Pathfinders to the Parliament

ELECTRONICS SECTOR PATHFINDER

Executive Summary

In response to The Scottish Office request for guidance on key issues and priorities facing a key industry, the electronics industry has come up with priorities covering a number of areas:

Higher value added activities - including funding and tax incentives for R&D within all companies; Assistance to address skill shortages - specifically IT and software skills and apprenticeship training; Government intervention to help develop infrastructure and skills which can develop and position Scotland as a World leader in e-commerce; Support for the development of the logistics infrastructure - including the development of more direct flights from Scotland to USA and European Centres and upgrading of key road links; More focused support for indigenous companies and assistance to start ups including tax incentives and incubator units; A shift in emphasis in inward investment to provide differential support for high skill jobs and value add activities; The creation of a liaison board to continue dialogue between The Scottish Office and industry.

Introduction

In response to The Scottish Office Pathfinder Initiative the Scottish Electronics Forum prepared a co-ordinated reply for the Scottish electronics industry. This response also covers the views of the Scottish Supply Base Forum, the optoelectronics industry, creative media and software industries in Scotland.

Background

Much of the content of this paper is based on a facilitated workshop held in September 1998 which involved senior industry representatives from the SEF, Supply Base, optoelectronics, software, and The Scottish Office. This has been enhanced through a follow-up event with the SEF Council and ongoing discussions with the industry. A draft of this paper was then taken to key industry figures for their approval before submission to the Minister.

Key Issues Facing the Industry

A number of key issues which impact on Scottish operations have been highlighted by the industry:

There is generally a lack of value added activity in Scotland (although it is recognised that it does exist in small pockets). This makes Scotland vulnerable to low cost regions. Manufacturing / assembly would be easier to retain if they were linked to activities such as R&D, D&D, service and customer support. Scotland has some of the world's leading 'electronics' academic and research establishments, however linkages between industry and academia are still very poor. For a large part of the industry decision making is taken at corporate HQ and Scotland often has very little influence over key issues. The growing strength of Eastern Europe is posing a huge threat to the Scottish manufacturing base. Not only can Eastern Europe offer a skills base on a par with Scotland - with cheaper costs - there are also tax breaks and grant assistance on offer to companies locating there. Given the ongoing turmoil in the industry, the increasing pace of change and the lowering/removal of trade barriers there is likely to be OEM retrenchment to home shores (especially Japanese and US companies). There is a rapid convergence of technology which is impacting on all areas of the industry. Much of the future growth in the electronics industry is going to derive from the innovation of totally new systems, services and products. On-line trading of goods and services is becoming increasingly common, despite unresolved issues around security and the use of different protocols. However, this is an area which Scottish electronics companies have not taken advantage of. There are skills shortages in Scotland in IT, software and engineering - these need to be addressed through industry / education partnerships.

Priorities for Action

Higher Value Added Activities

Support needs to be offered in the following areas:

More funding / attractive tax incentives for R& D and D&D activities for all companies - start ups, indigenous companies and inwards investors. An innovation process needs to be identified and developed for spinning out technology from both universities and companies which will require joint work with the Scottish Enterprise Network, universities and 'high tech entrepreneurs'. Closer links need to be established between academic research institutions and industry. Perhaps higher levels of awards could be offered to academic research which has clear industry links / partnerships established.

Skills Issues

The skills shortages within Scotland have been recognised for a number of years and yet are still prevalent. Whilst many companies have individual linkages and relationships with the education sector this does not generally happen at the industry level. A number of issues need to be addressed:

Industry and academia need to work more closely together on developing courses and recruiting graduates. There needs to be more collaboration between universities and academic institutions that are involved with the electronics industry. Perhaps this could be achieved through a rationalisation of teaching - with each institution focusing on a particular speciality - cutting out duplication and making industry / academic liaison easier to facilitate. The area of apprenticeships has been a key issue to the industry for a number of years and there needs to be greater incentives to industry to encourage this type of training - otherwise shop floor skills shortages in this area will reach critical levels in the very near future. Greater support and incentives need to be offered to encourage 'mature students' to develop IT skills, in order to help address growing skills shortages. This may include more flexible learning and greater use of IT for programme delivery. Government should offer subsidies / reduced fees to students undertaking courses such as IT, software development and other areas where skills shortages exist.

E-commerce

There is a need for wide spread investment at all levels of the Scottish economy -Government, industry, education and individuals in the development of the infrastructure and skills which can develop and position Scotland as a world leader in e-commerce. Initiatives which could be considered include:

Incentives and support to cable and services providers to develop their networks and increase areas of coverage. The development and implementation of a project in the use of common protocols in Scotland. Support for the development of innovative Scottish technology in this area. (Tax incentives for domestic computer purchase to encourage the uptake of technology within the home and to upgrade technology awareness and skills in the general population. Incentives and support to schools and universities for increased distributions and utilisation of new technology.

Logistics

Whilst logistics are recognised as a Scottish strength it is recognised that there is considerable scope for improving air, road and rail links for both freight and people. There is a need to utilise technology more in this area and for the development of a Centre of Excellence in logistics involving SO, SE, LECs and industry. Specific projects that would greatly enhance Scotland's capability include:

Direct air flights from Scotland to Europe and the US - avoiding costly delays via London which currently can add over a day to outward and inward journeys. Development of high speed rail links between the major population centres (especially Glasgow and Edinburgh) and high speed links between the major airports. There needs to be a harmonisation of tariffs and taxes between the UK and Europe (where freight costs are considerably cheaper).

Work needs to be done to develop or attract global logistics suppliers in Scotland.

Indigenous Companies

Focused support needs to be offered to start and grow existing indigenous companies and to encourage and support entrepreneurs. In addition there is a need to develop more incubator units to support the early stage development of new Scottish high tech companies - perhaps coupled with other tax benefits and easier access to finance.

Inward Investment

Inward investment must focus on higher value add activities and not on number of jobs created. There needs to be differential support for high skill jobs which will require a change to inward investment targets and support.

Industry needs to work jointly with SE and SO to identify suitable projects to take forward and to facilitate access to key decision makers. In addition there is a requirement for high level (Ministerial) participation and lobbying for approaching corporate HQs for specific projects.

Liaison Group

To ensure future open dialogue between government and industry a Liaison Board should be set up involving the Scottish Industry Minister, senior staff from Scottish Enterprise and Scottish Office and key industry players covering the SEF, SSBF, optoelectronics, software, semiconductors and creative media.