Subscribe
Close
  • Free for qualified executives and consultants to industry

  • Receive quarterly issues of Area Development Magazine and special market report and directory issues

Renew

Trends Driving FDI in the United States

The United States provides foreign investors with a climate where ideas flourish and an environment where businesses succeed.

Location USA 2015
The United States is home to more foreign direct investment (FDI) than any other country in the world, with a total stock valued at $2.8 trillion as of 2013, approximately 18 percent of U.S. gross domestic product. FDI flows into the United States are robust, totaling nearly $231 billion in 2013, up from $170 billion in 2012, according the U.S. Bureau of Economic Analysis (BEA). American leadership in FDI reflects both strong fundamentals for business growth and an incredible diversity of opportunity across the 50 states and territories. The federal government, along with state and local governments nationwide, remains committed to welcoming and facilitating international investment.
The message here is crystal clear: the United States is back in the minds of global business leaders as the prime destination for their investment AT Kearney, Foreign Direct Investment Confidence Index
In mid-2014, the consulting firm A.T. Kearney unveiled the most recent edition of its Foreign Direct Investment Confidence Index, which captured the sentiments of C-level executives and regional and business heads from major companies. For the second year in a row, the United States was ranked as the top destination for international investment, but the survey report goes even further, stating, “The message here is crystal clear: the United States is back in the minds of global business leaders as the prime destination for their investment. Never in the 16-year history of this index has a country had such a positive net position.

What is driving this renewed confidence? The reasons are many, including a resurging U.S. economy, a strong domestic consumer market and enhanced access to other markets, stability and transparency, innovation, advanced manufacturing, an educated workforce, and low-cost energy.

Economic growth: Prospects for the U.S. economy continue to improve: during the course of 2013 through 2014, real GDP grew at a 2.8 percent annual pace. As of the writing of this article, the most recent monthly report issued by the U.S. Bureau of Labor Statistics in March 2015 revealed that the private sector continues a healthy expansion with the longest streak on record for job growth. During the past 60 months, the private sector has added 12 million jobs. During the previous 12 months, 3.2 million jobs were created, amounting to the largest 12-month increase since 1998.
Expand Largest Country Sources of FDI in the United States by 2013 Stock Position
Close Largest Country Sources of FDI in the United States by 2013 Stock Position
Largest Country Sources of FDI in the United States by 2013 Stock Position; Source: Department of Commerce, Bureau of Economic Analysis - FDI Position by Ultimate Beneficial Owner, 2013
Access to markets: One of the most important reasons that investors choose to establish or expand businesses in the United States is to serve the massive domestic market. With 320 million diverse consumers, companies of all sizes with all manner of products and services can find their market here. The economic recovery is driving an increase in consumer confidence and purchasing, and there is scope for further growth. For example, real personal consumption expenditures grew at an annual rate of 4.2 percent in the fourth quarter of 2014, and households are spending a lower portion of their incomes on debt servicing than they have in more than three decades. By the end of 2014, the Reuters/University of Michigan Index of Consumer Sentiment and the Conference Board Consumer Confidence Index were both at levels not seen since 2007.
During the past 60 months, the private sector has added 12 million jobs. During the previous 12 months, 3.2 million jobs were created, amounting to the largest 12-month increase since 1998
Beyond the U.S. market, companies that manufacture in the United States also enjoy enhanced access to export markets through 14 free-trade agreements covering 20 markets. In 2013, the U.S. subsidiaries of multinational companies accounted for one fifth of U.S. goods exports. Products manufactured in the United States remain competitive: U.S. exports reached a record-breaking $2.34 trillion in 2014.

Stability and transparency: On top of the economic fundamentals, the United States is well recognized for its business-friendly environment. It is consistently ranked as the only nation with a population of more than 100 million among the top-10 markets in the World Bank’s annual report on the ease of doing business.

In an interview with SelectUSA in February, Warren Buffett highlighted the predictability of the U.S. market as a key factor in his success during his 50 years as CEO of Berkshire Hathaway: “We know we’ll be treated fairly under the law. We know that although there is bound to be a certain amount of government regulation, it’s not of a smothering effect whatsoever. We have an awful lot of people in this country, not only in business, but in government and all walks of life, who want business to succeed.”
Expand Fastest-growing sources of FDI in the United States by compound annual growth rate, 2009 - 2013
Close Fastest-growing sources of FDI in the United States by compound annual growth rate, 2009 - 2013
Fastest-growing sources of FDI in the United States by compound annual growth rate, 2009 - 2013; Source: Department of Commerce, Bureau of Economic Analysis - FDI by Ultimate Beneficiary Owner
Innovation: Buffett also pointed out that “a climate in which ideas flourish” is essential to business success. This is certainly true in the United States, which is a world leader in research and development (R&D) and intellectual property protection, providing a fertile environment for innovation. More than 31 percent of total world R&D expenditures take place in the United States. Companies can increase their global competitiveness by partnering with top-flight research institutions and employing cutting-edge manufacturing techniques.
More than 31 percent of total world R&D expenditures take place in the United States Batelle, 2014 Global R&D Funding Forecast
Workforce: The American workforce is highly educated, with the most productive workers in the world. Across the country, state and local governments, community colleges, and universities are eager to work with businesses to develop job-training programs that fit employer needs. The U.S. departments of Commerce and Labor are also working hard to promote state-of-the-art workforce development techniques. For example, the Department of Labor is offering up to million in grants to public-private partnerships to develop and implement innovative, high-quality registered apprenticeship programs.

Low-cost energy: The energy story in the United States has been dominating headlines for the past few years. The United States is now leading the world in oil and natural gas production, experiencing a 40 percent drop in oil prices during the second half of 2014. The Obama Administration has been pursuing an “all-of-the-above” energy strategy with solid results: since 2008, solar energy has increased tenfold and wind energy has increased threefold.

Top Country Sources/Industries
With these factors in place, it is no wonder that FDI from a range of countries is robust. According to the latest numbers for the U.S. Bureau of Economic Analysis, the top five country sources of FDI into the United States are the United Kingdom ($540 billion in total stock), Japan ($344 billion), Canada ($281 billion), Germany ($278 billion), and France ($239 billion). Combined, these markets account for 60.87 percent of the stock value of FDI in the United States, slightly down from 61.45 percent in 2012.
Key manufacturing sectors for incoming investment in 2013 alone included chemicals and pharmaceuticals ($22.91 billion), transportation equipment ($5.46 billion), machinery ($5.17 billion), food ($4.35 billion), medical equipment/supplies ($3.29 billion), and many others.
Key manufacturing sectors for incoming investment in 2013 alone included chemicals and pharmaceuticals ($22.91 billion), transportation equipment ($5.46 billion), machinery ($5.17 billion), food ($4.35 billion), medical equipment/supplies ($3.29 billion), and many others.
In 2013, there were eight countries where the rate of growth of FDI into the United States was more than 20 percent — in some cases well above that threshold. China led the pack again as the fastest-growing source, with a compound annual growth rate (CAGR) from 2009–2013 of 41.54 percent. Companies from Hungary (36.61 percent), Luxembourg (34.56 percent), India (29.34 percent), Norway (29.11 percent), Malaysia (24.11 percent), South Korea (21.72 percent), and Switzerland (20.83 percent) are also increasingly exploring the U.S. market.

This incoming investment has found a home in a wide variety of industries within the U.S. economy, including information and telecommunications, professional and financial services, mining, and agriculture. However, the manufacturing industry attracts the largest share by far: more than one third (37.23 percent) of total FDI inflow, according to BEA. Key manufacturing sectors for incoming investment in 2013 alone included chemicals and pharmaceuticals ($22.91 billion), transportation equipment ($5.46 billion), machinery ($5.17 billion), food ($4.35 billion), medical equipment/supplies ($3.29 billion), and many others.
In 2013, the U.S. subsidiaries of multinational companies accounted for one fifth of U.S. goods exports
A Bright Future
The future is looking bright for the U.S. economy, and the U.S. government’s commitment to facilitating international investment has never been stronger. For example, President Barack Obama recently hosted the 2015 SelectUSA Investment Summit in the Washington, D.C., area on March 23–24. The event was packed with more than 2,600 participants, including investors from more than 70 international markets as well as economic development organizations (EDOs) from every corner of the United States. The President was joined by Secretary of Commerce Penny Pritzker and five other Cabinet officials, three U.S. governors, and a host of global business leaders who spoke about investment trends and opportunities in the United States.

Outside of the Summit, the SelectUSA team is working every day of the year to assist investors as well as U.S. state, regional, and local EDOs. Housed within the Department of Commerce, SelectUSA’s role is to promote and facilitate business investment in the United States by serving as a single point of contact at the federal level for investors. SelectUSA assists U.S. state and local EDOs to compete globally for investment by providing information, a platform for international marketing, and high-level advocacy. SelectUSA also helps investors find the information they need to make decisions; connect to the right people at the local level; navigate the federal regulatory system; and find solutions to issues related to the federal government.
Article Discussion

Follow Area Development

Share