Understanding the needs of inward investors in the West of England

Regional conditions for investment

The extent of inward foreign direct investment (FDI) through cross-border operational expansions has fluctuated significantly in the West of England in recent years. The Brunel Centre’s Strategic Regional Audit finds that the region achieved post-pandemic year-on-year growth of over £350 million in 2021, followed by flat growth in 2022 and marginal decline in 2023 inward FDI into the UK at large continued to rise.

This article presents a comparative analysis of firms that have recently invested in the region. They were selected due to their contrasting size and the contrasting scale of their investments. This allows us to examine the similarities and differences in their approaches, experiences and goals.

The first firm is a medium-sized software company that made a small investment in the region, hiring three staff members as its first physical, customer-facing presence in the UK market. The second is a large construction company that made a large-scale investment in the region, establishing a new national base following previous projects in the country. Both firms approach place-based investment decisions through national-to-local pathways. Their investment begins with national market evaluation before considering regional brand alignment and finally local operational relationships.

The importance of regional ‘branding’ and outward engagement

Strong regional branding, proactive outward engagement and favourable institutional attitudes to business are often effective in attracting firms to set up or expand in a region. However, accessibility to regional benefits can sometimes be missed by smaller firms with lower operational capacity.

The West of England has sought to maintain outward branding and institutional positioning through successful structures like Invest Bristol and Bath, while also growing internal communications and the delivery of follow-on support. In doing so, the risk of smaller companies falling through the cracks is diminished. Alongside the regional benefits of new investments, this can maximise prospects for existing investors, who can become long-term contributors to regional growth through expansion and reinvestment, regardless of the original size of their investment.

FDI: Entering and growing in a new region

Both businesses focused on national market strategies before selecting specific regional bases that align with their needs. The new UK manager of our medium-sized software company revealed that the rationale for investment began at the national level:

we have a big push at the moment for a UK identity. We understand that the UK market is the biggest slice of our pie from a sales perspective and we want to grow that even more and double down on that on our market presence here… part of that means that we need an actual official presence here. So, we need office space here. It's not just hiring people in the UK. We already had a lot of people working for the company from the UK in the development teams and support teams but they're all fully remote. So, in terms of having that presence, we want an actual UK office. And it was very much like, hey, we're here now and we're here to grow the market with you.

Although the company had employed remote staff within the UK before, they believed that remote working would hinder the company from becoming an embedded stable actor within the UK business ecosystem. Although there is increasing capacity for, and cultural normalisation of, remote working, the decision to commit to FDI suggests the benefits of physical office spaces lie in cultivating trust and business partnerships that enable foreign businesses to grow, both within and alongside the UK market (Stallkamp et al., 2021).

Similar considerations around customer base and identity are also informing firms’ regional decisions:

the reason that we've got [an] office here is because we already had a lot of clients in Bristol… London was the other potential place that we could have gone to, but firstly, it's a lot more expensive. Secondly, it's a lot more competitive, and thirdly, just from a vibes perspective I know it sounds weird, but the HQ [headquarters] is in a place in Odense in Denmark, and it's a very arts and liberal city… in terms of matching the energy that is in the HQ in Denmark, I felt that it was much more appropriate than London.

The region’s economic strengths and identity were central to the company’s decision-making process, progressing from considerations about national strategy evaluations to regional dimensions. The firm’s evaluation of both tangible and intangible regional factors is often seen in sub-national distribution of FDI (ITC, 2021: 34).

The West of England’s economic strengths and local identity help the region to stand out from London, where high costs and strong competition make it harder for businesses to settle, despite the city’s economic power and international reputation. This reaffirms the importance of cultivating a regional brand that differentiates Bristol from other areas – a strong regional identity can attract FDI, while also providing positive narratives to regional businesses seeking growth.

The rationale of the larger firm engaged in a larger-scale investment shows that a national-to-local approach is also adopted by firms that already have a UK presence but wish to grow:

They wanted to sort of move into and grow their footprint in the UK… They like the South West most, because it's a very productive part of the UK. It's also what they know because it's their sister company’s patch. So, they knew a lot of key players… when the site came on the market for sale following the collapse of someone who had an option over it previously, we stepped up to have a look and bought it within six months.

Both companies exhibit a similar approach to growing their company’s UK footprints, but the larger firm’s decision was also reinforced by their established knowledge and networks in the region that reduced risk. The rapid turnaround of this deal suggests that pre-existing relationships enabled the company to move swiftly, capitalising on a business opportunity when it arose. This suggests that regional institutional embeddedness from past investments can help firms to unlock the benefits of FDI faster (Driffield et al., 2024: 284).

This firm’s cumulative process of investment means that it has established place-based attachments; early positioning within the region has governed subsequent organisational decisions and built inter-regional growth pathways. In addition to large-scale institutional embeddedness, small investments can also provide a platform from which to grow, as in the case of the medium-sized software company:

I definitely think there'll be a push to centralise things to Bristol, to make use of this base in the UK. At the moment, the office is more so that we have a place of fixed abode, so that we've actually got an address that people can come to, and I guess like a base of operations. I can perceive that as we make future hires, having them in Bristol, increasing the office space, being able to build a core team in the UK will be a priority for certain.

After a small initial investment, the firm is likely to remain in the region that they know as they expand. Although they have a modest team of three in Bristol, their physical office functions as an operational presence for outward-facing business. Going forward, building around this place-based approach will provide an anchor point from which they can grow. While this contrasts with the network-driven entry route of the larger company, both cases show that once a firm begins to embed itself – through relationships, property, staff, or symbolic identity – it is incentivised to remain and grow in the region.

Investment in WECA is therefore cumulatively constructed and shaped by both initial strategic decisions and growing familiarity with the regional environment. This cumulative construction highlights how support that is often targeted at developing home-grown businesses can also create benefits for the region through FDI – investment pipelines and grow-on space for both home-grown businesses and foreign companies are crucial in enabling local growth.

The investment process and role of regional branding

The connections to place that these businesses describe are established through their prior exposure to the UK market, then developed further through the process of the investment itself. Their reflections on these experiences can therefore highlight strengths in the WECA region that can be accelerated, as well as the challenges to be overcome to attract and support new investment. This approach reinforces WECA as a creative, innovative and accessible hub.

Investment pathways often require firms to form relationships with regional stakeholders and interpret institutional and regulatory landscapes that are rarely coordinated at the same level of local governance across regions (Driffield et al., 2024: 290). Regional leadership and support structures can be decisive across these interactions, but the two businesses in this case study do point to differences in their experiences. For the larger company with an established network, leadership at the local level helped them to negotiate the complexities of the UK market:

Even our company, who know the UK very well, I think didn't fully appreciate the various different layers of planning that you need to go through. It's a lot more straightforward elsewhere in the world. That's not a criticism of the local authority who have been incredibly supportive and proactive in managing us through that bureaucracy. But I think that was a big shock for sure.

Despite their size and familiarity with the local market, the specific investment that the firm made presented new challenges that distinguish the UK market from other countries. Although this difficulty came at the national level, the firm’s relationship with local leaders enabled them to draw on local knowledge to navigate UK planning systems. This reinforces the idea that institutional complexity can act as a barrier to inward investment (Merritt, 2024), but that institutional intermediaries at any level can help organisations to understand and manage these regulatory obstacles. This interviewee also explained their experience of the complex regulatory environment, and how facilitative leadership shaped a positive regional brand for FDI:

they were proactive and helped facilitate, if you like, the most practical solution because some local authorities can make things overly complicated utilising the framework that they have to operate in. Others can try and cut through that and make things as streamlined as practically possible. And it felt like the local authority were much more on that side of the fence.

The effectiveness of local leadership is framed as a distinguishing feature between regions. The perception that the local authority actively worked to help the company manage the complex regulatory environment, improved the overall experience of investing and the firm’s connection to the region. Leaders can shape their own regional identity through the routine processes of their institutions that establish stable expectations and trust; these place-based brands can reassure existing and potential investors that the region is a positive place to invest and grow (Iammarino, 2018: 4; LGA, 2019: 20).

Although this leadership is valuable to businesses entering the region, firms such as the smaller company in this case study do not always have capacity to take advantage of it:

We did get a contact, which we haven't really followed up on from the Bristol Council. So, the people who try and introduce you to people and make routes for you, et cetera. But they contacted our CEO who is in Denmark, obviously and like he's not going to be dealing with that… I should actually message him about that, so we can go get a meeting in with him, because it is useful to have access to those sorts of contacts. I think one of the things I guess that is relevant to you is like when you open an office in a new part in the region and when you have all these strategic plans, often things like that can fall through the cracks… we're still a small team in the operations part of the UK. There's just three of us so it can be tricky from an organisational perspective.

This suggests that access to support infrastructure is highly dependent on firms’ operational capacity. Small and newly arrived firms, especially those managing the early pressures of foreign expansion, operate under constraints and often prioritise core tasks over less visible but strategically important opportunities like relationship-building with local authorities. This suggests that beyond promotion and engagement with new and early FDI, the International Trade Committee’s (2021: 18) prioritisation of ‘investment support’ and ‘ongoing relationship management’ with investors is crucial for small firms investing in the region. Without continued outreach that reminds firms of the available support after initial investment, these services could ‘fall through the cracks’ for small companies.

Further, the enduring visibility of support services can help to facilitate mutually beneficial partnerships between organisations through long-term accessibility. This can help to develop the region’s institutional brand and support a wider range of ‘return customers’ for investment, as businesses have the confidence and support they need to grow steadily in the region.

Conclusion

Inward FDI decisions are influenced by assessments of national markets and strategies, as well as by the characteristics of regional economies, identities, institutions and support networks. While the FDI decision-making processes are broadly similar across the two firms we analysed, the data indicate that a company’s size and history in the region can affect how easily it is able to access support.

WECA’s regional brand and outward engagement have been effective in attracting inward FDI, but this could be strengthened by more consistent communication and relationship management with both new and existing investors, especially to ensure that smaller companies are not overlooked. Adopting these approaches would enable the region to benefit from both new investment and from existing investors, who can become long-term contributors to the region’s economy through expansion and reinvestment.

References

Driffield, N., Surdu, I., and Yuan, X. (2024) ‘Country‑level dynamic capabilities and inward FDI: a framework on future policy adaptations applied to post‑Brexit UK’, Journal of International Business Policy. 7, 276-294. Available at: https://link.springer.com/article/10.1057/s42214-024-00196-1

Iammarino, S. (2018) ‘FDI and regional development policy’, Journal of International Business Policy. 1(3), 157-183. Available at: https://eprints.lse.ac.uk/90285/1/Iammarino_FDI%20and%20regional%20policy_2018.pdf

ITC [International Trade Committee] (2021) ‘Inward Foreign Direct Investment: Third Report of Session 2021-22’, UK Parliament. Available at: https://publications.parliament.uk/pa/cm5802/cmselect/cmintrade/124/report.html

LGA [Local Government Association] (2019) ‘Attracting investment for local infrastructure: A guide for councils’. Local Government Association and Department for International Trade. Available at: https://www.local.gov.uk/sites/default/files/documents/5.54_Supporting_Councils_14.pdf

Merritt, E.C. (2024) ‘Attracting more foreign direct investment to the UK’, In Focus, House of Lords Library. Available at: https://lordslibrary.parliament.uk/attracting-more-foreign-direct-investment-to-the-uk/

Stallkamp, M., Chen, L., and Li, S. (2023) ‘Boots on the ground: Foreign direct investment by born digital firms’, Global Strategy Journal, 13(4), 805-829. Available at: https://sms.onlinelibrary.wiley.com/doi/epdf/10.1002/gsj.1474