Foreign Investors Flee to Safety
Senior executives at the world's largest companies remain wary of investing in the current economic climate, but most are still preparing for an upswing. In the wake of the economic downturn, companies have refocused much of their foreign direct investment (FDI) on the biggest developed markets, such as the United States and Germany. However, many emerging markets, particularly China, India and Brazil, remain attractive FDI targets in the longer term.
These are some of the main findings in the 2010 A.T. Kearney FDI Confidence Index®, which tracks the impact of likely political, economic and regulatory changes on the FDI intentions of the leaders of the top companies in the world. With responses spanning 44 countries and 17 industry sectors, this survey offers a unique window into the prospects of foreign investment flows.
Following are some of the main findings of the Index:
Investors are still waiting for recovery. Global FDI flows dipped amid the deep recession that began in 2008, and our findings indicate that near-term relief may be slim. In fact, 48 percent of survey respondents say that their firms are postponing investments, most until 2011, when they believe recovery will finally be complete and capacity can be added for a new period of economic expansion. Almost three-quarters of respondents believe that Asia-Pacific is the region that will recover first.
Supply chains remain global. Some analysts question whether longer and leaner global supply chains are sustainable, but there is no overwhelming evidence that companies are scaling back their global operations, despite the volatile oil prices of the past two years. While two-thirds of executives report that they will review their supply chain strategies in the next few years, only 14 percent say their companies will move production closer to consumer markets to reduce costs.
China attracts FDI. The Index leader since 2002, China's continued transformation draws foreign investors even amid the economic slump. China is the top destination for executives in the retail, telecom, utilities, heavy industry and financial services industries. Its domestic consumption is growing, and the short-term outlook is unambiguously strong. However, rising labor costs could hurt the market for low-cost manufacturing.
The United States is a safe harbor. The United States was the epicenter of the downturn—and the safe haven investors sought while the recession raged. The country moved up to 2nd place despite the downturn, yet investors' long-term attitude about the United States is more pessimistic today than in 2007 (see figure). As the most mature market for mergers and acquisitions, the United States offers a strong environment for corporate finance transactions.
The Road Ahead
Two years of turmoil have rocked global markets, and global investors remain wary. However, there is reason for optimism. Companies courageous enough to continue investing for the inevitable rebound will take the lead once the global economy returns to health.
For complete study findings, see "Investing in a Rebound: The 2010 A.T. Kearney FDI Confidence Index®" at www.atkearney.com or contact
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Copyright 2010, A.T. Kearney, Inc. All rights reserved.
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