Amid prolonged global economic slowdown and turbulence in many parts of the world, U.S. manufacturers’ foreign direct investment (FDI) decreased an estimated 1 percent in 2003, and is down more than 32 percent from a high of US$43 billion in 2000.
This new study from Deloitte Research suggests that the globalization of U.S. manufacturing is at a crossroads. In our analysis, developed markets continue to get an ever larger share of investments — now standing at nearly 84 percent and up from 61 percent in 2000. While investments into developed markets of Western Europe, Canada, and Asia-Pacific have remained steady for the last 4 years, investments into emerging, low-cost locations in developing economies have dropped more than 80 percent. For example, U.S. manufacturing FDI into China fell to just US$500 million in 2002, down nearly 70 percent from US$1.6 billion in 2001.
Are manufacturers going to leave investment opportunities in emerging markets to foreign competitors and indigenous firms and concentrate their investment spending in tried and true markets in the developed world, as our analysis suggests they are starting to do? Or, will they start to see the opportunities they may be missing — and the risk to their globalization efforts — and redirect FDI to the fast-growing, low-cost economies of Asia, as well as Latin America, and Central and Eastern Europe that are capturing an increasing share of global manufacturing output?
With the surging wave of outsourcing and companies that are on the lookout for opportunities everywhere, these two major choices will play out in the coming years. While an “asset light” investment strategy for low-wage economies may be an attractive option for manufacturers seeking to increase their return on assets, minimize fixed costs, and increase flexibility, it also presents a challenge for companies to retain their global competitiveness against a new wave of manufacturers rooted in very dynamic, low-cost, and fast-growing markets which are likely to foster a strong breeding ground for new technologies and new ways of doing business. Missing out on those opportunities may come at a very high cost — the long run loss of competitive advantage. Read the full report, available as a PDF file attachment at the bottom of the page.
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