Higher investment in new equipment has helped foreign owners boost productivity, but factories taken over by overseas investors are more likely to close.
The research, carried out for the Invest in Britain Bureau (IIB) at the University of Portsmouth, showed that the 1,800 manufacturing plants bought by foreign investors between 1987 and 1992 were 46 per cent more productive than plants belonging to UK companies.
Foreign acquisition raised output per employee and also raised the real wages they were paid by 5 to 12 per cent. The reason for the improved performance was higher investment per employee by the new owners.
The foreign-owned factories were also less likely to have cut employment levels than British-owned equivalents, if they remained open. However, a third of the plants acquired by overseas investors during the period studied had closed by 1992.
The IIB's annual review published yesterday showed that more than a third of the record number of 652 inward investment projects in 1998/99 had involved takeovers of British companies. The number of projects compared with a total of 618 in 1997/98, and the value of the stock of total foreign investment jumped 30 per cent to pounds 195bn. Britain is the second biggest recipient of foreign direct investment, second only to the US. Both countries are also the biggest outward investors.
More than 44,000 jobs were created during the year and another 74,340 jobs safeguarded. This was slightly below the 1997/98 total.
The US was by far the biggest source of investment, with a record 353 projects. These included Microsoft's new UK headquarters and an $80m (pounds 50m) Motorola plant in Swindon. There was a strong emphasis on information technology, telecommunications and software.
Japan was the second biggest investor in the UK, but lagging some way behind the US with 41 projects. The biggest were a second production line at Toyota's Burnaston plant and the expansion of Canon's Glenrothes computer printer factory.
Stephen Byers, the Secretary of State for Trade and Industry, emphasised the importance of high-quality, technology-based investments.
He said at the launch of the IIB's annual review yesterday: "I believe we have only just begun to exploit the potential for bringing together UK genius for innovation and creative thinking with others' excellence in production and marketing."
He said the IIB would place greater emphasis on attracting hi-tech investments in future.