IBM Annual Survey: Europe Regains Number One Position for Inward Investment

IBM's (NYSE: IBM) annual survey of countries receiving investment from multinational companies in the areas of manufacturing, services and R&D reveals Europe regained from Asia its top position in 2005, attracting 39 percent of all projects. Asia attracted 31 percent of all projects. In 2004, both regions tied at 35 percent.

The survey by IBM-Plant Location International (IBM-PLI), the global location strategies service within IBM Global Business Services, reports a slight rebound by mature economies due to strong economic growth while some leading emerging markets cooled after a number of years of very strong investment.

Business services ranked as the most popular type of inward investment project, accounting for 20 percent of all global projects, while manufacturing investment decreased globally on average by 20 percent -- to some 800 projects per quarter in 2005. Investment in new R&D centers remained fairly stable in 2005 at 200 projects every quarter globally.

Additionally, the survey found 15 countries again receiving 70 percent of overall inward investment. Four countries entered the top 15 in 2005 -- Poland, Romania, Singapore and UAE, replacing Hong Kong, Hungary, Spain and Sweden. Notably, the United Kingdom, France and Poland won considerably more investment and increased their market share.

"Even though mature economies have caught up slightly, the survey illustrates multinational companies can increasingly seek talent pools anywhere in the world," said Roel Spee, co-leader of IBM-Plant Location International. "Global competition for new jobs and capital investment is increasing continuously; developed and developing regions must continually define and implement new strategies to attract investment. Competitiveness in innovation and technology-driven strategy will play a vital role in creating new economy jobs."

The dominant emerging markets of Brazil, Russia, India, and China -- commonly referred to as the BRIC countries -- showed an average decrease in foreign inbound investment of almost a fifth in 2005 compared to the previous year. At the same time, the most mature economies began to recover from prior years, recording a 5 percent increase in foreign investment projects in 2005 compared to 2004. More R&D projects were registered in 2005 by Australia, Canada, Denmark, France, Germany, Ireland, Singapore, United States and UK than in 2004.

For the third consecutive year, China and India combined received more investment projects than the U.S -- 1,650 to 1,200 respectively. U.S. headquartered companies remained the largest generators of cross border investments, with 2,800 projects. However, German-based companies took over second place from their Japanese counterparts, 720 to 670 outward investment projects in 2005 respectively.

Key recommendations

Spread the risk
-- The fact that more locations have developed into acceptable business
environments does not mean that choices have become easier.
-- A company must be prepared to tackle the issues associated with
locating in a very successful 'hot spot', where a skilled workforce can get
scarce quickly and salary inflation may increase surprisingly fast.
-- Companies need to look for a truly global, integrated presence.

Target industries
-- Economic development organizations must respond in a fact based way to
the forces of globalization.
-- Country and local economic development organizations must continuously
assess and market their location's benefits. Increasingly, they have to
assess which new industries are showing strong investment potential and if
their region could attract this.
-- Preference should be given to those industries that offer competitive
advantage.
-- Development agencies need to more precisely define their unique value
propositions to investors and promote their locations more professionally.
-- Economic development organizations need to supplement their generalist
staff with industry experts, and seek stronger involvement from the private
sector in their economic development strategies

Foster collaboration to drive innovation
-- Economic development is changing as the world globalizes and job
growth opportunities shift from traditional to collaborative economic
development.
-- Regions performing traditional economic development will face tough
competition from low labor cost regions. Collaborative economic
development is less susceptible to globalization.
-- Economic development agencies need to foster a culture of
collaboration and innovation in their regions to attract investor companies
that are increasingly focused on innovation to help develop unique ways
that create value and maintain differentiation in the marketplace.
-- Building strong links between industry, education and government to
pool expertise and promote sustainable innovation that attracts a broad
base of investor companies will become vital.


Regional highlights


Africa
-- Africa attracted only 2 percent of all projects globally in 2005 --
the same as in 2004.
-- Kenya and Uganda performed better in 2005, South Africa remained
stable. Algeria, Egypt and Morocco fell back.

Asia Pacific
-- The Asia-Pacific region attracted 31 percent of all projects globally
in 2005: its market share decreased 3 percent from the record year of 2004.
-- India led globally in the number of service center and R&D project
investments. 204 R&D projects were registered for India in 2005.
-- India and China remained the top-ranking destination countries in Asia
for R&D projects, but total number of projects decreased. India decreased
from 256 to 204 projects and China from 143 to 126 projects.
-- China remained the number one manufacturing investment destination,
with 47 percent of all projects into Asia-Pacific. Its performance
decreased from 840 manufacturing projects in 2004 to 560 in 2005.
-- Vietnam continued its strong performance, particularly in
manufacturing, attracting 9 percent of the inward investment into Asia-
Pacific.


Europe
-- Europe regained its number 1 position globally for inward investment
projects with 39 percent of all projects, up from 35 percent in 2004.
Western European investment strongly increased from 22 percent in 2004 to
26 percent in 2005.
-- The UK led Europe in terms of number of inward investment projects,
with nearly 700, France was a close runner up with 660. Both countries
showed very strong improvements of inward foreign investment.
-- Eastern Europe attracted some 50 percent of all manufacturing projects
in Europe, with Poland as the front runner in 2005 with 148 projects. In
the pan-European ranking for manufacturing, Poland ranked second and France
jumped to an overall European lead with 22 percent (251) of all
manufacturing projects.
-- For R&D, the UK received 26 percent of all European projects, France
19 percent and Germany and Denmark tied at 6 percent. However, Eastern
Europe increased its share to 21 percent with 60 projects.
-- The UK (45 projects) was the top destination by number of projects
that Indian companies invested in 2005, followed by UAE (28), China (24)
and USA (17).

Latin America
-- Latin America attracted 6 percent of all projects globally in 2005,
down from 8 percent in 2004.
-- Brazil and Mexico dominated the inward investment into Latin America,
prompting a general decrease in foreign direct investment projects across
other Latin American countries.
-- Brazil attracted the most manufacturing projects with 37 percent,
followed by Mexico with 21 percent.


North America
-- North America attracted 18 percent of all projects globally in 2005,
up from 16 percent in 2004.
-- There was intense competition among U.S. states for inward investment.
-- Pennsylvania jumped into first place as the top destination state in
terms of investment projects, with 109 projects. In 2004, it did not make
the top 10. For manufacturing projects, it moved from third to first
place.
-- California remained in second place, mainly as a result of services
and R&D investment.
-- Michigan and California led in R&D projects, with 13 and 11 projects
respectively.


-- Inward investment also is referred to as Foreign Direct Investment(FDI).


About the survey
The IBM -- Plant Location International group maintains a database of every publicly announced corporate location decision around the world in the areas of manufacturing, services and R&D since 2003. Besides client specific analysis for companies and economic development organizations, every year the group produces a report announcing an analysis of the corporate investment trends shown by the Global Investment Locations Database (GILD) for the previous year. For the 2005 report about to be published, the analysis was carried out on the January to December 2005 data between May and July 2006.

GILD is the leading corporate investment tracking database, allowing up-to-date representative trend analysis on a global scale by recording announcements and openings of new and expansion projects by companies. GILD is used by corporate executives to monitor which locations are preferred investment options for peer and other companies and to assess whether these locations should be considered for their own projects. Investment promotion and economic development agencies use GILD for accurate and up-to-date market intelligence to support their marketing strategies.