News
February 2000
Foreign investment reaches highest ever level
Overseas investment flows into the UK rose a record 90 per cent in 1998 to reach their highest ever level, according to statistics published by the Office for National Statistics. Foreign direct investment grew from $32.7 billion in 1997 to reach $62.1 billion.
Swiss companies pumped some $20 billion into the UK, but the clear foreign investment leader continues to be the US. American companies committed $34.6 billion to the UK during the year, over half the total amount. Manufacturers from the US contributed $8.5 billion, an increase of 150 per cent over 1997, according to professional services firm Deloitte Research.
US companies were the most enthusiastic buyers of UK companies, striking deals worth $34.4 billion during the course of the year. However, US companies were just as attractive to UK capital investors, who spent $73.6 billion on North American acquisitions during the year, representing 64 per cent of the total and up from just $16.8 billion in 1997. The biggest single deal was the BP-Amoco acquisition.
In total, UK companies spent $115.2 billion on overseas subsidiaries in 1998. After the US, Europe was the most popular destination. The strength of the pound helped investments there grow from $32 billion in 1997 to $36.8 billion.
Acquisitions lead to something big in the City
Overseas companies were involved in two significant take-overs of UK financial firms in January. South African insurance and banking group Old Mutual paid out $840 million to acquire London-based financial services company Gerrard Group. The Johannesburg-based Old Mutual said that the acquisition would make the combined group number one in private client asset management. The inclusion of Gerrard in its business boosted total funds under management to more than $80 billion, $43 billion of it in the UK.
Meanwhile, the Salomon Smith Barney division of New York-based Citigroup has bought the investment banking business of Schroders of London for $2.2 billion, doubling the size of its investment banking business in Europe. The combined European operation, to be known as Schroders Salomon Smith Barney, will offer expertise in all areas of corporate finance, including mergers and acquisitions, equities, fixed income and lending.
Productivity hits three-year high
The productivity of UK companies is growing at its fastest rate for more than three years, according to a report from the Institute of Management Services. The Institute’s index, which measures changes in productivity rates across 1,400 companies in the manufacturing and services sectors, rose in December to its highest level since it was set up in 1996.
Figures from the Office for National Statistics provide further evidence of the trend, showing productivity in the three months to October 1999 rising at an annual rate of 5.2 per cent. Growth is particularly strong in the manufacturing sector, which expanded 2.2 per cent in the year to November. The growth was led by telephones and communications equipment, output of which jumped 60 per cent. Other high-tech industries were close behind. Production of electrical investment goods, including computers, grew 17.9 per cent and pharmaceuticals grew 14.3 per cent, while basic chemicals were up 10.8 per cent.
3G mobile revolution is under way
The UK is maintaining its lead in the electronic revolution by becoming the first European country to auction licences for multimedia mobile phone services, known as third generation technology. The auction, of five licences for blocks of spectrum, will commence on 6 March and is expected to involve several rounds stretching over a number of weeks.
3G technology will allow subscribers to surf the Internet using mobile handsets, allowing e-mail to be sent and received and supporting video pictures and music, as well as videoconferencing. With more than 40 per cent of the UK population now owning a mobile phone, it offers potentially huge returns in fields such as mobile e-commerce, and the auction has attracted bidders from countries around the world.
Thirteen groups, including the four incumbent operators - Vodafone, BT Cellnet, Orange and One-2-One - have applied to bid for the licences. The largest consortium, SpectrumCo, is headed by Sir Richard Branson’s Virgin group and includes mobile operators Nextel of the US and Sonera of Finland, along with retailers EMI and Tesco and a number of venture capital groups. Other bidders include WorldCom and Global Crossing of the US, Telefónica of Spain, One.Tel Global Wireless of Australia (part of Rupert Murdoch’s business empire); Anglo-French cable operator NTL and Japanese finance house Nomura. At least one of the licences - the biggest - will go to a new entrant, and it is by no means guaranteed that all of the incumbents will retain their positions.
A prequalification process will determine which of the consortia are allowed to take part in the auction proper, but small business and e-commerce minister Patricia Hewitt declared the government happy with the range and quality of the applications received. The battle is likely to be intense - and costly. For a start, bidders have been obliged to deposit $80 million as proof of their intent. Estimates of the likely value of a licence range from $400 million to more than $1.6 billion, but the likeliest figure appears to be around $800 million. However, that’s before network development costs - perhaps three times as much again - are taken into account. The exercise is expected to net the UK government at least $2.4 billion in revenue.
UK leads the way in e-commerce
Businesses in the UK already lead the way in Europe in using the Internet for electronic commerce. Some 55 per cent are engaged in e-commerce, according to an annual survey of senior business executives by UPS Europe Business Monitor. UK companies also have the highest saturation of web sites of European countries, with 95 per cent of companies having their own site. UK executives receive the most e-mails - 29 each day compared with the European average of 20. And despite a lingering reputation as a nation reluctant to learn foreign languages, Europe’s business leaders voted the UK’s executives the most international in their outlook, along with the famously polyglot Dutch.
Meanwhile the government is aiming to boost business and domestic use of the Internet by providing fast, ‘always on’ access via radio links that will support high-capacity data transfer and videoconferencing. Small businesses and e-commerce minister Patricia Hewitt has announced plans to make radio spectrum licences (distinct from the 3G licences mentioned above) available for fixed broadband wireless access services. 28GHz licences will be offered in the summer and 40GHz licences in the autumn.
Internet shopping opens opportunities for truck makers
Truck manufacturers in the UK and elsewhere in Europe are scenting opportunities as Internet shopping begins to take off in a big way, and are hard at work developing new vehicles designed specifically for home delivery of goods in urban areas.
Iveco Ford, one of Europe’s biggest truck manufacturers, predicts that the value of Internet-led home delivery business will soar from $800 million this year to $9.6 billion in the UK alone by 2003. To meet this upsurge, the company is developing vehicles (under the project name EuroTran) that will cut unloading times by up to 40 per cent compared with the trucks and vans currently in use. Rivals Daimler-Benz, Renault and Volkswagen are all developing similar vehicles, featuring low floors, walk-through areas from drivers cabs, extra-wide sliding doors, compartmentalised interiors and integral loading ramps. Volkswagen’s design features a main floor section that can be hydraulically lowered to unload heavy goods.
Home delivery is not expected to impinge on long-distance haulage or bulk distribution to supermarkets, and could provide a shot in the arm for the UK commercial vehicles market, which is already performing better than expected. Figures from the Society of Motor Manufacturers and Traders show that total sales of commercial vehicles in 1999 amounted to 288,100 - down 2.2 per cent on 1998, but still much better than predicted. UK market leader DAF and second-placed Iveco both expect the market for heavy trucks to fall slightly this year.
Web sites help smooth new rates bills
Another use for the Internet is to smooth the introduction of the new rates charges for 1.7 million business premises in England and Wales due to come into effect on 1 April. The changes follow a periodic five-year revaluation carried out last year. A government body, the Valuation Office Agency, has set up a web site - at www.voa.gov.uk - that lists the proposed rateable values for all business premises for 2000-01, plus the changes since the last review in 1995. Businesses will be able to compare their rates with those of neighbouring premises without having to visit the local town hall.
Rates will rise in many areas in line with the estimated market value of the premises, although a transitional relief scheme will limit the level of increases for many businesses, particularly small companies. However, firms which feel they have been hard done by will be able to appeal with the help of another web site - at www.ratescalc.co.uk - which has been set up to help businessmen calculate their rates bills and appeal if they feel they are paying too much.
Car makers put faith in UK operations
Ford has chosen London as the location for a new $33 million design centre, due to employ 30 specialists in automotive styling when it opens in 2001. The move aims to capitalise on the UK capital’s reputation as a worldwide leader in design, and staff will be encouraged to explore new ideas in architecture and graphics, fashion and product design as well as automotive styling. The site of the new premises has yet to be revealed but, according to J Mays, design vice-president for the Detroit car giant, it will be in one of the "funkiest" parts of town and will include a café and gallery space open to the public.
"London sets the design standard in Europe, much as New York does in the United States," said Mays. "If you have to pick a hot point for pop culture anywhere in the world, it has to be London, and this new centre will channel the city’s influence through to our future products."
Ford is also to invest in a new F-type sports car to be manufactured by its UK subsidiary Jaguar at its base in the West Midlands. The company’s Premier Automotive Group unveiled the concept model at the Detroit Motor Show in January, having announced a broadening of the Jaguar portfolio into new areas such as four-wheel-drive and diesel vehicles.
BMW too has strengthened its commitment to its car manufacturing operations in the UK, putting faith in its Rover subsidiary at Gaydon in Warwickshire, West Midlands by relocating a key products development team there from Germany. Rover is currently operating at a loss, but the move is an indication of BMW’s determination to press ahead with a redevelopment programme that includes a $2.4 billion revamp of Rover’s Longbridge factory at nearby Birmingham. Some 220 members of the 350-strong design team, including seven project leaders, moved to the UK in January.
Meanwhile Takata Corporation of Tokyo is to invest $20 million in its UK subsidiary TK-ECC, at Dundonald in Northern Ireland. The company, a world leader in car safety systems, intends to boost its production of seat belt systems for manufacturers such as Toyota, Honda and Vauxhall, as well as Rover. And German trailer manufacturer Schmitz-Anhänger Fahrzeugbau is to invest $8 million in an expansion programme at its UK subsidiary Schmitz Cargobull, based in County Durham in North East England. The company is to add curtain-sided trailers to the range of refrigerated trailers produced at the plant, adding 50 jobs to the workforce.
Transport is moving fast
The government has agreed 21 major new public transport and road schemes as part of a $1.2 billion allocation for transport spending during 2000-01. The settlement is for the second year of a three-year plan worth some $3.84 billion in total. Of this year’s figure, $482 million has been earmarked for road maintenance. Specific projects to receive funding include completion of the Salford Inner Relief Road in Manchester, North West England at a cost of $33.5 million; an integrated public transport scheme for Scarborough in North East England; and city centre improvements for West Bromwich in the West Midlands. London receives $148.5 million, split between individual authorities and cross-capital projects.
Meanwhile a number of initiatives, public and private, are under way across the country. Work has begun on the UK’s first private toll motorway, the $1.1 billion Birmingham Northern Relief Road, with completion set for 2002. Also in the West Midlands, the Midland Metro tramline between Birmingham and Wolverhampton opened recently, and will have an annual capacity of 10 million passengers when fully operational. Train operator Midland Mainline is investing heavily in new passenger trains in both the East and West Midlands, while Birmingham International Airport is offering new British Airways routes to Spain, Holland and Germany as part of a $800 million expansion programme.
In the North East, GB Railways subsidiary Hull Trains is planning to introduce a new passenger rail service between Hull and London by the end of the year, using the East Coast mainline. In the South West, the UK is to get its first public monorail with a $52.8 million scheme in Portsmouth. If successful, monorail services could be introduced in other UK cities.
The government has proposed a major expansion of the country’s regional airports, envisaging an increased role for them in relieving pressure on the heavily used gateways in the South East. An air transport White Paper is being prepared, which will set out aviation policy for the next 30 years. In the meantime, the owners of Biggin Hill Airport in Kent - an ex-Battle of Britain airfield - have put forward a plan to make it London’s fourth airport. Under the proposals, the airport would increase its capacity from 50,000 passengers a year to 1.3 million by 2015, and would build a new terminal and a link to the capital’s Docklands Light Railway.
In Yorkshire, Belgian airline Sabena started scheduled services between Sheffield and Brussels on 30 January, offering three round trips a day on weekdays. British Regional Airways, which already operates flights to Dublin, Belfast and London City from the two-year-old airport, plans to introduce new services to Glasgow, Edinburgh and Paris in the summer. And in the North East, Humberside International Airport has opened a $50,000 executive lounge offering telephones, fax machines and Internet access - together with armchairs and a complimentary bar. Negotiations are under way concerning a new hotel at the airport. New routes to Dublin, Belfast and Copenhagen may also be introduced.
Jobs galore as success breeds success
Dynamic Leeds, in West Yorkshire, is forecast to gain 50,000 jobs over the next ten years, mainly in the financial and professional services sectors. The city already employs more than 77,000 people in these sectors, representing 22 per cent of its total workforce. Growth in financial services has helped Leeds outperform every city except London in employment growth since 1981.
Other areas, however, are aiming to catch up in the job creation stakes. Telford Development Agency, for example, helped create around 840 new jobs and safeguard a further 375 in the West Midlands town during 1999, handling around 700 inquiries from firms interested in investing in the area. Many were from overseas firms. Major projects during the year included an expansion programme by Japanese company Ogihara, a new sales office for German company AFT and a large expansion for US food company Heinz Single Service.
The Leicestershire Development Agency, an East Midlands-based inward investment agency set up in September 1998, helped create 880 new jobs in its first year of operation. The jobs were spread across six projects, the biggest of which was a call centre set up by direct insurance operator Peoples Choice, with a workforce of 600. In neighbouring Derbyshire, the town of Chesterfield is hoping to create 90 new jobs with the establishment of a $4.8 million innovation centre that will accommodate start-up hi-tech companies. Dunston Technology Park is being backed by East Midlands Development Agency, with funding from national regeneration agency English Partnerships.
Elsewhere in the East Midlands, Japanese company Tsubakimoto Chain, the world’s largest producer of roller chains, is to create up to 15 new jobs with an expansion of its existing operation to new premises at Sherwood Park enterprise zone near Nottingham, while at Kettering in Northamptonshire, Belgian soya milk producer Alpro BV is to create 65 jobs at a new $32 million plant.
And in a case of success breeding success, Irish company Exel Walsh Western has announced 100 new jobs in Newport, South Wales to support the South Korean-owned LG Electronics plant that is manufacturing Apple’s best-selling iMac computer range. Exel, part of the UK Exel Logistics group, has created a twin to its plant in Cork, Ireland in a 25,000 sq ft unit on Newport’s Maesglas Industrial Estate, where it will manufacture customised iMac accessory kits for Europe-wide distribution.
Around the regions
- Intel Online Services Inc, a subsidiary of California-based Intel Corporation, is to invest $150 million in establishing a ‘server farm’ at Winnersh, near Reading, South East England, to meet growing European demand for Internet hosting. The new facility, due to go into operation within the first half of the year, will house up to 10,000 Internet servers and a command centre, and will create 170 jobs.
- Hong Kong-based Sun Ya Shoes is to establish its European manufacturing headquarters - and its first plant outside China - at Milford Haven in Pembrokeshire, West Wales. Trading as Athlons Company Limited, Sun Ya plans to produce up to 2,500 pairs of fashion shoes a week for the UK and European markets from April, doubling to 5,000 pairs by January 2001. The investment, which will create 150 jobs over the next three years, follows a successful 1998 start-up in Pembrokeshire by another Chinese shoe manufacturer, Leaveland Shoes.
- A new body, Humber Chemical Focus, has been set up in Grimsby, North East Lincolnshire to represent public and private organisations in the chemical industry. Based in the city’s Europarc business park, HCF will aim to pool resources and ideas from chemical companies around the Humber Estuary.
- Want to find out more about the investment climate in a particular region? Home in on the local development agency. Many publish regular newsletters highlighting investment opportunities and new investments in their areas. The January issue of Rotherham Business, published by RiDO (Rotherham Industrial Development Office) for example, features an update on the construction of Toyoda Gosei’s $51 million car components plant in the South Yorkshire town, and highlights new investments by Italian, Belgian and US companies as well as a fact-finding tour by Chinese journalists. Scotland International, published by Locate in Scotland, leads on major new investments by mobile phone company Motorola and pharmaceuticals giant Quintiles Transnational Corp, and features a host of others. To find out more about Rotherham, visit www.rido.org.uk; for Scotland, go to www.lis.org.uk.
- French electronics group Thomson-CSF is to acquire leading UK industrial and defence electronics company Racal Electronics, based in Bracknell, South East England, for around $2 billion. The purchase of the company, which has sales of $3 billion annually, strengthens Thomson-CSF’s position both in the UK and worldwide.
- Australian software group Solution 6, based in Sydney, has bought UK software company Pegasus for around $45 million. Solution 6 said the acquisition of the company, based in Northampton, East Midlands, was an important step in its plans for international growth.
- Spain’s third largest electricity generating group, Union Fenosa, has made its first EU acquisition by buying Cambridge Water Company, based in Cambridge, Eastern England, for $85 million. It is a first venture into the water business for Union Fenosa, but it will also help develop the UK utility company’s growing gas and electricity businesses, currently supplying around 25,000 customers.
- JDS Uniphase Corporation, an Ontario-based developer of fibre optics communications products, has acquired specialist UK optics components manufacturer SIFAM Fibre Optics, based in Torquay, South West England. SIFAM manufactures components for advanced optical networks for the Internet, telecommunications and cable television industries. To meet growing demand worldwide, JDS plans to take on an extra 1,000 staff at the company’s Torquay and Plymouth sites.
- Henkel, a Düsseldorf-based manufacturer of adhesives and detergents, has acquired solder materials producer Kelsey Industries in a deal worth $60 million. The UK company, based in Hemel Hempstead, Eastern England, supplies solder materials to the electronics industry.
- Canadian roofing products firm IKO Sales, based in Calgary, has acquired Ruberoid, a UK manufacturer of waterproofing and protective coatings, for around $105 million. The acquisition will expand IKO’s European operations, with Ruberoid operating alongside companies in Belgium and France.
- Mitsui of Japan has acquired a controlling interest in UK bio company Biological Crop Protection, based in Kent, South East England. BCP is a leader in the production of beneficial predator insects for crop pest control. Mitsui will develop the company’s business in Europe and may also introduce its products into the domestic Japanese market.