Bob Bischof, vice president of the German British Chamber of Industry & Commerce, talks with Charles Powell, member of the U.K. House of Lords, about European trade protectionism, U.K. inward investment and growth, in an interview with Francine Lacqua and Guy Johnson on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)
The sale of Invensys, one of the last remaining substantial engineering companies in the UK, to the French industrial giant Schneider Electric simply beggars belief.
The declared aim of this Government is to rebalance the economy towards manufacturing. In reality short-term shareholder value rules and the Brits will sell anything and everything to please the City.
As a German living in this country, I am aghast at this. Germany’s manufacturing prowess is founded on a much more long-termist approach. But Invensys is, sadly, a typical British industrial story.
The company was created out of the merger of two engineering companies Siebe and BTR in 1999. The new company was debt-laden and poorly managed, going through a £2.7billion debt restructuring exercise in 2004. In 2005 the board appointed Ulf Henriksson as chief executive, who restored the company to financial health. Enter Sir Nigel Rudd as new chairman.
In March 2011 he fired Henriksson, an engineer, because ‘he could not see the big picture’ and replaced him with the chief financial officer Wayne Edmunds. The share price subsequently halved in 2012 because of technical problems. It only bounced back when the break-up of the company was announced and set in motion with the sale of the signalling business to Siemens.
The rest is now on its way to being swallowed by a French company for £3.4billion – well done, Sir Nigel. Does anybody get the message that these deals are a sure way to manufacturing oblivion in the UK?
My own experience bears this out. I arrived in the UK 40 years ago to set up a UK subsidiary of a German lift truck maker. Our main European rival was the British company Lansing Bagnall, based in Basingstoke. Their market share in the UK was around 45 per cent and they exported 60 per cent of their production worldwide. They were the envy of the industry.
Some 20 years later a large German industrial conglomerate bought them. A few years later they were sold on with the rest of the lift truck division to private equity, who closed the Basingstoke factory and moved the production to Germany and France.
In 1994 my company bought the last remaining British lift truck manufacturer Lancer Boss, invested huge sums for a while, but then had to give up, close the plant in Leighton Buzzard and moved the production to Germany.
One of the reasons was that they could no longer get cold-rolled steel sections for the lift masts of their trucks in the UK, as the Corus plant in the North East was ‘restructured’ – the other was that there was a cyclical downturn in the sector.
There are dozens of industries and companies where the same or similar happened. Mergers, acquisitions, de-mergers and break-ups of companies are a favourite game in the UK to enhance so-called shareholder value. It promises faster returns for shareholders and bonuses for the board members rather than following the slower path of growing their companies organically. They would rather ‘return cash to the shareholders’ by share buy-back programmes and high dividends than invest in the future of their businesses and the prosperity of UK Plc.
What is the Government doing to change this pattern? The slogan needs to change from ‘It’s the economy, stupid’ to ‘It’s the real economy, stupid.’
This letter was printed in the Financial Times on Monday July 7th. You can read it on FT.com here.
In Martin Wolf’s excellent guidance notes to Mark Carney (Comment, July 5) he writes: “The appointment . . . was a bold move. It is wrong to expect miracles . . .” He does not appear to share the enthusiasm of the chancellor and others about what “the outstanding central banker of his generation” can achieve in the UK.
Maybe Mr Wolf felt reminded of the appointments of Sven-Göran Eriksson and fabulous Fabio Capello, who were supposed to revitalise the English national team and who were heralded by the Football Association in much the same fashion.
As a German, I find it equally incomprehensible to appoint a non-English person to either job. London prides itself, rightly so, as one of the most important world centres of financial expertise and the homeland of football – and can’t find suitable candidates?! Apart from everything else, where is the British pride?
Britain’s economic future will in any event not be decided by the financial wizardry of a central banker nor will the English football team’s performance be enhanced by coaches from abroad or home. Both have the same problem in common – the system under which they work is wrong.
The German government is running a scheme to tempt ‘A’ level qualified people aged 18 to 35 to Germany to serve an apprenticeship during a three year period all expenses paid – a new “Auf Wiedersehen Pet” story.
British companies needing to recruit talented young people have some competition now: the government of the Federal Republic of Germany is paying to recruit young people from Britain to receive full training in up to 300 occupations.
The International Business Academy (IBA) in London, which was appointed to administer the scheme in the UK, aims to provide hundreds of young people from UK to Germany for apprenticeship placements and work in specific areas.
The scheme is recruiting people aged 18 to 35 years for both vocational training and jobs for young professionals in fields like engineering and healthcare. The latter requires ready-trained professionals.
The recruitment drive is evidence that Germany is planning for the fall in its domestic workforce in 10-20 years time when low birth rates will be felt.
To be eligible for vocational training courses, candidates must have ‘A’ levels or a Baccalaureate but a degree is not required. Knowledge of some basic German is needed in particular for apprentices, who need to go to college once a week under the dual training system.
Successful candidates receive a full package of benefits designed to tempt people to relocate to Germany, including 170-hours of German language lessons in England or Germany before the final placement in a German company, a minimum net salary of Euro 818 per month during training, which lasts approximately three years.
Travel costs for the interview in Germany are covered, as are relocation costs to Germany if the person takes the placement or job and two free flights home every year.
The German government has capped funding for the programme to Eu139 million. “There is no allocation to the individual nations, it is a first come, first served basis,” says Wulf Schroeter who runs the IBA in London.
Shortage of Recruits
Germany has a shortage of occupations for which there are numerous job opportunities, especially for technicians and engineers, hotel and catering jobs and doctors and healthcare professionals.
“For these occupations, trained specialists are needed. In these and in more than 300 other professions, apprenticeships can be offered,” says Mr Schroeter.
IBA is part of the FuU Group, a training institute based in Heidelberg appointed to run the UK scheme within an EU-wide framework called Mobi-Pro EU that promotes young and unemployed professionals within Europe. “Only organisations that are recognised by the German Federal Ministry of Social Affairs may place young professionals in to German companies,” Mr Schroeter adds.
Full details of the scheme and how to apply are at http://www.international-business-academy.co.uk/
It means different, yet related things – it describes a medium-sized company, but it also means doing business in a very German way.
Mittelstand companies are family owned, in 95 per cent of cases, and 85 per cent are owner-managed. They are oriented towards customers, employees and communities rather than just obsessed with shareholder value.
They are typically embedded into a region, where they take their responsibilities seriously. Often, they are strong exporters, world leaders in their chosen field of operation like Brita Water Filters, which has raked up around £7billion annual turnover in 2012 from very humble beginnings.
Although the official definition of a Mittelstand company is up to €50million turnover and 500 employees, many have outgrown these numbers by far – including my former company, the €2.2billion turnover fork-lift truck maker Jungheinrich AG. But culturally, they retain the Mittelstand outlook.
Staying with the narrower definition, Germany has 3.5 million Mittelstand companies, representing 52 per cent of total economic output, 61 per cent of employment and €200billion of exports from Germany. Of these, 1,300 rank as so-called ‘hidden champions’ – world market leaders in their niche, against 67 in the UK and 366 in the US.
These companies are regarded as the backbone of German manufacturing, giving it a resilience that has stood the economy in good stead in the economic turmoil.
That leads to an inevitable question. Why can’t the UK create a Mittelstand of its own? Britain has brilliant inventors and entrepreneurs, but is not so successful at evolving their ideas into the creation of sustainable businesses, which can grow in to the world-leaders of tomorrow. The likes of Sir James Dyson and the Bamford family of JCB fame are the exception, not the rule.
The talent is there, but it seems to be driven too early into the wrong direction. Entrepreneurs cash in, either through a trade sale, to private equity, or by floating on the stock market. It may bring personal rewards, but getting into the short-term profit race can be detrimental to developing new products and markets.
I believe that the key difference between our two countries lies largely in the financing of these companies, and the role of banks.
Typically, Mittelstand firms finance themselves from retained profits, with bank debt and equity funding playing a smaller role. Germany has around 3,000 independent banks with excellent regional coverage, while the UK has not even a dozen business banks. Although they have many branches, they no longer have bank managers who can make local lending decisions based on a thorough knowledge of customers.
The manager of a small or medium-sized regional Sparkasse, Volksbank or Raiffeisenbank in Bavaria or Lower Saxony knows the businesses in his area and probably plays tennis or golf with the owners. Their kids attend the same school. During their last few years at school children make frequent trips to companies in the area and the companies make presentations to get the best candidates for apprenticeships.
Universities and colleges also work closely with the companies in their region.
Here, we have an opportunity right under our nose. Around 1,000 branches of Lloyds and RBS are up for sale. Rather than selling them to a City conglomerate which no doubt would offer a similar centralised structure, they should be offered in small clusters to regional institutions or individuals with the right background.
In co-operation with the Local Enterprise Partnerships they could be part of the ‘business bank’ structure for small and medium firms, which the Government is trying to get off the ground. Lord Heseltine has pointed the way in this direction.
The UK could make a start in following this model and building a unique and successful Brit-elstand right now.
This article was published in the Daily Mail, 24 March 2013
This is an extract of an article published on January 13th 2013. It can be read in full on the Daily Mail website here.
The Obama administration has voiced its concern about Britain’s future in Europe. Some prominent business leaders are getting nervous that political posturing could result in the UK sleepwalking out of the European Union. Prime Minister David Cameron is under pressure from his right wing and the rising UKIP vote to renegotiate the treaty and hold a referendum on EU membership.
The key question in this increasingly heated debate is whether the UK could become a Switzerland or Norway with a trading agreement with the Union.
During the past two decades Britain has looked mainly west towards America for political and economic inspiration rather than east towards Europe. As the headlong rush into globalisation emasculated the unions and kept real wages low, demand had to be stimulated in new ways.
Under the last Labour government, Gordon Brown and Ed Balls took their guidance from Federal Reserve supremo Alan Greenspan and Wall Street.
Following the US example, wage increases were replaced by increased limits on credit cards and rising mortgages on the back of the asset bubble.
When Margaret Thatcher came to office in 1979, private household debt stood at around £60billion. When Labour got into office in 1997 it had risen to £750billion and when the Coalition took over, it had reached £1.45trillion.
Instead of government debt being reduced during the boom years, the opposite happened, with the rescue of the banking sector completing the disaster.
Taking the lead from the US in economic strategy has been an unmitigated disaster not only for Britain, but left other countries such as Ireland, Spain, Portugal and Greece. It even influenced such countries as Switzerland, France and Germany, as their banks were trying to become global players, pay their managers Wall Street salaries and adopt the casino culture.
Fortunately, in the northern European countries the excesses were not quite as pronounced, but they now have the unenviable task of bailing out their profligate southern neighbours. Following the US lead during the past decade has not been a great success and no wonder open-minded people all over Europe are looking for alternatives.
A lot of my German business colleagues regret, as I do, that Germany and Britain did not get together as leaders of Europe, as Helmut Schmidt and other German chancellors had hoped.
Britain is approaching the crossroads and my hope is that leaders will look at the alternatives carefully and not be influenced by political expediency.
This letter appeared in the Financial Times Monday 26 November 2012
With his assertion (Letters, November 22), that APR calculations are meaningless and that banks charge even more on occasions, Errol Damelin, chief executive of Wonga, is trying once again to defend the indefensible. May I remind your readers why Wonga and the other 50 pay-day loan companies are not operating on the continent – very simple, Mr Damelin and his peers would likely be in prison under usury laws, if they plied their trade in Switzerland, Austria, Germany, Netherlands or the Nordic countries. Contracts that bear exploitative interest rates, generally above 15-20 per cent cannot be enforced in law. Repeat offenders, who try it, get a prison sentence. Maybe it is no coincidence that the above countries are the so-called creditor nations in Europe.
Usury laws protect the socially weak, uneducated, desolate and weak-willed from predators. There seem plenty of those around in the UK to feed this market. It is high time that the government acts against them, and at least they are prevented from advertising – their products are more socially corrosive than cigarettes or alcohol.
Greg Walton in the Daily Mail 15 August 2012 reports on a recent survey revealing that German firms are shocked by the low quality of apprenticeships in the UK.
Britain’s car industry is booming. After decades of decline, the UK for the first time since the mid-1970s is making more cars for export than are being imported.
Investment is rolling in and production is up and rising substantially. Just this week Jaguar Land Rover announced its Halewood factory would move to 24-hour round-the-clock production for the first time with the introduction of an extra shift.
The car maker has created another 1,000 jobs at its Merseyside plant to meet demand for its ‘baby’ Range Rover Evoque – launched by Spice Girl Victoria Beckham who also created a special edition version and Land Rover Freelander offroader models.
Most of the UK car industry is now in foreign hands, and thriving. So how come, whilst it was in British ownership, the reverse was the case?
Some people blame the unions for their part in its downfall, but recently employees have shown themselves prepared to work hard and agree to flexible deals to preserve jobs, so it seems unlikely there is anything inherently wrong with the British workforce.
Others blame management for the failures. However, an analysis of the management structures of the German, Japanese and Indian car owners show that many of the managers in their UK operations are not only British but are doing a first class job.
So if Britain has top flight workers and managers, why did it all go so wrong in the past? The answer has to lie with the different corporate governance models that are used.
All the above mentioned car manufacturers are from countries where companies and their managements are not beholden to the Anglo-Saxon short term shareholder value model. This ethos inflicts a pressurecooker obsession with quarterly results on managers.
If boards are incentivised through share prices, they would rather pay higher dividends or try to please the markets with share buy-backs, takeovers or break-ups than invest in skills, modern equipment, new products, or research and development.
Professor John Kay alluded to the defects in the equity markets in his review for business secretary Vince Cable. He is clearly of the opinion that short-termism is not helpful to industry. However, his focus was just on the equity market and its players, not on the effects on manufacturing businesses.
The boards of BMW and Volkswagen can take a long view in spite of being stock market quoted companies, because they are not only responsible to shareholders but also to the other stakeholders, particularly the employees of the company. Their incentive systems are designed accordingly for the long term.
One does not need to look just at the car industry in isolation.
There are other examples of what corporate governance can deliver. Why, for instance, has JCB been so successful, weathered so many storms and seen its products have become world beaters? The reason is simply that JCB management can act like their opposite numbers in a German or Japanese company.
Another example is the Unipart Group, a buy-out from British Leyland that has blossomed under management and employee ownership and boasts now a turnover of around £1bn. Its strengths are its skilled and highly motivated labour force and management.
There are other examples – though unfortunately not enough of them. If Britain is serious about rebalancing the economy with a buoyant manufacturing sector, it needs to change the governance system.
The present one has been failing manufacturing in this country as long as I have been working in the UK – and that is for over 40 years.
It can be done, if a few people could jump over their beloved shadows.