WII0004
Written evidence submitted by Professor Riccardo Crescenzi
Wales faces several structural, institutional, and perception-based barriers in promoting itself as a destination for inward investment. Drawing on the insights from Crescenzi and Harman (2023) and the LSE report on Scotland and Wales for the ESRC (2018), the following challenges emerge:
a. Weak Global Perception and Branding
One of the primary barriers is Wales’ relatively low visibility on the global stage. Unlike Scotland, which has successfully branded itself through organizations like Scottish Development International (SDI), Wales lacks a strong, internationally recognized identity as an investment destination. The LSE report (2018) highlights that the visibility of Welsh cities, such as Cardiff and Swansea, in global investment networks is limited, reflecting a broader challenge in positioning Wales as a competitive location in the minds of global investors.
To overcome this, Wales should identify its unique value proposition in the framework of a wider UK investment promotion strategy. Understanding the position of Wales in Global Value Chains is central to the development of its value proposition and investment promotion strategy (Crescenzi and Harman 2023).
b. Over-Reliance on Low-Value-Added FDI
The LSE report indicates that much of the inward FDI in Wales has been concentrated in production-related activities, particularly in sectors like coal, oil, and natural gas. While these investments provide short-term job creation, they are often less embedded in local value chains and more vulnerable to economic shocks. Crescenzi and Harman (2023) argue that this reliance on low-value FDI hinders the development of sustainable economic linkages and reduces Wales’ attractiveness to higher-value investors in sectors like R&D and headquarters functions.
To address this, Wales must diversify its investment portfolio by targeting high-value sectors, such as advanced manufacturing, life sciences, and green technology, which align with global trends and provide opportunities for local economic upgrading.
c. Limited Integration into Global Value Chains
The LSE report emphasizes that Wales’ connectivity within global value chains (GVCs) is limited compared to other regions. This is partly due to a lack of outward FDI by Welsh firms, which reduces the potential for reciprocal knowledge flows and partnerships. Without strong linkages to GVCs, Wales struggles to present itself as a strategic hub for multinational enterprises (MNEs).
Encouraging Welsh firms to invest abroad while fostering local-global linkages can enhance Wales’ GVC connectivity and improve its appeal to international investors (Crescenzi and Harman 2023).
d. Insufficient Institutional Capacity
Compared to regions like Scotland, Wales’ investment promotion efforts lack the resources and expertise to effectively attract and retain FDI in an increasingly competitive FDI landscape. The LSE report notes that Welsh Trade & Invest has struggled to match the tailored, sector-specific support provided by SDI. Limited resources reduce the ability to provide pre-investment facilitation, aftercare services, and incentives tailored to the needs of investors.
Strengthening institutional capacity through better funding, staffing, and strategic partnerships will be critical for Wales to compete with other regions in the UK and Europe (Crescenzi, Di Cataldo & Giua 2021 on Regional Investment Promotion Agencies and their design).
e. Connectivity and Infrastructure Gaps
Although Wales has made progress in improving its infrastructure, the LSE report highlights ongoing challenges in transport and digital connectivity, particularly in rural areas. Poor connectivity reduces the region’s attractiveness to international investors, who often prioritize locations with efficient transport links and robust digital infrastructure.
To mitigate this, Wales should invest selectively and in a targeted manner to improve the quality of its transport infrastructure and digital connectivity, with a particular focus on integrating rural and urban areas into national and international networks. Enhancing Cardiff’s position as a regional hub could also improve Wales’ overall connectivity.
f. Skills Gaps and Workforce Perception
The LSE report notes that Wales lags behind other UK regions in business-led R&D and patent activity, which are key indicators of innovation capacity. This creates a perception that Wales may lack the advanced skills required for high-tech industries.
Policymakers should address this barrier by strengthening university-industry partnerships, expanding training programs in high-demand fields, and showcasing existing talent through success stories in sectors like renewable energy and advanced manufacturing.
g. Brexit and Uncertainty
The LSE report highlights that Brexit has exacerbated barriers to inward investment in Wales by creating uncertainty around access to European markets. Investors considering Wales as a gateway to the EU may now perceive it as less attractive compared to locations within the EU.
To counter this, Wales must emphasize its continued access to UK markets, strong trade links with the EU, and potential opportunities arising from new trade agreements that are, however, slow to materialise.
References
Crescenzi R. & Harman O. Harnessing Global Value Chains for Regional Development. Milton Park, Abingdon, Oxon: Routledge, 2023 [ISBN13: 978-1-032-41076-0 (print)]
LSE for ESRC. (2018). Scotland & Wales: Foreign Direct Investments – Regional Connectivity through Inward and Outward Flows. London School of Economics.
Inward investment can be leveraged in Wales to support sustainable, local benefit and prosperity by integrating the principles of Global Value Chains (GVCs) and Foreign Direct Investment (FDI) into regional development policies. The framework provided in the book by Crescenzi and Harman (2023) outlines several key steps that can inform Wales’ approach.
a. Embedding Inward Investment into Local Economies
Crescenzi and Harman (2023) emphasize that the success of inward investment depends on its integration into local value chains and local investment eco-systems. The LSE report (2018) notes that Wales has struggled to fully capitalize on FDI inflows, with a significant drop in FDI projects and capital investment after the 2008 financial crisis. The book highlights the importance of embedding FDI into local economies and eco-systems to ensure it generates long-term benefits. Wales may consider to develop – for example - local content units (LCUs) to facilitate linkages between multinational enterprises (MNEs) and local businesses. LCUs can encourage spillovers of knowledge, technology, and skills from MNEs to local firms, enabling local companies to integrate into GVCs. This approach avoids the “enclave” model of FDI, where MNEs operate independently of the local economy, and instead fosters inclusive growth.
b. Supporting Upgrading within Existing Sectors
Rather than focusing on attracting “flashy” high-tech sectors, Wales should aim to upgrade activities (i.e. increase local value addition) within its existing sectors. The book argues that upgrading—shifting to higher value-added tasks within a GVC—can drive sustainable development. Wales can target FDI in areas where it has regional strengths, such as advanced manufacturing, renewable energy, or life sciences, and leverage these for higher-value activities like research and development (R&D) or branding. The LSE report highlights the significant potential for Wales to specialize in renewable energy and advanced manufacturing, sectors where it already exhibits strengths. For example, renewable energy accounted for over 30% of inward FDI capital between 2003 and 2014, reflecting Wales’ natural advantages in this area. Targeted promotion of these sectors can attract investments aligned with local strengths, enabling Wales to develop niche expertise and global competitiveness.
c. Enhancing Institutional Capacity
Investment promotion agencies (IPAs) at both the national and regional levels need sufficient resources and capacity to attract and retain inward investment. Evidence from Crescenzi et al. (2021) demonstrates that well-resourced IPAs can direct FDI towards value-added sectors and ensure alignment with regional priorities. In Wales, tailored strategies for sectors and regions would improve the alignment of FDI with local development objectives.
d. Balancing Inward and Outward FDI
A novel approach recommended in the book is to treat outward FDI as complementary to inward FDI in a Global Value Chain framework. By encouraging Welsh firms to invest abroad, the region can create reciprocal knowledge flows and access to foreign markets. For example, outward FDI can establish Welsh firms as key players in global markets, enhancing their competitiveness and generating benefits for the local economy upon their return.
e. Leveraging Sustainability
Given global trends towards sustainability, Wales should focus on attracting investments aligned with wider Green Global Value Chains. FDI in renewable energy or sustainable industries can align with Wales’ climate goals while fostering regional development. Policies should incentivize MNEs to adopt green practices and integrate with local supply chains to ensure sustainable outcomes. In addition, new LSE research, has shown that ‘Green FDI’ (FDI with the potential to support local sustainability by bringing to the host economy the ‘green’ capital, skills and knowledge needed for the transition) can be identified outside the ‘traditional’ renewable energy sectors.
References
Crescenzi, R., Di Cataldo, M., Giua, M. "FDI inflows in Europe: Does investment promotion work?", Journal of International Economics, Volume 132, September 2021, 103497
Crescenzi R. & Harman O. Harnessing Global Value Chains for Regional Development. Milton Park, Abingdon, Oxon: Routledge, 2023 [ISBN13: 978-1-032-41076-0 (print)]
LSE for ESRC. (2018). Scotland & Wales: Foreign Direct Investments – Regional Connectivity through Inward and Outward Flows. London School of Economics.
3. Are there international examples of effective investment promotion campaigns that can inform Wales’s approach to attracting inward investment?
The consensus in academic literature is clear: countries and regions should avoid seeking 'best practices' to simply 'copy and paste' into their public policies. While case studies based on best practices are commonly used as teaching tools in business schools—where inductive learning methods are emphasized—they are not a universal solution. Nevertheless, Wales can draw valuable lessons from international investment promotion campaigns that have successfully aligned regional assets with global investor priorities. These examples underscore the importance of tailored strategies, institutional capacity, and sector-specific focus—principles also emphasized by Crescenzi and Harman (2023) in their research on integrating inward investment into regional development strategies.
1. Ireland: Targeted Sectoral Promotion
Ireland’s Industrial Development Authority (IDA) has been a pioneer in aligning FDI with local strengths. The IDA leverages Ireland’s highly educated workforce and EU access. This aligns with recommendations in the LSE report on Wales, which emphasizes the importance of connecting investment flows to local knowledge systems and human capital to enhance regional innovation (LSE for ESRC, 2018). For Wales, a similar strategy could highlight its capabilities in renewable energy, advanced manufacturing, and creative industries.
2. Singapore: End-to-End Investor Support
Singapore’s Economic Development Board (EDB) provides a comprehensive suite of services for investors, from pre-investment facilitation to post-investment support. This aligns with Crescenzi et al. 2021’s emphasis on the role of well-resourced IPAs in ensuring investor retention and alignment with local priorities (Crescenzi et al., 2021). Wales could implement a dedicated investment task force modeled on the EDB, ensuring smooth processes and clear aftercare for investors while embedding them into local value chains.
3. Costa Rica: Sustainable Investment Branding
Costa Rica’s CINDE has branded the country as a hub for environmentally friendly industries, leveraging its green credentials to attract FDI in renewable energy and high-tech sectors. Crescenzi and Harman (2023) argue that aligning FDI with sustainability goals enhances regional competitiveness. Similarly, the LSE report identifies renewable energy as a promising sector for Wales, given its abundant natural resources and existing energy infrastructure (LSE for ESRC, 2018). Wales can position itself as a green investment hub by integrating sustainability branding into its promotional strategies.
4. Scottish Development International (SDI): Focus on Value Chains
The LSE report identifies Scottish Development International (SDI) as a successful case study in promoting FDI integration into global value chains. SDI focuses on specific sectors, such as renewable energy and life sciences, and provides tailored incentives that ensure job creation and capital investment in Scotland’s assisted areas. These efforts align with Crescenzi and Harman’s (2023) emphasis on embedding FDI in local innovation systems to maximize spillovers. Wales could replicate this model by enhancing its regional agencies’ capacity to promote key sectors and ensure alignment with local and global value chains.
Key Lessons for Wales
Conclusion
International examples provide a roadmap for Wales to enhance its investment promotion efforts. By leveraging its assets, fostering sustainability, and tailoring campaigns to regional strengths, Wales can position itself as a competitive and attractive destination for inward investment.
References
Crescenzi, R., Di Cataldo, M., Giua, M. "FDI inflows in Europe: Does investment promotion work?", Journal of International Economics, Volume 132, September 2021, 103497
Crescenzi R. & Harman O. Harnessing Global Value Chains for Regional Development. Milton Park, Abingdon, Oxon: Routledge, 2023 [ISBN13: 978-1-032-41076-0 (print)]
LSE for ESRC. (2018). Scotland & Wales: Foreign Direct Investments – Regional Connectivity through Inward and Outward Flows. London School of Economics.
3 January 2025