While greenfield foreign direct investment (FDI) is estimated to have rebounded strongly in 2021 to similar levels to 2019, future growth is expected to remain subdued due to geopolitical pressures including the Russian invasion of Ukraine, ongoing supply chain problems, soaring energy costs and inflationary pressures on the global economy.

Covid-19-induced lockdowns have significantly changed the way site selection is carried out, favouring the rise of virtual and remote practices and, in turn, that of technology in the world of FDI.

While greenfield investors are the most cautious and impacted ones in times of crisis, mergers and acquisitions (M&A) investors could benefit from new, and often cheap, opportunities.

According to GlobalData’s deals database, the number of M&A deals (domestic and cross-border) increased by a massive 30% in 2021, having been relatively stable between 2019 and 2020.

Covid aside, a range of macroeconomic factors continue to be at play in making the immediate future of FDI flows hard to predict.

GDP is highly correlated to greenfield FDI and was one of the most impacted economic features during the past two years.  In January 2022, the International Monetary Fund revised its world output projections for 2022 to 4.4% – down 0.5% from its previous forecast in October 2021.

Trade, another important component in determining FDI flows, reached a record high of $28.5trn in 2021.

However, this trend might not continue in 2022. Investment Monitor’s economist Glenn Barklie previously said: “Soaring energy costs, persistent supply chain issues, subdued economic growth and the Ukraine-Russia war will likely see trade volumes slow down in 2022.”

More broadly, the pandemic is set to have some long-term effects on the world of business and FDI. Nearshoring; the increasing role of working from home and the resulting decreasing importance of large office space; the focus on talent; and the rise in FDI screening are all trends that are set to continue to shape the future of foreign investment.

Europe does it for Ohio

As disruptive and unforeseen as it has been, the pandemic was not the only black swan event that contributed to the reshaping of the world of foreign investment.

For the US state of Ohio, other macro events like Brexit and global supply chains disruption played a pivotal role in attracting more business from new countries, particularly from Europe.

“Collectively, western Europe is one of the largest investors in Ohio – with companies employing 150K people here,” notes Alina Harastasanu, senior manager of European business development at JobsOhio, Ohio’s economic development corporation.

When she joined the company in 2018, the efforts of the international business development unit in Europe were focused on the UK, Germany and France, the countries that account for the most FDI in the state.

“While we were supporting several expansion projects of existing investors from these countries, 2018 – 2021 there were very few pure attraction opportunities from these markets. Italy, Spain, the Benelux countries, Austria were significantly more active,” Harastasanu explains.

One of the biggest drivers around this trend was Brexit, she adds.

The UK’s decreased attractiveness as an international destination for European companies as a result kicked off the first supply chain crisis. As such, JobsOhio began seeing interest from companies across Europe that were reliant on exports to the UK looking at the US for an alternative market.

According to Harastasanu: “The disruptions in the supply chains got worse with the Suez channel blockage in 2021, and the nearshoring/reshoring concepts were starting to float in the business conversations we were having on both sides of the Atlantic. Reshoring did happen, and Ohio was a leading state, but it was obviously not a short-term solution.

“In 2022, the war in Ukraine added to the strain on the supply chains and contributed to continue to propel European businesses towards Ohio.

“This happened for a few reasons. Firstly, because eastern Europe was the last frontier of low-cost manufacturing in Europe. Important investments had been made by European original equipment manufacturers and their suppliers in Ukraine. They are now in the impossibility of honouring contracts and that is affecting the globalised supply chain,” Harastasanu says.

Macro factors aside, there are also other trends that are specific to European companies that are favouring their interest in the US, and in Ohio in particular.

Most of the European companies that have started to reach out to JobsOhio recently are mature middle-sized family owned companies with an average of €50m in revenue and less than 250 employees.

A few things have changed with the way these companies operate and think about foreign investment, Harastasanu says.

“The size of the projects they are contemplating [has changed],” she explains. “We went from an average of 30 jobs created to over 100. Companies seem to be less risk adverse than before.

“Historically, European companies tend to underestimate the size of their investment and their capacity to grow. They tend to overperform in terms of jobs, capital invested.”

Most of these companies are family owned, Harastasanu says, and a cultural shift is also taking place within many of them that favours the US as an FDI destination.

“There is a generational passage happening right now,” she concludes. “[We are going] from a generation that does not speak English, that has been focused on developing the company on a domestic and maybe European front, to one that is the product of globalisation and digitalisation, has been educated abroad, speaks perfect English and is seeing the US expansion as their legacy.”

Covid-19 legacy

Like many other businesses, JobsOhio had to quickly respond to the crisis that followed the Covid-19 pandemic – but this also meant that new opportunities arose.

“Everyone in the organisation found themselves doing completely new things. As an organisation, JobsOhio was called to act fast, and sometimes to fill the various gaps between federal and state measures in terms of Covid response.

“But that also meant doing things we hadn’t before like assess and evaluate suppliers of personal protective equipment (PPE) and ultimately acquire $250m worth of PPE for the state of Ohio,” Harastasanu says.

Covid-19 became an opportunity for JobsOhio’s business development team to market the state in a new way and to promote new initiatives, including the creation of three innovation districts around healthcare, life sciences and technology.

Other industry experts agree that Covid-19 created opportunities and, in some cases, accelerated trends that already existed.

Douglas van den Berghe, CEO and founder of FDI advisory company NxtZones, says that it is now the era of FDI 4.0 and the “old methods of site selection and investment attraction are more or less obsolete”.

“FDI volumes have rebounded from 2020 but the future is volatile. We see a decline in appetite for FDI, especially among multinational companies (MNCs) who have already built a global footprint and are now going to focus on restructuring and reconfiguring their supply chains,” he explains.

According to van den Berghe, more value can be found in mid-sized companies (SMEs) looking to become international in specific sectors.

“That is the biggest challenge facing investment promotion agencies at the moment. They need to rejig their focus from MNCs to SMEs,” he says.

Opportunities are not the whole picture, however. Covid-19 has also left some more troubling legacies in its wake.

Gregg Wassmansdorf, senior managing director of global strategy & consulting at Newmark and chair of the board of directors for the Site Selectors Guild, delves into the numbers when looking at FDI volumes rebound in 2021.

“Canada and the US saw the largest increase in new FDI projects in both 2021 and 2022,” he says. “This is certainly due to their competitive business climate, but more generally, data shows that the gap between developed and developing countries has widened as a result of Covid-19,” he says.

Developing countries, for instance, have lagged in their response to Covid-19 and have had reduced access to vaccination programmes. This, on top of other factors, has created an environment where “the winners keep winning and the losers keep losing”, Wassmansdorf says.

“More generally, it has simply become harder to find new locations globally because everyone seems to be suffering from talent shortage or price rising and inflation or from some other knock-on effect from Covid-19,” he adds.

The year ahead

While confident sentiment for 2022 has been stifled in Europe due to the war in Ukraine, inflation and the spectre of recession, things are looking up for JobsOhio.

“Since the beginning of the year, we have been seeing an unprecedented number of European projects across all industries and all regions of Ohio,” says Harastasanu.

“The Intel win hasn’t gone unnoticed in Europe and we are seeing a lot of interest as a consequence,” she adds.

The American Rescue Plan Act and the Infrastructure Bill have also contributed to attracting the interest of countries with renowned capabilities and know-how in civil engineering and infrastructure, such as Spain, France and Germany.

“The electrification trend, as it pertains to the production of EVs by the largest OEMs and their preferred electric battery suppliers, is bringing opportunities to Ohio in development of spearheading technologies, new materials, sensors, etc,” Harastasanu adds.

The war in Ukraine and rising levels of inflation remain a worry for the industry more broadly.

For NxtZones’ van den Berghe, building partnerships will be key to overcoming the difficult macroeconomic scenario.

“The war will continue,” he says. “It will be challenging to put an end to that situation as the international community starts sending weapons. The impact on oil and gas supply and food security will probably get worse and inflation will be a big theme.

“I don’t necessarily think that we will enter recession, but FDI will be fragile and volatile in its recovery. Investment promotion will need to focus on building partnerships between domestic and international companies as a source of economic growth. We need to remind ourselves that FDI is a means to an end, not an end in itself,” he says.

Some argue that it will not be all doom and gloom for everyone, or at least not in the same way.

“Industrial-oriented sectors are going to experience a massive growth, while office-oriented industries are not likely to receive much investment in a still hybrid working from home environment,” says Wassmansdorf.

As for Ohio, the outlook is positive. In fact, JobsOhio, together with the state of Ohio and partners, has announced plans to invest more than $3bn to fuel the creation of three world-class Innovation Districts in Cincinnati, Cleveland and Columbus. The goal is to create sustainable ecosystems of ideas, infrastructure and talent where the world’s top people and companies come to roll up their sleeves, innovate and grow.

To find out how you could benefit from investing in Ohio, visit the JobsOhio website.