While all FDI projects essentially remain mobile assets, subject to competition from other global locations, the UK’s continued success as a destination to both new and existing investors can be seen in its cumulative FDI stock levels.

The United Nations Conference on Trade and Development in October 2007 released figures showing FDI stock in the UK exceeds $1000bn, second only to the US. The common perception remains that FDI is driven first and foremost by operation costs. Yet, with competition becoming ever fiercer as every country, region and city asserts itself as the ideal location, figures and trends show that in reality choosing the ideal investment partner is a far more complex process.

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Long gone are the days when the UK can compete for projects on the grounds of cheap labour and operating costs. A number of high-profile cases in the 1990s highlighted the problems of investment that is attracted primarily to competitive operation costs. Companies including Siemens and Fujitsu opened large manufacturing plants in the UK only to stop production just a few years later due to a downturn in the global market for computer chips and aggressive pricing from South Korean companies. The UK still attracts manufacturing operations from new and existing investors, but such examples illustrate the way in which roles removed from management or product development functions, such as manufacturing and contact centres, are mobile assets highly sensitive to cost.

Attracting investment

 

The UK’s focus has instead been on encouraging foreign companies to develop high-value business functions, such as headquarters and research and development (R&D). For a number of years now, UK Trade & Investment has been marketing the country on the strength of its research and academic institutions, which include arguably the world’s two top universities for science and four of Europe’s top five universities.

Paul Whiteway, director of international sales at UK Trade & Investment, explains the reasons:

“The primary reason why we want to increase R&D investment into the UK is that it is a key driver of innovation and competitiveness in the UK economy. UK Trade & Investment wants to bring research-intensive companies to the UK because of the economic spillovers from such investments which improve competitiveness and productivity for the wider economy.”

UK Trade & Investment believes that foreign investors recognise the UK’s strength in R&D and estimates that foreign-owned firms account for about 45% of all UK business R&D. In addition, UK Trade & Investment estimates that 70% of foreign-owned companies operating in the UK maintain higher intensity R&D activity in the UK than in their home territories.

Encouraging this kind of investment has benefits for the wider economy and helps the UK to remain competitive. Mr Whiteway explains the importance of staying at the forefront of new developments: “In all countries, economic activity is shifting towards innovation and knowledge-driven industries, with emerging economies moving up the value chain and challenging the predominance of the advanced economies. In this environment, the UK needs to build on its historical strength in scientific research to exploit new technology-driven and high value-added areas and secure its long-term prosperity.”

It is clear that the UK’s effort to increase higher value projects is paying some dividend. While the absolute number of manufacturing projects coming into the UK has stayed constant over the past five years and still represents one-third of all projects, other functions such as services and headquarters have grown rapidly.

While all investment is mobile, the aim is to create as many high-value jobs in the UK as possible, in the knowledge that some investors and jobs will be lost to more cost competitive economies.