Look below the surface of those statistics, though, and you’ll find the FDI landscape is much more complex and competitive. For all its seeming dominance, New York accounts for only 5% of the projects and 3% of FDI project investment value in the US. The nation’s top-20 metros, in fact, capture under 30% of projects and only 16% of capital invested in FDI greenfield and expansion projects. The same general rule applies in Mexico and also in Canada where Toronto, Montreal, and Vancouver are the leading recipients of FDI but 900 other Canadian metros have secured foreign investment.
The reality is that top-tier cities capture a relatively small percentage of FDI and competition for the majority of foreign investment is wide-open, with literally thousands of municipalities vying for over a hundred billion dollars of FDI annually across the NAFTA zone.
This is a hopeful message for economic developers, with a few important points to remember:
- FDI is coming from many different countries, but there are clear leaders, among them Germany, UK, Japan, Canada, France, The Netherlands and, increasingly, China. Do the research and prioritize outreach efforts.
- To attract corporate investment, you must first understand what your city offers in terms of people, infrastructure, institutions, real estate, etc. Making a clear business case for why companies should choose you is imperative.
- International firms initiate thousands of projects every year and these are distributed across a wide geography. They’re worth pursuing, and the prospect of success is legitimate. Everyone can compete for some portion of the FDI pie.
For their part, international firms have location options - literally thousands of them - provided they remain immune to ‘site selection by magazine article’. In other words, they must avoid being influenced by sophisticated ad campaigns, recent project news, or “incentives bait.” A proper location and site selection strategy will remove emotion from the equation and better optimize and formalize decision making.
Corporate location and site selection strategies should be grounded in a few fundamentals:
- The U.S. geography is much more complex than many people expect. If an international firm is considering locating in “the Midwest region” or “the Southeast region”, for example, they sometimes presume a high degree of economic, demographic, political, and attitudinal homogeneity throughout that so-called region. In truth, these regions may encompass 5 or more states, 60 or more counties and cities, and a dozen or more different utilities; they’re incredibly diverse with highly variable costs, risks, and benefits.
- Foreign investors have opportunities across the spectrum of large, medium and small metros. There are cities that may not be obvious options, but they still may represent great opportunities because, as the data suggests, top metros are only capturing a small percentage of the investment dollars.
- One can’t overstate the value of due diligence in ensuring that your FDI is going to land in a city well suited to receive it, with the infrastructure, cost structure, and human capital necessary to support your business’ success.
States, provinces, and localities need target industry and investment readiness strategies in order to attract the right kind of investment. Meanwhile, corporations need logical and defensible site selection strategies to make effective location decisions. Great FDI success can be found when the economic development and the corporate location requirements are well-matched.
Senior Managing Director, Global Strategy