Foreign investors: the home truths

Does attracting inward investment do anyone any good? We’ve all heard the bitter complaints of British companies struggling to compete, who suddenly find that a flashy new greenfield industrial park around the corner is to house one of their overseas competitors, courtesy of the British taxpayer through a government grant. Next thing that our established […]

Does attracting inward investment do anyone any good? We’ve all heard the bitter complaints of British companies struggling to compete, who suddenly find that a flashy new greenfield industrial park around the corner is to house one of their overseas competitors, courtesy of the British taxpayer through a government grant.

Next thing that our established small businessman knows, some of his best engineers are being headhunted; keen school leavers are ducking out of modern apprenticeships with him to take jobs at the new plant; and the local MP and civic dignitaries are queuing up to cut the ribbon at the opening of the foreign-owned company – which may be putting another local firm out of business.

The Government promotes and assists inward investment to provide jobs and regenerate struggling regions. Some people also suggest that inward investment provides a spillover of new technology and productivity-enhancing techniques into other local firms. But it doesn’t. Earlier this month, economists at Nottingham University reckon to have found strong evidence that neither wages nor productivity are much affected by foreign ownership in British manufacturing.

The Government will say this research backs up what it has been saying about inward investment. Having seen a succession of (mainly electronics) companies close or mothball UK plants after being lured to the UK with hefty grants, the Department of Trade and Industry is looking for stronger, longer-term commitments to the local economy, the supply chain, and to training.

If they are smart, all companies will be giving this commitment – not just inward investors. Good industrial practice can spill over from your own firm into the surrounding industrial area and it can boost productivity. But it won’t happen on its own: firms have to make it happen. It’s worth doing, too, if only to be in a stronger position when the next overseas rival muscles in to your neighbourhood.