News
February 2003
Inward investment holds steady as German firms eye expansion
The number of inward investment projects in the UK fell 12 per cent to the end of March 2002 compared with the previous year, to 764, the first year-on-year decrease for five years, according to Invest.UK, the government’s inward investment agency. At the same time, the number of new jobs created halved to 34,000. However, in the first six months of the current financial year the number of inward projects has held steady, a satisfying performance given the prevailing global economic conditions, according to the agency’s chief executive, William Pedder. Investment by Japanese and other Asian companies rose slightly, while that from the US was down and European investment was largely flat. The trend for new investments, said Mr Pedder, was towards smaller projects in fields such as services and research and development, rather than in high-volume manufacturing. These projects employed relatively few people but tended to be better-paid, creating higher-value employment.
A survey by the German-British Chamber of Industry & Commerce meanwhile shows that the UK is still a favourite destination for direct investment by German companies. Germany is the third biggest investor in the UK, after the US and the Netherlands, and German companies employ 236,000 people; this is set to rise by more than 8 per cent over the next three years to 256,000. More than a third of the existing 2,000 German subsidiaries in the UK plan to increase their activities over that period, with the vast majority seeing the country’s regulatory environment as very positive. The largest German company operating in the UK is Siemens plc, and Alan Wood, the company’s chief executive and chairman of the Chamber, said: "From our own experience, and this year marks 160 years of Siemens’ operations here, the UK is regarded as one of the most business-friendly locations worldwide."
The combined sales of German subsidiaries are four times as high as Germany’s direct exports to Britain. Sales reached $165 billion in 2002, up from $112 billion in 1996-97. Investment has amounted to some $65 billion over the past 20 years. German companies have maintained their reputation for quality, with 77 per cent of UK subsidiaries selling on quality rather than on price. Two-thirds of companies are involved in sales and distribution, with 18 per cent in manufacturing and 17 per cent in services; 30 per cent of employees work in factories. The service sector has seen the strongest growth, and is expected to increase its share of employment created in the UK from 20 per cent to 30 per cent by 2005.
Although 83.5 per cent of German subsidiaries want the UK to join the euro in the next three to five years, 78 per cent of parent companies and 76 per cent of subsidiaries believe that so far British non-participation has had little effect on investment decisions. Seventeen per cent said that if the UK stayed outside the euro they were likely to cut back their investment, but 20 per cent said that they would actually increase it.
Economy set to continue expansion in 2003
The UK economy is set to grow in 2003 for a record 12th consecutive year, the longest period of continuous growth since quarterly records began in the 1950s, according to leading economists. Sir Edward George, governor of the Bank of England, said in early January that there was little risk of recession this year, despite doubts over the strength of British industry, continuing consumer spending and the housing market. Most observers expect annual growth of 2-2.5 per cent, lower than the Treasury’s forecast of 2.5-3 per cent but still enough to maintain the 12-year upturn.
Analysts believe that growth in consumer spending will slow from nearly 4 per cent last year to 2.5 per cent this year, despite a relatively successful Christmas trading period for retailers, but that increased exports will combine with a rise in public spending to maintain growth. Opinion is divided on whether Sir Edward will cut interest rates: some analysts believe that rates will hold steady at 4 per cent over the next three months, while others predict an early drop in rates to a new low of 3.5 per cent.
New car sales confound expectations to hit fresh peak
New car sales in 2002 hit a new record of 2.56 million vehicles, up from 2.46 million in 2001, according to the Society of Motor Manufacturers and Traders (SMMT). Sales had been widely expected to fall over the year, but a rash of incentives and discounts from car manufacturers confounded the pessimists and made the UK, for the first time ever, the second biggest market for new cars in Europe, behind Germany but exceeding sales in France by nearly 500,000. Among the incentives on offer were zero rate finance and free insurance. Citroën promised to refund buyers their Value Added Tax (VAT), while Fiat, MG Rover and others offered big price discounts.
The largest incentives were in the small car and super-mini market, and super-minis accounted for 830,000 sales, or one-third of the total new car market. Diesel cars, economical to run, were also big sellers, climbing 38 per cent to 602,000. The best selling model overall was the Ford Focus, with new sales of 151,209, followed by the Vauxhall Corsa (105,199) and the Vauxhall Astra (102,107). The rest of the top ten was made up of the Peugeot 206, Ford Fiesta, Renault Clio, Volkswagen Golf, Ford Mondeo, Renault Megane and Ford Ka. Among the biggest gainers was the New Mini, made by BMW at its plant in Oxford, South East England, which with 35,545 registrations marked a year-on-year increase of 205.7 per cent. Mazda registrations were up by 94.8 per cent, Smart by 78.4 per cent, Jaguar by 34.5 per cent and Honda and Audi by 22.9 and 21.5 per cent respectively.
Taking into account cars imported privately or sold through outlets outside the SMMT member network, total sales last year were probably nearer 2.75 million, meaning that 10 per cent of all motorists bought a new car during the course of the year. There was a slight dip in sales in November, but December saw a year-on-year rise of 14.3 per cent to crown a bumper year for the industry. Although sales are expected to drop back in 2003, the discounting war goes on: Citroën was the first to enter the arena in the new year, with a cashback offer of up to $3,000.
Another boom area in 2002 was the commercial vehicle and light van sector. Driven by an upsurge in internet delivery services for groceries and other goods, sales of vans and light trucks reached 322,258, some 10,000 more than in 2001 and the third highest total on record. Light vans, mainly derived from cars, were the biggest sellers, with numbers rising 4.8 per cent to reach 266,000. The market leaders were Vauxhall’s Astra and Combi vans. Sales of panel vans, such as the Ford Transit which has a 32 per cent market share, increased by 8 per cent to just under 180,000. Light trucks up to 10 tonnes saw an increase in sales, although a fall in sales of larger vehicles brought the overall truck market down 6.6 per cent to 51,920. US-owned Paccar, which controls the Daf and Foden brands, was the market leader in this sector. Sales of buses and coaches jumped by 49 per cent, to 3,992 for the year.
Video games industry outstrips film and television
Sales of computer games consoles and software in the UK amounted to more than $3 billion in 2002, a year-on-year increase of 8 per cent, and video gaming is now the country’s leading leisure pursuit, according to the European Leisure Software Publishers Association. Consumers are spending more on video games than on cinema visits and video rentals, and exports by the UK video games industry now exceeds that of film and television.
Sales in 2002 were driven by the introduction of new games consoles, such as Sony’s PlayStation2 and Microsoft’s Xbox, and by the launch of high-profile titles, including Lord of the Rings: The Two Towers, Fifa 2003 football and The Getaway, a gangland game from Sony set in London. Two of the biggest sellers were Grand Theft Auto 3, another gangland driving and shooting game, and GTA Vice City, both developed by Rockstar Games of the UK and both hits worldwide.
Cost of cross-network mobile phone calls set to fall
The cost of making mobile phone calls across rival networks is set to fall by almost half over the next three years, after a year-long investigation and a tough new ruling from the Competition Commission. The regulator has ordered a one-off cut of 15 per cent in termination charges (the prices mobile operators charge each other for using their networks), combined with real-price reductions of 14 per cent over the following three years. The ruling, which will be implemented by telecoms regulator Oftel from April, has been welcomed by consumer groups. Operators typically charge each other 10p (16c) per minute for access to their networks, but charge the customer as much as 50p (80c) per minute.
Termination charges are among the most profitable areas of business for mobile operators, who are already feeling a squeeze due to the huge investments made in buying licenses for third-generation (3G) networks. Some have warned that, to recoup the losses, they will have to cut jobs or delay the roll-out of their 3G networks. Analysts believe that operators across Europe will eventually have to adjust their prices.
The UK’s information and communication technology (ICT) industry, meanwhile, is outperforming the European average, according to a report from the European Information Technology Observatory (EITO). The UK accounts for 20 per cent of the European ICT market, compared with 21 per cent for Germany. However, while the German market saw a decline of 1.2 per cent in 2002, the UK recorded growth of 1.6 per cent. EITO predicts this rate will rise to 3.8 per cent in 2003, bringing the UK market value to approximately $135 billion.
Flexible working is most attractive benefit for job-seekers
Flexible working hours are the most attractive benefit for a significant number of people looking for work in the UK - more so than a higher salary or perks such as gym membership or a company car. An online poll conducted by recruitment website reed.co.uk, with the Department of Trade and Industry (DTI), found that 46 per cent of job-seekers put flexible working at the top of the list for their next job, with only 10 per cent preferring a company car and 7 per cent gym membership. A third of the 4,800 respondents valued flexible hours more highly than an extra £1,000 ($1,600) in pay a year, and 68 per cent said that they would like the chance to work more flexibly when necessary. Overall, 60 per cent said work-life balance was an important factor in deciding whether to apply for a new job, and this figure rose to 77 per cent among parents with children under the age of six. Only 18 per cent said they would happily work much longer hours for more money.
The poll was carried out to help publicise the government’s Work-Life Balance Campaign and the introduction of new family-friendly employment rights on April 6. The new package will mean more pay and leave for new mothers, fathers and adoptive parents, and will require employers to seriously consider requests from parents with young or disabled children to work more flexibly. A new helpline has been set up to give advice and guidance to both parents and employers.
American Community School expands educational programme
The American Community School Ltd, which has three schools in the South East of England at Egham, Cobham and Hillingdon, has launched a new website at www.acs-england.co.uk to publicise its varied educational programmes. The international school, which offers courses such as Advanced Placement, the International Baccalaureate and a new English as an Additional Language programme, attracts families from all over the world.
ACS currently has students of 60 different nationalities on its roster. Americans account for 50 per cent of students, but British, Swedish, Japanese, Canadian, Dutch, Norwegian, Australian, German, Danish, Finnish and South African students are also well represented. Classes range from kindergarten up to university entrance level, and alumni regularly go on to study at elite institutions such as Oxford, Cambridge, Harvard, Yale and Tokyo Universities.
Developers remain upbeat in face of slowing office market
Rents for commercial property are expected to rise only slowly in 2003, while office rents will continue to fall, according to property specialist Cushman & Wakefield in its latest Marketbeat UK report. The Central London office market, and markets in the South East such as the Thames Valley, are likely to see further declines as there is an over-supply of available space. Incentives have already been reduced and cuts in rent levels are expected to follow. Demand is higher in regional markets such as Manchester and Birmingham, while in Edinburgh and Glasgow it remains stable. Demand is likely to remain high for retail and distribution premises, on the other hand, leading to modest increases in rental levels over the year. Businesses remain cautious in the face of the threat of terrorism and war in the Middle East, coupled with the worldwide economic downturn, says the consultant, although the UK remains better placed than many economies to ride out the storm.
Despite the uncertain outlook, developers remain upbeat and new property schemes continue to arrive on the market. ProLogis, for example, is planning to build a 1 million sq ft distribution hub on 64 acres of a former Michelin site at Campbell Road in Stoke-on-Trent in the West Midlands. The company, which is now focusing its activities on large-shed developments, plans to construct two sheds of 250,000 sq ft apiece on the site, together with another huge building of 400,000 sq ft.
Also in the West Midlands, plans have been put forward for a $230 million industrial development on a 95-acre site in Witton, acquired by a consortium of developers from engineering group IMI Components. The development, on the largest brownfield site in Birmingham, will be known as Lion Park and will house a 2 million sq ft industrial and distribution hub. The scheme will comprise mainly warehouse space, including a shed of 1 million sq ft, together with refurbished offices of 40,000 sq ft and 30,000 sq ft and hotels and leisure space. IMI will lease back a 90,000 sq ft factory for 15 years at a rent of $8.80 per sq ft, an indicative rate for prospective tenants.
Leading business park developer Arlington Securities has sold 10 per cent of its UK portfolio, comprising Coventry and Hatfield business parks and office and distribution buildings at Farnborough and Swindon, to Bahrain-based Gulf Finance House for $112 million. The sale marks a shift in investment strategy for Arlington, which has built up a UK property portfolio worth over $1.1 billion and feels the time is right to start trading assets to fund its future expansion. The company plans a big push into Europe over the next five years, intending to fund overseas growth by means of limited partnership deals.
In Manchester, planning permission has been granted for a 107,000 sq ft office scheme opposite the Trafford Centre at Trafford Quays. The eight-storey building, on a 4.5-acre site, is due for completion in March 2004 and will spearhead regeneration plans for the area. In London, conservation body English Heritage has given approval for a 43-storey tower at St. Botolph Street in the City financial district, near the Tower of London. The 1 million sq ft building has been designed by leading British architect Sir Nicholas Grimshaw.
The number of new tower buildings proposed for London has increased dramatically in the past couple of years and, for the first time, the British Council for Offices has published a guide for developers, aimed at minimising the time, trouble and expense involved in gaining planning permission for such projects. The guide, Tall buildings in London: Guidance on planning, includes advice on environmental statements, urban design, heritage and protected views, transport, hydrology, ecology, construction, contamination, archaeology and impact on the community.
West Midlands invests in business premises
Advantage West Midlands, the Regional Development Agency for the West Midlands area, has announced $1.3 million in new funding to help develop local business parks and industrial estates. Among the sites to benefit are the Silverend Business Park in Dudley, where environmental and landscaping improvements will be carried out, and the Four Ashes Industrial Estate in South Staffordshire, where land reclamation work will continue on a final remaining plot. This will be developed to provide 13 industrial units, comprising 15,600 sq ft of space for new and small businesses. The RDA has also declared its support for major regeneration plans at Hill Top in Wednesbury, in the heart of the Black Country. This will involve a complex programme of initiatives and, it is hoped, will attract a diverse range of inward investment to the area.
In Coventry, one of the region’s leading cities, the local council has approved plans for the third phase of Coventry University’s technology park. The development, on the site of a former Rolls-Royce factory, will comprise 10 business units, together with parking areas, landscaped grounds and an access road.
The city has also attracted a number of new investors. TUI UK, which is part of German travel company TUI, has bought a 50,000 sq ft office building on the Westwood Business Park to house 800 workers in a new shared service centre, along with its new media, IT, business design and customer service departments. The company plans a second phase for the second half of the year, with more staff moving to a 50,000 sq ft building on an adjoining site. TUI is the world’s largest package holiday group, with 200 travel companies across 16 countries. Its UK brands include Thomson Holidays, Britannia Airways and Lunn Poly, which is the UK’s leading package holiday retailer with 800 shops around the country.
US-owned Caldwell Hardware has moved into new UK headquarters at Herald Way in Binley, spending more than $3 million to buy and refurbish the 76,000 sq ft premises. The company makes a wide range of hardware products, largely for the window industry, and will employ 80 staff at its Coventry manufacturing base. Meanwhile Danish-based Abena, which produces and distributes healthcare products, has become the first tenant at the city’s new Swallow Gate Business Park. The company has taken three units with a total floorspace of 20,000 sq ft, which it will use as a distribution hub.
Port and airline capacities to expand
The Port of Felixstowe in Suffolk, Eastern England is to expand its deepwater container capacity, with the construction of a new terminal on a site formerly used by P&O North Sea Ferries for ro-ro operations. The plan, which also includes the redevelopment of the redundant Old Dock Basin and upgrading of existing container facilities, is in addition to the recently announced expansion of the port’s Trinity Terminal. The redevelopment will increase the length of deepwater container quay at Felixstowe by almost 1,000 metres which, together with the 2,500 metres at the Trinity Terminal, will give a total of nearly 4km of quayside. The port’s capacity will grow by 1.5 million teu to 5.2 million teu per annum, and it is likely to recruit 300 new workers on top of its existing workforce of 2,600.
German carrier Air Berlin has launched a new daily service from London Stansted Airport to Hanover, its seventh route between Stansted and Germany. The airport, to the north-east of the capital, is now a major gateway for travel to Germany, which is the UK’s biggest business market after the US. Other airlines operating services to 16 German destinations include Cirrus Airlines and Germanwings of Germany and UK-based low-cost carriers Buzz, easyJet/go and Ryanair. Ryanair meanwhile will start operating services from Stansted and Luton to Bergamo in Italy in February, together with a new service to Barcelona-Girona in Spain.
Around the regions
The Lancashire West Partnership (LWP) has launched a new website, at www.lancashirewest.org.uk, in a bid to attract new investors. LWP is a partnership between eight local authorities in the Lancashire area of North West England and Lancashire County Council. Leading companies in the area include Reebok, Johnson & Johnson, Leyland Trucks and BAE Systems. The site allows businesses to make online enquiries and search by sector for suitable business premises, as well as offering a wealth of general information about the area. East Lindsey District Council in Lincolnshire, Yorkshire and Humber, meanwhile has launched a similar site for local businesses; access it at: www.eastlindsey.biz.
Simrad UK, a subsidiary of the Norwegian group Kongsberg Marine, has opened a new sales and service facility at Mylor Harbour, near Falmouth in Cornwall, South West England. The facility will sell, service and install Simrad electronic equipment for local fishing, commercial and leisure marine customers.
Ashland Specialty Chemical Company, a division of Fortune 500 company Ashland Inc of Covington, Kentucky, has expanded its manufacturing facility at Kidderminster in the West Midlands, which produces pressure-sensitive adhesives for the graphics, tape and label markets. The company supplies speciality chemicals worldwide and, apart from adhesives, serves industries such as the automotive, composites, merchant marine, paint, paper, plastics, semiconductor and water treatment sectors.
Citect of Australia, which specialises in industrial automation and information management systems, has acquired its former UK distributor, Automation Products of Birmingham in the West Midlands, and will rename the company Citect Ltd. Citect is one of the top five multinational technology companies in Australia and works with more than 85 per cent of Australia’s leading manufacturers.
DSP Group of Santa Clara, California, has opened a European sales and marketing office in Livingston, Scotland. The company provides short-range wireless products and telephony solutions based on technologies such as digital 900MHz, 2.4GHz, DECT and Bluetooth, for residential, business and automotive applications.
Italian labelling specialist Kosme has established a wholly owned subsidiary in Burton-on-Trent in the West Midlands, after operating for several years in the UK through agency representation. Kosme UK will offer service and spares for existing Kosme labelling machines, and will undertake site evaluation and supply new equipment.
Magna Kansei Ltd (MKL), the car component manufacturer founded in 1990 by Magna of Canada and Calsonic Kansei of Japan, is to expand its injection moulding operations at its plant in Sunderland, North East England by 20 per cent. It will also expand its assembly capacity at its nearby Washington plant. The expansion plan calls for the installation of five new moulding machines and equipment to assemble car cockpit modules, and will create up to 96 new jobs. MKL supplies components to leading car manufacturers such as Nissan, BMW, Land Rover, Jaguar, General Motors and MG Rover.
Italian firm Sogefi Filtration, which makes air filters for the automotive industry, is investing $6 million in an expansion of its manufacturing operation in South Wales, preserving 400 local jobs. The company, which has been operating in Wales for 50 years, will move from its old premises in Abergavenny to a new 163,000 sq ft factory on the Crown Business Park at Tredegar.
Spanish steelmaker Celsa has acquired the assets of Welsh company Allied Steel and Wire, which went into receivership last July due to poor steel prices. The Barcelona-based company will restart steel production in the Welsh capital Cardiff, in a move that could save 600 jobs.
Development company Priority Sites, jointly owned by the government regeneration agency English Partnerships and the Royal Bank of Scotland, is undertaking a $3 million industrial development on the site of the former Agecroft Colliery in Salford in North West England, three miles from Manchester city centre. Three high-specification factory units - of 10,000, 15,000 and 20,000 sq ft - will be completed by summer 2003, along with office space, parking and loading areas and private service yards.
Law firms Faegre & Benson of Minneapolis and Hobson Audley of London have merged, after five years of multinational partnership. Hobson Audley, established 20 years ago, will serve clients as the London office of Faegre & Benson, under the name Faegre Benson Hobson Audley. The firm specialises in corporate finance, dispute resolution, innovation and technology, employment law and real estate.
New York-based law firm White & Case has decided against a move to Canary Wharf in Docklands in east London and will instead take 97,000 sq ft of space at Lion Plaza at 1-8 Old Broad Street in the City, which has been developed by a Singaporean company. The firm, which is more than doubling its London office space, will pay around $75 per sq ft for its new premises, though this comes with a tailored incentives package.
The government has abolished the 20-member limit on partnerships, leaving such enterprises free to expand and develop their membership as they like. Previously, partnerships had to apply for special exemption if they wanted to have more than 20 members, but the DTI has decided to scrap this requirement as "outdated".