The Royal Society of Edinburgh welcomes the opportunity to comment on the Enterprise Network Review. Although Scotland is a world leader in academic scientific research it has had a poor record for exploiting these advances in Scotland. As a result, the Royal Society of Edinburgh has been actively engaged in the national Technology Ventures initiative to promote the commercialisation of the Scottish science base. In partnership with Scottish Enterprise and the Scottish Higher Education Funding Council, the RSE since 1996 has been delivering a programme of activities to promote a better understanding of the issues involved in innovation and commercialisation. This response has been compiled with the assistance of a number of Fellows from a range of backgrounds including universities, small and medium sized enterprises and multi-national companies.

The questions identified within the consultation document are dealt with below:

Issue1: What should the task of the Enterprise Networks be?

The task of the Networks should be to promote economic development. It should do this through:

• Delivering, at a local level, the locally relevant elements of a nationally agreed enterprise strategy;
• creating the infrastructure and environment for the creation of wealth through enterprise;
• establishing a framework of understanding and support within which individual firms have the best chance to succeed;
• helping different facets of the Scottish economy to be in synchrony so that initiation and development of ideas can be supported and furthered without excessive bureaucracy;
• removing obstacles to economic success;
• remedying market failure; and
• helping to create and/or sustain business in Scotland with good long- term prospects.

Issue 2: Is the task in rural and urban areas significantly different?
The basic tasks will be the same in rural and urban areas but the mechanisms for intervention and support may be different. For example, distance and isolation make it much more difficult and costly for people in rural areas to look outside their immediate area for work or to obtain training and pursue learning opportunities (except by remote learning) and large scale initiatives are rarely relevant to rural areas.

Issue 3: Are these functions right for the economic development task we wish the Enterprise Networks to perform and the challenges the economy will face in the years ahead? Is there any perceived tension between the wide range of the agencies' responsibilities and their ability to focus on any particular responsibility? If so, how can it be dealt with?
Distinctions should be made between areas where the Network takes the lead, ones in which it provides a supporting role and ones in which it encourages other relevant organisations to play their part. While a successful economy benefits from positive attitudes to learning and an inclusive economy, the balance needs to be struck between these social policies and providing the skills and support the economy needs. In creating a prosperous economy the first priority is getting profitable companies. An integrated set of functions is important, but the Enterprise Network is in danger of being pulled too far in different directions at the expense of focusing on economic development. In this respect, the approach of sharing common objectives with partners (for example, in the areas of the environment and social inclusion) would be more appropriate than the sharing of goals.

Issue 4: Are the boundaries with the other players (including the Executive) in economic development, lifelong learning and the labour market right?
This is a central issue. There is an overlap in many areas with local authorities over economic development. It is important to ensure that this produces positive synergies and not wasteful duplication and competition. Economic development should be the clear prerogative of Local Enterprise Companies (LECs), with Local Councils providing appropriate primary and secondary education and infrastructure support.

The interface with central government should be defined in the most cost-effective way, so that neither side is in any doubt about the division of responsibility. There may be a case for considering the transfer to Scottish Enterprise (SE) of the responsibility for Regional Selective Assistance which at present rests within the Executive, and the case for merging Scottish Enterprise and Highlands and Islands Enterprise (HIE) could be re-examined.

Skills development is an important aspect of successful business and responsibility for ensuring such development should remain with the Enterprise Network. The involvement with local business by the Enterprise Network has played a crucial part in making it possible to find training places in employment for youth trainees. Ifresponsibility for training were transferred to another organisation without those links, the process would be less effective. The local enterprise network has also sought to ensure that the training supplied within their boundaries has been appropriate to local needs.

The Department of Employment necessarily adopts a centralist approach to rolling out and managing national programmes. By contrast, the LECs within SE and HIE were able to experiment with new approaches in both youth and adult training: the more successful tended to be copied by others, while the less successful were quietly dropped. It should be noted, however, that having responsibility for training does not mean that the economic development networks provide the training themselves, which is, done by others. The networks’ role is to act as promoters, facilitators and, if necessary, managers of training programmes.

Issue 5: Would there be advantage in developing a 'single door' approach to business assistance at local level along the lines of the successful model for inward investment and exports? How would that be done?
A multiplicity of agencies, setting out to provide general business assistance at local level, is inefficient and confusing. There is a strong case for having a single door approach - provided that it is run by professional economic development organisations. It will mean, however, that all the local players must get together to work out what the local needs are and what they each have to offer; and then agree the best way to provide it, putting the clients' needs first. This has been achieved in some cases but is often easier said than done.

Specialist support for particular industries (for example biotechnology, software and tourism) could also be provided in parallel. Access to these programmes need not be exclusively through the single door, but it could provide guidance at the earlier stages of an enquiry as to the best option for accessing a network and, if need be, to call in expertise from different parts of SE.

Issue 6: What is the best way of bringing tourism marketing, training and development into the mainstream of economic development? What should the implications be for the responsibilities of the various bodies involved?
In many areas tourism is one of the best prospects for new employment opportunities but in some areas, it seems to be the sector least able to collaborate effectively with more 'general' agencies. The RSE believes there is no reason why tourism’s marketing, training and development of facilities should all be carried out by the same organisation. What is important is that the diverse needs should be metefficiently.

Tourism as an industry is probably unique in the level of on-going marketing support provided by government. It falls outwith the normal range of economic development functions and would be best handled by the marketing experts within the Scottish Tourist Board, although there would be a case for bringing the Tourist Board under the wing of the Enterprise Network.

The Enterprise Network has set up specialist training programmes; having specialist programmes for tourism should be no different from having specialist programmes for other areas, such as financial services or construction. They could, therefore, be handled in the same way by the Enterprise Network, but in close co-operation with the industry concerned. The development of facilities should be handled by the agencies responsible for promoting economic development, namely the Enterprise Network, and proposed developments should be subject to the same rigorous assessment as developments in other areas.

Issue 7: Is this structure appropriate in the light of experience and the priorities ahead?
To have a central body complemented by local enterprise groups clearly has the potential to strengthen overall effectiveness. LECs have been well-informed about local conditions, have acted as advocates for local areas and have been in a position to respond to local opportunities and needs. Economic development policies in Scotland as a whole have also benefited from the diversity of approach demonstrated by the LECs. However, there must be effective intergroup working methods and relationships, a clear definition of separate responsibilities and a stronger sense of network priorities.

At present, economic development can often seem project-led, rather than strategy-led (often due to efforts to gain Structural Fund or other match funding). This has resulted in duplication of effort between LECs, with no obvious sharing or leverage of expertise and know-how. There would be merit in simplifying the provision and pooling of expertise, rather than re-inventing wheels in every LEC area.

Issue 8: What is the best way to achieve a balance between national priorities and local need and involvement, and to foster an international perspective?
Not all national strategies will be relevant to a particular LEC area and therefore some local flexible discretionary spend is necessary, based on locally identified needs. The main responsibility for achieving a balance between national and local needs should rest with the boards of Scottish Enterprise and HIE as part of their strategic function. To achieve this, however, there needs to be good communication between the national body and the LECs through regular contact between chief executives and chairmen.

An international perspective may not be relevant in all cases but the horizons of local companies must be raised to compete in global markets and to strive to be world-class in whatever they do. This can be achieved through company mentoring, networking and sharing of best practice. The Enterprise Network has a key role to play in these aspects of enterprise development.

Issue 9: What is the most effective response to the disparities that still exist inincome, employment and unemployment between different parts of Scotland?
There is no single response. It is necessary to reinforce success but it is also necessary to provide support in less prosperous areas by way of skills training provision, help with business start-ups and assistance to businesses which are in difficulties but have a long term future.

The LEC's cannot, however, carry the responsibility for addressing the disparities between different parts of Scotland alone but, insofar as they might contribute, the problem should (as now) be recognised in differential funding levels between regions. A great deal was learnt from the integrated area approach to multiple deprivation, which tried to tackle as many as possible of the problems facing the people of an area; in particular linking relevant education and training to realistic employment prospects while simultaneously remedying the physical and social defects of the area (housing conditions and tenure, transport problems, vandalism and other crime, nursery and crèche provision). This would, however, involve lead co-ordination by the local authority as opposed to the LEC.

Issue 10: Is this approach the most appropriate framework for private sector involvement and for accountability, representativeness and the most effective delivery of the network's tasks?
The scope for the Enterprise Network to operate at arms-length from day-to-day political pressures is valuable. However, there is a need to promote wealth creation and the quality of life through greater co-ordination and shared strategies between universities, colleges, research institutes, enterprise companies, industry, finance andGovernment, in ways such as those proposed in the recent Scottish Office report Scotland: Towards the Knowledge Economy, and in the Royal Society of London and Royal Society of Edinburgh report on Devolution and Science.

With regard to Board membership, the current approach is appropriate in many ways. However, it could be argued that it is too disjointed, resulting in the need for additional communication vehicles. It would perhaps be worth considering that the Board of Scottish Enterprise should comprise simply the Chairman of the LECs plus three to four non-executive directors. The suitability of any structure also depends on the qualities of those involved and, therefore, LEC Boards should be selected on the basis of personal experience and qualities, rather than simply as representatives of particular interest groups.

Issue 11: What lessons can we learn from the experience of leading development agencies in other parts of the world?
Lessons from other parts of the world include the importance of helping indigenous companies and of helping entrepreneurial start-ups. In addition, experience in other countries suggests that the use of facilitation, rather than subsidisation, is important as the key development tool and that development agencies should take the initiative (and bring in other partners) where no appropriate initiative is otherwise forthcoming.

Issue 12: What types of activity/programme have the Enterprise Network done well or less well?
The Enterprise Network has been successful in facilitating co-operation between Local Councils and private enterprise, encouraging leverage of public funds. The Network has also done well in attracting, and providing aftercare to inward investors, and raising awareness of business competitive issues, such as attitudes to money-making and low business birth-rate. In addition, the Networks’ youth training activity has been particularly strong.

The Network has, however, been perceived as disadvantaging local business, through the inward investment support leg of the Network paying staff training grants for inward investors, while local companies get no similar financial support.

The policy towards the economic environment for technology-based companies could also be improved. It has been argued that too much funding has been spent on buying low-value-added jobs from inward investors. It is recognised that inwardinvestment of branch plants of multinationals provides welcome employment particularly to replace rapid decline in other more traditional industries (their decline in many areas being the lack of technological investment and appropriate market driven development strategies). However, branch plants using foreign technology without local innovation do not produce self sustaining development or a competitive base when faced with changes in the economic marketplace. The need for an environment which fosters the growth of companies which are based on proprietary knowledge, both technical and commercial, are a pre-requisite for a modern self-sustaining growth economy.

More could also have been done on adult training at the bottom end of the labour market.

Issue 13: Which additional or existing areas should they concentrate on in the future to achieve the greatest benefit?
The RSE believes that the areas worth concentrating on in future are the diversification of the economic base, promoting the knowledge economy, providing high value-added jobs in Scotland and helping to build on the strengths of the Scottish research base and to exploit it commercially wherever possible.

With regard to additional areas, any additional area should create something positive for Scottish economic activity which would otherwise be under-provided by business (the "externality" case), or fail to be provided at all (the "public good" case). Concentration on some areas at the expense of others has to be determined on cost-benefit grounds - although lack of the appropriate statistical information may make this a stiff test.

The Scottish economy must be a diverse one and an appropriate environment for each sector must be created. However, technology is what is driving the economies of successful industrialised nations of which Scotland is one. Resources should, therefore, be targeted at building sustainable growth in indigenous companies and at developing leading edge technology capability in companies in Scotland. This should be for both indigenous and inward investment companies, with independent product ownership responsibility and research and development activities.

In terms of existing areas, the RSE supports Scottish Enterprise’s efforts in its cluster strategy, corporate networking and benchmarking, training for highly skilled value-added jobs and in the commercial exploitation of research. The marketing of Scotland abroad, however, would benefit from better co-ordination. The external/international dimension of Scottish Enterprise is complex, with elements like Locate in Scotland, Scotland the Brand, Scotland Europa etc all having responsibility for marketing Scotland overseas. There would be merit in considering the extent to which a single agency might be able to take responsibility for all aspects of the international marketing effort, and in particular the systematic marketing of Scotland's technology strengths.

Issue 14: How well do the Networks' relationships with the private, public and voluntary sectors work? How can they be developed?
In general, the Network’s relationships are good and are improving, but there is room for closer relationships with universities. The RSE has collaborated, and is willing to continue to collaborate, with the Enterprise Network in this area.

The RSE strongly supports the vision of Scotland as a small country with a global position as a key player in the increasingly knowledge-based world economy. Achieving this, however, will require a strong innovative business culture, with effective cross-fertilisation of ideas and people between industry and academe. The RSE is committed to promoting the economic well-being of Scotland by encouraging closer links between the country's research base and its commercial sector. This already happens in a number of ways, including supporting the Government's Foresight programmes in Scotland, and by undertaking work leading to, and in support of, Technology Ventures. The RSE is also keen to help develop a national strategy aimed at increasing the volume of Scottish-based businesses exploiting Scotland’s world class Science base.

Additional Information
In commenting on this document the Society would like to draw attention to the following Royal Society of Edinburgh responses and publications which are of relevance to this subject: Commercialisation Enquiry: Final Report (1996); The Innovation - Exploitation Barrier (January 1997); Engineering and Physical Sciences Based Innovation (March 1998); A New Strategy for the Scottish Enterprise Network (October 1998); Devolution and Science (April 1999); Developing Scotland’s Clusters (June 1999) and A Framework for Economic Development in Scotland (March 2000). Copies of this response and of the above publications are available from the Research Officer, Dr Marc Rands

May 2000