Sumatra, Bucheon, Debrecen, Phoenix: At first glance, these far-flung places could hardly be less alike. But they have something important in common. They have all attracted significant amounts of foreign direct investment (FDI). Years ago, FDI into Sumatra and Bucheon helped propel Indonesia and South Korea into the global oil and semiconductor industries. And recent FDI into Debrecen and Phoenix could do something similar for Hungary and the United States, building new clusters to make batteries and chips.
The news has been filled with announcements that FDI is pouring into the United States, reaching new heights. On Arizona’s arid land, billions of dollars of announced FDI from Taiwan is focused on building leading-edge semiconductor fabrication plants (fabs) and seeding the industrial ecosystem to surround them. While some chips are already being produced in Phoenix, many more are expected in the years ahead.
Understanding how FDI may be reshaping industrial footprints the world over is no longer just for policymakers; it’s a strategic imperative for business leaders as well. A new report by my colleagues at the McKinsey Global Institute (MGI), The FDI shake-up, analyzed 200,000 cross-border investment announcements from 2015 through May 2025 and found that multinationals are reorganizing their global investment strategies—increasingly along geopolitical lines. The report offers insights on how FDI is changing today and how it may shape industry and trade tomorrow.
FDI Offers a Window to What’s Coming
MGI’s research measures some of the dimensions of the FDI shake-up underway. Cross-border investment and trade flows travel physical distances, in terms of the miles traversed between partners, as well as “geopolitical distances.” MGI measures geopolitical distance by proxy, based on the trading partners’ voting patterns in the UN General Assembly. That is, greater geopolitical distance means more voting dissimilarity between trading partners, and vice versa. Crunching the numbers, our research finds that the average geopolitical distance of trade flows and of greenfield FDI announcements has been shrinking since 2017. In fact, the average geopolitical distance of FDI announcements is falling about twice as fast as that of trade. We see that capital is flowing more and more between countries that have similar geopolitical and global perspectives. This may offer valuable clues to what’s ahead, as multinationals look to manage geopolitically sensitive dependencies.
At the same time, three-quarters of all announced FDI since 2022 has gone to “future-shaping industries,” like advanced manufacturing (including semiconductors and batteries) and AI infrastructure, as well as the resources that power them. These are capital- and knowledge-intensive sectors where the most powerful technologies and the ability to roll them out at scale may determine who wins among deep-pocketed multinationals. Megadeals of over $1 billion now account for about half of all announced FDI—up from less than one-third before the pandemic.
The implications of this FDI shake-up could be transformative. For example, announced FDI projects, if successful, could more than quadruple electric vehicle (EV) battery manufacturing capacity outside China, almost double the global data center capacity that powers AI, and draw the United States into the circle of nations that are the biggest producers of leading-edge semiconductors. Of course, not every announced investment will happen, but historically 60 to 80 percent of them do.
Implications for Business Leaders
If you look to FDI as a leading indicator of where industries, value chains, and capabilities may go next, what does it tell you? Here are a few suggestions. Each multi-billion-dollar FDI deal may trigger new opportunities and even reshape local economies. When a chip fab or data center breaks ground, it pulls in local suppliers, logistics, construction, utilities, and business services, benefiting the full supply chain. As the saying goes: “when others dig for gold, sell shovels.” Firms that anticipate these shifts can benefit long before the new plants open their doors.
Business leaders will do well to rethink supply chains around proximity and resilience. As the geopolitical distance of global FDI is shrinking, multinational companies are planning more production projects on the soil of their geopolitical allies. Here, FDI helps firms with global exposure manage risk and secure resources. Japanese and Korean firms, for instance, have sharply reduced new investments in China while accelerating commitments in the United States.
For executives, following FDI is a way to watch how and where the world is building. FDI is more than a financial statistic—it’s drawing a map of the next industrial age. Whether in Indonesia, South Korea, Hungary, or the United States, the path of FDI is well worth tracking as it creates new global opportunities.