How U.S. States are Targeting Foreign Direct Investment
State and regional economic development organizations are developing a variety of strategies to market their best assets, build relationships, and improve their business climates to attract FDI.
Location USA 2015
Traditional foreign investors include companies from the United Kingdom, Japan, Canada, Australia, South Korea, and European countries. Expert observers predict increasing growth in investment from China as manufacturing costs rise and Chinese companies look to add a “Made in America” label to their products. Still, China has a long way to go to catch up to more traditional sources of FDI. Today investment by China and emerging economies is still just a fraction of total FDI. Together, Brazil, Russia, India, China, and South Africa totaled just 1.5 percent of all foreign investment in 2013.
All sectors of the economy offer significant business opportunities for foreign companies, with manufacturing receiving the greatest share. Exceeding $900 billion in 2013, manufacturing accounted for one third of cumulative FDI per the Bureau of Economic Analysis. Within the manufacturing sector, the chemicals segment attracts the greatest investment as companies look to the U.S for top talent, research institutions, and strong intellectual property protections. After manufacturing, finance and insurance is the most attractive sector for foreign investors attracted to large, liquid financial markets. Foreign companies, on a cumulative basis, have invested heavily in the U.S. finance and insurance industries, reaching $365 billion by year-end 2013. The finance and insurance sector is the fastest-growing area for FDI.
The U.S. economy’s primary location advantages are its open markets and investment climate, the strongest in the world. Other advantages include vast consumer markets, world-renowned universities and research institutions, a skilled and productive workforce, entrepreneurial culture, and transparent regulatory environment. Once a company makes the decision to invest in the U.S., the location search progresses much like any other site selection project. International companies must identify the most important location factors for their particular businesses, and industries must analyze the differences in land prices, utility rates, tax rates, workforce, and business incentives among different U.S. locations.
How States Attract FDI
State-level economic development agencies pursue a variety of strategies to attract FDI, including targeted marketing and business development campaigns, generous business incentives, and old-fashioned relationship-building through trade missions, operation of permanent offices abroad, and intense networking through their existing international business communities. Following are some examples:
South Carolina aggressively pursues foreign investment, and has successfully recruited many companies from overseas. The state has permanent foreign offices in Shanghai, Tokyo, and Munich, and representatives from the Governor’s office regularly meet with Asian and European investors.
In 2012, South Carolina presented Michelin with an incentives package that persuaded the European tire company to both expand an existing tire plant in Greenville, and create a new facility in Starr. Michelin anticipated the creation of 500 new jobs and a $750 million investment in the area. The incentives package included $7.5 million from the South Carolina Department of Commerce, with an additional $325,000 from other state and local agencies. The state incentives were offered in part to offset costs of site preparation, such as clearing work and soil removal.
The Palmetto State has also welcomed several Chinese companies, which are drawn to the area for its lower costs for land purchases and utilities. In 2007, the state signed a Memorandum of Understanding with the Chinese government that named South Carolina as a preferred location for Chinese businesses to establish an American presence.
Florida attracts international business through its seven state trade offices, and 15 international offices in 13 countries. The state also attends and exhibits at niche events, such as MEDICA and Arab Health.
Embraer, a Brazilian aerospace company, recently expanded its Florida facilities. The Brazilian manufacturer opened its first overseas facility in Florida’s Space Coast in 2008. The company opened a new manufacturing facility at the Melbourne International Airport in October 2014. The new center is expected to bring 600 new jobs to the area. Additionally, Embraer anticipates a $15 million capital investment. Florida expanded its partnership with Embraer to win the bid by offering a generous incentives package, potentially worth between $45 million and $50 million, in addition to financial support from city and county agencies.
According to the “Global Trends Report” from the IBM Institute for Business Value released in November 2014, Tennessee was ranked the number-one state for FDI job commitments in 2013. The state’s top-10 countries for FDI include Japan, Germany, Canada, the United Kingdom, South Korea, France, Italy, Switzerland, Sweden, and Belgium. Tennessee touts its infrastructure and logistics base as a strong selling point for overseas companies. Tennessee operates offices in Japan and Canada to promote the state and build relationships.
South Korean tire manufacturer Hankook Tire broke ground on its first U.S. manufacturing plant in 2014 in Clarksville, Tennessee. Hankook expected to create 1,850 new jobs over five years and invest $800 million in the region. Hankook considered five other states, but was impressed with the Tennessee location’s extensive and convenient transportation system that includes rail, plane, highway, and waterway access. Hankook received an incentives package totaling up to $120 million. The state government presented $72 million in incentives, while the remainder was provided by the city and county. The state’s incentives package included funds for a training facility, employee training, and the development of a Korean cultural center in the Clarksville area.
As the world’s ninth-largest global economy, California is a magnet for foreign investment. Despite higher business costs and a lack of strong discretionary incentives programs, California offers numerous advantages for foreign investors. International business leaders seek California locations for their large consumer markets, workforce, financial and technology resources, ports, and Pacific location. According to GO-Biz, the state’s economic development agency, California is the most popular U.S. location for international companies and attracts more foreign direct investment than any other state. Top investing countries are Japan, the United Kingdom, China, and the Netherlands. Foreign affiliate employment accounts for over 700,000 jobs in California.
The automotive industry is the top segment for FDI employment in Ohio, where Honda employs 14,000 workers. The largest numbers of jobs created by foreign companies come from Japan, followed by Germany, the United Kingdom, Canada, France, and Switzerland. JobsOhio focuses its recruiting efforts on automotive, aerospace, and advanced materials, playing to the state’s historic strengths in manufacturing, as well as its strategic location within a one-day drive of 60 percent of the U.S. and Canadian populations.
Virginia touts the state’s founding over 500 years ago as the very first example of FDI on the continent. According to the Virginia Economic Development Partnership, “The Commonwealth of Virginia was founded as a global business venture in 1607 when English colonists landed in Jamestown, Virginia — the first permanent English settlement in North America.”
Today there are more than 700 internationally owned companies located in Virginia, including Canon and Rolls-Royce. Virginia’s top five sources of FDI are Germany, France, the UK, Japan, and Canada, while the Commonwealth is making a strong play for Chinese investment. Last year, Shandong Tranlin Paper Co., Ltd., a Chinese pulp and paper manufacturer, announced plans to invest $2 billion and create 2,000 jobs over five years to establish its first U.S. advanced manufacturing operation in Chesterfield County. The investment represents the largest Chinese greenfield project in the United States. The Governor’s Opportunity Fund will provide a $5 million grant to assist Chesterfield County with the project. The company may be eligible to receive a Major Employment and Investment performance grant, subject to approval by the state’s General Assembly.
Along with traditional hard assets like deepwater ports and interstate highway access, economic development officials credit investments in building and maintaining relationships as a major factor in attracting Chinese investment. Virginia has operated an office in China for more than 16 years, and Tranlin’s initial interest was the result of its chairman Jerry Peng’s personal ties to Virginia as an alumnus of the Darden School of Business at the University of Virginia.