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a new normal

US cities and states know that in the modern world their competition could come from across the world – or just next door. With this in mind, they are redoubling FDI promotion efforts at home and abroad, as Erika Morphy reports.

In April 2018, Michigan governor Rick Snyder set out on an eight-day, four-country mission through Europe, during which he promoted his state as an ideal investment destination for the mobility industry, among other sectors.

The US auto industry, which conducts some 75% of its R&D in Michigan, has made great strides in this area and the state has parlayed this experience into a new source of growth, Mr Snyder says, adding: “We have had a lot of companies come to Michigan because of our growing expertise in this area.”

Applicable programmes

While in the UK, Mr Snyder visited the University of Warwick in Coventry, England, where he and his entourage toured the manufacturing facility and were introduced to its apprenticeship programmes. He immediately thought of how Michigan could apply some of the features he saw at Warwick to its own apprenticeship programmes, some of which are being developed in the mobility and hi-tech sectors. “We think we can expand what we are doing based on what we learned there,” he says.

To Mr Snyder this ‘lightbulb’ moment was just as important as the contacts and connections he made on the trip with the various businesspeople looking to invest in the US.

He says he does not consider inward investment promotion as merely a transactional exercise – that is, to induce as many companies as possible over a four-day period to invest in Michigan (although that is certainly a goal). He also looks at these trips as a two-way learning excercise. In this respect, a potential partnership or knowledge exchange with the University of Warwick has just as much currency as a potential lead on a new deal.

A new attitude

Mr Snyder’s open-minded approach to these investment missions and inward investment in general is emblematic of a new attitude and greater drive among US states and cities to attract inward investment to their regions.

Some US states have begun pursuing new types of investment that they may not have considered before. The Charleston region in South Carolina, for example, is taking a broader look at what could be defined as an economic development project, according to Jenna Edwards, director of global assistance intelligence for the Charleston Regional Development Alliance.

The traditional model, she says, is a company that plans to invest a certain amount of capital and hire a specific number of people. “We want to make sure that we can be responsive and effective if companies or projects look different than that,” such as with a merger or acquisition, she says. Other jurisdictions, such as Michigan, are eager to couple with overseas partners to promote their strengths. 

“US states and cities, at least the ones I am dealing with now, don’t have the budgets to set up expensive, large overseas operations so they are looking at other routes to help their companies internationalise or to attract FDI,” says Gordon Innes, head of the economic development work at Bloomberg Associates and former chief executive of London & Partners, the UK capital’s promotional and economic development company. These new routes may include bilateral partnerships or public-private models, he says. 

To be sure, both of these approaches are well established promotional tools in the economic development community, but Mr Innes acknowledges they have had a reputation of being ineffective – they were more paper-filing exercises than anything of real substance.

US growth  

What is different is that the US economic development community is getting serious about these efforts to realise real value for their respective regions, for a variety of reasons.

One reason that is becoming increasingly clear is that US cities are not just competing with each other for inward investment but with foreign locations as well. Michigan could just as easily lose a factory to Wallonia as it could to Wisconsin.

Another driver has been the strong growth of the US market over the past year or so, with the expansive tax law that the US passed at the start of the year having much to do with the more recent spurt in growth. The IMF, for instance, has said that the tax cuts were likely to boost investment in the US. 

Of course, it is debatable how long the tax law-fuelled growth will last. The IMF went on to say it expects US growth to begin to weaken by 2022 as the effects of the tax bill start to diminish. This timeline has not been lost on US cities and states, which are aware they must make the most of this window of opportunity.

New offices, more representatives

Many US states do have the budget to increase their global footprint, according to Shirar O’Connor, vice-president in the New York office of Conway, a global expansion advisory and consulting firm. But, she says: “We have noticed an increase in US states expanding their international footprints. They are increasingly opening new offices and hiring representatives. Some have come to us asking for referrals for representatives in certain markets.” US states are also much more curious about what their counterparts in other US states are up to, she adds.

One example is Missouri, which is revamping its foreign trade and investment offices around the globe. According to a local newspaper, the state killed its contracts with representatives in various countries and is placing the programme under one company, which will establish business hubs for Missouri in Europe, Asia, Middle East and the Americas.

Other regions are doubling down by targeting their strong suits to business sectors that are most likely to want to invest within their borders. Nashville in Tennessee knows it is not a gateway city such as New York or Los Angeles, but in certain situations it can make a compelling case to foreign investors, according to Matthew A Wiltshire, director of the mayor’s office of economic and community development.

For example, it offers a strong wage and rent arbitrage play – that is, it performs better on the cost differential of having 100 workers in Nashville compared with, say, the cost of having 100 workers in Chicago or New York, according to city statistics. That can be as high as $3m a year, Mr Wiltshire adds.

The city has a strong labour force and a huge population growth in foreign nationals and their descendants, says Mr Wiltshire, adding: “It’s also a great place to live.” These combined reasons helped to convince international finance company AllianceBernstein recently to relocate its headquarters from New York City to Nashville.

This article is sourced from fDi Magazine
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