The impact of foreign direct investment on architecture
Before working on projects for foreign clients, US-based architecture firms should first understand how foreign investors operate
While many firms have increased their international practice as emerging economies have become viable markets, others have decided to forgo looking for international work or taking on the risk of international projects. In a world that is increasingly interconnected, even if a firm makes a strategic decision to not pursue international markets, impact can still be felt in domestic work due to foreign direct investment (FDI). FDI is an important economic driver for the United States and has the ability to create project opportunities domestically for US-based firms.
The US is the number-one destination for foreign direct investment in the world. In 2015, $384 billion USD of foreign capital flowed into the US economy. In 2016, A.T. Kearney’s FDI Confidence Index ranks the US as the number one destination for the fourth year in a row, ahead of competitive nations such as China, Germany, Canada, and the UK. According to A.T. Kearney, because of uncertainty in emerging markets, investors are turning their attention to North America and Europe. Developed countries make up the top-five foreign investors into the US, while emerging markets are the fastest growing sources for foreign investment.
Why is the US the first choice for many foreign investors, regardless of industry sector? There are many factors that drive investment into the US, including:
- Market size: Because of the size of the consumer market—320 million people, with the highest household spending in the world—the US is an attractive destination for companies seeking to penetrate the market;
- Innovation: The US is recognized for leadership in innovation and research & development, thanks to our educational institutions and businesses;
- Ease of doing business: The attractiveness of a stable economy and a relatively safe investment environment, as compared to other emerging or mature markets, attracts investors from industries worldwide;
- Workforce talent: The diverse, highly skilled, and mobile workforce makes the US one of the most productive global workforces, equipped to meet growing demands;
- Abundant resources: The country has an abundance of natural resources, along with an infrastructure network that makes goods movement more efficient;
- Access to capital: Companies in the US have a wide range of funding sources—including banks, investment firms, venture capitalists, and angel investors—that enable continued growth and innovation;
How to build a foreign investment portfolio
So how do US-based architectural firms leverage the opportunity to work on projects that are a result of foreign investment? Here are a few areas to focus on:
- Network: Projects are won not only by the quality design your firm can provide, but also by the relationships you have built;
- Industry contacts: Leverage contacts within specific practice areas to stay abreast of upcoming opportunities and trends;
- Foreign embassies/consulates/chambers: Build name recognition amongst select countries that are investing heavily in the US;
- Your local economic development office: Contact the office in your city or state to keep abreast of efforts to attract foreign investors and upcoming projects
Servicing a foreign client can be both rewarding and challenging. Two US professionals working on projects with foreign clients offer the following insights:
- Foreign clients are attracted to firms with a name brand in the industry. Larger firms have an advantage, but they are not guaranteed the work. Firms must still compete and differentiate themselves.
- Firms might have to be patient and help the client understand the approval processes and nuances of developing projects in the US.
- Understanding a foreign entity’s management structure and ability to pay for services is important for project success. Even though the foreign client has set up an office or is pursuing a project domestically, in some cases the home country management still makes the decisions.
- Having staff that can support the project with cultural competency and language skills contributes to the overall success of the relationship with both the client and the project itself.
US-based firms can be actively involved in global markets without ever leaving American soil. The attractiveness of the US market for foreign investors makes this possible. Even if your firm is not pursuing international projects, develop a strategy to capture inbound investment projects that are so important to the US economy and your firm’s bottom line.
Terri Batch is an international trade consultant at Batch Global Strategies.