Foreign Direct Investmentknowledgecenter.csg.org/kc/system/files/foreign_direct...Using...

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


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



ICA IN THE NEWS


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


PROCESS DIFFERENCES:CHANGES IN INTERNATIONAL SITE SELECTIONS



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



2011 SITE SELECTION PROCESS

85% of initial search = InternetSIX WEEKS

Detailed info

Services

It is a jungle out there



DATA AND REPORTS ON COMPETITIVENESS


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


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



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



RELOCATION COST – BENEFIT MATRIX


Benefits

Costs

Low risk location

High risk location

High cost level Competitive cost levels


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



LOCATION DECISION ANALYSIS


Location Decision

Costs Benefits

Labor Costs Tax Supply Chain Costs Infrastructure Labor quality

30% 70%

65% 35%50% 15% 35%


TIMEFRAME OF LARGE SCALE FDI PROJECTS


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


INTEGRATED STORY: WHERE CORPORATES MEET IPA’S


• 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



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


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.


By observing the incentives given by governments to corporates, priority sectors can be identified and competition for investments intensified


ICA’S SIXPENCE:6 CURRENT FDI SITE SELECTION TRENDS



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”



OFF‐SHORING FACTORIES TO ASIA


Is this model still sustainable?

What are the current trends in the US and Europe

“Re‐shoring?”

Value of “Made in ___ label”

http://www.youtube.com/watch?v=mJlqOpUC44U


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


ICA’S GLOBAL FDI TREND #6 CHINA: IS THE DRAGON LOOSING ITS FLAMES?

China: in transition from an outsourcing location to a sourcing location


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.


ICA’S GLOBAL FDI TREND #5VIPE’S: THE NEXT BRIC’S (1/2)



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)



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


Euro Crisis song In September 2010 ICA dealt with the increasing debt crisis in Europe by

benchmarking its member’s capital competitiveness


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



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


ICA’S GLOBAL FDI TREND #1US: REVIVAL OF A NEW ECONOMIC POWERHOUSE


1. What is your interpretation?

2. Is this a one‐way trend only?

3. What is the real story behind this cartoon?


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.



US Global Competitiveness benchmark




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


IMPLICATIONS FOR US INVESTMENT AGENCIES?



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


WORLD IS NOT EXACTLY FLAT…


National borders becoming increasingly irrelevant

Need to compete as others do

What is the new American Advantage?


…BUT NEITHER IS IT BACK TO THE WAY IT WAS


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

Foreign Direct Investmentknowledgecenter.csg.org/kc/system/files/foreign_direct...Using...

Documents

Transcript of Foreign Direct Investmentknowledgecenter.csg.org/kc/system/files/foreign_direct...Using...