Foreword
EY’s attractiveness surveys
EY’s attractiveness surveys are widely recognized by
our clients, the media and major public stakeholders
as a key source of insight on foreign direct investment
(FDI). Examining the attractiveness of a particular region
or country as an investment destination, the surveys
are designed to help businesses to make investment
decisions and governments to remove barriers to future
growth. A two-step methodology analyzes both the
reality and perception of FDI in the respective country or
region. Findings are based on the views of representative
panels of international and local opinion leaders and
decision-makers.
In this report
1
Foreword
The Rt Hon
Lord Maude of
Horsham,
Minister for
Trade and
Investment
2
Executive
summary
Mark Gregory,
Chief
Economist —
EY UK
Bridget Walsh,
Head of
Private Equity
and China
Trade Route
Leader, EY UK
6
How can
the UK stay
ahead of the
pack in an
increasingly
competitive
world?
10
Reality
The UK’s FDI
performance
in 2014
— another
recordbreaking year
25
Perceptions
of the UK in
2015 —
continuing
incremental
improvements
to a strong
offer
32
Staying
ahead in
an evolving
market
The changing
drivers of
FDI with
a move to
“knowledge”
industries
35
44
Power to the Methodology
regions
London
marks time,
as the English
regions
bounce back
… but uncertainty over the UK’s EU membership may impact UK FDI in the short term.
Further findings confirm that the doubt over the UK remaining
a member of the EU may negatively affect investment plans
between now and the end of 2017. Asked if this possibility will
have any impact on their investment plans for the UK over that
timeframe, almost one-third of respondents (31%) say they will
either reduce investment or put it on hold until the situation is
clearer. That said, a majority (54%) say it will have no impact,
while 9% say they will actually increase investment in response.
Does the possibility of the UK leaving the EU after 2017
have any impact on your investment plans between now
and the end of 2017?
12%
19%
Yes − reduce or
put on hold (31%)
9%
Yes will reduce investment
Yes, will put investment on hold
until the situation is clearer
54%
Yes, will increase investment
No, will have no impact
Can’t say
6%
Source: EY 2015 UK attractiveness survey
8
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
Key highlights
Overseas investors say uncertainty over the UK’s future status as an EU member is having a negative effect on their
plans to commit FDI to the UK:
► Asked if the possibility of the UK leaving the EU will have any impact on their investment plans for the UK, almost one-third of
respondents (31%) say they will either reduce investment or put it on hold until the situation is clearer.
► That said, a majority (54%) say the uncertainty will have no impact, while 9% say they will actually increase investment in
response.
► Existing investors in the UK, and those that are aware of the process that could lead to the UK leaving the EU, are more
likely than other respondents to say they will reduce or hold back their investment plans.
► If the UK were to vote to leave the EU, but retained access to the single market on similar terms as today but with
no political links to the EU, 43% overall say this would not change the UK’s attractiveness for FDI, 31% that it
would make the UK less attractive, and 22% that it would make the UK more attractive.
Respondents were then asked how the UK’s attractiveness to FDI
would be affected by a specific scenario: one in which the UK did
vote to leave the EU, but retained access to the single market
on similar terms as today, but with no political links to the EU.
The findings reveal very mixed opinions toward the UK leaving
the EU, even if its access to the single market is unchanged.
While 43% overall say this scenario would not change the UK’s
attractiveness, almost one-third (31%) say it would make the
UK less attractive, against 22% who think the UK would become
more attractive in this situation. Again, those who are aware
of the possibility of the UK quitting the EU are more bearish,
with 37% of “aware” respondents saying the UK would become
less attractive if it were outside the EU but still inside the
single market.
If the UK did vote to leave the EU but retained access to the single market on similar terms as today but with no
political links to the EU, would this make the UK more or less attractive as an FDI location, or the same as today?
Among those who are
Among those who are
21%
23%
Aware
22%
Not aware
22%
31%
More attractive as an
investment destination
37%
Less attractive
43%
The same as today
39%
48%
2%
7%
Can’t say
4%
Source: EY 2015 UK attractiveness survey
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
9
Employment: the UK still gains the most jobs from FDI and pulls away from
Germany and France.
In general, less emphasis is placed on the employment totals
from the GIM statistics because employment is not recorded
for every project. In 2014, employment data was only released,
or made available, for 47% of the investments recorded across
Europe. Recognizing the incomplete sample means a note of
caution is required when interpreting the data, but the figures on
FDI-driven employment do still provide some useful guidance on
the overall trends.
Partly as a result of variations in jobs by project type, a ranking
of European countries by employment from FDI produces a
different top 10 from a ranking by number of projects — with the
new countries that enter the top 10 typically being lower labor
cost economies that are able to secure more labor-intensive
projects. For example, Russia and Poland were ranked seventh
and eighth respectively for FDI projects in 2014, but second and
third for FDI employment.
Using the available data, employment from FDI across Europe
increased by 11.6% in 2014. FDI has not historically generated
an unbroken increasing trend in employment resulting from
projects. This partly reflects shifts in the mix of projects: for
example, as sales and marketing projects have come to form an
increasing proportion of the total, so the employment total per
project has been reduced — since sales and marketing projects
tend to be smaller in terms of job creation than some other types
of project.
Despite this effect, the UK remains the leading location both
for FDI projects and employment — and in 2014 increased its
total employment generated from FDI and almost maintained its
market share of total European FDI jobs. In contrast, Germany
may have secured record numbers of new FDI projects in 2014,
putting it second in terms of total number of investments, but
was ranked only fifth for employment secured. And, despite an
18.1% rise in projects in 2014, France saw the number of jobs
created from FDI fall.
Largest recipients of FDI employment in Europe, 2014
2013
employment
2014
employment
%
change
27,953
31,198
11.6
Russia
13,621
18,248
34.0
Poland
13,862
15,485
11.7
France
14,122
12,577
-10.9
Germany
10,350
11,327
9.4
Romania
6,157
10,892
76.9
Spain
11,138
9,750
-12.5
Turkey
8,696
8,175
-6.0
United Kingdom
Slovakia
3,493
7,978
128.4
Ireland
6,895
7,306
6.0
Source: EY’s Global Investment Monitor 2015
12
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
The figures for 2014 show that the UK won more projects than at
any time in the last decade from a number of different countries
— Austria, Canada, China, France, Italy, Japan, the Netherlands
and Portugal.
This suggests that the UK is succeeding in diversifying its appeal.
However, projects into the UK from Germany and India — third
and sixth respectively in the UK’s list of origins in 2012 — fell.
Top 10 origins of investments into the UK 2012, with numbers of projects in 2013 and 2014 and percentage change
Country of origin
2013 projects
2014 projects
% change in projects secured
US
279
322
15
France
46
57
24
Germany
66
57
-14
Japan
42
47
12
China
29
40
38
India
51
38
-25
Canada
18
33
83
Australia
23
29
26
Netherlands
23
25
9
Ireland
19
16
9.5
Source: EY’s Global Investment Monitor 2015
The BRICs are history — time for the UK to prioritize its targets — China and India stand out …
In 2014, the total number of investment projects in Europe from
the BRIC economies — Brazil, Russia, India and China — was up
by 16% from the previous year. However, the spread of projects
from these four countries remained very uneven, with China and
India being far more significant investors than the other two, and
Brazil representing a very small contributor to European FDI.
Interestingly, while projects from China rose strongly in 2014,
those from India fell.
Number of projects into Europe from the BRIC economies over the past 10 years
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Brazil
4
5
9
16
8
15
8
15
13
14
Russia
17
22
29
20
27
33
41
34
45
48
India
49
78
67
95
71
94
77
74
103
92
China
42
58
51
87
111
115
140
122
153
210
Source: EY’s Global Investment Monitor 2015
The fall in projects from India was one reason why the UK’s
position in securing projects from the BRIC economies stalled in
2014. The UK’s market share of Indian projects in Europe stood
at 41% in 2014 — down from 50% in 2013 — while its share of
China’s European investments was less than 20%. That said, in
absolute terms, the UK secured more projects from China than
ever before, a sign that the UK’s efforts to build relationships
with China are starting to bear fruit.
16
The economic slowdown in Brazil and Russia suggests that the
relatively low contribution of these two countries to UK FDI over
the last decade is unlikely to change in the next few years. With
Chinese investment volumes growing and optimism over India’s
economic prospects higher than for some time, the UK should
consider prioritizing China and India as FDI targets.
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
Looking at the locations where various sectors are choosing
to site their projects, the UK remains the leading recipient of
investments from business services, software and financial
services — as it was in 2013 — as well as from automotive
assembly. Germany is the leading recipient of machinery and
equipment, electronics, plastic and rubber, and pharmaceutical
projects, while France is the leading recipient of chemicals and
food investments. The UK is generally not far behind France
and Germany in each of these sectors, with the exception of
chemicals investments, where the UK’s 7% share is less than half
that of France, putting the UK in sixth position in Europe in terms
of FDI from this industry.
10 most important sectors for European FDI with leading recipient and market shares
Sectors
Software
Business services
Machinery and equipment
Automotive assembly
Food
Financial intermediation
Chemicals
Leading recipient
Market share % of the
recipient
UK market share %
(if not leading recipient)
UK
31
N/A
UK
24
N/A
Germany
24
17
UK
18
N/A
France
19
15
UK
30
N/A
France
19
7
Pharmaceuticals
Germany
18
16
Electrical
Germany
18
15
Plastic and rubber
Germany
21
12
Source: EY’s Global Investment Monitor 2015
… the UK benefits from its broad sector strengths …
The UK can rely on business services, software and financial
services investment as core sectors for generating its FDI: in
the UK, these sectors contributed a combined 39% of projects in
2014, compared with 28% at a European level.
There is growing evidence that financial intermediation is
recovering as a sector generating FDI for the UK. In 2014, the UK
saw its investments from the financial intermediation industry
increase by 100% to 64, accounting for 7% of all UK FDI projects.
In Europe as a whole, they rose more slowly and accounted
for 4.9% of all investments. Financial intermediation projects
in the UK peaked in 2007, when the UK secured 65 projects,
representing 9% of total projects — so they are now almost back
at that level. In the same year, financial services made up 6% of
Europe-wide projects.
The 10 most important sectors in generating investment into the UK in 2014
Sectors
2014 projects
% share of 2014 projects
% change on 2013
Software
199
22
7
Business services
88
10
-34
Financial intermediation
64
7
100
Automotive assembly
52
6
79
Machinery and equipment
51
6
24
Food
33
4
65
Other transport services
30
3
-12
Retail
29
3
107
Pharmaceuticals
26
3
37
Publishing
20
2.5
-20.0
Source: EY’s Global Investment Monitor 2015
20
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
Key highlights
The UK continues to rely more heavily on business services, software and financial services FDI than Europe
as a whole, with these sectors accounting for 39% of UK projects compared with 28% across Europe.
► However, 2014 also saw the UK improve its market share in securing manufacturing investment, with a 32%
increase in manufacturing project numbers.
► The UK recorded a significant rise in automotive projects, up 79%.
► Food (up 65%) and machinery and equipment (up 24%) also performed well.
► Success in manufacturing helped the UK offset a fall in business services.
… and manufacturing can now be counted as a core element of the UK success story — the UK
secured more manufacturing projects than Germany in 2014.
The UK secured 164 manufacturing projects in 2014, 33 more
than Germany. Among the rising numbers of investments for
the UK, one of the most significant developments in 2014 was a
sharp increase in automotive assembly projects, which increased
by some 79%, outstripping the increase in projects across
Europe as a whole. Equally as important, the UK improved its
market share of European manufacturing investments in 2014,
securing 13% of all manufacturing FDI projects (up from 12% in
2013) and 10% of new manufacturing investments (up from 6%).
Types of investment into the UK and European market share
All projects
Projects
UK market share of
European projects %
Sales and marketing
466
23.4
Manufacturing
164
13.3
Logistics
73
20.4
R&D
72
24.8
Headquarters
57
35.8
Other
55
-
Source: EY’s Global Investment Monitor 2015
Beyond manufacturing, the key features of the UK’s
performance in 2014 were the market-leading positions in
headquarters, securing 36% of all projects in Europe, and 25%
of R&D facilities. The UK Government’s initiatives in these
areas seem to be bearing fruit. Although the UK has improved
its position in manufacturing, the contrast between the 13%
share of manufacturing projects and those in other areas
demonstrates very clearly that there is more to play for. Indeed,
if the UK wants to continue to increase its share of European
FDI, a stronger performance in manufacturing will be essential.
The success of the automotive sector shows that it is possible:
the challenge is to identify the actions to strengthen the UK’s
competitive position.
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
21
Perceptions
Perceptions of the UK in 2015 —
continuing incremental improvements
to a strong offer
As previously reported, the UK extended its lead
in 2014 as the top destination for FDI into Europe,
once again securing a record number of projects, an
increased market share and more FDI jobs than any
other European country. The UK has gained ground
in manufacturing FDI — including new investments —
and has seen a strong rise in FDI projects going into
the English regions. To maintain its overall lead and
increase its flow of FDI in an increasingly competitive
environment, the UK needs to understand which of
its attributes positively attract overseas companies to
come and invest here, and which factors are likely to
make business decision-makers look elsewhere.
within and those conducted outside the UK. Of the
total 406 executives interviewed, 258 — or 63% —
represent businesses that are already present in the
UK as inward investors. Looking across the sample
as a whole, the respondent companies’ country of
origin is representative of the investments made in
the UK, as measured according to the GIM database.
So, overall, this sample provides an excellent basis on
which to measure and track international companies’
perceptions of the UK as a location for FDI, from the
viewpoint of both existing and potential investors.
To help build this understanding, interviews were
carried out with over 400 international companies
on their UK investments and economic experiences
to date, their perceptions of the UK as an investment
environment and their expectations for the future.
The interviews were split between those conducted
The UK is the first choice European country on the global FDI stage.
So, how do international investors from countries
across the world perceive the UK’s relative
attractiveness as an investment destination
compared with other locations worldwide? Our
findings confirm that the UK’s perceived position in
attracting FDI remains strong, with 8% of investors
identifying the UK as first choice in their ranking of
global attractiveness, putting the UK fourth in the
world behind China, the US and India. When all of the
top three country choices are taken into account,
the UK has slipped slightly compared with Germany,
after overtaking it briefly for the first time last year.
However, with less than a percentage point between
the two countries, the UK’s 2015 overall ranking in
the world for attractiveness for FDI remains very
strong compared with its ranking of eighth in 2013.
Overall, it seems the message that Britain is “open
for business” is getting across loud and clear to many
existing and potential investors worldwide.
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
25
Investors remain confident in the UK …
Investors across the world remain confident in the UK as an
FDI location, with 27% of them — a figure unchanged from last
year — planning to develop activities in the UK. The UK has
scored between 24% and 28% for the last five years, showing
the consistent high regard investors have for the UK offer,
but also the challenges the UK faces, given its strong base, to
move its score higher. In line with other findings in both the
GIM and perception studies, existing investors in the UK are
more positive about it as a place to invest, with 40% of investors
already established in the UK saying they are planning to develop
activities in the country, compared with only 8% of non-investors.
At 27%, the overall level of intention to invest in the UK is ahead
of Germany on 25%, but behind both France on 35% and the
overall European average at 32%.
Does your company have plans to establish or expand operations over the next year in the UK?
What type of investment project?
111 respondents have plans to establish or expand operations
in the UK
Yes
27%
2014
No
68%
Can’t say
5%
Sales and marketing
29%
22%
Manufacturing
20%
20%
Supply chain and logistics
18%
14%
R&D
13%
9%
5%
3%
Back office
4%
9%
Headquarters
2%
5%
Training center
1%
1%
Can’t say
8%
Services center
6%
Source: EY 2015 UK attractiveness survey
A breakdown by type of project investment being planned
shows that sales and marketing offices are the main form of
investment, at 29% of the total (up from 22% last year), followed
by manufacturing on 20% (unchanged), supply chain and
logistics on 18% (up from 14%), and R&D on 13% (up from 9%).
The rise in R&D investment intentions may be a particularly
positive sign for the UK’s efforts to be a global center
for innovation.
… and expect its attractiveness to increase.
International investors’ generally positive view of the UK as an
investment destination is further reflected by an expectation that
its attractiveness to FDI will continue to improve over the coming
three years. Overall, 54% of respondents in 2015 expect the UK’s
attractiveness to improve “significantly” or “slightly” — exactly
the same proportion as in 2014 — while 39% expect it to remain
unchanged. The relative stasis underlines that it’s difficult for the
UK to improve further on its already strong perceptions as an
FDI location.
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
27
Interestingly, the areas where some investors think the UK has
improved its environment are largely the same as those where
other — less positive — investors think it has got worse. Among
investors who think the UK FDI environment has not improved in
the past year, support for SMEs and the flexible financial system
top the list of areas where the UK’s FDI offer has gone backward.
That said, the proportion perceiving a decline in each of these
areas has fallen significantly since 2014. These findings and
those cited earlier in this section show that it may be increasingly
hard for the UK to improve its FDI attractiveness to a significant
extent. The UK is an established market scoring highly on a
range of attributes and, hence, incremental improvements are
likely to be increasingly difficult to achieve.
However, there is positive news from findings showing a rise in
the UK’s attractiveness this year in several areas that have been
challenging in the past. These include the supportiveness of the
policy environment, deemed “very” or “fairly” attractive by 75%
of respondents, up from 68% last year; the flexibility of labor
legislation, up from 64% to 74%; corporate taxation, up from 57%
to 68%; and labor costs, up from 55% to 65%. That said, investors
still have concerns over real estate availability and cost, with only
just over half (53%) saying the UK is attractive in this area. These
results suggest the way forward for the UK might be to adopt an
increasing focus on selected areas of its offer. Yes, it is important
not to let perceptions fall across the board, but policy could be
directed at specific areas where the benefits of improvement
could be significant in enhancing the overall UK offer.
The UK’s attractiveness as a location for establishing new activities on a number of criteria
Subtotal
attractive
2014
Supportive policy environment that encourages
sustainability investments
26%
49%
13% 3% 9%
75%
68%
Flexibility of labor legislation
26%
48%
15%
74%
64%
Corporate taxation
22%
46%
68%
57%
3%7%
65%
55%
8%
53%
46%
Labor costs
15%
Availability and cost of real estate
14%
Very attractive
Fairly attractive
16%
50%
39%
Not very attractive
3% 8%
8% 13%
25%
28%
10%
Not at all attractive
Can’t say
Source: EY 2015 UK attractiveness survey
Lower costs, economic reform and better education are seen as the keys to improving
competitiveness …
When considering areas for focus, understanding how overseas
investors think the UK will improve its competiveness in the
coming years is potentially very useful. The message that comes
across loud and clear from our survey respondents is to focus on
reducing the costs of operating in the UK, with 50% (up from 48%
last year) pointing to measures such as reductions in corporation
tax, improving real estate availability and cost, and lower labor
30
costs, as a route to higher future competitiveness. Equal in
importance to cost competitiveness is economic reform on 50%,
including facilitating access to capital, reducing regulations
and ensuring a flexible labor market. Research and education
(including stimulating R&D and innovation), is also important,
being cited by 41% as a way to improve the UK’s competitiveness,
up from 38% in 2014.
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
Ways in which the UK will improve its competitiveness in the coming years*
2014
(n=405)
50%
41%
Lower costs
48%
Research and education
38%
2014
(n=405)
Reduce corporation tax
21%
25%
Real estate availability and cost
16%
7%
Lower labor costs
13%
12%
Reduce personal tax
12%
11%
Visa policy
7%
5%
Develop education and skills
22%
18%
Stimulate R&D, innovation and high-tech industries
20%
24%
6%
New
Diversity of labor force
28%
Economic reforms
28%
22%
Flexibility
12%
21%
More support to enterprises
35%
20%
Infrastructures
New
Other
26%
6%
Facilitate access to capital and financing
18%
16%
Stable political environment and government’s austerity
measures
12%
14%
Reduce business regulations and administration
12%
12%
Flexibility of labor market
12%
New
Support small and medium-sized enterprises (SMEs)
15%
17%
Encourage entrepreneurship
8%
12%
Transport infrastructure (road, airports and rail)
12%
New
Telecoms and technology infrastructure
11%
New
Encourage sustainable environment policies and attitudes
5%
7%
Can’t say (4%)
*Respondents were asked to give three answers.
Source: EY 2015 UK attractiveness survey
… and similar activity is seen as likely to improve the UK’s capacity to innovate.
Asked to name the main
areas where the UK should
target reforms to make it
a leader in innovation, the
respondents point to a similar
set of priorities to those
they think will contribute
to competitiveness. Based
on their first-mentioned
area, the three priorities of
reducing taxes, increasing tax
incentives for innovation, and
improving education (including
in new technologies) all come
out level at 14% — although
education gains more second
mentions. These findings are
very similar to last year’s,
reflecting overseas investors’
consistent focus on the costs
of operating here and the
standard of education and
skills in the workforce.
Main areas of reform to make the UK a leader in innovation*
First
2014
(n=405)
25%
30%
Total
Reduce taxes
14%
Increase tax incentives for innovative companies
14%
Improve education in trade and academic and training in new technologies
14%
23%
27%
22%
31%
Develop entrepreneurship
11%
16%
15%
Support SMEs
10%
16%
19%
Develop more stable and attractive policies for sustainable investment
8%
18%
New
Develop a culture of innovation and creativity 7%
13%
12%
Reform labor laws 7%
15%
9%
Reduce bureaucracy 6%
16%
15%
Develop venture capital and other financial tools 3%
14%
9%
Improve infrastructures 1% 1%
<1%
Develop skills in foreign languages 1% 1%
New
Develop partnerships between universities and companies
<1%
New
Can’t say
4%
*Respondents were asked to name two areas.
Source: EY 2015 UK attractiveness survey
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
31
Staying ahead in an evolving market: the
changing drivers of FDI with a move to
“knowledge” industries
For Europe as a whole, our survey indicates that global investors
expect growth to be led by information and communications
technologies — a position this sector has held in every year since
2009. Pharmaceuticals and biotech, along with energy and
utilities, are the next two sectors seen as likely to drive growth
while banking, finance and insurance is ranked down in fifth
place. As the data shows, innovation and R&D will be critical
elements of the offer to be competitive in this changing market.
UK sector expectations shift from financial services toward manufacturing and innovation.
Asked which business sectors they expect
to drive growth in the UK in the coming
years, the international companies in
our global survey rank financial services
first, as they did in 2014. However, the
findings this year show a shift away from
financial services as the anticipated
driver of future growth for the UK, with
its rating of 32% falling from 40% last
year, and toward manufacturing and
innovation, with manufacturing’s score
rising from 18% last year to 20% this time,
lifting it from fourth to second place;
pharmaceuticals and biotech, up from
11% to 14%, rising from seventh to fifth;
and, further down the ranking, clean tech
increasing from 5% to 8%.
including new investments. Similarly, the GIM finds that the UK achieved a 37% increase
in pharmaceuticals projects in 2014, against a 17% rise in that sector’s projects across
Europe. It seems the UK is now managing to get across the message that it has worldclass strengths in areas outside the financial services sector, not least in manufacturing
and knowledge-based industries such as pharmaceuticals and life sciences, and clean
tech. However, high-tech sectors are highlighted even more strongly by respondents
to our 2015 European attractiveness survey, as driving Europe’s growth in the coming
years (see chart below) — a contrast from which the UK may draw some significant
messages for the future.
Among other leading sectors, the
transport industry and automotive is up
from 9% to 14%, reflecting the ongoing
success of the UK’s motor industry.
However, some sectors that are widely
associated with innovation have seen
their ranking decline. Telecommunications
and technology services (including
software) falls from 23% to 17%, dropping
from last year’s second place to fourth
this time; and energy and utilities falls
from 20% to 13% — although this may be
partly due to a shift toward clean tech as
a future growth driver.
Business sectors expected to drive the growth in the UK
economy in the coming years*
The UK findings — especially the declining
(albeit still relatively high) expectations
for financial services — suggest that
international perceptions are now
beginning to catch up with the reality of
the UK’s evolving mix of FDI by sector,
as revealed in the GIM FDI figures.
The rising importance attributed to
manufacturing as a driver of UK growth
chimes with the GIM findings for 2014,
which shows the UK gaining a rising
share of European manufacturing FDI,
32
The UK has demonstrated an ability to develop its FDI offer to meet changing market
conditions. In 2014, this allowed the UK to absorb the decline in business services and
still post market-leading growth. The UK does lead the market and score very highly
on its key attributes, hence, it is likely to be difficult to make significant incremental
improvements — especially as budgets are sure to be tight, given the Government’s
spending plans. In this situation, detailed analysis is required to identify what actions
are likely to have the most benefit.
First
Transport infrastructure
Manufacturing
B2B services excluding finance
Total
2014
(n=405)
16%
32%
40%
8%
20%
18%
11%
17%
15%
8%
17%
23%
10%
14%
11%
Transport industry and automotive
4%
14%
9%
Energy and utilities
8%
13%
20%
Education
4%
11%
8%
Logistics and distribution channels
6%
11%
4%
Retail, consumer goods and hospitality
6%
10%
7%
Oil and Gas
5%
10%
12%
Clean tech
4%
8%
5%
Real estate and construction
6%
8%
6%
Telecommunications and technology
Pharmaceutical and biotech
Engineering
1% 2%
Can’t say
4%
1%
*Interviewees were asked to provide up to two answers.
Source: EY 2015 UK attractiveness survey
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
Power to the regions: London marks time, as the
English regions bounce back
The increase in projects recorded by the UK in 2014 was spread
widely, with most regions recording an increase. While London
remained by far the most important recipient location in the
UK, the number of projects recorded in London during the year
increased by just one project. As a result, London’s market share
of UK projects declined in 2014 to 43%. Scotland, the second
most successful area of the UK in attracting FDI, recorded a
marginal decline in projects, but remained the number two
location.
The relative stasis in the number of projects recorded by the two
biggest recipient regions meant that the overall increase of 11%
in UK projects went elsewhere — and the most striking feature in
this context was a strong rise in projects attracted by the English
regions, and also by Wales. The comparative winners in 2014
from a regional perspective were Yorkshire (with 145% increase),
Wales (75% increase), South East England (49% increase) and the
West Midlands (38% increase). The very large increase in inward
investment projects recorded in Yorkshire meant that Yorkshire
recorded its highest number of project successes since 1998, at
498 projects, accounting for 5.54% of the UK total.
UK regions’ share of total UK FDI projects in 2014 and percentage change on 2013
Region
Projects 2014
Share of UK FDI projects
% change on 2013
London
381
43.0
0.3
Scotland
80
9.0
-2.4
South East
70
7.9
48.9
West Midlands
65
7.3
38.3
Yorkshire
49
5.5
145.0
North West
47
5.3
-16.1
Wales
42
4.7
75.0
N. Ireland
39
4.4
11.1
East of England
33
3.7
10.0
East Midlands
30
3.4
11.1
South West
28
3.2
3.7
Source: EY’s Global Investment Monitor 2015
The number of projects recorded year-on-year by the English regions (excluding London)
since 1997
600
500
Projects recorded
400
300
200
100
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
0
1997
The fact that 2014 was
the year of the revival
of the English regions
is further underlined by
the highest aggregate
number of projects being
recorded across these
regions (excluding London)
in the past decade, at 344
projects. The last time the
English regions recorded a
higher number of projects
was back in 1998. More
generally, an analysis
of the market share of
the four largest regional
recipients of FDI over the
past decade shows that,
after London, the position
of the remaining regions is
relatively interchangeable
year on year.
Source: EY’s Global Investment Monitor 2015
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
35
Key highlights
The 11% increase in projects recorded by the UK in 2014 was split across the various regions of the country.
► London remains by far the most important recipient location in the UK, but increased its number of projects by just one
in 2014, causing its market share of UK projects to decline.
► The comparative winners in 2014, from a regional perspective, were Yorkshire (145% increase), Wales (75% increase),
South East England (49% increase) and the West Midlands (38% increase).
► 2014 saw a revival of FDI in the English regions, with the 344 projects recorded across these regions (excluding
London) being the highest number since 1998.
Market share of new FDI projects in the UK, 2014: London, devolved
administrations and the English regions
70
60
50
% market share
The findings on the regional distribution
of new FDI projects in the UK in 2014
— as opposed to expansions by existing
investors — provide further interesting
food for thought. While London’s market
share of new projects fell significantly,
the English regions’ share surged, and
the devolved administrations — Scotland,
Wales and Northern Ireland — also saw an
uptick in market share.
40
30
20
10
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
0
London
Devolved administrations
English regions
Source: EY’s Global Investment Monitor 2015
36
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
There are clear winners in the battle for jobs.
Success in attracting projects does not translate directly into
numbers of jobs created — sector mix is important in driving
relative job creation. With a balance between manufacturing,
services and software, Northern Ireland was the destination
that secured the most FDI jobs in 2014, closely followed by the
manufacturing-led West Midlands and then the top two project
winners, Scotland and London.
Locations in the UK securing the highest levels of
employment from FDI in 2014
Region
2014 employment
Northern Ireland
5,191
West Midlands
4,579
Scotland
3,532
London
3,470
Yorkshire
3,427
Wales
2,971
South East
2,153
North West
1,423
East Midlands
1,288
North East
1,231
South West
1,192
East of England
741
Source: EY’s Global Investment Monitor 2015
A dynamic picture across the country as sectors, investors and functions move in
different ways.
When we dig into the project performance across the regions,
the reasons for differences in performance start to become
clearer and serve to highlight some of the future challenges for
the UK.
London is a good example of how changes in the market can
impact project numbers. London continued to lead the market
in several key sectors, with a dominant European position in
software, financial services and business services. However,
with a slight decline in software from the peak of 137 projects
in 2013 to 129 in 2014 and another fall in business services to
62, down 28 from 2013 but 60 down on the peak year of 2012,
the rise of 32 projects from financial intermediation, including
insurance, only served to keep total project numbers flat. Seen in
this light, London actually performed strongly in 2014 to shrug
off a decline in one of its core sectors.
The South East and Yorkshire both surged in 2014 on the back
of their broad international appeal. The South East won more
projects from the US, Germany, France, Australia and Canada
than in 2014. Software remained its largest sector but 2014 saw
a significant growth in manufacturing, with pharmaceuticals,
automotive, electrical, transport and machinery and equipment
all growing. In Yorkshire, project numbers grew from the US
(up from 3 to 13), Germany, France, Japan, Spain and India.
This was based on software growing from zero to six projects,
financial intermediation and business services increased and
manufacturing was strong. Leeds led the charge, moving to fifth
in the country in the ranking of cities with 15 projects.
Wales and Northern Ireland posted strong growth, drawing
on their spread across software, services and manufacturing.
Belfast had a stellar year going from 18 projects in 2013 to 29
last year, the second-highest city total in the UK. These two
performances contrast with the West Midlands, success here was
built on its traditional strength of manufacturing, accounting for
34 of its 65 projects. The US and Germany accounted for
16 and 11 projects respectively, with the automotive, machinery
and equipment, food, plastics and rubber, and electrical
manufacturing sectors all posting growth.
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
37
The regional picture: London continues to dominate perceptions ...
The preceding discussion has highlighted the different strengths
of the UK regions. Nevertheless, over many years, a feature of
EY’s perception study of the UK’s attractiveness to FDI has been
the stubbornly strong perception that London and — to a lesser
extent — South East England are by far the most attractive parts
of the UK in which to establish operations. While this pattern has
continued to some extent this year, it is interesting that some
other regions — notably the West Midlands, East Midlands and
Scotland — have significantly closed the gap on London and the
South East as the leading destinations of choice. Also, regions
outside South East England continue to score much more highly
among existing investors than among those companies not yet
established here, underlining the fact that investors who know
the UK at firsthand understand that the opportunities extend far
beyond the UK capital and its hinterland. The 2014 GIM figures
suggest that this awareness of the regions is helping to influence
investment decisions, with the English regions recording their
highest aggregate number of projects since 1998.
When asked to name the UK region that they see as the most
attractive in which to establish operations, some 45% of
respondents pick London, almost the same proportion as last
year (46%). However, the South East England slips back to 12%
from 16%, while a group of pursuers pick up more votes this
year to start to challenge the South East’s position — with the
West Midlands rising from 6% to 7%, and both the East Midlands
and Scotland leaping from 2% to 6%. It seems the strength of
the UK motor industry may benefit perceptions of the Midlands
as a whole, while Scotland appears to have emulated the
“Olympic effect” that London experienced after 2012, with
the 2014 Commonwealth Games in Glasgow — and possibly the
referendum on independence — helping to boost perceptions and
awareness of Scotland as an FDI location.
38
Regions of the UK regarded by existing and potential
investors as the most attractive to establish operations
2014
45%
London
South East
12%
West Midlands
7%
46%
16%
6%
East Midlands
6%
2%
Scotland
6%
2%
South West
5%
4%
North West
3%
4%
North East
2%
5%
Yorkshire
2%
2%
Nothern Ireland
2%
1%
East of England
1%
2%
Wales
1%
2%
Can’t say
8%
Source: EY 2015 UK attractiveness survey
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
Key highlights
London and — to a lesser extent — the South East of England are still perceived as the most attractive regions of the UK
for FDI, but some other regions have narrowed their lead:
► Some 45% of respondents cite London as the UK’s most attractive region, almost the same proportion as last year (46%).
However, the South East of England slips back to 12% from 16%.
► A group of regions pick up more votes this year to start to challenge the South East’s position — with the West Midlands rising
from 6% to 7%, and both the East Midlands and Scotland from 2% to 6%.
► Perceptions of London’s attractiveness are strongest among companies that have that have not yet invested in the UK, while
the reverse applies to most other English regions. This suggests that the “London bias” reduces as companies get to know
the UK better.
► Investors appear to welcome the prospect of the UK’s regions gaining greater control over economic policy,
with 48% saying this would make them more attractive as FDI locations, and only 10% that it
would make them less attractive.
… but existing investors are more drawn to the regions.
A breakdown of perceptions between existing and potential
investors helps to put the findings in perspective. The proportion
citing London as the most attractive region for FDI falls to
33% among established investors in the UK, but rises to twothirds — 66% — among those that have not yet invested here.
Similarly, the proportions of existing investors choosing English
regions outside London are higher in almost every case than the
proportions of non-investors. The most dramatic examples are
the South East of England, which is named as the most attractive
region by 17% of established investors and 3% of non-investors;
the West Midlands, chosen by 11% of established investors and a
statistical 0% of non-investors; and the East Midlands, chosen by
9% of established investors and 1% of non-investors.
Interestingly, only two regions outside London receive a higher
proportion of votes among investors not established in the UK
than among existing investors. These are Scotland, cited as the
most attractive UK region by 5% of established investors and 8%
of non-investors; and Northern Ireland, with 1% of established
investors and 3% of non-investors. In the case of Scotland, this
appears to support the view that Scotland is benefiting from a
rosy glow around the Commonwealth Games and referendum
vote. With Northern Ireland, one has to wonder whether the
filming of Game of Thrones in the province has had a similar
effect. It may be significant that both regions received especially
strong support among investors from North America.
Devolution looks as though it could be a game changer …
In the wake of events in Scotland over recent years, increasing
devolution of political decision-making to the English regions
is now on the agenda. So for the first time this year, we asked
investors how they would view this development. The results
were striking — with 48% of all investors saying that giving more
control over economic policy to the regions would make them
more attractive as FDI locations — and only 10% saying it would
make them less attractive. Equally as interesting, there was no
difference in the perception on this point between investors
established in the UK and non-investors.
Would giving more control over economic policy to
the UK regions make them more or less attractive as
investment destinations, or the same as today?
48%
More attractive as an
investment destination
The same as today
Less attractive
38%
Can’t say
10%
4%
Source: EY 2015 UK attractiveness survey
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
39
… but the key will be identifying the appropriate regional policy initiatives …
How could devolved power be used to boost regional economic
performance? When considering investing in regional locations
in the UK, investors say they look first at transport infrastructure
(25%) and then at the availability and skills of the local workforce
(21%). This reverses the position from last year, when local skills
topped the list followed by transport infrastructure. Interestingly,
established investors in the UK attribute higher importance than
non-investors to both of these factors — possibly indicating that
they are more aware of the shortcomings in them. For noninvestors, the availability of business partners and support from
regional economic advisory bodies score more highly, reflecting
their relative lack of knowledge of the regions. Policy will need
to be closely linked to strategy and the characteristics of each
region, as the move to devolved power explicitly recognizes that
one size does not fit all.
What are your investment criteria when considering investing in the regional locations in the UK?
2014
Transport infrastructure
25%
Availability and skills of local workforce
21%
Availability of business partners and suppliers
20%
Local labor costs
16%
Cost and availability of real estate locally
15%
29%
34%
21%
New
24%
Telecommunications and technology infrastructure
12%
New
Strength of business networks locally
12%
14%
Local quality of life, such as local schools, housing, cultural and sporting events
12%
New
Support from regional economic advisory bodies
10%
10%
Access to regional grants and incentives for investment
10%
13%
9%
Strength of local education both trade and academic
12%
Domestic market
1%
New
Legal business framework
1%
New
Existing competition
1%
New
Access to the European market
<1%
New
Economic growth
<1%
New
Flexibility of labor laws
<1%
New
Can’t say
<6%
New
Source: EY 2015 attractiveness survey
40
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
… with transport a key area — but the challenge is to identify which transport investment is required.
Transport infrastructure is critical in influencing regional
investment decisions. Indeed 29% of existing investors identify
it as their number one issue. But what type of transport
infrastructure do they require?
Drilling down into overseas investors’ priorities in terms of
transport infrastructure when deciding to invest anywhere in
the UK, road links emerge as the top consideration, cited in their
top two factors by 55% of respondents, followed by London
airports (36%), ports (27%), and regional airports (26%). Perhaps
surprisingly, regional rail comes well down the list at 21%, and rail
to London even more so at 15%.
Which transport infrastructure is most important when
considering investing in the UK?
First
Total
Road
40%
22%
London airports
36%
Ports 11%
Much of the debate about devolution in England has focused on
infrastructure and especially rail, with regional rail links in the
North of England receiving a significant amount of attention.
Our survey findings suggest that as far as foreign investors are
concerned, the situation is complex and that investment in roads
and ports may turn out to offer more significant benefits than
expansion of rail. Certainly for investors in manufacturing and
those originating from the US and Western Europe, the UK’s two
largest origins, road seems the priority.
26%
8%
21%
Rail to London 5%
15%
Rail in London 5%
Can’t say
As might be expected, Western Europe investors are
overwhelmingly in favor of road investment, with 65% picking
this. Investors from the US are not far behind with 59%, but only
36% of Asian investors regard roads as a priority; this compares
with 47% identifying London airports as key. Compared with 15%
of investors overall citing rail to London as important, only 7% of
Western Europe investors share this view.
27%
Regional airports 5%
Regional rail
55%
The responses reveal several significant differences between
sectors: 63% of automotive sector investors and 70% of chemical
companies put roads as their number one priority. These results
contrast with those from both business services respondents
who have London airports at the top of their list (43%), and hitech investors, 45% of whom prioritize London airports and 36%
cite regional airports as most important.
8%
4%
Source: EY 2015 UK attractiveness survey
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015
41
Methodology
44
The “real” attractiveness of
the UK for foreign investors
Our evaluation of the reality of FDI in the UK is based
on EY’s GIM. This database tracks FDI projects that
have resulted in new facilities and the creation of new
jobs. By excluding portfolio investments and M&A,
it shows the reality of investment in manufacturing
or services operations by foreign companies across
the continent.
Data is widely available on FDI. An investment in a
company is normally included if the foreign investor
has more than 10% of its equity and a voice in its
management. FDI includes equity capital, reinvested
earnings and intracompany loans. But many analysts
are more interested in evaluating investment in
physical assets, such as plant and equipment, in a
foreign country. These figures, rarely recorded by
institutional sources, provide invaluable insights as to
how inward investment projects are undertaken, in
which activities, by whom and, of course, where.
The GIM is a leading online information provider,
tracking inward investment across Europe. This
flagship business information tool from EY is the
most detailed source of information on cross-border
investment projects and trends throughout Europe.
The GIM is a tool frequently used by government
and private sector organizations or corporations
wishing to identify trends and significant movements
in jobs and industries, business and investment. The
database focuses on investment announcements, the
number of new jobs created and, where identifiable,
the associated capital investment, thus providing
exhaustive data on FDI in Europe. It allows users
to monitor trends and movements in jobs and
industries, and identify emerging sectors and cluster
development. Projects are identified through the daily
monitoring and research of more than 10,000 news
sources. The research team aims to contact 70% of
investing companies to validate details recorded.
This process of direct verification with the investing
company ensures that real investment data is
accurately reflected. The following categories of
investment projects are excluded from GIM:
► M&A or joint ventures (unless these result in new
facilities or new jobs created)
► License agreements
► Retail and leisure facilities, hotels and real estate
investment
► Utility facilities, including telecommunications
networks, airports, ports or other fixed
infrastructure investments
► Extraction activities (ores, minerals or fuels)
► Portfolio investments (pensions, insurance and
financial funds)
► Factory and other production replacement
investments (e.g., a new machine replacing an old
one, but not creating any new employment)
► Not-for-profit organizations (charitable
foundations, trade associations and government
bodies)
The “perceived”
attractiveness of the UK and
its competitors by foreign
investors
We define the attractiveness of a location as a
combination of image, investors’ confidence and the
perception of a country or area’s ability to provide the
most competitive benefits for FDI. The field research
was conducted by the CSA Institute in February and
March 2015, via telephone interviews, based on a
representative panel of 406 international decisionmakers.
Another great year — but time to reflect on how the UK can stay ahead of the pack? EY’s attractiveness survey, UK 2015