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  1. Investment promotion
4 July, 2022

FDI drivers in 2022: Digitalisation

Covid-19 has accelerated the importance of digitalisation as an FDI driver, with hybrid working, AI and e-commerce coming to the fore.

By Viola Caon

The increasing level of digitalisation across multiple business areas, coupled with a likely future of remote working, means investors and investment promotion agencies alike will pay growing attention to technology and digitalisation as a foreign direct investment (FDI) driver.

Even before the Covid-19 pandemic, investors had already started to stress that internet connectivity, reliable broadband and Wi-Fi, the roll-out of fibre-optics and the establishment of data centres in a location were all positive markers.

Investment Monitor’s analysis of first-quarter 2022 earnings calls shows that the technology sector had the highest levels of sentiment towards digitalisation, followed by consumer industries, industrials, healthcare and financials. Within that, digitalisation and e-commerce emerged as the main technology themes that were discussed by companies in this time. The metaverse and non-fungible tokens also continue to garner interest among public companies, the analysis shows.

A hybrid working future

To gather a sense of the impact that Covid-19 has had on public opinion in relation to work practices, it is helpful to look at Statista’s survey results below.

Working in the office is seen as the least preferable option for white-collar workers at present (26%) and in six months’ time (30%), while it comes second (behind hybrid) on a permanent horizon (34%).

In the long run, it is clear that people expect the norm to be a hybrid working scenario, where they have the option to work from home, typically two or three days a week.

A hybrid work environment is seen as the most preferable option on a permanent horizon, with 36% of respondents saying they think that is what their long-term work patterns will be based around.

From an investment point of view, this has a number of significant implications. Investing in office real estate, for instance, is no longer the safe option it once was.

Investing in making working from home easier and more viable is instead likely to gain more ground. This includes investing in the underlying infrastructure to make the internet run without interruptions, with fibre-optics and the roll out of 5G being at the top of the list.

The US it the top location for data centres and AI patents

As the amount of data produced daily is set to skyrocket, places to store this data – namely data centres – will be in increasingly high demand. From an FDI perspective, the US is by far the largest host of data centres.

According to Statista, the US is currently home to 2,751 data centres, five-and-a-half times the number in second-placed Germany (484). The UK follows with 458, then China with 447.

The use of technology to make business more sustainable and efficient is a theme that is set to be at the forefront of investors’ agendas. Among them, AI plays an important role. Here too, the US is leading the way, particularly in the consumer sector.

According to GlobalData, between July 2019 and June 2022, the US issued more than 7,500 AI patents in the consumer sector, 3.7 times more than China, which came second with just over 2,000 patents. Germany, Australia and the UK only feature towards the bottom of the top ten, with a respective 208, 205 and 133 patents awarded over the three-year period.

E-commerce M&A deals hit peak in 2021

E-commerce was another industry to emerge as a winner from the Covid-19 pandemic and to contribute to the rise of digitalisation as a key factor that multinational enterprises should consider when picking their next FDI destination.

According to GlobalData, the value of e-commerce mergers and acquisitions deals shot up in the 12 months from January 2020 to January 2021, going from $11.5bn to $42.55bn, a seven-year peak.

The level of digitalisation required by both workers and companies has increased considerably over the past two years, and the range of opportunities for investors is very wide globally. The importance of embracing digitalisation was already growing before the Covid-19 pandemic, but for most investors, and therefore locations, it is now essential.

This article is part of a series focusing on FDI drivers that are rising in importance in the post-Covid environment. The full list comprises:

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