When “Global” Becomes “Local” - And Why It’s a Good Thing
Examples abound of foreign firms that have “insourced” their operations to the U.S., helping their companies to prosper and the communities in which they locate to thrive.
Location USA 2014
In February 2013, a Finland-based company breathed new life into Batavia. Huhtamaki, Inc., a leading manufacturer of consumer and specialty packaging, invested $60 million into improving the plant’s infrastructure and fitting it with the most up-to-date machinery on the market. Huhtamaki has created more than 200 new jobs, and continues to invest in the plant today. Examples of economic rebirth like this remind us why globalization matters.
Why Globalization Matters
Beyond the American jobs it creates and communities it revives, think of globalization as what makes out-of-season produce available year-round or why your local electronics store is always stocked with quality televisions at affordable prices. From her inception, America has always welcomed the best and brightest to her shores, and we now have the world’s largest economy to show for it. Similarly, foreign direct investment (FDI) is an essential driver of our economic growth, and we are pursuing the policies that keep America competitive globally.
Insourcing companies are critical for economic strength: Insourcing companies — those headquartered overseas with businesses in the U.S. — account for less than 1 percent of all U.S. businesses, but they produce an astounding 20 percent of America’s exports and employ 5 percent of its private-sector work force. The Organization for International Investment recently released an economic report providing a first-ever analysis of the role they have played in the U.S. economy over the past 10 years.
The findings were striking: It found that insourcing companies, as a group, outperformed the economy-wide average in nearly every relevant economic indicator in the past decade. The report showed that insourcing companies increased their contribution to U.S. gross domestic product by 25.2 percent over the past decade, nearly double the private sector’s 14.3 percent increase. The report also showed that these companies’ charitable giving grew by 44 percent over the past decade, compared to an economy-wide contraction of nearly 5 percent. They also pay 14 percent of all U.S. federal corporate income taxes.
Acquisitions and mergers play a critical role in America’s economy: As the report indicates, the vast majority — about 84 percent — of insourcing companies entered the United States over the past two decades through mergers with and acquisitions of U.S. companies. When foreign companies acquire U.S. companies, they raise their industries’ economic performance, invest heavily in research and development, buy materials locally, establish innovative work force training programs, and increase compensation and benefits for hardworking Americans by paying them at a premium 22 percent above the U.S. private-sector average.
For example, the Volvo Group acquired Mack Trucks in 2001 and has been investing in the brand’s success ever since. The Volvo Group invested more than $425 million in a new North American engine program, resulting in EPA-certified Selective Catalytic Reduction emissions control technology in 2010 — allowing its commercial vehicles to meet the world’s most stringent diesel engine emissions standards. Last year, the Volvo Group announced a $30 million expansion of its plant in Hagerstown, Maryland, which included adding 100 to 140 jobs. Since 2001, the Volvo Group has invested more than $350 million in that plant alone, which currently employs more than 1,300 people.
In 2007, the South Korean conglomerate Doosan Group acquired the Bobcat Company, a U.S. manufacturer of farm and construction equipment headquartered in North Dakota. In May 2013, Bobcat broke ground on the Acceleration Center at the Northern Plains Commerce Center (NPCC) in Bismarck, N.D. Once completed, the $20 million renovation and expansion will house 155 employees at move-in. The expansion will include a 100,000-square-foot test, prototype, and innovation lab; a two-story office building; and a 35,000-square-foot testing arena constructed next to a 22-acre outdoor testing and track area.
Beyond providing high-quality jobs, insourcing companies invest in their local towns and cities, with spillover effects that spur economic development in those communities and support jobs in the area. For example, insourcing manufacturers are increasing their purchases of locally produced supply material by 48 percent, compared to just 13 percent for U.S. manufacturers overall. Their investments in local infrastructure bring their goods to market, and training programs prepare the next generation of high-skilled manufacturing workers. These investments also help attract other businesses to their local communities.
Case Studies in Global Investment
In Texas, for example, Toyota has invested nearly $3 billion, supporting approximately 18,000 hardworking Americans in the state alone. In addition, Toyota’s presence has benefited nearly 40 parts and materials suppliers throughout the state. They have also donated more than $13.4 million to local community organizations, including the Greater Houston Area Chapter of the American Red Cross, YMCA of Greater Houston, and Big Brothers Big Sisters of South Texas.
In Ohio, Honda employs nearly 14,000 residents in manufacturing, R&D, and other support jobs. Since Honda opened its first U.S. plant in Marysville, it has spent more than 30 years building strong relationships with local suppliers and boosting the Ohio economy. Today Honda’s direct investments in the state exceed $8 billion, with $1 billion made in just the last three years. Last year, the company became the first major Japanese automaker to become a net exporter of cars from the United States.
BASF Corporation, the world’s leading chemical company, maintains 10 different Ohio locations. The Greenville, Ohio, plant alone maintains an annual payroll of $11.5 million. Beyond providing hundreds of jobs, BASF contributes to programs that improve the quality of life for Ohio residents. BASF awards annual science scholarships to seniors at local high schools and partners with other groups to help strengthen area communities.
Minnesota is another state that is no stranger to insourcing companies. In fact, the North Star State has been reaping the benefits of foreign direct investment for decades. Bosch Automotive Service Solutions is a prime example. The German company’s U.S. subsidiary employs more than 500 Minnesotans in manufacturing, engineering, and other support roles and has spent over 80 years building strong relationships with local suppliers and supporting the community.
America Remains a Great Place to Invest
In March, OFII and PricewaterhouseCoopers LLP (PwC) released the 2014 Insourcing Survey. This survey provides keen insights from 101 U.S. chief financial officers (CFOs) of insourcing companies, firms that operate in the United States and are headquartered overseas. These are the individuals who help determine where their companies locate or expand operations. The survey gauges how the United States is perceived as a location for foreign investment as compared to other nations.
When asked to rank their confidence on a scale of 1 to 25, CFOs gave the U.S. economy an average score of 17.4, more than a 20 percent jump from the 2011 survey. Nearly two thirds of insourcing CFOs anticipate investment increases within the next 12 months — and more than half expect to increase employment. Only 17 percent of the CFOs express concern about the U.S. business climate for insourcing companies — down a staggering 55 percentage points since 2010. In fact, more than 80 percent of insourcing CFOs think the U.S. business climate today is as good or getting better than last year.
Welcoming those from other countries to our shores — as symbolized by the Statue of Liberty — is an American tradition, and when insourcing companies invest in America, the companies prosper and local communities and their citizens thrive.