Scots firms must stop being own worst enemies

DOES Scotland have a two-tier economy, which is seeing larger firms and exporters power ahead thanks to the nascent global economic recovery but is leaving smaller players wallowing amid often self- imposed barriers to growth?

This was the subtext of the Scottish Chambers of Commerce' business survey for the first quarter of 2004, published last week.

The report, by Cliff Lockyer of Strathclyde University's Fraser of Allander Institute, showed an upturn in tourism, manufacturing and construction. These sectors are all benefiting from a return of consumer and business confidence, coupled with historically low interest rates, low inflation and low unemployment.

Manufacturing, in particular, has received a shot in the arm from the global recovery in demand for information technology and for communications kit.

Demand slumped in 2000 as inventories were found to be excessive in the fallout from the dot.com collapse.

The SCC survey found that many Scottish manufacturers are expecting rising turnover and profits over the next 12 months. But manufacturers's investment in R&D remained "limited", confined mainly to the largest manufacturers. This is a worry, that will need to be addressed, as without such investment, companies nowadays have only limited sustainability.

John Bradley, one of the Allander Series lecturers and research professor at the Dublin-based Economic and Social Research Institute, talked about how Scottish myopia and our lack of an international outlook, compared unfavourably to Ireland.

The chambers' survey appears to underline this - with too many Scots firms being seemingly parochial and over-dependent on their domestic and UK markets. Given the smallness of the domestic economy, it is only businesses targeting international markets that will prosper long-term - especially as 10 new countries join the EU trading bloc this weekend.

Bob Leitch, director of the SCC, said the biggest block to smaller businesses getting into the export market was fear. He added that the chambers have pledged to assist firms to overcome this irrational fear of the unknown with practical help and advice - which is something we would commend.

Construction firms, too, said they are expecting sharply rising sales over the course of this year.

Last week, the Ernst & Young Item Club said the world recovery was translating into much higher business and manufacturing optimism and investment. Item's economic adviser Peter Spencer added that the rally in global demand for information and communications technology would be "very good news for Scotland".

He said that he "wouldn't rule out" mothballed plants such as Motorola's silicon chip facility near Dunfermline (due to be part of the imminent demerger of Freescale Semiconductor from Motorola) being recommissioned.

Respondents in more insular trades, such as retail and wholesale, were less confident quarter-on-quarter.

Wholesale distribution in particular seemed gloomy, with a dip in confidence recorded by the SCC survey report. Only 32% of firms in the sector were actually recruiting staff, compared to 45-48% in construction and manufacturing.

We share Leitch's view that as the Scottish economy turns the corner,it is vital that enterprise minister Jim Wallace and the Scottish Executive remain committed to their key priorities - including fostering economic growth and resisting the desire to impose further burdens on Scottish business.

Copyright 2004 SMG Sunday Newspapers Ltd.
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