UK: Management Today regional survey - property and relocation.

UK: Management Today regional survey - property and relocation. - Recession - "the dreaded R word" as one industrialist put it - dominated the discussion at many of the Management Today regional lunches held throughout the country in 1991. Yet while the

Last Updated: 31 Aug 2010

Recession - "the dreaded R word" as one industrialist put it - dominated the discussion at many of the Management Today regional lunches held throughout the country in 1991. Yet while the appalling economic climate dominated thinking from Glasgow to Plymouth, a general optimism about the future of all of the regions was clearly evident at the lunches. But why?

Angus Grossart, Scotland's leading merchant banker, put his finger on the reason for regional resilience when he told a Management Today audience that the Scots were coping relatively well because "they never took on the same level of personal gearing as in the South".

For Scotland, read much of the rest of the country outside what was (but certainly is no longer) the overheated South-east. Lower house prices mean lower mortgages and more spending power in the pockets of local consumers. It is no accident that some of the highest sales figures for many national retailing chains emerge from the likes of Newcastle, while BMW does a roaring trade in Belfast.

Unemployment has also not bitten as deeply as in the past outside London and the South-east. Between April 1990 and April 1991 unemployment in the South-east rose by 98.3%, compared with "only" 9.2% in Scotland. Outside the South it has yet to reach the levels of the 1980-81 recession.

Recession or not, the drive to widen the economic base of the regions continued apace. Japan's role as a catalyst of change was abundantly evident. Japanese investment is prized by regions for its attendant virtuous effect on the local economy. In the past year alone Britain has increased its share of Japanese investment in Europe from 39% to 51.2%, according to Japanese Ministry of Finance figures. Clearly we are now the launch pad for any Japanese assault on the European market.

It was not all positive, however. A recent gripe among the English businessmen at the lunches was simply that their area lacked a strong regional voice. Notable exceptions aside, it was typical for several agencies to promote their own small area or town, with no powerful single voice for a region.

Transport was another major headache for Management Today audiences. In the South-west it was the lack of a widespread local air network. In the North-east, for example, years of waiting for the upgrading of the A1 to a motorway had not helped. Naturally the regions are looking forward to the benefits of the Channel tunnel, though there was widespread worry that British Rail and transport operators would not be quick enough off the mark to spread the benefits northwards and westwards. Let us hope that these fears prove to be groundless when the tunnel opens in less than two years' time.

Westward Ho.

Relocation reaps jobs, money and status for regions, or so their marketing hype claims. In the first of three articles, Malcolm Wheatley digs for the facts behind the figures.

This year the UK economy may, with luck, shrink by less than 2%. Next year growth might return and perhaps, given more luck, with the sort of 5 percentage point surge which saw the economy climbing out of the 1981 recession. Numbers like these are often regarded as mere statistics, particularly as they tend to be embedded in economic forecasts and Chancellors' speeches - neither of which are noted for their gripping fascination.

Yet behind the numbers lie real businesses and real people. Coaxing the engine of growth to delivery another fraction of a percentage point yields thousands of jobs. But when the economy stutters, like now, those jobs can vanish overnight, leaving behind closed factories and lengthened dole queues.

Some parts of the country have always fared better than others. Regions dominated by the industries of the past have seen their former wealth vanish, as mining left the Rhondda, shipbuilding deserted the Clyde, and cotton moved out of Lancashire. Population demographics matter too, with people entering and leaving the workforce, or moving from one part of the country to another.

A region watching its jobs vanish - or unemployment increase as economic growth fails to match population growth - is influenced by more than simple altruism. Any erosion of the local tax base tends to simply redistribute the burden on to those who can afford to pay, while infrastructure and environmental improvements become harder to afford. Growth matters.

It is usually a steady trickle, as firms take on a person here and a person there. It is rare for hundreds of jobs to appear at a stroke. Yet when companies relocate, hundreds, if not thousands, of jobs can be created overnight.

"Relocation" is something of a misnomer, though companies do move themselves lock, stock and barrel to another part of the country. But the word also covers a far more common occurrence: the simple spawning of subsidiaries somewhere else as businesses themselves expand. It is this that brings a gleam to the eye of development executives, and leads them to fill the printed media - this magazine included - with advertisements extolling the virtues of their particular part of the country.

But from a national perspective, the real objective of this expenditure is to suck in jobs from overseas. Move a company from, say, Wales to Scotland and no one gains except the removal company. Jobs gained equal jobs lost. But bring a company in from overseas and there is a net inflow: jobs have been created. An attractive proposition at the best of times, it becomes especially so in a recession, when the rate of domestic job creation slows down or goes negative.

So to merely murmur the words "Japanese car factory" to a gathering of development executives is to witness an orgiastic feeding frenzy of piranha-like proportions. Excited marketing men work themselves into a lather describing how uniquely appropriate their region is for automotive ventures of all descriptions. Vide last year's decision by Toyota on the whereabouts of its UK factory. This prompted not a little acrimonious debate, often conducted in the columns of the press, as the company's shortlist gradually shrank to Burnaston near Derby.

Attracting regional development is a serious business, costing serious money. A network of overseas offices is a sine qua non; maintaining staff in places like Tokyo and New York is not cheap. Ultimately the cost is paid by business, or the taxpayer, or both. What do they get for their money? How much do the new developments bring in, and where does it go?

It is a question that Dr John Bachtler, senior research fellow at the University of Strathclyde's European Policies Research Centre, finds difficult to answer. "It's actually a very confusing picture," he says. "No one really knows how much inward investment comes in or where it goes."

There are two problems. The first is that the Department of Trade and Industry - which in the end disburses a lot of the money - publishes few statistics on the subject. Nothing appears in the annual "Regional Trends" volume, for example. Some figures emerge into the light of day via Hansard, or appear in the annual report of the DTI's "Invest in Britain Bureau". But as Bachtler points out, these are only estimates. The DTI can track only those moves that their local development offices have either played a part in attracting into the country or otherwise know about. If an overseas company wants to set up in the UK, it is under no compulsion to use the services of a regional development body or indeed notify anyone at all.

Furthermore, companies' plans change. The fanfare that accompanies the initial announcement of an investment project is never matched by an equal one when the company quietly changes its mind and decides that the factory will be only half of the planned size after all.

Management Today's league table (shown below) was compiled from the DTI's statistical database. We have included only jobs created by direct inward investment. The department's database also covers jobs "safeguarded", where further investment is made by companies already established in the UK. This, however, is not what the offices abroad and media razzmatazz is all about. The eventual size of the oak tree is irrelevant if the acorn does not get planted in your patch in the first place.

Management Today league table of direct foreign investment 1979-89

Regions Jobs % Rank Invest- % Rank Jobs Rank

ment per

projects project

North-east 25,199 11.2 4 273 9.5 6 92 4

North-west 15,007 6.7 7 284 8.8 5 53 9

Yorks and

Humberside 8,759 3.9 10 158 5.5 8 55 8

East Midlands 11,188 5.0 9 138 4.8 9 81 5

West Midlands 27,130 12.1 3 401 13.9 3 68 7

South-east 23,016 10.3 5 481 16.7 1 48 10

South-west 13,646 6.1 8 108 3.7 10 126 1

N Ireland 19,076 8.5 6 193 6.7 7 99 3

Wales 31,551 14.1 2 394 13.7 4 80 6

Scotland 49,677 22.2 1 454 15.7 2 109 2

Total 224,249 100.0 2,884 100.0 81

Source: Department of Trade and Industry.

The league table's biggest surprise is the extent of inward investment to the South-east. Not only are Government financial inducements strictly limited, but the region is arguably suffering from its own past success. According to a report published this month by Black Horse Relocation, gross domestic product per capita is almost 20% above the national average. Still low unemployment levels - and indeed full employment in many towns in the west and south of the region - saw earnings grow throughout the 1980s at 30% faster than in the rest of the UK. Until the recession, skill shortages were the norm across virtually the whole employment spectrum. Consequent high pay levels helped to bid up house prices, making it difficult to recruit staff into the region.

Despite this, the South-east ranks top in our league table in terms of the number of inward investment projects attracted over the period. The reason becomes clear when the number of jobs that each inward project created is taken into account. For on a "jobs per project" basis, the region drops all the way to the bottom, to 10th place. Lots of moves, but relatively few jobs. This is the classic inward investment cycle at work: first establish a toehold in the market with a sales outlet; then manufacture later on when the local market is more of a known quantity.

The regional variation in jobs created per project is much more than just a few percentage points. The average project in Scotland, for example, brings in more than two and a quarter times as many jobs as the average South-east project - 109 against 48. But the magnitude of these numbers - around 100 jobs per project - tells a story in itself, and helps explain the fabled allure of the Japanese automotive factory. Big projects are rare, and worth fighting for.

Pride of place in terms of jobs per inward move belongs to the South-west, reflecting the region's M4 corridor effect among electronics companies and financial institutions, especially around Bristol. Devon and Cornwall also have the only designated development areas in southern England, and in the past two years Plymouth has attracted Murata and Harris Corporation, bringing in 900 and 500 jobs respectively. Toshiba's factory in the city employs over a thousand people, and the company is so impressed with the area that it helps promote it in Japan. The region's average of 126 jobs per inward move is close to three times the South-east's figure, and puts it well clear of the rest of the pack - including Scotland.

Ivor Simpson, executive director of the Devon and Cornwall Development Bureau, was headhunted in from the United States in 1985, where he had spent five years promoting US inward investment to the UK generally. Tall and slightly stiff, he somehow manages to exude an air of being happier on a rugby field than in an office.

One of the biggest obstacles that he faces, he says, is a lack of knowledge overseas about where Devon and Cornwall are, never mind what they have to offer. It can, Simpson concedes, sometimes be "desperately difficult" to describe to outsiders what Devon and Cornwall are like. Even the most insular of Japanese have heard of Scotland's whisky and golf but the South-west lacks any really comparable image to help lubricate the introduction. It is apparently easier to sell to the Americans, who readily associate Plymouth with the Mayflower. "Come to Plymouth: do a Pilgrim Fathers in reverse." It is a slogan that has yet to see the formal light of day, but it is still a useful part of the pitch.

Simpson's small team spends little, he says, on glossy advertising or promotional events. He draws a sharp distinction between his own approach and that of many of his competitors, who, he asserts, "pump out advertisements and mailshots and wait for people to come through the door". Relocation options are evaluated by "senior decision makers in confidence", and as a result the bureau's approach relies heavily on desk research, followed by knocking on doors. Consequently "about 70% of our active case load is work that we've identified through our own initiative".

Having assisted area status is important, but not vital. "It's the icing on the cake," Simpson shrugs, "rather than the cake itself." There are, he readily concedes, higher grants elsewhere. There are also bigger players and players that have been at it longer. On the international promotional circuit, he concedes, "we see Scotland more often than we see anyone".

Scotland clearly dominates the picture: highest number of jobs (almost a quarter of the total); second highest number of inward investment projects and second highest number of jobs per project. Even Wales, which claims second place in terms of total jobs created, did so with a third fewer jobs than its northern rival: 31,551 against 49,677.

But on the other side of the border lies a region that the Scots should keep an eye on. For the North-east has managed to attract not one but two Japanese automotive companies: Komatsu's earthmoving equipment factory and Nissan's car plant, both in Tyne and Wear. The Nissan factory is Europe's largest single-site manufacturing investment by a Japanese company, and from an initial go-ahead decision in March 1984 has grown to 3,500 employees producing 200,000 cars a year. Japanese suppliers have also followed, bringing companies such as Calsonic, Daido Kogyo and Sumitomo Rubber to the region.

Electronics feature too. Fujitsu announced in 1989 a project to make four-megabit DRAMs in a custom-designed factory in Newton Aycliffe, employing 1,500 jobs when fully on stream. Nor are all of the companies Japanese: the region is also the foremost location for direct manufacturing investment from Korea, with Samsung and Goldstar recently being joined by Inkel, which opened a compact disc player factory in June.

In fact, according to the Northern Development Company's quarterly business review, it was Far Eastern investment which contributed most to the region's inward investment-generated employment growth from 1985 to 1989. Japanese, Korean and Hong Kong companies altogether generated over 10,000 new jobs, as against just over 3,000 coming from US firms. Less than 2,500 came from European companies, with almost half of those coming from Scandinavia. Major job creators seem to come almost exclusively from Japan and the US.

Scotland has undoubtedly been successful at pulling in big-name corporations from around the world. The roll call of those that have succumbed to the skeel of the bagpipes is impressive. But their record in domestic relocation appears less impressive. While operational factors such as expansion and labour availability play their part in relocations within the UK, research shows that potential savings in property costs are the prime motivator.

Jean Crawford, of relocation consultant Jones Lang Wootton Consulting and Research, says that in her firm's annual survey 54% of all organisations decentralising out of central London cite property costs as the main reason for making the move.

There are certainly savings to be had. City rents are more than twice as high as rents in Birmingham, and three times the price of office space in Glasgow and Edinburgh. Not surprisingly, there is an upward trend in firms upping sticks and heading for cheaper pastures.

But while the jobs are certainly leaving the City, they are not going very far. Almost half simply relocate to somewhere in Greater London, with another 30% moving outside Greater London but remaining within the South-east. Despite the lower costs and the enhanced communications possible with modern-day computer and telecommunications systems, only 10,300 jobs went outside the confines of the South-east - less than a quarter of the total. Scotland attracted only 550 jobs as a result of moves from central London, which amounted to only just over 1% of all relocations between 1983 and 1990. This was despite Edinburgh's considerable reputation as a second financial centre.

Despite the savings that are possible, relocating offices means moving people, even if it is only the key ones. Moving any distance is rarely an experience willingly embraced, and most people approach it with trepidation. As Crawford explains: "Schooling, shopping and entertainment are all significant to staff when thinking about moving. Housing supply and cost are fundamental in persuading key staff to move. People living in the South-east may well find they are able to afford better housing in other areas, but may be concerned about moving back in the future. Increasingly, both partners in the household have careers; the problem of the 'trailing spouse' is one of the most difficult for companies and their relocation consultants to tackle."

Her firm's relocation arm helps companies to minimise the trauma of the big move. Its clients include global multinationals which have followed the classic development pattern and now want to put down roots in richer soil than what turned out to be the case in their first British toehold. Up and down the country, eager development organisations are only too happy to talk to them about the merits of the region that they represent. But they are also tramping the globe with another message for new companies heading for the UK: why not simply plant the acorn in the right place to begin with?

Tees please.

The regions are rolling out the red carpet and cutting the red tape to lure investors.

Teesside has not exactly had a good press. Its attractions in the national psyche probably rank close to those of listening to Leonard Cohen on a wet Sunday afternoon.

Yet Peter Watson, marketing director of the Teesside Development Corporation, clearly relishes his task. His analysis of why it is necessary is succinct: "Teesside", he says, "is a prime case of a narrow economic base - steel, engineering and shipbuilding - where everything went into decline at about the same time."

When the well known photograph of Mrs Thatcher striding across Teesside's industrial wastelands was taken in 1987, local unemployment was 28%. The development corporation was only two weeks old at the time. Since then it has worked hard to establish Teesside as a destination for inward investors, attracting well known names like Sanyo and Samsung. To achieve this, expenditure on infrastructure improvement has been enormous, and the area is part way through a £1.3 billion public and private sector investment programme. The 19 square miles of land under the development corporation's aegis visibly bristles with construction equipment and half-completed buildings.

Watson explains that it is sometimes easier to attract inward investment from abroad than it is from the UK. "There aren't any preconceived views about what the area is like," he says. The strategy, based around building on the area's existing strengths, reflects a refreshingly large dose of reality.

Like other development bodies, Teesside prefers to target potential inward investors rather than to waste resources on the shotgun approach. That said, the aim is fairly broad. "We don't mind what sectors they're in as long as they're in industries with a future," Watson explains. And while other development areas might adopt a "not in my backyard" attitude, Teesside recognises that choice is still a luxury. Capitalising on the area's exposure to the chemical industry - ICI's massive Billingham complex is at its heart, and the even larger Wilton is just south of the river - the corporation is actively targeting chemical companies worldwide.

But ironically, one of its most ardent admirers is not a chemical company; and he targeted Teesside himself rather than vice versa. Bill Bates, British managing director of US-based Integral Corporation's UK subsidiary, rang the development corporation from Heathrow Airport. "I had a tight timetable and I wanted to make use of every minute of it," he recalls.

Recruited by the parent corporation in Dallas to establish and run its first European subsidiary, Bates had just read the draft contract for a factory somewhere else in the North that the company was thinking of leasing. "It was 97 pages long and full of legal jargon," he says. "In the US you can buy a factory with two sides of A4 paper in two days."

Bates was convinced that the proposed deal could be improved, and persuaded his new boss to give him two weeks in which to find a better one. The phone call to Teesside from Heathrow was followed by a meeting with the development corporation the following morning. "I got to see the chief executive right away," he remembers. "The thing that struck me was that they were extremely receptive to our requirements - not just about our factory but about our timetable."

Not that the factory was a piece of cake. Integrals make pre-installed cable in conduit, and needs "long and thin" factory layouts in which to install the production lines.

Within an hour of the meeting Bates was being driven round to look at prospective sites. The one eventually selected was of first world war vintage and had been derelict for years. Bates went back to the corporation and started to get the paperwork moving. By the time that he returned to the US, the key elements of the deal were in place. The development corporation purchased the factory outright on Integral's behalf, following payment of a 10% deposit. The balance would be payable 18 months later - interest free. Additionally, the corporation assisted with the redevelopment of an office block attached to the factory, and negotiated a grant to remove its asbestos.

A nice deal, but not an especially generous one. However, as Watson explains: "We're not in the business of buying jobs." What they are in the business of doing, he says, is "turning dreams into reality". This involves helping potential investors to crystallise their thinking, talking through their business plan, and matching what Teesside has to offer with what the company needs. The emphasis is on "one-stop shopping", and the flavour of the organisation distinctly smacks of the private sector. "To do business, you've got to be businesslike," explains Watson.

Bates agrees. In his view, one of the biggest challenges faced by an incoming company is the amount of red tape that it has to hack through. "My experience of dealing with local councils", he says, "is that you spend six months discussing it, and what you end up with is not what you wanted but a compromise. Dealing with the TDC was a dream."

Making it painless is a recurring theme. Stagnating or shrinking companies do not move overseas - growing and expanding businesses do. These are the very companies that are least able to spend scarce management time on protracted relocation debates. Zarges, a German manufacturer of aluminium products such as ladders, has just opened up in Milton Keynes. While the decision to establish a base in the UK was a strategic one, the decision to put it in Milton Keynes was perhaps less so.

Marketing manager Carsten Rethmeier points out that Milton Keynes promotes itself very actively in Germany. "They came to us," he explains. "They must have identified us as a company that was likely to want to move to the UK. The development corporation's representative spoke almost perfect German. That made it very easy for us to deal with them."

In contrast, Japanese surveying instrument manufacturer Sokkisha has already been in the UK for four years, with an HQ in Crawley and branch offices in Salford and East Kilbride. Rapid growth and an impending rent review meant that a move was imperative. UK managing director Stephen Blaikie explains that the company wanted to buy its next site rather than rent it, but also wanted premises that were pleasant to work in and in keeping with the company's high-tech image. That meant moving outside the South-east.

Again, strategic and locational considerations played a part, but "one-stop shopping" was also important. The company did not want to lose key staff, and Crewe helped to convince people that "civilisation did extend beyond Watford".

"The (local council) developers were extremely helpful. They provided familiarisation visits, laid on coach tours of Chester and Nantwich, and put us all up in a hotel for a weekend. They also offered to provide temporary 'key worker housing'," Blaikie says. The builder that the company selected was also a joint venture with the local council, and he believes that this again helped to keep red tape difficulties to a minimum.

Japanese electronics company Murata is not a household name, despite its $2 billion annual turnover. This is because the company produces electronic components that go into other people's products rather than becoming consumer goods in their own right. Wanting to set up additional capacity in Europe, the company "did the whole tour" - France, Spain, the UK and Eire.

A decision to locate in the UK emerged for a number of reasons, but familiarity with language and customs was a key one, as English-speaking Japanese outnumber French and Spanish-speaking ones. The company was close to a deal on another site when the Devon and Cornwall Development Bureau made an eleventh-hour pitch. It was, unknowingly, addressing a receptive audience. As UK managing director Yoshitsugu Fujiwara explains, Murata's corporate culture in some way runs counter to that expected of a Japanese firm. "Murata doesn't like investing in places where lots of companies - especially Japanese ones - are rushing to invest," he says. This mirrors its policy back home, he adds, where the company eschews Japanese industrial estates, and instead buys its own land and builds its own factories.

Now 18 months into a planned four-year and 900-job programme, Fujiwara recalls how the development bureau helped with everything from negotiations on property and grants to organising houses and work permits for incoming Japanese staff. It is a continuing process, and the company still values the odd piece of advice that it seeks as its integration into the local business life continues.

There is no doubt that the Japanese do seem to have a yen for particular parts of the country. While northern England has emerged over the years as their favourite destination, Scotland also lays claim to some success.

The new town of Livingston was established in 1962 to counter the decline in West Lothian's traditional industries. An oasis of employment in a land of dole queues, over 40% of the town's labour force works in its manufacturing industry. It has attracted hundreds of millions of pounds of inward investment to become the acknowledged capital of Scotland's Silicon Glen.

Japanese semiconductor giant NEC has invested over £150 million alone. Mass producing four-megabit DRAMs - the first plant in the world outside Japan to do so - the company employs nearly 1,000 people in the town, making it a major employer. Mitsubishi Electric is another, occupying almost a third of a million square feet of factory space. Further expansion plans are underway to up production capacity of VCRs for the European marketplace to 500,000 units a year, employing 300 extra people. Not bad from a standing start eight years ago. Presumably the town offers up regular prayers of thanksgiving for the anonymous French official who, in the mid-1980s, directed all imports of non-EC manufactured VCRs to a tiny undermanned customs post where they queued for months.

The inward flow would appear to be quickening as 1992 nears. Scottish Enterprise's latest figures - announced in July - showed that a quarter of its inward investment came from Asia in 1990-91. Not only did the first Korean and Taiwanese firms arrive, but also seven from Japan - up from five in the previous two years - which are expected to add another 2,000 jobs to the 6,000 already employed by Japanese companies. "Come on in - the water's fine" seems to be the message heading back to Tokyo.

Appropriately enough, the first Japanese manufacturing company to stick its toe into the water was a manufacturer of fishing tackle. Daiwa Sports Ltd - part of the large Daiwa group - arrived in 1977. Its factory at Wishaw in Lanarkshire, a mere caber toss away from what was to become Silicon Glen, employs 260 people making high-tech fishing rods that are not only sold all over Europe but are also shortly to be exported back to Japan. Managing director Sam Aoki, now on his second tour of duty at the plant, is overseeing a £2 million expansion programme.

Back in Japan, Daiwa uses its fishing rod technology to make golf clubs, and Aoki is spearheading their manufacture in Scotland too. The factory has been extended, equipment flown in, and production began last month. Despite its years here, and the fact that Aoki's fellow directors are all Scots, the company has been involving Scottish Enterprise in its discussions.

And back on Teesside, the importance of continuing contact with a friendly face is a view echoed by Integral Corporation's Bill Bates: "We've got an ongoing relationship, rather than having had a brief encounter - and that's very important."

Wish you were here?

There is life beyond London and the UK.

Flanked by full-size US flags, Richard J Kilner of the State of New York Department of Economic Development sits at his desk. Every inch the image of the clean-cut American abroad, he spits out a staccato of statistics in an accent you can dunk a doughnut in. "One, New York State is the ninth largest economy in the world. Two, after California, it's the second largest manufacturing base in the US. Three, 51% of the population of the US and Canada reside within 750 miles of the state's centre."

Talking to him is a slightly curious experience. We are sitting in an old-fashioned building not at all dissimilar to a New York brownstone - although it is just a stone's throw from Piccadilly Circus - and I find myself automatically slipping into mid-Atlantic business-speak, helpfully trying to translate ordinary British terminology into its American equivalent, saying "sales revenue" rather than "turnover" and so on. It comes as some surprise to learn later in the interview that Kilner is in fact British born and bred, with a degree from the University of Leeds. The accent, it emerges, is the result of having spent most of the 1970s in Maine. Ah well, I tried.

Selling New York State is not always easy. The imagery of violence, financial collapse and rustbowl industry associated with New York City is deeply entrenched. "It always starts out with the negative," says Kilner. "Everyone thinks of New York City - so you have to re-educate them. New York City represents only one half of one percent of the total area of the state. For example, we make the point that it's got a national park - the Adirondacks - which is the size of Belgium." He coughs. "At least, we say that in the UK, not in Belgium."

His marketing strategy is straightforward. It starts with emphasising the market access that the state offers. Thanks to where it is, the statistics - and there are brochures packed with them - are impressive. Also worth emphasising is its East Coast location. California is not without its attractions, but it is a lot further away, and there is a nine-hour time difference.

There is also plenty of diversity in the state's economy, which means a ready-made pool of experienced employees to recruit from, and plenty of potential customers to sell to. Of 450 SIC codes, Kilner points out that the state has manufacturing (rather than just assembly) capability in 438 of them. "The exceptions are just stuff like offshore oil," he shrugs.

He is keen to point out that the state's size - its western border abuts Canada - adds to its attractions for incoming business, versus, say, smaller next-door Massachusetts which shares virtually the same market access. "White-collar wage costs in Albany (the state capital) are 49% less than in New York City, and 26% less than in Boston. Three large companies have moved mid-state from Boston in the last year, halving their labour costs in the process. In Syracuse you can get prime industrial land for $20,000 an acre."

Kilner has been attracting companies to New York since 1981. In that time the pattern of inward investment has changed radically. "Ten years ago", he says, "approximately 80% of foreign manufacturing investment was in greenfield new plants. Now only 30% are greenfield sites - the rest are acquisitions, joint ventures and technology transfers."

His role has had to change with this shift. "If the market's asking for joint ventures then we've got to deliver them," he says, doubtless aware that if New York does not, there are plenty of others that will. Ten district offices within the state liaise closely with around 130 local development agencies in a two-way marriage programme. In Europe, Kilner is acting almost as a merchant banker, targeting likely companies for potential deals, and approaching them with carefully packaged proposals. Back in the state, these are matched with carefully selected companies that might also be interested in such a deal. It is an intensive process.

David Morgan, head of business development at £100 million environmental engineering and biological safety testing company Huntingdon International Holdings, explains how it worked for them. "It was chiefly attitudinal," he says. "They wanted to get involved: several other states that we looked at adopted a very take-it-or-leave-it attitude."

Morgan was in the early stages of a project to look at setting up an analytical services subsidiary in the US, when New York's targeting process identified the company as a possible buyer for a 20-year-old research laboratory 40 miles north-east of Buffalo. The company's consideration of general locational issues - comparative costs, employment legislation and grant aid - rapidly moved on to a consideration of the specific deal on the table in front of it. It seemed a reasonable fit. It had been a totally speculative shot - but one that hit the mark. "They were quite on the ball," admits Morgan.

Despite being a quoted company on New York's NASDAQ exchange - it had been floated there by former US owner Becton-Dickinson in the high-tech boom of the early 1980s - Huntingdon was a totally British company and knew very little about the intricacies of operating in the US. Kilner's people, first in the UK and then locally in Buffalo, guided them through the maze. "There are a lot of regulations over there," says Morgan, "and you really do need help in sorting them out. And I have to say they were very good at it."

The original investment has since been supplemented by further acquisitions - although Huntingdon did not seek further help from the state with these. "We can pretty much operate independently now," says Morgan. The company's total US employment has risen from 15 or so to 2,500 - who now bring in 65% of its total revenue. Its US presence also brought it "absolutely critical" US investor recognition and the company gained a UK quotation in 1988.

But moving to the US is still the exception. Large though the North American market is, the soon-to-be-single European market is geographically closer. A move to somewhere else within the EC is a far more usual first step for British companies contemplating setting up overseas. It is also an opportunity for them to think through - perhaps for the first time - where precisely would be a logical location for them.

Most companies are where they are in Britain almost by accident. That was where the company started; so that was where it grew. Few brand new start-ups are completely footloose. A decision to set up in Europe offers an opportunity to plant the new offshoot in the soil that seems most suitable for it. For a company with a European rather than single-country focus there are two key issues to be resolved. First, what is the most logical location from the market access and logistics point of view? Second, what government locational inducements are available? In many ways the locational inducements issue is the more difficult of the two to resolve. Phrasing the question is simple; finding someone to ask it of is not.

For each country there are a bewildering variety of national funds, regional funds and EC funds, each with its own purseholder and each hedged around with conditions and constraints. The days of showering incoming companies with buckets of money are past.

Douglas Yuill, of the European Policies Research Centre at the University of Strathclyde in Glasgow, heads a team whose job it is to track exactly what is available and to whom. Their 500-page annual guide is now in its 10th edition. They additionally maintain an online database - EUROLOC - that users can dial into for the most up-to-date picture.

"In the old days regional development grants were predictable, large and visible," agrees Yuill. Money was used as a blunt instrument, countries slugging it out to bring in companies at almost any cost. "The trend now is away from large automatic grants to discretionary ones instead," he explains. "You have to negotiate now - everywhere has become more selective." It is, he says, a better way of doing business: the old system often meant large windfall gains for companies that would have gone somewhere anyway, irrespective of the inducements available. The trick now is to know what might be available. "Be prepared," he advises. "Know what you're likely to hear before you hear it, and understand the rules before you start playing."

There is still a lot on offer. Portugal offers capital grants of either 75% or 45%, depending on where you go. Capital grants in Spain go up to 75% too, but only in small pockets of the country. Eire also has two rates: 45% and 60%. But the fact remains that most businesses regard locational inducements as being of secondary importance to the logistics and market access issues.

Claude Lefort, of France's Rhone-Alpes Chamber of Commerce, puts it very simply: "You get incentives to go to an area with problems. You get the money once, but you've got the problems all the time."

Lefort, a former French teacher at Manchester Grammar School, is a persuasive salesman for a part of France - the bit in the bottom right hand corner - that appears to have suddenly woken up to the fact that it has got something going for it, despite having no substantial financial inducements to offer. Only in 1987 did the region establish an organisation to market itself to foreign investors, headed by Thierry Bernard, a smooth and articulate 25 year old whom local gossip has apparently marked out as clearly destined for higher things. Called ERAI - Enterprise Rhone-Alpes International - it co-ordinates the previously disparate activities carried out by Lefort's regional Chamber of Commerce and others. With few financial inducements to offer, the principal weapon in its armoury is its location.

A glance at the inducements on offer throughout Europe shows that the highest ones are paid in countries at the periphery. The Rhone-Alpes is close to the heart, especially once the Channel tunnel has been finished. Most of northern France and the Low Countries are so close to the UK that it is hardly worth the trouble of moving. The Rhone-Alpes is far enough away to be a meaningful move - and usefully close to Switzerland, Italy, Spain and Austria. In Bernard's words: "We're at the north of the South, and at the south of the North." Lefort himself is rather more prosaic. "One hundred and eighty million consumers are within one day's truck journey away," he says.

The region is criss-crossed by fast roads and motorways, and despite its capital - Lyon - being France's second largest city, setting-up costs are low by comparison with elsewhere in Europe. The strategy for developing the region relies on "sucking investment in from the peripheries" - such as the UK and Scandinavia. The fast-growing Swedish home furnishings group IKEA, for example, is building its new 60,000 square metre southern Europe distribution centre on a 21-hectare site at Isle d'Abeau, a sort of French Milton Keynes near Lyon airport. Development started in 1968, and the town's population of 60,000 is projected to grow to 100,000 by the end of the decade.

Development manager Alain Dechambenoit has been at Isle d'Abeau for 15 years and has seen it change substantially. He remembers what is now a thriving community as green fields and a handful of people. Driving around, he points out building work that is underway, or sites earmarked for development.

A few minutes' drive away to the north-east is the office of Gerard Rohart, who heads the development of the more recently established Plaine de l'Ain industrial park. Plaine de l'Ain offers French chic on a budget. Stylish, attractive buildings - the park is divided into "colour coded" zones to which all exterior decoration must comply - in a landscaped area (they have planted over 160,000 trees), still obtainable, says Rohart, at virtually the lowest land prices in the Greater Lyon region - FFr 50 to FFr 70 per square metre for level sites equipped with services. Local taxes are only two thirds those of Isle d'Abeau. "You've got all the advantages of Lyon," Rohart argues, "without paying the price."

It is an argument that has apparently been heard, with Unilever, Peugeot-Citroen and United Technologies all locating there. ICI has three chemical plants in the region and is planning a fourth pesticide facility "probably in Saint Clair du Rhone", half an hour's drive south of Lyon.

Hewlett-Packard has also made a heavy commitment to the region. A European distribution centre at Isle d'Abeau is complemented by what local H-P director Marc Pugens jocularly refers to as his "75km factory". Two 40,000 square metre plants making PCs and peripherals, they are linked by a just-in-time shipping system shuttling up and down the motorway between Isle d'Abeau and Grenoble. Pugens too is a voluble advocate of the area, enthusing over the low labour turnover and absenteeism figures that he achieves, and explaining that H-P's open management culture poses no problem "once people are past the initial shock".

Like New York State, the region acknowledges that investment has to mean more than just incoming factories. "The world has changed: it's not just greenfield investment any more. Technology transfer agreements and joint ventures are just as important," says Bernard. Like New York's Kilner, he offers a two-way marriage-broking service, putting potential partners in touch with each other. The name of the game is long-term prosperity, not buying in short-term, quick-fix, screwdriver factories. "The region is rich - there's no problem with employment," he says.

In fact virtually the only part of the region to offer any financial inducements at all is the town of Saint-Etienne, whose coal-mining and textile industries collapsed in the early 1980s. Coralie Grimand, who promotes the town, contrasts the various national attitudes that she encounters. "The Japanese actually tell us 'We are not interested in location incentives'," she says. "Whereas all the Americans think about is the bottom line - to which the size of the incentives make a big difference." And the British? "Very professional and very aggressive," she says, diplomatically.

She might be referring to Steve Yates of Luton-based MTL Instruments plc, a £14 million manufacturer of electrical safety devices. Needing a French sales and service outlet, Yates was sent over to head it. He soon found himself talking to the development people in Lyon - clearly very effectively. "They made the whole thing very simple for us," he recalls. "My French was non-existent, and they did the hand-holding that we needed." They not only gave him everything that he needed to justify Lyon over Paris, but also provided free use of their offices, helped him to find staff (it is difficult to interview when you do not speak the language), located premises and sorted out a job for his girlfriend.

It seems a lot of trouble to go to for an office employing only a handful of people. But the reasons become clearer when Lefort and Bernard describe their vision of the future.

Lyon has a real chance to become one of the main hubs of Europe, they say, but only if it escapes from the shadow of Paris. They are confident that they can do this - partly because of what they have seen achieved in Britain by development agencies which have successfully sold the idea that there is life outside London.

The analogy of a snowball comes to mind. It has not been rolling very long, and it is not yet very big, but it is definitely there and it is moving. The message is getting heard and companies are coming. But one of the region's attractions is that it is not an overcrowded Paris or South-east where wage rates are bid up in a profit-shrinking spiral as firms compete in a tight labour market. If Lefort and Bernard are to avoid the avalanche, they will, at some point, have to stop the snowball that they have started.

(Malcolm Wheatley is a freelance writer.)

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