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1
FDI Confidence Index® 2003
FDI Confidence Index ® The Global Business Policy Council
Press Slides
September 2003
2
FDI Confidence Index ® The Global Business Policy Council
$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
FDI Confidence Index ® The Global Business Policy Council
$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
FDI Confidence Index ® The Global Business Policy Council
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
123456789
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
FDI Confidence Index ® The Global Business Policy Council
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
Source: A.T. Kearney
Positive change in outlookNegative change in outlook
September 2002
FDI Confidence Index ® The Global Business Policy Council
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)
Source: A.T. Kearney
FDI Confidence Index ® The Global Business Policy Council
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
FDI Confidence Index ® The Global Business Policy Council
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
Source: A.T. Kearney
FDI Confidence Index ® The Global Business Policy Council
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
FDI Confidence Index ® The Global Business Policy Council
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
Source: A.T. Kearney
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
FDI Confidence Index ® The Global Business Policy Council
Emerging markets will likely gain a greater share of first-time investments
12Source: A.T. Kearney
IT Support, 21%
Back Office, 14%
Manufacturing/Assembly,
22%
Treasury Operations,
10% Distribution & Logistics,
10%
Call Centers, 11%
Research & Development,
13%
FDI Confidence Index ® The Global Business Policy Council
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
Source: A.T. Kearney
FDI Confidence Index ® The Global Business Policy Council
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 governance issues
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)
FDI Confidence Index ® The Global Business Policy Council
Factors most likely to impact the attractiveness of the U.S. market over the next one to three years
15Source: A.T. Kearney
FDI Confidence Index ® The Global Business Policy Council
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
16Source: A.T. Kearney
FDI Confidence Index ® The Global Business Policy Council
0.5
1
1.5
2
2.5
China
Brazil
Mexico
ChinaUnited StatesMexicoBrazilGermanyIndiaPolandRussiaThailandJapan
123456789
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
FDI Confidence Index ® The Global Business Policy Council
Source: A.T. Kearney
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)
Source: A.T. Kearney
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
FDI Confidence Index ® The Global Business Policy Council
China’s lead over most emerging market destinations has strengthened
19
FDI Confidence Index ® The Global Business Policy Council
Source: A.T. Kearney
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
FDI Confidence Index ® The Global Business Policy Council
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
123456789
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
21Source: A.T. Kearney
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
FDI Confidence Index ® The Global Business Policy Council
The Emerging Giants – China, Brazil, Mexico, India, and Poland
22Source: A.T. Kearney
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)
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
FDI Confidence Index ® The Global Business Policy Council
China displays a comparative advantage across most FDI attractiveness attributes
23Source: A.T. Kearney
0%
20%
40%
60%
80%Political/Social Stability
Quality of Life
Tax RegimeInfrastructure
Transparency
Poland Brazil Mexico China India
FDI Confidence Index ® The Global Business Policy Council
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
Poland takes second position behind China
24Source: A.T. Kearney
0% 20% 40% 60% 80% 100%
Poland
Mexico
Brazil
India
China
Market Growth/Potential Production/Labor Costs
Highly Educated Workforce
FDI Confidence Index ® The Global Business Policy Council
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
India’s comparative advantage lies in market growth, costs, and education
25Source: A.T. Kearney
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
FDI Confidence Index ® The Global Business Policy Council
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
Yet, India displays weakness in several key categories
26Source: A.T. Kearney
0% 20% 40% 60% 80% 100%
Mexico
Brazil
China
Poland
India
Production/Labor Costs Highly Educated Workforce
FDI Confidence Index ® The Global Business Policy Council
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
Mexico and Brazil are less competitive in terms of education and production/labor costs as FDI destinations
27Source: A.T. Kearney
0% 20% 40% 60% 80% 100%
India
China
Brazil
Mexico
Poland
Access to Export Markets Transparency Infrastructure
FDI Confidence Index ® The Global Business Policy Council
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
Mexico and Brazil are recognized for attractive infrastructures, transparency, and access to export markets
28Source: A.T. Kearney
0% 20% 40% 60% 80% 100%
Brazil
India
Mexico
China
Poland
Political/Social Stability Financial/Economic Stability
FDI Confidence Index ® The Global Business Policy Council
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
Relative attractiveness of various markets for selected attributes
(weighted score of country rankings)
Relative stability among big emerging markets
29Source: A.T. Kearney
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
FDI Confidence Index ® The Global Business Policy Council
Relative risk profiles among big emerging markets
30Source: A.T. Kearney
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?
FDI Confidence Index ® The Global Business Policy Council
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
Corporate governance issues
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
Source: A.T. Kearney
(Percentage among top five)
FDI Confidence Index ® The Global Business Policy Council
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
FDI Confidence Index ® The Global Business Policy Council
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
Source: A.T. Kearney
FDI Confidence Index ® The Global Business Policy Council