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 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.

Latest in Economic Development

This week’s latest in economic development focuses on FDI, some state-level incentive mishaps, small business confidence, worker skill mismatch, and Creative Class 2.0. Have things to add, contact me at mcconnell@nlc.org.

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

Cities look to attract more foreign direct investment.  Toledo, Ohio, which has been courting Chinese investment for the past couple years, is working on a regional effort to bring together 200 foreign investors, mainly from China, with 200 business leaders and economic development officials from 17 counties in Northwest Ohio and Southwest Michigan for a 3-day investment centered forum (via Economic News From Ohio’s Regions).

In Denver, a meeting between foreign-owned companies and local economic development officials produced five suggestions on how the region could be more adept at FDI: “Help for executives to better integrate themselves in the community; the addition of more direct international flights from Colorado airports; the reliability and accessibility of energy resources; improvement for infrastructure for product transportation; and a stable tax and regulatory environment.”

The Creative Class turns ten and to celebrate, it’s getting a pony revised edition! It’s been ten year’s since Richard Florida’s still controversial book Rise of the Creative Class was released and the revised edition, which now reflects Florida’s “ideal vision of the future” in which all jobs are “creatified, hit the shelves this week. And while no doubt there will be plenty of controversy and reactions in the urban planning realm in the coming weeks, in the meantime, if you want to check out the revised edition, excerpts can be found  here, here, and here.

Economic development incentives are often controversial and shrouded in secrecy, however, Floridians are getting a glimpse of the state’s economic development incentives, as 80 deals that were under confidentiality agreements were mistakenly released.  While Wisconsin, on the backs of criticism about a premature incentive commitment during an open bid process, is pledging new safeguards.

 One-third of surveyed small businesses report they will look for financing in the next six months according to a new survey by Pepperdine University and Dunn and Bradstreet Creditability Corp. Not surprisingly, however, those small businesses with revenues between $5 million and $100 million expressed more optimism than those under $5 million in their ability to secure a loan.

Massachusetts, with the Federal Reserve Bank of Boston, is conducting an in-depth study of its workforce. The efforts’ first report found that “Despite higher unemployment among young workers in Metro South/West, young workers don’t seem to be moving into jobs being vacated by retiring baby boomers, stoking fears of a mismatch between the skills that younger workers are learning in schools, community colleges, and universities and the qualifications needed by employers.” Detroit top tech companies begin a pilot program to train workers. Facing a shortage of skilled IT workers, for example 368 open tech positions at Quicken Loans, four of Detroit’s tech companies, in partnership with local universities, have launched a training program “to help students transition between the classroom and the workplace.”

The Latest in Economic Development – 4.9.2012

This week’s blog highlights an innovative high-school training program in Seattle, a “big data” partnership at Rutgers, the development of “frugal innovation,” Midwestern foreign investment, and small business jobs numbers. Comment below or send to common@nlc.org.

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

Many workforce development initiatives focus on job training for older, recently unemployed workers, or concentrate on continuing education through community colleges, but what about starting in high school? There has always been resources at public high schools to train young people to do real-world jobs (think auto shop, or other work-study classes), but they usually don’t focus on high-growth industries. Seattle has introduced a Public Schools Skills Center to prepare students for jobs that will likely be in demand when they graduate. Nick Schiffler writes that students in the program “will still take most of their regular high school classes, but will be bused to their individual Skills Center in the afternoon.” Some of the courses have ties to local companies like Boeing and Microsoft, and they are currently focused on aerospace science, digital animation and game programming, health sciences, and the Cisco/Microsoft Information Technology Academy. (TechFlash) via (Seattle’s Office of Economic Development)

“For years, universities have worked with businesses to produce joint research and educational programs. But these days there’s a new imperative: we must create collaborations aimed at producing economic development and jobs.” These are the words of Rutgers professor Manish Parashar, writing about the university’s new partnership with IBM to create a new high-performance computing center in the Huffington Post. The rise of “Big Data” and supercomputing has opened an opportunity for universities to connect with industry, educate students, and compete for research dollars. This will undoubtedly help universities improve the commercialization of their research efforts. Parashar explains, “the (Rutgers Discovery Informatics Institute) will foster and nurture partnerships with industry around their large compute and large data needs.”

“Frugal innovation” has been thriving in the developing world, and it is only a matter of time before it heads west.  Frugal innovation is generally the act of developing a consumer product that is vastly more affordable due to its “stripped down” nature. The Tata Nano is one example, which is a “no frills” Indian-developed car with a price tag of only $2,000. The Nano didn’t initially catch on, mostly due to miscalculations of consumer preferences and the tendency for the Nano to catch fire, but the concept lives on through other products like Haier’s cheaper appliances and Mahindra & Mahindra’s small tractors. The Schumpeter blog at the Economist thinks that because “the West is doomed to a long period of austerity, as the middle class is squeezed and governments curb spending,” demand for frugally innovative products will soar. (The Economist) via (Innovation Daily)

Just how critical is foreign investment to local economies in the US? In the case of the Dayton-Springfield area of Ohio, pretty darn critical. Scott Koorndyk of the Dayton Development Coalition says that the Dayton area has “about 175 foreign-owned businesses from 21 countries with more than 28,000 jobs.” Drawn by the region’s “rich manufacturing heritage and key location,” companies from Japan and Germany are finding fertile ground to set up operations. (Dayton Daily News) via (Economic News from Ohio’s Regions)

In March, small business employment increased by 0.3%, according to Intuit, Inc. While that seems like a rather negligible amount, it was the “highest single-month growth rate in more than two years.” Small business employee hours worked also increased, as well as compensation. The figures are based on data from small businesses with fewer than 20 employees, and while Susan Woodward, who helped to create the index says the numbers are a positive sign; she also says that the increase in employment “will not get us back to full employment anytime soon.” (MarketWatch)

For more concerning small business and entrepreneurship, check out NLC’s new publication: Supporting Entrepreneurship and Small Business: A Tool Kit for Local Leaders and this corresponding blog post.