The survey of 500 executives representing more than 20 industries also reveals that while China should continue to be the top emerging market for FDI, India is becoming increasingly attractive to global investors and not just for outsourcing projects. Moving operations offshore is revealed as an important driver for FDI and – contrary to popular perception – R&D, distribution and IT all emerge as a much bigger focus for outsourcing than call centres.

Executives also view accurate assessment across global markets and rigorous market research as crucial to successful and profitable foreign investment. The survey confirms that investor motives are less driven by specific policies towards foreign investment but more by the broad business climate of a country. Local market opportunities, overall policy toward free enterprise and competition and macroeconomic stability are considered the most important factors to investors in making a decision.

While there looks to be increasing optimism from investors, global FDI flows fell to an estimated $575bn in 2003, 12% down on 2002 and almost 60% lower than in the peak year of 2000. The EIU is expecting a recovery in 2004 due to the strengthening of the world economy, growing investor confidence and increased cross border M&As.

However, report editor Laza Kekic is quick to point out that certain risks may hinder the revival of globalisation. These include geopolitical risk, with globalisation and the recovery of FDI being threatened by tensions in the Middle East and other disputes resulting in increased regionalism or protectionism. The potential overheating of the Chinese economy and budget imbalances in the US are also causing concern. Despite these imbalances, the weak dollar and strong economic growth has led to the US regaining its position from China as the world’s top FDI destination attracting approximately 20% of the world’s total flows.

By contrast, the UK traditionally the largest beneficiary of FDI in the EU and Europe, has experienced a significant drop. In 1998 the UK attracted $74bn of FDI, while in 2003 it attracted just $14.5bn – a drop of over 20%. “There is no doubt in my mind that the decline is down to absence of membership of the eurozone, there has also been a decline in Denmark and Sweden. Staying outside the eurozone may cost EU members a least one-third of potential FDI flows,” states Mr Kekic.

He points out that Italy, which traditionally did not attract much investment, now attracts a larger share of FDI in the EU than the UK. The survey of executives also reveals poor perceptions of the UK investment climate, particularly by US investors – traditionally an important source of investment in the country – who rank it below the eurozone on most criteria.

Europe has come out top in a survey of international investors’ preferred project locations. The Ernst & Young report European Attractiveness – published in May at the World Investment Conference – found that, out of a sample of 513 companies, 68% chose western Europe. Central and eastern Europe took second place (57% of responses), far ahead of north America (38%).

Surprisingly, China, arrived only in fourth place, (37% of respondents), though Asian countries – Singapore, Thailand, Japan, South Korea – clearly preferred China as the site for their investment projects.

Investors rank western Europe above other zones because of the competitive advantages in operational and risk management. They place importance on the quality of infrastructure, labour skills and the proximity of markets, combined with a stable environment and social climate and the diversity of project sites. Investors also give priority to transparency and stability in the countries chosen for investment projects.

The UK, France, Germany and Spain are the countries that have attracted the largest number of foreign investments within a total of 1933 new projects in 2003. Among the new European economies, Russia is the European country that registered the biggest growth of FDI: 109 new projects, an increase of 28% compared to 2002, placing Russia fifth among European hosts to FDI.

Ashleigh Lezard and Blanca Riemar