This report challenges the myth that foreign investment is hollowing out the UK’s economy, and highlights its importance to employment and innovation.
- Foreign-owned firms in the UK went from employing 11% of the UK’s workforce in 1997 to 19% in 2010.
- In 2010, foreign-owned firms employed 1.6 million more people in the UK than they did in 1997, while UK-owned firms employed 0.4 million fewer.
- Foreign-owned businesses are more likely to innovate than similar UK-owned ones (more than 50% of foreign-owned companies developed new products over this period compared to 25% of UK-owned businesses, while 10% of foreign-owned businesses developed new IP compared to 3% of UK-owned ones).
Foreign direct investment (FDI) occurs when overseas businesses invest in the UK, either by acquiring a British company or a stake in one, or by setting up a brand new subsidiary.
The UK has a strong track record in attracting FDI and in benefitting from it. FDI helped turn the ailing British car industry into a productive powerhouse, and the city of London from a sleepy gentleman’s club into the world’s financial nexus.
But in recent years, the role of FDI in the UK’s economy has come under challenge. Critics have argued that FDI, in the form of acquisitions, hollows out the UK's productive capacity.
It is suggested that foreign owners are more likely to shift high-value functions overseas and to neglect UK supply chains, gradually turning their UK subsidiaries and partners into dumband disposable operations.
This report offers a reassessment. In particular, it uses detailed business records data and new surveys to challenge the myth that foreign investment is hollowing out the UK’s economy, and highlights the importance of FDI to employment and innovation.