Expanding Options in Overseas Markets | foreign direct investment, China, European Union

According to IBM's Global Business Services, the overall pattern of global investment has been relatively steady since 2003. Out of 8,076 foreign direct investment (FDI) projects tracked in 2005, 39 percent were located in Europe, followed by 27 percent in Asia. The United States is still by far the biggest outward FDI investor, staking nearly 2,800 projects in foreign countries (Germany was a distant second with about 700 projects).

The top 15 countries accounted for 70 percent of all recorded inward FDI projects around the world. China led the pack with about 950 projects, followed by India (700), the United Kingdom (680), and France (650). The third position was held by the United States with about 450. The fourth-place cluster (150-200 projects) included Poland, the Czech Republic, and Germany.

Many of these countries are members of the European Union (EU). Foreign investors like the EU for good reason - it is the world's largest trading entity with almost 500 million consumers and a GDP worth US$12.8 billion. Key countries are the United Kingdom, France, Germany, Italy, and Portugal.

United Kingdom
The United Kingdom - England, Scotland, Wales, and Northern Ireland - is the fourth-largest economy in the world, with a GDP of US$2.1billion. The Economist Intelligence Unit predicts the United Kingdom will have the strongest business environment in Europe through 2009. It is second worldwide for total FDI received, driven by some of best incentives for FDI in the industrialized world. In 2005, it received US$219 billion in FDI, which represents one-quarter of all global FDI inflow and 49 percent of all FDI in the European Union.

"Foreign direct investment flows have been monitored in the U.K. since 1970," says Gordon Innes, director of UK Trade & Investment USA. "Since that time, year-on-year for 36 years, the U.K. has been the top recipient of U.S. investment in Europe." Growth sectors are information and communications technology (ICT), manufacturing, business and financial, and biotechnology. The United Kingdom generates more biotech revenues than any other country in the EU and produces nearly 25 percent of the world's top 100 medicines. More than 500 bioscience companies have operations in the U.K., including international players like GlaxoSmithKline (GSK) and AstraZeneca.

Cambridge and London are the main biotechnology clusters. Cambridge has a longstanding history in biotech/pharma and is home to Cambridge Science Park. In London, GSK and Imperial College have partnered to build a new clinical imaging center at Hammersmith Hospital in West London that is part of a new £60 million research campus. The center represents one of the world's largest academic-private sector partnerships and will study life-threatening diseases such as cancer, Parkinson's disease, and multiple sclerosis.

European Continent
• France: According to the Invest in France Agency (IFA), 664 FDI projects were completed in 2005, an increase of 12.4 percent over the previous year. These projects totaled €40 billion in value and created more than 33,000 jobs. The leading sources for investment were Western Europe (59 percent jobs created) and North America (31 percent jobs created).

"France remains a favored destination, a leader in the globalized investment market," says Clara Gaymard, president of IFA. "These figures reveal the reality of France's attractiveness to foreign investors." More than 40 percent of the new jobs were created in the regions of Ile de France and Rhone-Alpes. Leading FDI sectors are ICT, business and financial, manufacturing, and biotechnology.

More than three-quarters of the biotech companies in France are spinoffs from research organizations, such the National Council for Scientific Research. About 40 percent of all drugs manufactured in Europe are made in France. Pharmaceutical and other life-science companies are drawn to France because its innovative funding and other incentives for startup companies are some of the most generous in the world.

• Germany: Biotechnology is also one of the hottest FDI sectors in Germany, which has more than 350 biotech and life sciences companies - the highest number in Europe. Clusters are based in Berlin (centered around the Max Planck Institute), Heidelberg (European Molecular Biology Laboratory), and Munich (Ludwig Maximilian University and Technical University of Munich).

Renowned institutions such as the Fraunhofer Society conduct world-class research on advanced materials, electronics, high-performance medical implants, diagnostic/drug-delivery systems, bio-fuel, and renewable resources.

"Our industrial biotech sector is eagerly seeking international partners to jointly develop and market new products," says Gerhart Maier, managing director of Invest in Germany. "At the same time, the federal government is massively boosting its support for the industry. These corporate and public-sector initiatives are creating unprecedented opportunities for cross-border cooperation."

Another sector - logistics - has quietly become the third-largest industry in Germany with an annual revenue of €170 billion. Germany ranks first in Europe as a logistics location because of its proximity to nine major European markets. "No other European country has comparable logistics expertise or such an outstanding transportation infrastructure," says Wolfgang Tiefensee, Germany's minister for Transport, Construction, and Urban Development. "These factors are ideal conditions for all exporting and importing companies."

• Portugal: According to LocoMonitor, FDI projects in 2006 totaled US$1.6 billion, 10 times higher than the US$155 million recorded the previous year. Key sectors are in manufacturing, electronics, ICT, and life sciences.

IKEA, the Swedish furniture supplier, is building a €32 million plant in northern Portugal that will create 220 new jobs. Electronics firms such as Blaupunkt, Bosch, and Siemens also have operations in Portugal. Infineon, Visteon, and Tyco are expanding their semiconductor plants and increasing production.

The Massachusetts Institute of Technology (MIT) and the Portuguese Ministry of Science, Technology and Higher Education have entered into a long-term collaboration to expand research and education at the university level in key areas such as engineering design and advanced manufacturing. The program will also create new master's and Ph.D. programs and create new public-private partnerships for research and development.

"The creation of the MIT-Portugal Program will bring new academic and research insights in areas where large-scale complex systems are fundamental to every institution involved," says Tom Magnanti, dean of MIT's School of Engineering. "This relationship will allow both parties to collaborate on scientific and technological discoveries that are critical to the future of Portugal, of importance to MIT, and will impact Europe to the North and the Mediterranean to the South."

• Italy: FDI in Italy is geared toward business and financial services, manufacturing (chemicals, automotive), logistics, ICT, and high tech. Italy is rapidly making a name for itself in the fields of biotech and pharma. Foreign companies are attracted to Italy's strong network of highly capable universities, centers of excellence, and medical research facilities

"Our pharmaceutical industry has a long tradition in fields like oncology, neuroscience and vaccines," says Giampaolo Russo, CEO of Invest in Italy. "The market has been growing at a rate of 105 percent since 1999, with outstanding prospects for products in the approval pipeline. In addition, research costs less here than in Switzerland, France, and Germany."

About 100 foreign companies have biotech operations in Italy, employing a total of about 10,000 employees. Players include AstraZeneca, Pfizer, Eli Lilly, GlaxoSmithKline, Merck Sharp & Dohme, Sanofi-Aventis, Bristol-Myers Squibb, and Novartis. Italy is also developing an international reputation for clinical drug trials. Companies prefer Italy because of the state-of-the-art technology and overall efficiency. Testing covers a wide range of areas, including cardiology, immunology, and oncology. "Italy is one of the best markets in Europe for clinical trials," says Russo. "There is an aging population, there are many good quality hospitals, and the clinical trials costs are much lower."

Asia-Pacific
• China: China has long been recognized as a global leader when it comes to attracting foreign investment, especially in the manufacturing sector - nearly two-thirds of China's manufacturing exports are from foreign companies. In recent years, however, China has also been attracting more value-added FDI projects, such as high-tech R&D and financial services.

In 2005, China's total FDI inflow reached US$72 million - a new record for the country and nearly half of all the FDI that flowed into Asia that year. This record growth, according to A.T. Kearney's 2005 Foreign Direct Investment Confidence Index, is due to "strong growth rates, growing consumer populations, and low-cost but highly educated labor pools. Pro-FDI reforms and accelerated integration into the worldwide IT network have made China more attractive to investors."

Joining the World Trade Organization has also fueled investor interest in China, especially as it opens up key sectors such as banking and insurance - for example, the U.S.-based Carlyle Group invested US$400 million in China Pacific Life Insurance Company. The Chinese government is also actively seeking foreign help in upgrading and modernizing its IT and banking systems. And foreign companies are taking notice - a recent example is Bank of America's pledge in 2005 to invest nearly US$3 billion in China Construction Bank.

• India: According to the World Competitiveness Yearbook 2006, India jumped from 39th to 29th - the largest increase by any of the 60 most competitive countries. This is further reflected by IBM Global Business Services's ranking of India as the leading country in the world for FDI-related job creation and R&D. In fact, India attracts half of all the R&D foreign direct investment that goes into Asia.

India's economy is booming, much of its growth driven by huge investments from U.S. ICT companies such as Dell and Microsoft. Over the last decade, American firms have invested more than $5 billion in India, which is rapidly speeding up economic growth in the country. Although manufacturing is strong (in fact, India attracted 16 percent of all FDI manufacturing in Asia last year), the services sector accounts for the greater part of India's GDP.

Vinod Ganjoor, CEO and chairman of EurIndia, a private equity firm, states that "by and large we're focused on services companies. While the private equity landscape is evolving, the classic VC in India is still services-dominated." These growth sectors include business processing, IT outsourcing, and call centers.

• Australia: The World Competitiveness Yearbook 2006 shows Australia in sixth position worldwide when it comes to global competitiveness. A.T. Kearney ranked Australia as one of the top eight countries for FDI inflow, and the United Nations Conference on Trade and Development called Australia "the developed world's third most popular destination for transnational corporations establishing or relocating their headquarters."

In 2004, Australia's FDI inflow reached a record high of $42.6 billion. With a projected GDP growth rate of 3.7 percent for 2007, as well as continued labor, tax, and intellectual property protection reforms, Australia will continue to attract high-quality FDI projects. Through the third quarter of 2006, the year-to-date investment total was 16 percent higher than it was for the previous year. This surge is led by FDI in natural resources, manufacturing, and the service sectors.

The red-hot services sector is driven by investments from foreign companies that are starting to recognize the benefits of doing business in Australia. For example, Zurich International, a wealth-management firm, is expanding into the Asia-Pacific market by opening a facility in Australia. And U.S.-based MyMedicalRecords.com, a provider of consumer-owned online personal health record and vital document storage, has chosen Australia for its first operation outside the United States.

• New Zealand: World Bank's Doing Business Economy Ratings ranked New Zealand second in the world for business climate, trailing only Singapore and one spot ahead of the United States. As of March 2006, total FDI stock in New Zealand was US$51 billion - the top three investing countries were the United States, Australia, and the United Kingdom. Leading sectors are ICT, high-tech, and business and financial services. The Canterbury Plains on South Island is considered to be New Zealand's Silicon Valley - nearly half of New Zealand's ICT firms are based here. The New Zealand Information and Communications Technology Institute, which recently opened at the University of Canterbury in Christchurch, is working with global giants like IBM and Hewlett Packard on research and training initiatives.

New Zealand's biotechnology sector is also growing. Swiss company Roche and U.S. company Genentech are involved in a large-scale research partnership with several New Zealand companies and institutions. California-based Invitrogen manufactures animal-derived products in New Zealand. GSK helped establish the Medical Research Institute of New Zealand, which undertakes global trials of new medicines.

NuPharm, a U.K.-based pharmaceutical development company, recently opened a state-of-the-art facility in Waikato Technology/Innovation Park to conduct drug formulation and testing. "As a relatively new company, one of NuPharm's strengths is being flexible and responsiveness to customers," says co-director Will Gould. "People here were very active in telling us what they could do for us and how we could take advantage of the opportunities. And New Zealand scientists and researchers have a reputation for providing an innovative approach, versatility, and ability to respond to requests at short notice. We're glad we're here."