States Have New Opportunities in Foreign Investment

E-newsletter Issue #112 | April 11, 2013

As China and other countries that attracted U.S. businesses in the past face some of those same issues that prompted their moves overseas, many U.S. and foreign businesses are looking to move to the U.S.

“A lot of the same issues are happening in China as has happened in other countries as they move from developing economies to a developed economy,” said Chris Steele, chief operating officer at Investment Consulting Associates, an international company that offers advice on foreign direct investment and site selection. “You’re starting to see more of a demand for commodities, as well as for labor and it’s fundamentally changing the dynamics of that marketplace.”

States need to be prepared to capitalize on those potential moves, said Steele, who spoke during a CSG webinar, “Foreign Direct Investment: Economic Development Strategies for States.” In today’s environment, he said, states must be nimble and prepared because the time it takes for a company to select a site has shrunk from about six months to about six weeks.

He said 25 years ago, site selectors would sift through data to find information to help narrow the list of potential sites down to about a dozen. Using that information, they’d go out into the field to visit the communities before going through final negotiations and selections.

Now, much of the information is available through the Internet, contacts and companies that specialize in helping businesses with site selection.

“It’s a much more competitive marketplace and it’s a lot faster moving,” he said.

And it can be more anonymous.

Steele said many communities have no knowledge they are even on the radar of a company during three of the five phases they go through to choose a site. So states must understand what businesses consider during their project definition phase, their analysis and comparison of locations and cost comparisons to be better prepared in outreach efforts. That will help them if their community is selected for a site visit.

“Whatever happens at the back end (the last two phases) is a chance to show that the community can be a better partner for that company and a better long-term location for that business,” Steele said.

The site selection decision is usually based on two broad categories: costs—including labor costs, taxes and supply chain costs—and benefit—including infrastructure and labor quality, he said.

But Steele cautions policymakers to remember that the U.S. is not the only state looking at foreign direct investment.

“As things are starting to globalize back to the West, pay attention to the fact that we have many developing economies in Latin America,” he said.

And, he said, it’s important to remember the world is not exactly flat.

“Barriers have declined over time, but (emerging) markets are becoming developed and that has serious implications with regard to labor markets and consumer markets,” he said. “Transportation and energy are becoming highly relevant to where things are done and produced, and that is becoming a much more nuanced equation.”

National borders, he said, are increasingly irrelevant to many companies.

Years ago, many companies would come to Investment Consulting Associates with a list of states under consideration. Now, Steele said, they’re coming to the firm with a business problem and asking for advice to find communities or regions on the globe that would help resolve that problem.

“The more we recognize those borders, those lines on the map, are nothing more than that (lines) and that we are competing against that kind of environment, the better off we’ll be,” he said.

States need to position themselves accordingly. While being an American location has its own implications, he said, “we need to do a better job of being able to understand what that means in the context of other folks making location decisions today and be able to present it accordingly.”

That means each community should consider what businesses are likely to target that location and market to them.

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