New York City has reached historic levels of jobs and economic activity, thanks to its status as a global center of finance, commerce and innovation. In an era of rapid globalization, New York’s success would not be possible without the contributions of more than 5,000 foreign companies that have their U.S. headquarters and significant business operations in the city.
Foreign companies currently employ 298,000 New Yorkers and contribute 11 percent of the city’s total $761 billion annual economic output. Foreign direct investment (FDI), which refers to the investment companies make in their foreign business operations, helps diversify the local economy, insulate it against economic downturns and forge relationships that increase opportunities for domestic enterprises abroad.1
New York has more FDI than any other city in America, but it lags London and some other top-tier international cities. In the past decade, London has attracted $65.6 billion in FDI inflows, compared to New York’s $30.6 billion. Other global cities have been doubling down on their FDI efforts, with aggressive marketing programs carried out by dedicated agencies that roll out the welcome mat for foreign businesses. This has created unprecedented competition for the jobs and economic activity that FDI generates.
The challenge for New York has increased recently as a result of more restrictive federal immigration policies and “America First” procurement and trade policies. High corporate and personal tax rates and New York’s aging transportation infrastructure are other factors that discourage FDI, especially when compared to other major cities around the world.
New York is overly dependent on historic relationships: 78 percent of its FDI comes from Europe and very little from the rapidly growing economies of the developing world. Over the past 10 years, jobs created by foreign businesses in New York City have grown an average of 2 percent annually, which is in line with historical trends, but relatively modest in a rapidly globalizing world. FDI has remained very concentrated, with over 90 percent going to Manhattan and over 60 percent in the retail sector.
One notable change in FDI flows to New York over the past decade has been in the tech sector, which has increased an average of 25 percent annually and is on a trajectory for significant future growth. Tech companies are attracted to New York’s burgeoning innovation economy and strong market of early adopters of new technology in the financial, media and health sectors.
New challenges and opportunities prompted the Partnership for New York City to revisit and update its study of FDI impact on the local economy that was initially published in 2008. For this new report, the Partnership has joined with global consulting firm A.T. Kearney to conduct interviews, research and analysis in order to assess the current status and future trends for FDI in New York.
For this study analysis was limited to the economic activity generated by FDI—jobs created and contributions to Gross Domestic Product (GDP)—and analyzed FDI stock (assets owned by foreign entities as a result of historic investment) as well as greenfield investment (also referred to as FDI inflows, meaning new investments or reinvestments). Merger and acquisition, real estate and construction activity was excluded from the analysis because it creates large swings in inward foreign investment without necessarily creating new permanent jobs. This work is intended to inform public policy and encourage support for initiatives that attract and sustain foreign business activity in the city and state.
New York has always been America’s gateway for international talent and business investment, which has defined the city’s diverse and resilient character. This study suggests that New York has a significant opportunity to increase economic activity through a strategic focus on attracting and retaining foreign companies, particularly in the tech sector.
Foreign direct investment has been central to New York City’s economy since it was established as the center of the new world economy by 17th century Dutch traders. Today, however, New York trails counterparts that are better organized to maximize the size and impact of FDI and generally enjoy the support of their national government in this effort.
During the next five years, New York should be able to exceed FDI growth projections beyond the 248,000 jobs projected for the city and state. This will require a strategy for diversifying the origins and industries that currently dominate FDI, by increased outreach and marketing to business in fast-growing economies that currently have minimal presence here.
A modest, but well-coordinated, clearinghouse for information and services to foreign companies looking to establish or expand business operations would be helpful, particularly for those with few institutional relationships in New York. This “point of contact” or first stop is common in cities that excel in attracting FDI (e.g., London and Partners, EDB Singapore), and is a crucial part of their strategy. The clearinghouse function can also support reciprocal efforts to help domestic companies expand their reach into markets around the world, recognizing that effective FDI policy is a two-way street. There are hundreds of fast-growing cities in developing nations that are competing for investment, talent and jobs, as well as established cities where national policies and local incentives are more attractive than what New York City currently offers.
The observation of most foreign executives interviewed for this study was that New York City remains their preferred location, but in a changing political and economic climate, it would be a mistake for the city to rest on past laurels. New York City cannot take its status as a global business capital for granted.
The full report commissioner by the Partnership for New York can be downloaded here: Global-Business-Local-Benefit-Nov-2017.