Towards a Foreign Direct Investment strategy for R&D

UK universities have an international reputation for producing high-quality research with strong potential for industrial application and economic impact.

This strength ensures they have a strong track record in developing effective collaborations with businesses across the world, resulting in high levels of international investment into UK R&D. However, the UK’s share of FDI is declining and action is needed to prevent this.  

This challenge was set out in a recent report by HEPI (with support from Midlands Innovation, NCUB, UUK International and Henham Strategy) – Universities as Drivers of FDI into UK R&D, authored by Dr Alexis Brown, which recommended that Government should clearly articulate the importance of increasing FDI into R&D as a driver of both its ‘science superpower’ and ‘levelling up’ ambitions. It should lead the development of an ambitious, innovative and practical set of interventions and incentives in partnership with universities and local economic growth organisations.  

The good news is that government is taking this challenge seriously. At a webinar NCUB chaired earlier this week to support this report, we were delighted to be joined by two ministers – George Freeman MP at the Department for Science, Innovation and Technology (DSIT) and Lord Johnson at the Department for Business and Trade (DBT). Both reinforced their intention for Government to work with partners across the UK research and innovation system to refine the UK’s value proposition and facilitate specific investment opportunities. 

Government intervention is necessary to highlight and promote the UK’s strengths to international investors. However, it is not straightforward. The HEPI report describes the breadth of responsibilities fragmented across different national and local government actors.  The following policy framework by Jose Guimon illustrates the range of policy in scope and the resulting potential for fragmentation.

For Government to take effective action – as the HEPI report recommends – the UK needs up-to-date evidence to provide the base on which to build a strategy. This evidence is valuable to universities and businesses too as they develop their own institutional and regional interventions. At the webinar, Professor Karen Holford, Vice Chancellor of Cranfield University noted, institutions are not just waiting for Government, ‘they’re making their own weather’. 

NCUB’s ‘Attracting International Investment in R&D’ project is intended to support this need for evidence. This project builds on a recommendation in the NCUB 2020 R&D Taskforce. With the input of an advisory group of representatives of academia, business and Government, we have selected two analytical projects that will help build the evidence base.  

 The first of these projects is to benchmark the UK’s nations and regions’ performance in the factors that attract international investment in R&D. The crucial point here is that companies are not typically deciding between countries, but between regions that possess the requisite factors, including specialised expertise, that they need. So, for them, the decision is not the UK or Poland, but Glasgow or Krakow. Consequently, policymakers need to understand the distinct offers of different UK nations and regions rather than present a generalised UK offer.  

 Understanding how decision-making processes within companies affect investment decisions will be the focus of the second project. Can this be understood and how might this help those in Government and elsewhere to present the strengths of the UK to potential investors?  

 Research and innovation are an international endeavour. FDI is vital. HEPI’s report identifies the need for better evidence. NCUB’s ‘Attracting International Investment in R&D’ project will help to deliver this.  

 The evidence project will be completed this summer with additional engagement to follow.