Maximising the benefits of inward investment - how best to target limited funds

Lead Research Organisation: Aston University
Department Name: Aston Business School

Abstract

This project is based around a set of key users. These users have committed significant resources in terms of time and staffing to the project, recognising the importance of this project for their wider objectives.
The first main users are Marketing Birmingham, who are charged with formulating an inward investment strategy for the Greater Birmingham & Solihull LEP, and Birmingham City Council directly through collaboration with their spending review. In addition, there are users who are location consultants, and who operate as conduits between national policy, the local economy, and the important transition economies of the world. All users have effectively asked the same question: "In a world with much smaller subsidies available to attract inward investment, what can local or national policy makers do, not just to attract inward investment, but to maximise the benefits of this spend for the local / national economy".
The applicants have carried out a number of projects that feed into this, including an ESRC funded project on "Who really gains from inward investment", a study for the Manchester Independent Economic Review (MIER) on domestic and foreign investment, an ESRC project on FDI to / from transition countries, and OECD project on the location of hi tech firms, and some detailed analysis of the local region as part of the Regional Economic Strategy Review for Advantage West Midlands.
In addition, the applicants have carried out a number of projects for various government departments, including reviews of schemes run by UKTI designed to boost R&D spend by inward investment, and reviews of Regional Selective Assistance for DTI / BIS.
The origins of this project are then in the questions that the main users - Marketing Birmingham working through the LEP, and Birmingham City Council contributing directly- put to the principal applicant as part of their developing role overseeing the strategic inward investment function for the Greater Birmingham / Solihull LEP. The three questions that we have been asked to address are :
1. The different drivers for countries like India and China investing and what are the barriers to entry e.g. finance, skills, visibility of information
2. To further understand who gains from inward investment in both business and social contexts. This is from both the point of view of the inward investor and that of the host locality e.g. we gain economic and social improvements coming from investor ethos's in training/skill development, and the investor gains manufacturing know how, R&D and new product development, process improvement etc.
3. What existing investors see as the positives of FDI (e.g. availability of skills base, supply chain, target markets, support available) and what lessons could be learnt
This involve extensive primary research, but rather working with the users to facilitate better understanding on the patterns of inward investment, what attracts inward investors to a given locality, and what can be achieved to attract inward investment with a relatively small budget. This will involve a small amount of work mapping the theoretical and conceptual constructs developed in our research, with the more general findings from our projects, and the particular features of the Birmingham / West Midlands economy. However, because Marketing Birmingham are also in the position of advising other LEPs on their inward investment strategy, much of the work will be kept general, focussing on knowledge transfer, and links between existing academic work and the problems faced by such agencies in general, rather than the specific problems faced solely in the west midlands. This project seeks to help economic development professionals become more au fait with the current academic debates and empirical evidence, rather than conduct an indepth analysis of the local economy. The applicants are ideally placed to do this, having worked in this area for a long time at a number of levels.

Planned Impact

The chief impact of this study will be a greater understanding of the benefits of inward investment, and how these benefits relate to the wider features of the local economy. While the focus of this will be in the greater Birmingham region, the impacts will translate to the other parts of the greater Birmingham LEP, and through the work of Business Birmingham to their clients in other parts of the UK.
The primary beneficiaries of the project will be policy makers within the Greater Birmingham and Solihull LEP, and within Birmingham City Council, who are seeking to better target both funding and marketing activity related to the attraction of inward investment for two purposes:
1. To attract firms who will generate the greatest returns in terms of additionality.
2. To identify sectors that will both attract inward investment, and gain the most from it.
The main users play not only a key role in the project, but have a pivotal role in impact. Not only are they responsible for policy formulation in what is currently the largest single LEP in the country, but they are also advising others. The main impact will be for the project to answer the questions posed by the users, it will also inform the discussions within stakeholders such as newly created Local Enterprise Partnerships (LEPs) about likely gains from greater exposure to inward investment from emerging countries. This will build on our findings from RES-062-23-0986 on outward FDI from emerging countries (published in Journal of International Business Studies) on what motivates such firms to engage in FDI, and how potential investors can be identified. Specifically, we envisage the following:
(1) Business Birmingham undertake the inward investment role for the Greater Birmingham LEP. However, Driffield is a member of the Economic Strategy Board of the greater Birmingham LEP, so the impact will therefore be an analysis of what motivates firms to invest in the region, and how this investment can be leveraged to generate greater benefits.
(2) Birmingham City Council: As part of their Total Place activities (http://www.bebirmingham.org.uk) Birmingham City Council need to much better target public expenditure, and to focus activity on that with the greatest impact. This involves not only an analysis of individual returns to certain activities, but also how the impacts of these activities relate to each other. A feature of this is the collaboration between the two main users on the issues around inward investment, and their interest in this project for providing the answers.
(3) Economic Development Units of Councils: The LEP economic strategy board is comprised of the heads of economic development of the constituent local councils. As such, the results will feed down to micro users, as well as to national users.

(4) BIS and UKTI: The research output would feed into the policy debates at BIS (about reigniting growth in the UK) and the UKTI (about greater trade with and attracting investment from) the BRICS countries (and large emerging markets in general). Bhaumik has worked closely with BIS on productivity growth over business cycles, and BIS has, in the past, supported his research proposals to funding agencies. Bhaumik and Driffield have also worked with UKTI on the number of projects, including one on internationalisation and firm growth in the UK. They would, therefore, be able to engage BIS and UKTI policy makers by way of workshops, seminars and policy notes.
(5) International organisations: Driffield will leverage his professional relationship with the OECD and UNCTAD to inform the international debate about the growing global economic role of the BRICS countries.
(6) Academic Community: Aston will host the 2013 annual conference of the Association of International Business (UK & Ireland), and the project can therefore partly influence the theme of the conference, and engage the academic community through appropriate special sessions.

Publications

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Nigel Driffield (Author) (2012) Outward FDI from the United Kingdom and its policy context in Columbia FDI Profiles

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Nigel Driffield (Author) (2012) Inward FDI in the United Kingdom and its policy context in Columbia FDI Profiles

 
Description These are summarised in the two attached reports, which can also be understood by a non specialist audience.
. This addresses the issue in terms of firm and sector performance, measured not merely in terms of inward investment attraction, but exporting performance, outward FDI and innovation, as indicators of the ability of sectors to assimilate new technology.
It is also important to distinguish the motives for firms entering a given location, and the Aston report highlights the sectors which are attractive for "technology sourcing" FDI, that is those sectors that are attractive for inward investment in terms of accessing the leading technology that exists locally. This then contrasts with those sectors that attract FDI from firms seeking to exploit their technological advantage over local firms.
This distinction becomes important in terms of the likely effects of inward investment, comparing for example the types of employment that are generated and the productivity growth it is likely to generate.
Exploitation Route the same approach can be applied to other LEPS and city regions
Sectors Energy,Financial Services, and Management Consultancy,Government, Democracy and Justice,Manufacturing, including Industrial Biotechology

URL http://centreofenterprise.com/s/
 
Description the development of the SEP and its update This work is still ongoing, leading to further impact, though of course this is no longer covered by the ESRC award
First Year Of Impact 2014
Sector Financial Services, and Management Consultancy,Government, Democracy and Justice
Impact Types Economic

 
Description Sectors offering most potential to explore international market 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Regional
Primary Audience Policymakers/politicians
Results and Impact Presentation to the LEP Board and wider steering group, including MPs MEPs and members of the House of Lords

The following findings and outputs have had economic and societal impact:

• Maximizing the benefits from inward foreign direct investment (FDI) into Birmingham and the West Midlands (BWM) area (interim report for the main user)
• Flows of FDI into Birmingham and the West Midlands (BWM) area
• 2003-2011 (Presentation to main User, Chair and Deputy Chair of the LEP, Lord Heseltine and his team, at the start of the start of the Greater Birmingham Project)
• Which sectors in the Birmingham area offer most potential to exploit global market opportunities? (Briefing note for the Greater Birmingham project)
• Overview of the current picture: Birmingham in Global Markets (More detailed analysis underpinning the briefing note)
Year(s) Of Engagement Activity 2013