News

 

December 1999

Government throws weight behind enterprise

Four of the 28 bills put forward in the November 17 Queen's Speech, outlining the agenda for the new session of Parliament, were highlighted by the Government as measures intended to encourage enterprise. The bills were concerned with the regulation of e-commerce, liberalisation of the Post Office, the reform of insolvency law and the establishment of the Financial Services Agency. Six other bills - including ones aimed at improving training, shaking up utilities regulation, promoting the development of transport infrastructure and making it easier to change unnecessary regulations - had previously been described as entrepreneurial in intent.

Encouraging enterprise is a key theme of the new legislative programme. The government is committed to increasing competition, reducing red tape, raising skills levels, improving the country's physical infrastructure and encouraging companies to invest and to take legitimate business risks.

In particular, Prime Minister Tony Blair has pledged to wage war on over-regulation which, he says, is an obstacle to the development of an innovative and entrepreneurial society. Addressing a conference of employers' organisation the Confederation of British Industry (CBI) in Birmingham in early November, Mr Blair reassured businessmen that he was unashamedly pro-business. He also called for more economic flexibility in the European Union, and said that the UK would use the EU summit in Lisbon next March to launch a concerted effort to reform the European social model, with the aim of making the EU more competitive globally. "I hope we can persuade Europe that the social model for government is about enabling rather than protecting jobs through regulation," he said.

Similar themes ran through Chancellor Gordon Brown's pre-Budget report, also delivered in November. Mr Brown invoked the spirit of Silicon Valley with a package of tax reforms aimed at promoting share ownership and boosting investment in high-technology companies. He also promised a reform of planning laws to speed up the development of "clusters" of hi-tech business on greenfield sites. Recognising the importance of such clusters in generating economic prosperity, the Department of Trade and Industry is to set up a steering committee to draw on the expertise of the private sector and will also commission a full mapping study of existing clusters in the UK.

Other key points of Mr Brown's package, intended to promote "enterprise for all, and fairness", were abolition of the controversial "escalator" annual rises in road fuel duty, and amendments to the capital gains tax regime launched only last year. The rate has been cut to 10 per cent for business assets that have been held for over five years. Mr Brown announced a 0.3 per cent cut in employers' National Insurance contributions and an extension of the US-style "workfare" package for the unemployed, which will see claimants lose benefits if they refuse to accept a job offer or retraining. This measure, said Mr Brown, promised a return to full employment. Proposals for an energy tax on industry were watered down, and employees were offered tax incentives to buy shares in their own companies.

For the first time, the Chancellor announced a move towards "hypothecation", or the earmarking of tax revenues for specific purposes. Any significant increases in road fuel duty would be ring-fenced for spending on roads and public transport, and revenue from any rise in tobacco duty would go straight to the National Health Service. He also announced that the Treasury's forecast for growth this year had been raised to 1.75 per cent, from a range of 1-1.5 per cent. Next year it was expected to be in the range of 2.5-3 per cent and in 2001 and 2002, 2.25-2.75 per cent.

 

UK leads the way in a networked world

One area of the UK economy brimming over with entrepreneurial activity is the IT and telecommunications sector. In November three of the world's biggest communications-based companies announced significant new investments aimed at tapping the UK's huge pool of talent in these fast-growing industries.

Nortel Networks, the Canadian manufacturer of telecoms equipment, is to create 1,800 new jobs in the UK as it seeks to triple its global production capacity for Internet technology. The UK is the hub of Nortel's European strategy and it has long had research and development facilities in the country. Around US$100 million of a total of US$400 million in new investment worldwide has been earmarked for expansion of the company's operations in the UK, particularly its plants at Paignton in Devon, South West England and Monkstown in Northern Ireland. The two plants will concentrate on manufacturing optical transmission systems for the Internet, developed at the company's laboratories in Harlow in Essex, East of England. Overall, the company is to create more than 5,000 jobs in the UK, US and Canada in response to rapidly growing demand for the systems, which are capable of handling high volumes of Internet traffic.

IT services company ICL, which is the UK subsidiary of Fujitsu of Japan, plans to create 1,000 jobs in the UK over the next three years, as it switches its business focus from packaged IT applications to services distributed over the Internet. The new posts, which will be split equally between the company's sites in the Thames Valley in South East England and Staffordshire in the West Midlands, are part of a global recruitment drive. A total of 4,400 new staff will be taken on in Europe and the US, while 4,000 existing employees will be retrained in e-business services. Seven skills centres are being set up worldwide, with two in the UK.

The company wants to switch 50 per cent of its revenue (which totalled US$4.3 billion in 1998) to Internet-based services by 2003. It predicts that by then total trading over the Internet will have grown to US$1,300 billion - roughly the size of the GDP of the UK - and that business-to-business services will have grown ten-fold. "We believe the Internet's centre of gravity is moving from the US to the UK and Europe because of the technical leadership we have in digital television and mobile phones," said ICL's chief executive Keith Todd. "Companies must adapt or die."

Research

Microsoft meanwhile is planning to expand its research facilities in Cambridge, East of England, which it founded three years ago with a pledge to invest US$80 million over five years. The venture was set up in partnership with Cambridge University, but it seems that Microsoft has outgrown the 20 per cent share of the new university computer laboratory it had planned to occupy. Instead, plans are being discussed for a stand-alone Microsoft laboratory next door. The original plan would have accommodated 55-65 staff, but Microsoft already has 45 researchers at Cambridge and expects this number to grow eventually to 100.

Cambridge's international reputation as a hi-tech centre, at the heart of "Silicon Fen" country, has attracted US$112 million in government funding to help set up a research partnership between Cambridge University and the Massachusetts Institute of Technology. Similarly, Carnegie-Mellon University of Pittsburgh, one of the leading hi-tech universities in the US, is to link up with Warwick University in the West Midlands to establish a US$40 million training centre. The Electronic Engineering Business Management, or E2 Institute will teach middle managers the most effective ways to use the Internet. The two universities' combined strengths in manufacturing, robotics and computer-aided design will be used to train some 7,000 people a year, most of them middle managers in industry both from the UK and overseas, with an annual budget of US$160 million. In a separate development, the University of Michigan is in advanced talks about backing a new engineering research institute in Scotland.

Elsewhere in the IT industry, Chicago-based venture capital group Madison Dearborn Partners has invested US$11 million in Band-X, a UK pioneer in Internet telecoms. Meanwhile a group of three US venture capital companies - Meritech Capital Partners, Weston Presidio Capital and BancBoston Ventures - has invested US$50 million in Airspan Communications, a UK provider of wireless local loop (WLL) systems. Cambridge-based microchip design group ARM has finalised a licensing agreement with chip-making giant Intel of the US. The deal will enable Intel to develop RISC-based solutions based on ARM architecture, starting with version 5TE.

World Insurance Portal

Growth in Internet use offers London the opportunity to become the global centre of the networked information economy, according to Rowan Douglas, managing director of Internet-based data and portal services company Wire. Mr Douglas was addressing the Lloyd's insurance market at the launch of RSX, the World Insurance Portal, which has become the first leading City of London market to be reconfigured for the Internet.

According to Mr Douglas, the communications revolution had led to the rise of three cities - London, New York and Tokyo - providing capital and professional services worldwide. The US currently leads the world in e-commerce but advanced networking will lead to further concentration of information and capital, and here London will emerge as the winner, he believes. "Britain is an information island with an invaluable collection of mixed cultures, a beacon of democracy, an EU member with strong bonds with the US, a unique Commonwealth and the home of the global language - English," said Mr Douglas.

Recognising this, British Telecommunications (BT) has cut the cost of Internet access, in response to criticism that its tariffs were hindering progress in e-commerce. New prices to service providers will allow them to offer customers unlimited Internet access for a flat monthly fee, and could reduce the daytime cost of web access by as much as 75 per cent. BT also announced plans to spend more than US$160 million over the next two years on adapting its network, which is currently optimised for voice traffic, to handle Internet transmissions more easily.

E-commerce Bill

The government too has realised the huge value of the Internet, and has published an Electronic Communications Bill to promote e-commerce in the UK. The legislation includes, for the first time, explicit legal recognition of electronic signatures, the removal of existing laws that insist on the use of paper, and a self-regulatory approvals scheme to ensure minimum standards of quality and service. The Bill also rules out mandatory key escrow, a measure requiring the deposit of 'electronic keys' for encrypted and therefore confidential e-mail traffic, with government-approved third parties. The measure was intended to reduce the scope of criminal activities but, in the face of strong opposition, the government has conceded that it would have imposed unfair burdens on law-abiding web users.

The government has also pledged its support for raising skills levels in the IT, communications and electronics industries in a report entitled Skills for the Information Age, and has signed a Memorandum of Understanding on co-operation in IT and e-commerce with Singapore, another leading digital economy. Furthermore, the UK expects to be the first European country to auction spectrum licences for the third generation (3G) of mobile phones, which will allow users of handheld devices to send e-mails, access the Internet and download information. Five licences will be on offer in the auction, scheduled for March 2000, with the biggest reserved for a new entrant to the UK market, a move intended to boost competition. "We are on track to hold the first 3G spectrum auction in Europe," said e-commerce minister Patricia Hewitt. "This will give UK consumers early access to e-commerce on the move and the many other exciting possibilities that 3G will open up."

 

Scotland forges a hi-tech future

A key centre for the UK's high-technology industries is Scotland, which continues to attract significant levels of investment from overseas companies. ICL, the Fujitsu-owned IT services company, for example, has launched a newly devolved operation for Scotland, called ICL Scotland. Encouraged by new market opportunities and by the establishment of the new Scottish parliament, the company will double staff numbers at its Edinburgh headquarters to 700 - though this, according to ICL's chief executive Keith Todd, represents "just the beginning" of its plans.

Cisco Systems of the US, the world's largest Internet provider, is to base its first European research and development centre in Edinburgh, following the launch in Scotland earlier this year of its first manufacturing centre outside North America. The move reflected Scotland's "wealth of IT talent", according to Paul Mountford, vice president of the company's UK and Ireland operations, who described Scotland as "a hot-bed of innovation". Another Japanese player, NEC Corporation, is to invest a further US$56 million its semiconductor plant at Livingston. The investment will be used to add the latest versions of NEC's memory devices and integrated circuits to the plant's production range.

Ambitious plans have been unveiled by Lord Macdonald, minister for business and industry at the Scottish Executive, to double the size of the semiconductor and microelectronics industries in Scotland over the next five years, making it a world centre for semiconductor research, design and manufacture. The plan includes the creation of a new wafer foundry, the first global Scottish-owned wafer lab and Scotland's first global opto-electronics chip manufacturer. It aims to build on the success of the Alba Centre, the Glasgow-based international centre for electronics design which has already attracted numerous cutting-edge electronics companies from around the world, among them several from California's Silicon Valley.

Mitel Telecom, the Canadian telecoms company, has announced expansion plans for its European design and development centre in Strathclyde after only a year of operation. The workforce at the centre, which focuses on telecoms software products, will double to 150 by 2002. One2One, the telecoms company owned by Deutsche Telekom, is to create 800 new call centre jobs at Greenock as part of a UK expansion plan that will see an investment of US$80 million and the creation of 2,000 jobs over the next three years.

High technology, however, is by no means Scotland's only strength. Two major deals with New York-based corporations have underlined its leading role in Europe's financial sector. Financial services specialist Morgan Stanley Dean Witter & Co is to establish a financial services operation at Cumbernauld, creating 1,000 jobs over five years, while JP Morgan & Co Inc is to set up an US$11.7 million software research centre in Glasgow that will employ 300 software engineers. And in the pharmaceuticals sector, leading global outsourcer Quintiles has opened its third Scottish operation at Kirkton Campus in Livingston. The new 58,000 sq ft facility, which will produce supplies for clinical trials, brings the company's total workforce in the area to 900.

Altogether, Scotland attracted 78 inward investment projects in 1998/99, involving planned investment of US$1.22 billion and securing 11,000 jobs, according to the annual report of local investment agency Locate in Scotland. For the eight-year period from April 1991 to March 1999, a total of 630 projects were undertaken, with planned investment of US$13.3 billion and involving an estimated 93,000 jobs. The largest categories attracting investment were electronics, software, biomedical, call centres and service centres.

 

Northern Ireland targets US investment

Not to be outdone, Northern Ireland claims to attract over 50 per cent of US software investment projects coming into the UK, according to the annual report from IDB, the province's own inward investment agency. "There has been a very clear move from more capital-intensive manufacturing projects to hi-tech projects, particularly in the tradable services sector," said IDB chairman Dr Alan Gillespie. "This has had a clear knock-on effect, with IDB's overall contribution to such projects now standing at 25 per cent compared with 30 per cent in 1995/96. At the same time, the cost per job has fallen from £18,500 (US$29,600) to £7,890 (US$12,620), a drop of nearly 60 per cent over the period."

Overall growth in employment and manufacturing output in the province has been higher than in most of the rest of the UK, according to the report, and manufacturing exports have grown from 28 per cent of total sales to 35 per cent over the past six years. "More of Northern Ireland's companies are showing that they are up there with the best and that they have what it takes to succeed in the global market," said Dr Gillespie. He stressed that IDB would continue to work towards attracting hi-tech investment and in particular would continue to build on contacts made during an 11-city marketing tour of the US in 1998.

Meanwhile, two new investments have been celebrated. US-owned DuPont has officially opened its state-of-the-art, US$125 million Lycra manufacturing plant at Maydown, Londonderry, expanding to US$880 million of the company's total investment in Northern Ireland, which stretches back to 1960. The Maydown plant is now producing 25 per cent of the world's supply of Lycra stretch fabric. In a separate development, the Massachusetts Port Authority (Massport) is to open a state trade office in Londonderry, aimed at helping Massachusetts companies match up with business partners in Northern Ireland. Massport chose Londonderry because its air and seaport facilities make it a natural gateway to the region. The quasi-public US organisation has also opened an annexe to the new operation in Dublin, based at the offices of the Boston College of Massachusetts.

 

International tie-ups continue to grow

In the first nine months of 1999 the UK attracted merger and acquisition activity worth US$78 billion from overseas companies, according to the latest Corporate Finance survey conducted by management consultancy firm KPMG. The US was by far the biggest investor in the UK, with deals involving US companies amounting to US$45 billion. Germany and France were second and third, with US$15 billion and US$10 billion respectively.

Though welcoming M&A activity, the London Stock Exchange has moved to keep some of the UK's best-performing companies at home with the launch of Techmark, a market for hi-tech shares, which groups together 181 companies whose values range from US$4.8 million to US$140 million.

Share prices of hi-tech companies have scored huge gains this year - according to investment bank Warburg Dillon Read, Techmark-listed stocks have grown 24 per cent in absolute terms during 1999. It is hoped that the new exchange will stop UK companies being lured away to hi-tech exchanges elsewhere, such as Easdaq and the Neuer Markt in Europe and Nasdaq in the US. Officially opening Techmark in November, Chancellor Gordon Brown said that it would help the City of London maintain its position as a world leader and would provide "a new market for the new generation of dynamic entrepreneurs whose success depends on innovation."

Meanwhile, British Trade International, the government body responsible for promoting British trade overseas, has drawn up a blueprint for a national trade strategy aimed at supporting the efforts of British exporters and UK companies investing overseas. The organisation has pledged to make all basic sector and market information available electronically by the end of 2000, as well as to identify markets and sectors where government help can add most value to UK firms. It also promises special help for smaller firms, new customer feedback arrangements, a national stocktaking export audit and benchmarking of British export services against those of key competitors. Details of the programme can be found on British Trade International's web site at www.brittrade.com

 

London is tops for transport

London First Centre, the inward investment agency for London, has launched the sixth edition of its publication 100 Facts on London, which highlights key facts about the UK capital. Did you know, for instance, that there are 539 foreign banks in London, or that 300 different languages are spoken in the city? The publication also reveals that 26 per cent of the world's largest companies have their European headquarters in London and that 65 per cent of the Fortune Global 500 companies are represented there. There are weekly direct scheduled flights to over 230 international destinations from the city's five airports. Financial, professional and business services employ over 1 million people, and overall one third of London's workforce has a degree or equivalent qualification. For copies of 100 Facts on London, contact Andy Land on +44 20 7665 1536 or aland@lfc.co.uk

Meanwhile, London has come top of the European league table for external transport links, in a report compiled by Oxford Economic Forecasting and highlighted by minister for competitiveness Alan Johnson. The report focuses on the contribution to the UK economy of the aviation industry, which helps to make the UK the business hub of Europe. The report showed that London's external transport links make it the best city in Europe in which to locate a business. Manchester and Glasgow also scored well.

London's internal links are improving too, with the opening in November of the long-awaited Jubilee Line tube extension, which links the business district of Canary Wharf direct to central London for the first time. The extension runs Stratford in the east of London to join the existing line, which runs to Stanmore in the capital's north west suburbs.

Office rentals on a roll

The London office market is booming, with take-up in 1999 promising to exceed the record totals of 1997 and 1998, according to the latest quarterly report from property advisers DTZ Debenham Thorpe. The market is particularly buoyant outside the core markets of the West End and the City. In the first three quarters of 1999, 14.6 million sq ft of office space was let or went under offer in Central London, compared with 17.8 million sq ft during the whole of 1998. The level of take-up for newly built or refurbished office space, however, was low, at 3.6 million sq ft compared with 6.8 million sq ft in 1998. This reflected both an absence of pre-letting and a tight supply of space of this sort.

Because of the sustained level of take-up, availability for Central London fell over 1 million sq ft from 12.6 million sq ft at the end of the second quarter to 11.3 million at the end of September. Availability in the City fell marginally, after a period of increase. Availability in the West End has been rising steadily, although newly built space is in shorter supply. Prime rents in the City rose marginally over the third quarter to £52.50 per sq ft, but in the West End the shortage of new space continued to push rents upwards, said DTZ.

Meanwhile, developer Development Securities is poised to kickstart the planned regeneration of derelict land near Paddington Station in west London after purchasing a former goods yard for US$136 million. The site, on Bishop's Bridge Road, has planning permission for 700,000 sq ft of office and residential buildings. In all, some 120 acres of land abutting the station are earmarked for redevelopment, in a project that will significantly increase the supply of office space in this central part of the capital.

 

Car makers commit new investment

Ford is to concentrate production of its new high-performance Zetec-SE four-cylinder engine at its UK plant in Bridgend, South Wales, and will invest a further $30 million to expand production. The American car giant is shifting production from its plant in Valencia, Spain, where previously 290,000 of the engines were to be produced annually, as part of a rationalisation plan for its European engine production. The Bridgend plant already produces 500,000 engines a year for the Ford range as well as the engine for the Jaguar XJ8. The new investment will help secure the future of the plant's 1,500-strong workforce and will provide new business for suppliers.

Japanese rival Nissan has also made a new commitment to its UK operations, announcing that it will build its next-generation Primera model at its Sunderland plant in North East England, with additional investment in the region of US$320 million. The Sunderland plant currently tops the league as the most productive car plant in Europe. And German automotive component manufacturer Draexlmaier Automotive has announced plans to establish an US$8 million manufacturing headquarters at Birmingham Great Park, in the West Midlands. The site is near the Rover Longbridge plant, where Rover's parent BMW is to build the new Mini. Draexlmaier will manufacture automotive wiring systems at its 21,700 sq ft facility, which is expected to be operational by June 2000.

IT and services lead the way in the modern economy

Companies in Tyne and Wear in the North East of England are more prosperous even than their counterparts in the 'silicon valleys' in more southerly counties such as Cambridgeshire and Berkshire, according to a report by Experian. The report highlights the growing importance of telecommunications sector in the modern economy, both key factors in the recent revival of Tyne and Wear.

Experian analysed 235,000 businesses in the UK, comparing their profit levels and then making comparisons between regions and towns. The most profitable town in the UK turned out to be Worthing, on the South Coast, largely on account of the growing number of IT and software companies locating in the seaside town. The least profitable county was Herefordshire, in the West Midlands, which suffers from a depressed agricultural economy and a lack of large cities capable of attracting investment.

 

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