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August 24, 2022

FDI in business and professional services in 2021: The state of play

By Marina Leiva

The Covid-19 pandemic caused overall greenfield foreign direct investment (FDI) project numbers to decline by 17.5% in 2020. However, as the world reopened in 2021, investors reacted quickly and FDI levels rose by 18.1%. Most sectors witnessed a rise in their number of projects, with companies keen to make up for lost time, yet the surge is not expected to be sustained. Investment levels will likely fall again in 2022. Russia’s invasion of Ukraine has led to heightened geopolitical tensions, a global cost-of-living crisis, slow economic growth and continued supply chain disruptions. All of which will claw back the resurgence FDI experienced in 2021.

Business and professional services FDI rose in 2021

The Global FDI Annual Report 2022 shows there were 1,779 projects in business and professional services in 2021, up from 1,404 the year before. Projects recorded in this sector in 2020 were 12.3% higher than in 2019, showing the industry’s resilience throughout the Covid-19 pandemic.

Of the business and professional services projects in 2021, 84% were new and 18% were expansion projects.

Where are the leading destinations for business and professional services FDI?

Western Europe was the leading region when it came to attracting FDI projects in this sector, accounting for 35.1% of all projects globally. The region saw a 4% increase in projects over the 2019-2021 period.

Asia Pacific attracted the second-highest number of projects but between 2019 and 2021 project numbers declined 10.1%. 

Middle East and North Africa ranked third in 2021 with a total of 241 projects and growth of 109.6% between 2019 and 2021, with a consistent rise projects each year.

The US remained the leading destination country for business and professional services FDI in 2021, seeing a growth of 21.6%  from pre-pandemic levels. It received a total of 186 business and professional services FDI projects, up from 153 in 2019 and 173 in 2020. 

Germany, with 150 projects, was the second ranked country. Though its project numbers were down slightly from 156 in 2020, they were higher than the 144 projects recorded in the country in 2019.

The UK ranked third with 113 projects in 2021, an 8.7% increase from 104 in 2020, but not as high as the 128 projects in 2019. Project numbers declined 11.7% in the 2019-2021 period.

The UK was the key source market for business and professional services investments into the US, with the country being responsible for 72 out of the 186 recorded projects in 2021. 

UK-based end-to-end dog service Bark and Birch was responsible for five of those projects, more than any other UK company into the US in 2021, with the company opening dog day care centres in Miami, Los Angeles, Houston, New York and Georgia. 

What are the top business and professional services FDI operations?

Business and professional services continued to be the leading business operation for foreign investors in this sector in 2021. A total of 1,542 projects were created with a sales-related function, up 27.3% from 2020 and an increase of 16.6% on 2019 levels.

Headquarters, and contact centres ranked second and third, respectively, in 2021, with 82 and 57 projects. 

The US was the leading destination for the business and professional services business function in 2021, with a total of 159 FDI projects, while Germany was second with 135 and the UK was third with a total of 99 projects in 2021.

What are the top subsectors for business and professional services FDI?

Advertising, marketing, PR and communications became the leading subsector in 2021, with a total of 249 projects, overtaking business and management consultancy, which ranked second with 212 projects. Business and management consultancy had been the top subsector in 2020 with 175 FDI project. 

Advertising, marketing, PR and communications ranked third in 2020 with 165 projects, behind engineering activities and related technical activities, which had 167 projects in 2020 and ranked second.

The number of advertising, marketing, PR and communications FDI projects were 2% lower than in 2019, when 254 projects were recorded.

The US was the leading destination for advertising, marketing, PR and communications projects in business and professional services FDI in 2021, with a total of 37 projects, while Germany was second with 22 and the United Arab Emirates was third with 18 projects.

Where are the leading business and professional services investors located?

Investment Monitor's analysis shows that the UK became the leading source market for outbound business and professional services FDI in 2021, with the number of projects almost as high as in 2019. There were a total of 385 outbound projects in 2021 and 394 projects in 2019.

All of the top five source markets for outbound business and professional services FDI in 2021 witnessed an increase in the number of projects in 2021 in comparison to 2020. The US saw an increase of 15.6%, France of 22.4%, the Netherlands of 44.6%, and India of 15.7%. 

Deloitte Touche Tohmatsu was the leading business and professional services investor from the UK in 2021, with a total of 21 projects, followed by WPP Company with 12 projects. 

Out of the 21 projects by Deloitte, 20 were in accountancy, audit and tax activities and one was in advertising, marketing, PR and communications.

France was the leading destination for Deloitte projects in 2021, with a total of seven recorded over the year.

Deloitte also announced projects in other countries, such as a new regional headquarters in Riyadh, Saudi Arabia, and plans to open a new technology development centre in Spain. 

What does the future hold for FDI in business and professional services?

The recovery in the business and professional services sector has been relatively strong across all regions. Western Europe, the Middle East and North Africa, and North America even saw higher project numbers than pre-Covid-19.

Asia-Pacific is an outlier in not seeing project numbers recover to 2019 levels yet.

The compound effect of the war in Ukraine and the widespread cost-of-living crisis, will pose further challenges for FDI in this sector in 2022.

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