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Foreign Direct Investment:Economic Development Strategies for States
An Overview of FDI in the US*…• International businesses and individuals invested $234 billion in the US in
2011, down from $310 billion in 2008.
• The cumulative amount of foreign direct investment in the United States was $2.55 trillion in 2011.
• Top five US investors include the United Kingdom ($441 billion), Japan ($289 billion), the Netherlands ($240 billion), Germany ($215 billion), and Switzerland ($212 billion).
• In 2010, foreign firms employed almost 6 million Americans, with average annual compensation (wages and benefits) per worker of about $76,000.
* Foreign Direct Investment in the United States: An Economic Analysis, Congressional Research Service, October 26, 2012
* Employment by state according to the Organization for International Investment (OFII)
Role of FDI in State Economies*Jobs Rank
AL 81,200 22nd
AK 13,600 45th
AZ 73,100 26th
AR 34,800 34th
CA 567,000 1st
CO 77,300 24th
CT 101,200 17th
DE 25,200 40th
FL 223,600 6th
GA 183,400 10th
Jobs Rank
MA 177,500 11th
MI 141,700 12th
MN 89,300 21st
MS 25,900 39th
MO 79,900 23rd
MT 6,000 50
NE 24,200 42nd
NV 37,900 32nd
NH 39,700 31st
NJ 223,400 7th
Jobs Rank
HI 26,200 37th
ID 13,700 44th
IL 245,900 5th
IN 133,600 14th
IA 43,900 29th
KS 54,800 27th
KY 89,500 20th
LA 51,700 28th
ME 30,400 35th
MD 99,200 18th
Jobs Rank
NM 14,900 43rd
NY 388,500 3rd
NC 188,200 9th
ND 11,600 46th
OH 206,500 8th
OK 36,000 33rd
OR 41,800 30th
PA 251,000 4th
RI 26,000 38th
SC 104,300 16th
Jobs Rank
SD 7,200 48/49
TN 112,500 15th
TX 428,100 2nd
UT 29,000 36th
VT 11,000 47th
VA 140,800 13th
WA 92,300 19th
WV 24,800 41st
WI 76,000 25th
WY 7,200 48/49
State FDI Attraction Programs…• Coordination & Marketing – State economic development agencies work
hand‐in‐hand with local economic developers to identify and market potential investment sites.
• Overseas Presence – State overseas offices, often tasked both with export promotion and investment attraction, play a key role in cultivating potential investors in critical overseas markets.
• Incentives – State and local governments spend billions each year on investment incentives (both for domestic and international investors) including direct appropriations for infrastructure improvements, training assistance, and other spending tied to specific deals and “tax expenditures” created through credits and abatements for business income, property, and other state and local taxes. For more information see State Business Incentives: Trends and Options for the Future at www.csg.org.
For further assistancecontact CSG Washington
Chris WhatleyWashington DirectorTel (202) 624-5460
Email: [email protected]
FDI FROM THE SITE SELECTOR’S VIEW
Presentation to State International Development Organizations Annual Meeting
A New Generation in FDI Advisory
March 28, 2013
6© 2013, Investment Consulting Associates
AGENDA
A New Generation in Strategy Consulting
Christopher Steele– COO, Investment Consulting Associates
About Us:What we do, and why we do it Process Differences: How is this site selection different from all other site selections Sixpence: FDI Site Selection Trends Implications
7© 2013, Investment Consulting Associates
Real estate is a strategic asset. Each and every new location decision carries cost, workforce, and other implications. We provide our clients with the insight needed to quickly build solutions which are flexible enough to evolve with the company’s changing needs.
ABOUT US
SERVICES
CRE Strategies
Location Strategies
Supply Chain Optimization
Incentive Maximization
Implementation Support
TECHNOLOGIES
LocationSelector.com
ICAincentives.com
Europe ‐ AsiaCaribbean and Latin America
United States and North America
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8© 2013, Investment Consulting Associates
ICA IN THE NEWS
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The front page of the Sunday, December 2, 2012, edition of The New York Times featured an analysis of US incentive deals based upon Investment Consulting Associates (ICA)’s online incentive tracking tool and database, ICAincentives.com.
While examining incentive trends across the 50 states, the article “As Companies Seek Tax Deals, Governments Pay High Price” notes that many state programs do not identify specific corporate beneficiaries and, as a result, the authors had to rely on the ICAincentives.com database to provide up‐to‐date and reliable data for their analysis.
ICA Incentives Data Underpins New York Times Analysis
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PROCESS DIFFERENCES:CHANGES IN INTERNATIONAL SITE SELECTIONS
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10© 2013, Investment Consulting Associates
Site visits Journals Newspapers Brochures Trade Shows
City #2
City #3
City #4
City #6
City #7
City #5
City #8
1990 SITE SELECTION PROCESS
SIX MONTHS
City #1
City #2
City #3
City #1
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2011 SITE SELECTION PROCESS
85% of initial search = InternetSIX WEEKS
Detailed info
Services
It is a jungle out there
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DATA AND REPORTS ON COMPETITIVENESS
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It is a data jungle out there! Marketing driven documents Feasible for initial country screening and risk assessment Not very useful when conducting regional and city level assessments
13© 2013, Investment Consulting Associates
WHICH SOURCES ARE BEING USED?
Factual reports with recent market data
Statistics bureau, Eurostat, US Census, National and regional bureaus International Organizations: UNCTAD, World Bank, OECD Free zones and industrial parks: survey data on cost items Specialized media and online groups: EIU, FDIexecutive, Creopoint, etc. Proprietary data sources and direct interviews
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UNDERSTANDING THE CORPORATE INVESTMENT PROCESS
Implementation
ConsultantClient
Prepare site visits Prepare discussions with relevant governments and service providers Incentive negotiations
Real estate transaction and acquisition support
Input cost model
Real estate support
Phase 2Phase 1 Phase 3 Phase 4 Phase 5
Site visits
Resources for site visits
Define real estate objectives and accommodation needs
Define project and goals
Business requirements
Project definition &
understanding of strategy
Comparison of costsAnalysis and comparison of locations
Project assumptions
Set up cost model Cost differentials between locations
Determine geographic scope
Selection of location factors
Weighting location criteria
Data gathering Build model for location
analysis Present rankings of
locations Sensitivity analysis Exploration of incentives
Strategic AssessmentLocation Screening,
modeling &benchmarking
Cost comparison
Community Evaluations
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RELOCATION COST – BENEFIT MATRIX
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Benefits
Costs
Low risk location
High risk location
High cost level Competitive cost levels
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LOCATION VARIABLES
Accessibility
Business Environment
Business Risks
Customs
Education level
FDI & Trade Policies
Grants & Incentives
Infrastructure
Labor availability
Supply chain costs
Logistics costs
Utilities
Labor costs
Taxation
Real estate costs
Trade‐off between quality versus cost related location factors
Location benefits Location costs
Typically, 50 – 60 location criteria are subject to analysis in a corporate relocation project
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LOCATION DECISION ANALYSIS
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Location Decision
Costs Benefits
Labor Costs Tax Supply Chain Costs Infrastructure Labor quality
30% 70%
65% 35%50% 15% 35%
18© 2013, Investment Consulting Associates
TIMEFRAME OF LARGE SCALE FDI PROJECTS
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Site selection process
Negotiations with local authorities
Site implementation (out of scope in this
project)
4-6 months From 2 months to six months 18 to 24 months
Dec 11 Mar 12 Jul 12 Jan 2014
5 Phases – Next slide Management of all contractual issues, related to grants and incentives disbursement,
Contract signing an administrative follow‐up
Project development and Construction Oversight
site on run
Grants and real estate
incentive maximization for two sites
Selection of one site (our advise)
Agreements with governments about the incentive package and the way to acquire land / real estate
Site acquisition
Obtain internal corporate approvals to acquire site and proceed with project
Acquire site with letter of intent to purchase with transfer of deed to follow
Obtain external approvals –including building permits, zoning, environmental, and other approvals – for construction of manufacturing facility
19© 2013, Investment Consulting Associates
INTEGRATED STORY: WHERE CORPORATES MEET IPA’S
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• Information & Sales Packs• Investment plans• Policies and incentives• Procedures and requirements
• Progress and achievements• Create awareness
Image Building
•Advertizing and PR• Information & Marketing•Missions & Events• Company targeting• Company visits• Follow‐up
Lead Generation and Targeting • Information provision
• Assistance with contacts• One‐stop‐shop services• Assessment of manpower,,Infrastructure service needs
• Follow‐up
Investor Servicing
• Continued “account executive attention”
• “Ombudsman” role and trouble‐shooting function
• Follow‐up on manpower, infrastructure, service needs
Aftercare and Policy Advocacy
Phase 1
Implementation
Phase 2 Phase 3 Phase 4 Phase 5
Strategic AssessmentLocation Screening,
modeling & benchmarking
Cost comparison Community Evaluations
20© 2013, Investment Consulting Associates
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Tracks information on all major financial subsidies and incentives
Analyze trends in incentives being awarded by state, city, and sector
Over 7500 incentives deals globally
ROLE OF INCENTIVES
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ROLE OF INCENTIVES
Investment Incentives are part of a broader strategy that encourages overall economic development in your targeted sectors. They are given:
– Because there supposed to be benefits from giving them
– Because a country or city believes that it must offer incentives to compete with rival countries for FDI
– Because potential investors “expect” to be provided with some form of incentive.
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By observing the incentives given by governments to corporates, priority sectors can be identified and competition for investments intensified
22© 2013, Investment Consulting Associates
ICA’S SIXPENCE:6 CURRENT FDI SITE SELECTION TRENDS
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ICA’S GLOBAL FDI TREND #6 END OF CHEAP CHINA?
Economic Observer News (January 2011)– Since 2007, couriers, mainly in first tier cities, have seen an average
annual salary increase of about 20 percent and 50% increase in 2010
The Guardian (June 2010)– Strikes hit factories of Toyota, Honda and Hyundai
Reuters (June 2010)– “Basically China has a lot of the same issues that all developing
countries have when they become developed. What you are moving into is an era for higher prices in commodities and labor”
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OFF‐SHORING FACTORIES TO ASIA
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Is this model still sustainable?
What are the current trends in the US and Europe
“Re‐shoring?”
Value of “Made in ___ label”
25© 2013, Investment Consulting Associates
Chinese Wage Inflation
Corporate decision makers often ignore important cost drivers focus only on the labor cost differentials
Total Cost of Ownership (TCO) is gaining ground
The development of China’s domestic market and more high‐end manufacturing transforms South East Asian countries and specifically China
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ICA’S GLOBAL FDI TREND #6 CHINA: IS THE DRAGON LOOSING ITS FLAMES?
China: in transition from an outsourcing location to a sourcing location
26© 2013, Investment Consulting Associates
Goldman Sachs’ Next‐11: Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam
N‐11: Rapidly growing populations combined with significant industrial capacity or potential to rival the BRIC’s
Using LocationSelector.com, ICA researched and benchmarked the competitiveness of the N‐11 for attracting investments on several factors like accessibility, business environment, business risks, education and foreign direct investment.
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ICA’S GLOBAL FDI TREND #5VIPE’S: THE NEXT BRIC’S (1/2)
27© 2013, Investment Consulting Associates
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Group 1: South Korea, Mexico and Turkey.
Group 2: Vietnam, Indonesia, the Philippines and Egypt (VIPE)
Group 3: Nigeria, Pakistan, Bangladesh and Iran
Criterion Group 1 Group 2 Group 3
Average GDP per capita 2009 11145 1871 1791
Average GDP growth in % 2,0 5,9 5,3
Source: World Bank
Source: LocationSelector.com 2013
ICA’S GLOBAL SITE SELECTION TREND #5VIPE’S: THE NEXT BRIC’S (2/2)
28© 2013, Investment Consulting Associates
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ICA’S GLOBAL SITE SELECTION TREND #4AFRICA: WHATEVER YOU THOUGHT BEFORE, THINK AGAIN*
FDI flows to Africa fell by 9 per cent in 2010.
South Africa saw its 2010 FDI inflows fall by over 70 per cent to $1.6 billion, a level amounting to only one sixth of the peak recorded in the country in 2008.
Regulatory concerns in the oil industry contributed to 29% fall in inflows to Nigeria. The emerging oil industry pulled inflows to Ghana and Niger to record levels, at $2.5 billion and $947 million, respectively.
Although Africa is resource rich and has large and growing consumer markets, the continent is still not able to show enough resilience to global shocks
Think again? Really? SSA growth figures are very high!
* quote by Tom de Man, President for Africa, Middle East and Turkey Heineken
29© 2013, Investment Consulting Associates
Euro Crisis song In September 2010 ICA dealt with the increasing debt crisis in Europe by
benchmarking its member’s capital competitiveness
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ICA’S GLOBAL SITE SELECTION TREND #3EU: NORTH VERSUS SOUTH
North
South (except Oslo)
• The financial, social, political and competitive problems of the “South” paints a very bleak picture
• Notwithstanding the strong financial, social, political and competitive of the North, the indecisiveness of its leaders in solving the “southern” problem severely weakens their position
30© 2013, Investment Consulting Associates
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ICA’S GLOBAL SITE SELECTION TREND #2LATAM: THE NEW RESERVOIR OF FDI
0
20000
40000
60000
80000
100000
120000
140000
In m
illions US$
Inward FDI
Outward FDI
We see an increasing ratio between outward and inward FDI, which demonstrates the expanding international activities of Latam companies
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
Latin American FDI Outward/Inward FDI Ratio
31© 2013, Investment Consulting Associates
ICA’S GLOBAL FDI TREND #1US: REVIVAL OF A NEW ECONOMIC POWERHOUSE
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1. What is your interpretation?
2. Is this a one‐way trend only?
3. What is the real story behind this cartoon?
32© 2013, Investment Consulting Associates
ICA’S GLOBAL FDI TREND #1US: REVIVAL OF A NEW ECONOMIC POWERHOUSE “A competitive and low risk investment climate, with relatively
stable wage inflation, increased productivity levels and a skilled labor pool in the US compared to rapid rising labor costs and seemingly overheating economies in South East Asia are shifting the global landscape of FDI”
ICA’s “US FDI Competitiveness Report 2011”
The increased productivity in combination with the strong competitive environment plays a big role in the current “reshoring” movement
A Reuters/MFG.com survey among US companies:– 15% have repatriated production back into the US in the past 2 years– 40% of North American manufacturers with off‐shored production are
investigating bringing that work back to the U.S. within the next year.
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33© 2013, Investment Consulting Associates
US Global Competitiveness benchmark
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Source: LocationSelector.com 2011
Source: LocationSelector.com 2011
FordMotor Company and Wham‐O (the makers of the Frisbee®) and other have already brought production back to the U.S.
Presair, a manufacturer north of New York City, returned production of its switches from China by this Fall, 2011. Cost differential evaporated to only 8%.
ICA’S GLOBAL FDI TREND #1US: REVIVAL OF A NEW ECONOMIC POWERHOUSE
34© 2013, Investment Consulting Associates
IMPLICATIONS FOR US INVESTMENT AGENCIES?
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35© 2013, Investment Consulting Associates
Developing markets are becoming developed
Emerging consumer markets creating “hot spots” for demand and market impacts as a consequence
Transportation and energy becoming highly relevant to the sourcing and production of goods
Direct access and cultural awareness also resulting in some pressure to re‐regionalize
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WORLD IS NOT EXACTLY FLAT…
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National borders becoming increasingly irrelevant
Need to compete as others do
What is the new American Advantage?
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…BUT NEITHER IS IT BACK TO THE WAY IT WAS
37© 2013, Investment Consulting Associates
Investment Consulting Associates (ICA)
THANK YOU!
A New Generation in FDI Advisory
H.J.E. Wenckebachweg 210
1086 AS Amsterdam
The Netherlands
T: +31 (0)20 794 6081
F: +31 (0)20 708 5903
E: info@ic‐associates.com
www.ic‐associates.com
1005 Boylston St, #243
Newton Highlands, MA 02461
United States
T: +1 617 314 6527
F: +1 617 507 8560
E: chris@ic‐associates.com