American businesses in search of capital are finding a wealth of it through foreign direct investment (FDI). More than $2.7 trillion has flowed into the country through FDI – $396.6 billion of it in 2011 and 2012 alone, more than any other country.1 Capital from foreign sources has helped American companies to continue growing by funding new or improved facilities, investing in research and development and retaining top talent.

Historically, most FDI has come from Europe; the United Kingdom, the Netherlands, France, Switzerland, Luxembourg, Germany and Belgium are all top ten sources of FDI into the United States (FDIUS), amounting to 71 percent.2 For a list of European investment firms, go to Japan and Canada have also been major sources of FDIUS.3

But over the past few years, Asia has become a much larger player in FDIUS, with China and Hong Kong doubling their respective investments in the U.S. since 2011.4  South Korea has grown to be one of top 10 foreign investors during the same period.5

Manufacturing has been and continues to be the biggest industry for FDIUS, with professional, scientific and technical services becoming a much larger attraction to foreign investors in recent years.6

The effect of foreign investment is generally positive. For example, workers for multinational firms in the U.S. are statistically paid more in total compensation (wages and benefits) than workers at U.S. national firms.7 Statistics show that foreign firms pay even higher than the highest paying U.S. firms. Foreign companies also tend to spend more on research and development than U.S. only firms.8

Here are some things you need to know about FDI:

  • Buy American: Foreign firms often come to the U.S. for our research and development and management talent.9 Other benefits of the U.S. market for foreign companies include lower energy costs, educated workers, intellectual property protection laws and financial system.
  • FDI effects can be felt industry-wide: A Peterson Institute for International Economics study showed that FDI often leads to a 3.6 percent increase in productivity industry-wide within the first two years and with continued growth thereafter.10
  • Even the federal government is getting involved: In late October 2013, President Obama pledged to help create a better environment for U.S. companies to attract foreign investment by clearing some regulatory obstacles and getting U.S. diplomats involved in the courting process.11
  • Technology is hot: American technology companies continue to be the most attractive sector for foreign investment. Among the larger FDIUS transactions of the last few years are SAP AG’s $4.3 billion purchase of Ariba, Inc., an Internet commerce company, and ABB Ltd.’s $3.9 billion acquisition of Thomas & Betts, an electrical connector manufacturer.12
  • FDIUS transactions are subject to review: FDIUS transactions may be reviewed by the federal government for national security threats through an inter-agency authority called the Committee on Foreign Investment in the United States (CFIUS). CFIUS has authority to review any merger, acquisition and takeover that could result in foreign control of a person engaged in interstate commerce in the U.S to determine whether such transaction poses national security risks.  CFIUS is especially concerned about foreign acquisition of sensitive technology or infrastructure that can be used in a way that would be detrimental to national security. CFIUS has the power to negotiate agreements with companies to mitigate a potential threat or if the risk cannot be mitigated, recommend that the President block the transaction.  For more information about CFIUS, read our short whitepaper “The CFIUS Annual Report: What Lessons Can Be Learned?