Voice of the Practitioner
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Foreign firms tend to select sites that are familiar or have familiar faces. Unfamiliarity and discomfort in a foreign land are common issues and create a large challenge for attracting investment. This “Liability of Foreignness” means that businesses operating abroad simply do not understand what they do not know about the cultural, political, and economic differences between their own environment and operating in the U.S. — and even the differences in operating in different U.S. regions.
Overcoming this barrier is key to successful FDI efforts. It is about making an “emotional connection” as much is it is about demonstrating the financial benefits of a location. That means that the cultural aspects of preparing for potential FDI are a vital element of your targeting efforts and your sales pitch to prospects.
First, our research found that 70 percent of new investment is linked to existing investment in a region. That means that the first place to look for prospects is for companies already in your community, the suppliers of those companies, and companies from the same countries that may be familiar already with firms in your area. Second, relationships matter a great deal so existing investors, student alumni, sister city relationships, and proximity to a target market for prospects — these are all important considerations in selecting your prospect targets. For instance, Indiana attracted a $100 million investment from an aluminum manufacturer in part because the company president received his graduate degree from Purdue University.
Furthermore, language is one of the most important barriers, and it can be a vital link in working with prospects. This means having access to native translators and an understanding of unique cultural needs. For instance, during one visit by a Japanese prospect, a southern economic developer helped the visiting executives meet the owner of the local Asian market (even though it was not open at the time of the visit). Another economic developer noted the importance of access to Japanese Saturday School. These are important to help executives’ children in keeping up with their Japanese language skills.
Successful regions begin their preparations by identifying local resources, like a foreign chamber of commerce or international cultural center, as well as fellow citizens that can help foreign prospects feel immediately comfortable.
- Organize information about local institutions (e.g., organizations, language schools, student groups, etc.) relevant to target countries
- Identify local foreign nationals that can serve as translators, guides, and/or hosts for prospects
- Provide concierge services in anticipation of cultural adjustments and family needs (e.g., housing, spousal employment, language, social networks, etc.)
- Provide introductions to professional support services in the community
- Demonstrate ability to help the prospect navigate government permitting and licensing once decision is made
- Orient the prospect to opportunities for engaging with the local business community through networks such as chambers of commerce, international business groups, etc.
Geringhoff, Saint Cloud, Minnesota
In 2013, Governor Dayton completed a trade mission to Germany seeking export opportunities and investments in Minnesota in sectors including agriculture machinery and products. Shortly after the trade mission, the state Department of Employment and Economic Development (DEED) learned of Geringhoff’s interest to establish an agricultural implement facility in the central United States. DEED presented a site in Saint Cloud (a community with an MSA population of about 225,000 an hour northwest of Minneapolis). A significant German population exists in Minnesota and in the Saint Cloud region and the Mayor of Saint Cloud spoke fluent German. The community had also held its first annual Weinachtsmarkt festival in 2013, celebrating German culture. Since this was Geringhoff’s first manufacturing facility in the U.S., the an opportunity for the community to connect culturally and more personally with the prospective investor was especially important.
Saint Cloud had the infrastructure, pre-existing space, and the workforce to meet Geringoff’s needs. The community’s focus on understanding Geringhoff’s supply chain and then finding ways to meet those needs within Minnesota also was helpful. The original plan called for Geringhoff to import around 60 percent of its components from Europe. However, Saint Cloud and DEED were able to find suppliers to provide around 90 percent of the components. That proximity, familiarity, and dedication to solving a problem resulted in Geringhoff’s selection of Saint Cloud for its manufacturing center and subsequent reinvestments. Originally, Geringhoff invested $20 million and hired 70 employees; the company recently expanded again in Saint Cloud.
LG Electronics, Clarksville, Tennessee
When LG Electronics decided to make a $250 million investment in an appliance facility, the company looked at several states during its search. Local leaders felt that the presence of the Hankook tire manufacturer only five miles away was an important consideration because the companies knew one another, provided a shared culture and language, and offered a sense of comfort that the investment would pay off.
Golden Triangle, Mississippi
“[Another thing is] the language barrier … we use the university for engineering and that kind of stuff, but we also use them as translators … We were working on a Korean project and had a conference call with Korea every 2 weeks. So at 10-11 pm at night, I’m sitting at my kitchen table with a cell phone talking to Korea, together with the power company, TVA, and the state. We had … Korean professor … on all the calls. He’s a native Korean and he was our translator but also he gave us credibility.” – Joe Max Higgins, CEO, Golden Triangle Development — THE LINK (Mississippi)
Nanshan America invested $100 million in a new aluminum extrusion facility (pp. 26-27) in Lafayette, Indiana. They chose Indiana to be closer to their customer base, strong transportation network, incentives, and the availability of high-quality engineering and technical resources at Purdue University and nearby community colleges. “During the process of this strategic decision making, we have had a feeling that we are coming back home. The whole community is welcoming Nanshan as a friend coming back,” said President Lijun Du.
The website for Columbus has a “Moving Here” section that provides detailed information on a wide range of topics related to moving to the area, including housing, education, jobs, health care, climate, and even the local food scene.
“Developed economy investment promotion agencies and emerging market foreign direct investment: The case of Chinese FDI in Canada.” In Journal of World Business. Anderson and Sutherland, 2015, p. 3.
This journal article details how investment promotion agencies can reduce the “Liability of Foreignness” for potential foreign investors. Specifically, economic development organizations that reduce the cost or risk of FOE investments by providing otherwise difficult to find information or services helping investors deal with the unfamiliarity (cultural, political, economic, etc.) of their potential new host environment.
“Strategies and Determinants of FDI Attraction,” Bah, Kefan & Izuchukwu, 2015, p. 4.
This academic publication on the determinants of FDI attraction found evidence that Japanese firms locate near one another in foreign markets, supporting the general understanding that foreign-owned enterprises like to invest where other like companies have already made investment decisions.