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Global Location Trends: 2019 Annual Report


Trade regulations and digital disruption are changing the ways companies invest at home and overseas

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The international economic landscape is transforming in the face of changing trade regimes and digital disruption. The former is impacting companies’ capability to leverage global supply chains, while the latter is changing how and where value creation takes place. In light of this, we are witnessing a transformation of corporate activity and economic globalization. These impacts are changing the patterns of global corporate investment activity as well as companies’ decisions to establish and expand operations across different locations.

Video: Trade, digital disruption impact companies' foreign direct investment

 

As a result of these changes, global foreign direct investment continues to decline.

Accordingly, in 2018, overall international investment activity declined, with the number of overall jobs created falling by 9 percent, to 1.06 million, and the number of new investment projects declining by a more moderate 3 percent.

The overall reduction in the number of jobs created is partly explained by the structural shift in investment activity. As companies respond to opportunities brought by digital technologies and automation, we see a gradual reduction in the average size of investment projects. The reduced investment is also a result of uncertainty surrounding potential trade wars as well as regional or local disruptive events, such as Brexit. However, it is also important to emphasize that the investment declines in the last couple of years have followed a period of growth, with a peak in international investment activity in 2016. The lower levels of investment in 2018 may therefore also be partly due to saturation. Many companies have made major investments in previous years and have established the capacity they need for their immediate growth plans.

We are seeing more market-seeking investment and relatively less investment in projects that seek to serve wider international markets through trade. This is, for example, reflected in the sectoral composition of investment, where, after moderate growth in 2018, Hospitality and Tourism is now the number-one sector for job creation through foreign direct investment.

This is mostly due to the development of new hotels, which generate a relatively high number of jobs, particularly in growth markets. This sector is strongly driven by economic growth in individual markets and, therefore, typically follows international economic cycles. In response to healthy economic fundamentals, the sector has shown very strong growth globally over the past ten years, and it still performed well in 2018.

The Transport Equipment sector—which is dominated by the automotive industry—has experienced a significant decline in overall investment as well and is now second. This is the first time since we started monitoring global investment trends in 2003 that automotive has not been the most important sectoral source of jobs from foreign direct investment. The lower level of international investment reflects a wider transformation of the sector, as customers and companies are moving toward new and more environmentally sustainable mobility options, such as electric vehicles. As part of this transformation, companies are reassessing their future business models and operations and are taking a step back to consider their options before adding major new capacity to their operating footprints.

The Information and Communications Technology (ICT) sector ranks third in job creation. Measured by number of projects, ICT continues to be the leading source of global investment, which highlights the prominent role of digital technologies in the global economy.

The changing nature of global investment also has a pronounced effect on the geographic distribution of investment across destination countries, which is subject to more fundamental change.


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Meet the authors

Jacob Dencik, Ph.D

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, Economic Research Leader, IBM Institute for Business Value, Global Business Services


Roel Spee

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, Global Leader, IBM Plant Location International