Uk_Food_and_Drink_Industry_Sector

Country Introduction The United Kingdom (UK) is a member of the European Union (EU) and the leader of foreign direct investments in Europe. It is a primary entry-point to the European market, offering straightforward access to the 27 member states of the EU, the world’s largest economic market (Datamonitor, 2010).The UK provides extensive business opportunities for investors, offering low labor costs and high returns making the UK an attractive investment destination. According to a recent World Bank study, the UK was recognized as one of the easiest locations in Europe to establish and run a business; with it only taking 13 days to register a business (Business Link, 2011). The UK was additionally accredited by the Organization for Economic Co-operation and Development (OECD) as being second in the world for product market regulation, second for the least barriers to entrepreneurship and third for the least trade barriers in the world; making the UK a principal location for consideration for entrance into the European Union marketplace (InvestUK, 2010). The UK food and drink sector is one of the fastest growing industries in the world, making it a favorable location when considering expansion in the global marketplace (UK Trade & Investment, 2011). Political Overview The official name of the United Kingdom (UK) is the United Kingdom of Great Britain and Northern Ireland, but it is also referred to as Great Britain or Britain. The UK is comprised of the four countries of England, Northern Ireland, Scotland, and Wales. It is important to be sensitive to the strong sense of country specific patriotism felt by the populations of these four nations, especially with respect to the three countries of Scotland, Wales, and Northern Ireland. The terms “'English” and “British” do not have the same meaning. Inferring someone is “British” is referencing to someone who is either from England, Scotland, Wales or Northern Ireland. “English” refers specifically to people or individuals from England, “Scots” are from Scotland, “Welsh” are from Wales, and “Irish” are from Ireland which includes Northern Ireland. The Welsh, Scots, or Northern Irish take offense to be called “English” and that should be avoided (Kwintessential, 2011). The United Kingdom is a constitutional monarchy where the monarch is the head of state and the Prime Minister is the head of the government. The government of the UK adheres to a democratic parliamentary system of control called the Westminster system and is a common law legal system. The UK recently took steps to entrust legislative powers to Scotland, Wales, and Northern Ireland with the establishment of the Scottish Parliament in Edinburgh, the National Assembly for Wales in Cardiff, and the Northern Ireland Assembly in Belfast. (UK Parliament, 2011). The political party that wins the most seats in a general election traditionally forms the new government and will be led by their party leader who will then become the Prime Minister. As the current British monarch and head of state since 1952, Queen Elizabeth II’s role is largely ceremonial, though the monarch selects and appoints a Prime Minister with whom she believes is best capable of commanding the working majority in the House of Commons The appointment of the newly elected Prime Minister is at the prerogative of the monarch and under exceptional circumstances she could exercise discretion to ensure that her government is secured. (UK Parliament, 2011). The newly appointed Prime Minister will select his Cabinet by choosing members from among those in Parliament who in general agree with his recommended policies. David Cameron was appointed the current British Prime Minister in June of 2010 (U.S. Department of State, July 2011). Cameron is a member of the conservative political party called the Tories who support a stronger monarchy, as opposed to the Whig party who are more in support of the constitutional monarchy. The Tory party is generally loyal to the English throne and opposed to the War for Independence during the 1770’s, whereas the Whig party supported the rights of the American colonists. Parliament is the highest political body in the UK and is comprised of the monarch, the House of Commons, and the House of Lords. The House of Commons is the highest legislative and executive power of British government and has the final decision in law making The UK does not have a formal-written constitution like the United States, but instead has an operating constitution called English Common Law. The UK’s constitution is a combination of historical documents, parliamentary statues and conventions Since there is no written constitution in the UK, the government is afforded greater flexibility in changing its laws. (UK Parliament, 2011). The House of Lords is the UK’s legislative body and is the final court of appeals in civil cases in the UK and the highest court for criminal cases in England and Wales (UK Parliament, 2011). The structure of the administration ensures that there is an adequate separation of powers between the executive branch, led by the prime minister, the bicameral legislature and the judiciary, and that there is a system of checks and balances in place (UK Parliament, 2011). The UK is one of the most successful nations in terms of the application of rule of law, control of corruption, government effectiveness and regulatory quality. According to the World Bank's international governance indicators for 2008, the country was given a high percentile rank of 94.3 on government effectiveness (Datamonitor, 2010). As one of the UK’s closest allies, the United States confers with them on British foreign policy; emphasizing the close harmonization between to two countries. The UK and the United States continually consult on foreign policy issues and global problems and share major foreign and security policy objectives (U.S. Department of State, July 2011). Bilateral cooperation reflects the common language, ideals, and democratic practices of the two nations. The UK and the United States have a number of similar business structures to consider when forming a foreign business venture, and with the UK’s ease of entry for foreign direct investments; the UK ranks favorably for consideration in international investment locations. There is a respect for freedom of assembly within the UK as well as with civic and non-governmental organizations permitted to operate freely and workers having the right to unionize. In response to the public’s concerns to the threat of terrorism, the previous Labor Government under the leadership of Gordon Brown responded by introducing anti-terrorism laws which have been described as some of the strongest in the world. (Transparency International, 2011). Economic Overview In 2010, the United Kingdom had the sixth-largest economy in the world with a GDP of US$2,175 billion and is the second-largest economy in the European Union (Datamonitor, 2010). The UK’s GDP growth over the past 10 years has regularly matched or out-performed that of the EU. The forecasted growth for UK’s GDP is anticipated to be fairly consistent rate over the next five years (Economy Watch, 2011). From 2012 to 2015, the GDP is expected to increase from 5.283 percent to 5.518 percent annually and the GDP is expected to reach US$2.608 trillion by the end of 2015(Economy Watch, 2011). As the second largest single global destination for US investment, the UK accounted for 24 per cent of all US investment stock in the European Union in 2009. The UK has acquired more US investments than the collective totals of Germany, France, Spain, Italy and Ireland. It has a highly developed, diversified, market-based economy with extensive social welfare services that provide most residents with a high standard of living (UK Trade & Investment, 2011). The World Investment Report, published in July 2011 by the United Nations Conference on Trade and Development (UNCTAD) shows that the UK is the most favored destination for Foreign Direct Investment (FDI) in Europe and is ranked third worldwide (Datamonitor, 2010). The food and drink industry represents the largest manufacturing sector in the UK and accounts for 17% of the total manufacturing sector. This sector employs more than 500,000 people and generates over 126.9 billion dollars. Roughly 4 percent of all UK exports are from the food and drink trade and the demand continues to rise steadily with approximately two-thirds of the exports going to EU countries. The UK food and drink industry is also one of the fastest growing and competitive industries in the world and as a result the UK has recently experienced an increase in mergers and acquisitions. (InvestUK, 2010). Cultural Factors Although limited, cultural differences do exists between individuals from the United States and the UK. The famous Irish playwright, George Bernard Shaw, has been credited with saying “England and America are two countries separated by a common language”. Although the U.S. and the UK speak English, the same words both countries are heavily exposed to each other’s culture via the media, the languages are quite different, and it is easy for both sides to give offence or create misunderstandings. Ordinary vocabulary can have different meanings between the two countries Subtle cultural differences and the impact they have on business relations, in terms of settling in and operating effectively, can be extremely difficult. It is known that negotiations and agreements can fail even when the cultural difference is small. It is common for Americans traveling to the UK, to find the British difficult to work with. Americans will complain that the British do not say exactly what they mean and show great reserve. The British often find that the Americans are too direct and unlike in the US, eye contact is seldom kept during conversations with the British. Privacy is also very important to the English and asking personal questions or intensely staring at another person in not encouraged. Their personal space is also important to the English and an open physical space should be maintained when conversing. It is considered inappropriate to touch others in public (Kwintessential, 2011). The British have an interesting blend of communication styles surrounding both understatement and direct communication. Older business people and those from the upper-class depend significantly upon the use of formal established protocol. When communicating with people they see as equal to themselves in rank or class, the British are direct, but modest. If communicating with someone they know well, their style may be more informal, although they will still be reserved (Kwintessential, 2011). Strict rules of protocol should be considered in written communication. Depending upon how well the writer knows the recipient will dictate the salutation used when closing the letter. The use of first names is generally not considered appropriate in written communication, unless the parties are well acquainted with one another. The communication style should still retain its formality, even when using e-mail as the medium for the communication channel, at least initially. Most British will also not use slang or abbreviations in their communications and will think disapprovingly when the communication appears overly familiar (Kwintessential, 2011). The UK is relatively free of “barriers to entry” and the government encourages foreign investors to establish their business by not imposing limits, restrictions or conditions as to the type of private sector investments permitted. The UK Trade & Investment organization was created by the UK Government and demonstrates the UK’s commitment to attracting foreign investment. The organization is entirely funded by the British government and provides free, confidential services to prospective investors (UK Trade & Investment, 2011). Business Structure The board of directors is the real force of a British company with all key decisions being made at this level. All public limited companies (PLC) must have a minimum of two directors who are appointed by and accountable to the shareholders with the CEO or chairperson leading the board (Business Link, 2011). British firms have traditionally been hierarchical in structure, but recently more firms have moved towards a horizontal, less bureaucratic approach. The structure has resulted in the introduction of organization concerns, with boundaries and responsibilities being vague. It can be difficult to get a clear picture of the structure of a British company, with employees being unsure who they take direction from and what their job duties are. The result is job descriptions tending to be somewhat vague and imprecise with little clear guidance on specific tasks to be undertaken. Women make up almost 50% percent of the workforce, but are often found in lower paying and part-time jobs. Statistics show that women in the work force are still paid less for performing the same tasks as their male colleagues (Business Link, 2011). On the other hand, women are more frequently found in managerial positions than in most other European countries and more women are reaching the very higher-levels within the British organization. More female managers will be found in service and hi-tech industries than in the more traditional engineering sectors which is largely owed to the small number of women in the UK who graduate with technical degrees (Business Link, 2011). Ethical Issues The reputation of politicians in the UK has been tarnished recently by a series of high-profile scandals. Allegations have been raised against Member of Parliament (MP) pertaining to lobbying, receiving cash compensation to ask questions in Parliament, and links between party funding and the supporters’ influence over party policy. In response to these recent scandals, an Act of the Parliament of the United Kingdom created a statute called The Bribery Act 2011 which went into effect in July 2011 and modified the previous UK bribery laws dating back to 1889 (Datamonitor, 2010). The crime of bribing a foreign public official was among the new offences being introduced with the statute. Although many British companies are not involved in corrupt practices, controls are required to police those less than ethical business that endeavor to use unethical practices in order to obtain contracts overseas and increase their own revenue. The Rupert Murdoch News International phone-hacking scandal is the more recent British scandal that surface recently regarding the controversy involving the News of the World tabloid newspapers published by News International, a subsidiary of News Corporation. Employees of the newspaper were accused of engaging in phone hacking, police bribery, and exercising improper influence in the pursuit of publishing stories. The European Court of Human Rights found that the UK had breached the Human Rights Act by detaining foreign nationals without charge. The UK Government was also accused of outsourcing torture by extraditing terrorist suspects for interrogation to countries with less respect for human rights (Datamonitor, 2010). Negotiations Promptness is very important in the British, especially when it pertains to business meetings and negotiation discussions (Kwintessential, 2011). Being well-prepared and on-time for the meeting demonstrates an understanding for protocol and professionalism that assists in establishing good business relationships while also showing personal respect for their time. The British are interested in establishing long-term relationships with people they do business and may become concerned if the business negotiations appear to be moving along too quickly(Kwintessential, 2011). Meetings should always have a clearly defined purpose, which often includes an agenda. In keeping with British protocol, they prefer to review the agenda ahead prior to the meeting with sufficient time to review and recommend changes. It is also expected the statements made during the negotiation proceeding should be well-supported with fact and figures. The British take into account the details and supporting information when making decisions, rather than emotions (Kwintessential, 2011). The practice of gift giving is not a common practice observed by the British, nor is it expected. Although the British initially come across as being stiff and formal, once they become familiar with the business relationship they will become relaxed. Their comfortableness should not be taken as an opportunity to take advantage of the situation by becoming overly assertive or authoritative during the meeting as that will antagonize them, even if they seem to be agreeing with what is being discussed. They could come back at the last minute with changes based on internal off-line discussions (Kwintessential, 2011). Strategic Alliances The majority of foreign investors will establish a UK-registered company when setting up in the UK (Business Link, 2011). There are number of alternatives to establishing a corporate presence in the UK: • Establishing a new UK incorporated company • Acquiring a UK incorporated company, which is already trading • Registering a branch or place of business • Establishing or acquiring an interest in a Limited Liability Partnership (LLP) • Entering a partnership, joint venture or other contractual agreement with a UK business Recent F&D studies have identified that the organic food sector in the UK is worth about US$1.94 billion per year and the chilled food market close to US$11.33 billion per year (InvestUK, 2010). In a strategy to boost tourism, the UK is targeting areas within food and drink industry by promoting the rich food and drink culture of the country on both national and international levels. The government established the UK Trade and Investment to assist foreign companies considering investments within the UK. This support of the F&D industry by the UK provides a favorable market for US companies to enter the European market (InvestUK, 2010). A strategic alliance works best with a partner involved in a complementary industry so as not to be in direct competition with one another. A main area for development in the F&D industry has been identified as health foods, ready or instant meals and other value added products (UK Trade & Investment, 2011). Organic Bistro manufactures nutrition-rich single-serving frozen meals (Organic Bistro, 2011). Based out of Irvine, California, Organic Bistro’s market strategy is to target health conscious customers. The UK consumers are increasingly health sensitive, which is increasingly supported by media coverage and government sponsored healthy eating campaigns (UK Trade & Investment, 2011). There is a strong trend in the UK towards healthy, organic, allergy related and nutritional products food options; which strongly supports Organic Bistro’s movement into the UK’s F&D market. The second half of the alliance pertains to identifying the complementary industry or business partner. Within its existing US markets, Organic Bistro is marketed mostly through natural and organic food retailers, such as Whole Foods (Organic Bistro, 2011). The recommended strategy would be to partner with a UK food manufacture that has a similar mission but that targets a different consumer market. Organic Bistro offers a quality product currently only available within the US market. The UK’s retail sector has a distinct structure that helps promote specialty food product-lines. The top five supermarkets dominate the grocery market requiring retailers to be able to quickly respond to consumer demands (Datamonitor, 2010). Organix is an organic food manufacturer whose target market is prepared food for babies, toddlers and children (Organix, 2011). They would provide a complimentary product line to the complete single-meal frozen food-line offered by Organic Bistro without introducing product completion. The two organizations would be best suited to form a partnership as a joint venture. Although the Organic Bistro is initiating the partnership with the UK, the benefit returned to Organix is the reciprocal offer for entrance into the US organic baby food. Both organization have an established and profitable presence in their respect market and will be expanding their product line with the combing of resources, local market knowledge and strategies. The organization structure for this new enterprise would best be suited under a hierarchical structure along product lines. Lateral structures or matrix structures introduces too much confusion with manager and employees receiving different signals or instructions which contradict each other. Summary The UK provides an excellent gateway to the European market as well as providing ease of establishing a presence in the UK with no barriers to entry. English is the most widely spoken language across the world and English is the official language of the UK. The ease of establishing business presences as well as the lack of barriers to entry provide a favorable business start-up process. The UK’s stable political environment, common law legal system, political structure, and stable regulatory environment are beneficial to the establishment and sustainability US-UK business partnership. The culture and value of both countries are quite similar which supports a stable business relationship. References BBC News. (2011). United Kingdom country profile. Retrieved from http://news.bbc.co.uk/2/hi/europe/country_profiles/1038758.stm#leaders. Business Link. (2011). Starting up. Retrieved from http://www.businesslink.gov.uk/bdotg/action/home. InvestinUK. (2010). Food and drink. Retrieved from http://investinuk.net/industry/food-and-drink/food-and-drink. Kwintessential. (2011). UK-Language, culture, customs and etiquette. Retrieved August 10, 2011, from http://www.kwintessential.co.uk/resources/global-etiquette/UK.html. UK Parliament. (2011). How Parliament works. Retrieve from http://www.parliament.uk/about/how/. UK Trade & Investment. (2011). UK food and drink sector opportunities. Retrieved from http://www.ukti.gov.uk/export/sectors/fooddrink.html.