The spate of closures in the UK semiconductor industry by companies such as Siemens and Fujitsu has opened the debate on the future direction of inward investment.
According to the Invest in Britain Bureau, 17% of manufacturing employment in 1995 was accounted for by foreign-owned firms. This followed a rising trend and does not include some of the big Korean investments in the electronics sector by firms such as LG in Wales and Hyundai in Scotland.
But with the list of companies cancelling investments growing almost daily and the tally of lost jobs increasing, some believe it may be time for a change of direction.
Those affected by closures or involved in inward investment want to see more emphasis on home-grown industry.
However, the Government and most regional development agencies are standing by past policies of attracting large, single investments. Until now, the emphasis has been on offering cash and other incentives to attract businesses with a high number of jobs.
Prime Minister Tony Blair, whose Sedgefield constituency is home to many of the people affected by the Fujitsu closure, has been largely positive on this strategy. In an open letter to the Northern Echo last week he said: ‘Over the last year alone over 10,000 jobs have been created or safeguarded by inward investment and I have confidence that the north east’s attractiveness to inward investors remains as strong as ever.’
Nor does he appear too worried about companies not repaying the grants they received when cancelling investments. Asked in an interview whether companies such as Siemens should repay the grants he said: ‘Not unless we want to start saying to foreign investors, We are going to give you a different deal from the deal you can get in other countries.’
But unions representing the thousands affected by the plant closures believe a rethink on inward investment is now a matter of urgency.
Bob Howard, secretary of the TUC in Newcastle, urges a shift towards more indigenous industries: ‘Regional funding regimes in the past have been geared towards inward investment and that emphasis has to change. We’re not turning our back on inward investment but are looking more for a matching balance between what we offer and what we get back in return.’
Under the new regional development agencies, which will be formed by April next year, funding will be made available to support indigenous businesses, he said. ‘We’ll be looking at a broader programme which will help indigenous companies to grow.’
But Howard also points out that the recent negative experiences with Samsung, Siemens and Fujitsu postponing or closing plants in the north east has been more than matched by the positive jobs created by other inward investors such as Nissan and Komatsu.
This point is taken up by David Bowles, operations director of the Northern Development Agency, which is responsible for economic development in the region. ‘Inward investment and the growth of indigenous companies are inextricably linked,’ he said. ‘Inward investment has created 80,000 jobs in the region in the past 10 years and a further 80,000 in the supply chain. This cannot be ignored.’
However, a rethink is on the way, he says. Competition between countries for big investments is now so intense that investors have the upper hand in such deals, says Bowles. ‘They know they can up the bids.’ He also says that a lot of time and resources are committed to attracting potential deals, only to lose out to another country.
‘This is why we have made great efforts to develop the indigenous suppliers so that they are not dependent on just one big customer and can become global suppliers themselves,’ says Bowles.
But in Scotland’s economic development agency, Scottish Enterprise, has gone even further. While it will encourage foreign investors, it is putting more emphasis on developing home-grown businesses. It is offering not just the physical road and transport infrastructure of previous deals but is now building in a commercial and academic infrastructure to anchor foreign investors to the region.
Since last year, Scottish Enterprise has been piloting its new ‘clusters’ strategy. Clusters are essentially strong mini-economies comprising a mix of players. These span customers, suppliers and competitors as well as supporting institutions such as universities, financiers, research bodies and utilities.
Clusters are being developed across Scotland’s industries from its older oil and gas industry to the newer technologies of semiconductors and opto-electronics. In the process, Scottish Enterprise will also examine its own role in inward investment.
Neil Martin, head of the semiconductors cluster at Scottish Enterprise explains: ‘This is something new for us. Attracting pure manufacturing was the way of the past. In future we’ll be taking a more integrated, knowledge-based approach.’
Scottish Enterprise has undertaken substantial research in all of the pilot sectors and benchmarked the industries globally. In semi- conductors it has now identified its strengths and weaknesses, says Martin.
Among the sector’s strengths are a strong manufacturing base with a good spread of customers and markets and a healthy research and development base. But, says Martin, ‘We need to create more indigenous companies and be less reliant on multinational corporate strategy. We also need to work more as an integrated community and links between universities and industry have to be stronger.’
In future, the agency will work closer with inward investors on strategy and will undertake more research on industry sectors. Future strategies in semiconductors will look at developing areas such as design, opto-electronics and enhancing the advanced manufacturing base.
For its part, Scottish Enterprise will be less of a driver in directly creating wealth but will become one of the resources within a cluster, providing support to industry.
The first cluster in semiconductors was launched last December. The Alba centre, in Livingston will create 1,800 jobs when US semiconductor design company Cadence opens its new R&D facility on site. But the supportive infrastructure should provide many more jobs and help link investors to the area.
Semiconductor design engineers are in short supply worldwide, as are new designs for semiconductors.
With its infrastructure, Alba looks set to provide answers to both of these problems and electronics companies are queuing up to find out more, says Martin.