Outlook: Globalisation isn't a one-way street

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The Independent Online
THERE WAS a certain symmetry about the two takeover bids launched in the City yesterday. In both cases, a British manufacturing group fallen on hard times accepted a cash offer from a large American bidder. Both companies cited the need to go global as the reason for throwing their lot in with a larger suitor.

David Brown, a maker of gears and fluid control systems, looks almost certain be absorbed by Textron, a giant which makes everything from Bell helicopters to car parts. Lighting group TLG is odds-on to end up as part of Cooper Industries, a large US player, although the financial engineers at Wassall, which is staying mum on what it might do with its 14 per cent stake, may still have a say in the matter.

In another country - France, say, or even Germany - the prospect of marauding Americans buying up industrial assets would be met with dismay. Not in Britain, or at least the City. Over the past year, US predators have snapped up large swathes of British manufacturing. Indeed, this is Cooper's second foray across the Atlantic in the past two years; its previous acquisition was the emergency lighting group Menvier-Swain.

To a certain extent, this buying spree is opportunistic. Engineers, especially small and medium-sized ones, are out of favour with fund managers. Sterling's rise has eaten into their export margins while sucking in cheaper substitutes from abroad. American manufacturers, with a larger domestic market and a more supportive shareholder base, have spotted a few choice bargains.

But there is also something more fundamental going on. Manufacturing is becoming a global industry. As their customers fan out around the world in search of new markets, suppliers are having to go with them. They now have to be capable of distributing and servicing even the most obscure machine to almost any part of the planet. Furthermore, most Americans buying manufacturers over here see a British base as the perfect bridgehead into the European market.

So, faced with the pressure to become larger but starved of the stock market capital they need to grow, British manufacturers are throwing their lot in with larger foreign operators.

But hang on. As the events of the past few months show, globalisation is not a one-way street. Markets that have been opened up can just as quickly be closed off to foreign capital again. Although investments in plant and machinery are less mobile than the hot money flowing out of Asia and Russia, the two are inextricably linked. Without cash from the capital markets, foreign investment in these markets is bound to dry up.

What's more, foreign ownership carries risks. As the employees of Siemens' semiconductor plant in Gateshead found out recently, owners would rather lay off workers abroad than face the political flack of closing down plants in their domestic market. Fujitsu made the same point yesterday by announcing the closure of its microchip plant in County Durham.

TLG, David Brown and all the others are probably right to ignore nationality in their quest for size. American ownership should guarantee more more investment and many more jobs than had they remained independent. But there's no guarantee. If the brave new global market suddenly starts shrinking, as it is showing worrying signs of doing right now, they are likely to be the first to feel the ill effects.