Contribution from The London Development Agency & London First Centre. Scrutiny Session on Inward Investment, 10 February 2004

Transcription

1 Appendix A Economic and Social Development Committee Contribution from The London Development Agency & London First Centre Scrutiny Session on Inward Investment, 10 February What are London First Centre s priorities for inward investment during 2003/6? Background Inward investment can play an important role in the economic development of London contributing to the Mayor s London Plan and LDA s Economic Development Strategy. It can maximise its contribution by: Maintaining London s global competitiveness by creating high employment, wages and capital spending; Contributing and gap-filling in London s key clusters; Establishing leading-edge companies that directly contribute to higher productivity and greater innovation; The attraction of decision-making functions in London which in turn act as a draw to inward investment in the rest of the UK; The introduction of new technology, production techniques, training opportunities and management ideas; Supply chain development; Attracting more higher-value activities such as research, design and development; Supporting the economic inclusion and diversity agenda where possible. (Inward investment can work alongside other LDA initiatives to support economic inclusion, e.g. by providing entry-level jobs and transferring best practice). It should be highlighted that inward investment is only one component of economic development. London needs to follow global inward investment trends as well as policy aspirations. The creation of the LDA gives a real opportunity to tie in its property development, infrastructure improvements, sector development initiatives and skills programmes with a market-focused inward investment strategy. Inward investment has never been more important to London particularly since the competition for inward investment has intensified and will continue to increase whilst the actual market for Foreign Direct Investment (FDI) activity is likely to decrease. At the same time, London s dominance in key market sectors is under significant threat from other European destinations. The international perception of London as the Global City is being tarnished lack of investment in transport, high property costs and skills gaps all threaten its pre-eminent position. We consider that now is the time for a co-ordinated response which enables London to retain and grow its position as a World City and make an increasingly compelling proposition to global

2 markets. We believe this can be achieved if LFC and other London stakeholders work together to deliver a more comprehensive and integrated inward investment service. Priorities The changing nature of FDI and the urgent priorities for London require a different response from LFC and the sub-regional partnerships (SRPs) in the provision of inward investment services. In view of the new agenda our key priorities for the three year period are to: Ensure that London retains its position as the number one investment destination in Europe. Maintain the momentum by building on our track record (having assisted 650 overseas businesses in London with the creation of over 34,000 jobs) by completing a further 225 projects creating 6,700 jobs over the three year period. Align LFC s activities more closely to the LDA s objectives and ensuring a wider cross section of London benefits from foreign direct investment (with a target of 45% of projects establishing in outer London) Focus on priority sectors for London and target key companies within those sectors using advanced proposition development to clearly define London s advantage. We will achieve this by: Recognising that London is under-marketed, extending and enhancing our overseas marketing through greater use of lead generation agencies, extending and gaining greater value from our international network and explore the possibility of opening overseas offices; Broadening and enhancing our existing partnerships with the LDA, SRPs, UK Trade and Investment (UKTI the Dti s national inward investment agency), the LDA s Team London initiative and the business community and engage other key stakeholders; Building capacity both at sub-regional level and at LFC to leverage existing deal flow and new investment opportunities; Creating a stronger research and lead generation function both internally and through the provision of external services or collaboration; Consulting with the LDA about re-branding the inward investment service to reflect the new priorities. During we have enhanced LFC s strong organisational platform and existing inward investment service by: Deploying additional LFC staff resources within the SRPs to inform our marketing and provide a stronger delivery capability; Creating a dedicated East London team (recognising the area s priority status) to build capacity and develop the product offer for inward investment opportunities in the Thames Gateway;

3 Augmenting the core LFC project management team with new senior staff and up-skilling the existing team to enable them to handle more complex projects; Exploiting and developing our extensive global networks to leverage incremental deal flow and related investment opportunities and ensure that our contacts are updated on the diversity of London s offer; Endeavouring to ensure that the business retention services led by the LDA with the promotion of new inward investment and ensuring they are effectively co-ordinated; Ensuring that we build on and transfer best practice by benchmarking our performance and conducting customer satisfaction surveys. 2. Has there been any shift in priorities from the previous contract period and, if yes, what changes have been made and why? Until the creation of the GLA and the LDA, LFC operated without an overarching economic development policy framework for London. Instead we delivered against the inward investment agenda set out by UKTI. This was focused on promoting London as the gateway to the UK and Europe and in attracting knowledge-based investment as set out in the 1998 Competitiveness White Paper. The LDA s Economic Development Strategy set out a framework for developing London to achieve the objectives of economic growth, knowledge and learning, diversity, inclusion, renewal and sustainable development. This presents us with an opportunity to provide a comprehensive and competitive inward investment service which delivers real additionality across London. The significant changes therefore made to the service for the new contract focus on ensuring that London s inward investment strategy ties in as effectively as possible with the LDA s agenda, particularly its sectoral and spatial priorities: Sectors As highlighted above, prior to the creation of the LDA, LFC focused on sectors highlighted in the Competitiveness White Paper and was particularly successful in attracting businesses in the ICT, financial services and business services sector. Over the past 18 months we have been broadening our range of target sectors and developing expertise in other areas. We have produced marketing materials on London s creative sector and opportunities in the automotive sector and are particularly interested in the intersections between sectors where London has real strength for instance the relationship between product design and high-value manufacturing, or ICT and financial services. We shall also want to augment our expertise and tie in strategy with the Creative and production industries Sector Commissions recently formed by the LDA. Increasingly our aim is to spot sectoral trends and opportunities and capitalise upon them by developing very targeted offerings. The proposed changed in legislation around the Gaming industry is a good example where, over the last few months LFC, together with key private sector partners, has developed and presented a London offering to key global players in the

4 sector. We have developed similar propositions in the environmental services and oil and gas sectors. As well as sectors and sub-sectors, our targeting is focused around corporate functions. For example we are currently developing a programme in conjunction with the LDA to promote London s role as the European Capital and in particular to target North American and Asian companies that have located their European Headquarters on Continental Europe about the advantages of re-locating some or all of those activities to London. We are also developing offers around back-office functions (e.g. call centre/shared service centres) where we can demonstrate the diversity of offer available in London s sub-regions. Priority Areas LFC is working closely with the relevant sub-regional agencies to identify and develop opportunities in the LDA s priority areas. In each sub-region LFC has recruited and seconded a dedicated inward investment manager to be based at sub-regional agencies to handle LFC and UK Trade and Investment generated projects. These individuals will be responsible for helping develop the sub-regional proposition, will handle enquiries with the support of the local agency and act as a conduit for the flow of information between LFC and the sub-region. In addition, given the importance and scale of opportunity presented by the Thames Gateway, LFC has recruited an additional two staff to be based at Gateway to London s offices to act as a product development team dedicating to developing marketing propositions with particular focus on developing property, skills, training and funding packages. Having LFC seconded staff ensures that there is a consistency of service provision across London and that investors are making their investment choice on the basis of the product on offer rather than the service they receive. It is important to note that LFC can only influence the development of the sub-regional propositions. Critically, the LDA, the SRPs and other stakeholders, such as the Learning and Skills Councils (LSCs), will need to actively engage in the development of both the sub-regional proposition and product (in terms of land & property, skills and finance packages). As such joint working is key. The role of LFC in this dialogue is to: 1. Help formulate the proposition; 2. Identify possible inward investment opportunities; 3. Identify cogent selling messages and appropriate routes to market; 4. Enact those opportunities; and 5. Feeding intelligence back into investment decision-making processes from successful and failed inward investment targeting activities.

5 3. Funding a) The total funding allocations for inward investment during the current contract period April 2003 to March 2006 and the sources from which these will be met. London First Centre funding: Total Source London Development Agency 1,763 1,604 1,580 4,947 Corporation of London Private sector contribution 1,160 1,215 1,274 3,649 Total funding (000s) 3,023 2,919 2,954 8,896 b) The annual breakdown of expenditure and allocations against the priorities set Expenditure Salaries 1,508 1,550 1,514 Overheads Service delivery Organisational change Total expenditure (000s) 3,023 2,919 2,953 c) The funding allocation for the period It is important to note that prior to 2003, LFC s funding was agreed on a rolling annual basis with its funding partners. Prior to the creation of the LDA, LFC s public sector funding came via the national inward investment agency, UK Trade and Investment. With its creation, the LDA assumed Statutory responsibility for inward investment and the funding was routed from UKTI to the LDA. LDA granted funding for LFC for , indicating its intention to move to a three year contractual funding arrangement with an agency following a competitive tender. The funding sources for the period are set out below:

6 Source Government Grant 1,065 1,193 1,074 Corporation of London Private sector contribution Total funding (000s) 2,135 2,270 1,905 Expenditure Salaries 1,391 1,315 1,093 Overheads Service delivery Total expenditure (000s) 2,402 2,270 1,905 Key changes in funding during the contract period to reflect the new priorities compared to funding prior to the LDA contract. Salaries In the staffing levels at LFC stood at 18. The new service delivery structure required two significant changes an increase in staff numbers to 26 and a change in the mix of staff enabling more senior resource to work on complex projects and activities. The majority of new staffing relates to the recruitment of 7 additional staff seconded to LFC s sub-regional partners and a new North American Director. International Business Development and Lead Generation Business development activity, the market-facing aspect of our work, is the way in which we interact with the investment market. Around 40% of our leads are received through the UKTI network of overseas Embassies, High Commissions and Consulates General. The remaining 60% is generated through our own initiatives and leveraging our extensive private sector networks both in the UK and overseas. Unlike other UK inward investment agencies, LFC does not have any overseas offices but augments its networks by utilising professional lead generation agencies in key markets. LFC has budgeted around an additional 150k per annum over the contract period for new lead generation activities. In the current year we have used this funding to further augment our existing networks by testing out lead generation agencies in Germany, the Nordics and France and to buy in additional consultancy to assist with targeting in particular sectors. We are currently investigating the merits and viability of establishing 4 overseas offices in key locations in Asia and North America.

7 Organisational Change Since the strategy adopted for the new contract required a significant transformation from the existing operational model, significant resource has been focused in the following areas: Recruitment, induction and training of new staff Additional up-skilling of the existing staff team to meet the new agenda Integration of service delivery with stakeholders and the London regional partners. Revised IT requirements e.g. upgrading LFC s client management system and ensuring it is accessible by remote based staff. Developing a supplier portal for companies wishing to provide services to LFC s investors. Investment in this area has been budgeted at 161,000 for the current year reducing to 20,000 per annum for the remaining two years of the contract. Communications and Promotions As part of our contract with the LDA we were requested to consider reviewing a name and identity change for London First Centre and to update our marketing and key messages. This work has been carried out within the context of the work undertaken by the LDA to develop an over-arching brand for London to be used by Team London in promoting London internationally. LFC s review was undertaken by Circus, the Brand Engagement consultancy and the recommendations have been discussed with key stakeholders. We are currently in dialogue with the LDA concerning implementation. The recommendations are based on the need to take account of internal and external drivers. It is acknowledged that London is currently under-marketed and there is an opportunity to work collaboratively with Team London members and particularly Visit London to ensure consistency of message and efficiency of effort. There are also a number of key challenges for London Thames Gateway and Olympics which necessitate new strategies and new energies. Externally, the FDI market is becoming tougher with new challengers competing aggressively for a share of the market. Investors are increasingly aware of London s limitations as well as its unquestionable strengths. The key recommendations are to: Create a distinctive brand for LFC with a new name and new identity system To agree a brand route and follow through across the whole organisation To clarify the offer, build on LFC s sales and service competency with greater emphasis on marketing

8 To market London and LFC more aggressively ensuring investor contact earlier in the decision making process Developing a range of discretely funded special projects to augment LFC s core service offer (e.g. an Ambassadors for London programme, developing a network of London alumni and a strategy to use the 2012 Olympics as a catalyst for inward investment). The detailed recommendations are ambitious and wide-ranging. We are currently in discussion with partners about the funding and implementation of these recommendations. 4. What mechanisms are in place for inter-regional communication on inward investment and how are they working in practice? Evidence to the committee submitted by UK Trade and Investment highlights the mechanisms that are in place for inter-regional communications on inward investment. On the whole these mechanisms work well and the UK regions are in competition for inward investment, there is a willingness on behalf of the individual agencies to share information and best practice. London First Centre has always had a policy of collaborating with other regional agencies given the significance that London has as the UK capital and leading brand in acting as a gateway to the rest of the UK and Europe. Indeed, a survey commissioned by LFC in 2002 revealed that 56% of companies assisted by LFC planned to expand their operations beyond London. Collaborative activity with other agencies has included a joint office with One North East in Taiwan in the late 1990s (terminated solely due to the lack of returns from the market) and joint lead generation agency agreements with the East and West Midlands in Korea. We have undertaken pilot lead generation initiatives with SEEDA and Invest East of England and held exploratory conversations with SEEDA about sharing overseas offices to promote the advantages of the wider South East region. However, as pointed out in UKTI s paper, there are times when competition becomes less constructive. Several years ago, prior to the creation of RDAs, LFC lobbied DTI in protest at tax-payers money being squandered to attract businesses from one part of the UK to another. This resulted in an understanding amongst regional promotional agencies not to undertake domestic promotion that would result in displacement. That agreement has been tested from time to time, most notably towards the end of 2002 when the North West Development Agency used high-profile newspaper advertising to denigrate London and induce businesses to move from the capital to the North West. Milton Keynes, Peterborough and Kent continue to use the Evening Standard to promote themselves as a preferable business location compared to London. These kinds of activity do nobody any favours and pose a serious threat to the efforts of all those involved in investment promotion.

9 UKTI have a team dedicated to supporting overseas investors who have established operations in the UK. The LDA works closely with this team to provide support services to businesses. There is a significant need to communicate on an inter-regional basis and a National Business Retention Forum has been established to develop this work. The group consists of the lead business retention officers in the nine Regional Development Agency s plus the Devolved Administrations. The LDA s Head of Inward Investment, Business Retention & Trade currently Chairs this forum and provides the interface between the regional operations and the national/international operations in the Dti. 5. How is London First Centre engaging with sub-regional partnerships/bodies and what is the effect on intra-regional distribution of inward investment? As indicated above, LFC s strategy is based on close collaboration and the active participation of the sub-regional partnerships to: broaden the marketing of London s economic activity through developing a stronger understanding and promotion of the sub-regional product offering build capacity within the sub-regions ensure a consistent level of service delivery across London spread best practice. In addition to seconding staff to the sub-regional agencies LFC is working with subregional organisations to: Utilise the sub-regional sites databases to understand and promote market-ready sites and developments; In partnership with the sub-regions, organise regular briefing tours for LFC staff to familiarise themselves will all of the London product; Better understand the sub-regional product offer and build on other research on subregions and sub-regional promotion; Assist in the development of specific marketing messages and materials for each sub-region with consistent branding which mirror the overall messages for London and change and build the image of the areas; Aggressively disseminate these messages both within our networks and particularly amongst UKTI offices worldwide and to the market at large to dispel the misconceptions about London; Organise joint networking events for investors with the LDA and sub-regional partners; Ensure a smooth transition for new investors in outer London into the Business Retention programmes of both the LDA and the SRPs to secure the retention and re-investment of those investors. Distribution of Investment

10 Appendix I contains graphs showing the distribution of companies assisted by LFC between its inception in 1994 and Of LFC s 620 completions, some 57% located in central London, especially in the City of London (17%) and in Westminster (30%). Central London is commonly the gateway entry point for inward investors who initially set up here before relocating and expanding into outer London and the wider South East. In comparison 39% of investors located initially in outer London, particularly in West London (25%) and Hammersmith in particular (5%), whilst some 3% located outside the London boundaries. Tower Hamlets with Canary Wharf and much of Docklands have also attracted increasing levels of investment with 5% of projects locating there. Investment locating in outer London has been larger from a perspective of jobs per project. As a result, outer London investment has accounted for some 46% of all LFC jobs created and safeguarded. In comparison, central London has accounted for 48% of jobs with investment outside London some 6%. The City of London and Westminster again accounted for the largest levels of investment with 20% and 23% of jobs respectively. The creation of the Regional Development Agencies has meant that LFC no longer assists companies investing on the fringes of London, preferring to work in partnership with the appropriate RDA, more often than not South East of England Development Agency (SEEDA) or Invest of East England (IEE). Naturally, the intention in directing additional resource into the sub-regions is to increase the percentage of investment going into Outer London particularly into LDA priority areas. This will not happen overnight. Most of our work since commencing the contract has been spent in recruiting and inducting the new sub-regional teams and identifying opportunities to market. Our re-branding work will ensure that our marketing messages more effectively convey the diversity of offer that London has to offer. In addition, some areas, such as the Thames Gateway are huge regeneration projects where the opportunity will not be fully realised for many years. Our clients are only interested in strong market-ready development sites and it is these (such as the Royal Docks) where we will focus our energies. In addition, it is imperative that we continue to be a client led organisation. Our aim is to ensure that they are as well as informed as possible about the diversity of locations that London has to offer so that they can make an informed decision about the best location for their business. The signs are encouraging we are seeing an increased proportion of companies visiting Outer London sub-regions to see at first hand the opportunities available and believe that in the medium term these will translate to an increased proportion of investment in these areas.

11 Appendix I LFC Completions by London Borough, 1994 to 2003 Jobs Created / Safeguarded by LFC Completions by London Borough, 1994 to 2003