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Global FDI declines, but USA still attracts strong investment

by Nitin Dahad

Regional and economic development agencies nowadays are very proactive in the measures they take to create their own Silicon Valley like ecosystems, so that they can attract foreign direct investment (FDI) and boost local economic growth. Almost all agencies are focused on FDI to stimulate job growth, and to enhance their innovation environment with new products and technologies, processes, and management talent.

FDI-investment globe piggy bankWhile global FDI declined by about eight percent in 2014, to an estimated US$1.26 trillion, Europe, China and developing economies saw a rise in FDI inflows, while the USA saw a decline. According to an UNCTAD global investment trends report earlier this year, among the top five FDI recipients in the world, four are developing economies, which saw their FDI inflows reach a new high of more than US$700 billion, four percent higher than 2013, with a global share of 56 percent. At regional level, flows to developing Asia were up, those to Africa remained flat, while FDI to Latin America declined.

FDI flows to developed countries dropped by 14 percent to an estimated US$511 billion, significantly affected by a large divestment in the United States. FDI flows to the European Union (EU) reached an estimated US$267 billion, a 13 percent increase on 2013.

Despite the decline in total investment, the USA is still an economy that foreign companies look to. According to Area Development magazine, the USA economy’s primary location advantages are its open markets and investment climate, considered to be the strongest in the world. It also benefits from vast consumer markets, world-renowned universities and research institutions, a skilled and productive workforce, entrepreneurial culture, and transparent regulatory environment.

Once a company makes the decision to invest in the USA, it says, the location search progresses much like any other site selection project. International companies must identify the most important location factors for their particular businesses, and industries must analyze the differences in land prices, utility rates, tax rates, workforce, and business incentives among different U.S. locations.

It says that state-level economic development agencies pursue a variety of strategies to attract FDI, including targeted marketing and business development campaigns, generous business incentives, and old-fashioned relationship-building through trade missions, operation of permanent offices abroad, and intense networking through their existing international business communities.

In my opinion, not many other countries are as strong in their FDI awareness strategy as the USA economic development agencies. They understand marketing in the true sense of the word – and quite often they develop an integrated campaign rather than just a single tactic campaign. This is why, despite the decline in 2014, I believe the USA will spring back in coming years as a top FDI destination – unless of course other countries get marketing savvy and learn from their American counterparts.

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