AI infrastructure, advanced manufacturing, and the resources that power them are rapidly becoming the recipients of cross-border foreign direct investment (FDI)—three-quarters of FDI announcements since 2022 have gone toward these industries, as well as energy and mining. With about half of cross-border FDI value coming from megadeals of over $1 billion each, a small number of large projects is reshaping industries.
In this Future of Asia Podcast episode, host Debbi Cheong talks to McKinsey experts Jeongmin Seong and Tiago Devesa, two of the authors of the McKinsey Global Institute (MGI) report, The FDI shake-up: How foreign direct investment today may shape industry and trade tomorrow, about the impact of new FDI announcements globally. They focus on Asia, which accounts for about 50 percent of global trade flows, and its central role in the new configurations of trade.
Debbi Cheong: Welcome to the Future of Asia Podcast. Today we are joined by Jeongmin Seong and Tiago Devesa from MGI. Before we delve into the questions, could you introduce yourselves to our audience today?
Jeongmin Seong: I’m Jeongmin, an MGI partner based in Tokyo.
Tiago Devesa: I’m Tiago, an MGI senior fellow, based in Lisbon. I have the pleasure of working with Jeongmin in the wonderful world of trade, capital, and all types of global connections.
Debbi Cheong: Your work looks at how geopolitics, technology, and industrial policy are reshaping where capital flows go across different companies, industries, and economies. Jeongmin, what do you see unfolding in the global macroeconomic environment?
Jeongmin Seong: Let me start with our observation of what is happening in global trade. Over the past few years, many media headlines have highlighted debates around decoupling and deglobalization. Events in 2025 added further fuel to these discussions, including a once-in-a-century tariff shock.
But our view is that what’s happening right now is not necessarily deglobalization, but rather a reconfiguration of the global trade network. Even last year, global trade managed to grow. I think that’s an important signal pointing to reconfiguration, not decoupling.
Let me focus on two dimensions to illustrate this. The first is what we call the geographic distance of trade—measuring, on average, the physical distance that goods travel. That distance has been increasing for decades. For example, in the early 2000s, the average trade journey was roughly 4,600 kilometers from Korea to Thailand. Today, it has risen to around 5,500 kilometers, roughly equivalent to the distance from Singapore to Tokyo.
From this perspective, one may argue that globalization is still continuing. Despite all the talk about reshoring or onshoring, they are not happening at a global scale.
The second dimension is the geopolitical distance of trade, measuring how aligned trading nations are in terms of their geopolitical positions. This measure has, in fact, fallen by about 7 percent since 2017. In other words, countries are trading more with geopolitically closer partners and less with geopolitically distant ones. So-called “friend-shoring” seems to be happening in that sense.
What’s interesting is that we see very different patterns across Asia. In China and advanced Asian economies, such as Korea and Japan, the geopolitical distance declined by about 3 to 6 percent, suggesting a stronger geopolitical alignment in their trading relationship. By contrast, ASEAN [the Association of Southeast Asian Nations] and India saw no material change, implying those economies managed to maintain a more diverse set of trading partners spanning a broad geopolitical spectrum.
Tiago Devesa: I like to give the example of electronics, where Asia is essentially the world’s connective tissue. We all use laptops. These laptops might have been assembled in China, or they might have been assembled in Vietnam. Inside, they have chips from Taiwan and memory from Korea. The semiconductors might have been tested and packaged in Malaysia.
So, we see, as Jeongmin was saying, new combinations of trade emerging, and Asia is enabling these new connections to form. It’s a really interesting time to be operating in the continent.
Debbi Cheong: FDI is sometimes described as a leading indicator of structural change. What do you think today’s investment patterns reveal about future shifts in global economy and trade?
Tiago Devesa: I think the key idea here is that the patterns that Jeongmin described are the tip of the iceberg. There’s still a lot happening under the surface.
For example, if a laptop today was shipped from Vietnam, someone made the decision to invest in a factory there maybe five or ten years ago. So, what we try to figure out is: If trade is what we call a lagging indicator and reflects past decisions, can we look at the decisions that are being made in real time? That’s the reason why we decided to look at flows of FDI—essentially the decisions that multinationals are making today about where to invest and where to develop new factories, mines, and data centers.
We looked at a panel of around 200,000 deals, or individual projects, over the past decade. We asked ourselves: If we fast-forward these deals and play them out to completion, what does this tell us about the future of trade?
There are two big ideas here. The first is that this geopolitical realignment is likely to continue. The reason we say this is that, while the geopolitical distance of trade has been shrinking, it is happening at twice the pace when we look at FDI. In other words, we’re seeing how multinationals are changing where they’re investing, and that they’re investing much closer to home from a geopolitical perspective.
To give you an example, announced investments from Western multinationals into China have essentially collapsed. Announced FDIs, greenfield FDIs, and new projects into China have dropped by about 70 percent. At the same time, announced projects within advanced economies have increased. Projects going into the United States have doubled. We’re seeing multinationals replanning their footprints and investing in geographies that are more aligned with where they’re operating.
The second idea is to see where multinationals are investing. What are the sectors and the types of projects? Here we see another big pivot, as capital is being concentrated more in what we call the industries of the future and the resources to power them.1 These are resource-hungry industries. We’re seeing a lot of capital go into things such as new mines and new energy facilities.
When you put these two things together, about three-quarters of all announced investment projects are going into them. So, the geopolitical distance of FDI is shrinking and, at the same time, capital is being channeled into these industries of the future and resources.
What we see for the future of trade is likely a further realignment that’s particularly strong in these industries and that is going to shape the future of competition. To put one number on it, we’re seeing things such as semiconductor fabs [fabrication facilities], gigafactories for batteries, and data centers grow two to three times more in the future, and that growth is shifting to different geographies from today.
So, for example, this is less about new semiconductor fabs in South Korea and Taiwan and more about new fabs in the United States. It’s less about new gigafactories in China and more about new ones in Europe, Indonesia, Malaysia, or Morocco. This is really about spreading these industries of the future to many more geographies.
Debbi Cheong: Jeongmin, is there anything you’d like to add?
Jeongmin Seong: A point I would like to highlight is the concept of realization rate—basically, how many announced investments actually get implemented. Historically, about 60 to 80 percent of announced greenfield projects tended to be realized.
The open question now is whether that will still hold for the 2025 vintage of FDI announcements, given the big shifts we have observed, especially related to the surge of AI-related investment in 2025 and the large scale of tariff shocks and subsequent negotiations. That’s something that companies will need to pay close attention to, especially if they are in related value chains.
Debbi Cheong: Tiago, what are some of the key trends in FDI that you’ve seen recently, and how are they significant?
Tiago Devesa: We have talked a bit about geopolitical realignment and how industries of the future are scooping up capital around the world. Now, the way that these deals are getting made is also different. We call this the rise of the megadeals—deals that are worth over $1 billion; for example, a single factory or a single mine that costs more than $1 billion dollars to develop.
What we’ve noticed is that these megadeals now make up about half of all announced investment values. It used to be something like 30 percent before the [COVID-19] pandemic. Now that figure is up to 50 percent. What does this really mean? It means that a small number of huge projects is shaping industries completely.
And why is this happening? If you think of things such as semiconductors, gigafactories, or data centers, they are highly capital-intensive industries, in which the winner takes most. Multinationals are racing to be the ones that create the leading-edge capability; they’re racing to out-invest each other. We see this a lot, for example, with hyperscalers trying to build bigger and bigger data centers. This means that the bar to entry into these industries and to succeed in them is getting higher and higher.
When we put all of this together, we see that capital is moving to more aligned geographies in specific industries that are very competitive—and therefore we’re seeing the rise of megadeals. This is a totally new story of FDI. It is no longer the old narrative that FDI was all about multinationals investing in emerging economies to create new factories at lower costs.
Jeongmin Seong: At the same time, I think it is important to look at FDI together with domestic investment. Tiago talked about FDI inflows into China declining by about two-thirds, but that’s not the full picture.
In China, it’s true that the share of FDI relative to total capital expenditure in future-shaping industries fell from about 5 percent pre-COVID to under 2 percent more recently. On the other hand, that corresponding share rose sharply in advanced economies from 8 to 15 percent, and even more in other emerging economies, from 20 to more than 30 percent.
In my view, that doesn’t mean that China will fall behind in the global race that Tiago talked about. The reason is that China still has ample domestic investment capacity and a very strong drive to develop those future-shaping sectors as well. What matters most for China isn’t just capital, but the knowledge and know-how that often comes with FDI. So, the big question for China is how effectively it can close that knowledge and know-how gap. That is likely to shape the pace of innovation going forward in China.
Debbi Cheong: Jeongmin, you talked about China, but I’d like to zoom out and talk about Asia as a whole. Are different economies going in different trajectories with FDI?
Jeongmin Seong: Yes, absolutely. First of all, Asia matters because Asia accounts for about half of global FDI flows. In previous Future of Asia episodes, we have talked about the notion of there being many different Asias, and we see many different Asias when it comes to FDI as well.
For example, advanced Asian economies and China are major net outbound investors and their outflows are two to three times larger than their inflows. On the other hand, ASEAN and India are net recipients of FDI and their inflows are roughly three times their outflows. These pictures are quite different.
If we go deeper on China, it has undergone a notable shift from being a major investee of FDI to a prominent investor of FDI, especially in future-shaping industries. Compared with pre-COVID levels, the inflows have declined, but China has held up its outbound investments. Those are increasingly going to Europe, the Middle East, and Latin America.
Advanced Asia is another major outbound investor, particularly in the advanced manufacturing sector. In fact, the announced FDI from advanced Asia into the United States has quadrupled. This may reshape the manufacturing footprint in some of the key sectors that Tiago talked about.
ASEAN remains a major FDI destination, but overall inflows into ASEAN haven’t grown that much, and the picture is mixed across different countries. For example, Malaysia and Thailand have seen very strong growth, especially driven by advanced manufacturing and AI-related investment. On the other hand, Indonesia and Vietnam have not seen huge growth. They’ve seen strong sector-specific momentum, for example, electronics in Vietnam and batteries in Indonesia. Finally, India stands out for its balancing act, as FDI inflows into India have grown roughly in line with the global average.
What is interesting is how balanced those inflows are: about one-third of FDI came from North America, one-third from Europe, and one-third from advanced Asia. Asia matters in the FDI landscape and there are really many different Asias—each Asia is sending a different signal.
Tiago Devesa: One thing that we found really interesting in our research is that when we looked at the picture of the different Asias, it was a bit like doing a puzzle to see how the different Asias connect with each other.
To give two examples, we saw a big picture of China investing more into different parts of Southeast Asia when it came to projects, such as in the electric-vehicle value chain. Countries such as Indonesia and Malaysia are seeing inflows of investment from Chinese players. Then, there is the other side of Asia, for example, India, which is attracting quite a lot of investment from Japanese and Korean firms.
So, as the different parts of Asia have different capabilities and are in different industries, they’re driving complementarities and uplifting Asia’s capabilities as a whole.
Debbi Cheong: How can Asian economies seize the opportunities in this shifting landscape, and are there risks involved? Jeongmin?
Jeongmin Seong: Let me talk about opportunity and Tiago can talk about risks. FDI matters, but not all FDI has the same impact. As Tiago said, we analyzed about 200,000 FDI announcements; we also looked at more than 900 country-sector combinations of FDI over a 20-year period.
In about 65 percent of cases, FDI led to meaningful improvements in terms of export performances. Successful cases shared three common patterns. The first was that the economies with successful sector and country cases became well integrated into global or regional value chains, building very strong upstream or downstream linkages. That opened new markets for the companies in those economies and created exposure to global competition.
The second condition was that they strengthened the infrastructure to translate FDI into productivity gains. That infrastructure investment typically included workforce training; investment in ports, roads, and highways; and improvements to regulatory frameworks.
The third condition was that those economies used FDI as seed capital and then catalyzed domestic investment to sustain growth momentum over a longer period of time. Getting these conditions right is critical, especially in emerging Asia and India, because FDI plays a much larger role in those economies.
Tiago Devesa: I’ll talk a bit about the potential types of risks that we have here. One of the things that was really striking in our research was the megadeals, which can be economy-shaping. This is an exciting story of potential, but it’s also a story of risks. What we saw was that there are about 100 economies for which three multinationals—just three—drive over half of all investment into a specific country. This means that it just takes one or two projects not to go according to plan, and essentially a huge chunk of the investment potential is lost.
You really have to hone in on these huge projects and make sure a) that they happen, and b) that they happen in a way that’s accretive to the growth of the individual country; that they create opportunities and ecosystems around them to boost the growth of the country. It’s a cautionary story that, if you put all your eggs in the same basket, you need to make sure that you hold on to that basket well and don’t let the eggs fall to the ground. But at the same time, we do see economies that have the right kinds of tools and initiatives to try to manage those risks.
Debbi Cheong: For CEOs and industry leaders in Asia, what does all of this mean for the future of the global economy? And, as next steps, what should these leaders look out for?
Tiago Devesa: That’s the million-dollar question! Every time that we have a conversation with executives in Asia, the opportunities vary. The reality is that they always vary. Let me give three big ideas that we’ve seen play out, but clearly there are many more.
The first one is the analogy that, if folks are digging for gold, they’re going to need shovels. And if you’re a provider of shovels, it’s a good time to be in business. What do we mean by this? As these megaprojects play out, attention naturally gets drawn to the project itself. But we always have to consider that there’s an ecosystem of suppliers of inputs that those big projects need. For example, a huge semiconductor fab is going to need chemicals. It’s going to need machinery. It’s going to need catering services for the employees’ canteen.
It’s important that multinationals and companies in Asia think through the new pockets of demand opening up around the world and see how they can be well positioned to serve those incremental pools of demand. How do they identify these new ecosystems and cultivate them in a way that’s good for their companies?
The second big idea, especially important for banks or logistics providers, is to consider what new connections are being created around the world—the new corridors. For example, as Japanese and South Korean firms pour more money into India and create new projects, we can see the potential for new, big corridors between Japan and India. If I’m a bank, I should be thinking whether I have coverage in this corridor. Do I have commercial managers and product lines that are going to serve this corridor? If I’m a logistics player, likewise, what is the infrastructure right now? Are there pockets of opportunity to invest in and create new routes to serve them?
The third big idea is anticipation. If FDI is a signal of the future, let’s anticipate what we call the new map of competition. Let’s look at what our competitors are doing: Where are they investing? Where are they creating new pockets? Is there any place around the globe where our competitors are not going, and where we might have an edge? Draw the map of what your industry could look like five years from now once these projects are online, and look for the gaps. You can think of this from an industry perspective, but you can also think of it from a country or economy perspective. Which are the really exciting economies around the world that are going to ride a wave of growth on the back of a lot of these FDI projects?
FDI is a signal for the future. It’s telling us information. If you can separate the signal from the noise, you’ll be ahead of your competition in terms of knowing what’s going to happen and in making decisions.
Debbi Cheong: Jeongmin, do you have anything to add?
Jeongmin Seong: Tiago talked about the million-dollar question. I think there’s also a trillion-dollar question: How do you take advantage of global trade reconfiguration?
We ran simulations of two possible futures of global trade. One is a fragmentation scenario, and the other is a diversification scenario. Depending on how things play out, about 30 percent of global trade could shift from one corridor to another. Many Asian companies are deeply exposed to global trade and the global value chain. This kind of discontinuity can create new opportunities if you are ready. It’s important to build on capabilities along the three big opportunities that Tiago laid out—that will create a lot of opportunities for companies in Asia.