Foreign companies that invest in the United States employ millions of Americans and have a big impact on the GDP, especially manufacturing. The United States continues to receive the most foreign direct investment (FDI) of any country in the world — mostly from Canada, Germany, France, Switzerland, the United Kingdom, and the Netherlands (Source: U.S. Bureau of Economic Analysis).
According to the Council of Economic Advisors’ “U.S. Inbound Foreign Direct Investment Report,” nearly half of all the goods and services provided by foreign-based companies came from the U.S. manufacturing sector. These companies employ about 5.7 million U.S. workers, including more than two million employees in manufacturing industries.
In 2010, U.S. inbound FDI rebounded sharply from 2009 levels. The U.S. Department of Commerce estimated FDI totaled about $194.5 billion in 2010. Bureau of Economic Analysis data indicated that 2010’s total was 44 percent higher than the 2009 figure of $134.7 billion. The 2010 figure is the fourth highest recorded over the last 10 years — a strong indicator that the United States is recovering from the recession.
Attracting FDI Is Hard Work
Much of 2010’s success resulted from hard-working teams of economic development professionals in every state who proactively seek leads through selected, industry-specific trade shows; targeted market seminars; and investment missions.
“Project managers work to build relationships with industry representatives and consultants,” said Cheryl Hatfield, international specialist with the Alabama Development Office. “This is particularly important in the international arena and helped us recruit large projects such as Mercedes-Benz in the ‘90s and, more recently, Hyundai.”
Foreign direct investment represents about 30 percent of new investment created in Kentucky in 2010 and nearly 43 percent for 2011 (as of this writing) — “a result of aggressive marketing by our international offices,” said Mandy Lambert, spokesperson for the Kentucky Cabinet for Economic Development. “Our representatives on the ground in Japan, Mexico, China, and Europe directly communicate with and assist companies with existing investments that are considering expanding their North American presence.”
States also welcome trade missions from other countries to tour facilities and visit with state economic development leaders. “We regularly host delegations in North Carolina,” said Kim McCarl, spokesperson for the North Carolina Department of Commerce. “So far this year, we have had representatives from China, Ireland, Canada, and the UK, among others.”
Incentive packages are part of the resources states rely on to attract FDI. Common incentives include funding or tax credits for jobs created, capital investments, land and infrastructure, R&D, and relocation assistance — at the local, county, and state levels.
For example, in 2010, German company Wilh. Schulz GMBH selected Tunica County, Mississippi, for its first facility in North America. The $300 million plant manufactures a special type of bonded pipe for use in deepwater oil and gas fields.
About 300 U.S. counties competed for the project. “Nowhere else did we find what Mississippi and Tunica provided,” said Rainer Floeth, managing director and chief financial officer for the company. “Very professional people, attentive, and very good to work with,” he added.
That attentiveness included well-crafted incentives that met the firm’s needs: a $15 million loan to Tunica County to construct the publicly owned building Schulz will occupy, a $20 million loan guarantee for the purchase of $60 million in equipment, and $5.6 million for site preparation and infrastructure work. After Schulz repays its share, Mississippi will have invested about $3.5 million in the project, creating a state-of-the-art facility and over 500 jobs within five years.
Nonetheless, although incentives may help in some situations, they aren’t the deal-closers some people think. “It’s a myth that you need killer incentives,” said Hank Marshall, senior vice president of Business Development for the Arizona Commerce Authority. “At end of day you must have a site that is a perfect or near-perfect fit for a sound business plan; you can’t simply add incentives and make it work if there are drawbacks to the location, or the plan.”
Hot FDI Sectors
The strong rebound in FDI in 2010 indicates foreign companies still have confidence in the United States.
“At a time when job creation is paramount, it is outstanding news that global companies are pumping much needed capital into our economy,” said Nancy McLernon, president and CEO of the Organization for International Investment (OFII). “The dramatic increase in such investment is a clear sign that these companies have a decidedly positive outlook for the American economy.”
Of particular note, she indicated, are new statistics that show that the U.S. operations of global companies are reinvesting their profits back into their U.S. plants and factories. Reinvested earnings more than tripled from $28.5 billion in 2009 to $93.1 billion in 2010 — especially for the automotive, alternative energy, biomedical, and advanced manufacturing industries.
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