Week of June 16, 2003
Snapshot from the Field
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U.S. Tops Europe's 2002 Inward Investment; 'Euro Rule' Doesn't Applyby JACK LYNE, Site Selection Executive Editor of Interactive Publishing
LONDON Inside or outside the Euro zone? Inside or outside the EU?
Significant site selection questions, some industry observers would contend. Perhaps. But they certainly weren't major factors in many of the foreign location projects that came to Europe in 2002, according to Ernst & Young's (www.ey.com) London-based European Investment Monitor.
Overall, the number of inward foreign investments in Europe fell by 4 percent in 2002, EIM's just-released report noted. But the 12 Euro nations (Austria, Belgium, France, Finland, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain,) suffered a bigger drop-off, at 7 percent, than the three non-Euro nations (Denmark, the United Kingdom and Sweden), at 5 percent.
Those statistics fly in the face of what many assumed would be conventional location wisdom in the era of the European Union's common currency. The Euro, the thinking followed, would wield strong location clout by making pricing transparent in key areas like land, leasing, distribution and real estate services. Instead, different concerns are steering many site selections into Europe, explained Barry Bright, who heads up Ernst & Young's London-based Location Advisory Team.
"What we are seeing in inward investment terms," Bright said, "is that the financial benefits of being within the Euro are counter-balanced by concerns over reductions in growth rates - in part due to countries not having control of their own interest rates and exchange rates."
And that trend may accelerate, he added.
"The recent Euro appreciation, if sustained, may exacerbate this issue," said Bright.
To EU or Not? 'Overall Economic
The biggest proportional reductions were in Finland, with a 44 percent project drop, and Finland, with a 33 percent drop. The only EU nation to register an appreciable upswing was Portugal, where 2002 projects jumped by 23 percent.
In stark contrast, projects going into the EU accession countries (Bulgaria, Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Romania, Slovakia and Slovenia) increased by 14 percent last year.
And an even larger 21 percent project increase for 2002 was recorded in the European nations that aren't current EU members and aren't scheduled to join.
The message behind those numbers, Bright explained, is the preeminence of site selection basics. Those basics, he asserted, are transcending the advantages of locating within the European free-trade zone.
"The real message from these figures is that overall economic factors are more important in attracting investment than membership or non-membership in the EU," Bright said. "Having a stable economy with low costs and flexible working practices is the reason why so much investment over the last few years has moved to destinations like the Czech Republic and is picking up in Russia and Turkey."
That observation was buttressed by the performance of non-EU cities like St. Petersburg and Istanbul. Those two cities finished in the top 20 investment destinations for the first time in the 2002 study, E&Y researchers noted.
What's happening in general, Bright explained, is that many corporate site selection radars are now far more broadly focused.
"Over the last few years, companies making inward investment decisions have begun to look even further afield," he said. "Whereas five years ago it was 'why should I invest in China and India?' now it's 'why not?' "
Here's a further look at some of the specifics from EIM's report.
London Top Region, Bosch Top CompanyTop Locations: Greater London was 2002's top region for foreign projects, with a total of 125. (See accompanying top 10 chart.) London was also the No. 1 region in EIM's 2001 report.
Ile-de-France/Paris finished at No. 2, with 64, followed by Spain's Catalonia region, with 61 projects. The 2002 results mark a reversal of the two regions' 2001 rankings.
The No. 4 region, southern Frances's Rhone-Alpes, made one of 2002's biggest jumps. With 41 projects, the region catapulted all the way from its No. 21 finish in 2001, when it had 19 projects.
The top 10's biggest jump, though, came from the Czech Republic's Severoceska region. Part of the upswing for EU accession nations, Severoceska finished with 26 projects, tying North Holland/Amsterdam for the No. 10 region. In 2001, Severoceska's 13 projects ranked only No. 32 among European regions for foreign inward investment.
Western Europe, however, retained the top national spots for foreign projects. The UK was far and away the leader, with 360 inward investments. France finished at a distant No. 2, with 246 projects.
Top Companies: EIM's 2002 report also recorded some significant shakeups in the most active companies in inward European site selection. (See accompanying top 10 chart.) Robert Bosch, for example, finished in a tie for No. 1 with Siemens, each with 11 projects in 2002.
For Siemens, that marked a move up of one notch from its 2001 rank. Siemens' 2002 finish also marked its sixth consecutive year of finishing either No. 1 or No. 2 in EIM's reports.
For Bosch, though, 2002's top-spot tie marked a move all the way from No. 13 in 2001.
Stora Enso Oy, however, recorded 2002's most dramatic increase in activity. The Finnish company's 10 projects last year were good enough to tie for the No. 3 spot with Toyota Motor Corp. By comparison, Stora Enso Oy, which produces paper, packaging boards and wood products, finished No. 57 in EIM's 2001 tally of the most active European foreign investors.
In contrast, Ford Motor Co.'s 2002 European activity dropped substantially. After finishing in the No. 1 position in the study from 1997 to 2001, Ford in 2002 dropped down to No. 7 in a four-way tie (with Continental, Fiat and IBM).
Software, Automotive Top SectorsJob Creation: EIM's 2002 study recorded a substantial drop in job creation. Foreign projects created 242,000 jobs in 2002, a 29 percent falloff from 2001's 340,000 tally.
The number of companies that announced projects, though, remained stable. A total of 1,451 firms announced projects last year, a drop of only nine companies from 2001.
Much of 2002's job-creation drop rests in project size. Last year, only 20 projects involved 1,000 or more jobs, EIM reported. That was almost half of 2001's 36 projects creating at least 1,000 jobs - and an even farther cry from 2000's 45 projects.
Top Sectors: 2002's top five sectors for inward foreign investment were software, automotive, business services, electronics and pharmaceuticals. Software, with 292 total projects, was followed relatively closely by automotive, with 245 projects.
Software finished in the No. 1 spot despite a 10 percent decline from its 2001 total. The UK was the most popular destination for foreign software firms, garnering 36 percent of 2002's projects, 8 percent more than in 2001.
Automotive-sector activity, on the other hand, increased 11 percent from 2001. The UK was also the most-favored national auto-assembly location, with 13 percent of 92 total projects. DaimlerChrysler was the sector's most active company, with eight projects.
The Czech Republic, on the other hand, took first place for auto-component projects, getting 18 percent of 153 projects. Continental was the most active corporate player there, with seven projects.
The telecom sector was one of 2002's segmental laggards. Continuing its downward trend since 2000, telecom recorded only 44 projects, 2 percent of last year's total. That was exactly half the number of telecom projects in 2001.
Manufacturing Top Facility
R&D facilities, by comparison, were far behind with 123 projects, some 6 percent of 2002's total.
U.S. Top Investor, But What Now? Intra-European investment accounted for the most projects, with 49 percent of 2002's total, a 1 percent increase from 2001. Germany was the top intra-European investor, accounting for 13 percent of all projects.
The United States, however, was No. 1 among national investors. U.S. firms accounted for 33 percent of all of last year's projects. U.S. investment into Europe, though, declined by 16 percent in 2002. Japan was a distant third, as Japanese-based firms accounted for 6 percent of 2002's total.
Given the U.S.'s major role in European investment, some are concerned over how U.S. firms will select sites on the continent in the Iraqi war's aftermath. As the EIM report notes, "There have certainly been fears in certain European countries that future U.S. investment decisions might be conditioned, by support or otherwise, by their countries for operations in the Middle East."
But E&Y's Bright thinks that business, not politics, will drive U.S. firms' future European decisions.
"U.S. businessmen are hard-headed when it comes to investment decisions," he said. "I have seen no evidence that they will feel any differently about setting up operations in France or Germany - or, for that matter, in the UK or Spain."
©2003 Conway Data, Inc. All rights reserved. Data is from many sources and is not warranted to be accurate or current.