Canada in a globalized economy: an investment perspective

Canada in a globalized economy: an investment perspective An Economist Intelligence Unit research program sponsored by Ernst & Young LLP About the survey In August and September 2011, the Economist Intelligence Unit conducted a global survey, sponsored by Ernst & Young LLP, of 195 Canadian and non-Canadian executives, to ascertain and compare their attitudes towards expanding abroad and to determine which factors drive their investment decisions. All the survey respondents are thoroughly familiar with their companies’ foreign investment plans. Almost two-thirds (63%) are board members or C-level executives, and around 40% are CEOs. In keeping with the survey’s geographic orientation, the bulk of the respondents are from North America (66%). The remainder are from Asia–Pacific (16%), Western Europe (11%), the Middle East and Africa (5%), Latin America (2%) and Eastern Europe (1%). More than half of the respondents (60%) work for companies whose annual global revenue is US$500 million or less. Nineteen industries are represented, including financial services (15%), information technology (IT) and technology (15%), energy and natural resources (9%), education (8%), manufacturing (8%) and professional services (8%). 2 Canada in a globalized economy: an investment perspective Executive summary The 2008 financial crisis and ensuing recession accelerated a shift in global economic gravity from the developed to the developing world. As Canada, the US and Europe grapple with debt problems and stagnant growth, major emerging markets, such as Brazil, China and India, are prospering conspicuously. How does this changing climate affect Canada’s future as a favoured investment destination? Figures from the United Nations Conference on Trade and Development (UNCTAD) indicate that emerging markets’ share grew to more than half of all global foreign direct investment (FDI) in 2010 — a trend likely to continue. The Economist Intelligence Unit conducted a global survey of 195 Canadian and non-Canadian senior executives to understand their perspectives on investment, and found that a sizable share (38%) of respondents do intend to shift FDI from developed to developing markets within five years. However, Canada also faces competition from its southern neighbour, despite slow growth and political stalemate in the US. Entrepreneurship is one area in which Canada is not perceived to be performing particularly strongly, despite the country’s push to be recognized as a leader in this field. This was further confirmed by interviews with Canadian high-growth companies that find more opportunity in markets outside their home country. This report explores the implications of changing investment patterns for Canada, identifies the key drivers of investment, and assesses the importance of a country’s reputation for entrepreneurship in attracting investment. The report’s key findings include the following: • Executives recognize the importance of emerging markets, but not all are rushing to invest in them. One-quarter of the survey participants, Canadians and non-Canadians alike, expect to shift some future foreign investments from developed countries to emerging markets this coming year, and nearly 40% will do so in the next five years. Still, despite a volatile macroeconomic climate, more than one-third of respondents say there will be no shift in investment between emerging and developed markets for their companies. • To the benefit of developed markets, a favourable business operating environment remains an important determinant of investment. For most survey participants, a critical criterion for evaluating FDI targets was a favourable business operating environment, which can still give developed countries an advantage over developing countries in attracting investors. • While appreciating its political and economic stability, few regard Canada as offering a strong entrepreneurial culture. Non-Canadian respondents ranked Canada a respectable fourth as an investment destination, chiefly because of its perceived political and economic stability. This undoubtedly reflects the US-tilt of the demographics among survey respondents. However, only one-third regarded Canada as having superior market-growth prospects, and very few respondents, including Canadians, felt it had an especially strong entrepreneurial culture. • Country “branding” can pay off by spurring inward investment. Ninety percent of survey participants endorsed branding efforts by governments to boost inward foreign investment. However, they also acknowledge that these efforts cannot compensate for unattractive business conditions. Canada in a globalized economy: an investment perspective 1 Introduction: The world economy’s seismic shift In a world turned topsy-turvy, Organisation for Economic Co-operation and Development (OECD) countries’ real economic growth will be just 1.7% in 2011 and 1.6% in 2012, according to our forecasts. Even Canada, which fared relatively well in the financial crisis, has not escaped the slowdown; we expect GDP growth of just 2% in 2012. By contrast, emerging markets as a group are set to expand by more than 6% in both 2011 and 2012. Table 1: The attractive and the slow Population (m) Real GDP growth rate (%) Developed markets OECD Countries Canada UK US Developing markets Brazil Chile China India Mexico Vietnam 2010 2010 (actual) 2.9% 34 3.2% 62.3 1.4% 310.2 3.0% 190.8 7.5% 17.1 5.2% 1,312 10.4% 1,184 8.8% 112.5 5.4% 87.8 6.8% 2011 (estimates) 1.6% 2.2% 0.9% 1.7% 3.6% 6.7% 9.0% 7.9% 3.4% 6.0% 2012 (forecasts) 1.3% 2.0% 0.9% 2.0% 3.8% 4.8% 8.6% 8.2% 3.1% 6.6% Source: Economist Intelligence Unit, 2011 figures. 2 Canada in a globalized economy: an investment perspective Unsurprisingly, strong growth prospects will have great implications for investment. “The most important determinants for foreign direct investment are market size and market growth,” argues Karl P. Sauvant, Founder and Executive Director of the Vale Columbia Center on Sustainable International Investment at Columbia University. “And for emerging markets, expectations are that their dynamic growth will continue.” Table 2: A clear global shift Companies are already factoring this new order into their thinking on foreign investment. Of Canadian respondents, nearly 40% indicated that they would shift foreign investments from mature to emerging markets within five years. However, one-third of all respondents still say they will not change investment between emerging and developed markets within five years, either implying confidence in markets in which they are currently investing, or a perceived lack of attractive markets (either emerging or developed) to lure investors. Do you expect your company to shift its foreign investments from emerging to developed markets, or vice versa? Yes, my company seeks to shift its investments from developed to emerging markets. Yes, my company seeks to shift its investments from emerging to developed markets. No, there will be no shift in investments between emerging and developed markets. Source: Economist Intelligence Unit survey, 2011. This year 25% 11% 52% Next five years 38 % 14 % 34 % Canada in a globalized economy: an investment perspective 3 ... - tailieumienphi.vn