Tradeology, the ITA Blog

Rebecca Moudry is a Manager with SelectUSA, part of the International Trade Administration. This post is a follow-up to an earlier post published on the Tradeology blog. 

Based on data from fDi Markets.

In the SelectUSA session at the 2012 International Economic Development Council (IEDC) Annual Conference, Gene DePrez of Global Innovation Partners described the multiple tradeoffs companies consider as they make a global location decision. We discussed some of the considerations they make in an earlier post.

Sharing insights gained through over 30 years of experience advising businesses on global location strategy and site selection, DePrez concluded that incentives are just one factor among many that drive a transaction decision. According to DePrez, access to markets, talent, innovation, strong intellectual property rights, and key suppliers are among the critical fundamentals a company considers when determining where to invest. This jibes with data gathered by fDi Markets. They then weigh these against the costs and risks, and unique opportunities of each location.

In the end, there is not a uniform recipe for how or where a company decides to locate.

“The advantages of each candidate location will be traded against the one-time and long term costs and potential risks among other alternatives,” DePrez said. “Particularly when comparing global candidates, costs are just one piece, and incentives may be more or less important depending on the sector, type of operation, company culture and priorities of the CEO.

“Often they are important to offset one-time costs for training, or relocation, or to level the playing field through infrastructure improvements,” he added.

The Toshiba International Corporation is an example of the location decision process for a global firm. In 2011, this Japanese-based company began considering multiple locations to expand U.S. manufacturing to produce high-performance drive motors for hybrid electric and electric vehicles. Matthew Bates, a Plant Manager, says Toshiba’s motivating need was to be closer to their primary customer. A skilled and highly trained workforce was also critical, along with the need to maintain or reduce production costs.

After considering multiple locations and weighing tradeoffs, Toshiba settled on reconfiguring their existing Houston plant to accommodate the hybrid electric motor line. Their decision has paid off through:

• Shorter lead times (from six weeks to four days)
• Reduced currency risk
• Decreased shipping costs
• Decreased overall costs through eliminating duties, inventory holding and warehousing costs

“Not only are we saving money, but we have improved communication with suppliers, are more responsive to our customer, and have been able to preserve and even grow the Toshiba company culture in our Houston production site,” Bates said.

“Expanding in the U.S. has been a huge success for this product line and our company.”

SelectUSA is the government-wide initiative to promote and facilitate investment in the United States. Contact SelectUSA at http://www.SelectUSA.gov or +1-202-482-6800.

Rebecca Moudry is a Manager with SelectUSA, part of the International Trade Administration.

With the largest economy in the world, the United States has always been a natural choice for companies from around the world to invest and grow. But with increasing global competition, what are the drivers that continue to rank the United States as the largest recipient of foreign investment in the world?

Reading many local U.S. news stories, it may sometimes appear that financial incentives are the decisive factor in many international or domestic business location decisions, but business location experts and companies themselves indicate that incentives, though important, are seldom the sole or even primary driver in a company’s strategic decision regarding where to locate operations.

According to information collected by fDi Markets, financial incentives (including tax or funding incentives) have played a minor role in company location decisions over the last nine years and are decreasingly important. Between 2003-2006 only about 10 percent of foreign companies that invested in the United States identified incentives as a primary motive or determinant for their U.S. investment decision. From 2007 through 2012, that number dropped to just below six percent of companies citing incentives as a motive for investment.

Proximity to customers and the growth potential of the U.S. market continue to be the most important motives cited by companies of why they invest in the U.S. In the last few years, the availability of a skilled workforce has grown as a critical determinant for company location; from 2003-2006 to 2007-2012, that factor grew by nearly 70 percent. In 2007, companies began citing a favorable business climate as a motive for investing in the U.S. some 152 percent more than in 2003-2006.

SelectUSA, located within the International Trade Administration of the U.S. Department of Commerce, leads the federal government efforts to promote the United Sates as the premier global investment destination and facilitates investment in the United States. SelectUSA provides information assistance to the global investment community, serves as an ombudsman for investors, and advocates for U.S. cities, states, and regions competing for global investment.

Contact SelectUSA at www.SelectUSA.gov or +1-202-482-6800.