Industrial policy and innovation move to the front of the location decision

Kearney’s 2026 Foreign Direct Investment Confidence Index, released in April, carries a reassuring headline and an unsettling subtext. Of the 507 senior executives surveyed in January, 88% say they plan to increase foreign direct investment over the next three years, up four points on 2025, with the United States and Canada holding the top two spots and Japan and China (including Hong Kong) rounding out the top four. What has moved is the basis on which that confidence gets allocated.

The clearest shift is in what investors say drives the location decision. Technological and innovation capabilities now rank as the single most important factor shaping where companies invest, ahead of older mainstays like regulatory efficiency and domestic economic performance. Executives name technological innovation as the strongest, or tied-strongest, reason to invest in 10 of the 25 ranked markets, including Japan, China, Singapore, South Korea and Taiwan. As capital pours into AI, data infrastructure and advanced manufacturing, an innovation base has become the headline asset.

The second shift is the state’s new starring role. Of investors surveyed, 84% call industrial policy extremely or very important to where they put money, and 57% say it has a positive impact on their own performance. That is an endorsement of the subsidy-and-strategy turn that defines the CHIPS Act, the EU’s industrial agenda and their many imitators. In Asia-Pacific the preference is concrete: 88% of regional investors view infrastructure-focused industrial policy favorably and 80% favor subsidies.

Those shifts have a geography, and it is Asia-Pacific. The region claims 10 of the 25 ranked markets for the first time in more than a decade. Singapore is the emblem, vaulting from 15th to 8th on the strength of its R&D and innovation reputation: 34% of investors cite its technological innovation as the top reason to invest there, 30% its economic performance, helped by biomedical, electronics and AI-driven semiconductor demand. Thailand and Malaysia re-entered the top 25 after three- and twelve-year absences, and Kearney reads the pattern as the rise of “middle powers”: markets large enough to matter and rule-abiding enough to trust.

None of this means investors have stopped worrying. They rank geopolitical tension as the most likely development of the coming year (36%), followed by commodity-price increases and political instability in developed markets (30%), a risk list the current Middle East conflict has made vivid. “Supply chain resilience, diversification of energy sources and government policies will be crucial for markets to maintain their attractiveness,” Kearney’s Asia-Pacific chair Shigeru Sekinada noted.

For the investment promotion officers Doyen serves, the index reads like a brief. The winning pitch in 2026 leads with an innovation base and a legible industrial-policy offer (talent, research base, infrastructure, and the subsidies and partnerships that de-risk a frontier project) rather than with tax rates and cost of doing business alone.