Transcript of evidence to Business and Trade Committee on export-led growth

Business and Trade Committee

Oral evidence: Export-led growth, HC 289

Tuesday 5 March 2024

Watch the meeting

Members present: Liam Byrne (Chair); Anthony Mangnall; Andy McDonald; Mark Pawsey.

Questions 65-106

Witnesses

III: Chris Cholerton, Group President, Rolls-Royce plc, Vince Jesaitis, Government Affairs, Arm Holdings plc and Dylan McMahon, Head of Growth, Kendal Nutricare.

Examination of witnesses

Witnesses: Chris Cholerton, Group President, Rolls-Royce plc, Vince Jesaitis, Senior Director, Government Affairs, Arm Holdings plc, and Dylan McMahon, Head of Growth, Kendal Nutricare.

Chair: Welcome to the third panel for our hearing today on export-led growth. I am absolutely delighted that you have both been able to join us. You are two of our most important exporters. We are looking to you for some advice, evidence and argument about how we need to improve our export performance and our export support in the future. I am delighted that Mark Pawsey is going to open the questioning for us.

Q65            Mark Pawsey: Good morning. To set a benchmark, could each of you tell us a little bit about the proportion of the sales that your businesses achieve on an annual basis that is achieved through exports? We will then go on to how we grow that and what the Government is doing that is successful. First, though, where do each of your businesses sit?

Vince Jesaitis: Thank you very much for the invitation to be here. I am with Arm, a semiconductor design company headquartered in Cambridge, with four offices across the UK—we also have offices in Manchester, Bristol and Sheffield. Collectively, those four offices represent more than half of our global workforce, so they are incredibly important offices to the overall operations of Arm.

We as a company do about $3 billion in global sales. About half of that is from IP licensing. The other half is from royalties. The licensing is directly related to exports. Despite having only about half of our global workforce here, 95% of our exports come from the UK.

Our technology starts in Cambridge with our architecture. That architecture then goes out to CPU and GPU design teams. When they design CPUs and GPUs, that technology is then delivered back to Cambridge and we license globally. Again, about 95% of our exports are delivered digitally from Cambridge.

All of our exports are digital. We have a lot to say on digital exports and the treatment of digital products, which I can get into later. It is incredibly important for us. It is incredibly important to be able to access markets globally. We develop one product that we license globally, so the ability to export from the UK is incredibly important for us. [Interruption.]

Chair: I am just going to pause and invite Dylan McMahon to join the panel because he has just arrived, and then Chris will continue.

Q66            Mark Pawsey: Chris, can you tell us about Rolls-Royce and the extent and importance of exports to your business?

Chris Cholerton: Thank you and good morning, everyone. Rolls-Royce in the UK operates in three main sectors: civil aerospace, providing gas turbines for aircraft; the defence business, which is a global defence business but has a big part here in the UK; and our nuclear activities in the UK, powering nuclear submarines and our small modular reactor activity, which we can talk more about as being a great export growth opportunity. That is civil aerospace, defence and nuclear activities, employing 21,000 people in the UK. Export is a huge factor in all those businesses. Some 80% of all the goods we produce in the UK are exported.

Chair: 80?

Chris Cholerton: 80% of all the goods we produce in the UK are for export. That is 1.3% of the total UK’s export of goods, and some 27% of all UK aerospace exports are from Rolls-Royce. The economic value that brings to the UK is enormous. There are some 21,000 people in Rolls-Royce in the UK, but over 90,000 in the supply chain where we spend some £2.6 billion a year servicing that business and those exports.

Q67            Mark Pawsey: That is really helpful as a benchmark. Just to explain, we are getting an understanding and a benchmark. Can you tell us about the total size of the business you represent and the proportion of your sales that are currently exported?

Dylan McMahon: No problem. My name is Dylan McMahon, representing Kendal Nutricare. We are a manufacturer based out of the north-west of England in Kendal, and we manufacture a range of different nutrition products, all dairy based, with infant formula being the largest export. Our company has increased over tenfold in the last 24 months due to a large export opportunity in the United States. Today our run rate of exports is over $250 million, which represents over 70% of our business. A great deal of that goes into the United States, and a certain amount goes into Asia, the middle east and Africa.

Q68            Mark Pawsey: How is the export of your products built into your overall business strategy? We will come on then to ask about how the Government support you in achieving that. Perhaps I can go across the panel again. Vince, how are exports baked into what you are doing?

Vince Jesaitis: It is how our company operates. As I mentioned, we develop one product and license that product globally, so it is absolutely essential that we are able to access markets. The reason for that is the foundation of a lot of technology, software and other technology products is developed to run on top of Arm CPUs, so we need that consistency. We need to be able to deliver our products from—

Q69            Mark Pawsey: I am assuming that, in the absence of exports, you would be a relatively small player in a relatively small domestic market.

Vince Jesaitis: Yes. It would probably not be a stretch to say that we would not be in existence.

Q70            Mark Pawsey: Chris, you said that 80% of your business is exports. Again, there is not a domestic market in the UK big enough to—

Chris Cholerton: There is, but not an immensely large one. We are a global business operating in sectors that are very advantaged, highly differentiated, with high barriers to entry and very few international competitors. The market is a global one, so exports are at the absolute heart of our business strategy.

Q71            Mark Pawsey: How is that baked into the culture of your business, right from the shop floor through to all activities within the organisation?

Chris Cholerton: Our markets are global markets, so all our businesses are most of the time looking externally to maximise those sales and returns for the business. It is integral to how we operate.

Q72            Mark Pawsey: Dylan, I am assuming that your business was a domestic supplier until relatively recently. How has the export side of the business developed?

Dylan McMahon: Our business is today a large and significantly export-driven business, although it was previously—anybody familiar with the infant formula market in China would know that at a point in time Kendal Nutricare represented over 10% of all imports into China in food and drink from the UK. 

However, just to echo the comments here, exports are fundamental to our business. We are a business that relies on a growing population. When you consider our population decline or specifically where the opportunities for growth are for our business, those are growing populations and growing middle classes. This is fundamental.

Q73            Mark Pawsey: Right. And we are quite interested in opportunities that might arise for other businesses. So how did the export opportunity become apparent, relatively recently, for your organisation? I am looking at the other two organisations that have had exports baked into their businesses from a very early stage, but in your case it is a relatively recent phenomenon. So how did it come about? And was it a consequence of your own activity or activity undertaken by others?

Dylan McMahon: Certainly it came about of our own activity. As I say, the market opportunity for our business relied entirely on exports. There is a limit—

Q74            Mark Pawsey: How did you come to know that this opportunity was in that place at that time?

Dylan McMahon: It is just a fact of knowing your business. We know that infant formula—taking that as an example; it is our key product—is a product that grows in growing economies, where there is a growing middle class and a growing population—

Q75            Mark Pawsey: Right. So, no external agency came along to you guys and said, “Hey! We recognise this opportunity here. You might want to be a part of it.” Did you have people in-country at the time who knew about that? We want to understand how you learned, so that we can then encourage others to do the same thing.

Dylan McMahon: Sure; absolutely. We travelled on a trade mission with Theresa May back to China—

Q76            Mark Pawsey: So it was a trade mission that was the initiative? Right, okay. That’s great.

Dylan McMahon: One initiative for the Chinese market played a role, but I would say that a lot of this is integral to our business—exporters are always known. We travel to conferences around the world. We go to meet distributors. We build markets in the middle east and Asia using a distribution model, for example. We work directly with the United States.

Q77            Mark Pawsey: And all of that takes time and investment—

Dylan McMahon: Certainly.

Q78            Mark Pawsey: Well ahead of achieving those results. So, how did your business make the decision to speculatively go on these trade missions and spend that money without having any guarantee that the business was going to follow?

Dylan McMahon: Correct—there was no guarantee and certainly it is a challenging business, and it is a very expensive industry to operate in; operating spray driers is expensive.

However, it was clear that there was a limited—a very limited—growth opportunity in the United Kingdom. Export was fundamental to the survival of jobs. We have tripled the number of jobs in our facility in Kendal and that entirely relies on growth that relies on exports, because our factory becomes more efficient when we increase our tonnage of product. In order to do that, we need an increased market; in order to have an increased market, we need exports.

Q79            Mark Pawsey: It provides you with economies of scale.

Dylan McMahon: Correct.

Q80            Mark Pawsey: Whose decision was it to make that investment to go out and look for exports? And what was the time lag between your spending time in-country to develop the relationships and business materialising? How long did that take?

Dylan McMahon: We are a family business operated by myself, my brother and my father. We made the decision entirely ourselves. Ultimately this was a personal investment. The business was built using personal finances and we took that risk. We knew that if we wanted to grow, we had to export. We invested knowing that there would not be an immediate return. Infant formula is an industry built on trust. People do not buy a new brand in the way they might buy a bar of chocolate or a luxury item. This is something that requires trust; it requires a network in the healthcare in a local economy.

It was always key to us to enter these markets, to establish ourselves and to build that trust. These markets certainly do not grow quickly. We have been operating in Asia and the middle east for over seven years and that market grows steadily but it doesn’t grow overnight.

Q81            Mark Pawsey: So, would your message to those intending to export be that they need to be patient?

Dylan McMahon: No. I suppose our guidance would be that they should make every effort to try to build networks in these economies, because they cannot always rely on the support of trade missions. We haven’t been on one in over seven years, so they are going to have to take their own initiative to travel overseas to make that investment and take that risk on their own accord, and they will have to build relationships on the ground, with distributors and with those in the industry, I suppose, who can advise them on how best to grow. 

Q82            Chair: Vince, when I interviewed Sir Robin Saxby for the book I was writing on entrepreneurs a few years ago, he told a very interesting story about how he tried to build Arm as a global business right from the outset, because he recognised that the UK was going to be a small market in a big world and therefore you had to be global from the outset. Can you tell us today from your point of view what the key barriers are to exports today?

Vince Jesaitis: That is a great question and it is great that you have that context of meeting Mr Saxby.

One of the main barriers we see is actually not coming from the UK: it is the localisation of technology, for both those wanting to build domestic supply chains and countries that have domestic supply chains and want to protect them, primarily through export controls. Again, going back to my earlier points, our business model is built on being able to deliver one product. Whenever we see countries putting up barriers to selling our product into that market because they want to promote a domestic player or putting up barriers to us exporting our product out of national security concerns or otherwise, it is incredibly impactful to us. It undermines our reputation as a reliable supply partner. I would say that those are some of the biggest barriers we currently face.

Q83            Chair: Give us a case study or a vignette. How does that development hit your top line? You are trying to sell something, and you have some national security concerns in a market that you are trying to sell to. How do those dynamics then play out?

Vince Jesaitis: One of the biggest things we see is that competitor technologies are popping up. The EU, India and China are all exploring this competitive technology. They are doing that because they want to create a domestic alternative to this technology that we provide. We are seeing that local Government support in those markets specifically for this alternative technology. When we are developing products in the US, say, we see increasingly restrictive export controls—fully recognising the intent and necessity of export controls. We think that the approach that the US has taken is not targeted, so that is further incentivising these other Governments to want to look for alternatives, because they do not view Arm as a reliable partner or only view us as being able to deliver older or lower-end technology. That is creating a lot of problems for us. It really limits our ability to portray ourselves as the global technology platform to innovate on top of. Thankfully, we have a much better export environment from the UK than we face in the US right now, but things are very tenuous across the world in the semiconductor space.

Chair: You feel that that is slowing down your export growth today.

Vince Jesaitis: Absolutely.

Q84            Chair: Chris, what are the main barriers that you see?

Chris Cholerton: First, I would say that Rolls-Royce has been very successful in exporting. The Government is a critical part of enabling that, but I will talk about a few enablers of maximising that export opportunity; I think there are three. One is a very well co-ordinated and integrated cross-Government approach to the support of campaigns. We have outstanding capability in our embassies, high commissions and suchlike around the world, and we draw on those heavily.

Back in the centre of Government, it is important to ensure that we pull all the levers in a co-ordinated manner to maximise the opportunity on strategic campaigns. Particularly in the defence world, it is about not just the product; increasingly, it is about the co-development of capability with countries. Therefore, it is about the importance of Government-to-Government arrangements to facilitate and underpin those opportunities—the Government-to-Government frameworks that lay out the contracting framework, funding, security considerations, IP rights and so on. A good example, perhaps, is any business with India. I think 75% of all imports to India deals are under Government-to-Government arrangements.

Chair: Say that again, because it is such an important fact.

Chris Cholerton: It is particularly in this world of co-development, but also in product sales. The example I used was in India; 75% of the successful exports to India from around the world are enabled and facilitated by Government-to-Government arrangements.

Q85            Chair: Interesting. What is a Government-to-Government arrangement?

Chris Cholerton: It is a framework that lays out the basis of how it will be funded, how data will be exchanged, the security of the IP and the way in which it will be governed between the two Governments. It is all the enabling framework to allow progress to be made more rapidly than it would otherwise happen. I think that is important.

Supporting critical technology development is also important. Dylan talked about the length of time it takes to bring some products to market. Of course, in the aerospace market that is a very long period of time. There is very high investment in R&D well ahead of any market entry point—it could be 15-plus years ahead of that. In areas that are strategically advantaged, highly differentiated and going to be playing a big part on the global stage, Government investment into those technologies is critical. For example, we have benefited hugely from ATI funding—the Aerospace Technology Institute—in our aerospace world. That takes support up to technology readiness level 6—the demonstration in a representative environment. Further funding through the development of product would be helpful. As a comparator, we believe our US competitors probably benefit from about double the amount of Government investment. That is who we are competing against.

Q86            Chair: That is not related to the Inflation Reduction Act?

Chris Cholerton: No, that is just leveraging Government investment. I have mentioned a whole of Government approach and critical technology investment in those selected sectors. Finally, and perhaps most importantly, particularly in business that is Government business—the defence and nuclear world, whether that is civil or defence nuclear—is home market endorsement and selection. That is absolutely critical. It is very relevant at the moment to our small modular reactor opportunity. I think small modular reactors will have a huge export market, driven by the increasing nuclear ambitions in many countries, and by energy security, net zero and the need for electricity for highly power-dense industries—for example, for AI data centres. There will be a huge market, and one where first mover advantage will be very important, because there will end up being very few winners in this world. Endorsement and selection by your home country gives confidence for those international opportunities. We are seeing that currently as being an impediment to progressing some of our very positive potential exports.

Q87            Chair: So some of these things are not necessarily covered by the traditional FTAs. I think what I am hearing is that sometimes the Government-to-Government bargains could be more important than the FTAs and their details.

Chris Cholerton: For us, free trade agreements are slightly less important because the aerospace world is covered by double-tier rules, and the Government-to-Government arrangements in defence are probably more powerful.

Q88            Chair: Dylan, what are the principal barriers to exports that you bump into?

Dylan McMahon: The first thing certainly does relate back to the funding opportunities for British-built businesses in comparison even to our counterparts in Ireland in the dairy industry. If you look at the way that dairy co-operatives in Ireland have been supported, there are research and development centres with an excess of €20 million investment. Industry is being supported, and in spite of that, major multinationals like Nestlé are closing facilities at the same time, with the loss of 540 jobs in Ireland. That is really an indication of the impact on the industry and the likes of ourselves.

We need additional funding opportunities so that we continue to increase our manufacturing capabilities in the UK. In our case, typically, if that is a spray dryer or a new evaporator, that may be a minimum investment of £30 million, but we are not seeing any funding provided for that. As a privately owned, family-led business, that is challenging. It certainly begs the question, when there are facilities all over Europe that are being supported massively by the European Union, of how British businesses are meant to grow and meant to compete with limited access to funding.

We would look for additional clarity in trade negotiations. An indication is that, in the last two years alone, we have paid over $35 million in import tariffs to the United States Government on infant formula. That is an enormous challenge, and it is in spite of the fact that we entered the market to support during a period of humanitarian crisis. During that period, infant formula actually had the tariff waived for a period of up to about nine months. That waiver then expired and was never brought back in. The increase is a 20% tariff on our imports. That is enormously challenging, and it appears that there is no great priority at the moment for that to be reversed on the UK side. In addition, on regulations, it is fundamental that the United Kingdom aligns itself with major regulations on food and nutrition labelling. When you look at the infant formula market, it is divided into regulations: the FDA in the United States, the European Union and the Codex Alimentarius Commission in the middle east and African markets. The UK is now straying from European regulations.

Q89            Chair: Is that a problem? 

Dylan McMahon: It is not a problem yet because, although it is lagging, it does appear to be attempting to mimic European regulations, but the moment that it does stray or those regulations are not mirrored, or the UK decides to stray aside—well, fundamentally, our product changes entirely. Our product is a powdered infant formula. The nutritional levels—whether it is the proteins, fats, carbohydrates or a given mineral—have to exist within certain parameters. If our product in the UK is being held to a standard different from the product in the European Union, that means I have to double the amount of product I am making because, fundamentally, I have to serve two markets. Apologies for reverting back, but that also relates to the trade agreements.

Take the Windsor framework, for example: I do not believe that businesses like ours were involved enough in that process. There is now a requirement from later this year, in Q3—apologies, I don’t have the exact month—that we will have to put a statement on every can, whether it is made for the UK or for the EU. For a negotiating party, that might have felt like a very small give, but for a business like ours that has to purchase up to 100,000 tins of packaging for every individual SKU that we make, those three little words mean that I have to make 200,000: one for Europe, one for the UK.

That is fine when we have grown to our size, finally, but if I go back three years to when we were truly an SME—no chance. We needed the ability to operate with the same product under the same regulations in multiple territories. Under regulations like the Windsor framework, which was deemed to be a success, fundamentally that would have been terminal to our business in Ireland, the Czech Republic and Poland, because we would not have been able to meet their minimum order quantities for our packaging. Businesses like ours need to be closer to these trade negotiations.

Chris mentioned India: India is a major challenge. We look to India as an ideal territory to export to; we believe that infant formula should be carved out. Infant formula was carved out by the Australians in their negotiation with India. We see a growing middle class, an enormous population and enormous export opportunity, even in excess of the 200 million that we are exporting to the United States, but that is limited by the fact that there might be an import tariff in excess of 60% going into India, which makes our product entirely uncompetitive.

Chair: That is super useful—thank you.

Q90            Andy McDonald: It is fascinating to listen to you all. I wanted to ask you about the range of services that the Government provide to exporters. I am not entirely sure that it is highly relevant, given what we have heard from you today. Are you able to tell us a bit about the services that you receive from the Government to assist you in your exporting journey, and whether they are effective? Chris, are you too big for us to get involved in that conversation?

Chris Cholerton: No: there is a huge amount of support on a number of aspects. I will pick out UK Export Finance, for example—that is extremely valuable, does a great job—and supports our customers, and Airbus’s and Boeing’s customers—in financing aircraft to facilitate exports; therefore, our engines go on those exports. They are talking with some of our SMR potential country customers to see what levels of support they might give. UK Export Finance is very powerful.

As I have described, the diplomatic network is extremely useful in campaigns, mainly from the depth of relationships and insights and the trust in the UK that they promote. We utilise that very effectively around the world. The UK Defence and Security Exports group in the Department for Business and Trade is critical on some of those Government-to-Government arrangements; increasing the horsepower in that area to make sure they can be progressed at pace will be valuable. They do a great job. Also, the Export Control Joint Unit, which has been mentioned, is another area where we draw on support. Again, that works well. An area for potential improvement is just the engagement—to perhaps get more anticipation of what is to come and therefore increase the pace of some of those approvals and suchlike.

Q91            Andy McDonald: Vince, do you want to add anything?

Vince Jesaitis: I thought Chris’s answers were great. I would just say, on the export control work, we have ongoing regular dialogue. We do run into a few issues around export controls from the UK, primarily for higher-end technology that would go into, say, data centres or servers. It takes a lot of engagement from our teams to explain what that technology is. We run into issues even exporting that technology to allies—Taiwan, South Korea, India, Israel, Singapore. I think that would probably be the area of Government that we engage with the most. Because there is a very small subset of companies that we can actually sell to globally, we generally know the marketplace, so do not use a lot of the other mechanisms.

Q92            Andy McDonald: Dylan, your journey is different. You said, “We were once an SME.” I am trying to get my head around your situation. The trade mission was critically important to you. I was thinking about other companies that would like to emulate your success and what Mr Pawsey said about some of the services that are available. Can you say a bit about what works and where the deficiencies might be? How effective were Government services to you in growing your company in the way that you did?

Dylan McMahon: Thank you, and it certainly wasn’t long ago that we were an SME. We just founded the business in 2015, so it has been quite the journey. I can really speak specifically to the food industry. I have travelled all over the world to different conferences, from Vitafoods to Expo West to Gulfood in the middle east. One thing that would certainly be more helpful would be to see the United Kingdom under a more united banner. At these conferences, oftentimes, whether it is Northern Ireland, Scotland or Wales, we can find ourselves divided in these trade floors. I assume, fundamentally, that it is drawing from a single pot, potentially—potentially multiple pots in certain cases—but it is actually making the United Kingdom, in certain cases, look smaller than it is on a global scale.

Again, when you look to our counterparts in Ireland, one thing they have consistently been praised for is their support of the dairy industry, which is obviously fundamental. Relative to its population, Ireland is the greatest exporter of infant formula in the world, which is quite a fact, with 70% of the infant formula in Europe coming from Ireland, unbelievably. They operate under a brand called Origin Green, which is supported exceptionally well and consistently has exceptionally good funding opportunities at these trade fairs. It represents itself well under a single banner.

For us in our industry, infant formula represents the biggest opportunity for the premiumisation or the value-add of the dairy industry. Now, not only are we moving to organic dairy, but we are moving to American organic dairy, which is a major value-add for dairy. For small businesses like ourselves growing up years ago, it takes a long time to be present in those trade shows, though we were very fortunate to take part in that trade mission. But it would have been helpful if there had been a more consistent banner for British food and drink being exported, and specifically British dairy.

In comparison, that is fundamentally our greatest USP. The biggest strength of our business is the strength of our team and the strength of British dairy. We rely heavily on that and we have had to invest ourselves in building that brand. If the Government could get behind supporting British farming and British dairy in a more holistic way, many businesses would be drawn up like that. I suppose that would be the first thing.

Q93            Mark Pawsey: You are all in front of us because you are very successful exporting businesses. We heard in our evidence from our German colleague about how big businesses and big exporters lead their export activity and share some of their expertise with smaller businesses perhaps looking to export for the first time. Do you see any evidence of that in our institutional set-up? Are there any ways you can engage with people in your own supply chain, or with other companies more broadly, about how you can help them to export more?

Vince Jesaitis: Absolutely. This is probably going to be more anecdotal. We work incredibly closely with a lot of our partners. They take our CPUs; they incorporate that into a chip. We work with them to ensure that they know how that technology is going to be treated under the export control regime. We pass our classifications on to them. So we help—

Q94            Mark Pawsey: That is essentially assisting somebody who is using your chips in a product in the UK to get into an export market.

Vince Jesaitis: Exactly. That is probably the best example I could give. There is technical collaboration but then collaboration on how they get that product to market as well.

Q95            Mark Pawsey: Chris, is there any equivalence at Rolls-Royce?

Chris Cholerton: Clearly, the primary way for smaller companies to get into export is via the route to market, via Rolls-Royce and what we are exporting. Of course, we have a huge supply chain and work very closely with those partners. But there are other forums, like the Defence Growth Partnership and the Aerospace Growth Partnership, which is a combination of large businesses and SMEs.

Q96            Mark Pawsey: Do those organisations have export at their core? Is that part of their DNA?

Chris Cholerton: Yes it is, given the global nature of the markets for aerospace and defence. I think there are a couple of examples, and we are part of both of those. It goes back to this co-ordinated approach. You have to have strategically targeted, focused areas where there is a large market globally and one that is highly differentiated. We know the areas where we can make money. We know we can execute, because we have the capability. All the pieces of the jigsaw, as described by colleagues here, have then to be in place. Any one piece of the jigsaw that is missing can undermine the success. We can have technology investment; we can have a great diplomatic approach and cross-Government support—you need all that to work well. I am back to the home market endorsement being critical, of course, in that piece of the jigsaw.

Q97            Mark Pawsey: The impact of that lesson isn’t lost on us.

Chris Cholerton: No—exactly.

Q98            Mark Pawsey: Dylan, your business has grown incredibly fast and is doing very well in export markets, and you are no doubt incredibly busy managing your own business, but has there been any effort or initiative on the part of UK export authorities to say, “Hold on, there’s a company here that is clearly doing things right and learning the lessons that it has gone through and passing those through to other exporters,” or do you feel a bit left alone?

Dylan McMahon: Certainly not. I really would like to thank the trade advisers that we work with in the Department for International Trade. We have been incredibly fortunate to have, since our inception, a single adviser, who was largely responsible for the first introductions we made in China, so we have had an exceptional relationship there. At the time, we would have been offered opportunities to speak—especially on that trade mission—to companies much larger than ourselves, and we certainly try to reciprocate that now.

Q99            Mark Pawsey: So there is some teamworking?

Dylan McMahon: Yes, certainly. To some extent, it’s not always centrally developed—centrally co-ordinated, I should say. We all go to these trade conferences or trade missions and meet each other; and from there, whether it’s through a WhatsApp group, emails or the sharing of cards and further calls, we do try to help one another out. I think there could be a more co-ordinated approach to ensuring that the valuable information that all our colleagues have, including my colleagues to my right, passes down to everybody, and that it is not just circumstantial and about whether you happen to speak to the right person at the right time.

Q100       Mark Pawsey: Would you say that it’s a bit hit and miss right now?

Dylan McMahon: I would say that it would be great to have a more co-ordinated approach. There is always room for improvement. I couldn’t say, though, that I have seen it done perfectly anywhere.

To go back to the original question, it is fundamentally the case in our business that the growth of British dairy, the growth of the brand of British dairy, is important to us, whether it involves our business or not. I mentioned earlier that we are exporting to the United States. A large part of the ingredients that we use is not just—I won’t get into dairy in too much detail, but we don’t just use milk in its raw form; we use by-products. We have to use microfiltration and nanofiltration to land on whey protein and casein protein. We have to land on pure lactose of infant-grade quality. The only reason why I share that is that those products are not possible to manufacture without the manufacturing of cheese—that is the by-product—so we rely heavily on a strong export of British cheese, which isn’t currently a division within our business, to grow our scale.

To go back to the initial question, “How do we help others? Have we helped others?”, this is certainly anecdotal, but we have been very fortunate as an organisation to build an excellent product and build up some great distribution networks. It is very much in our interest that British dairy collectively succeeds internationally, not only in the United States but all over the world. Fundamentally, that is raising—

Q101       Mark Pawsey: Is enough being done to do that? It cannot be your initiative alone; it needs to be a sector-led event.

Dylan McMahon: Certainly, yes. The ADHB is a great organisation that we travelled to Gulfood with, and it does put partners in contact. We try our best to make introductions for others, but with a more co-ordinated approach—more holistic—we might grow faster.

Mark Pawsey: That is helpful; thank you.

Q102       Chair: Chris, to wrap up this panel, I will ask about the UK export support strategy. How does this grand figure of £1 trillion in exports by 2030 show up for your business? Do you get DBT officials saying, “Chris, we have this big target, we are a bit worried about how we hit it and we are a bit off track at the moment. What can we do together with you? You’re one of our biggest exporters”? How does the strategy meet the business?

Chris Cholerton: The honest answer is that I am not aware that we do get that sort of communication, but we get engagement on export opportunities, which must be part of that direction of travel.

Q103       Chair: Do you ever get asked what you need in order to grow your exports faster?

Chris Cholerton: Yes, we engage in that dialogue, and we communicate the sorts of things that I have communicated—

Chair: Someone knocks on your door and says, “I am from the Government; I am here to help you.”

Chris Cholerton: On the Government target, I cannot comment on the specific steps to getting there, but we strongly agree with the principles in the document issued. We have benefited from some of the initiatives described within it.

Personally, I see enormous opportunity across multiple industries for increasing our exports, in particular with some of the emerging clean tech and nuclear capabilities. We engage with Government and across Government on those aspects that will increase the likelihood of success and maximise the benefit for the UK. That is why the cross-Government approach is so important, because we are up against some very powerful and co-ordinated lobbies from the US Government and France in particular in the defence world. We are strong, but we need to make sure that we keep at our very best, so we do not get outgunned.

Q104       Chair: When we were in South Korea before Christmas, the Committee heard loud and clear from the defence industry there that these shared platforms, such as the Tempest programme that we have with Japan, are very important Government-to-Government platforms in pulling through exports. Are they more important than getting new FTAs signed? Should we invest more in Government-to-Government platforms that pull through exports, rather than—

Chris Cholerton: I am not sure which is most powerful, but I can confirm that the Government-to-Government arrangements in defence exports are hugely important. Something like the GCAP programme, the global combat air programme—Italy, UK and Japan—will be immensely important as opportunities for the UK to pull through the technology advancements, some of which will have benefit across into the civil domain as well, so there is a force multiplier effect in the value of such technology. I reinforce that Government-to-Government arrangements are hugely powerful in a number of domains.

Q105       Chair: Vince, the IMF says that about 2,500 restrictions on trade are introduced by Governments per year, which is up about eightfold in the past 10 to 15 years. Economic security is now disrupting global trade in a way that it has not in the past. If we cannot get trade deals signed with, say, the United States, is there a virtue in trying to get economic security arrangements that at least help us to navigate some of the restrictions that you are beginning to bump into?

Vince Jesaitis: Yes, absolutely. Specific sorts of agreements within export control regimes allow country-to-country collaboration. That is an important mechanism. Things like the CPTPP are incredibly important as well—the report discussed its value from a financial perspective, but I would say that creating norms across a geography that large is incredibly important. The CPTPP was actually very forward-looking on digital trade. As I mentioned earlier, we deliver everything digitally—IP by digital means. So protecting cross-border data flows, preventing forced localisation and protecting source code—the sorts of things that are enshrined in the CPTPP—are incredibly important for us.

The last thing I would say is on point 12 in the “Made in the UK, Sold to the World” report. That touched a bit on the WTO. Obviously, the WTO is a bit dysfunctional. It was an incredible outcome at the end of last week to protect the digital tax moratorium, but it was only a two-year extension. We are facing a lot of uncertainty about what two years from now will look like. It appears that a lot of countries want to see that moratorium go away, so the more the UK can do to support that in the WTO would be incredibly important.

Q106       Chair: That is incredibly useful. The European Commission has just launched an anti-subsidy investigation into EV cars from China, for example. I suspect that there will be more such anti-subsidy investigations soon. The UK’s Trade Remedies Authority did not seek to join that anti-subsidy investigation, for reasons we are not yet clear about. Is that going to become an important trade defence mechanism, taking a strong stand against competitors that are enjoying subsidies that are frankly unfair?

Vince Jesaitis: Yes, I think it absolutely is. One of the things that we talk about as a company is, with all the incentives that are being made into the semiconductor sector globally, the real concern about overcapacity, which distorts the market. It impacts us because it drives down our royalty rates, our revenue and our ability to reinvest the revenue into the next product. So absolutely, keeping those sorts of mechanisms alive and looking at the right issues will be important to us, because I think the next five or six years in the semiconductor industry will see a lot of change. As we are seeing in the EV market, allegedly, there could be a glut of semiconductor products coming from countries that over-incentivised domestic industries.

Chair: Our time is up. That has been an absolutely fascinating panel. Thank you so much. The Committee is extremely grateful to you all for your evidence. You have told us a lot about Government-to-Government platforms in driving through exports. You have told us a lot about the imperatives of economic security agreements and how we need to get a bit stronger on tackling subsidies that unlevel the playing field. This point about making sure that we have industries with strong brands behind the industry is obviously super-important, too. Thank you very much.