Determinants of Inward Foreign Direct Investment by High growth firms in the UK with regard to labour productivity

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Literature Review (Draft):

Table of Contents2.1Foreign direct Investment (FDI)........................................................................................................3

2.2 Inward FDI and its benefits for the host country...............................................................................4

2.2.1 Inward FDI and job creation.......................................................................................................5

2.2.2 Inward FDI and labour productivity...........................................................................................6

2.2.3 Inward FDI and its benefits for UK economy............................................................................7

2.3 High growth firms (HGFs)...............................................................................................................8

2.4 HGFs and productivity.....................................................................................................................10

2.4.1 HGFs and productivity: Theoretical discussion........................................................................10

2.4.2 HGFs and the correlation between the average wages as well as profitability with labour productivity........................................................................................................................................13

2.4.3HGFs and productivity: Empirical evidence in the UK.............................................................14

3. Methodology......................................................................................................................................16

3.1Research Philosophy.....................................................................................................................16

3.2 Research Approach......................................................................................................................17

3.3Research Design...........................................................................................................................17

3.4Research time horizon..................................................................................................................20

3.5Data Sources and Sample Profile..................................................................................................20

3.6 Data Analysis...............................................................................................................................21

3.7 Ethical consideration and limitations...........................................................................................22

4. Data Analysis.....................................................................................................................................23

4.1.1 The average Labour productivity of HGFs and Non-HGFs in the UK....................................23

4.1.2 The average labour productivity of foreign HGFs and non-HGFs in the UK..........................25

4.1.3 The average labour productivity of foreign HGFs and domestic HGFs in the .....................UK............................................................................................................................................................26

4.2.1 The average annual wages of foreign HGFs , domestic HGFs and non-HGFs in the UK.......28

4.2.2 The average annual profitability of foreign HGFs, domestic HGFs and non-HGFs in the UK............................................................................................................................................................29

4.3. The correlation between wages and productivity as well as profitability and productivity of foreign HGFs , domestic HGFs and non –HGFs...............................................................................30

4.3.1 Foreign HGFs.......................................................................................................................31

4.3.2 Domestic HGFs.....................................................................................................................32

4.3.3 Non-HGFs.............................................................................................................................34

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2.Literature Reviews

2.1Foreign direct Investment (FDI)

2.1.1 Definition of FDI

Nowadays, FDI is considered to be an important aspect in international business, there has

been a great deal of foreign firms entering developed countries using foreign direct

investments. FDI is known as the investment from a foreign country to the host country

including opening operations or acquiring tangible assets. It is simply defined by UNCTAD

(2013) as “an investment made to acquire lasting interest in enterprises operating outside of

the economy of the investor”. FDI has been a crucial aspect in the business world for the past

few decades. In the recent years, FDI has gone through major ups and downs. Five countries

that have been contributing nearly half of the FDI inflows in the world are China, USA,

United Kingdom, France and Brazil (OECD, 2013). Based on OECD (2013), between 2011

and 2012 global FDI flows reduced by 14% to USD 1.4 trillion despite the 22% increase in

the last quarter; however, 2012 level remains comparable to the global FDI flows in 2010.

Nowadays, the growth of FDI over international trades could be explained through the

internalization theory of Dunning electric paradigm.

2.1.2 FDI in comparison with other foreign market entries

Dunning (1980) recognizes the importance of three main factors which are internalization,

ownership and localization. It is explained by Dunning electric paradigm that internalization

is the key factor which makes firms undertake FDI over licensing or exporting. According to

Buckley (2009), it is risky for firms to take licensing method since the company could give

away important technological know-how to a potential third party. In addition, companies

also prefer FDI rather than licensing as with the latter, companies are likely to experience

lose control over manufacturing, marketing and even strategies in foreign countries.

On the other hand, exporting is identified as the process of producing goods in the home

country and shipping finished goods to the receiving country. The advantages of exporting

include, trade barriers, natural resource endowments or valuable technological know-how.

Nevertheless, many companies which produce goods at large scale might choose FDI over

exporting since transportation costs and trade barriers could be a huge issue for the firm.

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Dunning (1980) also mentioned that FDI inflows is more suitable for the economy with a

location-specific advantage. On the other words, companies could find essential resource

endowments that cannot be found in the home country and they can be identified in a specific

foreign country. Gaining knowledge spillovers from overseas country is another advantage

that taking FDI could bring for the company. Hence, FDI is preferred than exporting by many

companies in the world since it can avoid exchange rate volatility and it is also more

responsive to changing demand of the customer (Miyagiwa, Creane, 2010).

2.2 Inward FDI and its benefits for the host country

Borensztein, Gregorio and Lee (1998) stated that technology holds a vital role in the process

of economic development. Furthermore, technology diffusion can happen through various

methods such as importing of high technology products, adoption of foreign technology or

even acquisition of human capital (Borensztein and et.al, 1998). Inward foreign direct

investment by foreign firms can transfer advanced technologies to the host country. It is

believed by many people that, by receiving a great number of advanced technologies from

different companies all over the world, the economy of the host country will boost up

significantly. An equally significant factor to consider is that FDI helps increase foreign

exchange reserves, which explains why governments of different countries usually encourage

this form of investment. With higher inflow of foreign exchange reserves, it would be easier

for central banks to sustain its fixed exchange rate. Borensztein and et.al (1998) also reported

that “the effect of FDI on economic growth has to depend on the level of human capital

available in the host economy. There is a strong positive interaction between FDI and the

level of educational attainment” (p.134).

Furthermore, based on Borensztein and et.al (1998), “FDI exerts a positive, though not

strong, effect on domestic investment, presumably because the attraction of complementary

activities dominates the displacement of domestic competitors” (p.122). The economy of the

country could grow if FDI is used in more productive and efficient way than domestic

investment. In this case, the inward FDI by foreign firms should not occupy the same

amounts of investment from domestic sources by competing in product markets or financial

markets.

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2.2.1 Inward FDI and job creation

FDI has been a large contributor to reducing unemployment thanks to the job opportunities it

creates. The total amount of people employed outside agriculture and informal sectors can

presumably be affected by the inflows of FDI. For example, FDI can boost up the country’s

competitiveness by joining firm- and country-specific assets (Blonigen, 1997) cited by

Karlsson, Lundin, Sjohom and He (2007). It is combining the access to foreign markets and

modern technology with a large supply of cheap labour. By combining firm and country’s

specific assets, industries in host country has been further enhanced (Lipsey, 2004; 2006)

cited by Karlsson and et.al (2007). Therefore, the number of the jobs has been increasing

substantially throughout these past few years and inward FDI has played a major role in the

growth of employment.

Foreign direct investment does not only help create new industries and enterprises in the host

country but also improves employment through making connection with domestic firms via

the purchase of locally produced goods and services. In addition, FDI also introduces new

and improved quality inputs that can be used in the production of upstream domestic firms,

thus at the same time improving the production and expanding employment by creating a

competitive environment (Karlsson and et.al 2007). This has been the case for many

developed countries in Europe and UK in particular.

Looking at the current UK situation, it can be noticed that, UK has recently become the

leading European destination for FDI. In 2012 the value of UK’s inward FDI stock has yet

again increased by 11.5 % which was estimated to be around £867 billion (Inward Investment

Report, 2013). In addition, over “170,000 jobs were either created or safeguarded during the

year by international companies in the UK and USA is considered to be the largest foreign

investor in the UK with 396 projects , while French and German firms contributed total of

over 30,000 new and safeguarded jobs” ( Inward Investment Report, 2013). The benefits

from the risen of foreign companies in the UK is recognized to be substantial for the

country’s economy. The inward FDI by foreign companies in general and “will introduce

new production facilities to the UK economy, or may rescue failing firms in the case of

acquisition, potentially raising overall output, employment and export” (Girma and et.al,

2001)(p.120). Government from many countries realize the great number of benefits that

inward FDI could bring to their country, therefore, many policies and principle have been

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engaged to encourage foreign firms in general and high growth firms in particularly to invest

in the host country.

2.2.2 Inward FDI and labour productivity

The growth of FDI in the past 30 years has been affecting both industrial and emerging

countries. It is claimed by research that FDI has a close linkage with the productivity and host

country growth (Contessi and Weinberger, 2009).

FDI has been playing an important role in the development process of many countries. In

particular, FDI provides capital and technology that the developing country lacks, usually

through two main channels. The first one is through offering capital to build up the

productive capacity in the economy, and secondly, by giving advanced technology and

organizational know-how that could help increase the efficiency or productivity of

investment (Thiam Hee Ng, 2006).

FDI and labour productivity are proven to have a close relationship, according to Criscuolo

(2005) cited by Contessi and Weinberger (2009). Multinational firms and their affiliates are

generally more capital intensive, make more abundant use of skilled workers and pay higher

wages (Contessi and Weinberger, 2009). According to research, private multinational

nonfarm and non-financial firms in USA contributed 40 percent of the output of non-financial

corporation and more than 75 percent of the boost in labour productivity between 1977 and

2000. Nevertheless, Criscuolo (2005) pointed out that USA is not the only country with the

great contribution of the affiliates of foreign multinational enterprises to labour productivity.

In fact, Criscuolo (2005) has given some captivating facts about labour productivity in USA

along with other countries. For instance, he found out that in USA, France and Sweden,

foreign affiliates only have the same level of measured labour productivity as host enterprises

due to the fact that most of the domestic firms in these countries are at the technological

frontier in several sectors. Meanwhile, in Spain, Hungary and particularly in the United

Kingdom, foreign affiliates are stated to be twice more productive than domestic companies

in those countries. Foreign affiliates in the United Kingdom also have more competitive

advantages than domestic enterprises in low-tech sectors such as foods products, beverages,

tobacco, textiles and garment, leather and footwear (Criscuolo, 2005). Given many

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advantages that companies receive from taking inward FDI, particularly regarding to

productivity, it is not surprising that during the recent years, the number of enterprises using

inward FDI increase significantly.

2.2.3 Inward FDI and its benefits for UK economy

There has been a big increase of inward FDI stock in the UK since 1990, rising from $204

billion in 1990 to over $1,119 billion by the end of 2011, largely dominated by service sector.

While the total contribution of manufacturing sector to the UK’s inward FDI declined from

26.6% in 1999 to 19.3% in 2011, service sector was able to contribute a total of 71% to the

whole IFDI stock in 2011 (Driffield, Love, Lancheros and Temouri, 2013).

Furthermore, based on the Office for National Statistics (2012), “net investment flows into

the UK by foreign companies continued to increase during 2012, from £28.9 billion in 2011

to £35.4 billion in 2012. The UK’s inward investment position reached a record high in 2012

(£936 billion) and its outward investment position remained similar to 2011 levels (£1,088

billion)”. Recently, the inward FDI from foreign companies have been proven to be more

stable than the outward FDI in the UK. Since after recession, UK Government has used

different policies to encourage the inward FDI to boost the economy growth for the country.

According to Brian Groom (2013) “cuts in corporation tax , due to fall to 20 per cent by 2015

compared with 28 per cent in 2010, and measures such as the “patent box”, offering a lower

tax rate on some intellectual property, helped to improve the UK’s attractiveness”. With the

increasing of numbers of foreign firm directly investing to UK markets, there has been nearly

60,000 of new jobs created and more nearly 1,600 of projects produced (Inward Investment

Report, 2013). Furthermore, at the moment UK is ranked as the top destinations for inward

investment in Europe (Brian Groom, 2013). Among Europe countries, Germany is the closest

rivals that could compete with UK in term of the number of foreign inward FDI. Brian

Groom (2013) stated that “Germany provided 16 per cent of European FDI, narrowly behind

the UK’s 18 per cent share while France remained at the third place and Spain was steady at

the fourth place”. By giving low tax rates for inward investment from foreign companies, UK

Government has been able to attract a great number of small, medium as well as high growth

firms from all over the world. Undoubtedly, high growth firms are those that the government

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recognizes as the most potential firms that could boost up the economy in many aspects. In

the next section, high growth firm definition and theories will be discussed.

2.3 High growth firms (HGFs)

There have been countless studies conducted by various researchers to create a formula that

could measure the company growth rate. Throughout many years, Birch as well as “Davis,

Haltiwanger, Schuh” formulas have been recognized by many as the most outstanding ones.

Birch growth formula is stated as:

Growth = (xt1 –xt0 )xt1/xt0

Where x is defined as either employment or turnover in year t. This formula measures “the

absolute and relative changes in growth as way of overcoming the small enterprises bias

inherent in measuring company growth rates” (OECD, 2010, p.61). Having considered the

Birch formula, it is also essential to look at “Davis, Haltiwanger, Schuh” method, which is

described as:

Growth = ( xt1-xt0)/(xt1+xt0)/2

This formula measures growth on the basis that a second order approximation to rates is

measured in logs, where x is still classified as either employment or turnover in year t.

However, it is claimed that the simplest indicator is the one that defines high growth firms as

“those that satisfy some predetermined threshold that distinguishes them as high-growth, with

a secondary qualification that enterprises have to be above a certain size, to mitigate any

small enterprise growth bias” (OECD, 2010, p.61).

Another theoretical framework that links firm size to growth is recognized under the Gibrat’s

Law as follows:

sizeit =(1+Єt)Sizeit-1

The Gibrat’s Law states that I is the present size of the firm in period t which can be

decomposed into the product of a proportional effect and the initial firm. Meanwhile (1+Єt)

is recognized as the proportional effect for firm in period t and the stochastic disturbance Єt

is assumed to be identically and independently distributed (Audretsch, 2012). The Gibrat’s

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Law shows that firm growth is ordinarily distributed and happens randomly. Nevertheless,

the Gibrat model and other similar empirical studies on the growth of various different firms

do not only focus on the high growth companies.

Although there are many definitions for the term “high growth” enterprises, the description

given by OECD seems to be the most easily interpreted. It is explained by OECD (2010) that

“All enterprises with average annualised growth greater than 20% per annum, over a three

year period should be considered as high growth enterprises . Growth can be measured by the

number of employees or by turnover”.

Nowadays, there are thousands of high growth enterprises in the world. Judging the

advantages that domestic HGFs and also foreign HGFs bring to the host countries, it is

extremely likely that the number of HGFs will rise even more in the following decades.

Evidences in support of this statement can be found in the amount of high growth firms in the

UK established over the past few years. According to Business Growth Fund (BGF), there are

approximately more than 4000 high growth companies in the UK. With the recent increase of

the high growth firms, there are around 17 per cent of the overall population of 24,955 UK

companies with a turnover of approximately £2.5 million to £100 million (GrowthBusiness,

2013).

On the other hand, the presence of various literature review suggest that the number of high

growth firms in many countries have gone up notably during these past few years and high

growth companies seem to have a close relation to productivity.

2.4 HGFs and productivity

2.4.1 HGFs and productivity: Theoretical discussion

Over the time, high growth firms play a crucial role in the process of job creation compared

to other firms that either do not grow over a period of time or companies that only exist as

large firms (Acs, Parsons and Tracy, 2008, p.6). Despite this, the link between HGFs and

productivity has been put in doubt by great number of people. Therefore, this lead us to the

important theory of Alam , Caserio, Khan and Udomsaph (2008) about the productivity

growth at the firm level.

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Alam, and et.al (2008) claimed that there are five necessary components explaining the

decomposition of aggregate productivity growth:

- The within components that justify the productivity growth taking place within the

enterprises and it all influenced by changes in the efficiency and intensity with inputs

are utilized in production.

- The between and cross components, which involve the role of labour reallocation

across existing firms in aggregate productivity growth. The between component

indicates the addition that take place from low-productivity firms that are losing

market share or from high –productivity companies that are attaining market

share .The cross component reflects raise in aggregate productivity that occur from

firms showing high productivity growth and are also attaining market share.

- The entry and exit components can reflect the growth coming from the creation of

new company and the exit of obsolete enterprises.

Those five decompositions are the key to explain the whole productivity growth as well as

firm dynamics. By the same token, it is also vital to consider the decomposition of

productivity growth using firm-level data developed by Foster, Haltiwanger, and Krizan

(2001) cited by Alam and et.al (2008) Foster and et.al describes sectorwide productivity level

in year t, Pt as:

where Oit is the employment share of firm i, and Pt and P it are a productivity measure or in

this circumstance , the labour productivity. The Foster and et.al (2001) suggest that there are

five components that could be extracted from the productivity growth which are the within-

firm effect, the between firm effect, the cross effect, the entry effect and the exit effect. All of

these components are identified as follows (Alam and et.al,2008, p.116): - The within-firm

productivity weighted by initial output shares is called the within-firm effect.

- The between-firm effect captures the gains in aggregate productivity arising from the

expanding market of high productivity firms or from the shrinking shares of low productivity

weighed by initial output shares. It is negative if the firms that are downsizing are the more

productive ones.

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- Gaining in productivity from the expanding shares of high-productivity growth companies

or from the reducing in size shares of low-productivity-growth enterprises is called the cross

effect.

- The entry effect is the sum of the differences between each entering firm’s productivity and

the initial productivity in the industry weighted by the market share of each entering firm.

- The total amount of the differences between each existing enterprise’s productivity and the

beginning productivity in the industry weighted by the market share of each existing

company is called the exit effect.

The aggregate productivity growth may be decomposed in numerous different methods, the

difference of total productivity contribution among small, medium and high growth

companies seems to be huge. Evidently, based on Alam and et.al (2008) research, “large

firms show higher productivity growth than small and medium firms; this is mostly driven by

large within-firm productivity gains. In addition, “foreign-owned firms tend to show higher

productivity growth than domestic private or state firms (p.132)”. In different countries,

productivity growth from foreign companies is affected by diverse factors. For instance, in

Russia, it is driven by higher within productivity growth. Meanwhile in Hungary, the initial

productivity variation at entry tends to be vital. Another fascinating fact that Alam and et.al

(2008) pointed out that firms relying on external finance are likely to achieve high

productivity growth and this is even more the case in countries at more advanced levels of

financial development. In the other words, productivity has a higher chance to grow more

quickly in enterprises operating in industries that are more influenced by external finance and

in many countries with great financial markets.

Although, the linkage between high growth firms and productivity have not been stated in the

previous examples, it is clear that five components related to the decomposition of aggregate

productivity explain the productivity growth in every different company. Therefore, this

theory of Alam and et.al (2008) can be applied to clarify the productivity growth in every

level of firm.

On the other hand, there are little evidence conducted by researchers showing why there

might be a positive relationship between productivity and HGFs. Syverson (2011) cited by

Du, Gong and Temouri (2013) reported that “theoretical and empirical evidence shows that

the levers that firm managers can use to improve business performance and productivity

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include managerial practice and talent, employee quality or input quality, information

technology and R&D, product innovation, organization structure and learning by doing”

(p.23). In fact, though it has not been tested, there is high chance that many of these levers

might explain the high growth firm’s phenomena. In addition, Acs and et.al (2008) cited by

Du and et.al (2013) have focused on finding the correlation between high impact firms and

productivity. High impact firms are those companies that have sales growing at least doubled

over four year period and they exist in many different sizes as well as industries in the world.

The recent evidence provided by Acs and et.al (2008) cited by Du and et.al( 2013) show high

impact firms in US have also great influence on productivity, and at the same time , they also

have a higher labour productivity than low-impact firms.

In order to further understand how high growth firms and productivity are associated more

specifically in the UK, the empirical evidence in the UK will be mentioned in the next part of

this chapter.

2.4.2 HGFs and the correlation between average wages as well as profitability with

labour productivity

It is widely understood that labour productivity has a close relationship with wages. In

manufacturing, higher wages also means greater number of skilled workers, which is likely to

result into a higher total factor productivity growth (TFP) rate. It is claimed by Comin (2006):

“Total Factor Productivity (TFP) is the portion of output not explained by the amount of

inputs used in production. As such, its level is determined by how efficiently and intensely

the inputs are utilized in production” (p.1). In service sectors, firms which pay more for the

labour, the TFP growth of the firm could easily decrease. Overall, average wages have a

significant impact on the TFP level and it often indicates that with a high number of skilled

workers, the enterprises has a higher probability to gain greater TFP levels. It is also stated

by Du, Gong and Temouri (2013) that firms with higher average wages have a great potential

to become a high growth company. However, this phenomenon also depends highly on the

age groups and the service industry the firm operates in. From the evidence mentioned above,

it can be noticed that there is a positive correlation between average wages and labour

productivity though there is not many evidence showing the correlation of this two variables

in HGFs level.

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It is also important to identify the relationship between profitability and labour productivity

of the firm in general and HGFs in particular. Profitability can be understood as the ability to

generate profit from all the business activities of an enterprise. There also appears to be a

connection between the profitability and labour productivity of the firm. Based on the firm

effect models, the profitability of a company depends on many different firm-level

characteristics including efficiency level, quality of management or company’s structure

(Stierwald, 2009). Furthermore, the model indicates that firms with different levels of

efficiency perform differently, companies that are more productive have a clear competitive

advantage over less productive enterprises and profitability can be considered as the vital

reflection. Thus, companies with higher levels of total factor productivity earn greater profits.

It is said by Stierwald (2009) that firms with high labour efficiency stay in the market longer

than firms with less labour productivity due to the stability of the profits earned annually by

companies, therefore there is a positive relationship between productivity and profitability.

Even though there are not many evidences showing that HGFs with higher labour

productivity will gain greater profitability, HGFs tend to have higher labour efficiency and

earn more profits than non-HGFs. According to Stierwald (2009), the higher level of labour

productivity and more persistent high productivity the firm has, the more profitable the firm

becomes. Both factors together have a significant and positive impact on firm profitability

(p.4). For this reason, many people suspect that there might be a positive correlation between

labour productivity and profitability for high growth enterprises.

2.4.3HGFs and productivity: Empirical evidence in the UK

For the past few decades, there has been clear evidence on the growth of labour productivity

in the UK. For instance, from the period 1998 to 2010, it is reported by ONS (2011) cited by

that “labour productivity of the UK manufacturing sector rose by an average 3.7 per cent

while labour productivity of the service sector increased by an average of 2.1 per cent “cited

by Du and et.al (2013,p. 9). Furthermore, NESTA (2009) stated that over half of all HGFs in

the UK are operating in the service sector and service sector was able to recover rapidly from

£1,570 billion in 2008 to £1,1697 billion in 2012. However, the sector’s aggregate

productivity growth has been considerably lower than the manufacturing sector in the UK.

ONS (2011) cited by Du and et.al (2013) reported that from the period 1998 to 2010, while

labour productivity in the service sector only went up by an approximately average of 2.1 per

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cent, the labour productivity of UK manufacturing boost up by an average of nearly 3.7 per

cent. Considering as a whole, labour productivity of both sectors had had a positive increase

during that period and that could be a great sign for sectors in the UK.

On the other hand, Riley and Robinson (2011) suggested that there could be a link between

intangible assets and productivity growth in the UK. Based on their research, intangible

assets have a positive relation to the productivity. Riley and et.al (2011) found that companies

with higher intangible assets are more likely to be highly productive; therefore, high growth

firms with great number of intangible assets tend to be much more productive than high

growth enterprises with low intangible assets. In short, companies with great number of

intangible assets have a high opportunity of becoming HGFs. Having said that, intangible

assets are recognised to contribute toward the productivity in different sides and therefore,

they are more difficult to measure than R&D expenditure or innovation capabilities of firms

(Riley and Robinson, 2011).

Another fascinating point raised by Mason (2012) research where he found that on average

high growth firms in the UK tend to be productive but overall they do not contribution much

to industry productivity growth. This point is also sustained by the work of OECD (2013)

where it is concluded that new firms would likely boost up the industry productivity growth

rather than the existing companies due to their ability of bringing innovative combinations of

factors of productions as well as advanced technologies. Hence, nowadays, there are many

policies offered by UK government in order to attract new foreign HGFs all over the world.

By proposing attractive policies, the number of foreign HGFs coming to UK could easily

increase, therefore, the industry productivity growth as well as UK economy might also go up

significantly.

Overall, to date, there have been several studies explaining the correlation between HGFs and

productivity. Similarly, the correlation between HGFs and productivity in the UK has also

been conducted by few researchers. Despite this, there have not been many attempts to

examine the productivity of foreign HGFs using direct investment in the UK. This can be

considered as an interesting HGFs aspect since foreign HGFs coming to UK will do inward

investment and based on the research conducted by Alam and et.al (2008) “Foreign-owned

firms tend to show higher productivity growth than domestic private firms”. Hence, the main

objective of this paper is to examine foreign HGFs‘s total average productivity comparing

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with domestic HGFs and non- HGFs during three year period from 2009 to 2012 and its

relationship with total average wages and profitability of an enterprise.

3. Methodology

The purpose of this chapter is to explain the methodological decisions made regarding the

research. Theoretical aspects of the academic research will be mentioned and research

methodology and design will be discussed in order to analyse the main hypothesises of the

paper. This research paper will identify the productivity of HGFs in the UK by collecting data

of UK firm’s financial data to analyse the difference between foreign HGFs taking inward

FDI to UK with domestic HGFs and non HGFs in the UK. Two other important variables

which are wages and profitability will also be mentioned and analysed in this paper to point

out their impact towards and the productivity for foreign HGFs.

Neville (2007) simply defined research as a “a process of enquiry and investigation; it is

systematic, methodical and ethical; research can help solve practical problems and increase

knowledge” (p.1). In addition Collis and Hussey (2003) cited by Neville (2007) claimed that

“the purpose of the research is to review or synthesize existing knowledge, investigate

existing situations or problems or explore and analyse more general issues as well as provide

solutions to the problems” (p.2).

3.1Research Philosophy

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It is significant to identify the research philosophy that will be utilized during the research

process as it is considered to be the key for collecting and analysing the data successfully. It

is said by Neville (2007) “research is not neutral, but reflects a range of the research‘s

personal interest, values, abilities, assumptions, aims and ambitions” (p.4). By establishing

the accurate philosophy, strategies as well as methods could be adopted effectively

throughout the whole process of the research. There are two key research philosophies which

are positivist and phenomenologist. The positivistic approach is defined by Collis and Hussey

(2003) cited by Neville (2007) as “seeking out the facts or causes of any social phenomena in

a systematic way. “Positivistic approaches are founded on a belief that the study of human

behaviour should be conducted in the same way as studies conducted in the natural sciences”

(p.6). In contrast, phenomenological approach is considered to be an approach that

“particularly concerned with the understanding behaviour from the participants’ own

subjective frames or reference” (Neville, 2007, p.7). In this paper, the positivistic approach is

used since the research is mainly focused on investigating the phenomena by using

quantitative method. The objective of this paper is to find out the difference of the total

average labour productivity among foreign HGFs, domestic HGFS and non-HGFs in the

UK .This paper will also use coefficient correlation to identify the linear relationship between

labour productivity and wages as well as profitability of foreign HGFs.

3.2 Research Approach

According to Neville (2007) there are two vital types of research which are deductive and

inductive approach. While the deductive approach tends to move from general ideas or

theories to a certain particular situation, the inductive research moves from a particular

situation to a broad ideas or theories. This paper will focus more on the development and

testing of a research hypothesis, therefore it is considered to be deductive research. The data

will be collected and the results will be analysed and also presented. One of the main

purposes of this paper is to identify the total average productivity of foreign HGFs, therefore

total mean labour productivity of domestic HGFs and non- HGFs will also be mentioned and

analysed to point out the difference of labour productivity among those three types of

companies in the UK. This paper will also look in more details whether variables such as

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profitability and wages could have an impact towards the total mean labour productivity of

foreign HGFs.

3.3Research Design

There are also three types of approaches which are exploratory, descriptive or explanatory.

Exploratory approach is defined as explanations drawn up by using established relationship

(Neville, 2007). Exploratory approach is employed through this paper since it tests hypothesis

by measuring relationships between variables as well as the data are analysed using

statistical methods. Descriptive approach will also be used in this paper to describe the data

and characteristics of core aspects of the total average labour productivity of foreign HGFs

and also domestic HGFs as well as non-HGFs. Distinguishing the difference between total

average labour productivity among those three types of firms will importantly give a broader

picture of whether foreign HGFs achieve superior labour productivity than two other types of

enterprises.

The main purpose of this research is to evaluate the two hypotheses by identifying

relationships between total average labour productivity with foreign HGFs, therefore

selecting an appropriate research design for this paper is vital. This research investigates and

updates the empirical evidence related to the average labour productivity of foreign HGFs in

the UK and also the relationship of the mean labour productivity with wages and profitability

of HGFs in the UK. In order to identify and analyse the labour productivity of foreign HGFs

with other types of firms, it is crucial that data must be appropriately selected. All of the data

taken from the financial database called FAME which will be explained in details in the

following sample profile section. Some of those financial data are then converted into

variables for the purpose of analysis. This research applies business mathematical formulas to

identify total average labour productivity in particular and two other variables which are total

average wages and mean profitability of firms in the UK, therefore, quantitative analysis is

employed throughout the research. Pearson coefficient correlation is the most suitable method

for this research paper that could identify the statistical relationship between variables.

In order to calculate and analyse variables in this paper, the IBM SPSS modeller is used.

With the help of IBM SPSS modeller, outcomes can be modelled and it allows s researchers

17

take advantage of business opportunities and mitigate risk. In the IBM SPSS modeller, there

is a special advances analytics that can aid researchers in finding hidden patterns and trends

in the data (IBM Corporation, 1994). Variables in this paper are taken from FAME business

database and analysed through the IBM SPSS modeller. Furthermore, variables such as total

average productivity, total average wages or total average profitability of foreign HGFs,

domestic HGFS and non-HGFs all calculated by the help of the modeller. In the case of this

research, the total average productivity will specifically be calculated in order to compare

overall productivity of foreign HGFs with UK HGFs and non-HGFs. Two other variables

which are total average wages and profitability of companies in the UK will be also estimated

to show how profitability and wages affect the productivity. The table 3.1 below indicates the

variables definition and formulas.

Variables Definition

Labour productivity Amount of goods and services that

employees produce in a certain amount of

time

Wages Amount of money that employees earned

within certain amount of time

Profitability Profitability is measured with income and

expenses. Sometimes profitability is referred

to return on capital employed ratio that could

determine how firm can generate profits from

the initial capital employed ( comparing the

operating profit to capital employed)

Variables Calculation ( Years 2009-2012)

Average labour productivity Average labour productivity= turnover/ no of

employees

Total average labour productivity Total average labour productivity= Sum of

the total labour productivity of firms in the

UK/ Number of the firms (Count)

Average wages Average wages = wages/no. of employees

18

Total average wages Total average wages =Sum of the total wages

from firms in the UK/ Number of firms

(Count)

Average profitability Average profitability = Return on capital

employed

Total average profitability Total average profitability = Sum of the total

return on capital employed/ Number of firms

(Count)

Table 3.1

All of these variables calculated and analysed to contribute to the awareness of the

productivity between three types firms mentioned in this research. By finding the total

average productivity of firms in the UK along with coefficient correlation on productivity and

other two variables, questions such as which types of firms is the most productive in the UK

or whether wages and profitability have a positive correlation with productivity can be

answered. Theoretical reasons will be mentioned in the data analysis to support the

hypothesis of the paper and give a broader understanding of productivity of HGFs using

inward FDI in the UK.

3.4Research time horizon

Research time frames are divided into two main types which are cross-sectional and

longitudinal research. If the information is gathered at one single specific time, it will be

called as cross-sectional research. In contrast, if the data are collected for extended period of

time, the research will be a longitudinal. High growth firms’ financial data information in the

UK will be mainly used in this research, therefore this paper is based on the secondary

research. All of the information in this paper is from the three year period which is from 2009

to 2012. There are many essential variables in this research which are turnover, return on

capital employees, and number of employees and also wages and salaries are collected

through three years from 2009 to 2012 from FAME database. For this reason, this research is

19

based on longitudinal study because it involves data collection from high growth firm

population for extended period of time.

3.5Data Sources and Sample Profile

Primary and secondary data tend to be the most useful sources in researches. Henrik Toft

Sorensen, Svend Sabroe and Jorn Olsen (1996) claimed that secondary data usually are

collected without a specific research purpose. The secondary data appears to be more

convenient to collect for researchers than primary data due to the fact that they have already

existed and therefore, it is researchers do not have to spend as much time with the secondary

data as with primary data. Henrik Toft Sorensen and et.al (1996) also suggested that the cost

of the research is much lower than primary data. Furthermore, secondary research also helps

researchers to easily generate and compare data sets. Besides, there are some disadvantages

that secondary data can cause to the researchers such as the low control of the selection,

quality and methods of collection (Henrik Toft Sorensen and et.al, 1996). In some occasions,

secondary data are also extremely hard for researchers to certify the validation. Nevertheless,

in this paper, the secondary data will be used instead of primary data due to the necessity of

using the historical statistical data. For this research, the information of various high growth

firms in the UK have been collected from firm’s website, financial and business databases ,

annual reports and journals.

The data in this paper are collected through the electronic business database called Fame.

Fame is known for having data of financial strength indicators, detailed corporate structures,

shareholders and subsidiaries information, industry research, business and company related

news as well as containing data on 7.5 million British and Irish companies (Jordans, 2014).

The database contains up to 10 years of detailed financial history depending on the company

and covers small, medium and large firms with a turnover of more than £150,000; recently

formed companies and firms where financial information is not available (Jordans, 2014).

Fame business database has been compiled by Jordans and distributed by Bureau Van Dijk

taken form Fame business database that includes a great deal of vital data regarding to high

growth firms and non- high growth firms information. Fame database contains of important

variables that can generate figures, which are suitable for processing coefficient correlation.

20

3.6 Data Analysis

Scattered diagrams and tables will be shown in the data analysis section based on the

information and figures of total average of the three variables mentioned above to show the

variance of productivity between foreign HGFs, UK HGFs and non-HGFs during period

2009 to 2012. Figures that analysed through IBM SPSS modeller will be taken to excel and

put in scattered diagrams to show the difference between variables of the three different types

of firms in the UK. This will ultimately help the research analyse more effectively the labour

productivity of foreign HGFs and given a better understanding for the first hypothesis of the

paper. Then, the total average wages and total average profitability will be analysed to further

understand the correlation between wages and productivity as well as profitability and

productivity of domestic HGFs, non-HGFs and especially foreign HGFs in the UK. In other

words, the main method used in this research is coefficient correlation that could help

identify the statistical relationship between productivity and the other two variables. Results

from the coefficient correlation showing the linear relationships between variables analysed

to explain the outcomes from assumptions. Verifying the relationships of variables through

coefficient correlation is one of the key aspects of the paper and it helps to explain the second

hypothesis of the research.

3.7 Ethical consideration and limitations

In general, research based on secondary data does not have a great deal of ethical issues since

most of the data used for the research has already been published. In this case, all of the data

that were undertaken in this research have been published by related companies in the UK.

Nevertheless, different companies have different policies regarding data transparency. The

greater the sensitivity the information contains, the greater the responsibility the companies

will have in order to protect the researchers and their own organisation. In this research, there

were some missing variables in the data that are purposely not given by some high growth

companies and non-HGF enterprises due to ethical consideration. Protecting the researchers

from unwanted problems and causes are considered to be the main purpose of this act from

those companies.

21

At the same time, there are also certain limitations within the research that could be pointed

out. For instance, this paper is limited to the depth of data. Even though figures and

information of variables were taken from a trusted business database-FAME, some

information from companies listed in the database is not given. Some enterprises do not

provide detail of the country isocode, resulting in the lack of information regarding where the

country firms is originally from. Correspondingly, some companies decide not to show

information of the number of employees, wages or return on capital employed. As a result,

only companies with full and related information that satisfies the needs of the research are

used and analysed.

4. Data Analysis

Main Hypothesis:

Hypothesis 1: HGFs in general achieve higher labour productivity than non-HGFs in the UK.

Based on previous findings by Alam and et.al (2008), “foreign-owned firms tend to show

higher productivity growth than domestic private firms”. It is therefore likely that foreign

HGFs are more productive than all non HGFs and also domestic HGFs in the UK.

Secondary Hypothesis:

There might be a positive relationship between average labour productivity and mean wages

and profitability of firms in the UK. Hence, foreign HGFs with higher labour productivity

will gain greater mean wages and profitability than domestic HGFs and especially non –

HGFs in the UK.

4.1.1 The average Labour productivity of HGFs and Non-HGFs in the UK

22

2009 2010 2011 201260

80

100

120

140

160

Mean productivity of HGFs vs Non-HGFs in UKO

utpu

t per

em

ploy

ed p

erso

n (£

1000

)

Table 1.a

Years HGFs Non-HGFs All Firms

2009-2010 -1.70% 3.99% 3.74%

2010-2011 3.70% -0.34% -0.17%

2011-2012 -47.36% -1.50% -3.50%

Figure A: Fluctuation of the productivity of HGFs, non-HGFs and all firms in the UK from 2009 to 2012

The table 1.a shows the average productivity of HGFs and Non-HGFs in the UK and figure A

indicates the growth and decline of the labour productivity throughout three year period from

2009 to 2012.

From the table, it can be seen that the mean productivity of HGFs is slightly greater than the

mean productivity of non-HGFs in year 2009 and 2011. Nevertheless, in general the mean

labour productivity of non-HGFs is more stable than the average labour productivity of

foreign HGFs. Figure A clearly shows that during 2009-2010 when the mean labour

productivity of all firms increased by 3.74% and the non-HGFs’ by 3.99%, the average

labour productivity of HGFs decreased by 1.70%. Furthermore, HGFs gained the mean

labour productivity by 3.70% during the period 2010-2011 despite that all firms in the UK

and non- HGFs suffered a decline in labour productivity by a relatively low percentage of

23

0.17% and by 0.34% correspondingly. Comparing with non-HGFs labour productivity, it can

be noticed that the average productivity of non-HGFs is much more constant throughout

these three years than HGFs .

One crucial evidence from Figure A is that the major decrease in average labour productivity

of HGFs in 2012 when it dropped by 47.36%, while at the same time labour productivity of

non-HGFs only dropped by 1.50%. This might point out that if it is the pattern for all the

companies then it is likely that there must be an external economic factor affecting all the

enterprises in the UK. It will be further analysed in the discussion chapter. Another vital

factor shown in table 1.a is the mean of labour productivity from all firms in the UK. From

2009 to 2012, the mean labour productivity of all firms varies between the ranges from

142.62 to 148.04 which are similar to the range of non-HGFs average labour productivity

while the mean labour productivity of HGFs fluctuated extensively between 80.18 to 152.32.

Therefore, it is likely that when it comes to labour productivity, non-HGFs show a much

more consistent pattern with all firms in the UK compared to foreign HGFs. Overall, the

average labour productivity of HGFs is unstable and has proven to be much more

unpredictable than the mean labour productivity of non-HGFs and all firms in general.

4.1.2 The average labour productivity of foreign HGFs and non-HGFs in the UK

2009 2010 2011 201240.00

90.00

140.00

190.00

240.00

290.00

Mean productivity of Foreign HGFs vs Non-HGFs

Out

put p

er e

mpl

oyee

em

ploy

ed

24

Table 1.b

Years Foreign HGFs Non-HGFs

2009-2010 39.61% 3.99%

2010-2011 21.91% -0.34%

2011-2012 -65.98% -1.51%

Figure B: Fluctuation of the productivity of Foreign HGFs , Non-HGFs in the UK from 2009 to 2012

Table 1.b compares the mean productivity of foreign HGFs with non-HGFs in the UK from

2009 to 2012. From the figures above, it can be spotted that the foreign HGFs had a

significant growth in average labour productivity from 2009 to 2011. It was able to increase

by 39.61% from 2009 to 2010 and by 21.91% in the following year. However, in 2012,

foreign HGFs had gone through a dramatic decline in mean labour productivity when it

experienced a drop by 65.98% since 2011. As also mentioned in the previous section 4.1.1,

the average productivity of HGFs in general and foreign HGFs in more specifically tends to

be unstable throughout these three years period. Although non-HGFs also experienced a

slight reduction in mean labour productivity in 2012, the decline from the average labour

productivity of foreign HGFs showed out more clearly the fact that there could be an

external factors that affect the whole labour productivity efficiency in that specific year.

4.1.3 The average labour productivity of foreign HGFs and domestic HGFs in the UK.

25

2009 2010 2011 201240.00

110.00

180.00

250.00

Mean productivity of Foreign HGFs vs Domestic HGFs in UK

Out

put p

er e

mpl

oyed

per

son

Table 1.c

Years Foreign HGFs Domestic HGFs HGFs

2009-2010 39.61% -20.79% -1.70%

2010-2011 21.91% -11.12% 3.70%

2011-2012 -65.98% -26.55% -47.36%

Figure C: Fluctuation of the productivity of Foreign HGFs, Domestic HGFs and HGFs in the UK from 2009

to 2012

An equally vital aspect in terms of labour productivity in the UK is the average labour

productivity among HGFs itself. Hence, table 1.c was created to show the output per

employed person during the three continuous year period starting from 2009 to 2012 for both

foreign HGFs and domestic HGFs and there are three points that should be taken into

account.

Firstly, an interesting point that could be pointed out from Figure C is the reduction in labour

productivity from domestic HGFs from all three years. The average labour productivity of

UK HGFs went down by 20.79% in the first year to 11.12% from 2010 to 2011 and in the last

year it experienced a decrease of 26.55%. Each of this evidence implies that if the current

situation carries on for a several years, domestic HGFs might deal with a great deal of

financial issues.

26

Secondly, throughout these three year period, foreign HGFs had managed to boost up their

average labour productivity notably by 39.61 % from 2009 to 2010 and by 21.91% from 2010

to 2011 until the last year when the average labour productivity lessened substantially by

65.98%. Nevertheless, domestic HGFs and all HGFs in the UK also experienced a significant

diminishment by 26.55 % and 47.36 % relatively though it is still much less than the

percentage for foreign HGFs. Hence, 2012 could be considered a dreadful year for both

foreign HGFs and domestic HGFs in term of labour productivity performance. This will be

futher explained in the discussion chapter.

Last but not least, comparing with the mean labour productivity of all HGFs in the UK, the

average labour productivity of foreign HGFs throughout these three years is exclusively

higher while the domestic HGFs’ is constantly much lower. On the whole, foreign HGFs

showed that it often achieved the highest labour productivity among domestic HGFs and non-

HGFs in the UK.

4.2.1 The average annual wages of foreign HGFs, domestic HGFs and non-HGFs in the

UK.

2009 2010 2011 20120.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

Annual average wages of Foreign HGFs , Domestic HGFs and Non-HGFs in UK

Tota

l wag

es p

er n

umbe

r of w

orke

rs( 1

000£

)

Table 2.a

Years Foreign HGFs Domestic HGFs Non-HGFs

2009-2010 7.61% -3.67% 7.73%

27

2010-2011 28.72% -6.03% 2.31%

2011-2012 -29.31% -4.30% -2.88%

Figure D: Fluctuation of the wages of Foreign HGFs, Domestic HGFs and Non-HGFs in the UK from 2009 to

2012

The main indication of the table 2.a is to show the annual average wages of foreign HGFs,

domestic HGFs and also non-HGFs in the UK from the period 2009 to 2012. It seems that

between 2009 to 2011 foreign HGFs do not only gain the highest average labour productivity

among all the three types of firms in this research but it also has the greatest mean average

wages. The total wages per number of employees of foreign HGFs slowly increased by

7.61% in 2009 to 2010 and by 28.72% in 2010 to 2011. Meanwhile, during these two year

period the average mean wages of domestic HGFs just varied between 30.19 to 33.35 and

non-HGFs only to 32.72 to 36.06 units. Evidently, this leads to the point that the total wages

per number of employees do not alter much throughout these years. Yet the same situation

occurred in 2012 when there was a huge drop of average wages from foreign HGFs and other

firms in general. At that time when foreign HGFs experienced a dramatic diminishment by

29.31% of the average wages, the domestic HGFs as well as non-HGFs have only gone

through a slight decrease of only 4.30 and 2.88 relatively. From the figures and explanation

given about the labour productivity in section 4.1.1 to 4.1.3, it is likely that there might be a

positive correlation between the high productivity and wages of foreign HGFs

4.2.2 The average annual profitability of foreign HGFs, domestic HGFs and non-HGFs

in the UK.

28

2009 2010 2011 20120

5

10

15

20

25

30

35

40

Annual Profitability of Foreign HGFs, Domestic HGFs and Non-HGFs

Retu

rn o

n ca

pita

l em

ploy

ed (%

)

Table 2.b

Years Foreign HGFs Domestic HGFs Non-HGFs

2009-2010 -31.96% -66.08% 14.70%

2010-2011 -77.32% 90.16% -1.12%

2011-2012 -30.68% -51.32% -9.84%

Figure E: Fluctuation of the profitability of Foreign HGFs, Domestic HGFs and Non-HGFs in the UK from

2009 to 2012

The table 2.b above shows the annual profitability of foreign HGFs, domestic HGFs as well

as non-HGFs in the UK from 2009 to 2012. In 2009 and 2010, the average profitability of

foreign HGFs had reached 33.92 and 23.08 correspondingly which are the highest amount

among three types of firms. Nevertheless, from 2010 to 2011 and 2011 to 2012, foreign

HGFs received the highest decrease in profitability. The figure E showed that the average

profitability of foreign HGFs went down by 77.32% and also 30.86 % in those two periods

while domestic HGFs rose by 90.16% from 2010 to 2011 and shrink by 51.32% in the next

period. Even though through the three year period non-HGFs achieved the lowest mean

profitability compared to other two types of firms, their average profitability is identified to

be the most constant one. The highest amount of average profitability non-HGFs reached was

13.7 in 2011 and the lowest amount of the mean profitability they attained was 11.98 in 2010

over the three year period. To sum up, though both foreign HGFs and domestic HGFs in the

29

UK gained higher average profitability than non-HGFs over three years, their mean

profitability had a significant sign of decreasing in the last two year period while non–HGFs’

mean profitability was much more stable in overall.

4.3. The correlation between wages and productivity as well as profitability and

productivity of foreign HGFs, domestic HGFs and non–HGFs.

In this section, there will be the examination of the linear correlation between two variables

which are productivity and wages and also between productivity and profitability of foreign

HGFs, domestic HGFs and non-HGFs. Before analysing the variables, it is crucial to

understand the term correlation coefficient .The Pearson correlation coefficient stated that the

value of the correlation varies between 1 to -1. If one variable becomes bigger and at the

same time the second variable also grow then it means that there is a positive correlation

between the two variables. In contrast, a negative linear correlation is defined as one variable

becomes greater, the second variable gets smaller. In addition, the strongest linear

relationship is either the correlation coefficient of 1 or the correlation coefficient of -1.

4.3.1 Foreign HGFs

Foreign HGFs Productivity

Productivity 1

Wages 0.854088112

Profitability -0.035052025

Table F: Coefficient correlation between labour productivity and wages as well as profitability of

Foreign HGFs

30

50 100 150 200 250 3000

1020304050607080

Correlation between average Wages and Labour Productivity of Foreign HGFs

Labour Productivity

Wag

es

50 100 150 200 250 3000

10

20

30

40

50

Correlation between Profitability and Labour Pro-ductivity of Foreign HGFs

Labour Productivity

Profi

tabi

lity

Diagram F

The scattered diagram F shows the correlation matrix. Based on all the plots on the diagram

above, which shows the correlation between productivity and wages, there is a positive

correlation between these two variables. Table F clearly indicates that the value of correlation

coefficient is 0.854088112 which means that there is a strong linear relationship between

average labour productivity and wages. Meanwhile, it seems that there is a negative

correlation between average profitability and labour productivity of foreign HGFs. The

correlation coefficient between these two valuable is -0.035052025 which also means that it

is extremely close to value 0. In other words, there is an exceptionally weak relationship

between the average profitability and labour productivity.

4.3.2 Domestic HGFs

31

Domestic HGFs Productivity

Productivity 1

Wages 0.973333939

Profitability 0.783631516

Table G: Coefficient correlation between labour productivity and wages as well as profitability of

Domestic HGFs

70 80 90 100 110 120 130 140 1502628303234

Correlation between average wages and labour productivity of domestic HGFs

Productivity

Wag

es

70 80 90 100 110 120 130 140 15005

10152025

Correlation between average profitability and labour pro-ductivity of domestic HGFs

Labour productivity

Profi

tabi

lity

Diagram G

Similarly, it is vital to identify the linear relationship between average wages and labour

productivity as well as mean profitability and labour productivity of domestic HGFs. Looking

into table G, it can be noticed that the value of correlation coefficient between average labour

32

productivity and wages is 0.973333939 along with mean labour productivity and profitability

of 0.783631516. These values indicate that there is strong linear relationship in both cases,

particularly between the average labour productivity and wages of domestic HGFs. In

addition, it nearly reaches the value of correlation coefficient +1 which is the strongest linear

relationship. Through the scattered diagram, it can be seen that as the average labour

productivity rises, the mean wages and also profitability go up. Hence, both wages and

profitability variables suggest that an increase of the average wages and profitability will

contribute to the mean labour productivity of domestic HGFs in the UK.

4.3.3 Non-HGFs

Non-HGFs Productivity

Productivity 1

Wages 0.919107866

Profitability 0.935290414

Table H: Coefficient correlation between labour productivity and wages as well as profitability of

non-HGFs

142 143 144 145 146 147 148 14931323334353637

Correlation between average wages and labour productivity of Non-HGFs

Labour productivity

Wag

es

33

142 143 144 145 146 147 148 14911

11.512

12.513

13.514

Correlation between average profitability and labour productivity of Non-HGFs

Labour productivity

Profi

tabi

lity

Diagram H

By the same approach with the last two sections, the correlation between non-HGFs average

labour productivity and two other variables will be analysed. The value of correlation

coefficient between mean labour productivity and wages and between average labour

productivity and profitability are 0.919107866 and 0.935290414 relatively. Both of these

figures show that there is significantly strong relationship between mean wages and labour

productivity and average profitability and labour productivity. This proves that average

wages and profitability can generate a positive impact towards the mean labour productivity

efficiency of non-HGFs.

1.1 Research Objectives.

1) The aim of this paper is to examine the labour productivity of foreign HGFs with the labour productivity of domestic HGFs and non-HGFs in the UK from 2009 to 2012. With the advantageous characteristics of HGFs and their current increase in numbers in the UK that could have a positive impact toward UK economy, this paper will investigate whether HGFs in general and foreign HGFs in particularly, could gain high labour productivity over the three year period.

2) After determining the labour productivity of those three types of companies in the UK, two other variables which are wages and profitability of a firm will be analyzed in order to clarify the relationship between labour productivity and these two variables. By identifying, the correlation between labour productivity with wages and profitability, the paper will point out whether foreign HGFs with high labour productivity can have higher level of wages and also profitability than domestic HGFs and non-HGFs in the UK.

34

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