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SIT DOWN WITH SELECTUSA
Hear from our staff of foreign direct investment (FDI) experts to learn more about our programs, services, data, and research.

Sit Down with SelectUSA

FDI AND INTELLECTUAL PROPERTY INNOVATION IN THE U.S.

SelectUSA and Bureau van Dijk, a Moody’s Analytics company

The United States’ strong intellectual property protections and vibrant domestic market are a critical driver of inbound foreign direct investment (FDI). SelectUSA, along with Bureau van Dijk, a Moody’s Analytics company, will publish a report during the SelectUSA Summit  on June 28th examining this relationship.

Using data provided by Bureau van Dijk’s Orbis Crossborder Investment and Orbis Intellectual Property, the authors determined that the United States has consistently been among the top destinations for patent filings by innovative firms. The most recent data shows the United States has become the global leader for patent filings. Perhaps more impressively, the authors determined the average value of a U.S. patent is nearly 1.8 times the value of the average patent filed outside the U.S.

These results are likely in part due to the United States’ strong intellectual property rights regime, and its robust domestic market. When companies are confident their intellectual capital will be protected in a specific market, they are more likely to file for patent protections there. The value of these patents is also likely to increase.

Companies file millions of patents each year. Where they choose to file these patents reflect where they may want to do business and their confidence in that location’s intellectual property protections. In 2018, the United States captured 308,283 patent filings from the top 100 innovative multinationals, ahead of Japan (306,468 filings), China (190,045 filings), and the European Patent Office (138,816 filings). At the same time, the average value of a single U.S. patent is $136,590, nearly 1.8 times larger than the average patent value outside the U.S. These differentials are likely due to a combination of U.S. advantages in specific technologies, high quality patent examination standards, successful track record for rights enforcement, historical success in patent commercialization, and the United States’ position as a key market.

Innovative multinationals who file a large number of patents worldwide tend to make physical investments in the United States. Globally, the United States is the top destination for cross border FDI projects initiated by these companies, receiving 11% of the investment projects initiated by the top 1,000 most innovative multinationals.

Western Europe is the top source of innovative investments in the United States. Over 50% of the top 100 innovative companies in the United States are based in Western Europe. Within Western Europe itself, Germany is the largest source market, home to 19% of the top 100 innovative multinationals. While France and Switzerland follow with a 10% share each.

By number of projects, the automobile manufacturing industry was the top recipient sector from 2013 to 2018. This industry, which includes areas like electric vehicles and self-driving technologies, received a total of 164 investments from the top 100 innovative firms. The technology industry followed behind with 102 total investments. This included companies involved in data processing, hosting, computer systems design, and custom computer programing services.

These investors have an outsized impact on the U.S. innovation economy. According to the latest available US Bureau of Economic Analysis  data, while FDI accounts for 6% of total private sector employment and 7% of private U.S. business sector value added, it also accounts for nearly 16% of U.S. business research and development.

There are many reasons why firms may establish a presence in the United States. From deep capital markets to a well-educated labor force, the U.S. market offers significant opportunities for foreign investors. Its robust intellectual property protections and innovative domestic market are also factors helping drive investment and positioning the United States as the top destination for foreign direct investment.

FOREIGN DIRECT INVESTMENT: A PILLAR OF THE TRANSATLANTIC RELATIONSHIP

Alexander Tippett, International Trade Specialist, SelectUSA 

On May 15th to 16th, the U.S.-EU Trade and Technology Council (TTC) held its second in-person meeting in Paris, France. The TTC is intended to coordinate the U.S. and EU policy response to challenges like the need for resilient supply chains and growing economic and technological competition. This blog offers a sketch of one of the transatlantic relationship’s economic pillars, foreign direct investment (FDI), and the role FDI can play in addressing some of these strategic challenges.

Bilateral investment flows between Europe and the United States have a long history. During the 18th and 19th centuries, European investors helped underwrite U.S. infrastructure and industrial expansion. During the first World War, the U.S. became a net creditor, financing the European war effort and post-war reconstruction. Mutual investment skyrocketed after the Second World War as U.S. firms expanded their global footprint and, eventually, revitalized European firms looked to invest in the U.S. market. Since then, mutual investments have only grown. In 2020, the total stock of U.S. FDI in Europe was approximately $3.7 trillion, roughly 29 times the $123 billion the U.S. has invested in China. European investment stock in the U.S. reached $2.5 trillion in 2020, 54 percent of all international investment in the United States.  In terms of historical stock, Europe and the United States are each other’s top partners for inbound and outbound FDI. 

Both the United States and Europe benefit substantially from these investment ties. American firms support the European technology sector. For instance, Intel recently announced its it is committing approximately $36.3 billion towards European semiconductor manufacturing. U.S. firms are also responsible for more than half of the long-term energy purchase agreements signed in Europe since 2007, providing valuable support for the European energy sector. 

European FDI in the U.S. provides similar benefits. In 2019, European affiliates employed 4.9 million people in the United States and invested $47.7 billion in research and development. European firms are particularly dominant in manufacturing, accounting for 63 percent of that sector’s $1.9 trillion in FDI stock. European firms have also helped grow U.S. renewable energy. European companies were responsible for $66.3 billion of the $83.1 billion in renewable energy projects announced by foreign firms between 2011 and 2021. European firms also bolster the U.S. semiconductor sector: German and Italian firms recently announced new manufacturing plants while ASM International, a Dutch maker of equipment used for semiconductor manufacturing, is planning a U.S. expansion.  

SelectUSA works to facilitate these greenfield investment flows. In the first two quarters of federal fiscal year 2022 alone, SelectUSA supported more than $2 billion in client-verified investment from European countries, supporting or preserving 3,274 U.S. jobs. In those first two fiscal quarters, among SelectUSA clients who are European Union members, Germany has been the largest investor, contributing $320 million to U.S. investment, followed by Ireland at $156 million. In the previous fiscal year, Austria led among EU member states with $1.1 billion invested. These investments have touched on everything from renewable energy and robotics to sensors used in semiconductor production. 

Going forward, we expect that FDI will play an important role as the TTC looks to strengthen supply chains, bolster energy production, and preserve U.S. and European technological and industrial competitiveness. FDI, particularly if it is supported and channeled by the TTC’s efforts to coordinate transatlantic regulatory and economic policy, can help address these challenges. SelectUSA, as the federal government program tasked with promoting inbound FDI and strengthening U.S. competitiveness, will continue to facilitate investment in the U.S. and raise awareness about the critical role in plays in strengthening the U.S. economy.