Power Up: UK inward investment

Key drivers of foreign investment and its value to the UK economy

Inward investment makes a significant contribution to the UK economy – beyond job creation and wages through to productivity gains and fostering innovation, research and development. With the uncertainty surrounding the future UK-EU relationship weighing on investment decisions, this report explores the key factors influencing the UK’s continued attractiveness to global businesses.

Key findings

The UK inward investment landscape
The UK has long been one of the world’s top performers at attracting foreign direct investment (FDI). Over the last ten years, the UK has consistently ranked second only to the United States globally, in terms of the number of inward investment projects and third, behind only the US and China, in terms of capital investment.

The world’s largest companies and where they choose to be
As of 2018, 57% of the global Fortune 500 companies with a European HQ base it in the UK (114 out of 201). This is far above the UK’s nearest European competitors compares to 14% in Germany, 7% in Switzerland and the Netherlands and Belgium with 5%.

In 2013, we analysed the Top 250 Fortune 500 companies according to their choice of European headquarter location.

The number of European HQs in UK regional cities has dramatically increased. Now, a quarter of the European HQs in the UK are based outside of London, spread around various locations, compared to only 4% in 2013.

The value of foreign investment to the UK economy
Countries across the world compete fiercely for FDI because of the strong correlation between FDI and economic growth – with investment often creating many new jobs and local ‘ecosystems’ of smaller businesses.

Our research explores the links between FDI and productivity gains and the added technology transfer that domestic companies benefit from.

The Power Up series explores the critical challenges facing business, UK government and wider society.

Recommendations for continued UK success

Brexit poses a number of challenges for businesses with operations in the UK. And whilst these tend to be quite specific to an organisation – issues related to supply chain, people and systems and processes featured regularly in conversations with business leaders. Having said that, the UK’s key strengths - its scale of market, stable, pro-business environment, deep talent pool and favourable regulatory and tax environment - shone through in our interviews with leaders of foreign-owned businesses.

We recognise three key focus areas to ensure the UK sets a course for future growth and prosperity:

  1. A ready supply of domestic and foreign skills
    Companies come to hire talent (and lots of it). The focus for the UK should be on a ready supply of the skills foreign and domestic businesses need. Overall, investors stressed the important of a broader, more diverse UK economy. They want to see a strategy for growth for UK-wide cities.
  2. World-class digital infrastructure
    Foreign investors will welcome the UK Government’s ambition to give the majority of the country 5G coverage by 2027, having stressed the importance of digital infrastructure for the UK to keep speed with other markets. Added to this crucial digital infrastructure, the UK needs to continue to invest in its transport and broader infrastructure. It is important that transport plans are joined up around regional and national visions, so that the potential of investment is realised.
  3. Focus: from government and business
    The government’s industrial strategy, includes pledges to invest in innovation and infrastructure and reach sector deals with companies in key industries. We believe there is more business can do, both feeding into policy development and beyond, to assist in identifying what Britain needs to do to remain competitive. Government needs to provide clarity on policy direction to ensure the UK continues to be perceived as an open, pro-business market.
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