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Foreign direct investment (FDI) is the movement of capital across
national frontiers in a manner that grants the investor control
over the acquired asset. Firms that use FDI are known as multinational
enterprises. Production in the foreign country is largely financed
by the multinational. Profits accrue to the multinational through
sales made by the foreign affiliate. It is an important avenue through
which U.S. food and beverage companies seek expansion in foreign
markets. Processed
food sales from FDI are almost five times as high as the value
of U.S. processed food exports.
While Europe continues to be the leading destination of U.S. FDI,
Canada, Mexico, and Asia/Pacific are also important markets (see
Excel table). Recent growth
in U.S. FDI to Europe is mainly from acquisitions of European-based
food companies. The United Kingdom, France, and the Netherlands
account for more than half of U.S. FDI in Europe. U.S. investments
in developing countries are driven by market expansion of processed
foods. Therefore, a large share of the FDI in these countries is
directed toward increasing processing capacity to meet growing consumer
demand.
Although food manufacturing comprised a large share of total U.S.
food industry FDI in past decades, the composition of U.S. FDI is
changing, with investments in retailing and food services rising
(see Excel table). In fact,
FDI growth in food services has experienced persistent growth unlike
FDI in food manufacturing, which tends to occur in cycles. FDI in
retailing and food services are important for foreign market development
activities of U.S. companies and have fueled the expansion of global
retailers like Wal-Mart and many fast-food restaurants overseas.
The beverage industry, characterized by the brand strengths of
U.S. companies, accounts for the largest share of U.S. FDI in food
manufacturing (see Excel table).
With U.S. technology and management expertise, grain and oilseed
milling account for the next largest share of U.S. FDI in food manufacturing.
The dairy sector, one of the largest food sectors in the United
States, has been less successful in gaining a foothold overseas,
and accounts for less than 2 percent of U.S. FDI in food manufacturing. In
fact, investments by foreign firms in the U.S. dairy sector have
exceeded similar U.S. foreign direct investment abroad. Foreign
firms have brought product and technological innovation to the U.S.
dairy market and have formed partnerships with U.S. firms to produce
and export dairy products.
Foreign investments abroad are influenced by national policies
and economic factors. The last two decades witnessed a shift away
from regulated and state-owned industries toward free-market enterprises
in many countries. Market opportunities for U.S. food companies
are improving in fast-growing developing countries, particularly
those with investment reforms underway. As these countries continue
to reform their business and investment rules and policies, FDI
flows into developing markets are expected to rise, further expanding
the market potential for U.S. multinational food firms.
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