Beyond Cost 2024

In Figure 1, “adapters” are characterized by the limited contribution of their manufacturing sector to GDP and a GDP per capita level that sits below the global average. This quadrant includes countries like Brazil and India. Brazil’s economy is driven by natural resources, agriculture, commodities production and exports.1 India’s sizeable industrial sector is driven primarily by the service sector, which is the main contributor to the country’s overall GDP .2 India is also making significant strides in manufacturing, with some states positioning themselves as key manufacturing hubs for industries such as automotive, electronics and textiles.3 On the opposite bottom right side of the graph, “connectors” are distinguished by the strong contribution of the manufacturing sector to GDP , together with a GDP per capita level below the global average. Countries such as Bangladesh and Mexico exemplify these characteristics. Bangladesh’s rapid industrialization, particularly in the textile and garment sectors, has made manufacturing a critical part of its economy. Mexico has developed a strong manufacturing base in sectors such as automotive and electronics, partly due to trade agreements such as the North American Free Trade Agreement (NAFTA) – now known as the US-Mexico-Canada Agreement (USMCA) – and its proximity to the US.On the upper left segment of the graph are “convergers”, whose GDP is above the global average but for whom the contribution of manufacturing to GDP is limited. The US and Denmark are prominent examples of these countries. The US remains a global leader in high-technology and innovation-driven manufacturing industries. Recent initiatives, such as the Inflation Reduction Act, the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and the Science Act, highlight the country’s strategic reinvestment in advanced manufacturing. Denmark has a manufacturing industry centred on specialized and high-quality products, particularly in pharmaceuticals, clean technology and food processing. Finally, on the top right side of the graph sit “scalers”, which have a GDP above the global average and whose manufacturing sectors contribute strongly to overall GDP . Ireland and Singapore exemplify these characteristics. Ireland has successfully harnessed favourable tax policies, its skilled workforce and strategic location to attract multinational corporations, particularly in pharmaceuticals and technology. Singapore, with its strategic location, pro-business government and advanced infrastructure, has developed a highly sophisticated manufacturing sector, particularly in electronics and chemicals. As foreign direct investment (FDI) flows shift, understanding the nuances of the four archetypes and their impact on investment confidence is critical. In this vein, since 1998, the Kearney Foreign Direct Investment Confidence Index (FDICI) has surveyed over 500 global business executives annually to ascertain which markets are likely to attract the most investment over the following three years. The index provides a forward-looking ranking on the attractiveness of certain markets in light of different investments and policies adopted over the past decade. By identifying these top-ranked markets, the report effectively signals where investment capital is most likely to be directed, reflecting investor confidence and strategic economic positioning.4The historical progression of this ranking has seen a significant shift in the past decade, which is illustrated within the context of the country archetypes outlined in Figure 2. On average, adapters, who have typically relied on their best- cost status to attract FDI, have experienced a 15% decline in attractiveness for inward investment. Connectors, who (like adapters) have historically traded on their best-cost status but whose contribution of manufacturing to GDP is higher, have seen the appeal of their inward investment improve by 14%. Scalers show a relatively stable investment favourability. Similarly, convergers have maintained a relatively stable trajectory, with an increase of 2%. These trends align with the paradigm shift of foreign investment increasingly favouring nations that proactively invest in and adopt policies across a holistic array of factors.1.2 Macro-dynamic and foreign direct investment confidence shifts Beyond Cost: Country Readiness for the Future of Manufacturing and Supply Chains 7