Why Second Cities Are Becoming First Choices For Foreign Direct Investment

Forbes

2 days ago

Jennifer Wakefield, APR, is President and CEO of the Greater Richmond Partnership.
For international business, the U.S. often remains the ultimate proving ground. But the rules are changing, and a new wave of trade policies marked by fluctuating tariffs has introduced a level of uncertainty that's hard to ignore.
For many global companies, that's turning what used to be a straightforward expansion into a far more strategic calculation.
Traditional U.S. gateways still carry weight. But they also often come with steeper costs, tighter labor markets and growing regulatory complexity. Tariffs can add to those pressures.
So, it's no surprise some global companies are adjusting course. More and more, I've noticed they're skipping the big-name metros and planting their roots in second cities that offer what today's environment demands: flexibility, resilience and space to scale with confidence. But even as companies pivot toward new regions, the journey into the U.S. market can be more complicated than it first appears.
Why Second Cities Are Gaining Ground
As investment cools in China and Europe, the U.S. continues to lead the pack. Driven by the world's largest consumer market—nearly 30% (registration required) of global spending—the U.S. remains the top destination for foreign direct investment (FDI), with total FDI stock nearing $5 trillion.
But the landscape has changed. The last wave of investment was driven by incentives and federal subsidies. This next wave? I've found it's being driven by trade policies and the need for supply chain certainty.
For global firms, that means confronting a tough reality: Manufacturing in the U.S. is often necessary, but doing it in the most expensive, congested cities isn't. Labor shortages, real estate costs and infrastructure constraints in tier-one markets are forcing company leaders to think beyond the usual suspects.
That's where second-tier cities come in. These regions don't always dominate headlines, but they often deliver where it counts: lower operating costs, skilled talent, modern infrastructure and business-friendly governments.
As fDi Intelligence has noted, this shift is already underway. Global companies are choosing markets where the economics make sense and long-term value is clear.
A Seven-Step Playbook For Smart U.S. Expansion
Tariffs might be changing today's rules, but not the need for a solid strategy. Whether entering the market for the first time or relocating operations, this step-by-step approach can help global companies land smarter and scale more smoothly:
1. Prove success at home. U.S. expansion should build on a strong foundation. Make sure there's a track record of success and clear demand in the U.S. before committing resources.
2. Understand the U.S. market (and its regional differences). The U.S. is not one market. Each region has its own regulations, workforce trends and customer dynamics. Research carefully, and compare.
3. Build a data-driven business case. Assess operating costs, tax structures, industry clusters and logistics. Choose a location that supports both your bottom line and your long-term growth goals.
4. Do a ground check. Don't rely on assumptions. Visit potential sites, attend trade shows and meet with local stakeholders. The right location should feel right in practice, not just on paper.
5. Bring in U.S.-based experts early. From incorporation to IP protection and labor law, the U.S. legal and tax landscape is complex. Partnering with experienced local advisors can help prevent costly missteps.
6. Choose the right market entry path. Joint venture? Sales office? Greenfield investment? Weigh the trade-offs in control, cost and timeline to match your strategic objectives.
7. Localize and launch. From hiring local talent to adapting marketing strategies, success in the U.S. requires more than translation—it demands true localization. Tap into regional networks to accelerate integration.
Tackling The Challenges
Second cities are full of promise, but even with a solid playbook, expanding into the U.S. market comes with pitfalls that can surprise seasoned global businesses.
From what I've seen, banking and finance often catch companies off guard. Many foreign businesses assume they can easily open accounts or secure loans, only to hit roadblocks because they lack a U.S. credit history or the right documentation. Something as simple as buying a company vehicle can turn into a cash-only transaction if financing isn't available.
Immigration is another key challenge. Companies underestimate how long it can take to secure the right visas for transferring key staff—or how quickly policies can shift, leaving expansion plans in limbo.
And then there's the U.S. tax system, which can feel like a maze. Firms aren't always prepared for layers of federal, state and local taxes, nor the risk of taxation in both the U.S. and their home country.
These challenges are manageable, but only with eyes wide open. When working with U.S.-based advisors, such as lawyers, accountants and relocation experts who know the local rules and cultural nuances, it's wise to engage this support early in the process. (Disclosure: My organization helps with this, as do others.) And be ready to adapt, because success here often comes down to how well you navigate the details.
The Bottom Line
Second cities are having their moment because they offer what many global companies need right now: flexibility, speed and room to grow.
New trade policies may have introduced friction, but they've also forced clarity. Global firms are pushed to rethink their U.S. strategies, and second cities are stepping up with compelling answers. From Richmond to Denver to Columbus to Raleigh, second cities across the country are offering global companies strategic value without the big-city price tag.
For international companies, the message is clear: Don't just follow the crowd. Think about your expansion strategy carefully. Focus on fit, not flash. And consider looking to U.S. regions where resilience, access and growth align.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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