In the US, elections at mid-term in a new administration frequently result in a significant change in the balance of political power. This year looks to be no exception and the business community seems eager for the change.
This White House has been perceived as treating business as just another 'special interest'. This perception differs markedly from the business executives' self-perception – that they are managing the country’s fundamental economic engines. How much improvement will occur in the US business climate as a result of the expected changes on Capitol Hill? By now, some executives are convinced that anti-business taxes and regulations seem to be in president Barack Obama’s DNA, so the next two years will be a tough slog. Others suggest that the country does well when power is divided, for example between Republican president Ronald Reagan and Democrat speaker Tip O’Neill or between Democrat president Bill Clinton and Republican speaker Newt Gingrich.
Portfolio investors’ assumptions about election outcomes are 'baked' into the stock market well before an election day. But direct investors – the managers of companies – will measure the impact after the election dust has settled. Many companies have the cash to finance expansion, if they decide that the conditions are becoming favourable. Others have found that there is ample expansion capital abroad, with the added advantages of wage arbitrage and positioning to serve distant but faster-growing markets.
This pattern of international expansion, whether by outsourcing, acquisition or greenfield investment, is well established for US and European companies; now they are joined by competitors from the major emerging markets, particularly China and India.
But, regardless of origin, business leaders are quite adroit at playing nationalist as well as international cards. Investment-promotion organisations are confronting increasingly protectionist challenges from indigenous firms when 'foreign' entities seek to exploit their local market for talent as well as for sales.
A few US states have made what appear to be solid, long-standing claims that they are open for international business. These states are likely to increase their share of FDI. When Washington utters hostile rhetoric about business, these business-friendly states become even more inviting.
Daniel Malachuk works with business and government leaders on global direct investment strategies. He has advised many of the world's leading companies and served in the US public sector as director of White House operations. Email: email@example.com