Companies create wealth in countries where they can invest safely and trade internationally. Some grow by satisfying local demand for specific products and services, but most rely on international markets for expansion.
In recent years, we have seen a shift in the global competitive landscape. The top 500 multinational companies account for nearly 70% of worldwide trade, a percentage that has steadily increased over the last 20 years. This means that, as supply chains develop and more multinational companies operate in each country, companies will find it easier to benefit from global trade. Furthermore, research from the World Bank has shown that foreign direct investment (FDI) improves the competitiveness and growth of whole sectors.
These developments are, however, occurring while the overall picture for FDI remains mixed. Global FDI has continued to fall and the recovery from 2008 will take longer than expected, primarily due to economic fragility and policy uncertainty. In addition, from 2012, for the first time, developing economies absorbed more inward investment than developed countries, accounting for 52% of global investment and generating almost one third of global FDI outflows.
In the UK, we are seeing FDI recover from a sharp decline after the 2008 crash, but this will be a long process.
In this environment, cuts in corporation tax to 20% by next year (down from 28 percent in 2010), and measures such as the Patent Box – which offers a lower tax rate on some intellectual property – are maintaining and improving the UK’s attractiveness to investors. We continue to lead the way in this area, but more still needs to be done.
All over the world the way that businesses work is undergoing radical change. Now rather than producing a product for one industry, companies are starting to focus on technology that can provide a range of solutions in a variety of sectors.
For example, Formula One teams use advanced technology to monitor every detail of their cars’ performance on the track, but this could easily be applied in hospitals for monitoring patients’ vital signs in intensive care. We should also expect information and communication technology companies to play an important role in the energy market.
These emerging technologies can also help us to tackle some of the pressing issues we face as a society, such as an ageing population (healthcare at home), chronic illness (devices to monitor patients), natural resource sustainability (smart meters) and the need for greener technologies.
As a result, our understanding of innovation itself will change as it becomes driven by demand, in contrast to our current models, which rely on a traditional approach to R&D through which products are led to market. Instead, there will be more iteration, with R&D becoming more closely linked to customer feedback.
In the future, R&D will become more closely linked to customer feedback. Companies developing medical devices, for example, will use customers earlier in the development cycle to see what works and what doesn’t. We also need to address phenomena such as the “valley of death”, where research or products that could be of huge benefit to society end up never making it to market, often because of a lack of funding.
The British government has set out a number of strategies to support all sectors of the economy and increase global competitiveness. It is also backing the eight technologies that will support a number of industries in the future: big data, satellites, robotics and autonomous systems, synthetic biology, regenerative medicine, agri-science, advanced materials and energy storage.
These strategies support the growing consensus that technologies, rather than industries, will lead the way for the next generation of products. They will also encourage cross-sector companies that provide anything from intelligent transport systems or personalised medicine.
These technologies are writing the future of many sectors and there are clear implications for companies as well as countries. Companies need to embrace the technology and recognise that innovation and cost reduction lie in looking beyond traditional, and self-imposed, boundaries. For countries, there is an exceptional opportunity to enable all companies, irrespective of their origin, to be successful.
The UK can lead this economic change. As the most open economy in Europe, we have a unique chance to make this country the default home global business.
For more information on how PA's government practice can support your organisation, please click here or contact us now.
For more information on PA's inward investment expertise, click here.