The UK is losing ever more inward investment to Eastern European countries, particularly in the automotive sector, according to a report by accountants Ernst & Young.
It follows the shock decision by Peugeot to relocate production from the Ryton plant in Coventry to Slovakia.
The European Investment Monitor, a database which monitors direct company investment across Europe, shows that foreign investment into the West Midlands in 2005 declined over 44 per cent when compared to 1997, the first year the report was published.
The number of projects has plummeted from 78 to 43 over this period.
The decline of foreign direct investment in the region is higher than the national figure which saw a drop of 31 per cent across the country as a whole - from 818 to 559. Compared with 2004, the number of foreign companies choosing to invest in the West Midlands in 2005 reduced slightly from 46 to 43. Nationally, the figure was marginal falling from 563 to 559.
However, this is in stark contrast to Europe generally, where the EIM recorded more projects than in any previous year.
The total for Europe of 3,066 represented a five per cent increase over 2004, and suggests the West Midlands and the UK as a whole is losing out to increased competition.
Ronnie Bowker, Ernst & Young's senior partner in Birmingham, said: "The rise in projects in Europe reflects the strength of the global economy and the growth in the attractiveness of the lower cost economies of the Baltic, Central Europe and the East.
"These economies not only provide lower cost locations for production but also represent increasingly important consumer markets in their own right."
Mr Bowker continued: "Perhaps most notable has been the emergence of countries such as Romania and Slovakia - these countries have dramatically increased the numbers of projects attracted. Other examples of emerging markets are Bulgaria, Lithuania, Turkey and Ukraine, where competition for manufacturing projects is increasingly intense."
The real concern for the West Midlands, however, is that automotive component manufacturers are heading East in significant numbers.
Mr Bowker said: "Although the report reveals that the UK leads foreign direct investment in many sectors, a concern for the West Midlands' economy is that Eastern and Central European locations threaten to become the most important for automotive manufacturing.
"Investment in the automotive sector has been heading East to take advantage of both cost and market factors, and this is certainly a trend we are experiencing in the Midlands. As the Central and European markets have opened up and increased in attractiveness, so the volume automotive manufacturers have placed new car plants in these lower cost economies and the supply chain has followed.
"The clear winners in new automotive investment have been Poland and the Czech Republic with an increasing amount of activity now taking place within Slovakia."
On a positive note, the UK continues to offer a compelling case to companies from the emerging markets of India and China wishing to gain a European foothold. The UK attracted more projects originating from these economies than any other country.
Mr Bowker said: "It is apparent from the report that the UK is still a destination of choice for many companies looking to establish overseas operations."
