The UK continues to punch well above its weight, with its market share of foreign direct investment well above that of its European peers. Sustainable growth is anticipated throughout 2004, thanks to its current and target markets.
Industry experts are predicting a healthier year ahead for business in the UK.
The CBI, for one, declares itself confident that a” global recovery is now taking hold” although it still cautions against what it considers to be overly ambitious Treasury forecasts.
At the end of last year, it revised growth for 2004upwards by 0.4% to 2.8% and looks forward to 2005, where it places growth forecasts at 2.7%.
CBI chief economist Ian McCafferty says: “We can now be more confident that the UK is on the road to economic recovery. The international background, in particular, is a lot brighter.”
This forecast suggests growth in the UK will accelerate over the next two years.”
Accountant BDO Story Hayward, similarly, says that, despite the interest rate rise towards the end of last year, economic growth in 2004 is expected to exceed performance in 2003.
Its latest BDO Business trends report shows business order books are continuing to swell.
Economic adviser to BDO Douglas McWilliams says:” The latest poll of polls is a further indication of sustainable economic growth, which we predict will last well into 2004.”
Experts anticipate these positive noises spell good news for the UK in foreign direct investment.
The country will be well placed to build on a track record of such investment. Figures from the United Nations Conference on Trade & Development show the UK positioned as the world’s second largest holder of inward FDI stock. By 2002, the value of the market stood at US$639bn second only to the US market.
William Pedder, chief executive of UK Trade& Investment, for one, is very upbeat.
“I’m very confident the UK will retain its attractiveness for inward investment,” he declares.” It will retain it in absolute terms and relative it its European peers.”
What inward investors want most of all like any business is stability and certainty. And we have amore transparent and more predictable growth than most of our European peers.”
Since the heady days of 2000, there has been a gradual fall in the number of global FDI projects, primarily due to the downturn in the US economy. With its historically high dependency on US investment, the UK has, inevitably, felt the chill of that.
It has, nevertheless, consistently retained its preeminent position on the pan-European stage.
UKTI figures for the last financial year show the UK’s FDI market share, excluding mergers and acquisitions, standing at 19.5%, well ahead of France(13.5%) and Germany (8%). This, according to the organisation, proves the country is continuing to” punch well above its weight”.
Barry Bright, head of location advisory services at Ernst & Young and co-author of its annual European Investment Monitor, believes 2003 was a significant turning point and, on a global basis, represented the” bottom of the trough”. An upturn in activity can now be anticipated for 2004.
“I believe US investment should increase this year. My feeling is that there is so much policy directed at achieving economic growth it will happen. And, as that consolidates, I would expect to see an outflow pick up.”
China is expected to be a big and low-cost recipient, becoming a hub for Asian investment by the US.
A movement eastwards to the European accession countries and beyond is also expected to continue.
The UK can expect to see FDI sectors building on existing investments. Projects at the higher value end of the market are more likely to target the UK, among them investors from the financial services, bio-tech, engineering, pharmaceutical and R&D sectors.
Size matters
Among other things, being one of the five biggest economies in Europe means the UK will receive FDI because of its sheer size, says Bright.
He cautions: “I think there is no natural reason anymore why the UK would be the automatic first port of call. However, the country does have advantages which still make it attractive.”
Its universities and resultant research are appealing to the bioscience and pharmaceutical sectors. In aerospace, the UK has a unique set of capabilities, says Bright.
Despite its economic woes, the US has remained the largest source of FDI into the UK between 40% and 50%. Also active are Japan, France and Germany.
And new areas of interest are emerging all becoming target markets for UK promoters.
India is becoming a significant source of FDI. IT, a major strength of the Indian economy, will continue to flow outwards, believes UKTI’s Pedder, as companies feel the need for “more people on the ground” to meet customers’ needs. Pharmaceuticals can be expected to follow. Even manufacturing is emerging onto the European stage, because of the UK’s access to markets.
Another target is China considered increasingly important as its market gradually becomes more open.
According to the UKTI, the UK has already attracted Chinese companies and envisages the trend continuing.
The range has been broad from mainstream sectors such as telecoms to what Pedder describes as “more esoteric businesses”, such Chinese medicine specialists.
Among mainstream Chinese investors has been telecoms company Huawei, which has chosen the UK for its European headquarters. When it opens at the end of March, the Basingstoke operation will service its subsidiaries in eight European countries with management, finance and human resources support. This will create 200 additional jobs over five years.
One part of the country enjoying particular success in attracting Chinese FDI is the North East. Home to nearly 20 companies, it has one of the largest clusterings of Chinese businesses outside of London.
Another potential hotspot is Australia and there is growing levels of interest from Antipodean companies.
Among others, the UK has attracted Dascem, an Australian gas disposal specialist, which has established a new operation, via a UK joint venture, at Peterlee, County Durham. The company says the availability of a highly skilled workforce in the area was among the factors that attracted it to the UK.
Meanwhile, the three RDAs covering the North of England are among those with Australia on their radar screens. They have just appointed one of Australia’s largest public relations firms to promote the region down under.
Like most countries, the UK has particular sectors it is keen to cultivate. Target markets include automotive and motor sport, chemicals, creative industries,electronics, environmental technologies, financial services, food & drink, ICT, pharmaceuticals and bio-technology, renewable energy, software and IT services and telecommunications.
The UKTI seeks to increase by 25% the number of FDI projects handled, compared to the previous three years and wants to see 75% of location decisions on projects to be in favour of the UK.
Among the country’s key merits are what UKTI describes as a “skilled and adaptable” workforce, totalling some 28m, a strong science and technology base, labour regulations that are the most flexible in Europe and numerous cost benefits utility costs, for example, are the lowest in the European Union.
Access to the rest of Europe is another major focus, with EU enlargement likely to make the UK’s strategic position still more attractive. Transport is already up to40% cheaper from the UK to Europe than vice versa.
Meanwhile, the government has an integrated 10-yearplan to develop and improve the country’s internal transport system. A £180bn programme allocates funding for road, rail and local transport improvement.
UKTI’s Pedder is keen to flag up the “powerful magnet” of commercial links with universities. He says this will continue to give the UK a significant competitive advantage. Such collaboration is unknown to Japanese firms, for example. Businesses in many other European countries have difficulty accessing the research capabilities of their universities.
Plus the UK has London. It retains top position as a European business location beating Paris and Frankfurt by a long way in Cushman & Wakefield Healey & Baker’s European Cities Monitor 2003.
It was won the top spot for, among other things, its external transport links.
Martin Newman, consultant to CWHB and report author, says fast transport links between its four major international airports and the heart of the capital will continue to make London attractive to FDI.
For the UK as a whole, E&Y’s Bright says future prospects depend on three factors a US upturn, government policy on tax and regulations and the rate of economic growth.
Looking at the bigger picture, growth within Eurozone countries will help too, because, as he stresses: “A benign economic environment helps everybody.”
Pharmaceuticals
The UK pharmaceutical industry represents only 3% of the global market but it is the world’s third largest direct exporter.
It accounts for 10% of the world’s pharmaceutical R&D expenditure five of the world’s 20 top-selling drugs were developed in British laboratories. And it is the fifth largest in the world by total sales after the US, Japan, Germany and France.
An extensive line-up of global players within the UK include Pfizer, Novartis, Eli Lilly and Wyeth.
UK Trade & Investment believes among the country’s attractions are its large pool of specialists and skilled technicians and access to customers across Europe.
UK bio-technology, meanwhile, is the largest sector of its kind in Europe. Potential for growth looks unstoppable as the European market for bio-tech goods and services, currently standing at £30,000m, looks set to exceed £100,000m by 2005.
There are around 500 dedicated bio-tech businesses in the UK and a varying skills base is helping to carve out clusters of expertise. Examples include Cambridge, with a strong base in agricultural research, and Manchester and Liverpool, which major on bio-medical research.
Automotive sector
The automotive sector is still powering ahead in the UK. Despite tough global conditions, it continues to harness a combination of R&D and precision engineering to create a market that has an annual turnover of US$72bn.
The country is one of the five major automotive manufacturing countries in Europe. Eight of the world’s volume vehicle manufacturers are based in the UK.
Recent commitments have included BMW’s US$660 investment in an engine facility near Birmingham and General Motors’ decision to put US$128m into the manufacture of the new Vectra at Ellesmere Port.
The components sector is also a strong feature of the UK economy.
It hosts around 2,600 component suppliers. While the majority 90% are SMEs, 17 out of the world’s top 20 component suppliers are based in the UK, among them Delphi, Visteon, Johnson Controls and Thyssen.
Austrian firm Greiner Extrusion Technology has made a new investment in the West Midlands, further strengthening the supplier base of the region.
R&D expertise is another key area of support. There are major sources of research skills at Nuneaton, Bedford and near Coventry.
Software
The software market has slowed, compared to the frenetic pace of recent years. But the UK remains a first choice for many companies looking for a European base.
Already the largest market of its kind in Europe, it is forecast to grow to US$40.5bn by later this year. Nearly 100,000 software and computer services companies are based in the UK, employing 325,000people plus 600,000 in related fields.
UKTI lists, among the country’s attractions, its technical and high-level management skills, a flexible employment system, access to Europe and the fact that it is a source of investment funding.
Many companies are attracted because they want to capitalise on well-established collaboration between business and academia, which has nurtured a strong base of R&D skills.
Business services
Under the umbrella of this sector, UK Trade& Investment includes areas such as financial services and ICT.
Of these, financial services has undergone the biggest roller coaster ride on the global stage characterised by consolidation and convergence of industry sectors.
The UK has, nevertheless, maintained a strong presence in the market and Ernst& Young expects overseas investments in the sector to return later this year.
Meanwhile, well over 1m people are employed in financial services. London is home to nearly 450 foreign banks more than other major international centres. Its future seems assured, according to Cushman & Wakefield Healey & Baker’s European Cities Monitor, which places London as top financial centre over the next five years.
UKTI says the UK can offer, among other things, expertise in public-private partnerships and pension reform. A unique advantage is the country’s singular regulator of financial services the Financial Services Authority which UKTI says has resulted in a “highly transparent” regulatory system.
Conversely, a deregulated telecommunications regime has been a major factor in attracting the ICT sectoralong with expertise in leading-edge technology. The market expected to grow toUS$40.5bn during 2004.
In research and development, the UK is responsible for 5.5% of the global market. This has acted as a magnet for global companies and is driving the growth of key sectors including software, telecoms, and semi-conductors.
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Foreign direct investment confidence index 2002 |
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The annual survey of top decision makers from the world’s largest firms seeking opinions of various FDI destinations, intentions and preferences for future investments, reveals likely FDI investment flows and factors that drive corporate decisions to invest abroad. The UK holds third position in the index. Global investors consider the UK the most competitive European market for business over the next three years. More than one-third of global executives interviewed expect to commit investments for the first time in Europe of the next three years. |
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China US UK Germany France Italy Spain |
1.99 1.89 1.51 1.50 1.29 1.23 1.22 |
Canada Australia Poland Japan Czech Republic India Hungary |
1.20 1.16 1.15 1.1 1.07 1.05 1.02 |
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Source: AT Kearney, September 2002. Annual Survey of 1,000 companies’ views of 60 countries |
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Top 12 quotable inward investment projects for 2002-03 by number of new jobs to be created in the next three years |
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Access to markets has allowed the UK to attract inward investment in manufacturing |
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Company |
Project name |
Project type |
New jobs |
Nature of operation |
Sector |
Reg inv |
|
Quinn Investments |
Insurance services |
New |
350 |
Shared service centre |
Finance |
Northern Ireland |
|
Exxon Mobil Corporation |
Pan-European customer service operation |
New |
350 |
Shared service centre |
Oil and gas |
North West |
|
Sas Institute |
IT/software solutions |
Expansion |
400 |
Research & dev |
Software |
South East |
|
Bertelsmann |
Media services provider |
Expansion |
400 |
Services |
Info/communications technology |
North West |
|
Costco Companies |
Wholesale warehouse |
Expansion |
400 |
Distribution |
Transport/storage/postal |
South East |
|
Goodrich Corporation |
Aircraft parts manufacturer |
Expansion |
500 |
Manufacturing |
Aerospace/avionics |
South East |
|
Wal-Mart |
Retail superstore |
Expansion |
550 |
Distribution |
Retail services |
North West |
|
Psa – Peugeot Citroen |
New fourth shift-automobile manufacturer |
Expansion |
700 |
Manufacturing |
Automotive |
West Midlands |
|
BMW |
Car (Mini) manufacturers |
Expansion |
700 |
Manufacturing |
Automotive |
South East |
|
Wal-Mart |
Retail services |
Expansion |
2,000 |
Services |
Retail services |
Yorks & Humber |
|
MBNA Corporation |
Credit card operations |
Expansion |
2,000 |
HQs |
Finance |
North West |
|
Jaap Kroese & Jan Veldhhuizen |
Shipbuilding: aircraft carrier project |
Expansion |
2,500 |
Manufacturing |
Shipbuilding |
North East |
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Source: UK Trade & Investment December 2003. NB: Figures include only those projects of which UK Trade & Investment and its regional partners are aware |
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Prime rent and yield data for key UK city markets |
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Figures continue to be healthy in the UK’s main cities |
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Rent (£ per sq ft) |
Yield (%) |
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|
Retail* |
Office |
Industrial |
Retail |
Office |
Industrial |
|
|
Edinburgh |
220 |
28 |
6 |
5.50 |
6.00 |
7.00 |
|
Glasgow |
220 |
23 |
6 |
5.25 |
6.25 |
7.25 |
|
London |
475 |
65 |
10 |
4.50 |
5.25 |
7.25 |
|
Manchester |
300 |
25 |
6 |
5.50 |
6.50 |
7.00 |
|
Source: Cushman &Wakefield Healey & Baker, September 2003 NB: Retail = in-town; Office = in CBD; Industrial = industrial/warehouse *Retail rents are zone A areas |
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Best cities to locate a business today |
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London still beats its European rivals |
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Overall ranking |
2003 |
2002 |
2001 |
1990 |
|
London |
1 |
1 |
1 |
1 |
|
Paris |
2 |
2 |
2 |
2 |
|
Frankfurt |
3 |
3 |
3 |
3 |
|
Brussels |
4 |
4 |
4 |
4 |
|
Amsterdam |
5 |
5 |
5 |
5 |
|
Barcelona |
6 |
6 |
6 |
11 |
|
Madrid |
7 |
7 |
8 |
17 |
|
Berlin |
8 |
9 |
9 |
15 |
|
Milan |
9 |
8 |
11 |
9 |
|
Munich |
10 |
11 |
10 |
12 |
|
Source: Cushman & Wakefield Healey & Baker |
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