Foreign Investment in Brabant: still going strong!

Global economies are going through turbulent times. And this is reflected in the dynamics for foreign investment. Although historic record levels of cross border investment in the years 2005-2006 were experienced, the financial crisis caused sharp decreases of investment activity globally starting at the end of 2007 in the USA and widening throughout 2008 and first quarters of 2009.

 

According to an analysis by my company, IBM-Plant Location International (PLI) – the global centre of excellence within IBM Global Business Services for location strategy consulting – the Netherlands faired reasonably well during the recent crisis years. In fact it further experienced record numbers of foreign investment projects, reaching an all time high of 256 projects in 2008 and confirming this strong performance with 253 projects in 2009. On the other hand, the number of new jobs created through these investments went down from around 8,000 to 6,900 and 6,800 in 2008 and 2009 respectively.

 

These numbers represent a trend of good performance of stable consumer markets in times of economic uncertainty, coupled with smaller investment projects in Western Europe while larger labour intensive investments continue to go east where cost levels are more competitive.

 

During the recent Brabant Investors Day, I presented the latest foreign investment results for the Netherlands, and demonstrated that Brabant is no exception to this trend. It performs reasonably well in attracting foreign investment with 40 new projects in 2009, creating around 1,000 new jobs. The average project size decreased to 26 jobs on average for each foreign investment project, compared to 47 jobs in the recent top year 2006.

 

Part of the explanation can be found in the nature of foreign investment in Brabant. The province is undergoing a shift from production oriented investment to service oriented investment, which generally creates fewer jobs.

 

The attractiveness of Brabant for production activities is challenged by the upcoming emerging markets in Eastern Europe as well as Asia with their lower cost base, and it is very unlikely that this competition will weaken in the upcoming years. In this context it is obvious that Brabant continues to aim at protecting the industrial base that it still has, to ensure that this base remains stable and over time becomes the foundation for new growth.

 

One current area of growth in Brabant is Research & Development. R&D-activities are frequently co-located with existing production activities and much less established as stand-alone centres. Also, companies aiming to increase R&D activities often seek to do this through partnerships with peer companies and educational centres of excellence. These partners don’t necessarily need to be next door, but it helps if a cluster of knowledge exists. Over the years, Brabant has managed to develop a business environment in which those clusters can grow, and the first successes can be recognized: both through growing partnerships as well as through an increase of new R&D centres. 10% of all new foreign investment projects in 2009 in Brabant were in R%D, versus 5% for the Netherlands as a whole.

 

The shift to a services economy is most evident in the strong increase of logistic activities. Over 50% of jobs through foreign investment are related to distribution centres and other logistics activities. The province undeniable has a number of key advantages that together merge into a strong proposition for logistics: it is geographically perfectly located between several main gateways into Europe (particularly the seaports of Antwerp and Rotterdam) and the economic hinterland of Germany, still a key engine for the European economy; it has a well developed road infrastructure which suffers less from congestion than the entry points in Belgium and the Netherlands: it still has a reasonably amount of space to develop logistics activities, and it has a strong cluster of logistics support services. True, one could argue the same advantages for some of the neighbour regions, but this just confirms that the whole region of Southern Netherlands and the cross border area in Flanders is uniquely positioned.

 

Finally, for office operations the market is considered more challenging. In the segment of back/middle offices such as call centres or transaction processing service centres, there is still a lot of future investment activity expected. But competition is widening continuously, with regions and cities in Southern and Eastern Europe targeting the same activities. And while their offer may sometimes be weaker on the workforce side, their cost competitiveness is a strength that attracts the interest of many companies. Where cost is less a concern (often the case for smaller centres) and complexity of management or service delivery (for example many languages required) is high, there still are lots of opportunities for Brabant to compete for these projects.

 

The market of head offices is undergoing a change. The traditional pan-European headquarters is gradually disappearing as companies split their organisations, both by business function (shared services) and by region. For headquarters (whether pan-European or regional), the Netherlands is extremely well positioned. For Brabant particularly, the regional segment of Benelux offices – in which it has already been quite successful – continues to be an area to focus on.

 

Roel Spee

 

Global Leader
Plant Location International (PLI)
Global Location Strategies
 
IBM Global Business Services