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New Global Trends Report Indicates Foreign Direct Investment Is Ramping Up Worldwide

IBM Global Business Services, IBM Institute for Business Value (11/16/2011)
According to IBM's newly released "Global Location Trends" 2011 report, after two years of decline foreign direct investment (FDI) has finally begun to recover, and companies are learning how to adjust their global activities to new economic realities.

"The number of [FDI] projects grew by 10 percent and the number of jobs created jumped by 25 percent," said Frank Kern, Senior VP for IBM Global Business Services, in the fifth edition of this annual report.

Moreover, the nature of FDI in 2010 "indicates that businesses deepened their commitments to creating globally optimized footprints," he added, "a practice we first detected in this study in 2009. And in 2010, for the first time, we see emerging countries widely adopting this practice, setting up global operations that span their supply chains and internal operations."

Kern said that since enterprises in every region are now bolstered by a "growing capacity to analyze and act on proliferating information," they are "optimizing their operating models for efficiency and opportunity. For those prepared to act, it is welcome news."

Report authors Jacob Dencik and Roel Spee pointed out that in an increasingly integrated and volatile global economic landscape, "companies are adjusting their global activities to the new economic realities. Core to these efforts is the recognition of the needs to address supply chain challenges, manage talent requirements, and gain operational efficiencies through global footprint optimization. These needs have significant implications for how and where companies are deciding to operate, as they seek to adapt to changing demand patterns."

Thus, they summarized, "2010 marked companies' return to growth in foreign investment activities, with emerging countries as the main beneficiaries of this investment. After experiencing the worst global economic contraction for more than 70 years, 2010 saw a marked recovery in global economic activity. As mentioned in last year's report, we identified the tentative signs of a recovery in the second half of 2009."

The "winners" in the new global economy are now becoming more evident, too, revealed the report. Global investment in 2010 was more strategic in nature when compared to preceding years, which focused more on tactical and/or cost reduction activity.

Other key findings included:

  • Countries positioned to take greater advantage from foreign investment activity in 2010 are largely from emerging economies, with the BRIC nations (Brazil, Russia, India, China) performing "particularly well." Their assets for foreign investors include an "attractive combination of market growth, improved availability of skills and competitive cost levels."

  • For the first time on record, the four BRIC countries--together with the U.S. and its largest single consumer market--comprise the top five destination countries for foreign investment.

  • With an increase in jobs created from inward investment of almost 70 percent, China is now the top destination country, mainly as a result of large increases in investment in the electronics, transport equipment and chemicals sectors. China's improved performance was due to more intra-Asian investment, with Japanese and Taiwanese companies increasing their investment.

  • India takes second place, with a 35 percent increase in jobs created from inward investment compared to 2009 levels. Its strengths, information and communications technologies (ICT) and business services, account for over 40 percent of India's inward investment.

  • The United States took third place in 2010, and posted an overall increase of almost 20 percent in jobs created from foreign investment. Just a year earlier it was the Number One destination country.

Cities, regions and countries are increasingly interested in not only the quality and value of the investment projects attracted, but also with the quantity of projects and jobs, said report authors.

Using a FDI project value assessment developed by IBM, the duo discovered intriguing data about the performance of individual states and provinces within North America in regards to how some locations are able to attract high-value investment. Using this tool they found that:

  • New Jersey and California are the top states/provinces in North America by average value of investment projects, with NJ "receiving significant investment in life sciences and financial services, and California "receiving significant investment in ICT, business services and financial services."

  • Other locations performing well with respect to value include Michigan, New York and Pennsylvania in the U.S., while Ontario is the top-performing Canadian province.

  • Boston, San Francisco and Washington, D.C., are North America's leading metro areas.

  • Ireland leads the global ranking, and is Europe's Number One nation measured by investment value. Runners-ups: Austria and Switzerland, followed by Denmark, the UK and Sweden. Top European cities: Dublin, Belfast and Zurich.

  • The Asia-Pacific region, on average, has higher investment value projects than other geographies. "More mature locations" such as South Korea, Taiwan, Singapore and Japan top the ranking on value.

  • Emerging economies are increasingly seen as attractive locations for higher-value investment, with India ranked fifth in the region and China seventh. Bangalore, Taipei and Shenzhen are the leading metropolitan areas, followed by Melbourne and Chengdu.
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