I have been banging the drum for “outward investment” by Scottish businesses as the growth solution for technology companies.
To demonstrate that the era of large-scale inward investment is over for Scotland I use an old cartoon map of “Silicon Glen” which shows all the US and Asian companies at the height of the influx in the early 90s.
Everyone I showed it to at recent meetings in Edinburgh said the same thing: “I wonder if there are any foreign investors left?” Then the news came of the Greenock closure of Texas Instruments, formerly National Semiconductor, which was one of the jewels of the Scottish electronics industry. And this time the 400 jobs are transferring to Japan, the US and Germany rather than to some low cost location.
It was fully understood at the time by the Scottish economic development agency that these transplanted manufacturing operations in the Glen posed a risk if they did not put down roots in the form of R&D operations and local sourcing. However, the attraction for ministers of announcing hundreds or even thousands of jobs for a single investment was too much to resist. So the strategy which won the day was to get in more of the same and worry about the future tomorrow. But when tomorrow arrived it was too late to switch the strategy.
It is interesting that no-one responsible for economic policy ever really questioned why all these companies set up operations in Scotland and elsewhere in the UK. In fact, they were all in growth mode and expanding to Europe from outside with the plan to capture market share and the lower cost of labour as well as grants were just sweeteners. So it should have occurred that British businesses could be doing the same thing in foreign markets. Instead the emphasis by UK public agencies, then and now, has been on the promotion of exports rather than fostering international expansion.
Internationalisation is indeed still seen as being synonymous with exporting which is odd. Sitting in Linlithgow and sending stuff to a distributor in China is not at all comparable to the rigours of establishing an operation in foreign parts with all the complexities that it brings, whether by way of greenfield investment or acquisition. And such a business model based on exporting is ultimately unsustainable as it is vulnerable to all kinds of uncontrollable factors and events.
The famed German Mittelstand has a straightforward overseas approach which usually involves building market share over a period of years by exporting and then setting up, typically, a greenfield operation in the country. The purpose is twofold: to get closer to the customers in order to better understand their needs and, secondly, to gain more control of the local business by dealing directly rather than through partners. The result is the continuous refining of a successful process which can then be replicated again and again around the world.
The UK’s chance to make up for past mistakes could be the “born global” nature of our technology companies. One might think that digitalisation allows the business to continue being done from Linlithgow – surely it is only a question of changing the language on the website? The Internet as a channel can get you started and can help to create new business relationships and identify new markets. But there is no alternative to physically engaging in the target market.
To take one high-profile example: Skyscanner, the flight booking unicorn, has very quickly created a string of nine sales offices and development centres stretching from Central Europe to China. And the reason for this rather risky and expensive activity – to quote the company’s press release on its recent expansion in Barcelona – is to “support international growth”. In other words “do it to them before they do it to you”.
But how can government agencies switch from promoting exports to promoting growth? One idea would be to publish case studies of companies which have successfully expanded overseas. An impressive and recent Scottish example is Touch Bionics. Another would be to engage successful British entrepreneurs as ambassadors for “true” internationalisation. And a third – more contentious – idea is for agencies such as UKTI to offer in-market services to British companies to help identify acquisition targets and to provide advice on site selection. In other words, to promote outward rather than inward investment.
Photo: “Wind tunnel Berlin-Adlershof 3” by Dr Bernd Gross – Own work. Licensed under CC BY-SA 4.0 via Wikimedia Commons
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