Key Factors and Trends in U.S. Industrial Foreign Direct Investment

The following blog explores foreign direct investment (FDI) in the United States and the key factors companies consider when investing in the U.S. Site Selection Group, a full-service location advisory, economic incentives and real estate services firm, regularly facilitates site selection projects for U.S.-bound FDI projects. In fact, FDI clients make up an average of 50% of Site Selection Group’s industrial project activity at any given time.

The United States continues to be a top destination for foreign direct investment, especially within the realm of industrial manufacturing. While not overly optimistic about the state of the global economy, investors have an increasingly positive outlook and see FDI as critical to their corporate profitability and competitiveness. 

Five key factors sustaining FDI in the U.S.:

1. Skilled Workforce

Consistently cited and well-documented at the top of FDI considerations is the availability and quality of skilled workers. The U.S. continues to benefit from a highly skilled workforce that can continually evolve to meet rapidly changing market dynamics. Public-private partnerships, industry-specific training programs, and landing pads at technical colleges offer foreign investors an accessible on-ramp to up-scaling operations stateside.

2. Federal Legislation

Recent federal legislation, such as the CHIPS and Science Act and the Inflation Reduction Act, has had a demonstrably positive impact on domestic manufacturing. These acts offer incentives and support for investments in semiconductor manufacturing and clean energy technologies, respectively. This federal support has made the U.S. even more appealing to foreign investors seeking to capitalize on emerging trends in these industries and to build out domestic supply chains.  However, while this legislation has driven a surge in manufacturing-related FDI in the past few years, recent data from fDi Intelligence suggest a decline in manufacturing-share FDI, partly due to delays in project commencement and construction despite the initial enthusiasm and wave of project announcements generated by the legislation. For a more in-depth analysis of investment spurred on by The CHIPS Act, refer to this recent Site Selection Group blog.

3. Reshoring and Nearshoring

It is now well-documented that the COVID-19 pandemic highlighted the fragility of global supply chains, prompting a renewed emphasis on reshoring and nearshoring strategies. This risk mitigation strategy has offered significant opportunities for FDI in the U.S. The accelerated trend of bringing production closer to raw materials and consumer markets is exemplified by the rapid growth of Southeastern and Gulf Coast ports and the manufacturing boom underway in the surrounding states. However, although the U.S. has benefited greatly from reshoring and nearshoring, challenges for FDI projects will continue to surface and persist, including a shortage of skilled labor, strains on critical infrastructure and a lack of qualified industrial sites.

4. Regulatory Climate

Heightened geopolitical tensions, lingering effects of COVID-19, and intellectual property concerns of new and rapidly advancing technologies such as artificial intelligence have investors yearning for stability. The U.S. offers a favorable regulatory climate that is particularly attractive for industrial site selection. While not completely free of bureaucratic challenges and red-tape regulations, domestic policies are much more predictable than competing foreign destinations in developing and emerging markets. Nuances exist among state and local policies; however, supportive environments are characterized by expedited permitting processes, manufacturing-friendly legislation and tailored economic incentives.

5. Cost of Capital

While the regulatory and tax climate is still paramount, access to and cost of capital are greatly impacting FDI, which favors the U.S. Despite recent inflationary concerns, a historically stable currency, predictive monetary policy and favorable interest rates make it much easier for investors to secure the necessary funding for their operations. This access to capital is especially crucial for large-scale manufacturing projects requiring substantial upfront investments, as investors anticipate and depend upon a long-term return on their investment, often spanning 30 to 50 years.

Three industry trends to watch in FDI

As technology evolves, Site Selection Group has seen increased FDI activity in a few key industries, a sample of which is highlighted below.

1. Electronics

Driven largely by the aforementioned federal legislation, growth in the electronics industry has increased dramatically in the post-COVID-19 era. According to fDi Intelligence, “An estimated $42.8bn was invested in North America’s electronic components sector by foreign companies in 2023. The sector, which includes nascent sub-industries such as battery manufacturing and solar cell development, contributed an estimated $115.3bn to the total value of FDI in North America during the same period. Approximately 94% of the sector’s total value of FDI in North America between 2019 and 2023 was accumulated since 2021” (The fDi Report 2024).

2. Biotechnology and Biopharmaceuticals

Activity in the broad industry sector of biotechnology and biopharmaceuticals remains strong. For instance, as consumers and companies both seek to reduce their carbon footprint, SSG anticipates that investment in alternative proteins, both R&D and manufacturing projects, will continue to be prioritized, despite lackluster public support in some areas of the U.S. Furthermore, the confluence of being home to the world’s top research universities, along with the robust intellectual property protections, continues to make the U.S. an attractive destination for capital investment from legacy biopharmaceutical companies and venture capital projects.

3. Metals and Minerals

The surge in demand for electric vehicles (EVs), renewable energy and data processing has fueled growth in the metals and minerals manufacturing industry. In previous blogs, SSG offered detailed analyses of the critical minerals required for the EV industry (such as lithium) and the domestic upscaling of the photovoltaic manufacturing supply chain. Our recent experience facilitating projects in these industries is consistent with the commentary outlined in the fDi Report 2024, “Many projects within these subsectors focus on extracting and processing rare earth elements, critical metals and minerals. These materials are used in the manufacture of batteries, components used in solar power, wind power, other renewable sources (including green hydrogen and battery storage systems), as well as data processing and hosting centres, semiconductors and automobiles.”

Site Selection Group can help

Site Selection Group regularly assists companies considering investment in the United States by objectively evaluating critical site selection factors such as labor quality and availability, operating costs, economic incentives and industrial real estate availability.

Source: fDi Report 2024