USA Inbound Acquisitions & Investments Blog
Posted at 6:00 AM on September 18, 2009 by Bill Newman .
What Countries Are Most Attractive to FDI? What Makes Them
Attractive?
The global economy is struggling with some success to recover FDI.WIPS recites:
from the turmoil of the last two years.Attorneys, investment
bankers and other professionals now are trying to predict where
global mergers and acquisition activity will begin to
increase.What markets are likely to first benefit from the return of
global FDI?
Earlier this year, the United Nations Conference on Trade and
Development (UNCTAD) released its World Investment Prospects
Survey for 2009-2011 (WIPS).WIPS provides an outlook on
future trends in FDI by the largest multinational business
enterprises.WIPScompiled the results obtained from a sample of
241 company executivesofthe large non-financial multinationals
and from 20 direct interviews.
WIPS predictedthe top 15 countries that willreceiveFDI for 2009 -
2011:
1. China
2. United States
3. India
4. Brazil
5. Russian Federation
6. United Kingdom
7. Germany
8. Australia
9. Indonesia
10. Canada
11. Vietnam
12. Mexico
13. Poland
14. France
The United States improved its position by one step over last
year’s survey, replacing India in the number 2 slot.Brazil moved
rd
past Russia, achieving the 3 place position.
The reasons underlying the selection of these countries were
predictable andincluded:
• market size
• market growth
• availability of less expensive labor
• access to natural resources
• quality of the business environment
Of even greater interest, however, is the distribution of the
responses from the survey participants.First, the top 15 countries
accounted for 74% of the total responses.This is close to the 80/20 Implicit in these findings, and in the power curve as well, is a
phenomenon seen in other measure of voluntary market
participant choices—such as favorite websites or favorite books— its competitors for any one or more reasons – a slower recovery,
in which 80% of the respondents pick the same 20% or less of
available choices.Second, as shown in the accompanying chart
from WIPS,China, the United States and India appear to have
more favorable responses than do the other twelve nations.This fail to receive substantial amounts of FDI and may be unable to
type of sharp drop off from highest to lowest in frequency of
choice is referred as a power law curve.Thepower lawcurve is
an algebraic graph plotting data in which the N position has
1/Nthof the first position’s rank.This distribution occurs where the
responses represent free choices and is at odds with a normal bell
curve distribution.*
Then, what are those attributes that make a country attractive to
• “Formarket growth, developing and transition economies
are generally favored, such as China, India, Brazil, the
Russian Federation, Indonesia, Vietnam, Poland and
Thailand.
• Formarket size, the largest economies are favored, either
developed ones such as the United States, Germany and
Canada, or emerging ones such as China, the Russian
Federation and Brazil.
• Foraccess to regional markets, countries that are
integrated into large markets, or which are close to large
and growing economies, are favored, such as Mexico,
Germany, Vietnam and Poland.
• Forpresence of suppliers, mostly developed countries are
favored, such as the United Kingdom, Germany and
France, and, to a slightly lesser extent, some developing
countries such as India.
• For theirbusiness environment(including government
effectiveness, stability and quality of infrastructures),
developed countries such as the United States, Germany
and Australia are favored. France is frequently
mentioned for the quality of its infrastructure.
• Forskills and talent, developed countries such as the
United States, Germany, the United Kingdom and
France are favored, but also some developing countries,
such as India and Thailand.
• Cheap laboris cited for favoring developing countries,
mostly in Asia, such as China, India, Vietnam, Indonesia
and Thailand.
• Foraccess to natural resources, countries well endowed
with them, such as Canada, Australia and Indonesia, are
favored.
• Access to capital marketsis frequently mentioned as an
asset for the United States, the United Kingdom and
Canada.
• Incentives is frequently mentioned for Australia,
Vietnam and Brazil.”
WIPS concludes on an optimistic note, expressing the view of its
respondents that a progressive recovery will start slowly in 2010
and gain momentum in 2011.The basis for the optimism is that the
growing internationalization of business enterprises will lead to a
new wave of international investment projects as the recovery
takes hold.When and if that occurs, these key factors are likely to
play a major role in deciding where FDI is targeted.
warning for the United States. The United States could fall behind
unfavorable tax policies, protectionist trade practices or restrictive
regulation of which investments, to name just four. The power
curve is a slippery slope. If the U.S. falls to 4th or 5th place, it will
require the 1st or 2nd position for years to come.