Today, there are roughly 103,000 multinational corporations, more than fourteen
ID: 393296 • Letter: T
Question
Today, there are roughly 103,000 multinational corporations, more than fourteen times as many as in 1970, and 9,692, or 9.4 percent, are based in the United States. Direct foreign investment occurs when a company builds a new business or buys an existing business in a foreign country. Of course, companies from many other countries also own businesses in the United States. Overall, foreign companies invest more than $2.5 trillion a year to do business in the United States and US companies invest more than $4.6 trillion a year to do business in other countries. Historically, governments have actively used trade barriers to make it much more expensive or difficult (or sometimes impossible) for consumers to buy or consume imported goods.
Please provide your thoughts related to the above information in within about one page.
Explanation / Answer
As per the 2016 A.T.Kearney FDI Confidence Index, USA is still the top-ranked FDI destination in the world primarily because it has proven to be resilient to the risks faced by other countries, including the developed ones. US companies’ global leaders have indicated that they would continue to invest more internationally as it is an important factor to maintain profitability and competitiveness in the years to come. The location options for many of these major US firms has expanded dramatically as many countries have stabilized their macroeconomic numbers, opened up their markets, improved infrastructure and academics and also upgraded the skills of the workers.
The high level of investment in US is strongly related to the US having strong location advantages –
- Work class education system
- Talent and Intellectual Property protection
- Access to Capital
- Growing domestic markets
Companies located outside the US, are now shifting base back to US to create new opportunities.
As can be seen by the FDI outflow has been nearly double of the inflow, many major companies have set base in foreign countries for various reasons which could be better margins, better ease to do business or a long term objective to cater to the local demand.
Since trade barriers can be put in place by hiking tariffs for many products, currently we can see the trade wars between USA and China. USA just recently imposed tariffs on goods worth $200 billion coming from China. In retaliation China increased tariffs on $ 60 billion worth of goods. These are testing times and the US administration want all major players to return and set shop in the USA so that they can create new jobs and carryout welfare of the local community.