Companies of all sizes depend on the interconnected nature of supply chains and the constant drive toward innovation that globalization inspires. This interchange of worldviews, products, ideas, and culture provides unprecedented opportunity for workers around the globe. It has the power to improve working conditions, promote peace in places best known for brutality, and accelerate a higher quality of life for people around the world.
History demonstrates the benefits that open societies provide, and there is no doubt that millions of Americans have prospered thanks to global investment. Yet, few fully appreciate the incredible contributions foreign companies have made to the U.S. economy.
Last year, insourcing companies spent nearly $50 billion on R&D, with 68 percent coming from the manufacturing sector. More than 170,000 jobs at insourcing companies are supported by R&D activities
Insourcing Companies Have an Outsized Impact on the U.S. Economy
Insourcing companies — foreign companies that have chosen to invest in the United States — are critical in supporting America’s economic strength. They account for less than 1 percent of all U.S. businesses, but they produce an astounding 21 percent of America’s exports and employ 5 percent of its private-sector workforce.
In fact, insourcing companies have helped drive America’s economic comeback. Nearly 2.2 million manufacturing jobs — practically 20 percent of all jobs in that sector — are supported by insourcing companies. Those workers earn an average salary of $85,807, higher than the national average of $76,863 in the manufacturing sector.
Since 2008, global employers have grown their research and development in the United States by nearly 20 percent. Last year, insourcing companies spent nearly $50 billion on R&D, with 68 percent coming from the manufacturing sector. More than 170,000 jobs at insourcing companies are supported by R&D activities.
Acquisitions and mergers play an important role in America’s economy. Over the past two decades, 84 percent of insourcing companies entered the United States through mergers with and acquisitions of U.S. companies. When foreign companies acquire U.S. companies, they tend to raise their industries’ economic performance, invest heavily in research and development, buy materials locally, establish innovative workforce 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.
Simply put, globally based employers are most successful when they can seamlessly move products, information, and resources across borders
Insourcing Companies Benefit Local Communities
Beyond providing high-quality jobs, insourcing companies invest in their local communities with spillover effects that spur economic development and support jobs in the area. Their investments in infrastructure bring goods to market, and training programs prepare the next generation of high-skilled manufacturing workers. These investments also help attract other businesses to local communities.
Take for example the U.K.-based energy firm National Grid. Close to where the Buffalo River flows into Lake Erie in upstate New York, the rust-covered remains of the Republic Steel plant stood as an eyesore for 30 years. Today, following a decade-long ecological and economical transformation helped by National Grid, this 90-acre brownfield site has been restored, and now RiverBend is ready for new tenants. Thanks to National Grid’s efforts, SolarCity — the largest solar panel manufacturer in the Western Hemisphere — is building a million-square-foot factory at RiverBend. This facility will be powered by National Grid and it will create 5,000 jobs in the region.
Another example is Daimler, a world leader in the automotive industry. It manufactures and sells top-quality vehicles around the globe under prestigious brands, including Mercedes-Benz, Freightliner, Western Star, and Thomas Built Buses. With approximately 21,000 employees in its 49 U.S.-based facilities, the company certainly owes a large part of its continuous success to its strong presence in America.
Daimler’s Mercedes-Benz U.S. International Inc. has partnered with Shelton State Community College in Vance, Alabama, to offer a mechatronics program at the college. Through this program, students have the chance to learn the advanced manufacturing skills they need to compete for quality jobs. The program includes seven terms of in-class instruction and an additional 18 months of training at Mercedes-Benz. Upon completion, students earn an Associate of Applied Science degree in Industrial Electronics. Mercedes-Benz provides assistance for tuition and fees for all terms at Shelton State Community College. Even more impressive, a minimum of 75 percent of each class is offered a permanent full-time position at the Daimler facility.
It is not surprising then that more FDI dollars flowed to the United States last year than to any other single country in the world. International investment in the U.S. market topped other large markets, including China, Russia, Hong Kong, and Brazil
Now more than ever, Americans are interested in working for companies that not only do well in business, but also make a difference in their local communities. Employees want a balanced, creative workplace that offers a dynamic experience, approachable leadership, and reasonable work-life balance. They also want to be part of something that matters. Those are values shared by the global leader in beauty, L’Oreal; its U.S. subsidiary is serious about bettering American communities.
L’Oreal USA operates an impressive operations network across the country, including manufacturing in Arkansas, Kentucky, New Jersey, and Washington State, and 15 distribution centers across the nation. During its annual Volunteer Day, more than 300 volunteers from its Franklin, N.J., plant spent the day helping to restore Camp Jotoni, a camp for children and adults with intellectual and developmental disabilities.
L’Oreal employees in North Little Rock, Arkansas, are heavily involved in the Make-A-Wish Foundation, Youth Home, the American Lung Association, and disaster relief. Annually, these employees contribute more than 3,000 hours of volunteer service.
In 2013, L’Oreal created Sharing Beauty With All, a comprehensive sustainability program that addresses the company’s entire value chain. By 2025, the company will innovate so that 100 percent of its products have an environmental or social benefit, as well as reduce its environmental footprint by 60 percent. All strategic suppliers will participate in L’Oreal’s supplier sustainability program, and the company will also provide access to healthcare, social protection, and training to all employees, wherever they are in the world.
Trade Agreements Mean More Jobs
A great way to spur further foreign investment is by encouraging trade. Almost everyone cites the benefits from increased exports derived from trade agreements, but the untold strength that trade agreements provide is their ability to attract more global investment. Simply put, globally based employers are most successful when they can seamlessly move products, information, and resources across borders. Therefore, the more trade agreements a country has in place, the greater its competitive advantage in attracting foreign investment.
When the United States reaches an agreement on a robust Transatlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP) with European and Asian countries, respectively, it will not only remove economic barriers, it will make America more desirable to large employers from other countries.
Although tariffs between the United States and partner countries are low on many products, TPP and TTIP could eliminate remaining tariffs. Further, these trade agreements will eliminate many of the regulatory challenges companies face when operating in more than one country.
It is easy for conversations about multilateral trade agreements to entail spreadsheets, graphs, and the dry oratory usually reserved for university lectures. At their essence, however, the value of trade agreements can be measured in much more than the bottom-line financial result for companies and countries. In the case of new medications, for example, trade can be measured in time — such as the time it takes to get new life-saving medications to patients around the world.
Harmonizing regulations in product safety, transport, and other areas will provide durability and predictability to insourcing companies’ operations. Research has shown that even modest reductions in these barriers can trigger significant cost savings and efficiency gains in complex global supply networks.
Indications from both Congress and the Administration have been increasingly positive that these deals can be realized in the near term.
Insourcing companies also boost domestic exports by shipping finished goods from their U.S. facilities back to their parent companies. Sometimes they use the United States as part of their global supply chain, allowing them to sell to customers around the world. These exports increase demand for raw materials and other inputs, providing another positive lift to the U.S. economy. Foreign companies in the United States typically account for about one fifth of total U.S. merchandise exports. Successfully negotiated TPP and TTIP agreements offer the United States a chance to recapture its share of FDI and become an even bigger export platform.
America Remains a Great Place to Invest
U.S. policymakers continue to improve the climate for foreign employers looking to expand in America, and the Organization for International Investment (OFII) remains committed to ensuring that foreign companies who choose to invest here are treated fairly.
For the second year in a row, A.T. Kearney’s FDI Confidence Index ranked the United States as the world’s top market in 2014. A 2014 survey of OFII’s CFOs showed more than two thirds of these insourcing companies planned to increase investment in the U.S. in the next 12 months. It is not surprising then that more FDI dollars flowed to the United States last year than to any other single country in the world. International investment in the U.S. market topped other large markets, including China, Russia, Hong Kong, and Brazil. A survey released in January by PwC showed that the U.S. beat out China as the top investment destination, a first in the survey’s five-year history.
There are any number of reasons why foreign investors prefer the American economy. First, and perhaps most important, the United States has one of the most open markets and investment climates in the world. Other advantages attracting foreign companies include an unrivaled consumer market, an excellent education system, a skilled and productive workforce, an entrepreneurial culture of innovation and risk-taking, a transparent regulatory environment, and the largest venture capital and private equity market in the world. All of this is good news for global investors looking to expand in the United States.
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 the United States, American workers prosper and local communities thrive.