Series on how Britain pays its way in the world. Evan Davis looks at how Britain's focus on the knowledge economy contributes greatly to the nation's bank balance.
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Here's a lesson in the economics of the last two-and-a-half centuries.
It's one long chase.
Someone invents a clever way of making money.
Others try to catch up.
We were the first to industrialise, but they caught us,
so we moved on by using our brains rather than our hands.
Always trying to outwit our competitors.
It's all about being more inventive.
That has kept us ahead so far, but others are still out to steal, copy or improve on what we do.
In this programme, we look at where this chase has taken us.
Not to disaster, but to new industries based on brainpower,
like pharmaceuticals or technology.
Or our film and other creative industries.
Creativity and innovation are the lifeblood of the British economy.
'I'm in China, on my way to the enormous international fair in Shanghai,
'the Expo. I want to find out how Britain sells itself internationally.
'It's vital we sell more to the world to pay the bills that have arrived since the financial crash,
'but have we got anything the world wants to buy?
'In this series, we look at the manufactured goods we sell,
'at the services we export
'and today at the most nebulous sector of all - intellectual property.
'The Expo is a great place to show off our wares to 400,000 visitors a day.
'Every nation is represented here. Their pavilions are their shop windows.'
'Some are more successful than others.
'160 years ago, we started these world fairs with our own Great Exhibition.
'Back then, we were secure in our role as workshop of the world,
'but the world has been catching up ever since.'
Now we're reduced to just one pavilion between the French over there, the Italians over here.
And we're competing for attention with 186 others.
'But I have to say our pavilion stands out in this crowd.'
Amid the bland stands and the ones that try too hard,
ours is a shimmering beacon of originality.
So striking and yet, really, quite subtle.
'But other countries sell themselves in a different way - with products.
'The French pavilion has wines on display.
'The Italians, fashion and Ferraris.'
Ours is less hard sell. It's more high concept.
It's a wonderful idea - quarter of a million seeds embedded in these acrylic needles.
But, you know, the only thing is
there really is nothing in here.
'For many, our empty pavilion symbolises our economy.
'"It's a big void," they say.
'"We don't make anything any more, so we have little to sell."
'Many feel we're economically inadequate.'
Looking down on this thing from up here, you get that sense of a link between economic activity
and national identity.
What do we do? What do we specialise in in the world economy? What's our niche?
What are we proud to produce?
'Well, to me, our pavilion perfectly symbolises the best of our economy -
'our inventiveness, our brilliant ideas.
'The question is, can we sell enough of them to get us out of our economic gloom?
'As the original industrial nation,
'Britain long ago discovered that being clever is highly lucrative.
'There's a rule in the modern economy - you make the most money by being first,
'by doing what others can't do. We've made ourselves rich that way.
'A good example - the British company that transformed the world's skylines and made billions
'in the process.'
It's about 200 metres, 240 metres or so to the top of the building.
Wonderful view. Wonderful view.
'The company that made the windows for this skyscraper tells you why innovation is such a big earner.
'One discovery goes a very long way. It can be replicated again and again.'
Now this building has 3,960 panes of glass
and they weigh 350,000 kilograms.
'The glass was made by the St Helens firm Pilkington's.'
Not only was this glass made in this country,
but the process, a wonderfully innovative process which allowed this glass to be made,
was developed in this country, too.
'It changed everything. Virtually all skyscrapers are made using it.
'It's called the float glass process and Pilkington's invented it in 1952.
'It was theirs and theirs alone and it took them from just being one of the pack
'to being well out in front.'
St Helens is the greatest centre of glassmaking in the world.
So let's begin with this kind of glass
and tell the romantic story of one of the greatest industrial inventions of the age,
the float glass process.
'Before float, glass panes were made by pouring molten glass onto a plate.
'But there was a problem. The glass produced was rough and uneven.
'It had to be ground and polished by giant industrial machines.
'And this process was hugely expensive.
'After the Second World War, the demand for housing and cars created a massive need for glass.
'It was a race for manufacturers worldwide to develop a cheaper production process.
'In 1947, Pilkington's found the first essential ingredient in the creation of a great innovation -
'a genius. Engineer Alastair Pilkington.
'Oddly, he wasn't a close relative, but had the same surname.
'He experimented with the idea of producing perfectly flat clear glass
'by floating it on molten tin.
'No one had made it work before. Early results suggested the method had promise,
'but converting this into an effective industrial process was an immense challenge.
'You can see the scale of his ambition by walking down the float line today.'
This bit is the... The Pilkington bit, the clever bit.
That's the float glass. If you want to have a look through, you'll see the ribbon coming through.
-Oh, yes. Absolutely clear. So the stuff rippling on the top is glass?
-It's glass, yeah.
'Then came the second ingredient for innovation - money.
'In 1955, after only three years' development, Pilkington's invested in a full-scale production line.
'It was a massive financial risk, soaking up all the company's profits, month after month.'
You need to stand back. That flame's going to come out.
-There you go.
-Right. Is there a good end to put first?
-Just stand to one side...
'A year after they started their test line running,
'they still weren't producing saleable glass from molten tin, and it was costing a fortune.'
-OK. There you go, it's gone.
-'It was the third ingredient that created perfect glass.'
A certain critical part of the plant broke and this changed its shape
and by this means we suddenly, to our surprise,
found ourselves making our first saleable glass.
The whole section of the line of grinding and polishing could go.
You can see the glass here just comes out absolutely flat and smooth.
'After seven years' toil
'and £7 million - equivalent to £130 million today -
'Alastair Pilkington achieved his goal, beating all competitors to making better, cheaper glass.'
So did that initial £7 million investment, which seemed like a lot of money in 1950s prices,
did it pay off? Well, of course it did!
Because this was a) so valuable and b) no one else could do it,
Pilkington didn't just have an innovation that created float glass.
They had an innovation that generated enormous returns.
'For its innovation, Pilkington made billions as other companies paid to use the technology.
'Today the company's part of a Japanese-owned glass giant,
'but it continues to make glass here, to do research here, and it generates plenty of earnings.'
-And you can jump on it?
-Yeah. No problem.
Seems to be safe.
'The huge rewards it earned through the decades derived from coming first.
'We'd all like that kind of success, so where should we look for it?
'Well, to understand this, think of the entire production process
'and the different stages in it. Call it the value chain.'
When it comes to earning a good living for ourselves, we have to produce things people will pay for.
A lot of us assume that means manufacturing, but that's naive.
There are three major steps of value creation in the production process.
And the first is about the magic of creativity.
Yes, the first is coming up with a new product or process, like Pilkington,
built on the research of scientists and engineers.
Only then comes part two - the manufacturing,
the machine in the middle that churns out the product. This is the tangible bit of the process.
Now this does add value, of course, but less than you'd think, as so many nations can do this well.
Then there's the third step,
the marketing, advertising and branding. Teams of people
with innovative ideas to make products appealing.
Now in the modern value chain it makes sense for us to innovate in the first stage,
coming up with the idea, and the third, selling it.
That's where the biggest bucks can be made.
I know it's not a very British example, but one study broke down the cost of a 300 iPod.
Now most of the price goes to the retailer and to the people who supply all the components,
but on the back it says, "Designed by Apple. Assembled in China."
For the design, Apple get about 80. For the assembly, China gets less than 5.
That is the value of creativity and branding.
'I've said the global economy is like a chase.
'The more advanced economies, like ours, run ahead
'with the skills to get to where the most money is and where the others find it hard to follow -
'to the end of the value chain.'
Of course, we do have a lot of problems at the moment,
but the economy was right to concentrate on the most valuable parts of the value chain.
More science at one end, more marketing at the other.
The science is built on research and development, or R&D.
Many companies have made the journey away from simple manufacturing towards more research-based output.
'The history of Britain's biggest spender on R&D, GlaxoSmithKline,
'illustrates the transformation.
'In the 1930s, Glaxo made dried baby milk under the slogan, "Glaxo builds bonny babies".
'But then came the Second World War.
'The discovery of penicillin offered a potential lifeline to wounded soldiers,
'but the problem was scientists only knew how to make it in tiny quantities.
'Drug companies, including Glaxo, were asked to find a way
'to manufacture penicillin in bulk.
'Its scientists worked day and night on the task. It was only towards the end of the war
'they accumulated a significant stockpile.'
On D-Day, the 6th of June, 1944,
156,000 people landed
on these very beaches of Normandy.
'On that day itself, 6,000 were killed,
'but 18,000 were wounded.
'Penicillin made an enormous difference. Instead of saving five out of every ten wounded,
'medics were saving eight out of ten.
'Bolstered by refocusing its efforts on R&D,
'Glaxo emerged from the war a very different company.
'It had made a fundamental shift from the relatively easy task of manufacturing powdered milk
'to the tougher job of developing drugs.
'And when the NHS was founded in 1948, Glaxo was ideally placed to be a preferred supplier.
'It never looked back.'
The development of Glaxo mirrors that of our economy overall
from manufacturing things to manufacturing innovations and ideas.
It illustrates how we've moved up the value chain.
'This is a perfectly natural evolution.
'As economies become more advanced, they have the resources to spend on research and education.
'As they spend more on education and research, they become more advanced.
'That's what progress consists of.
'And progress is exactly what we've enjoyed in Britain and we need more of it if we're to pay our way.
'Our economy has moved into science-based industries.
'Pharmaceuticals is one of our most important. Its exports are worth £18 billion.
'Glaxo, now called GSK, is the world's fourth-largest pharmaceutical company.
'None of that would be possible without R&D.
'I want to see what that looks like.
'This operation in Hertfordshire is where many of GSK's innovations originate.'
This is really a double facility - a factory and an R&D centre - with 1,000 people in each.
'It isn't easy to invent or discover things,
'otherwise everyone would do it. And it's a risk.
'Andrew Witty is the Chief Executive of GSK.'
-So we have to dress up?
-We do. There's a very strict protocol.
These are disposable lab coats, are they?
-They'll be recyclable.
-Here we go.
-We need a pair of goggles.
-Get the goggles on.
-And we're good. OK.
So the cost of a new drug.
-What does a drug cost, then?
-If you look for the industry and take the total amount spent on R&D
divided by the number of successful drugs actually introduced,
it runs at about £550 million each.
-£550 million. It takes into account the cost of all the failures.
-It's the only practical way.
For GSK and our competitors, we're all trying to beat that average.
'How do you improve the odds? GSK has discovered
'it works to get the right cluster of talent together in one place.'
As science has evolved, it's much more multi-disciplinary.
The discoveries all occur on the interface of disciplines. Quite often you'll find an IT expert,
an informatics expert or a molecular designer who uses computers
with somebody who does everything in a test tube. It makes things happen.
'Even with such a cluster of brains, it's not easy.
'It's back to that constant chase. You research to stay a step ahead
'and then you watch others catch up.'
If you succeed, you can make a very good return with a patent life.
When your patent goes, you will essentially make no money from that business going forwards.
That is what drives this industry. Many companies have not been able to reinvent themselves in that 10 years
when you earn the reward.
One of the worst things about my job, a slightly adrenaline-driven moment,
is you get data at the end of a 15-year research programme
and there's a moment when somebody opens the envelope and it either says success or failure.
And the reality is that's what makes this such a high-risk and expensive business.
'There's a vast amount of money coming into the UK economy from companies like GSK
'who specialise in research and innovation.
'But like Pilkington's, GSK innovates
'and also manufactures.
'This room churns out billions of doses of respiratory treatment each year.'
Essentially, this is the line.
This room here produces 50 million packs of Seretide Advair a year for distribution around the world.
Overall, the company last year sold £5 billion of Seretide Advair.
'The manufacturing is clever, but the real value has been added by the investment in knowledge.
'And that knowledge is not just to do with the ingredients of a drug, but also ways of making it.'
20 years ago, this machine would have consumed the entire building space.
It would have had 20 or 30 people working on it and you've never have the volume capacity you have today.
You can see here - one person keeping an eye on this facility.
60,000-70,000 packs already coming off it. We'll get it up to a peak of about 108,000
when it's running full blast.
'Advair Seretide is exported around the world
'and even though GSK also has manufacturing plants outside the UK,
'we still earn money from them because the drug was invented here.'
The lesson from GSK and Pilkington is that although they both manufacture, it's the brainwork
and innovation that adds most value to what they do.
What's the logical conclusion of that? Companies that don't actually make anything physical at all.
Nothing? How far can we push that business model?
Can we really pay our way in the world by becoming a nation of boffins and geeks?
'Well, come to Cambridge, to the area outside the city known as Silicon Fen.
'1,400 hi-tech companies have sprung up in these business parks
'employing over 40,000 people.
'It's an interesting feature that these businesses like to be near each other, to be plugged in.
'They tend to cluster, just like the scientists in Glaxo labs.
'One of the companies here has become the runaway success of the last decade
'and what they do can be found inside virtually all the digital devices we take for granted.'
In here, mobile phone.
is a little piece of Britain.
There we go. There it is. Just under NEC. You can see it says ARM.
It's a very successful company, one of our best, actually,
and remarkably few people have actually heard of it.
'Unlike Pilkington or GSK,
'ARM Holdings focuses entirely on stage one of the value chain.
'They don't make processors. They design them.
'It's pure innovation and it's valued at over £7 billion.
'Tudor Brown is its President.'
-Tudor! Hello, Evan Davis.
-Good to meet you. I've heard a lot about you.
-Ha! I've heard a lot about you.
So come on through. Let me show you some other technology here.
You wouldn't sort of know that this is one of Britain's most successful companies.
-I don't know. How do you...?
-It looks quite plain.
Well, there's no great buzzing machines.
-This is thinking and whatever.
-I like the artwork.
-Those are just a couple of plots.
-Let's take you into an office.
-It's quite warm in here.
-Some of them like it warm.
-The brain operates better at this temperature.
-Some people wear hats, even!
'It may appear rather dull, but the designs generated in this room shape the future of computing.'
-Some of the guys are hopefully doing some work.
-'ARM started in the early '80s,
'designing small, but powerful chips for British home computers.'
-And actually this chip here...
-No touch screen.
-No, no, no.
-This is the first ARM processor.
-'The chips had potential for small portable products
'and drew the attention of a US computer company.'
Along came Apple, actually, in 1990 wanting to create the Newton, the world's first PDA.
Here we've got a Newton. This is why ARM the company was created.
And now, you know, you could look at that and think that's the iPhone. It's a bit bigger.
-It was a bit too slow and a bit too heavy, but that was the vision behind this product.
Then, in the mid-'90s, the mobile phone revolution started.
And Nokia was the first company to adopt our technology.
And ARM power is in...
ARM is in pretty much every mobile phone, yeah.
-And as the phones become more sophisticated, they have more chips.
Something like the iPhone or these smart phones have an awful lot of ARM technology in them.
You've got chips in an iPhone. Without giving away your commercial secrets, what are Apple paying you?
Remember, we don't make the chips.
We license our designs to semi-conductor companies. For that we get a licence fee.
When they make the chips and sell them to Apple or whoever, they pay us a royalty.
-We get a few cents off each chip. It's not huge...
-In the last year, 6 billion ARM chips.
You add all that up, it means the company is doing very well.
-You don't at any point feel, "It's sad that we don't make the chip. Maybe we should."
-Not at all.
We don't want to manufacture. You have to build a factory that costs you 5 billion to start.
It's a hugely expensive game. We have no expertise in that. Other companies are much better.
We're damn good at what we do and that's what we want to keep doing.
'It's right, of course, to concentrate on the high-value work and it's a huge contributor
'to the UK economy, but it does signal a problem with the intellectual property industry.
'Only the very cleverest can earn a living in it. We're not all as brainy as these guys.'
Come in here on the left and we'll see an office with real hardware.
'It raises the issue of how the rest of us contribute to the economy,
'how big we need our unintellectual property industries to be.'
Ah, the playroom, the playroom.
Yes, it's playing in a way, but there are some semi-serious outcomes from the sort of thing we do.
So this is some Lego
that one of our guys here has created and built. It's a Rubik's Cube solver.
To begin with, the phone is using its camera.
It's pointing downwards to take an image of each of the faces of the cube and it works out the solution.
Would you like to race it, Evan? Here's a cube that I scrambled just now.
I have a feeling your system will be better than mine.
On your marks, get set, go.
I think it's going to win.
The key is to think of them as cubes, rather than as surfaces, I think, isn't it?
OK, he's won.
Very nice. Very nice.
So, hopefully, you'll remember how to fly this. I'll pop it down about here. Here we go.
So we've got these ARM chips in so many different objects, you wouldn't...
'ARM has evolved from being at the centre of one of the most rapidly growing industries - mobile phones
'to being partners of the computing world's giants.'
-Ah, there we go.
'Warren East is the chief executive of ARM Holdings.'
You are friends of, partners to all the big ones -
Google, Apple, Microsoft,
the three behemoths of American software, hardware culture.
-You're there with all of them.
-That's absolutely the philosophy of our business model.
We enable and we don't pick winners.
We believe sharing a slice of a very big pie
is a lot better than having the whole of a much smaller pie.
Come on, come back, come back.
'ARM's strength has been built around having a highly skilled and highly educated workforce.
'It's no coincidence that it's found in Cambridge.
'These old colleges are the key to Britain's modern success in research and science.
'Universities help companies innovate and the economy reaps the reward.
'That clustering effect, it works in our favour in that great chase that is the global economy.
'Top talent likes to move to where other top talent is,
'so the more success you have, the more success you get.'
Now, the great hope for the British economy is that we remain front-runners
at this whole business of creating intellectual property.
That hope rests on the fact that it is quite hard for other countries to catch up with us,
so a country like China can come to the west and buy a factory, remove it lock, stock and barrel,
take it back home and replicate exactly what we're doing,
but could it come and buy this?
What is it? It's an academic business network. It's hard to get your hands on it.
Clustering is great for the UK and it's great for Cambridge.
But there is a problem. Clusters suck in resources from elsewhere,
so while Cambridge is packed with top-class firms, it's left other parts of the UK behind.
The economy clearly needs jobs elsewhere -
good industries in every corner of the land, to use all of us,
all the resources at hand.
Well, we've seen how our economy has evolved towards the science end of the value chain.
Now we have to see how and why we've made another move over the decades
to the other end of the value chain
where marketing, advertising and branding put the creative icing
on the manufactured cake.
When people enjoy a good education, they become more affluent.
Their whole way of consuming changes.
They have more time. They can afford more than basic subsistence.
They begin to think about self-expression and what they say about themselves.
Fairtrade chocolate - it tells me that I care about other people or that I can afford to care.
The Italian and the Brazilian menu choices tell me how worldly I am.
The newspapers remind me how clever I am.
Then we have the dazzling array of different coffee choices which says so much about oneself.
I'll have a mocha with white chocolate, please.
It's a funny thing, but the more affluent and the more educated consumers are,
the more frivolous they tend to look.
They seem to be more worried about the froth on the cappuccino than the coffee itself, and why not?
If you've got enough coffee, maybe it's a bit of froth that you want.
But there's a really interesting feature of modern economies.
They tend to respond to those kinds of consumers.
They adapt and produce things to serve the more trivial needs that rich consumers have.
Douglas Adams puts it rather well in The Hitchhiker's Guide To The Galaxy. I'll paraphrase his line.
"There are three phrases of human development - will I eat, what will I eat and where shall we do lunch?"
Well, Britain is in phase three.
Visit a supermarket in Britain or any advanced economy
to see how much effort in rich countries goes into marketing,
packaging and all the fripperies attached.
They may be frivolous, but they're valuable activities,
elevating bog-standard commodities into something special.
Right, let me walk down the biscuit mile. There are so many biscuits.
Chocolate Orange Viennese Biscuits,
Plain Chocolate Butter Biscuits, Oreos, of course, Digestives.
How much shortbread does a society need?
Choc Chip Shortbread Rings. Why have a hole in a piece of shortbread? What difference does that make?
It makes it more pleasurable to eat, doesn't it?
It costs the manufacturers a lot, offering this proliferation of biscuit choices.
But it makes money because enough consumers shun the cheaper, boring options.
Because so many of our basic needs are fulfilled,
we tend to worry less about quantity and functionality these days
and more about the aesthetics of the products we buy,
the packaging, the meaning they give us.
Adding value through marketing innovation is one of Britain's strengths.
Just as much as the work of a Glaxo lab or a Cambridge business park,
this is the natural direction for our economy to have taken.
Every single item is designed to appeal to somebody, to add a little bit of colour to their life,
to give them a little bit of identity.
My favourite is down here.
Here we go - Skinny Water
with the bottle in a nice, skinny shape as well for people who are concerned about their shape.
As the world becomes more affluent, so consumers want more sophisticated products.
We shouldn't regret being big players in the industries
like design, marketing and advertising that serve these tastes.
Exporting these skills helps us pay our way in the world.
Britain's strength in this area goes right back to the 19th century.
Sunlight Soap was one of the country's great exports,
working its way into the far corners of the world.
# As long as my sweetie is by my side, doing the dishes with me Now there's no moonlight... #
It transformed humble Wirral grocers William and James Lever into multi-millionaires.
Back in 1884, instead of cutting slices of soap from blocks,
they pre-wrapped it and branded it Sunlight Soap.
It was their guarantee that each bar was of the same standard as the last
and this idea was a roaring success.
In 1886, they were producing 1,000 tons of soap a year.
Ten years later, it had risen to 40,000.
By the 1930s, it was the largest company in Britain.
And today, as the global corporation Unilever,
it continues to produce some of our biggest brands.
A lot of people are apt to think it's all fluff.
How can a nation earn a living or pay for its imports through marketing?
It may not make a living for everybody, but it can certainly make a lot of money.
There's a revealing tale of the takeover of a company
that's been one of Britain's best brand inventors,
the company behind one of our greatest contributions to the world of confectionery - the Kit Kat.
That company was Rowntree.
In 1988, it was fought over by two Swiss food giants -
Nestle and Suchard who wanted to buy it.
After a long boardroom battle, a selling price was finally agreed
that had the value of the brands at its heart.
Rowntree, the British firm who make Kit Kat and Smarties, are to be bought by Nestle,
the Swiss food giant who make Milkybars.
The successful bid topped all earlier offers at over £2.5 billion.
Rowntree's factories and machinery and so on were valued at half a billion pounds.
The value added by the brands accounted for much of the additional two billion.
If you look at the manufacturing base or buildings alone,
that doesn't explain at all the final price.
It's all to do with Nestle looking at those brands and thinking,
with these properties, we can build a big, successful, global franchise.
Nestle paid handsomely for the brands.
Britain pocketed the money and Nestle's investment in them has taken that old British Kit Kat
into global markets that previously it couldn't afford to reach.
Today, the seemingly innocuous snack bar has become a global super brand.
Dubai Airport has the privilege of being the single largest place where Kit Kats are sold in the world.
Over a tonne of Kit Kats are sold in Dubai Airport every single day.
'17 billion Kit Kat fingers are sold every year in 70 countries. That's more than any other confectionery.
'Even under Swiss control, Britain continues to earn money from it.
'Nestle invested in an R&D lab in York and the city still makes a billion Kit Kat bars a year,
'a formidable demonstration of the value of a brand and its potential for export too.
'So we've seen why there's an impeccable economic logic
'in Britain specialising in the high value ends of the value chain,
'the science bit and marketing.
'It made us rich, but here's the bad news.
'It hasn't made us rich enough.
'There's a gap between what we've been buying from abroad and what we've been able to sell
'and now we have bills to be paid.'
Hello, could you take me to China, please? That would be terrific.
'Now I want to see how much further our brainpower and creativity can go to help close the gap.
'With many millions of new, affluent middle class, China is the place our brands should be heading.
'Despite appearances, this isn't Reading or Basingstoke
'or any other British town.
'This is Thames Town on the outskirts of Shanghai.
'It was a commercial venture built by Chinese speculators
'who used British architects Atkins to create a traditional British town.
'But when the rail link to it was cancelled, it became more of a ghost town.'
I'm sure the developers here really had intended it would be a thriving community -
retail, accommodation, apartments, houses.
They must be slightly disappointed that really it's a kind of glorified film set.
Every corner you go round, there are more people taking photographs. There's another group over there.
"Corner store", just like any British corner store.
And next door to the "Apoolo".
It's sort of almost there, isn't it? Just...
Just not quite.
I mean, this place brings up a bit of a worry I have about British brands and their success here,
a worry that Britain is somehow seen as a rather sort of exotic backdrop, a curiosity,
rather than a driving, modern economy.
Certainly we can sell, certainly we're good at marketing,
but the worry is that we're slightly better at marketing to ourselves
than we are outside of our own country.
'But it doesn't take long in China to find one bit of encouraging news.'
There are so many teas in China.
There's one here that's good for the eyes.
There's one that reduces the symptoms of excess internal body heat.
The one I've got is a cleansing tea,
a sort of Chinese detox.
But of all the teas in China,
guess which outsells its nearest rival by two to one?
A little bit of show and tell here.
Yes, it's Lipton from Unilever.
The Chinese buy around 300 million pounds of Lipton's tea every year.
If we can sell tea to the country that gave it to the world, surely we can sell anything.
Looking around, there are some successes here,
such as the luxury brand Rolls-Royce and Burberry.
And retail giants Tesco's and Marks & Spencer have also got a foothold.
Does that mean we can sell anything?
A test of how our brands are doing
is to see if they're getting into the homes of the burgeoning middle classes.
As we've seen in Britain, a rise in education and affluence
leads to a more sophisticated consumer culture
and this is happening in China now.
These are the people we should be targeting our brands at.
COMMENTARY IN CHINESE
'This is Yuan Ming. She does what I do. She presents business programmes.
'She also hosts Call Me Boss, the Chinese equivalent of Dragons' Den.'
CONVERSATION IN CHINESE
'But where my programmes reach a few million,
'Yuan Ming's are seen by tens of millions.'
-Hello. Yuan Ming?
-I'm Evan. Lovely to see you.
'Who better to find out if British brands are reaching the affluent classes?'
Come in, please.
CONVERSATION IN CHINESE
-I want a bit of a snoop around.
I want to see what sort of brands you buy, whether you're a bit of a fashion person.
No, I'm not. Well, I'm a gadget maniac. You see, I have an iPad.
Yeah, I've already seen number one there.
Maybe we have something in the refrigerator. This is... No, this is from France, I guess.
-Let's see what we have...
-Oh, champagne, French. Nice.
-Oh, we have some...
This is depressing. You've got something from everywhere apart from Britain.
I'll try to find some British one.
-No, it's not very British, is it?
-No, it's slightly depressing...
-What do we have?
-I don't know. This is what my quest is to find out.
I have Laura Ashley and also I have some Earl Grey.
Phew, we got there, we got there! Laura Ashley. Thank you, Laura.
-I'd love to hear what your mum thinks.
-I mean, Rolls-Royce, not the car...
CONVERSATION IN CHINESE
My mum says, "Is it British?"
She said, "Is it British?" Oh, how could you not know?
Can we eat another dumpling, by the way? We've slightly ignored the...
'My overriding impression is what a small player we are.
'It's hard work finding British products.
'I know we sold around £8 billion of exports to the Chinese in 2009
'and the figure's growing, but it's not much, considering their £3 trillion economy.
'We aren't selling enough yet and the evidence in China is that it's not going to get any easier
'because China itself is changing.
'Remember the chase - some countries advance, others follow?
'Just as we concentrated on the most valuable sections of the value chain,
'that's exactly what the Chinese are beginning to do
'as their economy develops away from low value manufacturing.
'Look at this advert for trainers from a Chinese sports manufacturer, Li-Ning.
'It was made in fact by a British ad agency,
'but China clearly wants to own the brands, as well as make the footwear.'
Thank you very much. Brilliant. Lovely.
'I've come to Li-Ning's flagship store in Shanghai
'to see if China is catching up with the west in developing sophisticated brands.
'Cindy Wu is head of brand development.'
-Hello. Evan Davis. Nice to meet you.
-Nice to meet you.
-Welcome to our store.
So how long has it been like this? Is this brand-new?
-Yes, this is actually our new flagship store in Shanghai.
-It looks a little bit like Nike Town.
Did you go to a Nike Town store and think, "Let's make it look like that"?
We just want to establish our own flagship stores which could represent our brand.
'This place looks good, if slightly familiar,
'but can Li-Ning do anything more than copy western brands?'
Now, you've got to tell me about this swoosh, Cindy.
We've got this swoosh.
-First of all, we don't call it a swoosh.
-No, that's what Nike call theirs.
-We call it a logo.
And you can see that there's actually a difference.
This is our original logo and this is our new logo.
You admit that one looks a bit like some other logos, but this one is a bit more original?
Really? They come from different inspirations.
That one was inspired by the Chinese red flag flying on the podium
and this new logo came from one of the actions of our founder.
-He was a gymnast and he has an action named after himself with his feet...
-Oh, a position. Right, right.
-There's something I want to ask you about these shoes over here.
'They've got the branding bit. What about the science?'
If you go to one of the established, big manufacturers that we're all used to,
they have teams of people designing these, so they're really good for the feet.
Now, are yours just bits of sort of plastic and fabric or are they designed?
Have you got scientists working on them?
We have a lab established in Beijing and also our global innovation centre in Portland in the USA.
So you really are putting a lot of money into...
We believe that to become a world-class sports brand, we have to own our own technology.
'They've also got the ambition.'
We have gone through a lot of R&D product design plans
to prepare ourselves to be one of the top five brands by 2018.
Top five Chinese brands?
-No, top five sporting goods brands in the world.
So you really do have plans to be conquering the world.
I mean in a good, commercial way. Sorry.
'Although I'm taken aback by what I'm seeing, I shouldn't really be surprised.
'We've moved beyond "pile 'em high and sell it cheap". Why shouldn't they follow us?'
You are profitable as a company?
Or are you still investing in it so much that you're not making any money?
We are profitable.
In 2009, we have made 8.3 billion RMB in our revenue.
8.3 billion - that's about £830 million.
-Yes, more or less.
-That's a lot.
And then we made 0.9 billion RMB revenue.
-£100 million of...of profit, of profit.
-That puts you in quite a big league, actually.
I wonder whether we in the west should be terribly worried
because we've been waiting for China to be rich enough for us to sell lots of things into China
and the day you become rich enough for us to start selling loads of things to you,
pay back all the money we borrowed from you in the last ten years,
you'll be selling all this nice, fashionable stuff to yourself. Crumbs! What are we going to do?
'And that's a question many people are asking.
'What happens when the next hip chocolate bar is Chinese, not British?
'We might have been great at inventing things in the past,
'but why shouldn't others be as good as us in the future?
'National champions like GlaxoSmithKline run out in the front now...
'..but companies elsewhere are chasing behind.'
We run constantly with that feeling just behind our neck
that if we don't succeed on the next round, you aren't going to be here in 15 or 20 years' time
and in many ways that creates the energy in the organisation.
There are no guarantees. There is no 11th commandment which says,
"There should be a drug company in Britain called GlaxoSmithKline."
You'd better succeed because if you don't, nothing will save you.
But there's no need to be alarmed.
From what I've seen, at our best,
we're among the world's best.
UK designers are very good.
They're very versatile, problem-solving types.
The world changes, the problems to be solved change. New industries come, old industries go.
The UK can't do everything.
It has to focus on the highest value activities it can find.
The best answer comes from a blend
of some of that British problem-solving mentality,
together with some specialist, but quite narrow expertise
that you find in engineers in some other regions of the world, for example, in America.
We can't be complacent, but our whole economic history
is one of running to stay ahead and getting richer in the process.
It's no different now.
It all comes back to the value chain.
As the world changes, as other countries get richer, new opportunities arise.
We have to find new nooks and crannies which best use our skills and will enable us to pay our way.
Britain is in the global top division when it comes to science and creativity
and the income they generate will continue to pay many of the country's bills.
But one important observation -
we can never be entirely reliant on intellectual property alone.
That reminds me of those old sci-fi movies where there's some evil brain in a jar,
trying to survive without any kind of body.
We don't want to be like that.
We need people who are not cut out to wear white coats in laboratories
or black collars in advertising agencies.
We need them to be productive as well. We need regions which don't have clusters of knowledge workers.
We need them to have industries of their own.
We want to be clever, but we don't ONLY want to be clever.
'Next time on Made In Britain,
'our services economy where over three-quarters of us work.
'From call centres in Sunderland...'
-This is a bedroom or a lounge? It is a bedroom.
-It is a bedroom.
'..to estate agents in London.
'Can this help us pay our way in the world?'
-Very nice indeed.
-Again the views over the park...
To discover more about how Britain pays its way in the world
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Subtitles by Subtext for Red Bee Media Ltd 2011
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How can Britain stay ahead of its competitors in the global economy? In the second part of his investigation into what we do and make in Britain, Evan Davis argues it's right for Britain to concentrate on excelling in the knowledge economy.
Industries such as pharmaceuticals and technology, which rely on innovation creativity and invention, can contribute greatly to the nation's bank balance. Evan travels to Silicon Fen outside Cambridge to see the high-tech company worth billions after designing chips for mobile phones, and tells the story of how one invention transformed the fortunes of glass makers Pilkington. He also visits China to investigate how British branding and marketing expertise is faring in this new and booming market.