Metropolitan areas in the US need their own foreign policies. That is the message of two new reports that highlight the vital role FDI already plays in employment and growth in key US cities. The reports suggest that targeted strategies will help urban regions haul in new foreign investors.

Cities matter because metropolitan areas account for almost three-quarters of all jobs associated with FDI in the US, according to a study by the Washington, DC-based Brookings Institute’s Global Cities Initiative, which uses a novel methodology to analyse data at a more granular level.

“FDI… is overwhelmingly attracted to metropolitan areas and the industry clusters within them,” the report found.

On their own

That may not be surprising in view of a separate study by the US Conference of Mayors that showed some US metropolitan areas have economies larger than those of many countries. The economy of the New York City region is bigger than all but 12 countries. If Los Angeles and its surrounding area were a country it would have the 20th largest economy in the world, ahead of Saudi Arabia and Switzerland.

Across the whole of the US, foreign companies employ 5.6 million people in metropolitan areas, mainly in the country’s 100 largest urban areas, according to the Brookings report. Ten metros account for just over one-third of these jobs: New York, Los Angeles, Chicago, Dallas, Philadelphia, Washington, DC, Houston, Boston, Atlanta and Miami.

From grocery chains to financial services to manufacturing to retail stores, foreign investors account for 5.5% of all private employment in the average large US metropolitan area, the report found. In some urban regions, the share is much higher. In Bridgeport, Connecticut, where financial and managerial services are heavily concentrated, 13.6% of all private employment is in foreign-owned enterprises. The head offices of foreign firms alone account for 51,000 jobs in this area.

The largest group of employees of foreign companies work in manufacturing – predominantly in the country's 100 largest metro areas – followed by wholesale trade, retail trade, finance and insurance, and professional, scientific and technical services.     

The clustering effect   

Cities with diverse economies such as Atlanta, Chicago and Dallas draw FDI from a broad range of industries. However, FDI tends to flow to the urban area where there is already a cluster of related industries, the Brookings study found. For example, the Detroit area, the hub of the US automobile industry, attracts companies from this sector. New York draws on foreign security and brokerage firms. Metropolitan areas with high concentrations of hi-tech industries naturally attract similar foreign companies. “On average, FDI supports 15.5% of all jobs – just over one in seven – in a metro area’s largest specialised industry,” the Brookings report stated.

In this way, FDI can strengthen a region’s existing specialisation. Moreover, a new foreign arrival in a different industry can attract related investment, thus creating a new strength for the metropolitan area.

“Policymakers should recognise FDI as inextricably bound up with industry clusters – geographic concentrations of skilled workers, innovation assets, infrastructure and supply chains. Clusters also accelerate spillovers and integrate new investors into the economy, ensuring that footloose companies put down roots,” the Brookings report concluded.

Another advantage is that an industry cluster may draw related FDI to an area without the need to offer costly tax incentives and other inducements to attract new entrants, the report stated.

How to win FDI

Brookings launched its study because city leaders wanted to learn how to think more strategically about attracting FDI instead of approaching it in a scattershot way, according to Kenan Fikri, a senior policy analyst in the institute’s Global Cities Initiative and co-author of the study.

A 2011 survey cited in another recent report on strategies for globally competitive cities by the National League of Cities (NLC) showed that four out of five city leaders consider FDI important for local success. Yet only one in three were actually working to attract FDI, mostly because they did not know where to start.

Attracting FDI, the NLC study asserted, requires “strategic rethinking of existing economic development efforts and leveraging collaborative relationships with regional and private sector stakeholders. These functions lie squarely within the work of local governments and their partners.”

The report advises planners to follow five steps to attract FDI: identify local assets and key resources; create regional awareness; identify investor leads; facilitate and prepare; and monitor and provide aftercare.

Following the plan

Bill Stafford, the president of the highly successful Trade Development Alliance (TDA) of Greater Seattle for the past 20 years, endorses this approach. The first step, he says, is to assess the area’s assets and talent pool. In Seattle, that included hi-tech aerospace and IT companies, the University of Washington – one of the largest recipients of national research funding – a comfortable social atmosphere, a location with a major port and airport, a high proportion of university graduates as well as many foreign students, and a favourable business climate and cost.

After assessing its strengths, a metro area can identify the kind of companies it would make sense to go after and select one as the main target, says Mr Stafford. He also advocates arranging trade delegations in search of FDI, headed by a representative from one of the city's successful businesses, or another respected figure. “This is much the same as a shopping centre having an anchor tenant,” says Mr Stafford.

The TDA has also relied on relationships with individuals in the countries it has visited who had a link to Seattle and would be willing to promote the success of the delegation. A former ambassador, former foreign students now in high places and members of a delegation from India that TDA had previously helped in Seattle all contributed to making needed contacts.

Building relationships, especially in Asia, is the key to the success of an FDI strategy, says Mr Stafford, who is also keen to stress the importance of aftercare.

Mr Stafford also advises establishing a metropolitan brand based around a recognisable large city for FDI efforts – even if smaller local rivals want to promote themselves independently. Once an FDI prospect has been hooked, it will normally hire a real estate agent in any case to identify its best location, he says.

Mr Fikri and Mr Stafford say the findings of both reports are applicable to civic leaders outside the US, especially in the developing world. “Know what you do well, and then craft a strategy around your industry clusters and raise your global profile,” says Mr Fikri.