FDI projects by the world’s largest multinational enterprises (MNEs) in the past five years have shifted to reflect a world economy fracturing into regional blocs, according to an analysis in the UN Trade and Development (Unctad) World Investment Report 2024.

Based on the share of foreign assets, sales and employees in their overall global operations, the world’s top 100 non-financial MNEs became marginally more international last year. But greenfield FDI data shows these same firms have begun to alter their international footprints, opting to invest more into factories closer to home and regional headquarters near to their core target markets. 

Shifting MNE investment patterns are most evident in manufacturing. The regions home to the majority of the top 100 MNEs — namely Europe (53 MNEs) and North America (21 MNEs) — have in the past five years (2019-2023) attracted a larger share of their manufacturing FDI than in the preceding five years (2014-2018). This is true across different types of manufacturing including in ‘strategic’ sectors such as semiconductors, pharmaceuticals and environmental technologies. 

Over the same period, the share of ‘strategic’ manufacturing FDI projects fell sharply in East Asia, reflecting multinationals pulling back from greenfield investment in China. Since 2019, large manufacturing investors — including electronics giants Foxconn and Samsung, German chemical conglomerate BASF and carmakers Toyota, Volkswagen and BMW — have halved the number of greenfield investments in China compared with the preceding five-year period.

Declines of manufacturing FDI in south-east and south Asia “might seem counterintuitive”, according to Unctad, but in fact show an already established presence of top 100 MNEs production networks in these regions. Increases in Central America indicate the drive to nearshore production close to the US.

FDI data trends you might have missed:

• The growing capital intensity of greenfield FDI
• How large emerging economies matured to become FDI sources
• Industrial policies are mostly motivated by protectionism, not geopolitics

Bruno Casella, senior economist at Unctad, told an fDi Intelligence event on July 9 that “there is a political wind flowing towards protectionism and interventionism” in developed economies that are home to most of the top 100 MNEs.

“Multinational enterprises have a very strong political and public pressure to produce at home and very often they get [financial] incentives out of that,” said Mr Casella. Other structural trends like environmental regulations and rapid progress in automation and robotics have also made it less advantageous for multinationals to shift their production to lower labour cost locations, he added. fDi Markets data shows that the annual average number of global manufacturing FDI projects declined from 3025 in 2014-2018 to 2375 in the past five years. 

While global manufacturing FDI has slowed, multinationals have shifted towards more services-centric and asset-light investment. In the past decade, the majority of projects announced by the top 100 MNEs have been into services activities, including in strategic manufacturing sectors such as automotive and pharmaceuticals, where a lot more value-added activities are now in services.

A shift to regionalisation is also seen in services FDI data. MNEs from Europe and North America have increasingly set up regional headquarters and back-office functions hubs in developing Asia. “These regional hubs provide essential services and can help mitigate risks to local operations from geopolitical and trade tensions as well as supply chain disruptions,” according to Unctad.

There are, however, downsides to the growing prevalence of services in global FDI. Unctad warns that it could have huge impacts for poorer economies, which tend to attract FDI in lower-value-added sectors such as commodities and manufacturing.

“The global value chain development ladder has become much more difficult to get onto from the bottom,” said Richard Bolwijn, Unctad’s head of investment research, at the fDi event on July 9. This shift in multinational strategies requires countries to adjust their approach to FDI promotion, both now and in the future.

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