Where Executives Are Placing Their Bets
A periodic study from consultancy A.T. Kearney finds that managers at some of the world’s largest companies are taking a more cautious approach to investing in other countries due to the economy. After hitting an all-time high of $1.98 trillion in 2007, foreign direct investment worldwide fell 14% in 2008 and an estimated 39% last year, according to the U.N. Conference on Trade & Development. Unctad predicts a gradual recovery this year and next, but executives surveyed by A.T. Kearney say they are postponing some investments due to continued market uncertainty and difficulty obtaining credit.
When companies do expand or acquire overseas, where are they most likely to do it? China remains the No. 1 destination globally—a position it has held in A.T. Kearney’s surveys since 2002—and the U.S. has jumped back to the No. 2 position after falling behind India in the 2007 study. A.T. Kearney Chief Executive Paul A. Laudicina characterizes this and the even more significant jumps for Germany, Canada, and Australia as a “return to fundamentals and a flight to quality.”
Yet at the same time, this year’s ranking shows as never before the rise of emerging markets. Three of the top five most attractive destinations for foreign investment are China, India, and Brazil, and Poland jumped 16 rungs to weigh in at No. 6. Also entering the top 25 for the first time: Romania, Saudi Arabia, Chile, and Egypt. For a complete look at the top 25 countries where executives plan to place their bets, read on.
Rank: 1 (Change from 2007: Unchanged)
Ease of Doing Business Ranking: 89*
2008 Foreign Direct Investment (FDI) Inflows: $108.3 billion**
2009 Gross Domestic Product (GDP): $4.9 trillion
2009 Per-Capita GDP: $3,680
China has led the FDI Confidence Index since 2002. As the country continues to grow and transform itself, foreign investors across all major industries and geographies are drawn to its enormous internal market. Rising domestic demand and a transition to higher-quality labor continue to attract foreign investors, but wage inflation is an increasing concern.
* Source: World Bank
** The most recent period for which full-year figures are available
United States of America
Rank: 2 (Change from 2007: +1)
Ease of Doing Business Ranking: 4
2008 FDI Inflows: $316.1 billion
2009 GDP: $14.3 trillion
2009 Per-Capita GDP: $46,460
Despite the economic turmoil, the U.S. rose one spot in the index this year, reflecting foreign investors’ flight to safety. With a relatively business-friendly environment and recent low M&A target prices, particularly in the financial services industry, foreign investors were drawn to the U.S. Other industries that proved attractive were pharmaceuticals and green energy.
Rank: 3 (Change from 2007: -1)
Ease of Doing Business Ranking: 133
2008 FDI Inflows: $41.6 billion
2009 GDP: $1.3 trillion
2009 Per-Capita GDP: $1,100
Although India dropped one spot to third place, it remains a well-regarded foreign investment destination. India scored particularly well among investors in nonfinancial services, financial services, heavy industry, and light industry. While the country offers investors a number of business opportunities, companies must be able to navigate a rather difficult business environment.
Rank: 4 (Change from 2007: +2)
Ease of Doing Business Ranking: 129
2008 FDI Inflows: $45.1 billion
2009 GDP: $1.5 trillion
2009 Per-Capita GDP: $7,940
Brazil continues to rise in the rankings, and despite a drop in FDI inflows in 2009, it earns the third most positive outlook among investors, behind only China and India. A strong economic rebound and a growing middle class have made Brazil an attractive FDI destination. Moreover, Brazil has proven to be a top location for “nearshoring,” or nearby offshoring by companies in Europe and the Americas.
Rank: 5 (Change from 2007: +5)
Ease of Doing Business Ranking: 25
2008 FDI Inflows: $24.9 billion
2009 GDP: $3.3 trillion
2009 Per-Capita GDP: $39,800
Coming in as the top European destination, Germany ranks particularly well among investors in both nonfinancial and financial services. The majority of new investments are coming from other developed economies, including the U.S., Britain, and Japan.
Rank: 6 (Change from 2007: +16)
Ease of Doing Business Ranking: 72
2008 FDI Inflows: $16.5 billion
2009 GDP: $441.9 billion
2009 Per-Capita GDP: $11,580
Poland’s sharp rise in the 2010 Index, from No. 22 in 2007, can be attributed largely to its success at weathering the economic crisis, particular in comparison with its Eastern European neighbors. Foreign investors are particularly drawn to Poland’s relatively lower wages and extensive investment opportunities via the government’s aggressive privatization program.
Rank: 7 (Change from 2007: +4)
Ease of Doing Business Ranking: 9
2008 FDI Inflows: $46.8 billion
2009 GDP: $996.1 billion
2009 Per-Capita GDP: $46,860
Access to natural resources and an attractive business environment are the driving forces behind Australia’s seventh-place ranking. Foreign investors cited Australia as the third most attractive location for investments in resources, further supporting the notion that the country’s abundance in commodities and proximity to big Asian markets offer business opportunities.
Rank: 8 (Change from 2007: +11)
Ease of Doing Business Ranking: 51
2008 FDI Inflows: $22.9 billion
2009 GDP: $868.3 billion
2009 Per-Capita GDP: $7,810
Mexico reenters the top 10 this year and ranks particularly well among light industry investors. While the country has suffered during the economic turmoil, it stands to benefit greatly from nearshore strategies (nearby offshoring) by U.S. and Canadian companies.
Rank: 9 (Change from 2007: +5)
Ease of Doing Business Ranking: 8
2008 FDI Inflows: $44.7 billion
2009 GDP: $1.3 trillion
2009 Per-Capita GDP: $39,890
Foreign direct investors continue to look to Canada with confidence. Having the second-largest oil reserves (including unconventional liquids) after Saudi Arabia helps explain Canada’s second-place ranking among primary sector investors. The country also boasts a high degree of stability, having come through the downturn in better shape than its big neighbor to the south.
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