Game On: The Race for Foreign Investment Gold
New strategies are emerging in the global competition for investment and economic gains.
Recovery has given way to resurgence. At least that’s what indicators and forecasters say about the world’s economy in the wake of the worst recession in decades. Trade and investment followed two years of steep declines by returning to growth in 2010, and flows continue to gain momentum. But such success is occurring amid a quickly evolving global economic landscape that is far different than that of just a few years ago.
Emerging markets are faring better than their developed counterparts in attracting foreign direct investment (FDI), as advanced economies battle unemployment, weak demand and rising debt, among other challenges. Today, the emerging powers, from Brazil to China, are major drivers of the global economy. And tomorrow, even more up-and-coming regions will gain greater shares of the growth picture.
According to IBM’s Global Location Trends report, the turbulence of recent years has had a major impact on corporate location decisions. Companies are rethinking their business strategies and models, and repositioning themselves in the increasingly integrated global economy. Location decisions will play an increasingly important role in corporate strategy due to changes in the global market, talent and cost efficiencies, according to the IBM report.
For city and national leaders in both the developed and the emerging economies, the changing environment presents new challenges in attracting and retaining companies and jobs. More than ever, attracting foreign investment requires regions to focus on their economic strengths and weaknesses, and to target their competitive sectors in their investment and promotion efforts.
Klaus Schwab, founder and executive chairman of the World Economic Forum, commented recently on the changing environment:
“Policy-makers are struggling with ways of managing the present economic challenges while preparing their economies to perform well in a future economic landscape characterized by uncertainty and shifting balances,” Schwab said. “In such a global economic environment, it is more important than ever for countries to put into place the fundamentals underpinning economic growth and development.”
From the emerging economies to the developed world, the battle for investment is on.
Berlin Draws Big Bucks in Life Sciences
One of the terms René Gurka, managing director of Berlin’s official promotion agency, uses to describe business in Berlin is “fast-moving,” and the same can be said of the atmosphere around his office over the past year. In 2010, Berlin Partner GmbH provided assistance to 105 companies locating to Berlin or expanding their existing operations, supporting the creation of 4,540 new jobs and $356 million in investments. Additionally, his office worked jointly with the ZAB Brandenburg Economic Development Board in the surrounding federal land of Brandenburg to bring in seven more companies, for another 234 more jobs and $78 million.
The investment figures are more than double that of 2009, when Berlin Partner brought in 77 businesses with 2,020 jobs. Even that year, during the depth of the economic crisis, Berlin defied the global crisis with 1.7 percent growth.
“Diversity and innovation are the keys,” Gurka says, adding that the research-driven environment in Berlin is concentrated in the life sciences, ICT, creative industries, clean-tech, services and tourism sectors. “These industries were hardly affected by the financial crisis at all,” he says. “The real estate sector in Berlin is stable, even growing, and Berlin is by far not as dependent on the financial sector as other European cities like Frankfurt or London.”
Among the projects arriving in Berlin in 2010: Mercedes-Benz Bank moved into the Königstadt Carrée at Alexanderplatz with plans to create up to 700 new jobs. Pfizer subsidiary Wyeth brought 200 positions to the city. The U.S.-based Sykes Enterprises, one of the world’s leading providers of integrated customer service management solutions, opened its 22nd call center worldwide in the city’s Friedrichshain-Kreuzberg district, planning to employ some 600 people. In bringing its supply chain management center to Berlin, ThyssenKrupp Elevators will be hiring 50 employees. Florida Eis, a well-known Berlin ice cream manufacturer, created 40 new jobs in its new production plant in the district of Spandau. Vistaprint, a leading U.S. online provider of graphic design and customized printing, opened a print service bureau. And U.S.-based COGO Optronics is developing products for the global market at its new plant in Berlin, where it has invested around $11.7 million.
And the list goes on.
“Only one day ago I met with Google,” Gurka says in an April interview. “They plan to establish a research institute in Berlin together with Humboldt University.” The American company will reportedly strengthen its sales and engineering presence in Germany while partnering with academic institutes to research Internet-based innovations, regulatory frameworks and the connected copyright issues.
Berlin sees an average of 11 FDI projects for every million inhabitants, attracting twice as many cases of direct investment from abroad as the national average. Its fastest-growing sectors during the past few years have been the life sciences, creative industries, services and tourism, a trend that Berlin Partner expects will continue in the years ahead. Biotech companies like Noxxon Pharma AG and Caprotech have been attracting more venture capital, as have web 2.0 companies such as Research Gate and Soundcloud, both tied to Silicon Valley.
There are no signs of slowing down in Berlin, where orders and sales in construction and heavy industry are higher than a year ago, according to the city’s economics division. Growth for Berlin in 2011 is expected to come in around 2.5 percent.
Israeli Economy: Picture of Resilience
The global recession was nothing more than a mild downturn for Israel, whose sturdy economy managed to weather the crisis thanks to sound macroeconomic fundamentals and strict fiscal policies. The IMD World Competitiveness Yearbook ranked the Israel economy highest for its durability in the face of the financial crisis, and rated the Bank of Israel first among central banks for its efficient functioning. After a two-year slowdown, the nation’s GDP grew by 4.6 percent in 2010, exports were up 40 percent, and unemployment and inflation dropped.
Multinationals have continued to invest in Israel, thanks both to the government’s business-friendly policies and the growing competitiveness of the economy. Consider that Microsoft and Cisco both built their first R&D centers outside the U.S. in the Tel Aviv region; Motorola’s Israel facility there is the company’s largest development center worldwide; IBM chose the Haifa region for its first VC investment outside the U.S.; Intel has four R&D facilities and two manufacturing centers throughout Israel, employing 7,000 locals; and Google opened two R&D centers in Haifa and Tel Aviv.
Why such an attraction from foreign investors?
“The general reason is the unique ecosystem of the country,” said Yoni Ben-Zaken of the Investment Promotion Center at the Israel Ministry of Industry, Trade & Labor. This includes Israel’s “superb educational opportunities,” its network of industrial parks, modern R&D facilities, high-tech incubators and thriving industry.
The fast-growing economy, upgraded in 2010 from an emerging to a developed market by the MSCI Index, has become increasingly globally-oriented and technologically advanced, displaying high-tech capacity in telecommunications, information technology, electronics and life sciences, the latter producing a wealth of groundbreaking and valuable innovation over the last decade. The life sciences sector is supported by a foundation of academic excellence, including some of the world’s leading research institutions, renowned R&D facilities and cutting-edge medical centers. Joining Israeli companies such as Teva, Given Imaging Insightec and Medinol in this high-tech environment are global giants such as Johnson & Johnson, Perrigo, GE Healthcare and Phillips Medical.
The continued local and foreign investment can be partly attributed to support from government agencies, a network of technology incubators and an active private venture capital system. Israel provides extensive support for new technologies and assists further development in the more traditional industries. Its new Encouragement of Capital Investment law sets corporate taxes between 6 and 12 percent for eligible companies, placing the nation among the most competitive locations for tax structure and incentives for the exporting industry.
“I believe that foreign companies should be aware of the many incentives of the ministry. They are tailored to suit the investor, investing at different stages,” Ben-Zaken said.
To strengthen the financial services IT sector, the ministry recently launched an innovative support program directed at attracting foreign multinational financial and banking corporations. Through the Competitive Advantages Plan, companies creating new financial R&D centers can receive upfront grants of 40 percent of approved budgets for the first two years, followed by 30 percent and 25 percent. Projects set up in Israel’s periphery in the north and south can receive grants of up to 50 percent.
One company that has already taken advantage of the Competitive Advantage program is the Barclays Capital investment bank, which has announced plans to open a technology R&D center in Tel Aviv. The operation will supply development and engineering services to support the company’s international financial activity. Barclays plans to hire 200 Israeli employees trained in technology and finance.
Foreign interest is expected to remain significant for Israel, a small country whose liberalized economy now stands out as one of the world’s most competitive.
Barbados is a Global Entrepreneurial Hub
Barbados: The No. 1 entrepreneurial hub in the world? That description is feasible by 2020, according to a group of senior executives from Barbados and other territories that have organized to achieve that goal. And in doing so, the newly launched Barbados Entrepreneurship Foundation has set up a strategy consisting of five pillars—business facilitation, financing, government policy, talent education and mentorship and networking. Among the key goals are creating an enabling environment for enterprise in Barbados, first by ensuring that the island has 100 percent Wi-Fi access by Nov. 11, 2011, matching new businesses and entrepreneurs with seasoned businesspersons for mentorship, and increasing the availability of equity and debt financing options to SMEs in Barbados.
The foundation will measure its success by having Barbados ranked among the top 20 world’s most competitive countries; bringing its GDP per capita from $13,000 to $26,000 by 2020; growing the island’s annual revenue to $5 billion for global companies, with $50 million annual turnover; and achieving significant increases in the productivity index.
Such is the latest signal of Barbados’ growing ambition to become an international business center. The nation, ranked fifth-highest for FDI among the world’s small island states, boasts a welcoming and business-friendly environment, with unique legal, tax, logistics and human capital advantages for growing companies.
The 166-square-mile island, the most easterly in the Caribbean, is home to more than 4,000 transnational companies. Although agriculture and tourism continue to be critical pillars of the local economy, Barbados’ other targeted growth sectors include international business, financial services and light manufacturing. The island has been able to attract international manufacturers of high-tech products and equipment that generally are neither price-sensitive nor large, so that freight is not a major factor. Florida-based Lenstec Inc., for example, has a manufacturing facility in Christ Church where it produces intra-ocular lenses for cataract replacement, and Pyramidal Technologies selected the island for the manufacturing of its new ballistics testing system, ALIAS.
The nation is boosting efforts to attract biotech companies and build on a current inventory that includes Ontario-based pharmaceutical firm Biovail Laboratories International SRL. The government recently announced plans to create a state-of-the-art laboratory for R&D initiatives and form an oversight agency to establish and regulate research.
“We intend to make Barbados the destination of choice for innovative biotech companies that are prepared to submit to a stringent regulatory process but also want to bring their ideas to the marketplace as quickly and cost effectively as possible,” says Wayne Kirton, CEO of Invest Barbados.
The biotech project will be run by a public-private joint venture on land provided by the government and capital from private industry. The new research facility is to include both private and shared labs, equipment, offices and administrative resources. Construction is hoped to be completed by late 2012. Kirton says companies considering Barbados should contact his agency now and may still be able to influence decisions regarding the future entity.
Southern Hemisphere’s Economic Powerhouse
When President Barack Obama visited Brazil in March for an historic business summit set up to strengthen economic ties between the two nations, he mentioned the age-old prediction that Brazil is “the country of the future.” That future, he said, has arrived. Indeed, Brazil has emerged over the last decade or so as one of the world’s major financial and economic powers.
Latin America’s largest market, Brazil is now the world’s seventh-largest economy, and a resilient one at that. The country was the last to enter the recession and the first to exit it. Thanks in large part to its commodities exports, Brazil saw a 7.5 percent increase in GDP in 2010, representing the highest level of growth since 1986, and continuing a cycle that began in 2007 with 6.1 percent growth and 2008 with 5.1 percent. The financial crisis limited expansion to 0.6 percent in 2009.
“The 2010 growth rates demonstrate that the Brazilian economy is growing at a significant and sustainable pace, which supports the country’s plans for long-term investment projects,” Finance Minister Guido Mantega said in a statement in March. “The performance of gross fixed capital formation and the domestic market, along with a low and stable inflation rate, suggest that high levels of growth will be maintained over the coming years.” The Central Bank of Brazil’s latest survey of economists estimate growth of 4.5 percent this year.
Such gains—in the face of sluggish rebounds throughout the developed world—demonstrate that Brazil is now among the major engines driving the global economy.
And a growing number of foreign investors have been seizing business opportunities around the country. Data from the central bank shows that FDI flows have been growing in recent years, reaching a record $48.5 billion last year. Notably, Brazil’s IT-BPO market has grown in recent decades to become the world’s eighth-largest internal market in this sector. A quickly growing location for offshoring of Indian IT and BPO service providers, projections have Brazil’s IT services exports now at $5 billion and potentially rising to $20 billion by 2020.
While tourism, oil and gas and electronic components are other target areas for growth, the nation has a quickly developing biotechnology and health care industry thanks to a skilled workforce, the existence of technology parks, joint efforts with universities and financial incentives. More than 1,000 companies operate in the life sciences segment alone, making Brazil the Latin American center for the industry.
Oil and gas production in Brazil is expected to more than double in the next 10 years. This, according to the investment promotion agency Apex-Brasil, will demand heavy investments in the construction of maritime support ships, drilling and production units, as well as in the development of the subsea equipment and services subsector.
Obama, in an effort to create business opportunities between the U.S. and Brazil, announced during his March visit that the countries would seek to expand trade and investment, promote economic cooperation, streamline regulations and launch a new partnership to work together on biofuels. “In the last two centuries, there has never been a moment of greater promise for Brazil,” he said. “You now have the seventh largest economy in the world, and one of the fastest growing of any country.”
Bavaria is Growing Cluster by Cluster
Terms like “network” and “cluster” are far more than buzzwords in the German state of Bavaria, where companies, schools, associations and political groups have been working together to grow the economy of Germany’s largest state. And when these clusters work, they do wonders to generate productivity and growth.
A case in point of such synergy is Bavaria’s satellite navigation sector, a network of research, industry and service providers that includes Galileo Industries’ headquarters in Munich, along with some 50 specialized enterprises, the German Aerospace Center, two universities, state and federal armed forces involvement and several innovative service providers. The whole value chain is here, from information technology and telecommunications to software and chip development. And, in turn, as this satellite navigation cluster grows, it nurtures other sectors, networking through cross applications with companies in the automotive, logistics, IT and tourism industries.
But satellite navigation is just one example of 19 fields that Bavarian officials have defined as clusters—regional networks that interlink business and science to activate innovation and productivity. These include, among others, aerospace, logistics, automotive engineering and railway technology, chemical engineering and nanotechnologies, ICT, financial services, power electronics, biotechnologies and energy.
“Cluster management brings together thought leaders in their respective fields of expertise,” says Martin Zeil, Bavarian minister for economic development, infrastructure, transport and technology. “This strategy fosters innovation, productivity and economic growth within these clusters, allowing the development of new products and processes.”
Zeil says the cluster initiative is already successful. Notably, Munich’s Biotech and Pharma Cluster has been recognized for its excellence in personalized medicine, and the Center of Excellence for MedTech of the Medical Valley in Nuremberg is seen as a model region for healthcare in Europe.
“The clusters have succeeded at developing close strategic cooperation between companies and universities, fostering joint research projects and forming new companies and new jobs in the region,” Zeil says. “The cluster initiative will have an increasingly substantial economic impact in future years in Bavaria, as the ties between our companies, universities, research institutes and government organizations continue to flourish.”
The strategy appears to be a winning one for Bavaria, which overcame the economic crisis by posting GDP growth of 3.9 percent in 2010, driven by innovative capacity in industry. The primary driver behind the state’s economic growth is its hypercompetitive high-end manufacturing sector, whose output increased 12.9 percent in 2010.
“Bavarian companies were able to ramp up quickly as demand rocketed in response to stimulus programs around the world,” Zeil says. “Employers Germany-wide approached the crises by making use of federal programs to keep their workforces intact.” These included the so-called “short work” program that allows companies to retain their skilled workers at reduced hours while the government makes up most of the lost wages.
Reports from economic research institutes predict further growth in Bavaria this year, with some anticipating a 3 percent expansion. New jobs are signaling confidence, with BMW and Audi expected to hire thousands of workers this year to develop electric vehicles and expand factories to deal with increased demand. Bavaria has also strengthened its competitiveness in global markets, with unit labor costs down 15 percent over the last decade due to labor reforms and productivity increases.
And the international business community has taken note. Over the past year, Australian global real estate company Goodman constructed a logistics center near the Munich Airport for the DSV Group, Denmark’s largest shipping and logistics company. Grocery retailer EDEKA invested 100 million euro in a state-of-the-art logistics center in Landsberg am Lech that will employ 300. Speaking of logistics, in March, Bavarian officials announced they had won one of the biggest investment projects of recent years—U.S. online retailer Amazon plans to operate a logistics center in Graben, creating up to 1,000 long-term jobs and 2,000 seasonal positions at peak times.
Solar energy is one industry that will play a key role for Bavaria in terms of future investment. A range of high-tech companies based locally have formed the Desertec consortium with plans to build solar power generation plants on a massive scale. The project, which could see an investment of 400 billion euro by 2050, is headquartered in Munich. Meanwhile, Solimpeks Solar Energy Corp., Turkey’s leading manufacturer of solar energy systems, recently opened its first foreign branch in Munich. And Sud-Chemie AG invested 28 million euro in a research-related project in renewable energies at the BioCampus in Straubing. The company plans to construct Germany’s largest facility for obtaining biofuels from straw.
Austria Enjoys Spike in International Investment
With advantages including its central location in Europe, business-friendly tax system and its No. 5 ranking worldwide for the quality of its skilled labor, it’s no wonder Austria’s economy has enjoyed a major upswing since the global slowdown. Growth last year was up 2 percent, and projections are calling for 2.5 percent this year. National investment promotion agency ABA reported an impressive 25 percent rise in international investments in 2010, representing its third best year in the company’s history. The agency worked with 198 foreign companies setting up business operations there, bringing $322 million (USD) in investments and 1,383 new jobs.
Recently, Durst Phototechnik of the Italian province South Tyrol invested nearly $22 million in a new research center in Lienz; Refrion, a Udina, Italy-based manufacturer of heating systems, established a production facility in Hermagor, Carinthia; and Colorado-based Webroot Software Inc. located a research hub in Linz, representing the second R&D location outside the U.S. for the Internet security systems company. And the projects have continued to come.
“On the basis of a portfolio of 664 projects ABA is processing at the present time and its special business promotion initiatives Research Location Austria, Headquarters Location Austria and Strategic Business Location, we expect further moderate growth this year,” says René Siegl, ABA’s managing director. “However, the required macroeconomic basis does not exist yet which would enable us to once again repeat our performance of the record year 2008.”
Germany has maintained its position as Austria’s biggest investor, and in 2010 accounted for 42 percent of all projects. ABA helped 83 German firms set up business operations, up 56 percent from the prior year. Siegl expects the trend to continue, noting that the investment agency began this year with 155 open German investment projects. Forty-five of the companies that located in Austria last year were from countries in Central, Eastern and Southeastern Europe.
And while Italian company investments were down, accounting for 17 new projects, Austria is seeing increased interest from BRIC countries. Some 21 investment projects came from Brazil, Russia, India and China. This was led by 13 projects from Russia and four from Brazil, including Vale, a raw materials company setting up in Salzburg.
There are a variety of regionally targeted industry sectors in Austria —financial services in Vienna; glass and wood manufacturing in Tyrol; iron, steel, chemical and mechanical engineering in Upper Austria; and electronics in Salzburg. But the overall Austrian landscape is shaped by innovative small- and medium-sized enterprises. According to Christoph Leitl, president of the Austrian Federal Chamber of Commerce, the nation’s industrial sector maintains a high share of the economy, but there is great promise for the services sector, with future-oriented fields such as power engineering and environmental technology playing a major role.
Austria has a natural asset in its location bordering no fewer than eight countries. Every destination in Europe is reachable within a three-hour flight. This helps explain why some 300 international companies, including 28 Fortune 500s, have set up their Central Eastern European headquarters in Austria.
Renewed Economic Focus in Wales
Small, welcoming and full of character are a few ways that have been used to describe Wales. These days, another would be a thriving knowledge economy.
More than 6,300 international companies, mostly from North America, Japan and the European Union, are doing business in the nation, adding to its impressive supply chains across various industry sectors. Once heavily industrialized, the UK nation has undergone enormous changes in recent decades, and the result is a new economic face and a recently renewed focus. Thanks in part to its 10 universities producing about 5,000 graduates in business and ICT disciplines, Wales has become a rapidly growing financial services location, where local businesses compete alongside major financial services firms such as Zurich, GE, GMAC and Legal & General, whose largest UK office is in Cardiff. The country’s financial services sector employs over 32,000 people in 1,800 companies, according to the Welsh Assembly Government.
Wales also now has one of the UK’s largest sustainable technologies sectors, employing more than 40,000 and covering areas from sustainable building to environmental sciences. It is home to Npower, one of the UK’s leading renewable energy developers, home and business energy supplier EDF Energy and others. The growing automotive sector employs over 20,000, with Ford and Toyota among more than 170 automotive companies setting up shop.
The emerging aerospace and defense sector here includes companies like Cassidian, BAE Systems, British Airways, Airbus UK and General Dynamics. General Dynamics has two sites in south Wales and is looking to expand to a third, adding to the 1,600 currently working for its UK operation. Other notable sectors in Wales include ICT, with over 1,200 operations and 33,000 employees; and the life sciences, accounting for 330 companies with 15,000 people. Recent highlights of the latter sector include Siemens Healthcare Diagnostics Products relocating the majority of its manufacturing and distribution operations from Los Angeles to Llanberis, North Wales; and Biomet basing its largest European subsidiary and UK headquarters in Bridgend, South Wales.
The Welsh government recently unveiled a plan for economic renewal calls for a new approach to better meet the needs of business, including investments in high-quality and sustainable infrastructure, encouraging innovation and targeting its business support. Support will be focused on the six key sectors of ICT, life sciences, financial and professional services, energy and environment, advanced materials and manufacturing and the creative industries.
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