The UK is the leading European location for overseas software investments and high-value research and development, according to the latest figures from government agency Invest UK.
The group said that external investments during 2002 generated 87 software projects and 79 IT projects out of a total of 709 investments from 35 countries, despite the continued downturn in the technology sector.
But the report also warned that investments in knowledge-driven sectors such as IT are facing increasing competition from new economies, in particular India and China.
In the report's foreword, foreign secretary Jack Straw and trade and industry secretary Patricia Hewitt warned against complacency.
"It is certain that a fast-changing world economy is bringing new opportunities but also new competition," the report said.
"China is joining the World Trade Organisation, India is producing 220,000 science and IT graduates a year and 10 more countries are joining the European Union next year."
The bulk of inward investment came from the US, followed by Canada, Germany and Japan, according to the report.
Dale Smith, vice consul and IT sector specialist based at the British Consulate in San Francisco, said that US companies in particular still regard the UK as the best springboard into the rest of Europe.
"The UK has always had good software development skills. For high-value software development, particularly broadband and wireless, and for localisation for other European countries, it's not that the UK has to compete on price," he explained.
At the same time, the convergence of wireless and 3G has generated a lot of interest in the UK market. "For anyone who wants to innovate in those areas, the UK is a great place," said Smith.
The report highlights low barriers to entry, a flexible and motivated workforce and world-class universities with leading research facilities as key factors in the UK's competitive position.
"UK government officials are doing a lot to understand the next wave of technology innovators and make sure that this understanding is part of policy," explained Smith. "The UK also has a good network of support services in place, and speed of set-up is key."
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