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As I See It

McColl’s big idea is a test for policymakers

Terry smiling headAmong Scotland’s business elite, Jim McColl is probably still one who many Scots would struggle to recognise, despite him being one of the country’s wealthiest people.

Glasgow-born Mr McColl is a tycoon who wears his heart on his sleeve. He may be a tax exile domiciled in Monaco, but he is one of the most active in helping the less fortunate back home and has been a  saviour of iconic businesses, such as Weir Pumps and Ferguson Shipbuilders.

He is also a supporter and adviser to the nationalist government, though he has never been slow in coming forward with criticism. This week he has been offering up his thoughts on the shortcomings of economic policy and what ought to be done about it.

Responding to questions from a Holyrood committee he challenged current orthodoxy on the advisory network – supported by co-witness Jackie Brierton of Women’s Enterprise – and offered his view on Scotland’s inability to build big companies.

It is a long-running debate that has dogged the economy for a generation or two. Companies that look like making the breakthrough and giving the country some real international clout are regularly snapped up before they can make the big time. It was once described neatly by former PwC executive Frank Blin as the “tartan ceiling”.

This lemming-like pattern of business development means Scotland is ultimately owned by outsiders, with wealth and control seeping out of the country.

Sir John Shaw, a former governor of the Bank of Scotland and an instigator of Scottish Financial Enterprise in the 1980s, once said that it is the location of management, not ownership, that really matters. His argument was that owners are custodians, while managers make decisions. In many cases of acquisition management remains unchanged, and usually enhanced.

There is, however, a concern – real or discerned – that a loss of local control means not only a loss of ownership, but a loss of status. There is also evidence that the loss of control and ownership means the wider network of advisers – lawyers, accountants, paper clip makers, and so on – lose both contact and contracts. We have seen the effect of this as control of the Scottish banks has moved to London, as Mr McColl noted in his comments this week.

To stem this flow he wants to see Scotland build more big companies, so that when the acquirers of small enterprise come knocking they are more likely to be based down the road instead of in Beijing or Boston.

Would this really matter to economic performance?

Building indigenous big companies has to be part of the economic development story, and in Standard Life Aberdeen, an £11 billion combine forged last year, Scotland now has a global fund manager.  Even so, there was speculation even before the ink dried on that deal that it would eventually succumb to an even bigger rival, probably from North America.

Big may be beneficial, but is not always beautiful. Royal Bank of Scotland proved what happens when a company over-reaches itself, a pain now being suffered by Capita and those connected to the collapsed Carillion, both of whom suffered from being too big to manage

It’s not all bad news. Big companies buying smaller ones is a recognition of the latter’s success in gaining market share and building a healthy revenue stream. On the way they create jobs and local wealth. The sellers often go on to launch another business, a trend that has become more common than the older practice of packing their cash in a suitcase and retiring to to somewhere sunny.

The acquisition of a smaller company can also be the best way of making it grow. It provides an immediate injection of capital and short-cuts the time taken to achieve targets. It can give a smaller company a wider access to markets and to the resources available from being part of a bigger organisation.

Think Skyscanner, arguably Scotland’s most successful start up this century and now owned by the Chinese company Ctrip. Consider Optos, the Dunfermline-based eyecare developer now owned by the Japanese giant Nikon. There are many other examples of thriving technology companies benefiting from greater international exposure.

Scotland is a small company country. Indeed its economy is increasingly run by those in self-employment.

However, creating big business is not just about giving us bragging rights on the international stage. They will always be essential powerhouses providing work that cascades into the tills of the smaller suppliers.

Striking that balance is a key challenge for those devising economic development and Mr McColl may have planted a few seeds for future policy.


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