Relocation 1: It's not difficult to image why the US and Japan rush to set up shop in the EC. What may not be so immediately obvious is why Britain appears to be the favourite location.
The British are experts at running themselves down. Be it education, research and development or basic engineering, we are constantly told that either we don't do it as well as we used to, or that someone else does it better. It is a kind of national masochism in which everyone periodically indulges - Conservative and Labour parties, Confederation of British Industry and Trades Union Congress.
And yet the amount of investment that has come flooding into the country over the last decade (and which, in spite of the recession, continues to pour in), shows that many foreign companies find us attractive. In the league table of inward investment, Britain is in pole position, absorbing 51% of Japanese and 41% of US investment in the European Community. Incredibly, Britain has been the recipient of almost 40% of both countries' foreign investment since the war.
It isn't difficult to see why Europe is attractive. Maastricht or no Maastricht, the process of harmonisation across the Community continues apace and with 327 million consumers, the EC is the biggest developed market in the world. Immediately to the east there are another 328 million consumers who, now that the Communist bloc has folded, are described by research giant MAI's eastern Europe director, Mia Bartolova, as "probably the world's last underdeveloped market where the population is highly educated and close in outlook to Western consumers".
So it is hardly surprising that non-European companies and, in particular, the two global economic superpowers, Japan and the US, are anxious not to be left out. Overwhelmingly, Britain has proved the favourite location - but why?
One big incentive might appear to be language but this is probably less important than you might think. Although few Japanese, for example, can speak any foreign language other than English, most of the plants established here use local staff right up to management level (Nissan's Sunderland plant, for example, has only two Japanese directors). Consequently, it must be relatively unimportant.
American companies confirm this: "The question of language didn't really arise," says Les Grant, president of Applied Imaging, an American company that has just moved its entire headquarters to Sunderland. And from Scotland, Jim Kennedy, finance and administration director at Compaq, points out that US executives are going to be using English at work regardless of the country in which they may be based. Both believe that it is purely the commercial considerations that provide the motive.
Perhaps the answer lies with Margaret Thatcher's legacy. In 1979 she came to power on a wave of public support for her anti-union and pro-employer sentiments. This, and the recession of the early '80s, has left Britain with a more co-operative workforce and what is probably the most employer-friendly legislative background in Europe. This has been crucial, according to Mary Morrison, marketing communications manager of US risk insurance specialist Cigna's operation based in Greenock, near Glasgow. She says that flexibility is a vital factor for many firms in the computer-related industries as they frequently require seasonal or temporary workers. The employment law in competitor countries - Germany, for example - presents major barriers to the flexibility such companies expect.
After 13 years of a Conservative government committed to curbing the power of the unions, Britain has the lowest level of union membership in the Community. From being notorious as one of the most militant workers' movements in the world, with 29.5 million working days lost in 1979, it is now one of the most docile, with only 700,000 wasted last year. Simultaneous with the drop in militancy there was a 35% drop in the membership of TUC-affiliated unions, from 12 million to fewer than eight million today.
Certainly in Sunderland, once home for a notoriously militant workforce, attitudes have changed. According to Nissan's managing director, Ian Gibson, his workers have proved very flexible. He prefers to credit the arrival of Japanese management techniques rather than union-bashing and unemployment: "People realise they have no excuse any more. You can say to yourself what works on the other side of the world won't work here. It's a bit more difficult to say, what works on the far side of the river won't work here. It concentrates the mind."
Over the last decade it has certainly worked for Nissan. Contrary to popular belief, the plant is not among the world's most highly-automated. It has instead tackled employee attitudes on the production line. In breaking down demarcation, encouraging all tiers of staff to make suggestions for improving productivity, tightening stock control and using versatile machinery, the management has made the Japanese plant the most productive in Europe. It makes 45 vehicles per employee per year, compared with 38 for its nearest European rival, Volkswagen.
Within Britain the record is even more impressive. Vauxhall turns out 33 and Ford 32. At 27 vehicles per man, Rover is at the bottom of the league table but is not blind to the lessons. It has embraced the Japanese ethic. Its own plan, published this spring, seeks to abolish the traditional internal hierarchy by phasing out distinctions between salaried and hourly-paid staff.
As a direct result of the arrival of the Japanese, the British car industry has begun to claw its way back up the European league table. While the German car industry improved productivity by 1.7% between 1980 and 1990, the British industry managed an 8% increase. As a result, according to the German car industry's trade association, wage costs are now running at DM26.05 in Japan and DM25.87 in Germany, but in Britain they are 25% lower, at DM19.46.
But although all Britain's car plants are benefitting from falling labour costs in relation to European competitors, according to Professor Garyl Rhys of Cardiff Business School, the older companies are still much less efficient than the Japanese. On his index of labour costs, Rover has the worst score of 118, Volkswagen and Peugeot 110, Ford 108, while the efficient Nissan scores a mere 88.
In view of these figures, it is perhaps not surprising that production of Japanese cars in Britain is expected to rise from 1991's 120,000 vehicles, to 500,000 by 1995 and 1.5 million at the turn of the century.
But the revolution has gone further than the car industry. Between 1979 and 1989 (when the latest recession began), the nation's hourly productivity rate rose by an impressive 4.7% a year, a dramatic improvement from the 1.7% average between 1973 and 1979.
In the early '80s Japanese managers seem to have spotted what their British rivals failed to - that a manufacturing recession was the ideal time to start up a new operation. Tempting grants were available to help cover start-up costs, and workforces, alarmed by the sight of the dole queues, were only too keen to co-operate.
Cigna's Morrison believes that the UK also benefits from a Protestant, non-macho culture. Her company is based on the outskirts of Glasgow and reliant on large numbers of female workers. She believes the labour pool is far more available and flexible than it would be in the Catholic countries of, say, the Mediterranean, where the pressure on the married woman to stay at home and look after children and husband is much stronger.
Furthermore, she thinks that, in some cases, redundancy has even improved the level of training: "On the west coast (of Scotland) as the traditional industries have shut down, the people who were made redundant seem to have put their money into further education rather than leisure pursuits." In practice this has meant that many of the workers in Glasgow's traditional heavy industries have invested in technical courses and Cigna has had few problems recruiting suitably skilled staff.
This applies to the school system, too, according to many of the foreign companies now based here. Today 60% of youngsters stay in education after reaching the minimum school-leaving age, compared with 48% three years ago, and if those on in-company and Youth Training Schemes are added into the equation, 80% of 17 year-olds are still in education.
While education secretary John Patten may have spent the summer finding fault with the British schools and examination boards, their failings seem not to bother the companies that have arrived recently. Indeed, as the CBI and other British manufacturers look enviously at German training policies, for many hi-tech Japanese and US companies, it is the British system which wins on points.
One satisfied manager is Applied Imaging's Les Grant. His US company manufactures automated technology for the biotechnology industry. Two years ago, it relocated its entire Californian-based headquarters to Sunderland. Although working at the very forefront of its field (it produces 90% of the machines used in amniocentesis testing on pregnant women around the world), he has had no problems in finding top-quality workers: "We have found it very easy to recruit high calibre staff," he says. "We have two thriving universities near here with good science departments, and we have found it really easy to get local PhD-level staff."
Compaq's Jim Kennedy agrees that finding good staff is no problem: "Most US companies that are well-managed and have high standards of recruitment feel comfortable that they can put together a plant here," he says. He feels that paper qualifications are not as important as the general calibre. After all, he points out, even workers with experience in the field are likely to need training from scratch as each new product hits the assembly line.
Certainly in Compaq's case there has been no cause to regret its original 1986 decision to invest. So far the company has pumped £79 million into the plant - which is almost five times what it had planned for - and sales have risen from £55 million to £297 million in its first three years of operation.
Just as important as academic achievement is the existence of other companies in the sector, according to Kennedy: "The fact that other US companies like Digital were already doing business here was crucial," he says. "It proved that the sort of infrastructure we needed was already in place." Similarly, although Applied Imaging opted for Sunderland rather than "Silicon Glen", the relative proximity of the two locations makes it easy to lure experienced staff south from the centre of Europe's computer-manufacturing heartland, according to Grant.
The availability of grants, particularly in deprived areas, is important. Applied Imaging, for example, was allocated around £175,000 from local and central government. Initially the firm had toyed with the Spain/Portugal border as a possible site for its headquarters. Although the acquisition of two British-based specialist firms was also an important consideration, it was the grants that proved to be the deciding factor. Sustained government help has done much to revolutionise the Welsh valleys over the last decade. As the traditional twin heavy industries of coal and steel have declined, so the Welsh Development Agency targeted foreign investment - most notably attracting Sony, Fujitsu, Bosch and engine plants for Honda and Ford. This has proved a lifeline. Unemployment in Wales has declined from 13.7% (almost 3% worse than London) in 1985 to today's 9.6% (1% better than the capital). What would have been unthinkable 10 years ago, has happened: today Sony employs more Welsh workers than British Coal. Since 1985 manufacturing output in the Principality has increased by 31% compared to a national average of 11%.
Similarly, foreign investment has done much to cushion the collapse of traditional industries north of the border, with 60,000 people (17% of the workforce) employed in electrical and electronics engineering. Although this is expected to decline slightly during 1992, Compaq projects that the sector in Scotland will grow at 4.5% next year and by a dramatic 8% in 1994.
One might have thought climate would be important to some of the executives contemplating moves from more equable climates, but in fact it seems, considering their ultimate destinations, to be almost totally irrelevant in the selection of location. When Applied Imaging was choosing between Spain and the North East, it was the former's climate that was its selling-point and initially the then Californian-based company believed this was likely to be important to many of its middle-managers. However, once the decision to relocate to Tyneside was finally made, the question of climate proved to be largely irrelevant.
Similarly, the dozens of US firms that have relocated from Silicon Valley have, on the whole, headed for the rain-lashed Silicon Glen, while the Japanese seem to be drawn like a magnet to the North East, infamous among the British for its bitter cold. "In the end it's quality of life, not climate that matters," says Compaq's Jim Kennedy, adding that many of the foreign nationals who work in Scotland spend so much time travelling around that it makes little difference what the weather is like.
If climate is relatively unimportant, however, some factors that the British are largely oblivious to count for a lot with investors. Golf-addicted Japanese executives love the number, quality and, above all, affordability of British courses. Coming from an island where land is at a premium and membership of a golf club one of the ultimate badges of having "made good", the Japanese consider Britain to have powerful pulling power (So much so that the English Golf Union estimates that 500 new courses will need to be built to satisfy burgeoning demand). Fortunately for the new arrivals, courses seem to cluster naturally around the areas of highest foreign investment. However, desire for status goes further than mere golf.
Many of the Japanese who have arrived have thrown themselves into (and been accepted by) the business life of the community. In Milton Keynes, for example, Kyoshi Watano, managing director of Alps (UK), a Japanese company making electromechanical equipment, has been made chairman of the Milton Keynes Chambers of Commerce and is a director of the local Training and Enterprise College (TEC). Similarly, Sunderland Polytechnic's Japanese Studies Division has built up close links with the local Japanese population. A kite fair is now held every year - the Festival of the Air - with the aim of encouraging links between immigrants and the indigenous population.
Of course not all the companies flooding into Europe have settled in Britain. In the early '80s for example, many computer firms were attracted to Paris, lured by that massive monument to Francois Mitterrand: the Defence Project. With big state subsidies to tempt companies to something which threatened to be a white elephant of Canary Wharf proportions, many US hi-tech firms took the bait willingly. But, as the subsidies have gradually been phased out, many are now regretting it, according to Cigna's Mary Morrison: "They are finding it phenomenally expensive," she says. In contrast, the sort of greenfield sites that lure companies to Britain's relocation hot-spots are free of hidden rent time-bombs.
Transport links are also critically important. Thanks to the rapid development of air links over the last decade, virtually nowhere in the whole of the UK is more than a couple of hours from London and even the rest of Europe takes only a little longer.
In spite of British carping about travel delays, executives used to travelling regularly on business across the US or to having to commute hundreds of kilometres daily in Japan on the bullet train, don't mind travelling the relatively short distance from, say, Leeds, Cardiff or even Edinburgh to the capital. While, even closer to London, Milton Keynes has attracted 260 companies from overseas - 90 of which are American and 44 Japanese.
On the whole, though, foreign investors have flocked to those areas which were hardest hit by the recession of the early 1980s, lured in many cases by grants and the availability of skilled labour. As Nissan and the bulk of Japanese investment have proved in the North East, high unemployment creates an enthusiastic and flexible workforce. For similar reasons, hi-tech US firms in particular have been lured to the Glasgow to Edinburgh corridor. South Wales is another investment success story - with firms such as Sony and Matsushita (Panasonic's parent company) - attracted by the high skills, low wages, and cheap rents in the area.
Britain may be in the depths of one of the deepest recessions it has faced this century, but we should not despair. As the flood of investment into the country over the past decade proves, we have much to be proud of. In particular the Japanese have proved that the British workforce can still be a world-beater with the flood of investment showing little sign of drying up. Until better timescome along we should be count our blessings.
JAPANESE SPIN-OFF
The idea of a Japanese grocery store in the North East is not as absurd as it may seem. In the North as a whole, there are now 66 Japanese and Far Eastern companies employing 16,000 people as a result of their £1.7 billion investment. With some 40% of this volume exported, they are largely immune to the vagaries of the British economy. In large measure, the inward investors have replaced the jobs in traditional industries such as shipbuilding. Ten years ago, a third of the workforce in the North East was employed in shipbuilding, steel and coalmining. Today it is just 3%. Yet devastation to the local economy was averted by the flood of inward investors who have also conveniently broadened the local economy's base.
The spin-offs from these Japanese investments to the local economy have also been quite remarkable. In 1984, the year Nissan announced its plans for a Sunderland factory, the McAlpine building group had a north eastern turnover of just £10 million. Five years later the company's turnover was £150 million, two-thirds of which could be directly attributed to the Japanese.
The effect may be gauged in the national unemployment statistics. While unemployment has risen in the North from the 1990 low of 8.9% to 11.2% today, the increase in raw numbers was "only" 33,000. By contrast, the formerly booming South East has seen its unemployment rate rise from 4% to 9.3%, with nearly an extra half a million people on the dole.
Add in the relatively low levels of business debts and mortgage bills, and you can assume that the smiles on the terraces of Newcastle United's St James ground are not all to do with the heroic efforts of Kevin Keegan's team.
SCOTTISH DEVELOPMENT
Not all the gleaming buildings springing up over Scotland house hi-tech operations. Cigna, the US risk insurance specialist, has a brand new European headquarters in Greenock. Further up the Clyde, a new private state-of-the-art hospital is being built in record time.
Much has been made in recent years of Silicon Glen, the term given to the clutch of Scots-based computer and related companies that collectively produce some 30 % of Europe's personal computers. But the new £180 million hospital project and other large investments - such as the £215 million put into the Caledonian Paper Mill at Irvine by a Finnish group back in 1989 - demonstrate a growing diversity in the Scottish economy.
It is a diversity that has proved particularly useful in the current recession. Like the north of England, Scottish unemployment has not increased as sharply as that of the South East. In 1990, the Scottish rate was 8%, exactly twice the rate for the South East. Today, it is 9.8%, only 0.5% ahead of the South East. And in some areas of Scotland today, the unemployment figures are the best in Britain. In the Borders region, for example, the rate stands at 6%, while in the oil-rich region around Aberdeen, it is just 4.6%.
Unemployment should also fall further with the predicted fall of 73,000 in the Scottish labour force between 1990 and the year 2000. This represents a 3% decline and comes at a time when the UK workforce will rise by 2%. But while it should help ease unemployment worries, the spectre of skills shortages could haunt the Scottish economy unless the same drive and determination that built up the oil industry from scratch goes into training over the next few years.
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