1 fdi confidence index ® 2003 fdi confidence index ® the global business policy council press...

1

FDI Confidence Index® 2003

FDI Confidence Index ® The Global Business Policy Council

Press Slides

September 2003

2


$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Global FDI Flows (US$ billions)

Source: UNCTAD

$1.4 trillion

$824 billion

$651 billion

21%

41%

Global FDI flows have fallen below 1998 levels

3


$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

1995 1996 1997 1998 1999 2000 2001 2002

World Developed countries Emerging/Transitioning markets

2001-2002 Industrialized countries -22%Emerging/Transitioning markets -19%

Global FDI Flows (US$ billions)

Source: UNCTAD

Advanced countries have experienced the sharpest drop in FDI inflows

4


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Share of Global FDIto

Emerging/Transitioning Markets

Share of Global FDIto Developed

Countries

% of Global FDI Flows

Source: UNCTAD

Industrialized vs. developing markets

5

ChinaUnited States

MexicoPoland

GermanyIndia

United KingdomRussiaBrazilSpain

FranceItaly

Czech RepublicCanada

JapanThailandHungary

South KoreaAustralia

TaiwanVietnam

Hong KongMalaysia

TurkeyIndonesia

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10111213141516171819202122232425

(1)(2)(9)(11)(4)(15)(3)(17)(13)(7)(5)(6)(14)(8)(12)(20)(16)(21)(10)(24)(33)(18)(42)(29)(31)

Low Confidence High Confidence( )= 2002Values Calculated on a 0 to 3 Scale


Source: A.T. Kearney

FDI Confidence Index 2003, top 25

Most attractive FDI destinations 2003

6

22%

-47% -49%

28%

58%33% 24%

-94%

-24% -35%-9%

-100%

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

June 1999

January 2000

February 2001

October 2001*

September 2003

*Post-September 11 FDI Flash

Survey

Percentage change in outlook compared to a year

ago


Positive change in outlookNegative change in outlook

September 2002


Investor outlook on the global economy

7

84%

63%

62%

52%

42%

31%

29%

29%

26%

16%

9%

Recovery of the U.S. Economy

Global or regional trade initiatives

Threat of global deflation

USD depreciation

Increased government regulation

Volatility in energy prices

Middle East conflict

Security concerns/ terrorism

Corporate governance issues

Anti-corporate, anti-brand sentiment

Corporate security costs (physical & IT)



Global developments most likely to influence FDI decisions

8

Percentage Growth

-60%

-40%

-20%

0%

20%

40%

60%

1999 2000 2001 2002 2003

0%

10%

20%

30%

40%

50%

60%

70%

80%

Change in M&A value Growth in completed deals

Investor preference for M&A

Percentage of investors who prefer M&A

Source: A.T. Kearney, KPMG, UNCTAD


Investor Preference for M&A as FDI mode of entry

9

Percentage of global investors with Planned Investment Increases/Decreases

0%

5%

10%

15%

20%

25%

30%

35%

2000 2001 2002 2003

Planned Investment Increases Planned Investment Decreases



Planned Investment Increases/Decreases

10Source: A.T. Kearney

More attractive *

Less attractive

Maintained ranking* More/less attractive based on moving up/down in the Index


Global investors are more attracted to selected emerging markets

11

North Ameri

ca

Africa, Near andMiddle

East

Europe Asia Pacific

Latin America

Regional share of total planned first-time investments


0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Russia

Turkey

Brazil

Poland

China

Mexico

Rest of Eastern Europe

Rest of Asia-

Pacific

Rest of region Rest of

region

Vietnam

Western

Europe

India


Emerging markets will likely gain a greater share of first-time investments


IT Support, 21%

Back Office, 14%

Manufacturing/Assembly,

22%

Treasury Operations,

10% Distribution & Logistics,

10%

Call Centers, 11%

Research & Development,

13%


Allocation of selected offshore activities

Services will likely dominate corporate off-shoring activities over the next three years

13

-17%

29%

20%

-5%

19%

38%

-20%

-10%

0%

10%

20%

30%

40%

50%

1998 1999 2000 2001 2002 2003

Percentage difference in FDI Index score between the U.S.

and China



U.S. vs. China investment attractiveness

14

93%

60%

48%

39%

34%

14%

14%

29%

29%

38%

31%

3%

Economic recovery

USD depreciation

Competition & foreign trade policies

Labor market flexibility

P roductivity rates

Domestic security/terrorism


Corporate restructuring

Multi- and bi-laterial trade agreementsBacklash against U.S. position in the M iddle

EastU.S. deficits

Costs of the war in Iraq

Source: A.T. Kearney (Percentage of total respondents)


Factors most likely to impact the attractiveness of the U.S. market over the next one to three years



North America, 5%

Western Europe, 14%

Eastern Europe, 32%Latin America,

5%

Asia, 30%

Africa & Middle East,

14%

Rest of Eastern Europe

Poland

Russia

Slovenia, Romania, the Baltic States, Croatia, and Serbia

Global allocation of first-time investments

10%

9%

5%

8%

The Eastern European “little tigers” are expected to gain significant first-time investments



0.5

1

1.5

2

2.5

China

Brazil

Mexico

ChinaUnited StatesMexicoBrazilGermanyIndiaPolandRussiaThailandJapan

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10

Top 10 most attractive investment destinations for Heavy

Manufacturing sector, 2003

Least Attractive

Highly Attractive

FDI Index Score

June 1999

Jan 200

0

Feb 200

1

Sept 2002

Sept 2003

Heavy Manufacturing sector

(1)(2)(5)(7)(3)(8)

(11)(16)(17)(13)

() = 2002

China’s lead notwithstanding, Mexico and Brazil score well with heavy manufacturing investors

17

Least Attractive

Global InvestorsHighly

Attractive

0

0.5

1

1.5

2 Asia

Europe

NorthAmerica

LatinAmerica

Africa/ &MiddleEast

Jan 2000

Feb 2001

Sept 2002

Dec 1998

June 1999

FDI Index Score



Sept 2003

Latin America falls behind

Asia

Asia surpasses Europe

Asia has overtaken both Latin America and Europe as a regional FDI destination

18

Percentage likelihood of investing in China over these other markets (percentage difference in FDI Index

scores)


17%

34%

25%

12%

67%73%

90%83%86% 87% 90%

109%

0%

20%

40%

60%

80%

100%

120%

Mexico Poland India Brazil

2001

2002

2003


China’s lead over most emerging market destinations has strengthened

19



Jan 2000

Feb 2001

Sept 2002

Dec 1998

June 1999

Sept 2003

-0.5

0

0.5

1

1.5

United States

Japan

Germany

United Kingdom

France

Italy

China less attractive

China more attractive

China’s relative attractiveness against developed countries (difference in FDI Index

scores)

China has also made advances against major developed countries

20


Source: A.T. Kearney, WTO World Trade Report 2003

FDI Confidence Index 2003, Asian Investors

FDI Confidence Index 2003, Asian Investors

ChinaUnited States

ThailandVietnam

JapanHong Kong,

MalaysiaAustraliaSingapore

TaiwanIndia

IndonesiaSouth Korea

GermanyUnited Kingdom

MexicoPhilippines

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1011121314151617

(1)(2)(4)

(14)(3)

(15)(32)

(5)(8)(6)

(13)(11)(16)

(9)(7)

(10)(18)

( )= 2002

Low confidence High confidence

0%

2%

4%

6%

8%

Intra-developing Asia’s share of global trade (ex-Japan)

Intra-developing Asia’s share of global trade (ex-Japan)

Percentage share of

global trade

1990 2001

0% 10% 20% 30%

NorthAmerican

European

Asian

Asian investors are most optimistic on the global

economy

Asian investors are most optimistic on the global

economy

Regional economic dynamism fuels Asian investor bullishness


China28%

Rest of Developing

World52%

Mexico7%

Brazil9%

Poland2%India

2%

The Emerging Giants receive a large share of FDI flowing to the

developing world

The Emerging Giants receive a large share of FDI flowing to the

developing world

2002 2002

• Market Size• Market Growth/Potential• Production/Labor Costs• Access to Export Markets• Competitor Presence• Availability of M&A Targets• Financial/Economic Stability• Political/Social Stability• Tax Regime• Infrastructure• Transparency• Highly Educated Workforce • Quality of Life

Thirteen attributes influencing FDI decisions were benchmarked across

these markets

Thirteen attributes influencing FDI decisions were benchmarked across

these markets


The Emerging Giants – China, Brazil, Mexico, India, and Poland


0%

20%

40%

60%

80%

100%Market Size

Market Growth/Potential

Production/Labor Costs

Access to Export MarketsCompetitor Presence

Availability of M&A Targets

Financial/Economic Stability

China Brazil Mexico India Poland

Relative attractiveness of various markets for selected attributes

(weighted score of country rankings)




China displays a comparative advantage across most FDI attractiveness attributes


0%

20%

40%

60%

80%Political/Social Stability

Quality of Life

Tax RegimeInfrastructure

Transparency

Poland Brazil Mexico China India






Poland takes second position behind China


0% 20% 40% 60% 80% 100%

Poland

Mexico

Brazil

India

China

Market Growth/Potential Production/Labor Costs

Highly Educated Workforce






India’s comparative advantage lies in market growth, costs, and education


0%

20%

40%

60%

80%Access to Export Markets

Availability of M&A Targets

Qualify of life

Infrastructure

Tax Regime

Transparency

India China Brazil Mexico Poland






Yet, India displays weakness in several key categories


0% 20% 40% 60% 80% 100%

Mexico

Brazil

China

Poland

India

Production/Labor Costs Highly Educated Workforce






Mexico and Brazil are less competitive in terms of education and production/labor costs as FDI destinations


0% 20% 40% 60% 80% 100%

India

China

Brazil

Mexico

Poland

Access to Export Markets Transparency Infrastructure






Mexico and Brazil are recognized for attractive infrastructures, transparency, and access to export markets


0% 20% 40% 60% 80% 100%

Brazil

India

Mexico

China

Poland

Political/Social Stability Financial/Economic Stability






Relative stability among big emerging markets


Percentage of global investors that ranked countries for High, Medium, and Low Risk Percentage of global investors that ranked countries for High, Medium, and Low Risk

High24%

Medium63%

Low13%

China China

High54%

Medium41%

Low5%

Brazil Brazil

High30%

Medium58%

Low12%

India India

High17%

Medium62%

Low21%

Mexico Mexico High9%

Medium47%

Low44%

Poland Poland


Relative risk profiles among big emerging markets


63% 62%58%

48%41%

37% 38%42%

59%52%

0%

20%

40%

60%

80%

Mexico China Poland Brazil India

Yes

No

If invested, are profitability targets met?

If invested, are profitability targets met?


Meeting profitability targets?

31

72%

67%

63%

62%

34%

33%

25%

22%

21%

19%

17%

17%

8%

8%

5%

Government regulation

Country financial risk

Currency risk

Political & social disturbances

Absence of Rule of Law

Disruption of key suppier/ customer/ partner


Security threats to employees/ assets

Terrorist attacts

Product quality/ safety problems

IT disruption

Theft of intellectual property

Natural disasters

Employee fraud/ sabotage

Activist attacks on global/ corporate brands


(Percentage among top five)


The most critical risks to firm operations

32

82%

63%

63%

63%

55%

46%

42%

38%

25%

11%

12%

16%

15%

13%

16%

23%

17%

6%

25%

23%

25%

28%

32%

41%

42%

39%

58%

53%

13%

15%

Develop/Strengthen internal risk management

Invest in backup IT/physical infrastructures

Implement scenario and contingency planning

Implement new corporate ethics policies

Coordinate risk across supply chain

Revise board and executive committee

Increase coordination with stakeholders

Increase coordination with public/private entities ongovernance issues

Develop new corporate social responsibility strategies

Develop new branding strategies in response to anti-corporate public sentiment

Action taken Action planned No actionSource: A.T. Kearney


Risk management actions

33

Profile of FDI Confidence Index participants

22%

50%

25%

3%

29%

71%

9%16% 11%

Geographical Distribution

Respondent Titles

5%

Sectoral Distribution

5%4%

20%

30%

North America

Europe

Asia

Other

Financial and Non-financial Services

Wholesale and Retail

Telecom and Utilities

Light Manufacturing

Heavy Manufacturing

Primary

CEOs, CFOs and Board Members

Senior Strategy and Development Executives

Int’l Operations Executives

Other



1 fdi confidence index ® 2003 fdi confidence index ® the global business policy council press...

Documents

index fdi confidence

kearney fdi confidence

global fdi flows source

unctad fdi confidence

scale fdi confidence

fdi inflows

fdi decisions slide

global economy