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22 February, 2022updated 20 Apr 2022 09:26

Is sector targeting paying off for the UK’s IPAs?

Analysis of the relationship between FDI project wins and investment promotion agencies' target sectors finds a considerable degree of mismatch.

By Viola Caon

What if the UK’s investment promotion agencies (IPAs) are targeting the wrong sectors? Is their sector-targeting strategy producing the goods when it comes to the level of new foreign direct investment (FDI) that they are attracting? These are, quite literally, million-dollar questions.  

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Sector targeting can be a controversial strategy for IPAs, with many in the industry arguing that it does not always work in the region’s best interest when it comes to attracting high levels of FDI and creating jobs for local communities. They argue that this runs the risk of turning away or discouraging investors in non-targeted business areas, and missing out on potentially lucrative opportunities.

Analysis of the UK’s IPAs, at a regional level, reveals how well they are doing at targeting sectors. 

Which UK IPAs hit the target?

Using a listing of UK IPAs, Investment Monitor compared the key sectors targeted by regional IPAs with the number of FDI projects they received in 2019 and 2020 in the corresponding sector, subsector, business function or end industry of operation.  

If a region did not have one sole regional IPA, the team looked at the multiple IPAs that cover that region. The FDI figures were taken from GlobalData’s FDI projects database.   

It is worth noting that quantifying the success of an IPA’s strategy is not a task that can be carried out by simply matching the number of new project wins per sector with the IPA’s targets. Many factors play a role in a foreign investor’s decision to invest in a sector in a certain region that go far beyond whether the local IPA has been targeting that sector. 

Data analysis set against the priority sectors claimed by IPAs can, however, help give a picture of both the most attractive sectors and the extent to which the 36 regional IPAs have been targeting them. 

To do so, the data team has identified the top ten sectors as those that received the highest number of FDI project wins in proportion with how often one of the IPAs mentioned them as a target. 

The chart above shows that software and IT services was the most successful sector – according to this parameter – for FDI attraction in the UK in 2019 and 2020, having received 520 projects wins and appearing 28 times as a target sector across the country’s IPAs. 

This result is certainly not much of a surprise considering the strong tailwind that the IT sector has experienced in recent years, especially after the Covid-19 pandemic.

More interesting is the second place occupied by manufacturing, a sector that has instead experienced more of a headwind over the period analysed and that is certainly navigating unchartered waters at present. 

Life sciences – another industry that has been a strong focus of investors during the pandemic – was as much of a target for regional IPAs as manufacturing (23 times) and came third in the chart, having registered 258 new project wins. 

Is sector targeting proving to be a success?

Matching the top ten sectors for each IPA can give an idea of those agencies that are likely to have concentrated their efforts efficiently. 

Out of the 36 regional IPAs analysed, Lancashire Enterprise Partnership and West of England CA targeted only one of the top ten sectors. 

Oxfordshire LEP targeted two; London and Partners and Cheshire and Warrington targeted three; Invest in Manchester four; and Liverpool City Region LEP and Scottish Development International five.  

At the top end were Invest Northern Ireland; Business Wales; Buckinghamshire LEP; Swindon and Wiltshire LEP; and New Anglia, which all targeted six out of the ten top sectors. 

With some exceptions – likely due to the size of the area covered by the regional body in question – the underlying data shows a link between the number of leading sectors that were targeted and the total FDI project wins that were attracted. 

The two most eye-catching exceptions were London and Partners, which attracted 352 project wins while only targeting three of the top ten sectors, and Business Wales , which attracted only 34 project wins while targeting six out of the top ten sectors, a much lower number compared with Buckinghamshire LEP in the same group, which attracted a total of 77 project wins over the same period. 

It could be argued that in the case of London in particular, the city's status as one of the most prominent locations in the world for FDI means it doesn't have to target specific sectors in the way smaller, less well-known regions deem necessary. The natural appeal of the likes of London shows that while sector targeting can be vital for some IPAs, for those operating in the larger, more globally renowned cities and regions that can boast highly skilled clusters across myriad industries, attempting to specialise in a specific area is less of a necessity.

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