Foreign direct investment in the United States by international companies has increased significantly in recent years, with southern U.S. states being the beneficiaries of many of those investment and location decisions. In fact, Bharat Forge’s decision to build their first North American manufacturing facility right here in Sanford and Lee County is an excellent example of this phenomenon.
Area Development Magazine recently examined the key factors driving this trend, which is important for our community to consider as we work to attract additional capital investment and good new jobs from other international companies. Between 2014 and 2020, European foreign direct investment (FDI) in the U.S. grew by over 40 percent, reaching $3.19 trillion in 2021. Europe has led the charge in investment, but other international firms have the same incentive to consider investing abroad in the U.S. The surge in investment is evident across all industry sectors. This shift is partly a response to the success of U.S. manufacturing and partly due to the challenges international companies face in their home countries.
One significant driver of this trend is the record-high energy prices in Europe. Energy costs have soared, exacerbated by climate conditions and disruptions in natural gas supplies from Russia. These high energy prices have made European products less competitive on the global market, prompting companies to seek more cost-effective manufacturing options abroad.
Geopolitical tensions, including the war in Ukraine and Brexit-related challenges, have also contributed to the decision to relocate production. These tensions have direct and indirect impacts on companies, further incentivizing them to seek stable environments for manufacturing. Fortunately, the U.S. in general, and southern U.S. states in particular, meet that requirement.
Moreover, responding to customer and supply chain demands plays a crucial role in this trend. International companies are increasingly adopting a global presence to reduce supply chain risks and meet the demands of consumers worldwide. This shift allows them to minimize risks and respond more effectively to supply chain challenges and customer preferences.
Bureaucracy and regulations in Europe and other foreign jurisdictions have become a growing concern for manufacturers. European companies often face lengthy licensing procedures for exports and other regulatory obstacles, making the U.S. a more attractive location with fewer regulations and a business-friendly environment, in most cases.
In addition to these factors, the U.S. government’s economic incentives, such as the Inflation Reduction Act (IRA), have been instrumental in drawing companies to the U.S. However, these incentives are tied to using domestically made parts or final assembly in the U.S., which requires companies to carefully evaluate their eligibility.
According to the editors of Area Development Magazine, the U.S. must address two major challenges faced by these companies if we are to fully capitalize on this trend and attract more international business investment:
1/ Workforce Issues. Companies often encounter difficulties in finding enough skilled workers in the U.S. Addressing this issue requires launching education and apprenticeship programs, collaborating with local and state governments, and revising obstructive regulations to foster the expansion of educational opportunities for workers.
2/ IRA Incentives and Regulations. Many foreign companies struggle to navigate the complex requirements for IRA subsidies, tax credits and regulations. State and local economic development agencies, along with site selection companies, can provide guidance to foreign firms on how to get through these issues.
In conclusion, the trend of international companies shifting manufacturing to the U.S. is driven by a combination of factors, including energy costs, geopolitical tensions, supply chain demands, regulatory challenges, and government incentives. To fully benefit from this trend, the U.S. should keep addressing workforce issues and support foreign companies in claiming incentives while maintaining a competitive edge in the global manufacturing landscape.
SAGA and its economic development partners at all levels are keenly aware of the opportunities and challenges associated with FDI, and we are actively leveraging all our local advantages to capitalize on these trends for the benefit of our residents and small businesses alike. We are optimistic that these efforts will allow us to capture a meaningful share of the FDI that is currently considering potential U.S. manufacturing sites.
Todd Tucker, Economic Development Director
ttucker@growsanfordnc.com