SCOTTISH ENTERPRISE BORDERS

EVALUATION OF
CASHMERE MADE IN SCOTLAND PROMOTION
2001-2003

1. INTRODUCTION

1.1 Background In recent years UK manufacturing has suffered the effects of increased global competition from low cost manufacturers in the developing economies. The lower cost of materials, particularly labour, has forced UK manufacturers to maximise efficiency and production techniques to enable them to compete. Partly as a consequence, many manufacturing companies have taken the strategic decision to move to higher quality or specification products, which command a price premium in the market, with a hopeful corresponding impact on margins.

The UK Textiles Industry is no exception to this trend and many companies that were unable to diversify, or had niche markets that proved unsustainable, have been taken over or ceased trading with the loss of many job opportunities.

The Textiles Industry is important to the Scottish economy. It employs 22,000 people and with an output of £1.2 billion contributes £500 million to the country’s manufactured exports. The Scottish Borders is heavily dependent on this industry and in particular knitwear, which employs around 4,000 people.

Recognising the sensitivity of the knitting and weaving sectors to the economy in the Scottish Borders, and following the successful action against the punitive import duties proposed by the USA government arising from the ‘Banana War’ incident, Scottish Enterprise Borders secured public sector funding from Scottish Enterprise and ultimately the EU, to establish a support mechanism for the industry.

The Cashmere Made in Scotland Promotion began operation in 1997 and was aimed at encouraging manufacturers to move more heavily into the high value cashmere market. The promotion was geared to the generic marketing of Scottish Cashmere, specifically in export markets, starting with Korea and Japan.

This Promotion’s continued delivery is now contracted to the Scottish Cashmere Club Ltd, under the supervision of Scottish Enterprise Borders, which has the lead role for the Textiles Industry in Scotland.

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(INTRODUCTION contd)

1.2 Scottish Cashmere Industry In response to the growth in low cost knitwear products from China and other developing economies, such as Mauritius, Madagascar and India, knitwear manufacturers in Scotland have fought to maintain market share with the use of higher quality inputs and improved product design. Many of the companies, particularly in the Borders, decided that their future focus would be on manufacturing knitwear products made from Cashmere as they needed to produce higher margin products to remain profitable, given the higher cost of labour in Scotland in comparison with low cost economies. This is a market where foreign competition is less intense, being governed to some extent by raw material supply limitations and processing expertise.

Scottish Cashmere products had achieved a reputation for being high quality fashion items in the 1920s and this reputation has remained to this day, particularly with regard to quality, although it was perceived to be more traditional than fashionable. The Cashmere Made in Scotland Promotion commissioned market research that confirmed what some cashmere manufacturers already knew, that Scottish Cashmere products needed to become more fashion-oriented, addressing latest colour trend colour palettes for both Spring/Summer and Autumn/Winter seasons, whilst retaining their reputed quality and durability.

Such has been the commitment to Cashmere by the knitwear manufacturers in the Borders, that Cashmere products now account for a higher proportion of company profits and hence the production of Cashmere is now critical to the survival of the industry in the region. Cashmere manufacturing of cloth and knitwear is located in other areas of Scotland particularly in Ayr, Elgin and Kinross.

The Scottish Cashmere Industry has faced a number of misfortunes over the last three years which have had an adverse effect on its viability, the major ones being:

a) September 11 Atrocity The Scottish Cashmere Industry manufactures a luxury product which is heavily dependent on tourist spend. The September 11 attack caused a significant reduction in tourist traffic around the world, which persists to this day.

This has resulted in a marked reduction in exporting, particularly to Europe and the Far East. - 3 -

(INTRODUCTION contd)

b) Iraqi War The war in Iraq also had an influence on world stock markets creating an uncertainty for the future and this has discouraged travel and spend on luxury items.

c) SARS Virus This virus has had a serious impact on the markets in Japan and Korea which were the initial targets of the Cashmere Made in Scotland Promotion.

d) Japanese Economy There is a belief among Scottish Cashmere manufacturers who operate in the Japanese market that the collapse of the economy there has adversely affected sales volumes.

e) Chinese Cashmere The Chinese Cashmere industry has continued to grow over the last three years despite the restrictions of the World Trade Organisation Multi Fibre Agreement which remains in place until 2004. This has had a major impact on companies operating in the price-driven, medium quality Cashmere market Scottish companies cannot compete in this market due to the significant production cost disadvantage, unless they target niche markets, which might not be sustainable in the longer term, or promote a distinct brand.

f) World Economy The low levels of economic growth following the crash in world stock markets since September 2001, have taken their toll on consumer confidence and this has adversely affected sales of Scottish Cashmere in the world market.

As a result of these global problems, the Cashmere Industry in Scotland has continued a process of rationalisation through closure and takeover e.g. the Lyle & Scott purchase of Clan Douglas and the Lochcarron purchase of Barker of Scotland. It is likely that this process will continue over the next three years as the industry faces the withdrawal of the Multi Fibre Agreement together with the ongoing results of these global influences. - 4 -

(INTRODUCTION contd)

The Scottish Cashmere Industry is also faced with the problem of encouraging young people to join the industry where the perception is one of continued contraction with no real prospects of career development.

The industry has taken a collective approach to addressing these problems firstly by committing to the Cashmere Made in Scotland Promotion and secondly by joining the Scottish Cashmere Club aimed at marketing the high quality Scottish product on a generic basis to export markets and raising its image within Scotland.

1.3 Study Remit The Cashmere Made in Scotland Promotion is approaching the end of its current EU funding agreement under Objective 2 and the plan is to submit an application for a further two years support.

It is essential, therefore, that the performance and impact of the programme is evaluated to ensure value for money has been achieved and to provide recommendations as to its future direction.

The remit for the evaluation was agreed as follows:

• Analysis of the success of the initiative since January 2001.

• Full and detailed evaluation of the gross and net economic outputs and impacts from the project. Detailed analysis of the full costs of the initiative, leverage, value for money and efficiency in delivery of economic benefits.

• The specific outputs and impact achieved from each of the specific projects undertaken 2001-2003 as part of the overall campaign.

• An assessment of the market in terms of participating businesses and their ability to contribute to and sustain the initiative.

• Conclusions and recommendations for future actions on the initiative.

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(INTRODUCTION contd)

As part of the study it was agreed that the following factors raised by the consultants would be addressed:

a) Qualitative Impacts Whether companies have achieved softer impacts such as strategic focus, confidence, brand/promotion in addition to achieving sales as a direct result of the promotion.

b) Additionality/Displacement The extent to which the industry, left to its own devices, would have invested in market development in Korea and Japan and whether any impacts gained were at the expense of other Scottish manufacturers.

c) Market Failure The market failure that the Project was designed to address would be reviewed to identify if there has been any permanent adjustment, whether due to the intervention or not, and hence whether there is justification for continued public sector funding.

d) Project Management The management of the Project in terms of organisation, communication and commitment to achieving the agreed objectives would be evaluated.

e) Linkages Examine linkages between the Project and other export market development programmes run by Scottish Development International for fit and overlap. This applies equally to links with any other business development initiatives enjoyed by companies as a direct result of participating in the Project including Scottish Textiles.

f) Strategic Fit How Cashmere Made in Scotland Promotion fits with the strategies of Scottish Enterprise, Scottish Development International and Scottish Enterprise Borders as well as the Scottish Executive.

g) Exit Strategy Determine how the planning process for the next three to five years and the exit strategy for the public sector will be addressed and an appropriate action plan agreed. - 6 -

(INTRODUCTION contd)

1.4 Methodology The evaluation was carried out in five discrete stages to ensure coverage of the following remit:

Stage 1 Background Information Stage 2 Interview Programme

Stage 3 Draft Conclusions and Recommendations

Stage 4 Draft Report Stage 5 Final Report

Each of the stages are discussed in turn.

a) Background Information Background information on the Promotion and Cashmere Club was obtained through meetings with Susannah Cole, SE Borders Textiles Manager and Graeme Sands, Project Manager of the Scottish Cashmere Club.

b) Interview Programme The interview programme consisted of two cohorts aimed at obtaining representative views across the Scottish Cashmere Industry.

The first cohort classed as Key Interviews was selected to provide views on the strategic framework of the Promotion and comprised the following:

|Hugh Tasker |Chairman |SE Borders |
|David Gass |Chief Executive |SE Borders |
|David Ogilvie |Chairman |Cashmere Club |
|Malcolm Grant |Vice-Chair |Cashmere Club |
|James Sugden |Chairman |Scottish Textiles/Forum/STMA |
|Patrick Kendall |Senior Executive |Scottish Development International |
|Kirsty Scott |Manager |Scottish Textiles |

The second cohort was made up of companies who were either current or very recent members of the Scottish Cashmere Club and who participated in the various events delivered through the promotion and thus could have achieved measurable gains.

|Lesley Turnbull |Design Director |Clan Douglas Ltd |
|James Thomson |Managing Director |The Hawick Cashmere Co Ltd |
|Duncan Browne |Div. Sales Director |Johnstons Cashmere |
|Mark Gibson |Marketing Director |Lochcarron of Scotland |
|David Nuttalll |Managing Director |Wm Lockie & Co |
|Elizabeth Rae |Managing Director |M A Cashmere Ltd |
|Nick Bannerman |Managing Director |Peter Scott & Co |
|Robert Charters |Managing Director |Scott & Charters (Hawick) Ltd |
|Douglas McAllister |Sales Director |Alex Begg & Co |
|Hendry White |Sales Manager |Z Hinchliffe & Sons Ltd |
|Doreen Keene |Director |Queene & Belle Ltd |
|Tom Thomson |Managing Director |Todd & Duncan Ltd |
|Helen Bottle |Managing Director |B C Consulting Ltd |

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(INTRODUCTION contd)

The plan was to interview as many as possible of both cohorts on a face to face basis unless this was not logistically viable. Semi-structured questionnaires were used throughout to ensure consistency and samples are attached in the final section of this report.

c) Draft Conclusion & Recommendations The third stage consisted of a meeting of the Study Group (Susannah Cole, Graeme Sands, and BDA Ltd) when the results of the survey were reviewed and initial conclusions/recommendations discussed.

d) Draft Report The draft report was reviewed by the Study Group for final comments on 5th September 2003.

e) Final Report This final report will be published following final amendment and an Executive Summary subsequently prepared and distributed.

1.5 Report Structure The report is split into 5 sections:

• Section 1 – Introduction • Section 2 – Cashmere Made in Scotland Promotion • Section 3 - Survey Results • Section 4 – Economic Impacts • Section 5 – Conclusions and Recommendations

1.6 Acknowledgements Business Development Advisers Ltd would wish to acknowledge the assistance provided by the 34 people who agreed to be interviewed mainly face to face in the pursuit of this evaluation. The timing of the study, over the summer holidays, meant that many companies were closed for up to 2 weeks over July and August and on their return were participating in overseas missions. Taking this into account, companies were very generous with their time and made every effort to schedule the interviews as soon as was practicable.

The prompt response to requests for information from Susannah Cole, Textiles Manager at Scottish Enterprise Borders and Graeme Sands, Project Manager at the Scottish Cashmere Club is appreciated. - 8 -

2. CASHMERE MADE IN SCOTLAND PROMOTION

2.1 Background The importance of the textile industry to the Scottish Borders is fully recognised by SE Borders, which is the lead body for the industry throughout the Scottish Enterprise Network. The Border towns of Innerleithen and Hawick are heavily dependent on textiles, especially Cashmere, and the loss of the industry would have a significant impact on the local economies.

To reduce this risk, SE Borders established The Borders Studio to act as a focus for delivering a package of integrated support from design issues to market development. In 1997, the Cashmere Made in Scotland Promotion was established. Project costs were part funded by EU Objective 5B.

Following an initial evaluation in March 2000, a Project Manager was appointed to drive forward the agreed strategy concentrating initially on market development in Korea and Japan.

2.2 Scottish Cashmere Club The Scottish Cashmere Club is a private limited company which was formed on 12th February 2002 (SC228008) with the same key objectives as that of the Cashmere Made in Scotland Promotion (See Section 2.3).

Its aim is to protect the reputation of Scottish Cashmere and only those companies prepared to commit to the strict terms and conditions, as shown in Appendix 1, are admitted as members.

The Board of the Scottish Cashmere Club consists of the following:

David Ogilvie Lochcarron of Scotland Chair Malcolm Grant John Laing of Hawick Vice Chair Nick Bannerman Peter Scott & Co Member Robert Charters Scott & Charters (Hawick) Ltd Member David Breckenridge Alex Begg & Sons Member James Sugden Johnstons Cashmere Member James Thomson Hawick Cashmere Member Susannah Cole SE Borders Member Graeme Sands Scottish Cashmere Club Member

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(CMIS PROMOTION contd)

The funding for the Scottish Cashmere Club comes from two main sources at present:

a) Public Sector Public sector funding from SE Borders is match-funded by EU for the delivery of the Cashmere Made in Scotland Promotion under contract.

b) Private Sector Firms pay an annual fee for membership ranging from £500 (plus VAT) for associate members to around £3,500 (plus VAT) for full members (manufacturers). Companies also pay £0.10 for every swing ticket[1] used.

The five year business plan for the Scottish Cashmere Club recognises the need to achieve self-financing status in the medium term and potential income streams including the development of its own product range are being investigated.

The Scottish Cashmere Club is managed on a day to day basis by Graeme Sands, an experienced knitwear executive, who took up position in November 2002.

The current membership of the Scottish Cashmere Club consists of the following twelve companies:

Alex Begg & Co Ltd BC Consulting Ltd John Laing of Hawick Ltd Johnstons Cashmere Lochcarron of Scotland Ltd MA Cashmere Ltd Peter Scott & Co Ltd Scott & Charters (Hawick) Ltd The Hawick Cashmere Company Ltd William Lockie & Co Ltd William Fein & Sons Ltd Z Hinchliffe & Sons Ltd

The current membership of twelve represents less than half the workforce involved in Cashmere manufacture in Scotland. This is the result of some major resignations including the Dawson Group (Ballantyne and Todd & Duncan) together with Clan Douglas and N Peal who decided that membership of the Club did not fit with their marketing strategies. Clan Douglas was bought by Lyle & Scott who have never been members.

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(CMIS PROMOTION contd)

N Peal withdrew following a corporate decision made outwith Scotland despite having benefited particularly in Korea where they have gained 20 retail concessions, following market entry assistance from the Promotion in 2001.

Given the economic importance of these companies as local employers, exporters and market leaders, it is essential that executives at a senior level within Scottish Enterprise Borders rally the support of MPs and key business leaders to meet with these companies to discuss the circumstances under which they may return to the Cashmere Club. There may be an opportunity to do this, in light of recent management changes.

2.3 Aims and Objectives The aim of the Promotion is essentially to assist the Scottish Cashmere Industry to achieve a sustainable future through developing export markets for quality products aimed at the added value sector.

Its objectives have remained unchanged since its formation and are to achieve the following:

• increase the awareness of Scottish Cashmere products, primarily at consumer level

• differentiate Scottish Cashmere from its competitors

• increase the sales of Scottish Cashmere and therefore improve the competitiveness and profitability of Scottish Cashmere companies

• encourage the industry to work collectively in promoting and supporting the industry as a whole.

The Promotion has been developed around the concept of generic marketing of Scottish Cashmere and not the promotion of individual companies, other than as members of the Scottish Cashmere Club and users of the swing ticket. It is clear from survey findings that without public sector support this type of marketing would not have been undertaken by the industry.

Within these overall objectives, the Promotion was set a range of performance targets which are discussed in Section 2.5. - 11 -

(CMIS PROMOTION contd)

2.4 Fit with SE/Borders Strategies The aim of the Cashmere Made in Scotland Promotion is ‘to assist companies in the Cashmere Industry to compete effectively at both national and global levels through raising awareness of overseas opportunities and encouraging diversification into new markets’.

This fits with Smart, Successful Scotland by encouraging the growth of Global Connections through encouraging local companies to seek out and learn from new markets and by connecting digitally the Scottish Cashmere Industry worldwide through its web site.

The objectives of the Cashmere Made in Scotland Promotion also fit with those of Scottish Textiles in terms of:

• enhancing the industry’s competitiveness in UK and World Markets • improving the image of the sector to support recruitment • developing Centres of Excellence in Design and Product Development

The aims of the Cashmere Made in Scotland Promotion also fit with Scottish Enterprise and Scottish Enterprise Borders’ aims and objectives as set out in their New Way Theme viz:

Thriving Organisations

• More added value products, with focus upon design, aimed at international quality niche markets. • The development of new niche markets and deepening of the penetration of existing markets is an important strategy of the promotional plan, through high profile events, tailor made research of market opportunities and promotion of Scottish Cashmere in targeted markets. • Increase in managerial awareness of changing global market place through in-depth market research. • Increase in collaboration between Borders’ and other Scottish Cashmere producers. • Increase in exports.

Innovation in Public services

• Closer partnership between public sector agencies, both nationally and internationally, in particular, SEB, SDI, Embassies and Consulates and SEN.
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(CMIS PROMOTION contd)

Connected Place

• Marketing and branding Scottish Cashmere resulting in the niche market high quality image for the Scottish Borders, international, national and local markets understanding the quality and innovation intrinsic in the Scottish Borders. • Networking within the Scottish Borders, within the Scottish Cashmere Industry.

Vibrant Communities

• Changing attitudes – making a difference for the Scottish Cashmere Industry through sharing information with a view to improving the image of the industry to encourage recruitment.

2.5 Performance Targets One of the recommendations in the first evaluation of the Promotion in March 2000 was that more specific performance targets should be agreed and results monitored. The following targets were set in January 2001 before the major events that subsequently resulted in a world economic downturn:

• 25 companies participating in the initiative • £5 million increase in sales output • 14 marketing initiatives across 6 countries • 3 pieces of targeted market research crucial to the industry • Regular detailed market research trend information for Japan • 1,625 jobs safeguarded • Improvements to Scottish Cashmere awareness internationally • Improved export performance through 10 new market entries • Creation of a strong network of Cashmere manufacturers.

6. Activities The concept, developed in 1999 for the London Fashion Week Exhibition, of displaying products from cutting edge international designers has proved to be successful. It not only secured additional sales for participating companies but also encouraged them to more comprehensively address the need to exploit the design capabilities of Cashmere.

This approach was adopted in the marketing activities for both Korea and Japan. - 13 -

(CMIS PROMOTION contd)

A major fashion show was staged in 2002 in Korea and managed by the Scottish Cashmere Club in co-operation with SE Borders, Scottish Development International (SDI). and the former’s Korean representative Howard Jang. Invitations were sent to 500 buyers or senior directors. Using a Fashion Ambassador, film star Ms Yun-A Song, the promotion of the Cashmere Made in Scotland brand reached the highest levels in the market for what was a modest outlay.

The results of the Korean campaign were positive with one company gaining 20 retail concessions and indicative gross sales of around £2 million. However, the weakening of the market, due to extraneous factors discussed previously has affected outcomes.

The Scottish Cashmere Club also exhibited at the International Fashion Forum in Tokyo using a range of Japanese designers. This event gained significant media coverage which Club members were able to exploit. The Club has subsequently appointed a project management team in Japan (Sensu) to assist in the promotion of Scottish Cashmere at the appropriate trade levels. Specifically Sensu’s role is to:

• provide branding advice and strategy to the Club for the Japanese market to modernise its image

• develop a marketing programme to build the new image in Japan and enhance the perceived value of Scottish Cashmere

• develop relationships with retailers and to communicate to them the development of Cashmere Made in Scotland

• increase exports of Scottish Cashmere to Japan as a result of these activities.

In addition to these major marketing developments the Scottish Cashmere Club is involved in the other following activities:

• protection of quality standards by product testing • maintaining the website (now in-house) • pursuing of trade mark registration and protection • commissioning relevant market research • updating promotional material • producing and distributing swing tickets • encouraging local and UK trade publications • maintaining local road signage.

The Club also organised attendance at the recent London Fashion Week Exhibition in which a small number of companies participated. 14 -

(CMIS PROMOTION contd)

The aim of the Promotion is to raise awareness of Cashmere Made in Scotland in export markets and to introduce the manufacturers to key contacts in major retailers. After that it is up to the individual companies to pursue these procurement contacts with their own product ranges to secure sales. This is thought to be only sustainable approach given the limited funding available.

6. Funding The Promotion has been delivered by the Scottish Cashmere Club Ltd since January 2002 and during the period to 30 June 2003. Accounts are provided in Appendix 3.

Although this evaluation is based on activity between January 2001 and June 2003, at the time of writing this report, 2001 project costs were not accessible. The total cost of running the Promotion from January 2002 to end of June 2003 is shown in the undernoted table which is expanded in Appendix 4.

Table 2.1: Summary Costs & Funding

|a) |Costs |2002 |2003* |Total |
| | |£ |£ |£ |
| |Project Costs |172,875 |65,022 |237,897 |
| |Other Direct Costs |54,597 |26,368 |80,965 |
| |Industry Costs |135,000 |70,000 |205,000 |
| |Overheads |17,950 |3,074 |21,024 |
| |Total |380,422 |164,464 |544,886 |
| | | | | |
|b) |Funding | | | |
| |Public - EU |247,500 |76,968 |324,468 |
| |Public SEB** |147,155 |73,578 |220,733 |
| |Private |199,587 |115,463 |315,050 |
| |Total |594,242 |266,009 |860,251 |

*6 monthly only **estimates

The balance of £94K (see Appendix 3 for details) is already committed against project expenditure.

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3. SURVEY RESULTS

1. Methodology Because there are only a small number of key players in the Scottish Cashmere Industry, the intention was to interview as many as possible on a face to face basis using a structured questionnaire.

In the event all of the twelve existing members of the Scottish Cashmere Club were interviewed along with eleven past or non-members. A further eleven key interviewees were consulted giving thirty-four interviews in total.

The survey included an e-mail interview with both Michael Causton of Sensu in Japan and Howard Jang of SDI in Korea..

The full Interview Schedule is attached as Appendix 2.

The tabulated results of the survey are incorporated in the fourth section of this report including:

Survey Results – All Companies Survey Results – Members Survey Results – Non-Members Survey Results – Key Interviewees

These results will be referred to in the course of this section of the report. Any differences in responses between members and non-members are highlighted. ‘Don’t know’ responses have been excluded from many tables and therefore the column totals may vary.

Copies of the questionnaires used are provided in the final section of the report.

Where reference in the report is made to ratings, these are based on points given by interviewees on selected topics. Points were awarded on a scale of 1 (Very Poor) to 5 (Excellent) and the ratings were then expressed as a percentage using the categories below:

1 0% - 19% very poor 2 20% - 39% fair 3 40% - 59% good 4 60% - 79% very good 5 80% -100% excellent - 16 -

(SURVEY RESULTS contd)

3.2 Overview As a general statement, the current members of the Scottish Cashmere Club are satisfied with the direction and progress of the Promotion and in particular its current Project Manager who is perceived to have brought dynamism to its delivery. The number of interviews completed at a very busy time for the industry confirms the interest in the Cashmere Made in Scotland Promotion. The majority of those consulted gave high ratings to the relevance of the activities of the Club. The results achieved were rated at a lower level largely due to the effect of major events that have adversely affected the market for luxury goods such as Scottish Cashmere. However, it is anticipated that there will be recovery soon in the Far East markets and many members are keenly awaiting the launch of the Promotion into the USA market in 2004.

3.3 Company Characteristics Companies were asked to describe the following:

a) type of ownership b) business activity c) length of time trading d) turnover e) employment f) competitor location

This section examines each of these in turn, to establish the make up of the sample and to put the results into context (see Section 4: Survey Results - Business Characteristics for a more detailed breakdown).

Type of Ownership

Companies were asked if they were an independent plant or part of a larger group of companies.

Table 3.1: Type of Ownership

|Type of Ownership |All Companies |Members |Non Members |
| |No. (%) |No. (%) |No. (%) |
|Independent Single Plant |14 |63.6 |7 |58.3 |7 |70.0 |
|UK Group, Branch Plant |5 |22.7 |3 |25.0 |2 |20.0 |
|Foreign Branch Plant |3 |13.7 |2 |16.7 |1 |10.0 |
|UK Group, Head Office |- |- |- |- |- |- |
|Total |22 |100.0 |12 |100.0 |10 |100.0 |

Of the companies interviewed for this study, nearly two-thirds of both member and non-member companies (63.6%) were operating as independent plants, nearly one-quarter were a national branch. There were three branches (13.7%) plants of companies registered abroad. - 17 -

(SURVEY RESULTS contd)

a) Business Activity Companies were asked to list all their textile business activities.

Table 3.2: Business Activity

|Business Activity |All Companies |Members |Non Members |
| |No. (%) |No. (%) |No. (%) |
|Knitting |14 |63.6 |7 |41.2 |7 |70.0 |
|Spinning |4 |18.2 |3 |17.6 |1 |10.0- |
|Design |3 |13.6 |1 |5.9 |1 |10.0 |
|Weaving |2 |9.1 |2 |11.8 |- |- |
|Dyeing/Finishing |2 |9.1 |2 |11.8 |- |- |
|Other |2 |9.1 |1 |5.9 |- | |
|Accessories |1 |4.5 |1 |5.9 |2 |20.0 |

Note: Multiple Responses % Total Population

The majority of all companies (63.6%) were knitwear manufacturers. Members participated in the full spectrum of textile business activity. Other categories were training and development and merchandising.

c) Length of Time Trading Companies were asked how long they had been trading in Scotland. Table 3.3: Length of Time Trading

|Years |All Companies |Members |Non Members |
| |No. (%) |No. (%) |No. (%) |
|0 – 5 |2 |9.1 |1 |8.3 |1 |10.0 |
|5 – 10 |- |- |- |- |- |- |
|10 – 25 |7 |31.8 |3 |25.0 |4 |40.0 |
|25 – 50 |2 |9.1 |1 |8.3 |1 |10.0 |
|> 50 |11 |50.0 |7 |58.3 |4 |40.0 |
|Total |22 |100.0 |12 |100.0 |10 |100.0 |

The age profile of participant companies was similar in both member and non-members, with nearly 50% having traded for over fifty years. Nearly half had been trading between one and two hundred years and originated as family businesses. Two of the sample had started up in the last five years and were designers. - 18 -

(SURVEY RESULTS contd)

d) Company turnover Companies were asked for their total sales and cashmere sales for the last three years.

Table 3.4: Turnover £m

| |2001 |2002 |2003 |
| |Cashmere |Total |Cashmere |Total |Cashmere |Total |
|Home |17.1 |43.4 |15.5 |43.5 |18.2 |44.0 |
|Export |36.4 |67.9 |39.0 |72.3 |37.8 |66.9 |
|Total |53.5 |111.3 |54.5 |115.8 |56.0 |110.9 |

Overall sales turnover for companies sampled increased 4% between 2001 and 2002 and fell in 4.2% in 2003. Cashmere sales overall grew by 1.9% in 2002 and increased a further 2.8% in 2003. Within those sales levels the proportion of Cashmere in the sales mix increased by 9.5% among members (see Company Survey Results: Members 1d). Member cashmere sales grew by 2.9%, from £37.6m to £40.6m, over the last three years compared to those of non-members, whose rose by 0.6% in 2001/2002 and fell by 3.8% in 2002/2003[2].

e) Employment Companies were asked how many employees they had. Results were converted into full time equivalents and reported below.

Table 3.5: Employment

|Number of Employees |All Companies |Members |Non Members |
| |No. (%) |No. (%) |No. (%) |
|1 – 25 |5 |28.8 |1 |9.1 |4 |40.0 |
|25 – 50 |3 |14.3 |2 |18.2 |1 |10.0 |
|50 – 100 |5 |28.8 |2 |18.2 |3 |30.0 |
|100 – 200 |3 |14.3 |3 |27.2 |- |- |
|200 – 500 |3 |14.3 |1 |9.1 |2 |20.0- |
|>500 |2 |9.5 |2 |18.2 |- |- |
|Total |21 |100.0 |11 |100.0 |10 |100.0 |

Nearly one-quarter of all companies had up to twenty-five employees and another quarter between fifty and one hundred employees. Member companies were represented in all categories whereas non-members were more represented in companies with up to one hundred employees, with the exception of two who had between two hundred and five hundred employees.

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(SURVEY RESULTS contd)

f) Competition location Companies were asked to identify where their competitors were located.

Table 3.6: Competition Location
| |All Companies |Members |Non Members |
| |% |% |% |
|Italy as competition |71.4 |81.8 |60.0 |
|China as competition |42.9 |54.5 |30.0 |
|Competition local |42.9 |54.5 |30.0 |
|Rest of Scotland |19.0 |18.2 |20.0 |
|Rest of UK |9.5 |- |20.0 |
|Other |4.8 |- |10.0 |

Note: Multiple Responses % of Responding Companies (21)

Italy was perceived by nearly three-quarters of companies (71.4%) as the most significant in terms of location of competition. This was followed by China and the Borders, each with a score of 42.9%. The other country identified by one company was the USA. - 20 -

(SURVEY RESULTS contd)

4. Views on the Cashmere Market To establish the perceived Cashmere Market conditions, companies were asked to identify what they considered to be the top three problems they faced in order of importance. The top three were identified as:

a) competition b) worldwide recession c) lack of skills

The results are shown in the table below and the problems identified are discussed in more depth (see Section 4: Survey Results – Cashmere Market for more details).

Table 3.7 : Problems Facing the Cashmere Industry in Scotland
|Description |All Companies |Members |Non Members |
| |% |% |% |
|Competition | 32.2 | 31.7 | 32.7 |
|Worldwide recession | 24.6 | 31.7 | 16.3 |
|Lack of skills | 12.7 | 15.9 | 9.1 |
|Sterling/Euro | 9.3 | 3.2 | 16.4 |
|Effect of Multi Fibre Agreement | 5.1 | 7.1 | 1.8 |
|Supply of labour | 4.2 | 1.6 | 7.3 |
|Cost of labour | 2.5 | - | 5.5 |
|Lack of brand | 2.5 | - | 5.5 |
|Cost of raw material | 2.5 | 1.6 | 3.6 |
|Lack of marketing | 1.7 | 1.6 | 1.8 |
|Supply of raw material | 1.7 | 3.2 | - |
|Need for investment | 0.8 | 1.6 | - |
|Lack of design | - | - | - |
|Total |100.0 |100.0 |100.0 |
| | | | |

Points Weighted Average

The major problem identified by both members and non-members was clearly the competition the Scottish Cashmere Industry faces, in particular, from Italy and China. This was closely followed by the effects of the worldwide recession which has weakened buyer confidence and decreased tourist numbers. The third most significant problem identified was a lack of skills which is still a critical issue for the industry. Each of those will be discussed in turn.

a) Competition The last three years have seen Chinese Cashmere manufacturers continue to improve the quality of their products, although they remain at the lower end of the market, concentrating on high volume production.

The lapse of the Multi Fibre Agreement at the end of 2004 was not considered to be a major problem. Instituted to allow the industry time to reposition itself before the low cost manufacturers e.g. China are free to penetrate all markets, most Scottish manufacturers believed that the agreement has been fatally breached already and anticipated no major impact. - 21 -

(SURVEY RESULTS contd)

All of those interviewed believed that Scottish Cashmere was regarded as a quality product in world markets. This reputation was considered by 75% of members to have improved over the last three years (see Survey Results Section 2d)

When asked if the reputation of Scottish Cashmere had improved against Italian Cashmere in the last two years, 66.6% of members believed that Scottish Cashmere was perceived to be better that Italian Cashmere.

Italy was perceived by many to be the real competition because of the drive for higher fashion products and because of the Italian industry’s performance in terms of delivery. The Italian industry continues to benefit from a significantly higher spend on generic marketing than Scotland because of its greater critical mass and the attitude to support displayed by the Italian government.

b) Worldwide Recession The weakening of the world economy which is linked to the major events that have occurred since September 2001, has severely dented consumer confidence particularly among tourists and this has resulted in a significant drop in sales in London, and for additional reasons a similar trend is evident in the Far East particularly Korea.

Despite the poor state of the Japanese economy the type of customer that would buy Scottish Cashmere appears to be spending now at pre-2001 levels. This perception gives support for continuing the campaign by the Cashmere Made in Scotland Promotion in this market.

c) Lack of Skills Lack of skills was identified by both companies and key interviewees as a significant problem facing the Cashmere Industry. The ongoing rationalisation of the industry hides the extent of the problem as skilled labour is absorbed back into the industry. This problem could continue if any of the larger manufacturers decide to transfer production offshore which remains a possibility given the perceived high costs of manufacture in Scotland.

The number of people entering the industry is believed to be insufficient to sustain operations quite apart from bringing in fresh management talent.

The image of the industry among local residents, who retain the memory of stop-start production and heavy redundancies remains and they are thought to encourage their young people into any other industry but textiles. The fact that young people do not view the textile industry as a viable career option is an issue that is currently being addressed by Scottish Enterprise Borders and Careers Scotland.

- 22 -

(SURVEY RESULTS contd)

There is a confidence among Scottish Cashmere manufacturers about the future of the industry, with all Club members anticipating growth in sales in the short, medium and long term, and demonstrates commitment to manufacturing in Scotland. Of the non-members, around 30% anticipated some form of internal rationalisation or diversification. The key interviewees anticipated that, following a period of growth in the short term, the industry would gain some degree of stability in the medium term.

5. Participation in Cashmere Club Activities This section of the report examines the broad range of Cashmere Club Activities in the following three sub-sections:

3.5.1 Cashmere Club activities 3.5.2 Korea Market Activity 3.5.3 Japan Market Activity

3.5.1 Cashmere Club Activities Companies were asked to rate the following Cashmere Club activities on relevance to their businesses the impact participation has had to date:

a) Japan Market Activity b) Korea Market Activity c) London Fashion week d) Web Site e) Promotional Activity f) Swing Ticket g) Market Research

Results are shown in Table 3.8 overleaf. - 23 -

(SURVEY RESULTS contd)

Table 3.8 shows the results which companies attributed to each activity (please also refer to Survey Results for Key Interviewees and All Companies).

Table 3.8: Participation and Satisfaction Ratings with Club Activities
| |Members |Non- Members |
|Event/Activities |Participation |Relevance |Impact |Participation |Relevance |Impact |
| |No |% |% |No |% |% |
|Korean Market Activity |8 |77.5 |68.7 |3 |60.0 |46.7 |
|Japanese Market Activity |10 |86.0 |68.6 |1 |100 |60.0 |
|Web Site |7 |62.9 |33.3 |1 |80.0 |80.0 |
|Promotional Material |8 |75.0 |62.9 |2 |40.0 |40.0 |
|CMIS Swing Ticket |9 |82.5 |65.7 |1 |20.0 |20.0 |
|London Fashion Week |4 |27.5 |33.3 |2 |100.0 |100.0 |
|Market Research | | | | | | |
| British Fashion Council (USA) |6 |41.7 |22.0 |- |- |- |
| Japan Consuming |8 |82.5 |62.9 |1 |80.0 |20.0 |
| Broughton Report |3 |50.0 |30.0 |- |- |- |
| Rigby |3 |46.7 |20.0 |- |- |- |
| Sensu |10 |86.0 |66.7 |1 |80.0 |20.0 |

Activities that attracted the highest ratings overall were the Japanese Market Activity and Japanese Market Research – Japan Consuming and Sensu. These were followed closely by the Korean Market Activity. The majority of non-members were unable to respond to the above as they had not participated.

The results around each of the events and activities described in the above table are now discussed in turn below.

a) Korean Market Activity Overall member companies rated the Korean Market Activity as very relevant to their business (77.5%) and reported a very good impact (68.7%). Three non-member participants also found that the event was relevant, although less so at 60%, and overall results good at 46.7%. Event management will be discussed in Section 3.5b.

b) Japanese Market Activity The Japanese Market Activity was rated as very relevant by members (86%), achieving a higher rating than Korea. The impact rating was very good at 68.6% despite that results had not been fully realised. One non-member attended and gave ratings of relevance and impact of 100% and 60%, respectively. Event management will be discussed in Section 3.5c. - 24 -

(SURVEY RESULTS contd)

c) Web Site Only eight of the twenty-two companies interviewed had either looked at the Cashmere Made in Scotland Promotion web site or were prepared to give an opinion. Their rating of the relevance of the web site at 62.9% is relatively high but the impact rating of 33.3% indicated that members perceived that greater impact may be achieved.

The overall feeling was that there was greater opportunity to develop the site as a promotional tool that would reinforce Scottish Cashmere. A review of the objectives of the web site should be carried out involving all members and the specification and functionality modified as required. Key interviewees suggested that the web site could also be used for e-business at a Club level, but this should be a secondary issue.

One of the most common criticisms was the lack of information about members on the site, despite the automatic link to their websites, and a perceived lack of initial impact on entry to the site that would encourage visitors to engage further.

d) Promotional Material There would appear to be no major issues of concern as regards the quality of the promotional material. Cashmere Club members who used the promotional material were very satisfied, giving it a 75% rating for relevance and 62.9% for impact. Two-thirds of members (66.7%) used the material suggesting that there is an opportunity to increase its use. The two spinners, who do not sell directly to the end consumer, are obvious non-users, but two other members did not use the material. The minority view was that it could be used to ‘tell the story of Scottish cashmere’.

e) Swing Ticket All of the end product manufacturing members, with the exception of one, used the Cashmere Made in Scotland Promotion swing ticket, giving it an excellent rating for relevance 82.5% and a very high rating 65.7% for impact.

The swing ticket is effectively the badge of the Scottish Cashmere Club. Not only does its use help to promote the brand, but it also generates income for the Club. This is essential if it is to achieve self-financing status. The decision by Johnstons Cashmere, a major supporter of the Cashmere Club, to withdraw the swing ticket from its scarves, due to the ‘clutter’ of labels, is a setback to this objective.

- 25 -

(SURVEY RESULTS contd)

A number of both large and small companies that had resigned from the Club disagreed with the strategy of generic marketing and therefore did not support principal of the CMIS ticket. One of those large companies invested heavily in product advertising and believed that the Club, therefore, was irrelevant. The issue of how Scottish Cashmere market generically appears to be a an issue that requires further exploration if larger companies are to be encouraged to join/rejoin.

f) London Fashion Week Ratings given by the four members were low suggesting that resources should be focused elsewhere in future. The event lends itself to individual designers and manufacturers, rather than the industry. Many companies exhibit at London Fashion Week rather than through the Club for this reason. Two non-members gave excellent ratings for relevance and ratings.

It is understood that the Cashmere Club’s involvement with London Fashion Week has been discontinued.

g) Market Research It was recognised from an early stage that lack of market research information was a major weakness in the industry and the Cashmere Made in Scotland Promotion addressed this. This key requirement has been an important element of the activities of the Promotion over the last three years and a range of research material was provided to members (see Section 4.3 Performance Against Targets for list of reports).

The Rigby Associates report on potential markets, the British Fashion Council report on the USA market and the Brazilian Report all received good ratings for relevance, less that 50% and lower ratings for impact, 30%.

The market research intelligence which was most well received was compiled by Sensu and Japan Consuming. These reports were widely read and rated as highly relevant, 86% and 82.5% respectively and were considered to be ‘excellent reports from Japan’.

Clearly, a report similar to that of Sensu would be beneficial for the next target market (USA). - 26 -

(SURVEY RESULTS contd)

2. Korea Market Activity Eleven companies participated in the above event. They were asked to rate specific elements that made up the overall management of the event on a scale of one to five. These results were converted to percentage and are shown in the table below.

Table 3.9: Korean Campaign Ratings
| |% |
|Organisation |80.0 |
|Promotion |77.8 |
|Context |82.2 |
|Relevance |66.7 |
|Results |64.4 |

Overall, event participants rated the organisation of the Korean campaign as excellent (80.0%); members rated it more highly (83.3%) than non-members (73.3%) (see Survey Results Section 6). Results suggest a very high satisfaction in the promotion of the event in Korea. The impact was rated as very good overall (64.4%) and by members (73.3%) and good by non-members (46.7%)

These were very positive ratings despite the fact that the Korean market has weakened significantly as a result of SARS and the state of the Japanese economy. Most companies were optimistic about the future, believing that increased sales would occur in the longer term. In the shorter term, awareness raising of company profile and brand were achieved. Several companies enjoyed duty free distribution and found Korean agents.

A minority of interviewees commented on the lack of opportunity to follow up leads directly after the initial event and one new entrant suggested that greater facilitation of introductions between buyers and sellers with more opportunity to network with buyers would have been beneficial. Differences in language and cultural norms compounded this problem. This was an important issue for them as they had invested heavily in the preparation of product samples etc. to attend events and they had a strong requirement to be capture potential sales. - 27 -

(SURVEY RESULTS contd)

3.5.3 Japan Market Activity Event participants were asked to rate the delivery of Japan Market Activity and the table below shows the results.

Table 3.10 : Japanese Campaign Ratings
| |% |
|Organisation |86.0 |
|Promotion |88.0 |
|Context |88.0 |
|Relevance |80.0 |
|Results |66.0 |

All parts of the campaign were given excellent ratings by participants despite that many companies both members and non-members did not achieve direct sales (see Survey Results Section 7). Results are discussed further in Section 4.5: Output Measures.

The experience gained from tackling the Korean market appears to have benefited the approach in Japan where all ratings were significantly higher. There is general anticipation that Scottish Cashmere manufacturers will re-build and then grow their export levels in this market in the medium term.

As with the Korean Market Activity, feedback from a minority of smaller companies pointed to the need for more opportunity for networking, greater facilitation of introductions and the opportunity for private follow up with potential buyers, directly after the event.

Feedback from key interviewees on effectiveness of follow up after events showed that ‘there has been good progress’. Comments included: ‘Improvement in the overall presentation of their brands including marketing materials, order books, profiles and packaging’

However, in order to establish Scottish Cashmere in the Japanese market, companies needed to look at:

• product styling • colours • define clearer hero products • develop their Spring/Summer collections in Asia.

The development of the collections means that they can be sold between February and August, as effective branding in a fiercely competitive environment requires all year-round sales. All year-round sales are required to fund the marketing and promotional activity of the Promotion to succeed in Japan. - 28 -

(SURVEY RESULTS contd)

3.6 Cashmere Club Operation Companies were asked a series of questions that attempted to measure satisfaction of the Cashmere Club operation. Findings are outlined under the six sections:

a) Exclusivity b) Membership Rights c) Management d) Funding e) Future Membership f) Generic Marketing.

a) Exclusivity It had contentiously been suggested by a minority that objections to full membership of designers in the Club was invalid. Two members of the Club considered the membership to be too exclusive and suggested a broader membership with more designers. This view was supported by one key interviewee and two non-members, one of whom manufactured their garments abroad. Given the competitive advantage that design and fashion has afforded the Italian Cashmere Industry, this issue may be worth re-visiting.

b) Membership Rights There was a high level of acceptance among members and non-members of the rights attached to membership of the Cashmere Club and satisfaction with the current level of fees. Firms currently pay an annual fee for membership ranging from £500 (plus VAT) for associate members to around £3,500 (plus VAT) for full members (manufacturers). Smaller manufacturers pay an annual fee of £1,750 (plus VAT).

When asked about the level of fees they would be prepared to pay in pursuit of the self-financing objective the following results were found:-

Table 3.11: Maximum Membership Fees Acceptable
|Fee/Annum |No. |% |
|£500 |6 |33.3 |
|Up to £1000 |4 |22.2 |
|£2000 |2 |11.1 |
|£10000 |5 |27.8 |
|£15000 |- |- |
|£20000 |- |- |
|£25000 |1 |5.6 |
|Total |18 |100.0 |

This suggests that there may be scope to increase fees in the future to support the move toward self-financing status. However, several smaller companies expressed a desire to join the Cashmere Club and participate in events but were unable to do so as they found the costs prohibitive. 29 -

(SURVEY RESULTS contd)

c) Management The management of the Club under its current stewardship received high ratings with many members welcoming an industry appointment able to understand their problems and with the ability to ‘make things happen’.

The critical function of communication received an excellent rating of 90% (members), 86.7%, overall which is very important given the sensitive nature of this project. Members believed that the regular e-mailing was an ideal method of communication.

d) Funding Of the ten members that confirmed their satisfaction with the level of public sector support for the industry, a rating of 78.0% was delivered as opposed to a rating of 60.0% from non-members and 64.0% from key interviewees.

These results reflect, to some extent, the knowledge that there is little scope for increased public sector funding. Most believed that significantly more funding would be required to successfully pursue a generic marketing campaign aimed at consumers in the Far East and USA but have reconciled themselves to the less costly but slower route through retailers.

e) Future Membership Of the twenty-three companies interviewed, twelve were current members, eight had been members and three had never been members. All twelve members planned to remain so and five non-members were considering joining/rejoining. The appointment of a new chairman of the Cashmere Club will present an opportunity for renewed dialogue with non-members, although those interviewed commented on the extensive in-roads achieved by the previous chairman.

f) Generic marketing 85% members of the Scottish Cashmere Club believed strongly in the concept of the generic marketing of Scottish Cashmere, This view was largely supported by the key interviewees. Non-members rated it lower at 62% as a minority did not support the concept. Smaller companies were more supportive of this strategy due to their lack of ability to finance individual marketing and promotion.

Overall, the concept of generic marketing in accessing new markets was supported strongly. - 30 -

(SURVEY RESULTS contd)

3.7 Achievement of Objectives The four key objectives agreed for the Cashmere Made in Scotland Promotion have been embedded in the objectives of the Scottish Cashmere Club. Companies and key interviewees were asked to give their views on whether they perceived that the Promotion had delivered against the following four objectives which are to:

a) increase the awareness of Scottish Cashmere products, primarily at consumer level

b) differentiate Scottish Cashmere from its competitors

c) increase the sales of Scottish Cashmere and therefore improve the competitiveness and profitability of Scottish Cashmere companies

d) encourage the industry to work collectively in promoting and supporting the industry as a whole

Each of the objectives is discussed in turn:

a) To increase the awareness of Scottish Cashmere products, primarily at consumer level. It is understood that this is an objective which is long term, a fact recognised by the companies interviewed, as the following results confirm:

Table 3.12: Performance Against Consumer Awareness Objective
| | |Non |Key |
| |Members |Members |Interviewees |
| |% |% |% |
|Achieved |- |- |- |
|Good Progress |11.1 |- |16.7 |
|Modest Progress |66.7 |- |66.7 |
|No Impact |22.2 |100.0 |16.7 |
|Total |100.0 |100.0 |100.0 |

These results show that there has been slow progress to date in achieving this objective as none of the interviewees agreed that it had been achieved yet.

The approach in Japan has been to target the buyers, editors and stylists with a ‘hearts and minds’ campaign to obtain their support in terms of floor space, press coverage and marketing funds. It is believed that this is the best use of limited funds.

- 31 - (SURVEY RESULTS contd)

b) To differentiate Scottish Cashmere from its competitors. The views of the interviewees as regards progress with this objective can be summarised in the table below.

Table 3.13: Performance Against Product Differentiation Objective
| | |Non |Key |
| |Members |Members |Interviewees |
| |% |% |% |
|Achieved |- |- |- |
|Good Progress |40.0 |- |33.3 |
|Modest Progress |50.0 |40.0 |50.0 |
|No Impact |10.0 |60.0 |16.7 |
|Total |100.0 |100.0 |100.0 |

There was the opinion among those involved with the Cashmere Made in Scotland Promotion that modest to good progress had been made in achieving this objective. This was based on feedback from Japan where ‘there is a warm feeling about Scottish Knitwear that Italian brands don’t have’ although the product is still perceived as traditional.

This is an important objective at a time when the world market is being supplied with low cost Cashmere products manufactured abroad. The Chinese product has the potential to adversely affect the caché of Cashmere and it is critical that Scottish Cashmere is understood to be of superior quality and is backed by modern design and colour trends.

c) To increase the sales of Scottish Cashmere and therefore improve the competitiveness and profitability of Scottish Cashmere companies. The results of the survey against this objective are presented in the following table.

Table 3.14: Increase Sales Objective
| | |Non |Key |
| |Members |Members |Interviewees |
| |% |% |% |
|Achieved |11.1 |- |16.7 |
|Good Progress |11.1 |- |33.3 |
|Modest Progress |77.8 |- |50.0 |
|No Impact |- |100.0 |- |
|Total |100.0 |100.0 |100.0 |

Although the bulk of member companies believed progress to be modest, the key interviewees suggest a higher level of achievement was attained. - 32 -

(SURVEY RESULTS contd)

It is clear from interviews with companies involved, that in some cases the Promotion halted a decline in sales which would have otherwise had serious internal consequences. One company which resigned from the Club in 2002 achieved an increases in sales that was attributed to the Korean Market Activity in 2001 and has now an established customer base with 20 retail concessions.

Given the state of the market in the Far East, these could be seen as encouraging results promising future growth. This realises a key objective as positive results will ensure that member companies benefit financially from their involvement with the Club and perceive it to be of real value. This should encourage them to retain their involvement with the Scottish Cashmere Club and to contribute more to achieving self-financing status.

d) To encourage the industry to work collectively in promoting and supporting the industry as a whole. The results of the survey regarding this objective are as follows:

Table 3.15: Work Collectively Objective
| | |Non |Key |
| |Members |Members |Interviewees |
| |% |% |% |
|Achieved |45.5 |- |33.3 |
|Good Progress |36.4 |- |50.0 |
|Modest Progress |18.2 |75.0 |- |
|No Impact |- |25.0 |16.7 |
|Total |100.0 |100.0 |100.0 |

All member companies believed that the Promotion had drawn the industry together over the last two to three years. This is a very positive result with even non-members giving a 75% score for modest progress despite the fact that most had resigned their membership of the Club.

In the review carried out in March 2000, 90% of respondents believed that the Cashmere Made in Scotland Promotion had assisted in bringing the various elements of the industry closer together. The collaboration was confirmed by the formation of the Scottish Cashmere Club in 2002, which peaked at 20 member companies. However since then there have been eight resignations reducing the membership to twelve, representing less than 50% of employment in the Scottish Cashmere Industry. - 33 -

(SURVEY RESULTS contd)

On the positive side a new generation of younger management has risen to prominence most of whom were prepared to work together to the advantage of the industry and consequently the businesses in their charge. This is a significant opportunity for the future development of the Scottish Cashmere Club. The survey results appear to confirm that the industry believes these objectives address the problems it faces at this time and should remain in place.

8. Linkages Companies and key interviewees were asked if the Cashmere Made in Scotland Promotion had helped to forge stronger links with other organisations over the last two to three years. The following table presents the results:

Table 3.16: Confirmed Links with Other Organisations
| |Members |Non Members |Key Interviewees |
|Event Activities |Agreed |Rating |Agreed |Rating |Agreed |Rating |
| |% |% |% |% |% |% |
|Scottish Enterprise Borders |91.7 |74.0 |40.0 |85.0 |83.3 |72.0 |
|Scottish Executive |45.5 |64.0 |- |- |- |- |
|Scottish Development International |83.3 |78.0 |10.0 |60.0 |100.0 |56.7 |
|Scottish Textiles |16.7 |80.0 |- |- |33.3 |60.0 |
|Textiles Industry |55.6 |65.0 |- |- |20.0 |60.0 |

This table suggests that the Promotion has improved what were considered to be valuable links with SE Borders and Scottish Development International. The link with Scottish Textiles was not perceived to be strong but it is understood that this link will be strengthened through the organisation of regular meetings between the Scottish Textiles Manager and the Project Manager of the Scottish Cashmere Club. - 34 -

(SURVEY RESULTS contd)

3.9 The Direction of the Promotion Companies and key interviewees were asked their views on the:

a) general direction of the promotion b) future target markets

a) General Direction of the Promotion The views on the general direction being adopted by the Promotion are presented in the table below.

Table 3.17: General Direction of the Promotion
| | |Non |Key |
| |Members |Members |Interviewees |
| |% |% |% |
|Strategy |91.7 |30.0 |100.0 |
|Activities/Events |83.4 |30.0 |83.3 |
|Industry/Product Promotion |81.8 |10.0 |100.0 |
|Web site |66.7 |11.1 |66.7 |

Those involved in the Promotion clearly approved of its general direction with 91.7% and 100% of members and key interviewees respectively supporting its strategic direction. A clear majority supported activities and industry promotion. Two-thirds of both members and key interviewees (66.7%) agreed that the web site was headed in the right direction, suggesting that it may benefit from further development (see Survey Results: Section 3c).

There were around 40% ‘don’t know’s’ in the non-member cohort as they did not have sufficient knowledge to respond. Those that did respond stated that they did not believe that generic marketing would benefit their own particular business and so did not support any related activity.

b) Future Target Markets Companies and key interviewees were asked for their views on the order in which the markets are being tackled and the policy of leaving each market to the member companies once the market entry programme has been completed. Results are presented in the table below.

Table 3.18: Future Target Markets
| | |Non |Key |
| |Members |Members |Interviewee |
| |% |% |% |
|No further support for Korea |54.5 |10.0 |33.3 |
|Further support for Japan |91.7 |60.0 |83.3 |
|Target USA next |83.3 |40.0 |100.0 |
|Target another market next |9.1 |55.6 |33.3 |

The requirement for the Cashmere Made in Scotland Promotion to extend company assistance in Japan was recognised by the majority 91.7% of members and 83.3% of key interviewees. Just over half the members (54.5%) and 10% of non-members disagreed that no assistance was required to penetrate Korea. This issue may require further discussion among Club members. - 35 -

(SURVEY RESULTS contd)

Interviewees agreed that the USA market should be the next target. Other potential target markets identified included Russia and India where one company believed there was a ‘massive potential’.

There are a number of potential and key export markets that the Promotion could target. However market entry strategies represent a significant investment and care needs to be taken on how to target the limited funds available. The USA market is huge and the requirement to focus narrowly through market segmentation is seen to be crucial. - 36 -

4. ECONOMIC IMPACTS

4.1 Overview At the time of the previous evaluation, just over three years ago, the Cashmere Made in Scotland Promotion had delivered generic marketing campaigns initially in Korea followed by Japan, where a smaller number of Scottish manufacturers had already been operating. This was carried out in the face of a collapsing East Asian market but in the belief that those companies that continued to promote their products in difficult times should reap rewards when the good times return.

Since then the markets for Scottish Cashmere have had to contend with the September 11 atrocity, Iraqi War, SARS virus and a worldwide economic downturn. Consequently, the impacts achieved by the Promotion are modest in absolute terms but could ensure the long term survival of many of the current manufacturers. In addition the Promotion is dependent on the efforts of participating companies in following up the generic campaign with brand promotion.

Through this period of turmoil Scottish Cashmere manufacturers have been encouraged to reposition themselves to ensure that they can exploit the market recovery expected in the medium term. This strategy has been effective with most now committed to selling Cashmere products as fashion items based on short production runs and implementing modern manufacturing techniques.

2. Inputs The cost of running the Cashmere Made in Scotland Promotion over seventeen months from January 2002 to June 2003 amounted to £544,886 against which industry contributed £315,050. through annual subscriptions, swing ticket purchases, market launch samples and management time. Although the project started in January 2001, 2001 project costs were not available at the time of this report publication and are therefore excluded from the economic analysis. Industry input is therefore under-reported.

The increase in industry contribution is a welcome move in the drive for which an agreed plan should be now set down. Given the state of the markets at present, and recognising the fact that members require a return on their investment, the achievement of self-sufficiency could take at least five years. - 37 -

(ECONOMIC IMPACTS contd)

4.3 Performance Against Targets In response to the March 2000 evaluation, performance targets were set at a time when it was believed that the economies of the Far East were in recovery. Consequently some of the targets now appear to have been overly optimistic.

The targets and actual achievements are shown below:

Table 4.1: Performance Against Targets
| |Actual |Target |
|Participating Companies |19 |25 |
|Sales Increase |£2,860,455 |£5,000,000 |
|Marketing Initiatives |21 |14 |
|Market Research |6 |3 |
|Jobs Created/Safeguarded |87.5 |1,625 |
|New Market Entries |12 |10 |
|Regular Japanese Info. |Yes |Yes |

a) Participating Companies There are currently twelve active members of the Cashmere Club, most of whom participated in the Korean and/or Japanese marketing campaigns (See Appendix 6). In addition, five non-members and two ex-members participated in events, including London Fashion Week, bringing the total to 19.

b) Sales The sales claimed by companies that participated in the events as being the direct result of the Cashmere Made in Scotland Promotion over the last two and a half years were as follows:

Table 4.2: Sales Achieved through the Promotion
|Year |Korea |Japan |Total |
| |£ |£ |£ |
|2001 |1,200,115 | 25,000 | 1,225,115 |
|2002 |1,200,340 | 50,000 | 1,250,340 |
|2003 |220,000 |165,000 | 385,000 |
|Total |2,620,455 |240,000 |2,860,455 |

*Company sales figures were not all available at the time of report publication.

This should be seen as a reasonable result over a two and a half year period given the state of the target markets and the fact that the real benefits from the Japanese market have not yet fed through to sales. - 38 -

(ECONOMIC IMPACTS contd)

c) Marketing Initiatives It has been shown the twenty-one marketing initiatives have been achieved since the beginning of 2001 more than meeting the target. A chronological list of activities is attached as Appendix 7.

d) Market Research The objective of distributing three targeted market research reports was more than achieved during the period and the publications were.

• Global Market Scanning – Rigby Associates • Report on Japanese Market – Sensu • Comparison of UK & Italian Textile Sector - DTI • Report on Brazilian Market – Trade Partners UK • Knitwear Marketing Report on USA –British Fashion Council • Pitti Uomo Research – The Cashmere Club.

e) Jobs Created/Safeguarded Given the fact that sales did increase by £2,860,455, an increase in the numbers employed in the industry was a positive outcome. The hostile extraneous environment disguises the actual impact of the Promotion. However the £2,860,455 of sales would surely have had an impact on safeguarding jobs. In all 138 net jobs were created/safeguarded as a result of the Promotion.

f) New Market Entries Cashmere Made in Scotland Promotion assisted 12 companies improve export performance through 12 new entries for existing exporters (See Appendix 8: New Market Entries). The target for this activity was 10 but the Promotion achieved 20% over this target. In addition to this export assistance, the Promotion facilitated four companies in working with UK designers.

g) Regular Japanese Information The regular distribution of Japan Consuming to the Club members was achieved and given high ratings. This service should be continued.

- 39 -

(ECONOMIC IMPACTS contd)

4.4 Additionality, Displacement and Market Failure When the Cashmere Made in Scotland Promotion was established in 1997 there were no prospects of the Scottish Cashmere Industry working closely together, far less jointly investing in a generic marketing campaign. While the situation has improved over the last 6 years in terms of the companies working more closely together, there is little confidence that the Promotion would survive the withdrawal of public sector support as the undernoted table confirms:

Table 4.3: Future of Promotion Without Public Funding
| | |Non |Key |
| |Members |Members |Interviewees |
| |% |% |% |
|Industry Fund to Same Level |- |- |- |
|Industry Fund to Lower Level |9.1 |14.3 |40.0 |
|Industry Fund to Much Lower Level |18.2 |28.6 |- |
|Promotion Would Cease |72.7 |57.1 |60.0 |
|Total |100.0 |100.0 |100.0 |

This table shows that withdrawal of public sector support at this point where the sales increases achieved by the participating companies have been restricted by global economic influences would place the future of the Promotion in jeopardy. In fact it is likely that the Cashmere Club as a membership organisation carrying out limited promotional activity is all that would survive at best.

This demonstrates that the companies are not yet confident about achieving self-financing status in the short to medium term. Consequently the market failure, which was the basis of investing public sector support, has not yet corrected although progress has been made.

In terms of additionality this remains high since it is clear that without public sector support at this time the move into new markets such as USA would not take place for the smaller companies in particular.

Although most of the member companies see Italy and China as their main competition, many perceive other Scottish Cashmere manufacturers as real competition, which could give rise to displacement. Since the impacts claimed by participating companies were relatively small and mostly in new markets and the non-members already operating in these markets claimed that the Promotion had no evidence of impact on them, then there is no real displacement. - 40 -

(ECONOMIC IMPACTS contd)

4.5 Output Measures The major benefits that participating companies could gain from the Promotion or Club membership are as follows:

• sales increase • improvement to company performance • improved quality standards • profile raising

These are discussed in turn in the following sub-sections:

a) Sales The sales achieved by companies participating in the events organised through the Promotion and as a direct result of this participation were:

| |£ |
|Korea |2,620.455 |
|Japan | 240,000 |
|Total |£2,860,455 |

These results come from existing members together with one member who resigned after the 2001 Korea Market Activity and therefore this company’s sales are attributed to non-members. This company traded well in Korea and gained twenty retail concessions.

An ongoing improvement is anticipated as the markets in the Far East start to recover and the USA market is thought to have a quicker payback is tackled in 2004.

In addition to securing additional sales, three companies participating in the Korean and Japanese projects won new customers, contracted new agents and two secured duty free distribution. Brown signage was thought to have increased visitor numbers to outlets within The Borders although this was not measured.

b) Improvement to Company Performance The table overleaf shows some of the benefits achieved by participating companies in terms of improved company performance outwith the benefit of increased sales. - 41 -

(ECONOMIC IMPACTS contd)

Table 4.4: Benefits Gained Through Promotion Participation
| |% |
|Increased knowledge of export markets |29.4 |
|Developed alliances/joint ventures |23.5 |
|Product/process development |23.5 |
|Brand development |23.5 |

There is clear evidence that the Promotion has encouraged local knitwear companies to move into the fashion market to ensure survival. Participation in the events gave Scottish companies a direct opportunity to be exposed to a high fashion environment, helping to underline the significance of design in product specification. This in turn, along with the need for cost-effectiveness, has resulted in companies investing in modern manufacturing equipment e.g. Shima.

Some of the members have focused on promoting their own brands more vigorously and gained more knowledge of export markets and how to tackle them.

c) Improved Quality Standards There is anecdotal evidence that some companies have improved their quality standards to meet the requirements of full Cashmere Club membership.

e) Profile Raising The market activity in Korea and Japan was seen by participants and agents to raise awareness of Scottish Cashmere Industry as a whole in addition to good publicity for individual companies. Scottish Cashmere and the Cashmere Made in Scotland Promotion have been cited in the Korean media on more than 50 occasions.

Although forecast sales may not have been realised, a number of companies made successful links with buyers, agents and distributors as a result of the promotional activity and were confident that tangible results would be achieved in the longer term. - 42 -

(ECONOMIC IMPACTS contd)

6. Impacts The main impact that the Cashmere Made in Scotland Promotion could achieve would be to ensure that a sustainable Cashmere Industry is operating in Scotland by the time public sector funds are withdrawn.

a) Employment It is not possible to measure this in an evaluation of this nature, rather the approach is to determine whether jobs have been created or safeguarded as a result of the public sector intervention.

The results from the survey indicate the following:

No Jobs Created 8 Jobs Safeguarded 62 Total 70

These figures are based on the sales achieved and do not reflect the fact that participation in the Promotion helped some companies survive by maintaining existing sales levels.

Adjusted with the Employment Multiplier for knitted garment manufacture, as provided in Scottish Economic Statistics 2000 of 1.25, the jobs created/safeguarded increases to 87.5.

b) Cost Per Job The cost per job created/safeguarded is at best is a crude measurement. We believe that targets were set too high and that in the context of this project, where the emphasis is on generic promotion, the measure is meaningless. In addition to this, project costs for 2001 were not available at the time of report publication.

It is not recommended that the cost per job becomes a future measure of performance since the real number of jobs safeguarded will not be known.

c) Leverage The public to private leverage reported in the previous evaluation was 6.4:1.0. While this was relatively high, it was understood that this was in reality a development phase where low levels of private sector leverage were expected. The public and private sector investment is shown in the table below and represents spending the period from the beginning of January 2002 to the end June 2003.

- 43 -

(ECONOMIC IMPACTS contd)

Table 4.5: Leverage
|Year |Public Sector |Private Sector |Total |
| |£ |£ |£ |
|2001 |unavailable |unavailable |unavailable |
|2002 |394,655* |199,587 |594,242 |
|2003 |150,546* |115,463 |266,009 |
|Total |545.201 |315,050 |860,251 |

*SEB spend is estimated

The public to private leverage in this period was 1.6:1 demonstrating a threefold increase in the contribution from the private sector, in relation to the public sector, in comparison to the previous evaluation.

BDA believe that a range of measures will be required for the industry to finance the Promotion at its current level, one of which may be to relate annual membership fees to sales of cashmere product eligible in quality terms to use the swing ticket, whether it is used or not. This whole issue requires a more detailed study aimed at agreeing a medium term plan to achieve higher private sector leverage.

d) Gross Domestic Product The 1999 figure for contribution to GDP was £30,500 (ie £64,050 million ÷ 2,097,000 jobs) leading to an estimated contribution of the Promotion to GDP of £2,668,750 based on 172.5 created/safeguarded jobs.

4.7 Qualitative Impacts There was a range of qualitative impacts achieved by companies participating in the Cashmere Made in Scotland Promotion and the Cashmere Industry in general. Comments included:

• ‘duty free distribution in Korea’ • ‘linking with agents in Korea and Japan’ • ‘higher shop sales due to Borders brown signage and the promotional material’ • ‘cashmere industry working together’ • ‘quality assurance for customers’ • ‘move to fashion and new ideas in style’.
- 41 -

(ECONOMIC IMPACTS contd)

Results are summarised in the following sub-sections.

• reputation of Scottish Cashmere • significance of involvement • collaboration

a) Reputation of Scottish Cashmere As stated previously in this report (Section 3.4 a), there was a general belief that the reputation of Scottish Cashmere has improved over the last 3 years, in general and specifically in comparison to the Italian product.

All of the Club members who responded believed that the Cashmere Made in Scotland Promotion was solely (10%) or partially (90%) responsible for this improvement. Key interviewees gave higher ratings at 20% and 80% respectively.

b) Significance of Involvement A key feature in assessing the value for money from participating in a programme such as this is to establish how significant involvement has proved to be for the member companies, both historically and in their aspirations for the future.

The results from member companies was as shown in the following table:

Table 4.6: Significance of Involvement in Promotion

| |Last 2/3 Years |In Future |
| | No | % | No | % |
|Very Significant |2 |16.7 |2 |16.7 |
|Fairly Significant |3 |25.0 |7 |58.3 |
|Not Very Significant |6 |50.0 |3 |25.0 |
|Not At All Significant |1 |8.3 |- |- |
|Total |12 |100.0 |12 |100.0 |

It is quite encouraging that at a time of weak markets 41.7% of members considered involvement over the last 2/3 years as being ‘very’ or ‘fairly’ significant to their businesses. More encouraging is the fact that 75% of members believe future involvement will have this level of significance in their businesses.
- 42 -

(ECONOMIC IMPACTS contd)

This confirms the view that member companies anticipate a turnaround in the Far East economy and gains to be made on the USA market. Key interviewees gave an 83.3% rating to this level of significance.

c) Collaboration The importance of collaboration at a time when trade is difficult cannot be overstated and in particular the stronger communication links among Cashmere Club members is a positive step in this direction. This has been facilitated by the new generation of management in the industry with less historical baggage.

The undernoted table shows the instance of improved collaboration by members as a result of Cashmere Club/Promotion involvement:

Table 4.7: Closer Collaboration though Promotion
| |% |
|Customers |36.4 |
|Agents |43.5 |
|Suppliers |40.0 |
|Competitors |100.0 |
|Tertiary Education |- |
|R&D Organisations |12.5 |

The ‘competitors’ refers to other Scottish Cashmere manufacturers in the main and the strengthening links with leading edge designers.

These are solid results given that the bulk of the membership comprises very mature companies. - 43 -

(ECONOMIC IMPACTS contd)

4.8 Value for Money Value for money is difficult to assess in a generic marketing programme of this nature particularly where the real effect on the industry is often not declared.

The views of the industry are based on responses from member and non-member companies which participated in the events and positive responses were given as shown below: Table 4.8: Company Perception of Value for Money
| |Members |Non Members |
| |% |% |
|Korean Market Activity |100.0 |33.3 |
|Japanese Market Activity | 75.0 | 100.0 |

The lower rating in the Japanese market by members reflects the fact that sales increases have in some cases yet to materialise. -47-

5. CONCLUSIONS AND RECOMMENDATIONS

5.1 Overview The importance of the Cashmere Industry to the economy of the Scottish Borders, representing almost three-quarters of the 4,000 jobs in the knitwear industry, has long been recognised by Scottish Enterprise Borders. In particular, the almost total dependence on the industry of towns like Hawick and Innerleithen are well documented and have resulted in specific initiatives being introduced in an attempt to broaden the economic base of these areas.

The Cashmere Industry is also important to Ayr, Elgin and Kinross with the latter two areas responsible for all Scottish-based Cashmere yarn spinning.

By the end of the millennium the Scottish Cashmere Industry had responded to the effects of a strong pound and the threat of low cost Chinese manufactured Cashmere products starting to invade their markets. This was achieved by focusing on quality and design rather than price i.e. competing with Italy rather than China or Mauritius. This strategic move, coupled with the generic marketing campaigns undertaken in Korea and Japan by the Cashmere Made in Scotland Promotion, was believed to herald the start of a period of growth rather than the consolidation experienced in the previous three years in the industry.

The Cashmere Industry in Scotland manufactures a luxury product the bulk of which is for export markets often related to tourism with the balance for home markets, with production targeted at tourism related customers. Since September 2001 the industry has faced a number of unforeseen global events which have had an adverse effect on sales levels including September 11; Iraqi War; SARS virus in Asia and a general worldwide economic downturn. This has had the dual impact of significantly reducing the volume of tourist traffic all over the world and reducing consumer confidence both of which have adversely affected the spend on luxury goods.

Consequently, the main players in the industry have struggled to maintain sales levels and further rationalisation has taken place. Changes in strategy in some of these companies resulted in decisions to resign their membership of the Scottish Cashmere Club to focus on their own brands and this has weakened its role as lead industry body for the Cashmere Industry in Scotland since it currently represents less than 50% of its employment.

-48-

(CONCLUSIONS AND RECOMMENDATIONS cont/d)

The Cashmere Made in Scotland Promotion was established to assist the industry to re-position itself in the face of the withdrawal of the World Trade Organisation Multi Fibre Agreement at the end of 2004 and to a large extent it has been successful in this. The industry is now more focused, flexible to customer requirement, fashion based and with an industry brand that is gaining recognition in its target markets.

The focus of the Promotion, which has been delivered by the Scottish Cashmere Club since January 2002, is one of selecting target markets through meaningful market research and implementing a market entry programme based on generic marketing, regardless of whether any of the Club members already supply the market in question. The Promotion started with Korea, moved into Japan and will target USA in 2004. This was only possible through public sector funding from Scottish Enterprise and the EU aimed at addressing a clear market failure.

The major issues facing the Scottish Cashmere Club in the medium term will be to encourage the members who resigned to rejoin; to recruit new members and to move towards a self-financing status.

2. Public Sector Support for the Scottish Cashmere Industry It is clear that the market failure that led to the introduction of the Cashmere Made in Scotland Promotion has not yet adjusted. With the real impact of the Multi Fibre Agreement withdrawal not yet clear; the economies of the Far East still recovering; and the Club’s drive for self-financing status at a very early stage, it is highly likely that the Scottish Cashmere Industry will require public sector support for at least a further five to seven years. There is no evidence to support that the Promotion would survive the withdrawal of public sector support before this.

The Industry, through the Cashmere Club, has taken responsibility for managing the finances of the Promotion and for the results achieved, which is the first step. The next step is to take responsibility for financing the activities.

Recommendation 1: An application for further Scottish Enterprise and EU funding for the Promotion should be lodged.

-49-

(CONCLUSIONS AND RECOMMENDATIONS cont/d)

3. Achievement of Objectives

5.3.1 Membership While progress has been made in the objective of encouraging the industry to work collectively in promoting and supporting the industry as a whole, the resignations of Ballantyne, Todd & Duncan, Clan Douglas (Lyle & Scott) and N Peal have lost the Cashmere Club some credibility. It is not clear how designers who use manufacturers outwith Scotland could feature in the Club or indeed the Promotion, although it may be expedient to court their support through associate membership given their ability to attract press coverage and the growing importance of the design element in cashmere production.

Recommendation 2: Attempts should be made at a senior level in the Cashmere Club to encourage members who resigned to rejoin and also to seek new members. 5.3.2 Trade Awareness As regards the three key objectives of increasing awareness at trade/consumer levels, differentiating Scottish Cashmere and ultimately increasing sales, progress was severely limited by the global events discussed earlier. However this does not negate their relevance.

Recommendation 3: The four key objectives should remain in place recognising that increased awareness should cover trade and consumer levels. 5.3.3 Performance Targets The setting of performance targets was a laudable attempt at establishing a framework for monitoring progress on a dynamic basis. Targets should be set for participating in every major event but the sales and job creation/safeguarding targets require to be reviewed downwards.

Recommendation 4: The performance targets relating to sales increases and job creation/protection should be reviewed downwards. -50-

(CONCLUSIONS AND RECOMMENDATIONS cont/d)

4. Forward Strategy

5.4.1 Future Target Markets There is a clear mandate from the members of the Cashmere Club to pursue the current strategy of leaving Korea to those members who wish to promote their own brand there, continuing to promote Cashmere Made in Scotland in Japan through 2003 and launching the offensive on the USA market in 2004.

There has been significant investment in the current generic marketing strategy and though the results have been lower than anticipated it is nevertheless perceived to be the only credible strategy to follow in the medium term. However, the status of Korea and subsequently Japan may require re-consideration in 2005/06.

The rationale behind the plan to drop the attendance at the London Fashion Week Exhibition appears to be sound and this should enable funds to be focused on the Japanese and USA markets. While additional market research is required to identify the next target market, no decisions should be taken until all efforts to recruit the companies currently non-members has been exhausted.

Recommendation 5: Prior to embarking on a new market after the launch in USA, a review should be carried out on the costs/benefits of renewing activities in Korea and Japan.

5.4.2 Mentoring New Entrants Potential sales are being lost due to the inexperience of new entrants into foreign markets. Bi-lingual facilitation and greater opportunity to meet with buyers on a one-to-one may help to maximise sales.

Recommendation 6: New entrants participating in Cashmere Made in Scotland Promotion events abroad should receive mentoring.

5.4.3 Prioritising Target Markets

There are number of countries which may be targeted. Given the limited private and public sector funding available for marketing, potential targets should be explored carefully and as much industry buy-in achieved before any event launch is planned.

Recommendation 7: A decision on the next target market should be taken with as full a membership as possible including new recruits.

- 51 -

(ECONOMIC IMPACTS contd)

5. Cashmere Made in Scotland Website

5.5.1 Review of Web Site While most of the events and activities delivered by the Cashmere Made in Scotland Promotion through the Scottish Cashmere Club were given high ratings, views on the web site were mixed.

This should be an important promotional tool and it needs to positively reflect the Scottish Cashmere Industry and its member companies. The fact that the editing of the site is under the control of the Project Manager is an advantage which needs to be maximised.

Recommendation 8: The aims of the web site should be reviewed with all of the members and a specification upgrade agreed and implemented.

6. Linkages While Club members believed that their association with the Cashmere Made in Scotland Promotion had helped to forge stronger bonds with Scottish Enterprise Borders and Scottish Development International, non-members believed that their links were already in place and that they did not require membership to develop them. There was general satisfaction with these relationships.

There was believed to be little synergy between the Cashmere Made in Scotland Promotion and Scottish Textiles where there may be scope for collaboration although examples of how this may look were not readily identified. It is understood that regular meetings will take place between the Scottish Textiles Manager and the Project Manager of the Scottish Cashmere Club.

Recommendation 9: The recent practice of the Scottish Textiles Manager and Cashmere Club Project Manager to meet regularly should be continued with each reporting on results to their respective Boards.

5.7 Exit Strategy The public sector needs to identify a timeframe for withdrawal of financial support through correction of the market failure that led to the funding being approved in the first place. Otherwise the funding will become simply a subsidy for the industry.

The strategy adopted by the Promotion is to launch Scottish Cashmere in target markets, introduce member companies and then withdraw. This was to be effected in three major markets before the termination of the Multi Fibre Agreement at the end of 2004.

The strategy supports a phased withdrawal of public sector support if member companies obtain tangible benefits in these markets that enable them to grow their businesses and hence feel justified in increasing their contributions. However, the state of the global economy coupled with the resignation of key members of the Cashmere Club make the task of finding a credible exit strategy more elusive.

Recommendation 10: A business plan which sets down the route and timescale for the Scottish Cashmere Club to achieve self-financing status should be prepared.

It is likely that this strategy will take between five to seven years to be achieved.

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Report by Allan Blackley & Jennifer Smith Business Development Advisers Ltd 5th September 2003

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[1] The swing ticket is a garment label which can be purchased by Cashmere Club Members for £0.10 each. It acts as a quality guarantee and generates income to fund Club activities.

[2] One company, a member in 2001, benefited from increased sales from participating in the Promotion of £1.2m. Similar results were achieved in 2002 as a direct result of market activity in 2001. The company at the time of this study was a non-member and the sales increase is attributed to the survey results of non-members.