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Country Commercial Guides FY 2000: United Kingdom Report prepared by U.S. Embassy London, released July 1999 Note*

V. LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENT

The American Embassy's website http://usembassy.org.uk/uk.fcs contains current market research titles.

A) Best prospects for U.S. exports of non-agricultural goods and services (in alphabetical order) are:

Aircraft and Parts (AIR)
Apparel -- APP
Building Products (BLD)
Computer Hardware (CPT)
Computer Software (CSF)
Defense Equipment (DFN)
Drugs and Pharmaceuticals (DRG)
Hotel & Restaurant Equipment (HTL)
Medical Equipment (MED)
Oil and Gas Field Machinery (OGM)
Professional and Technical Services (GSV)
Renewable Energy Equipment
Sporting Goods & Recreational Equipment -- (SPT)
Water Resource Equipment/Services (WRE)
Tourism and Travel (TRA)

1. Aircraft and Parts (AIR)

Demand for aircraft and parts is expected to remain strong in the U.K., based on the airline industry's fifteen-year projection of growth in U.K. air passenger traffic from 130 million per year to around 300 million in 2015. Sales of new aircraft will be driven by the need to replace older planes that no longer meet new noise and environmental limits. In the short term, opportunities exist for parts and maintenance services to enable existing fleets to be used cost effectively within an increasingly strict regulatory environment. The 1,500 aerospace companies in the U.K. continue to support the long-standing relationship between the British and American aerospace industries, and incorporate significant amounts of U.S. materials and components into local products.

Market data ($ billion)	1997	1998	1999(est)
A) Total market size	11.2	11.5	12.0
B) Total local production	11.4	12.2	12.8
C) Total exports	8.5	8.9	9.2
D) Total imports	8.7	9.6	10.0
E) Imports from the U.S.	6.0	6.5	6.9

2. Apparel -- APP

The U.K.'s fashion market has traditionally been dominated by British and European designers, but due to the label recognition of US manufacturers, it has become increasingly easy for American designers to enter the market. American brand identity is a major contributor to the success of US companies in this market.

U.K. apparel industry sales have grown on average 17% each year since 1990, and are now valued at almost $40 billion. At 25% growth, the specialized womenswear sector shows the highest increase in sales over the same period. Consumer spending on clothing as a proportion of disposable income has dropped from 7.5% in 1986 to 5.9% in 1997, competing with other consumer goods and services, such as computers, education, entertainment, and leisure pursuits.

Opportunities for American companies lie in their ability to spot a trend or a neglected segment of the industry. In recent years, London has seen an increase in American designer stores, such as Calvin Klein and Tommy Hilfiger. These, and other American brands such as GAP, are increasing in popularity and will continue to be accepted. The areas of direct mail and direct selling offer additional opportunities for American companies.

Market Data ($ billions)	1997	1998	1999(est)
A) Total Market Size	36.80	38.30	40.00
B) Total Local Production	33.30	33.90	34.30
C) Total Exports	5.15	5.35	6.00
D) Total Imports	9.35	9.75	10.30
E) Imports from the U.S	0.65	0.68	0.72

3. Building Products (BLD)

Britain's construction sector output growth rate slipped from an average of 2.1% in 1997 to 0.4% in 1998. While the sector has little exposure to international competition, higher real estate prices and lack of growth in the domestic economy have depressed construction demand. Housing starts fell by 12% in 1998, although total construction orders were boosted during this period by the start of large infrastructure projects associated with the millennium. The sector is also likely to benefit from Private Finance Initiative-funded construction and remedial projects in schools, hospitals and institutional buildings.

The U.K. has a persistent trade deficit in building materials and products. It is anticipated that demand for imported products will remain high, particularly if prices increase above the level of inflation or if local suppliers are unable to meet an increased demand fuelled by falling interest rates.

Although there is significant competition, opportunities exist for U.S. suppliers of innovative building products and materials. Products in high demand include ornamental brickwork, industrial cladding, decorative millwork, flooring products, and insulation products and systems, including windows and doors, as Britain's older housing stock is updated to meet new insulation requirements.

 

Market Data ($ billion)	1997	1998	1999(est)
Total Market Size	20.1	20.3	19.9
Total Local Production	19.0	19.8	19.5
Total Exports	2.9	3.0	3.0
Total Imports	4.0	3.5	3.3
Imports from U.S.	0.3	0.3	0.3

The above statistics are unofficial estimates.

4. Computer Hardware (CPT)

The computer hardware market was worth $17 billion in 1998, and is expected to grow by 5.1 percent during 1999. The segments displaying the fastest growth are NT servers (16 percent) and UNIX servers (12.5 percent). The personal computer market is expected to grow at a more leisurely 3.9 percent due to continued stiff competition between vendors. The computer market was boosted during late 1998 and early 1999 by organizations buying new systems to beat the millennium bug. The workstation market is in steady decline with sales falling every year for the last three years. The printer market is also expected to show a small decrease in growth this year due mainly to falling unit prices.

The home computer market has expanded rapidly in recent years. Non-business use of PCs in the home continues to increase driven by interest in the Internet and the availability of more affordable hardware.

Market Data ($ billion)	1997	1998	1999(est)
A) Total Market size	16.25	17.09	17.96
B) Total Local Production	6.17	6.49	6.82
C) Total Exports	7.80	8.20	8.62
D) Total Imports	17.87	18.79	19.75
E) Imports from US	7.85	8.15	9.46

5. Computer Software (CSF)

Growth in the U.K. market for computer software is expected to continue at a high rate for at least the next two years. The trend is toward packaged applications running on networked client/server systems. In 1998, the fastest growing market segments were software development tools and application software, which both grew by 15 per cent. Windows applications software will continue to be in high demand. Recent figures show that the Windows operating system is installed on more than 70 percent of all PCs currently in use.

In recent years the banking and financial services sector has been the biggest spender on software, principally driven by the globalization of the sector and Y2K compliance projects.

Market data ($ billion)	1997	1998	1999(est)
A) Total Market Size	7.90	90	10.3
B) Total Local Production	2.76	3.11	3.75
C) Total Exports	1.3	1.51	1.90
D) Total Imports	6.52	7.12	8.45
E) Imports from the U.S	3.15	3.60	4.80

The recently completed Strategic Defence Review (SDR) determines how British forces are expected to fit into the post-Cold War world. No immediate cuts in total defense spending have been recommended, but the way in which resources are to be allocated has been totally revised. The $36.6 billion U.K. defense budget is evenly split between manpower and equipment purchasing, and, as a result of the U.K. Ministry of Defence's best value for money procurement policy, the acquisition process is increasingly focussed on commercial off-the-shelf systems. This will drive the multi-billion dollar re-equipping and restocking process that British defense forces will have to undergo, to replace the missile and munitions inventory that was used during the Kosovo air campaign.

The recent award of the $3 billion Bowman communications project to a consortium which includes U.S. interests, and the $1.4 billion Astor (airborne stand-off radar) project to Raytheon provides additional component supply and subcontractor opportunities to U.S. industry.

Market data ($ billion)	1997	1998	1999(est)
A) Total market size	15.3	16.1	16.6
B) Total local production	21.3	21.7	22.4
C) Total exports	8.5	8.9	9.3
D) Total imports	2.5	3.3	3.5
E) Imports from the U.S.	1.6	1.8	2.1

7. Drugs and Pharmaceuticals (DRG)

The U.K. pharmaceuticals market was valued at $12.6 billion in 1998, and is expected to reach $13.3 billion in 1999. U.S. companies hold 13 percent of imports, and dominate local production. In output, investment and market share, U.S. pharmaceutical interests in Britain are larger than the combined activities of their U.K. competitors. Prescription drugs accounted for 90 percent of the market, with over-the-counter (OTC) products comprising the remainder. Consumption of prescription drugs, which has risen from 7.8 prescriptions per capita in 1990 to 9.8 per capita in 1997, is expected to further rise as the U.K. population ages and new drugs are introduced for new treatments. The OTC market has grown by less than 0.5 percent since 1996 and is expected to remain sluggish. The main distribution channels for prescription and OTC medicinal drugs are the 12,000 U.K. retail pharmacies and 1,000 U.K. hospitals.

The key requirement for selling pharmaceutical products in the U.K. is a product (marketing) license, granted by either the London-based European Medicines Evaluation Agency (www.eudra.org/emea) or the U.K.'s Medicines Control Agency (www.open.gov.U.K./mca).

Market data ($ billion)	1997	1998	1999(est)
A) Total Market Size	11.6	12.6	13.3
B) Total Local Production	15.3	16.7	18.1
C) Total Exports	8.9	9.7	10.8
D) Total Imports	5.2	5.7	6.4
E) Imports from the U.S.	0.75	0.73	0.83

Source: ABPI

8. Hotel & Restaurant Equipment (HTL)

City-center hotels were close to full occupancy throughout 1998, and average revenue for the year rose by around 9%. The strength of the pound may impact the hotel trade during the current year through its adverse effect on tourism, but as the corporate sector accounts for almost two-thirds of sales, the industry is confident that they will start the next century in good economic condition.

Most of the leading hotel groups have introduced branded business packages and have invested heavily in upgraded guest facilities. In addition, there has been an increase in the provision of apartment-style hotels, offering lower charges for long-stay executives. British hotel and restaurant operators have a high regard for U.S. products and equipment, although competition from local and third-country suppliers has grown. Best subsectors for U.S. suppliers include IT products for hotel management and security systems, and specialized servery/holding cabinets for cooked and refrigerated foods, designed to meet with stringent food safety and hygiene regulations.

Market data ($ billion)	1997	1998	1999(est)
A. Total Market Size	5.05	5.04	5.18
B. Total Local Production	6.71	6.52	6,65
C. Total Exports	2.80	2.77	2.79
D. Total Imports	1.14	1.29	1.32
E. Imports from U.S.	31	28.29

The above statistics are unofficial estimates.

9. Medical Equipment (MED)

American industry supplied 25 percent of imports and accounted for 12 percent of the total $3.4 billion medical equipment market in Britain last year. Current market growth has been slow, and the lack of domestic investment in new product development in recent years has created a demand for imported high-tech equipment. Requirements include lasers, endoscopes, medical imagery and dental equipment.

The principal purchaser of medical equipment in the U.K. is the National Health Service (NHS), which provides about 85 percent of Britain's health care. Private hospitals and residential care currently account for almost $400 million of medical expenditure. The private medical sector presents additional opportunities, as more U.K. consumers move toward private medical treatment.

The U.K. market is regulated by EU directives that set out the requirements for performance and safety of medical devices and procedures for ensuring compliance. The three main directives are the EU Medical Devices Directive and the Active Implantable Medical Devices Directive, which are both fully implemented, and the EU In-Vitro Diagnostic Medical Devices Directive, which will be fully implemented in December 2005. Further information is available on a website: www.medical-devices.gov.uk

Market data ($ billion	1997	1998	1999(est)
A) Total Market Size	3.0	3.4	3.8
B) Total Local Production	3.1	3.4	3.6
C) Total Exports	1.33	1.36	1.4
D) Total Imports	1.25	1.37	1.5
E) Imports from the U.S.	0.41	0.44	0.45

Sources: NHS Executive, HM Customs, CS Estimates

10. Oil and Gas Field Machinery (OGM)

Increased activity in U.K. oil and gas exploration and extraction has provided additional export opportunities.

The depletion of older North Sea oil and gas fields has forced domestic firms to explore further offshore in deeper waters that require different technologies. In 1997-98 alone over 40 new projects were approved by the British Department of Trade and Industry. This shift in exploration and production emphasis prompts a demand for special machinery to operate in more extreme conditions.

The sub-sectors benefiting most from these trends are directional drilling technologies, wellhead control systems and hub-and-spoke collection systems.

Market data ($ billion)	1997	1998	1999(est)
Total Market Size	5.40	5.50	5.80
Local Production	4.32	4.70	4.90
U.K. Exports	2.62	2.97	3.30
U.K. Imports	3.70	3.77	3.20
Imports from the US	2.23	2.65	2.70

11. Professional and Technical Services (GSV)

70% of Britain's $1.21 trillion annual GDP is now generated by services. Majority-owned affiliates of U.S. firms established in Britain account for close to 15% of this total, in sectors including transportation, banking, finance, insurance, telecommunications, and professional and technical services.

Transportation, telecommunications, finance, and insurance are the best-known sectors, dominated by big business and established companies. These important sectors and the leading companies within them have proved to be flexible and innovative, responding quickly to market conditions and regulatory change, but tending to exclude small and medium-sized firms. The professional and technical services sectors are more receptive to U.S. direct exporters and to newer market entrants. The most productive of those sectors are architecture and design, advertising and publicity, management consulting, research and development, and international legal and accounting services.

U.S. professional services companies generate annual fees of approximately $13.5 billion from the U.K. With insight into market conditions, means of access, and potential for exports, U.S. firms have already achieved a significant market share.

Market data ($ billion)	1997	1998	1999(est)
A) Total Market Size	875	880	885
B) Locally Billed Services*	892	892	895
C) Total Services Exports	383	385	389
D) Total Services Imports	366	373	379
E) Services Supplied/Billed By U.S. Firms	13.12	13.50	13.75

* It is not possible to differentiate the services billed by majority-owned affiliates of U.S. firms established in Britain from those of British-owned firms.

12. Renewable Energy Equipment

Increased pledges of Government support earlier this year have served to make renewable energy a true growth industry in the U.K. Government plans indicate that grants of $68.8 million will be made available over the next three years. This spending is designed to encourage the achievement of having 10% of the U.K. electrical demand met by renewable energy by 2010.

Even without these recent events, the U.K. still stands out as a leader in renewable energy. In the last two years, the U.K. renewable energy industry has grown from approximately $20 million annually to $160 million. In this same period, the world market has hovered around $1.48 billion.

Despite difficulties in obtaining planning permits, the most active sub-sectors are wind turbines, and wave and tidal-derived power. The unprecedented market growth, especially when enhanced by Government promises for continued investment, has created a truly strong and sustainable market for renewable energy equipment in the U.K.

Market data ($ billion)	1997	1998	1999(est)
Total Market Size	20.0	39.0	160.0
Local Production	18.0	35.0	142.0
U.K. Exports	2.0	4.0	11.0
U.K. Imports	4.0	8.0	29.0
Imports from the US	0.7	0.9	1.8

13. Sporting Goods & Recreational Equipment -- (SPT)

The sports equipment market in Britain, worth almost $690 million in annual sales, has followed the U.S. trend toward more healthy outdoor pursuits. The market is split 80 percent between personal equipment ownership, and 20 percent club, school, and institutional purchasing.

The most recent import/export figures reveal that in 1998, U.K. sports equipment imports were valued at $640 million, and exports were $370 million. The market figures reflect only sports and fitness equipment and not sports clothing and related merchandising activities, which are estimated to be worth an additional $12 billion each year when motor sport, golf, and spectator sports are included. For active sports, imported equipment has traditionally dominated the U.K. market and there are no signs of any change in the pattern of supply.

Team sports, which are generally not equipment-intensive, have given way to fitness sports and training and to more extreme sports, most of which require both operational and safety-related equipment. This has given a different profile to the sports trade as it heads towards the millennium.

Market data ($ billion)	1997	1998	1999(est)
A) Total Market Size	677.0	680.0	693.0
B) Total Local Production	407.0	410.0	413.0
C) Total Exports	350.0	370.0	390.0
D) Total Imports	620.0	640.0	670.0
E) Imports from the U.S.	160.0	160.0	170.0

14. Water Resource Equipment/Services (WRE)

Water and wastewater treatment equipment continues to be a high priority requirement in Britain. The privatization of water supply and the introduction of EU Directives relating to municipal wastewater have opened entirely new markets for water quality monitoring, pollution control, and cleanup equipment.

Environmental and policy factors have converged to create an unusually high demand for water resource equipment and services. Several years of low rainfall have driven water conservation and water supply metering programs. Privatization has prompted increases in private capital investment, and the availability of new products and processes such as aeration, screening, sludge water removal, phosphorus and heavy metal removal, and anaerobic digestion stand out as excellent prospects in an already strong market.

Market data ($ billion)	1997	1998	1999(est)
Total Market Size	1.60	1.68	1.76
Local Production	1.32	1.71	2.11
U.K. Exports	0.62	0.97	1.33
U.K. Imports	0.90	0.94	0.98
Imports from the US	0.23	0.23	0.24

15. Tourism and Travel (TRA):

The U.K. is the second-largest source of international visitors to the U.S., representing 10% of all overseas arrivals. In 1997, 3.72 million people from Britain visited the U.S., spending an estimated total of $5.6 billion in the United States. This represents an average export value of $1500 per visitor, with expenditures on lodging, food, entertainment, retail and local transportation. The State of Florida leads the U.K. travel and tourism market with a 37% market share, followed by California (22%) and New York (21%). Orlando, Florida ranks as the most popular city destination among U.K. travelers holding 25.5% of the market share, while New York City is second with 19.5%.

The 150-member Visit USA Association in the U.K. promotes travel to the U.S., representing domestic and international airlines, car rental companies, cruise lines, hotel chains and other accommodation providers. The Association remains active in the U.K. market by holding a variety of ongoing promotional activities such as an automated telephone information and brochure requesting service, travel agent training programs and a quarterly newsletter.

Future prospects for U.K. travel and tourism in the United States are promising. Forecasts indicate an annual growth rate of 3-4% between 1998 and 2001. Regularly updated information can be found on the Department of Commerce's Tourism Industries website: http://tinet.ita.doc.gov.

B) Agricultural Exports:

The U.S. Department of Agriculture's Foreign Agricultural Service (FAS) assists U.S. exporters of agricultural food, fiber, fishery and forestry products to enter the U.K. market through a variety of initiatives. These include a weekly trade leads program and the preparation and dissemination of market briefs on the following U.K. food market sectors:

Ethnic foods
Salsas, dips, salad dressings
Non-alcoholic beverages
Catering foods
Popcorn
Cheese
Beer
Health foods
Kosher foods

FAS also produces a monthly newsletter promoting U.S. agricultural, fiber, fishery and forestry products, which is distributed to 1,500 U.K. importers/traders, and an annual American Food & Wine Directory for U.K. retailers and food service buyers.

FAS plans to help increase U.S. export sales for agricultural food, fish and forestry products by participating in several trade shows in the coming year. These include European Ethnic 2000 (June 2000) and a solo food showcase in late spring of 2000.

C) Significant Investment Opportunities:

The privatization of state-owned utilities is largely complete, and the few remaining government-owned enterprises or remaining HMG shares in other enterprises are also to be sold off to the private sector. The Treasury has paved the way to sell off its majority stakes in the National Air Traffic Service (NATS) and the Commonwealth Development Corporation. Also identified for future sale are HMG's remaining stake in British Energy, radio spectrum for a new generation of mobile phones, Belfast Port, the on-track horseracing betting organization (The Tote) and the Royal Mint. Additional investment opportunities result from the U.K. Government's Private Finance Initiative (PFI) and Public Private Partnership (PPP) programs. PFI and PPP have been used in health care, prisons, defense logistics and training, postal services and in air traffic control.

Local and foreign-owned companies are expected to bid for long-term franchises to run and improve existing public sector services in other fields including road traffic management, production of coins and currency, port operations, air and water monitoring and cleanup, land-use planning, and building control. Successful PFI bids have been mounted by consortia involving technical, financial, and managerial partners. Each Ministry has a PFI Unit, which advises both the government and potential investors on the practicality of applicable PFI and PPP schemes.

The government of the United States acknowledges the contribution that outward foreign direct investment can make to the U.S. economy. U.S. foreign direct investment is increasingly viewed as a complement or even a necessary component of trade. Nearly sixty percent of total U.S. exports originate with American firms with investments abroad. Recognizing the benefits that U.S. outward investment brings to the U.S. economy, the Government of the United States undertakes initiatives, such as Overseas Private Investment Corporation (OPIC) programs, bilateral investment treaty negotiations and business facilitation programs that support U.S. investors.