Foreign Direct Investment in the West Midlands

Sustaining Competitiveness in the West Midlands

Dr Mark CookReader 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 supra-

national • 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)