“FDI will increase, some even envision a growth of 20%” , this can be read in the report “Winning in a polycentric world” by Ernst & Young, in cooperation with the Economist Intelligence Unit. An interesting differentiation is made between the emerging and the developed world, where companies have well developed business models and asset bases, but have to deal with slow growth opportunities. In the emerging markets, this situation is often reversed. Multinational companies should have business models that allow multiple speeds, depending on the location of business. Emerging markets require agility, and fast response-to-markets, where developed markets are more dependent on efficiency and incremental growth. Meeting this range of demands requires a flexibility at Board level that can be met by creating diversity in the Board, both on geographical background and on experience.
One area where this diversity in local approach will become visible is R&D. Currently, most multinational companies concentrate their R&D in the developed world, with only 16% of their R&D investments in emerging countries. Within 3 years, it is expected that at least 25% of R&D investments will be allocated to emerging countries. A clear signal to Multinationals, but also to Agencies attracting FDI.
Another area that will see a different approach in the coming years is the weighing of the local political environment in investment decisions. Right now, the only factors taken into consideration regularly are taxation and economic growth potential. A better understanding of the political environment, and what that might mean for the future of doing business in a certain country will become much more decisive in the coming years. Global Arena is already investigating what independent and comparable parameters can be used to assist our clients in making investment decisions, taking political environment into this consideration as well.
In short, another indicator that globalization is a strong driver for increased FDI, but globalization will not flatten the market to such an extent that the balance between scale and local relevance allows for a generic approach worldwide. Only companies that have a careful strategy on business allocation and a locally centered business approach will have the full benefit of geographic spread of their activities.
