Thursday, 21 August 2014
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Should we be concerned about foreign ownership?

Who owns UK business and industry? In this age of globalisation, perhaps this is an awkward question. But I think it is important that the increasing foreign ownership of UK companies is discussed.

Globalisation is the reality of business today and UK companies have long owed much of their success to their global reach. We led the way on free trade and the abolition of tariff, and, unlike the rest of the world, our belief has been that protectionism is not required.

But foreign ownership of UK firms is increasing. From 2000 to 2007, in the manufacturing sector and measured in terms of output, foreign ownership rose from 25 to 40 per cent. Among larger companies, it is now between 70 and 80 per cent: 2,000 firms taken into foreign ownership in one decade. I see no sign it has slowed.

In mining and quarrying in 2007, 70 per cent were foreign owned; in utilities, it was 50 per cent and is now much higher. Our next generation of nuclear power stations will also be decided overseas. Only one national newspaper is wholly UK owned, while legislation to free up television station ownership is on the cards.

In some sectors, it’s no longer fanciful to think there will soon be 100 per cent foreign ownership of large companies. And there has been severe imbalance in this area: where UK firms have bought assets overseas, it has been at smaller scale and in ’softer’ sectors. In the last quarter, UK purchases overseas totalled £200m; foreign takeovers of UK businesses amounted to £14bn.

Control is one thing that makes me uneasy. Corporates touch our lives as employers, suppliers and customers; they pay taxes and provide jobs; they host design and production facilities. Does foreign ownership affect commitment to these things? We can only hope not, but assurances to staff in other countries that jobs are not on the line in current cutbacks will not reassure staff here, where no such guarantees are given. It would be naÏve to believe all national interests have disappeared in this ’globalised’ world.

In some sectors, it’s no longer fanciful to think there will be 100 per cent foreign ownership of large companies

UK corporates have influence too. They talk directly to government on issues such as taxation and regulatory policy. In a democracy one would hope that this influence would be moderated by patriotic self-interest. How does foreign ownership affect this?

There is no doubt foreign ownership has been beneficial in some cases, although we can never know what might have resulted had UK investors held their nerve as did European counterparts in automotive and shipbuilding, for example.

The argument of 30 years ago that there was a lack of UK managers tough enough to retain competitiveness is contentious and to think the same now is unrealistic and defeatist.

UK people in well-financed, UK-owned companies match any in the world on measures of quality, innovation and responsiveness to customers.
So what is different about the UK? Unlike any other developed nation, the UK provides no constraints on its industry sales. Where other countries’ banks and investors support corporates through tough times, ours often appear to be after an exit route, while new business is starved of investment. Foreign-based groups see the strategic worth of the UK assets they are buying: why can’t our own banks and investors see the same?

At the micro level, many companies have gained from new ideas, different forms of governance and other benefits. But the macro level is a matter for concern. ’Inward investment’ is often a euphemism for asset-stripping; not about investing for growth in the UK, but about buying up captive markets and transferring profit elsewhere.

If this current ownership trend is acceptable, then we need take no action. But we should face up to hard truths and press for answers to difficult questions.

This article is based on a speech given at a recent Royal Academy of Engineering debate

Sir Alan Rudge
Chairman, ERA Foundation


Education

  • 1958 PhD in electrical engineering at Birmingham University


Career

  • Spent his early career in academic and industrial research on antennas, microwaves and satellite communications before moving into management
  • 1987-1997 Joined BT as director of research and technology; served in various positions at BT up to deputy chief executive
  • 1993-1994 President of the Institution of Electrical Engineers
  • 1997-2001 Chairman of WS Atkins
  • 1994-1999 Foundation chairman of EPSRC
  • 1997-2003 Chairman of ERA (Electrical Research Association) Technology
  • 2001-present Chairman of ERA Foundation
  • 2002-2007 Pro-chancellor of Surrey University. Former chairman of the Engineering Council. Served on governmental advisory committees on science and technology


Readers' comments (10)

  • I think we should be very worried at the ownership figures. As mentioned in the article, when times get tough the corporates ALWAYS retreat to home territory.

    'Global' is the buzz word but only when times are good and we would do well to remember this. The UK businesses and the government should ensure that they protect Britiish ownership by encouraging start-ups and investing in our companies. Other countries do it all the time, why do we British shy away from it and say that it is for the 'greater good'

    Collaboration should be the new buzz word for the global market -collaboration allows both sides to benefit from each others knowledge without handing over the reigns.

    Have we not yet learned our lessons - no other country is as open as we are so we are susceptable to being deceived. It might be at a corporate level but it is deception, when laid out in black and white. Protect our own, just as the rest of the 'Global market' does.

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  • This article hits the nail on the head. The UK is losing ground, we have some of the best and most innovative engineers and entrepreneur's in the world, but a lack of investors willing to back them. Investors, including commercial banks, are quick to invest overseas but slow to invest in the UK, of course the tax laws are one of the reasons. This is just the thin end of the wedge, foreign businesses and even foreign individuals who are situated in the UK, send their cash abroad, investing in their home country and setting themselves up for returning in later years. I don't blame them because England is quickly heading for a "third world status", cash leaving this country is pretty much lost forever from the British economy and the only recourse for the government seems to be higher taxation, this has the affect of adding momentum to this downward spiral. It is time the British government introduced laws to protect British businesses and individuals in the same way that foreign governments do, Britain is no longer a world powwer and its about time the government realised this.

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  • At last an article from an eminent and leading UK engineer.

    One that highlights some of the many prejudices against UK manufacturing.

    It doesn't matter who owns our companies, but it does matter that they are not abused by foreign investors.

    Investors who feign care and consideration in the short term (whilst they absorb UK development grants) only to take it all back to their own country a few years later on the cheap.

    They strip our companies of their specialisation's and traditional markets, and trash our continuity of manufacturing skills and experience to make us wholly reliant on their imports.
    The economics of failure.

    It is our government who can prevent this behaviour.
    By introducing penal financial consequences when these strip and remove raids take place.

    We need basic engineering, we have people who can only provide manual skills.
    We can not be a country, full of graduates.

    Training is not the issue, it is the basic supply of manual work, in the form of exportable, manufactured goods that is the issue.

    So lets stop pretending that financial and non industrial activities will bring the UK back to its past glory.

    They have not and they can not, and the experiment to do without non skilled engineering jobs should be over.

    We are a nation of hard working, (and in the main), manual working people, and we want our jobs and pride back.

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  • Should we be concerned about foreign ownership?

    When the facts on foreign ownership are presented as concisely as this they are truly shocking. Why would we not be concerned?

    What other country in the world would let their industries fall into foreign ownership so easily and cheaply? Sadly the list is long and will keep us biting on our collective tongue long into the future; as in the example Sir Alan gives, nuclear.

    But then why is this post not top of the Most Popular, the Most Commented and the Most Emailed articles on The Engineer site?

    I wonder what the reaction to his speech was and what level of debate it engendered at the RAE? Did it fall on deaf ears like it appears to have done here?

    The only conclusion can be that no one is concerned about foreign ownership.

    It appears that over the years the management, investment and political spivs and wide boys have destroyed more than just our industries, they have destroyed our pride and spirit also.

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  • In fact, Sir Alan's argument narrowly won the debate at the RAE.

  • @ Editor
    I see that the motion was: 'This House believes that the advantages of foreign ownership of the UK corporate sector outweigh the disadvantages'. How about having this as the next Poll?

    The RAE news release gives some sense of the flavour of the debate:
    Speaking for the motion Prof. Colin Mayer of the Saïd Business School said "Foreign direct investment in the UK is critical to its prosperity. It has provided management, long-term finance and stability of control of companies that are otherwise deficient in the UK. Erecting barriers to their inflow will jeopardize the future of UK industry."
    Sir Alan, speaking against the motion, responded "One does not have to exaggerate the current trend to see that the UK is well on the way to owning virtually none of its key assets and being dominated by absentee landlords with their own national agendas. If that is acceptable then we need take no action. It will happen. If not [acceptable], then we need to face up to an issue which is more than economics... it is a threat to our national identity. While indulging ourselves in reminiscing the Battle of Britain and WW2, perhaps we should consider what they fought and died for, and what is at stake in the economic trade wars of the present day."

    Whilst I am 100% for Sir Alan’s position I can see why it was such a close vote. Even though I am against the ever increasing foreign ownership I cannot disagree with Prof. Mayer’s assessment that it is the deficient British managers, investors [and politicians] that are the real threat to the future of UK Ltd.

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  • Have any of the above every worked for a uk company that has been taken over by a European Company.
    There is nothing positive about this

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  • Sir Alan says it here: Zero or faltering support from Banks & Investment Owners:

    [quote]Where other countries’ banks and investors support corporates through tough times, ours often appear to be after an exit route, while new business is starved of investment. Foreign-based groups see the strategic worth of the UK assets they are buying: why can’t our own banks and investors see the same?[/quote]

    A trend of US buyouts of small/middle sized UK competitors hasn't been noticed over the last 25 years, then shortly, the 'star spangled directors' are ditched!

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  • Its not just our manufacturing industry falling into foreign hands that is cause for concern but also the fact that we allow Foreign State owned organisations to buy up North Sea oil and gas providers which must surely be to the detriment of the UK's long term energy security.

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  • GE buys Wellstream! So another successful UK company whose profits might have a chance of staying in the UK is being sold off.

    Why can we not keep successful companies under UK ownership? Do we think that GE will make a better job than present Wellstream management or will they buy it up and move profit, design, expertise out of the UK to another country and leave the bare bones behind.

    The money is on GE leaving us without a better Wellstream.

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  • Our governments and I include all the political parties have allowed the corporate rape of Britain. RWE bought Thames Water put no investment in but within 5 years increased prices by 25%. Siemens bought various British business units and then transfered production to Germany these decisions were not made in the UK.
    I work for a US company that bought our UK unit we have a word "the not invented here syndrome" i.e. any ideas we have cannot be as good as American Cadbury will see this from Kraft who we should remind ourselves shuttered Terrys and moved production to Poland.
    Our MPs are short sighted the square mile is short sighted thank god for people like Sir Anthony Bamford otherwise our sanity as a nation would be gone.

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