UK share of inward investment up

Citation

(2001), "UK share of inward investment up", Work Study, Vol. 50 No. 7. https://doi.org/10.1108/ws.2001.07950gaf.001

UK share of inward investment up

UK share of inward investment up

The UK remains Europe's favourite with foreign investors – but is over reliant on the USA. Success in high growth, volatile sectors increases the UK's vulnerability. And France now leads in new manufacturing projects.

According to the annual report of Ernst & Young's European Investment Monitor (EIM) – the firm's International Location Advisory Services' database of foreign investment projects across Europe – inward investment into European countries last year increased by around 5 per cent on 1999 to 2,243 projects.

UK still No. 1 for inward investors

The number of foreign direct investment (FDI) projects in Europe increased by 5 per cent in 2000. The UK saw an increase of 13 per cent – from 508 projects in 1999 to 575. Its share of Europe's total increased to 26 per cent. Its nearest rival was France at just over 15 per cent with 353 projects. Germany attracted 170 projects and Spain 148. Ireland, Belgium and The Netherlands each hosted over 100 projects.

However, there are risks. Mark Hughes, a corporate location adviser with Ernst & Young, said: "The UK recovered its market share on 1999's figures when inward investment into manufacturing was hit. Foreign direct investment in telecoms, software and business services has taken up the slack.

"Technology sectors are fragile and much of that sector's investment has come from the United States. If the US does retrench as a result of a downturn or a halt in growth, the UK will suffer, probably more so than the rest of Europe because of its dependence on the US and these service sectors."

… and France is the leading location for new manufacturing projects.

Across Europe, sales and marketing activities accounted for 667 projects (30 per cent of the total), followed by research and development and company headquarters at nine per cent apiece.

Yet manufacturing – concentrated on automotives, chemicals, electronics and food – was the largest single activity with 827 projects representing nearly 37 per cent of inward investment overall.

While brand new manufacturing projects rose in 1999, expansions and co-locations (new activities added to an existing company's site) went down. This resulted in a net 10 per cent decline in projects from 918 in 1999 to 827 in 2000. And the UK is getting an ever smaller share of the shrinking pie. Total manufacturing projects in the UK declined by 16 per cent from 151 in 1999 to 127 in 2000.

New manufacturing projects in Europe increased by 44 per cent over the previous year. Euro-participating countries increased their numbers by 34 per cent and Central and Eastern Europe by 68 per cent. France enjoyed an increase of 75 per cent with 52 new projects and remains the No.1 location for new manufacturing projects in Europe. This contrasted with the UK's increase in new manufacturing projects of only 7 per cent.

With Poland and the Czech Republic enjoying such large increases in new manufacturing projects, it would be easy to argue that they are just going to low cost locations. But the fact that France – which is not a low cost territory – has seen such a strong increase in new manufacturing projects shows that infrastructure, Eurozone stability, skills and market access are also powerful influences.

… and the UK is overexposed to US investment.

The leading source of foreign direct investment into Europe is the USA, responsible for 44 per cent of all projects in the year 2000 (in 1997, the figure was 35 per cent). The UK and Ireland in particular have become increasingly reliant on the USA, which accounted for 57 per cent and 70 per cent, respectively, of their inward investment projects. The equivalent figure for both France and Germany was 44 per cent.

US investment was closely followed by intra European investment at 43 per cent of all projects. Germany accounted for 11 per cent and the UK 6 per cent. Belgium, Italy, The Netherlands, Switzerland, France and Sweden each accounted for 2 per cent to 4 per cent of cross-border investments. 4 per cent were from Japan and 2 per cent from Canada. In 2000, Japan's investment in Europe declined by one-third compared with 1999 – 141 to 95 projects (7 per cent to 4 per cent of the total). The number of projects from Taiwan, South Korea and Singapore remained constant between 1999 and 2000.

The US economic slowdown serves as a timely reminder of the importance of intra European investment. According to Hughes: "To counter overdependence on the US, the UK would do well to target projects from West European countries as much as it does those from North America. Continental development agencies have already recognised this and heavily target UK companies. The UK should do the same on the continent."

… and success in attracting high growth but volatile sectors increases exposure.

The sectors receiving most investment across the continent in 2000 were software (436 projects and 19 per cent of the total), electronics (227 projects and 10 per cent), automotive (203 and 9 per cent) and telecommunications (172 projects and 8 per cent). Business services (7 per cent), chemicals (6 per cent), financial services (5 per cent), food, pharmaceuticals and machinery and equipment (4 per cent each) and computers (3 per cent) followed.

The top growth sectors across Europe in 2000 were telecoms, which grew by 149 per cent, business services, which expanded by 90 per cent and software, up by 40 per cent. In the UK, they went up by 200, 75 per cent and 50 per cent, respectively.

Says Hughes: "In 2000 the UK did well to seize on the growth in the telecoms, software and dotcom sectors. The shine may have gone off them in the short term but they remain fundamental to the new economy.

"In the longer term, the UK should focus on trading up in value – that is, salaries, skills, technology and knowledge. The UK should look at the growing number of global projects – global R&D centres or HQs, for example. These projects are high in value and are attracted to locations with highly skilled workforces, a strong knowledge base, advantageous tax regimes and good international links."

Top investors

Some 100 of 1,612 companies who undertook investments in Europe in 2000 accounted for one quarter of all investments. Siemens maintained its premier ranking in 2000 (as in the previous three years), while IBM and IKEA entered the top 12 for the first time. Players in the new economy – Siemens, IBM, Philips, GES, Sony, Colt Telecom and Deutsche Telekom – were among the top 12 investing companies. New entrants Colt and Deutsche Telekom evidenced the explosive growth in telecommunications in 2000. While the automotive sector has been the subject of some high profile disinvestments in Europe, Ford, DaimlerChrysler and Volkswagen undertook a significant number of investment projects.

Top regions

A total of 12 European areas (cities or geographic regions) secured 32 per cent of all projects, a rise from 25 per cent in 1998. Greater London and the Ile de France attracted 182 and 99 projects, respectively, across business services, telecom, software, financial services, headquarters and sales and marketing activities. They were followed by Catalonia (91 projects), Amsterdam (57), Dublin (47), Bavaria (42), Berkshire (41), Provence-Alpes Cote d'Azur (33), Vienna (32), Lombardy (30), Budapest (26), Alsace (27) and Hessen (27).

Dublin has a strong profile in software. Stockholm and the Cote d'Azur are known for software and information and communications technology design. Ireland, Scotland and The Netherlands are the focal point for customer contact centres. The Czech Republic, Hungary and Eastern France bear the imprimatur of the automotive components' manufacturer.

Lombardy's (Milan's) first appearance in the top 10 regions is due to significant market developments, including promotion by a new development agency and changes in employment legislation, which now favours temporary employment. Italy's FDI projects have almost doubled since 1998, from 36 to 60 – all largely connected with "presence", that is sales and marketing activity. However, Italy received only 3 per cent of FDI projects while its share of Europe's population is 16 per cent (the same as the UK's which claimed 26 per cent of the projects). Ireland claimed 5 per cent of projects with just one per cent of Europe's population.

A European "superleague" of cities is now in evidence. London, Paris, Barcelona, Amsterdam, and Dublin collectively increased their market share of all projects from 14 per cent to 18 per cent last year. Super league city projects focus on the three top-growth sectors of software, telecommunications and business services.

There is a tendency for the fastest growing sectors – software, business services and telecommunications – to cluster, with 40 per cent to 48 per cent of sector projects located in just six areas. Only 22 per cent to 27 per cent of electronics, automotives, and chemicals projects went to their top six locations.

Hughes believes that while there is an extensive clustering in key growth sectors, development agencies outside these areas can still make a difference. He cites the Oresund region (Copenhagen and Malmo) which has redefined its business strengths by linking its key cities with a bridge and doubling its critical mass to 3.5 million people.

"Property and land availability, low labour costs and incentives are no longer enough. New economy businesses prize "connectivity" – international transport, electronic infrastructure and networks of people with complementary skills."