The EU is still the most important destination for global foreign direct investment (FDI), both inward and outward, says the 2012 European Competitiveness Report, published on Wednesday.
It seeks to identify opportunities to make European industries more competitive by maximizing the benefits of globalization.
This memo provides details on important developments which highlight the good competitiveness performance of EU industry in globalization, energy efficiency and FDI.
The 27-nation bloc's dominance in FDI reflects both the potential of the Single Market and the ability of EU companies to successfully compete in EU and non-EU markets, the European Commission said in a press release.
In 2011, the EU attracted $421 billion, 28% of total world FDI flows. Foreign firms contributed to foster job creation, value added and productivity growth, especially in EU-12 countries. EU-15 multinationals are the most important direct investors in the world.
However, international competition for attracting FDI is increasing.
The report finds that the major drivers of FDI inflows have been the single market, the single currency and, in the case of west-east flows, cost advantages.
The importance of fiscal incentives for attracting FDI is not confirmed empirically; the impact of unit labor costs and tax rates differs between countries. In terms of the impact of FDI on host economies, there is a significant variation across industries. In the EU 15 foreign Multinational enterprises (MNEs) have the highest share of value added in pharmaceuticals (53 %) followed by paper and chemicals.
Within services, information and communication services have the highest share of foreign-controlled enterprises (29%), exceeding the degree of internationalization of total manufacturing. In the EU-12 countries foreign MNEs play a more important role in almost all industries.
The EU enterprises are overall increasingly integrated within global value chains. Maximizing the domestic content of exports can be regarded as an important driver of industrial competitiveness. Around 87% of the value of EU exports was domestically produced based on 2009 figures. This good performance is to a large extent due to EU enterprises proactive global strategies and investments in R&D and innovation. EU exports have been a powerful driver of recovery.
EU manufacturing firms are overall global frontrunners in energy efficiency, innovation activities and investments in clean and more energy-efficient technologies and products and services, says the report.
An overview of competitiveness in 27 EU Member States show that they have made good progress in strengthening the sustainability of industry, improving support to small and medium-sized enterprises (SMEs), and reforming public administration. They show a continued shift to a more knowledge-based economy, with increased labor productivity and highly-skilled labor. Member States have engaged in reforms to improve business prospects and strengthen their competitiveness:
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