Why is the UK the TOP Destination for Foreign Direct Investment (FDI) in the European Union - Essay Example

?Why is the UK the TOP destination for Foreign Direct Investment (FDI) in the European Union? In light of this, to What Extent do Government Agencies(Both National and Local) Need to Actively Attract this Investment? Introduction: The United Kingdom remains the one of the most attractive and top destinations in European Union for “Foreign Direct Investment” (Definition of Foreign Direct Investment (FDI) 2010) with almost 728 projects, which are up by 7% than the year of 2009. The United States yet maintains to be the forerunner amongst the investors into the UK alongside Germany, Japan, India and France. The recently published World Investment Report, nowadays by the “UNCTAD” (Green 2011) illustrates that the UK is one of the most favored nations for FDI in European Union and third globally. According to the report published by UNCTAD, the stock of FDI in the United Kingdom is $US 1,086 billion of FDI stock. This report strengthens the position of the UK as one of the most attractive business destinations of the world. Susan Haird, acting CEO of UK Trade & Investment talking about this report said that this report strengthens the attractiveness of UK’s Foreign Direct Investment. Significant potential future Foreign Direct Investment gains are likely from further incorporation, particularly subsequent successful liberalization of services organizations. The long-term FDI cost of withdrawal would be significant. EU Impact on UK FDI: UK has been capable to attract comparatively more FDI than a number of other European financial systems as a consequence of market incorporation. As a percentage of GDP the UK also catch the attentions of more FDI than the United State. UK Trade & Investment has played a significant role in promoting UK as an attractive FDI location to the overseas investors and to come them to the UK for investment. “Worldwide, most FDI is between Organization for Economic Co-operation and Development (OECD) countries. The USA accounts for just under a quarter of global FDI, outward and inward” (Milne 1999). Worldwide, the United Kingdom is the second largest outward depositor and the third largest receiver of inward investment. In the year of1998 and 1999 outward British Foreign Direct Investment was alike in value to outward United State Foreign Direct Investment. The UK, with stretchy labor marketplaces and a tradition of physically powerful incorporation into worldwide FDI flows would be well-placed to catch the attention of an important share of future FDI flows, mainly in high- efficiency knowledge- rigorous businesses. The World Investment Report demonstrates that, the UK has outperformed a declining European marketplace, the share of UK’s FDI stock enlarged “while the overall stock of FDI in Europe declined to $7,614 billion from $7,951 billion” (UK is Europe’s Top Destination for Foreign Direct Inward Investment 2011) in the year of 2009 and that in the European Union fell to $6,890 from $7,296 in the year of 2009. According to the report, 46% of the investors are faithful to the United Kingdom, which helped attracting repeat business. Now, it is very much necessary for the government of UK to focus more on attracting new shareholders from BRICs. Infrastructure and Technology, quality of life and constant financial environment, customs and language are cited as the key characteristics that made the UK more attractive for the investors. “The UK attracted 728 FDI projects in 2010, up 7% on 2009, compared with 562 projects in France and 560 in Germany — whose projects rose by 34%, bolstered by its position as the number one location for Chinese investment.” (Destination UK: Sustaining Success in the New Economy 2011). This denotes that since in the year of 2004, the UK has been chosen as the site of choice for around one in five of every investment announcements crossways Europe. Why UK has been Successful in FDI: FDI brings various advantages to the UK financial system such as rising employment and productivity, inspiring competition, and rising efficiency. In fact London alone secured more FDI projects in the year of 2010 than the any of the European nations, apart from Russia, France and Germany. FDI contributes in excess of ?52 billion each year to the financial system of UK which account for almost 27% of UK financial system. FDI also offered over 500,000 jobs to UK, representing 13% of every job. The UK has exhibited well-built resilience in the face of adversity, pulling in the course of the recessionary years to strengthen its position as the leading base for investment crossways Europe. Whilst trade affairs with India, for instance, are increasing momentum and various amounts of projects coming into the United Kingdom from China, which is the 8th most significant source of FDI projects into Europe, remains disappointing. “With a GDP of US $2,175 billion, the UK is sixth largest economy in the world–and part of the EU, the world’s largest trading entity. Over the past 10 years, GDP growth in the UK has regularly matched or outpaced that of the EU” (UK Economy 2011). Government rules endorse a steady and competitive pound, reliable with price constancy, and a price rises target of 2 %. FDI offers a unique variety of document and data organization products, consultation and solutions in many different market segments. An excess of 50% of employments created in the UK from FDI are from the organizations, which have already founded a base in the UK and are either co-locating or enlarging further investment at an existing position. “UK Trade & Investment (UKTI)” (Exporting for Growth 2011) helps the UK-based organizations to succeed in the worldwide economy. Accordingly, it will also assist overseas organizations in bringing their good quality investment to the UK’s financial system. UKTI provides knowledge and contacts in the course of its widespread network of experts in the UK and British embassies and other ambassadorial offices around the world. China remains still in the higher position in foreign investment in the FDI confidence index of 2010. Following figure shows the position of the FDI in the various countries. “ (Foreign Direct Investment (FDI) Confidence Index 2010). On the whole, developed financial systems rose in the Index as investors looked for security and safety. “The most striking exception is the United Kingdom, whose reliance on financial services left it exposed in the current crisis. At the same time, the placement of China, India and Brazil in the top five shows a strong vote of confidence for the strength of these economies.  Investors also expressed the most optimism about the future outlook for China, India and Brazil” (Foreign Direct Investment (FDI) Confidence Index 2010). There are various factors that finds very useful for investors in investing in the country like United Kingdom. “The report reinforces the UK’s position as one of the most attractive places to do business in the world. The Coalition Government has put attracting and retaining investment at the heart of its plans for sustainable economic growth and today’s figures show that we are on the right path.UK Trade & Investment has played an important role in encouraging overseas investors to come to the UK” (Green 2011). The FDI’s are beneficial to both the guest country and the Host country. The country UK is identified as one of the most prospective and the effective nations for the foreign direct investment. “Some 678 investment projects were attracted to the UK in 2009 – a 1 per cent drop on the previous year but a much better comparative performance than in most rivals. Europe as a whole saw the number of FDI projects fall to 3,303, down from 3,718 in 2008. The largest single investor in the UK was the US, with 243 of projects, followed by France (50), Germany (49) and India (38)” (Grady 2010). The major cities of the country are very much attractive for the investors in the country; London is identified as the most looking-forward-to-invest country, where the investment opportunities are in plenty. “London accounts for 16.4% of total UK gross valued added, somewhat more than its shares of population and employment: 12.2% and 12.4%, respectively. This broad characterization considerably understates the importance of London to the UK economy in a number of sectors” (London and Foreign Direct Inward Investment: Case for London Technical Report 2 n.d.). FDI is much influential in providing the possessions and services to the global marketplace. The invasion of foreign investment not only exhibits the investors’ spirit in the business, but also the political environment prevailing in the host country and such assets also associate with the nation’s economy.  The various factors that are found much attractive to the European Union as a good host are: Capital Availability Competition Regulation Environment Stability Optimistic business climate Openness to foreign trade Capital Availability: FDI consists of capital that an exterior investor is ready to consign inside a local area. Circumstances in the world capital markets and common economic environment take responsibility in shaping the flow of FDI into Europe. A flourishing worldwide economy, investment markets and business environment generate large swaths of investable capital, where a share of them is changed to FDI. “The largest investor in the UK was the United States with 243 projects, followed by France, Germany and India. But there were warnings that businesses and politicians would now have to work hard to secure investment from fast growing emerging markets” (Allen 2010). Competition: Europe is an eye-catching country as a destination for venture capital rest on the expansion of infrastructure, reserve accessibility, efficiency and employees skills, and the improvement of the business value chain. The height of maturation of these fundamentals can make European Union more striking for FDI, relative to further nation. “The United Kingdom bucked the trend in 2004 as one of the few European countries to see a sharp pick-up in inward FDI to USD 78 billion (more than double the levels of 2003). One reason for this was that, unlike for most of continental Europe, an apparent pick-up in large scale mergers and acquisitions including cross-border M&As – affected inward as well as outward flows” (International Investment Perspectives 2005). Regulation Environment: When a nationalized government enact and implement rules and policy intended at supporting state entities at the outflow of privately seized firms, such an environment can be harmful to initiative ones, which aspire to attract FDI. As such, the dogmatic environment can both either encourage or discourage foreign direct investment in Europe. Extreme rigid policies tend to obstruct entrepreneurial and marketable activities, as managers and staff must pay out more time and money to fulfill with rules and set of laws. “The UK has benefited from increased levels of investment in manufacturing, electronics and IT. These investments are increasing being made from cash reserves rather than by borrowing. As such they are more sustainable and less reliant on the world's global stock markets” (UK is Europe’s Top Destination for Foreign Direct Inward Investment 2011, para. 5). Stability: Political and monetary solidity can influence an influx of FDI. Stability represents certainty and the chances for enterprises to add better insight into the outlook. Otherwise, stable social unrest, riot, rebellions are situations, which are not favorable to business. “The findings of Ernst & Young's latest UK attractiveness survey show a 35 percent increase in FDI projects in Scotland compared to 2010, with 69 projects creating over 4000 new jobs” (Scotland Tops Europe for Inward Investment Jobs 2011). Optimistic Business Climate: The most evident aspect of UK is the absolute size of its inhabitants and market, and the forecast for growth that outcome from this size. The capability of enterprises, back by foreign capital, to trade to a considerable local market makes UK an eye-catching location for FDI. Openness to Foreign Trade: Market openness provides numerous key roles in attracting the FDI. The vital significance is a business' capability to advertise its goods and services equally to local and foreign markets. If European-based enterprises have imperfect or no contact to foreign customers - mainly the United States, China, India and others - then the confined market will be insufficient to necessitate an important asset in currency and power. “Crucially, over two thirds of new jobs came from existing investors. This demonstrates that companies investing in the UK are staying, growing and succeeding, stimulating growth across the country” (United Kingdom 2007). Thus from the above based discussion, it gives us a vivid idea of why the FDI investors find Europe as the destiny for the investment. Reference List Allen, Katie. 2010. Britain Top in Europe for Attracting Foreign Investment. The Guardian. [Online] Available at [Accessed 02 December 2011]. Destination UK: Sustaining Success in the New Economy. 2011. Ernst & Young. [Online] Available at [Accessed 02 December 2011]. Definition of Foreign Direct Investment (FDI). 2010. Economy Watch. [Online] Available at [Accessed 02 December 2011]. Exporting for Growth. 2011. UK Trade & Investment. [Online] Available at [Accessed 02 December 2011]. Foreign Direct Investment (FDI) Confidence Index. A. T. Kearney, Inc. [Online] Available at [Accessed 02 December 2011]. Grady, S. 2010. UK Tops EU Foreign Investment League. Business News. The Independent. [Online] Available at [Accessed 02 December 2011]. Green, L. 2011. UK is Europe’s Top Destination for Foreign Direct Inward Investment. UK Trade & Investment. [Online] Available at [Accessed 02 December 2011]. International Investment Perspectives. 2005. Organization for Economic Co-Operation and Development. [Online] Available at [Accessed 02 December 2011]. London and Foreign Direct Inward Investment: Case for London Technical Report 2. n.d. London Development Agency. Mayor of London. [Online] Available at [Accessed 02 December 2011]. Milne, I. 1999. Foreign Direct Investment. Global Britain Briefing Note. [Online] Available at [Accessed 02 December 2011]. Scotland Tops Europe for Inward Investment Jobs. 2011. Scottish Development International. [Online] Available at [Accessed 02 December 2011]. United Kingdom. 2007. Investor Visa Network. [Online] Available at [Accessed 02 December 2011]. UK Economy. UK Trade & Investment. [Online] Available at [Accessed 02 December 2011]. UK is Europe’s Top Destination for Foreign Direct Inward Investment. 2011. Entrepreneur Country. 2011. [Online] Available at [Accessed 02 December 2011]. Read More