New Foreign Direct Investment in the United States in 2017

By Thomas Anderson  |  Volume 98, Number 8  |  August 16, 2018

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In 2017, expenditures by foreign direct investors to acquire, establish, or expand U.S. businesses totaled $259.6 billion, a decrease of 32 percent from 2016, based on the Bureau of Economic Analysis (BEA) Annual Survey of New Foreign Direct Investment in the United States (table A and chart 1). Expenditures for acquisitions were $253.2 billion, expenditures to establish new U.S. businesses were $4.1 billion, and expenditures to expand existing foreign-owned businesses were $2.4 billion. New foreign direct investment peaked in 2015 and was also historically high in 2016 due to corporate inversion activity and several large transactions by foreign investors to acquire U.S. businesses.¹ The decrease in 2017 reflected a decrease in global mergers and acquisition activity, which was particularly sharp for target companies in North America.²

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The uncertainty related to the reform of U.S. tax laws, which was enacted at the end of 2017, may have led some potential foreign direct investors to hesitate, particularly for investments for which tax considerations were a key factor.

Most measures of the activities of new enterprises—assets, net income, and sales—decreased along with the decrease in total expenditures. In contrast, employment increased 8 percent, reflecting some large acquisitions in labor-intensive industries in 2017.

Expenditures by industry, by country, and by state

Expenditures by industry. Manufacturing continued to account for the largest share of total expenditures among major industries, 39.9 percent or $103.7 billion (table 1). Within manufacturing, about two-thirds of first-year expenditures were in food manufacturing ($34.0 billion), chemicals ($23.4 billion), and computers and electronic products ($12.9 billion). In chemicals, more than half the expenditures were in pharmaceuticals. In computers and electronic products, more than half the expenditures were in semiconductors and other components. Outside of manufacturing, there were substantial expenditures in information ($25.7 billion) and real estate and rental and leasing ($17.0 billion).

Expenditures by country. By country of ultimate beneficial owner (UBO), a small number of countries continued to account for most of the investment. The top three investing countries—Canada, the United Kingdom, and Japan—accounted for more than one-half of total expenditures (table 2). The main source country was Canada, with expenditures of $66.2 billion (table 2). The United Kingdom ($40.9 billion), Japan ($34.0 billion), and France ($23.1 billion) also made substantial expenditures. Seven of the top ten investing countries in 2016 were also in the top ten for 2017.

By region, almost one-half of the new investment in 2017 was from Europe and a little more than one-quarter of the new investment was from the Asia and Pacific region. Most of the expenditures from those regions were in manufacturing.

Expenditures by state. The largest expenditures continued to be for U.S. businesses in California ($41.6 billion) (table 3), followed by Texas ($39.7 billion) and Illinois ($26.0 billion).³

To avoid disclosure of the data on individual companies, the statistics on 2017 expenditures for 14 states or territories were suppressed. Combined expenditures for these states and territories accounted for 3.2 percent of expenditures.

Greenfield expenditures

A greenfield investment can either be an establishment of a new facility or an expansion of an existing facility; it typically involves expenditures over several years. For example, an affiliate may undertake a 4-year investment to construct a new factory with expenditures of $0.5 billion in the first year for land and permits and plan expenditures of $1.0 billion for construction costs in each of the following three years, resulting in total current and planned expenditures of $3.5 billion over the lifetime of the project. BEA’s survey of new foreign direct investment collects data on both the initial expenditure ($0.5 billion in this example) and the total planned expenditure ($3.5 billion in this example).

For greenfield investment initiated in 2017, first-year expenditures were $6.4 billion, and planned spending in other years until completion were projected to be $18.4 billion, resulting in total current and planned greenfield expenditures of $24.8 billion (chart 2 and table B). Expenditures for plant and equipment ($19.0 billion) accounted for a majority of this total. Expenditures for land were $1.6 billion, expenditures for fees, taxes, permits, and licenses were $0.4 billion, and expenditures for intellectual property rights were $0.2 billion. Miscellaneous expenses made up the remaining $3.7 billion.

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By U.S. industry, first-year greenfield expenditures in 2017 were largest in manufacturing ($1.6 billion), accounting for 21 percent of total greenfield expenditures. Total first-year and planned greenfield expenditures initiated in 2017 were also largest in manufacturing ($16.0 billion).

Number of investments

In 2017, there were 2,152 new foreign direct investments in the United States, down from 2,642 in 2016 (table C). There were nine very large investments—investments with total planned expenditures greater than $5.0 billion—in 2017, down from 18 in 2016. In 2017, these very large investments accounted for 37 percent of total planned expenditures and mostly reflected acquisitions of existing U.S. businesses.

Transactions to establish a new U.S. business accounted for the largest number (1,093) and share (50.8 percent) of all transactions in 2017. Acquisitions of existing U.S. businesses accounted for 864 transactions, and expansions accounted for 195 transactions. The average expenditure per transaction for acquisitions was $293.0 million; for expansions, $35.0 million; and for establishments, $16.5 million.

Employment

Despite the decrease in expenditures for new foreign direct investment in 2017, newly acquired, established, or expanded foreign-owned businesses in the United States employed more workers than they did in 2016. First-year (current) employment by new foreign direct investments was 554,300 workers, up from 511,300 in 2016.⁴ Employment of acquired enterprises (549,700) accounted for the bulk of new employment in 2017.

Among major industries, accommodation and food services accounted for most of the current employment (255,100), followed by manufacturing (109,000). By country of UBO, China accounted for most of the current employment, followed by the Netherlands. By U.S. state, new investment in U.S. businesses with a headquarters in Virginia accounted for most of the current employment, followed by Missouri (chart 3).

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Statistics on other activities

Most measures of other activities of newly acquired, established, or expanded enterprises in 2017 decreased along with the expenditures for new foreign direct investment. Total sales of newly acquired, established, or expanded affiliates were $136.9 billion in 2017, down 25.8 percent from $184.6 billion in 2016 (table A).

Net income of newly acquired or established affiliates was $7.0 billion in 2017, down 11.1 percent from $7.9 billion in 2016. In 2017, net income of newly acquired or established affiliates was 5.1 percent of sales, compared with 4.3 percent of sales in 2016. The equivalent ratio for all U.S. affiliates of foreign multinational enterprises in the United States in 2015 (the most recent year for which these data are available) was 2.1 percent.⁵ Most of this difference reflects differences in the industry mix of new affiliates compared with all affiliates.

Assets, liabilities, and owner’s equity for newly acquired and established affiliates also decreased. Assets were $261.2 billion in 2017, down 34.0 percent from $395.6 billion in 2016; liabilities were $161.7 billion in 2017, down 36.1 percent from $253.1 billion in 2016; and owner’s equity was $99.6 billion in 2017, down 30.2 percent from $142.6 billion in 2016.

Updates on projected versus actual expenditures

Actual expenditures can differ substantially from projected expenditures for multiyear greenfield investments for reasons such as changes in current or expected business conditions or expenses. To more comprehensively measure new foreign direct investment in the United States, BEA has conducted follow-up surveys of investments initiated in 2014 and 2015.

For investments initiated in 2014, total planned expenditures reported when projects were initiated were $51.7 billion (table D). Since then, these companies have reported that their actual expenditures for completed years and updated projections for future years will total $65.6 billion by the time the investments are completed. By industry, the largest difference between their initial plans and most recent plans was in mining. For investments initiated in 2015, initial planned expenditures were $34.8 billion, and the most recent planned expenditures were $42.1 billion. By industry, the largest difference between the initial and the most recent planned expenditures was in manufacturing.

These statistics are based on data reported in the Survey of New Foreign Direct Investment in the United States (BE–13) conducted by the Bureau of Economic Analysis (BEA). The survey covers U.S. business enterprises that were acquired, established, or expanded by foreign direct investors. Information on the filing requirements for the survey may be found on BEA’s website.

A U.S. business enterprise is categorized as “acquired” if a foreign entity acquires a 10 percent or more voting interest in an incorporated U.S. business enterprise or an equivalent interest of an unincorporated U.S. business enterprise, either directly or indirectly through an existing U.S. affiliate. A U.S. affiliate is a foreign-owned U.S. business enterprise. A U.S. business enterprise is categorized as “established” if a foreign entity, or an existing U.S. affiliate of a foreign entity, establishes a new legal entity in the United States in which the foreign entity owns 10 percent or more of the new business enterprise’s voting interest or an equivalent interest if unincorporated. An existing U.S. affiliate is categorized as “expanded” if it expands its operations to include a new facility where business is conducted.

The statistics of new foreign direct investment include transactions resulting from corporate inversions. A corporate inversion occurs when a domestic corporation that is currently the ultimate owner of its worldwide operations takes steps to become a subsidiary of a foreign corporation. A U.S. corporation can initiate an inversion either by creating a foreign corporation to be its new parent or by merging with an existing foreign corporation and ceding control. BEA’s direct investment surveys do not collect information on whether a U.S. corporation became foreign-owned as a result of a corporate inversion; hence, these transactions cannot be separately identified in the statistics based on the survey data alone. Using publicly available information, such as commercial databases, press releases, and media reports, BEA estimates that newly inverted U.S. corporations accounted for a smaller share of expenditures for acquisitions in 2016 than in 2015, and a much smaller share in 2017.

For an explanation of the relationship between the new investment statistics and other statistics on foreign direct investment in the United States, see Thomas Anderson, “New Foreign Direct Investment in the United States in 2015,” Survey of Current Business 96 (August 2016).