Welsh Journals

3. INDUSTRIAL ENCLAVES OR EMBEDDED FORMS OF ECONOMIC ACTIVITY? OVERSEAS MANUFACTURING INVESTMENT IN WALES N. A. Phelps and Danny MacKinnon INTRODUCTION Within Europe the UK has been the major destination for manufacturing foreign direct investment (FDI). This reflects not only the UK's traditional role as a gateway into the European market for US multinationals (Thomsen and Woolcock, 1993), but also its more recent emergence as a major destin- ation for flows of Japanese and European FDI (Dunning, 1997a; 1997b; Yannopoulos, 1990) associated with corporate responses to the completion of the European single market. Similarly, whilst its position has slipped slightly recently, Wales has been one of the leading destinations for inbound FDI (especially Japanese FDI) within Britain attracting 14 per cent of FDI into the UK in the period 1979-94 and over 20 per cent between 1988 and 1991 (Gripaios, 1997: 34).1 This success in attracting FDI stems from a combination of geographical and institutional fac- tors, not least assisted area status and the superior resources and remit of orga- nizations involved with inward investment attraction (see Dicken, 1990).2 In recent years, increased attention has been paid to the issue of incoming companies' 'embeddedness'. In this context, 'embeddedness' can be defined in terms of the depth and quality of the relationships between inward investors and local firms and organizations and the extent to which 'spillovers' from FDI provide opportunities for local economic development. It has been suggested that multinational enterprises (MNEs) are becoming increasingly 'embedded' in Wales through the attraction of additional higher-level functions, increas- ingly close contact with local suppliers and the development of collaborative relationships with development agencies and local training organisations (Cooke, Price and Morgan, 1995; Huggins, 1999; Morgan, 1997b). Particular emphasis has been placed on the role of the Welsh Development Agency