Despite worries over the economic outlook, many European consumers are slowly recovering their confidence.
Amid the enduring economic volatility and lower growth prospects around the world, business leaders are re-evaluating their selection criteria. In our 2011 survey, investors cited transportation and telecommunications infrastructure as the top two factors in their location decisions.
But this year, executives clearly have market appeal and the stability of their investment destination at the top of their agenda. Almost 40% of investors questioned for our 2012 attractiveness survey say that a country or region’s domestic market is now their top concern when deciding where to invest. In our past surveys, this requirement was far less important.
Rapidly changing circumstances around the world have caused a radical change in sentiment. Companies want to set up operations in regions with large and strong domestic demand. That leads them to Europe, the largest market in the world, with 11 of the world’s 20 largest consumer markets. Despite worries over the economic outlook, many European consumers are slowly recovering their confidence.
In these turbulent times, minimizing risk is the next main aim. Stability and transparency of the political, legal and regulatory environment is investors’ second criterion (36%) when deciding where to invest.
Labor costs, which used to be a compelling concern, still matter for 28% of respondents, but rank third overall. Western European labor may be relatively expensive, but the labor content of many products is falling and some countries in CEE look quite competitive.
FDI in Europe in 2011: projects and jobs are back on track
Foreign investment decisions in Europe increased by 4%, easily surpassing the pre-crisis level. Jobs created by FDI increased by 15%, a record rise, albeit from a low base.
Stable project numbers.
Despite continuing uncertainty about the future of the Eurozone, investors showed their confidence in Europe in 2011. The continent received 3,906 projects, up 4% on 2010 and comfortably above pre-crisis levels. After recovering, European FDI looks to be set for continued growth.
More, and bigger.
Although the increase in project numbers was modest, on average they were significantly larger. In 2011, the average project created 40 jobs, up from a low of 37 per project in 2010, and the highest number since 2008.
Moving in: the UK, France, Germany and Spain are top investment destinations
The top 10 European countries for FDI
Source: Ernst & Young’s European Investment Monitor 2012
|Rank ||Country ||Number of projects ||Number of jobs |
|2010 ||2011 ||Change |
2010 vs. 2011
|Share of FDI |
|1 ||United Kingdom ||728 ||679 ||-7% ||17% ||29,888 |
|2 ||Germany ||560 ||597 ||7% ||15% ||17,276 |
|3 ||France ||562 ||540 ||-4% ||14% ||13,164 |
|4 ||Spain ||169 ||273 ||62% ||7% ||9,205 |
|5 ||Netherlands ||115 ||170 ||48% ||4% ||2,229 |
|6 ||Belgium ||159 ||153 ||-4% ||4% ||3,599 |
|7 ||Russia ||201 ||128 ||-36% ||3% ||8,362 |
|8 ||Poland ||143 ||121 ||-15% ||3% ||7,838 |
|9 ||Ireland ||114 ||106 ||-7% ||3% ||5,373 |
|10 ||Switzerland ||90 ||99 ||10% ||3% ||1,546 |
| || Others ||916 ||1,04 ||14% ||27% ||59,344 |
| || Total ||3,757 ||3,906 ||4% ||100% ||157,824 |
Europe’s attractiveness formula: maintaining the balance
Where investment goes in the value chain
More than half of the FDI projects were in the sales and marketing function. Manufacturing accounted for nearly two-third of total job creation by FDI.
Sales and marketing provided 51% of all projects, a reminder that Europe’s 500 million consumers with high purchasing power still attract vendors from around the world. The growing appeal of this market for investors is reflected in a fivefold increase in sales and marketing projects since 2003.
Production was the goal of a third of FDI projects in 2011, far below the 55% recorded in 2003. Despite high labor costs, 87% of investors say they will still manufacture in Europe 10 years from now, up from 70% in 2010. They value a well-educated and productive workforce and have rediscovered the attractions of producing close to the customers.
Services (both B2B and B2C) made up 13% of FDI projects in 2011. More than 40% of these projects involved opening or expanding facilities in the UK, France and Germany, reinforcing their dominant role in the European market.
Headquarters needed for setting up and developing the other business functions accounted for 4% of all new FDI projects and jobs created in 2011. In 2004, headquarters represented more than 8% of projects.
FDI by activity
Source: Ernst & Young’s European Investment Monitor 2012.
|Rank ||Activities ||Number of projects ||Number of jobs |
|2010 ||2011 ||Change |
|Share of FDI 2011 |
|1 ||Sales and marketing ||1753 ||1977 ||13% ||51% ||12,911 |
|2 ||Manufacturing ||1023 ||1039 ||2% ||26% ||97,229 |
|3 ||Logistics ||253 ||234 ||-8% ||6% ||13,681 |
|4 ||R&D ||253 ||234 ||-8% ||6% ||10,395 |
|5 ||Headquarters ||166 ||150 ||-10% ||4% ||6,744 |
|6 ||Testing and servicing ||131 ||103 ||-21% ||3% ||2,55 |
|7 ||Contact centre ||67 ||55 ||-18% ||1% ||8,087 |
|8 ||Shared services centre ||46 ||42 ||-9% ||1% ||5,409 |
|9 ||Education and training ||29 ||36 ||24% ||1% ||422 |
|10 ||IDC ||36 ||36 ||0% ||1% ||396 |
| ||Total ||3,757 ||3,906 ||4% ||100% ||157,824 |
Invest in Europe, sell beyond its borders
The US remains by far the largest single investor in Europe. In 2011, US companies launched 1,028 projects on the continent, 26% of all investment decisions in Europe and an increase of 6% on 2010. Business services and software provided 39% of inward investment projects from the US. Key investors included Microsoft, Cisco, Intel and Groupon Inc. Automotive components also reaped more transatlantic FDI projects.
Companies including Johnson Controls Inc and Delphi Corporation were big investors in this sector. Some US companies see Europe as a market for goods and services that have done well in the US, and like Europe’s wealthy consumers, common regulations and ease of doing business, aided by a common currency, whatever the difficulties of the Euro.
Many also see Europe as an attractive gateway to rapidly growing economies in Eastern Europe and Africa. The UK and Germany are still the favorite homes for FDI projects from the US. According to the AmCham Business Barometer of April 2012, in 2011 American companies in Germany hired more new employees than in 2010.
BRICs: rebuilding, but room for improvement
After a sharp fall in 2010, the number of jobs created by BRIC investors in Europe increased by 8% in 2011 to reach 9,385. Collectively, BRIC economies accounted for 6% of job creation in Europe, behind the US and Germany.
Companies from emerging economies, including China and India, are now more interested in developed economy assets such as brands, technology and distribution channels. BRIC companies are now investing in Europe to benefit from its technological edge in some sectors.
In 2011, Europe was the largest destination for Chinese foreign investment, with the number of decisions up 22% on 2010.
The UK is the most favored destination, securing 40% of jobs created by BRIC investors in Europe in 2011. Germany, with 13%, was a distant second. But when measured by project numbers, Germany outpaced the UK, securing 69 projects from BRIC companies, up 35% from 2010.
The UK, with 54 FDI projects, was second, followed by France and Belgium. China and India are the largest BRIC players, together accounting for 95% of BRIC job creation and 82% of BRIC projects in Europe.
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