Organization for International Investment

Based in Washington, D.C., the Organization for International Investment (OFII) is a trade association representing the interests of US subsidiaries of overseas corporations. OFII advocates for non-discriminatory treatment in the United States for its member companies.

Background

OFII traces its roots back to 1990 when a group of US subsidiaries of Foreign-Owned Corporations worked together to fight a proposed tax in California on global profits. The original group included Nestle, Sony, Unilever and four other non-US-based corporations.^[1]

As an aggressive advocate for fair, non-discriminatory treatment, OFII serves its member companies by monitoring and reporting new regulatory developments and by lobbying policymakers at the Federal and State level. With over 150 member companies, OFII’s membership base has a constituent relationship with nearly every politician in the United States.^[2]

OFII began using the term “insourcing” in 2004 to describe jobs created through Foreign Direct Investment in the United States. Since then, the term appears regularly in government publications including a Congressional Research Services report published in 2005^[3] (and updated in 2008^[4]) and in publications on promoting International Trade Administration of the United States Department of Commerce.^[5]

Issues

Inward Foreign Direct Investment in the United States

Inward Foreign Direct Investment [FDI] constitutes 13.6% of US GDP.^[6] According to the Bureau of Economic Analysis, the United States received $237 billion in FDI in 2007.

In 2006, US affiliates of majority-owned foreign companies employed over 5 million workers – 4.6% of US private sector industry employment [3]. Between 2003 and 2007, over 3300 projects have yielded $184 billion in investment or about 447,000 new jobs. The activities of these companies comprise approximately 19 percent of all US exports ($169.2 billion). Approximately 60% of all inward FDI goes to the service sector while 39% goes to manufacturing and the remaining 1% is in agriculture. This investment constitutes 12% of overall private sector employment.[3]

In addition to contributing to total employment, US affiliates of majority owned corporations remunerate their employees at a higher level than US firms. Wages for workers this sector averaged $66,042 compared to the median income of $50,124 in other industries.

Inward Foreign Direct Investment: Mergers and Acquisitions

In 2006, there was a total of $161.5 billion of new Inward Foreign Direct Investment in the United States. Of this total, 91.5 percent was invested through Merger and Acquisition transactions.

In a report for the Organization for International Investment,^[7] Professor Matt Slaughter of the Tuck School of Business at Dartmouth cites three channels through which Mergers and Acquisitions create better performing firms:

1) Revenues – Firms grow faster with new market opportunities often boosting employment and capital investment
2) Costs – Can be lowered because of operation at larger scale and realizing synergies from combining best practices across companies
3) Diversification – Gains can be realized, such as entering new markets and better managing ideas, internal capital markets, and risk.

When the rationale for completing a Merger and Acquisitions is to improve the bottom line of the above factors, Slaughter argues, significant advantages are possible. However, when firms expand to pursue goals other than profit maximization the benefits of these transactions may be lost.

Inward Foreign Direct Investment: Greenfield Projects

While constituting a smaller percentage of total inward foreign direct investment flows, new projects or “greenfield” investments contribute to economic growth. Since 2003, Greenfield investments have increased 42 percent ^[8]

Greenfield projects are expected to create approximately 175,000 jobs from investments begun in 2003. Major investments come from Toyota Motor Company, the Hanjin Group, Adidas, the Tata Motors, and Vodafone. Total investment totals $109.5 billion [8].

In 2005, these companies spent $32 billion on research and development and $121 billion on plants and equipment.[8]

References

1. ^ [1], Barshay, Jill. "The New Kids on K Street. (Cover Story)." CQ Weekly 63, no. 28 (07/11, 2005): 1890-1896, (accessed October 16, 2008).
2. ^ [2]
3. ^ [3], Jackson, James K. Outsourcing and Insourcing Jobs in the U.S. Economy: An Overview of Evidence Based on Foreign Investment Data. Washington, DC: Congressional Research Service, 2005, (accessed October 16, 2008).
4. ^ [4], Jackson, James K. Outsourcing and Insourcing Jobs in the U.S. Economy: Evidence Based on Foreign Investment Data. Washington, DC: Congressional Research Services, 2008.(accessed October 16, 2008).
5. ^ [5], Gibson, Neil, Aaron Brickman, Charles Schott, and Jennifer Derstine. Assessing Trends and Policies of Foreign Direct Investment in the United States. Washington, DC: Invest in America, International Trade Administration, US Department of Commerce, 2008.(accessed October 16, 2008).
6. ^ of Economic Analysis, Foreign Direct Investment in the United States
7. ^ [6], Slaughter, Matt. Insourcing: Mergers and Acquisitions. Washington, DC: The Organization for International Investment, 2007, . (accessed October 16, 2008)
8. ^ [7], Platzer, Michaela. The Impact on the U.S. Economy of Greenfield Projects by U.S. Subsidiaries of Foreign Companies. Washington, DC: The Organization for International Investment, 2008, http://www.ofii.org/docs/GREENFIELD_2007_Revised_Final.pdf. (accessed October 16, 2008).

Further reading

• Official Website of the Organization for International Investment – http://www.ofii.org

• Congressional Quarterly Barshay, Jill. 2005. "The New Kids On K Street. (Cover story)." CQ Weekly 63, no. 28: 1890-1896. (accessed October 6, 2008. http://www.ofii.org/newsroom/news/ofiicqweekly.pdf

• United States Bureau of Economic Analysis – http://www.bea.gov/bea/ai1.htm#FDIUS