City & Business: Daimler shows UK industry the way forward

IN THE foyer security guards wore ridiculously matching bronze jackets. Inside the London Arena, waiters circulated with trays of canapes and fruit punch, as if the 500 hacks present were there for a party not a press conference. Daimler-Benz chief executive Juergen Schrempp comported himself like a lion among men. But Chrysler chief executive Robert Eaton appeared under strict instructions to keep smiling at all times, and the unceasing sight of his teeth as his eyes darted around the darkened auditorium only heightened the slightly unhinged quality to the proceedings.

For all the absurdities, nevertheless, the press conference last Thursday announcing Daimler's $38.6bn takeover of Chrysler was as serious as press conferences get. It rammed home the new realities of the world economy. In 1960, there were 47 major car makers in the world. Today there are 17. Five to 10 years from now there will probably be less than 10. The same pattern of consolidation holds across a wide range of industrial and service sectors.

This awesome process of consolidation in the world economy is changing the way individual nations are competing against one another.

In the place of old-fashioned definitions of economic power comes a new, if as yet still unformed, game of capturing value. Products are made everywhere. They are sold everywhere. The game for each nation is to occupy that part of the production chain that generates the highest profit margins in the globalised process of buying and selling.

The Daimler-Chrysler press conference raised the question of how British companies are doing in the new global game of capturing value. For a while it looked like Britain alone among European nations was making the running in globalising markets. British companies prospered as suppliers and partners to international companies making the UK their European base of operations. Germany and France, by contrast, seemed hopelessly bogged down in the social markets of the past.

But the globalisation game has moved on. To guarantee itself an improving standard of living relative to other countries, the UK now not only needs to be a host for global companies, but also a nurturer of its own national champions in the global market.

France has long understood this but has failed in its dirigiste way to create companies sufficiently adaptable for today's fluid global marketplace. Germany seemed to plod on trying to be a manufacturing platform for the world.

But what the Daimler-Chrysler merger suggests is that, after a typically Teutonic period of agonised introspection, Germany may now be ready to let rip in global markets.

Reporters at the press conference zeroed in on how Detroit will deal with German regulations guaranteeing workers' rights in the new company. The real issue, however, was how Stuttgart will deal with Chrysler's American shareholders. Historically, German dividends have been tiny. What Mr Schrempp said on Thursday was that his newly created DaimlerChrysler would pay American-level dividends.

If this is so, the news Mr Schrempp brought to London was even bigger than the DaimlerChrysler merger itself. Thursday's press conference makes it a matter of urgency for British business to reconsider its global outlook.

Shell and Unilever led the way in creating the idea of international companies almost a century ago. Since then, however, what British companies are there to compare with America's GE, Japan's Toyota, Taiwan's Acer?

The recent record of British companies seeking to reposition themselves in globalising markets is spotty. Guinness and Grand Metropolitan last year successfully merged to create world-beater Diageo. But the ego-crossed merger of Glaxo and SmithKline Beecham has become the watchword of botched late-1990s deals.

There is now a debate about whether the sale of household British names like Rolls-Royce cars and the Savoy Hotel is bad for Britain. Butthe issue is not whether the sale of famous British companies is bad for economic sovereignty. The issue is whether British companies, in shuffling their assets, are positioning themselves to capture value - to stand at the nodes of the global production process where profits are highest.

In this regard the sale of Rolls to a German car company looks clever, because Vickers, Rolls' present owner, lacks the resources to make anything of the company, and no British firm of any standing believed it could get a good return on capital from making Silver Clouds.

The sale of Mercury Asset Management to Merrill, on the other hand, looks like a failure of nerve by its owners. No doubt, Mercury's old owners thought they were being clever in selling out at the top of a stock market cycle. No doubt, they contend to this day they lacked the resources to transform themselves from a highly centralised institutional investor into a broadly based firm capable of handling both institutional investors and the great unit-trust and PEP-owning public.

But that's what the managements of competing international companies are doing - finding solutions to problems that look insoluable. That's what Daimler's Mr Schrempp has done in taking over Chrysler. In retrospect., the arguments put forward by Mercury's old owners seem like excuses for cashing in their personal chips. More to the point, they reveal the British curse: not economic decline, but an aversion to risk born of that decline. What Mr Schrempp has done in buying Chrysler is demonstrate that in his Teutonic way he is as much of a risk-taker - and thus as much of a player in global markets - as US corporate chieftains like American GE's Jack Welch.

The question is: Where are our Juergen Schrempps and Jack Welches? As long as the stock market keeps the shares of Footsie 100 companies flying, few will ask. When the stock market cycle turns, however, the question is likely to pop up in a lot of peoples' minds - and not least those of Tony Blair and Gordon Brown who may discover that their project to modernise Britain is hostage to the fear of British businessmen to risk modernising their outlook on the world.