No room for complacency

Transcription

1 Growing Beyond No room for complacency Ernst & Young s 2013 UK attractiveness survey Scotland

2 2013 attractiveness survey Ernst & Young s 2013 UK attractiveness survey Scotland, for foreign direct investors, is based on Ernst & Young s European Investment (FDI) Monitor (EIM). For further information, please visit:

3 I am delighted to introduce Ernst & Young s latest annual study of foreign direct investment (FDI) into Scotland. It confirms that Scotland put in yet another very strong performance in securing FDI in 2012, attracting 49% more projects than in 2011, and achieving the highest number of investments since These figures clearly demonstrate that Scotland is continuing to punch above its weight in the increasingly competitive global market for FDI. It may be no coincidence that Wales and Northern Ireland, also in the first years of their devolved administrations, joined Scotland in producing sharp rises in projects. The news is also good on employment generated by FDI, albeit not quite as good as last year. The admittedly partial employment figures released into the public domain show that Scotland came second among UK regions in the number of jobs generated by FDI, down from first in While this year s report gives much to be positive about, there is no room for complacency. As new FDI locations and sources continue to emerge worldwide, competition is growing by the day and Scotland cannot rest on its laurels. For example, we are still more reliant than the rest of the UK on projects from the UK s long-standing lead investor, the US, but lagging behind in investments from India and China. So while we are performing well, there is always more to do. Jim Bishop Senior Partner, Ernst & Young Scotland Ernst & Young s 2013 UK attractiveness survey Scotland 1

4 Leading the way on FDI projects outside London The figures from Ernst & Young s European Investment Monitor (EIM) on FDI projects into Scotland in 2012 paint a positive picture, suggesting that Scotland is not only maintaining its competitive positioning within the UK in attracting global FDI, but is actively strengthening it. Overall, while challenges remain around FDI, Scotland s performance in 2012 suggests the country is well-prepared to meet them. At a headline level, the number of FDI projects coming into Scotland in 2012 surged by almost half over 2011, with projects from the business services sector leading the advance. While the number of reported jobs from FDI projects in Scotland fell back from 2011 s high-point, the FDI employment figure in 2012 was still Scotland s second-highest in 12 years. The apparent decline in FDI employment may also be more a reflection of patchy reporting by projects rather than any underlying trend. The positive tone is further enhanced by indications of an ongoing rise in Scotland s relative attractiveness for FDI compared to most other areas of the UK. While London remained the clear leader among the UK regions in securing FDI projects in 2012, Scotland attracted the next largest number, as it did in Scotland s rising attractiveness relative to other parts of the UK is underlined by Ernst & Young s research interviews of over 200 international investors, who rank Scotland equal fourth for attractiveness among UK regions, up from eighth last year. as Scotland s proven strengths continue to resonate with global investors All of this adds up to a very encouraging year for Scottish FDI, one in which Scotland s world-renowned strengths in areas ranging from manufacturing to energy to business services have continued to help it punch above its weight. The resulting strong performance signals two main messages for Scotland. The first prefigured in last year s report is that the possibility of independence and its potential knock-on impacts on areas such as corporate taxation appear to be having little effect on FDI decisions. There s certainly no sign of investors being deterred from coming to Scotland; if anything, the reverse appears to be true. The second is that Scotland is increasingly outperforming most of the English regions in the race for FDI. It may be no coincidence that Wales and Northern Ireland in the first year of their devolved administrations also recorded sharp rises in FDI projects in In contrast, most of the English regions outside London saw their project numbers decline, coinciding with the closure of the Regional Development Agencies and the switch to Local Enterprise Partnerships. Against this background, it seems that Scotland s voice as promoted by the proactive efforts of Scottish Development International (SDI) and the Scottish Government is being heard all the more clearly by investors all over the world. Inevitably, there are clouds on the horizon. As new markets open up and global competition for FDI intensifies, winning FDI will continue to get harder for every country, Scotland included. Also, while the UK is still the top FDI destination in Europe, Germany is hard on its heels. And although Scotland is attracting more than its fair share of projects coming into the UK from countries such as France and Norway, it is lagging behind the UK as a whole in securing investments from emerging economies such as India and China. These challenges need to be addressed. But, more positively, Scotland s continued strong showing in the tough and fast-moving global market for FDI suggests it has a strong base to build on in the future whether that future lies within or outside the UK. Projects hit a fifteen-year high According to the EIM for 2012, the recorded number of investment projects coming into Scotland from outside the UK leapt by 49% from their level in 2011, to reach 76 projects during the year. This rise compares to an increase of 3% in projects coming into the UK as a whole over the same period. The sharp increase in Scottish FDI projects in 2012 took the number of projects secured by Scotland to its highest annual level for 15 years, last exceeded in 1997 when Scotland won 88 projects. 2 Ernst & Young s 2013 UK attractiveness survey Scotland

5 Graph 1: Total FDI projects secured by Scotland , and Scottish market share within the UK Graph 2: Total FDI employment secured by Scotland and Scottish market share within the UK Total projects Percentage share Employees Share of UK FDI employment Scotland Scottish share of UK projects Scotland Share of UK FDI employment With growth in Scottish projects far outpacing that seen in the UK as a whole, this sparkling performance in 2012 saw Scotland increase its market share of all UK FDI projects by almost 3.5 percentage points, rising from 7.5% to 10.9%. The only year on record in which Scotland has attracted a higher proportion of UK projects was 2004, when it secured 11.4% of all UK projects. but FDI job numbers slip back Turning to the jobs generated by FDI into Scotland in 2012, it s important to note that less emphasis is generally placed on the EIM employment totals, because the jobs impact is not recorded for every project. In 2012, for example, employment data was only released or available for 44% of all reported projects in Europe. However, the partial numbers do provide a useful guide to the overall trends. The available figures show that despite the rise in total projects the employment recorded in Scotland arising from FDI in 2012 fell back from 2011, a year when Scotland led the UK in terms of FDI-generated jobs. The decline in 2012 saw the number of reported jobs created by FDI projects in Scotland fall by 18% to 4,867. However, this was still the second highest number in the past 12 years, beaten only in The decrease in jobs may reflect Scotland securing smaller projects in 2012, but this cannot be certain. It may simply be that fewer investors were prepared to reveal their employment numbers. The fall in Scottish FDI jobs during the year took place against the backdrop of a modest increase in FDI-generated jobs in the UK as a whole, which edged upwards by 1.4% from As a result, Scotland s market share of UK FDI employment across the UK as a whole fell from 20% in 2011 to 16% in 2012 but remained above the average recorded over the past decade, of 13.7%. Despite the decline in Scottish FDI jobs in 2012, Scotland remained in second place among the UK regions in terms of new FDI-generated employment. It was beaten only by the North West of England, whose total during the year received a one-off boost from 1,500 jobs created by India-based Tata Motors, through its ongoing investment in its Jaguar Land Rover plant at Halewood on Merseyside. Stripping out that one project would leave Scotland still top of the FDI jobs ranking for the year. Ernst & Young s 2013 UK attractiveness survey Scotland 3

6 Graph 3: New FDI employment by UK region, FDI employment Yorkshire East Midlands South West South East Northern Ireland Wales East of England North East West Midlands London Scotland North West In recent years this positioning has been strengthening still further, with Scotland being ranked in the top two regions for FDI in the UK outside London in every year since In 2012 Scotland was the top-ranked region outside London for UK FDI projects secured, a status it also achieved in This ranking appears to reinforce the view that Scotland is improving its competitive position within the UK over time. Sources of FDI: The US retains the lead Graph 4: FDI projects secured by Scotland in 2012, by country of origin India Netherlands Other USA Competitive position: the UK s top region outside London Norway Japan Scotland s robust performance in attracting global FDI in 2012 is further underlined by a comparison with other parts of the UK. London has long been the UK s main recipient of FDI projects, and this remained the case in However, out of the 11 regions of the UK outside London, Scotland has always secured sufficient projects to be in the top five areas since records began in Table 1: Ranking of Scotland by region (excl. London) in securing UK FDI, by year Year Scotland s ranking (excl. London) by number of projects th nd th nd nd nd nd st nd st Germany France Throughout the years that the EIM has been tracking FDI, the US has always been the largest investor into Scotland. Our analysis shows that 2012 was no exception, with the US retaining its position as the largest source of FDI for the Scottish economy, with 41% of all investment projects into Scotland. This was roughly in line with the US s percentage market share of Scottish FDI over the last decade. 4 Ernst & Young s 2013 UK attractiveness survey Scotland

7 Table 2: Leading countries of origin for FDI projects Scotland and entire UK Scotland UK Mkt share % Mkt share % USA USA France 7.76 Germany 6.60 Germany 6.35 France 5.74 Japan 5.47 Japan 5.43 Norway 5.47 India 5.12 Netherlands 3.00 Australia 3.29 Ireland 3.00 Canada 3.26 India 2.82 China 3.20 Sweden 2.47 Ireland 2.62 Canada 2.29 Netherlands 2.50 A closer look shows that, over the past decade, Scotland has been slightly more reliant on US FDI than the UK as a whole, with the US accounting for 41.6% of Scottish projects against 39.4% across the UK. Interestingly, Scotland has also been more successful in securing French, Norwegian and Swedish investment than the UK as a whole. However, Scotland has not kept pace with the rest of the UK in attracting investments from the emerging economies of India and China a trend that suggests more effort might need to be focused on securing projects from these highergrowth sources of FDI. The sectors generating FDI in Scotland Turning to the industries generating FDI projects in Scotland in 2012, the relatively low number of projects recorded per sector means the sector breakdown for any single year is not necessarily a good guide to longer-term trends. However, it s clear that business services put in a strong performance during the year, rising from six projects in 2011 to 15 in This was the highest number of FDI projects for Scotland from any sector in 2012, and accounted for 20% of the overall total. Graph 5: FDI projects secured by sector 2012 Other Scientific Research Plastic & Rubber Pharmaceuticals Oil & Gas Automotive Components Scientific Instruments Food Business Services Machinery & Equipment Chemicals Software Other Transport Services This rise enabled business services to overtake machinery and equipment a sector that led the way in Scottish projects in 2011, and remained second in 2012 with 12 projects, up from eight in While business services is also the sector that generates the most projects for the UK as a whole, and indeed across Europe, the prominence of business services in Scotland is less pronounced than for the UK as a whole. Indeed, in 2011 business services came second to machinery and equipment in terms of project numbers in Scotland, while remaining the top source of projects for the UK overall. Although business services regained the lead in Scotland in 2012, the continued strength of machinery and equipment in second place suggests that manufacturing remains more important to Scotland than the UK as a whole in generating FDI projects. underline Scotland s strength in manufacturing The success of Scottish manufacturing in attracting inward investment projects is also highlighted by a comparison between overall FDI in manufacturing and services. As Graph 6 shows, in 2012 Scotland secured some 31% of its FDI projects from manufacturing, narrowly behind sales and marketing on 32%. Ernst & Young s 2013 UK attractiveness survey Scotland 5

8 Graph 6: 2012 FDI projects into Scotland by activity Headquarters Education & Training Contact Centre Testing & Servicing Sales & Marketing Logistics Manufacturing Research & Development This contrasts sharply with the mix of projects for the UK as a whole, illustrated in Graph 7. As this shows, manufacturing accounted for only 17% of FDI projects across the UK in 2012, less than a third of sales and marketing s share, at 57%. Graph 7: 2012 FDI projects into UK by activity Back Office Headquarters Education & Training Contact Centre Testing & Servicing Sales & Marketing Manufacturing Logistics Research & Development Sectors and factors favouring Scotland An interesting light is cast on the 2012 EIM FDI statistics by the findings from Ernst & Young s 2013 UK Attractiveness Survey, the findings of which are published at the same time. Asked to name the region of the UK that they regarded as the most attractive in which to establish operations, 4% of the 211 non-uk companies interviewed in the study cited Scotland as their first choice. This score was down from 7% in the 2012 survey. However, it s important to note that every other region of the UK apart from London and the South East of England, also saw a decline in their scores, with most falling much more sharply than Scotland. The North East of England, for example, saw its vote slump from 10% to 2%. The underlying pattern was a shift from the regions towards London (perhaps reflecting London s positive global coverage during the Olympics), with Scotland actually holding up relatively well. As a result, Scotland s 4% vote in the 2013 survey brought it an overall ranking of equal fourth in terms of attractiveness among all regions of the UK, up from eighth in the 2012 survey. At first sight, Scotland s 4% vote may look like a small proportion. However, as Graph 8 shows, it puts Scotland well up the overall UK ranking, on a par with Wales and ahead of English regions such as the East Midlands and Yorkshire. Stripping out the combined 62% who chose London or the South East of England, Scotland s preference rating is not far behind next-placed West Midlands at 7%. Graph 8: Which region in the UK do you see as the most attractive to establish operations? London South East of England West Midlands North West of England Scotland South West of England Wales North East of England East Midlands Yorkshire East England Can t say 7% 4% 4% 4% 4% 2% 2% 1% 1% 9% 17% 45% Source: Ernst & Young s 2013 UK Attractiveness Survey 6 Ernst & Young s 2013 UK attractiveness survey Scotland

9 Conclusion: raising our game in a tough global market Overall, the figures quoted in this report from both the EIM and UK Attractiveness Survey confirm that Scotland is continuing to raise its game in an increasingly competitive global, European and UK market for foreign investment. The immediate challenge may be to sustain the outstanding performance delivered in 2012 into future years. However, wider and longer-term challenges also remain, as competitive new locations for FDI open up and existing ones strive to improve their offer. At the same time, ongoing worldwide economic uncertainty and shifts in the global balance of economic power mean no country can afford to be complacent about its ability to attract FDI. Scotland s inherent attractions such as the ease of doing business here and the efforts of bodies such as Scottish Development International helped the country deliver a remarkable FDI performance in But in an increasingly globalised world, a continuing flow of FDI cannot be taken for granted. As FDI projects become ever harder to win, Scotland needs to keep on raising its game and building on its successes to date. Methodology Ernst & Young s 2013 UK attractiveness survey Scotland is based on Ernst & Young s European Investment Monitor (EIM). The real attractiveness of the UK for foreign investors Our evaluation of the reality of FDI in the UK is based on Ernst & Young s EIM. This unique database tracks FDI projects that have resulted in new facilities and the creation of new jobs. By excluding portfolio investments and M&A, it shows the reality of investment in manufacturing or services operations by foreign companies across the continent. The real attractiveness of UK Data is widely available on FDI. An investment in a company is normally included if the foreign investor has more than 10% of its equity and a voice in its management. FDI includes equity capital, reinvested earnings and intra-company loans. But many analysts are more interested in evaluating investment in physical assets, such as plant and equipment, in a foreign country. These figures, rarely recorded by institutional sources, provide invaluable insights as to how inward investment projects are undertaken, in which activities, by whom and, of course, where. To map these real investments carried out in Europe, Ernst & Young created the Ernst & Young EIM in The EIM is leading online information provider tracking inward investment across Europe. This flagship business information tool from Ernst & Young is the most comprehensive source of information on cross-border investment projects and trends throughout Europe. The EIM is a tool frequently used by government and private sector organisations/corporations wishing to identify trends, significant movements in jobs and industries, and business and investment. The Ernst & Young European Investment Monitor, researched and powered by Oxford Intelligence, is a highly detailed source of information on cross-border investment projects and trends in Europe, dating back to The database focuses on investment announcements, the number of new jobs created and, where identifiable, the associated capital investment, thus providing exhaustive data on FDI in Europe. It allows users to monitor trends, movements in jobs and industries, and identify emerging sectors and cluster development. Projects are identified through the daily monitoring and research of more than 10,000 news sources. The research team aims to contact directly 70% of the companies undertaking the investment for direct validation purposes. This process of direct verification with the investing company ensures that real investment data is accurately reflected. The employment figures collected by the research team reflect the number of new jobs created at the start-up date of operations, as communicated by the companies during our follow-up interview. In some cases, the only figures that a company can confirm are the total employment numbers over the life of the project. This is carefully noted so that any subsequent job creation from later phases of the project can be cross checked and to avoid double-counting in later years. The following categories of investment projects are excluded from EIM: M&A or joint ventures (unless these result in new facilities, new jobs created) License agreements Retail and leisure facilities, hotels and real estate investments Utility facilities including telecommunications networks, airports, ports or other fixed infrastructure investments Extraction activities (ores, minerals or fuels) Portfolio investments (i.e., pensions, insurance and financial funds) Factory/production replacement investments (e.g., a new machine replacing an old one, but not creating any new employment) Not-for-profit organisations (e.g., charitable foundations, trade associations, governmental bodies). Ernst & Young s 2013 UK attractiveness survey Scotland 7

10 High-performance teams delivering exceptional results At Ernst & Young, we recognise that when talented and engaged people are brought together into high-performing teams, the results can be exceptional. In sport, as in business, success can be achieved when teamwork and pride take precedence over personal achievement and where individual success is only possible when supported by an equally driven and talented team. Along with meticulous preparation we know that great performance is easier with the right people behind you ensuring you compete at your very best. The Commonwealth Games We are proud to be the Official Professional Advisor to the Glasgow 2014 Commonwealth Games. The Games is a great international sporting spectacle, and we are delighted to play our part in planning for its lasting legacy. The Games will see over 6,500 athletes, officials from 17 sports, and over one million ticket-holders converge on 14 venues and three precincts over 11 days of competition, making it the largest multi-sport event ever to be held in Scotland, and one of the largest in the UK. With competitors from across the diverse Commonwealth nations, it will be an international event watched by over one billion people around the world. The Ryder Cup Ernst & Young s sponsorship of The Ryder Cup reflects our commitment to exceptional performance delivered by highperforming teams and inspirational leaders. Elite golfers mostly perform in individual competitions. The highest-profile exception is The Ryder Cup golf s premier team event, and a highlight in the world sporting calendar. Every two years, the 12 best golfers in the United States compete against their counterparts from Europe for a trophy named after the competition s founder, British businessman Sam Ryder. At The Ryder Cup, the result is not just determined by who has the better golfers. The difference between victory and defeat can come down to who has blended the diverse talents and personalities of 12 elite individuals into the best unit; who has created the highest-performing team. In a very short space of time, and under intense scrutiny, the Team Captain has to choose the players, assess how they interact and work out how best to motivate each individual. And the European Captain faces the added challenge of combining players from different countries with distinct cultures into a coherent team unit. It is a very public, high-profile test of leadership. Ernst & Young is proud to be an official partner of The 2014 Ryder Cup. We look forward to being at the event in Gleneagles, Scotland, to lend support. As Official Professional Advisor, we are working with Glasgow 2014 to tackle the many complex financial, logistical and organisational challenges of staging the Games. We are providing world-class professional services support, including tax advice, internal audit, and advisory services, to help deliver Glasgow 2014 s vision of an outstanding, athlete-centred, sports-focused Commonwealth Games. But the Games are so much more than a great sporting contest. They will have a profound impact on the local economy and society, from new jobs and skills, to whole area regeneration. And they will be an international showcase for the UK s cultural, sporting and business vitality, creating new contacts and conversations across the Commonwealth. As a sponsor, we are excited about the many opportunities to involve our clients, our employees and local communities in the Games experience. 8 Ernst & Young s 2013 UK attractiveness survey Scotland

11 Ernst & Young s 2013 UK attractiveness survey Scotland 9

12 Ernst & Young LLP Assurance Tax Transactions Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit The UK firm Ernst & Young LLP is a limited liability partnership registered in England and Wales with registered number OC and is a member firm of Ernst & Young Global Limited. Ernst & Young LLP, 1 More London Place, London, SE1 2AF. Ernst & Young LLP Published in the UK. All Rights Reserved. In line with Ernst & Young s commitment to minimise its impact on the environment, this document has been printed on paper with a high recycled content. Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Ernst & Young LLP accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material indd (UK) 06/13. Creative Services Group Design. ED None Growing Beyond In these challenging economic times, opportunities still exist for growth. In Growing Beyond, we re exploring how companies can best exploit these opportunities by expanding into new markets, finding new ways to innovate and taking new approaches to talent. You ll gain practical insights into what you need to do to grow. Join the debate at Contacts Mark Gregory Chief Economist, Ernst & Young Tel: mgregory@uk.ey.com Jim Bishop Senior Partner, Ernst & Young Scotland Tel: jbishop@uk.ey.com