sectors offering most potential to explore international market aston business school 6 february...
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Sectors offering most potential to explore international market
Aston Business School6 February 2013
Introduction
Industry structure in Birmingham City Region Sectors offering most potential for inward
foreign direct investment Sectors offering most potential for exporting
and outward foreign direct investment
Industry structure in Birmingham City Region
Gross Value Added Job creation
1 Manufacturing industries (14%)Wholesale and retail trade; repair of motor vehicles and motor cycles (17%)
2Wholesale and retail trade; repair of motor vehicles (13%)
Human health and social work activities (13.5%)
3 Human health and social work activities (9%) Manufacturing (11.7%)
4 Education (8%) Education (10.8%)
5 Real estate activities (8%) Construction (7.1%)
Note by share of this industry's GVA in total in BCR by shares of this industry's employee in total in BCRBCR employs around 4.3% of total workforce in England and Wales
Top five sectors
I.Sectors offering most potential for inward foreign direct investment
UK has been one of the best performing countries in terms of attracting inward investment, but the crisis has had a
strong negative impact.
1990 1995 2000 2005 2011-
5 000
10 000
15 000
20 000
25 000
Global FDI inward stock, 1990-2011
Developing countries Other developed countries North America
Other European Countries United Kingdom
US$
Bill
ion
6% 10%
The global crisis severely affected cross-border M&A, while greenfield FDI has become stronger
2003 2004 2005 2006 2007 2008 2009 2010 20110
20
40
60
80
100
120
140
160
180
Cross-border M&As versus greenfield FDI projects in the UK, 2003-2011
Cross-border M&As greenfield FDI project
US$
Bill
ion
17% of global M&A
7% of global M&A
The UK has attracted around 4% of the global Greenfield investments (or 20% of total investments in the European zone)
Greenfield FDI projects in the UK, 2003-2012
2003-2007 2008-2012 2008 2009 2010 2011 2012
Projects (number) 2,887 4,466 858 1,007 911 928 762
% worldwide 5% 5% 7% 6% 6%
Capital investments(£ Billion)
64
121
36
27
16
21
21
% worldwide 3%
4%
5%
3%
4%
Job created (000) 259
361
87
84
67
68
55
Following the financial crisis, the UK has become particularly stronger in attracting Greenfield FDI in the services sector
Greenfield FDI investments in the UK: % of world investments
2003-2007 2008-2011
Total
3 4
Primary 3 4
Manufacturing
2 2
Services 4 6
UK position in attracting inward investment
Issue Importance Key literatureComparison of UK with
EU
Comparison of UK with
emerging markets
Overall position
Market size high Pain and Lansbury (1997); Driffield and Munday (2000) Large economy in EU but not compared with
BRICS
Host sector performance medium Neven and Siotis (1996),
Driffield (2002) Less innovative or productive than some of EU, innovation rates still ahead of Emerging economies
Openness medium De Menil (1999) Possibly the most open economy in the world
Distance medium Brainard (1997); Helpman et al. (2004) Close to but not at the heart of Europe, a long
way from Asia
Infrastructure low Coughlin et al (1991);Fredriksson et al (2003). Issues with transport
Corporate tax rates low Devereux and Griffith (1998);
Bénassy-Quéré et al. (2005) Comparable with developed world, and historically relaxed on tax avoidance
Labour costs high Barrell and Pain (1999); HM Treasury (2003) Low compared with EU12, high compared
with AsiaLabour market flexibility high Dewit et al. (2003);
Haaland and Wooton (2007) Most flexible labour market for any developed economy apart from US
Institutions high Wheeler and Mody (1992); Wei (2000) Very highly regarded legal system and
institutionsIncentives / aftercare medium Driffield (2004);
Birkenshaw (1998) Traditionally strong, current position at a local level unclear
Exchange rate risk low Barrell et al. (2003);
Ekholm (2003) Outside Euro, sterling traditionally safe
Agglomeration / supply linakges
medium Venables (1996); Head et al (1995) Some hollowing out of supply chains in recent
years
Source: Diffield et al (2012) BIS report.
• Historically, the UK has performed well in attracting IFDI, but it has been severely affected by the crisis
• The UK is increasingly facing competition from developing countries– These countries offer better incentives in terms of distance, corporate taxes,
labour cost and labour market flexibility
• Competition from other European countries is not very strong, but the region is likely to be a dwindling share of global FDI flows
• Following the financial crisis, the UK has become stronger in attracting Greenfield FDI in services, particularly Real Estate and Alternative/Renewable energy
• The UK has also become strong in attracting Greenfield FDI in Coal, Oil and Natural Gas
• Being less successful in attracting Greenfield FDI in manufacturing, the country has become strong in textiles and machinery and equipment
Summary: sectors best placed to attract IFDI in the UK
Top five most competitive sectors in attracting greenfield FDI
Top five sectors By number of projects By volume By job creation
United Kingdom1 Software & IT Services Real Estate Real Estate 2 Business Services Alternative/ Renewable energy Food & Tobacco3 Financial Services Coal, oil and Natural Gas Consumer Products4 Textiles Financial Services Business Services5 Communications Hotels & Tourism Software & IT services
Birmingham City Region1 Automotive Components Automotive OEM Automotive Components2 Automotive OEM Automotive Components Automotive OEM
3 Plastic Plastics Industrial Machinery, Equipment & Tools
4 Industrial, Machinery Equipment & Tools
Industrial Machinery, Equipment & Tools Plastics
5 Building & Construction Materials Transportation Real Estate
Greater Manchester Region1 Ceramics & Glass Ceramics & Glass Chemicals2 Transportation Chemicals Automotive Components3 Paper, Printing & Packaging Automotive Components Financial Services 4 Healthcare Paper, Printing & Packaging Pharmaceuticals5 Consumer Products Rubber Healthcare
Motivation for inward investment in BCR: exploit technological superiority access more advanced technologies
2003-2007 2008-2012 -
1
2
3
4
Greenfield investments in the BCR: value of capital investments
Technology sourcing/location advantage Technology sourcing Technology exploiting/location advantage
Technology exploiting
£Bill
ion
New trend in inward investment in BCR
• In line with the national patterns, the flows of greenfield FDI into the BCR increased significantly during the period 2008-2012
• The BVR region has significantly increased its share in the UK’s total Greenfield FDI across a wide range of sectors, however few activities concentrate the bulk of such investments
• Sectors that feature inward investment in the UK have shown transitions from traditional areas of transport, food, tobacco to Construction, Automative, Hotel, Tourism sectors.
• Source country moves from the US and other advanced economies to emerging economies such as India and new sources of United Arab Emirates, Ireland, Australia, and Netherland. The motivations of inward investment also show a transition of efficiency seeking to technology seeking.
• Traditionally, the main motivation for foreign investors to invest in the BCR was to exploit some form of technological superiority, but in most recent years an increasing number of foreign investors are investing with the view of accessing more advanced technologies from the region
Source: Diffield et al (2012) BIS report.
Emerging economies OFDI sector league table
1990 top 10 (in order) 2010 top 10 (in order)
Finance Business activities
Unspecified secondary Finance
Mining, quarrying and petroleum Trade
trade Unspecified secondary
business activities Mining, quarrying and petroleum
Textiles, clothing and leather Transport, storage and communications
Wood and wood products Electrical and electronic equipment
Rubber and plastic products Construction
Transport. storage and communications Unspecified tertiary
Other services Other services
Sectors that BCR is already competitive
• Automotive OEM• Automotive Components• Plastics• Industrial Machinery, Equipment & Tools• Transportation • Real Estates
Sectors that BCR Could be competitive
• Sectors with technological advantage, R&D intensive and innovative, and foreign-invested R&D present– Links between R&D investment, innovation, productivity,
export participation and growth– Regional R&D is relatively low – R&D relatively higher sectors, such as Transport equipment
and Electrical Machinery industries may develop strong potentials
– Some service sectors (Solihull experience)– Sectors that we are on par with EU countries may attract
more investment given the instability of the Euro zone
Sectors in BCR that should be nurtured
• BCR has advantage in sectors Transportation and construction, Construction, Electrical equipment, which are areas where OFDI are increasing
• Gaps of areas that our current industrial profile does not meet the world investment demand.
Global FDI trend
1990 top 10 (in order) 2010 top 10 (in order)
Finance Business activities
Unspecified secondary Finance
Mining, quarrying and petroleum Trade
trade Unspecified secondary
business activities Mining, quarrying and petroleum
Textiles, clothing and leather
Transport, storage and communications
Wood and wood products
Electrical and electronic equipment
Rubber and plastic products Construction
Transport. storage and communications Unspecified tertiary
Other services Other services
II.Sectors offering most potential for export and outward investment
Based on FAME data (2006-2010):Top five sectors Goods Services
Export Volume Export intensity Export Volume Export intensityUnited Kingdom
1 Machinery and Transport Manufacture of basic metals Business management and management consulting
Electricity, gas, steam and air conditioning supply
2 Chemicals Manufacture of electrical equipment Royalties and license fees Repair and installation of machinery and equipment
3 Mineral Fuels Manufacture of motor vehicles, trailers and semi-trailers
Computer and information Water collection, treatment and supply
4 Miscellaneous Manufactures
Manufacture of other non-metallic mineral products
Engineering and technical services
Scientific research and development
5 Manufactured Goods Manufacture of paper and paper products Research and Development Adverting and market research
Birmingham City Region1 Machinery and Transport Manufacture of furniture Computer and information Repair and installation of
machinery and equipment
2 Manufactured Goods Manufacture of paper and paper products Engineering and technical services
Water collection, treatment and supply
3 Miscellaneous Manufactures
Manufacture of fabricated metal products, except machinery and equipment
Communication services Electricity, gas, steam and air conditioning supply
4 Chemicals Manufacture of electrical equipment Research and development Scientific research and development
5 Crude Materials Manufacture of rubber and plastic products
Business management and management consulting
Air transport
Greater Manchester Region1 Chemicals Manufacture of motor vehicles, trailers and
semi-trailersAdvertising and Market Research Real estate activities
2 Machinery and Transport Manufacture of other transport equipment Royalities and license fees Advertising and market research
3 Manufactured Goods Manufacture of rubber and plastic products
Engineering and technical services
Water collection, treatment and supply
4 Crude Materials Manufacture of basic pharmaceutical products and pharmaceutical preparations
Research and development Financial service activities, except insurance and pension funding
5 Miscellaneous Manufactures
Manufacture of leather and related products
Business management and management consulting
Security and investigation activities
Sectors with potential in export
• BCR is competitive already on export in– Machinery and Transport industry, – Crude Materials, – Manufactured Goods among others in the manufacturing sector – Computer and IT, – Engineering and Technical Services, – R&D sector among others in service sectors.
• Links between export, productivity, innovation and economic growth– No region-sector studies– R&D intensive sectors may have potentials:
Transport equipment, Mechanical engineering, Electrical machinery, other manufacturing, Aerospace, and Chemical industries
– Firm size and export– Nature of export
Sectors with potential in export
Outward FDI from BCR
• BCR ranked the 5th in UK in total numbers of OFDI projects
• BCR ranked the 8th in terms of total volume of OFDI projects
• Top five industries in BCR for OFDI1. Automotive Components2. Engines& Turbines3. Rubber4. Industrial Machinery, Equipment & Tools5. Consumer Electronics