One Source of Business Capital: Foreign Direct Investment
by James M. Bowen, CPA, MT, tax partnerIf there’s one thing that no small business can have too much of, it’s capital. In fact, undercapitalization is one of the primary causes of small business failure. Companies with great products, services or ideas often fail due to a lack of cash.
Not surprisingly, owners spend lots of time trying to raise more capital for their companies — whether to meet everyday operating expenses, pay accounts receivable or take advantage of new business opportunities. Banks, venture capitalists, angel investors and even the public markets are the most common sources of business capital.
There is another source of capital, however, that is largely overlooked by most small business owners: foreign direct investment (FDI). Many investors and large companies overseas are looking for attractive opportunities to invest in U.S. businesses with strong financial and management track records, unique ideas and patents and/or cutting-edge technology. If this describes your company, you may be able to attract foreign investment capital.
FDI in the U.S.A. In the midst of a worldwide financial crisis, the United States is one of the world’s most attractive destinations for FDI, according to a report issued by The Economist Intelligence Unit titled “World Investment Projects to 2010: Boom or Backlash?” The report notes that the United States is the world’s largest host of FDI in absolute terms. The country’s wealth of market opportunities plus its investor-friendly, entrepreneurial culture underpin a bullish forecast for FDI in the U.S. over the next couple of years as we begin to emerge from the economic downturn, the report concludes.
The U.S. has always provided a stable and welcoming market for foreign investors, with its predictable and transparent legal system, low taxes, outstanding infrastructure and access to the world’s most lucrative consumer market. With a GDP of more than $14 trillion — which is greater than the world’s next four largest economies combined — the enormous size of the U.S. market is an obvious attraction for foreign investors. The falling value of the dollar in recent years also makes investing in U.S. businesses more attractive to those overseas.
In addition, the United States’ business environment score ranks fifth in the world, and it remains a global leader in technology and productivity. “Foreign companies increasingly view having operations in the U.S. as a way of gaining access to the technology and processes that have made its productivity growth possible, and subsequently applying them to other operations around the world,” states the report.
Sources of Assistance Here are a few sources that may be able to help you locate overseas FDI partners interested in investing in your company:
- The International Trade Administration (ITA): This branch of the U.S. Department of Commerce promotes international trade and investment for domestic companies by helping businesses navigate foreign markets. Its Invest in America initiative is focused on outreach to foreign governments and investors and support for state governments’ investment promotion efforts. The ITA helps address business climate concerns for the international investment community. Find it online at http://trade.gov.
- State Departments of Economic Development: Most states’ Economic Development Departments take an active role in helping promote FDI among companies in the state. For details, visit your state’s Economic Development Department online and enter “FDI” in the keyword search.
- Bi-National Chambers of Commerce: Usually organized at the state level, these help businesses develop potential investment contacts overseas and foster, promote and develop commercial relations and exchanges between the state and specific foreign countries. In California, for example, there are 109 bi-national chambers of commerce currently active in the state’s international business community.
- Business and Trade Missions: These initiatives — which can be organized at the county, state or federal level — introduce businesses and investors in other countries to their counterparts in the U.S. They often consist of overseas trips and in-country briefings where American business owners can meet potential foreign investors face to face.