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Background data and analyses
Chinese Investment & Manufacturing in the US Midwest
Contents
Trends in Great Lakes manufacturing
Priorities and drivers of Chinese outbound FDI
Best practices for attracting investment
Appendix – FDI data
2
The Great Lakes states and provinces rely on manufacturing
SOURCES: US Bureau of Economic Analysis;; Statistics Canada;; Eurostat
§ Manufacturing accounts for 13% of output and 11% of employment in CGLGstates/provinces
§ CGLG manufacturing accounts for 33% of total US & Canadian manufacturing GDP and 38% of manufacturing employment
§ CGLG manufacturing GDP is about 3 times that of the United Kingdom’s manufacturing, and about the same as German manufacturing
3
-2.8-2.1-1.4-0.70
0.71.42.12.83.54.24.95.66.37.07.78.4
0.75 1.00 1.25 1.50 1.75 2.000.50
Pharmaceutical and medical equipment
Petroleum and coal
PaperNonmetallic minerals
Motor vehicles
Misc excl medical equipment
Machinery
Leather
Furniture
Food
2012 Great Lakes LQ1, No.
Electrical equipment and appliance
Computer and electronics
Chemical excl pharma
Projected annual GDP growth in GL, 2013-22Percent
Wood
Transportation excl motor vehicle
Fabricated metal
Textile product millsTextile mills
Printing Primary metals
Plastics and rubber
Beverage and tobaccoApparel
High growth, low concentration of labor
Manufacturing in the Great Lakes spans a broad spectrum
High growth, high concentration of labor
Low growth, high concentration of labor
US GDP
Size of bubble = 2012 GL GDPAssets Selective bets Legacy
GL manuf.
Low growth, low concentration of labor
Illinois, Indiana, Michigan, Minnesota, New York, Ohio, Ontario, Pennsylvania, Quebec, Wisconsin
SOURCE: Moody’s Analytics;; US Bureau of Labor Statistics
1 The location quotient (LQ) describes the specialization of the labor force in the region. It is the percent of workers in an industry in the Great Lakes versus the percent of workers in the industry nationally. A region with an LQ greater than 1 is more specialized than average in that industry.
4
Small and medium-sized enterprises play an important role in the region’s manufacturing ecosystem
SOURCE: Market Insights database
SMEs in the Great Lakes manufacturing ecosystem
1 SMEs are enterprises with 500 or fewer employees;; the region hosts a total of 9,052.
Manufacturing total 3,26961% 1,94557%
Sales, USD billions Jobs, ThousandsSector
7176%
Petroleum and coal 12190%Other trans. equipment 12396%Plastics and rubber 12970%Pharma and med. devices 13487%Electrical equipment 84% 155
Nonmetallic minerals
Fabricated metals 16787%Primary metals 18993%Computer and electronics 24978%Machinery 30954%Chemicals 33363%Food 46051%Automotive 74277%
Large enterprisesSMEs
30064%12357%
20565%23150%
7059%
1266%5261%
19271%5448%9467%
28377%11272%
19256%
2013
5
Five macro trends will influence manufacturing globally
SOURCE: McKinsey Global Institute;; “Manufacturing the future: The next era of global growth and innovation,” November 2012
Demand shifts
Demand volatility Commodity price volatility Currency fluctuations Supply chain risks Location-specific risks Capital cost uncertainty
Support for domestic manufacturing
Safety, quality, and sustainability regulation
Intellectual property protection
Corporate tax rates
Global demand shift to emerging markets with West still providing majority
Demand fragmentation and need for customization
Growth of service business models
Shift in relative labor costs Talent shortage Commodity price changes Energy and transport costs
Supply constraints
Risks and uncertainty
Changing policies and regulations
Advanced materials Product design Production processes Digital manufacturing Business models
Technological change and innovation
6
To capitalize on those trends, companies and governments will need to invest strategically over the next few years
Demand shifts
To meet demand in emerging markets, firms will need capital to scale up production
This will drive investment in capable production at all points in supply chain, including distribution channels
More agile, modular production facilities will help companies meet shifting demand patterns across regions and customize production
Demand for post-sale services will require investment in service divisions and facilities and expanded networks of service and retail outlets
Market research and analytics will grow to track demand in fragmented world market
Supply constraints Changing policies and regulations
Risks and uncertainty
Technological change and innovation
Detailed look follows in next section
Rising and volatile commodity prices will require investment to make production processes more efficient
Rising wages (especially in today’s “low cost” areas) will require new production processes to improve work flows and labor productivity
Rising wages in low-cost areas may also spur new production facilities in new geographies
Workforce education will become more important, necessitating investment in training
New regulations may force companies to invest in a broad range of initiatives, from [health and safety to sustainability]
Government investments in infrastructure, from schools and parks to roads and power grids, will attract investors, workers and managers
Rising volatility in demand, input prices, currencies, environmental factors, and other risks will require operational investments and hedging, such as dispersing production facilities geographically to reduce risk and traditional financial hedging
Firms will invest in gathering and using data to track and analyze global demand, prices, suppliers, and other metrics to optimize production
7
Advanced materials Nanotech Biologics Lightweight materials
Product design Internet of things Embedded sensors Customization
Production processes Advanced robotics Additive manufacturing Green manufacturing
Digital manufacturing Modeling and simulation Advanced analytics Track and trace
Business models Frugal innovation Circular economy New service models
There are 5 broad categories of technology trends that will disrupt the manufacturing sectorNew technologies that will change manufacturing value chains and processes
To capture the benefits of these changes, companies will invest in three broad areas
Basic R&D
They will conduct basic R&D to develop new technologies and new machines and processes as support
Deployment testing
They will create and test new machines and production processes to support new modes of production and ways of doing business
New plants
They will construct new facilities and retool old ones to produce new products or support new processes
8
Examples in Great Lakes manufacturing industries
Key investment needsAutomotive and machinery New materials promise lighter-weight, stronger components, and energy efficiencies
Pharmaceuticals Traditional biologics and nanotech are converging, allowing manufacturers to “grow” drugs and devices
Nanoparticles may help doctors precisely target diseases such as cancer
Food, CPG, and chemicals Nanosensors may be used to detect traces of contaminants or toxins
Chemicals Material innovations are revealing new ways to generate chemicals (e.g., breaking down cellulose to generate biologic materials)
Advanced materials – effects on Great Lakes manufacturing
SOURCE: McKinsey Global Institute, “Manufacturing the future: The next era of global growth and innovation,” November 2012;; interviews with industry experts
Advanced materials Nanotech Biologics Lightweight materials
Basic research labs, training centers, and industry research consortia to keep pulse on advanced materials
Commercial R&D into advanced production techniques and materials, finding new compounds or new applications for existing stock
Develop new production processes and machinery
New plants to produce advanced materials, such as lightweight metals and alloys
9
Examples in Great Lakes manufacturing industries
Key investment needs
Innovations in product design – effects on Great Lakes manufacturing
Product design Internet of things Embedded sensors Customization
Basic R&D support for training centers, and industry research consortia to keep pulse on advanced technology and software development
Commercial R&D investment in firms and training to produce next-generation software and talent
Development of new production processes and machinery to support customization along the supply chain
Medical devices New sources of data and insights will inform consumer analytics and increase consumer transparency
Pharmaceuticals With personalized medicine, doctors will tailor drugs and interventions to specific body types and genomes
Automotive Electric and electronic elements will likely account for more than 80% of all innovations in the automotive industry
Companies are focusing more on the software embedded in the car along with traditional mechanical and electrical components
SOURCE: McKinsey Global Institute, “Manufacturing the future: The next era of global growth and innovation,” November 2012;; interviews with industry experts
10
New production processes – effects on Great Lakes manufacturing
Examples in Great Lakes manufacturing industries
Key investment needs
Basic research labs, training centers, and industry research consortia to keep pulse on advanced technology and software development
Commercial R&D investment in firms and training to produce next-generation software and talent
Develop new production processes and machinery, such as continuous manufacturing and new tech (e.g., emission-control tech)
New plants to produce lightweight metals, alloys, 3D-printed parts
Production processes Advanced robotics Additive manufacturing Green manufacturing
SOURCE: McKinsey Global Institute, “Manufacturing the future: The next era of global growth and innovation,” November 2012;; interviews with industry experts
Medical devices Advanced robotics in manufacturing can reduce human error and speed production process
Additive manufacturing can help build new exoskeleton braces
Live human cell organs may be “bioprinted” Inkjet printing techniques may layer human stem cells on medical devices
Pharmaceuticals Continuous manufacturing, rather than batch production, speeds production but requires new processes, machines and quality control measures
Installation of modular plants will speed scale-up, lower costs and increase flexibility
Automotive Additive techniques are already producing cheaper prototypes quickly
Also used in some highly complex partsFood Low-cost and resource-efficient “green” packaging;; sterile and cold chain packaging
Dolls/toys manufacturing 8 billion toys are 3D-printed every year across the world--an $85 billion industry
11
Examples in Great Lakes manufacturing industries
Key investment needs
Digital manufacturing – effects on Great Lakes manufacturing
Digital manufacturing Modeling and simulation
Advanced analytics Track and trace
R&D for new technology and software needed for virtual engineering, track and trace technology, and connectivity
Develop new production processes and machinery, such as modular production platforming, and new technology, such as mobile device systems integration
Medical devices New technology to trace products through each stage of the value chain can improve supply chain security and assist in recalls
Pharmaceuticals Remote monitoring can improve the health of patients and slow the rise in healthcare costs– Virtual engineering and simulations to
enable more modular and flexible production (i.e., product platforming)
– Batch modeling software to improve data and detection systems, enabling real-time release and higher quality control
Automotive Connect automobiles to themselves (e.g., tire pressure), to other automobiles, and to outside infrastructure (e.g., autonomous driving)
Connect driver and passengers to automobile (e.g., mobile device systems integration) and track driver behavior
SOURCE: McKinsey Global Institute, “Manufacturing the future: The next era of global growth and innovation,” November 2012;; interviews with industry experts
12
Examples in Great Lakes manufacturing industries
Key investment needs
New business models – effects on Great Lakes manufacturing
Business models Frugal innovation Circular economy New service models
Automotive As scarcity raises input prices, resource-efficient production systems will become an increasingly important competitive factor
Lithium-ion batteries and fuel cells are already powering electric and hybrid vehicles;; prices have fallen while performance has risen
Electronics and appliances Most households could afford to lease a high-end washing machine, saving roughly a third per wash cycle while the manufacturer earned roughly a third more in profits
Machinery Heavy equipment manufacturers are opening remanufacturing plants to encourage re-use of equipment and extend life-cycle beyond initial sale
Chemicals Creative chemical leasing arrangements can improve incentives to recycle fluids
Collaborate on basic R&D on low-cost materials and energy-efficient means of production
Investment in or purchase remanufacturing plants
SOURCE: McKinsey Global Institute, “Manufacturing the future: The next era of global growth and innovation,” November 2012;; interviews with industry experts
13
Trends in Great Lakes manufacturing
Priorities and drivers of Chinese outbound FDI
Best practices for attracting investment
Appendix – FDI data
Contents
14
Summary
The US is one of the world’s most attractive destinations for FDI, and its manufacturing receives the majority of inward FDI
China is rapidly increasing its outward FDI and the US is a favored destination, but the Great Lakes states have not attracted their share of Chinese investment
Macroeconomic forces in China will mean more FDI, and seven strategic emerging industries (SEIs), part of China’s 12th 5-year plan, outline the country's investment priorities
15
The US receives more FDI than any other nation, of which 45% goes to manufacturing – a share that grew by 5pp from 2011 to 2012
SOURCE: United Nations Conference on Trade and Development;; Bureau of Economic Analysis
Other 19
Finance 8
Banking 6
Mining 11
Wholesale11
Manufacturing
45
China US
168
121
Hong Kong
75
Brazil
65
BVI
65
UK
62
Aus-tralia
57
Sing-apore
57
Rus-sia
51
Africa
50
Top 10 recipients of FDI by region, 2012USD billions
FDI inflows to the US by industry, 2010-12Percent
16
Chinese FDI has grown tremendously, and the US receives more than any other country
17%
06
36
0%
2005
18
10%
112
2%
10
120
7%
09
95
9%
08
83
8%
07
52
+29% p.a.
2013
135
11%
12
130
10%
11
Chinese outward FDI (OFDI), 2005-13USD billions
Canada
4Brazil
3 Indonesia
3 Kazakhstan
3 Nigeria2 Britain2 Iran2Russian Federation
59
Rest of world
5
Australia8
US8
Chinese OFDI by country, 2005-13Percent, total = USD781 billion
SOURCE: Heritage Foundation China Global Investment Tracker
OFDI to rest of world OFDI to US
17
The Great Lakes region produces almost a third of US manufacturing output, but it has not attracted a third of FDI, especially from China
31 22 16
69 78 84
FDI into US manufacturing
$802 billion
US manufacturing GDP
$16 trillion100% =
Chinese FDI into US manufacturing
$16 billion
Great Lakes statesRest of US
Great Lakes share of manufacturing, sum 2003-12Percent
SOURCE: Bureau of Economic Analysis;; Dealogic;; FDI Markets 18
Besides New York, the Great Lakes states have not attracted their share of Chinese FDI, especially in manufacturing
SOURCE: FDI markets;; Dealogic
1 Only includes Greenfield investment data, as M&A deals in Canada only available at national level;; 92 deals for USD38 billion across Canada2 Only includes jobs created by Greenfield investmentsNOTE: State-specific numbers do not capture deals for which location is not known at time of deal. These deals represent 13% of all deals into the US from 2003 to 2013
Michigan 718 19 Nevada 343 21,353 1,000
New York 5,314 44 New York 1,861 111,605 150
Chinese FDI in US by state, 2003-13 Chinese manufacturing FDI in US by state, 2003-13
Top 10 statesInvestmentUSD millions
Number of deals Top 10 states
InvestmentUSD millions
Number of deals
Jobs created2
Jobs created2
Great Lakes states/provinces
InvestmentUSD millions
Number of deals
Great Lakes states/provinces
InvestmentUSD millions
Number of deals
Jobs created2
Jobs created2
Virginia 8,751 7 Virginia 7,173 6378 342
California 2,911 88 Texas 1,793 165,652 1,086Missouri 2,735 4 Massachusetts 1,038 11875 72Texas 2,270 24 California 684 412,192 118Oklahoma 1,478 5 North Carolina 563 15540 724Massachusetts 1,082 13 South Carolina 410 7157 625
North Carolina 679 21 Alabama 286 21,550 300New Jersey 601 10 New Jersey 284 5447 0
Illinois 310 10 Illinois 174 6262 68Indiana 139 6 Indiana 138 6352 229Michigan 718 19 Michigan 283 171,353 274Minnesota 163 2 Minnesota 0 00 0New York 5,314 44 New York 1,861 111,605 150Ohio 225 5 Ohio 225 5923 800Pennsylvania 177 5 Pennsylvania 103 441 0
Ontario1 724 18 Ontario1 391 8n/a n/aQuebec1 877 6 Quebec1 59 4n/a n/a
Wisconsin 4 1 Wisconsin 0 00 0
19
Macroeconomic forces will mean more Chinese investment abroad
SOURCE: Rhodium Group
Greater OFDI
Wages are rising to give greater share of national income to households Property costs are rising, causing a potential property bubble Regulatory compliance costs have increased Capital costs are rising as interest rates increaseIncreasing
input prices at home
“Going out” campaign: Since 2000, local and central officials have encouraged growth of transnational corporations
The 12th 5-year plan uses policy and financial incentives to encourage OFDI, aiming to gain know-how abroad to build domestic capabilities
Continued appreciation of RMB has raised purchasing power abroad With over $3 trillion in foreign exchange reserves, OFDI will help balance the current account
Domestic factors encouraging FDI
Overinvestment has made high-quality, high-return investments scarcer Higher inflation has increased economic uncertainty Recent purges and the political transformation led by Xi Jinping has increased political uncertainty
Some investors want to live in US with their families to attend American universities and obtain visas.
Concerns about food safety, air quality, etc., encourage some investors to leave China, at least temporarily
Stability abroad and uncertainty at home
20
Continue to advance technology in aircraft and aerospace Upgrade technological capacity to produce high-quality equipment for machinery making, high-speed rail, and urban transportation
Build industrial clusters in biological engineering Develop platforms for research and early application;; support biotech labs
Catch up with global leaders in technology Build capacity and networks for all major new generation IT
Catch up with global leaders in R&D, production, and utilization of sophisticated, high-quality, non-substitutable industrial materials
Continue to produce and use hybrid and pure battery powered vehicles
Increase capacity to produce equipment for nuclear energy, solar and wind power, and other new energy
Establish pilot projects to test and improve economically feasible of energy-efficient technologies
Beijing’s 12th 5-year plan identifies 7 new strategic targets for industrial advancement
SOURCE: National Development and Reform Commission report (March 5, 2011);; KPMG
Strategic emerging industriesThemes
Moving up the value chain
Advanced equipment manufacturing
Biotech
Next generation IT
New materials
Sustainability
New energy vehicles
New energy
Energy-efficient & environmental tech.
21
Trends in Great Lakes manufacturing
Priorities and drivers of Chinese outbound FDI
Best practices for attracting investment
Appendix – FDI data
Contents
22
FDI attraction efforts vary across the Great Lakes region
SOURCES: State websites and press releases, not necessarily comprehensive
Notable state investment fundsState office in ChinaFDI-focused website
Indiana Offices in Beijing, Shanghai, and Zhejiang, all under quasi-public IEDC oversight ü Effort with Elevate Partners, a 501(c)(3) non-profit
venture fund
Illinois Office in Shanghai for outreach, PR, and marketing Provides information about state funding ü Invest Illinois Venture Fund managed by state’s
DCEO;; proceeds are recycled back into fund
Michigan Office in the Center of American States in Shanghai (1 of 7 participating states)
Pure Michigan Venture Fund Match will consider tech venture investments for supplemental state funding
Minnesota Office in the Center of American States in Shanghai (1 of 7 participating states)
Minnesota Investment Fund supports companies that create new jobs
New York No office in China New York Entrepreneurial fund has $3 million in
public and $19 million private funding
Ohio No office in China “Jobs Ohio” website brochure lists single contact for foreign investors
ü Ohio Third Frontier, a $2.1 billion investment initiative
Pennsylvania Center for Direct Investment focuses on attracting and facilitating FDI deals
Office in the Center of American Statesü Concierge service aims to find all available state
funding
Wisconsin WEDC contracts trade representatives from Shanghai office ü Department of Administration chose Sun Mountain
Kegonsa to manage $30 million fund-of-funds
Ontario Beijing office focusing on advanced manufacturing, clean-tech, mining, and education
Development funds offered by regions within Ontario
Quebec Beijing office and 3 foreign investment specialists in Quebec office ü Development funds offered by regions within Quebec
23
To optimize current structure, a systematized and strategic FDI program could appeal directly to Chinese investment motives
Develop and agree on a focused strategy
Communicate value proposition to targeted investors
Design investment vehicles that align with both investor and state needs
Identify strategic capability that aligns directly with Chinese investment priorities, such as:– Medical devices– Automotive– Food safety and packaging– Clean tech for water
Create consistent messages to reinforce value proposition– Promote innovation hubs
Help influential stakeholders to connect with targeted investors in intimate settings– Governor and CEOs prepare
2-3 deal opportunities, meet select investors at their office
– Promote value proposition to other stakeholders Connect with trade associations and provincial mayors of targeted areas
Appeal to Chinese motives (e.g., access to US innovation engine)– Venture capital– University R&D
Maintain US demands for foreign investment (e.g., IP protection, job creation, access to Chinese consumption engine)– Investment for licensing– R&D in US, deployment in
China
Automotive
Strategy: Chinese auto manufacturers aspire to satisfy consumers in China who want US technology and expertise
Value proposition: The Rust Belt’s automotive companies can share cutting-edge technologies and manufacturing methods
Investment vehicle: Investment in automotive R&D or access to existing technology can provide mutually beneficial relationships in terms of capital and market access
Examples
Medical devices
Strategy: Burgeoning medical device manufacturing community in Great Lakes region aligns with demands from China’s aging population and fragmented, low-cost industry
Value proposition: Federal and state support for advanced medical devices, including innovation hubs and a medical device corridor
Investment vehicle: Collaboration on developing upstream manufacturing capabilities for Chinese market
24
In general, an investment promotion agreement can cover 5 key functions
Policy and advocacy
Investment promotion
5
Destination branding
Productdevelopment
1
Go-to-market3
Investment servicing
4
2
Follow country promotion to specific investors
Showcase directed catalogue of projects
Support network development, animation, and mobilization;; e.g.– International
events– Ambassador
program
Set up end-to-end support (during investment generation)
Set targets using sector and investor profiles
Tailor incentive packages to investors’ needs
Give investors concrete assistance (e.g., land search, registration, office space, translator services) and total solutions
Help find strategic partnerships
Create financial arm to co-invest with foreign investors
Monitor implementation process for good execution and follow-up
Create and disseminate consistent messages
Advertise the country and generate favorable news stories
Hold public relations events
Work to maintain a positive investor environment Advocate for simplified bureaucratic regulations regarding new businesses and investments Gather views from the private sector and communicate them to relevant authorities Facilitate discussion among relevant stakeholders
25
When designing an investment promotion agency, there are different design options for each of the 5 key functions
Options for role of public sector Potential partners
Destination branding
Require role of public sector: Ensure consistency and match of promotional activities with priority sectors and required attributes– Minimum role: Submit input to agency or ministry in charge of
international communication– Maximum role: Develop branding strategy, aggregate branding
needs and attributes, contract and manage communication agency, and measure effectiveness
Media agency Government officials at various levels in investor locale1
Go-to-market
Minimum role: Negotiate incentives and contracts Maximum role: Investor prioritization and outreach, with information-sharing and negotiation
“Global investment facili-tator” (for promotion and outreach)
CSA or international data provider (EIU)
3
Servicing
Minimum role: Pure coordination or steering of provider – with full-fledged private sector facilitator
Maximum role: Full concierge service and “delivery unit” – PMO for implementation of solutions
Consulting firm, third-party translation and logistics providers4
Advocacy andpolicy
Minimum role: Pure facilitation, providing forum for policymakers Maximum role: Lobbying group or advocate for international investors
Local ethnic community5
Minimum role: Choose from portfolio of sector strategies Maximum role: Develop sector strategies and flagship portfolio
Consulting firmsProduct development2
26
Successful agencies and regions tend to have 7 key advantages
They develop clear strategies based on a rigorous understanding of their strengths1
They recognize that productivity transformation takes a long time and requires a competitive and attractive business environment3
They focus on attracting, retaining, and embedding anchor institutions4
They’re responsive, fast-moving, and work to overcome bureaucracy5
They make R&D incentives conditional on cooperation among firms or between firms and other institutions6
They differentiate themselves by helping players make connections and build skills and knowledge7
Leadership comes from the top to drive alignment2
SOURCES: Literature review;; press search;; expert interviews;; case studies 27
China Britain Business Council (CBBC) maintains offices and staff in China to provide a broad suite of services
Scope andapproach
489 corporate members collaborate with British Chamber of Commerce’s 871 members –BritChammembership grants access to CBBC
Regional coverage with offices in Beijing, Changsha, Chengdu, Chongqing, Guangzhou, Hangzhou, Nanjing, Qingdao, Shanghai, Shenyang, Shenzhen, Xi'an, and Wuhan
Yearly membership fees from £1,000 to £5,000 depending on size of firm and services requested
Programs and policies
Chinese Business Partner application for Chinese companies interested in investing in UK, partnering with UK company or in third country overseas
Sector specialists across 13 regions provide research support and business services for UK companies investing in China
Launchpad provides a simple, cost-effective, low-risk and legal means of having a presence in China before setting up an office there;; a dedicated CBBC project manager will help a company take its business forward in China
China Business Opportunities for UK Companies: An online inventory of potential investment or business partners from China (see screenshot on next slide)
Basic IPA services: Trade missions, help with visas, translation and office services, webinars and trainings, regional know-how, and logistics
Organization and culture
Emphasis on specialized expertise, including sector- and region-specific agents One-stop shop to handhold investors on both sides;; comprehensive service
SOURCE: CBBC website28
CBBC has investment inventories in 12 key industries and provides application service for UK companies
Chinese translationMenu of investment options specific to key industries
Registration procedure for interested applicants
Investment details
Screen shot from CBBC website
29
SOURCE: CBBC website
EDB, a high-performing, client-focused agency, delivers significant investment benefits to Singapore
SOURCES: EDB;; expert interviews
Scope andapproach
The Exporter Development Program has about 500 employees and a budget of $410 million (0.3% of GDP) of which it spends $330 million on grants
Helps other government agencies make Singapore the world’s easiest place to do business (World Bank) About 15% of staff based in 19 international offices, who develop contacts mainly with new potential investors
Headquarters staff manages relationships with foreign and domestic companies in a “cluster” Annual strategic reviews of targeted sectors and companies help refocus efforts and identify new opportunities
Organization and culture
EDB recruitment targeted at high potentials: Scholarships for high-performing high school students to study abroad and then return to work for the EDB
Incentives for EDB employees include 15-50% of salary and quick promotions The organization is focused around values: Care, integrity, team, imagination, courage, excellence, and nation – losing a deal to another country is seen as shameful
Junior staff manage day-to-day client relationships early on;; account directors are empowered to be flexible and meet investor needs to get deals moving while formal processes and approvals are completed
Focus on training programs: EDB employees learn financial and other functional skills, as well as managerial skills in workshops on creativity, teamwork, and risk-taking
Customized assistance and incentives
Working in Singapore and registering business: Easy access to visas, step-by-step guides Business location: Staff provides a list of science parks and will look for suitable land Business setup: Financial incentives and assistance range from manpower development and technological and equipment upgrades to R&D, intellectual property, and industry development
Recruitment and staff: EDB funds on-the-job training and overseas training of Singaporeans in MNCs Attractive taxation policy: 17% corporate income tax, capital gains not taxed, GST 7% Conditional grants: Payments against milestones;; if conditions not met, renegotiation or clawback
30
The organization is aligned with its key tasks and emphasizes the importance of planning
SOURCES: EDB;; expert interviews
Dedicated support functions, such as administration and HR, account for about 40 employees, but divisions probably have additional support staff
EDB board
International Advisory Council
Includes senior executives from MNCs, such as COO of P&G and CEO of 3M
Cluster development
Development of sector clusters of local firms and foreign investors in Singapore
Independent investment arm created in 1991
Invests in companies in new strategic industries (more than 250 to date)
Business knowledge group Client services Finance and administration Human resources Information systems Legal Marketing communications Organization excellence
Corporate services
Enterprise ecosystem Incubation unit Intellectual property International policies Planning Resource development
Enterprise ecosystem and planning
4 executive directors lead division with area responsibility
19 international offices with about 100 employees
International operations
EDBI
31
The IDA helps attract investors to the Republic of Ireland
Scope andapproach
Created in 1949, the agency is funded through a government grant under the National Development Plan Focused on attracting and embedding FDI to the Republic of Ireland (including marketing the Shannon Free Zone abroad)
16 offices in the US, Europe, Asia and Australia, and 10 Irish offices Initially, the IDA was responsible for attracting foreign inward investment and developing indigenous firms;; since 1994 they have pursued FDI activities only
Programs and policies
Identifies and builds long-term relationships with firms it wishes to attract. Incentives include:− 12.5% corporation tax rate− 25% R&D tax credit applicable to R&D and buildings where at least 35% of activity is R&D− Grants to R&D (52%), capital (15%), employment (28%), and training (1%) capped per job and per unit capital
Is responsive to the needs of target firms. To seal the deal with Intel, for example, the IDA interviewed 300 Irish engineers in 5 weeks who were living abroad and presented Intel a list of 85 qualified candidates
The rigorous investment evaluation process takes into account cash flows to the state and broader economic benefits. Algorithm updated constantly (e.g., in times of full employment, job creation is less important)
Purchases and develops business and technology parks with, e.g., broadband telecommunications network, on-site child-care, new office and production buildings
Lobbies other government organizations to support its mission, such as the maintenance of a low corporation tax
Organization and culture
Entrepreneurial culture gets things done within the overall grants cap rather than adhere to strict processes and rules
Staff are motivated through strong mission and sense of purpose and through recognition of success of IDA
Staff is measured on results rather than fixed targets, giving them more autonomy (no bonuses paid, public sector pay)
SOURCES: Public literature and press review;; expert interviews32
Trends in Great Lakes manufacturing
Priorities and drivers of Chinese outbound FDI
Best practices for attracting investment
Appendix – FDI data
Contents
33
International comparison of overall FDI
0100200300400500600700800900
1,0001,1001,2001,3001,4001,5001,6001,700
2003 04 05 06 07 08 09 10 11 20120123456789101112131415161718
08 09 10 11 20122003 0604 0705
FDI deals, 2003-13Deals per yearOverall FDI as a percent of GDP, 2003-12
SOURCE: FDI Markets;; Dealogic;; World Bank;; Bureau of Economic Analysis
CanadaSingapore IrelandUSGreat LakesUK
Great Lakes
Great Lakes
34
International comparison of Chinese FDI
0
5
10
15
20
25
30
35
40
45
50
55
201211100908070605042003-0.2
0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2.6
2.8
201211100908070605042003
Chinese FDI deals, 2003-13Deals per yearChinese FDI as a percent of GDP, 2003-12
SOURCE: FDI markets;; Dealogic;; World Bank;; US Bureau of Economic Analysis
GLUK CanadaSingapore IrelandUS
Great Lakes
35
FDI scorecard by region (BEA definitions)
NOTE: Excludes US territories. State-specific numbers do not capture deals for which location is not known at time of deal. These deals represent 13% of all deals in the US from 2003 to 2013, so the sum of all states may not add up to aggregate US number, as US number captures all deals
SOURCE: FDI markets;; Dealogic
US1,625,459
RegionFDI (USD millions), sum 2003-13
Far West220,537
Rocky Mountains31,219 Plains
166,034
Southwest265,451
Southeast278,165
Great Lakes159,972
Mideast318,173
New England161,297
36
FDI scorecard (1/3)CGLG states BEA regions
SOURCE: FDI markets;; Dealogic
1 Excludes US territories NOTE: State-specific numbers do not capture deals for which location is not known at time of deal. These deals represent 13% of all deals into the US
from 2003 to 2013, so the sum of all states may not add up to aggregate US number, which captures all deals.
CGLG 366,756 7,050 4,260 92 1,004 24 37,600,889 0.90%Mideast 318,173 13,222 2,885 73 1,501 62 24,537,675 1.19%Southeast 278,165 11,023 3,442 51 1,840 54 30,277,698 0.87%Southwest 265,451 214 1,675 10 708 26 15,683,543 1.53%California 226,575 2,911 2687 88 957 44 17,865,753 1.17%Far West 220,537 103 3,281 6 202 6 24,927,526 0.81%Texas 200,110 2,270 1,298 24 479 6 11,193,112 1.56%Plains 166,034 1,881 600 29 200 7 8,825,925 1.38%New England 161,297 187 1,095 2 285 8 7,380,229 2.13%Great Lakes 159,972 1,386 2,095 20 576 18 19,340,701 0.80%New York 132,344 5,314 1496 44 552 21 10,472,578 1.09%Massachusetts 120,599 1,082 754 13 272 8 3,512,905 3.37%Missouri 80,515 2,735 132 4 49 3 2,312,746 3.46%New Jersey 80,392 601 488 10 136 4 4,597,859 1.69%Pennsylvania 66,266 177 491 5 164 3 5,248,805 1.19%Illinois 61,096 310 646 10 196 6 6,125,192 0.98%Florida 51,238 145 730 8 274 5 7,090,294 0.76%Kansas 42,857 - 99 - 33 - 1,180,101 0.50%Ohio 40,334 225 465 5 169 3 4,584,395 0.84%Louisiana 38,803 273 138 2 63 1 2,062,492 1.66%Oklahoma 38,435 1,478 86 5 34 1 1,370,074 2.83%
Tennessee 31,551 - 288 - 114 - 2,405,655 1.21%Virginia 35,311 8,751 352 7 100 6 3,861,589 0.75%
US1 1,625,459 42,997 17,973 393 7,411 227 135,703,307 1.09%
State or region
FDI (USD millions), 2003-13
FDI from China (USD millions), 2003-13
No. of deals, 2003-13
No. of deals from China, 2003-13
No. of deals, 2011-13
No. of deals from China, 2011-13
GDP (USD millions) sum, 2003-12
FDI as share of GDP, 2003-12
37
FDI scorecard (2/3)
SOURCE: FDI markets;; Dealogic
CGLG states BEA regions
Rocky Mt 31,219 960 454 28 102 6 4,610,963 0.61%Alabama 29,692 286 284 2 181 7 1,619,968 1.75%Georgia 29,692 286 284 2 98 2 3,862,308 0.87%Maryland 28,863 111 215 4 72 2 2,712,258 1.03%Michigan 28,017 718 486 19 154 8 3,737,705 0.69%Nevada 24,422 336 155 6 42 3 1,204,200 2.01%Connecticut 22,815 12 183 3 58 1 2,101,432 1.01%North Carolina 21,997 679 587 21 218 14 3,907,340 0.51%Indiana 20,537 139 359 6 142 2 2,568,863 0.73%Arizona 20,241 81 225 3 89 - 2,394,444 0.80%Colorado 19,059 24 276 4 83 1 2,374,983 0.69%South Carolina 17,030 419 350 7 143 5 1,538,239 1.01%Nebraska 11,088 7 58 1 15 1 825,307 0.77%Iowa
10,686 26 71 1 21 - 1,303,722 0.76%
Wisconsin9,988
4 139 1 43 - 2,324,546 0.44%Maine 9,082 - 34 - 12 - 485,077 1.86%North Dakota 9,029 12 36 1 19 1 310,281 2.89%Minnesota 8,174 163 178 2 68 1 2,538,805 0.28%Arkansas 6,946 - 58 - 20 - 960,795 0.70%New Mexico 6,665 - 66 1 20 1 725,913 0.86%Delaware 6,620 153 73 6 27 3 579,565 1.11%Mississippi 6,061 175 71 1 27 - 893,563 0.60%
Utah 4,913 4 92 1 27 1 1,059,483 0.45%West Virginia 5,743 - 63 - 19 - 574,534 0.98%
State or region
FDI (USD millions), 2003-13
FDI from China (USD millions), 2003-13
No. of deals, 2003-13
No. of deals from China, 2003-13
No. of deals, 2011-13
No. of deals from China, 2011-13
GDP (USD millions) sum, 2003-12
FDI as percent of GDP, 2003-12
NOTE: State-specific numbers do not capture deals for which location is not known at time of deal. These deals represent 13% of all deals into the US from 2003 to 2013, so the sum of all states may not add up to aggregate US number, which captures all deals.
38
FDI scorecard (3/3)
SOURCE: FDI markets;; Dealogic
1 Negative figures represent divestitures taken by foreign investorsNOTE: State-specific numbers do not capture deals for which location is not known at time of deal. These deals represent 13% of all deals into the US
from 2003 to 2013, so the sum of all states may not add up to aggregate US number, which captures all deals.
Kentucky 4,102 10 237 1 89 1 1,500,921 0.20%
District of Columbia 3,690 46 122 2 49 1 926,610 0.36%
South Dakota 3,684 - 26 - 7 - 354,963 1.02%
Idaho 3,498 73 39 1 21 1 517,419 0.64%
New Hampshire 3,497 6 53 1 17 1 574,368 0.56%
Montana 3,132 - 24 - 8 - 337,589 0.92%
Rhode Island 3,043 - 43 - 12 - 465,146 0.64%
Alaska 2,927 - 22 - 4 - 435,313 0.67%
Vermont 2,261 - 28 - 10 - 241,301 0.92%
Hawaii 1,262 106
37 2 15 1 622,818 0.20%
Wyoming 617 - 23 - 6 - 321,489 0.21%
Oregon1 (1,624)506
118 3 47 - 1,648,003 -0.22%
Washington1 (33,025)118
262 5 94 2 3,151,439 -0.99
State/region
FDI (USD millions), 2003-13
FDI from China (USD millions), 2003-13
No. of deals, 2003-13
No. of deals from China, 2003-13
No. of deals, 2011-13
No. of deals from China, 2011-13
GDP (USD millions) sum, 2003-12
FDI as percent of GDP, 2003-12
39