The succession of foreign bids for the London Stock Exchange – the latest, by Nasdaq of the US, in its final stages – has aroused conflicting emotions among Britain’s business leaders. Their hearts yearn for the LSE to retain its independence – perhaps even to lead in consolidating stock exchanges. Their heads tell them ownership does not matter in the City of London, which has become the leading international financial centre in spite of many of its leading institutions being in foreign hands.
The City’s success is often described as the Wimbledon effect: Britain hosts the world’s best tennis tournament, even though no British player has won a champion’s trophy for many years. The meteoric rise of Andy Murray, the young Scottish player, could yet render the analogy redundant, but it is not only on the tennis courts that change is in the air. UK executives are increasingly willing to raise doubts about the disappearance of great British corporate names into overseas ownership.
Most will readily acknowledge that Britain’s economic success has always rested on its openness to trade, capital and talent from abroad. They will concede that this characteristic has proved a source of competitive advantage in an era of globalisation. They are contemptuous of countries – many in continental Europe – that decide almost any company targeted by a foreign bidder is part of a strategic industry.
Yet they also worry that foreign ownership drains intellectual property – knowhow, skills, software, business processes – from the UK. Research and development in large global companies gravitates to the country where the head office is located. Opportunities for promising British managers might diminish if head offices move offshore. And there are concerns that highly leveraged bids reduce UK tax liabilities and leave no headroom for investment when the business climate deteriorates.
There is some substance in these objections, but there are also counter arguments. Most foreign companies buy UK businesses to build on them, not demolish them. They are often attracted by Britain’s strong science base and flexible labour markets, and want to increase their exposure to both. Companies such as Boeing are substantial net exporters from the UK because of the strength of their supply chains in the country.
It is the openness of the British economy that attracts so much inward investment, including to the City of London. This creates new opportunities for British workers – including executives with talent who can rise to the top in foreign manufacturers and investment banks. Meanwhile, research shows subsidiaries of global companies to be more productive and innovative, having access to expertise elsewhere.
There are occasions when it could be argued that the government should intervene to block a foreign bid. Gazprom’s interest in Centrica raised genuine strategic questions about the consequences of allowing the British gas supplier to fall into the hands of a company owned by the Russian state, which has been using its energy assets as an instrument of foreign policy.
But although it is galling for British companies to be targets for companies from countries that close their borders to foreign ownership, it is important not to lose sight of the bigger picture. The UK’s openness to capital and talent from around the globe has contributed greatly to its economic success – just as welcoming the world’s best players has allowed Wimbledon to prosper without British champions.