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

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1 FROM THE SITE SELECTOR S VIEW: FDI TRENDS AND BEST PRACTICES Presentation to Economic Development Alberta Annual Summit 9 April, 2014 A New Generation in FDI Advisory

2 AGENDA 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 Christopher Steele COO, Investment Consulting Associates 1

3 ABOUT US 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. SERVICES United States and North America Europe - Asia Caribbean and Latin America CRE Strategies Location Strategies Supply Chain Optimization Incentive Maximization Implementation Support TECHNOLOGIES LocationSelector.com ICAincentives.com 2

4 OUR TECHNOLOGY BASE IS STATE-OF-THE-ART AND CUSTOMIZED TO SITE SELECTION ADVISORY 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 3

5 ICA S INNOVATION DRIVE: ICA INCENTIVES 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 4

6 ICA IN THE NEWS ICA Incentives Data Underpins New York Times Analysis 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. 5

7 PROCESS DIFFERENCES: CHANGES IN INTERNATIONAL SITE SELECTIONS 6

8 1990 SITE SELECTION PROCESS Site visits Journals Newspapers Brochures Trade Shows City #1 City #2 City #3 City #4 City #5 City #6 City #7 City #8 SIX MONTHS City #1 City #2 City #3 7

9 2011 SITE SELECTION PROCESS 85% of initial search = Internet SIX WEEKS Detailed info Services It is a jungle out there 8

10 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 Uncertainty = Delay, Followed by Haste! A New Generation Strategy Consulting 9

11 UNDERSTANDING THE CORPORATE INVESTMENT PROCESS Strategic Assessment Implementatio n Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Project assumptions Input cost model Resources for site visits Define project and goals Business requirements Location Screening, modeling & benchmarking Cost comparison Community Evaluations Define real estate objectives and accommodation needs Client Project definition & understanding of strategy Analysis and comparison of locations Comparison of costs Site visits Real estate support 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 Set up cost model Cost differentials between locations Prepare site visits Prepare discussions with relevant governments and service providers Incentive negotiations Real estate transaction and acquisition support Consultant 10

12 LOCATION VARIABLES Trade-off between quality versus cost related location factors Location benefits Accessibility Business Environment Business Risks Grants & Incentives Infrastructure Labor availability Location costs Labor costs Taxation Real estate costs Supply chain costs Logistics costs Utilities Customs Education level FDI & Trade Policies Typically, location criteria are subject to analysis in a corporate relocation project 11

13 LOCATION DECISION ANALYSIS Location Decision Costs Benefits 30% 70% Labor Costs Tax Supply Chain Costs Infrastructure Labor quality 50% 15% 35% 65% 35% 12

14 TIMEFRAME OF LARGE SCALE FDI PROJECTS Dec 11 Mar 12 Jul 12 Jan months From 2 months to six months 18 to 24 months Site selection process Negotiations with local authorities Site acquisition Site implementation (out of scope in this project) site on run 5 Phases Next slide 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 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 Management of all contractual issues, related to grants and incentives disbursement, Contract signing an administrative follow-up Project development and Construction Oversight 13

15 INTEGRATED STORY: WHERE CORPORATES MEET IPA S Strategic Assessment Phase 1 Location Screening, modeling & benchmarking Cost comparison Community Evaluations Implementation Phase 2 Phase 3 Phase 4 Phase 5 Information & Sales Packs Investment plans Policies and incentives Procedures and requirements Progress and achievements Create awareness Image Building Lead Generation and Targeting Advertizing and PR Information & Marketing Missions & Events Company targeting Company visits Follow-up Information provision Assistance with contacts One-stop-shop services Assessment of manpower,, Infrastructure service needs Follow-up Investor Servicing Aftercare and Policy Advocacy Continued account executive attention Ombudsman role and trouble-shooting function Follow-up on manpower, infrastructure, service needs 14

16 CURRENT FDI SITE SELECTION TRENDS 15

17 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 16

18 ICA S GLOBAL FDI TREND #1 CHINA: IS THE DRAGON LOOSING ITS FLAMES? 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 China: in transition from an outsourcing location to a sourcing location 17

19 In millions US$ ICA S GLOBAL SITE SELECTION TREND #2 LATAM: THE NEW RESERVOIR OF FDI We see an increasing ratio between outward and inward FDI, which demonstrates the expanding international activities of Latam companies Latin American FDI 0.70 Outward/Inward FDI Ratio Inward FDI Outward FDI

20 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. 19

21 IMPLICATIONS FOR CANADIAN INVESTMENT AGENCIES? 20

22 WORLD IS NOT EXACTLY FLAT 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 21

23 BUT NEITHER IS IT BACK TO THE WAY IT WAS National borders becoming increasingly irrelevant Need to compete as others do What are the new advantages? 22

24 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 23

25 WHERE SHOULD WE LOOK? 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 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 Source: ICAIncentives.com 24

26 HOW TO GET AND STAY IN THE GAME 25

27 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 A New Generation in FDI Advisory 26

28 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 27

29 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 New Generation in FDI Advisory 28

30 A FEW WORDS ON INCENTIVES 29

31 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 30

32 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 A New Generation in FDI Advisory 31

33 TWO SOURCES, TWO PERSPECTIVES 32

34 1. DEVELOPING A SCORE MODEL Score on ICA s Transparency Index Score on Pew Centre s Incentive Evaluation Weak Openness Moderate Openness Strong Openness Trailing Behind Mixed Results Leading the Way

35 Score on Pew Centre s Incentive Evaluation 2. COMBINING THE SCORE MODELS Pew Score Score on ICA s Transparency Index Weak Openness Moderate Openness Strong Openness ICA Score Leading the Way = = = 6 Mixed Results = = = 5 Overall Score Trailing Behind = = = 4 34

36 Score on Pew Centre s Incentive Evaluation 3. INTEGRATING SCORES AND STATES Score on ICA s Transparency Index Weak Openness Moderate Openness Strong Openness Leading the Way Mixed Results Trailing Behind AR AZ KS WA CA MN NM AL DE HI ID ME MT Caution: Extreme Group NH NV ND OK RI SC SD TN VT WV WY Worst Practice NC OR NE TX VA AK MD MS UT Most Average Performance CT LA IA MO NJ WI KY MA MI NY OH PA CO FL GA IL IN Best Practice Caution: Extreme Group 35

37 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 36

38 THANK YOU! Investment Consulting Associates (ICA) 1005 Boylston St, #243 Newton Highlands, MA United States T: F: E: H.J.E. Wenckebachweg AS Amsterdam The Netherlands T: +31 (0) F: +31 (0) E: A New Generation in FDI Advisory 37