Universities and foreign direct investment: what, why and how?

A new report from the Higher Education Policy Institute, supported by UUKi, the National Centre for Universities and Business and Midlands Innovation, aims to shed light on the role that university R&D plays in capturing this investment, why it is important not only for institutions themselves, but for local economic growth and job creation, and how we can continue to grow this valuable source of inward investment. 

What do we know?

Drawing on a number of data sources, the report paints a positive picture of the current landscape, albeit with considerable scope for further growth and rebalancing.

• FDI accounted for £1.47 billion (16%) of UK R&D funding in 2019-20, 83.5% of which went to England. 

• There is far more investment in clinical medicine (29.6%) than in any other discipline, followed by biosciences (9.2%), physics (7.8%) and engineering (5.1%). 

• In line with broader trends in research funding, South East England and London both receive more than three times more FDI than any other region.

More granular information about the national origins of FDI and different types of investment, such a capital investment, commercialisation activity, R&D projects, and talent development, is hard to come by. To give a flavour of the array of partnerships that exist, the report includes a number of case studies from across the UK. Analysis of the latest HESA finance data will be included in the 2023 edition of UUKi’s International Facts and Figures publication later this year.  

Why is it important?

To a large extent, the arguments in favour of FDI investment are the same of those in favour of boosting R&D funding in the round, namely that it fosters societal health and wellbeing, drives economic growth and helps to solves global challenges like the climate emergency. The case studies in the report provide concrete practical examples, such as investments from German industrial manufacturing conglomerate, Siemens, in agri-food research at the University of Lincoln. 

Beyond the core arguments around R&D, there are important levelling up benefits. The report highlights the mutually reinforcing relationship between FDI and local industry clusters, as well as positive correlations between FDI and job creation and productivity gains.  

How can the sector secure more investment?

FDI in R&D can and should play a major role in the Government’s Science Superpower and Levelling Up ambitions. But to realise the UK’s full potential as a hub for FDI, we need more joined up action between institutions, more focus on engaging local partners in attracting FDI, and dedicated support for this activity from government. The sector must also continue to ensure that in developing new international business relationships, universities continue to adhere to UUK’s guidance on managing risk.  

The report’s recommendations include a call on government to develop ambitious pilot activities to attract new FDI. These should include incentivising universities and local economic growth organisations to work together to attract FDI into R&D, incorporating FDI into new bilateral international research and innovation partnerships, and supporting the development and promotion of investment opportunities. 

Moreover, universities and data agencies should work together to develop a more sophisticated and granular understanding of the full spectrum of FDI into university R&D activity, and work more closely with other institutions to attract FDI to specific regions. 

The full set of recommendations for government, universities and local economic growth organisations can be found in the HEPI report.