Senator Phil Gramm’s suggestion that the UK should leave the European Union and join the North American Free Trade Area may sound like a pipe dream. But it comes at a time when Americans and American business culture are having an impact as never before on the UK economy.
New Labour ministers, from Gordon Brown to Stephen Byers, are discussing ways of instilling a more go-ahead US-style entrepreneurial culture in the UK. But this belies the fact that the penetration of the UK economy by US multinationals and venture capitalists has switched into top gear. Wal-Mart’s acquisition of Asda is certain to lead to UK consumers adopting US shopping habits, while Punch Taverns’ whistles and bells bid for Allied Domecq’s pubs, backed with equity from US venture capitalist Texas Pacific Group, shows how a takeover can be mounted with imagination. The creeping Americanisation of the UK has turned into a gallop over the past three months.
America’s stake in this country is worth $138.8bn (&£89.3bn) – the largest proportion of US investment overseas and equivalent to 16 per cent of its total. Thirty years ago it was &£2.5bn.
According to Dun & Bradstreet, the business information company, US interests in the UK are growing vigorously. Just under one-third of foreign companies in the UK (a total of 7,478 businesses) are offshoots of US companies, up by 4.6 per cent during the past year. In the late Sixties it was nearer 1,600.
Major British industries – cars, computers, oil, photography, paperback publishing, canned, tinned and packaged foods, razor blades, cosmetics, soft drinks, film production and news magazines – have been dominated by US corporations for decades. Indeed, advertising has succumbed to a US invasion twice over – once in the Sixties and again in the Nineties, when the new flowering of British creative hotshops founded in the entrepreneurial Eighties were snapped up by US networks.
Now a new wave of US infiltration is occurring, with American money entering traditional UK strongholds. In financial services Charles Schwab and US credit card companies, including Capital One, MBNA and HFC, have swept into the UK; Gannett, publisher of USA Today, has snapped up regional press owner Newsquest, and UK poster contractor the More Group has been swallowed up by Texan media giant Clear Channel. And the influence of “God’s own country” does not end there. The US is leading the way in the new industries such as GM foods, cable and IT.
But not all US ventures have been successful in the UK. Costco, the warehouse format selling goods to members at a discount, was expected to change the face of UK retailing when it arrived from the US in the early Nineties. But the format has had limited success in this country, as the UK consumer seems unwilling to buy in bulk – a lesson Wal-Mart should heed.
Other US formats such as Bath & Body Works, a joint venture between Next and US retailer The Limited, were likewise lacklustre, and the launch of Taco Bell Mexican fast food was yet another notable failure of an American concept in the British market.
This Americanisation of British business, with its roots going back the best part of a century, has lasting implications for marketing. America was the birthplace of the demanding customer, though its British counterpart has some way to go to catch up.
Chartered Institute of Marketing director of marketing Ray Perry says: “As time goes by we are getting closer and closer to America in terms of the customer service that we expect.
“The main force driving improved quality and service, both in the UK and the US, is the same. It’s a global market now, everything is fairly homogeneous.”
For many UK workers and managers, US techniques such as retail category management, where the local supplier manages an area of the store for the retailer, as well as egalitarian business practices, for example employee share ownership, have become an established part of life.
US giant PepsiCo-owned Walkers Snack Foods president Martin Glenn says: “US companies tend to treat employees on more equal terms. The practice of having directors’ car parking spaces and separate management and staff canteens is not as prevalent in the US – it’s much more collegiate, although they are more aggressive in terms of pay scales.”
Under Walkers’ share ownership scheme, all employees receive ten per cent of their annual salary in stock options.
Glenn says: “UK companies are playing catch-up with these schemes. We haven’t had a share-owning mindset until recently.”
Rising share prices on Wall Street and the strength of the US economy have increased the wealth of US investors, enhancing their ability to fund acquisitions. Additionally, foreign acquisitions are currently less expensive for US investors because of the appreciation of the US dollar against several major foreign currencies. According to the most recent data from the US Embassy, almost 40 per cent of all US investment in the European Union is centred in the UK, although it only accounts for 16 per cent of the EU’s total population.
In the past few years US venture capitalists such as Kohlberg Kravis Roberts and Clayton, Dubilier & Rice have made their presence felt in the City as they did in the late Eighties. Of the &£4.9bn invested by UK venture capitalists last year, &£2.8bn of that came from North America.
Smaller UK companies, which are increasingly falling out of the stock market through lack of interest from UK investors, are being picked off by the US companies. The food producer Hillsdown Holdings, for example, was recently bought by Hicks Muse Tate & Furse. Other private enterprises ready to come to market are being driven to float on Nasdaq, the American electronic stockmarket, because institutional interest is so slight.
While the UK agonises over its place in Europe – where it does four times more business than it does with the US – it seems the Anglo-American axis is growing stronger. Last year the UK exported &£21.8bn to the US, up from &£20.9bn the previous year, while exports to the EU fell &£2bn to &£94bn.
The roots of the Anglo-American financial relationship stretch back decades. The opportunity to replace the pound sterling with the US dollar first arose with the First World War and then, in far greater measure, with the Second World War. And over the past 20 years, Europe has served America’s interests well, as European consumers become increasingly receptive to US goods and services.
John Hardie, marketing and commercial director of ITV, who worked for Cincinnati-based Procter & Gamble for 14 years, says: “Many US companies feel comfortable in the UK because they have been established here for many years and they have a strong base.
“If you have been successful in and know a market already, you are more likely to invest even more there.”
However, Chuck Ford, the minister counsellor for commercial affairs at the US Embassy, stresses that historical ties are only part of the story. “Business isn’t done for historical reasons. It reflects the here and now.”
He cites the UK’s commitment to free trade, in contrast to the rest of the continent.
He says: “There is a certain openness and free trade spirit [in the UK]. There has been a liberalisation of this market that most of the continent hasn’t even started.”
The embassy says the UK’s combination of political stability, a good infrastructure, low rates of direct taxation, a well-educated and flexible labour force and first class financial institutions encourage investment. That said, the US’ links with the UK are still disproportionately close compared with other Western economies with similar advantages.
Ford says: “In gross terms, the German economy is twice the size of the UK’s in Gross Domestic Product numbers, yet we export $40bn (&£25.7bn) worth of goods to the UK and $26bn (&£16.7bn) to Germany each year.
“For a US company with more than two operations in the EU, more than half will have their headquarters in the UK.”
Understanding why US companies still see the UK as a natural home and an effective bridgehead into Europe rather than, say, France or
Germany, frequently boils down to the peculiar links between the two nations – or their “special relationship”.
The experiences and dangers shared over the best part of this century, and common traditions (at least with an influential section of America), have created ties stronger than any formal arrangements of trade or investment.
Ford says: “There is an acceptance of, and an interest in, each others’ products and services which is not typical of, say, Germany.”
Clear Channel International chief executive Roger Parry, whose company the More Group was bought by a US company 12 months ago, says: “Americans will buy European companies, but they like doing it through UK management teams based in London. There is a much lower cultural barrier there, for obvious reasons. It’s not just the language: our legal systems, for example, are similar.
“Americans also get very worried about the idea of having to have union members on the board and that employees are only allowed to work 35 hours a week.”
It is not only the legal system which is comparable, but also the accounting systems. On the continent a much higher proportion of companies are still family-owned empires with fewer obligations to open up their books, making business performance less transparent to outside bidders.
The belief that the US and UK have “similar ways of doing things” looks unlikely to change. If anything, it looks as if UK businesses will be encouraged to borrow ever more freely from the American model. The Government’s latest pledge to strengthen the UK’s enterprise culture by adopting what works well in the US, underlines how much it would have us emulate our transatlantic allies.
In 1968, Bernard Harris, a financial journalist on the Sunday Express, wrote: “Behind the local gloss beats the mighty engine of an American industry which determines taste and applies findings of what makes people buy to the whole Western world.”
Thirty years later, the dominance of US brands and the flow of American capital into the UK means that UK plc is rapidly turning into an off-shore subsidiary of USA Inc.