Foreign direct investment in new pharmaceutical R&D, office, and manufacturing locations has shifted since the global economic downturn changed industry dynamics, according to a life sciences study from Jones Lang LaSalle.

Since 2007, companies have adjusted their location strategies to focus on new markets that offer revenue growth potential, cost efficiencies, favorable tax structures, and consolidation opportunities.

While the United States remains the top recipient of foreign direct investment, Asia (particularly China, India, and Singapore) is emerging as a ripe market with opportunity, not just for cost reduction in manufacturing, but also as a growth market for sales and R&D. Additionally, Brazil, Canada, and Switzerland have emerged since 2007 as top markets for the life sciences sector of foreign direct investment in both R&D and manufacturing.

In the global study, Jones Lang LaSalle looked at investment in life sciences facilities throughout the world before and after the global economic downturn. Specifically, the study looked at the top 10 markets for drug and pharmaceutical inward direct investment by country between 2003 and 2010. To establish investment patterns before and after the downturn, the study ranked top markets for such investment during the time period of 2003 to 2006, then during 2007 to 2010, and compares the two.

The analysis revealed findings regarding which locations are primed to lead industry activity based on where companies are directing their resources, based on the $607 billion of total investments for the period.

“Some countries have emerged during the last decade as major recipients of foreign direct investment in pharmaceuticals, while in others, the industry talks of rationalization or consolidations,” says Bill Barrett, managing director of Jones Lang LaSalle’s life sciences business. “For investors, it’s important to understand trends that affect facility planning, especially the need to realign the enterprise operating footprint with the new realities of how revenue will be generated and how profit margins can be preserved.”

The top ten regions of foreign direct investment between 2003 and 2010 are: the United States,  Ireland, China, Singapore, India, Germany, Spain, France, Puerto Rico, and Italy.

Matt Jackson, Lang LaSalle managing director adds that several important shifts occurred as the industry made new choices in the 2007-2010 time period. Asia emerged as a location not just for manufacturing, but also as a growth market with double-digit revenue growth potential. As a result, China, Singapore, and India emerged as the second, third, and fourth  markets for foreign direct investment in life sciences. Brazil, Canada, and Switzerland emerged as new top ten markets in life sciences; before 2007, they were unranked. Government support coupled with educated workforce has been noted as fuelling life sciences clusters in those countries.

Ireland and Singapore were noted as favorable locations from a tax perspective, and attracted some investment that might otherwise have gone to Puerto Rico or other jurisdictions with expiring incentives. An outsourcing of support functions such as finance, tax, HR, IR, procurement, and customer service led to an expansion in Asia, particularly in India and China.

While cost control was a top driver of location selection, it was one of multiple factors, not a singular driver of changes in investment location preferences.

Pharmaceutical companies looked to shift their location strategies to support the following business drivers: In Asia, double-digit revenue growth potential in certain markets has made them attractive for locating sales offices, as well as manufacturing and R&D.

In jurisdictions such as Singapore and Ireland, government-backed tax incentive programs have created opportunities for pharmaceutical and other life sciences companies.

The global economic downturn led to decreased demand for certain products, which led to overcapacity in many manufacturing locations. Locations that remained open tend to offer flexibility in production, and are conveniently located with other components of the supply chain. 

R&D locations have also been consolidated for operational efficiency, and to take advantage of workforce expertise in certain cluster locations. Cost control and operating margin advantages: cost reduction and operating efficiency continue to drive investment decisions; however, choices to locate operations tend to consider cost control and operating margin together with other factors.

Release Date: Feb. 27, 2012
Source: Jones Lang LaSalle