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Trends in International Site Selection

March 16, 2016
The top five countries account for more than 50% of total investment, and the top 20 countries almost 90%.

While domestic expansion is still the natural starting point, U.S. companies have nevertheless been the leading global player in international investment.

While this trend is starting to change, taking into account other forms of investment such as M&A for greenfield investment, the U.S. continues to lead. But within this context, the number of genuinely credible options for the U.S. company venturing overseas are increasing.

This has to be seen as a positive, but it also creates additional complexity compared to making a location decision ten years ago.  The result is that the U.S. investor has plenty of options. One question to consider is if there are there still parts of the world relatively untouched by U.S. firms.

Are the Times A-Changin?

Data from the Bureau of Economic Analysis provides information on capex on all forms of investment (i.e. not just greenfield, so the figures include those destinations that serve as host countries for holding companies), into individual countries since the early 1980s. In 1990, 50% of overseas U.S. investment went to Europe with the remainder largely evenly split between Canada, Latin America and Asia.

Fast forward 10 years to 2000, and then to 2014, and that pattern has largely remained, with the main difference being that Canada has lost some of that share to Europe- with Ireland and the Netherlands being particular beneficiaries.  

Of course, in absolute numbers there have been significant increases in every region, but it’s remarkable to consider that despite the increasing profile of specific countries, the regional split has been fairly consistent in every single year.

So what does this mean? Firstly that Africa and the Middle East still each receive little more than 1% of total U.S. investment every year. But that does at least means that in absolute terms, both regions’ growth rate (and hence importance to U.S. firms) is keeping up with other parts of the world. Nevertheless, there are lots of countries that still have been barely touched by U.S. companies.

Looking at 1990 and 2014 again, we also see a similar pattern where the top five countries account for more than 50% of total investment, and the top 20 countries almost 90%.%. In 2014, the top 5 were Netherlands, United Kingdom, Luxembourg (although note above comment on holding companies), Canada, and Ireland. The remainder of the top 20 include a further 12 developed countries, plus the major developing economies of China, Brazil and Mexico. 

So in this sense little has changed - typical destinations such as the UK & Ireland are still important given factors such as language, particularly for the first time investor. Even the countries that make up that top 20 are not so different from 25 years before, with China being the one major exception – but even then is only in 17th, with 1% of all investment, despite the high profile. 

What Can We Conclude?

Based on the evidence then, can we really say that U.S. firms have repositioned themselves towards new frontiers in the last 25 years? Like most things in life, the answer is probably yes and no. Yes, in the sense that investment to Africa and the Middle East has grown at an average of more than 12% each year since 1990 (albeit that growth has been volatile).  The answer would be no in the sense that the bulk of investment continues to go to those tried and trusted destinations.

Perhaps there is a logic here: foreign investment is sustained in the long term by new investors making their first forays abroad, who are naturally risk-sensitive. It’s only with experience that less well known locations start to get considered, and such a trend of course applies to exporting as well.

Overall then, U.S. firms have not shied away from exploring what is a more complex environment with wider opportunities, but the status quo is not so different.

Joe Phillips is managing director of All Out Location.

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