The Select USA Investor Guide

As the U.S. federal-level program dedicated to facilitating and promoting high-impact business investment into the United States, SelectUSA is pleased to welcome you to the Investor Guide. This is intended to be a first-step resource for companies interested in making business investments in the United States.

There are many factors to consider when investing in the United States, and we hope this guide will help answer at least a few of your initial questions on some of the most common topics we address in our day-to-day work at SelectUSA. To provide guidance on these topics, qualified service providers who regularly work with investors have drafted the following chapters of this guide. Important considerations while reading this guide:

The size of the United States The United States is made up of 50 states, five territories, and the District of Columbia –each with their own unique opportunities for investors. While reading this guide, it is important to appreciate the diverse array of potential investment locations while recognizing how that variety may differently impact each state and city. While this may seem daunting, it means that the right U.S. investment landscape is there for your business.

Our nation is incredibly diverse, with the world’s most attractive consumer market, a thriving culture of innovation, and one of the most productive workforces in the world. Companies of all sizes – from start-ups to multinationals – find the ideas, resources, and market they need to be competitive. As a result, the United States is the world’s numberone destination for foreign direct investment, and we hope you will select it as thedestination for your next investment as well.

Levels of governance: federal, state, and local The United States is governed at different levels, from the federal government down to the state, county, and local levels. Many of the topics discussed in this guide are affected by national laws and by regulations at the state, county, or city level. It is important to remember that much of the information in this guide is presented at the national level, but that specific details may change based on location – especially for some of the most granular subjects that govern your day-to-day business.

This is just one of the reasons why we suggest that any company engage legal counsel and conduct further research, as applicable, to ensure compliance with applicable federal and state regulations and to optimize its business operations in the United States. These topics are often very technical and challenging, but there are many qualified professionals who can help your business make the right decisions.

Select USA is here to help you!
This guide is intended as a starting point for your business investment in the United States, and we expect that you will have questions remaining after you finish reading the guide. Select USA is happy to help you continue to pursue your investment with our variety of free services for firms, which include:

• Information on the competitive and regulatory landscape in the United States, industry and workforce data, and how to establish and operate a business in the United States.
• Information on federal business incentives, grants, loans, and other programs.
• Introductions to economic development organizations.
• Ombudsman services to help investors address issues involving federal rules, regulations, programs, or activities related to existing, pending, and potential investments.

In addition, our website,, provides a wealth of information on our services, as well as other information related to foreign direct investment in the United States. It also contains contact information so we can discuss how we can best help you! We hope this guide will be a useful first step to explore business investment in the United States.

WHAT IT IS: The SelectUSA Investment Summit is the highest-profile event in the United States dedicated to promoting foreign direct investment (FDI.) This year’s Investment Summit returns in its familiar format to provide exciting opportunities for more investors from more markets and greater representation from economic developers (EDO) across the nation to engage and interact – the Investment Summit will be the most highly anticipated and productive FDI event you attend all year.

  • Explore interactive exhibitor showcases featuring EDOs, service providers, industry experts, and international tech startups.
  • Network with 50+ states and territories, companies from 70+ markets, speakers, government officials and more; set up one-on-one or group meetings and make your investment deals happen.
  • Learn from policy and industry experts in 100+ sessions providing you with actionable information on everything from developing a workforce to understanding incentives.
  • Meet and form valuable partnerships with industry partners from across the United States.

The Select USA Investment Summit continues its commitment to feature exciting opportunities with innovation and entrepreneurship at the forefront.

  • Select USA Tech connects early-stage and startup technology companies to prospects for advancement in the U.S. market, where participants can exhibit at branded booths, upload a product and service demo video, and apply to pitch in front of a panel of judges, and much more.
  • Select Global Women in Tech (SGWIT), geared towards international female founders, entrepreneurs, and executives in the technology sector, SGWIT participants will participate in matchmaking with mentors to help them develop a market entry strategy, tailor their product and promotion for success in the U.S. market, have access to an exclusive networking platform, and hear from successful global female founders.

The Select USA Investment Summit draws more than 3,000 attendees and has directly helped generate more than $59 billion in new U.S. investment projects, supporting over 50,000 jobs across the United States and its territories. Historically, the Investment Summit attracts more than 1,200 business investors from approximately 70 international markets who join economic developers from almost all U.S. states and territories.

Although foreign direct investment (FDI) and small businesses are both integral to the U.S. economy, little formal research exists on FDI from small businesses. This report fills this research gap by exploring the experiences of small foreign-owned firms operating in the United

States, as well as the considerable economic impact of these firms on the U.S. economy. The subject of this paper is foreign-owned firms with a combined employment of fewer than 500 and with locations in the
United States. This analysis also highlights opportunities for policymakers and development organizations to
attract and maintain future investment from foreign owned small businesses.
This report found that foreign-owned small businesses are more productive than foreign-owned large businesses. However, this productivity did not correlate with higher employment or sales growth. A small subset of firms experienced significant employment and sales growth but lower labor productivity. These higher growth foreign-owned firms were also found to be more resilient and have higher survival rates.

The data in this report indicated that foreign-owned small businesses had a lower survival rate than their
larger counterparts, underscoring a need for small business assistance policies and programs.

Foreign-owned small businesses generate significant benefits for the surrounding economy, supporting over
five million jobs, over $1 trillion in output, and $350 billion in employee compensation in 2016.

Foreign direct investment has a large and positive impact on the U.S. economy. In 2017, FDI directly supported nearly 7.4 million U.S. jobs, $62.6 billion in research and development funding, and $382.7 billion in contributions to U.S. goods exports. Moreover, these numbers do not reflect the substantial ripple effects generated by the capital invested and jobs created by either FDI or small businesses.

To many, the traditional concept of FDI may be limited to investments from large foreign multinational enterprises (MNEs). While the presence of these large firms is integral to the U.S. economy, this report focuses on the other side of the FDI story: FDI from small and medium enterprises (SMEs). Regardless of U.S. or international heritage, small businesses overall make up over 99 percent of companies in the United States and support almost 50 percent of the country’s workforce.

The economic impact of FDI from small businesses arises from their strength in numbers. Though small businesses tend to invest less capital per FDI project than do large MNEs, their aggregate impact is considerable.

To ensure a common understanding of the key concepts featured, this report utilizes the Organization for Economic Cooperation and Development’s (OECD)
following definitions:
• Foreign direct investment: “Foreign direct investment is a category of cross-border investment made by a resident in one economy (the direct investor or parent) with the objective of establishing a lasting interest in an enterprise (the direct investment enterprise or affiliate) that is resident in an economy other than that of
the direct investor.”1

• Small and medium enterprises: Small- and medium-sized enterprises (SMEs) are independent firms which employ fewer than a given number of employees. The United States considers SMEs to include firms with fewer than 500 employees.2 This report seeks to fill the research gap by first examining characteristic and growth differences between small and large foreign firms in the United States using the National Establishment Time Series (NETS) database. Following this, the direct, indirect, and induced effects of FDI from SMEs on employment, output, and compensation are calculated across, industries and states to demonstrate the full impact of this investment on the broader U.S. economy.

U.S. Department of Commerce | International Trade Administration 3
1 Traditional research examining why FDI occurs does not consistently explain or account for the behaviors of small and medium firms. As the organizational structures, cultures, and resources of SMEs differ from those of large firms, so too do the motives for foreign investment. Traditional motives for FDI can be classified into four groups: natural resource-seeking, market-seeking, efficiency-seeking, and strategic-asset-seeking

2 The first three of these strategies intend to capitalize on the key advantages of a certain location, whether local resources, a client base, or a lower cost of operations. In these cases, a foreign company would be able to utilize its existing knowledge and technology for success in the local market. Conversely, the intention of strategic-asset-seeking FDI is to procure new knowledge or technology.

3 These four models of international expansion assume that the firms are large and hold certain capacities (such as financing, technology, and human capital) that allow them to pursue FDI projects. However, the majority of SMEs lack the necessary resources for these motivation theories to be applicable.

4 Instead, there are certain key qualities that enable an SME to successfully expand to other markets. The SMEs with more opportunity, interest, and ability to invest abroad are those with lower capital requirements,
higher export ratios, and more significant research and development expenditures.

5 Large MNEs often employ a global strategy to pursue a geographically broad deployment of investment.

6 However, this strategy is not relevant to many smaller companies, which often prioritize specific market opportunities over a multinational investment strategy. For small companies without the advantages of
economies of scale, expanding into already saturated markets is often too expensive and challenging. There are two prominent models focused on SME motivations in FDI. First, the small-scale technology theory suggests that firms in small-scale markets expand because they have greater flexibility and lower technology costs, allowing them to enter and gain a foothold in new markets at greater speed and a lower price than larger firms.

7 Second, according to the entrepreneurship model, the majority of new international ventures by small businesses are undertaken by entrepreneurs with previous experience in international markets, and therefore the internationalization of SMEs is largely attributable to the vision and experience of a single leader.

8 FDI PR O C E S S E S A N D BA R R I E R S As SMEs operate with a different set of resources than
large MNEs, they utilize different processes to establish business operations in foreign markets and encounter different barriers. SME Investment Processes The investment choices of SMEs are more influenced by the business environment in the host country than larger firms. SMEs prioritize locations with established policies and infrastructure, causing them to focus on investment opportunities in developed countries over emerging markets, unlike their MNE counterparts.

9 There are a variety of processes SMEs can employ to expand their operations in foreign markets, each with distinct potential impacts on the outcomes of new overseas operations:

• International stage process: Expansion to a foreign market is traditionally segmented into four stages: no regular export activities to that market, exporting through independent representatives, the formation of a sales subsidiary, and the establishment of a subsidiary production or manufacturing site. Recent analysis of newly expanding firms uncovered a more specific set of investment stages often followed by SMEs: strategic planning, market research, location selection, entry mode selection, planning, and resource investment.

10 Network process: For firms of any size, investing in foreign markets requires a process of developing advantageous network relationships. There are two approaches available to SMEs to foster the networks necessary for internationalization: firms can either establish new strategic alliances through internal
resources(such as technical, economic, and legal relationships) or firms can join an existing network or value chain. By integrating into existing networks (for example, accessing an investment opportunity through overseas U.S. Department of Commerce | International Trade Administration 4 suppliers), firms gradually increase their network linkages and capabilities.

• Resource-based process: The resource-based view indicates four resource determinants of SMEs’ process of FDI: human capital resources, the management competence of the primary entrepreneur and upper management, the industry knowledge of the firm, and the firm’s ability to obtain capital. While large companies often have financial and human capital advantages, SMEs use their advantages in entrepreneurship, flexibility, adaptability, innovation capacity, and speed to develop internationalization processes.

• Global value chains and productive network process: Integrating into the global value chain has high fixed costs. SMEs can participate in global value chains through either cooperation with local firms or integration with industrial clusters. The competitive advantage of SMEs originates from their highly adaptable nature,
which allows them to quickly increase the value added of their products or services. As SMEs gain international experience, they often transition from low value-added production processes to higher-value, knowledge-intensive processes.

11 Barriers to SME Investment The most prevalent barriers faced by SMEs undertaking FDI are unfair competition, complex regulatory environments, challenging approval processes, corruption, and lack of financing.

12 SMEs often lack access to financing for overseas expansion projects due to insufficient collateral, unpredictable returns, and information asymmetries. As small firms are considered riskier than large ones, public capital markets often preclude the participation of SMEs, and private venture capitalists and banks are sometimes disinclined to provide funding.

13 There is a longstanding, disputed assumption that SMEs have characteristics that make them unattractive for financing, such as a lack of resources to endure acute economic shocks or recessions. Statistically, SMEs have a shorter lifespan, higher failure rate, and overall lower profit margin, and can also be subject to cross-generational transition issues.

14 In contrast, large companies benefit from economies of scale, with advantages in obtaining capital,
competing for workforce, and training upper management. OU T C O M E S OF SM A L L BU S I N E S S FDI
Productivity Outcomes The productivity level and growth rate of a subsidiary are directly related to the productivity of the parent company. Greenfield FDI projects often require a significant investment of resources over years, thus ensuring that only the most efficient firms will pursue them.

17 As a result, foreign subsidiaries often have more efficient production and distribution processes than their
domestic counterparts.

18 While SMEs as a group tend to be less productive than large firms, small multinational enterprises are more productive than both large MNEs and SMEs that only operate in one country. The labor productivity of small multinationals in the United States is roughly 3.7 times higher than the average small firm. Small multinational enterprises experience the highest productivity differential in the services sector, specifically in wholesale trade, finance and insurance, and other service industries.

19 Employment Outcomes A 2019 University of Chicago study found that, on average, the wages of foreign-owned companies in the United States are seven percent higher than those of domestically owned firms. As foreign multinationals mostly hire highly skilled workers, the wage premium rises to 12 percent for these employees, while less killed workers do not experience a wage premium.

20 The wage differential is most pronounced when comparing small foreign and domestic firms, with employees of small foreign firms in the United States earning an average of 12 percent more than their domestically employed peers. The creation of one new job by a foreign enterprise adds 0.42 indirect and induced jobs and $91,000 in value added at unrelated local firms.20 Spillovers Positive economic spillovers arise from both the direct presence of foreign firms and the new investment they facilitate.

21 Foreign companies contribute to efficiency by introducing new technologies, marketing techniques, management practices, workforce approaches, and inventory and quality control processes into the host country. Furthermore, the entrance of these new firms stimulates competition, efficiency, and innovation among domestic companies.22 Figure 1 illustrates how FDI (referred to as direct foreign investment or DFI in the figure below) fosters these positive spillover effects.

22 U.S. Department of Commerce | International Trade Administration 5 FIGURE 1: FDI INFLOWS AND POSITIVE SPILLOVERS HOW FDI FOSTERS DOMESTIC SPILLOVERS AND INCREASED EMPLOYMENT Source: Heise, McDonald, and Tuselmann 2011; Note: DFI in Figure 1 refers to direct foreign investment, or FDI. In 2013, Moran and Oldenski found that a one percent rise in the share of employees of foreign-owned firms in an industry increases the productivity of all firms by 0.81 percent in the first year and by 2.75 percent in the
second year. They further indicated that the effects of productivity continue to increase over time.

23 METHODOLOGY This report is segmented into two analyses using data from the National Establishment Time Series (NETS) Database, which compiles records from Dun & Bradstreet’s (D&B) annual survey of business establishments in the United States into time series data. The database contains records on establishments active between 1989 and 2016.

This report utilizes a subset of the NETS that only includes companies that were foreign owned at one point in their lifetime. D&B considers a company “foreign-owned” if the controlling interest of the business is held by a party outside of the United States. For the first analysis in the report (on firm characteristics and trends), the dataset was further filtered to companies that were foreign owned for the entirety or majority (more than 50 percent) of their lifetime. The dataset covers companies active at some point between 1989 and 2016, not just those active for the entire time period.

The data was initially presented at the establishment rather than company level. A DUNS number, originally
assigned by D&B, is the unique identifier of each establishment, and establishments are linked to their
parent company by a headquarter DUNS number. The employment information in the database was obtained either through direct inquiry by D&B or by imputation.

As the majority of the data is thus self-reported by the companies, it is subject to reporting error; one such potential error relates to establishments that report employment numbers for the entire firm, rather than for the individual location. As the analyses in this report are performed at the company-level, to create a clear delineation between SMEs and large MNEs, employee counts were aggregated across all establishments by parent company. The following company categorizations are used for the analyses:

• Small-and-medium enterprise (SME): firms with 500 or fewer total employees over the entirety of their lifetime in the United States. U.S. Department of Commerce | International Trade Administration 6
• Graduated firm: firms that started in the United States with 500 or fewer employees and expanded to more than 500 employees.
• Downsized firm: firms that started in the United States with more than 500 employees and downsized to under 500 employees.
• Large multinational enterprise (MNE): firms that have more than 500 employees for the entirety of their lifetime in the United States.

FIRM CHARACTERISTICS AND TRENDS Between 1989 and 2016, there were a total of 42,739 foreign-owned companies operating in the United States. Figure 2 displays the breakdown of firms in the dataset by size categories, illustrating that 94 percent of firms in that time were SMEs. Large multinational firms accounted for 2.6 percent of all foreign-owned firms during this period.

Two percent of firms that started in
the United States as an SME graduated into larger firms, either through enhanced growth or a merger or
acquisition. Figure 3 presents the survival rate and number of firms still active at the time of their reporting
in 2016. (Note: Firms that stopped reporting and do not have annual records through 2016 were presumed to be out of business.) Graduated firms had the highest survival rate, with 84 percent still active in the United
States as of 2016.

This indicates that higher-growth foreign-owned firms are more resilient. Large MNEs had
the second highest survival rate, with 80 percent of firms still active in 2016. While SMEs as a group had the lowest survival rate (37 percent), this is consistent with the survival rate of domestic small businesses as reported by the Small Business Administration.

Employment Growth In 1989, foreign-owned SMEs employed roughly 740,000 workers. With a compound annual growth rate (CAGR) of 0.29 percent, total SME employment stayed fairly consistent from 1989 to 2016, when just over 803,000 workers were employed.

  • The 37 percent survival rate among SMEs likely depressed the overall employment growth rate. However, the average number of employees per firm increased from 44 in 1989 to 54 in 2016, indicating either the smallest firms exited the market over time and/or that the surviving firms experienced growth. The small businesses that underwent exceptional employment growth are those that grew to more than 500 employees, as seen in Figure 4.

These graduated firms had a CAGR of 6.9 percent from 1989 to 2016 and
employed over one million people in 2016, which reflects
a 550 percent increase from 1989. The majority of this
growth occurred between 1989 and 1999, when the
CAGR was 11 percent. The number of graduated firms
from 1989 to 2016 stayed fairly stable, suggesting that
the high employment growth was due to a steady
increase in employment from existing companies, rather
than the entrance of new high-growth firms; over 65
percent of graduated firms were active for the entire 28-
year time period. Average employment per graduated
firm rose from 207 in 1989 to roughly 1,540 in 2016.
Sales Growth
The inflation-adjusted annual sales of SMEs in 1989
surpassed the 2016 levels (see Figure 5). Despite the
modest increase in overall employment from SMEs, the
number of firms active in 2016 was 1,970 firms lower
than in 1989, potentially explaining the negative sales
growth. The number of active large MNEs contracted
slightly during this period. These firms experienced a four
percent increase in sales in 2016 compared to their
inflation-adjusted 1989 levels. Graduated firms had the
highest sales growth between 1989 and 2016, with a
CAGR of 5.79 percent. Total sales from graduated firms
increased by $182 billion in this time period. Consistent
with their employment growth trend, the fastest sales
growth occurred between 1989 and 1999, when the
growth rate was 9.85 percent.
SME Graduated Downsized Large MNE
1989 Employment 2016 Employment
CAGR: 0.29%
CAGR: 6.90% CAGR: -9.70%
CAGR: 0.83%
U.S. Department of Commerce | International Trade Administration 8
Labor Productivity
As shown in Figure 6, all of the size categories
experienced negative growth in labor productivity
between 1989 and 2016. This finding is consistent with
other research showing that labor productivity has been
declining across the U.S. economy.25 Of the four
categories used in this report, SMEs had the highest level
of labor productivity every year from 1989 to 2016,
despite an overall negative CAGR. This is consistent with
previous empirical findings in the literature review that
small multinationals are more productive than large
MNEs. The decline in labor productivity for SMEs could
potentially be explained by the exit of the smallest firms
over time. The presence of these very small firms may
have caused the initial labor productivity to be artificially
high. Further, while the number of workers increased
during this time period, the overall number of hours
worked may have remained unchanged.
Graduated firms had a lower annual labor productivity
across the time period than both SMEs and large MNEs.
These findings are consistent with other literature
examining the lack of connection between high growth
and firm productivity; several studies have also found a
negative correlation between firm growth rates and
productivity. One such study observed that the negative
trade-off between productivity and employment growth
resulted from firms allocating resources to unproductive
$312 billion
$47 billion
$194 billion
$1.22 trillion
$235 billion $229 billion
$14 billion
$1.27 trillion
SME Graduated Downsized Large MNE
1989 Sales 2016 Sales
CAGR: 5.79% CAGR: -9.08%
CAGR: 0.14%
CAGR: -1.01%
U.S. Department of Commerce | International Trade Administration 9
As mentioned in the review of existing literature, FDI
generates positive external economic impacts in many
ways. This section examines the ripple effects produced
by foreign-owned SMEs through their presence and
employment in the United States. Investing firms
increase employment not just through direct hiring, but
also through indirect and induced means. Indirect effects
encompass the jobs, output, and compensation created
in a region by the companies supplying goods and
services to the investing firm. Induced effects include the
jobs, output, and compensation created when
employees from the firm spend their wages at local
establishments. It is important to note that the indirect
and induced jobs created typically include both
temporary and permanent positions.
This report uses the number of employees directly
employed by foreign-owned SMEs by industry and by
state according to the NETS database. In order to present
a comprehensive snapshot of the economic impact of
foreign-owned SMEs, this analysis included employment
from all SMEs that were foreign owned in 2016, the latest
year of available data. Firms were segmented into major
industry groups denoted by two-digit North American
Industry Classification System (NAICS) codes. Companies
were identified by their most recently reported NAICS
code, through 2017.
Firms were initially designated as SMEs based on their
company-wide employment count. This analysis used the
establishment-level employee counts and NAICS codes
to generate the number of employees per industry and
state. The employee counts were then entered into the
economic impact model on the platform JobsEQ by
Chmura Analytics. Chmura’s economic impact model is
based on the national input-output (I-O) matrix
published by the Bureau of Economic Analysis (BEA)
combined with other data sources and industry best
practices. The model takes into consideration the
regional industry mix, supply capacity, and economic
diversity to create an I-O matrix for state-level estimates.
The economic impact was calculated for each industry
within each state and then aggregated to obtain the
national totals presented in Figure 7.
$305,401 $292,629
$221,042 $217,598
SME Graduated Downsized Large MNE
1989 Output per Worker 2016 Output per Worker
CAGR: -1.30%
CAGR: -1.03%
CAGR: -0.51%
CAGR: -0.67%
U.S. Department of Commerce | International Trade Administration 10
Based on the results of the economic impact model,
foreign-owned SMEs were directly and indirectly
responsible for supporting over five million jobs, over $1
trillion in output, and $350 billion in employee
compensation in 2016. These figures represent the
annual steady-state impact of ongoing business
operations. Foreign-owned SMEs directly created 2.7
million jobs. Of the total jobs supported by foreignowned small businesses, 2.3 million (46 percent) were
indirect and induced jobs supported by the ripple effects
of SME investment. Indirect and induced effects
comprised 37 percent of the total output and 39 percent
of total compensation.
Including the direct, indirect and induced effects, Figure
7 presents the total estimated employment, output, and
compensation generated by foreign-owned SMEs by
major industry. The three industries with the largest
economic impact are manufacturing, wholesale trade,
and professional, scientific, and business services, which
are highlighted in red in the table. Combined, these top
three industries comprised 60 percent of total
employment, 64 percent of total output, and 63 percent
of total compensation from foreign-owned SMEs.
Manufacturing alone accounted for 32 percent of jobs
supported by SMEs.
Employment supported by foreign-owned SMEs
accounted for roughly four percent of all U.S. jobs in

  1. Compensation supported by foreign-owned SMEs
    accounted for five percent of total payroll for the United
    States, suggesting that foreign-owned firms have a
    slightly outsized compensation effect relative to their
    employment. Applying the most conservative ratio of
    foreign-owned SMEs to all SMEs observed between 2011
    and 2016, there is a forecasted growth of 1,000 new
    foreign-owned SMEs operating in the United States as of
  2. Provided the direct employment of firms has
    remained fairly consistent, the economic impact of
    foreign-owned SMEs will increase from the 2016 levels
    to reflect the effects from new entrants.
    U.S. Department of Commerce | International Trade Administration 11
    Industry NAICS Total Employment Total Output Total Compensation
    Agriculture, Forestry, Fishing, and
    11 17,501 $2,886,915,254 $916,359,743
    Mining, Oil, and Gas 21 59,824 $13,953,869,621 $2,973,606,518
    Utilities 22 12,992 $4,010,389,180 $935,581,058
    Construction 23 119,212 $25,047,292,758 $8,699,090,576
    Manufacturing 31-33 1,602,888 $419,910,355,319 $94,949,137,747
    Wholesale Trade 42 798,262 $195,443,654,856 $67,190,677,084
    Retail Trade 44-45 276,229 $35,436,640,246 $12,237,936,801
    Transportation and Warehousing 48-49 241,665 $37,908,882,940 $13,960,652,339
    Information 51 218,524 $67,110,187,270 $16,763,645,185
    Finance & Insurance 52 245,503 $69,869,873,222 $28,695,698,103
    Real Estate and Leasing 53 260,417 $78,092,414,339 $12,209,843,071
    Professional, Scientific, and Business
    54 629,099 $135,554,874,757 $59,229,151,607
    Management of Companies 55 19,840 $4,564,412,369 $2,320,486,105
    Administration of Waste Management 56 129,505 $15,706,069,153 $6,651,300,828
    Educational Services 61 18,596 $2,256,163,366 $1,360,244,292
    Health Care and Social Assistance 62 47,481 $5,331,891,521 $2,335,773,454
    Arts, Entertainment, and Recreation 71 47,523 $5,731,279,955 $1,867,983,524
    Accommodation and Food 72 38,804 $3,990,452,771 $1,464,324,125
    Other Services 81 74,006 $8,421,041,681 $3,310,737,942
    Public Administration 92 162,084 $33,850,251,251 $12,190,085,452
    Total 5,019,955 $1,165,076,911,829 $350,262,315,554
    Note: The three industries with the largest economic impact are highlighted in red.
    Figure 8 presents two maps measuring the total
    estimated direct, indirect, and induced effects of foreignowned SMEs on U.S. employment. The maps measure
    the number of jobs supported by foreign-owned SMEs by
    state, as well as the share of these jobs relative to total
    employment. California is the top state for employment
    supported by foreign-owned SMEs, with 674,559 jobs
    supported through direct, indirect, and induced means.
    The share of employment provides more context to the
    economic impact of employment supported by foreignowned SMEs. The District of Columbia has the highest
    share of foreign-owned SME employment (88 jobs per
    1,000 total jobs), followed by New Jersey and
    U.S. Department of Commerce | International Trade Administration 12
    Figure 9 presents a map of direct employment by
    foreign-owned SMEs relative to total direct employment
    from FDI. The total employment from FDI was obtained
    from BEA data on the activities of multinational
    In 2016, direct employment from SMEs
    accounted for 36 percent of all FDI employment in the
    United States. Montana had the highest share of SME FDI
    employment of all U.S. states: SME employment
    accounted for 65 percent of direct employment from all
    foreign-owned companies.
    U.S. Department of Commerce | International Trade Administration 13
    As this report has demonstrated, the influence of
    foreign-owned SMEs extends far beyond individual firms’
    economic spheres to encompass the related economic
    activity generated by these companies. Foreign-owned
    SMEs supported over five million jobs, over $1 trillion in
    output, and $350 billion in employee compensation in
    2016 alone. Moreover, as new foreign-owned SMEs
    continue to establish operations in the United States, the
    annual economic impact is anticipated to surpass 2016
    This report confirmed that SMEs are more productive
    than their larger counterparts. However, labor
    productivity amongst all foreign-owned firms has been
    steadily declining in the United States since the early
    2000s. The findings also suggest that productivity and
    employment growth are negatively related. Additionally,
    the data showed that the higher-growth foreign-owned
    firms were more resilient, a key takeaway for
    policymakers designing strategies targeting productivity
    improvement. As this report cannot explain the
    productivity-growth relationship nor the overall negative
    productivity growth, future research on the nexus
    between productivity, growth, and firm survival in
    multinational enterprises is needed.
    This report also highlights the challenge that small
    foreign-owned businesses face in the U.S. economy. The
    foreign-owned SMEs in this dataset experienced declines
    in both sales and labor productivity across the observed
    time period, culminating in a higher failure rate. As the
    vast majority of foreign-owned businesses investing in
    the United States are SMEs, alleviating the stresses
    hindering these businesses is imperative to ensure the
    future attraction and retention of FDI from small
    businesses. While the conclusions of this report cannot
    explain why only 37 percent of SMEs survived, this
    survival rate is consistent with that of U.S. SMEs and is
    indicative of the challenges smaller businesses face.
    The lower survival rate of SMEs uncovered in this report
    highlights the need for economic development
    organizations and other government development
    agencies to enact more policies and programs aimed at
    small business assistance and longevity. Further,
    organizations should consider initiatives focused on
    guidance specifically for foreign-owned SMEs. Such
    policies will increase the survival of existing firms,
    promote positive economic spillovers to local U.S.
    communities, and help foster investment from new
    foreign-owned SMEs. This is critical because, as
    established in this report, thriving foreign-owned SMEs
    generate substantial positive effects on surrounding
    businesses and the larger economy.
    U.S. Department of Commerce | International Trade Administration 14
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    Analysis of the Motives Underlying Foreign Direct
    Investments.” The ICFAI University Journal of
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    5 Kuo, H.C., and Y. Li. 2003. “A Dynamic Decision Model of
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    11 Kaplinsky, Raphael, and Jeff Readman. 2001. “Integrating
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    Cressy, R., and C. Olofsson. 1997. “European SME Financing:
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    Setzler, Bradley, and Felix Tintelnot. 2019. “The Effects of
    Foreign Multinationals on Workers and Firms in the
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    Government.” 2012.
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    United States, and Germany.”
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    U.S. Department of Commerce | International Trade Administration 16
    DA T A NO T E S
    The underlying data in the NETS database is collected by
    Dun & Bradstreet through direct contact with
    companies, secretaries of state, phone records, court
    records, and credit inquiries, among other sources.
    Information on employment is obtained either through
    direct inquiries by D&B or by imputation. It is important
    to note that there is no legal obligation for
    establishments to participate or report honestly, and
    businesses’ access to credit and relationships can be
    impacted based on the quality of information provided.
    The D&B data is also subject to reporting error: one
    analysis comparing the NETS database to similar data
    sources found that some establishments report
    employment numbers for the entire firm, despite being
    prompted for employment only at the individual
    location. Another potential source of measurement error
    and discrepancy between the NETS database and official
    sources may arise from the fact that NETS data is
    collected throughout the year, while official sources
    collect data on uniform dates.28 The NETS includes
    establishments active between January 1990 and
    January 2017. However, given that companies report
    data for the previous year, the time period examined in
    this report is 1989 to 2016.
    BEA and NETS Data Compatibility
    Figure 10 in the report uses BEA data on the activities of
    multinational enterprises, specifically majority-owned
    bank and nonbank U.S. affiliates. Although BEA and NETS
    both measure the presence of foreign-owned
    enterprises in the United States, their comparability is
    affected by discrepancies in their definitions and
    classifications. BEA defines foreign ownership as
    “ownership or control, directly or indirectly, by one
    foreign investor of 50 percent or more of the voting
    securities of an incorporated U.S. business enterprise or
    an equivalent interest in an unincorporated U.S. business
    enterprise, including a branch or partnership.” D&B
    defines foreign ownership as an establishment having a
    headquarters or parent that is located in a country other
    than that of the establishment. There are also
    differences in the industry classification systems of the
    two data sources: BEA classifies industry data by the
    industry that accounts for the largest portion of the sales
    across all of the affiliate’s establishment sites, whereas
    D&B classifies industry data based on an establishment’s
    primary activity. The different levels of industry
    classification (company-level for BEA versus
    establishment-level for NETS) dilutes the accuracy of
    measurements and calculations utilizing both datasets.
    RE S H A P I N G T H E DA T A
    As the NETS database was initially presented at the
    establishment level, the first step of the analysis was to
    reshape the data at the company headquarter level. D&B
    assigns each establishment a unique DUNS number and
    links all establishments in a corporate structure
    (including subsidiaries, as reported) to their parent
    company by a headquarter DUNS number. The data was
    collapsed by the headquarter DUNS number to obtain
    aggregate employment and sales figures for each
    company. The first and last year of reporting in the
    database were used to establish the number of years a
    company was active. Companies that were foreign
    owned (i.e., companies with headquarters outside the
    United States) for less than 50 percent of the time
    between 1989 and 2016 were excluded from further
    analysis in the firm characteristics and trends section of
    this report. As some companies were likely active before
    the start of reporting in 1989, their precise lifetimes and
    foreign-ownership status may be inaccurate or
    unknown. Therefore, one limitation of this dataset is that
    certain companies may have been included or excluded
    based on ownership during this specific timeframe.
    Following the consolidation of establishment data at the
    headquarter level, companies were then categorized
    based on their employment in the first and last years of
    reporting. The Consumer Price Index (CPI) provided by
    the Bureau of Labor Statistics was used to adjust the
    sales amounts to 2016 dollars.
    The economic impact section of the report included
    companies with 500 or fewer employees that reported
    foreign ownership in 2016, producing a dataset of 22,963
    SMEs with 33,584 establishments. Due to the limitations
    of the self-reported data gathered by D&B, individual
    establishments can report NAICS codes, employee
    counts, and locations that are different than those
    reported by their parent companies. To obtain the most
    accurate picture of industry and state employment,
    establishment-level data was used to perform the
    economic impact analyses.
    U.S. Department of Commerce | International Trade Administration 17
    The economic impact model by Chmura Economics was
    utilized to calculate the multiplier and ripple effects of
    direct employment from foreign-owned SMEs. The
    following is an overview of the methodology behind the
    model, as described by Chmura Economics:
    Chmura’s economic impact model starts with the
    national input-output (I-O) matrix published by
    the Bureau of Economic Analysis, and
    incorporates regional industry mix, supply
    capacity, and economic diversity, among other
    factors, to estimate the I-O matrix for each state.
    Using the latest wage and salary data, Chmura’s
    model converts the output multipliers into
    employment and labor income multipliers of a
    region. According to Chmura, JobsEQ’s regional
    multipliers tend to be more conservative than
    some other popular impact software multipliers
    due to the customization method: Chmura uses
    the most recent quarterly wages in the model,
    which tends to result in lower employment
    multipliers. The multipliers in Chmura’s model
    are further refined with consistency checks via
    modeling of supply chain, regional gross
    domestic product (GDP), and productivity. It is
    verified in aggregate at the national level that
    the multipliers are consistent with national
    productivity data. Chmura computes countylevel GDP data (based on employment and
    wages and BEA state- and industry-level GDP
    data) and the multipliers are checked for
    consistency with this data set. Furthermore,
    multipliers are used within regional supply chain
    modeling; feedback from this model is used to
    restrain the multipliers to ensure the model is
    logically consistent with local supply chain
    effects—for example, multipliers that are too
    high might imply manifest ripple effects that are
    inconsistent with the actual size and mix of
    industries within a local economy. Finally, while
    economic multipliers from various models
    provide good estimates of the economic impact,
    they are still model estimates based on industry
    Companies in unclassified industries (identified as NAICS
    99) could not be analyzed in the economic impact model.
    U.S. Department of Commerce | International Trade Administration 18
    Figure A1 presents a breakdown by direct, indirect, and
    induced effects of the economic impact of foreignowned SMEs. Direct employment from foreign-owned
    SMEs comprises 54 percent of total employment, 63
    percent of total output, and 61 percent of total
    compensation. Indirect and induced employment
    comprise 46 percent of the total employment, 37
    percent of the total output, and 39 percent of total
    compensation supported by foreign-owned SMEs.
    E M P L O Y M E N T
    $0 billion
    $200 billion
    $400 billion
    $600 billion
    $800 billion
    $1000 billion
    $1200 billion
    O U T P U T
    Direct Indirect Induced
    $0 billion
    $50 billion
    $100 billion
    $150 billion
    $200 billion
    $250 billion
    $300 billion
    $350 billion
    C O M P E N S A T I O N
    SelectUSA is a U.S. government-wide program housed in the International Trade Administration
    at the United States Department of Commerce. Our mission is to facilitate job-creating business
    investment into the United States and raise awareness of the critical role that economic
    development plays in the U.S. economy.
    This report was produced for review by SelectUSA, U.S. Department of Commerce. It was
    prepared by Ascendant Program Services, LLC, with Research Analyst Samantha Luban as the
    lead author.
    SelectUSA Investment Research
    [email protected]

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