This report assesses the impact of foreign direct investment (FDI) on the level of innovation among their UK suppliers.

Key findings:

• The impact of FDIs on suppliers was greater than the impact of UK-owned businesses. FDI companies are more likely to have innovated in the past three years than their UK counterparts.
• Overall, the main barriers to suppliers, in terms of innovation and making adjustments, were the cost and availability of finance for innovation, and the risks associated with innovation.
• FDIs can also have an impact on the wider innovation system through their liaison and interactions with other organisations. 

The aim of this Nesta-commissioned research was to provide policy-relevant information on the effect of FDI on the levels of innovation in the supply chain; for example, improvements to R&D practices and skills for innovation. 

A key issue for policymakers is the innovation transmission mechanisms used by FDI and the responsiveness of the suppliers. A related aim of the research was to broadly benchmark the practices of UK-owned businesses against the impacts of FDI.

Authors

PACEC and Nesta