Why Select the USA for a Business Expansion?
Making the decision to expand your business to the USA is an exciting one. Whether you’re a small business owner or an entrepreneur looking to take your venture to the next level, the USA offers a wide range of advantages for businesses. It is no surprise that so many businesses choose to establish their operations in this country. In this mini-series, we will explore some of the key reasons why the USA is a great choice for business expansion.
The United States is by far the world’s largest recipient of foreign direct investment. Despite the numerous potential locations across the globe where companies can establish a subsidiary or launch a new business, the United States remains the preferred choice for executives worldwide. In this series, we will explore the primary factors that have led international businesses to choose the United States as their preferred destination for global projects.
Global foreign direct investment (FDI) flows exceeded $1.65 trillion in 2021, with the United States alone receiving $400 billion, representing approximately 30% of the total. After a period of record-low FDI figures reported during the Covid-19 pandemic, the $400 billion received by the United States in 2021 represents the third-highest level of foreign direct investment in the past decade. To date, $5 trillion USD have been invested in the U.S., a substantial sum that has contributed to the continued diversity and performance of the American economy.
What are the primary source countries for FDI in the US?
Five countries account for over half of the cumulative FDI in the U.S.: Japan, Germany, Canada, the United Kingdom, and Ireland. Cumulatively, Europe was the largest regional investment block, accounting for 56% of all FDI in 2021l followed by Asia &the Pacific, and then Canada. China and Mexico, despite being two of the United States’ top trading partners come up as ranking 15 and 17 respectively. The fastest growing sources of FDI in the U.S. are, in order, Austria, New Zealand, Finland, Taiwan, and Bermuda.
Source: Bureau of Economic Analysis
What is the impact of FDI in the United States
Foreign businesses in the United States spur a plethora of economic activity. In 2020, foreign businesses operating in the United States supported 7,858,000 jobs, invested $71.4 billion in innovative R&D, and exported $346.6 billion worth of goods from American shores. The states with the greatest number of jobs supported by FDI were California, Texas, Florida, New York, Pennsylvania, Massachusetts, Michigan, Indiana, New Jersey, Ohio, Illinois, Georgia, North Carolina, and Tennessee.
Which sectors offer the most significant business opportunities?
Boasting a large, robust, and highly diversified economy, the United States presents opportunities across practically every available sector to those looking to do business. The US economy is not limited to one or two sectors, but rather, is multisectoral. This creates a favorable environment for businesses looking to expand. In 2021, the top 5 sectors that attracted foreign businesses the most were manufacturing, which received $2.1 trillion in FDI inflows, followed by finance and insurance with $621 billion, wholesale trade with $483 billion, information with $281 billion, and professional, scientific, and technical services with $222 billion.
Despite the well-established trend of seeking out low-cost manufacturing centers over the past 20 years, it is surprising to see manufacturing as the leading sector for FDI inflows in the United States. The top manufacturing activities receiving FDI are chemical, which includes pharmaceuticals and medicines at $821 billion, computers and electronics products at $217 billion, transportation and equipment at $180 billion, and medical supplies and equipment at $119 billion. Upon examining the nature of the manufacturing investments coming into the US, it becomes evident that it is the culmination of several factors that enable the US to continue attracting manufacturing jobs in the face of intense global competition. These are 1) the availability of a well-educated workforce, and, by definition, top academic institutions, 2) high intellectual property protections, and 3) the presence of a stable, high earning consumer market, amongst others.
Why Does the United States Remain the Top Country for FDI Inflows?
Source: IMF’s World Economic Outlook Database
Now that we have examined the United States’ worldwide position as a top FDI recipient, and the many facets of this FDI, let us turn to the reasons behind the U.S.’ success as being a leading global FDI destination.
The United States is the world’s largest economy since 1871, with a GDP of $21.44 trillion. To put this in perspective, the next largest economies trail far behind, and are China ($13.4 trillion), Japan ($4.97 trillion), Germany ($4 trillion) and the United Kingdom ($4.28 trillion). The countries with the highest income per capita are, in order, Singapore, Ireland, Qatar, Switzerland, Norward, and the U.S. ($78,516). Thus, the United States is in an enviable position because it has the world’s largest economy, along with one of the highest per capita income per person population. There is more to the United States’ secret sauce for FDI attraction, however.
The United States provides unparalleled cultural support and encouragement for entrepreneurship, which fosters innovation and, consequently, results in substantial economic growth. The United States is a world leader in consumer goods market research, product innovation, manufacturing, and branding and marketing, as well as offering a highly skilled, productive workforce. Its lucrative open market is a powerful growth engine for companies of all sizes. These factors, coupled with a predictable and stable political and judicial system where intellectual property is protected, makes it a great place for business investment of any kind.
The U.S. is by far the world’s largest recipient of foreign direct investment. It is evident that the country attracts large volumes of foreign investment, and there are a number of factors that contribute to this.
With an unrivaled consumer market and world-renowned entrepreneurial ecosystem, the USA has a lot to offer. In this guide, we’ll explore the top 8 reasons why companies choose the US as their go-to investment destination. From ease of doing business to a talented and productive workforce, the US has a lot more to offer than just stability and security. Plus, it holds a top world position in key industries, ranging from financial services to technology. Not to mention the financial incentives and access to foreign markets that follow.
Ready to learn more? In our upcoming series, ‘Why Expanding Your Business in the USA is a Smart Move: A Comprehensive Guide’, we’ll look at all of these factors in greater detail.
Keep an eye out and stay tuned!
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