An interconnected Scotland

Scotland may only be a relatively small country with a population of 5 million people, but last year the Scottish Government showed they are ‘thinking big’ when they launched a major new trade and investment strategy, ‘Global Scotland’*. Guiding Scotland’s internationalisation plans up till 2021, this policy builds on the country’s history and reputation as an outward-looking nation, according to Neil Francis, International Operations Director of Scottish Development International (SDI). He discusses Scotland’s global focus with Julia Lemagnen.

An important role of Neil and his team is to promote better understanding of Scotland’s international operations and increase companies’ appetites for investing there. “In order to prosper, we have to prioritise and have a strong sense of where we are competitive,” Neil says, “and the opportunities are different in every sector – some are trade-focused, others are more investment-focused, and some are balanced between the two.” He continues: “Indeed, many of our inward investors also feature among our largest exporters. Companies locate internationally for one of two reasons, if you simplify it. Either they are looking for access to a market or access to resources which they themselves do not have. For us, it’s often access to the UK and EU marketplace they are after. We’ve also been successful in winning inward investment driven by access to resources in sectors like renewables, life sciences, technology and engineering. In terms of our approach to winning this type of investment, there are two main strands to our strategy. Firstly, we work with existing investors to make the most of the opportunities in Scotland and support them to grow and bring additional functions to the country. Over 2,300 foreign owned companies are present in Scotland, employing 315,000 staff, with over £89 billion turnover in total, so supporting existing investors is vital. The second strand of our strategy is to bring in new companies as first time investors in Scotland.”

Key markets and sub-sectors

Neil sees Scotland’s key markets as finance and business services, oil and gas, life sciences, technology, tourism and education, but it is the sub-sectors of these industries that SDI researches and pursues in a matrix approach. “We like to think of our sectors, then drill down into sub-sectors and understand our resources, assets and capabilities and match them to markets where we see global outflows of investment,” he explains. “So, if we think of asset management and servicing as a sub-sector of finance and business services, the target is EMEA, with London being very prominent. However, if you look at global business services as another sub-sector, we see big opportunities in India, in Delhi, Mumbai and Bangalore.”

Global Scotland

Scotland is seeking to develop on a global basis. Other priorities include medical technology where SDI sees opportunities in Boston, USA and in Japan. For pharmaceuticals and pharma services, though, India is their target. And in tech markets, Scotland has capabilities in sub-sectors where software and data intersect, such as subsea/minerals in Asia Pacific, and fintech/data analytics in London and the West Coast of the United States. Over the last three years, Neil Francis talks of how Scotland has deepened its understanding of how to improve its competitiveness as an investment location and become more focused: “The reality is that it’s hard to be absolutely unique but our aim is as a ‘Connected Scotland’**, being of a scale that hits a sweet spot, so we are big enough to offer companies what they need, but small enough to connect companies across their areas of interest, through Government, through the academic sector, to help investors to find partnerships in their supply chain.”

SDI believes what sets its offer apart from other investment promotion agencies is Scotland’s interest in long term relationships. Neil explains: “We don’t disappear once we’ve won the project. We help companies to grow and develop, for example, JP Morgan who came to Scotland ten years ago with a small number of staff to do technology development. They now have over 1,000 people here and an ongoing relationship with us.”

Implications of Brexit

Neil’s team has a solid strategic direction, informed by clear research data and the appetite to implement it, but how might this be affected by the current political and economic climate? I asked him what impact Brexit could have: “For everyone there is a huge level of uncertainty and it’s hard to plan cohesively for the way forward. For us, we have historically attracted a large number of research and development projects and continue to do so. Thirty per cent of all UK R&D projects in 2015 came to Scotland and those types of projects will be affected less by the uncertainty of the UK leaving the EU, because the driving force isn’t to access a market but rather to access skill sets/resources that can’t be obtained elsewhere. Our focus on R&D and high value add will stand us in good stead. We don’t have that many large investors in Scotland who are manufacturing goods for the European marketplace. To an extent, we are going to be insulated against the effect. There is a case to be made that the UK is still a large and important marketplace and there might be opportunities for companies who currently sell significantly in the UK but don’t have operations here. For example, a lot of our dairy products are imported but we are a huge primary producer, and this might give the push for processing to be established in the UK.”

Impact of the Trump Administration’s trade strategy

The USA is a significant market for Scotland, accounting for 40% of inward investment. Does Neil think his plans to develop opportunities with US companies will be affected by the new Trump Administration’s position on international trade? His view is that: “The early push at the moment is for US companies to manufacture within the US for their own market, and the US Administration is saying they don’t want them to manufacture overseas. We don’t have US companies in Scotland that are in that part of the marketplace but we are researching to understand this better. In terms of US-owned global companies servicing global markets, we wouldn’t expect much change in the short term.

Opportunities in China

China is of course a target for investment promotion agencies in many countries and regions around the world. Is Scotland targeting this market? “We see an opportunity for both trade and investment in China. Our ambition is to see more successes there, but it is a marketplace which is far away and has a very different business environment, and it takes time to build relationships,” Neil says. “We see a good affinity with China in the energy sector for oil and gas, and China already has some investments in the North Sea. In renewables, there are good opportunities for Scottish companies to help the Chinese economy move in that direction in years to come. Also, technology is an area of opportunity for us, for instance, Edinburgh-based travel search website Skyscanner was recently acquired by Chinese tourism group for £1.4bn.” The Scottish Government is focusing on the digital economy and e-commerce with its ‘Digital Scotland’ programme, and in 2015 SDI held engagement events to help companies develop a digital strategy for China***.

Scottish tailored support packages

Above all, the Scotland team want to connect with investors in the ways that suit their companies’ needs. Neil says: “We understand that attracting international inward investment is getting more and more competitive and the way we promote ourselves is to try and provide a tailored customised service to each opportunity. We want to understand the factors most important to individual investors and create a support package that best helps them to arrive at the right decision.” With Scotland enjoying its best year on record in Ernst & Young’s UK Attractiveness report in 2016, with a 51% increase in foreign direct investment projects****, it seems that investors agree this is a sound approach.

**** Ernst & Young UK Attractiveness Survey 2016 ($FILE/EY-UK-Attractiveness-Survey-2016.pdf)

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Julia Lemagnen has worked in international business for 25 years in both business-to-business and business-to-consumer market research. She previously worked as Market Intelligence Manager at Unipart Group, and as part of a UK-based brand research agency she handled marketing and research assignments for clients such as Microsoft and 3M. She is experienced in a wide range of industries and research methods and has been working in the field of economic development and foreign direct investment since 2002. Julia co-founded MCJ Lemagnen Associates in 2010.