A Place to Do Business. . .
1 Jun
Derek McCulloch is Head of Corporate, Gillespie Macandrew, and Immediate Past Chairman, Lexwork International.
Inward Investment targeting UK
The number one message on the UK is it is open to – and for – business. The UK is attractive to a wide range of companies and my own experience is an example of its universal appeal. I have acted for a global US health sector company specialising in high tech ultra clean environments; an Indian company looking to take over a Pharma site; a global textiles company locating its sales and development centres; a US software company providing to the healthcare sector; renewable energy companies, such as Eurowind, investing into the huge potential in the UK and Scotland, in particular; major global charitable foundations setting up headquarters in Scotland as a regulatory friendly and reputable environment; global packaging companies taking over existing operations; global food companies taking over existing food ingredient industrial operations; and many more.
Each has its own business objectives, yet all found the UK to be a desirable and appropriate base for its operations. So, what are the common lessons to be drawn?
A positive business environment
The ‘Business UK’ philosophy is one of freedom to contract and to set up business with no requirements for local individuals to be involved in ownership or control. It is very much a part of Europe and the freedom of movement principles, although necessarily care must be taken in both set up and operation to take account of European led regulatory structures for public procurement, competition, environment and employment protection.
Businesses targeting the UK, whether as a base for international operations, or to tackle the UK markets directly, or both, will first consider three key aspects of location:
Skills – availability at location and/or ability to attract UK and International skilled personnel to the location;
Connectivity –communications highways and locational advantages;
Infrastructure – air links, logistics, access and workforce attraction as above.
The UK possesses a number of world class locations ticking these boxes, an example being my home city of Edinburgh, with the highest educated population of any city in the UK, a leading European city for inward investment attraction and a Government and Local Administration geared up to attract inward investment at all levels, from incubator to headquarters to major R & D centres.
Focus on prime objective
It is important in my experience to keep the main objective in mind and not allow details to cloud the vision. Clearly, Tax efficiency and structure choices are important, but there are many options available to suit the business venture, and these can be progressively developed to meet business needs as the investment ramps up. The early stage tactics of agency and distribution operations, and the combined licensed manufacturer/distributor option, are all available in the UK, subject to European agency rules and competition law. Beyond that the inward investor will look at three principal choices: the branch or sales representative office – that is and remains part of and controlled directly by a non-UK business; the JV option – a co-operative venture with an established UK business, usually involving a newco in UK; and the subsidiary company – either set up from scratch or a takeover of an established UK business.
Common Issues
Although a wide spectrum of companies look to locate in the UK there are, nonetheless, a number of common issues they face:
- People and skills – often we find not enough time is taken to understand the need to deal not only with employment law issues but good presentation of the business aims and the incentives and employee benefits for key personnel. A simple translation of a share option scheme in the US may not work for UK employees and good local consultants should be engaged to assist with planning and implementation of the desired employee strategy and package.
- Structure and tax as above – bear in mind that the interface with, responsibility for social costs, and control of employees and also their confidence in the business operation, are affected by the level of investment in structure terms – a UK subsidiary being the highest level. A branch office does not allow the operating non-UK company to ring fence risk and liability.
- Trade contracts – the UK generally adheres to freedom of contract, the exceptions being Competition rules in the UK and Europe which are very much now in line, European commercial agency rules and Unfair Contract Terms provisions.
- Different jurisdictions – the UK is made up of three – England & Wales; Scotland; and Northern Ireland. Again care should be taken to obtain good local advice.
- Insurance – ensure both risk and regulatory requirements are met for employer’s liability, public and product liability.
- Quality housing, education and environment for senior management. It is surprising how often this issue becomes critical – not just the executives but the family need to be happy to relocate. Again the UK has this in abundance – Edinburgh, for example, in 2009 was named most desirable place to live in the UK in a national poll of 10,000 people by YouGov. In the 2010 European City Monitor it was top UK city in terms of quality of life for employees.
- Property – taxes are comparatively low but need to be understood and the choices of leasing or owning business premises can be critical to later stages of business development, expansion or contraction. I have seen many hours of management and advisers costs wasted on unloading unwanted property and liabilities for abandoned or disused property, not least in relation to environmental regulations. A properly ordered property management plan is required, with local advisers being the key.
- Government and regional incentives and assistance – The UK has a wide range of support available, but the key business mantra is never to build a long term business on incentives alone – use them but discount them. What we find is more attractive is having local and central administration acting in a business friendly manner and working often in partnership with developing business ventures. It is vital to present your initial plans to the right sector of government and we regularly assist in this process which can speed things up, particularly in regard to suitable property and co-location with R & D skills.
The other man’s grass…..
In advising inward investments to other countries I have come across hurdles that do not apply in the UK such as pre-contractual obligations, an important concept to understand in the Netherlands, for example; formal requirements for local language in certain contract documents even though the other party does not speak that language; requirements to have some directors or officers appointed from the receiving country; registration of commercial documents beyond establishment and taxation documentation.
In summary, the UK is a place to do business. It attracts local and international talent easily, it has a choice of great environments for business and personal needs and it has a highly educated English speaking population. All of its constituent parts, while in separate jurisdictions, regularly use English law in their international dealings and find this a widely acceptable choice for international deals and trade.
Contact: derek.mcculloch@gillespiemacandrew.co.uk Tel +44 131 260 7532
Derek McCulloch
