VEDA 2013 FALL CONFERENCE Bringing the Global Economy Back to Virginia: Global FDI Trends and Best Practices October 2013
AGENDA Introduction to OCO What is FDI and Why is it Important? Global Trends in FDI FDI Attraction Today Best Practice Examples Summary
Introduction to OCO Economic development consultancy incorporated in 2001, 45 staff in 5 international offices Clients include US locations such as North Carolina, North East Ohio, San Jose, Milwaukee, Missouri, Florida; plus numerous EDOs across the world OCO s services include: Consulting Strategy; benchmarking; organization development; marketing / propositions; client training Outsource Solutions Trade & investment support and lead generation Analytics Business intelligence, research, insight, and profiling; in-house software solutions (CRM, Websites, pipeline development) 3
What is FDI and Why is it Important? FORMS FOREIGN DIRECT INVESTMENT An enterprise making a cross border investment that directly involves a capital spend or creation of jobs. This can be a new investment, or an expansion of an existing facility. Merger / Acquisition Joint Venture Wholly Owned (Greenfield) Share Acquisition Partnership DEFINING. PROJECTS FLOWS / CAPEX STOCKS JOBS 4
What is FDI and Why is it Important? In 2010, foreign firms employed over 200,000 people in Virginia The US is by far the largest recipient, and source, of international investment In 2013: - Irish company Greencore created 350 jobs - UK company Rolls Royce created 140 further jobs - Indian company Aditya Birla Minacs created 250 jobs Foreigners invested $269 billion in nominal terms in US businesses and real estate in 2009 Virginia is in the top 15 state for FDI projects in the US 5
What is FDI and Why is it Important? Investment from within the USA 66% Investment from Overseas 34% Source: fdi Markets from the Financial Times No. Projects 2007-11 6
Global Trends in FDI Global FDI Stock 1980 3% 1990 9% 2000 2005 $22,813 bn 33% 2009 $698 bn 51% 2012 $2,078 bn 80% $7,511 bn $11,674bn 100% $18,312 bn 7
Global Trends in FDI Considering M&A 1 200 000 Value of Cross-Border M&A Sales, 2003-12 ($m) 1 000 000 800 000 600 000 400 000 200 000-2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Primary Manufacturing Services M&A is an increasingly important gauge of global FDI, and tends to react faster than greenfield, expansions and other forms of FDI to the prevailing market conditions... Source: UNCTAD 8
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Millions Global Trends in FDI The Outlook for Greenfield 17,000 Total Projects Estimated Jobs 4.0 16,000 3.8 15,000 14,000 13,000 12,000 11,000 10,000 9,000 3.6 3.4 3.2 3.0 2.8 2.6 2.4 2.2 8,000 2.0 Source: fdi Markets & OCO Analytics 9
Global Trends in FDI Evolution of Destinations 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% FDI Flows Developing Economies Developed Economies Source: UNCTAD 10
Global Trends in FDI Evolution of Destinations Source: OCO Annual Report 2012 11
Global Trends in FDI No. Projects, 2012 12
Global Trends in FDI Estimated Job Creation, 2012 13
Global Trends in FDI Where s the Next Project Coming from? TIER 1 TIER 2 TIER 3 USA - Business Services; Financial Services; ICT UK - Business Services; Financial Services; ICT GERMANY- Food & Drink; Advanced Manufacturing JAPAN - Advanced Manufacturing; Electronics; Automotive; Chemicals FRANCE ICT; Food & Drink SPAIN- Financial Services, Clean Energy INDIA- ICT; Financial Services; Business Services SWITZERLAND NETHERLANDS ITALY CANADA- ICT; Metals; Financial Services Business Services SWEDEN CHINA- Telecoms; Financial Services; Advanced Manufacturing SOUTH KOREA UNITED ARAB EMIRATES - Financial Services; Real Estate RUSSIA Energy; Financial Services; Metals; ICT BRAZIL Metals; ICT; Food & Drink TURKEY - Financial Services; Real Estate CZECH REP - ICT 14
Global Trends in FDI Where s the Next Project Coming from? Business Services, ICT Financial Services Telecoms, Manufacturing Clean Technology Advanced Manufacturing Real Estate Business Services, ICT Electronics, Advanced Manufacturing Food & Drink Tier One Tier Two Tier Three 15
Global Trends in FDI Know the Factors that Really Matter Location Determinants for All Projects 2003 & 2010 0% 20% 40% 60% 80% 100% 2003 43% 57% 2010 23% 77% Cost Factors Quality Factors Source: fdi Markets and OCO Global 16
FDI Attraction Today The Model Continues to Evolve. Until 70s Facilitation 80s Image building / Communication 90s Targeting Today Solutions POLICIES Liberalize FDI regimes Reduce barriers to inward investment Strengthen standards of treatment for foreign investors Enhance functioning of markets Actively seek to attract FDI by Marketing their countries Establishment of investment agencies Proactive approach towards attracting FDI Targets foreign investors at sector and firm level Adopt private sector sales and marketing practices across the organisation Scope of services enlarged to include M&A, alliances, joint ventures and equity stakes Development of clusters Development of value propositions So at What Stage are Virginia EDOs? 17
FDI Attraction Today The Investment Climate We are interested in expansion overseas but we have not enjoyed good experiences with agencies in the past. They tend to come in and talk about a lot of things but never deliver anything of real worth to us as a company. Clear Orbit Inc (Supply Chain/Enterprise Software) EDO solicitations were taking too much time and distracting us from our core business. We have established a Government Relations division to filter out the noise. Only EDOs that understand our business model will get through. Citigroup, New York Each year there are typically 10,000 global EDOs competing for just over 15,000 projects. Increasing number of EDOs together with increasing sophistication Corporations are bored of IPAs who don t know their business. SURVIVAL OF THE FITTEST! We are fast approaching a world where we will ask EDOs for a prequalification screening/tender response before we agree to work with them. There s too much amateurism out there and we don t know where our data ends up. American Express 18
FDI Attraction Today What are Other States Doing? Which States Directly Assist in Overseas Markets? 6+ FDI (and Trade) offices 8 Less than 6 offices, more trade focus 18 Regular trade missions and single trade office 3 Some evidence of trade missions / international engagement Limited / no evidence of international activity 0 21 Has an international investment / trade office Does not have an international investment / trade office 0 20 40 Breakdown of State s International Activity 19
Best Practice Examples At the Community Level Kansas City, Missouri, has built its reputation as a hub for data center solutions. As of now it hosts over 20 major data centers of such companies as Master Card International, AT&T and Bank of America. The city built its proposition around main location drivers for data centers: Availability of suitable facility or site Robust telecommunication infrastructure Reliable electricity supply http://www.thinkkc.com/ The Think Kansas City web-site features an extensive data bank of available property with full description and rates. When investors look for outsourcing solutions, the agency provides them with quotes from qualified data center providers within 24 hours from submission of requirements. 20
Best Practice Examples At the Community Level The Partnership is responsible for attracting new business, jobs and investment to the three-state, 15-county region at the intersection of Ohio, Kentucky and Indiana. Marketing the region domestically and internationally. Generating and managing prospects, identifying retention issues and opportunities and partnering with local communities to win projects. 21
Best Practice Examples At the Community Level A leading destination for quality business attraction in Michigan New focus on FDI Developing intelligence research, marketing collateral, lead generation efforts SPARK CEO is Chair of IEDC, with an ambition to support members in developing their FDI programs. 22
Best Practice Examples At the State Level 23
Best Practice Examples At the State Level ORGANISATION ISSUE TO BE ADDRESSED SOLUTION IMPACT The Missouri Partnership How to optimise resources and achieve most impact most economic development Development of a composite score to evaluate project opportunities using: Job numbers Capital Average salaries Adapting our offer to suit different target markets, e.g. promoting M&A to Chinese investors Assessment of long term impact of projects defines levels of support Good pipeline of clients from emerging markets Trade clients evolving to M&A opportunities 24
Best Practice Examples At the National Level 25
Summary FDI is not a panacea for economic recovery but it does play a role FDI does not just happen after a mission to Europe, it takes time and commitment Strategic investors do not respond to quality of life or incentives alone: you need a business case Research the pool of potential companies you intend to prospect - and get targeting Learn from, recognise and cultivate your existing investors Skills and talents are the new battle front for FDI Universities and centers of excellence have an increasingly vital role to play 26