Ernst & Young Attractiveness Survey - Scotland 2017

EY’s Attractiveness Survey
Scotland
May 2017
Standing strong in
uncertain times

EY’s Attractiveness Survey Scotland − May 2017
Foreword
Demonstrating the solid foundations
that Scotland has laid, it has continued
to attract record numbers of inward
investment, with the total number of
FDI projects in 2016 exceeding the
previous ten-year high set in 2015 —
from 119 in 2015 to 122 in 2016.
Not only this, but it has firmly
established itself over the last five
years as the second most attractive
destination in the UK behind London.
This data proves that Scotland
has remained resilient and our assets
on the global stage continue to
shine through.
Reflecting on our university
strength, Scotland saw particular
success in 2016 in relation to research
and development (R&D), emerging
as the UK leader in attracting FDI for
research and development projects.
Scotland’s reputation as a global leader
in the software sector is also reflected
as it moves up to take second place
outside of London and the South
East of England.
In last year’s report we noted the
need to focus on developing stronger
relationships among the newer and
emerging origin sources of FDI,
particularly China. In 2015, China
did not appear in Scotland’s top 10.
However in 2016, it ranks as fifth
largest originator of investments in
Scotland. This means we are starting
to see the beneficial results of recent
efforts to develop the relationship
between Scotland and China, such
as via trade missions.
Looking at the primary investor into
Scotland this remains the US, with
43 projects representing 35 per cent
of all projects into Scotland in 2016.
It is evident that Scotland is a heavy
weight in the FDI ring. However, in an
unprecedented time of uncertainty,
it cannot afford to rest on its laurels.
The investor perception section of our
report shows Scotland’s attractiveness
fell by one percentage point.
Although not alarming in itself,
the research suggests that the EU
Referendum vote and its aftermath
may be having an influence on global
perceptions of Scotland and the UK’s
long-term attractiveness and we could
have reached a tipping point.
Scotland is very good at securing
follow-on business with inward
investors, but more needs to be done
to attract new FDI projects. It is also
vital that we continue to capitalise
on our strengths, all of which have
been highlighted as key priorities
of investors when making future
investment decisions.
Our perception study highlighted
that the priorities of global investors
are: Infrastructure, cited by 31 per
cent of investors; negotiating trade
deals with new countries (32 per
cent) — US, China and India identified
as most important; skills (28 per
cent); retaining existing EU trading
arrangements (28 per cent); the
approach to migration (22 per cent);
and creating incentives for foreign
investors (21 per cent).
Against this backdrop business
and government should be thinking
strategically through Brexit, investing
in skills, developing digital Scotland
and working together to further raise
the brand and profile of Scotland.
There is a short window of time to act
in response to the investors’ sentiment
and wish list. A strategy with trade,
skills and infrastructure at the core can
help Scotland to protect its legacy as
an attractive place to do business and
capitalise on future opportunities.
Mark Harvey
Senior Partner,
Scotland
Mark Gregory
Chief Economist,
UK and Ireland
We are delighted to welcome you to
the 2017 Scotland Attractiveness
Survey, which — as in previous years
— examines the evolving performance
and perceptions of Scotland as
a destination for foreign direct
investment (FDI). This report continues
EY’s long history of sponsorship of
research into UK trade, including FDI,
reflecting our desire to encourage
an open dialogue between business
leaders, investors and policymakers on
how to maximise Scotland and the rest
of the UK’s economic performance.
FDI remains a vital source of
capability, economic activity and jobs
and Scotland’s continued ability to
attract it will be under close scrutiny
in the run-up to Brexit in 2019.
The report paints a positive picture
for Scotland’s FDI performance in
2016 but warns of potential waning
investor sentiment as uncertainty
takes hold.
1
www.ey.com/attractiveness
Contents
01
Foreword
02
Executive Summary
04
Reality
Overview of Scotland’s FDI
performance in 2016
12
Perception
Perceptions of Scotland
as an FDI location
17
Outlook
Continuing to succeed in a
competitive global market
18
Methodology
Evaluation of the reality of FDI in
Europe based on EY’s European
Investment Monitor (EIM)
20
About the
Attractiveness Program

www.ey.com/attractivenessExecutive Summary www.ey.com/attractivenesswww.ey.com/attractiveness
2 3EY’s Attractiveness Survey Scotland − May 2017 EY’s Attractiveness Survey Scotland − May 2017
Executive Summary
1
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3
7
8
2
6
4
10
9
Scotland puts in another record-breaking
performance in 2016 with 122 FDI
projects secured
Business services contributes the most
projects, increasing its number of FDI projects
in Scotland by 42% between 2015 and 2016
More than one in 50 FDI projects investing
in the whole of Europe are selecting
Scotland as their location
US and France are the top two investors
– 35% of all projects into Scotland were
from the US. France takes No.2 spot with
11.5%. French FDI into Scotland a sustained
success story over the last five years
2016 also saw a strong increase in
Irish and Chinese investments
Retains its title as the 2nd biggest
region of the UK behind London for
5th year running
Scotland is 2nd, outside of London,
in securing investments from the
software industry
Number of FDI jobs created has fallen
due to the mix of projects secured
Scotland attracted more R&D
projects than any other UK region,
with software and life sciences the
main drivers
Three Scottish cities in UK Top 10 –
Glasgow, Edinburgh and Aberdeen
London recorded
451projects
US
35%of all projects
France
11.5%of all projects
Glasgow
Ireland China
Edinburgh
Aberdeen
More than
one in 50
FDI projects selecting
Scotland
Scotland
122projects
2nd
biggest region
of the UK
for five years
122
FDI projects
secured in
2016 2ndin software
West Midlands in
third place with
111projects
Record-breaking
Top two investors
Scotland
In UK
Top
10
FDI projects
42%increase 2015-2016

EY’s Attractiveness Survey Scotland − May 2017 EY’s Attractiveness Survey Scotland − May 20174 5
Overview of Scotland’s FDI
performance in 2016
Standing strong in uncertain times
Scotland built on its success in
attracting Foreign Direct Investment
in 2015 with another strong
performance in 2016. EY’s European
Investment Monitor reveals that the
number of inward investments into
Scotland during the year rose to their
highest in the past decade. The figures
show that the total number of FDI
projects secured by Scotland in 2016
rose fractionally — by 2.5% — from
119 in 2015 to 122 in 2016, setting
a ten-year high.
This means Scotland has held
onto the gains it made in 2015, with
projects continuing to increase in
2016 from their already record
levels. This robust FDI performance —
achieved amid widespread uncertainty,
not least springing from the UK Brexit
vote in June 2016 — confirms the
continuing strength of the Scottish
economy’s ability to attract and secure
cross-border investments.
However, the small increase in
projects into Scotland was outpaced
by the growth in FDI projects in the
UK as a whole. As a result, Scotland’s
share of all projects coming into the
UK fell slightly, from 11.2% to 10.7%.
That said, it’s important to note that
2015 had marked Scotland’s highest
percentage share of UK projects
recorded in the past ten years.
Turning to a European level, more
than one in 50 FDI projects investing
in the whole of Europe are selecting
Scotland as their location.
…maintaining its second-placed
ranking in the UK, behind London
A comparison with the FDI
performance of other areas of the
UK shows that Scotland secured the
second largest number of projects
behind London. During the year,
London recorded 451 projects and
Scotland 122, with third place among
the UK regions going to the West
Midlands with 111 projects.
Looking back over the past decade,
Scotland has secured the UK’s second-
highest number of projects in every
one of the past five years. This is a
clear indication that Scotland is now
firmly established as the second-placed
destination behind London for FDI
projects coming into the UK.
FDI job creation in Scotland
falls back
While the number of FDI projects
coming into Scotland edged higher in
2016, the increased flow of projects
did not trigger a corresponding rise in
the number of jobs generated by FDI.
The projects secured by Scotland in
2016 tended to be smaller on average
than in 2015 but this was in part
due to the mix of projects secured.
As Scotland grows it is attracting more
services projects which contribute less
jobs per investment on average than
traditional manufacturing projects.
The decrease in FDI job creation in
Scotland could also signal a shift in
the labour market away from large
numbers of low-skilled workers to
fewer, highly-skilled roles, such as
those required for R&D and software
activities, which deliver increased
value to the economy.
In 2015, the average employment
impact of an investment into
Scotland was the creation of 45
jobs, with the 119 projects recorded
during the year yielding an aggregate
total of 5,385 new roles. But in 2016
the average figure fell to 24 jobs,
with 2,868 jobs from 122 projects.
This figure means Scotland’s number
of FDI jobs secured fell in 2016 by
47% from 5,385 to 2,868.
As a result, Scotland was ranked
sixth for FDI job creation among the
UK regions in 2016 behind London
(10,366 jobs), the West Midlands
(8,388), the North West (5,152),
Yorkshire (3,724) and the East of
England (3,220). In terms of UK
market share of FDI jobs, Scotland
secured 6% of the employment
generated from FDI by the UK as a
whole, down from 12.7% in 2015.
Reality
Scotland has held onto the gains it made in
2015, with projects continuing to increase
in 2016 from their already record levels.
This robust FDI performance — achieved
amid widespread uncertainty — confirms
the continuing strength of the Scottish
economy’s ability to attract and secure
cross-border investments.
Looking back over the past decade,
Scotland has secured the UK’s second-
highest number of projects in every one of
the past five years. This is a clear indication
that Scotland is now firmly established
as the second-placed destination behind
London for FDI projects coming into the UK.
FDI performance of UK regions,
2015 to 2016
Source: EY’s Global Investment Monitor 2016
500
450
400
350
300
250
200
150
100
50
0
Projects
London
2015 2016
Scotland
W
estM
idlands
Yorkshire
North
W
est
South
East
EastM
idlands
EastofEngland
Northern
Ireland
South
W
est
North
EastW
ales
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Total
London 305 262 266 289 327 313 380 381 405 451 3379
Scotland 69 53 51 69 51 76 82 79 119 122 771
W. Midlands 54 37 51 50 38 50 47 63 92 111 593
Yorkshire 16 22 42 30 20 21 20 50 83 98 402
North West 26 51 38 64 39 44 56 46 101 90 555
South East 83 64 64 41 83 55 47 73 61 72 643
E. Midlands 10 31 16 41 20 17 27 29 37 44 272
E. England 51 46 35 27 26 20 30 34 28 39 336
N. Ireland 26 19 25 23 17 29 36 39 15 39 268
South West 9 29 32 40 25 15 27 28 37 28 270
North East 42 37 38 35 24 26 23 23 41 26 315
Wales 22 35 20 19 9 31 24 42 41 23 266
Grand Total 713 686 678 728 679 697 799 887 1065 1144 8076
Number of projects secured by all areas of the UK over the past ten years
FDI Projects announced in Scotland
and percentage market share of
UK projects 2007-2016
140
120
100
80
60
40
20
0
Projects
12.0
10.0
8.0
6.0
4.0
2.0
0
Percentage
Scotland %
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
FDI Employment announced in
Scotland and percentage market
share of UK projects 2007-2016
7000
6000
5000
4000
3000
2000
1000
0
Jobs*
25.0
20.0
15.0
10.0
5.0
0
Percentage
Scotland %
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
* Jobs figures are based on a sample not actual data

www.ey.com/attractivenessReality
Sectors: business services
leads the way
The leading sectors generating FDI
into Scotland in 2016 were a mixture
of service sector, construction and
manufacturing-based activities.
In common with the UK regions
excluding London — where software is
the sector that generates the largest
number of projects — in Scotland
it is the business services sector
that contributes the most projects.
Unlike the UK as a whole, construction
was the second largest FDI sector
in Scotland in 216, with software
ranked third in terms of Scottish
project numbers.
A closer look at the figures shows
that business services increased its
number of FDI projects in Scotland by
42% between 2015 and 2016, taking
its total to 17 projects recorded —
a figure that represented 14% of all
projects into Scotland. Conversely, the
number of software projects recorded
fell by 32% to 13 projects, narrowly
Scotland is now second behind London
in securing investments from the
software industry
Why Farmflo opened a
software research centre
in Scotland
Irish farm software company
Farmflo launched a new Research
& Development centre in Glasgow,
where it will explore emerging
opportunities around the Internet of
Things (IoT).
Set up by two Irish brothers,
Jason and Gareth Devenney,
Farmflo’s system allows farmers to
record and use real-time data on
such things as fertiliser stocks, crop
storage and herd treatments and
movements. The company’s highly
sophisticated system integrates
data from multiple sources, allowing
farmers to then view it on their
smartphone or tablet device.
Farmflo’s data system has been
designed to reduce risk of error and
simplify the complex task farmers
can often have when reporting,
releasing more time for direct
farm activity and improving overall
farm productivity.
At the Glasgow site based at the
Whisky Bond in Port Dundas, the
system will be fully developed and
refined based on feedback from
farmers on the pilot. It will also look
at emerging opportunities around
IoT, with sensor network data
outputs enriching farmer data to
help inform management decisions.
This work is aimed at targeting
international markets, such as
Europe and North America, together
with the current UK focus for the
ambitious young company.
Why Scotland?
Skills availability was a key factor
in Farmflo’s decision to come to
Scotland.
Dan O’Donoghue, Farmflo CEO,
said, “The establishment of our
dedicated software development
centre in Scotland is an exciting
venture that allows Farmflo to
tap into an excellent resource of
locally-based talent.”
Farmflo’s investment was
supported by a Regional Selective
Assistance grant of £350,000 from
Scottish Enterprise.
The RSA investment has ensured
that Farmflo is able to locate its
development site in Scotland and tap
into the skills available here, rather
than outsource the development
activity to an overseas operation.
Viewpoint
Business Services
Construction
Software
Machinery
Equipment
Scientific
Research
Food
Pharmaceuticals
Retail
Utility Supply
Other
14%
11%
11%
9%
6%5%4%
4%
4%
32%
Leading sectors generating
FDI projects for Scotland 2016
behind construction, whose projects
leapt from three in 2015 to 14 in
2016, However, the decline in software
projects in Scotland was slightly less
than the 35% fall in the regions outside
London and hence Scotland is now
second behind London in securing
investments from the software
industry, followed by the South East of
England with 12.
The dramatic surge in construction
projects in Scotland in 2016 may be
partially due to a small change in the
way civil engineering projects are
recorded. However the rise is also
related to the construction of offshore
wind farms and the technical services
these require, as well as some pipeline
construction projects that have been
undertaken for the oil gas sector.
Financial services was responsible
for the largest recorded projects in
terms of employment generation
with AXA’s investment in Glasgow
reporting the creation of 440 new jobs
and Cigna’s health insurance business
adding 150 jobs. Although the
sector only generated eight projects
(compared to 99 in the UK as a whole),
this was in line with the average
number of financial services projects
recorded over the last decade.
Origins of FDI into Scotland:
the US and France stay ahead
As in 2015, the largest share of FDI
projects generated into Scotland in
2016 originated from the US. The
number secured was also identical in
both years, with the US providing
43 projects, a figure that represented
35% of all projects into Scotland in
2016, down slightly from 36% in 2015.
The GIM figures show that Scotland
is slightly more dependent than the
UK as a whole on projects secured
from the US, with the UK overall
securing 31% of its projects from the
US in 2016. That said, the US is by far
the leading origin for FDI into both the
UK and Scotland. However, in contrast
to the remainder of the UK, Scotland
secured the next largest number
of projects from France, whereas
Germany ranks as the second biggest
investor in the UK as a whole.
In fact, French FDI into Scotland is a
significant and sustained success story,
with projects from France now having
represented the second largest flow
of projects into the country for five
years in a row. In 2016, the number
of French investments into Scotland
held steady at 14 projects, meaning
Scotland secured 16% of all French
projects investing in the UK.
Further notable developments in
2016 included a strong increase in
Irish investments — which rose by
200%, albeit from a very low base in
2015 — and the emergence of China
as one of the most significant
investors in Scotland. China was the
fifth largest originator of investments
into Scotland in 2016, and the 4th
largest for the UK.
FDI activities: sales and
marketing continues to
dominate…
In terms of the activities that FDI
projects are being set up to carry out,
the highest proportion of projects
in Scotland in 2016 were investing
in some type of sales and marketing
office. During the year, sales and
marketing activities represented
38% of Scotland’s total flow of
projects, down from 43% in 2015.
In absolute terms, sales and marketing
offices contributed 46 projects in
2016 compared to 51 in 2015, a
decrease of 10%.
Majority of FDI projects into Scotland in
2016 originated from the US and France.
Further notable was a strong increase
in Irish investments and the emergence
of China as one of the most significant
investors into Scotland
Top countries of origin and
performance against 2015
50
45
40
35
30
25
20
15
10
5
0
Projects
US
2015 2016
France
Germ
any
Ireland
China
Denm
arkNetherlands

The second-largest activity in terms
of project numbers was back-office
investments. In 2016, 23 back office
investment projects were recorded in
Scotland, a rise of 35% from 2015,
making this the highest number of
investments recorded by this activity in
the last decade.
…but Scotland is emerging as
the UK’s RD leader
RD projects ranked third among
investment activity into Scotland — and
at 21 projects, 2016 represented the
second highest total in the decade
after 2015, with the number of RD
projects recorded in 2016 slipping
back by 8% from the previous year.
However, the UK overall saw a decline
in RD projects of 37% and Scotland
was the clear leader for RD projects
in the UK, attracting more projects
than any other UK region in 2016,
with software and life sciences the
main sectors.
Investments in manufacturing
facilities in Scotland declined slightly,
with the total of 20 projects secured
in 2016 lower than the 22 achieved
in 2015, and accounting for 16% of
all Scottish projects. However, total
investments by manufacturers were
unchanged at 43. Logistics recorded
the highest number of projects
the sector has achieved in the last
decade, with 11 projects.
Looking at Scotland’s biggest FDI
projects terms of job creation in 2016,
the figures for 2016 reflect the overall
decline noted earlier in the average
number of jobs created per project.
In 2015, 10 projects announced
across Scotland reported that they
would each create 200 or more jobs.
But in 2016, only seven projects were
recorded as generating more than
100 jobs, and the largest investment
created 440 jobs, compared to 3,000
jobs created by the biggest project in
the UK during the year, which was an
investment by Google in London.
The largest recorded projects in
terms of employment generation were
in financial services, with the AXA’s
Activities of projects investing in
Scotland 2007-2016
140
120
100
80
60
40
20
0
Projects
Sales and Marketing Back Office RD
Manufacturing Logistics HQ
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Scotland was the clear leader for RD
projects in the UK, attracting more projects
than any other UK region in 2016, with
software and life sciences the main sectors.
Paul Lewis, Managing
Director, Scottish
Development International
The market for inward investment is
increasingly competitive, with more
nations and regions seeing foreign
direct investment (FDI) as a key way
to grow their economies.
Inward investment can bring a
range of direct and wider benefits
to our economy, from jobs and
supply chain opportunities to
the positioning of Scotland
internationally as a place the world
can engage with. Inward investors
also tend to pay higher wages, be
active exporters and invest more
in innovation, all of which helps to
boost productivity.
The survey indicates that the
number of jobs created by FDI
projects in Scotland was down 47%
in 2016, but while the initial scale
of projects is important, the number
of new investors and how they help
strengthen our growth sectors
and improve their international
competitiveness is arguably a better
indicator of long-term growth and
sustainability.
Frequently this investment is
built around the skills of Scotland’s
workforce and the quality of our
research and innovation, and 2016
was another strong year for Scotland
in attracting RD inward investment,
with 21 individual projects, the
second highest number to date.
This type of investment plays an
important role in supporting greater
innovation and higher productivity
in Scotland’s economy and builds
on the strengths of Scotland’s
universities. Overall, it also means
that Scotland is now first in the UK
for RD investment, a particularly
significant outcome given these high
value investments.
Much of this success is built from
Scotland’s position in sectors that
can support sustainable economic
growth, such as technology, energy
and business services; sectors
where Scotland is internationally
competitive and where there is
global demand.
It also reflects the significant
collaboration across our public,
private and academic sectors to
project a truly connected Scotland
to the world at large, something
that is an important source of
competitive advantage.
Given this and against that
backdrop of increased competition
for FDI, we need to make sure we
are using Scotland’s international
reach and networks to connect with
new investors.
With a network of 29 offices
in 18 countries, SDI plays a key
part in doing this, and selling
Scotland is very much a team effort.
It’s particularly rewarding to see that
our hard work in building networks
and connections across China is
paying off; with five investment
projects in 2016, China has now
entered the top five countries
investing in Scotland for the
first time.
We are delighted once again
this year with our investment
successes from the US; our focus
on California and the increasing
global recognition of Scotland’s
(and particularly Edinburgh’s)
technology and data proposition is
certainly generating interest and
continuing to present significant new
investment opportunities.
We now have an opportunity to
build on the international reach and
connections that exist across many
parts of our economy, to attract
even more new inward investment
to the country — through our
universities, via Governments and
with businesses.
If we can work together to achieve
this, not only will we strengthen
Scotland’s investment proposition,
but as a nation we will be better
placed to take advantage of the FDI
opportunities coming into the UK
from some of the newer, emerging
economies.
By uniting our voices and our
networks, we can reinforce the key
message from the EY Scotland
Attractiveness survey; that
“Scotland’s attractions are still
shining out brightly in an uncertain
world” and this bodes well for the
future flow of FDI into Scotland.
Viewpoint

Comapny City Country Jobs Sector
AXA Group Glasgow France 440 Insurance
Pensions
Cigna Glasgow United States
of America
150 Health Social
Work
GetTaxi UK Glasgow Israel 130 Software
Cloudwick
Technologies
Glasgow United States
of America
125 Software
Lidl Motherwell Germany 100 Retail
BMW Group North
Killingholme
Germany 100 Automotive
Assembly
Boeing Lossiemouth United States
of America
100 Other Transport
Equipment
Largest FDI projects in Scotland in 2016 by employment (99 jobs)
Rank 2016 Row Labels 2015 2016 %age Change
1 London 398 444 12
2 Manchester 54 47 -13
3 Birmingham 20 36 80
4 Belfast 4 32 700
5 Glasgow 22 28 27
6 Edinburgh 41 27 -34
7 Aberdeen 9 18 100
8 Coventry 11 15 36
9 Leeds 31 12 -61
10 Barnsley 6 11 83
Top 10 cities gaining FDI in UK in 2016 and change on 2015
investment in Glasgow reporting the
creation of 440 new jobs and Cigna’s
health insurance business adding
150 jobs in Glasgow.
Scottish cities: three in
the UK’s top ten
In terms of their numbers of FDI
project secured, all three of Scotland’s
largest cities were in the top 10 UK
cities in 2016. Edinburgh slipped
down the UK-wide ranking from third
to sixth in terms of projects, but was
very successful in attracting both
RD and software projects. Glasgow’s
projects rose by 27% to 28, and
Aberdeen’s projects doubled to 18,
marking a rebound from a low point
in offshore activity in 2015.
National performance
reflects London’s continued
dominance…
Scotland’s continued solid
performance in attracting FDI in
2016 should be seen in the context
of the UK’s overall showing at a
European level. During the year, the
UK remained Europe’s number one
recipient of FDI projects, with a
7% rise in total projects to 1,144 —
the highest number on record. The EY
GIM for 2016 also shows that the UK
remained the leading recipient
of FDI jobs, recording a rise of 6%
in FDI-generated employment to
44,700, over 20,000 more than
second-placed Poland.
However, it wasn’t all good news
for the UK. With the number of FDI
projects across Europe as a whole
rising by 16% — much faster than in
the UK — the UK’s market share fell
from 21% to 19%, leaving it only a
whisker ahead of Germany on 18%.
And with Germany extending its lead
in attracting new (as opposed to
expansion) investments, and securing
twice as many projects as the UK
from China, it’s questionable how long
the UK can sustain its overall lead in
European FDI. The perception findings
also contain some worrying indicators,
showing — for example — that 31% of
investors worldwide expect the UK’s
attractiveness to FDI to decline over
the coming three years, while 33%
expect it to improve. These figures are
significantly worse than the long-term
average, suggesting the Brexit vote
and its aftermath may have impacted
global perceptions of the UK’s
attractiveness.
In terms of the flow of FDI projects
into different areas of the UK, London
maintained its dominance in 2016,
with the UK capital securing 39% of all
projects recorded, ahead of Scotland in
second place. The biggest winner was
Northern Ireland, with a 160% increase
in projects, while Wales recorded the
largest decline, down by 43%. Looking
across the English regional groupings,
the Northern Powerhouse and
Midlands Engine are now attracting
roughly double the number of projects
they secured at the beginning of
the last decade, whereas the rest of
England is attracting roughly the
same number.
…with Scotland firmly established in
second place among UK regions
Taken together, these figures may
raise concerns that the strong regions
for FDI are getting stronger, and the
more “peripheral” regions — the likes
of Wales, and the East, North East
and South West of England — are
dropping behind. Such worries may
be reinforced by the 2017 perception
findings, which show London
increasing its rating as the most
attractive region from 47% to 52%,
and traditionally strong regions such
as the South East of England and West
Midlands also holding up well.
Encouragingly, the list of
traditionally strong regions also
includes Scotland, which continued
to attract projects at the fastest rate
for a decade in 2016. Having ranked
as the UK’s second most successful
FDI destination in terms of projects
secured for each of the past five years,
Scotland can justifiably claim to be
established as second only to London
in terms UK FDI. Again, this bodes well
for the future flow of FDI into Scotland.
Projects recorded by UK’s top six regions, 2007-2016
140
120
100
80
60
40
20
0
Projects
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
West Midlands North West Scotland Yorkshire South East

www.ey.com/attractivenessPerception
Perception
Little change in perceptions of
Scotland as an FDI location…
As in previous years, an interesting
additional perspective on
attractiveness is provided by the
annual EY survey of international
investors’ perceptions. In 2017
this study involved interviews with
453 decision-makers from companies
across the world that have invested, or
could invest, in the UK in general and/
or Scotland in particular. The study
aimed to gauge these companies’
perceptions of the relative merits
and attractiveness of different
FDI locations.
There was a slight decline from 4%
in 2016 to 3% in 2017 of investors
who identified Scotland when asked to
name the most attractive area of the
UK in which to establish operations.
However, it is worth noting that the
2017 perception findings as a whole
saw a significant strengthening of
London’s score at the expense of a
number of other areas of the UK —
including the North West, North East,
and East and West Midlands — as well
as Scotland.
London
South East of England
North West of England
North East of England
West Midlands
Scotland
East Midlands
Northern Ireland
South West of England
Wales
Yorkshire
East of England
Can’t say
47%
12%
6%
3%
7%
4%
3%
1%
5%
1%
2%
2%
7%
2016
reminder
Which region in the UK do you see as the most attractive
to establish operations?
52%
12%
3%
2%
6%
3%
2%
3%
4%
1%
1%
1%
10%
Source: EY’s UK attractiveness survey 2017, sample (n=453)
Polly Purvis, chief executive
of ScotlandIS
Why Scotland?
Scotland is an exceptional place to
locate a business thanks to its great
digital connectivity, international
transport links, quality of life,
reputation for innovation, world-
class universities and a highly
skilled workforce.
Firmly established as second
only to London in terms of UK
foreign direct investment, Scotland
continues to flourish in a competitive
global market.
One area of particular strength
is the combined digital technologies
industry which ranges from
software, digital media, telecoms and
information technology at one end
of the spectrum, to electronics and
photonics at the other. The industry
contributes more than £4bn per
annum to the Scottish economy,
accounting for some 5 per cent of
GVA. With a rapidly growing start-up
community and a range of incubators
in our cities including Codebase, the
UK’s largest tech incubator, Scotland
is not just a location for vibrant
established businesses, but also
for exciting start-ups.
Home to 3000 digital technologies
companies, employing over
70,000 people, leading companies
with bases in Scotland include
Skyscanner, FanDuel, Rockstar
North, BT, CGI, Thales, Cirrus
Logic, and Leonardo. The Digital
technologies industry has enormous
potential and the Scottish sector is
experiencing considerable growth
thanks to a supportive ecosystem.
Scotland benefits from the most
highly skilled workforce in the UK
with 50 per cent of our young
people participating in higher
education, whether at universities
or further education colleges.
Add to that the quality of our
research base. The Scottish
Informatics and Computer Science
Alliance, a world class research pool
comprising the computer science
departments of all the Scottish
universities, attracts approximately
20 per cent of all research funding
spend for computer science in the
UK, and the new innovation centres
for data (The DataLab), sensors and
sensing systems (CENSIS) and digital
health (DHI) provide industry with
additional access to RD expertise.
Investment by the government and
private sector in internationally
competitive digital connectivity
means that 98 per cent of all homes
and businesses in Scotland will have
access to broadband by 2018.
4G coverage is expanding rapidly and
the cities of Aberdeen, Edinburgh,
Glasgow and Stirling are all installing
gigabit infrastructure.
It’s not just digital connectivity that
matters. With fast train and road
links to London, Manchester and
Birmingham, and direct international
air connections to an increasing
range of destinations in North
America, Europe and the Middle
East, Scotland is an excellent base
for accessing global markets. Most
key European cities are only two
hours from Scotland and locating
here means companies benefit from
industry clusters and connected
supply chains.
If that’s not enough, consider
the quality of life. From our
compact cities there’s fast access
to beautiful countryside,
wilderness and centuries of heritage.
A thriving cultural scene, with great
restaurants, year round festivals and
exhibitions means there’s always
something to do. Scotland offers
the full package.
Viewpoint

…but Scotland’s fundamentals
strengths still top investors’ list
of criteria
A closer analysis points to a number of
reasons why this decline in Scotland’s
headline perception score in 2017
should not be regarded too negatively.
One is that the findings on regional
perceptions, by their nature, tend to be
volatile year-on-year. Another is that
the results in both 2016 and 2017
appear to represent a correction to
a more ‘normal’ level from Scotland’
historically high score of 6% in 2015
— a year that witnessed a significant
‘halo effect’ from Scotland’s high-
profile events in 2014, such as the
Commonwealth Games and Ryder Cup.
Scotland’s actual FDI performance
is continuing to hold up well and it
appears to be well positioned for
future success. When respondents
to our 2017 perception study were
asked to cite the main criteria they
apply when evaluating regions of the
UK as investment locations, those
factors where Scotland has renowned
strengths — such as local skills and the
quality of transport infrastructure —
remained top of the list. This bodes
well for the continued future flow of
investment projects into Scotland.
Ability and skills of local workforce
Transport infrastructure
Availability of business partners
and suppliers
Local labour costs
Cost and availabilty of real estate locally
Strength of local education both
trade and academic
Telecommunications and
technology infrastructure
Strength of business networks locally
Access to regional grants and
incentives for investment
Local quality of life such as local schools,
housing, cultural and sporting events
Support from regional economic
advisory bodies
None
Can’t say
27%
26%
17%
18%
13%
13%
15%
11%
9%
9%
5%
2%
6%
2016
reminder
What are your investment criteria when considering
investing in the regional locations in the UK?
28%
26%
22%
18%
15%
12%
12%
10%
9%
7%
5%
Source: EY’s UK attractiveness survey 2017, sample (n=453). Two answers possible
7%
5%

EY’s Attractiveness Survey Scotland − May 2017 17
Outlook
Continuing to succeed in a
competitive global market
Taken together, the EY EIM results for
FDI projects for 2016 and the findings
of our 2017 perceptions study paint
a positive picture of the outlook for
FDI in Scotland. With projects rising to
another ten-year high, and Scotland
remaining firmly positioned as the UK’s
second most successful FDI recipient
after London, it’s clear that Scotland’s
attractions are still shining out brightly
in an uncertain world.
Even more encouragingly, Scotland’s
sector performance demonstrated
a number of areas of excellence. In
particular, Scotland established itself
as the UK leader for RD related FDI
and as a hub for software investment.
Scotland also performed well in
attracting investment in Business
Services and Logistics — other sectors
with strong future growth prospects.
However, in an increasingly
competitive and crowded market
for attracting FDI projects, no
country can afford to rest on its
laurels. The turbulence from events
such as Brexit — and potentially, at
some stage, a second referendum on
Scottish independence — must also be
taken into account and prepared for.
Against this background, Scotland’s
continuing robust performance
in attracting FDI provides an ideal
platform on which to keep building on
its strengths and driving continuous
improvement in its attractiveness to
investors – to the long-term benefit of
Scotland’s economy, workforce, and
quality of life.
Scotland’s attractions are still shining out
brightly in an uncertain world. However, in
an increasingly competitive and crowded
market for attracting FDI projects, no
country can afford to rest on its laurels.
A stable situation but beware of
future weakness …
While both Scotland’s and the UK’s
post-Brexit FDI performance and
investor perceptions have held up
comparatively well to date, signs of
potentially significant longer-term
weaknesses are starting to emerge
against a backdrop of uncertainty.
A plan for continued future success
should include the following:
Engage with investors on the post-
Brexit environment
Investors tend to dislike uncertainty
and therefore Scotland and the UK as
a whole will have to commit to keeping
close to investors through the Brexit
process. Scotland will not be able to
dispel uncertainty but it can articulate
its vision for the post-Brexit economy,
investors appear more concerned
about the medium to long-term than
the immediate outlook.
Trade strategy – promote, promote,
promote
Brexit will be a major change to the
overall trade position and as such
requires a clearly defined strategy
setting out the Scotland and the UK’s
trade strategy and how this will be
realised.
It is vital that this is communicated to
Investors in the new environment as
they will be keen to understand:
• Plans to remain competitive in high
growth markets such as software and
technology;
• The potential for support from the
UK industrial strategy (and what
an industrial strategy for Scotland
will look like) for sectors such as
manufacturing which investors see as
exposed to Brexit, especially changes
in customs and tariff arrangements;
• How linkages between trade and
universities and research institutions
will be further strengthened;
• Future plans for trade agreements,
with the USA, China and India as the
priorities;
• Ensuring future trade with the EU is
possible on terms and with processes
that are as close as possible to the
current arrangements;
Deliver improved infrastructure
Our survey results suggest that as
the UK leaves the European Union it
will need to move to boost its appeal
across the board with investment in
infrastructure both in Scotland and
across the rest of the UK. There
have been a range of attempts to
improve the UK’s capabilities but
there are now increasing concerns
among investors over the UK’s future
competitiveness. A detailed plan for
delivery of road, rail, air, port, energy
and communications infrastructure
consistent with the UK’s trade strategy
is now a priority.
Improve skills
Investors have consistently identified
improved skills as a key factor in
supporting FDI. This issue is even
more critical now that investors are
concerned that Brexit may limit the
flow of workers into the UK. The
priorities identified in the wider
industrial and trade strategies must
be reflected in a skills plan to provide
investors with the reassurance they
need as to the availability of skills in
the future. As we have mentioned in
previous reports, digital capability and
skills applicable to all sectors are a
critical requirement.
Play to our strengths
As the report highlights, Scotland
has many fundamental strengths
and is continuing to remain resilient.
However competition is increasing and
so it’s important that business and
government work together to ensure
we have the right policies, resources,
environment and mindsets that help
Scotland flourish in a new world.
Knowing what investors are looking for
we must ensure we are well placed to
attract future investment and promote
to the world that we are open for
business.
Action Plan

Methodology
The “real” attractiveness of
Europe for foreign investors
Our evaluation of the reality of FDI
in Europe is based on EY’s European
Investment Monitor (EIM), EY’s
proprietary database, produced in
collaboration with Oxford Intelligence.
This database tracks those FDI projects
that have resulted in the creation
of new facilities and new jobs.
By excluding portfolio investments
and MA, it shows the reality of
investment in manufacturing and
services by foreign companies across
the continent.
Data is widely available on FDI. An
investment in a company is normally
included in FDI data if the foreign
investor acquires more than 10% of the
company’s equity and takes a role in
its management. FDI includes equity
capital, reinvested earnings and intra-
company loans.
But our figures also include
investments in physical assets, such
as plant and equipment. And this data
provides valuable insights into:
• How FDI projects are undertaken
• What activities are invested in
• Where projects are located
• Who is carrying out these projects
The EIM is a leading online
information provider, tracking
inward investment across Europe.
This flagship business information tool
from EY is the most detailed source
of data on cross-border investment
projects and trends throughout
Europe. The EIM is frequently used
by government bodies, private sector
organizations and corporations
looking to identify significant trends
in employment, industry, business
and investment.
The EIM database focuses on
investment announcements, the
number of new jobs created and,
where identifiable, the associated
capital investment. Projects are
identified through the daily monitoring
of more than 10,000 news sources.
To confirm the accuracy of the data
collected, the research team aims
to directly contact more than 70% of
the companies undertaking
these investments.
* Investment projects by companies in these categories are included in certain instances e.g. details of a specific new hotel investment or retail outlet would not be recorded,
but if the hotel or retail company were to establish a headquarters facility or a distribution centre, this project would qualify for inclusion in the database.
The ‘perceived’ attractiveness
of Europe and its competitors
for foreign investors
We define the attractiveness of a
country or area as the combination of
its image, investors’ level of confidence
in it as an investment destination and
the perception of its ability to provide
the most competitive benefits for FDI.
The research was conducted by
the CSA Institute from February to
April 2017, via telephone interviews
with a representative group of
453 international decision makers.
25% more than
¤1.5b less
than ¤150m
40% between
¤150m and
¤1.5b
35% less
than ¤150m
Presence in
the UK
Location of
interviewee
Size in annual sales
50% 61%
outside the
UK 50%
not present in
the UK 39%
North
America
Western
Europe
Central
Eastern
Europe
Northern
Europe Russia
Asia
Oceania
40%
4%
30% 1%
1%
19%
5%
Global headquarters
Sector activities
36%
Business services
(including transport
and logistics)
28%
Diversified industrial
products, automotive
and energy
19%
Retail and
consumer goods
10%
High-tech and
telecommunication
infrastructures and
equipment
7%
Chemical and
pharmaceutical
industries
The following categories of investment projects are excluded
from the EIM:
• MA and joint ventures (unless these result in new facilities or
new jobs being created)
• License agreements
• Retail and leisure facilities, hotels and real estate*
• Utilities (including telecommunications networks, airports, ports
and other fixed infrastructure)*
• Extraction activities (ores, minerals and fuels)*
• Portfolio investments (pensions, insurance and financial funds)
• Factory and other production replacement investments
(e.g., replacing old machinery without creating new employment)
• Not-for-profit organizations (charitable foundations, trade
associations and government bodies)

About the Attractiveness Program
EY’s attractiveness surveys are widely
recognised by our clients, the media
and major public stakeholders as
a key source of insight on foreign
direct investment (FDI). Examining
the attractiveness of a particular
region or country as an investment
destination, the surveys are designed
to help businesses to make investment
decisions and governments to remove
barriers to future growth. A two-step
methodology analyses both the reality
and perception of FDI in the respective
country or region. Findings are based
on the views of representative panels
of international and local opinion
leaders and decision-makers.
The Scotland attractiveness report
is part of the EY Economics for
Business programme which provides
knowledge, analysis and insight to help
business understand the economic
environments in which they operate.
ey.com/uk/economics ey.com/ukas
economics@uk.ey.com
Follow:
markgregoryeconomics.ey.com
linkedin.com/in/markgregoryuk
@MarkGregoryEY
Investors
vote “remain”
in Europe
Europe
May 2017
Europe
Italy
May 2017
Foreign investments
back on track
Italy
Russian Federation
May 2017
Russia findings
Russia
Austria
The Netherlands
Scotland
May 2017
Standing strong in
uncertain times
Scotland
Belgium
Baromètre
de l’attractivité
de la France
Les cartes en main
Mai 2017
France
EY’s Attractiveness Program
Nordics
May 2017
Opportunity
and potential
Nordics
España en el foco
de la inversión
extranjera
España
Mayo de 2017
Spain
Poland Attractiveness
Survey 2017
Poland
Germany
Portugal
Maio 2017
Portugal no radar da
Europa
Portugal
UK
May 2017
Time to act
United KingdomSwitzerland
Schweiz
Mai 2017
Direktinvestitionen
Europa: Franken treibt
Schweizer ins Ausland
RZ EY-17-036 STU European Attractiveness CH-DE BKL1705-036-v6.indd 1 18.05.17 16:37
Deutschland
Mai 2017
Standort
Deutschland 2017:
Stark für Europa

About EY
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which is a separate legal entity. Ernst Young Global Limited, a UK
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For more information about our organization, please visit ey.com.
© 2017 EYGM Limited.
All Rights Reserved.
ED None
In line with EY’s commitment to minimize its impact on the
environment, this document has been printed on paper with a high
recycled content.
This material has been prepared for general informational purposes only and
is not intended to be relied upon as accounting, tax, or other professional
advice. Please refer to your advisors for specific advice.
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Ernst & Young Attractiveness Survey - Scotland 2017

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