This week, Nancy Scola brings you the story of officials in Toledo, Ohio wooing potential investors in China in the hopes that foreign direct investment, or FDI, is what the city needs to jump-start economic development.
Christiana McFarland, interim director at the National League of Cities Center for Research and Innovation, knows a little something about what Toledo is trying to do. Co-authoring a report last year on FDI and international trade, McFarland writes about how cities can approach foreign investment in order to compete on the global level. Here, she chats with Next American City about some of the common concerns local leaders have with FDI, and how to best address them.
Next American City: For starters, can we define foreign direct investment for readers who may not be familiar with the term?
Christiana McFarland: Sure. [It’s] investment in the community by a foreign entity, and can include a whole host of different types of investment. Usually when we’re talking about foreign direct investment, it’s investors providing capital for development projects, investing in research or development, or developing or expanding manufacturing facilities. It can sometimes also include new ownership of an existing business in the community.
NAC: We here at Next American City are getting ready to run a story about efforts in Toledo, Ohio to court Chinese investors. The idea has its share of critics, including a member of Congress who represents Toledo. What are some concerns that local leaders might have over attracting FDI, and how would you address them?
McFarland: Some of the concerns are [regarding] just the businesses themselves, and in some cases it may be specific to China. But it really is advantageous, for local leaders looking for foreign investment in general from any country, to do proper vetting of the businesses that they’re interested in investing in the community. So that would be one caution and one challenge for local leaders on the ground. And ways to do that are really building business connections and relationships in advance to help ensure sound investment leads. For example, local leaders can connect with economic development organizations in cities abroad that have similar industry or complimentary targets to share investment opportunities.
It’s also important to remember that foreign businesses may operate under a different set of cultural and business practices that can impede success in the U.S. Communities can provide an ombudsman, or set up a one-stop-shop to help foreign and domestic investors alike navigate processes and procedures.
NAC: One recommended FDI strategy that you outlined in your report you call “creating regional awareness,” which essentially means having a community brand itself so investors know what it has to offer. This is clearly easier for certain places than others — small- or mid-sized former company towns, industrial cities that haven’t quite gotten back on their feet, might have a harder go at it. How can a small city assess what it has to offer, and then market itself to a foreign investor?
McFarland: The regional approach to foreign investment is going to be critical, and although it may seem to be an easier endeavor for larger communities, what we are seeing is a lot of smaller communities taking it on. So it’s not a matter of how, as a smaller community, do you go about it alone, but how do you see yourself as a complement within the region in terms of the assets that you bring to the region?
And we’re seeing a lot of places do this: Smaller communities outside of Seattle — for example, Tacoma. Smaller communities in Indiana, in Grant County. It’s all about building relationships so that you’re making a mark on the map with your community. It’s building these relationships, visiting these communities [and] countries, and showing what you have to offer. It could be in terms of workforce or businesses. It could be the industries that you have. It could be the physical infrastructure that you have. These are all typical for economic development. It’s a just a way of broadening their reach to foreign investors who may not necessarily be immediately aware of the assets that you have.
NAC: You gave a few examples there. Can you think of any specific communities that have had a particularly successful time attracting FDI?
McFarland: The case study that we’re outlining for next week, in Toledo, Ohio. They’re working not only with the City of Toledo, but also with communities within the region — with their Regional Growth Partnership, which includes smaller communities that are outside of Toledo as well.
And, of course, Chattanooga, Tenn. I just heard the president of Volkswagen America talk about picking Chattanooga as a location for their manufacturing facility not only because of available location and infrastructure, but also because of the commitment from the local and regional partners to make the investment a success. Particularly important was the willingness of the community college to help develop an educated and technically skilled workforce.
NAC: One interesting detail about Toledo, which you alluded to a little bit earlier, is that the city has appealed to the Chinese. On a daily basis, both of the major presidential candidates spar over who will take a tougher stance on China. They continually throw barbs at China over its business as economic policies. What happens when a local government sees opportunity from a country that has a less-than-friendly relationship with the United States?
McFarland: For localities, in order for them to be successful going forward, the bottom line is they need to be connected and tapped into the global economy. And in some cases, the opportunities are going to be with businesses that are in these countries [that have tense relationships with the U.S.]. Again, there always needs to be a proper vetting process, which goes all the way up the line to stakeholders and agencies in the federal government as well. All these investments and business practices that are here in the U.S. are being vetted. So it’s important for [local leaders] to figure out what the needs are of the local economy [and] how they can be more proactive and integrated with the global economy. That’s really what is going to propel their economies forward in the future.
NAC: The U.S. does seem to have more of isolationist past than other Western nations. As our writer in the Toledo story put it, “‘Made in the U.S.A.’ has retained its cache.” Onshoring is a perennial topic in political discussions these days. What can be done to make the U.S. more open to working with foreign investors in an increasingly globalized economy?
McFarland: That’s a really good question. Some have concerns that FDI means providing support for businesses that are not home grown. We agree that local businesses are critical to the success of city economies, and that FDI is not a silver bullet. However, foreign investors, in conjunction with broader local economic strategies, have generated millions of jobs for U.S. residents, often pay higher wages, have helped bolstered the manufacturing industry and often exports goods generating local income from outside the region.
It really comes down to… having those virtual connections. You’re afraid of what you don’t know, and if you are able to establish personal connections and personal relationships — for example, working with local leaders and policymakers in other countries, working with development organizations and businesses in other countries — that really is the first step. Attending trade shows, inviting foreign delegations and visiting counterparts in other countries. We’ve seen that be successful in quite a few places.
NAC: Let’s say a city is shopping around for a potential investor and finds interest from both a domestic body and an international body. What are the advantages that either one has over the other, if any?
McFarland: They’re going to have to weigh the trade-offs, obviously, of what each will bring to the local economy, and how they’ll support the local economy. But there’s also that added understanding that the international investor, in order to be successful, may need assistance from the local community to help navigate the complexities of the U.S. business and regulatory environment.