The number of Chicago-area jobs with foreign-owned companies has grown 40 percent in a generation, from 1991 to 2011, but the pace of this rise has slowed over the past decade, according to a report released Friday by a Washington think tank.
The Brookings Institution found that the Chicago region had more than 4,000 foreign-owned establishments that employed more than 223,000 people, according to 2011 data, the most recent available. In total employment at foreign-owned companies, Chicago ranks third in the nation, behind New York and Los Angeles.
The city also ranked third in 1991, reflecting how foreign investors have long been attracted to Chicago's diverse economy, location, infrastructure, talent pool and other attributes.
Foreign-owned companies represented 5.9 percent of the Chicago region's private sector employment in 2011. Nationally, foreign direct investment, or FDI, accounted for 5 percent of the private payrolls.
But Chicago and the United States find themselves in precarious positions.
Even though the United States remains the world's No. 1 destination for foreign direct investment, the country is losing ground to other markets, the report said. The share of cross-border direct investment destined for the United States has fallen from a high of 26 percent in 1999 to 12 percent in 2012, Brookings said.
There are several reasons for the decline, including prolonged economic sluggishness at home, economic malaise in Europe — it's the United States' largest investment partner — and the ascendance of emerging markets in Asia and South America.
"As a result, the competition among countries for FDI at all levels of the value chain will only intensify in the years to come," the report said. "…The United States and its regions cannot afford to sit idle and assume that past success in attracting high-value investment guarantees future success."
Brookings' findings about Chicago echoed a 2012 report issued by The Chicago Council on Global Affairs. Chicago's performance in attracting foreign capital has lagged behind Bogota, Colombia; Frankfurt, Germany; and Toronto, the council said.
Mergers and acquisitions drive much of the foreign investment in Chicago and the rest of the country. One of the earliest high-profile deals involving a Chicago company came in 1984, when Bank of Montreal purchased Harris Bank. Household International, another local lender, was acquired in 2002 by British banking giant HSBC Holdings.
The dealmaking has made commercial banking the top industry in the Chicago area for jobs in foreign-owned companies, the Brookings report said. About 12,400 workers in the Chicago area are employed by foreign-owned banks.
Nationally, foreign investment has been concentrated in the manufacturing industry. Nearly 2 out of every 5 jobs in foreign-owned companies were in the manufacturing sector, Brookings said.
Brookings acknowledges that mergers and acquisitions have driven the increase in jobs supported by foreign direct investment. Its analysis suggests that foreign investment is "not a net source of direct job creation."
But the report said the effect of foreign investment goes beyond jobs. The average salary for a job at a foreign-owned firm was $77,000 in 2011, compared with $60,000 for the average U.S. worker, Brookings said, citing the Bureau of Economic Analysis. Moreover, the U.S. affiliates of foreign companies spent $45 billion in research and development in 2011, accounting for 15.4 percent of all business R&D that year.
Cities also benefit from tighter links to the global economy and the transfer of technology and best practices, said Devashree Saha, senior policy analyst at Brookings and lead author of the report.
"Foreign direct investment brings with it other economic benefits that are as important as the jobs created," she said.
Despite the advantages, foreign ownership has become a sensitive issue, especially as Chinese companies have stepped up their investment in recent years. Critics say too much foreign ownership could hurt American competitiveness or strip domestic companies of their value without adding any.
But those concerns haven't stopped Chicago Mayor Rahm Emanuel from promoting the city as a great place to do business. Last year, he made trips to Mexico and China in an effort to land more foreign investment in Chicago.
In November, Emanuel and Mexico City Mayor Miguel Angel Mancera signed an economic partnership agreement that aims to give more heft to a decadeslong Sister Cities relationship.
The Chicago-Mexico City pact is the first to be tried under the Global Cities Initiative, a project of Brookings and JPMorgan Chase. Brookings' report on foreign direct investment is part of the Global Cities project, which calls for joint initiatives in trade, investment and innovation, with emphasis on advanced manufacturing.