Companies from some of the globe’s leading economies, like Japan, Germany and Canada, are expanding to the United States in what is proving to be a profitable and worthwhile commercial step. With a typically hospitable business environment, businesses across the world continue to choose the US as their offshore expansion host, thanks to the large, robust and diversified economy the US offers.
But what’s the landscape like for foreign companies?
What industries thrive in the US economy?
What challenges might foreign companies in the US face?
And why the US over other offshore locations?
That’s what we’ll explore today.
If you’re thinking of expanding your business to the United States, you’re in luck – we’ve got all the tea you’ll need to make the right decisions about US based business growth.
How to do Business in the US: The Commercial Landscape
When expanding to the US, companies are buoyed by the thriving multi-sectorial market in place. The US offers a vastly diverse and robust business infrastructure, leading-edge research institutions, and a predictable and stable regulatory environment.
The culture of innovation and risk-taking in the US, allows offshore companies to grow their operations with a workforce that is highly skilled and accustomed to entrepreneurial thinking and behaviour.
Business, government and academia are known for consistent collaboration. This fosters a culture of diversity, innovation, cutting-edge technology advancements and an impressively skilled working population.
The regulatory environment in the US is deeply supportive of entrepreneurship and global foreign direct investment (FDI). Bureaucratic hurdles are minimised for offshore business expansion, offering a favourable business climate. And importantly, government regulations encourage competition, consumer protection and support innovation, making it relatively easy to navigate the commercial landscape.
The US boasts the world’s largest economy, with a Gross Domestic Product (GDP) of over $25.5 trillion USD in 2022. This economic strength provides a solid foundation for entrepreneurs to build and scale their businesses.
Foreign Companies in the US: What Sectors Thrive the Most?
The US offers unlimited opportunity for almost any sector to flourish in its economy. Without being ‘known’ for one or two sectors, the US hosts industries that thrive in the long-term: hence, the favourable environment for companies looking for offshore expansion opportunities.
In 2021, the top five industries that attracted foreign business investment, were:
- Manufacturing: $2.1trillion in FDI inflow
- Finance and insurance: $621billion FDI inflow
- Wholesale trade: $483billion FDI inflow
- Information: $281 FDI inflow
- Technical, scientific and professional services: $222billion FDI inflow
Perhaps surprisingly, manufacturing makes up more than 40% of all offshore investment, by sector. Considering for the past 20 years, companies have sought low-cost manufacturing hubs, often in BRIC nations, it’s surprising and encouraging to see manufacturing taking such a lead for FDI inflows to the US.
And these investments in the US economy in 2021, were the third highest of the past decade, so the market is upbeat and remains a primary target for foreign companies to expand:
In terms of growth sectors in the US, again perhaps surprisingly, retail is the fastest growing industry segment of all FDI inflows.
Data are shown on a historical-cost basis, or cost at time of investment. Source: Bureau of Economic Analysis
Other key data on sector-based activity in the US, which is encouraging for offshore investment include:
- The professional services industry in the US holds 37% of the global market share. This sector alone is worth $2trillion in the US.
- Four cities in the US are ranked in the world’s top 10 for fintech. These are: Silicon Valley at #1, New York City at #2, Boston at #7, and Chicago at #9.
- The US is #1 for the global insurance market, representing 56% of all global insurance revenue.
- The US is the largest advertising market in the world.
Source: Foothold America
Potential Challenges of Expanding to the US
Expanding your business to the US may not be without its challenges. But understanding the potential hurdles, will prepare you for a successful venture.
Key factors to consider, so you don’t falter in your expansion plans include:
- Understand the payroll and tax system.
There are some major differences in the US compared to other major economies, especially regarding leave entitlements of workers, administering payroll and other statutory obligations. This link from the IRS provides you with comprehensive insight into your obligations as an employer. And this payroll tax guide from Forbes, will also be useful.
- Understand workers rights.
Workers’ compensation, minimum wage requirements and healthcare legislation are all part of workers’ rights, and there are multiple obligations employers’ are required to provide to workers. Check out this link for the full details.
- Visas and immigration issues.
If you’re sending executives or employees to a new offsite location in the US, you need to comply with immigration laws. Trade agreements can change visa obligations, so you need to stay on top of the rules. This link is a good place to start.
Broadly, you’ll need to be prepared to cover all facets of your business compliantly. From business insurance, product taxes, disability insurance and services taxes, compliance is a major administrative step you can’t avoid. Check out this link and this link for more information.
- State based accounting variations.
There are variations in laws relating to employment, tax, and employer obligations from state to state in the US. Individual states have their own tax codes – and penalties – so don’t be lured into thinking federal laws are the only ones applicable to your expansion strategy. This link will help you navigate the differences.
Other potential risks around employee classification, hiring staff, operations risks and remote working are also crucial for your consideration. Ideally, it’s a great idea to engage an expert for your talent needs, when expanding to the US.
Why Expand to the US Over Other Offshore Locations?
As you can see from the sector analysis above, the US is a very attractive host for global expansion across all major industries. But there are other reasons too.
For instance, technology. This is a space that affects us all, irrespective of industry. The value of technology plays a critical role in the performance and productivity of almost every sector. And the US is the #1 market for technology, globally. It represents 32% of the total global tech market and is valued at $1.7trillion. So, expanding to the US if you’re a tech player? Great move.
There’s also life sciences and pharma. The US is the leading global job market for life sciences talent, with three of the globe’s leading bio and pharma firms based here: they are Johnson & Johnson, Amgen and Pfizer.
And access to funding is also another major plus. In 2021, American venture capital (VC) activity totalled $164billion invested in 10,000 US-based startups. In the first six months of 2021 alone, VC investing in the US was five times that of the whole of Europe.
Another valuable reason for expanding to the US is the sheer size of the market. The US is the world leader in gross domestic product (GDP) totalling over $20trillion. In 2021, the US experienced 5.7% GDP growth, holding what has been a decades-long trend. And the economies in several US states rival that of entire nations. Check out this data, where New York’s economy is larger than Russia, California’s economy is larger than the UK, and the economy in Texas is larger than Canada – impressive stuff:
Source: Foothold America
The United States is a great option for business expansion. With an incredible entrepreneurial ecosystem and an incomparable consumer market, it’s the obvious option for international growth. But be warned, you need to be prepared. That’s where CXC can help. Contact us to discuss your expansion plans for the US – we’ll make sure it’s as profitable and headache free as possible.