News
April 2003
Slowing economy brings economic uncertainty
The UK economy grew by 1.6 per cent last year, according to the Office for National Statistics. This was the lowest figure since the country emerged from the last recession in 1992, but still compared well with economies in the euro zone, where growth for 2002 is expected to be around 0.8 per cent. The ONS revised down its estimate for overall GDP growth from 1.7 per cent, reflecting lower estimates of government spending and echoing Chancellor Gordon Brown’s forecast of 1.6 per cent in his pre-Budget report in November.
Total business investment fell by 10.1 per cent in 2002, the steepest fall in real terms since records began in 1965. Exports fell by 1.4 per cent, the biggest annual fall since 1975, and by 3.4 per cent in the final quarter. Manufacturing output contracted by 4 per cent over the year. Growth remained strongly dependent on consumers spending, with growth in this sector rising from 0.8 per cent in the third quarter to 1 per cent in the fourth. The service sector was the best-performing part of the economy, but its 2.5 per cent rate of growth was the lowest for a decade.
The Treasury expects GDP growth to be 2.5-3 per cent in 2003. However, trade and industry secretary Patricia Hewitt accepted that there was "a huge shadow of uncertainty hanging over the world economy", and stressed that UK businesses must continue to innovate and invest if they want to survive in the face of increasingly intense international competition.
Numbers in work hit record high
Despite the economic uncertainty, the UK’s labour market remains buoyant, with the number of people in work hitting a new high. In the three months to January, employment rose by 57,000 to a record 27.8 million, according to the ONS. The rate of unemployment fell from 5.2 per cent to 5 per cent, with a total of 1.46 million people out of work, 73,000 fewer than in the previous three months. The number of people claiming the jobseeker’s allowance rose slightly, by 2,600 to 935,000 in February. Earnings growth, however, fell slightly to 3.6 per cent, well within the 4.5 per cent figure that the Bank of England has set for its inflation target. There was stronger earnings growth of 5 per cent in the public sector, but this was offset elsewhere, particularly by lower bonuses in the City of London.
The minimum wage is expected to rise by 7.1 per cent in October, from £4.20 to £4.50 per hour for workers aged over 21, in line with recommendations from the Low Pay Commission. Workers aged 18-21 will see their pay rise from £3.60 to £3.80 per hour. Further increases are planned for October 2004 - to £4.85 for over-21s and £4.10 for younger workers - but only if the UK economy is judged healthy enough to absorb them. Some companies have complained that the above-inflation increases are too large, forcing them to raise their wages overall to maintain differentials between workers and eroding their profits. Unions, although they welcome the increase, say it is still not enough and have called for a minimum rate of £5.00 per hour.
The Employment Relations Act (1999) is working well, delivering better working standards and promoting a climate of cooperation between workers and employers, according to a newly published review by the Department of Trade and Industry (DTI). The review found that the union recognition procedure introduced by the act was operating smoothly, with over 1,000 voluntary recognition agreements concluded between unions and employers, and few disputes or legal challenges arising. However, it proposed a number of measures aimed at fine-tuning the legislation. These included the earlier provision of access rights to unions in recognition cases, clarification of the law on the ‘right to be accompanied’, and a new legal right for workers to access their union’s services.
"The evidence suggests that this law is working well. The number of strikes is at an all-time low, while the number of people in work is at an all-time high. A new culture at work is emerging, with employers and unions working together," said employment relations minister Alan Johnson.
Meanwhile, a national advertising campaign has been launched to encourage parents with young children to take advantage of new laws aimed at helping them balance childcare with work. Under the new legislation, which comes into force on 6 April, employers of working parents with children under six, or disabled children under 18, will be legally bound to consider requests for flexible working. New fathers will, for the first time, have the right to two weeks’ paid paternity leave, while maternity pay and leave have been increased, giving new mothers six months’ paid leave at £100 a week, and allowing them to take an additional six months unpaid if they want it. The government will reimburse 60 per cent of UK companies for the costs of maternity pay - most of them small firms.
US approves treaty on double taxation
The foreign relations committee of the US Senate has approved a US-UK tax treaty that will end double taxation of profits on companies operating in both countries, in particular the 5 per cent withheld by US tax authorities on dividends paid by subsidiaries of UK groups to their UK parent corporations. The UK does not levy the a withholding tax of this sort on US companies with British subsidiaries, but the move could save UK companies up to $320 million a year. It was hoped that the treaty, which also guarantees reciprocal recognition of pension plans and the elimination of double taxation on gains from stock options, would be finalised by 1 April, in time for the new tax year.
Spin-off company numbers grow by a fifth
The number of spin-off companies from the UK’s universities grew by 22 per cent in 2000-01, according to the second annual Higher Education Business Interaction Survey. The number of patents filed by higher education institutes (HEIs) rose by 26 per cent and the number of intellectual property licences by 25 per cent. The survey found that 248 new spin-off firms were set up in the course of the year, compared with 203 in 1999-2000. The number of patents filed climbed from 725 to 913, while the number of people employed by spin-offs rose by 25 per cent to 4,679.
Some 44 per cent of the UK’s HEIs offered incubation or start-up facilities, and almost 60 per cent had access to seed corn investment, found the survey. It also showed that UK universities compared well with their counterparts in the US: adjusted for size, UK universities generated one spin-off company for very $19.2 million spent on research, compared with one for every $73.6 million in the US.
Most HEIs are also involved in some form of regeneration activity in their local area, and most draw a third of their governing body members from the business sector. In October 2001, trade secretary Patricia Hewitt allocated $192 million to more than 200 universities, colleges and hospitals across the UK to help them strengthen their research capabilities and forge closer links with business in the period 2001-2004. A further £274 million was allocated under the 2002 Spending Review to support knowledge transfer.
University clinches biggest ever biotech deal
Dundee University, in Scotland, has entered into the biggest ever collaboration between a British university and the pharmaceutical industry. The deal, worth $24 million over the next five years, involves six of the world’s biggest pharmaceutical companies: Pfizer, GlaxoSmithKline, Astra-Zeneca, Boehringer Ingelheim, Merck of the US and independent German group Merck. Dundee is recognised as a centre of expertise in the biotechnology sector, and life sciences already account for 12 per cent of the local economy.
The companies will fund 30 scientists working at the university’s Wellcome Trust Biocentre on protein phosphorylation - a key step in signal transduction, which is the principal mechanism by which the activity of cells is regulated by external signals. This process, which helps to regulate many of the body’s metabolic functions, was until recently an obscure field of research. However, it has recently become the second biggest area of drug discovery worldwide, as researchers recognise its importance for human health, together with its commercial value. Companies are having to work together on basic research before they can hope to develop medicines, but researchers believe that signal transduction offers great potential for new treatments for a wide range of ailments, particularly the ‘big three’ of cancer, diabetes and infectious diseases.
The government has launched a one-stop internet resource for the biotech sector. The portal, at www.i-bio.gov.uk, brings together information from government, the Research Councils and more than 200 other web sources, covering topics such as industry, academic research, investment and government policy. The UK’s biotech industry is the second largest in the world after that of the US, with 400 biotechnology businesses generating annual revenues of more than $2.9 billion. It has 75 per cent of all public biotech companies in Europe and employs around 18,700 people.
Two of Manchester’s three universities - Manchester University and Umist (the University of Manchester Institute of Science and Technology) - are to merge, creating one of the UK’s largest academic institutions. The two universities have secured a $131 million package of public funding for the move which, they believe, will help them to compete globally for students and research grants. A new name for the university, which will have almost 30,000 full-time students and an annual turnover of $800 million, will be decided by the summer, with the merger due for completion by autumn 2004. The Manchester scheme is the most ambitious of a wave of merger proposals among colleges and universities, sparked by increased competition for funds and students.
It’s a great time to come to London
Conditions in the London property market make this an ideal time for overseas investors to set up or expand their operations in the UK capital, according to inward investment agency London First Centre. There is more office accommodation available, rents are falling and property is being offered on more favourable terms, allowing new companies to gain a foothold and existing investors to move to more spacious accommodation.
"There has been no better time in recent history to acquire space in central London, as rents and incentives are extremely attractive," said David Hume, a partner at property specialists Cushman & Wakefield Healey & Baker. "Rent-free periods of between two to three years are available to tenants. The market is tenant-driven, as rents across the board have dropped by 10-15 per cent in the last nine months."
Michael Charlton, chief executive of the London First Centre, commented: "The sophistication and variety of the London office market are unrivalled in any other major European city. The huge rental range and scope of options across Greater London mean that virtually any requirement can be met, regardless of size or budget. In addition to the existing stock of commercial space, design-and-build options, particularly in outer London, offer the occupier the ability to take space constructed to their own specification."
New developments for a wide range of requirements
London, of course, is not the only area of the UK that offers a wide choice of commercial property. The country’s regional stock has been further enhanced with the announcement of a number of new development schemes. At Liverpool in the North West, for example, the North West Development Agency (NWDA) plans to build a 550,000 sq ft communications technology centre on a 22-acre site at Edge Lane, formerly owned by Marconi. The ‘Liverpool Digital’ project, sited next to the Wavertree Technology Park and the forthcoming Liverpool Science Park, will feature a mix of office and manufacturing space, supported by a high-bandwidth fibre communications infrastructure. NWDA is negotiating with local universities to bring research and teaching facilities to the site, to support business development and to nurture spin-off companies. Also in Liverpool, NWDA is supporting the development of a new National Biomanufacturing Centre at Speke, as part of a biotechnology cluster development programme, Bionow.
In Manchester, also in the North West, work has begun on a new business park. The Kings Reach development, to the south of the city, will offer 270,000 sq ft of office space when complete. One 10,000 sq ft building is due for completion soon, and work is under way on another speculative development of 25,000 sq ft. Rents will be around $26 per sq ft, or the buildings will be offered for sale at $296 per sq ft. At the nearby Cheadle Royal Business Park, three buildings totalling nearly 70,000 sq ft of space are nearing completion, while approval has been given for a fourth phase of development that will provide a further 300,000 sq ft.
In the South East, planning permission has been granted for a $30 million scheme that will regenerate the 290 acres of the former Betteshanger Colliery site. Plans include a new business park, together with sports and leisure facilities. In the South West, planning permission has been given for the development of a former hospital at Bodmin in Cornwall into a $7 million high-tech business park. The 17-acre St Lawrence’s site will provide 15,000 sq ft of space, some in refurbished hospital buildings, some in new build. At Glastonbury, work has begun to transform a 31-acre former tannery site into a mixed-use development that will include industrial and commercial space, as well as housing and recreational facilities.
In South Wales, a new industrial development is under way at Mamhilad Park in Pontypool. Two new buildings, of 25,000 sq ft and 50,000 sq ft, will be ready for occupation by the autumn. Nearby, a new 55,630 sq ft facility has been completed at Baglan Energy Park. Gemini Court, on a 5.2-acre site, is suitable for manufacturing, warehousing or distribution use, benefits from fibre-optic telecommunications links and has easy access to the M4 motorway. It is the first unit to be built under the Welsh Industrial Partnership, a joint venture initiative between the Welsh Development Agency and the Royal Bank of Scotland, which aims to develop up to 750,000 sq ft of speculative space in Objective One areas of Wales.
A similar initiative involving Invest Northern Ireland has seen the completion of a flexible 30,000 sq ft business unit at the Orchard Road Industrial Estate in Strabane. Units range from small units of around 3,600 sq ft up to a single space of 11,250 sq ft. This could, however, be divided if required.
RDAs broaden their horizons
Regional Development Agency One NorthEast has moved into a new headquarters building at the Newburn Riverside development area on the banks of the River Tyne, bringing together 300 staff previously housed in three different buildings in Newcastle and Gateshead. The building, Stella House, is at the forefront of environmental design, with features such as solar-powered water heating and recycled rain water from the roof used to flush toilets. The RDA is the first major employer to move to Newburn Riverside, a previously derelict industrial area reclaimed at a cost of $74 million. A further 100,000 sq ft of office space and 69,000 sq ft of industrial space has already been developed on the site.
One NorthEast will retain its office at Belasis Hall Technology Park at Billingham in the Tees Valley. It is also looking further afield, with its new office in Shanghai gaining official recognition from the Chinese government. There are currently 28 Chinese companies based in the North East, the largest concentration in the UK outside London, and 2,000 students of Chinese origin studying at universities and colleges in the region. The new Shanghai office will work to raise the profile of the North East as a destination for Chinese investors.
The East Midlands Development Agency (emda) is also expanding its horizons, with the opening of a third office in the US. The new office, in Boston, Massachusetts, will operate under the ‘British Midlands’ banner, the brand created by emda and its sister RDA Advantage West Midlands to promote the region to US investors. Announcing the move, emda chief executive Martin Briggs stressed the similarities between the economies of New England and the East Midlands. Both have strong clusters of businesses in the software, electronics, healthcare, banking and financial services sectors, he said, together with more traditional industries, such as automotive manufacturing and food and beverages.
Fair wind for renewable energy sources
Energy minister Brian Wilson has announced a major expansion of the UK’s offshore wind industry, approving plans to build 60 new turbines in the Thames Estuary in the South and in the Irish Sea off Cumbria, in the North West of England. Wind power and other forms of renewable energy, such as wave and tidal power, form an important part of the government’s plans to reduce greenhouse gas emissions by 60 per cent by 2050.
The turbines at the Kentish Flats and Barrow wind farms will each be the height of the London Eye, and will supply green electricity to 180,000 homes. Construction will begin in early 2004, with completion scheduled for the autumn. Work is due to begin later this year on another wind farm off the coast of Great Yarmouth in Norfolk, Eastern England. The 30 turbines at Scroby Sands will provide enough electricity to power 41,000 homes.
Wales diversifies its investment portfolio
International software development company FIS-EU Ltd, a member of the Formula Systems group based in Tel Aviv, Israel, has set up a global product centre in the Welsh capital Cardiff. The company, which provides products for the financial services markets, has been carrying out a 12-month pilot project in the city, and its move will create 124 new jobs. Its parent company is one of Israel’s biggest IT software and service organisations, employing 4,200 people and servicing more than 100 bluechip clients worldwide. Also in Cardiff, Swiss company Zurich Financial Services is to build a new customer contact facility, generating 230 new jobs. The company’s existing operation in the city, which employs a similar number of people, will be integrated into the new facility, due to open in early 2004.
Pharmaceuticals manufacturer Norgine, based in Holland, has opened a new packaging facility at its plant in Hengoed, near Caerphilly in South Wales. This latest phase of an $11 million investment in the site has more than doubled the workforce. The company specialises in products for treating gastroenterology ailments. Daw Technologies, Inc, of Salt Lake City in Utah, meanwhile, has opened a new office in nearby Cwmbran. The company supplies clean-room and mini-environment systems to the semiconductor and pharmaceuticals industries, while its subsidiary Daw Process Systems produces systems for bulk gas, process gas distribution, bulk chemical distribution, vacuum/exhaust and purified water.
North West goes Dutch
A trio of Dutch companies has announced new investment in Runcorn and Widnes, towns in Halton borough in North West England. PinkRoccade, a leading ICT company which employs 9,000 people worldwide, has chosen The Heath Business and Technical Park in Runcorn as the base for its north of England operations. The company already has 1,300 staff working in the UK at Farnborough in the South East and in Northampton in Eastern England, and will initially create 50-100 jobs in Runcorn at a new commercial data and call centre.
Also at The Heath, DSM Bakery Ingredients, headquartered in Holland and Europe’s leading company in yeast, bakery enzymes, bread ingredients and fermentation technology, has opened a new sales and technology centre, which will provide a hub for customer support and product development. And in Widnes, Furness Logistics, part of Dutch logistics group Frans Maas, has signed a lease on a 100,000 sq ft distribution centre, to serve two major contracts. Frans Maas operates in 28 countries worldwide and employs 7,100 people; the new operation will create 30 new jobs over the next 12 months.
Manchester Investment and Development Agency Service (MIDAS), meanwhile, is expanding its website (www.manchestercalling.com) to include a first raft of partner micro-sites and a professional directory of services offered by businesses in the area. The move is in response to rising demand for information: MIDAS reports a 300 per cent increase in the number of requests from companies looking to relocate or expand within the Manchester area.
Two dates for the diary
Business Week in Wales, a series of events aimed at small to medium-size enterprises (SMEs) in the principality, will take place in Cardiff from 12-16 May. Sponsored by The Western Mail, the event, now in its sixth year, aims to provide a platform for businesses to network with one another and promote their products and services. The core of the event is a two-day exhibition at the Cardiff International Arena, and this is supported by a programme of business luncheons and breakfasts, seminars, awards and opportunities to meet major buyers. For more information, call +44-(0)29-2058 3818 or e-mail: whitbread.walker@wme.co.uk.
The County Durham Development Company (CDDC) is organising a major business-to-business event aimed at boosting technology and innovation in this region of the North East. Building on the success of a similar event held two years ago, which was attended by more than 600 delegates, including 22 delegations from overseas, Intertech 2003 will take place at County Hall in Durham on 13-14 October. Supported by local development agencies and universities, together with international partners from the US, Spain and China, it will focus on the fields of biotechnology and life sciences; digital media for science and technology applications; medical healthcare; nanotechnology and microsystems; photonics; and scientific innovation. The programme will include pre-arranged 30-minute face-to-face meetings between delegates, providing an ideal opportunity to forge new business partnerships. More information on: www.intertech2003.com.
Around the regions
Honda has produced its one millionth UK-built car at its base in Swindon in South West England. The company has two plants at the site, both using its innovative New Manufacturing System, a universal system that allows different models to be built on the same assembly line. 2002 was a record year for car and engine production at the plants, with 177,000 cars built, 55 per cent more than in 2001. "Honda’s innovative production line is typical of where the future of British high-tech manufacturing lies. That future is about improving investment, science and innovation, best practice and skills," said DTI minister Nigel Griffiths.
Telford, in the West Midlands, has welcomed its first Australian investor. CMG of Melbourne, which specialises in the manufacture of industrial electric motors, transmissions and drives, has set up a subsidiary, CMG Electric Motors (UK), at a 9,000 sq ft site on Hortonpark Industrial Estate. The company will initially employ five staff and will import motors from Australia and China, and conveyor gearboxes from Italy. The company is looking to increase its share of the UK market, currently worth around $128 million. In the meantime, the Telford Development Agency (TDA) has launched a new promotional campaign under the slogan ‘Come to Telford, Come to Life’. The campaign includes TV and press advertising and the launch of a new website, at www.cometotelford.co.uk
Greiner Extrusion Technology of Austria has taken space on the Coleshill Industrial Estate in the West Midlands and is looking to take on 20 engineering staff. Recruits will be sent for training at Greiner’s ‘academy’ facility in Austria and will also be given the chance to learn German. The company supplies and refurbishes tools for the plastics extrusion industry.
Norwegian firm Hydro Polymers has received a $384,000 grant from RDA One NorthEast, allowing it to buy new machinery for its PVC manufacturing plant at Newton Aycliffe, near Darlington in County Durham. The company makes PVC granules for use in the production of household fittings, such as guttering and window frames. The plant, which has operated from its current base for more than 50 years, is the largest single PVC compounding operation in Europe and one of only two producing PVC in the UK. It employs 400 people and has an annual output of 370,000 tonnes of PVC resin and compounds.
Builders’ and plumbers’ merchant Grafton Group, based in Dublin, Republic of Ireland, has bought Jackson Building Centres of Lincoln, in the East Midlands, for around $135 million. The UK builders’ merchant, which will retain its current trading name, has 18 branches in the East Midlands and employs more than 1,000 staff.
Sandvik AB of Sweden has acquired a 40 per cent stake in blockmaking machinery manufacturer Finlay BME, of Ballygawley, Northern Ireland, with the help of development agency Invest Northern Ireland. The company produces a range of mobile crushing and screening machinery, which it markets worldwide under the Fintec brand.
Invest NI meanwhile has launched a $4.8 million venture capital fund to finance the commercialisation of R&D in universities, new-start and existing SMEs in the province. Northern Ireland has a strong track record in scientific and engineering research, and one of the highest growth rates in the UK for business R&D expenditure. The NITECH Growth Fund is intended to offset the effects of the global economic slowdown, which has reduced the volume of investment capital flowing into the province’s high-tech businesses.
A new report from the London First Centre highlights London’s status as the creative capital of the world. Launched at the CeBIT technology event in Hannover in March, London: blueprint for creativity shows that the city’s creative industries have been quick to engage with the IT community in adopting cutting-edge applications and systems. Creative industries in the capital are worth $30 billion annually and employ some 525,000 people. They also offer IT vendors enormous opportunities for new business development, as the transfer of knowledge between arts and science bases gathers pace.
Tech Data (UK), a subsidiary of Tech Data of Clearwater, Florida, has acquired network communications company Azlan, based in Wokingham in Berkshire, South East England, for around $230 million. Azlan provides networking products, services and training to clients in 15 European countries. Tech Data is a global provider of IT products and services, and is ranked 117 in the Fortune 500 list of US corporations.
At nearby Crowthorne, San Francisco-based Recruitsoft Inc has opened a new UK headquarters. The company provides staffing management services, including electronic headhunting, and software solutions for large organisations.
Another US IT company, Cardonet of Santa Clara, California, has opened an office in Brockenhurst, Hampshire in South East England. The company provides sales and purchasing database solutions, and plans to target the Europe, Middle East and Africa (EMEA) market. Similarly, Arbor Networks of Lexington, Massachusetts will target the EMEA region from its new office near London. The company designs solutions to protect service provider networks against attack, including denial of service and network worms.
Environmental Tectonics Corporation (ETC), based in Pennsylvania, has opened a European office in Berkhamsted in eastern England. The company produces systems for aircrew training, process simulation, public entertainment, environmental testing and simulation. Its environmental division builds test facilities for the automotive and heating and ventilation industries, among others.
SEI Information Technology, a Chicago-based technology support specialist, has set up a UK subsidiary in London. The new operation will provide multilingual technology and user support services for clients throughout Europe.
Prestige Resorts and Destinations, a Minneapolis-based company which organises site selection for meeting and incentive planners, has opened its first UK sales office, also in London. The company uses a network of 39 resorts in North America, offering more than 14,000 guest rooms, and offers destination management in 41 countries worldwide. The new office will develop the incentive, corporate and third-party meetings market in London, as well as further afield in Europe.
Los Angeles-based ticketing agency Ticketmaster is to expand its call centre in Manchester, North West England. The expansion will add 350 new employees to Ticketmaster’s existing workforce of 400.
GE Industrial Systems, a division of General Electric Co based in Plainville, Connecticut, is to acquire SI Pressure Instruments of Birmingham, in the West Midlands. The UK company is a subsidiary of Hill & Smith Holding plc and supplies pressure instruments and measurement systems to industrial users worldwide. Its clients include companies in the aerospace, automotive, food, oil and gas, power generation, utilities, marine and process engineering industries.
Fugro Group of Holland, the world’s largest integrated geotechnical, survey and geosciences company, is to build a new headquarters in the Thames Valley area of South East England. The company has bought a plot of land with outline planning permission for 130,000 sq ft of offices and light industrial space at Wallingford, north of Reading.
Sun Microsystems of California has completed an expansion to its manufacturing facility at Linlithgow in Scotland. The company’s new Customer Solution Centre creates an additional 220,000 sq ft of space, with 175 per cent more manufacturing capacity, and will allow Sun Scotland to produce Sun Fire 15000 servers for EMEA markets. The $57 million of new investment brings the company’s stake in the Linlithgow plant to $210 million.
The South West RDA has extended a scheme that provides subsidised workforce training to businesses in Somerset, with an additional grant of $160,000. Initial funding of $1.2 million in April 2000 helped 928 small to medium-sized businesses with workplace training, ranging from basic telephone skills courses to the acquisition of ISO certification standards. Some 600 companies have been earmarked to benefit from the additional funding.
The total number of road goods vehicles travelling to mainland Europe in 2002 was 2,527,200, an increase of 5 per cent over 2001, according to the Department for Transport. Of these, 1,801,800 were powered vehicles, a 5 per cent increase, while the number of unaccompanied trailers rose by 6 per cent. Vehicles registered in the UK accounted for 27 per cent of all powered vehicles, compared with 30 per cent the previous year.