Good Things Come in Small Packages: The Impact of Foreign-Owned SMEs on the U.S. Economy

January 6, 2021
Samantha Luban is an Economic Research Analyst at SelectUSA

From the corner coffee shop to the boutique where you bought holiday presents, small businesses are an essential part of both local communities and the national economy. Small businesses comprise 99 percent of all companies in the United States, which may not be new information to most readers. However, less known is the prevalence and impact of foreign-owned small businesses.  

SelectUSA’s latest analysis shows that small, foreign-owned firms have a substantial impact on the U.S. economy, directly and indirectly supporting 5 million U.S. jobs, $350 billion in employee compensation, and $1 trillion in output

The impact of small foreign-owned businesses extends far beyond each firm’s individual economic activity. SelectUSA set out to quantify this impact in our latest research report, Foreign Direct Investment (FDI) from Small Businesses: Understanding the Behavior and Impact of Foreign-Owned SMEs on the U.S. Economy. In 2016, such businesses supported five million U.S. jobs, either directly or indirectly, or four percent of all U.S. jobs.  

In our analysis, we found that over 2.7 million of those jobs were directly created by small foreign-owned firms operating here, while the other 2.3 million were indirect and induced jobs supported by the ripple effects of small foreign-owned firms. Together, these jobs generated roughly $350 billion in employee compensation and over $1 trillion in output.

The three sectors where FDI from small businesses had the largest economic impact are manufacturing; wholesale trade; and professional, scientific, and business services. Combined, these top three sectors comprised 60 percent of all U.S. employment supported by small business FDI as of 2016.  

The report also found that small multinational enterprises are among the most productive group of firms in the world, surpassing the productivity of large multinational enterprises and high-growth firms. Unfortunately, these productivity advantages do not necessarily translate into higher resiliency, as the survival rate of small foreign-owned firms investing in the United States between 1990 and 2016 was 37 percent.

The substantial economic impacts and productivity spillovers uncovered in our latest report are why we cannot take the existence of small foreign-owned firms in our economy for granted. However, in order to transform into resilient and thriving businesses, these companies often require some assistance, which SelectUSA and economic development organizations (EDOs) are uniquely suited to provide. SelectUSA will continue to support small businesses investing in the United States and assist EDOs seeking to attract more FDI from small foreign-owned companies. And the next time we’re on our way to our beloved coffee shops, restaurants, gyms, salons, or boutiques, let’s take a moment to appreciate the levels of investment that help support our favorite places.  

For more information see other reports from SelectUSA