While the proposed acquisition of ARM by Japanese company SoftBank isn’t privatisation, there is more than a hint of the disposal of family silver about the deal. And the speed with which the new Prime Minister Theresa May and Chancellor Philip Hammond ‘gave the nod’ to news is worrying, particularly in the light of Mrs May’s contention that the UK needs an industrial strategy.
Vince Cable, when he was industry secretary in the Coalition government, suggested just that, but the idea failed to get backing and was consigned swiftly to the bin by his successor Sajid Javid who, it seemed, preferred not to have any strategy at all.
If the ARM deal does complete – and it doesn’t appear to be a ‘done deal’ quite yet – it will leave the UK without a company of scale in the electronics industry; most leading hardware developers have long since been acquired – CSR by Qualcomm, Wolfson by Cirrus Logic and so on.
Governments of all colours over the last couple of decades have regarded IP – our ‘family silver’, if you like – as one of the UK’s prized assets. Yet these acquisitions see the UK lose control of these assets – there has been a lot of talk about ‘crown jewels’ recently. If the Government really wants to have an industrial strategy, this must involve encouraging companies – by whatever means – to take a long term view.
In the dim and distant past, the UK had what could be called conglomerates – GEC, STC, Marconi and Plessey are some names that come quickly to mind in the electronics world; the likes of ICI in the industrial sector. But, one by one, they were, effectively, asset stripped as hungry executives looked under any stone for ‘shareholder value’. It could be argued that GEC-Marconi, for example, was too unwieldy, that it didn’t have a focus and so on. But it was a successful operation until the asset stripping started. It was then slimmed to the point where it focused only on communications. Unfortunately, the company ‘bet all on red’, the dot com bubble burst and that was the end. Had it remained a diversified business, would it still be around?
Meanwhile, the finger has been pointed at investors for many years, with the accusation that they would much rather take a short term profit than take a longer term position.
Where does this leave innovation? Innovation is happening around the country, but what is the result of that innovation? Essentially, it’s encapsulated in IP – the ‘crown jewels’. And if a foreign company buys a UK company, those crown jewels also change hands. Undertakings may be given about retaining UK operations, but there are no guarantees.
The lack of venture capital for electronics start ups is also contributing to the current state of affairs. Once a sector that had no problem attracting investors, serious electronics projects today need too much cash. It’s easy to understand why a VC will back away from electronics when faced with a choice of having to commit more than $200m to get a leading edge chip to market or a much smaller amount to back a software developer.
This also affects so called serial entrepreneurs, who – in association with VCs – grew companies, sold them, then started again. Many have either retired or, like Stan Boland, have turned their focus to other areas.
Which brings us full circle. An environment in which companies are not only encouraged to build long term businesses in the UK, but are also happy to do so, can only be created by the government. Our problem, as ever, is that governments only have a five year horizon at best.