Productive investment decisions in Scottish firms

In 2024, the Enterprise Research Centre (ERC), funded by the Productivity Institute (TPI), surveyed a nationally representative sample of UK firms exploring business investment decisions. The central focus of the survey was to understand why and how firms make investment decisions. This is important as the UK’s low level of business investment is often cited as one explanation for slow productivity growth. Scottish Enterprise (SE) commissioned ERC to increase the coverage of Scottish firms in this survey and analyse the findings specifically for Scotland.

This report summarises findings from a nationally representative survey of 1,623 UK businesses, specifically focusing on the 251 Scottish firms covered in the survey. The survey explored topics related to business investment decision-making, including business staff and other stakeholders involved in business investment, investment patterns over the last five years (2019 – 2024), purposes of investing, and the process of investing. The survey questionnaire was informed by a rapid literature review on factors affecting productive investment by firms, which was conducted by ERC in 2023, and used a computer-assisted telephone interview (CATI) approach. Respondents were senior business investment decision-makers within UK firms. The fieldwork, including piloting the survey instrument, took place from June to October 2024.

Profile of firms that made significant investments in 2019 - 2024

• Scottish firms typically had on average, 49 staff, £4.9m turnover, were 37 years old, 58% family-owned, 8% foreign-owned, and 30% exported. The most common sectors were administrative and support services, education, health, recreation and other services (23%) and wholesale and retail trade (18%).
• Across a range of business characteristics and business objectives, Scottish firms were similar to the rest of the UK.

 Significant investment patterns – some key findings

• Scotland is similar to the rest of the UK in terms of the average number of people involved in making business investment decisions (5) and the share of investment decision-makers who were women (34%).
• In 2019 – 2024, Scottish firms made an average of 4 significant business investments, same as the rest of the UK (accounting for outliers). Like the rest of the UK, Scottish firms mainly made tangible investments (47%) or a combination of tangible and intangible investments (43%). 

• Over the period of 2019 – 2024, Scottish firms invested an average of 13% of their turnover in tangible investments and 11% in intangible investments. Internal company funds were the most common source of investment funding, and Scottish firms were more likely to use grants to fund investments. 

 Process of investing (focused on firms’ most strategically significant investment) – some key findings

• Most Scottish firms (66%) identified tangible investments, primarily machinery, as the most strategically significant investment to their business in 2019 – 2024. 36% of Scottish firms involved external stakeholders in this investment, mainly private consultants and other private firms (other than the suppliers of equipment or other assets for the investment ).  

• People in Scottish firms who came up with an idea to invest typically had the highest level of responsibility, including company directors, owners, founders, managing directors or CEOs.

• 64% of Scottish firms planned their investment in less than 1 year, with 92% completing planning in under 3 years. 68% of Scottish firms evaluated their proposed investment, considering various factors, primarily costs (95%) and expected returns (93%). 
• Scottish firms expected to make multiple returns from their investment, primarily increased profit and growth (83%). They also expected the returns to be relatively quick (within 5 years for 79% of firms) and certain (94%). 

'Significant investment defined as £5k+ based on fieldwork conducted. This was to allow smaller companies and companies from sectors such as creative industries to participate.'

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