The Foreign Investors' United States Location Strategy Perspective
The United States, with its huge and easily served unified market, is in the sights of foreign investors.
Gene DePrez, Managing Partner, Global Innovation Partners (Location USA 2012)
The term "foreign direct investment" or FDI was unknown to most Americans just a few years ago. Now federal and state governments (and not just their commerce agencies) are working with their regional and local chamber and economic development partners to place more focus on attracting overseas investment from companies in the form of new operations, expansions, and joint ventures. This has long been the practice in other nations that have focused on competing for cross-border investment, while the United States was more concerned with its own "cross border" interstate and regional rivalries.
Driven by the recognition that competition among the states in the United States' mature economy is a zero-sum game of moving jobs around - and not very rewarding - a lot of strategic re-thinking is taking place across the land. There is a realization that the United States is indeed competing in a new world economy, but with a positive consequence. Successful companies in growing economies like China, India, and elsewhere are increasingly mobile and are looking for new market opportunities. The United States, with its huge and easily served unified market, is often in their sights. Many global competitor regions have benefited from outsourcing by U.S. companies; they are now rapidly growing economies with fast-expanding companies ready to tap into the still gigantic and affluent American market, typically beginning with strategic alliances and joint ventures.
Insights into how global companies decide on where to invest in new business locations, or a look at the relocation or expansion activities of existing operations in new geographies can be valuable. This perspective is from my 25 years in business strategy consulting, specializing in corporate site selection and economic development. Over the past 15 years I have led the global location strategy consulting practices for two of the world's largest consulting organizations, PricewaterhouseCoopers and IBM Global Services, advising hundreds of client CEOs and other senior executives across all industry sectors, functions, and geographies as they determined locations for headquarters, R&D, manufacturing, operations centers, and other units.
Here is a brief description of the pragmatic factors leading to FDI decisions. Generally, determinations are influenced by the following drivers:
Who Makes the Decisions?
Companies, especially global enterprises, have a wide variety of characteristics and interests that influence FDI decisions by their executives and boards. These start with their industry sector (e.g., finance, automotive, electronics, media and entertainment, life sciences, etc.), but also include changing market strategy, competitive position, company culture, geographic location, C-suite perspective, and many, many others.
In today's world of conglomerates, diversification, and global operations, this variety can be further amplified within the many divisions of an enterprise by segmented, multiple strategies; timing; and organizational perspectives. The values, beliefs, and experiences of individual executives also play a role, particularly in privately held companies. In fact, there are far greater differences among the personas of companies than there are similarities, resulting in wide variations in vision, values, and decision-making.
What Drives FDI Decisions?
Executives are motivated through their business strategies to accomplish some location-related objective. It may be to gain entry into new markets, to find better operating conditions, to tap special work force skills, or to change the culture of the company. Most often it is to gain access to something its current locations don't have - talent, customers, technology, logistical advantage, or to consolidate or rationalize multiple operations in a central or more neutral place.
Reducing or containing cost is almost always a factor, but in reality cost is typically treated as a tradeoff against quality concerns. Although the pursuit of quality may be the target, operational objectives are often expressed as finding a place of similar or adequate quality at lower cost.
In an era of globalization and innovation-based competition, objectives may also include achieving a major change in the business model, acquiring intellectual capital, or establishing brand recognition in a rapidly growing economy to gain market share. And the need for competitive advantage is relentless, reflecting the ever-changing marketplace - meaning that decisions may have a life span of only a few years before they are considered again!
A Prime Example
Novartis under the direct leadership of its CEO, charged an internal team - supported by a team of global consultants - with developing scenarios and a detailed business strategy to envision, define, set specifications, and execute
a program and project management plan for establishing a new world center for biomedical research. Included was the possible consolidation and relocation of multiple units throughout the world into a new best-of-world-class operational research base. A major consideration was tapping into the talent and intellectual capital associated with a major research university.
The United States was quickly identified as the leading candidate, primarily because of its market dominance and the presence of several candidate universities meeting the criteria. Cambridge, Massachusetts, was selected, with a close working affiliation with MIT. Initially, some 300 positions were created for scientists, along with those for supporting personnel. The center - the Novartis Institutes of Biomedical Research - has now grown to employ several thousand scientists and technology experts occupying their own adjacent-to-campus facility, itself a transformation from a former candy factory to an outstanding world-class scientific biomedical research facility.
How Can America Attract More FDI?
There are several priorities being pursued by the U.S. government, including the President's Council on Jobs and Competitiveness, to help the nation deal with the broad array of methods used by global companies to make FDI decisions. In addition to ongoing review of trade, tax, and regulatory policies and legislation to assure competitiveness in a rapidly evolving global marketplace, the following strategies are in focus:
- Product development - There is a near- and long-term focus on talent, technology, innovation, education, and supporting infrastructure to assure that the United States can find its place in an increasingly competitive environment, where markets are growing much faster elsewhere, and where companies have far greater choice in locating their investments.
- Competitive positioning - An immediate focus on benchmarking - to better understand from investors' perspectives the specific factors and weights used in making comparative country-to-country and region-to-region location decisions for specific prototypical high-growth, innovation-based business functions and units - is under way. This analysis to determine current and improved global differentiation and positioning has been done by other countries, and by U.S. states and metro areas to guide policy and investment in economic development.
- Marketing and communication - The United States, at the federal level, is just beginning to aggressively market itself for FDI. SelectUSA is a promising start and will ultimately lead, coordinate, and complement state and regional economic development organizations.
- Trade and investment - Activities at the federal and regional levels that harmonize and leverage trade and investment activities in ways that support and complement both are being further implemented.
FDI is a term used throughout the world, but has only recently drawn attention of state and local economic developers in the United States, who see it as a positive opportunity for the growth of U.S. jobs and improved competitiveness. Foreign investors can take advantage of this heightened focus.
This article was adapted from remarks made to the Innovation and Foreign Direct Investment Working Group of the President's Council
on Jobs and Competitiveness.