Introduction  (Page 3/20)

The prime hunting ground for such opportunities was the ‘Tiger economies’ of South-east Asia and the following decades would see names such as Panasonic, Sony and LG all establish operations in the region, mainly of an assembly nature. The attraction for these investors included access to markets, low wages and other financial incentives. Access to markets is seen as a key factor in the location decisions of FDI as discussed by various observers, for example, the increase in FDI in Spain following its joining of the EU (Friedman et al. 1992). This has now become a challenge for older EU regions in competition with the newly joined countries of Eastern Europe. However, the prizes of attracting FDI, which could bring thousands of jobs at a time, were massive. This often led to interregional competition for investments with packages of aid being offered including grant aid, assistance with planning issues etc. (Phelps and Tewdwr-Jones 2001, Cooke and Clifton 2005). Alongside these packages, however, was what often figured as the key determinant in attracting FDI (in both Wales and other regions): a low wage rate (Friedman et al. 1992).

The WDA proved to be most successful at this competition, securing over two thousand projects between 1983 and 2000 (Salvador and Harding 2005), consistently attracting between 15-20% of FDI coming to the UK between 1983 and 1993 (Cooke 1998). One major investment could deliver massive opportunities to the surrounding region and much like the iron works of old, would become the prime employer in a town or region (Mathias 1983). The approach of the WDA in speculatively preparing sites across Wales to attract investors was likened by some commentators to the “ build it and they will come ” concept seen in the American movie ‘Field of Dreams’ (Cooke 2005).

This successful attraction of FDI into Wales meant that by 1992, 30% of Welsh manufacturing employment, some 68,000 workers, were employed in foreign-owned firms compared to 45,000 just over a decade earlier in 1981; a proportional increase double that of the UK as a whole (Cameron et al., 2002). The increase in FDI during this period led to much research to understand issues such as policies to support its role in regional economies (Gripaios et al. 1997, Young et al. 1994); its ‘embeddedness’ within the region (Phelps et al. 2003, Phelps et al. 1998); the ‘quality’ of investments (Gripaios et al. 1997); and their role in technological change and technology transfer (Barrell and Pain 1997).

Observers note in retrospect that this focus on inward investment may have led to the missed opportunity of investing in entrepreneurship and indigenous development that received greater attention in regions such as Scotland and Northern Ireland (Cooke and Clifton 2005).

Other criticisms of FDI include weak linkages with the regional economies within which they reside, such as supply chains (Young et al. 1994) and the ‘quality’ of the jobs provided, which were primarily assembly functions in branch plant operations. However, where the Multinational enterprise (MNE) is investing far from its home country the linkages it establishes are generally found to be stronger (Rodriguez-Clare, 1996). Young et al. (1994) describe strategies that can be applied to make use of MNE FDI in the development of cluster formation through creation of linkages with local R&D. Such linkages may be with universities and development of supply chain opportunities.