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Over the last 15 years, FDI is attracted to low-cost areas of Europe & Asia,
then India & China.
With this trend for FDI it is more likely to be manufacturing than services as
services FDI is typically market-seeking, focusing on key clients or markets.
Labour flexibility is a plus point for UK, but this is irrelevant compared to
emerging economies, due to labour costs, cooperation tax rates.
High performing sectors with high productivity growth, innovation and export
performance attracts similar profiles of inward investment. Likewise sectors
with comparative advantage based on low wage costs or high levels of public
sector support attract similar natured FDI. The difference of beneficial effects
of these types of investments is clear.
Multinationals are now sitting on large cash reserves which may fuel a surge
in FDI when investment opportunities appear more favourable.
FDI in Latin America has been volatile recently, but will experience long-term
growth due to increased used of policies designed to boost domestic
manufacturing and build domestic productive capacity. Thus this has initially
made exporting more difficult to Latin American countries.
China continues to be proeffered destination within East Asia for FDI but
rising wages and production costs means other South-East Asia economies
have risen in desirability.
During 1990s 95% of FDI policy changes worldwide made the investment
climate more welcoming for Multinational Enterprises (MNEs).
However recent national FDI policy changes worldwide making the climate
less welcoming risen from 6% in 2002 to 32% in 2010. Many developed
countries have increased screening mechanisms of incoming merger and
acquisitions (M&As).
In the 200s the UK's non-membership of the Euro would damage our ability
to attract inward investment. Shown in automotive industry, where inward
investors insist suppliers agree prices in Euro to avoid currency risks and
fluctuations.
Many countries have become aware of the 'hollowing out' of their local
supply chain when attracting inward investment. A local supply chain is a
policy to create jobs and develop local supply of goods / services in order to
become internationally competitive.
Policy must also support innovation, exporting and skills development in local
and sectoral levels in order to maximise the gains of inward investment.