Investors choose globalisation over geopolitics | fDi Intelligence – Your source for foreign direct investment information

Rising geopolitical and trade tensions will not stop the march towards the internationalisation of global multinational corporations, but they are prompting investors to pivot towards regionalisation, a recent survey of 538 global business leaders has found.

Kearney’s latest Foreign Direct Investment (FDI) Confidence Index reveals that 82% of corporate executives expect to increase FDI until 2026, up from 76% in the previous index which was conducted the month before Russia’s full-scale invasion of Ukraine. 

The 2023 edition of Kearney’s survey, which acts as a barometer of investor sentiment and ranks the countries likely to attract the most FDI over the next three years, shows that corporate executives are not retreating from the international stage despite disrupted supply chains, high inflation, growing US-China tensions and war in Europe.

“This is hardly the global backdrop that would suggest a case for much positivity from global investors. Nevertheless, executives in our [index] show cautious optimism,” states the report’s co-author and Kearney partner, Erik Peterson, in a note accompanying its release on March 30. 

This optimism is further reflected by 87% of respondents believing FDI will drive their company’s profitability and competitiveness over the next three years, up from 83% in 2022 and 81% the year prior. 

Kearney’s survey was conducted in January, before Silicon Valley Bank collapsed and set off the biggest banking crisis since 2008. However Mr Peterson said: “Despite the recent turbulence, investors will likely not be deterred from increasing their FDI in the near term.”

From globalisation to regionalisation 

Despite the US, the Netherlands and Japan restricting critical technology exports, and governments worldwide seeking to make their economies more self-sufficient, two-thirds of survey respondents expect internationalisation to strengthen over the next three years. They cite drivers including more connected digital infrastructure, and growing opportunities in digital trade and services. 

However, 73% believe that regionalisation via ‘friendshoring’, or moving operations and supply chains to countries with similar values, and nearshoring will also increase by 2026. “These results suggest an awareness that while globalisation will continue, its nature may be shifting,” said report co-author and Kearney manager, Terry Toland, in a statement.

Kearney has been tracking the move towards regionalisation for several years, said Mr Peterson. “While businesses continue to see the value of globalisation and would clearly like it to continue, they also face the reality of needing to be resilient in the face of exogenous shocks,” he added. Investors cite rising geopolitical tensions as a top risk for 2023, but it is also one of the biggest drivers behind regionalisation. Of the 12% of respondents whose FDI decisions are being impacted by nearshoring or friendshoring, 45% said their actions were primarily motivated by the conflict in Ukraine.

The 23% of respondents that expect internationalisation to decrease over this period also point to geopolitical risks, plus rising trade barriers and persistent supply chain disruptions created by the Covid-19 pandemic.

Movers and shakers

Kearney’s ranking of the most attractive countries for FDI reveals investors’ preference for stability and security, with developed markets taking 19 of the top 25 spots. The US continues its 11-year stint in pole position followed by Canada, Japan, Germany and the UK rounding out the top five. 

This year’s biggest climber was Singapore, which soared from 18th place to ninth after posting 3.6% economic growth in 2022. Investors believe the Asian city-state, alongside Canada, Japan, the US and France, are the five countries with the most optimistic economic outlook.

Further up the table, China (including Hong Kong) jumped from 10th to seventh following the reversal of its zero-Covid policy late last year. India returned to the top-25 ranking after a three-year hiatus and immediately seized 16th place.  

Two other emerging markets returning to the top 25 are Thailand (23rd) and Saudi Arabia (24th). The latter’s re-entry, plus Qatar and UAE in 21st and 18th place, respectively, reveals “strong investor sentiment regarding these Gulf states’ ambitious economic reform agendas and their increasing importance in global energy markets,” the report states.