Top international expansion countries and a stat you need to know

5 June 2019
Much of our economic news lately has been dominated by the trade war between the U.S. and China, including escalating tariffs on both sides. For their part, U.S. authorities have offered reasons for the tariffs, from China’s “unfair policies and practices relating to United States technology and intellectual property” to a desire to “protect the interests of [U.S.] working men and women.”

While there may be many reasons for the U.S. tariffs, the current administration is mostly bent on lowering the U.S. trade deficit with China, which now stands at around $378 billion. A White House statement regarding trade talks with China clarifies this, indicating the U.S. is “particularly focused on reaching meaningful commitments on structural issues and [trade] deficit reduction.”

The trade deficit is simply a measure of the difference of the value of imports between the two countries. There is another important measure that also sheds light on the balance of economic power between the U.S. and China. That measure also speaks powerfully to how U.S. companies operate and where they make their money. Most commentators, however, never mention it.

Bureau of Economic Analysis Surveys

The U.S. Department of Commerce’s Bureau of Economic Analysis (BEA) measures (among other things) foreign trade and investment statistics. In particular, it collects and publishes information on the worldwide activities of U.S. multinational enterprises (MNEs) and their foreign affiliates.

The BEA gets its data from mandatory surveys of U.S.-owned companies. The surveys contain questions about the MNEs’ activities in non-U.S. countries, including those related to sales made by foreign affiliates of U.S. parent companies.

Foreign affiliate sales explained

Sales by foreign affiliates of U.S. companies are even larger than you might expect. The BEA report “Sales by Country and Industry” shows that in 2016 (the most recent year for which the bureau has data), foreign affiliates of U.S. parent companies took in a whopping $5.7 trillion in sales outside the U.S.

This staggering number — known as U.S. foreign affiliate sales — is the seldom-mentioned statistic in virtually all ongoing discussions about the U.S. trade imbalance with China. CNBC’s senior economics reporter Steve Liesman notes in a recent interview that if foreign affiliate sales were factored into the calculation of trade between the U.S. and China , the U.S.’s deficit would almost be eliminated. He points out that according to the BEA numbers, U.S. sales in China amounted to roughly $345 billion, very close to the U.S.’s current trade deficit of $378 billion. Sales by Chinese companies in the U.S. — about $35 billion annually — are relatively paltry and do little to re-inflate the U.S. deficit. Speaking of relativity, it’s also worth emphasizing that China is not the top country for U.S. foreign affiliate sales — it’s fifth on the BEA list.

All of this is evidence of what those of us in the business of international expansion already know: U.S. companies have been and continue to be hugely successful in bringing their products and services to non-U.S. markets through setting up and maintaining operations abroad.

Top ten international expansion countries for U.S.-based companies

This leads me to one of the most frequently asked questions from our U.S.-based clients and prospects. Namely: What are the most popular destination countries for U.S. companies? Below is a list of the top ten expansion countries for U.S. companies based on sales. The sales numbers are from the BEA report I linked to earlier and are rounded up to the nearest billion.

  1. United Kingdom: $607 billion
  2. Canada: $540 billion
  3. Singapore: $366 billion
  4. Ireland: $362 billion
  5. China: $345 billion
  6. Germany: $341 billion
  7. Switzerland: $314 billion
  8. Netherlands: $266 billion
  9. Mexico: $232 billion
  10. Japan: $230 billion

When considering the above list in light of your own organization, keep in mind that every company has its own unique reasons for expanding to a particular country or countries — from exploring a new market to providing local support for a large client. Just as important, each country presents its own benefits and challenges. The United Kingdom, for example, is enormously attractive to many U.S. companies because of its similar legal system, native English language, highly skilled workforce and position as an entryway to the wider European market, among other factors. Now, however, some companies may be wary of expanding to the UK due to Brexit-related uncertainties.

I mention these factors because, while a top-10 list of U.S. expansion countries by sales provides interesting and useful data, it should not necessarily tip the scales in your organisation’s decision of where to expand. Many rising economies that are enormously important to our clients — such as Poland, Brazil, Israel and Malaysia — don’t even appear on the above list. (Though you will find information on them in the full BEA report.)

Perhaps the most important number in the BEA report — and in this post — is the $5.7 trillion in sales that foreign affiliates of U.S. companies took in over the course of a single recent calendar year. The statistic provides concrete evidence that international expansion and operations remain powerful tools for growth, even amid rising protectionism and populist rhetoric.