US manufacturers have made the UK their top foreign investment destination for the second year in a row, according to a report by Deloitte Research, the Connecticut-based management consultant.
The report, based on 1998 figures, shows that the world’s biggest foreign investor pumped an estimated $8.5bn of foreign direct investment (FDI) into the UK – a 150% increase on 1997 – out of a total of $26.7bn channelled abroad.
Deloitte called the UK investment figure `an unprecedented amount’, which, along with Canada, carved 43% out of the total spending.
`These countries offer US manufacturers low entry barriers in terms of culture and language, as well as profitable investment opportunities,’ the report concludes.
The UK’s popularity came as US investors increased their presence in high-wage countries from around 65% in previous years to 80% on the back of uncertainty in the Asia-Pacific region and Latin America.
`Global expansion strategies are driven in large part by economic stability, well-developed infrastructure, lucrative market potential and skilled workers,’ Deloitte analysts said. `Access to lower cost labour and raw materials are important, but not the primary driver.’
And the good news for UK industry is that investment is likely to have continued through 1999, with provisional figures for the first three quarters indicating that a bounce-back by world markets and renewed US investment in building global networks will almost double total FDI in 1999 to $46bn.
Du Pont, Ford, Caterpillar, B/E Aerospace, International Rectifier, Microsoft and Motorola are among the big US operations which in the past three months have announced or completed multi-million dollar direct investments in the UK.
But analysts predict the UK’s position as destination-of-choice is far from secure, as manufacturers’ attention is shifting back to the long-term benefits of investing in emerging markets and near to supply chains.
Graeme Leach, chief economist at the Institute of Directors, said: `There will be a drift back in the direction of Asia, but UK manufacturing is still second only to the US and above China as the favoured destination for world-wide foreign investment. This is a real achievement – a fact lost on many because of the ingrained culture of doing the UK down.’
He predicted that the UK would continue to attract large FDI over the medium-term because of the strength of its domestic market, its position as a platform into Europe and low social costs that `massively undermined competitive edge’ in other parts of Europe.
Jeff Simcox, the Welsh Development Agency’s vice-president for North America, whose California base is one of seven offices across the continent, said the US is Wales’ most important foreign investor, with 150 firms providing 40% of the jobs in the principality.
`There will always be some part of the manufacturing process in which cost comes above quality and a factory moves, say, to Mexico. But if you want quality and productivity, the UK is highly competitive,’ he said.