Of all the types of FDI, research and development (R&D) projects may be the most high-profile way for investment promotion agencies (IPAs) to recruit to their locale. The concentration of technology, talent and funding can spur innovation that has many spillover effects for the economy. In addition, if the research is successful, the location may have a competitive edge when the company moves to the next stages of development through pilot production and ultimately full commercialisation.
But not all R&D projects have the same impact on local innovation ecosystems. Contrary to what one might think, research from the London School of Economics and Harvard show that investments from small to medium-sized firms may have a greater impact on local innovation than those from technology leaders who are reticent to share their technology for fear of leakage to competitors. Smaller firms are more likely to engage in local alliances and rely less on labour from their headquarters.
When trying to attract R&D activities from foreign firms, locations can leverage existing assets like talent, technology, workforce and physical plant and equipment to entice smaller firms to invest. Eastman Business Park (EBP) in Rochester, New York, was once home to Kodak, which began manufacturing photographic film and paper there in 1891. As demand for photographic film fell due to digital photography, the assets at this 1200-acre park were severely underused.
But Rochester and Kodak were able with other local partners to leverage more than 100 years of broad technical expertise in material science and breakthrough technologies in thin films, coatings, imaging and specialty chemicals to attract smaller, innovative operations to its park.
In the past five years alone, the strategy has begun to pay off. In 2017, Irish-based Nest iOn announced an investment of $1.7m in a new R&D centre. This was its first investment in the US, which will continue the development of high-performance lithium batteries designed for law enforcement, intelligence agencies and military applications.
More recently, in 2020, GreenLight Biosciences announced plans to build a pilot plant at EBP to support the production of their ribonucleic acid-based solutions for the agriculture and healthcare industries. Carole Cobb, chief operating officer of GreenLight Biosciences, noted the access to talented scientists and manufacturing experts in the Rochester area as well as the extensive infrastructure and capabilities of the park. And in 2020, Li-Cycle announced a $175m lithium-ion battery recycling hub at EBP, demonstrating the former Kodak facility’s ability to scale from the lab to full production.
The message from EBP’s success is simple. Local policymakers should focus on smaller players that are more likely to be collaborative and contribute more to the innovation of their community. At the same time, marketing existing assets that serve as indirect incentives by providing the talent, know-how and infrastructure so needed by these companies is another key draw.
Didi Caldwell is the president and founding principal of Global Location Strategies, a global site selection consultancy, and also a member of the Site Selectors Guild.
This article first appeared in the June/July 2022 edition of fDi Intelligence. Read the online edition of the magazine here.