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Western Europe / UK

100 days since Brexit: Has the UK’s allure dimmed for EU companies?

Europe's largest MNCs have 3,671 subsidiaries in the UK across a wide array of sectors, showing just how much the country has to lose should Brexit make it less enticing for European investors.

EU-UK-subsidiaries
The UK is no longer part of the EU, but both parties are enmeshed on a business level, with hundreds of European MNCs retaining subsidiaries in the UK. (Photo by Olivier Hoslet/Pool/AFP via Getty Images)

European investors have long viewed the UK as an important market for foreign direct investment (FDI), and ever since the campaigning for the 2016 EU referendum there has been much debate around how much FDI from the EU the UK will miss out on once the split is finalised. With a Brexit deal being agreed in December 2020, and the UK departing the bloc in January 2021, any such impact will soon become apparent – but what does the UK have to lose?

The Monitor Network’s multinational companies (MNC) database contains information on 2,190 of the world’s top MNCs by revenue, including how many subsidiaries they have and where they are located. Of these, 384 are headquartered in Europe (excluding the UK) and have established 60,760 subsidiaries, of which 3,671 are located in the UK.

Why is the UK market important to European investors?

With the UK now no longer part of the EU’s single market, investors already present in the EU wanting access to the UK may have to set up a subsidiary in the country, as their previous access through EU membership is now denied. Investment Monitor’s analysis shows the top 384 European MNCs have located 6% of their subsidiaries in the UK. On average this would equate to nine subsidiaries per company, if the split was equal. Despite Brexit, many EU investors still want to maintain the close relationships they have established with the UK.

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Western European companies dominate the top European investors with subsidiaries in the UK, accounting for 99% of the operations present. Russian companies have only five subsidiaries in the UK and companies from Turkey and Poland have one each.

German companies have created the most subsidiaries in the UK, with 1,105 established. This accounts for 6.9% of subsidiaries established globally by the top German MNCs. Germany and the UK have close ties and are important allies for one another in terms of both trade and investment, as well as security policies.

The leading companies from the Netherlands and Ireland have located more than 10% of their subsidiaries in the UK. The UK’s geographic closeness to both countries and its importance as a key trading partner make it an attractive market in which to establish a subsidiary.

Financial services investors are key

As a prominent sector across both the UK and Europe, it is not surprising that financial services is the top sector for European investors establishing a subsidiary in the UK. The UK, and in particular London, is a financial services hub, attracting many of the leading global banks.

Of the 3,671 subsidiaries in the UK established by the top European MNCs, 621 are in the financial services sector, accounting for 17% of the total.

However, with financial services investors still in the dark about how Brexit will impact operations – details of a memorandum of understanding between the two parties are yet to be announced – the UK risks losing some of its appeal. EY noted in March 2021 that 24 of the largest financial services companies (ten banks, nine insurance providers and five wealth/asset management companies) have so far transferred or announced an intention to transfer assets out of the UK to Europe because of Brexit.

The UK’s energy market is another key target, with 326 subsidiaries established by the top European companies in the energy sector, and 320 subsidiaries established by companies with a primary industry that involves oil and gas. Combined these industries account for 17.5% of all subsidiaries established.

Of the leading MNCs in Europe, tech companies rank sixth by number of subsidiaries established in the UK. The UK is a hotbed for tech talent, offering clusters of technology and digital businesses. Entrepreneur network Tech Nation said in its 2021 report: “The UK is more attractive to international investors than ever; 63% of investment into UK tech came from overseas in 2020, up from 50% in 2016.”

The top ten European MNCs with subsidiaries in the UK have established 1,116 such operations, accounting for 30% of all UK-based subsidiaries set up by the top European companies. The wide spread of sectors highlights the range of industries in which the UK is a strong player for investors.

The UK is a key location for European investors and vice versa, with many long-standing relationships in place. The consequences of Brexit, however, will inevitably dictate how attractive the UK remains for European investors wishing to establish a subsidiary.

Christine Patton

Christine Patton

Senior economist

Christine Patton is senior economist at Investment Monitor and a global expert on cross-border investment.