The Drive to Globalize: Profit Motive Rules as Foreign Direct Investment Soars

How global is your company? If you’re committed to making your firm as profitable as it can be, it must be increasingly worldwide in scope.

Your headquarters might be in Peoria, but if your company’s going to be a major player in the 21st century, it needs to have a presence in places like Poland, Paraguay and the Philippines. That’s because some of your best prospects for increased sales and higher profit margins are found outside your home country’s borders.

Consider the bullish globalization push of South Korean industrial giant Daewoo Electronics Co. Daewoo soon will have more employees working in its facilities outside Korea than it does domestically. The company now has some 10,400 employees at its various overseas sites, compared with 12,300 at home. But when a slew of new factories come on line in the coming months, combined with a bevy of expansions at existing facilities, its overseas work force will exceed 13,000.

Daewoo is currently investing in new or expanded facilities in no fewer than seven countries on four continents: Brazil, China, France, India, Mexico, Spain and the UK.

U.S.-based General Motors Corp. (GM), the world’s biggest automaker, is similarly sold on the bottom line-boosting value of globalization. GM Chairman and CEO John F. Smith Jr. wants the company to sell more than half its cars and trucks outside the United States by 2006, up from just 43 percent last year. That lofty goal can be achieved only by bullish foreign direct investment (FDI) and other global expansion initiatives.

GM believes its profits — and its future — will be best in countries with potential for double-digit annual growth. That’s why it’s opened or announced plans to build 10 assembly plants and 94 components factories outside the United States during the past five years. Argentina, China, Poland and Thailand are a few of the places where GM is building its increasingly global future.

Indeed, FDI reached a staggering US$315 billion in 1995, the latest year for which worldwide data are available. The global FDI surge is being led by an explosion of mergers and acquisitions in sectors like energy, pharmaceuticals, telecommunications and financial services, plus increased facility-location activity in developing nations.

The rapidly accelerating drive to go global is underscored by a recent survey of corporate executives. While only 28 percent of the respondents reported deriving more than 60 percent of revenues from foreign business during the past five years, a majority — 53 percent — expect international revenues to constitute at least 60 percent of their total business during the next five years.

Europe is the primary FDI recipient, netting some $112 billion in 1995. In a close race for the No. 2 position are North America ($71 billion) and Asia ($65 billion). The developing countries of Asia, though, are a top investment priority for many firms during the next five years. China, Indonesia and Malaysia are already attracting a lot of manufacturing investment, as is Mexico.