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					   Confederation of West Midlands Chambers of
            Commerce and Industry


 The impact of the new ‘EU’ Member States on UK
                     business

  Submission to the House of Commons Trade and
           Industry Select Committee
                    June 2007




Kasia Kurowska
Policy Adviser
Birmingham Chamber of Commerce and Industry
June 2007




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INTRODUCTION
The Confederation of West Midlands Chambers of Commerce (which will
be referred to as ‘the Confederation’ throughout the course of this
document) is pleased to respond to the House of Commons, Trade and
Industry Select Committee inquiry in to the impact of the new European
Union (EU) member States on UK business. The Confederation consists of
all of the Chambers of Commerce within the West Midlands Region, which
include:

      Birmingham Chamber of Commerce and Industry (which
       incorporates Solihull Chamber of Commerce and Industry)
      Black Country Chamber of Commerce and Industry
      Coventry and Warwickshire Chamber of Commerce and Industry
      Herefordshire and Worcestershire Chamber of Commerce and
       Industry
      North Staffordshire Chamber of Commerce and Industry
      Shropshire Chamber of Commerce and Industry
      South Staffordshire Chamber of Commerce and Industry

The Chambers of Commerce that comprise the Confederation represent
over 13,000 businesses in the region as a whole, offering extensive
services to industry and commerce, promoting trade and advocating the
interests of business locally, nationally and internationally.

The Confederation conducted a survey to elicit the views of its business
members to gather views on the committee’s inquiry. The results of the
survey are detailed in this submission.

In consulting with our members there was a view that the UK has been
slow to identify opportunities that the new EU accession countries have
offered. Therefore, the Confederation welcomes the Government’s current
inquiry.

The Confederation recognise that UK business must do more to become
innovative and diversify their business activities to compete on a Europe
and international scale and that business must examine opportunities that
the EU enlargement has offered. However, there are clear areas in which
further Government assistance could ensure a larger number of UK
businesses exploit the opportunities that the new EU countries offer.

The main themes/issues that were identified in consultation with
our members are:

   -   Challenging perceptions of the EU
   -   Government assistance and support
   -   Utilising and developing skills




                                   2
THE CONFEDERATIONS RESEARCH
The business respondents to             the Confederation’s survey were
predominantly working with the           Czech Republic, Poland, Slovakia,
Hungary, and Romania. Business         respondents had limited business in
Estonia, Cyprus, Latvia and Malta.      The majority of UK business activity
with these countries is in exporting   goods and services. Recruiting staff is
also a key activity.

UK BUSINESS INTERACTION IN THE EU
54% of business respondents do not think the UK is exploiting
opportunities afforded by the accession of the new EU countries. UK
business has been slow to pick up on opportunities to trade with the new
EU countries and to some extent this has meant less market share for the
UK and greater competition from our EU counterparts such as France and
Germany.

'UK businesses tend to be more reactive than proactive in foreign
markets. We are one step behind our competitors in the new EU markets
and this misbalance must be addressed.' Peter M Mathews CMG,
Managing Director of Black Country Metals Ltd & Chairman of Black
Country Chamber of Commerce.

Insufficient resources, time and knowledge to access trade opportunities
were the main reasons that respondents gave for why UK businesses,
particularly Small to Medium sized Enterprises (SMEs), may not be looking
to access new EU markets.

‘It is still easier for us to operate in Western Europe largely because at
present they have the money to buy products. Significant time and
investment will be needed to establish trade with the developing markets.'
Adrian Allen, Managing Director, Anderen Ltd.

Business respondents perceived that countries such as Germany were
more aggressive at pursuing and investing in the new EU markets.
Business also alleged that countries such as Germany are receiving clear,
strong Government support to pursue new EU trade links.

'In our industry, our other European competitors have more resources and
are more proactive in the new EU markets. There is also a notable
presence of foreign Government support for our European counterparts,
that is lacking in the UK.' Adrian Allen, Managing Director, Anderen Ltd.

UK Trade & Investment (UKTI) is the Government organisation that helps
UK-based businesses to access EU and other international markets and
offer a range of expert knowledge, advice and practical support on trading
abroad. However, recent changes in emphasis at UKTI have moved
towards supporting larger businesses and away from SMEs. SMEs that
may or may not be seeking new markets could well benefit from receiving
more Government support and encouragement. It is unclear what level of


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awareness there is within UK business of what the Government can
currently offer and what opportunities exist for them to access the new EU
markets.

However, businesses already trading in the new EU countries identified
that there are unexplored markets that could be better exploited by UK
businesses with the right products and services if they have a better
understanding of what is required of them to form EU trading relations.

Business respondents also recognised that there is an opportunity to sell
UK technology and knowledge to the new EU countries as they develop
and have surplus capital to spend. For instance, the development of
industries and factories in the new EU countries offer opportunities for UK
businesses to sell them good quality products, services and expert
knowledge.

There is a clear need to tackle some of the misconceptions of EU trading
amongst UK business and better promote the opportunities and
Government support that exists to assist UK business in trading with the
new EU countries. The Government should also examine what extra
support may be needed to support SMEs to trade with the new EU
countries.

BUSINESS DISADVANTAGES TO EU TRADING
54% of business respondents do not believe it is easier to operate in
Eastern Europe than the UK and believe there are key barriers stopping
UK businesses from exploiting opportunities in the new EU countries.

'There are numerous reasons why UK businesses are not exploiting the
opportunities in the new EU countries at present. Some reasons are basic
while others are more complex. A lack of time, resources and Government
support are key barriers to UK businesses trading aboard. Many smaller
companies are not willing to take high-level risks that can be involved with
trading abroad and tend to concentrate on developing relations with
trusted local trading partners. In addition, there are more complex issues
over knowledge of the countries in terms of economies, demographics and
cultures that may be putting some businesses off.' Parveen Mehta,
Operations Director, Minor Weir & Willis Ltd.

Key barriers to doing business in Eastern Europe identified by business
respondents were:

 Cultural barriers
46% of business respondents noted that perceptions of the new EU
countries and their different business manners are a key deterrent for UK
business. An ‘Us vs. Europe’ mentality is a particularly predominant view
of those businesses not currently looking to trade with the new EU
countries.




                                     4
 Language barriers
The majority of business respondents noted that not being able to
communicate in the native language of the business they were trading
with was a key barrier to trading abroad. Although English is one of the
world’s major commercial languages, speaking the native language of the
company can be the key factor in securing a business deal.

'Language skills are of vital importance for UK businesses trading abroad.
If there is a German business and a UK business competing to sell widgets
to a Polish company based in Warsaw but the German company can speak
Polish and the UK business cannot, the German company will undoubtedly
win the contract. UK business could double their trading success abroad if
we improve our language skills set.' Peter M Mathews CMG, Managing
Director of Black Country Metals Ltd & Chairman of Black Country
Chamber of Commerce.

The Confederation believes more must be done to ensure the UK has the
foreign language capabilities that are vital to international trading and UK
business success abroad. In a recent Birmingham Chamber of Commerce
survey 80% of business respondents noted language skills assisted their
business in selling and buying abroad.1 In addition, there is a potential to
harness and utilise the language resources in existing UK migrant workers
and minority ethnic groups to develop innovative business partnerships
and lucrative EU business deals with the newest EU accession countries.

 Bureaucracy and business processes
The majority of respondents noted bureaucratic processes such as form
filling and the related administration time and costs incurred as key
barriers to trading in the EU. Businesses also indicated practical difficulties
in business negotiations with EU countries, including trust and product
quality issues, a lack of restricted credit insurance, poor records of
payments, rules of law and corruption. These higher business risks and
obscure business negotiations either real or perceived are preventing UK
business from trading with the new EU countries.

 Geographical distance
Businesses indicated that the UK’s geographical distance from the rest of
Europe was a key trading barrier. Poor logistics and infrastructure both in
the UK and the EU was cited as a disadvantage to trading abroad.
However, many businesses have taken the opportunity to move their
production, or other services, to the new EU countries due to the
geographical proximity to the new emerging markets.




1
  ‘Language Skills- A Business Perspective’, Birmingham Chamber of Commerce and Industry
Submission to the Lord Dearing Review in to Languages, January 2007, page 2.



                                           5
BUSINESS ADVANTAGES TO EU TRADING
85% of business respondents think there is potential for more UK
businesses to access EU trade opportunities. The main advantages
identified were:
   - The free movement of goods.
   - Low costs in regards to labour, production and materials.
   - Less regulation in EU countries compared to the cost and burdens
        of red tape facing business in the UK.
   - A willing market as the new EU countries have a growing middle
        class with a disposable income to buy UK products and services.


SKILLS
Migrant workers are becoming a strong characteristic to the region’s
workforce. There were 11,550 national insurance registrations from
overseas in Birmingham alone in 2005/06.2

‘Employers in the region have been quick to diversify their workforce and
address skills shortages by taking on skilled employees from outside the
UK.’ Teresa Dolan, Partner, Hammonds.

The majority of business respondents noted the high level of
practical/vocational skills and employability skills (attitude, willingness and
work ethic) that migrant workers possess. Businesses highlighted that
migrant workers from the new EU States were hard working and
committed to getting jobs done to a high quality.

‘EU graduates have greater practical experience than those coming from
UK Universities. Eastern European students also demonstrate a high level
of work ethic.’ Adrian Allen, Managing Director, Anderen Ltd.

It could be argued that individuals who migrate to work in the UK have
particularly strong social and economic motivations and are more likely to
possess the types of skills business are looking for. However, there is an
opportunity to examine how differing EU education systems are
producing, supposedly, highly skilled and more enthusiastic workers.

‘We must do more to utilise the skills of those migrant workers with
higher-level qualifications. We should be ensuring that these types of
migrant workers stay in the UK for longer for the benefit of the country
and the economy.’ Lorna Sheldon, Managing Director, The Complete
Works Ltd.

Business respondents highlighted that UK business needs to utilise the
higher-level skills of migrant workers more effectively. The Organisation
for Economic Co-operation and Development (OECD) states that the UK
ranks 13th out of 22 countries in the numbers leaving education with poor
qualifications.3 Utilising the higher skill levels of migrant workers can play


2
    LSC Data: http://www.lsc.gov.uk/regions/WestMidlands/
3
    Education and Skills Statistics, OECD, www.oecd.org.



                                                 6
a key role in solving the UK’s skills deficit and support the further growth
of the country’s economy. The importance of migrant workers to the
economy is noted in the Leitch Review published in October 2006,

‘Migration generally has a positive effect, helping to mitigate skills
shortages and fill jobs that cannot be filled domestically.’ Lord Leitch, The
Leitch Review, 2006.4

Several businesses also indicated that a key advantage of the recent EU
enlargement has been the availability of cheap labour. However, as
migrant workers are legally entitled to the National Minimum Wage the
Government must do more to ensure businesses are aware of the
potential legal pitfalls. The Confederation supports the Department for
Trade and Industry’s current ‘Vulnerable Workers’ Pilot in Birmingham,
which is aiming to provide advice and support to some employers and
vulnerable workers in the hospitality sector. Depending on the success of
this pilot the Confederation would urge the Government to develop this
type of employer support to all sectors of business.

Although the majority of UK businesses are benefiting from recruiting
migrant workers from the new EU countries, parts of the region’s farming
industry are currently experiencing recruitment problems. Despite offering
wages higher than the National Minimum Wage the sector is struggling to
access sufficient workers and some farmers are leaving crops to rot
because they cannot fill vacancies. This indicates that more must be done
to promote working in the UK to migrant workers to fill vital skills gap and
secure future economic development in the UK’s agricultural sector.

OPPORTUNITIES TO EXPLOIT SYNERGIES WITH THE ECONOMIES OF EU
COUNTRIES
The main opportunity cited by business was the opportunity to develop
joint technology innovation projects. Although there was some hesitation
by respondents that EU countries would use it for their own gain and
questioned whether inherent competition between countries would mean
joint ventures were not achievable.

Joint business ventures and education institution partnerships were also
mentioned. However, most businesses did not identify any new ways in
which the UK could exploit the developing relations.

CONCLUSIONS AND RECOMMENDATIONS
The Confederation’s research indicates that the UK has been slow to
recognise the opportunities presented by the recent EU enlargement.
General misconceptions and low awareness levels of trading opportunities
with the new EU countries is stunting the potential for further growth in
both export and import markets. Key to improving all foreign market
activity in the UK is the need for more SME tailored Government support.
The development and better promotion of SME tailored Government
support is vital to exploit opportunities in the future.

4
    ‘Prosperity for all in the global economy- world class skills’ Lord Leitch, December 2006, page 7.



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Business is generally positive that more can be done by UK business to
exploit the opportunities the EU enlargement still offers and that there are
potential opportunities to create joint business and education ventures. In
addition, UK business believes the Government could do more to promote
the UK to migrant workers and utilise the high level skills set offered by
our existing migrant workforce.

Our main recommendations to Government are to:

   Tackle the misperceptions of UK businesses towards EU countries
    and low levels of awareness of the trading opportunities in the EU.

   Ensure assistance and support for UK business in Europe. The
    Government should offer more SME tailored support to assist them in
    accessing the new EU markets. The Government must also offer more
    legal support to UK businesses employing migrant workers and actively
    promote UK job opportunities to potential migrant workers.

   Improve the utilisation of migrant workers higher-level skills
    and language skills to benefit UK business and the economy. The
    Government must also assist in improving the UK’s language skill
    levels to assist the UK’s economic competitiveness in the future.




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