October 2006

News

UK ranks best in Europe on ease of doing business
The UK ranked sixth in the world in terms of ease of doing business in 2005/06, according to Doing Business 2007: How to Reform, the fourth in a series of annual reports from the International Bank for Reconstruction and Development and the World Bank. Bested only by Singapore, New Zealand, the US, Canada and Hong Kong, the UK ranked highest of all 25 European Union countries. Only Denmark and Ireland made it into the world top ten, while other major European players fared much worse: Germany and the Netherlands ranked 21st and 22nd, France 35th, Spain 39th and Italy a lowly 82nd.

The report investigated regulations that enhance business activity and those that constrain it in 175 economies around the world, from Afghanistan to Zimbabwe. It presents quantitative indicators on business regulations and the protection of property rights and uses them to analyse economic outcomes and to determine what reforms have worked. It covers ten areas of regulation affecting everyday business: starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. A positive score indicates that the government concerned has created a favourable regulatory environment.

Singapore became the most business-friendly country in 2005/06, with New Zealand and the United States the runners-up. Georgia was the top reformer over the year, and climbed from 112th place in 2004 to 37th as a result. It was followed by Romania, Mexico, China and Peru. By region, Eastern Europe, Central Asia and Africa did the most to improve their business climates. Many reforms that have had a beneficial effect are relatively simple – such as the introduction of computerised tax returns or cargo declaration forms.

The report found that the UK was the easiest country in the world in which to get credit and one of the easiest in which to start a business. It has a good record on protecting investors and, apart from Hong Kong, has more legal rights for borrowers and lenders than any other country. It was also highly rated for having a small number of procedures for enforcing contracts and regulating property registration. British businesses make an average seven tax payments a year, one of the fewest in the world, and the UK is one of the easiest places in the world in which to liquidate a business.

However, the World Bank suggested that the UK could cut red tape by 15 per cent and that this would free up resources to increase jobs and public investment, such as health spending. Britain spends 10 per cent of its budget on regulating business, compared with 8 per cent in Sweden. More details on the report and the Doing Business Project are available at: www.doingbusiness.org


Government guarantees ‘light touch’ regulation for LSE
The government is planning to introduce legislation to ensure that ‘light touch’ regulation of the London Stock Exchange (LSE) will continue in the event of a takeover, according to Ed Balls, economic secretary to the Treasury. The LSE has been the target of a number of takeover bids in the past few years, all of which it has rejected. The latest was from US-based stock market Nasdaq, which has accumulated a 25.1 per cent stake in the LSE. There have been concerns that if Nasdaq were to gain control, the LSE would then be subject to more rigorous US regulations, such as those contained in the Sarbanes-Oxley Act – which a number of US firms have cited as a reason for moving their listings to London.

Mr Balls stressed that the government was neutral on the question of who actually owned the LSE, but said that the new legislation would give the UK regulator, the Financial Services Authority, the power to veto any changes that would affect the “pivotal economic role” played by exchanges in both the UK and EU economies.

Meanwhile, leading professional services firm Ernst & Young has warned that more multinational companies could find themselves facing litigation over ‘transfer-pricing’ policies as Revenue & Customs adopts a tougher approach to the tax treatment of intra-company transactions. Globalisation has increased the importance of transfer-pricing rules, which determine how taxable profits are split between different parts of a multinational. According to the Organisation for Economic Cooperation and Development (OECD), internal transactions by multinationals account for more than half of all world trade.

A survey by E&Y found increased scrutiny of transfer-pricing in more than 30 jurisdictions around the world. Countries with longstanding rules, such as the UK, Canada and New Zealand, are currently stepping up their enforcement efforts, while other countries, including China, Turkey and Israel, are introducing new legislation.


Outlook for manufacturers continues to improve steadily
Manufacturers’ orders were at their highest level for 20 months in August, driven by increased domestic demand, according to the latest Industrial Trends survey by employers’ organisation the Confederation of British Industry. The CBI said a balance of just 8 per cent of manufacturers reported that orders were below normal, compared with 11 per cent in July – the best performance since December 2004. The improvement was due largely to stronger domestic demand for capital goods such as shipbuilding, aerospace and industrial machinery, as well as a strong showing by consumer goods. Exports, however, seemed to have stalled, a fact that some analysts have attributed to growth peaking in the eurozone, the UK’s main export market.

Output grew for the third consecutive month in July, by 0.2 per cent compared with June, and by 0.9 per cent in the three months to July, according to the Office for National Statistics (ONS). The main boost, said the ONS, came from chemicals, machinery and equipment. Although manufacturing output was 1 per cent higher than in July 2005, industrial production fell by 0.4 per cent. This followed a big decrease in the output of the energy extraction sectors, especially the mining industries.

All this means that manufacturers’ plans for investment are at their highest level for nine years, according to another survey, the third-quarter engineering outlook by manufacturers’ organisation EEF. In a further piece of positive news, in early September the Paris-based OECD revised its forecast for UK growth in 2006 upwards to 2.8 per cent, from the 2.4 per cent it was projecting in May. The organisation predicted that the UK economy would grow by 0.8 per cent in the third quarter of 2006 and by 0.7 per cent in the fourth.


Training initiatives promise to widen skills base
Plans for new National Manufacturing Skills Academy are taking shape, with a possible launch anticipated in October. The creation of the academy was a pledge in the Labour government’s last election manifesto, and it is thought that the Learning and Skills Council is close to approving a business plan. The academy – which will probably be based in the West Midlands – will be aimed at sectors such as automotive, aerospace, marine, metals and electrical industries, and will take over the role of the existing Automotive Academy, which has been widely praised for improving standards in the car industry.

The new body will be charged with ensuring that UK training programmes are globally competitive. It will not undertake training itself, but will develop existing networks of private training companies and state providers. A number of private-sector industry partners have expressed their support for the scheme, including Corus, Ford, Rolls-Royce, BAE Systems and aerospace group Cobham.

The UK’s first marine skills centre – the Poole Marine Centre in Dorset, South West England – has smashed its first-year targets by 400 per cent, giving 2,500 people the opportunity to improve their skills in the marine industry compared with a target of 600. The centre has increased the number of apprenticeships available in the Poole area by 25 per cent. The South West England Regional Development Agency has committed $5 million to help develop three such centres across the region, with the others in Falmouth and Plymouth already having started courses. The centres offer training for all levels of employee, from Modern Apprenticeships in Marine Engineering to courses for senior managers.

The government’s new national training programme, Train to Gain, has been rolled out nationwide across England. Administered by the Learning and Skills Council, it gives employers access to a free Skills Broker service, which matches training needs with providers. It is estimated that more than 22,000 individuals and 6,000 employers have already been helped by the $1.9 billion scheme, and that from now on up to 350,000 employees and 50,000 companies will benefit each year. Education Secretary Alan Johnson commented: “Education does not and should not stop when people leave school or college – people must be able to tap into education throughout life, whether it is academic, trade, basic or vocational.”

New age discrimination regulations came into force on 1 October, making it illegal for companies to discriminate against employees (or job applicants) on the grounds of age. The Employment Equality (Age) Regulations 2006 aim to ensure that all employees are treated equally, regardless of age. The regulations apply to all size of business, and employers are being urged to familiarise themselves with the new rules. More information from the DTI website is available at: www.dti.gov.uk/employment/discrimination/age-discrimination/index.html. At the same time, the minimum wage has been increased to $10.00 an hour, with rates of $8.00 for workers aged 18–21 and $6 for 16- and 17-year-olds.


New initiatives launched for range of high-tech sectors
The South West England Regional Development Agency (SWRDA) has taken over lead responsibility for the UK’s aerospace, marine and defence sectors from the North West Development Agency, following a decision by the Department of Trade and Industry (DTI). It is urging companies in the region to contribute to a number of new aerospace projects, including the pioneering ASTRAEA (Autonomous Systems Technology Related Airborne Evaluation and Assessment) programme. This is a collaborative initiative between regional development agencies (RDAs), universities and companies such as BAE Systems, QinetiQ and Rolls-Royce. Its focus is on developing a new generation of unmanned aerial vehicles (UAVs) to operate in civilian airspace, and which will be used for applications such as environmental monitoring and security.

Autonomous research technology at Bristol Robotics Laboratory with representatives from South West RDA; Rolls-Royce, Bristol; University of the West of England; Cobham Air Refuelling, Wimborne; Thales UK, Wells and University of Bath

“The supplier base is vital,” said Stephen Peacock, executive director of enterprise and innovation at SWRDA. “We want to ensure that our investments not only provide support to the key industry players but also benefit the wider economy by involving smaller businesses within the region.”

A new marine science centre is to be built at Lowestoft in Suffolk, Eastern England to house the Centre for Environment, Fisheries and Aquaculture Science (Cefas). The new complex will provide cutting-edge scientific facilities and will create around 80 new jobs. A joint development between Cefas and local council authorities, it will be built to a high environmental specification.

A multimillion-dollar initiative at the University of Birmingham in the West Midlands is expected to help maximise the potential of cutting-edge micro- and nanotechnology. The project, Materials Solutions, is to be launched in January, with $13 million in funding from the DTI and Advantage West Midlands. It will act as a national centre for nanotechnology expertise and will produce prototypes and research that will seek new solutions to business challenges. In the automotive sector, for example, it will help to develop cars that use petrol more efficiently and with cleaner emissions. The DTI is investing a total of $171 million in nanotechnology research, with the aim of making the UK a world leader in the field.
 

	A ground-breaking initiative is aiming to promote collaboration between researchers in the UK and China.
The UK’s Higher Education Innovation Fund and the Chinese Ministry of Science and Technology are providing $10 million apiece to fund a consortium called Innovation China UK (ICUK), which will involve five British universities and at least 20 in China. ICUK will be a research and knowledge transfer partnership that provides a framework for commercial collaborations, from the research phase to the marketplace. The initiative was formally announced on 13 September, following a meeting between Prime Minister Tony Blair and Chinese Premier Wen Jiabao. The UK side of the project will be led by Queen Mary College at the University of London, with the other partners being the University of Nottingham, King’s College London, the Royal Veterinary College and the University of Southampton. Chinese partners include Tsinghua University, Beijing University, Shanghai Jiatong University, Nanjing University and the China University of Science and Technology. Nottingham University already has strong links with China, having opened a new campus in the city of Ningbo, south of Shanghai, in February 2006.
UK even better connected as telecoms network expands China Telecom Europe, the owner of the world’s largest fixed-line communications network, has expanded its London base and launched a full-scale European operation.   China Telecom became the first Chinese telecoms operator to launch in Europe when it set up a London office two years ago. The new base will support its development of a high-speed communications network between Europe and the Far East, called Transit Europe-Asia (TEA). The network, based on fibre-optic technology, will enable China Telecom to provide high-volume routing to all major cities in Europe and Asia, and will be used to offer high-speed transmission of voice, data and video applications. The new operation will be aimed primarily at Chinese companies setting up in the UK, as well as at UK-based companies expanding into Asia. According to the company’s executive deputy general manager, Leng Rongquan, it will form a key element in a new “knowledge-economy version of the Silk Road trade routes between east and west”. The latest quarterly survey by mobile phone firm Orange and the Institute of Chartered Accountants in England and Wales (ICAEW) reveals that most businesses in the UK fully endorse the use of mobile data devices (cell phones, laptops and PDAs) to increase productivity in the workplace, but that many have not yet woken up to the threat posed by mobile data security. Some 79 per cent of UK companies supply mobile data devices to their employees, with engineering and IT firms the biggest users by sector and London the biggest supplier by region. However, 40 per cent of companies reported that at least one employee had lost a mobile data device or had it stolen over the past year, while for 10 per cent of companies the figure was 10 employees or more. Four per cent of companies said they had lost 50 mobile devices in the past 12 months. Two-fifths of companies surveyed thought that the vulnerability of mobile devices posed a threat to company data security, but the same proportion was undecided. “With 700,000 mobile phones lost in the UK last year alone, there are fears that the adoption of smart phones – with all the corporate data they give access to – heralds a new generation of security threats that could put entire companies at risk,” said Clive Richardson, director of products at Orange Business Services. “Managers must realise that security is not only a matter for the IT department, but also for broader corporate and human resources executives.” Almost three-quarters of British households with an internet connection now use broadband, according to the Office for National Statistics. In June, 73 per cent of connected homes were on broadband, compared with 54.4 per cent a year earlier and just 18 per cent in 2003. Dial-up now accounts for just 27 per cent of connections. Around 14.3 million homes in the UK – 60 per cent – are now online. For the first time the figures include Northern Ireland, which accounts for 400,000 connections. The most extensive internet penetration is in South East England, where 66 per cent of households are online, and the lowest is Scotland, with 48 per cent. Broadband take-up has been driven by fierce discounting from companies such as Carphone Warehouse, BT and BSkyB. Mobile operator Vodafone is also looking to get in on the act by the end of the year, using BT’s fixed-line infrastructure to offer bundled packages of mobile and broadband services. It is looking to compete with the likes of Orange, owned by France Telecom, which began to offer broadband services earlier this year, and cable operator NTL, which has acquired the Virgin Mobile brand to expand into mobile telephony. Mobile operators, however, have received a warning shot across the bows from telecoms regulator Ofcom, which plans to cut the prices they will be allowed to charge for connecting calls from rival networks or landlines, when the current regulations expire in March 2007.

The growth of the Mini has seen parent company BMW introduce innovative working practices. Factory workers build the cars to order, according to customers’ specifications, and a third shift has been added so that the company has the capacity to work around the clock, seven days a week. BMW has shifted production of Mini engines from Brazil to Hams Hall near Birmingham in the West Midlands, while body panels and sub-assemblies can be supplied at four fours’ notice from Swindon, the third point of a production ‘triangle’. Sixty per cent of the components for the new car will come from UK suppliers, up from 40 per cent previously.

“The Mini has been an outstanding, international success for the company and our investment will ensure that we can build on this success in the future,” commented Mr Reithofer. “One of our key strengths is our highly committed and flexible workforce.”

Nissan Qashqai, made in Sunderland, on sale in February 2007

Nissan meanwhile plans to invest a further $424 million in its plant in Sunderland, North East England in order to build at least 100,000 sports utility vehicles a year. The project to build the Qashqai SUV, unveiled in Paris in September and dubbed a “crossover compact”, will create 200 new jobs and safeguard a further 1,000 at the plant, which has been recognised for the past decade as the most productive car plant in Europe.

The new compact 4x4 was created by Nissan’s design centre in London, Nissan Design Europe, with the company’s technical centre at Cranfield in Eastern England leading the development programme. Production will begin by the end of the year and the first vehicles will go on sale by February 2007, at a price of around $24,000. The Qashqai will also be the first entirely European-made model to be exported to Japan.

UK business schools ride high in world rankings
The London Business School ranked as the top UK institution for full-time MBA programmes, and fifth in the world, in the annual Financial Times ranking of the world’s top 100 business schools. The University of Oxford’s Said Business School ranked 20th, followed by Manchester Business School at 22nd, Lancaster University Management School at 30th and University of Cambridge Judge at 35th. In all, 16 UK MBA programmes made the Top 100, and all but one improved their position from last year. In contrast, only 10 institutions from elsewhere in Europe made it onto the list. The rankings were dominated by US business schools, which accounted for 13 of the top 20. The top four in the world were judged to be Wharton at the University of Pennsylvania, Harvard, Stanford and Columbia.

When it came to European rankings for Masters in Management programmes, seven British institutions featured in the top 35. Highest was the London School of Economics at eighth, followed the University of Durham Business School at 19th and the University of Bradford’s School of Management at 20th. The top performer was HEC Paris in France.


SMEs claim ever bigger share of the economy
The Small Business Service (SBS), an executive agency of the DTI, has published its Small and Medium-sized Enterprise (SME) Statistics for the UK 2005. The SBS estimates that there were 4.3 million business enterprises in the UK at the start of 2005, an increase of 59,000 (1.4 per cent) from early 2004. This figure includes public corporations and nationalised bodies but excludes government and non-profit organisations. It is the highest number since the series began in 1994 and the eighth successive year that companies have increased in number.

Of these businesses, 99.3 per cent were classified as small, with 0–49 employees. Only 27,000 (0.6 per cent) counted as medium-sized, with 50–249 employees, and 6,000 (0.1 per cent) were large, with 250 or more employees. Between them, UK businesses employed 22 million people at the beginning of 2005 and had an annual turnover of $4,560 billion. SMEs together accounted for more than half of all employment and turnover, with 58.7 per cent and 51.1 per cent respectively. Small enterprises alone accounted for 46.8 per cent of employment and 36.4 per cent of turnover.

The proportion claimed by small companies varied according to industry sector. In sectors such as agriculture, fishing and forestry, for example, they accounted for 93.8 per cent of employment, but in financial intermediation just 14.7 per cent. Their share of total turnover varied from 89 per cent in agriculture to 18 per cent in manufacturing.

The number of companies with no employees – ie consisting of sole proprietors or self-employed partners – was 3.2 million, and such companies had an estimated combined turnover of $361 billion. Again, this varied by sector, with 87.5 per cent for education and just 25.3 per cent for hotels and restaurants. There were an estimated 2.7 million sole proprietors, 320,000 (11.7 per cent) of whom had employees. The 1.2 million companies with employees had a combined turnover of $4,275 billion.


Regional news

New York fashion retailer Barneys is to open its first overseas store at White City in London. The store will be one of the anchors of a huge new shopping centre to be developed by Australian property group Westfield, which will have 1.6 million sq ft of space and which is set for completion by 2008. The Barneys store will be part of a mini-mall called West Village devoted to designer brands and upmarket goods. Jewellery store Tiffany is among other high-end fashion retailers reported to have signed up for the new development. Barneys’ flagship store on Madison Avenue is a New York institution, and is one of the company’s 29 department stores and other outlets across the US.

US-based ADOS Corporation, a leading provider of document management and workflow software solutions, is to open a UK office to support its expanding customer base and reseller channels in the UK and Ireland. The company had previously managed operations from its European HQ in Vienna, Austria. “The marketplace in the UK is just starting to mature and ADOS is ready to meet the new requirements of the compliance age with a robust range of solutions that can integrate into back-office systems,” said sales manager Tony Fullylove.

Japanese computer games giant Sega is to create 60 new jobs in the West Midlands, as it develops its ‘Sega Racing Studio’ at Blythe Valley Business Park in Solihull. The world-leading company, creator of Sonic the Hedgehog and Sega Rally and whose main UK office is in Middlesex, near London, already had a presence in the West Midlands. The region is home to 160 interactive media companies, including Codemasters, Europe’s leading independent publisher/developer, and Blitz Games, the UK’s biggest independent developer. Sega’s Racing Studio team will produce racing and driving games for the new generation of consoles, including the XBox 360 and Playstation 3, and for arcades and PCs for the European and US markets.

RDA Yorkshire Forward has launched a new $1.9 million campaign to promote the strengths of Yorkshire and Humber as a centre of commercial innovation, both in the UK and internationally. The Business Comes Naturally campaign will highlight major business innovation stories from across the region, including case studies on Boeing, Team 17 and ITM Power Plc. It will target key investment decision-makers, including venture capitalists, property consultants, financial advisers, chief executives and finance directors.

Global Organization Metrics Inc (OrgMetrics), a Toronto-based leader in advanced software solutions for human resources recruitment and development in the technical and professional services sector, has established its global headquarters in Liverpool, North West England. OrgMetrics was assisted in its relocation by UK Trade and Investment’s Global Entrepreneurs Programme (GEP), which also supported the company during its 2005 merger with Hire Level Technologies Inc. As well as providing access to the fast-growing European market, the attractions of Liverpool for OrgMetrics included a high-quality workforce, low costs and strong educational institutions. Other favourable factors included the UK’s attractive business climate and abundant opportunities for forming joint ventures.

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