WHERE ARE THE BIG GORILLAS?
HIGH TECHNOLOGY ENTREPRENEURSHIP IN THE UK
AND THE ROLE OF PUBLIC POLICY
4 ENTREPRENEURSHIP IN ELECTRONICS AND INFORMATION TECHNOLOGY
The electronics industry – now more commonly referred to as information technology – has gone through a period of rapid technical change over the last fifty years. The two epochal events in the first decade after the War were the introduction of the electronic computer and the invention of the transistor, the latter setting off a wave of innovation in semiconductor devices which not only transformed the electronics industry but had a profound effect on other sectors.
For reasons which were discussed in Section 2 – principally a large and growing domestic market, stimulated by military demand – American firms established an early lead in computers and semiconductors. In both cases start-up firms played a significant role.
In computers, although the eventual winner in the mainframe era was IBM, several of the American engineers who had worked on electronic data processing during the war formed their own firms after the war. William Norris, who had worked on code-breaking during the war, helped to set up Engineering Research Associates (ERA) in 1946, and this firm was one of the first to develop a general-purpose digital computer. ERA was later bought by Remington-Rand, but Norris broke away to form Control Data Corporation, and this company was a strong competitor to IBM, specialising in large, high-performance computers for scientific applications.[64]
Another start-up firm was Digital Equipment Corporation (DEC), established in 1957. The founder, Kenneth Olsen, a scientist at the Massachusetts Institute of Technology, conceived the idea of a mini-computer, offering high performance at lower cost than IBM’s mainframes, and better suited to the needs of smaller businesses. DEC’s success attracted imitators, and several other mini-computer firms, including Wang Laboratories, Scientific Data Systems and Data General, were started during the 1960s; most of them were in the Boston area, helping to create a concentration of high-technology enterprises along Route 128 just outside the city.[65]
In semiconductors, some of the companies that obtained transistor technology from American Telephone & Telegraph were long-established manufacturers of thermionic valves (the component that the transistor replaced), but it was new entrants, notably Fairchild, that provided most of the dynamism in the industry. Fairchild, Motorola and Texas Instruments were the principal US semiconductor manufacturers in the 1960s, and they were quick to extend their lead internationally.
Faced with American dominance in what was seen as a strategically important industry, European governments sought to create and sustain nationally-owned firms. In computers, the UK appeared to be the best placed of the European countries. Thanks to the military-related research which had been done during the war, British expertise in computer science was roughly on a par with that of the US. The first fully operational computer, the EDSAC, was commissioned at Cambridge University in 1949, and other projects were under way at Manchester University and at the government’s National Physical Laboratory. Much of this work was financed by the government and aimed at military applications but, as in the US, the prospect of a large commercial demand attracted office machinery firms and electronics companies. The National Research Development Corporation, a government agency charged with promoting the commercialisation of publicly funded research, encouraged the leading firms to work together, but the industry lost ground to American firms during the 1950s.[66]
In 1959 the two leading office machinery firms, BTM and Powers-Samas, merged to form International Computers and Tabulators, but this did little to strengthen the industry. For the Labour government which took office in 1964, the best hope lay in further consolidation; the outcome was the creation of International Computers Ltd (ICL), a grouping which absorbed virtually all the British-owned manufacturers. ICL was intended to be a counterweight to IBM, but it was never able to catch up. A better strategy might have been for British firms to look for niches in the market which IBM did not dominate, as DEC did in the US. The only European firm to follow DEC’s example on a substantial scale was Nixdorf in Germany; it was the most successful European computer firm in the 1970s.[67]
In semiconductors, several British electronics companies took out licenses from A T & T but, as the transistor gave way to the integrated circuit and then the microprocessor, British firms chose to concentrate mainly on specialised devices for military applications, where competition from the US was less fierce. For high-volume semiconductors the UK market became dependent either on imports from the US or on local production by subsidiaries of American firms; by 1978 US companies supplied 90 per cent of the market for standard devices.
Computers and semiconductors did not, of course, represent the whole of the electronics industry, and there were other sectors where opportunities for British start-ups were better. In electronic instruments, for example, a fragmented sector with no dominant incumbents, several promising firms were formed. Some of the founders, like Martin Wood at Oxford Instruments, were academics seeking to commercialise their research. Others were engineers who had ‘spun out’ from larger electronics companies. For example, Bernard Eastwell came out of Mullard, a big manufacturer of electronic components, to form VG Instruments. Tony Davies was a young Plessey engineer who formed Membrain, a manufacturer of automatic testing equipment for printed circuit boards and other electronic devices. In defence electronics, Raymond Brown and Calder Cunningham, both of whom had also worked for Plessey, set up Racal, a manufacturer of two-way radios; an initial order from the British Navy was the basis for a substantial export business, mainly in developing countries.
On the consumer side, the booming demand for radio and television, hi-fi equipment and the like attracted a number of entrepreneurs. Among the older businessmen who had started their careers before the war, Michael Sobell built Radio and Allied Industries into one of the country’s most profitable manufacturers of TV sets; it merged in 1959 with General Electric Company (GEC). (Sobell’s son-in-law, Arnold Weinstock, became managing director of GEC and was the architect of that company’s emergence, largely through acquisitions, as the country’s largest electrical/electronics group.) Like other British TV set manufacturers, GEC lost ground to Japanese competition in the 1970s, and formed a partnership with Hitachi, which later acquired full control of the business.
From the post-war generation Clive Sinclair began his business career in 1962 (when he was 22) with a product called a micro-amplifier – the start of a life-long preoccupation with miniature electronic devices; it was followed by the Microvision pocket TV receiver and a range of electronic calculators.[68] Alan Sugar founded what was to become the Amstrad company in 1968, importing electronic equipment from the Far East. Though he started small, Sugar had large ambitions – he wanted the Amstrad name to be as well known as Hoover.[69] Peter Michael, an ex-Plessey engineer, started a consulting business in 1967, briefly considered entering the mini-computer market, then developed a device, known as Quantel, for encoding and storing TV pictures.[70]
Computer services and software, where entry barriers were lower than in hardware, attracted several talented entrepreneurs, including John Hoskyns, an ex-IBM manager at the Hoskyns Group, Roger Foster at ACT (Applied Computer Techniques), and Alex d’Agapayeff at CAP (Computer Analysts and Programmers). During this period Britain’s software industry was the most dynamic in Europe and the one most similar in structure to the American industry.[71]
Thus despite the unfavourable environment – a poorly performing economy and high personal taxation – entrepreneurial ambition was by no means lacking in Britain in the early post-war decades. The difference with the US was that the British firms grew more slowly. When Arthur D. Little, the consultants, conducted their study of new technology-based firms in 1977, they identified about a dozen significant technology-based firms which had been formed in the UK between 1950 and the end of the 1960s, and which still existed in the mid-1970s. Most had remained small, and several of them had been acquired by non-British companies.
The exception was Racal, which had floated on the stock market, absorbed its principal UK competitor, and begun to diversify outside military radio. In 1971 it bought a stake in Milgo, an American producer of data communications equipment, and later acquired full control. Racal was breaking out of its initial niche and becoming a more broadly-based electronics group. The driving force was Ernest Harrison, who had joined the company as chief accountant and was appointed chairman and chief executive in 1966.
The sluggish growth of the sector as a whole was partly due to the fact that British firms were poorly represented in the fastest-growing branches of the industry, most of which were dominated by the Americans. This was a matter of growing concern to governments during the 1970s. Since the established electronics companies were unwilling or unable to tackle these sectors, the solution seemed to lie in promoting smaller, entrepreneurial firms on the US model. Hence when the Labour government set up the National Enterprise Board in 1975, it was encouraged to acquire stakes in small, high-technology enterprises which, with greater financial backing, had the potential to become world leaders. These included Clive Sinclair’s Sinclair Radionics, as well as a manufacturer of computer peripherals (Data Recording Instrument), and two computer services firms, CAP and Systems Designers.
The NEB also supported a new semiconductor project, known as Inmos, devised by a group of American and British entrepreneurs. NEB officials had formed the view that the UK had become dangerously dependent on non-British suppliers for memories and microprocessors, and that, since the existing British-owned producers were concentrating almost entirely on custom or semi-custom chips, government support for a new entrant was appropriate.[72]
While the NEB was attempting to remedy what it saw as a lack of ambition in the existing electronics firms, several British entrepreneurs had seen an opportunity in the new field of micro-computers, pioneered in the US by Tandy, Commodore, Apple and others. Barriers to entry were low, since the manufacturers could buy in most of the components they needed from outside suppliers.
An early entrant was Acorn Computers, set up by Chris Curry and Hermann Hauser in Cambridge in 1979. Curry had started his career with Pye, a Cambridge electronics firm that was subsequently acquired by Philips, and later joined Clive Sinclair, helping to develop his electronic calculator. Seeing the potential of the micro-computer, he left Sinclair and joined forces with Hauser, an Austrian-born physicist who was working in the university’s Cavendish Laboratory. Their breakthrough came in 1981, when Acorn was chosen by the British Broadcasting Corporation to supply the official BBC computer for a series of television programmes on computer literacy.[73] Another contender was Roger Foster’s ACT. It had started by importing a microcomputer from Victor in the US, and in 1982, when its supplier ran into financial problems, it designed its own machine, known as Apricot, manufactured in a new factory in Scotland.
Meanwhile Clive Sinclair, whose relations with the NEB were deteriorating, set up a separate company known as Science of Cambridge, later re-named Sinclair Research, which launched its first microcomputer, the MK 14, in 1978. Then came the hugely successful ZX 80, manufactured for Sinclair by Timex, the watch company, in Dundee. This was followed by the ZX81 and the Spectrum, which established Sinclair’s reputation as Britain’s leader in the microcomputer revolution.[74] (As a reward for his efforts and as a sign of the Thatcher government’s enthusiasm for entrepreneurs, Sinclair received a knighthood.)
In 1982 Fortune Magazine reported that ‘for the moment the world’s top producer of tiny computers is a slightly astonished English company headquartered in a jumble of tiny rooms and vertiginous staircases across from Gothic King’s College, Cambridge”.[75] For its assault on the US Sinclair formed a marketing alliance with Timex, and the ZX81 had some early success. But within little more than a year of the launch American companies were matching Sinclair’s prices with products that offered better performance. Timex withdrew from the US microcomputer market in 1984, and Sinclair subsequently sold its brand name and designs to Amstrad.
The US market also proved a graveyard for the other two home computer makers. Apricot made a distribution agreement with a group of disaffected Apple dealers, but it never achieved the volume that was needed for a profitable operation, and by the end of the decade Roger Foster was looking for a buyer. The Apricot subsidiary was sold to Mitsubishi of Japan in 1990, and ACT reverted to its original business of software and services. Acorn also ran into a cash flow crisis in the mid-1980s, partly arising from an expensive foray into the US, and it had to be rescued by Olivetti of Italy, which acquired a majority stake. According to one account, Acorn’s entrepreneurial founders had been outstandingly successful, but were too inexperienced to take appropriate remedial action when the crisis loomed. Acorn was also held back by its attachment to a proprietary operating system when Microsoft’s MS-DOS was becoming the industry standard.[76]
Alan Sugar, having taken over the Sinclair business, had global ambitions – he boasted that Amstrad would one day be as big as Sony – and until the late 1980s the company appeared to be riding high. But the business was hit by a series of problems in personal computers, partly caused by defective disc drives in two models imported from the US, and Amstrad withdrew from the market; Sugar later claimed that, if the computers had worked properly, Amstrad would have become as big as Compaq. “You do not recover from a knock like that in a fast-moving industry like the PC”.[77]
These failures, while partly due to management errors, underlined the central problem facing any UK-based manufacturer of computers or computer-related equipment – how to break into the largest and most profitable market, the US. Another example was Rodime, a Scottish manufacturer of hard disk drives set up in 1980 by a group of engineers from Burroughs, the American office machinery manufacturer. This was a classic American-style spin-off, exploiting technology which Burroughs had been unwilling to develop internally. Rodime had no difficulty in raising finance, first from 3i and later from investors in New York; two thirds of Rodime’s sales were in the US. Rodime established a reputation as an innovator - it was the first to introduce a commercial 3.5 inch drive, and appeared to be holding its own with the US leaders. But the market was over-crowded, and prices were under constant pressure. Rodime was slow to shift assembly to the Far East, as most of its US rivals were doing; instead, it established a manufacturing base in Florida (to serve IBM’s personal computer division), and this proved to be a mistake. Rodime ceased manufacturing disk drives in 1991.
According to one of those involved, Rodime’s founders were good at running a start-up business, but not capable of running a complex international organisation. But it was always going to be hard for Rodime, and for the other three British firms which entered the disk drive business, to compete in a US-dominated market. Part of the disparity with the US was simply the small number of UK firms; with only four candidates for survival, the odds on any individual firm succeeding were low. None of them were able to gain enough volume to achieve a sustainable market position.[78]
By the 1990s success in personal computers and disk drives had become dependent on high-volume, low-cost production, and the ability to shaft rapidly from one generation of technology to the next. It was difficult to compete in such markets from a non-American base. An alternative was to focus on niches which were too small to interest the big American companies; this was the strategy pursued by such firms as Oxford Instruments. But the danger was that these niche players would be condemning themselves to permanent slow growth or, if the niche proved attractive, it would draw in stronger competitors.
During the 1980s one of the most successful British electronics firms was Psion, a specialist in hand-held ‘organisers’, which had been founded by David Potter, a South African-born graduate of Imperial College. Psion built a profitable business with only a minor presence in the US and up to the mid-1990s appeared to be strongly placed. (It briefly considered a take-over of Amstrad, mainly to gain access to the digital telephone technology that had been developed by an Amstrad subsidiary; the negotiations broke down after a few weeks, apparently over the issue of price.[79]) However, as demand for hand-held devices expanded, American firms such as Palm and Handspring moved into the market. As Potter said later, “we created the organiser market but now it is becoming huge – and frankly we do not have the scale to compete with that”.[80]
In 2001 Psion abandoned the organiser market to concentrate on corporate wireless data networks and on developing an operating system for mobile telephones, known as Symbian.[81] The latter required greater resources than Psion could provide on its own, and several mobile telephone manufacturers, including Nokia and Motorola, were brought in as partners. By 2004 Psion’s stake in Symbian had been reduced to just over 30 per cent, and in March of that year Psion sold these shares to Nokia.
The lesson from these failures for British firms was that, if they wanted to play on the world stage, they had to develop a unique technology that was complementary to, but not directly competitive with, the products and services of the leading US operators. A successful exponent of this strategy was ARM (originally called Advanced RISC Machines), a semiconductor design firm. Founded in Cambridge in 1990 as joint venture between Acorn and two American companies, it specialised in low-cost chips based on Reduced Instruction Set Computing (RISC) – a technology that had previously been confined to high-powered workstations. ARM’s business model owed a good deal to lessons learned from Acorn’s failure.[82] Instead of sub-contracting the manufacture of its chips, it licensed the technology to other semiconductor manufacturers, and its aim from the start was to make its RISC chip the global standard – the same strategy that Intel had used, on a far bigger scale, to become the dominant microprocessor supplier for personal computers. As Sir Robin Saxby, ARM’s chairman, explained, “I want to be the engine inside every digital product”.[83] The company was listed on the London Stock Exchange and NASDAQ in 1998.
ARM was the first of the Cambridge high-technology firms to be valued in the stock market at over £1bn – at the peak of the stock market boom at the end of the 1990s it was worth nearly £10bn. Although the valuation came down sharply when the market collapsed, its business model proved robust, and it continued to develop new applications for its chips. In 2004 it took steps to strengthen its position in the US, and to broaden its product line, by buying a US chip designer, Artisan Components, for about £500m; the take-over was partly financed by issuing new ARM shares.
ARM had become the star of Silicon Fen, but several other offshoots of Acorn also did well, and by the end of the 1990s more than 30 firms had been started by ex-Acorn managers. Hermann Hauser, one of the Acorn’s founders and later a successful venture capitalist, claimed that Acorn was to Silicon Fen what Fairchild had been to Silicon Valley.[84]
Yet ARM was still a small firm by the standards of the big US technology companies; it had 760 employees in 2004 (before the Artisan acquisition), of which 400 were in Cambridge. Most other Cambridge technology-based firms were smaller, and this has often has been seen as a weakness in Silicon Fen, and in the British electronics industry as a whole.[85] The US electronics industry contains several companies which have become large either by dominating a high-volume segment, like Intel in microprocessors, or by broadening out from an initial niche to become a major player in a set of related sectors. Hewlett-Packard began as a specialist in measuring instruments and later, through organic growth and acquisitions, developed a large business in computers and printers.
Of the British electronics firms that were started after 1945, the only one that came close to this latter model was Racal. But Racal relied to a greater extent than Hewlett-Packard on opportunistic acquisitions (two of the biggest were Decca in 1980 and Chubb, the security systems manufacturer, in 1984), and it was less committed to developing in-house technology to sustain its various businesses. Racal’s growth was partly based on Ernest Harrison’s ability to spot business opportunities and move quickly to exploit them, while hiving off activities which were likely to do better on their own, or under different ownership. Harrison himself admitted that he was better at buying and selling businesses then running them.[86]
Racal’s greatest success was in giving birth to what was to become the world’s leading mobile telephone operator, Vodafone.[87] In 1982 Racal applied for one of the two cellular telephone licenses being offered for sale by the Thatcher government. Although Racal had no experience in running public telephone networks, its background in radio communications made mobile telephony a logical diversification, and Racal’s network – one of the first-generation, analog-based networks – was launched in 1985. Three years later Harrison and his senior Vodafone colleague, Gerald Whent, began bidding for licenses in other countries, usually in partnership with local operators. This was the start of the company’s global expansion, taken much further after Vodafone was de-merged from Racal and floated on the stock market in 1991. In the second half of the 1990s, when Vodafone became a stock market favourite, Whent and his successor, Chris Gent, used the company’s highly rated shares as the currency with which to make even bigger acquisitions – culminating in AirTouch in the US and Mannesmann in Germany.
Vodafone’s share price fell sharply when the stock market collapsed, but, in contrast to other telecoms new entrants (and an even larger number of internet-based firms), Vodafone had managed its financial affairs prudently, and it came through the crash largely unscathed. Vodafone is, of course, a service company, not a manufacturer, and it relies for its technology mainly on its equipment suppliers. But this does not detract from the company’s achievement in building a global business and a powerful international brand.
Vodafone is the only genuine British owned ‘big gorilla’ in telecoms/information technology sector, and its success is in marked contrast to other British firms that had tried to ride the internet boom of the late 1990s. For example, Dixons, the electrical retailer, set up an internet service provider called Freeserve in 1998, and within a few months it had taken on 1m accounts. When the company was floated in the following year (20 per cent of the equity was sold, with Dixons retaining the rest), the issue was 20 times over-subscribed. But to have continued to develop the business after the stock market crash would have required managerial and financial resources which Dixons did not have. In 2000 Freeserve was sold to Wanadoo, the internet subsidiary of France Telecom.
The Freeserve/Wanadoo deal was one of a large number of transactions over the past twenty years in which British-owned electronics and information technology concerns have been sold to non-British groups. Even Racal did not survive as an independent British-owned business; it was sold to Thales, the French defence electronics firm, in 2000. At that time, Racal, following the de-merger of Chubb and Vodafone, was back to its roots as a defence and industrial electronics concern. The defence sector was going through a process of consolidation on a European scale, and Harrison believed that Racal was too small in international terms to be one of the consolidators.
Many of the sell-outs have taken place for the same reasons that contributed to the demise of the three British personal computer makers in the 1980s – the difficulty of establishing a market position in the US. When Spider Systems, a Scottish computer networking company, was building up its business in the early 1990s, it used the slogan “Not every world leader is American” – it wanted everyone to know that it was thinking big. Yet, to achieve that objective, it needed to compete in the US. To make acquisitions there with its own shares, it would probably have had to seek a flotation on NASDAQ. But, to do that, according to Spider’s managing director, “We would have needed 25 per cent of our business in the US – we had around 5 per cent”.[88] Spider was sold to an American company in 1995.
Another Scottish firm, Kymata, was founded in 1998 with the aim of becoming a world player in optical components. “We are working at the front end of an enormous industry”, the chief executive said, “and there are huge rewards for being big and first”.[89] Kymata had no difficulty in raising finance and at its peak the business was valued at about £500m. But it was hit by the collapse of the telecoms boom, and in 2001 it was bought by Alcatel of France for £82m.
As international competition in information technology has increased, British firms have faced a strategic choice: are they big enough to compete in the big league, should they specialize in a sector of the market where they have, or might develop, a competitive advantage, or should they sell out? In sectors where scale and learning advantages were important, and where American firms had an early-mover advantage, the first of these three options was generally unattractive. In packaged software, for example, British firms have found it hard to compete against the American leaders such as Microsoft, IBM and Oracle. The only viable strategy was to specialise, which was what Sage – the only British-owned firm among the top ten European software vendors in 2004 – has done. This company (which was founded in 1981) developed a profitable niche in financial and accounting software for small and medium-sized businesses; a well-timed acquisition in the mid-1990s gave it a foothold in the US.
Another sector which appears to be polarising between large, global suppliers and small specialists is information technology services. This is reflected in the ownership changes which have taken place in the UK over the past twenty years (Table 1). Of the top ten vendors in 1985, all but one was British. By 2002 only one of those nine, LogicaCMG – the product of a merger between Logica of the UK and CMG of the Netherlands - was British-owned. While this company aims to compete in the big league, other British IT services firms have chosen to specialise – for example iSOFT, which serves the healthcare sector.
Table 1 Changing ownership of UK software and IT services suppliers
| Top ten firms in 1985 | Ownership in 2002 | Thorn-EMI Software | IBM (US) |
| Hoskyns | Cap Gemini (France) |
| Istel | A T & T (US) |
| IBM-INS ICL | Fujitsu (Japan) |
| Logica | no change |
| CAP | SchlumbergerSema (France) |
| Centrefile | Ceridian (US) |
| SCICON | EDS (US) |
| Systems Designers | EDS (US) |
Source: Ovum Holway
Being acquired by a foreign firm does not, of course, imply failure. Some British entrepreneurs timed their exit well, made large profits for themselves and their backers, and gave their business, under a new parent, more scope for growth than it would have achieved as an independent concern. One example was Element 14, a chip designer that spun out of Acorn. Led by Stan Boland, who had been chief executive of Acorn, this firm raised funds from venture capitalists in the US as well as the UK and developed high-performance chips for DSL broadband access digital signal processing. In 2000 it received a take-over offer from Broadcom, an American semiconductor firm, and Boland sold the business for $640m; now a division of Broadcom, it is a global leader in the ADSL market. Boland went on to set up another chip design company, Icera Semiconductor, based in Bristol, focused on chipsets for 3G cellular phones. His aim is to bring the first products to market in 2005 and later to take the company public. “We are aiming to get to that position in a 2008 timeframe”, he said, “at which point we would expect a billion-dollar-plus IPO”.[90] Icera already employs 65 staff, mostly engineers, and has raised $33m in venture funding. Boland is one of several ‘serial entrepreneurs’ who have been involved in numerous start-up firms.
While the recycling of capital and entrepreneurial talent into new firms is healthy, the UK has so far generated very few large, nationally owned electronics firms. How much does this matter? American entrepreneurs, in Silicon Valley and elsewhere, have undoubtedly benefited from the presence of larger firms, most of which had been small start-ups themselves some twenty years earlier. They are valuable as role models, as customers for the new entrants’ products and as a source of experienced management. According to Gordon Moore, co-founder of Intel, successful start-ups almost always begin with an idea that ripened in the research organisation of a large company. “Lose the large companies or the research organisations of large companies, and start-ups disappear”.[91]
The absence of ‘big gorillas’ is not a purely British phenomenon. There are not many examples in Continental Europe of companies which have successfully challenged the Americans in global information technology markets. The problem has been the same as in the UK: how to establish a defensible position in an industry where most market segments are dominated by powerful American incumbents.
One solution is to identify, or better still create, a segment which is not so dominated. A notable example is the German software company, SAP, a world leader in enterprise resource planning (ERP) software. Founded in 1972 by five programmers from IBM, SAP got its start by developing a ‘real time’ financial accounting programme for an ICI synthetic fibre plant in Germany. Although the software was designed for ICI, it was applicable with some modification for other customers and over the next decade SAP sold its R/2 product to more than two hundred German companies. SAP was a first mover in a new branch of the software market According to one account, “the isolation of the German market enabled the unique R/2 product to evolve relatively free from competition from US firms, whose products were generally designed for the US market and were rarely well internationalised”.[92] When SAP entered the US in 1988, it had perfected a software package which American companies could not match.
SAP, while a brilliant entrepreneurial success, was the product of particular conditions in the German market, including a large manufacturing sector which provided a ready market for ERP software. There are some similarities with Nokia, the Finnish mobile telephone manufacturer. Nokia was not a new company, but it was, in effect, a new entrant to the telephone business, and its remarkable success was helped by two factors. First, the Nordic countries were the first to organise their mobile telephone networks on a trans-national basis, giving local manufacturers (including Ericsson in Sweden as well as Nokia) the opportunity to obtain scale and learning advantages earlier than their European rivals. Second, the nascent mobile telephone business was one of the very few segments of the electronics industry which was not dominated from the start by US firms. The establishment of the GSM standard for the second-generation mobile telephone networks gave Nokia the chance to extend its early-mover advantage to the European market as a whole, and the Americans, operating in a market that was fragmented by several incompatible standards, were left behind.[93]
The only British counterpart to SAP and Nokia is Vodafone, and this company, too, benefited from helpful conditions in its domestic market - the early de-regulation of the telecommunications industry, a lack of protection for the incumbent (British Telecom) and a highly developed capital market which facilitated share-based acquisitions.
The success of all three companies can be put down to three things – a supportive domestic environment, luck, and good management. Given the changes that have taken place in the UK over the past twenty years, there is no institutional obstacle that might prevent other British firms from following Vodafone’s example. There is, moreover, a growing number of experienced and ambitious high-technology managers, some of whom have worked in large US companies as well as British start-ups. Whether their firms become as big as ARM, or as big as Vodafone, will depend on whether their technology is sufficiently distinctive and scalable to support a global position, partly on whether they can acquire the firm-building and market-building skills that Vodafone has displayed.
NOTES
[64] James C. Worthy, William C. Norris Portrait of a maverick Ballinger, 1987.
[65] Nancy S. Dorfman Route 128: The development of a regional high technology economy Research Policy, Vol 12, 1983, pp.299-316.
[66] Hendry Innovating for failure.
[67] Kenneth Flamm Creating the computer Brookings 1988, p.170.
[68] Ian Adamson and Richard Kennedy Sinclair and the rise of ‘sunrise’ technology Penguin 1986.
[69] David Thomas Alan Sugar, the Amstrad story Century 1990.
[70] Tom Lloyd Dinosaur & Co, studies in corporate evolution Routledge 1984.
[71] Martin Campbell-Kelly From airline reservations to Sonic the hedgehog, a history of the software industry MIT Press 2003, p.77.
[72] W. B. Willott The NEB involvement in electronics and information technology in Charles Carter (ed) Industrial policy and innovation Heinemann, 1981
[73] Tom Lloyd Dinosaur & Co, studies in corporate evolution Routledge 1984, Ch 6.
[74] Adamson and Kennedy Sinclair and the rise of ‘sunrise’ technology.
[75] Fortune, March 8, 1982
[76] Elizabeth Garnsey and Paul Heffernan Growth setbacks in new firms Cambridge University Centre for Technology Management Working Paper No 2003, January 2003.
[77] Financial Times, August 4, 1997.
[78] Henry Chesbrough Arrested development: the experience of European hard disk drives in comparison with US and Japanese firms Journal of Evolutionary Economics, Vol 9, 1999, pp.287-239.
[79] Financial Times, June 26, 1996, and July 27, 1996.
[80] Financial Times, July 14, 2001.
[81] Financial Times, July 12, 2001.
[82] Elizabeth Garnsey and Paul Heffernan Growth and performance of young IT firms in the UK presentation to Diebold Conference on Entrepreneurship and Public Policy, London, April 2004.
[83] Financial Times January 27, 2000.
[84] Letter to Financial Times, January 27, 2000.
[85] Annalee Saxenian The Cheshire Cat’s grin: innovation and regional development in England Technology Review, Feb/March 1988. See also Suma Athreye Agglomeration and growth: a study of the Cambridge high-tech cluster.
[86] Interview in Sunday Telegraph, January 16, 2000.
[87] For an account of Vodafone’s growth, see Martin Fransman Why Vodafone? Explaining the global success of this British company Edinburgh University, mimeo, 2003.
[88] Financial Times, June 27, 1995.
[89] Financial Times, November 16, 2000
[90] Financial Times, July 12, 2004
[91] Gordon E. Moore Some personal reflections on research in the semiconductor industry in Richard S. Rosenbloom and William J. Spencer (eds) Engines of innovation Harvard 1996.
[92] Martin Campbell-Kelly From airline reservations to Sonic the hedgehog, a history of the software industry MIT Press, 2003.
[93] John E. Richards Clusters, competition and ‘global players’ in ICT markets: the case of Scandinavia in Timothy Bresnahan and Alfonson Gambardella (eds) Building high-tech clusters: Silicon Valley and beyond Cambridge 2004.
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