Global greenfield foreign direct investment (FDI) in electronics grew by 15.5% in 2021 compared with an overall increase of 18.1% across all sectors, according to the Global FDI Report 2022. While the increase in electronics FDI project numbers regained much of the ground lost during the Covid-19 crisis, the sector narrowly missed reaching pre-pandemic project numbers as supply chain and manufacturing issues continued to hamper the sector.
Electronics FDI rose in 2021
Investment Monitor's FDI Projects Database recorded 993 projects in electronics in 2021, up from 859 the year before. This increase was not enough, however, to negate a sharp decrease in FDI projects in 2020. In 2019, FDI projects in electronics reached 1,020. This meant that the overall change between 2019 and 2021 was actually a 2.6% decrease in projects.
Between 2019 and 2021, new project numbers decreased even further at 14.6% while project expansions increased by 42.6%. In 2021, new project numbers increased by 17.4% from 587 in 2020 to 689. Project expansions increased by 11.8% in 2021 from 272 to 304.
Where are the leading destinations for electronics FDI?
Western Europe was the leading destination for FDI projects in electronics in 2021 and it was also the region that saw the most growth, at 29.6%. In fact, western Europe was the only one of the four leading destinations for electronics FDI that saw positive growth in project numbers. Asia-Pacific, North America and central and eastern Europe and the Commonwealth of Independent States (CEE and CIS) all saw negative growth of 25.5%, 6% and 30.6%, respectfully. Western Europe attracted 372 projects in 2021, Asia-Pacific 251, North America 140 and CEE and CIS 84. Although the Middle East and Africa only attracted 58 projects in 2021, the region experienced growth of 26.1%.
Germany attracted the highest number of electronic FDI projects in 2021, followed by the US, China and the UK. The country demonstrated a counter trend of increasing its FDI projects during 2020 when Covid-19 lockdowns were in full flow, maintaining an overall growth rate of 30.5% across 2019, 2020 and 2021.
The US continued to attract electronics FDI projects throughout the pandemic but saw a slight drop of 6.2% in 2020. Although FDI projects in the US increased by 2.5% in 2021, the increase failed to mitigate the decreasing number of projects in 2020. The result was an overall negative growth rate of 3.9% between 2019 and 2021.
China’s 67% drop in projects in 2020 was reversed with a 57.6% increase in 2021. This growth, however, also failed to recover the losses from 2020’s Covid-19 lockdowns which saw the country’s manufacturing capacity plummet. China’s overall growth rate in FDI electronics projects between 2019 and 2021 was -48%.
What are the top electronics FDI operations?
Manufacturing became the leading electronics FDI operation in 2021, overtaking sales, administration and marketing with a 34.2% increase in the number of projects. Sales, administration and marketing saw a drop of 15% during 2020, rebounding with an increase of 4.3% in project numbers in 2021, but it failed to return to pre-pandemic project levels. Sales, administration and marketing had an overall negative growth rate of -11% between 2019 and 2021. This shift towards manufacturing as the leading electronics FDI operation reflects an increased focus on addressing global supply chain shortages of electronic components resulting from a combination of the pandemic and accelerated global digitalisation.
Research and development was the third leading electronics FDI operation in 2021. R&D projects numbers fell from 95 in 2019 to 74 in 2020. However, they recovered to match 2019 levels at 95 projects in 2021.
What are the top subsectors for electronics FDI?
Semiconductors and electrical components became the leading subsector for electronics FDI in 2021 with a 52.2% increase in the number of projects. A global shortage of semiconductors caused by a geographic concentration of manufacturing capacity and severe supply chain disruption led governments and corporations alike to re-evaluate semiconductor manufacturing capacity. Cross-border investment in semiconductor fabs has therefore increased and is likely to increase further going forward. Leading semiconductor companies Samsung, TSMC and Intel have all announced large international investments, including Intel's $36.3bn European investment plan, which includes two new semiconductor plants in Germany.
While project numbers for batteries and accumulators were considerably smaller than those of semiconductors and electronic instruments, the batteries and accumulators subsector saw the highest growth in projects across 2019, 2020 and 2021, with an overall growth rate of 142.6%.
Where are the leading electronics investors located?
The US remained the leading source market for outbound electronics FDI in 2021. US investment in 2021 increased significantly from the year before with an increase of 28.7%. China, Germany, Japan and South Korea were the next leading source markets in the three-year period across 2019, 2020 and 2021, with South Korea the only country showing growth in the number of projects during this period.
What does the future hold for FDI in electronics?
Overall, FDI in electronics has remained steady, almost regaining ground from decreasing project numbers during the 2020 Covid-19 crisis. While the world's growing requirement for semiconductors will drive further cross-border investment, as will the growing batteries sector, the global economy faces multiple challenges from Russia’s invasion of Ukraine, a global cost of living crisis, supply chain disruptions and slow economic growth that will have a knock-on effect on global FDI.