Two European countries. Country A is the recipient of tens of billions of dollars
in foreign direct investment – $90 billion in 2005, to be precise. Country
B, well, isn’t. Every time someone wants to throw money at the country, the
government finds a way of preventing the deal from happening. Which country
is likely to be in the stronger competitive position? If you lived in Country
A, would you complain about Country B’s behaviour, or would you secretly relish
it?
Of course, this being Europe, everything is topsy-turvey, and in fact Country
A is putting
up an enormous stink about how Country B’s policies are unfair. A, to make
things clear, is the UK; B is France. Or Spain. Or Germany. It’s not entirely
clear. But it’s not just the leftists in the trades unions who are coming out
with protectionist nonsense:
The head of the Confederation of British Industry also expressed concern.
"I don’t want to live in a Britain where we ban overseas companies but
you can’t expect Britain to go on and watch other countries change the rules
when they want to," said Sir Digby Jones.
The problem, insofar as there is a problem, is that it’s easier for French
companies to buy UK companies than it is for UK companies to buy French companies.
Yes, this is the sort of thing which the EU exists to resolve, and yes, the
European commission has already promised to take legal action against France
for its protectionist moves. But really, which country is more harmed here?
I’m not an expert on industry, but I know a little bit about Cemex, which is
the best-run cement company in the world. It recently bought Britain’s RMC.
That’s great news for Britain, because not only did RMC go for $6 billion in
cash, but it’s now got a significantly improved management which will make Britain’s
cement industry increasingly competitive vis-a-vis Lafarge, of France. Meanwhile,
Lafarge, protected from takeover, is losing ground to Cemex-RMC.
Yes, UK companies should be able to expand in Europe through large-scale M&A
transactions. But it’s idiotic to point enviously at France and talk about how
they "support the principle of national champions" over there. I can
tell you that here in the US, Americans love the wonderfully British Mini Cooper.
Do they know it’s made by BMW? Quite possibly. But do they think that makes
it less British? I don’t think so. The nationality of one’s owners really shouldn’t
be relevant these days. Neither in British industry nor in US ports.
A few points:
1. France is one of the world’s leading recipients of foreign direct investment, often more than the US. According to the OECD in 2003 it was the world’s second most important destination, after China.
2. I don’t know how particularly ‘European’ this kind of protectionism is. The UK is a much more open market to FDI, particularly in company takeovers, than the US. So are quite a few other European countries.
Matthew makes a couple of important points. A few more.
FDI statistics have to be read very carefully. All it takes is a couple of large m&a transactions to distort the picture. The FDI in China, for the most part, is real investment in manufacturing, not the shuffling of equity assets.
Britain’s success in FDI is a mixture of the two. The years when France does well (it’s a volatile dataset) are largely because of market transactions (including things like the creation of Arcelor, which has essentially remained French although its HQ is now in Luxembourg).
In general I agree with your assertion that country of ownership shouldn’t matter. But there is a significant amount of research showing it does matter. Over time, high value-added activity tends to concentrate in country of ownership.
So r&d and senior management functions gravitate around the headquarter office. For advanced economies, that matters. Will the next generation Mini be engineered in the Midlands or in Munich?
Cemex is a special case in many ways. Cement is one of the few industries that cannot be mobile in the way of most others. Because its product is so heavy, facilities need to be close to the customer. You can’t make cement in Monterrey and ship it to Mobile, Alabama, much less Manchester.