Foreign Investment for Local Growth: The Case of Toledo

The National League of Cities Center for Research and Innovation has joined with Next American City to explore how cities are developing innovative models for tackling complex urban issues and strengthening their local economies. In the coming weeks NLC will feature a series of case studies on foreign direct investment, fiber connectivity, and immigration. This blog highlights the first of these, Bringing Chinese Investment to American Citiesthe story of foreign direct investment in Toledo, OH.

Despite national election rhetoric, many at the local level are exploring foreign investments as a way to grow local economies. One such community is Toledo, OH and its mayor, Mike Bell, who has been courting Chinese investment to revitalize real estate development, grow health care and pharmaceuticals, high-tech manufacturing and transportation/distribution industries, and in the process, create new jobs and bolster city coffers.

Toledo’s Story
Like many other rust belt communities hard hit by the recent recession, Toledo is suffering a foreclosure crisis, shrinking manufacturing base, declining population, and overwhelming budget deficit. Elected in 2009, Mayor Mike Bell, proclaimed that to pass through the recession, “we just needed a bridge.” For Bell, that bridge came in the form of foreign direct investment (FDI); an investment in a community by a foreign entity that creates new businesses, provides capital for development projects, develops or expands production or manufacturing facilities or provides new ownership of an existing enterprise.

“In the spring of 2011, the city sold two long-available sites on the Maumee River: the Docks, a restaurant strip that went for $2.5 million, and a 69-acre parcel in the Marina District that went for $3.8 million that had once meant to be the home of an amphitheater and more but was now desolate. The buyer: Dashing Pacific Group Ltd., a partnership between two Chinese investors, Yuan Xiaohong and Wu Kin Hung.  Later, the 350-room Park Inn was sold for $3 million to an undisclosed Chinese investor.”

Seeing the potential of foreign investment for the community, the Mayor recently worked with the Regional Growth Partnership (RGP), University of Toledo and many other regional partners to host nearly 200 Chinese business people and officials during the Five Lakes Global Economic Forum. The goal: to help foreign investors see the opportunities in Toledo first hand.

But not everyone in the community is sold on the benefits of FDI.

The case study details how “Keith Wilkowski, a Toledo Democrat who was runner-up to Bell in the 2009 mayoral race, cautions against a city-building strategy that believes in a “cataclysmic investment” that will, once and for all, bring Toledo back. Wilkowksi cycles through Toledo’s past supposed panaceas: the Portside Festival Marketplace abandoned six years after it was built, the Owens-Illinois Building that was left by its namesake firm in 2006, the 3-year-old $150 million downtown Huntington Center stadium, the brand-new Hollywood Casino. And now China is the answer to Toledo’s prayers? “It’s both harder and more rewarding than that,” says Wilkowski.”

“And Mayor Bell, for his part, doesn’t entirely disagree. He argues that encouraging diverse, sometimes foreign, investment in Toledo is no magic solution, but it just might be part of establishing a broad, sustainable base for Toledo’s economic rebirth.  Skepticism about that path, RGP’s John Gibney, vice president of marketing and communications, says, isn’t surprising. Even those connected to and invested in the China push have their doubts. But he explains the thinking, though, driving the willingness to give it a shot. “A lot of things this community has been doing haven’t been working, so why not try it?”

Learning from Toledo
According to a 2011 survey by the National League of Cities, the overwhelming majority of city leaders (83%) felt that expanding trade opportunities and attracting foreign direct investment was important to the success of their local economies. Meanwhile, only 30 percent report being involved in foreign direct investment opportunities.

For cities across the country seeking to add FDI to their economic development toolbox, there is much to be learned from Toledo’s approach.

• Focus on key assets
The foundation of an effective FDI strategy is a clear understanding and realistic assessment of strengths and weaknesses. Toledo’s strategy is built around its key assets including waterfront, workforce and distribution access, to draw investment that aligns and builds on local strengths.

• Coordinate regionally
Local success in a global economy requires leveraging, strengthening and marketing the breath or resources available in a region – not just lies what within municipal borders. For Toledo, regional coordination of foreign investment efforts and creating a regional identity is proving both beneficial and necessary. “In the past, says Bell, local leaders were unprepared to sell the area’s merits. But more than that, in the area’s sometimes contentious political environment, they were unwilling to row in the same direction. “What we weren’t doing was functioning as a region,” Bell says, who argues that what’s good for, say, nearby suburban Perrysburg (population: 21,000) is good for Toledo.”

• Build relationships
Depending on the country, relationship building can be paramount in FDI. Toledo is being proactive in lead generation by relying heavily on networking, relationship building, and engaging a trusted “middle man” to accelerate these relationships and position the community to take advantage when an investment opportunity arises.

• Respect, understand, and educate about cultural differences
The city of Toledo and its regional stakeholders are also aware of the need to respect cultural differences, and also of the need to help bridge differences in business practices between the U.S. and China that often impeded successful investment.  For example, a session at the economic forum called “Differences in Doing Business in the USA” focused on how Chinese companies can find help navigating such issues as licensing their goods to U.S. firms, hiring a local sales rep, going in on a joint venture, and starting a subsidiary.

Learn more about how cities can promote foreign investment.

FDI in the U.S.
In recent years, local FDI strategies have gained traction as domestic investments have slowed and credit has tightened.  According to the Bureau of Economic Analysis, in 2011, U.S. FDI inflows grew by $283.4 billion, representing a 13 percent increase over 2010. Although Chinese investment is a very small percentage of FDI into U.S. communities comparatively, the amount of investment from China has been steadily growing.

But what is the impact of foreign investment on local communities?

In 2010, foreign owned businesses in the U.S. accounted for over 5 million jobs, most in the manufacturing industry, and invest $40 billion in research and development annually.

From cities as diverse as Chattanooga to Toledo to Seattle, FDI has helped create new jobs, boost wages, strengthen manufacturing and service industries, bring in new research and technology and raise productivity. FDI has also facilitated new economic activity in places that may not otherwise have attracted the necessary investment or capital, strengthened local export economies, and attracted foreign suppliers.

Although FDI holds promise for local communities, it is also important for local and regional leaders to diligently vet new investors coming into the community, and to view FDI not as a silver bullet, but one potential part of a broader economic strategy.

Read Bringing Chinese Investment to American Cities to learn more about Toledo’s efforts.

The Latest in Economic Development

This week’s blog discusses a new type of hybrid high school/community college, the merits (and demerits) of casinos, Chinese and Japanese FDI, and downtown development. Comment below or send to common@nlc.org.

Get the last edition of “The Latest in Economic Development” here.

Since education is so closely tied to our nation’s future economic success, it’s very encouraging to see out-of-the-ordinary schools like New York’s Pathways in Technology Early College High School cropping up. Pathways is a school that features a six-year curriculum developed with help from IBM where students “emerge with associate’s degrees in applied science in computer information systems or electromechanical engineering technology.” This proactive program is designed to prepare students for entry-level technology jobs by giving them not only tech skills, but also skills to navigate the workplace. Other cities and states are taking notice, with Maine, Massachusetts, Missouri, North Carolina, and Tennessee planning to create similar schools. In the end, it’s all about bringing careers closer to the classroom.

If you live in the DC area, you’ve probably seen about a gazillion campaign commercials concerning a new casino project in Maryland. Are these projects all they’re cracked up to be?The motivation behind allowing new casinos is that they often provide increased tax revenue for cities and states, which can be a blessing considering the current state of public finance. Also, they provide jobs, though the majority of new jobs are for lower-skilled workers, which isn’t necessarily a bad thing. But casinos aren’t immune to economic cycles, and industry revenues haven’t returned to their 2007 peak. Furthermore, “last year, wages and the number of jobs fell across the industry. And commercial casino tax revenue dropped in 9 of 22 states.” Competition from neighboring casinos in saturated markets can also put a damper on expected tax revenue increases.

“In just the first three quarters of 2012, Chinese businesses have invested $6.3 billion in foreign direct investment projects in the United States. It’s already the most capital Chinese firms have ever invested in the US in one year” says a new report from the Rhodium Group. Most of these deals are mergers and acquisitions – not greenfield investments – which can be interpreted positively or negatively depending on who you are. But Chinese FDI has largely been concentrated in advanced manufacturing and energy, sectors which provide higher wages for Americans.  Japanese firms are also getting involved, with Softbank’s acquisition of Sprint being the “largest Japanese acquisition of (an) American company in more than 30 years.” The deal highlights a cultural shift in the perception of Japanese FDI in America, where something that was once feared is now welcomed. Some of this fear has now been transferred to Chinese investment, sometimes justified, but other times overblown. Stay tuned for Monday’s post about Toledo, Ohio’s pursuit of Chinese FDI.

Why is Savannah, GA’s downtown booming, and how is Rock Hill, SC trying to revitalize theirs?Savannah has been able to take advantage of the tremendous assets it already has (walkability, tourism, history and the Savannah College of Art & Design) to transform its downtown for the better after a relatively rough period only a few years ago. It has turned into a modern take on an American classic. Rock Hill has also gone through a rough stretch with regard to its downtown, and, like Savannah, it has a historic city core.  Through infrastructure improvements, street-scaping, and a mix of incentives to attract businesses, Rock Hill is doing its best to take advantage of its historic assets, though not everyone is on board.

The Latest in Economic Development

This week’s blog highlights the recent success of New Jersey’s economic development incentives, explores the story of two rural North Carolina towns and how they dealt with losses of industry, mentions efforts in Seattle and Philadelphia to streamline their regulatory structures, and points out increasing foreign direct investment flows from China to the US.

Comment below or send to common@nlc.org.

Get the last edition of “The Latest in Economic Development” here.

Economic development incentives can be a contentious issue, but New Jersey seems to have had some recent success in retaining big business. In a NJBIZ article, Joshua Bird explains that “the state’s arsenal of incentive programs has prevented firms from leaving the state.” Some of these firms include Goya Foods, Realogy Corp., Burlington Coat Factory, and Conair Corp. – all companies that employ more than 3,000 employees.

Incentive programs such as New Jersey’s tend to drive a wedge between taxpayers and the corporations receiving tax breaks and other incentives, since they are often perceived as a wealth transfer, or “corporate welfare,” from workers and small businesses to politically connected companies.  It has also been demonstrated on numerous occasions that the jobs promised as part of these deals rarely come to fruition. A Pew report conducted earlier this year highlighted this fact, and while they deemed New Jersey a state that is “leading the way” in its performance monitoring incentive programs, over half of US states (26) proved that they were not meeting any of the criteria for scope or quality of evaluation.

According to Kim Zeuli of the Federal Reserve Bank of Minneapolis, small town economic recoveries are largely determined by “community resilience.” Small towns usually don’t have the most diverse economies, which leaves them uncomfortably exposed to recessions that affect the industries they support. In a recent podcast (with transcript available), Zeuli tells the story of two North Carolina towns, Eden and Concord, and how they responded to the loss of their respective textile industries. While there are many determinants of community resilience, a couple factors stand out. One is fairly obvious; industry diversification is crucial to respond to external shocks. The other focuses on an important intangible: leadership. In the case of Eden and Concord, local leadership proved to be a big factor in their respective responses. Concord’s leaders had a little more foresight that the textile industry was losing steam, enabling the town to get out in front of the crisis. Podcast via Southern Compass News

Regulatory regimes can sometimes be stiflingly rigid, but Seattle’s new program shows that pragmatic flexibility can be a catalyst for productive projects. The Industrial Development Pilot Program is designed to help nudge industrial projects forward that are having trouble clearing certain hurdles by: 1) stretching the permitting process; 2) utilizing a low-interest federal loan program to help cover costs; and 3) training workers. The first program participant, Harley Marine Services, was able to build a four-story structure when the height restriction was two – a simple fix, but important nonetheless. Roque Deherrera of the Seattle Office of Economic Development says that “if someone has a project, and they can achieve their project except for an issue in (the) city of Seattle, we would take a lead in supporting that project.”

Staying with the regulatory theme, Philadelphia transitioned to a new zoning code last week, replacing an outdated regime that was “in use since 1962, when Philadelphia still saw itself primarily as a manufacturing center.” The simplifying move was a welcome sign for developers, who will save time and money by not having to appeal to the city every time they needed to go “off-code” (which was a lot) in the old system.

Chinese investors and companies are flush with cash, and recent foreign direct investment inflows from China to the US show that they desire Western assetsThere are a few reasons for this rising trend. First, the Chinese economy is naturally evolving; unskilled manufacturing margins are being squeezed by higher labor costs, requiring Chinese opportunists to look elsewhere for returns. Second, since asset prices are lower in developed countries due to the lingering effects of the financial crisis, there are many bargains to be had. Third, they are fulfilling strategic objectives, such as acquiring technology and marketing prowess, which is why the continuing trend makes some US officials squeamish. Especially with the Chinese scouring the globe to secure energy producing land and assets, inward FDI will most likely be a contentious issue in the near future. But as of now, China “accounts for only about 3% of foreign investment into the US” and is providing much needed cash to US companies, not to mention jobs.

The Latest in Economic Development

This week’s Latest in Economic Development focuses on craft beer, Cincinnati’s pursuit of water technology, what’s next for Las Vegas, Super Bowl driven interstate competition, and Chinese Foreign Direct Investment. Have things to add? Comment below or email me at mcconnnell@nlc.org.

Get the last edition of “The Latest in Economic Development” here.

Cincinnati strives to become the American hub for water technology. They’re not alone – St. Louis and Minneapolis are also pursuing the market, which is valued at $500 billion to $1 trillion a year. Despite the competition, locals feel that they have the necessary pieces to put them ahead of the game including a history of water research, public and private sector expertise, and of course, plenty of water.(Cincinnati.com)

Craft beer has been good for economic development in North Carolina. Nation-wide, the industry experienced a 15 percent growth last year, and North Carolina has had its share of craft brewing successes. The state has over sixty breweries and landed the highly sought after east-coast expansions of craft brewery superstars New Belgium, Oskar Blues, and Sierra Nevada (related – check out this excellent article on Roanoke, VA’s bid for Sierra Nevada). UNC School of Government’s blog profiles how a number of state legislative changes, regulations, and incentives support the craft beer industry and “acted as drivers of economic development.”

Las Vegas has epitomized the economic woes of the Great Recession and is looking to diversify and move forward. Las Vegas became a boomtown over 1990-2000 on the back of its heavily service-focused economy and a thriving construction industry that nose-dived during the recession. As the city tries to come back, it faces some barriers including a lack of a major research institution and lack of  “innovation outside the casino industry.” Yet, Las Vegas also has a powerful and passionate champion in Zappos CEO Tony Hsieh. Hsieh is moving Zappos’s headquarters to the city’s struggling downtown.  He also created the “Downtown Project and gave it $350 million in seed money to start tech startups and community minded small businesses.” (The Atlantic)

With professional football still a month away, New Jersey and New York vie for 2014 Super Bowl business. While both states cooperated in the bidding process to land the Super Bowl, which will take place at New Jersey’ MetLife Stadium, interstate competition is intensifying as each state hopes to get a hefty share of hotel guests, side events, and even gambling revenues. (Wall Street Journal)

Over the past couple of years, Chinese Foreign Direct Investment has been an increasingly popular economic development strategy for cities and states. While there are signs of successes, it’s also not a simple, silver bullet. Both the Financial Times via Carnegie Endowment for International Peace and the Huffington Post provide commentary and context on Chinese Foreign Direct Investment in the U.S.

For more information on NLC’s Economic Development work, visit our webpage.

The Latest in Economic Development – 2.16.12

This week’s blog entry explores the complicated issue of FDI from China, highlights a few recommendations for economic development in the face of a stagnant economy, and uncovers recently released job creation figures from the “app economy.” Comment below or send to common@nlc.org.

Get last week’s blog here.

Should the United States actively seek investment from China? China is flush with excess cash reserves from running perpetual trade surpluses and they have been very active the last few years investing in assets all over the world. Currently, the United States represents a very small portion of Chinese FDI, but these figures are increasing. James Lindsay, in a Council on Foreign Relations blog post, explains that Chinese investment can potentially stimulate growth and create jobs, but allowing Chinese access to American technology continually sparks security concerns. In a separate article in the Wall Street Journal, Joseph White and Norihiko Shirouzu tell the story of a factory in Saginaw, Michigan that was saved from closing by “Chinese industrialists.” A cautiously optimistic dynamic seems to be at play within the Saginaw community, as they still don’t completely trust that the jobs will remain in Michigan. The Chinese investors say they are committed to the US market and for now, the Michiganders are just happy to be working. As more Chinese investors infiltrate our communities seeking out profitable assets, this issue will no doubt rise to the forefront.

Although the US receives a small sliver of FDI from China, we continue to receive more FDI inflows than any other country.  Mark Crawford states that “according to the Council of Economic Advisors… nearly half of all goods and services provided by foreign-based companies came from the US manufacturing sector. These companies employ about 5.7 million US workers, including more than two million employees in manufacturing industries.” Helping this trend are economic development professionals who aggressively seek out investment from abroad by building effective relationships and setting up trade missions. The competition to provide incentives to foreign companies is fierce – 300 counties competed for German company Schulz GMBH before they selected Tunica, Mississippi. FDI figures will continue to be strong, particularly in industries related to alternative energy, biomedical, and advanced manufacturing. (Area Development)

In an economic climate forecasted to be relatively stagnant for the next few years, what should cities and states focus on with regard to economic development? According to Daniel Levine, chasing projects with incentives and interstate poaching of industry has become too expensive to be effective. “Regional-centric” partnerships involving private industry and universities and community colleges prove to be much more valuable. Levine also recommends a focus on distressed workers, most of whom are not qualified for the high paying, high-tech jobs that are often targeted with incentives. (Area Development)

Even if you don’t have a smartphone (like me), you’ve probably been exposed to the “app economy.” Looking around, it’s quite easy to see the growing dependence on apps to get around, find something to eat, or check what time the next train leaves. This is the “app economy” at work. Has the “app economy” been an effective job creator? Apparently, in the last five years, the mobile applications market created an estimated 466,000 jobs according to TechNet via the LA Times. While many job seekers don’t have the computer science and engineering skills to qualify for “app economy” jobs, it is still a bright spot in an otherwise gloomy economy. (Dayton Daily News) via (Economic News from Ohio’s Regions)