According to the 2016 Foreign Direct Investment (FDI) Confidence Index® A.T. Kearney, nearly three-quarters of companies plan to increase their FDI in the next three years. The 2016 edition of the Index, FDI on the Rebound?,finds that global business executives are increasingly looking to deploy FDI for growth opportunities. More than 70 percent of firms in the survey plan to increase their level of FDI over the next three years.
For the fourth consecutive year, the United States tops the FDI Confidence Index. Global business executives are also more bullish on the U.S. economic outlook than for any other economy. China was second also for the fourth consecutive year.
“The United States and China have held steady at the top of the Index in the face of significant changes in the global operating environment over the past four years,” says Paul Laudicina, founder of the FDI Confidence Index and chairman of A.T. Kearney’s Global Business Policy Council. “Executives’ sustained interest in investing in the United States and China demonstrates the undeniable and enduring attractiveness of the two largest economies in the world. Over the 18 years of this assessment we have observed consistent investor preference for large markets with robust economic prospects.”
FDI in the United States has been a key driver in the recent manufacturing recovery. Capital investment in automotive, chemical, textile, aerospace and other manufacturing and production facilities by foreign-owned companies has been on a steady increase in the United States.
While reshoring activity accounts for a portion of this investment, the upsurge that may be most beneficial is how investments are being redirected based on the new economics of manufacturing in the United States. According to the Organization for International Investment (OFII), it is insourcing, or foreign direct investment (FDI) in the United States, that truly bolsters U.S. manufacturing. The OFII’s Foreign Direct Investment in the United States 2014 Report showed that in 2013, manufacturing accounted for one-third of cumulative FDI, in an amount exceeding $900 billion.
Last month, the Reshoring Initiative released its 2015 Reshoring Report. The report indicated the flow of job loss has been stemmed, but challenges remain to bringing back the millions of manufacturing jobs previously lost to offshore. The combined reshoring and FDI trends remained strong in 2015, adding 67,000 jobs and bringing the total number of manufacturing jobs brought from offshore to more than 249,000 since the manufacturing employment low of February 2010. Combined, these trends are leading to capital investment in manufacturing facilities.
The Global Supply Chain Institute at the University of Tennessee conducted a study on outsourcing and global supply chains and reported that companies are adopting regional supply chain models. This has a trickle-down effect, as once a large manufacturer makes a capital investment, key companies that are part of their supply chain may also make a capital investment. The aerospace and automotive industries are recently examples of this trend.
Global business leaders are increasingly turning to FDI to ignite growth opportunities, despite the overall trend of slowing globalization. Global FDI flows jumped 36 percent to an estimated $1.7 trillion in 2015—the highest level since 2007—and the vast majority of executives also believe that FDI will become more important for corporate profitability and competitiveness in the near term.
These trends from the large U.S. market are attractive to many corporations overseas because companies are increasingly making their products in multiple stages from supply networks in many countries that are linked together by trade and investment. Some other attractive and key advantages that provide incentive to FDI are: proximity to markets, dependable infrastructure, training and education, and business-friendly regulatory environments.
“We are seeing a continued flight to safety in the primary destinations for FDI,” says Erik Peterson, managing director of the Global Business Policy Council and co-author of the study. “It is not hard to understand why. The profound uncertainty in the economic prospects of many large emerging markets is causing investors to turn their attention to developed markets in North America and Europe.”
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