The question of whether foreign buy-outs of UK technology successes stories should be welcomed as a way to take the business to the next level, or condemned as preventing the development of the next UK multi-national, is never far away. The sale of ARM to Japan’s Softbank being a classic case in point.
As Innovate UK’s partnership manager for the Asia-Pacific region, two charts in a recent speech on the UK’s productivity problem by the Bank of England’s Chief Economist Andy Haldane peaked my interest.
These charts show that those businesses that are foreign owned and those that export are significantly more productive that their domestic owned, non-exporting counterparts.
Foreign vs Domestic Ownership
I think the key question here is whether foreign ownership makes a business more productive, or that productive businesses are simply more attractive targets for investors and takeovers.
A few data points from the ONS to consider:
- In 2015 the 1.1% of UK based non-financial businesses that were foreign owned produced 34% of total business turnover
- Those same businesses conduced ~50% of all business investment in R&D (£11.08bn)
- Foreign owned business are typically larger (in employment terms) than UK businesses
Despite the uncertainty caused by BREXIT, foreign investment in the UK remains strong. Personally I think that (in the majority) foreign investors are purchasing productive UK businesses rather than attempting to turn around un-productive businesses.
Exporters vs Non-Exporters
The question of why exporting companies are more productive is, I think, more difficult to answer.
Does an already productive company naturally start exporting due to its competitive edge? Or through exporting does a company gain exposure to international competition and thus become more productive?
I think perhaps it’s a bit of both? Surveys suggest that many UK businesses fall into exporting through an initial overseas order and therefore never really develop an export strategy, something our EEN Partners can help you with.
But why might exporting leading to increasing productivity? I think here the evidence suggests two clear reasons, exposure and connectivity.
There is evidence derived from U.S patent data, that those businesses who are exposed to international markets significantly increase patenting activity in order to defend themselves from international competition, or break into foreign markets. This is likely to lead to new innovations and adoption of international best practice and diffusion of technology.
A well cited example of exposure being the adoption of modern auto manufacturing techniques and principles pioneered by the Japanese in the 1960’s and 70’s. Techniques which have now been adopted in industries well beyond auto manufacturing.
It is clear that when it comes to productivity – connectivity counts. Research conducted by the Bank of England highlighted a statically significant and economically meaningful link between the connectivity of UK company directors and productivity. This intuitively makes sense as better connected businesses can draw upon the experiences of others in learning about and adopting new technology and practices.
Domestically the Knowledge Transfer Network can help your business to become better connected. And with the roll-out of the Innovate UK Global Business Accelerator Programme there are now more opportunities than ever to connect internationally:
Global Business Accelerator Programme
Over the coming months Innovate UK will begin to roll-out the Global Business Accelerator Programme. Two opportunities are currently live and more will be announced shortly.
1. South Korea IoT Week : 10th – 14th September (Apply here)
In conjunction with the Enterprise Europe Network, Innovate UK is providing UK IoT, AI and digital based businesses with an opportunity to visit IoT Week Korea 2018 in order to understand the market, learn about Korean cutting edge technology and seek out technology partners - funding for which is available via the EUREKA Eurostars open calls which occur every 6 months.
2. Singapore SWITCH : 17th – 21st September (Apply Here)
The Singapore Week of Innovation and TeCHnology (or SWITCH) brings together founders, funders, entrepreneurs and academics from across the world in a week of technology led events, conferences and speakers. This event is a must attend for any business looking for technology partners and opportunities in the ASEAN region.
A Final Thought…
Clearly this blog posed a provocative question, with I think, quite a simple answer – no.
The UK is not unique in its openness to the world. Germany, France and the U.S.A are all open economies, yet all are significantly more productive than the UK, and as Mr Haldane put’s it:
Openness cannot, on the face of it, easily explain the UK’s productivity gap with other countries.
There is no silver bullet to solve the UK's productivity problem. However in a globalised world, with increasingly a shift in R&D expenditure from West to East, I think it is relatively clear that exposure and connectivity to global research and innovation can provide significant benefits (sometimes through direct challenge) to UK businesses.
Follow Ben on twitter: @BSMorley
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