News
March 2000
Tax-friendly regime underlines UK’s attractions
The UK’s tax regime is one of the most business-friendly in the industrialised world, a survey shows. Along with Ireland, the UK has the lowest personal and corporation taxes in Europe. The survey, carried out by Ernst & Young and published by Forbes Global, added up the top tax rates on personal and corporate income in each country, together with VAT, wealth taxes and social security taxes, to create what it terms a ‘misery index’. The misery index for the US is the lowest, at 90 per cent, while Ireland registered 109.5 per cent, neck and neck with the UK on 109.7 per cent. Japan scored 123.6 per cent and Switzerland 125 per cent.
At the other end of the scale, France emerged as the most heavily taxed industrialised nation, with a misery index of 193 per cent. It was followed by Belgium on 171 per cent, Italy on 154 per cent, Sweden on 151 per cent, Austria on 147 per cent and Germany on 143 per cent. The survey observes that high taxes are a major reason for a ‘brain drain’ from continental Europe to the UK and the US and for a net direct investment outflow of $160 billion a year. For example, it says, employing a middle manager on a salary of $48,000 a year in France costs companies $69,000 once statutory employment costs are taken into account.
The UK’s favourable tax regime is highlighted by the numbers of European firms that have decided to relocate their operations there - especially companies from Germany, who are finding that high taxes, lack of political leadership and the pressures of globalisation are making their home country an uneconomic place to do business.
BASF, based in Ludwigshafen, is the latest, choosing London as the location for its the headquarters of its drugs business in preference to nearby Frankfurt. Commerzbank recently chose London’s Docklands for the headquarters of its Com Direct electronic bank, in a move that created hundreds of jobs. And the finance director of DaimlerChrysler, Manfred Gentz, recently warned Chancellor Schröder that his policies were making Germany "unattractive" as a base. The same goes for overseas investors: Japanese giant Sony recently closed its television factory near Stuttgart after experiencing problems with German trades unions and moved to Wales.
English has already been adopted as the corporate language of a number of European organisations, including Aventis, formed by the merger of Hoechst and Rhône Poulenc, and EADS, formed when Germany’s Dasa merged with Aerospatiale of France. London investment agency London First last year helped 22 European firms relocate to the UK capital and says it currently has 50 inquiries from firms on its books. "When we look at Germany and target selected companies we find we are leaning against open doors," said a spokesman.
UK overtakes US as top outward investor
A survey of top executives at Global 1000 companies shows that the UK is considered second only to the US as the destination of choice for foreign investors. The survey, by Chicago-based AT Kearney, cited strong economic growth in the first three-quarters of 1999 and the continued pro-business stance of the UK government as factors in the opinions expressed by the CEOs and CFOs polled.
The survey comes as figures from United Nations Conference on Trade and Development (UNCTAD) show the UK has overtaken the US as the biggest overseas investor, for the first time since 1988. Outward investment from the UK was $212 billion last year, an increase of 78 per cent over the previous year. Outward investment from the US was $153 billion. Overall, worldwide flows of foreign direct investment jumped a quarter in 1999 to a record level of $1,323 billion, led by cross-border mergers and acquisitions which, according to UNCTAD, now constitute the primary mode of entry into foreign markets in the industrialised world. Such deals accounted for $609 billion of FDI flows worldwide.
M&As played an important role in UK investments, the largest being Vodafone’s $66 billion purchase of Airtouch. Vodafone has also spent some $1.6 billion on building networks in continental Europe and in Australia. Other significant deals were Zeneca’s $34 billion merger with Astra of Sweden, BAT’s $8 billion merger with Rothmans and Marconi’s purchase of two US telecoms companies for $6.2 billion. Rising stock markets and healthy profits have given British companies added financial muscle. "UK companies will always invest overseas from a strong domestic base," commented Digby Jones, director general of employers’ organisation the Confederation of British Industry.
The US maintained its place as the top destination for inward investment, with a total of $158 billion recorded last year. Sweden was second with inflows of $78 billion with, ironically, the Zeneca-Astra deal edging the UK into third place. Still, with FDI of $62.4 billion, the UK recorded twice the level of investment into France and almost three times the level of investment into Germany.
Vodafone-Mannesmann deal sets new takeover record
Merger fever shows no sign of abating in 2000, with Vodafone Airtouch’s $181 billion acquisition of German rival Mannesmann ranking as the largest corporate takeover of all time, eclipsing even AOL’s acquisition of Time Warner at the beginning of the year. Mannesmann finally agreed terms - subject to shareholder approval - after a long and sometimes bitter battle, marking the first time a foreign company has succeeded with a hostile bid for a large German company. Vodafone’s victory has been hailed as breaking down European business barriers, and is expected to spark a further round of mergers and acquisitions.
Vodafone emerges from the deal as the largest publicly traded company in Europe, with a value of $365 billion, and the largest telecoms group in the world. It is also the fourth largest company in the world in any industry, ranking behind only Microsoft, General Electric and Cisco Systems. As Europe’s leading telecoms player, it will have a central role in the coming wireless Internet revolution, which in Europe is expected to be led by mobile phone devices rather than by PCs as in the US. It will also compete globally with the likes of NTT DoCoMo of Japan, WorldCom and AT&T of the US and Deutsche Telekom of Germany.
Boom time for telecoms industry
New investment continues to pour into the UK telecommunications industry, underlining its leading role in telecoms technology worldwide. For example, the UK government recently announced plans for Europe’s first two-way paging (TWP) services, inviting companies to bid for licences in an open competition and scrapping the ERMES European harmonising standard. There are currently 2.5 million users of pagers in the UK and this figure could rise to over seven million by the end of 2007.
California-based Phone.com, a leading provider of wireless Internet software and services, has paid around $500 million for Paragon Software, a UK company based in Newbury, South East England and a pioneer in synchronisation technology, which allows PC-based data to be transferred to mobile devices. The company’s FoneSync software allows information such as address books, calendars and appointment diaries to be transferred from computers and palm devices to mobile phones, and vice-versa. The product supports 240 different mobile phone models from 20 different manufacturers. Paragon has already been selected by Vodafone as one of its synchronisation partners.
Elsewhere Psion, the UK specialist in handheld computing devices, and Motorola of the US have signed an agreement to co-develop a range of mobile Internet access devices, or WIDs (wireless information devices). The products, for use in cellular markets worldwide, will be based on the next generation of software application technology from Symbian which, like Psion, is based in London. The first product, due to be launched in the first half of 2001, will be a pocket-sized Internet device with voice and data capabilities.
Similarly, Vodafone Airtouch and Casio Computer Company have announced a worldwide agreement for the joint development of mobile multimedia palmtop computers. The lightweight devices will be designed to offer full-colour Internet access with audio and video capability. A first version, available later this year, will connect to a mobile handset that will act as a high-speed modem, using GPRS GSM technology.
Agilent Technologies Inc, a subsidiary of Hewlett-Packard and a leading hi-tech employer in Scotland, has announced plans to establish a research facility at its site in South Queensferry, near the Scottish capital Edinburgh. Agilent Laboratories Scotland will focus on new business opportunities in telecommunications technology, and will undertake advanced research into next-generation communications, including optical, Internet and other high-bandwidth technologies. It will create up to 40 high-calibre scientific jobs over the next two years. In addition, the company plans to take on a further 60 engineering and software staff at the South Queensferry site, where 430 jobs have been created in the last three years.
Fujitsu Telecommunications Europe Ltd (FTEL), a subsidiary of Fujitsu of Japan, is to set up a $47 million engineering centre for advanced telecommunications products in Belfast, Northern Ireland. The investment, the company’s fourth in Northern Ireland since 1996, will create 250 jobs. Not to be outdone, Nortel Networks is to invest $46 million in a facility at Monkstown, Northern Ireland that will manufacture high-speed optical transmission systems for the Internet. The Canadian-based company already employs more than 1,500 people in the province, and the latest move is part of a $400 million expansion plan that will create a further 500 jobs over the next three years.
Prestige car project hits the road
German car manufacturer DaimlerChrysler is to team up with UK Formula One motor racing group McLaren to build the fastest, most expensive Mercedes-Benz sports cars ever to take to public roads. McLaren will build the flagship Mercedes-Benz Vision SLR at a 130-acre complex currently under construction at an industrial park in Woking, Surrey in South East England. The $320,000 roadsters will be produced at a rate of 500 a year from 2003.
DaimlerChrysler has recently taken a 40 per cent stake in the TAG McLaren group which, besides Grand Prix motor racing, has interests in electronics, advanced plastic composites, road car engineering and other activities. TAG McLaren is spending $320 million on its new headquarters complex, named Paragon, which covers an 182,000 sq ft site and is claimed to be the biggest privately funded construction project in Europe. As well as the group’s various subsidiaries, the complex will house a museum and an exhibition centre. McLaren Cars already produces the fastest commercially available road car - the McLaren F1, which is capable of 230mph and costs a cool $1 million.
Modest boost for minimum wage
The government has announced that the national minimum wage is to rise in October by 10p an hour, to £3.70 an hour ($5.92). The minimum wage, introduced in April last year, applies to two million low-paid workers. The minimum rate for young people aged 18-21 will rise by 20p to £3.20 ($5.12) in June. The life of the independent Low Pay Commission has also been extended to make recommendations on a further increase next year, which looks likely to happen if a general election is called.
The government has thus far avoided any commitment to an annual uprating of the minimum wage for fear it could have a negative impact on industry - although since its introduction few, if any, problems have been reported. Chancellor Gordon Brown and Prime Minister Tony Blair appear to have agreed that a modest rise halfway through the year would not undermine the government’s economic policy and would be acceptable to employers. Some union leaders however have pressed the chancellor to go further, calling for a minimum hourly rate of £5.00 ($8.00).
Regions forge ahead
The government has set up a new unit to co-ordinate and implement key policies in the regions. The Regional Co-ordination Unit reflects the government’s determination to focus on the local impact of its initiatives, according to Deputy Prime Minister John Prescott. It will concentrate on regeneration, education, competitiveness and social issues, and will promote higher-profile government offices in the regions, better co-ordination with central government and a closer working relationship with the Regional Development Agencies (RDAs). The unit will be headed by Lord Falconer and will begin operations on 1 April.
Some regions, however, would seem to need little encouragement from central government. Scotland, for example, saw its manufacturers outperform those in the rest of the UK in the 12 months to September, with a rise in output of 2.5 per cent compared with 0.1 per cent nationwide. Output in the electronics sector jumped 9.9 per cent over the previous 12-month period, while Scottish manufactured exports grew by 7.8 per cent.
And in Leeds in Yorkshire, Northern England, business confidence in the city’s financial services community is riding high, with 75 per cent of firms saying they expected business volumes to rise. The figure comes from a survey by Leeds Business School, which also showed that the prospects for job creation in the city are at their highest for four years, with 62 per cent of firms expecting to take on new staff in the next six months. The survey reinforces forecasts that 50,000 new financial services jobs will be created in Leeds by 2010.
Universities eye global alliances
Four of the UK’s leading universities have announced a partnership plan with four universities in the US, as part of an initiative to build international alliances for research and teaching. Leeds, Sheffield, Southampton and York Universities will join forces with the University of California, Pennsylvania State University, the University of Washington and University of Wisconsin Madison. They will collaborate on research, postgraduate degree programmes and syllabus development in a number of subject areas, in what is to be known provisionally as the Worldwide Universities Network.
The UK’s education minister, David Blunkett, recently urged universities to form consortia and work together rather than consuming resources in competing with one another. He has encouraged universities to form alliances to tackle global markets, in much the same as private-sector business has done. He is also expected to introduce US-style two-year ‘associate’ degrees and to help leading UK universities to develop distance learning programmes via ‘e-universities’.
The move may prompt other institutions to finalise partnership agreements already under discussion. The University of Birmingham, for example, has joined an international grouping called Universitas 21, which includes the University of Singapore.
E-pioneers change the face of business
Niche automotive suppliers in the Midlands area of England are being given the opportunity to bid for high-value contracts over the Internet, by banding together to form ‘virtual’ consortia. The experiment is led by Warwick University’s Manufacturing Group and part-funded by the European Regional Development Fund and the European Automotive Initiative Group. It will provide an electronic clearing house that links engineering group GKN and logistics and automotive components group Unipart to 20 each of their suppliers and could be repeated by development agencies in other parts of the UK if it proves successful.
Meanwhile, the first e-business park in Wales has opened at Pembroke Dock in Pembrokeshire. The Cleddau Business Park plans to attract hi-tech, Internet-based companies to this largely rural area of West Wales, citing advantages such as a 10-15 per cent cost advantage over other parts of the country and a skilled labour pool.
The 25-acre park has been developed by employment services company Manpower, with funding from the Welsh Development Agency. Its first occupant is 7C, Europe’s largest outsourced customer relationship management specialist, whose clients include Virgin, Vodafone and AT&T. 7C will open an Internet-enabled customer support centre in March with an initial staff of 50, although the company estimates the workforce could grow to 600 by 2003.
Wales welcomes new investors
Pembrokeshire is not the only part of Wales to attract new investment. Merthyr Tydfil in South Wales, for example has been chosen as the location for a new $20 million call centre by One 2 One, the digital mobile telephone operator that is part of Germany’s Deutsche Telekom. The centre is One 2 One’s fifth and largest, and is due to go into operation by the end of the year. It will employ 1,000 people and will handle voice, fax, e-mail and Internet enquiries.
Newly formed label printing company Spear Group Holdings - formed through an amalgamation of Global Labels of the UK and Spear Inc and Gar-Doc Inc of the US - has chosen Cwmbran, also in South Wales, as the base for its European manufacturing and administration headquarters. Spear Europe will invest $9.6 million and create 200 jobs at its facility in the town’s Llantarnam Park. It will produce self-adhesive labels for food and beverage products, including such well-known brands as Cointreau and Bacardi.
And Boston-based Gillette Co, the consumer products group, is to invest around $6 million at its Duracell battery factory in Wrexham, North Wales as part of a plan to concentrate production of zinc air battery cells there. Production of the cells, which are used in hearing aids and medical devices, was previously split between Wrexham and a facility in Lexington, Kentucky. The move will create 75 new jobs and safeguard a further 55.
Air traffic up as the future of rail is unveiled
The number of passengers handled by London’s three airports rose by 5.8 per cent last year to a total of 102.2 million, according to the Association of European Airlines (ACI Europe). Heathrow maintained its position as Europe’s busiest airport, with a 2.6 per cent increase to 62.2 million passengers despite constraints on capacity. London Stansted handled 9.5 million passengers, up 38.2 per cent, thanks to the rapid growth of a number of low-cost airlines using the airport.
Meanwhile passenger rail company Great North Eastern Railway (GNER) has submitted plans for three new park and ride-style mainline rail stations - outside London, Doncaster and Edinburgh - to the rail regulator, the Strategic Rail Authority. The proposals form part of a $2 billion bid for a new 20-year franchise to run the east coast mainline after the company’s current license expires in 2003. GNER also plans to introduce 25 new high-speed tilting trains which will run at 140mph, shaving half an hour off the journey between London and Edinburgh and increasing passenger capacity by 60 per cent. Rival bidder Virgin Trains has also said it will introduce tilting trains.
London’s best addresses remain in demand
Active demand in the central London office market rose by ten per cent in the final quarter of 1999, according to the latest report by consultant DTZ Debenham Thorpe. Active demand is defined as named companies that have instructed agents to look for premises. Rents rose across central areas of the capital but the trend was most apparent in the West End, where rents grew by 14 per cent over the year as a whole. Some $8 billion was invested in office properties over the year, up from $7.2 billion the previous year.
Availability at the end of December was 10.9 million sq ft, a ratio to stock of 5.5 per cent. The amount of space available fell by 4 per cent over the final quarter of the year, despite a lower rate of take-up, reflecting a fall in the volume of new space being marketed. Take-up during the final quarter was down 8 per cent on the previous three-month period, at 4.3 million sq ft, but for the year as a whole was 7 per cent up on 1998 and the highest level ever, at 19.1 million sq ft. There were distinct variations within this trend: take-up in the West End rose by 8 per cent but in the City it actually fell by 13 per cent.
East Midlands aims to build international links
The East Midlands Development Agency (EMDA) is planning to nurture relations with its European counterparts in a bid to become a European information and communications technology (ICT) ‘region of excellence’. The initiative was inspired by a visit to the area by Erkki Liikanen, the Finnish European commissioner who is responsible for the development of electronic commerce across the European Union.
EMDA has also launched an ambitious initiative to foster links between the East Midlands and businesses on the Indian sub-continent. The region already has strong links to a number of Indian states, and the East Midlands Indo-British Trade Council (EMIBTC) will promote the region as a gateway to doing business in Europe, helping Indian companies establish contacts wherever possible. A memorandum of understanding that has been signed with the state of Gujarat and similar pledges to promote co-operation are expected to be signed with other Indian states in the near future.
Around the regions
- Exult Inc of Irvine, California, a web-based human resources (eHR) company, is to create 150 jobs at a new client service centre in Glasgow, Scotland. The company provides eHR process management services for leading companies, and the decision to open the Glasgow centre came after it clinched a business process management contract worth $600 million with oil company BP Amoco. Jobs at the eHR centre, the first in Scotland, will range from IT and training to accountancy and call centre management.
- The Welsh Development Agency is to spend $2.9 million on an extension to Parc Caerseion business park at Conwy Morfa in North Wales. It is building two new units, one of 15,000 sq ft and one of 25,000 sq ft, and has allocated four self-build units.
- Japanese automotive company Mitsuba is to set up a UK subsidiary, Mitsuba Europe Ltd, based at Uxbridge, to the north-west of London. The company will be responsible for market research and for strengthening Mitsuba’s sales and marketing operation across Europe.
- P&O Ports plans to develop the site of the former Shell Haven refinery at Stanford-le-Hope on the River Thames as a container terminal. The new port, with a capacity of one million containers a year, could be complete by 2005 and promises to create up to 1,000 jobs.
- Procter & Gamble has started building work on a $10 million Global Business Services Centre at Cobalt Park in North Tyneside, North East England. The centre will provide financial, employee and procurement services for the Cincinnati-based company’s sites throughout Europe, the Middle East and Africa. It will create 200 new jobs and safeguard a further 200 at an existing facility at nearby Gosforth.
- ATM company NCR is spending over $32 million on a research and development centre in Dundee, Scotland. The 155,000 sq ft, four-storey centre will occupy seven acres on a site at Balgarthno, next door to NCR’s main plant at Wester Gourdie. The new centre will house 500 research staff who are currently accommodated at different sites around the city.
- Eurobell, based in Plymouth, South West England and part of Deutsche Telekom, is to build a customer communications centre in nearby Exeter. The centre, due to open in June, will use the latest Integrated Customer Management System (ICMS) technology. It will employ 150 people.
- US home shopping TV channel QVC is to double the size of its UK distribution and call centre facility with a $25 million expansion project that will create 1,000 new jobs by the end of 2001. The Pennsylvania-based company operates from a site on Knowsley Industrial Park, Merseyside, in North West England, where it first opened for business three years ago.
- Inward investment agency Coventry Centre for Investment has launched a new web site, which carries facts and figures for companies looking to locate in the West Midlands city. It includes information and guidance on financial support, training and the recruitment of skilled staff. Visit the site at www.invest-in-coventry.co.uk. Current Coventry initiatives include Training for Change and Growth, a programme which, with financial support from the European Union, helps companies fund training for specialist staff. It has helped more than 60 companies since it was set up four years ago, according to the Centre for Investment.
- The merger of the music businesses of Time Warner Inc of the US and the UK’s EMI Group at the end of January created the world’s largest music group, with control of about one quarter of the world’s music industry. The 50:50 joint venture, worth around $20 billion, will have headquarters in New York and international headquarters in London.
- EADL, a wholly-owned subsidiary of French company EA Holdings, is to buy UK auto parts distribution company Finelist for around $254 million. Finelist, based at Stratford-on-Avon in the West Midlands, operates in the areas of motor factoring, wholesaling, packaging, manufacturing and retailing. It has a network of 747 trade and retail sites throughout the UK.
- GE Power Controls, a subsidiary of General Electric Company based in Fairfield, Connecticut, has consolidated its presence on Merseyside, North West England, by moving from its existing premises to a new $6 million facility. The plant, which will produce electrical control products, will employ 170 people and has room for further expansion.
- Dynex Power of Canada is to buy a unit of Mitel Semiconductor Plc, based in Lincoln in the East Midlands, in a deal worth $12 million. The deal gives Dynex access to Mitel’s world-recognised technology in power semiconductors, microwave sensing and silicon-on-sapphire products and complements its existing business in Ottowa, where it focuses on industrial power conversion projects for major North American companies.
- Hungarian-US bus manufacturer North American Bus Industries (NABI) has acquired the Optare Group, the UK’s third-largest bus maker, in a deal worth $35 million. NABI is registered in Hungary and 56 per cent owned by First Hungary Fund. It makes bus bodies in Budapest and completes them in Anniston, Alabama. Optare produces bus bodies ranging from medium size up to double-deckers, and has plants in Leeds and Rotherham in Yorkshire & the Humber.