March 2006

News

UK was world’s biggest recipient of FDI in 2005
The UK led the way in 2005 as a 29 per cent increase in worldwide flows of foreign direct investment (FDI) brought an end to a four-year slump, according to the United Nations Conference on Trade and Development (UNCTAD). Global FDI surged to $897 billion, with developed countries seeing inflows rise from $415 billion to $573 billion, an increase of 38 per cent. The bulk of the increase was down to the UK: for the first time since 1977, the UK was the biggest destination for FDI worldwide. It recorded inflows of $219 billion for the year, twice as much as the US and the highest figure ever recorded for a European country. The US recorded $106 billion in 2005, and China was third with $60 billion.

A large part of the increase in UK investment was down to a single deal – the $100 billion merger of Shell Transport and Trading and Royal Dutch Petroleum to form the Dutch-registered Royal Dutch Shell. Other big mergers and acquisition (M&A) deals included Saint-Gobain of France’s acquisition of BPB plc for $6.8 billion and Deutsche Post’s purchase of Exel for $6.6 billion. There were a total of 233 transactions that involved overseas companies purchasing UK firms, with a total value of $87 billion, up from $52.2 billion in 2004 and close to the record levels of 1999-2000. Acquisitions by British companies abroad rose from $33 billion to $53.9 billion.

M&As worldwide, including cross-border activity, increased by 40 per cent in 2005, amounting to around $2.9 trillion, and buoyed by higher share prices. However, there were also other factors at work. Growth in FDI was underpinned by rising profits and a favourable business climate. FDI to the EU-15 countries, boosted by the UK’s contribution, grew 76 per cent to $408 billion, while investment into the 10 new EU member states rose by 36 per cent to a record $38 billion. Inflows to developing countries increased in all sub-regions, rising by 13 per cent to an estimated $274 billion, following an increase of 41 per cent in 2004.

Raw FDI figures do not always tell the full story, as M&As do not necessarily add much in concrete terms to the economy, but overseas firms are continuing to make real and tangible investments in the UK. In January 2006 alone, ten foreign-owned firms made major announcements. As ever, companies from North America led the way. Communications companies Sigma of Canada and Widevine of Seattle, US opened new offices in London and Cambridge respectively. Interactive Clinical Technologies Inc (ICTI) of the US is expanding its facility in Craigavon, Northern Ireland, while Amgen, the world’s largest biotech company, is expanding in London and Cambridge (see Regional News below).

California-based biopharmaceuticals company BioMarin is establishing a commercial operation in London, while Japanese pharma giant Eisai is integrating its operations at a new European base in Hertfordshire. Other US-based companies to invest in January included technology researcher ABI Research, Hyperfeed Technologies (a provider of ticker plant technologies and data services to the financial industry), and International Power Group, a waste management and energy group, which has set up an office in London to explore emerging opportunities in this area. Esinger, a German plastics distribution and precision engineering company, is opening a new $9 million headquarters at Tonyrefail in South Wales.


Software review promises to improve productivity figures
The UK’s productivity figures are set to improve with changes in the way that business investment in software is measured. The Office for National Statistics admits that in the past it has seriously underestimated the contribution of software investment in business, as it had been using outdated assumptions based on old Department of Trade and Industry (DTI) surveys of the computer services industry. The value of software developed within a company is now thought to be five times higher than previously estimated, and the ONS is set to revise its estimate for such investment in 2003 from $4.4 billion to $22.6 billion.

The new measurements, which take account of current employment surveys to estimate the number of people working in the software industry, will improve the UK’s figures for economic output, business investment and prosperity. It is thought that they will boost GDP by 1 per cent for 2005 (more than half the level of economic growth in that year) and will push annual growth rates upwards by about 0.1 per cent for all years since 1992. They will also put the UK’s total investment in software on a par with other countries, more accurately reflecting the estimated 1.9 per cent of GDP that the sector contributes to the economy.

Software aside, economic growth in the UK increased at a faster-than-expected rate in the fourth quarter of 2005, led by a strong services sector, according to the ONS. GDP grew by 0.6 per cent, its fastest quarterly rate for a year. This was up from 0.4 per cent in the third quarter, and exceeded analysts’ predictions of 0.5 per cent. However, GDP growth for the full year 2005 amounted to just 1.8 per cent, the weakest since 1992, with the UK’s total output for 2005 estimated at $2.03 trillion. This relatively weak performance has allowed China to overtake the UK in the world economic rankings. Official figures put China’s GDP at $2.24 trillion in 2005, elevating it to fourth place behind the US, Germany and Japan, and pushing the UK down a place into fifth spot. China’s emergence as an economic powerhouse is one of the reasons for the continuing decline of the UK’s manufacturing sector, which marked a 0.8 per cent fall in output in the fourth quarter of the year.

The UK also ranks fifth in the world in terms of environmental performance, according to a study from Yale and Colombia universities. The Environmental Performance Index (EPI) identifies specific targets and assesses how close each country comes to meeting them. The UK scores highly in terms of the British public’s strong commitment to environmental protection. A recent study by the University of East Anglia found that 62 per cent of people in the UK believe that ‘every possible action’ should be taken to limit climate change. The UK also has robust policies aimed at promoting environmental protection and continues to see strong growth in the renewable energy sector.


Sports and culture make strong contribution to the economy
The University of Nottingham, in the East Midlands, has been declared ‘Outward Investor of the Year’ by one of Britain’s leading business associations for the promotion of trade with China. The 48 Group Club – which dates back to the 1950s and has more than 300 members from the worlds of politics and business – made the award in recognition of the opening of the University of Nottingham China in the city of Ningbo, in Zhejiang province. The first western campus in China, Nottingham Ningbo is a joint venture with Zhejiang Wanli University and the Wanli Education Group. It offers degree programmes taught in English, to the same quality standards as Nottingham University itself, which is ranked among the world’s top 100 universities by the Times Higher Education Supplement. The $34.8 million campus has facilities for 4,000 students, and has already enrolled 1,000. The award was presented at a special Chinese New Year dinner held at the Guildhall in the City of London.

Culture is becoming an increasingly important factor in where companies decide to locate their overseas operations, according to a report by the London-based Communication Group. Although their first concerns are ‘hard’ factors such as tax incentives, labour costs and access to markets, companies are finding it more difficult to differentiate between cities solely on the basis of such considerations and increasingly are being influenced by ‘soft’ factors, such as a city’s architecture, cultural attractions and climate, says the report. This means that established recipients of FDI such as London, New York, Paris and Hong Kong are facing a growing challenge from locations such as São Paulo, Toronto, Cape Town and Doha. The report highlights the contribution to inward investment potential of cultural attractions, singling out examples such as the Opera House in Sydney and the Wales Millennium Centre in Cardiff. It also challenges the concept of locations promoting themselves as ‘knowledge economies’, arguing that in general this is an idea that has failed to catch the imagination of investors.

London, one of the leading cultural centres in the world, has seen an upsurge in activity in the film industry, following last year’s more generous than expected tax breaks, which were designed to encourage film production in the UK. Film London, the coordinating body for the industry, reports an increase of almost 20 per cent over the past year in the production of films, TV series, documentaries and commercials. London is now the third most popular film location the world, after Los Angeles and Manhattan, and there are at least 35 crews shooting each day in the capital. Amongst recent big-money productions are Warner Brothers’ V for Vendetta, shot in Whitehall, and the soon-to-be-released screen version of Dan Brown’s The Da Vinci Code, which spent around $35 million shooting at Central London locations such as Westminster Abbey, Fleet Street and the Temple Church.

Sport is also big business in the UK, and there is already a big stir around the 2012 Olympic Games, which will be hosted by London. Now Manchester in North West England is celebrating the capture of two major sporting events. First the city will host the 2007 European Hockey Championships at its Belle Vue facility, originally built for the 2002 Commonwealth Games. Taking place in August 2007, the event will feature the top men’s and women’s teams from across Europe, and will provide a direct qualifying route for the Beijing Olympics. In 2008, Manchester will welcome the World Squash Championship, sponsored by Hi-Tec – the biggest event in the sport’s calendar. The city’s National Squash Centre will stage both the men’s and women’s events from 11-19 October 2008, which are expected to attract top players from more than 40 different countries.

Liverpool is also gearing up for major sporting action, with golf and cycling on the agenda. This July, the Royal Liverpool Golf Club in Hoylake hosts the Open Championship for the first time since 1967. The city is expecting an influx of some 200,000 visitors and a huge boost to its international profile, due to global television coverage of the event. A report on last year’s Open at St Andrews in Scotland estimated that the local economy was boosted by some $125 million as a direct result of it hosting the event. Liverpool is also set to host the finale of the prestigious Tour of Britain cycling event in 2008, the year the city becomes European Capital of Culture. Liverpool is included on the race route for the first time this year. In 2008 it will stage the closing circuit race through its city streets, a final stage that until now has been held in London.

Science parks look to broaden their horizons
The UK Science Parks Association (UKSPA) has raised its profile over the past few years, forging relationships with a range of different partners and developing its brand strategy. The organisation now boasts a new logo, and has announced a new sponsorship deal with Insurance Management Group (IMG) that will give members access to a range of risk management, insurance broking and financial services tailored to their needs. UKSPA has also signed up to the World Alliance for Innovation (WAINOVA), an international initiative that aims to unite members of the science park movement around the world in their dealings with international organisations and governments.

Bionow, the Northwest Regional Development Agency’s biotechnology cluster group, is investing $870,000 towards new equipment at the Wolfson Molecular Imaging Centre (WMIC) at the University of Manchester. WMIC, the first purpose-built facility of its kind in the world, is set to become an international centre of excellence in developing treatment for cancer and brain disorders. It uses Positron Emission Tomography (PET) to provide imaging for cancer and neuroscience research, and will help to develop drugs to combat such illnesses.

The Scottish Crop Research Institute (SRCI), based in Dundee, has upgraded its IT infrastructure, with a new document management system that will increase its efficiency and allow it to undertake more international collaborative contracts. The SRCI is one of five Scottish agricultural and biological research institutes that, together with those of the Biotechnology and Biological Sciences Research Council, form the UK’s agricultural and food research service. According to Scottish Enterprise, Scotland is home to 15 per cent of the UK’s life sciences industry, with 550 organisations employing a total of more than 26,500 people.


Funding provides boost for engineering initiatives
A five-year project at Manchester University aims to develop new light alloys that will transform the construction of aircraft, trains and cars. The Light Alloys for Environmentally Sustainable Transport project hopes to develop new engineering processes that will allow the automotive and aerospace industries to produce lighter and more environmentally friendly vehicles. The project, the largest of its kind in the UK, will focus on new methods for the forming, joining and surface engineering of aluminium, titanium and magnesium. It is supported by a grant of $10 million from the Engineering and Physical Sciences Research Council, and will involve the work of more than 50 researchers.

A new national research centre that will play a crucial role in ensuring the safety of engineering materials and components has opened in Port Talbot, South Wales. The Non Destructive Testing (NDT) Validation Centre has been set up in response to demand from engineering industries of all kinds for independent evaluation of existing NDT procedures. It will be run by leading research and technology organisation TWI, from its base at the nearby ECM2 centre. NDT techniques are used to assess the safety of structures and to detect flaws that could lead to catastrophic failure. It is used in many different areas of engineering, ranging across fabricated items such as buildings, bridges, power plants and electronics. The new NDT centre will use the latest technology to detect even the tiniest of flaws and cracks in a structure before it is put into use.

A consortium of marine and environmental research organisations in South West England has been awarded a grant of almost $1.4 million by the DTI to help turn their ideas into commercial products. The consortium, led by Plymouth Marine Laboratory, includes companies engaged in marine and environmental technologies, healthcare and tourism, all of which are vital to the region’s economy. For example, the Centre for Observation of Air-Sea Interactions and Fluxes (CASIX) and satellite technology company Dartcom are working together to produce a device for measuring changes in carbon dioxide levels in the environment. The government funding has been made available under the third round of the Public Sector Research Exploitation Fund.

Seven-times Le Mans winner Tom Kristensen gave Audi’s new Shell diesel-powered challenger, the R10, its first public outing in Paris, June 2005. Picture by: Shelll

Oil giant Shell has teamed up with car company Audi Sport to develop a prototype diesel car capable of winning the famous Le Mans 24-Hour race, regarded as the toughest motor race in the world. Shell’s V-Power Diesel technology will be put to the test in the 2006 event, which takes place in north-west France on 17 June. The advanced fuel, which uses Shell’s synthetic GTL (gas to liquid) technology, is already available to motorists through more than 3,000 of Shell’s service stations. The key R&D work to develop the fuel was undertaken by Shell Global Solutions UK, based in Chester, North West England. The collaboration with Audi will see a diesel-driven Audi R10 line up for the race alongside some of the world’s fastest petrol-engine cars.

Commercial rents on the rise as government revises planning rules
Prime rents across all sectors of the commercial property market increased by an average of 4.1 per cent in 2005, compared with 3 per cent in 2004, according to the February 2006 Marketbeat report from consultants Cushman & Wakefield Healey & Baker. Rents in the office market rose by 4.4 per cent across the UK, with areas such as London, Scotland and the South East recording strong growth while others – such as Wales and the cities of York and Cambridge – reported a decline in demand. In London, the City outperformed the West End for the first time in four years, with quarter-on-quarter growth of 2.5 per cent. Nevertheless, take-up in the West End doubled in the final quarter to 1.5 million sq ft, accounting for 40 per cent of its total for the year. Certain sub-markets in the capital saw especially high growth in occupier demand, including Covent Garden (18.8 per cent) and Knightsbridge and Fleet Street (both 14.4 per cent).

City of London

Countrywide, rental growth in the industrial sector was 4.4 per cent for the year to December, its highest level since the second quarter of 2000 and higher than the ten-year average of 3.5 per cent, according to the report. Growth was underpinned by the retail market and was at its strongest in Wales (14.5 per cent), Yorkshire and Humber (14.3 per cent) and the South West (9 per cent). Tenant demand remained particularly strong for warehouse accommodation.

Another survey, by the Confederation of British Industry (CBI) and property firm GVA Grimley, indicates that corporate landlords are becoming ever more responsive to the needs of their tenants. Only 11 per cent of respondents felt that landlords were unwilling to offer flexible terms on leases, compared with nearly a third five years ago. Landlords appear to better understand the importance of partnership with their occupiers, and to be more willing to consult with them to improve levels of service over the long term, according to the survey.

The Office of the Deputy Prime Minister has recently announced a series of pilot projects aimed at speeding up the planning process for large property developments. The so-called ‘planning delivery agreements’ are designed to reform the current system whereby local councils are obliged to process 60 per cent of their applications within 13 weeks to qualify for planning delivery grant funding. It is hoped that the new scheme will spare large schemes the 13-week rule and give developers more certainty of gaining approval for their schemes.

The government is also currently undertaking a consultation exercise to review the areas of the UK that qualify for grant assistance to help boost competitiveness. At present, Cornwall in the South West, West Wales and the Valleys and the Scottish Highlands and Islands are the areas that qualify for Assisted Area Status and European convergence funding (previously known as Objective One funding). Northern Ireland also receives 100 per cent coverage and will continue to do so. A revised Assisted Area Map should be ready some time in the summer.


Freight volumes still growing at UK ports
The Department for Transport has published a new report, Focus on Ports 2006, that provides comprehensive statistical information on commercially active ports in the UK. The publication, an update of a report that originally appeared in 2000, gives information about individual ports, breaks down cargoes according to type and commodity group, and traces trends in cargo traffic back to the 1960s. There are more than 650 ports in the UK for which statutory harbour authority powers have been granted, of which around 120 are commercially active, according to the report. These range from major facilities such as the Port of London to small harbour trusts responsible for individual piers and quays. Between them, they employ 74,000 people.

Around 95 per cent of the UK’s international trade by volume, and 75 per cent by value, is transported by sea. In 2004, total UK imports across all modes of transport were worth $433.2 billion and exports were valued at $332.3 billion, meaning that ports handled goods worth around $574.2 billion. The UK ports industry is the largest in Europe in terms of freight tonnage, handling a total of 573 million tonnes of foreign and domestic traffic in 2004. In 2004 there were also 27 million international journeys by ferry and cruise ship passengers to and from the UK and 23 million passengers using domestic crossings.

The annual tonnage handled by UK ports grew steadily by an average 1.3 per cent a year between 1980 and 2000. Growth has been particularly strong in container and ro-ro traffic, which have averaged growth of 5 per cent and 3.5 per cent respectively over the past decade. Tonnage is concentrated in a relatively small number of ports, with the top 15 ports accounting for almost 80 per cent of total traffic. Grimsby & Immingham on the Humber is the largest UK port, and the sixth largest in Europe. It is followed by Tees & Hartlepool and London. The majority of container traffic – some three-quarters – and around a third of the total tonnage are handled by ports in the South East, according to the report.

Felixstowe is expanding, while Grimsby & Immingham remains the UK’s largest port

Rising trade volumes mean that one of the UK’s leading port operators, Hutchison Ports (UK), a subsidiary of Hong Kong-based Hutchison Port Holdings, is looking to redevelop two key port gateways. The company has received government approval to reconfigure part of the Port of Felixstowe in Eastern England, the UK’s leading container port. The existing Landguard Terminal and part of the original dock will be developed into a new, deep-sea container terminal capable of handling the very largest container ships, which previously have had to use ports on the European mainland to tranship goods on smaller vessels to the UK. The redevelopment will add a further 1km of quayside dedicated to handling containers at Felixstowe. Hutchison is also waiting on approval to build a deep-sea container terminal at Bathside Bay in Essex. This terminal will consist of 1.4km of continuous quay capable of handling deep-sea vessels, on a 274-acre site adjacent to the existing port of Harwich.

On the rail network, approval has been given to fit out a new passenger station on the Thameslink line at Kings Cross St Pancras, which will replace an existing station at Kings Cross. First-phase construction was completed in May 2005, and the station should open to passengers by the end of 2007.


UK overtakes France to set the pace in broadband take-up
The UK has overtaken France to become the country in Europe with the most broadband lines. According to analyst firm Point Topic, the UK now has 9.8 million broadband lines, compared with France on 9.7 million and Germany in third place with 8.4 million. The firm says that the key to the rapid growth in broadband take-up in the UK has been the unbundling of local telephone exchanges. “Until now the UK has lagged behind in the unbundling of telephone lines and by the end of September [2005] there were over 2.5 million unbundled lines in France, but only 122,000 in the UK,” said its report. “But processes for transferring existing customers in bulk to unbundled lines have now been developed and tested with ‘right first time’ rates of better than 99 per cent.” Point Topic estimates that by the third quarter of 2006 the number of unbundled lines in the UK will have exceeded 1 million and could rise to 1.5 million by the end of the year.

Meanwhile a London-based technology and marketing firm, How Much Software, has introduced a new service that allows mobile phone users to see the cost of their call in real time on their handsets. The company derives its name from the question frequently asked by subscribers when larger-than-expected mobile phone bills arrive, or when pay-as-you-go credit unexpectedly expires. It claims its service, the first of its kind, will help solve the problem for millions of users.


Regional news
Leading US voice solutions provider Envox has set up a regional EMEA headquarters in Fleet in Hampshire, South East England. The site will provide a base for the company’s sales, marketing and technical support, along with customer education and training activities, throughout the EMEA region. The location provides easy access to London and also to numerous locally-based software and IT firms, including value-added resellers (VARs). In January the company established a base in Singapore to cover the Asia-Pacific region. Relegence Corporation, a US provider of real-time automated intelligence to the financial services industry, has set up a new European HQ in London.

Amgen, the world’s largest biotechnology company with 14,000 employees worldwide, is to set up a new European Development Centre in west London and expand its operations in Cambridge, Eastern England, where it has had a presence for 15 years. The expansion will almost double the California-headquartered company’s R&D capacity in the UK and will create more than 300 new skilled jobs. Amgen has already taken on 100 new staff in Cambridge over the past year. The 85,000 sq ft centre at Uxbridge Business Park will coordinate development programmes for new products in areas such as cancer and osteoporosis. Its location puts the company at the heart of a cluster of bio-pharma companies in the west London area.

Inion, a fast-growing developer of novel biodegradable medical implants, has opened its European Technical Centre (ETC) at the Cambridge Science Park in Eastern England. The centre, headed by Prof Franz Weber of the Clinic for Cranio-Maxillofacial Surgery at the University Hospital, Zurich, will focus on R&D for the company’s Optima range of next-generation bioactive materials, which stimulate bone growth and accelerate healing. Inion ETC expects to spend $18-24 million on R&D over the next three to four years.

Eisai, Japan’s fourth largest pharmaceutical company, is to set up a new European base at Hatfield Business Park in Hertfordshire, Eastern England. The $130 million facility will bring together all of the company’s European operations – R&D, manufacturing, sales and marketing – on a single site. Eisai has operated a research facility at University College London since 1991, where it has discovered a new compound that is currently undergoing clinical trials. Hertfordshire has its own cluster of biotech and pharmaceuticals companies, upon whose expertise the new business unit hopes to draw.

Buchen-ICS Group of Germany has opened an office in Scunthorpe in North Lincolnshire, Yorkshire and Humber. The company has eight operations across Europe and numerous customers around the world. It works in the field of catalyst handling and also offers a range of related mechanical services.

German-owned ZF Great Britain Ltd, an automotive components company based in Nottingham in the East Midlands, has received a grant from RDA East Midlands Development Agency (emda) that will enable it to carry out work previously undertaken in Germany by its parent company. The Selective Finance for Investment in England (SIFE) grant of $426,000 will enable the company to extend its premises and purchase plant and machinery to modify gearboxes, axles and steering gear for cars, buses, trucks and other vehicles. ZF has been based in Nottingham for over 30 years and currently employs 180 staff at its Abbeyfield Road base.

Another German-owned company, Bott Ltd, is expanding its premises at Ashby de la Zouch in Leicestershire in the East Midlands, creating 20 new jobs. The company is the UK’s leading manufacturer and installer of in-vehicle storage equipment, primarily for light commercial vehicles. Recently it won a contract to supply British Telecom’s fleet – the largest telecoms company fleet in Europe – with vehicle racking and storage systems for its customer services vehicles. Bott, which currently employs 130 people, has purchased five acres of land adjacent to its existing facility on the Tournament Way Industrial Estate, which will give it additional storage space.

European aircraft builder Airbus is to expand its wing-making factory at Broughton in Flintshire, North Wales, creating 650 new jobs. The Welsh Assembly is supporting the expansion with a grant of $9 million. The Airbus plant is already the largest manufacturing facility in Wales, with a workforce of 6,000 people. It is boosting production to tackle a backlog of orders for 2,000 aircraft, having already increased deliveries by 18 per cent to a record 378 aircraft last year. The plant will share production of lightweight carbon wings for the Airbus A350 with the company’s site at Filton near Bristol. Launched last year, the A350 is due to enter service in 2010. Broughton already produces wings for the A380 super-jumbo, which carries 800 passengers and had its maiden flight in April 2005.

Three manufacturing companies are to invest a combined total of $19.1 million in new facilities in Bridgend, South Wales, creating more than 200 new jobs and safeguarding a further 100. Days Healthcare UK Ltd, part of Irish-based services support company DCC plc, already manufactures rehabilitation and mobility aids in the town. It has decided to establish its European headquarters in Bridgend in preference to expanding another subsidiary in Germany, and will move to larger premises at Bridgend Industrial Estate. Furniture maker Steinhoff UK Upholstery, part of a global South African group that employs 500,000 people worldwide at 90 sites, will re-establish design and manufacturing functions at the former Pendragon factory on the same estate, investing a total of $5.6 million and creating 120-150 jobs. Also moving to larger premises on the same site is software/graphic developer Astra Games, part of the Austrian-owned Novomatic group. It will add 50 jobs to its existing 90-strong workforce. All three investments are being supported by Regional Selective Assistance (RSA) grants from the Welsh Assembly.

German software giant SAP, the world’s leading provider of business software solutions, is to set up its first UK research centre in Belfast, capital of Northern Ireland. The company, which employs 30,000 people in more than 50 countries and which has an annual turnover of $7 billion, will invest $3 million in a centre that will carry out research in the emerging field of grid computing. The investment is being supported by Invest NI via its Start programme, which aims to increase the amount of industrial research undertaken by companies, either independently or in partnership with local universities.

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