your business, it isn’t going to happen.” This became
The capital idea behind a trade revolution
even more apparent during the economic crash of 2008, so Tebbit and Ash established TFP, persuading Macquarie Bank and others to back them. Today, TFP is a successful trading house. “We have systems in place to make transactions
Trade Finance Partners www.tradefinpartners.com
work,” says Tebbit. “We know about buying and selling goods, moving them around the world, duty rates, shipping, logistics – the whole thing.” The THREE STAGEs of funding “There are three fundamental stages to what we do,” says Tebbit. “We buy the products from the supplier against a confirmed purchase order. We ensure that goods are shipped and delivered to the customer. And we collect the money from the buyer. If we manage the process well, it’s relatively low-risk for us and of massive value to our clients. In fact, had we not funded them, I don’t believe that any of the businesses we work with would have been able to complete these transactions.
When Swiss Grill, a family business that
their orders. They frequently need pre-shipment
That’s kept many people in employment, who will
manufactures and imports barbecues
funding that banks won’t provide without security.
pay their national insurance and their income tax,
from China, received a large order from John
Launched in 2010, Trade Finance Partners
and so generate revenue for UK plc.”
Lewis, the owners should have jumped for joy.
(TFP) is different. Independent and specialised,
In the early days of TFP, Snapz was a good
Instead, they faced sleepless nights wondering
it offers a progressive yet traditional merchant
example. Initially receiving finance from the TV
how they would fund the supply chain. This is a
banking model. “A bank will give you cash
programme Dragon’s Den, the company, which
common story for many companies that either
against existing assets, but we will fund money
sells apple crisps, needed cash flow to meet
source or manufacture goods overseas to meet
against confirmed purchase orders,” explains
a considerable new order from the USA. TFP
William Tebbit, Commercial Director. “For many
provided a $2 million solution, resulting in
businesses, that’s alchemy.”
41 containers being bought and delivered. “You need an odd set of skills in this
220
THE BUSINESS OF BUSINESS
business,” says Tebbit. “Ideally, you should have
TFP was the brainchild of Chris Ash, a trade
run a business and gone through the day-to-day
finance specialist, and William Tebbit, the son
pain of that. You’ve got to understand reasonably
of British politician Norman Tebbit (former
sophisticated finance and trade law, too. You also
Secretary of State for both Employment and
have to be cynical and able to access capital from
Trade and Industry). William started out as
the finance world. I love it – I think it’s such a great
a stockbroker, working on corporate finance,
business. We’re not the solution for everybody, but
and mergers and acquisitions.
for many we’re absolute gold dust.”
“I always loved business,” he says. In the
Just ask Swiss Grill. Using TFP funding,
1990s, Tebbit left the City to run businesses in
the company was able to place its order for
Ireland and the Middle East. “It was my chance
John Lewis, import it to the UK and sell it on.
to go out into the real world,” he says. “It was
Business is thriving – and the owners can sleep
then that I realised that everything in business
soundly once more.
•
Trade Finance Partners | business profile
“ Business is about working capital – If you can’t fund your business, it isn’t going to happen”
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CBI: 50 Years of Business Innovation | BRITAIN AND BEYOND
222
UK Export FInance | business profile
In response, and to encourage the take-up of its services, UKEF is running awareness-raising campaigns. It has also enhanced its skill sets and established a network of regional export finance advisers, to guide exporters through the process
Making exports happen
of gaining access to export finance, whether from private sector banks and insurance providers, or through UKEF. Extended reach UKEF has also greatly extended the reach of
UK Export Finance www.gov.uk/uk-export-finance
its medium to long-term finance (MLT) products for overseas buyers of UK goods and services. “Many banks are still reluctant to engage in MLT lending,” says Godfrey. “This is often due to stringent regulatory oversight and constraints on liquidity – but UKEF has stepped in to fill that void.” In October 2014, Chancellor George Osborne announced the first contract to be supported by the UKEF’s enhanced Direct Lending Facility. Under the facility, loans are provided by UKEF directly to overseas buyers for the purchase of goods and services from UK exporters;
When the global financial crisis unfolded, it hit the
capacity. To do so, it needed to reintroduce
the first time in UKEF’s history it has been
UK’s exporting community hard. In particular, this
products and re-engage with segments
able to lend directly.
resulted in major constraints on private sector
of the market it hadn’t supported for many
“As a sign of our ambition, we invited
lending and insurance.
years. “Having come from a position of mainly
20 financial institutions to sign up to become
Today, in the context of a recovering economy,
supporting aerospace and capital goods
partners in helping UKEF to deliver more
UK Export Finance (UKEF) – the UK’s export
exports, and a 50 per cent reduction in staff
of the loans,” says Godfrey. “As the types of
credit agency and a government department –
between 2004 and 2010, we were viewed as
exports being discussed involve high-value
is performing an important role in supporting the
bureaucratic and slow, “ says Godfrey. “But we
goods and services for major projects, Direct
country’s exports at each stage of the economic
are surprising people with how quickly we have
Lending will tangibly help to strengthen supply »
cycle. Formally known as the Export Credits
moved ourselves back among the leading export
Guarantee Department, it supports UK exports
credit agencies.”
by providing guarantees and loans to enable
In 2011, the government expanded UKEF’s
overseas buyers to purchase UK goods and
remit so that it could support the export of
services. It also provides insurance policies to UK
all types of goods and services. In addition,
exporters, protecting them against the risk of non-
UKEF introduced a range of new products to
payment. It now offers the widest product range
address gaps in the short-term trade finance
it has had in more than 20 years, to a growing and
and insurance market, particularly aimed at
broader range of customers. “UKEF is becoming
supporting smaller businesses.
more flexible in its support and has become a
“We recognise that export finance is a
significant asset in the government’s export drive,”
complex topic for many companies, including
says Chief Executive David Godfrey. “However, there
SME and mid-sized companies, and believe
is a lot more we would like to do.”
there are still many companies out there
Bridging the gap
and the support we can offer,” says Godfrey.
UKEF has worked to bridge the gap created by
“Our challenge going forward is to ensure we
major withdrawals of bank and private insurance
reach as many of these companies as possible.”
who are not aware of UK Export Finance
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CBI: 50 Years of Business Innovation | BRITAIN AND BEYOND
chains, enabling developing nations to access
engines manufactured in the UK, “ says Godfrey.
innovation,” says Godfrey. “Our proactive and
expertise, goods and services.”
“This increased sharply to 35 per cent in 2009 and
agile business model ensures that we are able
2010 during the height of the instability in financial
to adapt to new challenges as they arise.”
capital markets
markets. Within this, UKEF provided much-needed
This is evident in, for example, UKEF’s
To widen the sources of funding available, UKEF
market continuity and helped to support UK jobs
flexibility on currencies. In 2014, UKEF signed
moved into the capital markets as a source of
at Airbus, Rolls-Royce and their supply chains.”
a Memorandum of Understanding with HSBC
export finance in 2010. This has been especially
The capital markets are a natural home
and a leading Chinese company to structure
evident in the aerospace sector – at the peak
for high-quality, long-dated assets that
its first offshore renminbi-supported deal.
of the financial crisis and the corresponding
generate proven income streams and bring risk
“It was a truly significant development given
constraints on traditional lending, airlines had
diversification. As such, UKEF’s support for the
the renminbi is now the second most used
to look to alternative sources of financing for
UK’s aerospace industry is an ideal environment
currency in trade finance after US dollars,”
aircraft deliveries.
for use of debt capital markets. With the growth of
says Godfrey.
“Before the financial crisis UKEF, alongside
the capital markets as a source for funding export
Looking to the future, the government
the export credit agencies of France and
finance transactions, UKEF’s role in supporting
is taking forward plans in its Small Business,
Germany, supported about 20 per cent of all
their use has grown. In fact, UKEF has been at the
Enterprise and Employment Bill, currently
Airbus commercial aircraft deliveries each
forefront of developing new ways of supporting UK
passing through Parliament, to further widen
year, many of which are powered by Rolls-Royce
exports through capital market financing.
UKEF’s powers to support UK companies
Although the markets are now at pre-crisis
seeking to export. The proposed changes
funding levels, UKEF continues to innovate in the
will, if passed, enable UKEF to provide a
capital markets to maximise access to liquidity.
wider range of support to UK exporters and
It has both a “pre-funded” and an “instant” bond
their supply chains, and cover a broader range
product available, enabling funds to be raised
of exports such as intellectual property rights.
in the capital markets in advance of delivery and
“The financial crisis provided the catalyst
can also offer its bond guarantee to enable access
for the transformation of UKEF that is currently
to UKEF-guaranteed Islamic finance.
in progress,” says Godfrey. “Our future success, though, will depend on our continued ability
224
forerunner in innovation
to provide a flexible and responsive service to
“UKEF sits among the forerunners of international
meet the changing needs of the marketplace
export credit agencies in terms of product
and provide critical support to UK exporters.”
•
UK Export FInance | business profile
“Our proactive and agile business model ensures that we are able to adapt to new challenges as they arise�
225
CBI: 50 Years of Business Innovation
business profile INDEX
A ACCA 134
Hertfordshire LEP 074
The Access Bank UK 062 AESSEAL 066 AgustaWestland 068 Amey 132 Asda 138 Association of Colleges 140
B The British Display Society 142 Brittany Ferries 212
Oxford Brookes University 172
HSBC 076
I Institute of the Motor Industry 156
P Prospects College of Advanced Technology 151 Punjab National Bank (International) Ltd 108
Instructus 158
K
S Scottish Enterprise 216
The Knight Group 080
Scottish Widows 092
KPMG 082
Siemens 096 Silicon Valley Bank 100
C
L
Center Parcs 070
Loughborough College 162
T
Circle Housing 144
Loughborough University 164
Trade Finance Partners 220
M
U
Malta Enterprise 214
UK Export Finance 222
MBDA 166
University of Bath 174
Construction Industry Training Board 146 Costain 072
E Ealing, Hammersmith & West London College 143
University of Bedfordshire 176
Estuary Housing Association 150
N G Great Place to Work 152
National Grid 086
University of Hertfordshire 180 University of Salford 182
Nissan 090
H
O
Hays 154
Oxford Cambridge and RSA Examinations 168
226
University of Bradford 178
W Wholesale Power UK 104 Wyke Farms 106
Appendices
Credits
CBI
Deputy Editor
Senior Production Manager
President
John Lewis
Becky Wallace
Subeditor
Production Manager
Hannah Astill
Stephen Flynn
Lead Writer
Client Services Manager
Phil Thornton
Dhruti Patel
Sir Mike Rake Director-general John Cridland CBE Deputy director-general Katja Hall Contributors
Event Coordinator
CBI
Jessica Trayler-Moore, Joe Fullman, John Lewis,
Katie Shale
Cannon Place
Josh Peisach, Kath Webber, Miranda Moore,
78 Cannon Street
Richard Gibson, Samantha Chippindale, Siobhan
Office Coordinator
London
Mason, Sophie Goodchild
Cheryl Chan
Proofreading
Project Managers
Much Better Text
Richard Golbourne
EC4N 6HN 020 7379 7400
Shaun Edwards
enquiries@cbi.org.uk news.cbi.org.uk
Head of Creative
Sorrell Meechan
Anna Danby Research
With thanks to Richard Lambert
Designer
Phil Thornton
Tiziana Lardieri St James’s House
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Stephen Mitchell
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www.stjamess.org In loving memory of Shaun Edwards
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CBI: 50 Years of Business Innovation
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