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Unit 27: FDI : Types and Issues

assess the full contribution of this investment to the overall employment picture. Foreign firms can Notes
invest in the U.S. economy in three ways : by adding to current investments; by establishing a new
venture, termed, a “greenfield” investment; or by acquiring an existing U.S. business. The data in
Table 4 exclude additions to employment that can be accounted for by on-going foreign-owned firms
and focus on U.S. businesses that are acquired or are newly established by foreign investors.
The data in Table 4 also indicate that during the 1998-2008 period, acquisitions of existing U.S. firms
accounted for nearly 90% of the assets of the businesses that were either newly established or acquired
by foreign investors, 95% of the increases in employment, 92 % of the sales, and 91% of the investment
outlays. As a result, employment associated with acquisitions of established U.S. firms accounts for a
large part of the total number of employees of foreign firms that currently are operating in the United
States. It is likely that such acquisitions help to sustain the level of employment of the acquired firms,
but it is difficult to estimate how much new employment is added to the economy as a result of the
extensive role foreign acquisitions play in the economy. It also is unclear what long-term impact
these acquisitions are having on employment among the acquired firms. In some cases, foreign firms
may use their acquisitions as a springboard to expand their operations and, therefore, their employment
in the United States, in other circumstances, they may use an acquisition to consolidate or to streamline
other operations, which may result in reducing their level of employment.

Table 4 : U.S. Businesses Acquired or Established by Foreign Investors
(in millions of dollars, unless otherwise indicated)

U.S. business enterprises acquired U.S. business enterprises established
Total Total Number Investment Total Number Investment
assets assets Sales of empl. outlays Assets Sales of empl. outlays

1998 $274,349 $218,483 $147,434 603,385 $182,357 $55,866 $17,471 21,199 $32,899
1999 454,012 430,226 115,534 589,311 265,127 23,786 8,718 13,368 9,829
2000 482,021 463,142 153,525 748,952 322,703 18,879 7,204 21,068 12,926
2001 382,308 311,220 90,778 335,088 138,091 71,087 18,131 74,879 9,017
2002 105,516 92,800 51,945 211,679 43,442 12,716 3,735 6,808 11,077
2003 219,072 198,474 51,376 161,607 50,212 20,598 3,173 4,449 13,379
2004 308,638 252,481 60,592 199,227 72,738 56,127 6,744 12,366 13,481
2005 181,846 148,695 65,188 230,825 73,997 33,151 1,953 5,045 17,393
2006 356,541 343,454 78,395 214,660 148,604 13,086 868 686 16,999
2007 411,777 377,551 159,438 487,000 223,616 34,226 3,240 9,598 28,301
2008 895,733 872,291 176,657 364,469 242,798 23,443 6,284 4,036 17,564

Source : Anderson, Thomas, Foreign Direct Investment in the United States : New Investment in
2008. Survey of Current Business, June 2009.

As Table 5 shows, acquisition activity is not limited to foreign firms, but is a well-established feature
of the overall business climate in the United States. In terms of the number of acquisitions that were
completed, 1998 stands out as the most active year, with over 10,000 deals completed. As the U.S.
economy posted strong economic growth through the later 1990s and into the early 2000s, such
acquisition activity remained strong among all three groups : U.S. firms acquiring U.S. firms; foreign
firms acquiring U.S. firms and U.S. firms acquiring foreign firms. On average over the 10-year period,
nearly 8,000 acquisitions were completed each year among the three types of investments. The share
of these transactions accounted for by foreign acquisitions of U.S. firms grew by 50% over the 1998-
2007 period, rising from 8% of all acquisition transactions in 1998 to nearly 15% of all transactions in
2007. Merger and acquisition activity slowed markedly in 2008 and 2009 as the financial crisis and
economic slowdown reduced corporate profits and substantially reduced access to financial resources.

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