FROM THE SITE SELE TOR’S VIEW: FDI TRENDS AND BEST … for EDAA.pdf · SERVICES CRE Strategies Location Strategies Supply Chain Optimization Incentive Maximization ... ICA IN THE

FROM THE SITE SELECTOR’S VIEW: FDI TRENDS AND BEST PRACTICES

Presentation to Economic Development Alberta

Annual Summit

A New Generation in FDI Advisory

9 April, 2014

1 © 2014, Investment Consulting Associates

AGENDA

A New Generation in Strategy Consulting

Christopher Steele

– COO, Investment Consulting Associates

About Us: What we do, and why we do it

The New Location Timeline

What Else is New: FDI Site Selection Trends & Opportunities

Implications for Your Community

FDI Tools and Partners: How to Get and Stay In the Game

A Word on Incentives


Real estate is a strategic asset. Each and every new location decision carries cost, workforce, and other implications. We provide our clients with the insight needed to quickly build solutions which are flexible enough to evolve with the company’s changing needs.

ABOUT US

SERVICES

CRE Strategies

Location Strategies

Supply Chain Optimization

Incentive Maximization

Implementation Support

TECHNOLOGIES

LocationSelector.com

ICAincentives.com

Europe - Asia Caribbean and Latin America

United States and North America


http://www.ic-associates.com/



Assess possible business outcomes and their location implications

Define, select and assess the competitiveness of your current portfolio

Apply Benchmarking Techniques

Enjoy Powerful Analyses & Export Functionalities

Provide Time Series, Scatter Plots & Fusion Charts

http://www.locationselector.com/

OUR TECHNOLOGY BASE IS STATE-OF-THE-ART AND CUSTOMIZED TO SITE SELECTION ADVISORY

http://www.locationselector.com/


The only global incentive deal database tracking incentives and financial subsidies awarded to corporations

Transparency in incentives awarded to similar companies

Over 8,400 global incentive deals included

Over 200 incentive deals added monthly

Deals per Country / State / Industry / Type of incentive

www.icaincentives.com

ICA’S INNOVATION DRIVE: ICA INCENTIVES


http://www.icaincentives.com/


ICA IN THE NEWS


The front page of the Sunday, December 2, 2012, edition of The New York Times featured an analysis of US incentive deals based upon Investment Consulting Associates (ICA)’s online incentive tracking tool and database, ICAincentives.com. While examining incentive trends across the 50 states, the article “As Companies Seek Tax Deals, Governments Pay High Price” notes that many state programs do not identify specific corporate beneficiaries and, as a result, the authors had to rely on the ICAincentives.com database to provide up-to-date and reliable data for their analysis.

ICA Incentives Data Underpins New York Times Analysis

http://www.ic-associates.com/


PROCESS DIFFERENCES: CHANGES IN INTERNATIONAL SITE SELECTIONS



Site visits Journals Newspapers Brochures Trade Shows

City #2

City #3

City #4

City #6

City #7

City #5

City #8

1990 SITE SELECTION PROCESS

SIX MONTHS

City #1

City #2

City #3

City #1



2011 SITE SELECTION PROCESS

85% of initial search = Internet

SIX WEEKS

Detailed info

Services

It is a jungle out there



WHY IS THIS?

Economic uncertainty

Deferred decision-making

Lowered entry boundaries

Increased availability of data

Increased cost and margin pressure

Increased role of outside capital

A New Generation Strategy Consulting

Uncertainty = Delay, Followed by Haste!


UNDERSTANDING THE CORPORATE INVESTMENT PROCESS

Implementatio

n

Co

nsu

ltant

Clien

t

Prepare site visits Prepare discussions

with relevant governments and service providers

Incentive negotiations Real estate transaction and

acquisition support

Input cost model

Real estate support

Phase 2 Phase 1 Phase 3 Phase 4 Phase 5

Site visits

Resources for site visits

Define real estate objectives and accommodation needs

Define project and goals

Business requirements

Project

definition &

understanding

of strategy

Comparison of costs Analysis and

comparison

of locations

Project assumptions

Set up cost model Cost differentials

between locations

Determine geographic scope

Selection of location factors

Weighting location criteria

Data gathering Build model for location

analysis Present rankings of

locations Sensitivity analysis Exploration of incentives

Strategic Assessment Location Screening,

modeling &

benchmarking

Cost

comparison Community

Evaluations



LOCATION VARIABLES

Accessibility

Business Environment

Business Risks

Customs

Education level

FDI & Trade Policies

Grants & Incentives

Infrastructure

Labor availability

Supply chain costs

Logistics costs

Utilities

Labor costs

Taxation

Real estate costs

Trade-off between quality versus cost related location factors

Location benefits Location costs

Typically, 50 – 60 location criteria are subject to analysis in a corporate relocation project



LOCATION DECISION ANALYSIS


Location Decision

Costs Benefits

Labor Costs Tax Supply Chain

Costs Infrastructure Labor quality

30% 70%

65% 35% 50% 15% 35%


TIMEFRAME OF LARGE SCALE FDI PROJECTS


Site selection

process

Negotiations with

local authorities

Site implementation

(out of scope in this

project)

4-6 months From 2 months to six months 18 to 24 months

Dec 11 Mar 12 Jul 12 Jan 2014

5 Phases – Next slide Management of all contractual issues, related to grants and incentives disbursement,

Contract signing an administrative follow-up

Project development and Construction Oversight

site on

run

Grants and real estate

incentive maximization for two sites

Selection of one site (our advise)

Agreements with governments about the incentive package and the way to acquire land / real estate

Site acquisition

Obtain internal corporate approvals to acquire site and proceed with project

Acquire site with letter of intent to purchase with transfer of deed to follow

Obtain external approvals – including building permits, zoning, environmental, and other approvals – for construction of manufacturing facility


INTEGRATED STORY: WHERE CORPORATES MEET IPA’S


• Information & Sales Packs

• Investment plans

• Policies and incentives

• Procedures and requirements

• Progress and achievements

• Create awareness

Image Building

• Advertizing and PR

• Information & Marketing

• Missions & Events

• Company targeting

• Company visits

• Follow-up

Lead Generation and Targeting • Information provision

• Assistance with contacts

• One-stop-shop services

• Assessment of manpower,, Infrastructure service needs

• Follow-up

Investor Servicing

• Continued “account executive attention”

• “Ombudsman” role and trouble-shooting function

• Follow-up on manpower, infrastructure, service needs

Aftercare and Policy Advocacy

Phase 1

Implementation

Phase 2 Phase 3 Phase 4 Phase 5

Strategic Assessment Location Screening,

modeling & benchmarking

Cost comparison Community Evaluations


CURRENT FDI SITE SELECTION TRENDS



ICA’S GLOBAL FDI TREND #1 END OF CHEAP CHINA?

Economic Observer News (January 2011)

– Since 2007, couriers, mainly in first tier cities, have seen an average annual salary increase of about 20 percent and 50% increase in 2010

The Guardian (June 2010)

– Strikes hit factories of Toyota, Honda and Hyundai

Reuters (June 2010)

– “Basically China has a lot of the same issues that all developing countries have when they become developed. What you are moving into is an era for higher prices in commodities and labor”


http://www.eeo.com.cn/ens/Industry/2011/01/28/192555.shtml

http://www.guardian.co.uk/world/2010/jun/17/china-strikes-economy

http://www.reuters.com/article/2010/06/23/retail-summit-lifung-idUSTOE65M05I20100623


Chinese Wage Inflation

Corporate decision makers often ignore important cost drivers focus only on the labor cost differentials

Total Cost of Ownership (TCO) is gaining ground

The development of China’s domestic market and more high-end manufacturing transforms South East Asian countries and specifically China


ICA’S GLOBAL FDI TREND #1 CHINA: IS THE DRAGON LOOSING ITS FLAMES?

China: in transition from an outsourcing location to a sourcing location



ICA’S GLOBAL SITE SELECTION TREND #2 LATAM: THE NEW RESERVOIR OF FDI

0

20000

40000

60000

80000

100000

120000

140000

In m

illio

ns

US$

Inward FDI

Outward FDI

We see an increasing ratio between outward and inward FDI, which demonstrates the expanding international activities of Latam companies

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

Latin American FDI Outward/Inward FDI Ratio


ICA’S GLOBAL FDI TREND #3 NORTH AMERICA: REVIVAL OF A NEW ECONOMIC POWERHOUSE

“A competitive and low risk investment climate, with relatively stable wage inflation, increased productivity levels and a skilled labor pool in the US compared to rapid rising labor costs and seemingly overheating economies in South East Asia are shifting the global landscape of FDI”

ICA’s “FDI Competitiveness Report 2011”

The increased productivity in combination with the strong competitive environment plays a big role in the current “reshoring” movement

A Reuters/MFG.com survey among US companies: – 15% have repatriated production back into the US in the past 2 years – 40% of North American manufacturers with off-shored production are

investigating bringing that work back to the U.S. within the next year.



IMPLICATIONS FOR CANADIAN INVESTMENT AGENCIES?



Developing markets are becoming developed

Emerging consumer markets creating “hot spots” for demand and market impacts as a consequence

Transportation and energy becoming highly relevant to the sourcing and production of goods

Direct access and cultural awareness also resulting in some pressure to re-regionalize


WORLD IS NOT EXACTLY FLAT…


National borders becoming increasingly irrelevant

Need to compete as others do

What are the new advantages?


…BUT NEITHER IS IT BACK TO THE WAY IT WAS


WHERE SHOULD WE LOOK?

Data shows evidence of manufacturing “resurgence” as well as investment in R&D and business services


Industry Number

Information Technology & Telecom (ITT) 20

Aerospace, Defense and Marine (ADM) 17

Food & Drink 15

Creative Industries 12

Life Sciences 12

Services 12

Automotive 10

Basic Materials 8

Electronics 5

Renewable Energy 4

Industrial Goods 3

Consumer Goods 1

Non-Renewable Energy 1

Function Number

Manufacturing 54

Research, Design & Development (RDD) 41

Business Services 12

Call Centre 6

Headquarters (HQ) 2

IT Support Centre 2

Warehousing and Distribution 2

Electricity & Extraction 1

Source: ICAIncentives.com


WHERE SHOULD WE LOOK?

Country of Origin

Number of Incentivized Deals

USA 48 France 15 Germany 12 UK 9 Japan 8 Switzerland 5 India 4 Netherlands 3 Cayman Isl. 2 Israel 2 Norway 2 Sweden 2


US Remains the single largest source of inward investment projects to Canada

European Union also a significant source of investment

China is a very significant player on west coast, but deals proceed without incentives

Source: ICAIncentives.com


HOW TO GET AND STAY IN THE GAME



INCREASINGLY, ALL INVESTMENT IS FDI

Companies are looking at a global game board on an increasing basis. Borders mean less when compared to flexibility, resiliency, and competitive advantage

Looking at FDI opportunities allows communities to:

– Enhance opportunities for native business

– Create new export markets

– Bring in new engines and partners for growth and economic sustainability



OPPORTUNITIES VARY

Major Metropolitan Areas

– Global access

– Large, diversified workforce

– Infrastructure

Mid-Size Cities – Nimble, entrepreneurial

– Specialized industry networks

Small and Rural Areas – Natural resources

– Highly specialized industry



WHAT TOOLS AND PARTNERS CAN I USE

Talk to your current companies. Who do they work with? Who do they turn to for advice?

Make sure you are findable. Keep an appropriate online presence, and…

Work regionally. Your neighbors are your partners and provide you with critical mass

Work with your partners in the Province and at the Federal level



A FEW WORDS ON INCENTIVES…



ROLE OF INCENTIVES

Investment Incentives are part of a broader strategy that encourages overall economic development in your targeted sectors. They are given:

– Because there supposed to be benefits from giving them

– Because a country or city believes that it must offer incentives to compete with rival countries for FDI

– Because potential investors “expect” to be provided with some form of incentive.


By observing the incentives given by governments to corporates, priority sectors can be identified and competition for investments intensified


YES, THE NEXT FEW SLIDES ARE US-CENTRIC, BUT….

Canada has traditionally not been played much in incentives

The incentive game is getting interesting due to increased budget pressure and scrutiny

The lessons are globally instructive



TWO SOURCES, TWO PERSPECTIVES



1. DEVELOPING A SCORE MODEL


Score on ICA’s Transparency Index

Weak Openness

Moderate Openness

Strong Openness

1 2 3

Score on Pew Centre’s Incentive Evaluation

Trailing Behind

Mixed Results

Leading the Way

1 2 3



Sco

re o

n P

ew C

entr

e’s

Ince

nti

ve

Eval

uat

ion

Weak Openness

Moderate Openness

Strong Openness

Leading the Way

3 + 1 = 4

3 + 2 = 5

3 + 3 = 6

Mixed Results

2 + 1 = 3

2 + 2 = 4

2 + 3 = 5

Trailing Behind

1 + 1 = 2

1 + 2 = 3

1 + 3 = 4

2. COMBINING THE SCORE MODELS


Pew Score ICA Score

Overall Score


3. INTEGRATING SCORES AND STATES



Sco

re o

n P

ew C

entr

e’s

Ince

nti

ve E

valu

atio

n

Weak Openness Moderate Openness Strong Openness

Leading the Way

AR

AZ

KS

WA

NC

OR

CT

LA

IA

MO

NJ

WI

Mixed Results

CA

MN

NM

NE

TX

VA

KY

MA

MI

NY

OH

PA

Trailing Behind

AL

DE

HI

ID

ME

MT

NH

NV

ND

OK

RI

SC

SD

TN

VT

WV

WY

AK

MD

MS

UT

CO

FL

GA

IL

IN

Caution: Extreme Group

Caution: Extreme Group

Most Average Performance

Best Practice

Worst Practice


4. DERIVING OVERALL PERFORMANCE


Overall Performance on both Rankings

Very Weak Performance

Weak Performance

Modest Performance

Strong Performance

Very Strong Performance

Score 2 Score 3 Score 4 Score 5 Score 6

AL DE HI ID

ME MT NH NV ND

OK RI SC SD TN VT WV WY

AK CA MD MN MS NM UT

NE TX VA

AR AZ CO FL GA

IL IN KS

WA

KY MA MI NC NY OH OR PA

CT LA IA

MO NJ WI


Investment Consulting Associates (ICA)

THANK YOU!


H.J.E. Wenckebachweg 210

1096 AS Amsterdam

The Netherlands

T: +31 (0)20 794 6081

F: +31 (0)20 708 5903

E: [email protected]

www.ic-associates.com

1005 Boylston St, #243

Newton Highlands, MA 02461

United States

T: +1 617 314 6527

F: +1 617 507 8560

E: [email protected]

Documents

FROM THE SITE SELE TOR’S VIEW: FDI TRENDS AND BEST … for EDAA.pdf · SERVICES CRE Strategies Location Strategies Supply Chain Optimization Incentive Maximization ... ICA IN THE