Scotland's Trade and Investment Strategy 2016-21

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First published by the Scottish Government, March 2016
ISBN: 978-1-78652-107-1 (web only)

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Published by the Scottish Government, March 2016

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Contents

Ministerial Foreword

Overview

Chapter 1: Introduction

Chapter 2: The Role Of Trade And Investment In Delivering Scotland’s Economic Strategy And Sustainable Development Goals

Chapter 3: Global Opportunities And Challenges And Our Strategic Response To Global Change

Chapter 4: Supporting Global Scotland

Chapter 5: Boosting Scotland’s Export Performance

Chapter 6: Trade, Sustainable Development And Responsible Business

Chapter 7: Attracting Investment To Scotland

Annex A: One Scotland Delivery Plan

Annex B: Improving Trade Data

Ministerial Foreword

Scotland is a trading nation. For hundreds of years, merchants and businesses from across Scotland have created jobs and wealth by selling goods and services across the globe. In the medieval period, long before Germany was a single state, Scottish traders had a keen interest in doing business with the northern ports of Germany. In the nineteenth century Glasgow was arguably the manufacturing capital of the world. Now, Scottish engineering and energy companies like the Wood Group and Weir Group carry on that tradition of Scottish companies being global players.

Over the decades, Scotland has overcome the challenges of changing markets and changing investment patterns. Today, as a small open economy in a rapidly changing and globalised world, our ability to create a more productive and fairer Scotland depends more than ever on trading with the rest of the world and on attracting investment into our economy, our businesses and our assets.

We want more businesses across Scotland to sell more goods and services to more markets. We want existing investors to develop, grow and expand in Scotland . And we want new investors to see Scotland as a place where they can thrive and contribute to a stronger and more inclusive economy.

Scotland's values, strengths and assets, especially our skills, knowledge and innovation base, will help us respond to and benefit from the opportunities and challenges of the global economy and enhance Scotland's role as a Good Global Citizen. The Strategy sets the course for doing that – not just through information, advice and support for businesses and investors, but also through a much broader agenda for internationalisation and a One Scotland approach to working together, in Scotland and overseas, to achieve our ambition.

That approach and that wider agenda for internationalisation and supporting Global Scotland are at the heart of our plans for Innovation and Investment Hubs in Dublin, Brussels and London.

More broadly, the Strategy outlines key actions and commitments to boost Scotland's export performance and to attract inward, capital and risk investment to Scotland. The essence of this is captured in our eight point action plan for trade and investment. This includes a Digital First approach to information, advice and support for businesses; a long term plan to build Scotland as a global innovation centre to attract new forms of investment; working with existing investors to help them develop, grow and expand; and a strategic approach across Government and partners to attract capital investment to large scale projects.

Global Scotland is about taking the strengths of Scotland's economy and the strength of our business base to the rest of the world – and bringing the rest of the world to Scotland. Working together we can achieve that.

John Swinney MSP
Deputy First Minister and Cabinet Secretary for Finance, Constitution & Economy

Overview

- The introduction to the Strategy, Chapter 1, highlights the connection between trade, investment and internationalisation; defines our ambition and the importance of the One Scotland approach, which our Innovation and Investment Hubs are a key part of, to delivering it and provides our Eight Point Action Plan for Trade and Investment. It also summarises the evidence and engagement activities which have informed the Strategy.

- Chapter 2 explains the critical role of trade and investment in delivering Scotland's Economic Strategy and the United Nations' Sustainable Development Goals.

- Chapter 3 highlights key Global Opportunities and Challenges and the Strategic Sectoral and Market Response which provides the focus for action by the Scottish Government and its agencies to achieve our ambition.

- Chapter 4 outlines our broad approach to Supporting Global Scotland through enhancing Scotland's profile and reputation; effective use of engagement and influence; maximising the impact of networks and relationships; making the most of our collective global footprint; and ensuring that policies and activities across Government support our ambition.

- Chapter 5 sets out our approach to Boosting Scotland's Export Performance by inspiring, enabling and supporting more businesses to sell more goods and services to a wider range of international markets. Through a Digital First approach, we can help more businesses access the information, advice and support they need to help them export and ensure that access to this is simple and straightforward.

- Chapter 6 outlines action around Trade, Sustainable Development and Responsible Business focused on helping business play its part in promoting and respecting human rights; on working with priority countries to support development through trade; and on internationalising Scotland's world leading approach to social enterprise.

- Chapter 7 outlines our approach to Attracting Foreign Direct Investment and Capital and Risk Investment to Scotland including action to attract new investors; to build Scotland as a global innovation and investment hub; and to support existing investors to develop, grow and expand. It also outlines plans to bring forward strong, investment ready capital propositions which meet investor expectations and to engage more effectively to attract investment; and to enable businesses with high growth potential to access a wider range of risk capital investment.

- Annex A provides a Delivery Plan of specific actions to be taken forward through a One Scotland approach over the next 12-24 months to directly inspire, enable and support Scotland's businesses to trade internationally and individuals, businesses and institutions to invest in Scotland.

- Following feedback from stakeholders, Annex B sets out action to Improve Data on Scotland's trade performance.

Chapter 1: Introduction

Scotland's Economic Strategy is focused on the twin goals of improving competitiveness and reducing inequality and on four priority areas for action which underpin those goals – investment; innovation; inclusive growth and internationalisation. Trade and investment has a critical role in delivering those goals and supports – and is supported by – the priority areas for action.

Scotland's International Trade and Investment Strategy 2011-2015[1] set a clear path for increasing trade, attracting inward investment and promoting Scotland as an attractive place to do business and invest, learn, live and work. Despite global economic challenges and uncertainty, Scotland has made significant progress towards those objectives. Over the last 5 years Scotland's international exports have increased by 17.3% – from £23.4 billion in 2010 to £27.5 billion in 2014.[2] Meanwhile, Scotland has continued to be the most attractive place in the UK outside London for inward investment and events such as the Commonwealth Games and Ryder Cup have put Scotland firmly on the global map.

Trade, Investment and Internationalisation

As set out in Scotland's International Framework[3] our approach to trade and investment is underpinned by a much broader agenda for internationalisation which seeks to:

- Create an environment within Scotland that supports a better understanding of international opportunities and a greater appetite and ability to seize them; and

- Influence the world around us on the issues that matter most in helping Scotland flourish.

So, as well as practical policies and actions aimed directly at inspiring, enabling and supporting Scotland's businesses to trade internationally and individuals, businesses and institutions to invest in Scotland, action is also required to promote and support a more global mindset and outlook and to raise the international curiosity, confidence and ambition of individuals and businesses. Equally, influencing the world around us requires a strong and positive global reputation and profile as well as effective international relationships, engagement and networks.

Organisations across the public and private sectors and Scotland's universities with their strong international connections and students and staff across the world, all have a contribution to make. For its part, the Scottish Government has a vital role in embedding internationalisation across a wide range of policies such as education, culture and connectivity; and in representing Scotland's interests and priorities on the global stage. Meanwhile, Scottish Development International, supported by Scottish Enterprise and Highlands and Islands Enterprise, has a key role in helping businesses raise their international ambition and recognise and realise global opportunities.

Our Ambition

Our dual ambition for trade and investment is to support sustainable business growth, and associated jobs and incomes across Scotland, through:

- more businesses selling more goods and services to a wider range of international markets; and

- attracting significant inward, capital and risk investment.

This recognises the continued importance of international trade to long term economic growth and the key challenges that need to be overcome to boost Scotland's export performance. Moreover, whilst retaining a strong focus on attracting inward investment, it also identifies the importance of attracting capital investment to support large scale projects; and risk investment to helping Scottish companies achieve their growth potential.

One Scotland

Scottish Development International (SDI) brings together the Scottish Government, Scottish Enterprise and Highlands and Islands Enterprise to reflect the international ambitions of every part of Scotland. It is the lead body for driving forward our ambition and international trade and investment support in Scotland. However, many other organisations, public, academic and private, also make an important contribution. In addition, there is growing evidence of organisations, businesses and individuals working together to realise international opportunities and of a willingness and appetite to share knowledge, experience and networks. We want all those contributions and that supportive ethos to thrive.

Organisations such as Connected Scotland have led the way in bringing universities and other bodies together to deliver shared international goals. Scotland Food and Drink has performed a similar role for the food and drink sector and the Scotch Whisky Association has decades of experience of doing likewise for the whisky industry. Meanwhile, at the local level, groups such as the North East Scotland Trade Group and Scottish Borders Exporters Association support effective collaboration across the public and private sectors.

We want to create a system and a culture where that kind of One Scotland, collaborative approach is the default setting across the public, private and academic sectors and among individuals and businesses, for how we use our combined resources, expertise and networks to collectively achieve our ambition. This includes ensuring that policies and activities across the Scottish Government in areas like education, transport and culture support our ambition and wider internationalisation agenda.

Innovation and Investment Hubs

Our Innovation and Investment Hubs in London, Dublin and Brussels will encapsulate this One Scotland approach and play a key role in delivering our trade and investment ambition. They will provide a platform for businesses and academia to access trade and investment opportunities and for attracting inward investment and significant capital investment to Scotland and will be at the forefront of our broader approach to internationalisation and Supporting Global Scotland. In particular, the Hubs will play a key role in enhancing Scotland's profile and reputation and a focal point of exercising influence and developing networks and relationships. They will also demonstrate how we can make the most of our combined One Scotland footprint in particular locations.

Supported by £3.5m of Scottish Government funding in 2016-17:

- The London Hub will bring together the Scottish Government, its enterprise agencies and VisitScotland under one roof to provide a single door approach to Scotland. It will also provide physical space for businesses and academia to work from and host meetings and support them in accessing international markets and investors and showcase their products and services. Furthermore, the Hub will support inter-governmental engagement with the UK Government and the broader international governmental and institutional community in London around trade and investment, economic and other issues.

- The Dublin Hub will support Scottish businesses to access the Irish market – Scotland's 6th largest export market with exports of over £1.1 billion in 2014. It will also provide a mechanism for engaging with the Irish Government and associated networks and for developing joint trade work and collaborative research in areas of common interest such as food and drink, golf and sailing tourism and renewable energy.

- The Brussels Hub will support work to engage with and influence EU institutions across a range of issues including the effectiveness and further development of the Single Market and wider trade policy. It will also bring together partners to support businesses and academia and use Scotland's track record in leveraging investment to access various EU funding mechanisms such as the European Fund for Strategic Investments which supports strategic public and private investments in key areas such as infrastructure, education, research and innovation, as well as risk finance for small businesses.

Delivery

Our eight point action plan for trade and investment is:

1. A One Scotland approach, in Scotland and internationally, to deliver success – working collectively and collaboratively to achieve our ambition.

2. Building Scotland's profile and reputation as a connected, innovative and inclusive nation including the development of a clear identity and messaging for use across all the international activities of the Scottish Government and its agencies and by organisations receiving Government funding.

3. A Digital First approach to information, advice and support – helping more Scottish companies sell more products and services in more markets.

4. Action to help business play its part in promoting and respecting human rights; to support development through trade; and to internationalise Scotland's world leading approach to social enterprise.

5. £3.5m in 2016-17 to support Innovation and Investment Hubs in London, Dublin and Brussels – helping Scottish companies and academia access markets and investors and providing a platform for attracting inward and capital investment.

6. A long term plan to build Scotland as a global innovation centre to attract new forms of investment – using our assets and capabilities to collaborate to provide solutions to global challenges.

7. Close engagement with existing investors to help them develop, grow and expand – encouraging them to make the Scottish Business Pledge, pay the Living Wage and, where appropriate, become an accredited Living Wage Employer.

8. A strategic approach across Government and partners to attract international capital investment to large scale projects and companies.

A more detailed Delivery Plan is set out in Annex A.

Evidence and Engagement

The Strategy is informed by our Economic Evidence Discussion Paper[4]; by the most recent (Jan. 2016) Scottish Export Statistics[5]; by consultation and engagement with a wide range of public and private sector organisations and representative bodies; by discussions with a number of GlobalScots with particular sector and market expertise; and by a Partnership Group of public and private sector interests established to oversee the development of the Strategy. It also takes into account the findings and recommendations of the Scottish Parliament's Economy, Energy and Tourism Committee's Inquiry into Internationalising Scottish Business[6] and the Cole Commission[7]; and incorporates the Joint Action Plan[8] arising from the Wilson Review of Support for Scottish Exporting.

Chapter 2: The Role Of Trade And Investment In Delivering Scotland's Economic Strategy And Sustainable Development Goals

Since 2007, the Scottish Government's central purpose has been to create a more successful country, with opportunities for all of Scotland to flourish, through increasing sustainable economic growth.

Scotland's Economic Strategy[9] (March 2015) strengthened our approach to delivering this by focusing on the twin goals of increasing competitiveness and tackling inequality. This is rooted in growing international evidence that promoting competitiveness and addressing inequality are reinforcing, not competing, objectives and that creating a fairer society is vital to creating the conditions to deliver sustainable economic growth over the long term.

As illustrated below, our focus on increasing competitiveness and tackling inequality is underpinned by a commitment to four priority areas for action:

- Investing in people, infrastructure and assets;

- Fostering a culture of innovation;

- Promoting inclusive growth and creating opportunity through a fair and inclusive jobs market and regional cohesion; and

- Creating a country with an international outlook and focus, open to trade, migration and new ideas.

Figure 2.1: Scotland's Economic Framework

As detailed in the Economic Evidence Discussion Paper published to inform this Strategy[10], these priority areas support – and are supported by – international trade and investment.

- Investing in people, infrastructure and assets provides businesses with the skills and infrastructure they need to compete internationally and helps attract businesses and investors to Scotland. For example, our investment in digital connectivity and support to businesses to help them get online opens up new markets and horizons. In turn, as Scottish businesses internationalise and as overseas businesses invest in Scotland this brings new skills and knowledge to the Scottish economy. Furthermore, international investment can support the development of Scotland's infrastructure and assets.

- Innovation increases international competitiveness. It helps businesses develop products and services for international markets; and our strengths in innovation, research and development are increasingly important to attracting investment to Scotland. Thus, our innovation support for business and our investment in university research and Innovation Centres supports trade and investment. In turn, inward investment transfers skills, technology and innovation to Scotland and there is evidence from the OECD, the UK and Scottish studies that as firms internationalise they become more productive and competitive. Exporting is also linked to higher levels of innovation for small and medium enterprises.

- Inclusive growth is supported by the positive impacts of international trade and investment on national income, productivity and employment and the opportunities it presents for all areas of Scotland. Furthermore, strengthening Scotland's net (exports less imports) trade position will help move the economy to a more balanced and resilient growth path which is better placed to withstand economic shocks. At the same time, an inclusive economy in which everyone can achieve their economic potential can help businesses achieve their international ambitions and form an important part of Scotland's distinct investment offer. The values-based partnership between business and Government, which is at the heart of the Scottish Business Pledge[11], captures these connections.

- International trade and investment is absolutely central to our wider internationalisation agenda. It drives improvements in competitiveness and productivity, opens Scotland to new and different ideas and cultures and creates economic and other opportunities for individuals, businesses, universities and Scotland as a whole.

Given the above, this Strategy and the actions to deliver it form a central element of Scotland's Economic Strategy.

UN Sustainable Development Goals

The United Nations' (UN) 2030 Agenda for Sustainable Development[12] and the 17 Sustainable Development Goals (SDGs)[13] and associated targets which underpin it set out an integrated approach to making global progress across the economic, social and environmental dimensions of sustainable development.

The Scottish Government is fully committed to delivering that agenda in Scotland and internationally – to tackling poverty and inequality in Scotland and to helping developing countries grow in a fair and sustainable manner.

Like the UN, the Scottish Government believes that trade and investment can play a vital and positive role across all 17 SDGs. Indeed, the UN's declaration on the SDGs states that:

'International trade is an engine for inclusive economic growth and poverty reduction, and contributes to the promotion of sustainable development'.

Furthermore, action to ensure an international, rules based system for trade and to help developing and least developed countries benefit from that system forms a key element of SDG 17[14].

Our aim therefore is not just to improve Scotland's trade and investment performance but also to contribute to inclusive and sustainable development elsewhere, especially in developing countries. In particular, and in line with Scotland's International Framework, Scotland can be a 'Good global citizen' – using trade to help address global challenges such as poverty and climate change, promote human rights and share knowledge, skills and technical expertise for global good. We will also take action to internationalise Scotland's world leading approach to social enterprise – helping Scottish social enterprises expand internationally and helping others realise the benefits of the social enterprise model. As part of a broader approach to 'Policy Coherence for Development', specific initial steps to take this new trade agenda forward are set out in Chapter 6.

Chapter 3: Global Opportunities And Challenges And Our Strategic Response To Global Change

Global flows of goods, services, information, people and capital are rising dramatically and Global Value Chains and new business and investment models are disrupting markets and rapidly changing the nature of international trade and investment. Furthermore, a number of other dynamic trends are shaping society and the global economy:

Changing consumer demand: Demographic shifts and increased affluence, particularly in new growth economies, are unlocking new opportunities for premium goods and services, with substantial growth in consumption of high quality food and drink products and increasing demand for higher education and tourism. With the global urban population growing by 65 million a year and nearly half of global GDP growth to 2025 expected to come from cities in new economies , these changes are being driven by a growing consumer base in mega-cities like Shanghai and Mumbai and regional corridors such as Hong Kong-Shenzhen-Guangzhou. Furthermore, the digitally connected, young demographic of many countries is driving demand for particular products and services and for a more responsible approach to business.

Technology: Driven by innovation in areas such as information and communications, energy, biological and material science, technological advances are transforming manufacturing and services industries – bringing new market and investment opportunities. For instance, in the 'connected living' market, a trillion globally connected devices now form part of the 'Internet of Things', unlocking new opportunities and new ways to do business. There is also considerable growth in areas such as high value manufacturing and advanced materials, with growing global demand for synthetic polymers and new advanced composites.

Healthcare and wellbeing: With an ageing global population and increased emphasis on health and wellbeing, spend in this area is rising faster than per capita income. There is increased emphasis on prediction, diagnosis and monitoring; opportunities in areas such as genomics, gene therapy and assisted living; as well as wearable technologies, remote patient alarms and smart apps.

Low carbon and clean-tech solutions: With global population set to grow to nine billion by 2030, resource demands will increase significantly, requiring cleaner, smarter and more secure infrastructure systems. Innovation will drive the response, along with growing demand and spend on zero emission technologies, circular economy business models and carbon-neutral cities.

Responsible business: Driven by the demands of consumers, employees and NGOs – companies, Governments and international institutions are placing increasing emphasis on the local and global economic, social and environmental impacts of business, trade and investment. Sustainability and ethics are becoming increasingly important and business models such as social enterprise are becoming more common.

Building on Scotland's strengths and assets, this Strategy responds to and seeks to maximise the trade and investment opportunities these global trends present.

Our Strategic Response to Global Change

Scotland's businesses need to move quickly and flexibly to respond to these changes and the opportunities and challenges they present. The Scottish Government and its enterprise agencies, working with partners through a One Scotland approach, must be equally global in outlook and agile in response.

We need to build on the strength of Scotland's existing trading successes in areas such as Oil and Gas, Chemicals and Financial and Business Services and to help businesses realise high value, niche opportunities. On Oil and Gas, for example, international supply chain sales in 2013-14 were £11.2 billion, an increase of 12% over 2012, and just over half (50.3%) of total supply chain sales compared with around a third in 2001[15]. We also need to learn from successful sector-based approaches to internationalisation such as the Food and Drink Export Plan – where, through partnership working and by bringing together market and sector expertise, there are ambitious targets and actions to export a broader range of products to a broader range of markets.

The Scottish Government and its agencies will therefore focus on priority sectors and markets where there are realistic opportunities for Scottish companies to sell their products and services and to attract foreign investment into Scotland's growth sectors, companies and assets. Alive to the dynamic nature of global markets, our focus will be on:

Premium consumer products and services

Focusing particularly on major emerging markets with growing affluence and increasing the number of international visitors to Scotland, we will build Scotland's strengths in premium, high value consumer products with trusted provenance such as whisky, seafood and textiles and services in the leisure, business, sporting and cultural events sectors.

Digital, technology and high value manufacturing

We will exploit the full commercial potential of Scotland's innovation acumen and competitiveness in areas such as informatics, sensors, subsea technology and Fintech. In particular, we will work with public and private partners and with academia to deliver more 'cross-sector' opportunities, focusing on Scotland's strengths to build integrated propositions that deliver greater business benefits.

Skills, knowledge and innovation

We will strengthen the role of Scotland's skills, knowledge and innovation and universities, colleges and research Institutes in trade and investment; emphasising Scotland's research capacity and capability; stimulating flows of international talent to and from Scotland; and building networks, reach and reputation. The development of Scotland's Innovation Centres will help provide solutions to global challenges and needs across a range of sectors and markets, providing compelling and internationally attractive Scottish trade and investment propositions.

Healthcare and wellbeing

We will test and scale up new propositions in niche areas such as digital health, precision medicine and industrial biotech to realise trade and investment opportunities from increased global spend on healthcare and wellbeing

Low carbon

We will build on Scotland's global reputation and ability to innovate and offer low carbon solutions in areas such as renewable energy, clean-tech and smart cities.

Responsible business

We will develop a reputation for responsible business – demonstrating that improving competitiveness and reducing inequality go hand in hand; using trade to support development and promote human rights; and internationalising Scotland's world leading approach to social enterprise.

Markets

Working through a One Scotland approach, the Scottish Government and its agencies will focus on markets and sub-markets where there are significant and specific trade and/or investment opportunities which play to Scotland's strengths and capabilities. Whilst there will be a strong focus on particularly geographies we will be opportunity driven. So, as well as taking advantage of established market opportunities in Europe and North America, we will, for example, capitalise on the growing demand for technical and vocational education and training in Malaysia and oil and gas opportunities in the newly opened market of Iran.

Our approach also recognises the importance of the rest of the UK to Scottish companies – especially sales from the services sector – and how trade with the rest of the UK can be a useful springboard into international markets. The role of London as a global centre for trade and investment is particularly important in this respect and our London Innovation and Investment Hub will provide a platform for accessing both trade and investment opportunities.

The European Union and Single Market

It is essential that Scotland remains within the EU and that Scottish businesses can continue to take advantage of the Single Market and the diverse and distinctive markets within it. Despite a slow economic recovery, the EU, with a population of over 500 million and over 25 million active enterprises[16], is Scotland's most important international export market. Over the last 10 years (2005-14), Scotland's businesses have exported over £106 billion of goods and services to the EU – more than 45% of all international exports[17]. Furthermore, the Single Market makes trading across the EU easier and plans to widen and deepen it across key service sectors such as construction and business services, to create a Digital Single Market and to create a Capital Markets Union will provide further trade and investment opportunities. The Single Market is also a key factor in attracting inward investment to Scotland.

North America

North America's economic scale, relative ease of market access, particularly for early-stage exporters, and role in inward and capital investment make it a key part in Scotland trade and investment future. North America is Scotland's main international export market outwith the EU. Over the last 10 years (2005-14), Scotland's businesses have exported nearly £36 billion of goods and services to North America – more than 15% of all international exports. Furthermore, over the last decade the U.S has accounted for around 40% of all inward investment projects to Scotland. Trade agreements between the EU and Canada and between the EU and the US are being finalised and negotiated and there are untapped opportunities to attract U.S investment to Scottish businesses with high growth potential, especially in the tech sector.

Asia

Working especially with businesses already exporting and considering expansion into new markets, we will step-up our focus on Asia. As well as taking advantage of well-developed markets such as Singapore and Japan, we will work with UKTI and bodies such as the China British Business Council and UK India Business Council and through digital channels to realise opportunities in the relatively untapped markets of China and India where, over the last 5-10 years, Scottish export growth has been relatively slow. We will also focus on diversifying Scotland's investment base through attracting increased investment from Asia.

Networks and Global Platforms

We will maximise the trade and investment benefits of Scotland's place on the world stage – taking advantage of events like the Edinburgh festivals and international conferences in Scotland; of strong economic and cultural ties with particular countries and cities; and of Scotland's themed years, such as the 2016 Year of Innovation, Architecture and Design, to lever opportunities. We will also use 'Global Platforms' outwith Scotland such as Expo 2017 – Future Energy (Kazakhstan); the European Sports Championship 2018 in Glasgow and Berlin; the 2018 (Gold Coast) and 2022 (Durban) Commonwealth Games; the 2020 World Expo in Dubai; and the Kai Tak Sports Development in Hong Kong to support our ambition.

Chapter 4: Supporting Global Scotland

As indicated in Chapter 1, the delivery-focused policies and actions to inspire, enable and support Scotland's businesses to trade internationally and individuals, businesses and institutions to invest in Scotland are underpinned by a much broader agenda for internationalisation; for creating a Global Scotland, which seeks to:

- Create an environment within Scotland that supports a better understanding of international opportunities and a greater appetite and ability to seize them; and

- Influence the world around us on the issues that matter most in helping Scotland flourish.

To support this agenda and, in turn, our ambition for trade and investment we will take action to:

Enhance Scotland's profile and reputation;

- Make effective use of engagement and influence;

- Maximise the impact of networks and relationships;

- Make the most of our combined global footprint; and

- Ensure that policies and activities across Government support our ambition.

Profile and Reputation

Scotland has a positive global reputation built on a strong identity, culture and natural beauty, on people's experience of Scotland and on events like the Commonwealth Games, the Edinburgh festivals and the Tiree Wave Classic – but also on globally recognised products and services from food and drink to digital games and services; and on the ingenuity and innovation of our entrepreneurs, businesses and universities. This raises Scotland's international profile, attracts international visitors and students to Scotland, supports overseas trade and helps attract investment.

The VisitScotland 'Spirit of Scotland marketing campaign and themed years such as the Year of Innovation, Architecture and Design 2016 help strengthen this profile and reputation. However, there is scope to enhance it still further and, as part of the One Scotland approach, to consider how the activities of different partners, public and private, can complement and reinforce each other.

In the first instance, the Scottish Government and its agencies will adopt a new, single international narrative to promote trade and investment and tourism and cultural strengths and activities. Furthermore, a clear identity and messaging, to be used across all the international activities of the Scottish Government and its agencies and by organisations receiving Government funding, will be developed.

This approach to marketing and communications will be underpinned by targeted engagement and effective use of events and networks to highlight and pinpoint specific strengths and assets and, more broadly, Scotland as an innovative, inclusive and global economy. The Scottish Government, SDI and VisitScotland have a key role in this but our aim is to work with and across partners to achieve maximum impact and mutual benefit. This could, for example, include business leaders, companies and entrepreneurs such as Scotland's Women's Enterprise Ambassadors; cultural bodies, business organisations, industry bodies and local authorities; and higher education institutions and Innovation Centres – but also, reflecting our emphasis on inclusive growth and responsible business, through social enterprise, environmental and international development organisations.

Engagement and influence

Our individual and collective international engagement, across business, government and academia and through formal and informal relationships, provides opportunities to support our ambition, influence policy and markets and shape perceptions of Scotland.

For its part, and driven by our strategic response to global change, the Scottish Government and its agencies will place a strong emphasis on developing and realising trade and investment opportunities through, for example:

- Targeted engagement in specific international markets and sectors;

- Building long-term relationships with existing and potential investors;

- Using international platforms to promote trade and investment interests and Scotland's wider reputation and profile in areas such as low carbon and inclusive growth; and

- Collaborating with international partners through programmes like the Vanguard Initiative which brings together European regions around specific innovation and investment projects in areas of niche strength and seeks to influence EU innovation and industrial policy.

This will be supported by a programme of Ministerial activity focused on the organisations, individuals and platforms where such engagement can make a real difference to achieving our ambition.

As well as the above, the Scottish Government has a particular role in representing Scotland's priorities and interests at a Government-to-Government level and with international bodies and institutions around key policy areas. In this respect, we will work with business and other stakeholders to engage with EU institutions, Member States and other partners to support the effectiveness and further development of the Single Market in a way that supports inclusive growth and does not undermine food, environmental and other standards. In particular, we will continue to support the interests of the Scottish fishing industry and agriculture but also focus on areas such as regulatory reform, services and the development of the Digital Single Market.

The EU is also responsible for trade and investment negotiations and agreements and, although the Scottish Government has no formal role in the negotiation or ratification of such agreements, we will represent the priorities and concerns of business and others to the UK Government, the European Commission and international partners. In doing this, we will always wish to protect the NHS and other vital public services; Government's rights to regulate in the public interest; and standards. Meanwhile, from an inclusive growth perspective, we will focus on policies which present significant opportunities and/or challenges for the Scottish economy; on sectors of particular importance to Scotland; and, as with the steel industry, on European Commission action against unfair trade practices by other countries. This work will be complemented by engagement with specific countries and the UK Government to help Scottish businesses gain access to new markets through, for example, lifting import restrictions on, or other barriers to, particular products such as beef and lamb in North America.

We will also encourage the European Commission to give real and practical effect to its 'Trade for All' (Oct. 2015) Strategy's[18] emphasis on ensuring trade benefits small businesses, consumers and workers; on making trade negotiations more transparent and subject to greater scrutiny; on safeguarding the European social and regulatory model; and on using trade to promote sustainable development and human rights.

As we engage on these issues we will work through our enterprise agencies and with other partners and industry bodies to identify specific areas of interest or concern and to help businesses realise the opportunities and respond to the challenges of the Single Market and international trade agreements.

Networks and Relationships

In a globally and digitally connected world, the networks and relationships of individuals, businesses and organisations are vital to understanding and realising opportunities for trade, investment and collaboration and to enhancing Scotland's profile and reputation. They can provide valuable insights and expertise; facilitate greater communication and connectivity between business leaders and the business and entrepreneurial community in Scotland; and help open doors to new markets and opportunities.

These networks are a key part of the One Scotland approach. Focusing on our 'Strategic Response to Global Change', we will develop, support and work through them, and enable others to do so, to achieve our ambition.

The GlobalScot Network is an important but by no means the only element of this. Managed and supported for the whole of Scotland by Scottish Enterprise, the Network harnesses the drive, ambition and talent of successful Scottish business leaders around the world, and those having an affinity with Scotland, to advance Scotland's economic success. All businesses and business organisations across Scotland can access their experience and expertise to support business growth. In addition to this, we will involve GlobalScots more closely in mentoring of Scottish businesses and entrepreneurs; in the development and delivery of international engagement activity such as overseas trade missions; and work with them to inform strategy and policy development by Government, the enterprise agencies and others.

New GlobalScots with skills and experience related to our 'Strategic Response to Global Change' and entrepreneurial individuals at the forefront of new industries, services and markets will be recruited. As well as those with a proven track record in business, the contribution that academics, policy experts and others can make to the GlobalScot Network and offer will be considered.

In addition to the further development of the GlobalScots Network, and building on the cultural and family ties of Scotland's international diaspora, we will also:

- Work with the business community to explore how their international networks and relationships can support our ambition. In particular, starting in London and linked to the establishment of the Innovation and Investment Hub, we will work with individuals and businesses to pilot the development of Scottish Business Networks in key global cities;

- Strengthen engagement with the international university alumni community including the new diaspora of international students who return home as ambassadors for Scotland;

- Use events and conferences in Scotland and internationally to connect with key organisations and individuals in a targeted way to build Scotland's reputation and profile; and

- Explore how relationships between Scotland's higher education institutions, Chambers of Commerce and towns and cities with international partners can more effectively lever trade and investment opportunities.

Global Footprint

Together, the Scottish Government, SDI and VisitScotland have a permanent presence in over 30 locations in 19 countries – from Silicon Valley to Singapore to Shanghai; and from Boston to Brussels to Beijing. Similarly, Scotland's higher education institutions have a significant international presence and some Chambers of Commerce have joint working arrangements with their counterparts overseas. Meanwhile, the UK Government has a presence in over 200 locations, Scottish businesses have operations across the globe and our inward investors are international and often global by nature.

Our aim is to make the most of this collective global footprint to deliver our ambition. We will therefore:

- Continue to seek assurances that the UK's international footprint serves the distinct needs and strengths of Scottish businesses; and

- Work with public, private and academic partners to make the most effective use of our collective international presence. In particular, the Scottish Government and SDI's international office network will be reviewed to take account of the development of the Innovation and Investment Hub model, explore opportunities for joint working and ensure resources are effectively focused on delivering our ambition.

Scotland's permanent global footprint is just part of a much wider but more temporary footprint arising from the international engagement and activities of many organisations and individuals. Again, our aim is to make this most of this temporary footprint, especially where there are opportunities for the activities of SDI and UKTI and other organisations to be better coordinated and/or to complement and reinforce each other around, for example, targeted trade and investment engagement and sporting, cultural and 'Global Platform' events.

This work to make the most of Scotland's physical global footprint will be complemented by work to use our digital footprint to reinforce our profile and reputation and deliver trade and investment goals.

Working across Government

The Scottish Government is committed to embedding internationalisation across its policies and activities and those of its agencies to ensure that Scotland remains internationally competitive and that our people have the confidence and skills to realise international opportunities and participate in a globalised world. Key areas of focus for work across Government and with partners include:

- Planning, Infrastructure and Connectivity: Our investment in infrastructure provides the physical and digital connectivity needed to ensure that all of Scotland is open to the national and global economy and helps businesses to grow, innovate and create high quality jobs. This is supported by the Government's Infrastructure Investment Plan[19] and the National Planning Framework (NPF3) which identifies key 'national developments' and planning policies to guide investment and growth. The Scottish Government aims to ensure that businesses across all of Scotland can access world-class technology at all times by improving mobile coverage across Scotland and providing next generation broadband to all by 2020. Meanwhile, Scotland's National Transport Strategy 2016 includes proposals for supporting the development of the freight industry, expanding the Greenock Ocean Liner Terminal quayside and, building on recent success in attracting new routes, improving air connectivity with a particular focus on possible routes to China and other emerging global markets. These new routes and our commitment to reducing Air Passenger Duty in Scotland by 50 per cent by 2021 will improve connectivity to Scottish airports, help sustain existing and generate new routes and increase inbound tourism.

- Research and Innovation: Investment in our universities through the Scottish Funding Council is supporting international research collaboration. Scotland's eight Innovation Centres, which bring together universities and businesses to drive innovation in areas such as precision medicine, sensor technology and big data have, significant international potential.

- Languages and learning: Language learning increases people's ability to participate in our globalised world and language deficiencies, especially in non-European languages, are a significant barrier to exporting costing the UK an estimated £48bn per annum. Given this, the Scottish Government seeks to enable all children to learn a first additional language from Primary 1 and to be offered a second from at the latest Primary 5 to S3. We also recognise the importance of continuing to support languages in further and higher education. Action is also being taken through the Outward Mobility Fund, which offers students who have never studied abroad new opportunities for academic, cultural and language learning in Europe, Canada, China, India and the USA.

- Talent, migration and international students: Migrants from across the world contribute to Scotland's economy and cultural diversity. Furthermore, the 29,000 international students from around 180 countries that study in Scotland's higher education institutions encourage a global perspective among their peers and, when they leave, are international ambassadors for Scotland and for Scottish higher education. The Scottish Government and Scotland's colleges and universities are working together to attract the best international talent to our education institutions, and are engaging with the UK Government on visa issues, which are having a negative impact on attracting and retaining talent, for example through the removal of the post study work route in Scotland.

Our focus on these key areas demonstrates the breadth of policy and activity around internationalisation which supports our trade and investment ambition. Looking ahead, we will seek to ensure that key policies and activities in areas such as tourism, energy, education, culture and food and drink maximise their contribution to our ambition. Similarly, we will work with key agencies such as VisitScotland, Transport Scotland, Skills Development Scotland, Scottish Funding Council and Creative Scotland to maximise their contribution.

We welcome dialogue and discussion with business, investors and other stakeholders about how Government policy and activities and that of our agencies can better support our ambition.

Chapter 5: Boosting Scotland's Export Performance

Context and key challenges

As outlined in Chapter 2, boosting Scotland's export performance will make a significant contribution to the twin goals of Scotland's Economic Strategy – improving competitiveness and reducing inequality – and is critical to creating a more productive, balanced and resilient economy.

Detailed information on Scotland's export performance is provided in our Economic Evidence Discussion Paper[20] and the most recent (Jan. 2016) Scottish Export Statistics[21]. In 2013-14, exports to the rest of the UK increased by £1.5bn (3.2%) but challenging global economic conditions, especially in the Eurozone, resulted in a £0.9bn (3.2%) fall in international exports, from £28.4 bn in 2013 to £27.5bn in 2014[22]. However, over the last five years the total value of international exports from Scotland increased by £4.1bn (17.3%), from £23.4bn in 2010 to £27.5bn in 2014. Meanwhile. exports to the rest of the UK increased by £4.2bn (9.5%), from £44.3bn in 2010 to £48.5bn in 2014[23].

This has been achieved through the hard work, creativity and expertise of businesses across Scotland realising market opportunities for their goods and services across the globe. It reflects traditional strengths in sectors such as financial and business services, engineering, chemicals, energy, whisky, tourism and textiles but also added impetus in sectors such as food and drink, digital and higher education. It also reflects the contribution of a wide range of public and private organisations such as Chambers of Commerce, local authorities and SCDI, as well as trade bodies and associations; and banks and professional service providers.

Until 2014 Scotland was broadly on track to meet the Government's target of a 50% increase in the nominal value of international exports over the period 2010 to 2017. However, the dip in international exports in 2013-14, and continued global economic uncertainty, emphasises the need for a renewed and more wide-ranging approach to boosting Scotland's export performance. This approach must maintain focus on increasing the total value of exports from Scotland but must also address the key underlying challenges critical to Scotland's long term trade performance. In particular, there is a need to address the relatively low proportion of SMEs exporting and the concentration of international exports among relatively few companies. In fact, just 15 businesses account for 30% of all international exports, 70 – 50% and 130 – 60%[24].

Given this, Scotland's export base needs to be broader – with more SMEs exporting. Furthermore, whilst growth in Scotland's exports has primarily been driven by increased exports to the rest of the UK, the EU and the U.S, there has been relatively slow growth in exports to China, India and the Middle East, especially in comparison to rates of GDP growth in these markets and the relative success of some comparator countries in exporting to these markets. Scotland therefore needs to grow its exports beyond traditional markets.

Addressing these challenges requires a clear focus on raising the international ambitions of businesses and enabling and supporting them to overcome the barriers they face to selling their products and services beyond Scotland. As highlighted by the Scottish Parliament's inquiry into Internationalising Scottish Business[25] and Export Statistics Scotland's recent (Jan. 2016) analysis of such barriers[26], action is required across public and private partners to:

- Make it easy for potential and existing exporters to access information, advice and support from SDI, UKTI and other providers;

- Introduce businesses to overseas customers – 42% of non-exporting businesses and 48% of exporting businesses say this will help them improve their international performance;

- Help businesses realise the export-potential of existing products and services and/or innovate to create such potential – 60% of non-exporters report that their products or services are unsuitable for export;

- Help businesses, especially SMEs, reduce their transport costs – 31% of businesses say that transport costs are a barrier to exporting; and

- Mitigate businesses concerns about currency/exchange rates – 42% of exporting companies report that currency/exchange rates were a barrier to future international business development.

Our Ambition

Given the above, our ambition for Scotland is a follows:

Achieving this ambition will support economic growth; help the Scottish economy withstand economic downturns in particular geographies and sectors; and, as small and medium sized businesses across Scotland grow through exporting and larger companies expand their export base, support inclusive growth.

Delivering our ambition

Although the existing work of SDI and a wide range of other organisations provides a strong foundation for achieving this ambition, a sharper focus on increasing the proportion of businesses exporting; on tackling specific barriers; and on realising opportunities in new markets is required.

Driven by our Strategic Response to Global Change (Chapter 3), we will therefore take a One Scotland approach – working across the public and private sectors, in Scotland and across the globe – to inspire, enable and support businesses to:

- Access the information, advice and support they need. SDI will promote global market opportunities and the business benefits of trade, and support businesses with advice and mentoring from existing exporters and trade specialists;

- Make connections with potential customers. The SDI-led Community of Practice partnership will develop and deliver a rolling programme of targeted market awareness visits, trade missions/shows and meet-the-buyer events;

- Realise the export potential of existing products and services and/or create new products or services with such potential. SE and HIE will develop sector-specific programmes to help companies adapt their products and services to meet the needs of international markets. For instance, a more intense Export Bootcamp service will be introduced to accelerate companies' learning and the speed and efficiency at which they prepare for their first overseas sales;

- Provide greater support for growth businesses to internationalise as part of SE and HIE's account management approach. This includes support to businesses through SDI to access new markets and take products to market for the first time, but will also encourage firms to think more broadly about wider aspects of internationalisation, such as employing and attracting talent from overseas;

- Address key financial barriers to exporting. For instance, SDI will work with the Scottish Investment Bank, UK Export Finance and specialist export finance providers to raise awareness of their services and improve uptake of relevant support;

- Realise opportunities in new markets such as China, Middle East and India through SDI's High Growth Markets Unit;

- Address transport challenges associated with trading internationally.

The Delivery Plan at Annex A sets out the specific actions SDI will take through a One Scotland approach to achieve this. This will include encouraging and supporting collaboration within and across sectors where there is potential to learn from and add value to each other's strengths and to work together on, for example, shared market research; access to technical or specialist advice; common transport issues; and joint promotional activity in international markets. The 'Collaborative Export Programme' which has supported businesses in the food and drink sector to work together to realise shared trade ambitions and the recently announced Export Collaboration Charter between the Scottish Whisky Association and Scotland Food and Drink, supported by SDI, are good examples of this.

The Delivery Plan will be underpinned by a Digital First approach aimed at delivering a step change in the number of businesses able to access information, advice and support they need to help them export and ensuring that access is simple and straightforward. At the heart of this approach, the 'mygov.scot' website will provide a single point of access to trade support services across SDI, UKTI and other partners. This will include digital content, resources and tools such as a web-enabled information and research service and a webinar programme, comprising one-to-one trade surgeries and ask the expert sessions. It also includes diagnostic tools to help companies assess and improve their export readiness and planning tools to help companies prepare business proposals and project plans. These diagnostic and planning tools will provide companies with easy access to export advisors. This will bring a new ease, transparency and efficiency to how companies are supported in their efforts to start and grow their exports. Companies will see continuous enhancements, some small, some larger, to their experience of accessing services online and managing their digital relationship with providers. In delivering more of its support digitally, SDI is committed to service improvements as it constantly learns from the experiences of companies accessing and using trade support services.

Over the long-term, our aim is to extend this Digital First approach so that individuals and businesses can provide mutual support to, and collaborate with, each other and so that businesses can seek advice from GlobalScots and other networks.

This Digital First approach will complement and add value to existing telephone and face to face programmes and services for businesses such as market awareness events; customised market research; peer learning; training and support with international sales strategies and action plans; practical advice on establishing market presence overseas; and advice on technical issues such as customs and excise, trade credit and insurance, logistics and distribution, agents, labelling, legislation.

Similar to countries such as Ireland and Sweden, a Ministerial-led Trade Board will bring business interests and expertise and key trade support delivery partners together to provide leadership and ensure implementation of the Delivery Plan. In its first 12-18 months it will focus especially on action to boost the number of exporters; on joining-up services and support across providers and increasing exports to new priority markets.

Chapter 6: Trade, Sustainable Development And Responsible Business

As highlighted in the Trade and Investment Evidence Discussion Paper, there is a growing demand from citizens and consumers and from NGOs and Governments for a responsible approach to business which considers human rights and economic, social and environmental impacts. Similarly, consideration of the impact of trade on sustainable development, especially in developing countries, has led many international bodies and institutions such as the UN, the EU and the OECD to put forward a range of strategies and statements, with associated programmes and initiatives, aimed at promoting development through trade. For example, the United Nations Conference on Trade and Development has stated that trade remains 'the most reliable and productive way of integrating into the global economy and of supporting the efforts of poorer countries to become less aid dependent'[27]. Meanwhile, the EU's recent 'Trade for All' Strategy[28] commits to using trade policy to:

- Promote inclusive and sustainable growth in developing countries;

- Ensure responsible management of supply chains;

- Promote fair and ethical trade schemes;

- Promote and defend human rights; and to

- Fight against corruption and promote good governance.

As outlined in Chapter 2, trade has a positive role to play across the UN's Sustainable Development Goals and in supporting Scotland's role as a Good Global Citizen and promoting responsible business as part of a broader approach to 'Policy Coherence for Development'.

Working with partners, the Scottish Government is already taking a range of actions across this agenda. For example:

- Our support for the UN Guiding Principles on Business and Human Rights[29], the Ruggie Principles, is being taken forward through Scotland's National Action Plan for Human Rights (SNAP)[30];

- Scotland's annual £9m International Development Fund has supported grassroots development projects in Malawi and other priority countries. This includes support for the Malawi Renewable Energy Acceleration Programme (MREAP) is contributing to technology transfer in the areas of renewable energy and climate change whilst enabling schools, health clinics and households across rural Malawi to gain access to sustainable energy;

- Working with the Scottish Fair Trade Forum, we are reaching more people than ever before with the message that choosing to buy Fairtrade products really does make a difference to people's lives; and

- We are working closely with the social enterprise sector in Scotland to produce a 10 year social enterprise strategy reflecting Scotland's position as a global leader in responsible business[31]. This focus will contribute to sustainable economic growth domestically, build the profile and impact of social enterprise across the world, and in doing so enhance Scotland's reputation and attractiveness to others.

This Strategy seeks to build on and extend this work by:

- Helping business play its part in promoting and respecting human rights;

- Working with priority partner countries to support development through trade; and

- Internationalising Scotland's world leading approach to social enterprise.

Human Rights

The Scottish Government recognises that businesses have a crucial role to play in both preventing and remedying breaches of human rights. States, rather than the private sector, have the principal responsibility for respecting and protecting human rights. However by taking positive action – for example by actively managing the risk of being party to human rights abuses – businesses can exert a very direct influence through their trade and investment decisions.

Scotland's National Action Plan for Human Rights (SNAP) commits partners to the development of an action plan to implement the UN Guiding Principles on Business and Human Rights in Scotland. To inform this work, the Better World SNAP Action Group, involving the Scottish Government, Scottish Human Rights Commission, Amnesty International and Scottish Enterprise, has commissioned a national baseline assessment which will be completed later this year. The assessment will help partners and business understand the current position in Scotland in respect of the Guiding Principles and provide a robust basis from which to identify good practice and gaps in information, advice and support.

Following consideration of the baseline assessment and engagement with business and other stakeholders we will develop further proposals, including, for example:

- Action to raise awareness among businesses, and those who advise them, of their legal obligations in relation to human rights;

- Development of advice, training and support for Scottish businesses, in order to help identify and implement enterprise-appropriate actions which support and promote human rights in Scotland and overseas

- Inclusion of key information on human rights responsibilities and good practice in to our Digital First approach to supporting exporters; and

- Mechanisms to support sharing of good practice across the business community

Supporting Development through Trade

Starting with the signing of the Cooperation Agreement between Malawi and Scotland in 2005, Scotland's approach to international development and associated funding has developed over the last decade.

The Scottish Government's recent consultation on refreshing our international development policy seeks views on how we might retain the most effective elements of current international development work and how we might target and focus the International Development Fund and other work to achieve maximum impact. In particular, it asks how we might encourage better trade and investment links with our priority partner countries to support sustainable growth.

The responses to the consultation will inform specific action in this area which could, for example, include:

- Working through the enterprise agencies and business organisations in Scotland to help businesses from priority partner countries make connections with potential customers;

- Using trade as a way of facilitating knowledge and technology transfer between Scotland and priority partner countries; and

- Learning from countries such as Denmark, Sweden and the Netherlands, establishing a 'Good Growth Fund' to help Scottish businesses support and deliver responsible investment and development in priority partner countries.

Internationalising Social Enterprise

Scotland's social enterprise sector, blending economic growth with social purpose, is thriving. Social enterprises across Scotland own and manage land, harness renewable energy for communities, create employment, provide support to the most vulnerable, and provide an increasingly diverse range of products and services. In fact, there are more than 5,000 social enterprises active across the country with a combined annual income of £3.6bn, supporting over 112,000 jobs, and contributing nearly £1.7bn of Gross Value Added to the Scottish economy[32]. As well as being part of the fabric of communities, this places the sector among Scotland's key industries and at the leading edge of the international social enterprise movement.

This has been achieved through long term collaborative working between the sector and the Scottish Government, underpinned by supportive policy and legislation and investment in the sector's development.

Building on Scotland's leadership and support for the Social Enterprise World Forum, a broader international role for the sector is taking shape through, for example, the 'franchising' of Scotland's Social Enterprise Academy in South Africa and Australia and an International Social Enterprise Programme which supports five international social enterprises to base their global headquarters in Scotland. Furthermore, a small but growing number of Scottish social enterprises are already operating internationally. Indeed, research indicates that 7% of Scottish social enterprises are already collaborating with international partners, contributing to the development of international projects, or selling overseas and that around 5% have exported or licensed goods or services to overseas markets in the last financial year.

This strategy signals a commitment to stepping up that process of internationalisation and associated support as a key element of Scotland's approach to trade and investment. This will often entail SDI supporting social enterprise businesses in the same way as it supports 'traditional' businesses. However, there is also a need to consider the distinct nature of the social enterprise sector and the opportunities for overseas growth and investment. The Scottish Government and its enterprise agencies will therefore work with the sector to develop and deliver an International Social Enterprise Strategy for Scotland aimed at expanding activity in international markets; growing the sector's international footprint and revenues; sharing learning and experience; and raising Scotland's profile and reputation as one of the best places in the world for social enterprise.

This focus on human rights, trade for development and internationalising social enterprise signals the start of a wider and deeper approach to trade, international development and responsible business. Looking ahead, we will engage with business and other stakeholders to consider what more might be done to ensure our approach to trade and investment supports the Sustainable Development Goals and Scotland's role as a Good Global Citizen.

Chapter 7: Attracting Investment To Scotland

Context and key challenges

As outlined in Chapter 2, attracting investment to Scotland in the form of Foreign Direct Investment (FDI) by companies, investment in capital projects and investment to help companies achieve their growth ambitions is vital to achieving sustainable economic growth; and to supporting the four priority areas for action which underpin Scotland's Economic Strategy – investment, innovation, inclusive growth and internationalisation.

Foreign Direct Investment

There is a diverse range and type of high quality FDI projects including those that are R&D intensive; those that provide skilled employment; and projects that are 'technology exploiting'. With over 2,300 foreign owned companies with 314,000 employees and a combined turnover of £89 billion, FDI already plays a central role in Scotland's economy and is a crucial component of developing growth sectors in Scotland and building stronger supply chains. As well as direct employment, FDI brings other benefits in terms of wider employment impacts, increased productivity and the transfer of knowledge, skills, technology and innovation to Scotland. Indeed, whilst there is variation, these companies tend to pay higher wages and be more productive than average and generate around 70% of Scotland's Business Enterprise Research and Development expenditure (BERD)[33]

The scale and scope of FDI in Scotland reflects a long and successful track record in attracting companies across a range of sectors in both manufacturing and services. Since 2005 Scotland has attracted an average of 62 new FDI projects each year – with an associated average 3,700 jobs. In fact, in each year since 2006 Scotland has ranked in the top two UK regions outside London in terms of number of FDI projects secured[34] and in 4 of the last 5 years has been the top location outside London.

This strong performance has been driven by SDI's role, working with partners, in proactively attracting investment and through broader government action to create a supportive environment in areas such as infrastructure, planning, transport, skills and innovation. Scotland's place as part of the EU Single Market has also been a key factor in companies' investment decisions. With over 60% of 2014 projects from existing investors[35], it also reflects the confidence that these investors show in expanding and making further investment.

This is a strong platform to build on. However, Scotland's success in attracting repeat investment from existing investors, especially those from the U.S, needs to be sustained and matched by attracting more new investors to Scotland. In particular, there is relatively low awareness of Scotland among investors in Asia, with China, the fifth biggest investor into the UK, not making Scotland's top 10 sources of investment. Furthermore, in 2014 37.5% of projects into Scotland came from new investors, compared to 68% in the UK[36].

Scotland also needs to respond to the rapidly changing scale and nature of FDI towards, for example, smaller scale projects with a strong emphasis on R&D and innovation and inward investors, especially those from China and India, placing more emphasis on mergers and acquisitions and less on greenfield projects.

Capital Investment

Across the globe, financial institutions, companies and investment groups, along with government backed Sovereign Wealth, investment and pension funds, are looking for opportunities and projects to invest in. The scale of available capital from UK and international investors is immense. For example:

- It is estimated that, partly through sovereign wealth funds and partly through the joint funding and/or development of projects, China will invest over £100bn in UK infrastructure, especially in energy, real estate and transport, by 2025[37];

- Over the last decade, Glasgow has attracted £5.3bn and Aberdeen £2.67bn of commercial property investment – the third and seventh highest level of investment respectively of any city in the UK outside London[38]; and

- As a specialist bank for real estate finance and public investment finance, pbb Deutsche Pfandbriefbank has over €36bn to invest in tranches of €500m for projects in excess of €10m.

In the vast majority of cases, the development and delivery of projects and matching of projects with potential investors is principally a private sector activity. The role of government, national and local, is to create the right environment for such investment through, for example, core infrastructure provision and its planning and regulatory roles. Nonetheless, investors often value engagement with Government to give them confidence that, subject to planning decisions, a project has the Government's in principle support. There is scope for the Scottish Government and wider public sector to be better aligned behind projects; to work together more effectively to develop and market investment propositions; and to identify and access potential investors.

Company Risk Capital Investment

Scotland's Economic Strategy (March 2015) is clear that the future success of Scotland's economy depends on the productivity, growth and competitiveness of Scotland's businesses. Increasing the number of high growth businesses is especially important in this respect as such businesses display higher levels of innovation and productivity than average and contribute disproportionately to employment and export growth.

Although many factors affect business growth, access to appropriate finance is critical, especially for businesses with high growth potential seeking to move to the next stage of development. Such finance can be accessed through traditional debt and equity markets and, though the market is still relatively small, the emerging alternative funding market such as crowdfunding and peer to peer lending. Nonetheless, the evidence[39] indicates that whilst Scotland benefits from extensive business banking services and a vibrant angel investment community – and many SMEs are able to access the funds they require – SME businesses, in all sectors, face challenges raising the funding they need. This challenge is especially acute for early stage companies seeking to raise larger amounts of equity capital (£2m plus) to support growth and, in many cases, to expand internationally.

Our Ambition

Guided by our strategic response to global change and the key challenges outlined above, our ambition for Scotland is:

Delivering our ambition

Attracting Foreign Direct Investment

To achieve our ambition we will inspire, enable and support new investors to invest in Scotland; existing investors to develop, grow and expand; and all investors to maximise their contribution to inclusive growth.

In an extremely competitive global environment it is essential that Scotland's approach to attracting inward investment is unified and coherent. Although SDI has the lead role in attracting inward investment, government, the wider public sector and Scotland's universities and Innovation Centres have a key role in creating a supportive business environment in terms of skills, R&D and innovation capacity, infrastructure, planning, transport and other issues; and in creating a culture that welcomes and supports responsible investment in Scotland's economy. The business community also has a role to play in championing Scotland's strengths and in developing and delivering the supply chain products and services that inward investors value. As part of our One Scotland approach we want to harness and add value to these important contributions. We will also take a proactive approach to attracting FDI from companies that share the values of the Scottish Business Pledge.

Attracting new investors

Attracting new investment to Scotland is a strategic priority. To deliver this, our approach is to focus on specific sub sector opportunities such as FinTech and subsea technology and develop Scotland's niche propositions in these areas. We will forge strategic relationships with investor companies, engaging much earlier in their strategic planning process to influence their decisions and help to develop business solutions. We will also generate more leads to potential new investors through deeper and wider engagement with intermediaries, partners, stakeholder networks and existing investor supply chains.

Building Scotland as a global centre for collaborative innovation and investment

Scotland has considerable expertise in areas such as advanced manufacturing and remanufacturing; informatics; precision medicine and decentralised energy systems.

We will use this knowledge and creativity to attract new forms of investment to Scotland and facilitate research collaborations with global partners. These will help to develop innovative solutions to challenges such as population growth, resource use, health and wellbeing and data management.

In this way, we can build Scotland's profile as a centre for collaborative investment and innovation, one which can facilitate major research for international business. Using our expertise, we can respond to challenges in the developing world and position Scotland as a Good Global Citizen and trusted investment partner.

Supporting existing investors to develop, grow and expand

As highlighted above, existing investors already bring added value to the Scottish economy through direct employment impacts, wider supply chain benefits and through additional skills, R&D and innovation. We want existing investors to develop, grow and expand in Scotland and to work with them to spread those benefits as well as their international experience, expertise and networks more widely; and for the responsible and inclusive approach to business already practised by many investors to be extended still further.

The Scottish Government and its agencies will engage at a senior level with key investors to better understand and respond to their needs to attract still further investment to Scotland. We will also encourage investors to make the Scottish Business Pledge, pay the Living Wage and, where appropriate, to become an accredited Living Wage employer.

The Delivery Plan at Annex A outlines key actions SDI will take through a One Scotland approach to attract new investors; build Scotland as a global innovation and investment hub; and support existing investors to develop, grow and expand.

Attracting Capital Investment to Projects of Scale

This Strategy signals our ambition to work with the public and private sectors and potential investors to take a more proactive and investor focused, and more systematic and co-ordinated approach, to attracting capital investment to large scale projects in Scotland.

In doing this, we will focus on where Government and the wider public sector can add maximum value to the role of the private sector; on investment propositions of scale and on ensuring projects contribute to high quality places and connections and deliver maximum economic, social and environmental benefits. If we are to compete with other projects, cities and regions across Europe and the rest of the world this must be underpinned by a strategic, unified and collaborative approach to:

- Bring forward strong, investment-ready propositions which meet investor expectations; and

- Systematically identify and engage with potential investors.

In taking this approach we will build on the work that the Scottish Government, Scottish Enterprise and Scottish Cities Alliance have been developing in this area during 2015 drawing from experience and lessons learned from other projects and from our experience in attracting traditional inward investment to Scotland.

Scotland is competing with the rest of the world to attract capital investment. It is therefore essential that the propositions being put to potential investors are as strong as possible – not just from the point of view of individual projects but also in terms of Scotland's broader credibility and reputation with the international investment community. In this respect, Scottish Government support for projects, which will often be about giving confidence to investors rather than financial support, will be determined by the strength and quality of the proposition.

The Scottish Government, its enterprise agencies, the Scottish Cities Alliance and some local authorities are already engaging potential investors in Scotland and through events and overseas activity. This has delivered some success but more needs to be done to build long term investment relationships in a systematic and unified way; to improve our collective understanding of investor priorities and interests so that we are matching the right projects with the right investors; and to promote projects and Scotland as effectively as possible with the right type and level of engagement at the right time.

In that context, our Delivery Plan for working in partnership to develop strong investment propositions and engage effectively with potential investors is set out at Annex A. A small team will be established within Scottish Government to support and co-ordinate this Action Plan across Government, its agencies and partners; to align activities; clarify lead roles and responsibilities; and to provide a single door approach to connect projects and partners in Scotland with potential investors.

The team will work closely with a wide range of partners including Scottish Enterprise and Highlands and Islands Enterprise, the Scottish Investment Bank, the Scottish Cities Alliance, the Scottish Futures Trust and local authorities as well as the property industry and other private sector interests. In addition, SDI's international network will play a key role in identifying and building relations with potential investors and connecting partners and projects with them.

Supporting Company Growth Through the Attraction of International Risk Cpaital Investment

We want Scotland to be the best place in the UK to do business – a place where businesses with high growth and export potential can thrive and where the finance to enable them to do so is accessible. We have recently taken steps to enhance the remit of the Scottish Investment Bank (SIB) and for Scottish Enterprise to continue to work with the private sector to offer a wider range of business investment solutions to address market gaps to improve the supply of funding.

Helping companies to access international institutional investors and a broader range of venture capital and angel investors is a key part of this – both as a result of the capital they invest in businesses and in terms of the wider benefits such as new skills, new networks and access to overseas markets. To achieve this, SDI and the Scottish Investment Bank will take specific action to:

- Increase the flows of international investment into Scottish companies through engagement with VC and corporate investors, and capability building with Scottish companies to help them secure this investment in an increasingly competitive market.

- Support ambitious and growing companies to identify, prepare and secure the most appropriate sources of finance. This includes increasing awareness and understanding of the role that different types and sources of finance can play at distinct stages in a company's development.

- Related to this is the need to increase the ability of Scottish companies to effectively attract later stage international investment. Factors that positively influence this include the quality of investment propositions, management team capability and the ability of companies to effectively identify, engage and communicate with investors.

In doing this, we will work collaboratively across the public and private sectors with a strong focus on the most acute funding gaps in Scotland and on investors most likely to fill those gaps.

Our current approach to improving access to finance to support company growth has primarily focused on business advice and support and on filling gaps in the Scottish market for debt and equity finance. We have recently taken steps to extend this support through, for example, developing a £40m SME Holding Fund to provide matched ERDF funding into financial instruments that can deliver debt and equity investment; enhancing the remit of the Scottish Investment Bank to facilitate additional investment into Scotland and encourage and support more funding options for businesses; and expanding the provision of specialist financial readiness advice for SMEs.

This provides a strong platform for work across the Scottish Government and its enterprise agencies, the Scottish Investment Bank and other public and private partners to support companies to access international institutional risk capital. The Delivery Plan for achieving this is provided at Annex A.

Annex A: One Scotland Delivery Plan

Aim

Actions

Inspire businesses and raise their export ambition

- Promote global market opportunities and the business benefits of trade and support businesses with advice and mentoring from existing exporters and trade specialists.

- Use role models such as such as Global Scots to champion the benefits of exporting and recognise and celebrate export success through business awards.

Help businesses make connections with potential customers

- Develop and deliver in partnership with others a rolling programme of targeted market awareness visits, trade missions/shows, and meet the buyer events and work with organisations such as SCDI, Chambers of Commerce, the Institute of Directors, Enterprise Europe Scotland, the China British Business Council, the Scottish North American Business Council and UKTI to coordinate and raise awareness of that programme, including development of a digital 'one stop shop' of trade events and missions.

- Provide advice, information and support to businesses to pursue new and/or further opportunities from International Trade

- Establish Innovation and Investment Hubs in London, Dublin and Brussels as a platform for businesses to meet potential buyers and to showcase their products and services.

Help businesses realise the export potential of existing products and services and/or create new products or services with such potential

- Pilot work with a sector cohort of SE/HIE account managed businesses to identify companies with products or services where there is a clear export market but they are not currently exporting – and provide customised information, advice and support to help them do so; or helping those businesses adapt their products and services to meet market need.

- Ensure our innovation policies and our work with Scotland's academic base and Innovation Centres enable businesses to start exporting or expand in to new markets.

Support businesses to address key financial barriers to exporting

- Work with banks, UK Export Finance and specialist export finance providers to raise awareness of their services and improve take-up of relevant support.

- Provide financial readiness advice to companies to help them understand and mitigate financial risks associated with exporting.

Aim

Actions

Enable businesses to realise opportunities in new markets such as China and India

- Strengthen delivery of SDI's High Growth Market Unit to help businesses enter and grow in new markets in China, India and the Middle East.

- Pioneer a 'Premium Scotland' approach in China - focused on high value consumer products and services. This will provide new channels to market, with opportunities to use ecommerce, events, exhibitions and social media to showcase products and low-risk ways for companies to develop a Chinese presence and broker partnerships and distribution networks.

- Work with UKTI to develop and deliver a joint approach to the massive Chinese internet retailer Alibaba.

- Encourage and support businesses currently exporting to traditional markets such as the EU and U.S to expand in to new markets. In particular, we will pilot work with a cohort of SE/HIE account managed companies to identify specific businesses already exporting to one market but where there is a similar export market elsewhere – and provide customised information, advice and support to help them move in to that market.

- Support businesses to take advantage of the international supply chains of larger companies and explore how we can work with larger companies to help others access new markets.

Support a One Scotland approach to boosting exports

- Provide seedcorn funding to private and public sector partners to establish or further develop Local or Regional Export Partnerships in 4-6 areas on a pilot basis The Partnerships will demonstrate how a collaborative, One Scotland approach can bring together individuals, businesses and agencies to promote an international business awareness and mindset; collaboration around shared trade objectives; and mutual learning and support.

- Engaging with businesses and those who support and represent them and work through existing structures such as Industry Leadership Groups to develop detailed export plans for particular markets and sectors.

Aim

Actions

Attract new investors

- Work through SDI and UKTI's global network to promote Scotland's strengths and specific sector and sub-sector propositions.

- Use specialist business development resources to grow our project pipeline with a particular focus on new jobs from new investors, in areas such as software, big data and the creative and FinTech sub-sectors.

- Simplify the incentives available to investors and improve their promotion and visibility.

- Work with intermediary companies to attract potential investors and with new investors as they develop their European market entry strategies.

- Develop and support the One Scotland 'sales force' so that partners across industry, the public sector and academia have the right information and support to communicate Scotland's strengths and specific propositions; to identify and engage with potential new investors and opportunities; and to connect those leads and opportunities back to SDI.

Build Scotland as a centre for global innovation collaboration and investment

• Work with partners to scope out, develop and test how we might combine Scotland's R&D and innovation strengths to create a global 'problem solving' centre for innovation which would attract new investors and new types of investment to Scotland.

Aim

Actions

Support existing investors to develop, grow and expand

- Subject to EU State Aid rules, continue to provide support to existing investors seeking to attract investment to Scotland as part of a wider international business.

- Work with key existing investors to put together propositions to attract further investment into Scotland.

- Work with investors to meet their skill and talent needs, including working with Skills Development Scotland, colleges and universities and through continuing to press the UK Government for greater flexibility on visas where there are clear skill and talent gaps.

- Extend SE/HIE's engagement with key investors to wider policy and operational issues – bringing in the Scottish Government and other agencies as part of a One Scotland approach to understanding and supporting individual and collective investor needs. This will include consideration of an Inward Investor Survey and a dedicated Inward Investment Forum to enable Ministerial and senior-level engagement with the Scottish Government, its enterprise agencies and, where relevant, partners such as Transport Scotland and SEPA across a broad spectrum of issues.

- Strengthen supply chain linkages between investors and indigenous businesses - identifying and matching potential suppliers (or groups of suppliers) with investors and working with those suppliers to meet investor needs

Develop strong investment propositions to attract investment to projects of scale

- Identify and bring forward a pipeline of strong, large scale investment propositions, including working with partners to ‘bundle-up’ smaller projects to bring scale to and balance risk across propositions.

- Develop and maintain a single, digital investment prospectus/’pitch book’ of large scale, high quality projects, public and private, which can be customised to match the interests of specific investors.

- Work collaboratively and provide advice, support and feedback to improve the market readiness and credibility of project propositions and share learning and experience.

- Align the various public and private sector interests and responsibilities behind projects before propositions are put to potential investors; and consider what other steps we might take, through for example development briefs or masterplans, to make projects more investor ready.

Aim

Actions

Engage effectively and systematically with investors to attract investment to projects of scale

- Research and analyse the priorities, interests and investments of specific investors and share that intelligence across partners.

- Develop and deliver a One Scotland plan for investor engagement focused on both specific projects and the development of long term relationships with investors and a database to track enquiries from and engagement with potential investors. Engage with the international investment market directly to understand the specific requirements of their funds and directing this interest as appropriate.

- Work with Global Scots and organisations such as the China British Business Council, the Regeneration Investment Organisation and UKTI to ensure they understand our investment propositions and can bring them to the attention of potential investors.

- Improve the global visibility of Scotland's investment propositions through digital activity and a One Scotland approach to promotional activity and investment events such as 'MIPIM'.

Enable businesses with high growth potential to access a wider range of international institutional risk capital investment

- Build on the experience of the Scottish Investment Bank, to pro-actively engage with a range of international investors to raise the profile of investment opportunities in Scotland.

- Provide support, advice and training to businesses to help them raise the standard and quality of their investment proposition and their 'investment pitch' from an international institutional investor's perspective.

- Identify target international institutional investors and intermediaries, by sector and geography, and matching companies seeking investment with them.

- Develop new ways of engaging with potential investors in emerging and growth markets.

- Bring together Scottish companies with high growth potential with international investors through participation in relevant investor events organised by others and, utilising the London Hub, through specific Scottish showcase events.

Annex B: Improving Trade Data

The Scottish Government Trade and Investment Evidence Paper published in 2015 provided a wide range of trade and investment data, drawn from a variety of sources.

Such analysis is vital to improving understanding of Scotland's trade performance as a whole and by particular markets and sectors and to shaping the public and private sector's individual and collective efforts to achieve our ambition.

At present, there are a range of official data sources which can be used to monitor Scotland export performance. These include the Scottish Government's annual Export Statistics Scotland and Index of Manufactured Exports, HMRC Quarterly Regional Trade Statistics data on goods exports, the Small Business Survey and ONS Annual Business Survey. These sources provide rich information on Scottish exports. The Scottish Government and UK statistics producers are making improvements to them so that export performance can be better understood and monitored with greater confidence.

Following feedback from stakeholders, the Scottish Government has already taken steps to improve the January 2016 publication of Export Statistics Scotland which provides data on Scotland's export performance in 2014. This replaces the Global Connections Survey with the new name reflecting the range of other data sources which complement the Scottish Government survey to give a more accurate picture of Scotland's export performance.

The Export Statistics Scotland 2014 publication includes improved methodological information; provides deflated export trend data ;and includes a much wider range of survey data than previously, including respondents views on barriers to trade; support and assistance and future markets. This is a first step in improving data on export performance and making such data more publicly accessible. Further steps will include:

- Considering ways to reduce the time lag between data collection and publication;

- Improving engagement with business and accessibility of survey through communications and developing online completion;

- Working with UK officials to determine the possibility of incorporating other UK wide official statistics sources including: HMRC company level returns and oil and gas export statistics in the overall export estimate;

- Considering ways to make export statistics available in an interactive manner to allow users to effectively drill down into the data

- Consulting with businesses on how export statistics can be developed to help them identify new export opportunities.

As well as official sources there are a range of other data and analysis published by banks and business and industry bodies which provide further insights into Scotland's export performance. There is also scope to use the operational data of our enterprise agencies and other partners, possibly including export certification data held by Chambers of Commerce, to provide a rounded picture of Scotland's export performance. In that context, the Scottish Government will work with the UK Office for National Statistics, HMRC, business and industry bodies and others to bring together and provide access to other official government sources of trade data and unofficial sources of data and evidence and to develop a more rounded and granular picture of Scotland's export performance.

Footnotes

1. Scotlands%international%trade%20and%investment%strategy.pdf.

2. http://www.gov.scot/Topics/Statistics/Browse/Economy/Exports/ESSPublication

3. http://www.gov.scot/Publications/2015/03/3466/

4. http://www.gov.scot/Resource/0048/00484659.pdf

5. http://www.gov.scot/Topics/Statistics/Browse/Economy/Exports/ESSPublication

6. http://www.scottish.parliament.uk/parliamentarybusiness/CurrentCommittees/89419.aspx

7. http://www.yourbritain.org.uk/uploads/editor/files/ColePlan11-23166.pdf

8. http://www.gov.scot/Resource/0049/00493538.pdf

9. http://www.gov.scot/Resource/0047/00472389.pdf

10. http://www.gov.scot/Topics/Economy/Publications/TradeandInvestmentEconomicEvidenceDiscussionPaper

11. https://scottishbusinesspledge.scot/#

12. https://sustainabledevelopment.un.org/post2015/transformingourworld

13. https://sustainabledevelopment.un.org/sdgs

14. https://sustainabledevelopment.un.org/sdg17

15. Scottish-enterprise.presscentre.com/imagelibrary/downloadmedia

16. http://ec.europa.eu/eurostat/statistics-explained/index.php/Business_demography_statistics

17. http://www.gov.scot/Topics/Statistics/Browse/Economy/Exports/ESSPublication/ESSExcel

18. http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf

19. http://www.gov.scot/Publications/2015/12/5962

20. http://www.gov.scot/Resource/0048/00484659.pdf

21. http://www.gov.scot/Topics/Statistics/Browse/Economy/Exports/ESSPublication

22. http://www.gov.scot/Topics/Statistics/Browse/Economy/Exports/ESSPublication

23. http://www.gov.scot/Topics/Statistics/Browse/Economy/Exports/ESSPublication

24. http://www.gov.scot/Topics/Statistics/Browse/Economy/Exports/ESSPublication

25. http://www.scottish.parliament.uk/parliamentarybusiness/CurrentCommittees/89419.aspx

26. http://www.gov.scot/Topics/Statistics/Browse/Economy/Exports/ESSPublication/ESSBarriersAssistance

27. www.un.org/en/development/desa/policy/untaskteam_undf/thinkpieces/22_thinkpiece_trade.pdf

28. http://trade.ec.europa.eu/doclib/docs/2015/october/tradoc_153846.pdf

29. http://business-humanrights.org/en/un-guiding-principles/text-of-the-un-guiding-principles

30. http://www.scottishhumanrights.com/actionplan

31. http://www.senscot.net/view_art.php?viewid=18578

32. Social Enterprise in Scotland: Census 2015

33. http://www.gov.scot/Topics/Statistics/Browse/Business/RD/BERDTables

34. http://www.ey.com/UK/en/Issues/Business-environment/2015-Scotland-attractiveness-survey

35. Ernst & Young – 2015 Scotland Attractiveness Survey

36. Ernst & Young – 2015 Scotland Attractiveness Survey

37. http://www.pminfrainvestmentreport.com/

38. http://www.cbre.co.uk/uk-en/research

39. The Market for SME Finance in Scotland