Global Strategy Consulting

The Case for Global Investment – Locally and Internationally

Why U.S. companies are investing abroad, what makes markets attractive for foreign investment and why global investment and partnerships are good for our economy

The case for global companies to develop their presence in the U.S. is strong, as it is among the most competitive economies and largest consumer markets in the world. Nevertheless, there are many reasons companies invest abroad, and Malaysia is a compelling example.

Global supply chains are changing, and many U.S.-based global companies are proactively implementing strategies abroad to remain competitive. When U.S. companies invest abroad, they become more resilient and grow the U.S. gross national product (GNP), strengthening the U.S. economy.

Why Invest Abroad

Throughout history, the many waves of technological and production advances have enabled companies to pursue the global production strategies of today. For decades, offshoring—moving jobs from one country to another to achieve labor arbitrage—as a result of globalization has allowed companies to mitigate labor costs, often one of the largest of an operation. Today, offshoring solely for labor arbitrage is not a sustainable long-term strategy. Companies that continuously chase lower-cost labor will be replaced by more resilient competitors that invest in automation, while also succumbing to increasing transportation costs, quality constraints, and costs associated with relocations when labor costs rise too high in any market. By contrast, resilient companies continue to invest abroad for many reasons beyond operating costs, including:

  1. Establishment of regional supply chains –  Manufacturing products in proximity to end-users reduces transportation costs, material handling, risks of delays and the carbon-footprint of the production process. Regional production also improves local job markets and economies, increasing the purchasing power of end-users.

    Regionalization of supply chains is driving new “reshoring” investments, as companies increase the number of smaller production operations in different regions, bringing some production back to North America. Trade policies, such as Section 301 and Section 232 tariffs, can be counterproductive to reshoring by increasing the cost of production in the U.S., potentially driving North American reshoring opportunities to Canada and Mexico. The best approach to attract reshoring investments include a competitive and stable total landed cost of doing business in the U.S. and investment in the workforce and infrastructure.

  2. Business Continuity Planning (BCP) – As a risk-mitigation strategy, companies diversify production locations to reduce risk to operating volumes should any single production line go offline due to unforeseen events. BCP is increasingly important as severe weather and geopolitical events impact regions and countries around the world. No country is immune to risk, and BCP ensures resiliency. Many critical industries with sensitive supply-chains require their suppliers pursue BCP strategies to maintain supply-chain security.

  3. New market access - Companies enter new markets, increase local brand awareness and access new revenue streams in part by investing and hiring locally. Having local operations also increases a company’s internal knowledge and market credibility, allowing for product customization to meet local demand. All of this leads to new and diversified revenue streams, growing the resiliency of the entire organization. Approximately 95% of the world’s population lives outside of the U.S., and resilient companies are astutely aware of global consumer markets (Source: U.S. Census Bureau https://www.census.gov/popclock/).

  4. Access to suitable real estate assets, labor and consumers – Establishment of a new production facility is successful when there is appropriate real estate – size, infrastructure, utilities, transportation access, etc. – in proximity to a suitably skilled workforce. For large and complex investment projects, many countries outside of the U.S. offer properties with various levels of “investment readiness.”

Malaysia: A Global Example

As companies look to mitigate risk and build resilience through global production operations, there are many attractive locations with available, skilled workforces. For example, Malaysia’s Penang / Kulim region attracts companies with an established and advanced manufacturing ecosystem for new investment. The region offers:

  1. A robust ecosystem of advanced manufacturing OEMs and suppliers, including companies such as Intel, Abbott, Bosch, Canon, Eaton, Honeywell, HP, Motorola Solutions, Panasonic, among hundreds of others. Global companies operating in Malaysia benefit from lower labor costs, as well as more immediate access to Asia and diversified business continuity risks.

  2. The workforce is sophisticated and well-trained, with excellent English language ability. Workforce training programs available through the Penang Skills Development Center (PSDC) supply about 8,000 apprentices annually to hundreds of companies in the region. At the Penang Science Center, young students learn through hands-on, inquiry-based science and technology programs with strong volunteer support from local industries.

  3. The Penang and Kulim state governments support and have invested in shovel-ready mega-sites for utility-sensitive requirements. Many utility providers demonstrate the ability to meet client’s specific needs, representing only a small fraction of their available service capacities.

The Value of Partnership

As U.S. companies invest abroad, they expand market opportunities and strengthen corporate resilience—creating influence and partnership opportunities.

Growing U.S. investments overseas improves global security by enabling global economic development, which can improve domestic security.

Global companies will always mitigate risk and access to global customers and resources by investing abroad, as foreign companies will continue to invest in the U.S. Global investment is the basis for mutual benefits, with the power to propel economies forward.

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