U.S. Surging to Top Destination for Expected Foreign Direct Investment

A cautiously optimistic outlook based on realigned expectations, as well as the United States returning to the top of the rankings, are the themes of the 2013 A.T. Kearney Foreign Direct Investment Confidence Index (FDICI), a regular measure of senior executive sentiment at the world’s largest companies.

Conducted regularly over the last 15 years by global management consulting firm A.T. Kearney, the Index provides a unique look at the present and future prospects for international direct investment flows. The 2013 FDICI was released at A.T. Kearney’s Global Business Policy Council CEO Retreat, an annual gathering of global executives and thought leaders held this year in Marrakesh, Morocco.

This year 70 percent of corporate investors surveyed expect near-term recovery of their companies’ FDI levels. Half see their budgets as already returned to pre-crisis levels and 20 percent expect a return by 2014. If this were to happen, the FDI swell could provide a knock-on effect to global growth as macroeconomic clouds clear away. However, almost one-third are still taking a “wait and see” approach to FDI.

“While investors are still in a holding pattern as they have been since the recession, they seem more optimistic and less jittery than they have in recent years,” said Paul Laudicina, chairman emeritus of A.T. Kearney and chairman of its Global Business Policy Council, which helps business leaders identify global growth opportunities and manage business risks. “There’s been a leveling effect this year between developed economies and developing nations in terms of foreign investment. The world seems to be slowly finding its footing.”

The world’s developed countries make a surprisingly strong showing in this year’s FDICI, with Canada, Australia, Germany, and the United Kingdom joining the United States in the top eight positions. Overall, developed economies comprise more than one-half of the FDICI’s top 25 countries, indicating that flows to these regions are likely to keep accelerating. According to the survey, investors are guardedly optimistic and seem to be basing their decisions on varying signs of economic recovery around the globe. While for the first time since 2001, China did not top the FDICI rankings as enthusiasm for the U.S. resurgence pushed it to second in investors’ minds. Despite Europe’s debt crisis and gloomy outlook on recovery, seven European countries ranked in the top 20, with Germany placing highest at number 7.

Patrick Van den Bossche, Americas Lead Partner of A.T. Kearney’s Strategic Operations Practice, told Supply Chain Management Review that the return of a few companies’ manufacturing to the U.S. is encouraging.

“But the big question is: To what extent is the United States capable of taking back manufacturing on a significant scale? The challenges are great, he said.

“From a broad supply chain ecosystem perspective, for example, companies obviously will need to rebuild a supplier network that may have evaporated, along with the disappearance of the manufacturing operations it supported,” said Van den Bossche. “They also will need to consider rerouting functional interfaces, such as with their product development department that, in some cases, also migrated offshore.”

SC
MR