The Complex, High-Stakes Game of Foreign Investment

For decades, the pursuit of new markets, lower costs, and improved efficiency has guided corporate offshore capital investments. That relatively straightforward global era is over.

Today’s calculus for long-term capital investments involves far more than commercial objectives. Business leaders must also consider a complex array of frequently shifting factors driven by geopolitics and economic statecraft. These variables include abrupt and sharp changes in tariffs, great power competition, and increasingly stringent regulatory oversight of inflows and outflows of investment and sensitive technologies. Leaders must also track a growing menu of incentives that governments offer as they compete to bring strategic industries to their shores.

The shift from the invisible hand of market forces to the visible hand of government intervention began before the latest round of US tariff hikes and other measures taken by the US and its trading partners. But government involvement in the market has accelerated since and has significantly affected global investment patterns.

A BCG analysis of fDi Markets data on greenfield foreign direct investment (FDI) and government policy announcements during the first eight months of 2025 reveals several significant trends:

• The roles of China and the US in FDI globally are reversing. China has gone from being one the world’s largest recipients of FDI to being a major capital exporter. Meanwhile, inbound FDI now accounts for 41% of US cross-border investment projects, compared with around 20% two decades ago.
• Emerging markets such as India, Brazil, and Vietnam are becoming the world’s new hot spots for strategic FDI.
• FDI in green technologies such as electric vehicles (EVs) and batteries plunged globally during the period from January through August of 2025 compared with the monthly average for 2022 through 2024.
• A global industrial incentives race has broken out, with governments announcing more than $200 billion in new subsidies for strategic industries such as semiconductors, critical minerals, and pharmaceuticals during the first half of 2025.

The new environment is altering the ways in which both business leaders and policymakers make investment decisions. Companies must look beyond profit and growth to consider as well the strategic and geopolitical implications of long-term capital commitments—and whether they enhance agility and resilience. For their part, governments are increasingly likely to target FDI that brings not only more jobs and more exports, but also economic security, deeper ecosystems, and the technology they need to become players in high-value industries of the future.

The Shifting Dynamics of FDI

During the high tide of globalization, FDI was the rocket fuel that enabled companies to tap new international markets, build world-spanning enterprises, and develop robust and efficient supply chains that lowered costs and sped time to market.

FDI cooled over the past few years, however, as boardrooms grew concerned over geopolitical risks, trade tensions between the US and China heightened, and governments increased their oversight of inbound and outbound investment and technology sales in strategic sectors. Global FDI rose by 4% to $1.51 trillion in 2024. But setting aside conduit flows routed through European economies, typically for tax reasons, FDI contracted by 11%—the second double-digit yearly decline in a row.

The corridors of FDI flows are changing, too—a trend that began before the spate of US tariff hikes in 2025. Announced greenfield foreign investment in China, particularly from the US and Europe, fell sharply from 2019 through 2024 compared with the previous five years. Many of the new winners of FDI have been Global South nations in South and Southeast Asia, Latin America, and Africa as companies have diversified their manufacturing and sourcing footprints to make their supply chains more resilient. (See Exhibit 1.)

Even though the landscape has grown more challenging and uncertain in 2025, commitments to major greenfield projects have continued in new hot spots that can leverage geopolitical advantages. In the resulting redistribution of FDI flows, the beneficiaries are nations that not only offer low costs but also maintain trade policies and possess geopolitical advantages that make them attractive friend-shoring locations, even though they aren’t immune from future geopolitical tensions. For instance, India attracted $41.9 billion in commitments for greenfield projects during the first eight months of 2025, Brazil received $18.8 billion, Vietnam $16.7 billion, Mexico $6 billion, and Indonesia $4.2 billion. (See Exhibit 2.)

Tariff and incentive policies are influencing the destination of FDI. In 2025, inbound investments reached 44% of total FDI in the US, compared with around 20% two decades ago. In China, by contrast, the direction of FDI has gone from being around 90% inbound in 2005 to about 65% outbound in 2025. (See Exhibit 3.)

The mix of most desirable target industries is changing as well. In the past, manufacturing-related FDI in emerging markets focused primarily on assembly plants, in a bid to lower production costs. More recently, capital flowed into hot sectors such as automotive—driven in large measure by the transition from vehicles with internal combustion powertrains to EVs—and green energy. Those sectors have since cooled. Today, capital investment is increasingly going into strategic, higher-value sectors as companies try to make their supply chains more resilient and as nations seek to deepen their industrial capabilities. For example, semiconductors accounted for 24% of greenfield projects in Vietnam during the first eight months of 2025, and both Mexico and Vietnam have seen significant inflows into electronic components as companies continued to develop China Plus One or near-shoring strategies. Other hot sectors include pharmaceuticals and chemicals. Meanwhile, FDI in sectors such as consumer products, building materials, and food and beverages remains steady. (See Exhibit 4).

The Accelerating Incentives Race

These sectoral shifts are likely to continue for some time as governments boost incentives for FDI in strategic sectors. Governments have also been unveiling more generous tax incentives, streamlining investment approval processes, accelerating depreciation allowances, and adopting other investment-friendly measures.

The following examples provide a flavor of recent incentive announcements:

• China has increased fiscal, financial, and regulatory incentives for strategic industries, including a $53 billion fund for semiconductors. In November 2024, Beijing further amended its “negative list” to remove nearly all restrictions on foreign ownership of manufacturing plants. Some individual Chinese provinces are increasing their incentives as well. Guangdong, for instance, has introduced a $21 million cash grant program for investments of at least $50 million in advanced manufacturing plants.
• Canada has launched the Canada Growth Fund to underwrite around $15 billion in deals in critical mineral and carbon capture and storage (CCS) projects. In March 2025, it extended a 15% tax credit for critical minerals exploration for another two years.
• The EU is fast-tracking green technology permits and subsidies under its Net-Zero Industry Act. In February 2025, it announced around $20 billion in incentives packages for hydrogen and health technologies through its Important Projects of Common European Interest program. In addition, European nations are using their military buildup as an opportunity to transform domestic strategic industries.
• The US is providing large subsidies for semiconductor investments, including nearly $8 billion for Intel semiconductor production, up to $6.6 billion for Taiwan Semiconductor Manufacturing Co. (TSMC), up to $6.4 billion for Samsung, and more than $6.1 billion for Micron Technologies. The US government has negotiated a 9.9% equity stake in Intel. The Department of Energy has approved a $2.26 billion loan for the Thacker Pass lithium project. The US has also announced a system for accelerating regulatory approval of domestic investments over $1 billion and says that it plans to hold an FDI summit in May 2026.
• South Korea’s K-CHIPS Act increases the tax credit for semiconductor fabrication plants to 30% and extends it to 2031. In March 2025, it announced $34 billion in financing for strategic sectors such as chips and autos.
• Mexico’s Plan México decree of January 2025 permits accelerated depreciation of new fixed assets. Mexico is seeking to increase nearshoring by expanding development bank financing for parts suppliers that qualify under the US-Mexico-Canada Agreement and new tax and training incentives to attract companies to relocate their manufacturing to Mexico.
• India announced in March 2025 a $2.7 billion measure under its Production Linked Incentive program to help achieve a target of producing $124 billion in output and create 142,000 jobs in electronic components. India has also joined the Mineral Security Partnership, which the US leads, to coinvest in lithium and rare earth elements.
• Vietnam has established an Investment Support Fund that can provide cash grants to cover 50% of capital expenditures for semiconductor and artificial intelligence projects. Starting this year, high-tech parks can offer a preferential corporate income tax rate for up to 15 years.
• Japan’s Green Growth Strategy provides ten-year tax breaks for hydrogen battery and CCS projects. The Ministry of Economy, Trade, and Industry is contributing funding for Rapidus’s 2-nanometer semiconductor fabrication plant.
• Saudi Arabia’s August 2024 Investment Law allows the government to tailor tax holidays and cash grants for the benefit of new industrial projects. Its four special economic zones now offer a 5% income tax rate for 20 years and no value-added tax.

Implications for Companies and Governments

The new investment order has different imperatives depending on whether decisions are made in the boardroom or the cabinet.

Strategies for Companies

Companies can benefit from adopting three key strategies:

• Build geopolitical muscle into the organization. Develop a geopolitical radar that identifies risks and opportunities early, and assess the relevance of evolving geopolitical developments to the business. Use this capability to develop defensive and opportunistic courses of action and to embed geopolitical intelligence into high-level decision making, including board and investment choices.
• Move early to capitalize on opportunities created by policy shifts. Once trade terms are clear in different markets—and the organization has moved beyond calculating operating expenditures to making capital expenditure decisions—be ready to move quickly. Seize new investment opportunities, such as government incentives, that can help capture share or provide access to key talent and resources in target markets.
• Redesign supply chains for resilience and global balance. Geopolitical dynamics require companies to think beyond cost, efficiency, and scale when making capital investments abroad. Resilience is now a strategic differentiator. As a result, regional footprints, redundancy, and strategic partnerships are becoming more important. Hedge geopolitical shifts and policy volatility by building global footprints that combine established markets with rising hubs.

Strategies for Governments

A different set of strategic moves will advance the interests of governments:

• Shift from merely attracting investment to pursuing strategic positioning. Align FDI strategy with national goals for building targeted sectors. Seek a portfolio of investments that can develop entire industrial ecosystems to compete on value creation, rather than only on cost.
• Act as intelligent conveners. Coordinate incentives with regulations, human resource development, and diplomacy.
• Establish and maintain predictable, transparent policies. Give both domestic and international companies the confidence they need to commit capital for the long term even during times of uncertainty.
• Use geopolitical leverage to build credibility. Strive to establish your nation as a trusted node in reconfigured supply chains.

Markets alone will not determine the emerging global investment order. Instead, other factors—including the strategic importance of resilience, geopolitical dynamics, and competition in emerging technologies—will play increasingly prominent roles in determining investment success.

The winners in this environment will pair policy clarity with strategic agility and geopolitical savvy. For companies, that means embedding resilience into investment choices. For governments, it means shaping ecosystems, not just offering incentives.