UK: EASY COME, EASY GO? - UK regions have ways of making foreign investors stay.

Last Updated: 31 Aug 2010

UK regions have ways of making foreign investors stay.

Britain has been highly successful in recent years in attracting foreign investment. But sceptics argue that overseas companies making investments today can very easily scale down or even close their operations tomorrow. It has happened before. Many inward investments in the 1960s were branch operations to provide increased output. When demand fell away, many shut down and the companies departed. Is there anything to stop the same happening again?

Andy Phillips of Welsh Development International, a body devoted to luring foreign investors to the region, believes that 'the notion of "easy come, easy go" foreign direct investment is a total myth'. In the past 10 years, £7 billion has poured into Wales from outside the principality.

The greater part of this investment has come from outside the UK. Significantly, £2.5 billion of the total has been reinvestment designed to expand the capacity of overseas companies already operating in the region. Major investments have come from Sony, Bosch, Ford, Toyota and Sharp.

The North East, too, has some considerable success stories. Katrina Mulligan of the Northern Development Company (NDC), points to the huge investments made by both Siemens and Samsung. The German electronics giant, which has a long history of investment in the UK, last year announced its intention to build a massive £1.1 billion plant in North Tyneside. Samsung, its Korean rival, is investing £600 million in at least five manufacturing plants and offices in Teesside over a five-year period. The company says that it made the decision on the back of its earlier successful investment in the UK in 1987.

But what if the favourable climate - political and economic - that is attracting these huge investments to the UK were to change? Andy Phillips maintains that investing in Wales essentially means 'access to the European market', a view widely endorsed by foreign investors and regional development bodies. So what if the present Conservative Government were to make further shifts towards Euro-scepticism? Chris Savage, senior policy officer at the TUC, warns that, 'If we are seen to be isolated in Europe, people will think twice about investing here.' There are already signs that the UK is getting a smaller share of the foreign investment cake, he says.

Savage points out that although inward investment is still flowing into the UK 'it has been falling as a proportion of GDP since 1989'. However, foreign investors display little fear about the possibility of a future Labour government. Laura Holtham, for Siemens says that, 'The government doesn't matter to us. In fact, John Prescott visited the plant a few weeks ago, and he was very positive about inward investment.'

There are good reasons to suppose that those companies which are already in the UK will be around for some time to come. The most compelling is that the development authorities have been placing increased emphasis on tying up regional suppliers. This, theoretically, has the effect of embedding the likes of Samsung, Fujitsu and Siemens into the regional economy. Katrina Mulligan explains that 'if we have a big investor like Siemens, we set up a scheme for working with them to identify their needs'. Samsung evidently shares the NDC's optimism.

Wayne Holton, spokesman for the Asian company, says that 'Part of the attraction of the North East for Samsung was the very strong supply base in the region. The NDC set up a supply chain programme on the back of the announcement, and so far we have invested in £25 million-worth of contracts with 30 local suppliers.'

The pessimists are right in one sense. No one can actually stop overseas investors from pulling out of Britain, or anywhere else, if they choose.

But nor does a foreign investor want to see a very large sum of money invested in local supply chains go down the drain.

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