U N D E R S T A N D I N G T H E F O R E I G N. Marc Beauchamp. November 1 st, 2016

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1 RETAINING AND INCREASING CANADIAN FDI U N D E R S T A N D I N G T H E F O R E I G N I N V E S T O R S C U R R E N T P E R S P E C T I V E Marc Beauchamp November 1 st,

2 Corporate Service Offerings Investment Project Strategy Readiness Assessments Diagnostic Head Office Strategy Acquisitions Financing Incentives Equity Venture Capital Implementation Site Selection Incentives Cost Analysis Decisional Matrix Maximizing Project Value 2

3 General Facts Toronto Montreal New York $10 billion in capital investment projects 27,000 jobs created and retained in the private sector 125 economic development agencies and jurisdictions in North America 3

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6 Attracting and Retaining FDI Constant Battle Between Perception and Business Needs Branding vs. Delivering

7 CAI s Site Selection Process Strategic Assessment Location Screening, Modeling & Benchmarking Cost Comparison Community Evaluations Implementation Phase 1 Phase 2 Phase 3 Phase 4 Phase 5 Information & sales packs Investment plans Policies and incentives Procedures and requirements Progress and achievements Image Building Targeting Lead Generation Advertising and PR Information & marketing Missions & events Company targeting Company visits Follow-up Information provision Assistance with contacts One-stop-shop services Assessment of manpower, infrastructure, service needs Follow-up Servicing Investors Aftercare and Policy Advocacy Continued account executive attention Ombudsman role and trouble-shooting function Follow-up on manpower, infrastructure, service needs

8 Critical Moments in the Decision Process Company Action Business evaluation and assessment of search area EDO Action Relevant branding that gets you on the list Company Action Evaluation locations Company Action On-site evaluations EDO Action Website and marketing that educate EDO Action Professional site visits and answering business needs Company Action Final choice EDO Action Engaging the business community Source: The CAI Global Group, 2015

9 Critical Moments in the Investment Decision Process 1. Getting on the radar Branding your community 2. Beating the competition Delivering on your promises 3. Winning a reinvestment Answering current and future needs Perceptions Needs

10 The Investor s Decision-Making Process The foreign investor will look to what will satisfy and suffice satisficing * Looks for value-added information as early on as possible Reduces costs of search and will seek something that is good enough, something that is satisfactory Limited attention to the site search. Not only can they not get access to all the information required, but even if they could, their minds would be unable to process it properly Sticks to preconceived ideas and known information. The human mind necessarily restricts itself; it is bound by cognitive limits * Derived from Herbert A. Simon s theory of bounded rationality, Nobel Prize Winner, 1978

11 The Investor s Decision-Making Process

12 C r i t i c a l M o m e n t 1 : Market your community to have the opportunity to compete G e t t i n g o n t h e R a d a r - B r a n d i n g yo u r C o m m u n i t y Draw out the attention of the investor Create or modify an impression

13 U.S. Executives Perceptions of Canada s Business Climate Source : U.S. Executives Perceptions of Canada s Business Climate, Development Counsellors International, 2013

14 Source: Ericsson Communications, Internal Newsletter, 1990's

15 Critical Moment 1: Getting on the Radar - Branding Your Community Once site identified 6% Final list: decision stage 13% First Point of Contact with the Community Never 17% At the beginning of search process 24% Why develop a branding of your community? 75% of investors will make an initial decision before contacting any economic developer 36% will have a final list before any outreach to a community Their decision will be based on their perception, what marketing message got to them and what they believe your community has to offer After shortlisting 40% Source: Winning Strategies, A view from Corporate America, Development Counsellors International, 2014

16 Critical Moment 1: Getting on the Radar - Branding Your Community Source: Winning Strategies, A View from Corporate America, Development Counsellors International, 2014

17 Getting on the Radar: Promotional Tools and Prospecting 80% % 60% 50% 40% 30% 20% 10% 0% Internet/Site Web Visite Planned planifiée visits to Internet/ website de corporate dirigeants executives Media Relation relations/ média/publicité publicity Hosting Évènements special spéciaux events Trade Exposition shows Advertising Promotion Envois Direct postaux mail Telemarketing Source: Winning Strategies, A View from Corporate America, Development Counsellors International,

18 Getting on the Radar: Promotional Tools and Prospecting Social media platforms EDAC members are using (% of respondents) Social Media and FDI Like other professionals, economic developers are adopting social media: The case for why social media is an important tool for economic developers has been made. Social media tools provide timely, engaging, interactive, targeted and low-cost ways to market a community, gain information, and communicate and build relationships with stakeholders. However, as with other programs or services offered by economic development agencies, to be truly effective, it is critical to have a strategy in place. If we are not having conversations, we are not making a difference, Wright, 2012 Source: Economic Developers Association of Canada, 2014

19 Critical Moment 1: Getting on the Radar Branding Your Community It s hard work Consists of leveraging a multitude of platforms and technologies Receiving political support Planning small steps

20 Getting on the Radar: Promotional Tools and Prospecting EDAs must work on their brand if they are seeking success with their marketing tools Breaking through the clutter is difficult without a brand. It is no longer sufficient for agencies to tell the world that their region is the best choice to invest in Agencies must consistently illustrate why the region is the best option to invest in by using key brand attributes that must be substantiated with accurate & updated content Branding your community (region or province) must be a coordinated effort with all stakeholders involved in attracting FDI

21 C r i t i c a l M o m e n t 2 : B e a t i n g t h e C o m p e t i t i o n - D e l i v e r i n g o n yo u r P r o m i s e s Investment readiness Understanding the motives of the investor

22 Beating the Competition: Delivering on your Promises Motives underlining a foreign company s investment into Canada: Not always a substitute to an investment in their home country A logical next step in a growth strategy Closely linked to a business strategy Market proximity Resource needs Efficiency requirements Strategic asset-seeking

23 Beating the Competition: Motives for Investment Source: Adapted from UNCTAD (1998), Dunning (1998, 2000, 2004) 23

24 Beating the Competition: Motives for Investment Resource-seeking Efficiency-seeking Strategic Asset-seeking Market-seeking Market-seeking Resource-seeking Efficiency-seeking Strategic Asset-seeking Source: Invest in Canada, Investment Strategy and Analysis Division, Office of the Chief Economist Global Affairs Canada, 2016

25 Beating the Competition: Investment Readiness Out of the 10 most important site selection factors, 8 are related to your community or region Source: 29th Annual Survey of Corporate Executives, Area Development, 2015

26 Beating the Competition: Delivering on your promises At the end of the day, investors are not investing in Canada, they are investing in your community Investment readiness becomes increasingly important for all EDOs looking to attract FDI 26

27 Beating the Competition: Investment Readiness Investor has limited attention to the site search Unable to process the information properly Condition Qualifying NAICS OK/DNQ OK State of Oklahoma Incentive Summary Project Name: Project Stone State Incentives 1b Alternative to Quality Jobs Incentive Investment Tax Credit $232,750 Five Years Eligible new manufacturing investment earns a credit of 1% each year for five years (total of 5% of investment). Project: Project Stone Sales and Use Tax Exemption on Energy Used in Manufacturing Jobs 58 Output per Worker $210,000 Expected Sales using Industry Averages $12,180,000 Energy Cost (Utilities) to Sales Ratio 1/62 Expected Energy Cost $195,963 Sales Tax 8.70% Tax Savings $17,049 This preliminary profile suggests annual savings from sales and use ta $17,049 DISCLAIMER The materials contained in this document have been prepared by the Oklahoma Department of Commerce for informational purposes only and do not constitute legal or tax advice. This information is subject to change based on judicial interpretation and legislative action. The application of the information is subject to your unique facts Sales and Use Tax Reimbursement on Construction Materials $0 One-Time Applies to manufacturing firms with new building investment of at least $5 million. 2 Five Year Property Tax Exemption $176,693 Five Years Real and personal property used in the manufacturing process earns a five year abatement assuming a minimum of $250,000 in investment and $250,000 in new payroll in counties with a population of 75,000 or less, additional payroll of $1,000,000 is required for larger counties, OR certain computer service companies already in the program with $7,000,000 investment. 3 Sales and Use Tax Exemption on Machinery and Equipment $404,985 One-Time Valid at all times for machinery and equipment purchased for use in the manufacturing process. Includes replacement parts as well as new equipment. 4 Freeport (Inventory) Tax Exemption $16,757 Annual Firms able to move inventory through their facilities within a nine month period are able to avoid property tax liability on imported items. 5 Sales and Use Tax Exemption on Goods Consumed in ManufacturingEst. Available Annual Includes tangible personal property used in the manufacturing process as well as primary and secondary packaging materials. 6 Sales and Use Tax Exemption on Energy Used in Manufacturing $17,049 Annual Includes all fuel and electric power used in the manufacturing process. ESTIMATED TOTAL VALUE OF STATE INCENTIVES OVER TEN YEARS: * With 1a, Quality Jobs Cash Incentive $919,737 * With 1b, Investment/New Jobs Tax Credit Package $1,152,487 ESTIMATED TOTAL VALUE OF STATE AND FEDERAL INCENTIVES: * With 1a, Quality Jobs Cash Incentive $919,737 * With 1b, Investment/New Jobs Tax Credit Package $1,152,487

28 Beating the Competition: Investment Readiness Investor looks for value-added information as early on as possible

29 Example: RFI Response Devaluing the Region The RFI response and communication with investor and site selector must be strategic and tie-into the efforts of selling the attributes of the community If the proposed site can not meet the criteria, the RFI response should outline the solutions, how and when Collaboration between the federal, provincial and local governments as well as educational institutes and other stakeholders are key and to leverage an RFI response Case: Project in Food Processing looking at the US and Canada Response to an RFI included claims like we have no incentives and our sites do not have the availability of water and sewer capacity necessary for this project Reality: The infrastructure improvements could be paid for using an existing development program Site was located in a province that ended up putting together a $33 million incentive package

30 C r i t i c a l M o m e n t 3 : W i n n i n g a Re i n v e s t m e n t - A n s w e r i n g C u r r e n t a n d Fu t u r e N e e d s Answering current and future needs

31 Winning a Reinvestment Company has worked with you to complete their investment project Company evaluates its experience; how you kept your promises and met its needs Impression you leave will play a role in your ability to support them in the future, and secure a reinvestment Retention and expansion of a business in your jurisdiction depends on your capacity to develop your community «A business cannot remain healthy in a sick community» Source: Andrews, K., The Concept of Corporate Strategy, 1980

32 Winning a Reinvestment Factors that cause relocation: High taxes 44% Excessive government regulations 29% Labor availability 26% Labor costs 24% Poor infrastructure 24% Quality of life concerns 21% Healthcare costs 15% Source: 29th Annual Survey of Corporate Executives, Area Development, 2015

33 Winning a Reinvestment Reinvestment and retention dynamics: Decision-making process; structure of organization; internal competition between subsidiaries Local leaders become important in the process (e.g., Remember Ericsson) The EDOs focus must be on the ability to answer the investor s current and future needs

34 Positive Negative Decision-Making Process Behaviour of the head office towards subsidiary initiatives Neutral and paternalistic Missed opportunities Conflictual Synergy and creativity Passive Behaviour of the subsidiary executives Entrepreneur Birkinshaw (1995). Encouraging Entrepreneurial Activity in Multinational Corporations Business horizons. Likely Forms of the Parent-Subsidiary Relationship

35 Best Practices Identify the strategic foundation of the company in your community Anchored Interconnected Local Comparative Advantages Ineffective Advantaged Local Strategic Importance Source: The CAI Global Group, 2015

36 Best Practices Understand Your External Environment Access to resources Proximity to market Resourceseeking Anchored Strategic assetseeking Interconnected Access to resources Proximity to market Labour (cost, quality) Business community Local industries Transport/distribution Labour (cost, quality) Available incentives Tax benefits Education Marketseeking Ineffective Efficiencyseeking Advantaged Labour (cost, quality) Business community Local industries Transport/distribution Source: The CAI Global Group, 2015

37 Conclusion Branding and marketing sometimes has more to do with how the investor thinks than the message you want to relate. No longer sufficient to tell the world you are the best choice to invest in Requires the use of different technological platforms and the ability to provide added value The attraction of FDI for Canada involves a multitude of stakeholders who must work together Investment Motives Investment Factors

38 Conclusion Once Canada is on the radar, the investor will look to the community to evaluate the investment factors (8 out of 10 factors are local criteria) and will make a decision; communities have the responsibility to be investment ready Winning a reinvestment requires the ability to identify the positioning of the subsidiary based on its external environment (Local Strategic Importance and Local Comparative Advantages)

39 THANK YOU Marc Beauchamp, Vice-President and Partner , ext. 224 I m.beauchamp@caiglobal.com