manufacturers foreign direct investments (FDI) have decreased for the third year in a row, with Europe continuing to receive the greatest share. From a high in 2000 of US$43 billion there is now only US$29 billion in global investments by US manufacturers up for grabs, according to a report released today by Deloitte. Europe remains the top destination for US Manufacturing FDI, attracting US$15.7 billion in 2002, down from US$17.7 billion in 2001.
After a significant 87% decline of FDI into Central and Eastern Europe in 2001, investment picked up, reaching US$372 million in 2002 as manufacturers started to prepare for the accession of many Central and Eastern European countries to the European Union on 1 May 2004. The accession to the EU of ten countries represents a serious opportunity for all areas of manufacturing industry, comments Julian Thomas, UK manufacturing and industry partner at Deloitte. This is reflected in the increase in investments by US manufacturers in Central and Eastern Europe seen in 2002.
In a surprising finding, the report notes that the slowdown in US manufacturing investment overseas is spread unevenly around the world, indicating the emergence of a Global Investment Divide. Foreign direct investment is concentrating in higher wage countries, such as Canada, Germany and the United Kingdom, with outsourcing and partnering being the strategy of choice to source and market in lower-wage, fast-growing economies, such as Brazil, China, India, Korea and Mexico.
There is a dramatic slowdown in US direct manufacturing investment into low-wage locations because more companies appear to be outsourcing work to local vendors rather than establishing or acquiring their own operations, comments Julian. This trend is quite troubling because it means, in essence, that US manufacturers may be paying ultimately to create their own competitors.
Key findings:
US manufacturers foreign direct investment (FDI) dropped by one percent in 2003 to an estimated $29 billion.
FDI flows have dropped more than 32 percent from a high of $43 billion in 2000, representing the third consecutive year of declines.
Europe remains the top destination for US Manufacturing foreign direct investments (FDI) despite a decline in investments from US$17.7 billion in 2001 to US$15.7 billion in 2002.
FDI into Europe in 2002 was driven by continued high levels of investments in the chemicals and pharmaceuticals sectors. Increases in the transportation equipment, food and machinery industries also contributed significantly.
The biggest drop in FDI into Europe was a 123 percent fall in in the computer and electronics segment from US$6.6 billion in 2001 to a negative US$1.5 billion in 2002.
Despite all the hype about investment in China and off-shoring, many US manufacturers are proceeding cautiously and not making direct financial investments in low-cost countries; FDI to low-cost, emerging markets is down by more than 80% since 1999.
Many US manufacturers established a presence in these countries, including China, many years ago so there is no dramatic increase in their FDI over the last two years.
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