The New Economy has become an integral part of the established business landscape, despite the dot-com collapse, according to a new survey by PwC Consulting, a business of PricewaterhouseCoopers.
Using foreign direct investment (FDI) as a comparative measure, the survey shows that the split in investment between the New Economy and traditional companies is now split broadly 50:50. In this study, foreign direct investment has been defined as a company establishing a new operation (project) in a foreign location. For example, a US company establishing a headquarters or manufacturing plant in Germany.
PwC Consulting surveyed corporate location advisors in more than 1 500 companies in North America, Europe and Asia. The survey looked at FDI projects from 1 500 companies between 2000 and the first half 2001.
Over this period, 3 000 FDI projects were announced, with associated capital investment of over $150 billion. In January 2000 the new economy accounted for less than 30% of all FDI projects while the traditional sector accounted for 60% of all projects. By November 2000 these trends had completely reversed and now in 2001 the share of new economy and traditional projects has equalised.
The number of projects in New Economy sectors declined during the first half of 2001 but levels still remained higher than during the first half of 2000.
The results demonstrate that e-business remains a priority for established companies, despite the dot-com collapse. Corporations are continuing to expand their e-business activities in locations across the globe, with both New Economy and traditional sectors shifting their operations in particular to emerging markets.
While the globalisation of the New Economy slows down as a whole, it remains as important as traditional industries. Companies continue to invest massively overseas in IT, software and telecommunications.
Jan Scheers, partner, PwC Consulting, said: "Our survey clearly demonstrates that e-business is still on - both in the new economy and in traditional sectors. It is clear that the growth of the New Economy is coming from new sources and sub-sectors like CRM and data centres. The shift of economic activity to emerging regions is an opportunity and a challenge for all governments alike."
The growing globalisation of both new economy and traditional sectors has not been in North America and the EU, but has been focused on the growth opportunities in Asia-Pacific and Latin America.
In the traditional sectors, corporations seem to outsource or shift production to low cost/high growth locations. In the automotive sector, Mexico, Brazil and China profile themselves as preferred locations for investors. Businesses in the electronics sector focus primarily on Eastern Europe and also China and Mexico.
In the New Economy sector, dot-coms quadrupled their globalisation activities in emerging regions in 2001 compared to 2000. The telecommunication services sector tripled its activities. Both trends demonstrate the opportunities for companies in emerging regions, driven by the rapid growth in Internet use.
The study analysed foreign investment per sector and distinguished between e-business, dot-coms and other `New Economy` activities such as IT and software, telecommunications and multimedia. It also covered traditional sectors like automotive, chemicals and electronics.
1. Sectoral findings
The key findings per sector are:
E-business This category refers to projects, which were related to e-business and Internet activities.
Over 660 projects in this area were recorded during the period of the survey. The globalisation of e-business grew rapidly in 2000, peaking at over one-third of all FDI projects in July and 70 projects in October. In the first half of 2001, the number of e-business FDI projects declined. In June 2001, the share was only 10%. In terms of sectors, e-business projects in the IT & Software industry dominated. It accounted for 60% of all e-business FDI projects in 2000, compared to 15% for dot-coms.
Dot-coms
The globalisation of dot-coms grew from very low levels in the first half of 2000 to a peak of 8% of all FDI projects in October 2000. In the second quarter of 2001 the number of projects declined and reached very low levels. In total, over 90 dot-com FDI projects were recorded. The majority of these were sales and marketing offices, reflecting the first steps of international expansion.
The most popular type of dot-com for FDI projects were e-marketplaces in sectors like aviation, real estate and recruitment.
IT and software
The IT and software sector has led the globalisation trend, increasing its share in total FDI projects in 2000 from 16% in January to 40% in November. But, by the end of 2000, the number of projects fell sharply and accounted for only 20% in June 2001.
Telecommunication
Telecommunications includes the sub-sectors of telecoms services and telecoms equipment. The number of projects in both sub-sectors accounted on average for 15% of all FDI projects during the entire period. The share of hosting/co-location projects in total telecoms projects increased from 10% in January 2000 to 30% in June 2001. The Sturm Group forecasts that the European market for Web-hosting/co-location will be worth $15 billion by 2005.
2. Methodology
The study investigated 1 500 companies who had announced that they had decided to invest in a foreign country from 2000 to first half 2001. The main source of data on announcements was PwC company databases and extensive desk research.
During the period covered more than 1 500 companies announced a total of 3 000 foreign investment projects, with associated capital investment of over $150 billion.
The companies included in the survey included industry-leading names but also new start-ups. 60% of the foreign investment projects originated from North America, 25% from Europe and 10% from Asia-Pacific.
3. About the authors
Jan Scheers and Henry Loewendahl, two corporate location advisors from PwC Consulting in Belgium, conducted the survey. The authors are part of a team of approximately 30 consultants specialising in corporate location studies for global businesses and inward investment programme studies for governments across the world.
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