Cross-border business activity is showing signs of recovery yet global trade is far below pre-crisis peaks and companies need to develop shrewd investment strategies to ensure long-term success.

New research from global law firm Reed Smith, conducted by The Economist Intelligence Unit (EIU), examines where companies are investing in the short-term, the prevalence of Asia as an emerging investment destination, and the types of cross-border activities in which companies are engaged.

More finance options are opening up to companies as economic sentiment improves. Progress on several trade agreement negotiations also offer to unlock growth opportunities.

The old continent:

Despite the slowdown in Europe, exacerbated by the Eurozone crisis, investment prospects in the old continent remain appealing to businesses from North America and Europe. Two-fifths (40%) of executives based in these markets name Europe as their preferred investment destination over the next two years.

The reasons for this trend are twofold. Firstly, developed markets like Europe and North America have safer risk profiles, compared to rapid-growth markets. Secondly, companies prefer to invest in markets that are culturally similar to their home market.

Roger Parker, Managing Partner for Europe, Middle East and Asia at Reed Smith said:

“Pan-European and transatlantic business transactions are aided by a focus on cultural affinity. Consequently, companies are making more conservative judgements when considering expansion to new territories, weighing up issues such as regulatory and risk exposure, duration in the market and knowledge of how business is conducted.

“In order to navigate the challenges of conducting business in overseas markets successfully, strategic planning and a sophisticated long-term investment plan is essential. Investment needs to be scaled and developed over time as knowledge and familiarity is fostered; creating a team with local market experience, with strong relationships with established offices in other markets is also key to ensuring the developing organisation has a positive and balanced control over local operations.”

Emerging Asia:

Although there is a tendency for European and US businesses to choose European markets over developing markets when considering cross-border ventures, there is a growing trend towards new investment in the opportunity-laden, rapid-growth markets in Asia-Pacific.

In recent years, Asia has seen a steady increase in trading volumes while inter-regional business activity continues to improve. Companies based in Asia-Pacific place the region at the top of their list of cross-border business destinations over the next two years, with China leading the way, despite the country’s slowing growth rate. In 2005, Asia-Pacific accounted for 28% of global trade in goods and services; in 2013 this figure is set to rise to 32%, indicating a shift in the world economy eastwards.

Asia-Pacific is not the only region to witness rapid growth. Other emerging economies such as Brazil and Mexico are set to become increasingly attractive markets for business over the next two years. Rocketing wage levels in China are contributing to this as companies look to the promise of a relatively low-cost, skilled workforce, and a large and growing domestic market for manufacturers in countries such as Brazil. Over the last two years, almost one-half (49%) of manufacturing companies looked upon China as a priority investment destination; over the coming two years, less than one-third (31%) say that this will be the case, clearly indicating a geographic shift in business practices.

James Wilkinson, Partner at Reed Smith and Head of the firm's Europe & Middle East Corporate Group said:

“Financing still remains an issue for cross-border activity. However, it is not the barrier to activity that it has been as enthusiasm and flexibility grow, and a variety of new and alternative finance opportunities become available to the market.

“The key to choosing the right strategic direction when it comes to cross-border business is to listen closely to the market. Investment will follow growth areas and will move towards markets where there is an expansion of demand. Business investment has declined significantly in Europe and North America but the search for growth is relentless and will ultimately drive investment decisions to emerging markets such as Asia-Pacific and Latin America.”

Navigating the right path:

Direct exporting is still the preferred cross-border activity for global companies looking to expand organically, with over two-fifths (41%) of executives planning to stick to direct exporting over the next two years. Joint venture partnerships have moved ahead of direct importing in the order of companies’ priorities, as they enable partnerships with a local entity on the ground, share risk, and overcome any local regulatory burdens. M&A activity is also on the rise with many companies seeing growth opportunities in new markets.

The EIU findings are drawn from a survey of more than 450 senior executives from multinational businesses worldwide.

Key findings include:

• The EIU forecasts 2.8% global GDP growth at purchasing power parity (PPP) exchange rates in 2013
• 40% of survey respondents from Europe and North America name Europe as a preferred destination for cross-border activity over the next two years
• 41% of respondents cited direct exporting as their most important type of cross-border activity over the next two years
• 29% of survey respondents will be looking at joint venture or partnership activities over the next two years
• Raising capital is the least favoured cross-border business activity with only 9% of respondents looking to explore this option over the next two years
• 29% of companies will invest in China in the next two years – making it the most popular Asian market for international expansion
• China is the market of choice for more than 34% of financial services executives over the next two years

The new report is part of Reed Smith’s Business Across Borders research series conducted by the EIU.

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Note to Editors:

About the research

In January 2013 The Economist Intelligence Unit conducted a global survey of 451 executives on behalf of Reed Smith. All respondents represented companies that conduct business internationally. Over one-half of respondents (56%) are C-level executives and 53% are from companies with annual revenues in excess of US$500m. Just under one-third of respondents are from Asia-Pacific (30%) and from North-America (30%), and nearly one-third (32%) are from Europe. The remainder of respondents are from the rest of the world, including the Middle East, Africa and Latin America. Respondents represent a range of industries, including: 15% from financial services, 14% from energy and natural resources, 14% from media and technology, 13% from shipping and transport, and 13% from healthcare and life sciences. In parallel to the survey, The Economist Intelligence Unit also carried out interviews with senior business leaders and experts.

About Reed Smith

Reed Smith is a global law firm, with 25 offices and more than 1,800 lawyers in offices across Europe, the Middle East, Asia and the United States.

About the Economist Intelligence Unit

The Economist Intelligence Unit (EIU) is the world's leading resource for economic and business research, forecasting and analysis. It provides accurate and impartial intelligence for companies, government agencies, financial institutions and academic organisations around the globe, inspiring business leaders to act with confidence since 1946. EIU products include its flagship Country Reports service, providing political and economic analysis for 195 countries, and a portfolio of subscription-based data and forecasting services. The company also undertakes bespoke research and analysis projects on individual markets and business sectors. More information is available at, www.eiu.com or follow us on, www.twitter.com/theeiu.

The EIU is headquartered in London, UK, with offices in more than 40 cities and a network of some 650 country experts and analysts worldwide. It operates independently as the business-to-business arm of The Economist Group, the leading source of analysis on international business and world affairs.

For further information:

Jeyda Star

Reed Smith

Tel: +44 (0)20 3116 2571

Email: jstar@reedsmith.com

Web: www.reedsmith.com