Direct Foreign Investment in United States, Research Paper Example

U.K. direct foreign Investment in United States

Foreign direct investment is defined by United States as the ownership and or control, indirectly or directly by foreign persons or people as individuals, partners, association or even government of 10 percent or more of voting securities of U.S. incorporated business enterprise or equivalent interest in U.S. unincorporated business enterprise (John 55).

In year 2007, the investment spending by the foreign firms was equal to 12 percent. The spending by foreign firms was sustained by large increase in debt flows between intercompany as the affiliates of U.S. increased their borrowing from parent companies from other countries or foreign firms. Direct investment was financed through earnings that were reinvested and equity capital increases (John 57).

Direct foreign investment in United States totaled to $325.3 billion in year 2008. This compared to $237.5 billion in year 2007 hence a 37 percent increase. Over five years, direct foreign investment increased sharply from $63.8 billion in year 2003 to $325.3 billion in year 2008. Foreigners investment was high compared to overall U.S. economic growth which increased only by 1.1 percent in 2008 (John 60).

The leading foreign investor in United States by year 2008 was United Kingdom. It invested $57 billion dollars with following countries like Belgium investing $57 billion and Switzerland investing $39 billion. Other countries that were leading in the investment in 2008 were Japan, Netherlands, Canada and Spain. The foreign direct investment in United States was very high in 2000 with over $321.3 billion which decreased to $167 billion in 2001 and fallen to $63.8 billion in year 2003. This was lowest foreign direct investment in the United States but it rose in later years and increased sharply to $325.3 billion in year 2008 (Dennis 45).

Countries with foreign direct investment in United States in year 2008

The foreign direct investment in all industries in U.S. at 2007 was as follows in U.S. million dollars.

All countries 2,093,049

United Kingdom 410,787

Germany 202,648

France 168,576

Netherlands 209,449

France 168,576

Canada 213,224

Europe 1,482,978

The UK and U.S. are the largest foreign investors to each other. The U.S. stock on foreign investment in UK was totaling to $398 billion at the end of year 2007. The main facilitator to the U.S market entry by UK is the common language, similarity in business institutions and also practices as well as legal heritage. These are the main reasons why UK has become the largest direct foreign investor in United States (Dennis 40).

In manufacturing sector, Netherlands leads as a direct investor followed by U.S. by the end of year 2007.U.K. leads with margin in the whole trade in the direct investment in US by the end of year 2007 with $72240 million followed by Netherlands with only $21444 million. In the services industry, UK is the major investor in the direct foreign market in United States with over $28616 millions followed by Netherlands which had $6742 million by the end of 2007. Other sectors or areas of direct investment by the United Kingdom to United States are manufacturing, retail trade, information, banking, finance, real estate and other industries (Dennis 46).

The US-UK relations on trade are very close. US market is home to about 4 percent of world population. It comprises of 50 states and a federal district. The Britain’s largest market is US is leading destination of the British overseas investment. It has self contained economy that is very large and large and integrated with representation of every major industry. Foreign firms seeking to invest or even do business in US are not restricted except on some strategic ownership of industry restriction and a few import quotas. This makes direct investors from foreign countries like U.K. to be able to invest easily without restriction that hinders business.

United States is attractive market of the UK investors and exporters. This is mainly due to the economic and political stability of United States: common culture and history: a strong relationship that underlies between the UK and the US: most US consumers and business people take it in a favorable and even positive light hence making it dominate US market among the foreign investors: the reputation that the UK goods have gained in US due to their quality has also greatly contributed to its dominancy in the market:  the US manufacturers get components from oversees hence the UK is one of materials provider for US manufacturers: and finally there is active support at the state and also federal level for the international investors especially from UK (John 34).

U.K. provided various components or exports to U.S. which is shown in the pie chart below (James).

Some major UK exports to USA are machinery and the transport which is approximately 40 percent. Chemicals and related products also contribute to the exports to United Kingdom. Other major exports to US from UK are mineral, fuels, lubricants, oils (animal & vegetable) fats and waxes, manufactured goods, beverages and tobacco, food and miscellaneous manufactured articles (James).

Almost one third of the foreign direct investment in US is held in the manufacturing sector. 14 percent of total foreign direct investment is invested on financial services sector. 19 percent of direct foreign investment was in fabricated and primary metals and chemicals in 2008.

Certain industrial sectors are dominated by one or two countries which suggest a certain form of specialization internationally within investment patterns of the multinational foreign firms. In year 2006, United Kingdom and Netherlands accounted for highest investment in petroleum sector (James).

The foreign firms from United Kingdom provide employment to millions of people in United States. Foreign firms have got direct investment presence in each and every state in United States. This ranges from 543000 in California to 7000 in North Dakota. Other areas that recorded highest number of employment by foreign firms were New York, Texas, Pennsylvania, Illinois, and Florida among others. U.K. firms provided 25 percent of employment in wholesale trade sector alone as a foreign investor in this sector. The average employee compensation in the finance sector is highest with $229000 with United Kingdom and others like Switzerland, Canada and Japan accounting for 75 percent of employment. The United Kingdom services exports to United States was $22.8 billion in year 2005 (James).

The United States has attracted U.K as a foreign investor due to lower tax rates and to a greater extent the consumer wealth and the labor productivity in U.S. U.S. labor is one of most productive in the world hence one major reason of foreign investors in U.S. by United Kingdom.

The foreign investment by United Kingdom has increased the capital amount i.e. in terms of equipment, land, building, copyrights, patents, goodwill and trademarks. The United Kingdom foreign investment raises the income, productivity and even employment in the United States. The foreign capital availability lowers the capital cost to corporations. This eventually makes equipments and plants cheaper making investments projects to be possible and even profitable hence raising the firm values.

Although the United Kingdom is viewed as most reliable and staunchest ally of Washington or US by many officials from U.S. and also congress, there are many critics about the direct investment by United Kingdom to U.K. It has been argued that Blair received very little from United States as he supported the controversial U.S. policies. It is also being seen as the current British Prime Minister Gordon Brown may likely not allow the United States to influence the UK foreign policies (John 50).

The United Kingdom trade policy is to some extent formulated within the context of European Union. The U.K-U.S. disputes on trade are resolved or taken up by the framework of European Union. Trade tensions persist despite U.S.-EU harmonious economic relationship. Despite these tensions, United Kingdom continues to be consistent supporter of the EU-U.S. in lowering or reducing the barriers of trade and strengthening the system of multilateral trade.

United Kingdom and United States continue to share mutual benefits and increasing relationship on economy. All these as well as UK policies within the EU and together with United States have to a greater extent helped promote and even maintained a more efficient and open world trading system.

Whether the EU evolves into more rational actor or the UK draws closer to Europe in coming years, the relationship between the United States and the United Kingdom will remain a crucial factor in the British foreign policy conduct. This will enhance special relationship between those countries and therefore improved and boosted trade and investment (Dennis 34).

Although some other countries are also big investors in the United States. The UK has dominated this direct foreign investment market and it is of late increasing rapidly, but this does not mean that other countries are not investing, it only that there are conditions that favor these conditions between the United States and the United Kingdom. Netherlands and German are also big investors of the United States in the direct foreign investments.

Works cited

Dennis Campbell k. International protection of Foreign Investment. New York: Lulu.com, 2008.

James Jackson K. CRS Report for Congress. Foreign Direct Investment in the United States. 15 August, 2008. 5 Dec. 2009 http://fpc.state.gov/documents/organization/109490.pdf

John, Dunning & Sarianna Lundan. Multinational enterprises and global economy. London: Edward Elgar Publishing, 2008.