The 51st State?
The US is one of Britain's oldest commercial partners. Ian Halstead examines the latest opportunities for the Midlands.
The special relationship that supposedly spans the Atlantic often appears to exist only in the mind of those inside Number 10.
However, there is no doubting the strength of our trading bonds with the US.
It traditionally vies with Germany as the UK's biggest overseas market and in 2006 almost £332bn of goods and services headed Stateside from Britain. The key sectors were aviation, aerospace, commercial property, chemical and pharmaceuticals and heavy machinery.
Colin More, head of commercial at Bank of Scotland Corporate, says: "One in six widgets produced in the Midlands is bought by an American. Trade with the US has dipped slightly in the past decade with the emergence of new markets in developing countries - but only slightly.
"We see a steady stream of approaches from businesses in the region who are seeking to extend their reach into the Americas. Any enterprising business in the region needs to maintain a strategy towards the US if it is to be serious about international growth."
It wasn't all good news though, as the pound's strength against the dollar made life tough for exporters.
Lloyds TSB's senior economist, Kenneth Broux, says even the Midlands' powerful construction sector suffered, as the US's residential market saw spending crash by a fifth.
"Most new housing projects are now on the backburner, with US property companies concentrating on existing schemes, rather than developing new land and properties," he admits.
With the pound still hovering in the late 1.90s, trading did not get much easier in the first half of 2007, especially for manufacturers suffering tight margins.
Broux is bullish for the remainder of the year though. "We see the sterling-dollar rate falling to 1.89 by December 2007, which will make exports more price-competitive as the year progresses."
He also expects domestic demand in the US to be underpinned by GDP growth of around 2.8 per cent, although the plight of America's motor industry is a concern.
However, automotive products are only fourth on the US import charts, behind industrial suppliers, consumer items and capital goods, so there remains significant scope for British exporters.
Broux is especially taken by the scope for designers and developers of both hardware and software.
"US companies in the ICT sector are still among the world's largest spenders on research and development and many British firms are at the forefront on advances in information technology,"
he suggests.
The Midlands has an established and expanding cluster of companies in the IT and serious games sectors, notably the Leamington Spa-Warwick-Coventry area.
He also sees significant opportunities for the region's transport, aviation and automotive sectors.
However, not all observers are quite as optimistic.
Coface Group, which specialises in global number-crunching, recently placed the US on its watch list. Its chief economist, Sylvia Greisman, predicts GDP growth of only 2.4 per cent in 2007 and is concerned residential property issues could impact hit other sectors, diluting domestic demand.
She also counsels that risk levels in major sectors - automotive, retail, pharmaceuticals and construction - remain high.
While both Broux and Greisman's analysis are pitched at the macro-economic level, one Midlands observer of transatlantic trade has major concerns at micro-level.
Bob Fisher, executive manager for UK Trade & Investment (UKTI) in Derby, says many firms head for the US market without researching the country or their target sector.
"It offers tremendous opportunities, but for many it swiftly becomes their graveyard," he warns. "People are seduced by some markets, and the US appeals to everyone."
Fisher says the oft-quoted adage that Britain and the US are two nations divided by a common language has contemporary relevance.
"In many cities more people speak Spanish than English nowadays and if you went to parts of Lousiana you'd find French is the main language," he says.
More adds: "It's a common fallacy that, because we all speak English, cracking the US market is far less complicated than it is in developing markets.
"Crucially, when you're placing your trust in a financial partner, you need
to be certain you're working with people who have a track record of experience and a footprint in the US. Just as you'd expect when considering trade with China or India, there's no substitute for local know-how. The US map may be in English, but the terms of reference can be so very different from the UK. Regulation, for example, differs from state to state."
Fisher believes many Midlands companies fail to understand that - whatever politicians may say - the US is not a giant free trade zone willing to take goods and services from anywhere.
He adds: "It's a highly protected market, not in terms of customs tariffs, but because of significant cultural barriers concerning imports. There's a feeling in many areas that if it isn't made in the US, something is wrong.
It remains a very litigious place to do business and claims can be horrendous."
However, Fisher says the biggest obstacle for British business remains service standards.
"You might think you have everything right here, but there are huge complications when you enter markets 3,000 miles away. If you don't plan to have people permanently on the ground in the US, it's worth considering establishing a virtual presence, perhaps through the fulfilment houses which are beginning to surface."
Chicago - the heart of the US's original train distribution network - has become the focus for a new breed of customer service centres.
"They're not like the UK. They hold your stock, run a dedicated phone service, manage your sales ledger and even offer technical support, which makes customers think you have a physical presence," Fisher says.
He is equally confident that Midlands companies will realise the merit of working with fulfillment houses to smooth their passage into the US.
Meanwhile, also in Chicago, the British Midlands Development Corporation (BMDC) is beavering away trying to persuade US companies to establish a presence here.
President and chief executive Vern Sebby had an impressive run of success during 2006, with 22 investment projects brought to the Midlands.
The BMDC network - funded by Advantage West Midlands (AWM) and the East Midlands Development Agency (Emda) - came under fire recently.
A Commons Select Committee reckoned it and similar ventures elsewhere in the UK were not efficient and should be abolished.
Quite where such views were sourced was not clear, although the Engineering Employers Federation was upset that different regions competed for the same potential investment - as if their members never fought for the same order.
Sebby is not listening to the political chatter, but focusing on finding companies to match the calibre of 2006. At the moment, the most buoyant in the US are transport technologies, ICT, healthcare and non-automotive manufacturing.
Among the newcomers are: Redditch-based automotive supplier Magna International; hi-tech polymer seal manufacturer Edgetech, which has come to Coventry; and visualisation technology specialist Fakespace, which chose Leicester for its European base.
Magna claims to be the world's most diversified automotive business and with 83,000 employees worldwide and record first quarter 2007 sales of £33.2bn it is just the kind of business any UK region would wish to attract.
Edgetech dominates its niche sector globally, through its Lauren International parent, and Fakespace is already a major European player for visualisation applications for military, manufacturing and energy applications.
But persuading such companies to set up in the Midlands can take years of effort, as Sebby admits.
"They might consider Europe, then look elsewhere in the UK; the economic conditions might change; their strategy can be revised and key personnel might move. It is never going to be quick and easy," he says.
There is a long tradition of inward investment teams spending time at trade fairs and exhibitions and the like, but not in the US.
"It became expensive and time-consuming. Key decision-makers were no longer attending such events, so now we only visit two or three a year," says Sebby.
Now telemarketing specialist ROI makes the initial approaches, leaving BMDC to refine its lists of likely targets.
Seminars are a key contact medium though, especially when top-flight speakers from the UK are on offer. In May 2007, one of the world's leading exponents of serious games, Birmingham University's Professor Bob Stone, was brought in.
BMDC also operates an e-relationship programme to keep in touch with previous contacts and delegates to its events.
"Sometimes you find the right person at the right firm, but it's not the right time," says Selby. "We don't attempt
to maintain an intense dialogue, but we send them an e-zine every month or so, with business and other info about the Midlands."
Several successful projects in 2006 followed a virtual relationship, after earlier personal contact, and Sebby is confident more will follow.
"Constant communication would obviously be counter-productive, but I like people to be updated on what's happening and it gradually builds up their knowledge about the Midlands and what it has to offer," he says.
Emda's head of investment, Nicola Kidd is particularly bullish about likely successes from the transport technologies sector, on which Emda has focused its efforts in 2007, and is confident about growing links between the US health technology sector and Nottingham's innovative BioCity.
She met Emda's North American tele-marketing specialist ROI and was seriously impressed.
"It was all very methodical and analytical. We knew the system must be working because of the number of successes. And when you met their team, you realised why," she says.
"Some people seem to think identifying inward investment opportunities is almost a random art, but while that once might have had some truth, it is now very much a science."
There is similar optimism from the region's corporate finance sector, where Clearwater's Birmingham partner Phil Burns sees continued interest in Midlands companies from the US.
Clearwater specialises in mid-market deals involving non-quoted companies and Burns says investors remain eager to make investments outside North America.
"They still see value here, even when potential buyers much closer to the market can't, which is interesting," he suggests.
Private equity investment isn't exactly flavour of the month in the UK, following critical reports about the aftermath of such investments, especially the impact on staff numbers and pension funds.
Burns - as might be expected - takes a more relaxed view of the market, considering that it is simply a time for the flak to fly, before the critics move on.
If major US-sourced deals lie ahead in 2007, he highlights retail and industrial products as the most likely sectors.
"Whatever the current mood over here, in North America people are still looking to diversify and this is one place where they just like to come."
