Top FDI Trends: What’s Driving International Manufacturers to Invest in the U.S.?

It is no surprise, then, that the U.S. was ranked as the world’s top destination for FDI for the 12th consecutive year in Kearney’s Global Business Policy Council’s 2024 Foreign Direct Investment (FDI) Confidence Index. A key player in this success was the International Trade Administration’s SelectUSA program, which facilitated over $55 billion in client-verified FDI, supporting more than 35,000 American jobs in fiscal year 2023.

“Foreign investors were encouraged by higher-than-anticipated GDP growth in 2023, which was attributed to strong consumer and government expenditure and robust export levels,” stated the U.S. Department of Commerce. “The ranking is also testament to the United States’ lead in technological innovation, a top priority for investors and the Biden-Harris Administration’s economic agenda.”

Five Key Drivers for FDI

On the global stage, the competitive advantages of locating a business in the U.S. are hard to beat. Below are five drivers that make many foreign companies and manufacturers eager to establish U.S. operations.

1. Market size. With a population of about 332 million, the U.S. is the largest consumer market in the world. Household spending accounts for nearly one-third of all global household consumption. Even better, through free trade agreements with many additional countries, U.S.-based businesses can expand their reach to hundreds of outside markets.

2. Optimal business climate. The U.S. consistently ranksamong the best worldwide for overall competitiveness and ease of doing business. With a stable democracy, transparent legal system, and straightforward regulatory approach for starting up a business, “the U.S. business culture encourages free enterprise and competition,” said SelectUSA.

3. Capital sources. Foreign investors have access to a wide range of investment options in the U.S. to finance their projects. These include investment banks, which provide strategic guidance on raising capital, mergers & acquisitions, valuation, and due diligence. Another popular option is private equity firms, which invested $685 billion in U.S.-based companies in 2018.

4. Skilled workforce. U.S. workers are among the most productive in the world. In fact, U.S. workforce output per hour is more than 30 percent above the OECD member country average. To maintain this competitive edge, federal, state, and regional governments are working together through public- and private-sector partnerships to ensure workers have the technology skills needed to function efficiently in a 21st-century economy.

5.  Hub for innovation. According to the Global Innovation Index 2023, the U.S. ranked third-highest of more than 130 countries for its research & development and innovative technology advancements—maintaining its reputation as world leader in R&D and intellectual property protection. Approximately 3.46% of the U.S. GDP is spent on R&D every year.

Risks Remain

Naturally, geopolitical tensions and regulatory environments can change quickly and impact global economies—presenting hard-to-predict risks for any business looking to establish, expand, or acquire a U.S. company. Such tensions are high on the minds of company executives in 2024, compelling some to consider moving operations to a different country. The majority of leaders surveyed “think an increase in geopolitical tensions will affect investment decisions, and firms are making decisions to nearshore and/or friendshore as a reaction to these lingering geopolitical pressures,” said Kearney. “The proliferation of industrial policies and trade restrictions, including those related to emerging technologies, suggest more regulatory complexity that investors will need to monitor and comply with across markets.”

Although inflation rates are slowing in many global economies, these generally remain above target rates. Although the situation is much improved compared to a year ago, “there is still some way to go before countries bring their inflation rates in line with their target rates,” said Investment Monitor. “For many, this may be achievable by the end of 2024. However, others will continue to struggle with high levels for longer.”

As inflation recedes, interest rates should also come down in the U.S. and Europe, making investment capital more affordable.

The introduction of a new 15% global minimum corporate tax rate may also impact FDI in 2024. The principal concern is that the new tax will make companies invest less. The United Nations Conference on Trade and Development (UNCTAD) estimates that the introduction of the new rate could see foreign investment levels decline 1–4%. In contrast, according the Investment Monitor, “government revenues collected by host countries on the income generated by FDI could increase by up to 20% globally.”

Of course, a long presidential election year with the possibility of an administration change could also have significant impacts on the economy and FDI in the near term.

Moving Forward

Didi Caldwell is president and CEO of Global Location Strategies, a Greenville, South Carolina-based site selection and incentive negotiation firm for manufacturing and industrial companies. She helps clients (including foreign companies) sort out the economic complexities that could impact the decision to set up a new operation in a different country.

“Despite the headwinds, I believe 2024 will be another strong year for economic development projects,” she comments. “However, the mix of projects may be much different to years past. Projects with a strong business case and reliable funding will carry the day, while highly speculative projects heavily dependent on government subsidies will not make the cut. Communities with announced projects that meet the latter description need to plan now how they will pivot if the worst becomes a reality.”

Meet Us in Washington!

Don’t miss Gray June 23–26 at SelectUSA’s 2024 Investment Summit in Washington, DC. Our experts are ready to discuss how our integrated design, engineering, construction, digital, equipment, and development services empower foreign investors seeking to build advanced manufacturing facilities in the U.S. Stop by Booth #929 to learn how we’ve provided solutions ranging from design-build and advanced automation to sustainable certification coordination and custom equipment manufacturing for international customers in nearly 500 facilities across the U.S.