IU report: Foreign direct investment on the rise in Indiana and across the country
June 26, 2013
BLOOMINGTON, Ind. -- A new Indiana University report indicates that foreign direct investment -- which has become crucial to the state and national economy -- has made a comeback after suffering the effects of the "Great Recession."
"The financial crisis or 'Great Recession' in 2008 certainly hindered foreign investment, due to the financial resource constraints as well as the uncertainty created by the crisis," said Timothy Slaper, director of economic analysis at the Indiana Business Research Center in IU's Kelley School of Business. "Fortunately, the majority of FDI activity rebounded nicely."
The report looks back at historical performance and forward to anticipated FDI performance. The latest historical data (2010) is from the Bureau of Economic Analysis, whereas announced FDI deals present a picture of future investment and job growth yet to be realized in the U.S. and Indiana.
The findings are available in a new report, "Capturing the Flag 2013: Foreign Direct Investment in Indiana," which is available on the IBRC's website.
Nationally, nearly 5.7 million Americans were employed at businesses where a foreign investor or company held at least a 50 percent stake, also known as a majority-owned U.S. affiliate or MOUSA. Despite the recent improvement, FDI activity has not returned to 2007 levels, when foreign investment in the U.S. reached $1.9 trillion.
Within Indiana, 133,600 Hoosiers were employed at MOUSA employers in 2010, a 1.7 percent increase from the year before, placing Indiana 14th nationally. MOUSA employment accounts for about 5.7 percent of state employment at private firms. The state has maintained its dominance in MOUSA employment within manufacturing, and FDI announcement trends for 2010 to 2012 indicate this dominance will continue.
"Between 2008 and 2010, nearly all Midwestern states experienced a sharper decline in MOUSA employment than the U.S.," the report said. "Among all Midwestern states, Indiana experienced the smallest decline in MOUSA employment (-4.8 percent) followed by Michigan and Kentucky (-5.7 percent)."
While manufacturing accounts for the largest share of MOUSA employment nationally, 37.7 percent, in Indiana it amounts to 63.2 percent. The 84,400 manufacturing jobs make up 3.6 percent of Indiana's total private-sector employment and 18.9 percent of its overall manufacturing employment.
Wholesale trade and information were two other industries in the state where MOUSA employment exceeded that of the nation.
"The strengthening share of MOUSA employment in the other industries may be reflective of increased diversity in FDI investment," the report said.
More foreign-based companies investing in Indiana and the Midwest
Each year, state agencies, media outlets and company press releases announce forthcoming investments to be made by companies, as well as the expected number of new jobs to accompany that investment. Nationally, from 2010 to 2012, 68 percent were intrastate investments made by U.S. businesses.
"This is a noticeable change from the 2009-11 time period where 91.5 percent of all U.S. FDI announcements were for intrastate investments by U.S. businesses," said Tanya Hall, economic research analyst and co-author of the study. "Within the Midwest and Indiana (during 2010 to 2012), approximately 30 percent of all announcements were made by foreign-based companies."
This also is a change from last year's report, which placed this statistic at about one-fourth of all such announcements in Indiana.
While not all job estimates can be verified, the IBRC report found that Indiana had 143 announcements between 2010 and 2012 valued at $4.7 billion, with an expected 12,429 jobs.
From 2010 to 2012, 4,347 FDI announcements were made nationwide, with an estimated value of $170.9 billion and 365,270 anticipated jobs. The Midwest continues to have nearly 20 percent of those announcements, the report said.
In terms of dollar value, the top three FDI announcements in Indiana came from British Petroleum, Energias de Portugal and Toyota Motor Co. Forty percent of the state's projected capital investment can be attributed to these three announcements.
From a job creation standpoint, the top three FDI announcements were made by Honda, which increased employment for production of its 2012 Civic natural gas vehicle; Fiat, which announced plans to open a transmission plant in Tipton; and Teleperformance USA, which announced plans to expand its call center in Hobart.
All together, the three companies are expected to create 2,450 jobs, or 20 percent of all FDI-announced jobs between 2010 and 2012.
Not surprisingly, Indiana's top FDI industries were automotive and components (45 percent of total), electronic components (6.7 percent) and metals (6.5 percent).
Tanya J. Hall
"Toyota, Honda and Fiat's expected job investments -- as well as the 48 other automobile and components industry announcements -- certainly contributed to Indiana's employment dominance in this industry relative to other geographies," Hall added.
Among the top destination sites for auto sector FDI, Indiana had the fourth highest anticipated auto-related jobs after Michigan, Alabama and Georgia.
Manufacturing remained the most popular business activity for foreign investment in Indiana, comprising 74 percent of all expected jobs, compared to 44.8 percent nationally.
The report incorporates data from the Bureau of Economic Analysis and fDi Markets, a service of the Financial Times. Support for the study came from multiple sources, including the Institute for International Business in the Kelley School.