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Mark O’Connell is the CEO of OCO Global, a consulting firm he founded in 2001 that specializes in international investment and trade. O’Connell also oversees the operations of Mintel International Group in Ireland.
BF: In 2007, the United States saw a 20% increase in FDI from 2006. Is this an unusually large increase and, if so, what factors do you think account for it?
O’Connell: The United States currently offers a bargain to international investors; the weak dollar, combined with the slowdown in the U.S. economy, is creating a unique opportunity for foreign companies to establish a U.S. presence. Property is relatively cheap and investors can negotiate since it’s a buyer’s market. Skills are abundant since many U.S. firms are not hiring, and some in the financial services are shedding jobs, making labor costs more competitive. Economic development organizations in the worst-affected states will sell their grannies to get new jobs and investment, so big incentives are on the table. We expect 2008 to be another strong year for inbound FDI to the U.S.
BF: California, New York, and Texas attract the most U.S. FDI. What other states can you identify as possible alternatives for foreign companies to consider?
O’Connell: Arguably, some of these front runner states are over shopped and over heated from an FDI perspective. We are seeing shrewd investors look at overspill states like Arizona and Nevada, where you can still find skills and quality without paying California prices. Florida and Georgia also offer excellent gateways for investors to the wider Southeast U.S. and Latin America. Lastly, New York has some stiff competition in financial and business services from Pennsylvania, New Jersey, and New England, which offer lower costs with often better operating environments and skills.
BF: What can states with smaller economies do to lure foreign investment?
O’Connell: The best advice here is to specialize—choose one or two sectors or activities where you can shine and demonstrate competitive advantage to investors. Get to know those sectors and the business issues that need to be addressed. Then prepare your short list of active companies and build relationships directly with these companies and their advisors.
BF: Why do you think the Asia-Pacific region attracts 40% of the world’s FDI? (I assume it’s more complicated than just being the largest land mass.)
O’Connell: Many commentators assume all the FDI flows to Asia are cost seeking projects. Undoubtedly, in the past much of the volumes of FDI flowing into China and India have been precisely that. However, we are increasingly seeing Asian regions at the table for much more sophisticated technology driven investment such as R&D, software development, regional headquarters and so forth. Indeed, Singapore is a world class region for biotech and is far from being a low cost economy, while Hong Kong would give New York and London a run for their money as a world city with first class infrastructure and a highly dynamic economy. And apart from relatively low cost, the growth rates of the APAC economies are a huge catalyst for consumer demand, so much investment is market led.
BF: What countries are emerging as challengers to FDI-leading countries like China, India, and the United States? What are these emerging countries doing to attract investment?
O’Connell: Russia has to be taken very seriously as a player, and the distracting political noises often get in the way of a rampant economic success story that is hugely attractive for investors both in energy and infrastructure, but equally in technology and consumer sectors. The Middle East continues to lure investors with the promise of petrodollars and sovereign wealth for spectacular infrastructure and tourism projects. In Europe, Germany and France have shown better form recently as important sources of outbound FDI. However, the world is specializing and investors are becoming increasingly savvy about the FDI landscape and what projects are suitable in which locations, so it is important for EDOs to figure out where they sit in the global value chain and compete accordingly.
Foreign Direct Investment Projects by Country, 2007
1. China (1,171)
2. USA (783)
3. India (676)
4. UK (622)
5. France (556)
6. Germany (432)
7. Spain (379)
8. Romania (364)
9. Russia (361)
10. Poland (330)
11. UAE (271)
12. Vietnam (260)
13. Singapore (239)
14. Hungary (217)
15. Mexico/Belgium (206)
Source: OCO Global Ltd. Based on Greenfield FDI projects.
Investing Around the World
In March, OCO Global, an authority on foreign investment, released its 2007 global foreign direct investment (FDI) guide. (For a partial ranking of this data, entitled Most Foreign Direct Investment Projects by Country, see chart at bottom right.) Further analysis of the guide offers insight into how countries fared in other categories like jobs created and dollars invested.
Global FDI grew by 5.1% in 2007, creating 2.9 million new jobs. Over 100,000 of these jobs were in the United States, representing $46.8 billion in investment, a 20% increase from 2006. California, New York, Texas, Florida, and Pennsylvania drew the most foreign investment. Japan, Germany, and the UK were the top investors in the U.S., bringing in companies like Toyota, Tesco, Vodafone, and BAE Systems.
China led both the Asia-Pacific and world markets in 2007 by ranking first in number of total projects (1,171), new jobs (366,111), and investment ($90.4 billion). India lost the top spot to China in the jobs created category due to a 45% drop from its 2006 figures, but the subcontinent still attracted nearly 250,000 new jobs last year.
Europe led the world with 5,384 total FDI deals in 2007, followed by the Asia-Pacific region with 3,402, and North America with 935. Latin America had 777 deals, while the Middle East landed 486 and Africa struck 380, a 16% drop from 2006.