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Enterprise and Lifelong Learning Committee

6th Report, 2001

Report on the Inquiry into the Impact of the New Economy

Volume 2 : Evidence
 

    

SUBMISSION FROM ADRIAN DOHERTY

Enterprise Enquiry. E-business in and out of Scotland.

I have worked with information Technology for the last 12 years - much of that around Europe and in North America. I have followed the growth of the internet and e-commerce closely. The situation in Scotland worries me.

5 years ago if I wanted to buy a book I would go to my local bookstore. Perhaps they had it in stock - or maybe they would need to order it. Now I can buy online from Amazon and have it in my hands the very next day. However the profits have generally gone south, or over to Europe, or the US, as the orders are processed at some distant headquarters, rather than by a high street branch/outlet. The local profits & jobs that local retailers provide will increasingly evaporate. However this is merely progress, as e-commerce can be serviced best by centralised order processing, customer support etc. It is inevitable, but it will greatly harm the economy of Scotland, unless measures are implemented to encourage Scotland-centric, and Scotland-based e-trade. In particular rural e-business is a great promise to our economy but has been sorely neglected.

All manner of trade in consumer goods will be, and is being, affected in this way, with the exception of perishable foodstuffs, and large items that the postal services cannot easily handle. A huge amount of profit will disappear from those areas without headquarters of some established e-commerce firm. So we need to get more headquarters of e-business into Scotland. And not just into the cities, but out into the more rural areas where running costs can actually be much more attractive to businesses.

From my own situation, on the Isle of Bute, I am looking to set up a number of e-commerce facilities to serve the whole of the European market. Of the many successful US e-commerce ideas most of those that translate over to the UK and Europe tend to go to the South of England or another European Capital. This happens even though semi-rural locations could be much more cost effective. The reasons behind this are that investors want their business in convenient locations,and finding pre-skilled staff is easier & faster in a city than training a cheaper and more loyal rural population.

A friend of mine is a CEO of a San Francisco e-business that leads its market in matching US High School students with Colleges & Universities in the US (they have no public equivalent of UCAS). He puts it like this... "...everything in the eworld is faster, but the same. Thus, you still need good people, good plans, good execution to do everything right - its just that things go quicker". I fear that in Scotland we do very little to facilitate rapid business development.

Even though we live in the email & videoconferencing age, most medium to large business deals are still done face to face. This is a matter of psychology, and a lack of good publicly available videoconferencing centres. US & European technology companies looking to expand into the UK and/or Europe tend to seed a few of their US staff over here to get things going. The simple fact that there are so few direct flights from Glasgow to the US (the current centre of the e-world), is a major obstacle. We should be subsidising airlines to provide more scheduled flights to open Scotland up to US trade and investment. There should be more daily flights to and from more airports in the US. Just now there is only one flight per day from Glasgow to New York, and one to Chicago. No direct flights to Silicon Valley. From London Heathrow there are 9 daily flights to San Francisco alone. Not to mention the 18 other US centres flown to many times each day.

When I worked for a US technology company a few years ago they had their European headquarters looking out onto the north runway at Heathrow. The only reason was so that the US executives could get over to America with the least delay and inconvenience. They didn't really care about the extra cost of accommodation, salaries etc. There is a vicious circle that only public investment can address, both to help develop business and promote tourism. Americans actually love Scotland as a country, and I am sure would love to be able to do more business here, if only it was perceived as more accessible and an effective gateway to Europe.

I have worked often in Denmark & Sweden, countries of a comparable population to Scotland. But they have avoided the excesses of 'e-centralisation', largely because they have historically had headquarters of multi-nationals in Stockholm and Copenhagen. And there are plenty of regular flights to the US and the rest of Europe each day.

The established Scots giants, in Banking and Insurance, have largely adopted e-commerce too late. Online banks like www.firste.com (French) and www.cahoot.com (English) may easily eat up the Scots e-banking market unless Scots start to identify their own part of the e-world.

A simple idea I have would be to put a more obviously Scottish 'main-street' on the internet. Sweden have .se and Denmark .dk suffixes and most of the e-business done in these countries operates on sites named with these suffixes. We should have our own domain suffix for companies targeting the tourist and domestic markets. Instead of xxx.co.uk or xxx.com we should have something like xxx.sco. Many Scots do feel good about buying goods from a Scots supplier, so long as the prices, service and quality are competitive, and many would support such an initiative. Companies trading with .sco suffixes would of course need to have their .sco business operation in Scotland. Imagine www.amazon.sco with their Scottish headquarters on the Clyde...

Even more awful is that many things 'Scottish have been hijacked on the web by 'start-ups' in the US and elsewhere - www.haggis.com is registered to someone in New York, www.scotland.com to someone in Washington, www.rothesay.com by a pub in Newfoundland, www.tartan.com by tartan inc in the US, www.edinburgh.com by some importer in California, www.whisky.com by another Californian, www.scotch.com by a firm in New York, www.caledonia.com by a firm in London, www.scottish.com by someone in British Columbia, www.bute.com by KPMG in London (beats me why), www.arran.com in the US, www.alba.com in Quebec, www.highland.com in Alabama (the Old South I thought...), www.robertburns.com by someone in High Prairie, Canada, www.irnbru.com in Cypress, Texas, www.auldreekie.com in Queensland Australia, and finally www.killiecrankie.com by Alabanza, Inc in the Channel Isle of Jersey...not surprisingly the name is up for sale...I haven't even mentioned .net, .org or .co.uk etc. I could go on but you can have hours of fun yourself trying to find a real scottish web address at www.whois.net, or www.nominet.net

Worrying too, is the websites like www.scotland.com which don't actually link to Scottish e-businesses. Try searching for a bookshop - the only link is for Russian books! Ok, they do have some Scottish interest stuff - but nothing much worth cheering about. Try www.scottish.com and the situation is worse, you get whisked off to a generic US portal of www.goto.com.

So, lets have a new officially sanctioned and promoted Scotland 'main-street' with an SCO suffix. Real Scottish e-businesses can then have a better focus and a (second) chance to take off. Equally important, more use should be made by the EU to have .co.eu used for e-businesses that wish to target a pan-european market. Those businesses in Scotland that wish to target the UK market can of course continue to use .co.uk or .com suffixes.

To summarise Ė

* New publicly supported e-commerce centres in both rural and urban areas to generate new jobs & profits, with low tariffs to attract start-ups

* Investment to ensure communications networks are world-class

* Free, 0800, unmetered, fast and reliable internet access for all of Scotland - the more people use the net - the more people will innovate ideas.

* Discounted PC's - maybe a bulk order by the Scottish executive to obtain 10's of thousands of PC's at the best possible price for sale to the public at cost, to get as many online as possible. Every home that wants it could be connected to the net within 5 years.

* Better air links for Scotland to US and Europe to make it much easier for businesses to attract international partners.

* An official virtual Scotland on the internet with a new domain suffix that identifies Scottish based companies or multinational subsidiaries active in Scotland properly, and for companies that wish to target the Scottish market, from within Scotland.

* More support & education to help businesses move to e-commerce, to encourage the can-do attitude that is all so evident in the US, but so often lacking in Scotland.

I trust the committee will find useful suggestions in my opinions.

via email
Adrian Doherty
August 2000

SUBMISSION FROM ERIC SMITH

I refer to your enquiry and have comment under the following title:

what can be done to enhance Scotlandís competitive position?

It seems to me, that in Scotland we are very conservative in our investment strategy. Usually citing such phrases as " this is public money that we are dealing with " and "we are the keepers of the public purse" tend to be excuses for lack of foresight and a basic inability to "think out of the box".

Too often, people are put in place to review business plans and ideas who have only experience and expertise in conventional business which is not necessarily relevant in the new economy.

Whilst not escaping from the fact that it is essential to have a sensible and well thought out business case, there is far too little investment (financial, rather than questionable "expert assistance") in some of the more unusual ideas we are good at delivering in Scotland.

We are all aware of the A-Z of Scottish inventions, however, I question whether most of these would have gained support far less financial assistance, in todayís economic climate where we would rather provide assistance and advice from people who have never run their own business, than use the money to invest in the ideas.

via email
Eric Smith
August 2000

SUBMISSION FROM CONSULT HYPERION (SCOTLAND)

Having consulted with colleagues in our Edinburgh office, I would offer the following material as some initial thoughts on the technical options available.

Asynchronous Digital Subscriber Line

ADSL is a mature technology that is currently being rolled out UK-wide, albeit somewhat slowly, by BT. At the moment, ADSL is only available in central Edinburgh and Glasgow, though BT have indicated they will extend the rollout to Aberdeen "in the coming months".

It is fair to say that BTís rollout of ADSL is not focussed on Scotland outside the central belt. The rollout is extremely unlikely to be extended to the Borders or the Highlands for the foreseeable future. Further, even if ADSL is rolled out to these areas, it is a natural consequence of the rural nature of these areas that many potential users are some distance from their local exchanges. It is a well-known characteristic of ADSL that performance degrades significantly with distance from the exchange; BT quote a maximum distance of 3.5 km, whilst other sources suggest the limit for reasonable performance might be as little as 1 km. So ADSL is very much a technology that is aimed at urban areas, and its applicability to Scotland outside the central belt (and one or two other areas) is strictly limited.

Broadband Cable

Like ADSL, broadband cable is a mature technology. It has been extensively rolled out in Scotland over a period of at least 5 years. However, like ADSL, the main concentration of cable services is in cities: Glasgow, Edinburgh, Perth, Dundee and Aberdeen all have cable access, and we understand there is some limited potential for extension to other areas, such as Stirling.

Our contacts within the cable companies (NTL and TeleWest) indicate that their focus is now on generating revenue from the cables they have already installed. There are limited funds available for further extensions to the networks. Further, the rollout of high speed Internet access, by means of cable modems, is yet to begin outside a few trial areas, and in any case suffers from some well-known technological limitations once the number of users starts to become significant.

So it is very unlikely that broadband cable access will be extended to rural regions, such as the Highlands and the Borders.

However, an accident of geography means that a number of important cables pass through the Borders that have the potential to benefit that region:

  • A broadband cable links the main campus of Heriot-Watt University with the Galashiels campus. We understand that Heriot-Watt might be interested in making some of the bandwidth available to outside parties; indeed, Heriot-Watt are believed to have considered the creation of a networked business park adjacent to the Galashiels campus.
  • We are aware of significant network capacity that passes through the Borders, belonging to BT, TeleWest and Thus. These cables provide the link between important network nodes across the UK, and do not provide any capacity within the Borders itself. Since these cables already exist, they clearly offer a potential route for networking local businesses, probably within a business park.

So broadband cable access is potentially applicable to businesses in the Borders, though this is probably dependent on the creation of a networked business park.

Broadband Wireless

The UK Government recently auctioned licenses for the provision of fixed broadband network access in regions across the UK. Unfortunately, the auction was something of a failure; the only regions in which licenses were awarded were those that were already well-provided for by ADSL and cable. Indeed, no licenses were awarded in Scotland at all. This is unfortunate, since the greatest applicability of broadband wireless services is clearly in rural areas, where they obviate the need for burying miles of cable between far-flung subscribers. Wireless access is clearly economical in rural areas, as is evidenced by the extensive mobile phone coverage in the Highlands.

Since wireless access is most applicable to rural areas, it would seem sensible for Government to offer some form of incentive to potential operators to offer these services in rural areas (particularly in view of the UK Governmentís commitments under the EUís eEurope initiative). Reliance on the deployment of 3G services by mobile phone companies in these areas is not enough, in view of both the potential cost of these services and the potential delays in deployment outside urban areas.

Paul Smith and Paul Makin
Consultant
Consult Hyperion (Scotland)
January 2001

 

SUBMISSION FROM JAMES MYLES

I have made some comments on your press release, reproduced in a threaded form below.

> Committee News Release - Annex

> CENT 020/2000

> Friday 7 July, 2000

>

> THE IMPACT OF THE NEW ECONOMY

> Enterprise Committee launches its latest inquiry

>

> The Enterprise and Lifelong Learning Committee today launched its

> inquiry into The Impact of the New Economy. Outlining details of the

> inquiryís consultation process, convener John Swinney said:

> "There is a highly significant change taking place in the global

> economy. It is technology driven and is leading to an increasing

> amount of business of all types being done electronically. This

> change brings exciting new opportunities and challenges to business,

> but at the same time it places serious demands on existing supporting

> public services.

I am unclear on this. It sounds a bit like rhetoric to me. What are the public services on which your perceive new demands being placed.

> "Our committee proposes to investigate the question to what extent is

> Scotland equipped to deal with the challenges of the new global e-

> conomy? Specifically, we are looking for responses from all

> interested parties to the following questions:

> ∑ to what extent has Scottish business moved to take up e-

> commerce?

I assume you mean e-commerce via the Internet. E-commerce has been in place since the 1960s using systems such as EDI.

There is a danger in looking at "extents". I see a lot of companies move into "e-commerce" or set up a Web site and do not really understand what they are doing. This has led to a flood of the market with unskilled people charging money to businesses for substandard solution under the guise "Web designer".

> ∑ what infrastructure will be necessary in the next five years

> to allow Scottish business to exploit the new economy; and what steps

> are being taken to ensure that it will be put in place?

The telecommunications infrastructure is not good enough. Businesses need full time access to reasonably high bandwidth quality Internet services - this is outwith the grasp of most businesses in the UK where bandwidth is expensive and quality is generally low.

The apparently good trend with the rise of the "free" Internet Service Providers is not good at all. These companies have concentrated on the consumer market and provide generally low levels of service. Businesses have to pay for a serious provider, but they do not see the differentiating factors.

I believe firmly that open technologies are the only way to progress.

The Internet was built on open source products and businesses should be

made aware of the tangible advantages of this. **** I cannot stress

this enough *****

> ∑ how does Scotlandís position and preparedness compare to that

> of its global competitors?

The trouble with global competitiveness is that there _are_ barriers to entry. It is cheap and easy to get a Web site, but it is quite another thing to launch a global business. The e-commerce is just part of the business; not a separate entity. I am finding this with my contact with aspiring global start-ups. The finance has to be raised in extraordinary ways - there is no clear path to funding, or infrastructure in place for finding it.

I think we are in trouble with the current state of affairs. Letís get someone leading from the front (in government? - a bit of a joke) and letís see some moving forward - fast. Look at the education system in respect of this. If the teachers donít know then how are they supposed to bring up a new generation in it.

While it is on my mind I should mention the issue of security. We need to secure the commerce side of the Internet and this is not being done properly at all. This is compounded by the draconian attitudes of the universities, who prohibit access to information freely available on the Internet regarding computer crime such as "hacking". These organisations have to get with the programme.

> Responses should be as concise as possible and no longer than 8 sides

> of A4

I hope this has been concise enough. This is e-mail and the number of sheets of paper it takes to print it will depend on who prints it.

> The committee will take formal oral evidence during autumn with a

> view to completing the inquiry by November 2000.

via email
James Myles
Physics graduate
IT and Web Technology Postgraduate
Entrepreneur
7 July 2000

 

ANNEXE D: CASE STUDY REPORTS

VISIT TO THE BORDERS TEXTILE INDUSTRY

Evidence Gathering

The Committee Members Fergus Ewing MSP (reporter) and Margo MacDonald MSP received a range of evidence including a briefing presentation by Scottish Enterprise Borders, site visits to local companies, meetings with employers groups and trade unions, and a meeting with/visit to the Heriot Watt University Scottish Borders Campus housing the School of Textiles.

Introduction

The aim of this aspect of the Committee's inquiry was to look at the development of the "new economy" in a "traditional industry". Although there is a perception of the Scottish textiles sector as a "sunset industry" the evidence supplied to Members of the Committee highlighted several exciting developments, seemingly very much up to speed with the best of the new economy elsewhere in Scotland. Nevertheless a number of challenges and problems were flagged up for the sector. Some of these issues came directly within the terms of reference of the inquiry and related directly to the new economy, whilst several others were not.

The Textiles Industry in the Scottish Borders

The textiles industry is crucial to the Scottish Borders, employing 50% of all Borders manufacturing jobs in 19971. It also makes a major contribution to the Scottish economy in terms of jobs employing a total of 33,900 in 1997, (some three times the size of the whisky industry), though some 5,000 job losses have been announced since then. Like the whisky industry it is heavily export oriented (accounting for 28% of output, even more in some sub-sectors) and often has a mutually beneficial relationship with the local tourism industry. Job losses in the sector have particularly hit the Scottish Borders over recent years. Part of the response from the Government has been the diversion of some £2m European Union 5b funding to the Borders and a £1.8m Scottish Enterprise Borders (SEB) "special allocation". The SEB funding has generally focussed on assisting individuals facing redundancy by providing retraining and supported employment opportunities.

New Economy Developments in the Scottish Borders Textiles industry

The following initiatives and developments provide a flavour of some of the progressive and exciting activity highlighted to Committee Members

· The TechniTex Faraday Partnership - Some £2.2m of funding has been secured for a project to be led by Professor George Stylios of the School of Textiles at the Borders Campus of Heriot Watt University. The project will be at the cutting edge of developing innovative products and processes arising from the science base in the area of technical textiles2. Whilst the initiative operates at a Scottish, UK and even international level, there are evidently opportunities for spin-off benefit into the local economy. The initiative is described by the University as follows3

"The Faraday Partnerships Initiative, supported by Government through DTI and EPSRC, focuses on improving the interaction between UK university research base and industry.

TechniTex, the Faraday Partnership for Technical Textiles, will work in close collaboration with the technical textiles value chain, emphasising small companies, to create an extensive network of UK manufacturers in the sector and to re-position the industrial network partners to become research-led and internationally leading"

· SHIMA technology investment - There has clearly been recognition amongst manufacturers of the importance of maintaining production investment levels in order to remain competitive. In the knitting sector a Japanese company SHIMA is recognised as being the premier manufacturer of state of the art knitting machinery. Whilst manufacturers recognise the importance of continually updating their investments particularly to remain competitive with Italian knitwear producers, translating that into practice is a difficult task. One of the main difficulties was reported as lack of access to public and private finance.

· Use of information and communications technologies (ICTs). A number of companies are taking the lead in the Borders and making effective use of information and communications technologies. For example Robert Noble/Replin Fabrics of Peebles, demonstrated their use of computer aided design and communications technologies to work with designers in the USA to develop new fabrics for supply to the aircraft industry. It was amply demonstrated that there remain many areas of business where the "old" ways of doing business are still important. For example in order to secure business in the first place a computer screen will often not replace face-to-face meetings as potential customers will require a degree of reassurance both on probity and ability to "deliver the goods". However once the business is secured ICTs can then allow a customer to be serviced much more effectively.

· Development of industry website (www.scottishtextiles.com) - this is a "New Ways" joint project between SEB and Scottish Borders Council and provides a directory of all Borders textiles companies arranged by sector and with a search facility and listings. It gives an outline of each business, contact names and hotlinks. It is available in English, French, Italian, German, Japanese and Korean.

· Cutting edge applied research - Beyond the Faraday Partnership outlined above the Heriot Watt Borders Campus is stimulating directly or maintaining an awareness of a variety of applied research which will form the future of the clothing and textiles sector. Examples include the development of "virtual fashion shows", and on line made to measure garments.

Challenges and Problems for the Industry

· Telecommunications infrastructure - in theory the development of information and communications technology (ICT) should make distance from markets less relevant, and allow rural areas to compete more effectively. However in practice the rollout of telecommunications networks looks set to provide a degree of disadvantage to rural economies. A report on the ICT infrastructure provision by Scottish Enterprise Borders indicated that amongst local businesses and major ICT users

· There is concern over BT's monopoly position

· There is dissatisfaction with the price of dedicated circuits and the high cost of fixed internet access.

· There is concern over the patchy mobile phone coverage

· Generally however BT services were seen to meet the current needs of Borders businesses

Nevertheless the Borders, along with other rural areas is currently missing out on investment in the latest generation of networks - ADSL. Investment has already been made in ADSL for the Central Belt of Scotland, and up to Aberdeen, but because of high cost and perceived low demand BT does not reportedly have plans to extend this investment to the Borders.

One current example of problems with the ICT infrastructure was highlighted by the case of the company Internet Property Finder which was reported to have relocated business operations as a result of telecoms infrastructure restrictions in the Borders.

For the future textiles companies are likely to wish to capitalise on the applied research at institutions such as Heriot Watt, and offer services such as virtual fashion shows/on-line made to measure products. These sorts of applications, which are likely to be part of the future of a high value added textiles sector, require the necessary bandwidth to be available at competitive prices.

In the context of an inquiry into the new economy it is important to address issues of perceptions. As indicated above textiles is often viewed unfavourably as a part of the "old economy". This has very real implications for the sector in terms of access to finance and the recruitment of young people. It is essential therefore that any definition of "new economy" incorporates the growth areas of all sectors.

· Access to Finance - One of the constraints on companies in the textiles sector was identified as difficulty in accessing finance, particularly to invest in new production technology. This included finance from the banking sector and awards from Regional Selective Assistance. A major concern of the industry was that all textiles companies were seen in the same light, as part of a "sunset industry". Therefore textiles businesses felt they had to work much harder to prove the merits of their own case than would businesses from what are generally perceived as growth sectors. It was suggested that further work was required to win the "hearts and minds" of the Edinburgh banking/financial sector.

There was also concern that Scottish manufacturers were not operating on a level playing field with key international competitors. Anecdotal evidence indicated that Italian knitwear manufacturers for example are able to receive more favourable allowances for capital investment

· Attracting Young People to the Industry - Again related to the image of the sector the textiles industry identifies one of its problems as an inability to attract enough talented and innovative young people, including graduates. Initiatives such as "Behind the Label" are attempting to tackle this, though there is much work to be done

· Strengthening the local University/Industry Links - Evidence from the Borders visit provided a small scale but clear illustration of the economic benefits of university research commercialisation. Initiatives such as the Knowledge Economy Taskforce report (1999) provide evidence at the Scottish level. In the Borders it is also evident that local industry has much to gain from making the most of a real centre of excellence situated on their doorsteps. There are already links between the University and local industry groups such as the Scottish Textile Manufacturers Association. It is hope that these industry links are expanded still further.

Other Issues - a number of other issues were identified which were highly significant, but were somewhat removed from the remit of the New Economy inquiry terms of reference. These included:

· Export assistance - there was some concern expressed at the level of support available to companies to assist in the expensive business of exporting, and there was criticism of the arbitrary nature of the "three time rule" operated by British Trade International. It was reported that more favourable assistance was available in Ireland for example.

· Bananas and cashmere - the threats to the cashmere industry from a trade war with the USA are clearly critical

· The exchange rate - a highly valued pound against the Euro has had implications for competitiveness for the Scottish textiles sector.

Fergus Ewing MSP (reporter)
Margo MacDonald MSP
1 September 2000

VISIT TO THE ALBA CENTRE, LIVINGSTON

Membership

The three MSPs on the case study were George Lyon, Allan Wilson, and Nick Johnston. They met with Neil Francis, Director of operations, the Alba Centre; David Crichton, Chief Executive of Scottish Enterprise Edinburgh and Lothians; Professor Steve Beaumont, Director of the Institute for System Level Integration; Colin Adams, Vice President and General Manager of Cadence Design Systems; and Andy Travers, Chief Executive Officer of the Virtual Components Exchange.

This report provides a brief overview of the way the Alba Centre operates, and a summary of the main recommendations made to the MSPs by the members of the Alba Centre, in terms of the Committee's investigation into the New Economy.

The Alba Centre

The Alba Centre aims to develop the electronic design industry in Scotland. It has three constituent parts:

· The Institute for System Level Integration - ISLI

System Level Integration is defined as `a design methodology involving the integration of system level components to produce an electronics system product.' Basically, it allows for the design of complete electronic products by bringing together the component parts. An innovative feature of the Institute is the fact that it offers an MSc in System Level integration in conjunction with 4 universities: Edinburgh, Glasgow, Heriot-Watt, and Strathclyde.

· The Virtual Components Exchange - VCX

The VCX is a way of bringing together the buyers and sellers involved in intellectual property (IP) or virtual components (VC). These virtual components are becoming increasingly vital as electronic products become faster, more powerful and more intricate. The VCX offers a secure environment where trading of these components can take place. It is estimated that the market for 3rd party intellectual property revenue will grow from $140 million in 1998 to $1 billion in 2003.

· The Alba Campus

The Alba Campus is a 96-acre electronic design campus, providing accommodation and support services to incoming businesses. The aim is to make it as easy as possible for companies to establish design operations. Cadence Design Systems has already moved to the campus - its headquarters were opened in June. A total of 4 thousand jobs are expected to be created when the campus is at full capacity.

The Alba Centre staff identified 4 themes of the new economy:

· People - volume and quality

· Infrastructure - ICT and accommodation

· Technology - access and ownership

· Environment - culture and community

For the sake of this report it is useful to use the first two headings as a way of summarising the opinions and recommendations made by the Alba Centre staff. This well help to outline the lessons the Alba Centre can provide in terms of the Committee's inquiry into the New Economy and examine the suggestions made for ways of improving Scotland's relative performance.

New Economy Themes

People - volume and quality

A key and recurring theme of the day's visit was the fact that there is a general shortage of people with the necessary skills or talents to fully exploit the opportunities provided by the New Economy. Although Scotland produces around 2, 500 technology graduates each year, there was particular concern about the number of engineering graduates being produced. Professor Beaumont felt that there was an image problem with engineering in Scotland whereby it was still perceived as an old-fashioned heavy industry concerned with `metal-bashing'. He contrasted the situation with India where children aspire to become engineers because of its high-tech image. It was felt that the problems in producing quality engineers stemmed right back to the school level, with not only a lack of pupils studying maths and physics, but inappropriate teaching when these subjects were chosen. The paradox is that engineering is a career that can offer high starting salaries (around £24,000) to the best graduates, offers travel opportunities and a varied career path.

Following these discussions with the Alba Centre staff, they suggested a number of ways of improving Scotland's skills shortages in engineering. The MSPs feel that these are suggestions the Committee should focus on in its study into the new economy:

Issues

· The Committee should consider the need for a sustained initiative aimed at improving the image of engineering in Scotland. It would be most advantageous if this drive could start at as early an age as possible.

· As a means of improving the image, it is important that guidance services are fully aware of how important the sector is. Could successful graduates go into classrooms to stress the benefits of an engineering career?

· The Committee should consider the merits of a clear message being sent out to schoolchildren stressing the benefits of an engineering career. It was stressed that there are already a very large number of these types of initiatives, but none has yet been successful.

· At University level, the Committee could examine the principle of preferential funding arrangements for students considering engineering, as a means of increasing the number of undergraduates and graduates.

· It was suggested that physics and maths courses in schools were overly concerned with providing facts and figures, rather than encouraging pupils to think creatively. In general, the concept of `design' was traditionally linked with subjects such as arts and crafts, when it should also be a feature of science disciplines. It was felt that cross-cutting of subjects in this way would help to produce more imaginative courses.

· On a related point, it was felt that some physics and maths teachers weren't up to date with modern electronic practices.

· It was also felt that the curriculum development had not kept pace with the changes in industry

Still within the theme of `People' there was also a focus on the way universities operated - in terms of both their relationships with other universities, and their relationship with industry. Professor Beaumont noted that universities haven't been able to keep pace with developments in industry. He was concerned that talent is being taken out of the universities by start-up companies, which could offer more money, leading to a major skills drain out of the universities. In terms of their inter-relationships, Professor Beaumont was also concerned that there could be a fragmentation of expertise if universities competed against each other.

After discussions with Alba Centre staff, various suggestions were made as to how conditions could be improved for university staff. Again, the MSPs feel these are areas the Committee should focus on:

Issues

· Consider how universities can be better funded through research grants.

· Ask whether there needs to be better pay for academic staff.

· Question whether industry should make a financial contribution to universities if they continue to lure their most highly skilled staff.

· Examine how more pupils can go straight to industry from school rather than being `cherry picked' when they have attained a level of expertise at university.

· Look at how greater collaboration can be fostered between universities and organisations like the Alba Centre, and also consider how to encourage greater cross-university collaboration to avoid a fragmentation of expertise.

· Ensure that university staff are able to market new technologies effectively otherwise they can be lost to the USA. In America the entrepreneurial spirit is far more ingrained, with close ties between universities, venture capitalists and start-up companies.

· Consider whether the Scottish Higher Education Funding Council should fund more MSc places in universities.

Infrastructure - ICT and Accommodation

There is a variation across the country in terms of access to the infrastructure needed to be a successful New Economy company. While advanced communication channels are available in the major population centres, these aren't always found in more remote areas. Any commitment to providing full access to high bandwidth communication channels across the country would be extremely expensive, and may need to involve both public and private investment. If the public sector was to become involved in infrastructure development, it would be important to consider exactly which technology should be backed, given that there are a range of options available.

It was also noted that being near an `Internet switch' could have a massive economic impact. In the simplest possible terms these switches mark points where lots of Internet activity is taking place and therefore they tend to be surrounded by Internet Service Providers who need to be close to this activity. Although the majority of these switches are in America, there are two in Europe. Colin Adams from Cadence speculated that just as, historically, cities grew up around where rivers and roads converged, then, similarly, future population centres may be founded near the site of Internet switches. The Committee should consider examining the issue of Internet switches more closely: how exactly do they operate; what benefits do they bring; is there any scope for a further internet switch in Europe; should Scotland examine the possible benefits of an Internet switch being located here.

A third point to emerge was the fact that Ireland enjoys a cross-Atlantic fibre optic cable connecting it to America, while Scottish-to-North American communications traffic is diverted via London.

Other Findings

Although the Alba staff suggested a number of improvements and it was stated that Scotland is starting behind competitors in certain areas, there was also some positive news about Scotland's general standing in terms of the New Economy. Colin Adams from Cadence said there were a number of factors which made Scotland an attractive environment for his company: the education system, a supply of graduates with good degrees, transport links, and the proximity of major cities to Livingston. In terms of attracting more companies to Scotland, it was suggested that Scotland has to offer something that no other country can - the example given was tax breaks on share options.

In terms of Scotland's comparative performance with other countries, the names of Ireland and Finland seemed to crop up most frequently. Alba staff believed that both these countries had been successful at devising a national strategy aimed at capitalising on the opportunities afforded by the New Economy. It was suggested that the monies raised (£23 billion) by the auction of third generation mobile phone licenses afforded the United Kingdom the opportunity of devising a similar strategy.

George Lyon (Reporter)
Nick Johnston
Allan Wilson
August 2000

VISIT TO ABERDEEN OIL AND GAS INDUSTRY

Elaine Thomson, Marilyn Livingston and John Swinney undertook a case study visit to Aberdeen to examine the impact of the new economy on the oil and gas industry. The visit took place on 21 August 2000.

The Committee members met a number of organisations throughout the day, and key elements of discussion at each of the meetings are outlined in this report. In the morning session, members met a number of organisations in Davidson House, Aberdeen Science and Technology Park in Bridge of Don, Aberdeen; and in the afternoon moved to BP Amoco in Dyce.

A list of key points arising out of the case study are attached in the Annex.

Scottish Enterprise Grampian

Ed Gillespie Chief Executive

Bruce Armitage Director of Lifelong Learning

Aberdeen Science and Technology Park has been highly successful, with growth consistently outstripping the capacity of the park to meet it. Davidson House has a specific role as an incubator unit where all units have been filled within a year. The environment provided is highly supportive to small growing companies. This facility was required in Aberdeen due to "market failure" as cheap commercial accommodation for new companies is not available due to the relatively buoyant nature of the Aberdeen economy.

There are some 200 companies providing 500 jobs within the park, most are oil and gas industry related. Facilities provided in the park include a fully networked environment, the park having its own servers with direct high speed connections to the web. The package offered to companies also includes assistance with patents to protect intellectual property rights. Some 30% of Scotland's software is written on this site, mostly for process control within the oil and gas industry. Diversification to non-oil and gas applications is also developing; an example is in developing training applications.

ICT is well used with most e-commerce being business to business. There are large opportunities within e-procurement as the oil and gas spend being around $145 billion worldwide. Currently some 20% of companies are involved in e-trading with around 25% having broad band connectivity.

Connectivity

This was identified as a key issue for the rural North East. Though all exchanges are now digital and have been ISDN enabled over the last two years, ISDN connections are only available within 6km of the exchange. This is a technological restriction. While Aberdeen, like Scotland's other major cities now has BT's ADSL lines which provides very high speed digital connections, a digital divide is opening up between urban and rural communities, particularly relating to high speed broad band connectivity.

Robert Gordon's University

Professor Bill Stevely Principal

Professor Stevely felt that Scotland is behind in utilising e-commerce particularly where the major growth will be which is in business to business.

Virtual Campus

The RGU has developed a virtual campus delivering WEB based distance learning. Learning offered this way include a master degrees in e-business and the European Computer Driving Licence. They are delivering this course both to UK students but also to Malaysia and see developing courses in the UK to be sold abroad via the WEB as a major growth activity. Competition between universities is increasingly globally and will become fiercer.

Critical for future success is high quality education, strategic alliances and good quality marketing. Briefly discussed was the concept of an e-university currently mooted in England, however it was felt that this was likely to fail.

Other areas RGU are involved in include gaining commercial accreditation from CISCO, one of the main providers of networking technology, to provide a CISCO networking course. They are also developing an offshore drilling engineering software suite which is currently being expanded.

Knowledge Management

Knowledge management is now critical to business, with the value of a business measured in its intellectual capital rather than tangible assets. The RGU provides a degree in Knowledge Management, which is a part-time course primarily aimed at those in work.

Entrepreneurship

This is also taught with students putting together start-up/business plans. They also now have a small incubator unit where some 7 companies have started over the last 9 months. However there remain issues around access to start-up funding.

The Proof of Concept fund is too small and massively oversubscribed.

Research areas for the RGU, all involving the new technologies, are diabetes/cancer, optoelectronics and bus information systems. They have one of the biggest European grants into renewable energy - tidal power in the Pentland Firth. Most research is applied.

Another successful venture has been the TCS (Teaching Company Scheme), which is a joint venture between the RGU and Aberdeen University and which builds bridges between university research and SMEs.

Cost of Learning

An issue for lifelong learning was the cost of masters degrees. The full cost of these is £4.5K with Funding Council assistance at around £2k. On-line learning is not necessarily cheaper, though travelling costs will be reduced.

University of Aberdeen

Professor A R Forrester, Vice-Principal

The University has also developed courses in knowledge management and e-commerce, which are available on a full time basis.

Commercialisation

Building healthy relationships with the oil and gas sector, particularly with SMEs where innovation is occurring was seen as important. This partly involves developing relationships between the oil operators and the SMEs so that SMEs can develop through to full commercial viability. The Department of Trade and Industry has a mentoring scheme with the oil majors acting as mentors, however there has been a low take-up by local SMEs.

Staff take commercialisation sabbaticals with local industries in order to ensure better success with commercialisation projects. Identifying and establishing links with an industry partner is seen as key.

A barrier to developing e-business was seen as a lack of confidence in electronic bidding and financial security.

Data Management Research

Increased research into data management is seen as necessary as the volume of information increases. The university is currently doing work with other UK universities into the automatic removal of date lapsed information from the WEB.

Foreign Competition

This was again seen as a key requirement with a declining number of foreign students. The University believed, like the RGU, that correct marketing was necessary.

Connectivity

Again this was identified as an important issue, the development of e-commerce requiring good broad band networks. Super Janet used by the universities needs to be connected to the rest of the world.

Good connectivity would facilitate many activities. For instance, medical consultants are becoming increasingly specialised - a specialist in London or abroad would be able to see detailed medical pictures of patients in another location which would allow greater medical expertise to be assessed.

Scottish Enterprise Grampian

Bruce Armitage, Director of Lifelong Learning

Greg McLelland, Manager Competitive Business

The number of companies who are genuinely using e-commerce, business to business is still too low - under 20%. The US, Scandinavia, Ireland and Singapore are well ahead of Scotland. In Sweden they aim to lose hard copy post by 2005.

However, connectivity is high in Scotland compared with the rest of Europe. It is likely that home connectivity will peak at around 45 - 50% of households without further development of low cost access to the WEB. ADSL cost around £500 pa. In the US, local calls are free providing easy access to the WEB.

There are digital divides here between urban and rural communities; and between the better off and less well off areas. Rural connectivity issues need to be tackled.

Other barriers to e-commerce exist between large and small companies, with SMEs slow to respond in adopting e-commerce. Also, the activity and performance of dot.coms over the last 6 months is making the financial market increasingly risk averse. Dot.com companies tend to have low physical assets and high intellectual ones, however financial markets are still thinking in terms of physical assets.

Due to increased risk aversion, some companies with completed software cannot get the necessary financial support. This is particularly the case for business to consumer activity. Current profitability models in use mean that knowledge economy and e-commerce start-ups are always high risk. However, if these opportunities are not exploited then these markets will be lost.

Another opportunity is in the trading of knowledge. If this is not done effectively, serious loss of market share will result. It is estimated that Scotland has 3-5 years to resolve this.

Developing management awareness of the implications of the new economy is also crucial. There is a resistance to learning and cynicism towards e-commerce.

Large companies have a definite role in encouraging the use of e-commerce, the MD/owners of smaller companies have difficulty in finding time, and need definite drivers. In terms of the effective use of knowledge management, BP is one of the top three companies in Europe. Oil and gas are using e-commerce as it is recognised as leading to greater efficiency. Some 14 companies are involved in on-line exchanges.

The New Economy is not incremental, it is revolutionary. It demands awareness of the new economy, adequate investment in IT, investment in learning and the development of a workforce that can deliver creativity. Knowledge management is at the heart of the new economy.

Some 35% of the population are currently non-learners, this group is also most affected by digital exclusion.

Scotland doesn't have the equivalent of NOKIA, with a nationwide rollout across the whole economy. Mostly providing services, rather than software or other products.

Skill Shortages

There are difficulties in recruiting knowledge managers, however there is an inadequate new economy industrial base to provide adequate opportunities for people with these skills. This then impacts on inward investors as they are looking a stable labour supply. Ireland is currently [poaching Scottish staff] recruiting staff directly from Scotland. Projects are also being lost to SE England as they have an adequate labour supply.

Traditionally most of the oil and gas R & D, has gone to Houston in the US, however R & D in Aberdeen could be grown on the basis that in oil and gas, Aberdeen has an adequate supply of people.

To attract people with many of the new economy skills there needs to be a greater focus on lifestyle issues. Aberdeen has a serious problem in recruiting adequate numbers of people from down south.

Particular areas affected by skill shortages is the middle third of the workforce, in the craft and technician grades.

LOGIC (Leading Oil and Gas Industry Competitiveness)

Chris Freeman, Chief Executive

LOGIC is funded by the DTI, OCA, IDC and various oil majors, its mission is to improve the supply chain. LOGIC's predecessor was CRINE - Cost Reduction in a New Era. LOGIC is more clearly focused on innovation and creativity within the supply chain rather than cost reduction. The oil and gas industry supply chain is 10 years behind the car and aerospace industries.

Some initiatives have been announced such as the Satellite Accelerator, which involves greater co-operation between companies.

E-enablement

The impact of new technologies will impact on many different areas.

a) Data/knowledge management

b) Reservoir engineering - use of 3D modelling

c) E-procurement

The impact will be global. Some 40-50 international global exchanges have been developed, all currently in the US. e.g. Petroscan and, Trademanager. Aberdeen lost out with one extranet exchange. These electronic trading markets will be become vitally important, so it is essential that UK oil and gas industry suppliers are signed up. There is probably a 9-12 month window to make the SME's aware, perhaps up to a maximum of 24 months.

Many SMEs are very negative and much work needs to be done on cataloguing, which may require to be subsidised. There is certainly a huge opportunity which could be missed.

LOGIC together with the DTI is running seminars on e-commerce. Although some 200 SMEs attended, feedback was poor and there were a very large number of misconceptions.

The government role is to raise awareness and make clear the global opportunities.

Skill Shortages

There is a shortage of people in the oil and gas industry. Scotland also suffers due to outward migration. Ireland has benefited over the last few years due to the creativity, energy and enthusiasm gained through inward migration. The lifelong learning agenda is vital, particularly for those in the 25-30 age group, to keep skills up to date.

Infrastructure

US has free access to the Internet.

Afternoon Session

In the afternoon, Committee members moved to Shell and BP Amoco in Dyce.

Shell

Nigel Cotterill, Commercial Procurement Process Manager, Shell

B2B activity is estimated to be worth $6335million by 2004. The new economy is leading many companies to consider their activities. Increasing specialisation and inter-operability are key aspects. There is also a need to offer more value through selling more activities e.g. banking, telecommunications, end-to-end energy company. E-commerce allows a company to become both more efficient and more effective.

An example is AT & T activities in Argentina where it established the internet nationally (as the preferred supplier to the government) and now it has access to any Argentinian business.

A recent Andersen Consulting report on the progress of e-commerce in Europe, shows the large corporations are leading, and markets are becoming increasingly consumer driven. Portals are leading to an open trading market. The benefit for companies is in collaboration across the supply chain.

The speed of change is dramatic (4 times faster than previously) and functionality is changing all the time. Where previously ERP (enterprise software systems) would have taken some 3 years to install, it is now 3 months.

For new web sites to develop it may take $2m to attract people to the site and the same again to keep them.

Trading portals now in use are Level Seas - to charter ships; Ocean Connect - pre-order lubricants; Inter-continental exchange - bulk commodities; Trade-Ranger - vertical portal for oil and gas industry goods and services; and Indigo Pool - information on trading licences.

E-business can open up new global markets, and certainly the oil and gas industry has the right kind of mindset.

Infrastructure

a) Broad band required across Scotland.

b) Security of financial data e.g. online licence trading (tens of £Ms); Scandinavia already has most of the legislation required - why not use this as a starting point for the UK?

c) Distribution systems particularly for exports.

Investment needs to be all over Scotland and not just in the major population centres.

Awareness/Education

SMEs are focused on the threats of the new economy rather than on the opportunities. Shell intend to be using e-business to process 95% of business transactions by 2001 so SMEs need to be ready. Some 30% of SMEs in Aberdeen are solely oil and gas related, another 60% are a mixture.

Role of Government

There requires to be investment in developing the talent pool. Standardisation of XML - there are currently numerous different versions, therefore sensible regulation to impose standards would be useful. International co-operation between the EU and US could provide the critical mass to make standards likely to be adopted everywhere.

BP

Harry MacMillan, Vice-President, Governement & Public Affairs

Members visited The Hive, within the BP complex.

The Hive - Virtual Reality Simulator

This allows information to be displayed in 3D, (including facilities, new ways of team working etc.). For example, it can give people very detailed virtual tours of Sullom Voe, and can result in considerable cost savings in terms of travelling there etc. It has tremendous educational possibilities.

BP are about to network the North Sea. A $40 million investment will allow personnel based offshore to procure directly. There is a commitment within the company to move to e-business in all areas e.g. all HR information and forms to be processed electronically via company intranet.

Barriers to e-business are a lack of imagination and an unwillingness to invest time and effort; technology is not a barrier. Within a company there needs to be a positive culture and behaviour which encourages change.

Acknowledgement

Committee members were grateful to those they met on their visit, and to those who helped make the arrangements.

Elaine Thompson (Reporter)
Marilyn Livingstone
John Swinney
August 2000

Annex

Key Points

Members have listed the following key points arising out of the case study:

1. Providing the right kind of practical assistance to new technology companies such as Science and Technology Parks can help overcome major hurdles with the provision of high quality networked environments, assistance with the protection of intellectual property.

2. Connectivity for the whole of Scotland is crucial, requiring completion of the very high speed broadband networks as soon as possible. Lack of connectivity will affect on companies competitiveness.

3. Financial security of web-based transactions is required.

4. The digital divide is here and now particularly for rural areas and people on low incomes. Increasing access to the WEB will require low/no cost access.

5. Scotland is lagging behind compared with countries like the US, Scandinavia, Japan, Singapore.

6. Take up of e-commerce is too low overall and particularly in the SME sector compared with larger companies. However, in Aberdeen a major driver is the requirement by the large oil operators that procurement should increasingly done via e-commerce. BP is one of the top 3 knowledge management companies in Europe.

7. A serious threat is the loss of markets due to lack of effective trading in a knowledge-based market. Timescales are short at around 3-5 years at most. Others estimate the window of opportunity for SMEs is months, or perhaps 2 years at most.

8. A lack of awareness of the new economy is still present in Scottish management.

9. The new economy is not incremental, it is revolutionary and it is global.

10. A new area of study is knowledge management and the need for research into data management with the increasing volumes of information. Knowledge management is at the heart of the new economy.

11. Given that 80% of the 2010 workforce are already working, providing access to training and learning is important. Employees also need the capacity to learn and be able to deliver creativity. Particular groups where raising skills is key is 21-30 and also the craft/technician group.

12. Skill shortages and knowledge managers are in short supply and seek highly paid high skill opportunities. A new economy base is required, as inward investors look for a secure labour supply. The oil and gas industry has an increasing people shortage.

13. The Higher Education/Further Education sectors are facing increasing global competition and need to be correctly orientated to compete; they also need to develop their marketing skills. The development and use of on-line learning is rising fast.

14. E-enablement affects everything, knowledge management, in reservoir management with 3D modelling/data analysis and e-procurement.

15. Global exchanges are being developed and are now in use for e-procurement (all from the US). These provide electronic trading markets for the oil and gas industry. All goods and service suppliers must be signed up or they will lose out. The opportunities are huge. Global B-B is estimated at $6335million by 2004. Aberdeen lost out with their portal/global extra-net as the US established theirs first.

16. The Government role is in raising awareness, making clear the opportunities, and assisting companies to operate in a global environment.

17. Good distribution systems for goods.

Elaine Thompson (Reporter)
Marilyn Livingstone
John Swinney
August 2000

VISIT TO REMOTE RURAL AREAS

Annabel Goldie and Duncan McNeil MSPs undertook a case study examining the impact of the new economy on remoter areas in Scotland during 28-30 August 2000. The case study examined 10 businesses in the Isle of Bute, the Western Isles, and the area around Inverness, and included discussions with the local enterprise agencies.

A number of clear conclusions emerge from the case study, both in relation to existing circumstances, and the future.

A Current Situation

1. Impact

The new economy has already had a major impact on the remoter areas of Scotland. There are a number of economic activities taking place there which would not have been possible 5-10 years ago. These range from a crofter in Harris providing an abstracting service for the Metropolitan Police forensic laboratory via teleworking, to call centres whose customers are based throughout the UK, and which are now the biggest private sector employers in Bute, the Western Isles and parts of the Highlands.

2. Vision

The area has had significant and early success in attracting and developing these new economy businesses. There has been early recognition by the public agencies, and individuals, of the potential for remoter areas and it has been successfully exploited. This has been supported by an early recognition of the importance of good telecommunications infrastructure, which has been installed with public support. Those involved are to be commended on the vision which made this possible.

3. Success Factors

There are a number of factors which appear consistently important in attracting businesses to the area and/or fostering indigenous growth:

    · Advance Premises - it is not possible to attract inward investment without modern premises, fitted with appropriate telecommunications facilities, and immediately available, as new economy businesses require to take decisions quickly in a fast-moving market.

    · Telecommunications Infrastructure - most of the businesses visited would not have been able to locate in these remote areas without the infrastructure installed with public support over the past 10 years.

    · Grant Assistance - was an important part of the incentive for inward investments, although less so for indigenous businesses.

    · Quality of Life - the perceived high quality of life available in these areas has been a major factor in attracting key personnel and entrepreneurs.

    · Entrepreneurship - many of the new business developments are the result of intensely entrepreneurial activity by a small number of people, who have recognised the potential of the new economy.

    · Personnel - the quality of work produced by staff, and particularly the much lower levels of staff turnover, are major incentives to inward investors. Annual turnover levels in remote call centres are typically 5-15%, whereas in Southern England they can exceed 100%.

    · Air Services - although new economy business is done electronically, it is necessary from time to time to meet clients, other businesses etc. Access to reasonable air services, and their cost, was mentioned as a factor by several businesses.

4. Range of Opportunity

It is clear that the advent of the new economy has created a range of opportunities for remoter areas, rather than a single impact. It has created large establishments, `centrally' based, which provide full-time formal employment, but also has created different opportunities for those teleworking from home.

Concern is often expressed about the employment circumstances of call centre and teleworkers. In general the highland and island area has targeted the middle or higher order call centre/ teleworker functions where additional skills, e.g. web-site construction, are necessary. Whilst these are not necessarily high wage jobs, they appear competitive with other local employment, and have clearly allowed young people in particular to remain in their home area when they would otherwise need to move for work.

B The Future

5. Telecommunications Infrastructure

Past investment has created the circumstances in which current businesses can exist, and none of the businesses visited are presently significantly disadvantaged by the facilities available. However, the technologies are developing rapidly and there is universal concern that a failure to roll these out to the remoter areas of Scotland will disadvantage the area greatly in the future. The issue is a complex technical one, and does not have a single aspect, or solution. It includes both `trunk' networks for heavy users and the quality (and therefore speed) of exchanges in the remotest areas for teleworkers or smaller businesses. It seems unlikely that the immediate demand will justify provision by the commercial telecommunications companies, and any form of enhanced infrastructure is likely to require public involvement in some form.

The fear was expressed that in 2-3 years people in these areas may become second class e-citizens. There is a concern that this will affect not just business, but also many other aspects of life, e.g. education, which will in turn have an effect on the quality of life and attractiveness of the area.

This is an issue which merits further investigation by the Committee.

6. More Remote Areas

The development of call centres is some areas of the Highlands and Islands has now reached the stage where it has almost exhausted the local labour market. There is also now a desire on the part of the public agencies to try and spread the employment benefits to more remote areas, where only smaller call centres (30 seat as opposed to 100+) are viable. This next phase of development could have major benefits for the most remote areas, but has infrastructure implications, will involve public agencies in risk if they are to build advance units, and is subject to some resistance from the industry.

7. External Threats

Whilst the new economy has created a significant number of opportunities for remote areas, and jobs, there are major potential threats also. Whilst transport infrastructure remains a factor, e-commerce is creating competition for local businesses in areas where it has not been strong in the past. There is also some evidence to suggest that businesses in remote areas have not recognised the impact that e-commerce could have on their business, or their need to engage in and develop e-commerce themselves. As an example some major supermarket chains are now offering on-line shopping in the Highlands. The added competition could of course have benefits for consumers in the area.

8. The Public Sector

The case study included an example of a public sector organisation, the National Museums of Scotland, which had successfully moved some of its operation from Edinburgh to Dingwall. New technology would appear to create the opportunity for public sector organisations to move some of their back office functions to remote areas. This might be particularly helpful in overcoming some of the problems associated with `overheating' local economies, such as Edinburgh.

9. Financial Services

In many remoter areas the banking sector does not appear to be up to speed with new economy businesses. In particular there is a failure to recognise that new economy businesses operate on a different business model, and require a different pattern of support from traditional businesses. This criticism applies to some extent to public agencies also, as new economy SMEs value longer-term loans more than the more traditional grants, for instance.

10. Training Requirements

Although outwith the remit of this inquiry, some interesting features emerged from the case studies. There does not appear to be a lack of technical skills, e.g. computing, within remoter areas, which is an encouraging finding. This is particularly the case with school leavers and younger employees. Instead, training requirements in some areas appear to relate more to soft issues such as customer handling, and attitude to business. The less formal trading environment of remoter areas, generally a result of lower levels of competition, may lead to a requirement to focus training on skills related to the modern business environment.

11. Co-ordination of Economic Development

As the Committee found in its recent inquiry on this issue, the co-ordination of bodies involved in developing the local economy is crucial to the success of these efforts. The case study revealed both good and bad practice in this regard. The existence of a local Information and Communication Technology co-ordinator in the Western Isles tasked with developing this sector, and with a strong local network, has clearly been a factor in attracting work to the islands.

12. Remote Areas in Policy Making

The new economy has arguably had more impact in the last five years in remote areas than it has in lowland Scotland. However, remoter areas do not always appear to be adequately taken into account in policy making in. There is for instance no one from the Highlands and Islands on the Digital Scotland Task Force. This is an omission which should be rectified by the Scottish Executive.

Annabel Goldie MSP (Reporter)
Duncan McNeil MSP

1 September 2000


Footnotes

1 Report for the Scottish Textiles Network by DTZ Pieda Consulting, May 2000.

2 Technical textiles are defined as materials and products manufactured primarily for their technical performance and functional properties rather than for their aesthetic and decorative characteristics. Technical textiles act as inputs to a variety of industries, examples including aerospace, construction, furniture, healthcare, and telecommunications. The UK sector is forecast to achieve a 5-6% annum growth rate to 2005. For further details see www.technitex.hw.ac.uk

3 source TechniTex Faraday Partnership briefing not
 

   

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