THE BUSINESS OF CHRISTMAS

As the dulcet tones of Noddy Holder singing “Merry Christmas Everyone” blares out for the umpteenth time on radio stations all over Britain, it is easy to forget that as we look forward to a few days of overindulgence and TV specials, this particular holiday season has become critical for many parts of the UK economy.

Nowhere is this more so than in the agricultural and food sector, which has been in the doldrums in recent years. According to statistics from the National Farmers Union, 10 million turkeys are consumed every Christmas along with 25 million Christmas puddings, washed down with 250 million pints of beer and 35 million bottles of wine.

In addition, over 8500 tonnes of carrots are sold in the week running up to Christmas with 3000 hectares of land utilised to grow the Brussels sprouts that go onto your Christmas dinner plate.

And it is not only on the dinner table where farmers are benefiting.

As you look at your festive decorations tonight, consider the fact that there are 6 million Christmas trees sold every year, with some having been grown for 20 years or more before they are chopped down for living rooms across the land.

Another key sector to get a major boost from consumers at this time of year is the retail industry. For shops and up and down the land, December’s sales can account for half of the annual pre-tax profits of non-food retailers and, for grocers, equates to about an extra month of sales. The stand out performer was again John Lewis, which reported record receipts for the second consecutive week in December, with sales increasing by 11 per cent as compared to the same time in 2011.

And the good news is that last weekend, it was estimated that Christmas shoppers have spent up to £2billion on present buying with the extra December trading weekend before New Year also promising record sales.

But the High Street is not the only place which is benefiting from increased consumer confidence. Online retail spending has increased by 10 per cent in 2012 and is estimated, by 2016, to accounts for a quarter of total retail spending in the UK. Incredibly, Amazon reports that even on Christmas Day itself, people are busy buying on the internet, with an increase of 263 per cent in online shopping on December 25 over the past five years.

For those of you with young children, have you ever stopped to consider how, every year, you are supporting the biggest toy market in Europe? Toys are worth around £3 billion to the economy with a third of this income being generated at Christmas, equivalent to an incredible 110 million toys that will be unwrapped on 25 December.

Christmas is also the time when companies show their appreciation to their staff through bonuses. Certainly, staff at JCB in Wrexham will be delighted at the announcement last week that all of the manufacturer’s UK employees would receive a £500 Christmas bonus payment. I am sure that others up and down the land will be rewarding their staff for working hard through what has been a difficult year for many firms.

The Christmas Party is also an opportunity for employers to reward staff for all their hard work throughout the year with one night of festive fun. It is also a major boost to the trade of local pubs, clubs and restaurants, and it is estimated that as much as £1 billion is spent every year on these corporate get-togethers. However, recent research has also suggested that hangovers from such parties cost the UK economy as much as £260 million in lost man hours, as a quarter of employees work for fewer than four hours the day after the annual Christmas party because they are suffering ill-effects from the night before, while around a fifth call in sick or show up late.

Despite this, Christmas parties are also providing a boost to both the retail and personal services industry as everyone tries to outdo each other in the office fashion stakes. In fact, research by George at Asda found that 45 per cent of women spend an average of £100 getting ready for the annual office Christmas party, with some spending much as much as £210 on outfits, shoes, make-up and tanning in preparation for their night out.

Therefore, Christmas is not only a time for celebration but is also a critical time for many parts of the UK economy. But let us not forget that the economic benefits of Christmas should not be exclusively for the big department stores, supermarkets and Amazon.
Certainly, if you have yet to finish off your shopping, consider whether you can buy gifts for your loved ones and friends in local shops, thus giving your local High Street the boost it deserves at this time of year.

Nadolig Llawen! Merry Christmas!

PUBLIC PROCUREMENT IN NORTH WALES - A LEVEL PLAYING FIELD?

An article in the Daily Post last month reported that of the £552m in goods and services procured by local councils last year, just £155m was spent in North Wales.

At a time when the local business sector needs to be fully supported as it struggles to emerge out of recession, the finding that 72 per cent of local authority procurement is obtained from outside of the region is a shameful figure.

In fact, when you consider that even if only half of the goods and services that councils buy were purchased from local firms, this would bring an additional £121m into the North Wales economy, generating thousands of jobs.

Of course, it is not only councils that should be under the spotlight and I would also like to see health boards, universities, colleges and the Welsh Government itself release similar data for the region.

Certainly, it is an issue I have been writing about since on a regular basis 2004 and I am glad that this is finally getting some of the attention it deserves by politicians across all political parties.

But local procurement is not an issue only for North Wales. Recent research from Europe showing that small to medium sized firms (SMEs) won less than third of all contracts above £5million. Micro-businesses, which employ less than ten people, got only 6 per cent of the total market of contracts in terms of value.

It has been suggested that this situation is exacerbated by the tendency to issue large single contracts, which seem to benefit bigger companies. Instead, critics have suggested that public authorities should promote the practice of breaking down tenders into smaller lots, a move that would increase the probability of smaller local firms becoming successful.

One of the recommendations I made as Chairman of the Welsh Conservatives’ Economic Commission was for the Welsh Government to promote is the imposition of targets for spending public budgets with local small firms, as is the case in the USA where the Office of Government

Contracting works to create an environment for maximum participation by small businesses in federal government contract awards. With the US government spending billions of dollars in purchasing goods and services from private firms every year, targets have been set for every government department as to the proportion of expenditure that will go to SMEs. More importantly, legislation in the USA ensures that the public sector must conduct a variety of procurements that are reserved exclusively for SMEs.

Those who defend the status quo in Wales suggest that it will be the taxpayer that will lose out if we favour smaller local firms over larger and, allegedly, more efficient, companies. There is simply no evidence for such a supposition.

I recently met with a group of North Wales construction companies who had expressed serious concerns over the new framework agreements for public sector construction in North Wales. These, they suggested, had been designed specifically to keep local companies out of consideration by a process that favoured larger national businesses.

Certainly, those public servants in charge of putting together these contracts, which are worth hundreds of millions of pounds, need to answer such concerns. However, when I asked the companies concerned about competition is that they said they would welcome it, as long as they weren’t excluded and given the opportunity to compete.

Indeed, as one of the owners of these firms stated quite firmly, “I have never lost a business contract to a large company and I am not about to start now”. Clearly, the evidence shows that the public sector in Wales needs to consider its policies towards supporting local firms through procurement.

However, it could start to address this issue immediately by ensuring that as a matter of course, every local business that wants to compete for a public sector contract is given the opportunity to do so.

And on such a level playing field, I would certainly back our companies to win these contracts every time.

GVA AND THE WELSH ECONOMY

Every year, the release of the regional GVA (Gross Value Added) data gives politicians and policymakers the strongest indication of the prosperity of Wales relative to the rest of the UK economy.

And whilst some have been quick to dismiss GVA as the main measurement of the wealth of the economy, it is still seen as the gold standard by which the majority of economists view the relative affluence of nations and regions. Indeed, the European Union will soon use it to decide whether the poorest parts of Wales will, for potentially the third time, receive billions of pounds in additional funding for economic and community development.

So what has been the performance of the Welsh economy in 2011?

In terms of relative GVA/head of population, it would seem that the Welsh economy (1.9 per cent growth) has expanded at a higher rate than the UK (1.4 per cent growth), with only South East England and Northern Ireland growing at a faster rate in the period 2010-2011. However, despite this improved performance, Wales remains the poorest part of the UK although it may well overtake the North East of England within the next few years.

Whilst there is scope for optimism in these new economic figures, this growth is not uniform across Wales. For example, the poorest part of the economy - West Wales and the Valleys - has grown at a slightly faster rate than the more prosperous East Wales (which includes Cardiff and the Vale of Glamorgan, Newport and Monmouthshire, Wrexham and Flintshire, and Powys).

This could suggest that the various European Structural Funding programmes are finally beginning to have an effect on the poorer parts of Wales, although this does vary across the region.

For example, if we look at the relative growth across Wales since the highest levels of European funding was granted to Wales in 2000, only three counties – Anglesey, South West Wales and Bridgend/Neath Port Talbot – have grown at a faster rate than the UK economy over those eleven years. Indeed, whilst the Welsh economy has grown at an average of 48 per cent during this period, areas such as the South Wales Valleys have grown at a far lower rate despite having access to additional funds for economic development.

However, the biggest disappointment for both politicians and policymakers must be the decline in relative growth of the more prosperous parts of the economy since 1999. Whilst GVA/head has decreased by 1.4 per cent for the whole of Wales, it has actually gone down by 5 per cent for East Wales since the birth of the National Assembly for Wales.

Some would argue that by focusing resources predominantly on the less wealthy parts of Wales, economic development policies have neglected those parts of the economy that could have the greatest potential and capacity for growth. Certainly, some parts of East Wales have shown a dramatic decline in economic fortunes over the last thirteen years. In particular, the mid-Wales county of Powys has seen a fall of over 10 per cent in its GVA/head to a level that would, if the Welsh Government wanted to make the case, make it eligible for inclusion in the next round of European Convergence Funding for the poorest parts of Wales.

There has been much discussion of late about the potential role of cities as the economic drivers for the future Welsh economy. Analysis of the GVA data suggests that, to date, that role has yet to be realised and, contrary to expectation, the main urban areas of Wales – Cardiff, Swansea and Newport - have only grown at an average of 1.6 per cent as compared to 2.2 per cent for the rest of Wales between 2010 and 2011. Indeed, their growth rate since 1999 is also lower than the average for Wales.

Certainly, if their performance could be improved considerably over the next few years, then there could be a significant impact on the Welsh economy. In fact, some would argue that the city regions approach to economic development recently proposed by the Welsh Government needs urgent action if the full potential of Wales’ three cities are fully realised for the economy.

And what about North Wales?

Since the creation of the National Assembly for Wales in 1999, the Welsh economy has grown by 54 per cent. In contrast, the economy of North Wales has had a growth rate of only 51 per cent This is disappointing, given that there have been concerns that the region has not been receiving the necessary funding required to help build up its economy.

But this figure actually hides a more worrying statistic over the relative wealth of both parts of the region.

For example, the poorest four counties – Anglesey, Conwy, Denbighshire and Gwynedd have grown by 59 per cent during this period, which is higher than the Welsh average. In contrast, the two counties of Flintshire and Wrexham have only experienced a growth of 43 per cent since 1999. Indeed, whilst GVA/head has decreased by 1.4 per cent for the whole of Wales, it has actually gone down by 6 per cent for North East Wales since the birth of the National Assembly for Wales.

Some would argue that by focusing resources on the less wealthy parts of Wales such as those in receipt of European funding, economic development policies have neglected those parts of the economy that could have had the greatest potential and capacity for growth.

Certainly, in the light of the decision not to recommend a city region for North East Wales, many will be asking when the Welsh Government will start to consider how it should address the relative decline in the prosperity of Wrexham and Flintshire.

Therefore, I would imagine that most politicians and policymakers in Wales are heaving a quiet sigh over relief over the headline figures for the relative prosperity of the Welsh economy, especially given the uncertainty that has been caused by recent recessions. However, more detailed analysis shows that there are still challenges that remain in certain parts of Wales, not only in terms of raising prosperity but in using the resources available to drive forward in economy in those areas that have the highest potential for growth.

THE AUTUMN STATEMENT AND THE WELSH ECONOMY

Just over halfway through the current Coalition Government's term of office, there was a strange mix of anticipation and trepidation over the latest Autumn Statement from the Chancellor of the Exchequer, especially as the UK economy remains fragile.

Given this, George Osborne must have been relieved that, despite disputes about economic and fiscal policies on the front pages, there was a broad welcome from the business community for most of the main measures announced.

The £5.5 billion package to develop the UK's infrastructure was largely in response to pressure from business groups, with the Welsh Government receiving £227 million to spend on key capital projects via its Barnetised share of this funding. In addition, the decision to reduce the main rate of corporation tax to 21 per cent by 2014 is seen as not only supporting British businesses but also makes the UK a very attractive option for overseas investors.

And whilst unexpected, the ten fold increase in the Annual Investment Allowance for small to medium sized firms (SMEs) should act as a catalyst to get entrepreneurs investing their cash in developing their businesses over the next two years. However, whilst those were some of the headlines from the Autumn Statement, the more interesting new policies that have potential for the Welsh economy have to be found by reading carefully through the ninety three page document. For example, the UK Government has extended the temporary doubling of the Small Business Rate Relief, a move which has been automatically replicated by the Welsh Government in previous years.

Whilst politicians in Cardiff Bay could improve on such an offering, this is unlikely to happen until the business rates review is completed. It is great news for Newport that it has been chosen as one of only twelve cities to benefit from the second wave of the Government’s Urban Broadband Fund to help build one of the fastest and best connected communications networks in Europe. With Sir Terry Matthews' Alacrity Foundation also based in Wales' third city, this could give the local economy a massive kickstart after years of decline.

The announcement that Ebbw Vale and Haven Waterway Enterprise Zones in Wales will join Deeside in getting enhanced capital allowances will also help the development of key projects in both areas. A more controversial issue is that of shale gas, which is seen by some as the panacea to the growing energy problems of the UK economy.

Given the way that the USA is looking to become self sufficient through natural gas resources, it is not surprising that the UK Government is taking the first steps towards examining such potential through establishing an Office for Unconventional Gas to manage this relatively new industry. With South Wales having the potential to become one of the main areas for shale gas extraction, what seems like a minor policy change could have a big impact on both the local economy and the environment.

The recent thawing of relations between the Welsh Government and UKTI (the UK Government's trade body) is timely given the increased focus on exports and the announcement that UKTI's annual budget will be increased by £70 million to deliver more services to SMEs. Certainly, one would like to see Welsh firms take greater advantage of these exporting services in the near future. Indeed, the closer co-operation that has been established with UK Export Finance should ensure that Welsh firms are in a strong position to tale advantage of the new scheme to provide up to £1.5 billion of loans for the purchase of UK exports.

In supporting science and innovation, the UK Government announced that it will be investing £600 million in research infrastructure and facilities for applied R&D. If this was fairly distributed, Wales would be getting around £30m to support the development of innovative technologies. However, with Wales having access to additional money via European Structural Funding, then both the Welsh Government and the Wales Office should be making the case that the UK could get more bang for its bucks if facilities to support high quality research were built in Wales.

An announcement was also made that the Prime Minister will soon be setting out the next steps to support the UK Life Sciences sector. Again, with the Welsh Government showing the way to other regions through its £100m life sciences fund, we cannot be left behind other favoured regions, such as Aberdeen, Cambridge, Dundee, London and Oxford, as this vital high technology industry is developed further.

Another policy development that should be of relevance to Welsh firms the decision to provide £120 million for two additional rounds of the Advanced Manufacturing Supply Chain Initiative. This will support R&D, skills training and capital investment to help UK supply chains achieve world-class standards and encourage major new suppliers to locate in the UK. With Wales remaining one of the major manufacturing regions of the UK, I hope that our best companies, such as Airbus, Ford, Toyota and Tata, are linked into this programme. I would also expect that this initiative can be used to support new developments, such as the nuclear programme at Wylfa, to ensure that local firms take full advantage of major projects.

Therefore, as with every statement from the Chancellor of the Exchequer, there are policy changes that could have positive impact on Welsh business. The challenge now is to ensure that the Welsh Government work alongside their counterparts in Westminster to ensure that the economy of Wales takes full advantage of such opportunities over the next twelve months.

BUSINESS SCHOOLS AND LOCAL FIRMS

Following the global financial crisis of 2008, one of the more interesting debates that took place was over the role of business schools in training the so-called "Masters of the Universe" graduates who were at the helm of failing companies such as Lehman Brothers.

As a result of the various banking scandals, and the general breakdown of trust in business that followed, those in management education began to question their overall strategic approach, the content of their flagship Master of Business Administration (MBA) programme and, more importantly, how they should develop the managers of the future.

Some of the external criticisms that business schools have faced during the last few years include failing to provide the ethical direction needed by managers, having a curriculum that is too narrow and specialised which ignores leadership and entrepreneurial skills; and undertaking research that is motivated only by academic rigour and not practical value.

There has also been concern expressed by those working within business schools that they have lost their way because they are increasingly perceived as cash cows for universities to subsidise other loss-making academic departments, with quality and relevance becoming victims of financial imperatives.

As a result, there continues to be an increasing amount of soul searching by some of the leaders of business schools as to the way forward for their organisations.

One of the more interesting critiques is to be found in "The Learning Curve" by Santiago Iniguez de Onzono of the IE Business School in Madrid. As Dean of one of the best business schools in the World, he creates a marvellous journey into the changes that he believes will influence management education over the next decade.

In particular, he notes the importance of ensuring that MBA students learn more than just management skills as part of their training and emphasises the importance of connecting with the outside world, encouraging the recruitment of both academics and practitioners as faculty members.

An interview with Santiago is shown below.

 

Another review, this time by Professor David Wilson of Warwick University, suggests that business schools should broaden their focus of research and teaching towards the bigger public and private sector debates in work, employment and society. He argues that this should be done by being less insular and engaging more with other departments across the University.

Indeed, he goes on to propose that business schools could, and should, become a critical part of the knowledge transfer process by helping in the commercialisation process of science and technology from higher education institutions, something that is sadly missing within the majority of universities in the UK.

There is also some debate as to whether the MBA programme, which drives most business school activity, is fit for purpose. For example, a recent survey by the Association for MBAs  (AMBA) suggests that there is likely to be increased specialisation over the next few years to reflect the needs of global business and society, especially in areas such as sustainable development, health and energy. In addition, an increasing number of MBA graduates are opting to start their own businesses rather than work for other organisations as entrepreneurship becomes more popular globally.

Another key development is that of online learning, which some believe poses a major threat to the traditional campus-based MBA programmes which dominate the US and European business education markets, especially as serious players such as MIT, Harvard and Stanford are entering the market.

Therefore, whilst there are major global challenges facing business schools in an increasingly competitive marketplace, little attention has been paid to their role and relevance to the local business community. Given the importance of strategic leadership and business skills to the growth of companies, there is surely a greater role to be played in ensuring that the competitive advantage of local businesses are maximised through improved management development?

The CBI has recently suggested that there should be a focus on improving the performance of medium-sized firms in Wales. Yet apart from the occasional European funded management programme, the focus of nearly every business school in Wales is on attracting high fee paying overseas students rather than on developing the competences of indigenous businesses so that they gain the strategic, operational and entrepreneurial skills necessary to grow and develop.

It has been argued that this is because there is a lack of demand from Welsh firms but I simply don't believe that is the case, especially given the tens of millions of pounds of support that is available through the Welsh Government for workforce development, much of which is currently spent on low level training.

Whilst creating an internationally oriented business school may be the primary imperative for many universities,  I still passionately believe that there is a need for an organisation that focuses predominantly on creating a more entrepreneurial business community that will help make the local economy more competitive by training those leaders and managers within the public and private sectors that can make a real difference to their organisations.

More importantly, if a university in Wales was prepared to take up this challenge, I am sure there would be widespread and positive support from politicians and the business community alike for such a development.