retaining and increasing canadian...
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RETAINING AND
INCREASING CANADIAN
FDIU N D E R S TA N D I N G T H E F O R E I G N
I N V E S T O R ’ S C U R R E N T P E R S P E C T I V E
Marc BeauchampNovember 1st, 2016
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Strategy
•Readiness Assessments
•Diagnostic
•Head Office Strategy
•Acquisitions
Financing
• Incentives
• Equity
•Venture Capital
Implementation
• Site Selection
• Incentives
•Cost Analysis
•Decisional Matrix
Maximizing Project Value
Investment Project
Corporate Service Offerings
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• $10 billion in capital
investment projects
• 27,000 jobs created and
retained in the private
sector
• 125 economic development
agencies and jurisdictions
in North America
Montreal
Toronto
New York
General Facts
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Attract ing and Retain ing FDI
Constant Battle Between Perception and Business Needs
Branding vs. Delivering
CAI ’s S i te Select ion Process
Strategic Assessment
Location Screening, Modeling &
Benchmarking
Cost ComparisonCommunity Evaluations
Implementation
• Information & sales packs
• Investment plans
• Policies and incentives
• Procedures and requirements
• Progress and achievements
Image Building
• Advertising and PR
• Information & marketing
• Missions & events
• Company targeting
• Company visits
• Follow-up
Targeting Lead Generation • Information provision
• Assistance with contacts
• One-stop-shop services
• Assessment of manpower, infrastructure, service needs
• Follow-up
Servicing Investors
• Continued “account executive attention”
• “Ombudsman” role and trouble-shooting function
• Follow-up on manpower, infrastructure, service needs
Aftercare and Policy Advocacy
Phase 2Phase 1 Phase 5Phase 4Phase 3
Cri t ical Moments in the Decis ion Process
Company Action EDO ActionFinal choice Engaging the business community
Company Action EDO ActionOn-site evaluations Professional site visits and answering business needs
Company Action EDO Action
Evaluation locations Website and marketing that educate
Company Action EDO ActionBusiness evaluation and assessment of search area Relevant branding that gets you on the list
Source: The CAI Global Group, 2015
Cri t ical Moments in the Investment
Decis ion Process
1. Getting on the radar
• Brandingyourcommunity
2. Beating the competition
• Delivering on yourpromises
3. Winning a reinvestment
• Answeringcurrent and future needs
PerceptionsNeeds
The Investor ’s Decis ion -Making Process
The foreign investor will look to what will satisfy and suffice “satisficing”*
• Looks for value-added information as early on as possible
• Reduces costs of search and will seek something that is “good enough,” something that is satisfactory
• Limited attention to the site search. Not only can they not get access to all the information required, but even if they could, their minds would be unable to process it properly
• Sticks to preconceived ideas and known information. The human mind necessarily restricts itself; it is bound by “cognitive limits”
* Derived from Herbert A. Simon’s theory of bounded rationality, Nobel Prize Winner, 1978
The Investor ’s Decis ion-Making Process
C r i t i c a l M o m e n t 1 :
G e t t i n g o n t h e
R a d a r - B r a n d i n g
yo u r C o m m u n i t y
Market your community to have the opportunity to
compete
Draw out the attention of the
investor
Create or modify an impression
U.S. Execut ives’ Percept ions of Canada’s
Business Cl imate
Source : U.S. Executives’ Perceptions of Canada’s Business Climate, Development Counsellors International, 2013
Source: Ericsson Communications, Internal Newsletter, 1990's
Cri t ical Moment 1: Gett ing on the Radar -
Branding Your Community
At the beginning of
search process24%
Aftershortlisting
40%
Final list: decision stage
13%
Once site identified 6%
Never17%
First Point of Contact with the Community
Why develop a branding of your
community ?
75% of investors will make an initial decision
before contacting any economic developer
36% will have a final list before any outreach
to a community
Their decision will be based on their
perception, what marketing message got to
them and what they believe your community
has to offer
Source: Winning Strategies, A view from Corporate America, Development Counsellors International, 2014
Cri t ical Moment 1: Gett ing on the Radar -
Branding Your Community
Source: Winning Strategies, A View from Corporate America, Development Counsellors International, 2014
Gett ing on the Radar : Promotional Tools
and Prospect ing
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Source: Winning Strategies, A View from Corporate America, Development Counsellors International, 2014
0%
10%
20%
30%
40%
50%
60%
70%
80%
Internet/Site Web Visite planifiée dedirigeants
Relationmédia/publicité
Évènementsspéciaux
Exposition Promotion Envois postaux Telemarketing
2014 2011 2008 2005 2002 1999 1996
Internet/ websitePlanned visits to
corporate executives
Media relations/
publicityHosting special
eventsTrade shows Advertising Direct mail Telemarketing
Gett ing on the Radar : Promotional Tools
and Prospect ing
Source: Economic Developers Association of Canada, 2014
Social Media and FDI
Like other professionals, economic developers are adopting
social media:
The case for why social media is an important tool for economic
developers has been made. Social media tools provide timely,
engaging, interactive, targeted and low-cost ways to market a
community, gain information, and communicate and build
relationships with stakeholders. However, as with other programs or
services offered by economic development agencies, to be truly
effective, it is critical to have a strategy in place.
“If we are not having conversations, we are not making a
difference,” Wright, 2012
Social media platforms EDAC members
are using (% of respondents)
Cri t ical Moment 1: Gett ing on the Radar –
Branding Your Community
It’s hard work
Consists of leveraging a multitude of platforms and technologies
Receiving political support
Planning small steps
Gett ing on the Radar : Promotional Tools
and Prospect ing
EDAs must work on their brand if they are seeking success with their marketing tools
Breaking through the clutter… is difficult without a brand. It is no longer sufficient for agencies to tell the world that their region is the best choice to invest in
Agencies must consistently illustrate why the region is the best option to invest in by using key brand attributes that must be substantiated with accurate & updated content
Branding your community (region or province) must be a coordinated effort
with all stakeholders involved in attracting FDI
C r i t i c a l M o m e n t 2 :
B e a t i n g t h e
C o m p e t i t i o n -
D e l i v e r i n g o n
yo u r P r o m i s e s
Understanding the motives of the investor
Investment readiness
Beat ing the Compet i t ion: Del iver ing on
your Promises
Motives underlining a foreign company’s investment into Canada:
Not always a substitute to an investment in their home country
A logical next step in a growth strategy
Closely linked to a business strategy
• Market proximity
• Resource needs
• Efficiency requirements
• Strategic asset-seeking
Beating the Competition: Motives for Investment
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Source: Adapted from UNCTAD (1998), Dunning (1998, 2000, 2004)
Beating the Competition: Motives for Investment
• Resource-seeking
• Efficiency-seeking
• Strategic Asset-seeking
• Market-seeking
• Market-seeking
• Resource-seeking
• Efficiency-seeking
• Strategic Asset-seeking
Source: Invest in Canada, Investment Strategy and Analysis Division, Office of the Chief EconomistGlobal Affairs Canada, 2016
Beat ing the Compet i t ion: Investment
Readiness
Source: 29th Annual Survey of Corporate Executives, Area Development, 2015
Out of the 10 most
important site selection
factors, 8 are
related to your
community or region
Beat ing the Compet i t ion: Del iver ing on
your promises
At the end of the day, investors are not investing in Canada,
they are investing in your community
Investment readiness becomes increasingly important for all
EDOs looking to attract FDI
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Beat ing the Compet i t ion: Investment
Readiness
Investor has limited attention to the site search
Unable to process the information properly
Condition OK/DNQ
Qualifying NAICS OK
Project: Project Stone
Sales and Use Tax Exemption on Energy Used in Manufacturing
Jobs 58
Output per Worker $210,000
Expected Sales using Industry Averages $12,180,000
Energy Cost (Utilities) to Sales Ratio 1/62
Expected Energy Cost $195,963
Sales Tax 8.70%
Tax Savings $17,049
This preliminary profile suggests annual savings from sales and use tax exemptions on energy used in manufacturing of:$17,049
DISCLAIMER
The materials contained in this document have been prepared by the Oklahoma
Department of Commerce for informational purposes only and do not constitute legal or
tax advice. This information is subject to change based on judicial interpretation and
legislative action. The application of the information is subject to your unique facts
State of Oklahoma Incentive Summary
State Incentives
1b Alternative to Quality Jobs Incentive
Investment Tax Credit $232,750 Five Years
Sales and Use Tax Reimbursement on Construction Materials $0 One-Time
Applies to manufacturing firms with new building investment of at least $5 million.
2 Five Year Property Tax Exemption $176,693 Five Years
Real and personal property used in the manufacturing process earns a five year
abatement assuming a minimum of $250,000 in investment and $250,000 in new
payroll in counties with a population of 75,000 or less, additional payroll of
$1,000,000 is required for larger counties, OR certain computer service
companies already in the program with $7,000,000 investment.
3 Sales and Use Tax Exemption on Machinery and Equipment $404,985 One-Time
Valid at all times for machinery and equipment purchased for use in the
manufacturing process. Includes replacement parts as well as new equipment.
4 Freeport (Inventory) Tax Exemption $16,757 Annual
Firms able to move inventory through their facilities within a nine month period
are able to avoid property tax liability on imported items.
5 Sales and Use Tax Exemption on Goods Consumed in ManufacturingEst. Available Annual
Includes tangible personal property used in the manufacturing process as well as
primary and secondary packaging materials.
6 Sales and Use Tax Exemption on Energy Used in Manufacturing $17,049 Annual
Includes all fuel and electric power used in the manufacturing process.
ESTIMATED TOTAL VALUE OF STATE INCENTIVES OVER TEN YEARS:
* With 1a, Quality Jobs Cash Incentive $919,737
* With 1b, Investment/New Jobs Tax Credit Package $1,152,487
ESTIMATED TOTAL VALUE OF STATE AND FEDERAL INCENTIVES:
* With 1a, Quality Jobs Cash Incentive $919,737
* With 1b, Investment/New Jobs Tax Credit Package $1,152,487
Project Name: Project Stone
Eligible new manufacturing investment earns a credit of 1% each
year for five years (total of 5% of investment).
Beat ing the Compet i t ion: Investment
Readiness
Investor looks for value-added information as early on as possible
Example : RF I Response Deva lu ing the Reg ion
The RFI response and communication
with investor and site selector must be
strategic and tie-into the efforts of
selling the attributes of the community
If the proposed site can not meet the
criteria, the RFI response should
outline the solutions, how and when
Collaboration between the federal,
provincial and local governments as
well as educational institutes and other
stakeholders are key and to leverage
an RFI response
Case: Project in Food Processing looking at the US
and Canada
Response to an RFI included claims like “we have
no incentives” and “our sites do not have the
availability of water and sewer capacity necessary
for this project”
Reality:
The infrastructure improvements could be paid for using
an existing development program
Site was located in a province that ended up putting
together a $33 million incentive package
C r i t i c a l M o m e n t 3 :
W i n n i n g a
Re i n v e s t m e n t -
A n s w e r i n g
C u r r e n t a n d
Fu t u r e N e e d s
Answering current and future needs
Winning a Reinvestment
Company has worked with you to complete their investment project
Company evaluates its experience; how you kept your promises and met its needs
Impression you leave will play a role in your ability to support them in the future, and secure a reinvestment
Retention and expansion of a business in your jurisdiction depends on your capacity to develop your community
« A business cannot remain healthy
in a sick community »
Source: Andrews, K., The Concept of Corporate Strategy, 1980
Winning a Reinvestment
Factors that cause relocation:
High taxes 44%
Excessive government regulations 29%
Labor availability 26%
Labor costs 24%
Poor infrastructure 24%
Quality of life concerns 21%
Healthcare costs 15%
Source: 29th Annual Survey of Corporate Executives, Area Development, 2015
Winning a Reinvestment
• Reinvestment and retention dynamics:
– Decision-making process; structure of organization; internal competition
between subsidiaries
– Local leaders become important in the process (e.g., Remember
Ericsson)
– The EDOs focus must be on the ability to answer the investor’s current
and future needs
Neutral and
paternalisticConflictual
Synergy and
creativityMissed opportunities
EntrepreneurPassive
Negative
Positiv
e
Birkinshaw (1995). “Encouraging Entrepreneurial Activity in Multinational Corporations”
Business horizons. “Likely Forms of the Parent-Subsidiary Relationship”
Behaviour of the
head office
towards
subsidiary
initiatives
Decis ion -Making Process
Behaviour of the subsidiary
executives
Identify the strategic foundation of the company in your community
Anchored Interconnected
Ineffective Advantaged
Local Comparative
Advantages
Source: The CAI Global Group, 2015
Local Strategic Importance
Best Pract ices
• Access to resources
• Proximity to market
• Labour (cost,
quality)
• Available incentives
• Tax benefits
• Education
• Labour (cost, quality)
• Business community
• Local industries
• Transport/distribution
• Access to resources
• Proximity to market
• Labour (cost, quality)
• Business community
• Local industries
• Transport/distribution
Anchored Interconnected
Ineffective Advantaged
Source: The CAI Global Group, 2015
Strategic
asset-
seeking
Market-
seeking
Resource-
seeking
Efficiency-
seeking
Understand Your External Environment
Best Pract ices
Conclus ion
Branding and marketing sometimes has more to do with how the investor thinks than the
message you want to relate.
No longer sufficient to tell the world you are the best choice to invest in
Requires the use of different technological platforms and the ability to provide added value
The attraction of FDI for Canada involves a multitude of stakeholders who must work
together
Investment Motives
Investment Factors
Conclusion
Once Canada is on the radar, the investor will look to the community to evaluate
the investment factors (8 out of 10 factors are local criteria) and will make a
decision; communities have the responsibility to be investment ready
Winning a reinvestment requires the ability to identify the positioning of the
subsidiary based on its external environment (Local Strategic Importance and Local
Comparative Advantages)
THANK YOU
Marc Beauchamp, Vice-President and Partner 514-982-0095, ext. 224 I [email protected]