Many Investors Say Plans for Overseas' Projects on Track: New MIGA Report
Washington, DC, January 24, 2002 — The tragic events of September 11th are not cause enough for most companies to retreat from foreign expansion projects, according to a study undertaken by the Multilateral Investment Guarantee Agency of the World Bank with the assistance of Deloitte & Touche LLP. Two out of three companies planning to expand overseas will go ahead as expected, despite the terrorist attacks in the United States, the study found.
Of the 191 businesses responding to a MIGA survey conducted in July and August 2001, 79% said they intended to expand globally in the next three years. The majority of the respondents indicated, however, that a further deterioration in the global economy would likely lead them to postpone plans, downsize, or shift location.
An October 2001 follow-up survey asked 101 of the businesses planning to invest abroad whether their plans were intact, given the events of September 11 and the global economic climate. Sixty-five companies said they were on track, with nearly all the remaining companies planning to hold off on expansion rather than completely cancel.
The survey was designed to further understanding of global expansion plans in the next three years, the business objectives behind investment decision-making, and the geographic locations most likely to benefit. Respondents included some of the world's largest transnational corporations, with aggregate annual sales of nearly US$2 trillion and employing about 4 million people. The full survey results are available at www.ipanet.net/fdisurvey.
"Investors are keeping a watchful eye on the global economic situation, with one-third holding off on expansion plans for now. But in general, most are proceeding with long-range plans, despite the terrible global unrest of the past few months," says MIGA's Executive Vice President, Motomichi Ikawa.
Two of the most important factors behind the overall decision to invest abroad are market access and reduced operating costs. When it comes to specific site selection, key determinants are customer access (cited by 77% of study participants), stable social and political environment (64%), ease of doing business (54%), and reliability and quality of utilities (50%).
The United States best met this criteria, according to 66% of the companies with expansion plans. Developing countries accounted for half of the top 20 investment destinations, led by China (named by 40% of investors), Brazil (39%), and Mexico (35%). Poland, Singapore, Czech Republic, Chile, Thailand, India, and Hungary were also top 20 picks.
"Global expansion is still a viable alternative for many companies. Perhaps more than ever before though, businesses have to think strategically, weigh their options, understand what they hope to achieve with foreign direct investment, and analyze all of the location variables," says Phil Schneider, partner in the Fantus Corporate Real Estate practice of Deloitte & Touche.
The study also found that:
- Security is a key concern across the board, particularly the physical security of employees and the risk of war and civil disturbance.
- Western European companies were the most global in their expansion outlook, with 91% having plans to expand overseas in the next three years, followed by 77% of North American companies, and 63% of companies headquartered in Asia and the Pacific Rim.
- Most companies are likely to expand overseas through building or leasing a facility (43%) or via merger and acquisition (42%).
"Companies doing business around the world have signaled that they will look to balance the need for access to new markets with a desire to minimize risk," says Karin Millett, director of MIGA's investment marketing services. "As companies try to assess and react to the implications of the events of September 11th, achieving an acceptable balance is undoubtedly the biggest strategic challenge they face."
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