Week of April 8, 2002
Snapshot from the Field
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Fallout from U.S. 'Fallback'
E&Y EIM Report: European Location Projects Down 12 Percent in 2001By JACK LYNE, Site Selection Executive Editor of Interactive Publishing
LONDON - European new facilities and expansions dropped 12 percent in 2001, but it was a good year nonetheless for "gatecrashers, EU (European Union) accession countries and EU countries that bucked the trend."
That's part of the 2001 European expansion picture painted by Ernst & Young's European Investment Monitor (EIM at www.ey.com/eim), which was released today in London.
EIM, a Site Selection alliance partner, tallied 1,974 investment projects in Europe in 2001, compared to the 2,243 projects recorded in 2000. The U.S. economic downturn was a major factor in the 12 percent drop-off, said Mark Hughes, an executive consultant in Ernst & Young's International Location Advisory Services and the author of EIM's 2001 report.
"Clearly, the economic fallback in the United States throughout 2001 reduced investment into Europe," Hughes said. "This really hit countries like the UK, Ireland, the Netherlands and Switzerland. Those nations are not only the main recipients of U.S. projects, but they also have a higher dependency on sectors that suffered last year, such as software and telecom." U.S. companies initiated 733 investment projects in Europe in 2001, EIM found. That tally signaled a 26 percent decline from 2000's 985 projects. Correspondingly, 2001's U.S. share of total European projects dropped to 37 percent from 2000's 44 percent; that marked the lowest U.S. percentage since 1997.
Intra-European ventures, on the other hand, proportionally increased to rank as last year's largest source of total projects, EIM reported. Intra-European investment accounted for 48 percent of all of 2001's projects, compared to 2000's 43 percent.
Winners: 'Gatecrashers,' EU
"We are beginning to see countries like Romania, Russia, Bulgaria, the Ukraine and Turkey seriously gatecrashing the party for the first time in the post-Communist era," he explained. "Risk is becoming more manageable, with recognition of their longer-term potential for EU affiliation and market opportunities."
2001, EIM found, was also a strong year for the Central and Eastern European nations set to join the EU - the Czech Republic, Estonia, Hungary and Slovenia.
Those nations, Hughes said, "have continuing advantages around costs, skills and, in some cases, infrastructure, [and they have] EU market access. Also, acceptance of their coming political accession to the EU and associated economic/industrial stability comes without some of the burdens of EU regulation and cost."
2001's third group of winners, he said, "is a mixed bag of EU countries with different reasons for bucking the trend: Finland - judged best business climate; Sweden - reduced cost base with advanced infrastructure and market access to both the EU and the Baltic; Spain - costs [and] continuing deregulation, coupled with strong market growth; and Germany - sheer economic weight."
Here's a look at more highlights from EIM's 2001 European report.
Top Regional Rankings Top regions: Greater London, with 94 investment projects in 2001, remained No. 1 among European regions. Spain's Catalonia region finished second with 86 projects, while Ile-le-France/Paris was third with 61 projects (see top 20 regional chart accompanying this feature).
Among 2001's major upward regional movers were Stockholm, which rose from No. 16 to No. 4, and Moscow, which rose from No. 28 to a tie for No. 5. Other major regional upsurges came from Madrid, which moved from No. 22 to No. 10; Uusima/Helsinki, Finland, which moved all the way from No. 54 to No. 12; and Stredocesky/Prague, Czech Republic, which moved from No. 35 to a tie for No. 15.
Even leading regions, however, saw a sharp drop-off from 2000 totals, EIM reported. Dublin, for example, experienced a 57 percent decrease, and North Holland/Amsterdam recorded a 56 percent decline. Even No. 1 London saw its 2001 tally decline by 48 percent, while No. 3 Ile-le-France/Paris recorded a 31 percent decline.
Top nations: The UK and France finished in the two top spots, with 2001 project market shares of 19 percent and 13 percent, respectively. That duo was followed in the national rankings by No. 3 Germany, No. 4 Spain, No. 5 Belgium, No. 6 Sweden, No. 7 the Czech Republic, No. 8 Hungary, No. 9 Russia and No. 10 the Netherlands.
A number of the national leaders, however, also experienced downturns from 2000, EIM reported. The UK for example, saw a 34 percent decline, while France dropped by 25 percent. In addition, the Netherlands dropped by 37 percent, while No. 11 Ireland declined by 46 percent. "All these outcomes were principally driven by a fall in investment from the U.S.," the EIM report noted. In contrast, EIM reported that Central and Eastern European nations "consistently performed well (aside from Poland, which saw a 42 percent decline). Bulgaria, Croatia, the Czech Republic, Hungary, Romania, Russia, Turkey and the Baltic States all saw their project numbers and market share improve in 2001."
Among Western European countries, only Finland, Portugal and Sweden matched the Central and Eastern European nations' 2001 performance, EIM noted. "Germany and Spain," the report added, "marginally increased their number of projects and market share position, respectively."
Seven of 2001's top 10 investors are repeaters from 2000's top 10. Two of 2001's top 20 companies, however, were unranked last year: Sprint, in a tie for No. 4, and Vivendi Universal, in a tie for No. 13.
"Despite the overall decline in electronics and telecommunications," EIM's report noted, "they feature heavily amongst the most prolific investors, holding eight of the top 20 places" for most active companies.
Investor Origin: Following the U.S. tally of 37 percent was Germany, which accounted for 11 percent of all European projects. France, Japan and the UK were the next most active investor nations; the three countries finished in a three-way tie, with 5 percent each.
Top sectors: 2001's top six sectors in terms of total projects - software, automotive, electronics, business services, chemicals and pharmaceuticals - "accounted for 55 percent of all projects, compared to 60 percent in 2000," EIM reported.
Many of the top sectors, however, recorded significant drop-offs from 2000, EIM found. Software, for example, was down 26 percent; telecom, down 48 percent; computers, down 49 percent; electronics, down 22 percent; and business services, down 18 percent.
Other sectors, though, improved their tallies in 2001, EIM found. Pharmaceuticals, for example, recorded an 18 percent increase to 100 projects; automotive tallied a 9 percent increase to 18 projects, and transportation totaled a 21 percent increase to 14 projects.
Manufacturing Comparatively StrongManufacturing's European Year: "Manufacturing remained the largest single activity with 803 projects - 41 percent of the total," EIM reported. That marked a decline of only 3 percent, "the lowest of all activities . . . reflecting the fact that most investment was either intra-EU or from the Far East," the report said.
France, with 16 percent, and the UK, with 12 percent, were the most popular national destinations for manufacturing projects, EIM reported. "Catalonia, Alsace (France), Stredocesky and Zapadocesky (both in the Czech Republic), Moscow, and Rhone Alpes (France) were the most popular regions" for manufacturing, the report said.
Forty percent of 2001's manufacturing projects were expansions at existing sites, almost twice the 22 percent rate for all projects. Manufacturing projects at new sites, however, were at the highest level in five years. "New manufacturing investment has tended to move east and south across Europe, with destinations such as the Czech Republic, Hungary, Portugal, Romania, Spain and Turkey increasingly popular," said EIM's report.
Thirty-six of 2001's manufacturing projects involved more than 1,000 jobs, EIM found. Of those job-generating blockbusters, "almost 70 percent . . . were located in Central/Eastern Europe, including the Czech Republic (eight projects), Hungary and Slovakia (each with three projects)."
The EuroR&D and contact/call centers: 2001's R&D activity was also stronger than the overall picture. EIM recorded 188 R&D projects, a decline of 9 percent from 2000. "The UK, France, Germany and Spain attracted 55 percent of all of 2001's R&D projects," the report noted. "Catalonia, Ile de France/Paris, Madrid and Stockholm were the most popular regions."
In contrast, European contact/call center projects steeply declined in 2001. Last year's tally of only 60 projects marked a 50 percent decrease from 2000's total. Contact/call centers accounted for just 3 percent of all 2001 European projects that EIM tallied.
The UK and Germany attracted 58 percent of 2001's contact/call center projects, with 25 and 10 projects, respectively. 2001's leading regions in landing contact/call center projects were Antrim, Northern Ireland; Amsterdam; Berlin; and Pays de la Loire, France, EIM reported. The euro's influence: EIM's report did not register a clear impact from the euro, which was introduced on Jan. 1, 2002.
"There is no consistent country picture," Hughes said. "Some of the euro 12 - Portugal and Finland, for instance - did comparatively well. Others - like Ireland, Belgium and the Netherlands - did not. Outside the euro [zone], Sweden and Denmark did well, the UK did not. "For certain sectors, particularly those dominated by manufacturing activity such as automotive, the euro is more important," he continued. "For others, it is at most one of a number of considerations." The future: Competition is going to grow even hotter for European investments, Hughes explained.
"There are many more guests at the inward investment party, as the EU extends and convergence increases," he said. "It is almost inevitable that countries like the UK will resize to a lower market share more akin to their overall economic weight in Europe." Setting realistic targets is a must for European areas that hope to succeed in the increasingly competitive environment, EIM's report advised.
"Choice of target sectors is more difficult and demands a best-in-class position," the report explained. "Pharmaceuticals typifies the issues. Many agencies have opted to target pharmaceuticals, yet it represents only 5 percent of the total. Not only are there insufficient numbers to meet all aspirations, but success also requires a globally competitive position."
Editor's note: For further information on E&Y's European Investment Monitor report, contact Mark Hughes in London by phone at +44 20 7951 0015 or by e-mail at [email protected]. In addition, watch for Site Selection's in-depth coverage of 2001's European expansion activity in our July 2002 issue.
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