A tough year for inward investment in the West Midlands

In 2009/10 there were 84 inward investment successes in the West Midlands and another four knowledge-based investments. These investments created over 1,500 new jobs and safeguarded another 4,300.

Of these 88 successes, Advantage West Midlands were involved with just under half but this assistance helped create over 60% of the new jobs.

Some of these inward investments were high-profile including Kraft’s acquisition of Cadbury in Bournville, Birmingham affecting nearly 3,000 employees at their head office as well many more around the country.

Other investments in the news included the acquisition of Birmingham City Football Club by Far Eastern businessman Carson Yeung’s Grandtop International, the continued expansion of the ex-Longbridge car plant by SAIC of China where a new engine test facility is to be built and the taking on 50 skilled engineers by Indian Tata Group’s Jaguar Land Rover.

Some other notable inward investments included:

  • Expansion of Japanese tool-maker Makita‘s manufacturing facility in Telford, which created 70 jobs
  • Expansion of TK Maxx‘s distribution depot in Newcastle-under-Lyme, Staffordshire, which created 100 jobs
  • FourStar from the Netherlands is to open a new UK headquarters in Birmingham employing over 250 people to provide employment and skills training to the unemployed

Two other investments from the United States also catch the eye. Remotec in Coventry, a subsidiary of Northrup Grumman, expanded its facility designing and manufacturing robotic bomb disposal units.

But it’s the opening of a new computer games design studio in Digbeth, Birmingham by Microsoft-owned Rare Games that’s hoped will give a boost to games design in the Midlands. 90 new games designers will be employed there.

Analysis of West Midland inward investment

Further analysis of the inward investment figures show that, with 88 investments, 2009/10 saw the fewest number of investments in the  West Midlands since 2005/06 when investment numbers were still recovering from the falls in global investment since 2001. This highlights the fact that the global economic crisis began to seriously affect investment decisions.

In fact, global investment inflows fell by 37% in 2009 according to the World Investment Report 2010 (pdf, 13.9mb). Furthermore, it was not only project numbers that fell but job numbers too, with both new jobs and safeguarded jobs less than half the average figure for investments into the West Midlands since 1992.

Chart shows inward investment projects and job numbers into West Midlands 1991-2010

Full size image (png, 26kb) | Data and chart (xls, 33kb)
Source: West Midlands Regional Observatory

Therefore it appears that, not only are overseas investors not investing in the same numbers as they have been, but the associated jobs are also reducing as any penetration into overseas markets is now being done with fewer employees or perhaps through a small sales office or shared service centre rather than build or take over  a new facility outright. A lot of inward investment is now speculative with minimum exposure.

Which countries are investing?

The United States has traditionally been the largest investor into the West Midlands. A third of all investments into the West Midlands since 1991 have been from the US. Again, the US is the top investor but with just 13 out of the 88 investments (15%) this is the lowest proportion since our records began in 1991 (and which peaked at 50% in 1999).

The second highest investor was Germany with 10 investments (see the chart below), then France, Japan and Canada; all countries with a strong history of investing into the West Midlands.

More recently, we’ve seen an increase in investments from Australia and Sweden, partly as a result of increased Advantage West Midlands presence in these markets and partly as a result of representatives presenting attractive investment opportunities through the Bridge to Growth programme.

Chart shows inward investment successes to West Midlands by country of origin over the period 2009 2010

Full size image (png, 26kb) | Data and chart (xls, 182kb)
Source: West Midlands Regional Observatory

Other countries such as India have begun investing heavily in the West Midlands. From virtually no investment at all up to 2003, India is now the 9th highest investing country in the West Midlands since 1991. Also, with the acquisitions of Jaguar Land Rover and Corus Steel, it’s one of the largest employers in the West Midlands.

Is manufacturing investment dead?

If we look at what industries these investments are in we see that exactly half of the 88 inward investment were in manufacturing (see chart below). Over half of these were in two sectors—motor vehicle manufacturing and electrical equipment—showing that manufacturing appears to be thriving in terms of new projects.

Line graph shows trend of inward investment projects for manufacturing and total services between 1991 and 2010

Line graph shows number of new jobs created by inward investment in manufacturing and total services between 1991 and 2010

Data and chart (xls, 33kb)
Source: West Midlands Regional Observatory

However, associated job numbers are not quite as healthy.

Manufacturing, traditionally such an employment-intensive industry, only accounts for a third of new jobs being created whilst banking and finance accounts for over half.

In addition, if we look at the sector which has generated the highest number of investment projects, it’s ‘Computer and related activities’ with 18.

Furthermore, for jobs created we see that motor vehicle and electrical equipment manufacture created over 440 jobs. ‘Computer and related activities’ and ‘Other business activities’ created nearly 800.

Manufacturing is not dead, as the expansions at Remotec, Jaguar Land Rover, Makita and at places such as French-owned Areva in Stafford and SAIC’s MG Rover plant show. However, these are all high technology, high skill facilities and this is where investment in manufacturing in the West Midlands must be directed.

One further chart shows the move away from what is seen as the traditional heavy manufacturing tradition of the West Midlands. The following chart shows inward investment by activity — the type of business actually carried out at the investment location:

Bar graph shows inward investment into the West Midlands by type of activity, the number of new jobs created and the number of safeguarded jobs

Full size image (png, 20kb) | Data and chart (xls, 29kb)
Source: West Midlands Regional Observatory

This shows that, despite half of all inward investment being in the manufacturing sector, only 16 of those 44 investments involved the manufacture of the product.

Other functions such as sales, servicing, headquarters and distribution are also strongly represented with sales being the dominant activity having 31 investments.

So, despite manufacturing appearing strong in the West Midlands, it’s the sales offices and associated servicing of manufactured products on the rise.

This has implications for manufacturing  jobs. As can be seen, even excluding the 3,000 Cadbury employees, manufacturing is still relatively employment-intensive, whilst the associated jobs within sales and servicing sectors are considerably fewer.

The service industry is now, in terms of Gross Value Added (pdf, 721kb), contributing more to the West Midlands’ economy than manufacturing. Since 2005, investment in services has begun to match, and in some years exceed, investment in manufacturing.  This trend is likely to continue.

So, in summary, very difficult global economic conditions reduced inward investment all over the world and falls in projects and jobs in the West Midlands reflect that.

However, 88 investments still represent a relatively strong performance in terms of investment into the UK regions (see chart below).

London and the South East will always be extremely attractive locations to invest and the total numbers of projects (527 into London and 145 into the South East) confirm this — but the West Midlands compares reasonably well with the other regions.

Bar chart shows number of inward investments in each English region over the period 2009 2010

Full size image (png, 12kb) | Data and chart (xls, 29kb)
Source: UKTI Database

2010/11 will also be a difficult year for inward investment but, with the effects of the economic downturn starting to ease for some countries, there are opportunities. The West Midlands needs to be ready to show that it has the skills, the technology, the design expertise and the marketing ability to attract those companies here.

3 Responses

  1. Via twitter @robweaveregen asked “These are comprehensive inward investment figures for the West Midlands. But how does inward investment compare with business start-up re £ per job?”

    Difficult to answer as there are so many strands of funding for inward investment and business start up activity. Much of it national policy, so it’d be very difficult to find out what was spent on inward investment here in the West Midlands as, on top of the inward investment budget that Advantage West Midlands spend, there is the UKTI activity from London, the work of the Consulates overseas, there are private businesses, trade fairs, advocacy work as done by dignitaries, privately employed lead generators in overseas markets. And that’s just for inward investment!

    Business support would probably have three times as many branches including Adeantage West Midlands Enterprise and Innovation work, project spend on regeneration projects, Business Links, growth funds, entrepreneurial activity, business angels, venture capital opportunities, plus the myriad Govt initiatives.

    Without finding out the total of all business start up investment, any figure would be highly subjective.

    Perhaps UKTI or Department for Business Innovation & Skills in London might be able to shed some light??

  2. So basically we have very little evidence…as I thought. Thus the current priority being given to job creation via Inward Investment is at best unproven and at worse dogmatic. It might actually be very effective as a job creation channel…we just don’t know!

    A recent blog post from the Harvard Business Review presents some evidence to support the view that Inward Investment may not necessarily be the way to go: (excerpt and link follows)

    The Secret to Job Growth: Think Small

    With job growth continuing to lag even as the economy picks up, local communities will be tempted to resume “smokestack chasing”—using tax breaks to attract big employers. That’s a misguided approach.

    Our research shows that regional economic growth is highly correlated with the presence of many small, entrepreneurial employers—not a few big ones. In fact, a study of U.S. metro regions showed that cities whose number of “firms per worker” was 10% higher than the average in 1977 experienced 9% faster employment growth between 1977 and 2000.

    Data can be misleading, of course, so it’s reasonable to wonder whether industry structure, tax policy, or some other special circumstance skewed the results. The answer is no: Even adjusting for such variables, the relationship between small firms and job-growth rate stands…

    http://ht.ly/2aJij

    RW: There is unquestionably a need for real investment and appropriate support for small firms and start-ups, now more than ever.

    • Rob

      Regarding your query, you’re right in saying that it’s difficult to establish a cost per job analysis of the various methods of business support, but this is due to quantifying the myriad streams of support that are out there rather than a lack of information on inward investment. We actually have very good information on how many inward investment projects come to the West Midlands (and the UK as a whole) and the associated jobs.

      For instance, since 1991 when our records began the West Midlands has attracted over 1,500 inward investments, and this inward investment has created over 70,000 new jobs and safeguarded over 170,000 more. This is not insubstantial in anyone’s book. The West Midlands has been averaging about 100 projects a year for several years now and about one in 10 people employed are now employed by an overseas business.

      Data shows that these overseas investors are usually the most dynamic and productive businesses, especially those in the high growth areas of IT and business and financial services, which now outnumber manufacturing investments.

      I don’t think any part of the UK now tries to attract ‘smokestack’ industries as you put it. Resources are limited and therefore must be targeted effectively which means looking at high productivity, high growth industries, industries where this country can still excel and compete on the world’s stage in terms of R&D, innovation, design, marketing, new media and high technology processes. We are doing a lot of work to attract just this type of small innovative business you highlight.

      Of course, more work needs to be done to ensure you maximise resources and get more ‘bangs for your buck’ and I agree that the days of the big industrial conglomerate investing millions and employing hundreds if not thousands is an extreme rarity, but it is dangerous to disregard the opportunities presented by larger businesses especially when, as in this region, the biggest 1% of the companies (over 200 employees) account for 30% of all employees and over half the region’s turnover. Furthermore, the largest private employer in the region – Tata Group of India – is a recent and continuing inward investor.

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