High-Tech Industries – The Role of FDI in Driving Innovation and Growth
An US Investment Analysis by SelectUSA is the basis of this TextileFuture Newsletter. This analysis is particularly of interest because it derives from official sources of the U.S.A. and sets somewhat also a counterweight to “USA First” of President Trump
This brief explores the landscape of high-tech industries in the United States. This report defines high-tech industries, examines where they are concentrated across the United States, explores unique characteristics of foreign direct investment (FDI) in the high-tech sector, and finds that FDI is a significant contributor to the competitiveness of the U.S. high-tech sector. In turn, high-tech industries are important drivers of growth for the U.S. economy. These industries advance innovation, employ millions of highly skilled and highly educated workers, further U.S. competitiveness in an increasingly globalized world, and contribute to greater prosperity in our communities. The high-tech sector’s impact on the U.S. economy is strong; high-tech industries accounted for nearly 25 % of total U.S. economic output in 2016. High-tech industries employed nearly 18.3 million Americans – 14.6 % of all U.S. employment.1 In 2016, high-tech industries accounted for nearly USD 3.9 trillion in value-add, meaning contributions towards U.S. GDP measured by the final value of goods and services they produced within the United States. The total gross output of high- tech industries, including both final and intermediate products, amounted to more than USD 7.1 trillion in gross output in 2016 (see Figure 1).2 FDI, the Foreign Direct investment in the United States plays a significant role in the U.S. high-tech sector:
- FDI stock in high-tech industries amounted to more than USD1.6 trillion as of 2016.
- FDI accounted for nearly 10 % of the total value added to the U.S. economy in the high-tech sector.
- The value-add of foreign investment in high-tech industries has been growing at a faster rate (an average of 5.1 %) than that of domestic high- tech industries (2.4 %) for the past seven years.
- FDI in high-tech industries supported 2.1 million jobs in 2015, 11.6 % of all U.S. high-tech workers.
What is Hig Tech
High-technology, or “high-tech,” is a relatively fluid concept that has not yet been consistently defined by the U.S. government in terms of industry classification. In general terms, high-tech, or advanced industries, rely heavily on a skilled and educated workforce, act as innovative producers in our economy, and create and utilize advanced technologies. Some institutions, including the Brookings Institution and the Bureau of Labour Statistics (BLS), have developed their own methodologies for defining the high-tech sector.3 Both institutions use a 4-digit NAICS classification method to identify high-tech industries.
In order to analyse foreign direct investment in the high- tech sector using FDI data published by the Bureau of Economic Analysis (BEA), SelectUSA created a 3-digit NAICS methodology to define the high-tech sector. Similar to the BLS, we define a high-tech industry as one in which its share of science, technology, engineering, and mathematics (STEM) occupational workers was more than twice that of the national average.4 For our definition of STEM employment, we applied the 2010 Standard Occupational Classification (SOC) system in which 100 occupations were classified as STEM.
According to the SOC, STEM workers include various types of engineers, IT workers, scientists, postsecondary teachers, and managers of these workers. Using these occupational codes, we analysed employment figures published in the Occupational Employment Statistics (OES) from the BLS.5 Using this method, we identified 16 industries as high-tech; a complete list of the qualifying high-tech industries is presented in Figure 3 and corresponding codes for the BEA’s international surveys industry (ISI) classification are presented in the Appendix.
It is notable that the professional, scientific, and technical services industry is quite large; more than 2.6 million jobs are supported by this industry in STEM occupations and nearly 8.5 million in all occupations nationally. This pattern will also be visible in the following discussions of our findings. Concentration of High Tech industries by US State and Metro Areas States
Applying our 16 industry high-tech classification to data from the Census Bureau’s 2015 County Business Patterns reveals top states with the greatest number of employees and establishments in high-tech industries.6 California ranks first in terms of high-tech employment and number of high-tech establishments7, followed by Texas in both categories (see Figure 4). In both states, the majority of high-tech employment is in the professional, scientific, and technical services industry, and establishments are primarily in the management of companies and enterprises industry.
Looking at the intensity of high-tech employment, or the %age of high-tech employment as a part of total private industry employment, the District of Columbia places first, with more than 26 % of all employees in the District working in a high-tech industry (see Figure 5), more than ten %age points higher than the national average. The concentration of high-tech in the District of Columbia can be explained by its small population, a highly educated workforce, and the prevalence of the professional service industry. More than 74 % of the District’s high-tech employment can be attributable to workers in the professional, scientific, and technical services industry. Some of the major companies with headquarters in the District of Columbia include Danaher and Blackboard, Inc. The District is also home to many research-focused institutions, such as the World Bank, Pew Research Center, and the American Institutes for Research.
Virginia ranks second with 22 % of total employment in high-tech industries and Washington ranks third, with nearly 21 %. Northern Virginia in particular is home to the “Dulles Technology Corridor,” which houses numerous defence and technology companies. Some of the major companies with headquarters in Virginia include Booz Allen Hamilton, Northrop Grumman, and General Dynamics. Washington’s ranking is mainly due to the professional, scientific, and technical services industry and management of companies and enterprises industry, accounting for nearly 52 % of high-tech employment. Washington is also headquarters to several global tech companies, including Amazon, Microsoft, Expedia, and Zillow. Metro Areas
Metropolitan areas are home to nearly 88 % of high-tech employment in the United States. Disaggregating the data further, Figure 6 presents the rankings of metro areas according to their level of high- tech employment and number of establishments. The metro area with the most employees and establishments in the high-tech industries is New York-Newark-Jersey City, with more than 1.4 million workers in high-tech. The Los Angeles and Chicago metro areas follow in second and third place in both categories, respectively. These three cities are among the most densely populated in the United States. Most of their high-tech employment can be attributed to the professional services industry and management of companies and enterprises industry.
An analysis of the intensity of employment in the high- tech sector – measured by employment in high-tech compared to total employment in the area – reveals that San Jose-Sunnyvale-Santa Clara, California, has the highest concentration of high-tech workers among all metro areas, at more than 34 % (see Figure 7).
Nearly 347,000 workers out of more than 1 million in the San Jose metro area are employed in high-tech industries. Though the majority of high-tech employment in the San Jose metro area can be attributed to the professional services industry and management of companies and enterprises industry (more than 54 % combined), nearly 13 % of high-tech employment is due to computer and electronic product manufacturing. San Jose is the largest city within the Silicon Valley area and the metro area serves as headquarters for several large companies, including Intel, PayPal, Applied Materials, and VMware.8
The metro area with the second highest concentration of high-tech employment is Elkhart-Goshen, Indiana, with nearly 33 % of total employment in high-tech industries. Most of the high-tech employment in Elkhart can be attributed to the transportation equipment manufacturing industry, which employs nearly 82 % of the high-tech sector in the metro area. Elkhart metro area’s economy is heavily influenced by recreational and commercial vehicle manufacturing. Some of the major employers in the metro area include Norfolk Southern, Elkhart General Hospital, Always in Stone Monument Co., and Jayco Inc.9
The third-most concentrated metro area is Huntsville, Alabama, with more than 31 % of employment in high-tech industries. The sector in Huntsville is heavily concentrated in the professional, scientific, and technical services industry, accounting for more than 68 % of high-tech employment in the area. The metro area is home to many aerospace, defence contractor, and military technology firms, including those that support NASA’s Marshall Space Flight Center.10
Foreign Direct Investment supports High Tech Industries
With such a robust portfolio of competitive high-tech industries, it is unsurprising that global firms are attracted to doing business in the United States. Best-in- class global firms investing in innovative U.S. economic sectors ensures the United States retains its global competitiveness in these industries.
FDI, the Foreign direct investment plays a critical role in the growth of high-tech industries. Since the height of the economic recession in 2009, the stock of FDI in high-tech industries has increased by an annual average of more than 10 %. In 2016, the FDI position in high-tech industries amounted to more than USD 1.6 trillion, a significant increase from USD 815 billion in 2009 (see Figure 8). High-tech FDI accounted for nearly 44 % of all FDI in the United States in 2016.11
Foreign majority-owned firms directly supported more than 6.8 million jobs in the United States in 2015. Nearly 31 % of these jobs, or 2.1 million, were in high-tech industries. FDI alone directly supported 11.6 % of all U.S. high-tech workers in 2015 (see Figure 9). In 2015, the United Kingdom was the largest foreign employer of workers in the high-tech industry, directly supporting more than 288200 jobs (see Figure 10). Japan followed as the second largest foreign employer, directly supporting more than 285700 jobs in high-tech. Since 2007, French firms experienced the most growth (50 %) in terms of the number of high-tech jobs supported in the United States.
According to the latest available data, the average compensation per worker for FDI-supported employment in high-tech industries in the United States was USD101141 in 2015. This is higher than the average wage per worker of all foreign firms across all industries, which is USD79040. Swiss companies paid the highest average annual wage in high-tech industries at USD173847 (see Figure 11).
One example of Swiss investment in U.S. high-tech is Switzerland’s Kudelski Group, a provider of digital security and solutions for the delivery of digital and interactive content. In June 2016, the company announced it would open a second global headquarters in Phoenix, Arizona. Kudelski Group will create a significant number of high-wage jobs during the next three years. Former U.S. Ambassador to Switzerland and Liechtenstein Suzan G. LeVine, the team at the U.S. Embassy, and SelectUSA assisted the company with customized research reports and facilitated access to federal-level services.
R&D, Exports, and Value Added
U.S. affiliates of international businesses in the United States not only support U.S. employment in high-tech industries, but also make significant contributions to the economy through research and development (R&D) spending, exports, and value-add activities. R&D spending by foreign firms in high-tech industries grew by an average of 5.3 % each year from 2010-2015, and reached a total of nearly USD 42 billion by 2015 (see Figure 12). In 2015, R&D expenditures in high-tech industries accounted for 74 % of all R&D spending by foreign firms in the United States. The value of U.S. goods exports contributed by majority foreign-owned firms in high-tech industries grew by an average of 5.9 % each year from 2010-2015, and reached a total of nearly USD 154 billion in 2015. The contributions of foreign-owned firms to value-add activities in high-tech industries increased by an average of 5.6 % each year from 2010-2015, and reached a total of more than USD 373 billion in 2015. Diving deeper into the sources of this productive FDI, we find that Germany, the United Kingdom, France, and Japan are the largest source markets for R&D spending, exports, and value-added activities in high-tech industries (see Figure 13).
The United Kingdom was the largest source of R&D spending in high-tech industries in 2015, capturing 17 % of all R&D spending among foreign-owned firms. German majority-owned firms were the largest source of U.S. goods exports in high-tech industries in 2015, capturing 15.9 % of total high-tech exports among foreign-owned firms. Germany was also the largest contributor to value-added activities in the high-tech industry in 2015, capturing 14.9 % of total value- added activities in the high-tech sector among foreign- owned firms. Many of our traditional trading partners, including Germany, the United Kingdom, France, and Japan, are significantly invested in the U.S. high-tech sector, thus strengthening our relationships and deepening our economic ties.
Conclusions and Highlights
High-tech industries play a significant role in fostering growth in the U.S. economy. High-tech industries in the United States employed nearly 18.3 million people in 2016, and accounted for nearly USD3.9 trillion in value- added activities and more than USD7.1 trillion in gross output. The impact of the high-tech sector is strongly felt; these industries represent only 14.6 % of all U.S. employment, but contributed nearly 25 % of total output in the United States in 2016.
Just as global investment benefits international firms, foreign direct investment plays a significant role in furthering the competitiveness of the U.S. high-tech sector on a global scale. The U.S. FDI position in high-tech industries amounted to more than USD 1.6 trillion in 2016, or nearly 44 % of total FDI in the United States. These U.S. affiliates of international businesses directly supported nearly 2.1 million U.S. jobs in the high-tech sector in 2015. Additionally, U.S. affiliates of international businesses in the high-tech sector spent a total of nearly USD 42 billion in research and development in 2015. The value-add of foreign investment in high-tech has been growing at a faster rate than the value-add of domestic high-tech for the past seven years. FDI in the high-tech sector continues to grow and to support the competitiveness of the U.S. economy in global markets.
1 U.S. Bureau of Economic Analysis, “Full-Time and Part-Time Employees by Industry.” Accessed August 17, 2017.
2 U.S. Bureau of Economic Analysis, “Industry Economic Accounts.” Accessed July 6, 2017. http://www.bea.gov/industry/index.htm
3 Muro, Mark et al. (Feb. 2015). “America’s Advanced Industries: What They Are, Where They Are, and Why They Matter.” Brookings Institution.
Wolf, Michael & Terrell, Dalton. (May 2016). “The high-tech industry, what is it and why it matters to our economic future.” Bureau of Labour Statistics, Beyond the Numbers,5(8).
Hecker, Daniel E. (2005). “High-technology employment: a NAICS-based update.” Bureau of Labor Statistics, Monthly Labour Review.
4 Hecker, Daniel E. (2005). “High-technology employment: a NAICS-based update.” Bureau of Labor Statistics, Monthly Labour Review.
5 The OES survey defines employees as all part-time and full- time workers who are paid a wage or salary. The survey does not cover the self-employed, owners and partners in unincorporated firms, household workers, or unpaid family workers.
6 The County Business Patterns series excludes data on self- employed individuals, employees of private households, railroad employees, agricultural production employees, and most government employees. For more information about the NAICS sectors that are excluded from the series, visit the Industry and Geographic Classification here. Data for the Wholesale Electronic Markets and Agents and Brokers industry was not available.
7 An establishment is defined as a fixed physical location or permanent structure where some form of business activity is conducted. Most government establishments are excluded from tabulation, though the County Business Patterns does include some government sponsored industries. More information can be found here.
8 “San Jose, CA.” Forbes. http://www.forbes.com/places/ca/san-jose/
9 “Major Employers for Elkhart County.” Hoosiers by the Numbers, Indiana Department of Workforce Development. http://www.hoosierdata.in.gov/major_employers.asp?areaID=039
10 “Huntsville, AL.” Forbes. https://www.forbes.com/places/al/huntsville/
11 U.S. Bureau of Economic Analysis. “Direct Investment and Multinational Enterprises (MNEs).” Accessed August 17, 2017. http://www.bea.gov/iTable/index_MNC.cfm . Unless otherwise noted, all information presented in this section uses official U.S. Bureau of Economic Analysis Direct Investment data.
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