Fighting for foreign friends

It takes more than subsidies to attract firms to the UK, says Paul Gosling

Last month's announcement that the Korean electronics LG group was to make the largest-ever inward investment in Europe by building a massive new factory in Newport led to a major political row.

While no one disputed that the 6,100 new jobs were seriously good news for South Wales, other areas of Britain shouted "foul", claiming that the Welsh Development Agency had handed out too much public money to the private business.

It was, perhaps, a case of understandable jealousy. But other areas have also had their shares of success in attracting new jobs. The Government's achievement in obtaining inward investment may be one of its most enduring, and endearing, legacies.

Persuading businesses to invest in the UK requires a team effort, which is headed by the Invest in Britain Bureau, part of the Department of Trade and Industry. At a more local level, negotiation is conducted by a regional development organisation, such as the Welsh Development Agency.

Inward investment rests more on getting the practical details right than in handing over public money - though Ireland has made itself an attractive competitor by setting corporation tax for incomers at 10 per cent. One of the factors attracting LG was the provision of the right type of land by Newport Council and the Welsh Development Agency. Specialist training is to be provided by local universities and by Gwent Training and Enterprise Council.

A similar situation is described by Siemens UK, part of the German electronics group, which is building a pounds 1.1bn semiconductor plant on Tyneside. Although it is receiving a government grant of pounds 30m, this is small beer in the total package and much less significant than the local infrastructure.

One of the most important factors for Siemens was that the clay subsoil will act as a damper to provide a vibration-free site. The utility provision was also vital, particularly the plentiful supply of clean water, a good electricity supply and cheap and excellent modern telecommunications facilities. The corporation needs to conduct regular videoconferences, and the ISDN standard cable connections provided by TeleWest were important.

Good road, air and rail infrastructure made Tyneside an accessible site. Britain's high-quality utilities and good transport infrastructure are repeatedly quoted as key factors in attracting inward investment against East European competition.

North Tyneside Council laid on staff who could act as guides to key Siemens personnel, showing them around the area and advising them about schools and homes. It established a 21-day fast-track planning process to ensure the factory was given speedy approval, and established an effective liaison system between planners and building control officers and Siemens.

The TEC and local universities are providing training and retraining courses. The plentiful local labour - which is flexible and used to working night shifts without expecting high pay - was also important.

John Raine, chief executive of Derbyshire County Council, says that providing a warm welcome to a potential investor such as Toyota, which now has a factory in Derby, is essential. "We hope they felt swayed by the good reception from the local authority and the local community," he says.

The council undertook a comprehensive geological survey to assure Toyota that the site was appropriate for its use.

Although the help that Derbyshire gave Toyota to attract the new factory was criticised in 1989 - it led to a ruling by the European Commission that pounds 4m had to be repaid to the council because it undercharged for service roads - the result has been more than 2,000 new, long-term jobs in the area and the establishment of a highly respected local employer.

Other regions have had similar successes, but a study produced earlier this year by Ernst & Young found that, in general, local authorities need to target their attempts to capture inward investment more carefully. Too many are wasting money on ineffectual advertising when they should be building contacts and visiting key people.

David Rees, partner for relocation and advisory services at Ernst & Young, explains: "Some local authorities have been very successful in raising their profile ... but to do so they have had to spend significant amounts of money.

"With 70 per cent of local authorities surveyed spending less than pounds 50,000 on promotion, the extent to which they can compete is limited."

Once a major corporation locates in the UK, a virtuous circle can be created. LG's Newport plant is expected to generate a further 9,000 jobs in dependent suppliers. Siemens decided to locate in the UK partly because it was becoming the company's third largest market - not least because of other multinationals with British factories.

And a recent study by the PACEC consultancy found that the superior management practices adopted by the big corporations, particularly those of the Far East, were having a beneficial knock-on effect on British industry. British firms improve their management skills when they come into contact with the world's industrial giants.