Current Foreign Investment in Tennessee: Putting Volkswagen in Context
The decision of Volkswagen to locate in the Chattanooga area heralds the largest single foreign investment into this state in some years. Its announced investment ($1 billion) will equal five percent of all current foreign investment in the state. Perhaps it's a good time to look more generally at recent trends in foreign investment into Tennessee. Net foreign direct investment (FDI) into Tennessee has grown by nearly $5 billion over the past 10 years. According to the state's Department of Economic and Community Development, foreign companies hold investments valued at $19.47 billion in the state as of July 2008. On the other hand, this net investment position is down by $3 billion from its peak two years ago. This is mostly due to a significant decline in net investment from Canada and the U.K. Net foreign investment is, however, perhaps not the best way to measure the impact of foreign investment on the Tennessee economy, as it includes the sales of previously owned operations as well as new purchases and new investment put into the economy. If we look at gross foreign investment into the state, we find that it has expanded rather steadily throughout the past decade.
By this summer, there were 667 foreign-owned operations in the state.1 This is nearly 200 more than a decade ago. Sixty-seven new foreign operations have begun in just the past three years. There are probably not too many surprises regarding where this investment comes from. Japan remains by far the largest source of foreign investment in Tennessee. It is the home of one-fifth of the state's foreign-owned facilities and just under 60 percent of all announced foreign investment. Even before the Volkswagen announcement, Germany was the state's second-largest source of foreign investment ($2.1 billion). Tennessee has added six new German-owned operations in the past three years, placing it behind Japan, the U.K., and Canada in the number of foreign facilities operating in the state. An interesting change is the steady growth of foreign investment from the developing world. Ten years ago, the state hosted only 19 operations, with an investment value of about $270 million, from what used to be called the "third world." Today there are 51 operations valued at $631 million. With 19 operations, Mexico leads in number, but Brazil leads in value, with Brazilian-owned investment worth $273 million.
Foreign operations are overwhelmingly in either the manufacturing sector or in wholesaling and distribution. The state continues to hold a higher percentage of employment in foreign-owned firms than does the nation. Almost 18 percent of Tennessee's manufacturing employment is in foreign-owned operations versus 11 percent for the nation. This gap has actually been increasing over the past decade. However, overall employment in foreign-owned firms has dropped a bit in recent years after peaking in 2006. In 2008, about 113,276 individuals held jobs in foreign companies, barely more than the 112,903 of 10 years earlier.
The lion's share of this investment remains in electronics and automotive-related manufacturing. Denso's December 2007 announcement that it was expanding its Maryville plant, at a cost of $185 million, is just one of several large automotive investments made recently by Japanese companies. Nissan continues to be the state's biggest single foreign investor. The Volkswagen decision, of course, reinforces this concentration.
1. The federal Bureau of Economic Affairs actually credits Tennessee with nearly 800 foreign-owned operations, due to differences of recording and definition. It also reports a higher figure for employment in foreign-owned operations. The figures given here are those announced by the state's Department of Economic and Community Development.