Foreign ownership - good or bad? Last week found me debating this as a panellist in a Birmingham Business School-organised debate.
My view was and is that the nationality of corporate ownership is very largely a red-herring.
I can show you plenty of great Brummie owners – and some terrible ones. What matters is the quality of a company’s strategy. Do they know where the company is headed? Have they got a point of differentiation? Are they obsessed about understanding what customers want and need?
Let’s just look at the UK and our competitiveness for a moment. The Heseltine No Stone Unturned review reminds us that the UK has some dazzling large companies (Rolls Royce, GSK, and JCB). Our mid-sized businesses are also doing well, generating revenue growth in excess of 10 per cent a year ahead of France and Italy and on a par with Germany. But we have a problem: we just don’t have enough businesses like these. The UK has a long tail of underperforming businesses.
UK output per hour in 2010 was 24 per cent behind the USA; 19 per cent behind Germany and 18 per cent behind France. We are outperformed in most sectors but especially manufacturing.
The average UK worker has to work 10 hours to produce the same output in manufacturing as a US worker does in eight. The reasons for this are probably a combination of UK businesses carrying more labour than they need because wage levels are very low currently and a lack of investment in innovation compared to our main competitors. It’s not about working harder, but smarter.
The UK is now only the 10th largest exporter in world, behind Italy. Not since early 1980s have we run a current account surplus in UK.
So we have a problem. But it is one of productivity, not foreign ownership. Great owners, foreign or not, set out to compete with the best in the world. The UK should be proud that foreign owners have seen potential in UK businesses. Quite often, they have brought investment when none was available locally.
Just this week came the announcement that Manganese Bronze, the Coventry-maker of London ”black cabs” for more than six decades, has been sold to Geely, the private Chinese car maker that owns Volvo. Geely, which already owned 20 per cent of Manganese Bronze and was its largest creditor, has indicated it will invest up to £50 million in the Coventry plant and hopes to make the company profitable within two or three years. The last time Manganese Bronze made money was in 2007.
Time will tell if Geely turns out to be a great owner. But right now Geely is investing and the 107 Manganese Bronze workers in Coventry have a chance not being offered to them by UK investors.
Foreign ownership has been the saviour of the British car industry. Whilst Honda is having a wobble at the moment, it, plus Toyota, Nissan and Tata have created huge investment and employment for the UK. Look also at how BMW has invested in its Hams Hall engine facility and the Mini.
BMW is also working hard at creating a softer image of its brand – see its sponsorship of English rugby and last summers Olympics.
It’s the quality of the owners at the time that matters, not the nationality. BMW couldn’t make Rover (“The English Patient”) work and lost millions trying. Shanghai Automotive has now picked up the pieces of MG and is creating a resurgence in this brand. Moreover, Shanghai Automotive now employs 400 research and design specialists in Longbridge, which is its European R&D centre.
Ford wanted a luxury car brand – it only had the Lincoln model at the time – and bought Jaguar Land Rover, Aston Martin and Volvo. It improved manufacturing and quality. But never worked out how to make the most of the passion in these brands and eventually gave up.
Tata understood the British culture. Ratan Tata was keen to show how an Indian-owned company could make a British brand work, combining German and British management to deliver the outstanding business we see today.
And then of course is our very own Cadbury.
There was much disquiet three years ago when this much-loved company and brand was acquired by Kraft Foods– now Mondelez International. However, what we have seen in the last three years is over £130 million of investment into UK operations. For Bournville – the home of Cadbury – this has meant investment in manufacturing and a brand new Global R&D Chocolate Centre of Excellence. In fact, Mondelez International now has two of its global R&D centres in the UK – including coffee just down the road in Banbury.
What matters is driving excellence into local industry. Foreign ownership can help if it introduces best-in-class practice.
Research by Aston Business School has identified evidence of superior productivity levels associated with foreign-owned companies in the UK. Not surprising when you reflect upon the motivations of the sort of foreign owners I have described. All of them are fixated on global competitiveness. We have great companies but not enough and still much to learn about productivity. So we should embrace this knowledge wherever it comes from.
Although the Birmingham Business School debate concluded that there is an un-level playing field internationally for legislation governing take-overs (with the UK being more liberal than others) we should approach reform with some caution.
Our Footsie 100 companies (apart from utilities) attract the majority of their earnings from overseas investments. They return profits to their Head Offices in the UK. British businesses take over foreign businesses in equal if not larger numbers than foreign businesses do in the UK.
It must be right to pursue a level playing field but a perfect solution may always evade us. We would do well to remember that international capital flows around the world like quick-silver. It seeks out the highest economic returns.
So we should concentrate on building great businesses that can compete anywhere in the world. Owners will then invest whatever their nationality and we should celebrate this.
* Jerry Blackett is chief executive of Birmingham Chamber of Commerce Group