FDI insights for the Midwest manufacturing sector

The American Midwest is becoming a hotspot for international manufacturing companies looking to expand. These businesses aren’t just bringing money; they’re creating jobs, spurring innovation and boosting economic growth.

However, setting up operations in a new country comes with many challenges, from finding the right location to understanding complex tax laws.

Having the right partner to guide foreign direct investment (FDI) can help companies address critical areas in their expansion plans. The key is finding a firm with comprehensive experience in both international business practices and local market dynamics.

A growing trend

The Midwest’s manufacturing sector is experiencing a resurgence, fueled in large part by FDI. This trend is reshaping the region’s economic landscape, positioning it as a global manuacturing hub and creating opportunities for local job growth. Recent data from the U.S. Census Bureau shows that in June 2024, the manufacturing industry continued to grow at over 19% year over year.

What’s causing this trend? A combination of factors, from geopolitical shifts to evolving market dynamics, has made the Midwest an attractive destination for foreign investment. According to the Reshoring Initiative’s 2022 Data Report, reshoring and FDI job announcements for 2022 reached a new record of 364,000, a 53% increase from the previous year. The report credits the Inflation Reduction Act and the CHIPS Act for the drastic increase in U.S. manufacturing by both foreign and domestic companies.

Other top factors influencing this trend were reported as government incentives, a skilled workforce and supply chain interruption risk. Together, the South and the Midwest account for 76% of jobs.

Key factors drawing international manufacturers to the Midwest include:

1. Geopolitical considerations: Ongoing international conflicts, like those in Ukraine and the Middle East, plus tariff complexities, make a Midwest presence more enticing. Its strategic location, robust infrastructure and skilled workforce offer a stable alternative to geopolitically volatile regions.
2. Sales: Despite advancements in digital marketing and e-commerce, there’s been a resurgence in face-to-face communication following the COVID-19 pandemic. International companies are finding that having a physical presence enhances their ability to serve and understand their customers, particularly in industries where trust and customization are necessary. Challenges such as increased freight prices, unpredictable consumer demand and potential port congestion have made local manufacturing more attractive. Additionally, inflation and fuel surcharges have impacted the cost and terms of doing business, further incentivizing localized production.
3. Supply chain resilience: Companies are now prioritizing supply chain stability following the volatility of the COVID-19 pandemic and the disruption it caused global businesses. Many are opting to establish local resources to better navigate future disruptions and respond quickly to demand fluctuations.
4. Incentives: Federal initiatives like the CHIPS Act and the Inflation Reduction Act, along with state-level programs, are particularly attractive in sectors like infrastructure, technology and clean energy. Multiple states offer incentives for international companies to build plants locally and 40% of new billion-dollar manufacturing projects are from foreign companies. Since the passage of the CHIPS Act, companies have announced over $395 billion in investments for semiconductor and electronics manufacturing projects across the U.S., with plans to create more than 115,000 jobs. 
   
   State-level incentives vary but are typically driven by job creation. These can include cash incentives, tax abatements and support for site selection, recruiting and training programs. The scale of these incentives often depends on factors like the company’s footprint and the number of jobs created. Importantly, international companies have access to the same incentive packages as U.S. companies looking to expand. Programs like SelectUSA, a federal initiative focused on FDI in the U.S., provide additional support. They host an annual summit where international companies can learn about opportunities across different states.

Small- to mid-sized international companies have niche expertise and operate with flexibility; however, the journey from international operation to established U.S. presence can be complex. Understanding American business practices, regulatory environments and tax structures can feel challenging — this is where specialized expertise is valuable.

A partner for every step of the journey

For international manufacturers looking to establish operations in the Midwest, having a knowledgeable partner can make the difference between success and struggle. Firms like Wipfli are uniquely positioned to guide these companies through every phase of their investment journey:

1. Site selection and setup: Leaning on deep knowledge of local markets, FDI specialists can assist companies in finding the ideal location for their operations. This goes beyond just real estate — it involves analyzing factors like workforce availability, infrastructure, access to transportation, power supply and proximity to key customers or suppliers.
2. Navigating incentives: Understanding how to capitalize on tax credits and incentives can be complex and varies significantly from state to state. Finding a professional to help means companies can better identify and capitalize on the most beneficial programs, helping to ensure they maximize the value of their investment.
3. Operational knowledge: Setting up manufacturing operations in a new country involves numerous challenges, from establishing efficient processes to helping ensure compliance with local regulations. Finding a partner with extensive industry knowledge allows a company to receive guidance on best practices tailored to the U.S. market.
4. Tax and financial advisory: The U.S. tax system can be particularly challenging for international companies. Tax professionals offer strategic advice on structuring operations to optimize tax positions while helping to ensure full compliance with federal, state and local regulations.
5. Ongoing support and growth strategies: As companies establish their presence and look to expand, a good partner should continue to provide valuable insights and support, helping businesses scale effectively in their new market.

The impact of this personalized, comprehensive approach is evident in the success stories of companies that have made the leap into the Midwest market:

• Precision testing pioneer: When a German company specializing in advanced product testing equipment recently established its first U.S. facility, Wipfli was involved from the planning stages, assisting with everything from initial setup to ongoing operational guidance. Today, the company is not only operational but is already planning its next phase of growth.
• Innovating energy storage: A battery manufacturer from Europe found a home for its cutting-edge technology in the American Midwest. Our experience in both the energy sector and international business practices helped smooth the transition, allowing the company to focus on what it does best: pushing the boundaries of energy storage technology.

How Wipfli can help

Wipfli can help you navigate complex FDI scenarios with industry-experienced support that understands your manufacturing needs. We know your business is built on relationships, and we’re ready to help you find your spot in the Midwest to establish and grow your operations.

Contact us today to learn more about how we can help you make the move to the U.S.