foreign-owned manufacturing firms in the united kingdom: some evidence from south hampshire

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Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from South Hampshire Author(s): Colin Mason Source: Area, Vol. 14, No. 1 (1982), pp. 7-17 Published by: The Royal Geographical Society (with the Institute of British Geographers) Stable URL: http://www.jstor.org/stable/20001765 . Accessed: 15/06/2014 12:46 Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp . JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact [email protected]. . The Royal Geographical Society (with the Institute of British Geographers) is collaborating with JSTOR to digitize, preserve and extend access to Area. http://www.jstor.org This content downloaded from 62.122.73.250 on Sun, 15 Jun 2014 12:46:57 PM All use subject to JSTOR Terms and Conditions

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Page 1: Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from South Hampshire

Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from SouthHampshireAuthor(s): Colin MasonSource: Area, Vol. 14, No. 1 (1982), pp. 7-17Published by: The Royal Geographical Society (with the Institute of British Geographers)Stable URL: http://www.jstor.org/stable/20001765 .

Accessed: 15/06/2014 12:46

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

The Royal Geographical Society (with the Institute of British Geographers) is collaborating with JSTOR todigitize, preserve and extend access to Area.

http://www.jstor.org

This content downloaded from 62.122.73.250 on Sun, 15 Jun 2014 12:46:57 PMAll use subject to JSTOR Terms and Conditions

Page 2: Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from South Hampshire

Foreign-owned manufacturing firms in the United Kingdom: some evidence from South Hampshire

Colin Mason, University of Southampton

Summary. Using data for South Hampshire the paper shows that overseas-headquartered enterprises provided one quarter of all manufacturing jobs in the area in 1979, that most foreign-owned plants have been established since 1945 and that the majority offoreign-controlled jobs are the result of 'greenfield site 'investment rather than acquisitions.

Throughout the post-war period, and particularly over the past two decades, overseas

headquartered enterprises have assumed an increasingly important place in the United

Kingdom's economy. In 1963 overseas-owned enterprises provided 6a 88% of total manufacturing employment; by 1977 they accounted for 13 9%, equivalent to 1 01

million jobs (Dicken and Lloyd, 1976; BSO, 1980). However, the geographical distribution of this employment is far from even. In 1963 the South East's share of

employment in foreign-owned plants was 51 4/4% but since then both British sub sidiaries of overseas-headquartered firms and those making first-time investments in

the United Kingdom have shown a greater willingness to locate in peripheral regions. Consequently, there has been a substantial narrowing of regional differences in the size of the foreign-controlled manufacturing sector between 1963 and 1977 (Table 1), although the relative positions of regions in the foreign employment ' league table '

have changed very little. The South East remains by far the largest regional concen tration of foreign manufacturing employment (McDermott, 1977; Dicken and Lloyd, 1980).

There is evidence to suggest that the strength of the relative shift in foreign controlled manufacturing employment from the South East towards the peripheral regions may have weakened since 1971 (Dicken and Lloyd, 1980). For instance, during the 1963 to 1971 period Scotland's foreign-controlled manufacturing employ

ment more than doubled and Northern Ireland's increased by more than three and a half times while the national rate of increase was only 48 - 8%. Together, these regions ' captured ' almost 30% of the total United Kingdom increase in foreign-controlled

manufacturing jobs. But between 1971 and 1977 Scotland's rate of increase was only 6 1 % compared with a national rate of 26 1 % while in Northern Ireland the number of foreign-controlled jobs actually declined. The increase in foreign-controlled manu facturing employment was also below the national average in Wales between 1971 and 1977. However, the largest rates of foreign-controlled employment growth between 1971 and 1977 were recorded by three other peripheral regions-the North, Yorkshire

Humberside and the South West. They 'captured ' over 40% of the overall United Kingdom increase, thereby ensuring that the dispersal of foreign-controlled manu facturing jobs to the periphery continued during the 1970s, albeit at a slower rate than in the 1960s (Table 2).

7

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Page 3: Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from South Hampshire

8 Foreign firms in the UK

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Page 4: Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from South Hampshire

Foreign firms in the UK 9

Nevertheless, the South East still dominates the geography of foreign manu facturing investment in the United Kingdom, with 36 2% of all foreign-controlled jobs in 1977. Furthermore, employment in foreign-owned plants accounted for 20 1% of total manufacturing employment in the South East (Table 1), a higher proportion than in any other region except East Anglia (which is on the basis of a much smaller number of jobs). The growth of foreign employment in the South East only increased at a moderate rate between 1963 and 1977 but its deviation below the national rate of growth was substantially less in the 1971 to 1977 period than between 1963 and 1971 and its absolute increase of 39,600 foreign jobs between 1971 and 1977 was higher than in any other region (Table 2). In addition, between 1966 and 1975 the South East attracted the largest number of plant openings (although only the second largest number of jobs) by companies undertaking manufacturing investment for the first time in the United Kingdom (Dicken and Lloyd, 1980).

The size and continued importance of the South East's foreign manufacturing sector therefore appears to support the views of Holland (1976), Hamilton (1978a) and

Blackbourn (1978) who have argued that multinationals help to perpetuate and even create additional regional inequality within countries because their economic size and power means they are able to pursue locational behaviour which is contrary to the needs of the peripheral regions and against the aims of regional policy. However, two factors have recently been suggested as helping to explain this high concentration of foreign manufacturing in the South East and which, if valid, would exempt multi nationals from much of this criticism. First, Law (1980) points out that many of the foreign-owned plants in the South East were established before 1939 and hence predated regional policy controls on industrial location which only came into effect in 1945, at first by extending the war-time building licence scheme but formalised in 1947 with the introduction of the Industrial Development Certificate (IDC) (McCallum, 1979). Second, on the basis of evidence from Philips, the Dutch

multinational, Watts (1980) has argued that some of the foreign presence in the South

Table 2. Changes in foreign-controlled manufacturing employment by tegion, 1963-1971 and 1971-1977

Change 1963-1971 Change 1971-1977 actual actual

Region (thousands) percentage (thousands) percentage

North + 172 +2024 +272 + 1058 Yorkshire-Humberside + 63 + 30 6 + 38 1 + 141.6 East Midlands +8 8 +48 1 + 17.2 + 63-5 East Anglia +138 + 798 +133 +428 South East +497 + 179 +396 + 12.1 South West +169 +4120 +21 2 +101 0

West Midlands + 26.7 + 57 9 + 85 + 11 7 North West + 30 3 + 43-0 + 34-4 + 34-1 Wales +175 +729 +96 +23.1 Scotland +498 +1090 + 58 +661 Northern Ireland + 26 9 + 368.5 -5.4 - 15 8 United Kingdom + 263.8 + 48.8 + 209 5 + 26.1

Sources: Dicken and Lloyd (1980), Tables 1, 2 and 3; BSO (1980)

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Page 5: Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from South Hampshire

10 Foreign firms in the UK

East is an unintended result of the acquisition of British-owned firms by overseas

headquartered companies. Smith (1980) provides additional support for this view,

pointing out that since 1971 overseas companies have increasingly acquired firms in

the United Kingdom rather than undertaking ' greenfield site ' investment, and such acquisitions have been concentrated in the South East. However, the acquisition decision is unlikely to include a spatial component, particularly where a multi-plant company is to be acquired; much more important is finding the 'right' company to

purchase regardless of its location. Suitable data are not available to comment fully on these issues. Government

statistics on foreign manufacturing activity in the United Kingdom are only released at the regional scale and fail to differentiate between alternative processes of foreign employment growth. Studies which utilise establishment databanks or are based on

survey work provide more detailed information on the processes of spatial employment change in the foreign-controlled manufacturing sector but to date have been confined to specific peripheral regions, notably Scotland (Forsyth, 1972; Firn, 1975; Hood and

Young, 1976, 1977, 1980; Young and Hood, 1976; McDermott, 1979) and North

West England (Dicken and Lloyd, 1976, 1980). However, a recently constructed establishment databank covering South Hampshire can provide a partial indication of the importance of location decisions made before 1939 and the acquisition of British

owned companies in accounting for the growth of foreign manufacturing employment in the South East Region. The spatial coverage of the databank includes the cities of

Southampton and Portsmouth, their respective hinterlands and the less urbanised areas

of Mid and South West Hampshire' and it contains information on the total employ ment, industry type, location and ownership2 of every manufacturing establishment in the area in 1979.

South Hampshire comprises only a relatively small part of the South East, although it is the largest urban-industrial complex in the region outside Greater London, and contained 14. 5% of manufacturing employment in the ROSE area in 1977. Neverthe less, it may be that the processes of foreign employment growth in this area are not

typical of other parts of the region, but in the absence of more comprehensive data this possibility cannot easily be examined.

Foreign-owned manufacturing employment in South Hampshire3

There were 67 foreign-owned manufacturing plants in South Hampshire in 1979

providing 26,288 jobs, equivalent to 4 4% of establishments in the area but 25 . 2% of total manufacturing employment. The amount of manufacturing employment in

foreign-owned plants in South Hampshire is therefore above the average for the South East and is comparable to that in parts of Scotland and the North West-areas more

usually thought of as having a high proportion of manufacturing activity controlled from overseas. For example, foreign-controlled plants accounted for 20 - 0% of manu facturing jobs in the Strathclyde Region and 25 - 8% on Tayside in 1977 (Cross, 1981) and 25 . 4% on Merseyside in 1975 (Dicken and Lloyd, 1980). Hence, although over seas investment is of considerable importance in several sub-regions which have been

marked by levels of economic activity below the national average (McDermott, 1977) the South Hampshire evidence underlines that a large foreign-owned manufacturing sector is not a prerogative of such areas but is also a characteristic of certain economically prosperous areas.

But if the size of the foreign-owned manufacturing sector in South Hampshire is rather surprising then its origins, industrial distribution, plant size structure and

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Page 6: Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from South Hampshire

Foreign firms in the UK 11

location patterns are not. With 71 * 5% of foreign-controlled jobs in US-owned plants, a further 13 * 9% in plants owned by enterprises headquartered in the rest of the EEC (mainly Netherlands) and the remaining 14 6% in companies headquartered else

where in the world (mainly Switzerland) the origins of foreign manufacturing invest ment in South Hampshire closely reflect the national picture. The restriction of foreign-controlled employment in South Hampshire to a small number of industries is

Percentage of total foreign employment

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Figure 1. Foreign-owned manufacturing employment in South Hampshire in 1979, by industry type

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Page 7: Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from South Hampshire

12 Foreign firms in the UK

also predictable (Figure 1): electrical engineering contains 41% of all foreign controlled jobs (and the vast majority of employment in non-US companies) and just five industries-electrical engineering, vehicles, chemicals, coal and petroleum products and mechanical engineering-account for 93% of all jobs in foreign-owned plants. The expected relationship between plant size and foreign ownership (Firn, 1975) is also evident in South Hampshire: 17 of the 40 largest plants in the area (all

with 500 or more employees) are foreign-owned and contain 78% of all foreign controlled manufacturing jobs. But by no means all foreign-owned plants are large: 43% have less than 100 employees although they only account for 4-5% of total employment in the foreign sector. Finally, foreign-controlled manufacturing employ

ment is concentrated in particular localities within South Hampshire (Figure 2): almost 60% of foreign jobs are found in just two local authority areas-Southampton and Havant-where they account for 43% and 36% respectively of total manufacturing employment.

Table 3. Foreign-controlled manufacturing employment in South Hampshire: timing and type of investment

Openings Acquisitions number of employment number of employment

Time period plants in 1979 plants in 1979

pre 1939 3 4,971 -

1945-1951 5 6,767 - -

1952-1959 11 6,755 3 626 1960-1972 20 5,010 13 1,628 1973-1979 6 181 6 350 Total 45 23,684 22 2,604

The suggestion that much of the foreign manufacturing presence in the South East has resulted from the acquisition of British companies with plants in the region finds only limited support in South Hampshire. As Table 3 shows, foreign manufacturing activity has largely been developed through the opening of new plants (' greenfield site ' investment) rather than acquisitions. However, acquisitions have been of greater importance since 1965 (all 13 acquisitions in the 1960-1972 period occurred during or after 1965) and would seem to have been a response to the very strict enforcement of the IDC system in South East England during the second half of the 1960s (Hamilton, 1978b). In addition, the fact that acquisitions have been as numerous as openings since 1973 confirms Smith's (1980) assertion that this method of investment in the United

Kingdom by overseas-headquartered enterprises has been of increasing significance in recent years.

The second claim, that much of the foreign manufacturing presence in the South East is a legacy of pre-1939 location decisions, is not supported from South Hampshire evidence (Table 3). Only three foreign-owned plants in the area were established prior to the second world war and they accounted for less than 20% of foreign-controlled

manufacturing employment in 1979. However, it is possible that a higher proportion of foreign manufacturing activity in Greater London and the Outer Metropolitan Area is a result of pre-1939 location decisions; Dunning (1958) has noted that much of the

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Page 8: Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from South Hampshire

Foreign firms in the UK 13

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Page 9: Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from South Hampshire

14 Foreign firms in the UK

direct investment in the United Kingdom by American companies before 1939 was

confined to a 32 kilometre radius of London.

South Hampshire's foreign manufacturing sector has mainly been developed since

1945, largely as a result of plant openings rather than acquisitions, and despite the

existence of regional policy controls on industrial location in South East England

throughout the post-war period. The first' active 'period of regional policy, from 1945

to 1951 (McCallum, 1979), coincided with the establishment of five foreign-owned

plants in South Hampshire which currently employ 6,767 workers. The Esso refinery

at Fawley was one of the projects developed during this period, replacing a very small

refinery which had existed since 1920. Although seemingly contradicting the aims of

regional policy the project was allowed to proceed following Cabinet level discussions

because it was regarded by the government of the day as being in the national interest

by providing Britain's first major home-based refining capacity (Smart, 1964;

Dunning, 1958). The general relaxation of industrial location controls during the 1950s coincided

with an expansion of the foreign manufacturing sector in South Hampshire through 'greenfield site ' investment. Controls on industrial location were more strictly

enforced during the 1 960s in South East England but this did little to prevent a further

increase in the number of foreign-owned manufacturing plants in South Hampshire,

especially in the Portsmouth area, although government concern with its high level of

unemployment (in a South East context) did result in a period of leniency in the

application of IDC policy (Buchanan, 1966; Keeble, 1976). Havant was the main

beneficiary both because of its function as an overspill town for Portsmouth and as a

consequence of the shortage of industrial land elsewhere in South East Hampshire.

Since 1972 there have been relatively few new plants established in South

Hampshire by overseas-headquartered enterprises, a reflection of the reduced amount

of industrial movement in the British economy and a decline in the number of

companies undertaking manufacturing investment in the United Kingdom for the first

time (Dicken, 1980; Smith, 1980). However, it seems reasonable to assume that the

growth of post-1972 plant openings to ' mature ' employment levels will provide some

additional foreign-controlled jobs over the next few years.

Overseas-headquartered enterprises have rarely chosen South Hampshire as their

first manufacturing location in Britain despite the fact that since 1945 a large propor

tion of plants opened by companies undertaking manufacturing investment in the

United Kingdom for the first time have located in the South East (Dicken and Lloyd,

1980). Indeed, two-thirds of foreign companies with plants in South Hampshire had

prior manufacturing experience elsewhere in the country-generally Greater London

or the Outer Metropolitan Area-and either transferred production, or more commonly set up additional manufacturing capacity in the area, thereby paralleling the locational

behaviour of many British companies which also migrated from the metropolitan area

both to South Hampshire and other parts of the Outer South East. The expansion of

foreign manufacturing employment in South Hampshire, in many cases involving

companies whose initial (pre-1939) location in the United Kingdom had been in the

London area, should therefore be seen as part of the general dispersal of manufacturing

activity within South East England during the post-war period. Consequently, the location factors which encouraged foreign companies to set up

manufacturing units in South Hampshire have generally been similar to those which

attracted British firms to the area. Significant factors included proximity to London, the general availability of labour due to rapid population growth and unemployment rates which were higher than elsewhere in the South East, and the particular

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Page 10: Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from South Hampshire

Foreign firms in the UK 15

availability of female labour because of South Hampshire's male-dominated employ ment structure in the 1950s. However, possibly the most important factor in the growth of both British and foreign manufacturing employment in South Hampshire since 1945 has been the residential attractiveness of the area, an attribute of particular importance to firms, for example in the science-based industries, which required to attract qualified staff from other parts of the country (Denton and Thomas, 1964; Buchanan, 1966; Keeble, 1976).

The importance of the port of Southampton as a location factor in the attraction of foreign-owned manufacturing plants to South Hampshire is less clear cut. Dunning (1958) noted that US companies generally valued port locations more highly than their

British counterparts because in many cases they either relied on imports from their parent company or were established to serve the entire non-dollar market. Certainly for some of the older foreign-owned plants in South Hampshire. the port of Southampton

was a significant location factor. AC Delco, for example, was originally established in Southampton in 1938 to assemble American (and later Opel) cars and trucks imported from its parent company, General Motors (Southern Evening Echo, 1977).4 However, for most of the foreign-headquartered companies locating in Sotith Hampshire during the past twenty years or so proximity to the port has not been a major locational consideration.

Conclusion The development of the foreign manufacturing sector in South Hampshire has largely taken place since 1945, and generally through' greenfield site ' investment rather than acquisition. The explanations suggested by Law (1980) and Watts (1980) for the growth of foreign-controlled manufacturing activity in the South East therefore find little support in this part of the region. However, because many of the foreign-owned plants in South Hampshire were established as part of the general post-war decentralisation of manufacturing activity from Greater London there is a chance that the observed processes of foreign employment growth are not typical of the South East

Region as a whole, but in the absence of suitable data this possibility must remain speculative.

With one in four manufacturing jobs provided by foreign-owned enterprises in 1979 South Hampshire can legitimately claim to hold an important place in the geography of overseas industrial investment in the United Kingdom. Furthermore, a tentative case can be made for expecting an increase in the amount of manufacturing employment provided by overseas-headquartered enterprises in South Hampshire during the 1980s although as Dicken (1980) points out, this is likely to be in a national context of a declining growth rate of foreign (especially United States) employment.

The substantial financial incentives offered by the British government in order to attract large job-generating ' internationally mobile investment projects ' will confine the majority of such developments to the assisted areas. However, medium-sized and smaller investments by foreign companies might be expected to show a greater preference for South Hampshire and other parts of the Outer South East over the next few years because of the raising of the IDC threshold to 50,000 ft,2 the increasing relative importance of direct investment in Britain by EEC-based manufacturing companies (which, as Watts (1979) shows, have a marked preference for locations in the south-east quadrant of the country) and the fact that the South East is the most accessible location in the United Kingdom to serve the entire EEC market. Indeed, during 1980 the vast majority of enquiries for industrial property in South Hampshire

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Page 11: Foreign-Owned Manufacturing Firms in the United Kingdom: Some Evidence from South Hampshire

16 Foreign firms in the UK

(excluding nursery units) were from American-owned firms: most already had plants in South Hampshire and wished either to expand or bring dispersed operations under one roof (Vail, 1980).

Partly offsetting any increase in foreign manufacturing activity has been an increasing tendency towards divestment among overseas-headquartered enterprises as they have attempted to rationalise and restructure their operations, frequently on an international basis. Consequently, in recent years a number of foreign-owned plants in

the United Kingdom have been contracted, closed or sold (Dicken, 1980; Smith, 1980). The peripheral regions in particular have witnessed a series of large scale closures and contractions by foreign enterprises, although foreign operations in the South East have by no means been unaffected by such trends. For example, five American-owned plants in South Hampshire have been sold to British companies since 1975 (three since 1979) while AC Delco (vehicle component subsidiary of General

Motors), after shedding some jobs at its Liverpool plant in 1980, announced 837 redundancies at its Southampton factory in May 1981, along with a further cutback in its Liverpool workforce (Financial Times, 1981a). Mullard, a subsidiary of Philips, has also recently made some redundancies in Southampton.

However, there is also some indication that such restructuring policies by foreign enterprises may benefit plants in the Outer South East at the expense of those located in peripheral regions of the United Kingdom. For example Standard Telephones and

Cables, a subsidiary of ITT, has factories in Southampton and other parts of the United Kingdom. In a recent cutback it reduced the number of jobs at its peripheral plants, located in South Wales and Northern Ireland (Financial Times, 1980, 198-lb), but left its Southampton plant unaffected. Such trends, which have been indicated mainly by anecdotal evidence, obviously require confirmation on a wider scale and with better quality data. They also suggest that one profitable way to achieve ' a refinement of our knowledge of the geography of overseas investment' (McDermott, 1977, 205), particularly with the introduction of internationally integrated product networks by a number of multi-national companies, would be to follow the lead set by Hood and Young (1980) by attempting to understand more fully the relationships between plants linked by common ownership but located in different regions, and more crucially, different countries.

Acknowledgements The financial support of the SSRC (grant HR 6796) and the research assistance of Colin Taylor are both gratefully acknowledged.

Notes 1. The study area comprises the following local authority areas: Southampton, Eastleigh, New Forest,

Winchester, Fareham, Gosport, Portsmouth, Havant and the southern half of Test Valley (i.e. the

Romsey area).

2. Information on ownership and control has been obtained from a number of sources including WHo owns whom, Dun and Bradstreet's Guide to key British enterprises, Kompass and local newspapers.

3. A more detailed discussion of foreign-owned manufacturing activity in South Hampshire can be found in Mason (1980).

4. Wilkins and Hill (1964) point out that in the early 1920s before the Dagenham site was selected Ford seriously considered Southampton for its main United Kingdom manufacturing operations because of its suitability to supply Britain, Europe and the British Empire.

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Foreign firms in the UK 17

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