Kraft's £12bn capture of Cadbury has reignited the debate on overseas ownership of UK businesses. But in a global economy does it really matter that treasured national assets end up in expert foreign hands?

A string of illustrious British brands has passed into foreign ownership over the past decade, causing scarcely a ripple on the pond of public, media and government consciousness. But the takeover of Cadbury by Kraft couldn't have been more different, and the emotion unleashed by the acquisition of a distinctive, ethical, historic and, critically, well-managed UK company by a faceless, low-growth US conglomerate was redolent only of the furore that erupted 22 years ago when Nestlé bought Rowntree.

The outcry over the Kraft takeover had much to do with a recession-induced defensiveness and government electioneering, but the more legitimate concerns centred on the issue of stewardship rather than the "foreignness" of the acquiring business.

The deciding factor of the deal was price, and the signs were that Kraft was going to march in and asset-strip: on the day the deal was announced, it had already identified savings running into hundreds of millions of pounds, and Cadbury chairman Roger Carr admitted that job losses were inevitable. And that, feared critics, was just the start.

But acquisitions by foreign companies are not intrinsically bad, and can be helpful. Look at how successful Mini has been since it was snapped up by BMW, points out Jonathan Hall, chief executive of the French arm of marketing insight consultancy Added Value. "Mini is still seen as a British brand, and BMW is a great example of a company managing a foreign acquisition really well," he says.

Similarly, suggests Tom Blackett, chairman of branding company Siegel and Gale, Indian industrial conglomerate Tata Group seems a trustworthy and reliable owner of Jaguar and Land Rover-former UK assets that neither the British nor Americans managed successfully.

The ultimately toothless intervention by Lord Mandelson, the business secretary, in the takeover of Cadbury was uncharacteristic of a government that resolutely favours free trade and open borders. By contrast, French president Nicolas Sarkozy's demand to bosses at Renault Nissan, in which the French government has a 15 per cent stake, not to manufacture the next generation of Clios in Turkey, is likely to be heeded.

But observers believe that the UK's commitment to free trade has served it better-and will continue to do so-than more protectionist policies will work for countries such as France and Germany.

"One of the great strengths of Britain is its openness and ability to absorb and take the best of different cultures, which makes it genuinely diverse," says Hall. "By contrast, the US is a sort of melting pot where everyone is distilled down to Americanness. Britain's approach has really helped it in terms of inward investment and in attracting the best executives from around the world."

Tim Leunig, an academic at the London School of Economics specialising in the history of business, agrees. "There is arguably a bigger risk that being owned by Kraft rather than staying independent makes Cadbury vulnerable to having its manufacturing sent abroad," he admits. "But that risk will increase if the government and unions make life difficult for Kraft. Look at the benefits to employment, local communities and the economy as a whole that companies such as Honda, Nissan and Toyota have created. No wonder communities in Swindon, Wales and Sunderland have taken them to their hearts."

Leunig counters the charge made by some that foreign ownership results in depleted tax revenues for the UK. "The majority of the money goes to the country where the workers are, because wages exceed profits by a factor of 10 or 12 to one," he says. "The initial investment Nissan made in the UK still exceeds the total profit they have extracted over the 20 years they have been here. Similarly, it will take Tata a long time to make a return on the investment it made in buying Jaguar Land Rover. When Ford owned the business it never made a profit, but kept ploughing money into Britain. So these foreign 'predators' are not as rapacious as they are often painted."

What's more, points out Jon Moulton, chairman of the investment fund, Better Capital: "The capital inflow and liquidity created by foreigners taking over British assets stimulates more new things to be set up and grown." And, of course, the vibrant start-up and SME sector is the engine of the UK economy.

Nevertheless, even such defenders of the status quo acknowledge what Hall calls "a structural imbalance"-that is, while everything in Britain is up for grabs, it is difficult for British businesses to make acquisitions in certain European countries, particularly France and Germany. When PepsiCo tried to buy French dairy company Danone in 2005, the French government sent it packing on the grounds that Danone was strategically important to the national economy.

While Britain is unlikely ever to reverse its stance on open borders and anti-protectionism, some believe that Kraft's takeover of Cadbury might prompt a government rethink about which companies are of real strategic importance to the UK and the mechanics that could be put in place to protect them.

Hugh Davidson, co-founder of Oxford Strategic Marketing and author of The Committed Enterprise, says: "There is a recognition that you can manipulate things on the margins if you don't go too far. If I were Lord Mandelson I would develop a list of strategic national assets that are off limits to foreign predators, and the criteria would be that that they are well run, they are global and they are famous." Davidson's list is short: Diageo, GlaxoSmithKline, AstraZeneca, Rolls-Royce, Tesco, BP, Shell, HSBC and Vodafone. It would also have included Cadbury.

"It would be about strategic protection, and leaving the rest to the market," says Davidson. "Protection for our indigenous car firms wouldn't have worked because they were badly run, poorly marketed and the cars were poorly designed, making the industry neither efficient nor sustainable. By contrast, the motor industry we have now is thriving and highly efficient."

But Mark Goyder, founder director of research organisation Tomorrow's Company and author of the report, Tomorrow's Owners—Defining, Differentiating and Rewarding Stewardship, maintains that the need for strategic protection would be countered if more emphasis were placed on responsible stewardship.

"Roger Carr was wrong when he said the Kraft takeover was all about price," says Goyder, pointing out that the fiduciary duties of directors are owed to their company, not directly to its shareholders.

"True, the City Takeover Code imposes a specific duty on offeree—company directors to advise shareholders whether or not an offer price is fair and reasonable. But neither the code, nor the general law, imposes a duty on directors to recommend a bid on price grounds alone where they feel that it isn't in the best interests of the company. If Cadbury's directors felt that a Kraft wrapper wasn't the best packaging for the company they had built up, they had not only a right but also a duty to say so."

But some believe a more fundamental reason for the UK shift towards selling businesses is the quality of British  management and, in particular, their appetite for running international organisations. With honourable exceptions, UK management is "complacent, compliance- and governance-orientated and insufficiently marketing-oriented, and, as such, will become ever less competitive," claims Tim Ambler, honorary senior research fellow at London Business School.

"If our companies are well managed and marketed, their assets will earn maximum income. At the moment many are only earning 80 per cent of potential income, which allows foreigners to come in and buy them and get the return up to 100 per cent," he says.

Our growing parochialism, reinforced by diminishing opportunities to gain experience, is in stark contrast to the confidence of US businesses, which, says Blackett, enjoy the advantages of around 50 years of manufacturing and distributing on a grand scale. And we have little appetite for broadening our horizons, he continues, because we are torn between our allegiances to the US on the one hand and to Europe on the other.

Around one-third of the FTSE-100 has a foreign chief executive at the helm, according to PricewaterhouseCoopers. But while some judge this to be a further indictment of British management, others see it as an inevitable and healthy symptom of the internationalisation of business.

"I am in favour of multiculturalism and meritocracy, and the best people doing the job," says Davidson, arguing that the large number of foreign business leaders in the UK is a manifestation of our openness. What's more, many of our leading companies aren't technically that British anyway, says Goyder. "Twenty years ago the UK owned between 40 per cent and 50 per cent of the FTSE-100, but it now owns less than 25 per cent," he says.

Moulton agrees: "Increasingly, internationally diverse shareholding renders discussions about whether companies such as HSBC are British or non-British, meaningless," he says. As such, points out Graham Hales, managing director of Interbrand in London, when we get exercised about "national" assets passing into foreign ownership, "we presume an ownership we don't have".

So trying to resist the march of globalisation is futile. It is also unhealthy—despite the lesson the recent financial meltdown taught us about some of the negative consequences of globalisation. "Globalisation is good because it creates interdependence and greater stability," says Blackett.

The question then becomes how Britain, which is less crucial politically, militarily and economically on the world stage, adapts to-and takes advantage of-the new order.

"Britain is a small nation, with relatively few people, and we are going to see growing numbers of top-notch business leaders coming through from countries such as China and India," says Hall. "The way to remain competitive is to recognise and play to our strengths, not least continuing to be very open and diverse, and welcoming international people, resources and companies."

That, as he says, requires "a big mind-shift", but it's an attitude that could gain traction if we embraced a model of business that balances the current overweening focus on profits with greater accountability to society and the environment. It's a model that Tomorrow's Company and the New Economics Foundation (NEF)  have been extolling for many years. But while crises such as those we have recently suffered provide an opening for discussing progressive ideas, it is not guaranteed that they will be adopted.

"We must fundamentally change our economic system, which involves shifting the locus of power in society in dramatic ways-and people relinquish power reluctantly," says Eva Neitzert, head of the business, finance and economics programme at NEF.

But relinquishing power may be the lesser of two evils. Unless something changes, the speed at which strategic UK businesses succumb to foreign predators will accelerate.

In the short term, the pound is likely to fall further against the euro and the dollar, making UK brands cheap. And in the longer term, the list of foreign predators will include the Indians and Chinese, who are steadily developing their understanding of brands.

"The foreign ownership question deserves a lot more thought," concludes Moulton.

Case study:
A wider window on the world
Last November, David Thomas Contact Lenses (DTCL), a family-owned business with 38 staff and a £2m turnover, was taken over by Menicon, a giant Japanese manufacturer of contact lenses. DTCL will reap a range of benefits from being acquired, says managing director William Thomas.

"As a small family business, we have always kept cash aside for a rainy day. The support of this much bigger parent company means we can invest that cash to produce more lenses in the UK and abroad. Having access to Menicon's products will also help grow the business, and the more productive and successful we are, the better able we will be to safeguard jobs."

DTCL will also benefit from the research and development and the legal expertise of its new parent. "We have to operate within increasingly onerous medical device regulations, and having advice on tap from Menicon, which has operations in Europe, will be very helpful and save on consultancy fees."

The fact that Menicon is based in Japan is "almost irrelevant, except for the travel involved", says Thomas. "But the world is shrinking."

Sales figures

Cadbury Sold to Kraft, From US, When 2010, Price £10bn
ICI Sold to AkzoNobel, From Netherlands, When 2008, Price £8bn
Scottish and Newcastle Sold to Carlsberg and Heineken, From Denmark and the Netherlands When 2008, Price £7.8bn
Jaguar Sold to Tata Group, From India, When 2008, Price £1.15bn
Scottish Power Sold to Iberdrola, From Spain, When 2007, Price £11.6bn
Pilkington Sold to NSG, From Japan, When 2006, Price £2.2bn
BAA Sold to Ferrovial, From Spain, When 2006, Price £10bn
Gallaher Sold to Japan Tobacco, From Japan, When 2006, Price £7.5bn
P&O Sold to Dubai Ports, From Dubai, When 2005, Price £3.3bn
Abbey Sold to Santander, From Spain, When 2004, Price £9bn
Thames Water Sold to RWE, From Germany, When 2000, Price £4.8bn
Rowntree Sold to Nestlé, From Switzerland, When 1988, Price £2.5bn