Investors Turn to FDI Amid Rising Protectionism

WASHINGTON, May 2, 2018 /PRNewswire/ -- 79 percent of investors plan to increase their foreign direct investment in the next three years, according to the 2018 Foreign Direct Investment (FDI) Confidence Index® from global strategy and management consulting firm A.T. Kearney. This is a four percentage point increase on last year's results, highlighting the continued bullishness of investors amidst geopolitical turmoil and economic expansion. In fact, investors signal greater confidence in the global economy, with 66 percent more optimistic about the global economic outlook than they were last year.

Despite such optimism, this year's edition of the Index, entitled Investing in a Localized World, finds that investors are also increasingly bracing themselves for economic disruption by adopting strategies to mitigate the effects of protectionism on their business operations. 89 percent of investors report that their company is pursuing or considering implementing localization practices. Government regulations play a key role in these decisions. More than one-third of investors indicate that their decision to localize is driven by market access restrictions while 27 percent report that their localization decisions are driven by protectionist trade policies. Localization strategies are causing investors to increase their FDI, as they develop new supply chains, products, and workforces for specific local contexts.

"Investors appear to have recognized that the heady days of globalization are no more," says Paul A. Laudicina, founder of the FDI Confidence Index and chairman of A.T. Kearney's Global Business Policy Council. "In an increasingly islandized world, global companies recognize that it is important to build local connections to ensure continued market access."

But localization does not come without costs. For instance, 60 percent of investors report that if the North American Free Trade Agreement (NAFTA) were terminated, their company's operating costs would increase.

In this localizing world, developed markets dominate in terms of investment intentions, accounting for 84 percent of the positions in this year's Index. The United States remains in the top spot of the Index for the sixth year in a row. Almost all developed markets in Asia rise in the rankings. And European developed markets performed strongly, accounting for more than half of all positions on the Index.

"Europe's strong showing in this year's Index is a sign that—10 years after the onset of the global financial crisis—the European economy has finally turned the corner and is poised for greater growth," says Erik Peterson, managing director of the Global Business Policy Council and co-author of the study.

Emerging markets such as China and India fell in this year's Index, but remain among the top investment destinations overall due to their sheer market size and rapid economic growth. Their fall may be better explained by investor preference for regulatory transparency and concern about political instability than any significant change in their overall fundamentals.

Investors also perceive the possibility of political instability in an emerging market as more likely to occur this year than last year. And for the fourth year in a row, investors identify increasing geopolitical tensions as the wild card that is most likely to occur this year.

Regional highlights

Americas: Investors are split about the Americas region as an attractive investment destination. While North American markets such as the United States (1st), Canada (2nd), and Mexico (17th) maintain their positions or rise in the rankings, Brazil falls 9 spots to 25th. Global investors are very optimistic about the economic outlook in the Americas. Over 40 percent of investors are more optimistic about the regional economic outlook this year than they were last year.

Europe: Europe is particularly attractive to foreign investors, capturing 14 of the 25 spots on the Index. Germany falls to 3rd place in the Index, while the United Kingdom maintains its 4th place rank. France remains in the 7th spot, while Switzerland and Italy rise to the 9th and 10th position, respectively. The Netherlands (13), Sweden (14), and Ireland (19) all improve one spot, while Spain falls to 15th, Belgium falls to 21st, and Austria holds steady at 24th. All three of the newcomers this year are European countries: Denmark (20), Portugal (22), and Norway (23).

Asia Pacific: Investors are the most bullish about the economic outlook for the Asia Pacific region, with 43 percent of investors more optimistic than last year about the region. Nonetheless investor preference for the region appears to have declined slightly, with only seven Asian countries appearing on this year's Index. China (5), India (11), and Singapore (12) all rank lower this year, while Australia rises to 8th and New Zealand jumps to the 16th spot in only its second year on the Index. Japan and South Korea hold steady at 6th and 18th, respectively.

The 2018 A.T. Kearney FDI Confidence Index®

Note: *** indicates a newcomer to the Index.

About A.T. Kearney

A.T. Kearney is a leading global management consulting firm with offices in more than 40 countries. Since 1926, we have been trusted advisors to the world's foremost organizations. A.T. Kearney is a partner-owned firm, committed to helping clients achieve immediate impact and growing advantage on their most mission-critical issues.

To learn more about A.T. Kearney, please visit www.atkearney.com.

About the 2018 Foreign Direct Investment Confidence Index^® 

The A.T. Kearney Foreign Direct Investment (FDI) Confidence Index® is an annual survey of global business executives that ranks markets that are likely to attract the most investment in the next three years. In contrast to other backward-looking data on FDI flows, the FDI Confidence Index provides unique forward-looking analysis of the markets investors intend to target for FDI in the coming years. Since its inception in 1998, the countries ranked on the FDI Confidence Index have tracked closely with the top destinations for actual FDI flows in subsequent years.

The 2018 FDI Confidence Index is constructed using primary data from a proprietary survey of more than 500 senior executives of the world's leading corporations. The survey was conducted in January 2018. Respondents include C-level executives and regional and business leads. All participating companies have annual revenues of $500 million or more. The companies are headquartered in 29 countries and span all sectors. The selection of these countries was based on UNCTAD data, with the 29 countries represented in the FDI Confidence Index originating more than 90 percent of the global flow of FDI in recent years. Service-sector firms account for about 46 percent of respondents, industrial firms for 35 percent, and IT firms for 17 percent.

The Index is calculated as a weighted average of the number of high, medium, and low responses to questions on the likelihood of making a direct investment in a market over the next three years. Index values are based on responses only from companies headquartered in foreign markets. For example, the Index value for the United States was calculated without responses from US-headquartered investors. Higher Index values indicate more attractive investment targets.

FDI flow figures presented in this report are the latest statistics available from UNCTAD, and all 2017 figures are estimates. The data on specific FDI deal values are from Dealogic unless otherwise noted. Other secondary sources include investment promotion agencies, central banks, ministries of finance and trade, relevant news media, and other major data sources.

For past editions of the FDI Confidence Index, please go to www.atkearney.com/foreign-direct-investment-confidence-index.

For more information contact:

Jennifer Greenwood ([email protected])

SOURCE A.T. Kearney

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