Scottish Income Tax Research

4 Competitiveness

How businesses define ‘competitiveness’

During the qualitative discussions, businesses were asked what they think of when they hear the word ‘competitiveness’ and what this means in the context of their business.

To encourage organic responses, businesses were initially asked to define this spontaneously using their own words.

At this point, businesses tended to define competitiveness in a wide variety of ways. However, most unprompted definitions were customer centric. These tended to hinge on factors relating to quality of product or service, price, and the extent to which customers thought the businesses provided a unique product or service and the extent to which they were seen to add value.

“We're always striving to provide the best service out there. We want to be known as reliable and trustworthy. You know, we don't necessarily want to be the cheapest, but yeah, we want to represent quality.” - Medium business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

“Well, basically, [it’s] providing good quality services for a reasonable price.” - Micro business; Technology and Digital Industries (operating exclusively in Scotland)

“Being unique and offering something different. So, you know, I am a toy shop. I'm not Smyth's Superstore. Folks can come in with their kids and we'll show them games. We try not to have things that the main stores will have. We kind of try to be just a little bit different.” - Small business; Retail, Hospitality and Leisure; (operating exclusively in Scotland)

More general factors were also cited by businesses when they were asked to define competitiveness. These included customer acquisition and loyalty, staying ahead of competitors, maintaining business credibility, and offering a comprehensive range of services.

“So, what makes us different is our ability to solve problems. And what makes us competitive is our ability to solve problems better than everyone else and deliver campaigns that shift the needle - that are effective. That's what makes us competitive.” - Medium business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

“We can deliver what we say we're going to deliver and being trusted - we're trusted within the industry.” - Medium business; Construction and Engineering (operating exclusively in Scotland)

“So, for us, it's the suite of services that we can offer. So, we differentiate on having deep technical knowledge, and we operate it all across all layers of our clients.” - Large business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

Productivity

Factors related to productivity or effectiveness were also often raised spontaneously by businesses when they were asked to define competitiveness. These tended to be calculated by considering the relationship between staff costs and turnover.

“What we look at is effectively turnover, the fee income per staff member, a surveyor that is, and we relate that to different parts of the business and the relationship of staff cost to turnover. It starts to give you quite a good metric in terms of how that is moving.” - Large business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

Factors such as staff wellbeing, government policies such as tax or regulation, and environmental goals were not commonly mentioned by businesses when they were asked to spontaneously define what ‘competitiveness’ meant for them. However, when prompted, some businesses did consider these to have an impact.

Government policies such as tax or regulation

Government policies such as tax and regulation were rarely raised by businesses unprompted when they were asked to define competitiveness in relation to their business.

When this was explicitly explored, several noted that this should not have a notable impact on their competitiveness since their competitors are also subject to the same rules; and that so long as businesses are compliant, they are effectively all in the same position.

Some businesses implied that competitiveness needs to include fair competition within their industry, which could be facilitated by government intervention.

“But I need government to make it as easy for me to sell to the guy next door to me, as it is for Vodafone or BT or Microsoft or whatever.” - Small business; Technology and Digital Industries (operating in Scotland and the rest of the UK)

A few businesses discussed market access as a component of competitiveness, particularly in relation to the influence of government regulations or policies on their industry.

“If people are knocking on my door and I’m growing my business, it means I’ve got a unique product. I’m ahead of the market. Most people don’t have that. I need [the] government to give me a platform – that’s a fiscal platform, [or] a regulatory platform, [or] an opportunities platform – to sell on.” - Small business; Technology and Digital Industries (operating in Scotland and the rest of the UK)

A few businesses explored the impact of supply side competition, which could be affected by regulations around trade and immigration.

Staff wellbeing

When prompted, some businesses felt that staff wellbeing was becoming increasingly important and a factor that contributes to the competitiveness of a business as a result. More specifically, several businesses reported that they have introduced measures to foster a healthy work-life balance in response.

“It's no longer just enough to pay somebody. I think people are looking for more of a balance, aren't they? I mean, nobody should be dreading coming to their work.” - Medium business; Retail, Hospitality and Leisure (operating exclusively in Scotland)

“We pride ourselves on giving a very good training programme [so] that our staff are very well experienced and [this helps us] to keep them. That's why we pay so well and we offer a lot of benefits packages. We focus on their wellbeing, so it's an all-round package.” - Medium business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

Environmental goals

A few businesses did consider environmental sustainability to be a factor when prompted to consider whether they felt this had any impact on their ability to be competitive.

“We try to be as environmentally friendly as possible. We try to, well, the IT hardware, we either get rid of sustainably or we try to move it on to other people who can use it, like charities.” - Micro business; Technology and Digital Industries (operating exclusively in Scotland)

How businesses stay competitive

Businesses were asked how they maintain their competitiveness and, more broadly, what they believed made a business within their sector competitive. Two businesses indicated experiencing no competition at all - one due to being the only local provider, and the other due to its unique market positioning, offering products priced between low-end and high-end options, which ensures a consistent customer base. Several key themes emerged from the other businesses interviewed, and while approaches to stay competitive varied depending on the size, sector, and priorities of each business, there was a notable consensus around a few core strategies. These strategies reflected the practical steps businesses took to adapt to challenges and sustain their market position.

Customer relationships

The most commonly cited approach to staying competitive was maintaining a strong focus on customers. Many businesses emphasized the importance of building personal relationships, being responsive to customer needs, and delivering high-quality service. For example, several respondents highlighted the value of quickly addressing customer enquiries which they viewed as critical to fostering loyalty and trust.

“We take personal relationships and responsiveness [seriously]. If people raise a support call, we will get things sorted for them on the spot. We have a basic ticketing system, but we are very, very responsive.” - Micro business; Technology and Digital Industries (operating exclusively in Scotland)

A few businesses also noted that gathering and acting on customer feedback was essential for refining their goods and services and staying relevant. Strengthening customer relations to strengthen competition in their industries was most prevalent for retail and hospitality sectors, as well as professional, technical and scientific sectors.

Employee skillset

Across professional, technical, scientific, and administrative sectors, employee quality and expertise were widely regarded as essential to sustaining competitiveness. Several businesses emphasized that having skilled staff who could deliver high-quality work, effectively address customer needs, and have the ability to simplify complex concepts for clients, was a significant advantage.

“Our clients will certainly want clear, understandable, user-friendly advice at a good value cost. If we can - and we think we can - provide those things, we will be competitive.” - Large business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

“[It’s being able to have] a high level of expertise and explain complicated financial products. So [to be] able to explain to people the ins and outs of a pension so that they can [understand].” - Micro business; Finance and Insurance (operating in Scotland and the rest of the UK)

Similarly, investing in staff was regarded as imperative to upholding competitiveness, especially within the professional, technical and scientific sectors. Businesses highlighted the importance of upskilling employees through training programs and fostering a positive work environment to enhance both efficiency and service quality. Offering competitive salaries and benefits, such as private healthcare or performance-based incentives, was also seen as essential for attracting and retaining high-quality staff.

“We've got an in-house training programme that we launched because we appreciated that we weren't going to get the skill set of people. So we've had to invest more people in training.” - Large business; Retail, Hospitality and Leisure (operating exclusively in Scotland)

Technology

Several businesses reported that adopting and integrating technology was a key driver of their competitiveness. One example included the development of bespoke software and automated systems to streamline processes and reduce inefficiencies.

“Our IT team has developed a portal for clients to instruct work very quickly and get constant updates [of the project]. Innovations like that help break down the job a bit more. You have people who aren't always qualified, and [because of these innovations] we don't need to qualify the staff.” - Large business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

For some, technology had the potential to unlock faster service delivery and improve communication with clients, while others noted that it allowed them to remain agile and responsive to changing market demands.

Marketing strategies

A few businesses highlighted the importance of marketing in maintaining their competitive edge, and approaches ranged from proactive use of social media, to targeted advertising, and word-of-mouth recommendations. Having an effective social media presence reportedly helped drive customer engagement and underscored product quality. Word-of-mouth marketing was also seen as effective, with one business relying on personal recommendations to attract both customers and new staff.

“Well, I think we're as competitive as we can be, I'll be honest. That may sound [odd], [but] because we rely on word of mouth marketing, we find that's the most effective way of getting in front of people. You get direct feedback that way as well of how good [our] service is.” - Micro business; Technology and Digital Industries (operating exclusively in Scotland)

For another, local advertising, such as newspaper placements and signage on buses, was used to reinforce their presence within the community.

“We try and advertise as much as possible for our services. Locally, we'll advertise in the newspaper. We have signs in the buses that drive around here and we have our website and we have our social media pages.” - Small business; Technology and Digital Industries (operating in Scotland and the rest of the UK)

Adapting to trends and having an online visible presence through platforms such as Facebook and Indeed was perceived as helpful for reaching new audiences and sustaining business growth as well. This marketing strategy was particularly prevalent in retail and hospitality sectors.

Unique Value Propositions

Lastly, a smaller number of businesses highlighted the importance of standing out in the market by offering unique products or services. These businesses focused on tailoring their offerings to meet specific customer needs or innovating within their sector to provide solutions that competitors could not easily replicate.

“Developing new products and ideas, new services. At our shop, they are very good at sourcing new products to sell.” - Small business; Technology and Digital Industries (operating in Scotland and the rest of the UK)

“What we try and do is we try and offer a different service that people can’t get other places.” - Small business; Retail, Hospitality and Leisure (operating exclusively in Scotland)

Differentiation was seen as particularly important in crowded or highly competitive markets.

What could improve competitiveness

Whether businesses were currently facing challenges to staying competitive, and what they thought could be done to help improve their competitiveness was also explored during the interviews. While businesses varied in their specific circumstances, several key themes emerged, highlighting both the obstacles they faced and the measures they believed could enhance their ability to compete. This chapter discusses these findings, focusing on areas such as tax policies, workforce development, regulatory changes, and investment in technology, skills, and infrastructure.

Taxation

Taxation was one of the most frequently mentioned areas where businesses felt improvements could be made and spanned from Inheritance Tax, employer National Insurance contributions, property taxes and Income Tax.

Businesses mainly emphasized the broader implications of tax policies on their operations. For example, delays in receiving timely information on changes to minimum wage hindered effective future planning for one business. Meanwhile, another business felt that changes to income tax had made it harder to recruit higher paid roles in Scotland.

“I think the income tax position in Scotland is becoming more and more noticed by people, by individual taxpayers. Now I couldn't say I know the data sitting here to say X number of people have moved out of Scotland, but we do have some anecdotal examples of people moving to the north of England from Scotland. I think as the tax burden has increased in the UK as a whole, people in Scotland are also noticing that and it is even higher again north of the border…When people make that kind of observation I think they'll then continue saying ‘am I getting more in terms of public services etc, a better environment than I would by living somewhere else?’ And I think people are becoming more sceptical about that, so they're paying more in tax but I'm not sure they're persuaded they're getting more in return.” - Large business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

Additionally, one small business noted the sudden changes to inheritance tax for business property relief impeded their ability to plan effectively around it.

Only a couple of respondents expressed concerns about the impact of Scottish Income Tax on their ability to compete, particularly in comparison to businesses in England. One business explored the idea of achieving tax uniformity between Scotland and England to help level the playing field for Scottish businesses.

“We pay slightly more tax than they do down south. If we’re talking about being competitive with our southern agencies, then perhaps parity might help.” - Medium business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

Skills development

A recurring challenge for businesses was the difficulty in attracting and retaining skilled staff, particularly in rural areas or niche industries. Several respondents noted that their experience of decreased job applications and the rising cost of living has made it harder to maintain a stable workforce. In efforts to address these issues, a few businesses suggested that the government should consider opening up immigration laws to allow (specialised) job roles to be filled more easily, and consequently expanding Scotland’s talent pool.

“I think coming out of the EU has been an unanticipated massive detriment to our industry. Immigration is a massive issue…that needs to be handled differently. [Doing so] would save your recruitment challenges, it would at the same time protect all your day-to-day services and it would just take stock of the current situation we're in. I think if we had the opportunity to relax some [regulation] of people coming into the country for specialised roles [it] would definitely help.” - Large business; Retail, Hospitality and Leisure (operating exclusively in Scotland)

Others emphasised the importance of apprenticeship programmes to develop talent locally, which they felt could be supported by greater government investment in skills training.

“The apprenticeship one would be valuable because you’re able to get people on board at an earlier stage, train them up, and make them part of the culture and business ethos.” - Small business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

The need for more vocational training and targeted skills development that could address gaps in the labour market was voiced by a few businesses as well. A few businesses noted that the lack of government funding for apprenticeship and vocational programmes was limiting potential opportunities for young people and creating skills shortages.

“There used to be the Scottish Workplace Development Fund, which we accessed for free training for several years, but that’s been scrapped over the last two years, and that’s a shame.” - Medium business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

“My personal view is that there should be more vocational training in accountancy offered at school. People leave school with, you know, A levels in further maths, but there's no idea how tax works, how national insurance works, how interest works, what APR is, all these kind of basic life skills that you need to learn to survive in the world and none of it is taught.” - Medium business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

Regulations

Businesses also highlighted the burden of complex and unstable regulations, which created uncertainty and administrative challenges, as well as acted as a barrier to long-term planning and growth.

“Our regulator imposes rules that can be retrospective – they will judge us on what we did 10 years ago on the current standards of today.” - Small business; Finance and Insurance Services (operating exclusively in Scotland)

To improve competitiveness, one business called for greater stability of regulations through simplification. A few others noted that aligning regulations with broader industrial or environmental policies could create opportunities for growth, particularly in sectors like renewable energy.

“[To us, an improvement would look like] having a joined up industrial, environmental policy, and investment in the sector. The more investment either through tax breaks or through direct investment from government into wind farms, solar farms, battery storage, hydrogen, electrification of cars, the more work there is going to be for the sector generally…and that could improve the outlook for us.” - Large business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

Technology

While several businesses have already identified and adopted new technologies to streamline processes, businesses still noted that further investment into technological innovation was needed to stay ahead in a rapidly changing market. This was seen as particularly important for addressing challenges related to productivity and efficiency.

“I sound like a broken record but going back to the R&D on technology, I think the more money we can spend on that, the better we get our products, that would all be for the best.” - Medium business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

“If you don’t keep up [with the technological market] and your competitors are using it better than you are, you’ll start to look uncompetitive.” - Large business; Professional, Technical and Scientific Services (operating in Scotland and the rest of the UK)

Funding support

Businesses emphasised the importance of government support in the form of grants or funding for training and innovation. These measures were seen as critical for reducing costs and fostering growth.

“We do get grants to put people through their qualifications, and that helps a lot to keep our costs down and stay competitive.” - Medium business; Construction and Engineering (operating exclusively in Scotland)

Market expansion

A couple of businesses suggested that expanding into new markets, both domestically and internationally, could heighten their competitive edge. However, they also acknowledged that logistical and financial barriers could make such expansion challenging without external support.

“Making links in other countries like China or the Middle East would be good for us.” - Micro business; Other including Administrative Services (operating in Scotland and the rest of the UK)

Infrastructure

Government investment in infrastructure, such as transport links and broadband, was seen as a key enabler for market expansion, as well as having a broader impact on overall competitiveness by making Scotland a more desirable location for businesses and customers alike.

“If you created a proper international airport at Aberdeen, you’d be treating Scotland like London as a commercial hub for Europe and the world.” - Small business; Technology and Digital Industries (operating in Scotland and the rest of the UK)

“If people see it’s easier to get in and around, it’s going to be a much nicer place for people to come.” - Medium business; Retail, Hospitality and Leisure (operating exclusively in Scotland)