Working with International Companies – a U.S. Perspective
As a country, the United States’ most watched metropolitan regions struggled to rebound after the Great Recession. Now, forward-thinking regions and states are developing and implementing strategies around high-wage job growth, with an eye on foreign investment and exports. This is wise considering that foreign firms operating in the U.S. pay an average of $17,000 more than that of their U.S. counterparts, according to a report by the Brookings Institute. In 2013, the U.S. International Trade Administration estimated that metropolitan regions exported more than $1.4 trillion of goods and services, which directly and indirectly supported an estimated 11.3 million U.S. jobs.
Attracting foreign companies to the U.S. is high on every economic developer’s list of priorities, but fair warning: a great deal of preparation and education is needed to ensure a smooth experience. Members of the Site Selectors Guild have helped hundreds and perhaps thousands of foreign-owned companies find locations in the U.S., and there are a number of common issues that occur at some point during the site selection, due diligence and/or incentive negotiations process. If not handled properly, any one of these issues can become a major stumbling block in securing a long-term investment from a foreign-owned firm.
Geographic Education & Regional Approach
Many people outside the United States are inadequately informed about U.S. geography, regarding anything between the coasts as “flyover country.” Foreign firms and their staff are often less than informed due to their lack of actual experience traveling and working in the United States. This often leads to misconceptions of America’s Midwest, Deep South, and other less populous or less visited regions related to culture, labor characteristics, or quality of life.
Don’t assume that your audience knows where you are located or the location advantages that you possess. Because of the tendency to “lump” American regions together, economic developers will likely find much more success by joining forces and resources and marketing as a region or entire state. The broader you can make your market, the easier it is for foreign executives to grasp. Although there may be distinct differences between them, companies care little about municipal, county and even state borders. Once it is clear which specific locations are most viable for the needs of the company, increasingly local economic developers can take the lead.
Acquisition Assistance vs. Land Development
Some foreign firms, particularly Chinese and Indian companies, prefer to acquire companies already in operation vs. build greenfield operations because they deem it less risky and it gives them an instant foothold in the local community. An example is Haier’s acquisition of GE Appliances in 2016. While assisting companies with an acquisition is not the typical job of economic developers, becoming knowledgeable and comfortable with the process of corporate M&A can give an economic developer a distinct advantage. At a state or regional level, these services can be provided or at least referred to a network with this expertise.
Foreign companies use different job titles and responsibilities than in the U.S., so it can be difficult to know who the decision-makers are for a siting project. This can be particularly confusing when dealing with family-owned businesses from Europe or state-owned enterprises in Asia. It’s important to ask up front what each team member’s role is within the site selection and/or due diligence process, and if at any point confusion sets in, i.e., if a different person suddenly appears on the team or a responsibility seems to change, the EDO should seek clarification from the site selection consultant in charge. The operational structure of business can be extremely diverse from one country to the next, which can be confusing when trying to navigate through a complex decision-making process like site selection.
Taxes and Governmental Structure
The various tax and governmental layers in the U.S may come as a surprise to many international investors. Other countries may have low or insignificant property taxes so investors are often shocked to discover the large differences between U.S. locations on property taxes and may become bewildered by the many potential offsets and mechanisms to achieve those offsets- abatements, fee-in-lieu-of, payment-in-lieu-of, industrial revenue bonds, etc.
Additionally, many don’t understand that the largest impact to their bottom line from a tax perspective is federal taxes over which local and state economic developer have no influence and likely there are no offsets to these other than solid tax planning. Economic developers should attempt to gauge their international contacts’ level of understanding and help explain local, state and federal tax structures, which taxes they most likely can expect to pay, why and how. They will almost certainly appreciate your efforts.
European companies in particular are sensitive to labor issues in the U.S. They are often skeptical about the availability of skilled labor and of the quality and availability of training programs, despite the many high quality workforce development programs that exist.
Likewise, investors from Asia tend to be wary of labor unions because they do not exist or are not very influential in their homeland. Economic developers that work in states or regions with organized labor should take heed to explain to prospects how unions work and help dispel any preconceived notions of contentious labor relations.
On the flip side, investors may assume that they can get the skilled labor they need as long as they pay a competitive wage, and are often unsophisticated when it comes to analyzing data sources available in the U.S. A professional site selection consultant will help guide them through the process of analyzing and assessing the workforce, but, as we know, many decisions are made without the benefit of a location strategy advisor. So, you must be prepared to deal with any situation.
In many countries, rail lines are sporadic and dedicated primarily to passenger service. In Europe, most goods are transported via truck, so America’s fondness for rail freight can be a novelty to European-owned companies looking for US locations.
A large part of the difference is due to “natural” factors: Europe has more coastline, so more goods move by water; American shipment distances are longer, which favors rail; and the US rail share is bulked up — literally — by a lot of long-range shipment of coal.
The US also has an absence of border issues moving freight across state lines, but in Europe, where the comparatively tiny size of countries makes border crossing from one country to the next frequent and complex. The benefits of rail and, in particular, intermodal service are not well understood by many foreign executives. This isn’t seen as a problem, it’s simply an issue that economic developers should be prepared to explain to foreign investors.
Incentives are perhaps the most misunderstood aspect of site selection in the U.S. Almost all foreign investors are aware that they exist, but they may have a lack of understanding of how they work or they may have unrealistic expectations of what they are likely to receive and when.
Generally, incentives in the U.S. are much more creative and complex than in other countries. International companies will often think they’re going to get free land and cash. In reality, many incentives provided in the US come in the form of bond revenues or tax incentives which can be just as beneficial to the company’s bottom-line.
Economic developers and the site selection professionals working on the project must educate company executives well before the incentive negotiation process begins. It will also benefit everyone involved if, at the outset of any site selection effort with a foreign-owned company, advisors caution clients that the lowest cost site may not necessarily be the best for them in the long run.
By the same token, economic developers would be well advised to recognize that if their community or region is not the right fit for a particular company, they should not try to buy the company’s vote. Doing so will only lead to failures on both sides and use up valuable resources-land, labor, funding- that could be applied to projects that are a better fit for your community.
Attracting foreign investment to your state or region can bring long-term economic prosperity, but it requires a great deal of preparation in ways that are very different from pursuing US-owned corporations. Following this advice will help your team avoid potential obstacles and help you develop a successful formula for working with international companies.