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The Kerslake Collection | Local economies and politics

The role of universities and business in growing FDIto support their place


Universities are local and national institutions with global perspectives and reach. This differentiates them from other anchor institutions. It means that they have the opportunity to leverage their global connections and economic anchor status in order to attract not just a student body and research income, but inward investment, which itself can drive growth. Indeed, this opportunity to build inward investment provides a civic-mission sweet spot for institutions seeking a place to focus finite financial and strategic resources. This is because attracting inward investment sits firmly at the heart of a Venn diagram of mutual interest between four domains. First, it aligns with the strategic priorities of the universities themselves as beneficiaries of inward investment; secondly, it aligns with a national policy mission that has cross-party consensus; thirdly, it leverages pre-existing university assets in the innovation ecosystem, via global connections that have strong potential to make a difference; and fourthly, it meets demonstrable local economic need against a background of depleted local capability and capacity. Inward investment is an area where university intentionality – perhaps the most important factor in determining the effectiveness of an institution’s civic mission – can make a tangible difference. 

Inward investment is a complex area, and some clarity is needed about the field. The Midlands’ Universities as Drivers of Trade and Investment programme developed a taxonomy for the different types of inward investment into university research and development. The framework, set out in Table 1, builds a taxonomy of five types, considering the drivers and beneficiaries of inward investment. 

Inward investment into university research and development: a taxonomy
Beneficiaries1. Direct investment into the research base
Contract research and innovation activity (ie, clinical trials,
product development, testing) funded by international industry
or philanthropy
2. Physical space and tenancy
University science, innovation and enterprise parks –
business relocation or creation options
3. Equity investment and patient capital
University spinouts, exits, etc; licences and patents
4. University-led major investment propositions
Where universities are leading major (£100m+) investment
propositions, often innovation-led
Drivers5. How the university is integrated into local inward-investment offer
The extent to which the university is well integrated into
the local innovation and inward investment ecosystem, including
partnerships with local growth organisations

Universities and inward investment: civic mission, national policy and local need

UK universities are already major beneficiaries of inward investment – be this global companies, trust and foundations funding joint research and knowledge-exchange activities; companies co-locating on their science and technology parks; or investing equity into their spinouts and commercialisation portfolio. Research in 2023 by the National Centre for Universities and Business showed that UK universities secured £3.3 billion from international industry for research activities between 2015-22. This represented 56 per cent of all industry funding into university research during this period. However, they are also drivers of inward investment into their local and regional economies. This is not only as an important factor influencing investor decision-making, but also, increasingly, developers and investors in large scale innovation-led regeneration projects, in partnership with local government. In the Midlands, for example, analysis from Midlands Engine and Midlands Innovation has shown that of the 38 major capital and foreign direct investment (FDI) propositions in the region’s investment pipeline, universities are now actively involved in or leading 29 – more than 75 per cent. Universities are already significant in the eyes of investors, thanks to their role in local or regional economies as major players in their innovation ecosystems – and, most importantly, as sources of talent. Research from OCO Global, looking at the stated motivations of investors involved in 121 investment projects related to research and development (RandD) into the UK over the past five years, showed that talent (36 per cent) was by far the most significant factor, ahead of technology and innovation (15 per cent) and industry clusters (14 per cent). The global relationships, networks and partnerships of UK universities are undoubtedly significant. Some of these, for example with multinational corporations, international trusts and foundations or equity investors, are already actively supporting inward investment. However, there is substantial potential for the global connections of universities to be more intentionally wielded in support of inward investment.

The UK Government has started to develop policy mechanisms that harness universities’ investment potential. This recognition comes alongside cross-party acknowledgement that addressing the UK’s underperformance in attracting inward investment, from its high point in 2016, needs to be a national policy priority. The 17 UK Investment Zones require the active involvement of a research-intensive university as part of their £160 million each of funding. 

It is clear, therefore, that the assets, reputation and connections that universities can bring to bear in support of attracting inward investment are significant in their own rights. However, they are rendered even more significant when considered in the context of the depleted, fragmented landscape of local and regional economic-growth organisations in much of England. Barring a few exceptions, inward-investment capability and capacity in England is characterised by fragmentation, complexity and underresourcing when compared with the UK’s international competitors. As Financial Times journalists Jacopo Dettoni and Alex Irwin-Hunt pointed out in a report in November 2023: ‘Brexit, political chaos and the resulting policy uncertainty have undermined the country’s image… The country’s FDI governance has been all over the place for years. Not surprisingly, investors are taking their capital and operations elsewhere.’

Department for Business and Trade FDI projects in the UK 2016-17 to 2020-2021
Department for Business and Trade FDI projects in the UK 2016-17 to 2020-2021

Inward investment: a sweet spot for civic universities

Combined, these factors provide a strong foundation for universities seeking to wield greater intentionality in their civic mission through a greater focus on inward investment. The logical next question – whether for the universities themselves, for local and regional government and growth agencies, or for national policymakers across Whitehall – is how the resources that universities bring can be most effectively deployed, how relationships can be leveraged and how constructive enabling alliances can be developed and sustained. 

In this essay, I set out nine potential ideas for policy and practice that, deployed by universities, local and regional growth organisations and national government, could unlock the global connections of UK universities to attract inward investment and, as a result, drive local growth. 

The UK has a longstanding and seemingly intractable productivity problem, particularly in regions outside London and the South East. Over the last decade, the UK Government has set out ambitious targets to increase the proportion of UK GDP spent on research and development, including from the private sector. In itself, this is no bad thing. But as Nigel Driffield, professor of International Business at Warwick Business School, observes: ‘Lagging regions tend to attract more low productivity FDI, while high performing regions attract more innovation-intensive, high-productivity FDI. To truly achieve levelling up beyond mere rhetoric, policies targeted at attracting inward investment need to break this cycle.’ For this reason, any attempt by the UK Government to increase research and development as a proportion of UK GDP requires the active involvement of universities, because the UK is distinct among major international economies for ‘the proportion of the country’s research that takes place in universities’. As Graeme Reid, professor of Science and Research Policy at University College London, has noted, ‘Globally, the top 1,000 firms together invest over £500bn each year in RandD outside the UK. If we captured an extra 1% of that amount then £5bn would be added to UK business RandD annually… With judicious governmental support, universities across the UK have the capacity to host major new research partnerships with business.’ 

While the UK must increase inward investment to improve its productivity, it is not the case that all inward investment is beneficial to the UK’s economy. This is also a proviso that applies to inward investment into university research and development. The first issue is that the UK ‘is vulnerable to foreign acquisition of its assets and companies, including the buyup of its innovation and intellectual property’. For universities exiting their shares in a spinout company, there is no incentive to ensure that the growth of that company is retained by the UK, let alone by their own regional economy. In this regard, universities have a tendency – and in many cases an incentive – to think not regionally or even nationally, but in global financial terms. With the 2021 National Security and Investment Act and the development of the ‘trusted research’ agenda, it is clear that universities are going to have pay a lot more attention to where international investment comes from. As international global-security questions intersect ever more directly with innovation questions, universities will need to think differently about their approach to inward investment.

Nine ideas for policy and practice 

The first proposition is simply that universities should take inward investment seriously, and embed it in their civic, global and research and knowledge-exchange strategies. The fundamental contention of this essay is that inward investment should be an area where universities seek to wield their finite budget of strategic intentionality. In practice, this means embedding inward investment into civic, global and research and knowledge-exchange strategies, in pursuit of outcomes that require collaboration across internal departments. Universities must prioritise more effectively, selecting a few sweet-spot areas where they have a track record of excellent research, a translational research programme and an actual offer to investors. 

Secondly, universities should hunt in packs. This means that individual universities should aggregate their strengths and opportunities in order to attract bigger investment pools. UK universities should aggregate their investment propositions with other higher-education institutions. This could be aligned to place – whether cities or regions, sectors that draw on specific research expertise, or a specific asset class, such as spinouts or co-location. The benefits of hunting in packs – which is much more than intermittent collaboration – are multiple. A scaled offer enables universities to engage the class of investor only interested in major propositions. Patient capital funds established between multiple institutions, such as Northern Gritstone or Midlands Mindforge, operate on this principle. It is also significantly easier for government representatives to champion and showcase larger propositions aligned to place, sectors or assets. Investors also see direct value in a complementarity offer developed between different types of institution. As the Midlands campaign puts it: ‘Our collaboration and connections can become your competitive advantage.’

Thirdly, universities – and the nation – need to escape the Whitehall corridor of uncertainty. We need a taskforce for investment in UK university research and development, run jointly by the Department for Business and Trade, the Department for Science, Innovation and Technology and the Department for Levelling Up, Housing and Communities. The 2023 report written by the Higher Education Policy Institute’s director of policy and advocacy, Alexis Brown, includes a list of the many government departments, agencies and teams that have some sort of remit for inward investment into research and development. Since the report was published, a new Department for Science, Innovation and Technology has been created, and a new directorate for science and technology is being formed in the Department for Business and Trade. However, there is still too much ambiguity in the policy, funding and coordination of this agenda. Government should emulate the approach it has taken with the Cities and Local Growth Unit (which has long sat between two departments) and create an Invest in University Research and Development Taskforce across the three departments named above. 

Fourthly, we need to develop a new model of university investment partnership between institutions and local growth partners. Innovation Investment Agencies should be established, with universities as core partners. These university investment partnerships should be forged between institutions that share a common functional innovation geography. Following international best practice, the UK Government should make funding available to encourage combined authorities and pan-regional partnerships to form these university investment partnerships within and across their geographies. 

At the same time – and fifth – places should crowd-in funding to deliver innovation-led growth. Having a plan creates a focus for leveraging public and private-sector funding. Those places that move most quickly to respond to national programmes or to investors looking to locate in the UK are usually those with the clearest strategy, and aligned partners.

Sixth, we need to improve the evidence base for inward investment into university research and development. Universities and sector agencies must develop a more sophisticated and granular understanding of the full spectrum of foreign direct investment into university RandD activity. The Higher Education Statistics Agency should ask for more detailed reporting of sources of international industry investment (currently only ‘EU’ and ‘rest of world other’). Similarly, there is currently no record of international companies co-located on university science parks, nor is there a record of international investment into university spinouts. 

Seventh, universities and local growth partners should look to maximise existing inward investment into RandD and the local economy. Nearly two-thirds of all foreign direct investment projects tracked by the Department for Business and Trade are those derived from existing investors into the UK. This is a major opportunity for universities and local growth organisations to work together to target engagements at these companies, introducing them to the talent, innovation and knowledge-exchange opportunities available at universities. Equally, universities should look internally at where (and with which academics) they’ve previously secured international investment into their research and knowledge-exchange programmes, with a view to asking partners, ‘How can we do more?’

Eighth, Government should incorporate foreign direct investment into RandD in its ambitious new plans to forge bilateral international research and innovation bridges with partner nations. It should introduce mechanisms that encourage alignment between long-standing university international partnerships and sub-national relationships between UK and international regions. These innovation and investment bridges could provide a new model of civic diplomacy. 

Finally, Government must invest in understanding places, and trust them to deliver. A place perspective can too often appear an afterthought in government policymaking – either in terms of strategy, policy, investment or delivery mechanisms. The increased focus in the Office of Investment
on place propositions is welcome, as is the recent Department for Science, Innovation and Technology innovation-cluster mapping tool. A more balanced relationship between officials and politicians locally and nationally, which looks to leverage the strengths and capacity of both, could underwrite
a new style of policy development. 


Businesses know that universities matter to innovation and investment. Property platform Bruntwood Scitech provides workspaces and specialist facilities for hundreds of science, technology and innovation businesses of all sizes in the UK’s regional cities. Bruntwood knows that places need businesses that will scale, grow and stay to provide economic and social benefits over the long term. The UK story is too often of great intellectual property being developed, and then sold and taken overseas. Bruntwood Scitech knows what its customer base looks for when choosing where to collaborate and co-locate. Its customers look for access to ideas, research and development and early-stage innovative businesses, as well as for well-located facilities for research and commercialisation. They place a high premium on relationships, building networks with researchers, other businesses and civic networks and community and social connections. Connections to markets matter; direct, physical access to markets and to company headquarters still matters to investors. Also important is a ready supply of talent. The question all businesses ask is about finding talented people to support growth. A good business-facing graduate population and skills system is essential. Finally, businesses value stability; they like a place with a clear sense of direction, which is resilient to political change.

Universities can provide all these things, and many will claim that they are already doing some of this. But what is missing is strategic intentionality. Aleks Subic, vice-chancellor at Aston University, was previously a senior leader at the Royal Melbourne Institute of Technology and Melbourne’s Swinbourne University of Technology. He comments that the ‘fragmented picture of actors involved in FDI at the policy and operational level in the UK is striking’. Other countries, other systems and other regions are far more strategic. With real policy intent, and the approach laid out here, universities can play a genuinely strategic role in leveraging research, innovation and talent assets to drive growth far
more effectively.

Jessica Bowles and Alex Favier

Estimated Read time: 13 Mins

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