Foreign Direct Investment in the West Midlands Sustaining Competitiveness in the West Midlands Dr Mark Cook Reader in International Business University of Wolverhampton
Importance of FDI • • • • • • • • •
Provides new jobs Safeguards existing jobs Brings new skills Brings new technology Provides capital Improves productivity Improves national and regional competitiveness Improves the supply chain Enhances regional and national export performance
The drivers of FDI? • The search for markets, both regional, national and supranational • The search for resources, now regarded as natural resources • To improve company efficiency, lowering cost • Agglomeration economies, going to where there are a cluster of similar firms • Institutional factors
How can we measure some of the variables that lie within the broad categories listed above? • Let’s take education. Could be measured by, for example:
• Education levels of the workforce, people with 5 or more good GCSE’s? • Those with A levels?
• Those with degrees? • Those with higher degrees?
• Those undertaking training? • Quality of this training?
Market entry and measurement of FDI • • • • • •
Greenfield Brown field/Merger and Acquisition Joint Venture Expansionary Measured by: New jobs, safeguarded jobs, capital
Market entry and measurement of FDI • At this stage we might want to consider: • Are the determinants of the various types of FDI the same or different? • Are the factors that determine FDI into the West Midlands the same as those for other regions? • Are the determinants of manufacturing the same or similar to those that might influence non-manufacturing FDI?
FDI in the West Mids – (Black country Observatory) 2001-02
2004-05
2006-07
2007-08
2010-11
West Mids projects
97
67
103
114
67
New jobs created
4777
4073
2505
4650
1623
Jobs safeguarded
10736
2144
12101
25480
1405
FDI regional comparisons, 2005-2009 (Source FDI Markets)
Region
Regional share of all FDI projects
Manufacturing share
Knowledge intensive
Business services
South East
51.7%
10.1%
38.1%
71.7%
Scotland
8.3%
12.5%
13.6%
5.5%
North West
7.5%
11.9%
3.1%
6.2%
West Midlands
5.6%
9.8%
4.7%
3.6%
Northern Ireland
5.1%
8.0%
14.8%
2.4%
South West
4.23%
5.2%
2.7%
1.7%
Wales
4.1%
11.6%
4.3%
1.7%
Yorks. and Humberside
3.9%
10.4%
3.1%
2.6%
North East
3.9%
11.6%
3.5%
1.7%
East Midlands
3.7%
5.5%
3.5%
2.2%
East Anglia
2.8%
3.4%
8.6%
0.7%
Source countries for West Mids. FDI (2001- 2011) • • • •
Europe dominated FDI in the West Mids. region US ownership was 38.6% Japan 6.2% Only 8.3% came from Emerging markets – mostly China and India • At present, therefore, there is some evidence of emerging market FDI or BRIC activity, more noticeable after 2000
Empirical results for the determinants of West Midlands FDI
• Using number of projects as the dependent variable, what factors determine West Midlands FDI? • 1. Regional FDI of the previous year • 2.The percentage of regional 16 year olds in education and government training • 3. Regional preferential assistance. • (Fallon and Cook, 2009)
Empirical results for the determinants of West Midlands FDI • Are there difference between the determinants of manufacturing and non-manufacturing FDI? • Manufacturing FDI is determined by annual regional expenditure on roads, regional percentage of 16 year olds in education/training, regional preferential assistance
Empirical results for the West Midlands • • • •
Non-manufacturing FDI determined by: Previous year’s FDI Regional preferential assistance Fallon and Cook (2013)
What does the Picture of FDI within the West Midlands tell us? • FDI is important in developing new jobs in the region and safeguarding existing jobs. • This investment can improve the West Midland’s competitive position, improving supply-chain linkages, raising productivity, forcing some local firms to improve. But, can drive-out some local firms, may be footloose (importance of retention schemes/after care) and may not bring all the jobs anticipated.
What might we want to know about West Midlands FDI? • Does FDI change the nature of the products and services and enhance regional and national export activity? • Does FDI may provide more higher value added jobs and therefore lead to the retention of better qualified people/graduates within the region.
FDI in the future • Will the source country and sector of inbound FDI in the West Midlands change? • Can FDI lead to the development of new areas of production? • To what extent does West Midland’s FDI lead to jobs for those living in the West Midlands? • What are the policy Implications in terms of targeting countries and the different forms of FDI and entry routes? • Is FDI from some source countries better?
References • Fallon, G. & Cook, M. (2010) Explaining the manufacturing and non-manufacturing FDI performance in the UK regions, Tijdsschrift Journal, Forthcoming (2013). • Fallon, G & Cook, M (2009) Exploring the regional distribution of inbound FDI in the United Kingdom in theory and practice evidence from a five regional study, Regional Studies, January, e form (Actual article in print in Vol. 44, No 1 2010)
