As the winds of geopolitical change continue to blow, the stakes for attracting capital investment and jobs are high. This is true in Europe as much as in North America. Companies, flush with cash from record profits during the pandemic, are facing headwinds of inflation, increased interest rates, and a higher risk premium for every link in the extended global supply chain.
In 2020, the pandemic shutdown induced a drop off in North American investment announcements into Europe. Over the past two years, these have rebounded significantly, particularly in tech sectors such as software, IT services, and data centers. And even though manufacturing companies have been spooked by the prospect of energy shortages and high prices,
US semiconductor manufacturers have announced large projects in Europe as the West tries to wean itself off Asian imports.
There is another bright spot in the European investment landscape. According to fDi Markets, North American companies have announced investments exceeding $2bn in European research and development (R&D) facilities for the first time for a given year. The proposed research is diverse, spanning across sectors such as electric vehicles, wearable tech, plant-based food and hydrogen-fuelled boilers for industry.
Why the increased interest in Europe? Simply put, North American companies recognize the relative maturity and sophistication of the European labor force. With acute US labor shortages in the sciences compounded by an immigration system that has essentially ground to a halt, companies see Europe as an ideal location to attract the best technical talent that will deliver a competitive edge through innovation. Similar cultures, as well as strong intellectual property rights, are also key factors in locating R&D activities in Europe. Nearly a third of these announcements have been investments into the UK and Ireland. Research suggests that sharing English as a common language influences foreign direct investment decisions between countries.
As the European technical workforce continues to age, proactively fostering the talent pipeline will be critical to preserving this trend. European policymakers should focus on cultivating an attractive business climate for talent and their high-tech employers as R&D can lead to the application of the products, process, and technology that result. And, unlike the transitory nature of research, these investments most often require meaningful capital investments with long-term staying power. Europe’s magnetism will continue to rest on the maintenance of its skilled labor force.
This article first appeared in the February/March 2023 print edition of fDi Intelligence. View a digital edition of the magazine here.