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Has the CBI in Scotland shot itself in the foot? For months, it has been posing dozens of awkward questions about the implications of independence. That is exactly what one would have expected any self-respecting business lobbying group to have done. They were intelligent questions that needed answering, the sort that many people and organisations were themselves asking.

Decision taken nationally

Decision taken nationally

However, its decision nationally to register with the Electoral Commission as a supporter of the “No” campaign has meant that it has lost its impartiality. It seems that this was a UK rather than a Scottish decision. It’s perhaps no surprise that it should have done so – its name, the Confederation of BRITISH Industry, rather gives the game away. But the fact that a growing number of members has now resigned suggests that it hasn’t taken at least some of them with it.

It’s understandable that some bodies funded from the public purse in Scotland should have wanted to distance themselves. Scottish Enterprise and Visit Scotland, for instance, were amongst the first to go. In a statement, Scottish Enterprise described CBI Scotland’s move as a “political decision”, leaving it with “no choice but to immediately resign”. VisitScotland also insisted that it was “appropriate to withdraw from the organisation”.

Scottish Enterprise logoOthers have now followed. Highlands and Islands Enterprise stated that its own position of the issue was impartial which led it to conclude that it was “inappropriate” for the organisation to remain a member of the CBI. And now, Skills Development Scotland has followed suit. At the weekend, three universities (Glasgow, Edinburgh and Aberdeen) and resigned they have now been by Strathclyde and Glasgow Caledonian. This could prove uncomfortable for CBI Scotland’s director, Iain McMillan, who sits on the advisory board of Strathclyde.

The Law Society of Scotland said it could not retain impartiality as a CBI member. Its chief executive, Lorna Jack, explained that “we do not believe we could credibly retain our impartiality whilst being a member of and actively contributing to another organisation which is formally registered with the Electoral Commission to campaign for a no vote.”

STV - one of the first to resign

STV – one of the first to resign

At the time of writing, three private sector companies – STV, Scottish firms Aquamarine Power and the Balhousie Care Group, confirmed they were quitting CBI and others may follow. Nonetheless, a spokesman for the organisation insisted that it remained “confident we have a mandate from the vast majority of our membership on the question of Scottish independence”

The trouble is that there’s no evidence of such a mandate. The organisation has not produced any supporting material to confirm that an anti-independence resolution was ever passed. It’s one reason that those members in the public and private sectors are considering the positions. And this is damaging the credibility of the CBI as a whole.

The decision has surprised even some of those who do not support the CBI’s views in general. Business for Scotland is avowedly a pro-independence body. In a column in its newsletter, it expressed its astonishment, pointing out that the CBI “did NOT have to take a view against independence.

Surprised at the CBI's decision

Surprised at the CBI’s decision

“It could have raised concerns about particular policy issues or perhaps, more constructively, have given a view on how the powers of independence could be used to grow the private sector, without expressing a definitive view on Yes or No. It could have also questioned the No campaign’s ridiculous scare stories in order to represent a balanced view. But instead, officials couldn’t help themselves. They decided to go one step further by making clear they were against independence.”

There is more than one voice speaking for business in Scotland. The Federation of Small Business and the Institute of Directors have made it clear from the start that they would remain impartial, despite being accused by some of sitting on the fence. But what that does allow them to do is ask the awkward questions of both sides. It means they can be trusted to reflect the doubts expressed by their members. It’s something the CBI can no longer do.

A budget review, business coaching, guidance on applying for research and development tax credits and a fair sprinkling of networking will all be on offer at the inaugural meeting of the Institute of Financial Accountants (IFA) Scottish branch meeting this month. Professionals involved in accountancy, finance and tax in Scotland as well as IFA and Federation of Tax Advisers (FTA) members are welcome to attend the event, to be held at the Craiglockhart Campus of Napier Edinburgh University, on Wednesday 9th of April.

Justine Riccomini

Justine Riccomini

Justine Riccomini, who chairs the IFA’s Scottish branch, said that the organisation was “held in great esteem in the profession and at this inaugural branch meeting we will addressing some of the most pressing issues currently faced by accountants and tax advisers.”

The inaugural branch meeting, which is scheduled to run from 4.00pm to 8.00pm, will feature a range of high profile speakers discussing the Budget, business coaching advice from How2 Business Coaching and guidance from leading specialists Jumpstart on applying for and securing R&D tax credits from HMRC.

“It promises to be an exceptionally useful session and I am urging as many as possible of the IFA and FTA’s hundreds of members in Scotland to attend”, said Mrs Riccomini.

The IFA, “the voice of the SME”, is the internationally recognised professional accountancy membership body, whose members work for SMEs, or who run or work in small and medium-sized accounting practices (SMPs) that advise SMEs. It supports more than 10000 members and students in more than 80 countries with a programme of professional qualifications and education, as well as resources, events, training and seminars.

HBJ Gateley’s corporate restructuring partner, Tim Cooper, has been named as the new chair for Scotland of R3, the insolvency trade association.

Tim Cooper

Tim Cooper

In accepting the appointment, he called on the profession in Scotland to lead the debate on issues affecting insolvency and business restructuring reform, and noted the extensive work which R3 does throughout the UK and in Scotland.

Tim, who will serve as chair in Scotland for an initial period of three years, said: “The ability of the insolvency profession in Scotland to make its voice heard is a key part of making sure businesses are able to receive good advice at what is often a very difficult time. R3 in Scotland hosts meetings of its members, from accountancy, legal and financial backgrounds, to debate the key issues for the profession and the Scottish economy they work in.

“HBJ Gateley will be working more with R3 in Scotland to ensure the insolvency profession continues to lead and contribute to the debate at a critical time for Scotland. Ongoing improvement of insolvency practice is a worthwhile aim, which should always be measured, appropriate, and in conjunction with industry experts. The Scottish insolvency profession has a deservedly-excellent reputation and I’m keen that R3 assists its practitioners in contributing fully to the future development of the sector.”

HBJ GateleyTim also called on younger professionals to get involved with R3.

He said: “There are some very talented people coming through the ranks of the insolvency profession, and they bring a lot of new ideas and different perspectives which will be very valuable.

“R3 is a place to debate and discuss the big issues which will shape the future of the insolvency profession, and I’m very much looking forward to chairing for R3 in Scotland over the next three years.”

More than 90% of small business owners in Scotland say they’ve already decided how they are going to vote in the September referendum on Scottish independence. But 48% of them believe independence would be a negative step for their business. 37% thought that independence would represent a positive step for their company, while 10% felt it would have no material impact.

Ingenious Britain Surveyed 1,000 firms

Ingenious Britain
Surveyed 1,000 firms

The finding comes from new research by Ingenious Britain, a small business network which surveyed 1000 small business owners in Scotland. When asked if they believed they had enough information from the different campaigns to make an informed choice about the potential impact of Scottish independence on their business, only 63% said yes compared with 37% who said no.

When it came to investing in the future, 41% felt that independence would make it less likely that they would be able to invest in growing their business. By contrast, 36% felt it made it more likely and 13% thought it would make no difference. They identifies two worrying factors. The first is a fear that business tax increases in an independent Scotland would have a direct impact on their ability to invest. The second concerns exporting to the rest of the UK which could be a big problem if Scotland had to adopt a new currency.

“One thing all businesses need, especially small businesses, is certainty,” said Marlon Wolff, CEO of Ingenious Britain. “There is an indication coming through our research that a sizeable proportion of small business owners have sufficient reservations about the potential negative issues and challenges independence might present to be seriously questioning whether it is really in the interests of their company. However, it is going to be a close decision with many reacting against what they perceive to be status quo in which their needs as Scottish businesses are not reflected or taken into account.”

Tessa Hartmann  Uncertainty having a negative impact

Tessa Hartmann
Uncertainty having a negative impact

However, it’s clear that business owners are as divided as the rest of the population. Dr Tessa Hartmann, who runs Glasgow-based Hartmann Media, a PR and communications company working in the fashion sector, is firm in her belief that independence would be a bad step. “Given the long life cycle in orders that exist within the fashion industry, the uncertainty is already having a negative impact on the sector and affecting our exports, especially as customers don’t know what currency we would be using in an independent Scotland.

“But more than that, Scotland’s long heritage in fashion and textiles has thrived as part of Brand Britain. Remove Scotland from the UK and many of our young designers and fashion companies would become ineligible for much of the crucial support and profile they currently receive from the likes of London Fashion Week and the British Fashion Council.”

However, Rory Haigh, who owns Optimum Underfloor Heating in Inverness, takes the contrary view and believes independence would be a boost for his business. “Scotland has completely different social and economic needs to the south of England,” he explained. “We are a small country with a good track record of entrepreneurship that is not currently being harnessed or promoted. The government of an independent Scotland would be far more proactive in doing that and in addressing the everyday needs and concerns of Scottish businesses.”

Confidence highest since survey began

The latest quarterly confidence report from the Federation of Small Businesses shows that small business confidence in Scotland has risen to match the UK average. The organisation’s Voice of Small Business Index shows confidence rising in the first quarter of 2014 to its highest level since the data series began at the start of 2010. The Scottish confidence index measures +36 points this quarter, up 15 points since the last measurement, and is now slightly higher than the UK average of +35.7 points.

Andy Willox

Andy Willox

Further, a net balance of 18 per cent of Scottish small firms expect profits to rise this quarter with a 31 per cent balance expecting a turnover boost over the same period. More than half (52%) of all Scottish small firms now plan to grow over the next year with more than a quarter (27.6%) planning to increase capital investment. Around one in seven (12.9%) small businesses now report that credit availability is good or very good, compared to around one in 15 (6.6%) who said the same in the first quarter of 2013.

In the next three months, a balance of 7 per cent of Scottish small businesses plan to increase staff numbers. However, more than a quarter of Scottish businesses (27% this quarter) continue to cite access to skilled staff as a significant barrier to their growth.

In the view of the FSB’s Scottish policy convenor, Andy Willox, “It is great news that Scottish small businesses are now as bullish as their counterparts elsewhere in the UK. We need to turn this vigour into growth and jobs – and we must see this trend continue for the remainder of the year.

“As trading conditions improve, it is vital that businesses are ready to cope with rising demand. Firms with a full order book for the first time in years may need help with working capital and growing businesses will need to find the right skilled staff. To this end, we need to see governments in London and Edinburgh continue to back our members and the wider small business community. Further, Scottish local councils should not forget the critical role they play in their local economies – we need all of our decision-makers looking at new ways to back local growth and jobs.”

Scotland – overburdened by iconography

by Charlie Laidlaw

Companies stand or fall on the authenticity of their brands, with brand value an integral element in corporate and marketing strategy – the same is true of countries.

Scotland's 'brand' draws heavily on its history

Scotland’s ‘brand’ draws heavily on its history

This is a pertinent observation ahead of Scotland’s independence referendum later this year. If Scotland does vote to go it alone, it is the value of the country’s brand that will sustain it – driving everything from inward tourism to international investment.

Of course, defining a national brand and its value to the economy is virtually impossible, as perceptions vary enormously. The Anholt-GfK Nation Brands Index,which ranks countries against a number of criteria, offers some insight.

We are, of course, hotwired to think in shorthand. For example, think of Italy, and what do you associate it with? Pizza? Ferrari? Do you have a positive view on Italian manufacturing quality? Would you buy an Italian product against a competitor product from, say, France?

Think Italy - Think Ferrari

Think Italy – Think Ferrari

In some instances, the national brand guessing game is easy. Germany, for example, despite being on the losing end of two world wars, has achieved an international reputation for engineering excellence that has made it the economic powerhouse of Europe.

In that sense, Germany has reinvented itself. So too, Japan. “Made in Japan” once meant cheap and second-rate. Now, the Japanese automobile and electronic industries straddle the world, and stand for excellence and reliability.

Scotland too has reinvented itself, most obviously by Sir Walter Scott who organised King George IV’s visit to Edinburgh in 1822. It represented nothing less than a national brand makeover, making all things tartan chic and fashionable. Later, Queen Victoria put the heroic back into the Highlands.

A national brand make-over in the 1820s

A national brand make-over
in the 1820s

In some ways, for such a small country, Scotland is overburdened by iconography: from tartan to whisky, from lochs to glens, shortbread to haggis, bagpipes to the Loch Ness Monster, golf to kilts…the list goes on.

National symbols are important because they sustain economic activity. For example, Scotland’s tourism industry employs some 200,000 people and visitors spend almost £11 billion a year – with many of those visitors coming from other parts of the UK. Will they still come if Scotland becomes independent?

The tourism and hospitality industry seems split on that one, despite the Scottish government promising to cut VAT for the sector and reduce airport tax.

Whisky is another icon, an industry that employs 10,000 people and, according to the Scotch Whisky Association, exports in excess of £4 billion. But food and drink extends well beyond the water of life. Scotland is also home to about 25% of the UK’s beef cattle, and we catch over 50% of the nation’s fish. Our salmon rivers are world-famous, supporting rural and remote communities.

Scotland invented retail banking

Scotland invented retail banking

Or financial services, another national icon, with Scotland also credited with “inventing” retail banking. Yet if Scotland achieves independence, banks would have over 1,000% of Scotland’s GDP. When Iceland’s banks went bust, their assets were some 880% of GDP. Is that brand strength, or brand risk? Westminster politicians obviously think so, having blocked Scotland from entering into a UK Poundland after independence. Does Scotland therefore revert to its own currency? Or, longer term, think about the Euro?

(Incidentally, it was Sir Isaac Newton, then Master of the Mint at the Tower of London, who brought Scots coinage into line with the rest of Britain following the Act of Union).

Oil and Gas A diminishing asset?

Oil and Gas
A diminishing asset?

The financial case for independence is based, at least initially, on two iconic industries – North Sea oil and the financial sector. The SNP hopes to secure some 90% of tax from oil and gas, albeit a diminishing source of revenue, and a healthy slice of income from the country’s financial sector. (That’s leaving to one side the issue of Scotland’s share of national debt).

That means that Scotland the Brand will be dependent on a diminishing asset under its waters, and a sector that (post-crash) the country can’t necessarily rely on to deliver a safe return. Let’s not forget that, against Scottish tax revenues of some £60 billion annually, the cost of the bank bailouts was some £500 billion in loans and guarantees.

Scottish Government Committed to renewable energy

Scottish Government
Committed to renewable energy

It’s why the SNP government is keen to develop renewables as a new icon of Scottish industry, despite some ambivalent figures – for example, that offshore wind investment halved to £29 million last year. Biggest blow was a decision by Scottish Power to drop plans for the £5.4 billion Argyll Array windfarm.

Scotland has other strengths, particularly its track record of invention: from penicillin to the postage stamp, from TV to the telephone, the steam engine to logarithms…that list also goes on and on, to modern advances in gaming to Dolly the Sheep. If Scotland the Brand stands for anything, it must also be about education, innovation and invention. Medical and scientific research may become brand icons of the new Scotland.

Festivals - all part of the brand

Festivals – all part of the brand

However, in this year of decision, Scotland the Brand will also step onto an international sporting stage, helping the country to redefine itself (again) as a country of beautiful cityscapes and wilderness. The Commonwealth Games and Ryder Cup couldn’t have come at a better time for the pro-independence lobby.

But it’s the future that will better define Scotland the Brand: how the country’s universities engage internationally; how Scotland diversifies from oil and financial services; how Scotland can find niche industries to build worldwide reputation; how it attracts inward investment; and how it promotes its festivals, cities and landscapes.

Scotland may or may not vote for independence. But the debate has done one great thing for Scotland: it has raised awareness internationally in Scotland the Brand, a marketing opportunity that the country should grasp with both hands.

Charlie Laidlaw is a director of David Gray PR and a partner in Laidlaw Westmacott.

The University of Aberdeen – winners last year

The quest to add to the growing band of businesses formed through Scotland’s thriving academic entrepreneur community is underway, with every Scottish university setting out to uncover a potential winner for the 2014 Converge Challenge.

Converge Challenge 2014 LogoUniversity of Aberdeen came up trumps last year with a fledgling business SACCADE Diagnostics, designers of a novel eye movement test, scooping the £60,000 first prize – £35,000 cash and £25,000 in-kind mentoring, training and support. SACCADE joins an illustrious band of 24 businesses that Converge Challenge has successfully nurtured through its early stages – the most crucial phase of any business looking to develop into a fully-fledged operation.

Academic staff and students at any Scottish Higher Education Institute (HEI) can participate in Converge Challenge and since its inception in 2010, the initiative has received 180 applications, trained 120 academic entrepreneurs, from which 24 companies have been formed and has helped secure over £2.5 million of follow-on funding.

Olga Kozlova Converge Challenge Director

Olga Kozlova
Converge Challenge Director

The process of establishing, developing and funding a new start-up company is one of the toughest challenges facing any entrepreneur, however, students and academic staff at Scotland’s universities have the opportunity to crystallise their research to bring their ideas to fruition, as Olga Kozlova, director of Converge Challenge explains;

“Building a successful business is not easy – it takes more than just a great idea and cash prize to succeed. Commitment, dedication and cash are essential, but equally important are clearly identifiable and defendable intellectual property rights, the right business model and the correct corporate and financial structure. That’s why, in addition to a £35,000 cash prize, the in-kind support package we’ve put together, worth a further £25,000, is just as important an incentive to the overall winner of the Converge Challenge. When we can offer financial, legal and patent assistance, we really are going some way to help nurture a fledgling business idea with exceptional commercial potential.

We want as many budding entrepreneur to show the higher academic landscape across Scotland is alive with early stage business creativity.”

Madhu Nair of SACCADE Diagnostics, 2013 Winner

Madhu Nair of SACCADE Diagnostics, 2013 Winner

From the launch today, entrants to the Converge Challenge will have two months to submit their initial form and three months to prepare for an Elevator Pitch process taking place in early June with a closing deadline being set for the beginning of August.

Some of the most illustrious names in the Scottish business and technology sectors, will judge the final selections, with the overall winner of the Converge Challenge being announced after a final pitch process at a gala event to be held at Heriot Watt University, Edinburgh on 30th September.

Olga Kozlova concludes;

“Scotland has traditionally been a hotbed of commercialisation activity across both universities for many years and we recognise that by opening up the Converge Challenge to the whole of Scotland, we give academia an opportunity to compete with the rest of the country’s higher education and research institutes. I am truly excited what we might uncover this year.

The prospect of the wonderful variety of business ideas has the potential to make a difference as profitable and sustainable businesses in Scotland.”

Scotland doesn’t need permission to use the Pound

There’s been a lot of hot air and printer’s ink spilled over the past few days over the contentious issues of Scotland’s future currency and its membership of the EU.

George Osborne Could block a formal union

George Osborne
Could block a formal union

Even the London media seemed to agree in part that the Chancellor, George Orborne, came to Edinburgh to “bully” the Scots. His message was unequivocal – if you leave the Union, you leave the Pound as well.

There was a similar message from the EU. Commission President, José Manuel Barroso, told the BBC’s Andrew Marr that it would be ‘extremely difficult’ for an independent Scotland to join the European club because it would need the unanimous approval of all existing members.

The Chancellor’s speech had been thoroughly trailed well in advance. He argued that there was no legal reason why Scots should keep the pound if they voted for independence. The trouble with this is that any decision on whether Scotland uses the Pound or not may not be his to take.

What he CAN do is block any move towards an official currency union. But he cannot stop any other country using the Pound as its currency without fundamentally changing the nature of the Pound itself.

The Pound could continue to be used in Scotland

The Pound could continue to be used in Scotland

Sterling is a reserve currency. It is the third most popular such currency in the World. It is also one of the most traded currencies globally. Both politicians and civil servants in London have stressed time and again their commitment to open markets and free trade. There’s no way they could stop Scots using the Pound without undermining this principle.

Even the Financial Times accepts that no-one in England can stop an independent Scotland from using the currency for transactions and savings. “The country would simply have an informal currency union like Panama or Hong Kong do with the US,” it explained, adding: “Scotland could circulate uncollateralised sterling. Alternatively, it could use Scottish pounds exchangeable at parity and backed by sterling reserves.” In other words, business largely as usual.

However, it’s worth asking if a formal currency union is actually worth the effort and perhaps the heartache. Just remember what the Governor of the Bank of England said a short time before – that such a union would require “some ceding of national sovereignty”.

The Bank of England could ignore Scotland's needs even in a currency union

The Bank of England could ignore Scotland’s needs even in a currency union

If there has to be a ‘Plan B’, could it not be such an informal union? It would mean that John Swinney or his successors would have the control over the financial levers that he so desires – or at least much more control than he’d be allowed under a formal agreement.

Even with a seat on the Bank of England’s top table, the Scots would have to accept the monetary and fiscal restrictions imposed on them which, as now, appear to depend more on conditions in the South East of England than any other part of the country.

And one of the real concerns about a formal union would quickly turn into reality if Holyrood pursued social democratic policies while Westminster (now permanently Tory perhaps?) followed a diametrically opposite path. As we saw when the old Czechoslovakia split in two, a currency union can’t work when two countries pursue very different political and economic solutions.

Could Scotland also use the Euro?

Could Scotland also use the Euro?

So an INFORMAL currency union could have benefits.

And might other options not be considered? What if Scotland were to move to a cashless society? What if Scotland were to adopt more than one currency – both the Pound and the Euro for instance? Might the country decide on the ‘Bitcoin’ as an alternative? With electronic trading, these solutions need not be so far-fatched!

Then there’s the on-going question of EU membership. This has been a bone of contention for months.

The Scottish Government has argued that both successor states after separation would be members. However, the Commission President clearly disagrees.

José Manuel Barroso 'Extremely difficult' for Scotland to join the EU

José Manuel Barroso
‘Extremely difficult’ for Scotland to join the EU

It is probable that José Manuel Barroso is worried by the growing number of secessionist movements around Europe, especially in Spain and Italy. He will be concerned that, with the EU already in a fragile state after the financial crisis, nothing else should undermine the Union as it currently exists.

But once again, shouldn’t Scotland be thinking laterally? Norway appears to be Alex Salmond’s favourite Scandinavian country. It is not a member of the EU – and although some Norwegian ministers have acknowledged some disadvantages, there are also advantages and the lack doesn’t seem to have done the country any harm.

One could argue that NOT being a member of the European club could have some positive results for at least some Scottish sectors.

Scotland's fishing industry suffered under the CFP

Scotland’s fishing industry suffered under the CFP

Fishing for instance has been hard done by as a result of the Common Fisheries Policy. One could imagine Scotland making common cause with Norway and Iceland to declare a controlled, more protected zone in the North East Atlantic and the North Sea.

Unlike England where there’s a strong movement to leave the EU, most Scots would prefer to remain within the club. But if that offer is not on the table, would it really matter? Trade is carried out between companies – not countries. That would continue unabated.

There may be advantages for business. The European Commission has long been blamed for imposing excessive regulation and red-tape and making corporate administration more costly. An independent Scotland outside the EU could choose more freely what it needed to adopt.

The First Minister will deliver his speech to ‘deconstruct’ George Osborne’s arguments shortly. He also expected to deal with the European issue, something ministers have already dismissed as ‘pretty preposterous’. But it may be worth throwing other ideas into the mix. After all, there are still over six months before Scotland goes to the polls – and an awful lot can happen in that time.

Scottish Government needs to act

SELECT, the trade body for Scotland’s electrical sector, has urged the Scottish Government not to delay the implementation of the Sustainable Procurement Bill which is in the late stages of examination in the Scottish Parliament. The organisation believes that the Bill addresses most of the important outstanding issues regarding public sector procurement and that it is imperative that it becomes an Act of Parliament, with minimal amendment, as soon as possible. It also believes that the importance of the Bill, in a country dominated by the public sector, cannot be understated, arguing that it will determine for the foreseeable future how fully indigenous, private sector Scottish firms will be able to participate in vital public expenditure.

David Wright

David Wright

Head of External Affairs, David Wright, accepts that the consultation process has been “very genuine and many of the provisions for which we lobbied have been taken into consideration. It is now a matter of immediate concern to firms up and down the country across all sectors to see the Bill entering the statute books as an Act so that the benefits of public expenditure can be more efficiently shared by Scottish companies.”

Mr Wright pointed out that the Bill, for the first time, lists all public sector organisations covered by it, removing the argument by some authorities that its provisions do not apply to them. It also means that they are covered by the same procurement procedures, meaning that companies do not have to deal differently with, for instance, 32 different local authorities. This Single Portal means that there will only be one place where jobs go out to tender, making the identification of relevant work easier for companies.

Crucially, there will only be one pre-qualification requirement for companies, removing the need for repetitive pre-qualification submissions to different authorities, a hugely expensive and time-consuming process involving immensely complex paperwork. Nor will public sector bodies be allowed to continue to charge for providing the forms which companies need to fill in.

Mr Wright went on to say that the provisions would “expedite the process, making it far easier and much less costly for Scotland’s companies, especially small to medium enterprises, to play on a level playing field. But what is really encouraging from a local point of view is that there is a provision in the Bill for organisations to purchase locally. Where Community Benefit can be demonstrated, public sector bodies can justify favouring a local enterprise. This could be as simple as a reduction in carbon footprint through buying closer to home”

Local businesses in the Western Isles can struggle to compete

By Paul Freathy, University of Stirling

E-commerce has irreversibly transformed our lives by giving us greater control over how, what, where and when we purchase. The further away an area is from traditional shopping regions, the more pronounced the impact, and nowhere have such changes been more in evidence than across the remote Scottish isles.

For the past 18 months myself and my colleague Eric Calderwood have looked at the impact of internet adoption upon traditional patterns of life in the Shetlands, the Orkneys and the Outer Hebrides. We found people enjoying the freedom and price of online shopping, but we also identified worries over the longer term health of their communities.

While it is very easy to romanticise about living in such a stunningly beautiful part of the country, living on an island presents numerous domestic challenges. Access to retail goods and services have traditionally been limited, availability is often unpredictable and prices are higher than on the mainland. Island retailers are primarily concentrated in the main town and public transport is unreliable.

It is perhaps little wonder then that our research identified the positive impact e-commerce has had upon the lives of island residents. It has provided a level of choice and degree of accessibility never previously experienced on the Scottish islands.

So, job done. Everyone is happy. Well no, not quite.

Our research also found that the overwhelming majority of internet purchases were made from mainland or overseas retailers. There was little evidence of island residents using local websites to purchase goods and services (indeed it was noticeable how many people we spoke to couldn’t even name a local site).

Local island retailers of course tend to be small and often lack marketing and technical expertise. What was clear however was the ability of island residents to identify those sites that offered the most competitive prices, the cheapest carriage and the most accessible returns policy. On these criteria national retailers such as John Lewis, Next and Amazon were regularly mentioned, and it isn’t hard to see why. Local retailers will always struggle to compete against technically advanced sites that can use large scale distribution networks and economies of scale to keep prices competitive.

These changes in shopping habits affect not only the island retail sector but also the regional economy as a whole. Outshopping (or trade leakage) occurs when consumers shop outside their local community and where goods and services traditionally purchased locally are bought elsewhere. In the context of the Scottish islands, money that was traditionally spent in local stores now flows to the mainland or overseas.

Of course “outshopping” is not new; residents have traditionally purchased through catalogues, or taken trips to the mainland. However the scale of purchasing, the ease of ordering and the range of products that can be bought online represents an unprecedented threat to the islands’ retail economy.

While the scale and scope of this trade leakage has yet to be measured, it is apparent that online shopping gives rise to a series of social and economic issues not fully recognised or acknowledged within policy circles.

Ironically those who are now enjoying the benefits of e-commerce may find future employment prospects limited as shops close down and island high streets decline. At the same time, residents who are without internet access may find it increasingly difficult to access goods and services through traditional channels.

But it would be a mistake to imagine residents being too sentimental about the loss of local shops. Opinion among the islanders themselves is split. While many mourned the decline of the town centre, such sympathies were also tinged with a sense of inevitability. On more than one occasion we were informed that many retailers “had it coming”, a remark that was typically followed with a complaint about service, quality, availability or price. This reflected the fact that, prior to the arrival of the internet, residents had limited product choice and were often compelled to use a specific retailer.

It is unclear whether the factors that govern an island economy represent a unique set of circumstances or whether the mixed fortunes of consumer and retailer are the unseen or unspoken consequences of the new digital era. What we do know is that, for those living on the Scottish islands, online shopping is both a blessing and a curse.

Paul Freathy receives funding from the British Academy.

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