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 explores manufacturing’s resurgence, making a place “creative,” and keeping and attracting foreign entrepreneurs and students. Comment below or send to mcfarland@nlc.org.

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

Chatter about manufacturing’s resurgence in the U.S. is being fueled by moves to “reshore” production facilities, growth in advanced manufacturing sectors and increases in goods exports.  “The top factors for bringing these jobs home cited by these executives surveyed by Boston Consulting Group: Higher labor costs in Asia (57 percent), ease of doing business (29 percent), and proximity to customers (28 percent),” notes The Global Post.  What will manufacturing’s comeback mean for local economies? The ripple effects of manufacturing are huge, especially when accounting for foreign investment: each job supports another five jobs, based on economic activity that is tied to suppliers and spending by employees of U.S. units of foreign companies and their suppliers, Reuters reports.

But as the Wall Street Journal details, there is reason to be skeptical of this good news: lagging wages in the U.S. are propping up the industry and have negative consequences for the economy.  “Sluggish wages are squeezing workers’ incomes and spending. That, in turn, hurts retailers who target middle-income earners and restrains the vigor of the economic recovery.”

“Musical” interlude, data debate, and big boxes going small.

Although most have abandoned the notion of becoming the next Silicon Valley, communities across the country are trying to figure out just the right mix of what spurs innovation and creativity. Rural towns like Greeley, Sherman and Valley County, NE think the answer lies not necessarily in hard assets, but in the soft ones. “It’s far harder to create communities of people driven by values like trust, fairness, dreaming big, and willingness to risk and fail.” Get those components right, reports the Daily Yonder, and younger entrepreneurs will stay.  Youth entrepreneurship must become a priority within a community’s economic development strategy, and according to the Center for Rural Entrepreneurship, includes interactive entrepreneurship education, supportive community environment, peer networking and pathways from education to opportunity.

Even places like Silicon Bayou (aka New Orleans) and Denver that are targeting high-tech are using strategies grounded in local assets, particularly their talent. They are leveraging existing industries and top universities and colleges and working to encourage collaboration among entrepreneurs, investors and government agencies, notes MSN Business on Main.

But what if your town has no people? That’s right…no people. Fast Company puts the spotlight on a new city in New Mexico named CITE (The Center for Innovation, Testing and Evaluation) being developed with the hopes of being one of the most innovative places in the world, with no plans for permanent residents. CITE is “a 15-square mile, fully functioning but empty town next door, unlike any other R&D facility in the world, that will be used to test everything about the future of smart cities, from autonomous cars to new wireless networks.”

Foreign students and entrepreneurs have also been lauded as key assets for growth. It’s no wonder that recent news (Fiscal Times) of an exodus of foreign students has prompted “a bipartisan group of senators to introduce legislation that would seek to make it easier for foreign students who hold post-graduate degrees in math, science or engineering from American colleges to remain in the U.S. after they finish their studies,” notes Wall Street Journal’s Washington Wire blogger Corey Boles.

While there is a high likelihood of U.S. legislation getting bogged down in an immigration debate, The Telegraph details Canada’s plans to move full force on attracting foreign entrepreneurs and building a “fast and flexible” economic immigration system. According to Citizenship, Immigration and Multiculturalism Minister Jason Kenney, “We need to proactively target a new type of immigrant entrepreneur who has the potential to build innovative companies that can compete on a global scale and create jobs for Canadians.” See these NLC resources for more on local roles to support entrepreneurs and foreign students.