MARCH 2004
UNITED KINGDOM & IRELAND SPOTLIGHT
U.K. and Ireland:
The Knowledge Solution
The Knowledge Solution
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ith European Union enlargement fast approaching in May 2004, the region's new dynamic will have serious repercussions for the destination of foreign direct investment.
For the U.K. and Ireland – two of Europe's most successful investment recipients – this has resulted in top-level soul-searching to find out how to compete with the new contenders.
In addition to competition from cheaper EU accession countries, the U.K. and Ireland have seen their inward investment inflows diminish as foreign investors increasingly look to cheaper locations such as China and India.
Barry Bright, the head of Ernst & Young's Location Advisory team, says Ireland and the U.K. had a really good run for many years thanks to their "simplicity of offer" built around flexibility, cost, ease of establishment, language and taxation. But now that the world is a lot more open, investments that would have automatically gone to Europe 10 years ago can locate anywhere in the world.
Early indications from Ernst & Young's European Investment Monitor show that the investment decline overall is continuing, although the U.K. and Ireland are holding their own. In the first six months of 2003 the U.K. received 256 investments, compared with 226 in the same period in 2002. Ireland saw its investments remain steady at 28.
Bright says both the U.K. and Ireland need to shift up another level to compete for a share of the global FDI pie. "At present they both understand the questions and they are now on a journey to obtain the right answers," he says.
The rise of the multi-jurisdictional offshore phenomenon has seen the U.K. and Ireland both lose key service sector investments in the call center industry. With 80 percent of call center costs going toward labor, it's not hard to understand why companies would choose to invest in locations that offer labor costs that are 10 percent cheaper.
But while disinvestments make front-page news, the exodus of transactional call centers to India does not tell the whole story. One of the U.K.'s largest credit card companies has seen customer complaints rocket since moving to India. In January 2004, online shopping concern Shop Direct announced it would be moving call center jobs back to six U.K centers from a 250-worker center it just opened in Bangalore in 2002.
Mike Allen, managing director of call-center research specialist Mitial International, says that U.K. customers are finding poor diction troublesome and that in call centers that require "localized preferences" – where the customer is king – there is a growing backlash against going offshore.
For the U.K. and Ireland – two of Europe's most successful investment recipients – this has resulted in top-level soul-searching to find out how to compete with the new contenders.
In addition to competition from cheaper EU accession countries, the U.K. and Ireland have seen their inward investment inflows diminish as foreign investors increasingly look to cheaper locations such as China and India.
Barry Bright, the head of Ernst & Young's Location Advisory team, says Ireland and the U.K. had a really good run for many years thanks to their "simplicity of offer" built around flexibility, cost, ease of establishment, language and taxation. But now that the world is a lot more open, investments that would have automatically gone to Europe 10 years ago can locate anywhere in the world.
Numbers Still Down,
But Prospects Looking Up
The OECD's foreign direct investment (FDI) figures for 2002 reveal that inflows into the U.K. more than halved that year: from US$62 billion in 2001 to $25 billion. While Ireland registered $19 billion (up from $15.7 billion in 2001), it has seen a 55-percent drop in project-based investments over two years.
But Prospects Looking Up
Early indications from Ernst & Young's European Investment Monitor show that the investment decline overall is continuing, although the U.K. and Ireland are holding their own. In the first six months of 2003 the U.K. received 256 investments, compared with 226 in the same period in 2002. Ireland saw its investments remain steady at 28.
Bright says both the U.K. and Ireland need to shift up another level to compete for a share of the global FDI pie. "At present they both understand the questions and they are now on a journey to obtain the right answers," he says.
Some Significant Investments
Into U.K. and Ireland in 2003 • Abbott Laboratories is pursuing a US$39-million expansion at its biotechnology manufacturing plant in Kent. • Eli Lilly is spending $360 million on manufacturing and R&D investments in the U.K. • Google is establishing a regional headquarters in Dublin, while Intel and Xilinx are further expanding their R&D operations in the city. |
The rise of the multi-jurisdictional offshore phenomenon has seen the U.K. and Ireland both lose key service sector investments in the call center industry. With 80 percent of call center costs going toward labor, it's not hard to understand why companies would choose to invest in locations that offer labor costs that are 10 percent cheaper.
But while disinvestments make front-page news, the exodus of transactional call centers to India does not tell the whole story. One of the U.K.'s largest credit card companies has seen customer complaints rocket since moving to India. In January 2004, online shopping concern Shop Direct announced it would be moving call center jobs back to six U.K centers from a 250-worker center it just opened in Bangalore in 2002.
Mike Allen, managing director of call-center research specialist Mitial International, says that U.K. customers are finding poor diction troublesome and that in call centers that require "localized preferences" – where the customer is king – there is a growing backlash against going offshore.