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Table Stakes: Business Attraction in the Midwest Post-Foxconn

In order for other Midwest states to be ready when opportunity comes knocking, they need to understand the lessons to be learned from the Foxconn deal.

Q3 2017
Project Flying Eagle landed at the White House on July 28th. President Donald Trump, joined by Wisconsin Governor Scott Walker and Foxconn Chairman Terry Gou, announced that the Taiwanese electronics manufacturing behemoth had chosen Southeast Wisconsin for its historic investment. Foxconn’s highly publicized project is said to create up to 13,000 direct jobs and have a capital investment of $10,000,000,000 — yes, that’s $10 BILLION!

To the Victor Go the Spoils
As the state of Wisconsin basked in the glory of attracting the largest foreign direct greenfield investment project in U.S. history, the heavy lifting was only just beginning. Wisconsin lawmakers called a special legislative session dubbed “Wisconn Valley,” where they evaluated the proposed $3 billion incentive package offered to Foxconn and permitting expedition that was outlined in the memorandum of understanding that Governor Walker and Chairman Gou signed in Milwaukee the day after the White House announcement.

On September 12th, the “Wisconn Valley” legislation was passed in a form acceptable to Foxconn, and the focus shifted to executing on the historic magnitude of this project. Rather than devote ink to the worthwhile endeavor of evaluating recommended execution metrics for the state of Wisconsin, let’s explore what the rest of the Midwest can learn in a post-Foxconn landscape.

Autopsy of Flying Eagle
As other Midwest states evaluate what the implications of this deal mean to them, it is imperative first to understand the lessons to be learned for the next time that opportunity comes knocking (Mazda/Toyota’s new manufacturing facility!). Each state that was involved in the Foxconn sweepstakes must have an honest conversation with its regional and municipal economic development partners regarding how it can be better prepared and ultimately better positioned for the next opportunity.

Here are seven initial questions for EDOs to guide the discussion:
  1. Did our stakeholders, elected officials, and economic development organizations (EDOs) come across as a singular team?
  2. From a cost perspective, how did we compare to other states?
  3. Did our incentives proposal significantly help in offsetting those costs?
  4. Did we clearly communicate a pathway to finding and training 13,000 employees?
  5. Were we creative in presenting parcels of land that could accommodate a 1,000-acre site?
  6. Did we have the “buy in” at the right levels from the right people?
  7. Who was our “closer”?
Today’s disappointment can quickly become tomorrow’s success, just ask our friends in Michigan, as it’s now widely reported that Foxconn is planning to establish an R&D center focused on autonomous vehicles there.

Below are five specific recommendations that can be applied throughout the Midwest.

1. Opportunity in the Ashes
As Illinois and Indiana evaluate the lessons learned from Project Flying Eagle, don’t lose sight of the opportunity in front of you. Foxconn will require suppliers, lots of them! Many of these suppliers will have existing facilities in the United States, quite possibly already in the Midwest. However, there is the opportunity to attract crucial foreign suppliers that will need to follow Foxconn’s entrée into the United States. Midwestern states that are fortunate to be in close geographic proximity to Southeast Wisconsin can capitalize by showcasing development-ready sites, cost-effective logistics modeling, availability of labor, and the ability to execute on a tight development timeline. Suppliers will take interest in this, as their development timeline will ultimately be dictated by Foxconn’s stated goal to be operational by 2020.

2. Workforce, Workforce, Workforce
In early August, the U.S. Bureau of Labor Statistics announced that July’s national job-creation numbers had again outpaced expectations, lowering the national unemployment rate to 4.3 percent. Unquestionably, this is a positive national economic indicator. However, for employers considering creating scores of jobs in a community, this is reason for caution.

A common mistake made by EDOs in their presentations and marketing materials is to under-report the size of their population base or MSA. EDOs, at times, will focus their marketing materials specifically on their organizational footprint rather than the realistic commuter patterns or the broader regional population base. When the state of Wisconsin tried to address Foxconn’s ability to hire 13,000 employees in Southeast Wisconsin, they surely included workforce potential in northern Illinois.

A common mistake made by EDOs in their presentations and marketing materials is to under-report the size of their population base or MSA. Our clients, similar to most states and communities, understand the scarcity of skilled labor nationally. States and communities that land investment projects differentiate themselves by helping companies think through creative solutions to their labor concerns. Partnering with high schools, technical colleges, and universities has become imperative. Highlighting best-in-class partnerships between industry and academia can demonstrate to companies that there is a pathway to recruiting, hiring, and training candidates. Additionally, the potential to identify, engage, and (re)train “underemployed” candidates can serve as a unique approach to addressing a tight labor market.

3. Execution
By the time companies or their consultants are contacting EDOs, there is often a defined business need driving the project timeline. The ability to execute on a condensed client-driven timeline provides reassurance to the company that this community will remain a strong partner in the project well after the ribbon-cuttings and press releases have been issued.

An ability to execute on a timeline that fits a company’s business needs can provide a competitive advantage that reduced operating costs or a compelling incentives package may not be able to overcome.

Practical questions for EDOs to ask in order to enhance their ability to execute include:
  • How do we issue site searches?
  • What is our permitting process?
  • Do we have development-ready sites or an inventory of existing buildings?
  • Is our city council flexible enough to call a special meeting?
  • How long does it take to review an incentives application?
The answers to these questions and others will play a leading role in dictating how seriously your area is considered for the project.

4. Team Sport
In order to execute and win projects of the highest magnitude, states need to have their teams drafted and developed prior to game day. One of the most powerful tools for EDOs to engage prospective investors is by connecting them with existing CEOs doing business in the region. These conversations can lead to honest conversations between executives regarding workforce availability, business climate, and how the company would fit in the community. By identifying and cultivating these “champions of industry” through normal business-attraction efforts, they’ll be ready to be deployed when the site visit comes to town.

When the leaders of the state EDO have the confidence of their executive branch and legislature, it affords them the necessary latitude to think outside of the box in addressing a prospective company’s needs. Elected officials must have the discernment to respect the projects confidentiality. Regional and municipal EDOs must respect that the project locating in a neighboring community is much more impactful than the deal going to a neighboring state.

When winning the project is more important than who gets credit for winning the project, that’s a positive indicator that economic development is being conducted as a team sport.

5. Up the Ante
In light of Foxconn’s investment decision, the table stakes have been raised. Yes, a $3 billion incentive offer was a big “buy in,” which was pivotal in offsetting Foxconn’s enormous operating costs. However, I’m not just referring to the amount of incentives offered.

For decades Texas and the Southeast United States have dominated the conversation regarding mega projects and best-in-class business attraction. Foxconn validates what has been a growing sentiment: Midwestern states are no longer fly-over states. To my friends and colleagues in the Midwest, congratulations. You have been on the map and now you are squarely in the game, but understand this is a high-stakes game and Foxconn just raised the ante.
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