The UK's strategy for attracting inward investment needs to change post-Covid and Brexit. Inward investment in some sectors is down 90%. The UK now needs to focus on why firms would want to locate there as the final market, given supply chains will shorten. Firms enter locations for three main reasons: to sell locally, access technology, or access labor markets. The strategy must reflect these different motives as they have varying effects - high skilled jobs boost technology but don't create many jobs, while low skilled jobs create more jobs but add little productivity. Inward investment's impact on regional inequality also depends on the motives - jobs that boost one area's skills may overheat another's labor market. Localities need strategies tailored
2. In the UK inward investment in some sectors is
down 90%
• https://ideas.repec.org/a/bla/jorssa/v182y2019i2p559-582.html
3. The UKs value proposition for inward investors is
going to change.
• Is the aim to maximise FDI or to maximise the benefits ? These are
not the same.
• Is the question “what locations / sectors will attract the most FDI” or
“what locations / sectors can benefit the most from inward
investment”. These are not the same for the following reasons:
• Brexit cannot be divorced from this, but supply chains are likely to
get shorter so we need to focus on why firms would want to move to
the UK – which probably means focussing on firms who are looking
for UK as the final market.
4. Warwick Business School
Some history
Before the creation of the single market in 1992,
everyone predicted that intra-EU FDI would
decline to almost zero.
That everything would be made at home and
exported.
This didn’t happen
5. Warwick Business School
Why not ?
Firms reorganised production – along the lines
that ex post should have been predicted by IB
theory.
Location advantage and combinations of FSA /
CSA won out over economies of scale.
Reorganisation of production, lengthening of
supply chains, international division of labour in
Europe.
6. To simplify, firms would seek to enter a location for
one of three reasons:
• a. To sell stuff here
• b. To access technology
• c. To access our labour markets (particular labour demand)
• So the inward investment strategy needs to reflect this
• These have different benefits for the firm (eg productivity / efficiency
/ sales / profit margins)
• Understanding this helps attraction and retention
7. Why does this matter for strategy
• These three motives have different effects – if they want very skilled
labour that is good for technology but does not create many jobs – so
the emphasis is on clusters, supply chain and spillovers.
• If they are after large amounts of less skilled labour that creates jobs,
which is important for the less prosperous regions, but adds little to
productivity.
• Links to labour markets – eg skill shortages, avoid just heating up
already overheated labour markets, or pushing regions in to low
productivity equilibria
8. Inward investment and (regional) inequality
• So in the levelling up agenda it is important that localities know what
they are seeking to do – especially in terms of the distinction
between inclusivity and productivity.
• For example what will generate much needed high skill jobs on one
location, may simply overheat already tight labour markets in
another
• Equally policy (eg freeports) can simply encourage relocation of
people rather than creating better jobs for those already there.
• These decisions need to be taken at a local level, or at least
influenced by local considerations
9. Warwick Business School 9
Inputs Markets
Value
Added
R&D
Knowledge
Marketing
Knowledge
VALUE CHAIN DISAGGREGATION
Location 1 Location 2 Location 3 Location 4
Linking to firm strategy
11. build supply chains that are robust
fix the blockages:
Skills
Transport
Access to finance
Innovation
Exporting
Higher skills – eg commercialisation
12. This has to be done at a local level
If firms have local accountability and people near to them, they
can solve this.
If its vertical policy in Whitehall then they cant