Brookings Los Angeles Metro Region

GLOBAL CITIES INITIATIVEA J O I N T P R OJ ECT O F B R O O K I N GS A N D J P M O R GA N C H AS E

Los Angeles, CA - August 6, 2015Metropolitan Policy Programat BROOKINGS

Greater Los Angeles Is a Truly Global Region

Source: Brookings

Exports 2 Rank

$98 B Value

FDI 2 Rank

271,000 Jobs

Int’l Goods Movement

1 Rank

$418 B Value

Foreign Students

2 Rank

68,000 Students

Greater Los Angeles Is a Truly Global Region

Source: Brookings

Exports

$97.7 BLos Angeles - Orange County

Riverside - San Bernardino

Ventura County

Total

FDI Jobs

271,180

11,750

36,170

$5.6 B

$11.4 B

$114.7 B 319,100

However, the Region’s Position Is Threatened

Source: Brookings

Exports 2.3% Growth rate, 08-14

37 Rank

FDI 22 1991 Rank, FDI Intensity

25 2011 Rank, FDI Intensity

•Region does not operate under a coordinated regional plan or initiative to maintain its position or drive future results •Fragmented export and FDI efforts could undermine the region’s strong position

•U.S. and foreign metros are upping their game on the global front.

1. Why Global2. FDI Market Dynamics3. Acting on Global Opportunities

81%share of global economic growth occurring outside the U.S., 2015-2020

The Bulk of Economic Growth Is Occurring Outside the U.S.

Source: World Economic Outlook, International Monetary Fund, 2015.

Global Middle Class - 2009 | Share of Global Totals

18%North America

36%Europe 28%

Asia Pacific

Source: Kharas and Gertz, “The New Global Middle Class,” 2010

Global Middle Class - 2030 | Share of Global Totals

7%North America

14%Europe 66%

Asia Pacific

Source: Kharas and Gertz, “The New Global Middle Class,” 2010

Source: Brookings, Census

2014

11.6%

2003

7.9%

U.S. Export Share of GDP

2%

67%

share of exporters

Large Firms (500+ Employees)

share of export value

The U.S. Is Increasingly Export-Oriented, but Large Firms Dominate

Exports Share of U.S. GDP Growth

(2008-2014)

35%27%

Though Volatile, Global Investment Flows Are Growing

1984 1999 2012

FDI Flows Capital Investment, 1980-2012

$2 trillion

$1 trillion

Source: UNCTAD

Global

U.S.

The U.S. Is Capturing a Smaller Share of Global Investment

12 percent

26 percent

45 percent

1984 1999 2012

U.S. Share of Global FDICapital Investment, 1980-2012

Source: UNCTAD

Why FDI Matters: Over 5 Million High-Wage Jobs

5.6 millionemployees in foreign-owned firms, 2011

Foreign-ownedDomestic

$60,000

$77,000

Average Wages by Ownership2011

Source: Brookings, Bureau of Economic Analysis

Why FDI Matters: Investment in Export-Intensive Manufacturing Firms

2012 FDI Flows

Manufacturing48%

U.S. Goods Exports

U.S. Manufacturing Employment

2%

20%

Foreign-Owned FirmsGoods-Producing Industries, 2011


Why FDI Matters: Foreign-Owned Firms Invest Heavily in R&D

19 percentshare of corporate R&D expenditures by foreign-owned firms, 2011


$45 billioncorporate R&D expenditures by foreign-owned firms, 2011 77

foreign metro areas

the average U.S. metro area contains FDI from

Firms Benefit from Global Engagement

Competitive

Diversified

Sustainable Exporters 10 percent more likely to survive over 7-year period than non-exporters. - Bernard and Jensen, 1999

“Without being acquired by a larger firm, it wouldn’t have been possible to maintain significant presence in foreign markets.” - Mid-sized tech and manufacturing firm, San Diego

Since 2000, domestic sales for [our firm] have shrunk, while exports increased 400 percent... Our entire existence is predicated on growing exports.”

- Foreign-owned manufacturer, Syracuse

Current Economic Development Approaches Are Outdated

50%2000 - 2012

Source: Conway Data, Inc

Plant expansions and relocations of 50+ jobs or $1M+ investment:

Current Economic Development Approaches Are Outdated

1.9% state job creation from relocation

Source: Jed Kolko, “Business Relocation and Homegrown Jobs, 1992-2006,” Public Policy Institute of California, 2010.


Source: Census, Brookings

Population

66%

Land Area

12%

Exports

65%

FDI Jobs

74%

Top 100 MetrosShare of U.S. Totals

Patents

78% 94%

Venture Capital

College Degrees

74%

Metros Are the Market

Growth in Jobs Under Foreign OwnershipAverage year, 1991-2011

45% M&A

34% Expansion

21% Greenfield

FDI Capital Inflows1992-2008

87% M&A13% Greenfield


Mergers and Acquisitions Are the Dominant Form of FDI

Greenfield

Large, export-intensive manufacturing

Small to mid-size locations of large retail firms

Mid-sized manufacturing and services

Source: Brookings, FDI in U.S. Metro Areas

1.3% of foreign-owned establishments have more than 500 employees

75% of metro areas have less than 10 such establishments.

Average size of greenfield establishment at time of entry:San Diego: 27 employeesMinneapolis: 35 employees

Expansions of existing foreign-owned firms created twice as many jobs as new greenfield from 2001-2011.

Important source of new capital, transfers skills and technology to U.S. firms, and opens global distribution channels.

Primary learning for metros: hard to get in front of deals, but BRE is critical.

Acquired in 2007; no job loss and made a global research hubMaintains manufacturing and R&D facilities in MD

MedImmuneMontgomery County, MD

Life SciencesSan Diego, CA

Firms gain foothold in U.S. market and innovation via M&ATakeda Pharmaceuticals: grew from 85 to 250 employees, (150 PhDs)

Jim BeamLouisville, KY

Doubled size of Maker’s Mark KY distilleryGained global distribution channels through Japanese parent

Mergers & Acquisitions

23

Sovereign Wealth Funds

mid 1990s16 60+

2012

Number in existence:

Text

Private Investment

Seattle-ChinaSearching for opportunities in real estate, firms, public assets

San DiegoLooking for ways to fill need for venture capital and joint partnerships

9,231 2014

802 2006

Visas issued:

90% 2014

13% 2004

Share issued to Chinese investors:

EB-5 Investor Visa

Alternative Forms of Foreign Investment

Cumulative foreign investment:

$125 B 2011


Goal:

Catalyze a shift in economic growth policy and practice that results in more globally competitive metropolitan areas, positioning them for high-quality growth and better jobs for more workers in the 21st century economy.

1. Research 2. Convenings 3. Exchange

GLOBAL CITIES INITIATIVEA Joint Project of Brookings and JPMorgan Chase

Lessons Emerging from the Exchange

Exports: New Cohort BaltimoreFresnoHoustonKansas CityPhiladelphiaSalt LakeSeattleSt. Louis

Exports: Current AtlantaCharlestonChicagoColumbusDes MoinesIndianapolisJacksonvilleLouisville-LexingtonLos AngelesMilwaukeeMpls-St. PaulPhoenixPortlandSacramentoSan AntonioSan DiegoSyracuseTampa BayUpstate SCWichita

ColumbusMpls-St. PaulPortlandSan AntonioSan DiegoSeattle

FDI Pilot

Key Approaches

• Connections between innovation, exports, clusters, and FDI

• Diversifying from computer & electronics with cluster initiatives: We Build Green Cities, Software, and Athletic & Outdoor

• Led by Greater Portland Inc (regional) and Portland Development Commission (city)

Portland


San Diego

Key Approaches

• Advanced industries and innovation

• Life sciences M&A

• Leveraging the Cali-Baja Binational Megaregion

• Led by San Diego Regional EDC


Key Approaches

• New approaches to BRE, focus on bringing value and market intelligence to firms

• Building networks and relationships

• Honda supply chain

• Led by Columbus 2020 (regional)

Columbus


Key Approaches

• Nurturing and valuing key partnerships: connection with Canada (largest investor)

- Similar: San Antonio and Mexico

• State and regional collaboration around core strengths: Medical Device and Headquarters

Minneapolis-St.Paul


Key Takeaways from Global Trade and Investment Plans

Lead with Specializations with Global ReachClusters, talent, innovation, connections

M&A Is the Dominant Form of FDIBrings knowledge, cash infusion, export channels

The Middle Market Is the Sweet SpotTarget threshold firms and under-exporters

Long-term commitment from central players, part of every day practiceGlobal Engagement Must Be a Demonstrated Priority

The Foundation is Business Retention and ExpansionUnderstand and support the needs of existing firms

GLOBAL CITIES INITIATIVEA J O I N T P R OJ ECT O F B R O O K I N GS A N D J P M O R GA N C H AS E

Los Angeles, CA - August 6, 2015Metropolitan Policy Programat BROOKINGS