News
April 2000
UK to build US partnerships in e-commerce future
Patricia Hewitt, the minister for e-commerce and small business, is aiming to make the UK "the best place in the world" for electronic trading. In March she emphasised the country’s leading role in this mushrooming sector on a four-day tour of technology ‘hot spots’ in Virginia and Massachusetts in the US. In particular, she underlined the UK’s strength in wireless technologies, which most believe will lead the revolution in e-commerce. She also called for UK and US companies to work together to create the enabling technologies needed to make electronic trading a reality.
"The UK is a world leader in mobile telephony and digital television, and we have an estimated two-year lead over the US in these areas," she said. "But the US has traditionally led the way in e-commerce and the use of the Internet. Therefore it is crucial that we work together and learn from each other. If we are to maintain our lead in the e-revolution, we must continue to look forward and harness new and developing technologies. Things that think and e-science are the next big leap forward. The UK and the US must both be ready to embrace this exciting future."
The government is encouraging the UK’s regional development agencies (RDAs) to set up non-profit ‘incubators’ in the US. These will be aimed at Internet software start-ups attempting to break into the American market and will address the problems of scaleability inherent in launching products across different markets. It is also hoped they will attract US investment to the UK. During her visit, Ms Hewitt went to a pioneering incubator project in Virginia, where two public/private funding bodies, Scottish Enterprise and Scottish Trade International, have established a centre providing support to six Scottish technology companies that are working with local US developers. "This is exactly what RDAs should be doing," she said.
Another government initiative in the UK is the Digital Content Sector Action Plan for Growth, which will set up an industry body to help develop and promote digital content for the Internet and establish a portal for small businesses. Meanwhile, UK-based companies in the satellite communications industry are also to receive government assistance, to exploit opportunities in a market expected to be worth more than $224 billion per year globally by 2010. Science minister Lord Sainsbury announced the $14.4 million SATCOM programme, which will help UK companies develop strategic partnerships with satellite developers and operators.
Brown’s budget encouraging for business
E-commerce was also high on the agenda in Chancellor Gordon Brown’s Budget on March 21. He encouraged small companies to go online by allowing them to write off the full cost of hardware and Internet technology purchases against tax for the next three years, compared with a current allowance of 25 per cent. Work permit restrictions for properly qualified workers are also to be relaxed to attract high-flying IT experts to the UK.
In a package aimed at reducing the corporate tax burden for small and medium-sized businesses, Mr Brown halved the starting rate of corporation tax to 10 per cent from 1 April. Together with a 3 per cent cut already announced in small business rates, this is expected to reduce the average corporation tax burden on small companies by 25 per cent. Mr Brown also extended the first-year allowances for investments in plant and machinery to 40 per cent; raised the VAT registration threshold to £52,000 ($83,200); and extended the Inland Revenue’s PAYE scheme for employees.
In other announcements, Mr Brown moved to encourage employee share ownership with a big cut in capital gains tax for employees who hold shares in their own companies. The CGT rate is to fall from a maximum of 40 to 10 per cent for shares that have been held for more than four years. The move is aimed at encouraging an enterprise economy like that of the US, where high rates of growth have been attributed to equity investment, especially in high-technology companies. Rules were relaxed too on the value of shares a business is allowed to give its employees. Tax breaks were extended to investors in Enterprise Investment Schemes and Venture Capital Trusts, reducing the time they need to hold EISs and VCTs before qualifying for 20 per cent relief on income tax from five years to three.
Tax on fuel was increased only by the rate of inflation, 2p a litre for petrol and 1.89p a litre for diesel. Vehicle excise duty for lorries was cut, by $800 for 38- and 41-tonne trucks and by $2,880 for 40-tonne vehicles. Duty for other sizes of vehicle was frozen. Extra investment of $448 million was announced for roads and public transport infrastructure. Airport tax on domestic flights within Europe will be halved from $16 to $8 from April next year and abolished on flights to and from the Scottish Highlands and Islands.
The news was less good for investors in commercial property, however, as Mr Brown increased stamp duty (a transaction tax) on residential and commercial property, in a bid to dampen the boom in the housing market. Rates rose from 2.5 per cent to 3 per cent for properties valued from £250,000 ($400,000) to £499,000 ($799,000) and from 3.5 per cent to 4 per cent for properties valued above $800,000.
Digital revolution rolls on
Meanwhile, there is no sign of the UK’s digital investment boom slowing down. Softbank, the Japanese Internet group, for example, is planning to establish a $450 million investment fund to take stakes in UK Internet companies. The fund, Softbank UK Ventures, will focus on Internet start-ups and wireless deals.
Citrix Systems of Florida has announced a joint venture with London-based Psion, maker of handheld computer devices, to implement its Independent Computing Architecture on the Symbian platform, giving handheld users the same degree of functionality they would get from a desktop computer. Cable & Wireless is to spend $160 million to build one of Europe’s largest Internet web-hosting facilities in Swindon, South West England. The 130,000 sq ft centre will open in the summer and is part of a programme to build 20 web-hosting centres by 2002. e-know.net, an Internet start-up company that will offer a business knowledge database to small and medium-sized companies, has invested $4 million in its new operation in Telford, West Midlands. The company aims to create 40 jobs in its first year of trading.
In the media sector, Getty Images Inc, which provides imagery and related products via the Internet, has acquired Visual Communications Group (VCG) from United News & Media for $220 million. The acquisition boosts Seattle-based Getty Images’ collection to more than 70 million images and more than 27,000 hours of film footage. World Online, a Netherlands-based pan-European communications company, has acquired Internet service provider bun.com from News International, based in London. World Online already provides Internet access and services in 15 countries, and bun.com’s 450,000 users will help it build a customer base in the UK.
For businesses and the consumer, the cost of being online will come tumbling down in April after US communications group NTL became the first operator to offer free and unlimited Internet access. Users will pay a small monthly subscription fee, which entitles them to all the online time they want. Competitors such as Freeserve, AltaVista and BT have followed NTL’s lead, and the price war is expected to intensify. A new Datamonitor report meanwhile shows that the number of Internet banking customers in the UK is the highest in Europe. The UK and Germany between them account for almost 50 per cent of the 21 million online customers projected by the end of 2004. There will be 5.3 million online customers in the UK alone, in a market that is predicted to grow by 30 per cent in the next five years.
Even jobseekers are to join the wired world via a network of Internet kiosks to be installed at job centres up and down the country. The kiosks, set up by the government in partnership with technology specialist EDS, will give those looking for work, training or education access to vacancies around the UK and, eventually, further afield in continental Europe. The government is also to offer jobseekers vouchers worth an average $800 to pay for computer training.
Regions benefit from boom in knowledge economy
Scotland and Northern Ireland are two parts of the UK that have benefited from the boom in the ‘knowledge economy’. In Scotland, for example, Glasgow-based Atlantech, a leading provider of network element management software, has recently been acquired by Cisco Systems of California for around $180 million. The acquisition expands Cisco’s New World strategy, which aims to deliver end-to-end network functionality. Meanwhile ADC Telecommunications of Minneapolis is to invest $46 million in a 50,000 sq ft manufacturing facility at Glenrothes, near Edinburgh. The company supplies network equipment, software and integration services for broadband multi-server networks, and the new facility will produce broadband network connectivity products for the European market. It will create up to 1,100 jobs over the next five years.
UBS, the Swiss-based investment services group, is to establish an innovative personal financial services centre in Edinburgh using the latest telephone and Internet technologies. The Edinburgh centre will be the UK base for a Europe-wide roll-out of the service, which aims to fill the niche between retail and private banking. It will create 400 jobs over the next few years. Monster.com Europe, a subsidiary of Monster.com of Massachusetts and part of the world’s largest online career network, is to establish a European sales centre in Glasgow, creating 180 jobs over the next three years. The multilingual business-to-business call centre will service clients in the UK, France, Germany, the Netherlands, Belgium and Ireland.
In Northern Ireland, Outsource Laboratories (Olabs) of Boulder, Colorado, has opened a European software design and training centre in Belfast, where it will provide solutions for the new generation of Internet-linked mobile phones. The company supplies software products and services for the communications industry and runs an extensive software training programme for corporate clients. Also in Belfast, Pivotal Corporation of Vancouver is to set up an e-business centre of excellence, which will provide e-commerce solutions for clients in Europe and further afield. The investment will include an R&D centre and a technical support facility and will create 150 jobs for electronics and software graduates over five years.
The experience of the Highlands and Islands region of Scotland, one of the most remote from traditional centres of population, demonstrates that geography is no barrier to inward investment. The region, rich in spectacular scenery and traditionally home to fishermen and small farmers, has seen knowledge information and telecommunications businesses employ 13,000 of its workers over the past nine years, in areas such as electronic publishing, data processing, software development and education. Last year around half the record 1,275 jobs created in the Highlands through inward investment were in hi-tech or telecoms-related businesses. Manufacturing exports have doubled in five years and, proportionately, the region boasts 25 per cent more business start-ups than even in the rest of Scotland.
Inward investment continues to flow
The UK’s stock of inward investment rose by around 25 per cent to $400 billion in the first 12 months after the launch of the European single currency, suggesting that Britain’s decision to stay out of the euro has had little or no effect on investment flows. Andrew Fraser, chief of the Invest in Britain Bureau, the government agency for inward investment, said that preliminary figures indicated that the UK had taken more than 40 per cent of US investment in the European Union and boosted its share of Japanese investment from 40 to 50 per cent.
The UK took over from France as the EU’s second largest economy in 1999, according to Eurostat, the EU’s statistical body. Its GDP grew to around $1,348 billion, just eclipsing France’s $1,346 billion. However, Eurostat pointed out that the increase was due partly to a strengthening of the pound against other currencies.
London is headquarters of Europe
Of the world’s largest companies which have a presence in Europe, one-third have chosen London as the location for their headquarters. Of the 390 of the Fortune Global 500 with a European HQ, 130 are in London, according to inward investment agency London First Centre. The UK capital has four times as many HQs as its nearest rival, Paris, which has 35. Brussels has only 23, Düsseldorf 12, Frankfurt 10 and Amsterdam four.
A number of global companies have recently announced plans to locate in London. Chemicals group BASF is moving its pharmaceuticals HQ from Germany and mobile telephone maker Nokia is setting up its venture capital fund in the UK capital. Others with a large presence include Swedish telecommunications group Ericsson and pharmaceuticals company Norton Healthcare. Both Delta Airlines and Air France have established their European call centres in London. "London is the place everyone wants to be," said London First Centre chief executive Stephen O’Brien.
London is also becoming a magnet for foreign workers, with more than one-seventh of its workforce coming from outside the UK, according to a labour force survey. Elsewhere in the UK, the ratio is about one in 25. There are 482,000 foreign workers employed in the capital. Though many are engaged in casual work, more and more are young professionals working in the City. Their countries of origin are predominantly Australia, New Zealand, South Africa, the US, France and Germany.
Stansted expands as new services take off
BAA, which operates seven airports in the UK, has begun work on a $320 million extension to the main terminal building at Stansted Airport in Essex, Eastern England. Passenger traffic at the airport, the UK’s fourth largest, grew by 35.3 per cent to 9.7 million in the 12 months to the end of February. BAA plans to increase capacity to 15 million passengers over the next two years, and to add a further 5,000 staff to its current 8,000-strong workforce over the next six years.
At Manchester Airport in North West England, Malaysia Airlines has launched a three-times-a-week service between Manchester and the Malaysian capital Kuala Lumpur. The non-stop flights shave two hours off the journey time of the previous service via Munich. Eastern Airways has launched a new service from Humberside International Airport in North East England to Glasgow in Scotland. The twice-daily direct flights, which take around an hour, connect with onward flights to 20 destinations in the US.
Meanwhile, no-frills airlines offering easy booking via the Internet are grabbing a large share of the UK’s business travel market. An American Express survey shows that almost two-thirds of business travellers use airports served by ‘cheap and cheerful’ carriers such as Easyjet, Virgin Express and British Airways subsidiary Go. The carriers themselves estimate that between 30 and 50 per cent of their passengers are now business travellers.
Those travellers will have a new place to stay in London next year, when a former brewery in the City of London is converted into 130 long-stay apartments. Marriott Executive Apartments will be converted from a building in Chiswell Street that has been brewer Whitbread’s headquarters for 250 years. Aimed at visiting executives planning to stay 30 days or longer, the apartments will be equipped with telephone lines, computer connections, video recorders and music systems.
Car production rises as Lotus targets US market
Car production was up again in January after reaching its highest levels for 27 years in 1999, according to the Office for National Statistics. Total car output rose 2 per cent year on year to 145,659 vehicles. Output for the domestic market rose 5.2 per cent to 50,572 units, while output for export rose 0.3 per cent in the face of a strong pound, to 95,086 vehicles.
In a specialist corner of the market, sports car manufacturer Group Lotus has announced plans for the biggest expansion in its 50-year history. The engineering company is to open a new factory at its existing facility at Hethel, near Norwich in Norfolk, Eastern England, which will raise its annual production capacity to 10,000 cars. It plans to start manufacturing a new luxury sports car, the aluminium-bodied M250, from 2002. Retailing at $64,000, the M250 will initially be produced at a rate of 3,000 a year and will be used to spearhead a drive into the North American market. Lotus is also to open its first engineering centre in the US. The plant, at Ann Arbor, Michigan, will offer consultancy design, development and engineering services to the US automotive industry. It will employ around 50 people.
Boost for transport infrastructure
The volume of freight moved by rail (tonne-kilometres) in the UK grew by 6 per cent in the third quarter of 1999/2000 compared with the same period a year earlier, according to the latest Bulletin of Rail Statistics, published by the Department of the Environment, Transport and the Regions. Passenger journeys and passenger kilometres also both grew by 5 per cent.
Last year was a record one for freight grants, which are awarded by the government to encourage operators to switch from road to other forms of transport. Around $75 million in grants was awarded during the course of 1999, saving an estimated 1.3 million lorry trips. The largest single award went to Central and Midland Properties Ltd, which won $2.9 million to develop (in conjunction with CAT UK, the UK distributor of Renault cars) a rail-connected car terminal on the site of a former colliery in North Warwickshire in the West Midlands.
Meanwhile, three new projects have been unveiled that will improve transport infrastructure in different corners of the UK. Tottenham Hale tube and rail station in North London, a key passenger interchange with links to Central London and Stansted Airport, has been completely remodelled in a $9.3 million regeneration project. In the North East, work has begun on the $160 million extension of the Metro network that will link the city centres of Newcastle and Sunderland. It will take two years to complete. And in the South West, the A30 Bypass from Honiton to Exeter has opened, at a cost of $26 million.
South East forges ahead as productivity grows
Two new studies, one by Cambridge Econometrics, the other the government’s twice-yearly Regional Competitiveness Indicators, reinforce the fact that the South East and London are the fastest-growing regions of the UK. Manufacturing productivity increased across the country as a whole throughout the 1990s but most noticeably in the South East. The growth is reflected in the fact that property costs in London are higher then anywhere else in the country.
Outside the South, the best-performing manufacturing regions were Northern Ireland and the East Midlands, followed by Scotland and Wales. Wales has the highest proportion of employees in high-tech jobs, followed by the South East, South West and Eastern England. The Cambridge study predicts a more even manufacturing performance across the UK this year and next, although the South East is expected to again outstrip other regions, thanks to the development of high-tech ‘clusters’ and continuing growth in financial and business services.
In March, the East of England was the biggest winner in the government’s latest spending allocations to the eight English regional development agencies. It was awarded a 20 per cent increase in its budget for 2000-01, taking it to $64.8 million. The South East received an increase of 7 per cent, taking its budget to $127.5 million. Meanwhile, ministers are considering a proposal to waive business rates to encourage companies to locate in deprived areas of the UK. The plan has been put forward by local government minister Hilary Armstrong, who has been impressed by urban regeneration projects in US cities such as Chicago. The proposals could be addressed in Chancellor Gordon Brown’s spending review in the summer.
East Midlands launches a charter for investors
The East Midlands is aiming to attract more inward investment by speeding up its planning processes. A Planning Charter, created by the East Midlands Development Agency (EMDA) and central and regional government offices, and launched recently by Trade Minister Richard Caborn, has the aim of making the region’s planning process the most efficient in the country.
The charter will allow local councils to assess the job-creation potential of planned new developments and indicate the likelihood of approval, with straightforward applications processed within 40 working days. Councils will advise applicants on how to make a successful application, will fix deadlines for decision-making and advise on alternative sites if necessary. So far 80 councils in the East Midlands have signed up to the initiative.
Another EMDA initiative is the region’s first-ever Property and Business Show, to be held on 14 November at the East Midlands Conference Centre in Nottingham. Targeting new investment from key growth sectors in the US, Europe and Asia-Pacific, the show will highlight the region’s strengths in property, professional services and business support. Find out more at www.emda.org.uk
Science parks go from strength to strength
The United Kingdom Science Park Association (UKSPA) celebrated its 15th anniversary in 1999 and, with plans for new parks up and down the country, the science park model looks set to continue its role in encouraging high technology business development in the UK.
A science park is defined as "a business support and technology transfer initiative that encourages the start-up and incubation of innovation-led, high-growth, knowledge-based businesses". Usually linked to a knowledge centre such as a university or research organisation, parks provide an environment where businesses, both start-ups and large international organisations, can tap into that knowledge. Most provide physical infrastructure in the form of buildings and IT and communications links, as well as business support services.
The first to be set up in the UK was Cambridge Science Park, established in 1970, closely followed by Edinburgh’s Herriot-Watt University Research Park in 1971. Today the UKSPA represents the interests of some 50 science parks around the country, and is hoping to add a further 20 members over the coming year. The organisation has more than 1,400 tenant companies, employing more than 27,000 staff. Cumulative investment is in excess of $1 billion. More than 50 per cent of science park companies are involved in R&D, new product design or testing and analysis. Many are from overseas.
In the past three years new parks have opened at Nottingham (East Midlands), Grimsby (North East England), East Lothian (Scotland) and at Cranfield and Sittingbourne (Southern England). Cambridge in Eastern England has acquired two new parks and three have opened in London, at Enfield, Tottenham and Croydon. A number have been set up around defence technology research sites around the country, with the aim of opening up defence technology to small and medium-sized companies. Now new parks are planned for Bristol, in South West England, and for Northern Ireland.
Wales aims to forge links between academe and industry
The Welsh Development Agency has launched the $6 million Wales Spinout Programme, which aims to support the development of more ‘spin-out’ business from the academic sector in Wales. It will provide advice to academics and students and will offer seedcorn funding through interest-free loans to help businesses establish themselves.
The WDA aims to assist 90 new businesses over the next three years, with the goal of building a new crop of hi-tech companies that will be able to commercially exploit research work undertaken in Welsh universities. Another initiative in North Wales, Know-How Wales, has been launched with the aim of building closer links between academic institutions and local industries.
Sweden toasts new acquisitions
Swedish firm Assa Abloy has bought Yale Intruder Security, the locks division of the UK’s Williams Group, for $1.32 billion. Based in Willenhall in the West Midlands, Yale Intruder Security is one of the world’s leading manufacturers of locks, lock cylinders and safes. Its brands include Yale, Chubb and Union, all recognised globally. Assa Abloy’s CEO, Carl-Henric Svanberg, said: "The acquisition gives us global coverage and expands our presence in the residential market beyond the Nordic region and France. In addition, the two companies will jointly be able to develop a new generation of electromechanical products."
Meanwhile another Swedish company, engineering group Cardo, has acquired PC Henderson, a manufacturer of residential garage doors, based at Bowburn, County Durham, North East England, for around $26 million. The UK firm also has subsidiaries in Ireland and the Netherlands. And in a move that will encourage the raising of a glass to the new arrivals from Scandinavia, Vin & Spirit, Sweden’s leading producer of spirits and owner of the Absolut Vodka brand, has acquired a 50 per cent stake in Plymouth Gin, a UK spirit maker based in Plymouth, South West England.
Out with the old, in with the new
The face of the FTSE index, the UK’s traditional stock market barometer, is changing to underline the ascendancy of new high-tech stocks over traditional ‘old economy’ businesses - but there are signs that the old economy is starting to bite back. In one of its biggest shake-ups ever, the FTSE 100 index, which tracks the 100 top-performing shares, saw nine new listings in March. Fast-growing companies from the technology, media and telecommunications sectors ousted longer-established firms involved in brewing, utilities and construction. Out went Thames Water, Imperial Tobacco, Whitbread and PowerGen, to be replaced by the likes of Psion, Celltech, Cable & Wireless Communications and Baltimore Technologies.
The pattern was repeated in the FTSE 250 index, where there were 29 new entrants, led by computer, media and pharmaceuticals companies. They elbowed out a number of well-known names in the hotels, brewing, engineering and construction materials fields. However in mid- March, following sharp falls in the US and Asia, investors on the London stock exchange and elsewhere in Europe began to sell off high-technology stocks and buy those of the ‘old economy’ blue-chips. Analysts now expect to see the market even out although high-tech stocks, especially those of Internet-based companies, are expected to go on rising.
None of this worries Manchester United, which has become the first football club - and indeed the first sports club anywhere in the world - to break through the £1 billion ($1.6 billion) valuation barrier. The Red Devils, currently champions of both the UK and Europe, saw their share price rise after announcing plans to launch an online gambling service via the club web site.
Around the regions
- Tata Tea, a member of India’s Tata Group, has acquired the London-based Tetley Group, which produces Tetley Tea in the UK, in a deal worth $413 million. Tetley is the second-largest brand of teabag in the world. It is market leader in the UK and in Canada, and is also well established in Australia and the US.
- As part of a major expansion drive, Germany’s Deutsche Bank is to plough a further $48 million into its investment administration and performance measurement subsidiary WM Company, based in Edinburgh, Scotland. The expansion will create around 500 jobs.
- Adare Printing Group, based in Dublin, has acquired Printronic International, the largest independent computing bureau for the UK direct marketing industry. Printronic, based in Wimbledon, south-west London, is a pioneer in the UK of marketing data management, with particular strengths in campaign processing, address cleaning and database solutions.
- British ministers continue to fly the flag in promoting trade links between the UK and potential investors. Trade minister Richard Caborn, for instance, visited South Korea, Taiwan and Thailand in February, where he met key industrialists and announced the launch of the Invest in Britain Bureau’s new Korean-language web site (www.ibbasia.org.hk). Meanwhile deputy prime minister John Prescott travelled to Brazil in March, accompanied by a party of leading British businessmen.
- Australian financial services group Colonial has bought Edinburgh-based independent investment management company Stewart Ivory for $115 million. The company will trade as Colonial Stewart Ivory, and will be part of Colonial First State Investments, the Australian group’s international fund management operation. Stewart Ivory currently has more than $4.8 billion under management.
- Work has begun on phase two infrastructure at Baglan Energy Park in Port Talbot, South Wales, including a 1km access road that will link the development with the M4 motorway. The $12.3 million land reclamation project will take 18 months to complete and is expected to be finished by summer 2001.
- The UK’s biggest scientific investment for 15 years, an $880 million X-ray source, or synchrotron, is to be built at the Rutherford-Appleton Laboratory at Didcot, Oxfordshire, South East England. The synchrotron project, a partnership between the British and French governments and the Wellcome Trust, is expected to link with other facilities nearby to create a global centre for research into the structure of materials in chemistry, biology and physics.
- Meritor Suspension Systems Company, which is a joint venture between Meritor Automotive of the US and Mitsubishi Steel Manufacturing of Japan, has acquired UK automotive suspension components manufacturer Tempered Spring. Based in Sheffield in Yorkshire, Northern England, Tempered Spring produces stabiliser bars and valve springs for light vehicle manufacturers as well as springs and metal components for non-automotive customers.
- Deutsche Post, Germany’s state mail carrier, has acquired Herald International Mailings, one of the UK’s largest international mail consolidators. Based in south-west London, where it employs 150 people, Herald specialises in the press and direct mail industries and handles a wide range of books, journals, catalogues and mailshots. In 1999 it had a turnover of more than $23 million, with 90 per cent coming of its revenue coming from international mail.
- TNO Automotive of the Netherlands has chosen Coventry, in the West Midlands, as its UK headquarters. Based in new facilities at the city’s University Techno Centre, the company’s initial staff of six will expand to around 20 within 18 months.
- The landmark One Canada Square office building at Canary Wharf in London’s Docklands is now fully let, says development company Canary Wharf Group. The group is to build a new 16- storey building, Five Canada Square, which will house three 40,000 sq ft trading floors and will be marketed particularly to small and medium companies in the professional services, media and insurance industries.