Translating foreign investment into UK growth

 

The UK attracted over 1,000 foreign direct investment (FDI) projects last year.¹ But what makes Britain and its businesses so attractive to foreign investors? Steve Bagshaw shares his insights and explains what it feels like to be a CEO on the receiving end of foreign investment.

Steve Bagshaw is CEO of FUJILFILM Diosynth, a company that has benefited from FDI from HQ in Tokyo and now exports clinical and commercial experience in biopharmaceutical development around the world.

“Fundamentally, FDI is all about tapping into resources that you don't currently have.”

Foreign investors in the UK now own £10.6 trillion worth of British assets – that’s roughly five times as large as the UK’s GDP.² Indeed, FDI figures for 2015 show that the UK had a record number of inward investment projects that helped to create the second highest number of jobs ever.3

FDI can deliver a stable platform for growth opportunities in both domestic and international markets but as with any change in ownership structure, clear expectations and transparency of ambition are vital to success.

A platform for growth?

Avecia Biologics, a north-east biopharmaceutical contract development and manufacturing organisation CDMO, came under Japanese ownership in 2011 via a one year stay in MSD – the US pharma giant, rebranding as FUJIFILM Diosynth.

As CEO Steve Bagshaw explains, that investment allowed them to focus on long-term planning – a welcome contrast to the private equity approach they’d previously experienced.

“Our Japanese owners have really put their money where their mouth is. They’ve been able to unlock funding through Japanese banks which wouldn't normally have been accessible to us as a UK company,” he says.

“Fundamentally, FDI is all about tapping into resources that you don't currently have. That has been invaluable in allowing us to grow. We had our best ever year in 2015.”

More than meets the eye

FDI isn’t just about the financial support. It also promotes the sharing of talent and skills.

“We’ve received quite a bit of training too, which has helped us to rebalance our skills and align ourselves with the values of the Japanese owners,” says Steve. “Being in sync, with shared aspirations and values, was actually one of the factors that attracted FUJIFILM to us in the first place.”

And despite being half a world apart, the similarity of values evinced by Avecia and FUJIFILM created a matched understanding that, Steve remarks, was a major element of the success of the investment.

“FUJIFILM like the way we do business, which is a model based on trust. That absolutely matches FUJIFILM’s key working values.

“The due diligence FUJIFILM did on us before the acquisition showed them that our reputation in the marketplace was justified from a technical point of view too,” says Steve.

The right fit

The crucial aspect to FDI is about finding the right fit for both parties. “FUJIFILM were looking for a good 25-year investment that would get them into the healthcare business and unlock growth potential in the target,” says Steve.

“For us, it was a great fit. We wanted to be bought by somebody who valued us and we absolutely needed a long-term strategy.”

Being British was also a factor that weighed heavily in the Japanese company’s decision to invest. They wanted an English-speaking target company and the UK time zone is perfect for bridging communication gaps between HQ in Japan and our US company. Interestingly, they also liked the work ethic they saw here in Teesside. The UK regions are doing a great job of attracting more and more FDI.” 1

The secret to joint success

So what are the secrets to continued success?

“One of the reasons our venture has worked is that we were prepared to adapt to the new ownership,” says Steve. “That’s a really key point for any company thinking about taking foreign investment.

“Likewise, doing due diligence on a foreign investor is just as important as the due diligence they will be undertaking on you. So, to those considering FDI, don’t just take the first offer that comes along – do the groundwork and find the right deal with the right person.

“Trust is invaluable and works both ways. They've allowed us to run the company the way we knew it should be run. And now we're really delivering the level of growth that we knew we were capable of.

“That’s not to say that there haven’t been some challenges along the way,” Steve cautions. “There are a number of cultural differences that have taken time to adjust to. For instance, the company is run in a very hierarchical way. So even though FUJIFILM is a public company, the Chairman runs the place with an eye for detail that is just unbelievable.

“As a UK CEO, it might feel strange sharing every detail with the Chairman, but it’s having a ‘no secrets’ approach that enables us to work so well together.”

Driving innovation and efficiencies through competition

As Steve’s experience shows, foreign ownership can help businesses realise long-held strategic ambitions but it also thrusts business into the global marketplace creating an unusual type of competition. “You are playing for your lives,” Steve says. “Nobody owes you a future. You absolutely have to use technology and automation to make yourself more efficient as you grow because on a quarterly, half yearly, annual basis, your performance will be compared with other factories around the world.

“Global ownership subjects British factories to much harsher analysis. Whereas decisions might previously have involved creating jobs and employment in the UK, if you're foreign owned, it's not. It's more about profit and long-term value.”

“To those considering FDI, don’t just take the first offer that comes along – do the groundwork and find the right deal with the right person.”

Taking the long view

“Ultimately, we know that our profitability will be key to a successful and sustainable partnership,” says Steve. “We’ve had some temporary challenges around that since the EU referendum because we repatriate our profits to Japan, so the fall in sterling, has seen that reduce.

“But this is only a short-term stumbling block and on the plus side, we’re able to export more cheaply. The UK remains a great place to do business and a great place to invest.”

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