August 14, 2019 - From the August, 2019 issue

World Trade Center LA CEO Stephen Cheung on Value of Attracting Foreign Direct Investment

Thanks in part to the region’s major ports, industry, and supportive administration, Los Angeles has long been a hub of international trade and global investment. However, an uncertain global economic environment has foreign direct investment in California on the decline. Despite the slow down, FDI remains a vital piece of the Los Angeles economy. In this interview, World Trade Center-LA President and LAEDC Executive VP, Stephen Cheung urges increased attention to foreign partnerships and strategic market analysis to ensure Los Angeles remains an attractive and competitive player in the global marketplace.


Stephen Cheung

"Other cities are telling our investors, ‘Los Angeles doesn’t want you, they’re difficult to do business with, and they don’t care about you. We do.’ Los Angeles needs to change that message."—Stephen Cheung

Let’s begin by focusing on trade, foreign direct investment and its impact on our economy. Obviously, the rules governing international trade are in flux: a new Prime Minister in Great Britain is facing a BREXIT deadline; China’s level of investment has dropped significantly both with the United States and California; tariffs and other issues have affected trade with Canada and Mexico; and, Japan’s FDI– there are 2,400 Japanese companies in California – are far less robust, with some companies leaving California.  You are charged by WTC-LA with decoding these trade challenges and creating a map for continued foreign investment. What does your FDI map look like?

Stephen Cheung: Well, we are analyzing the quickly transforming face of international trade in the Los Angeles region—one of the top leaders for international trade around the world. What’s happening here is actually a good indication of what’s going to happen around the world. We just released our new Foreign Direct Investment report at our SelectLA Investment Summit in June, and we saw that there is a decrease in the number of jobs created by international companies and that’s very concerning for us.

For example, the China trade tariff is having a direct impact on the Port of Los Angeles and Port of Long Beach. We’ve seen, in the first half of 2019, a six percent decrease in the volume coming through the Ports of Los Angeles and Long Beach. From China to California, foreign direct investment dropped from $15 billion in 2016 down to less than $400 million this past year. However, I do see that there are glimmers of hope. We are still a very stable market compared to the rest of the world, but we need to do a better job marketing our region on the global stage.

Some of the things we want to highlight are how Los Angeles is actually going to be the center for sports entertainment for the next 20 years. We are going to be hosting the Olympic Games for the third time in 2028, the Super Bowl in 2022, and the US Open in 2023. One of the things we need to get ready for is the technological advancements that are required, considering the last time we hosted the Olympic Games was in 1984.

For major stadiums, you have to look at ticketless mobile entry, cybersecurity, crowd control, and other technologies that are required to make sure that you have a seamless operation. We need to look toward our international partners who are already moving forward with these technologies. Japan is going to be a major factor there too, because they are getting ready for their 2020 Olympics, and they’ve already moved forward with great companies like Hitachi and Panasonic already providing a lot of these great technological advances. What we want to do is recruit them to Los Angeles, open up operations here, and be able to provide these services to our major stadiums and operators. We want to continue to ensure that our Japanese and international partners are seeing Los Angeles as the destination for their future investments.

Stephen, to clarify, are you implying that California can tout being an international leader in cleantech and environmental technology, as well as entertainment and sports; and that the former actually complement each other?

That is correct. Los Angeles continues to adhere to the Paris Climate Agreement, and it’s putting the city at the center of the environmental movement in many ways. On top of that, international companies can come to LA, open up their operations, and provide services locally. For example, Measure M is going to provide $122 billion dollars in transportation projects over the next 30 or 40 years, and many of these projects have to adhere to some of the most stringent environmental regulations in the world in order for them to be accepted. International companies that have water reclamation services, clean energy, or sustainability technology that can be utilized by Metro can secure a subcontract with contractors that are building these major rail lines and transportation networks. The crossover between cleantech, digital entertainment, and sports entertainment are intricately tied to each other.

Stephen, you paint a portrait of a region and a city on the cutting edge of world trade and investment, but in fact, its own investment in attracting foreign direct investment is probably lower than any other major metropolis in North America. What explains this?

I think it’s a bit of a shame. We are in this predicament where, in the entirety of the Los Angeles county region where 10.2 million people live, we literally have less than 10 people that are focused on international trade promotion. When we go to international events we often see other states or other cities with 30 or 40 staff members dedicated just to international trade.

I think the reason for this underinvestment in international trade programs is because we’ve always enjoyed international trade in the region, and have taken it for granted that companies will come here regardless of what we do. Why invest or spend more money creating a mechanism to attract international investment when they’re coming on their own? However, during the height of the recession in 2008-09, we didn’t see as many international investors coming in because they were going elsewhere.

By the time Angelenos started to realize the importance of international trade promotion the way many other regions do, it was already too late. These mechanisms and structures are dependent on public-private partnerships. Cities and the governments invest heavily in these operations to ensure a robust system to foster and grow international trade. Here it becomes very difficult because we don’t have a centralized system of government; we have 88 different cities and over 100 unincorporated areas in LA County alone, making for a very diffused government and leadership system.

Our newsletters have long resisted the notion that California needs to compete with Texas or Kentucky or any other place; we’re California, we’re special. What, if anything, has changed?

I think Los Angeles has become complacent and hasn’t really been keeping up with the rest of the United States, our partners, and our competitors. But, I think in recent years there have been a couple of major wakeup calls, specifically with our top investor, Japan. Nissan left us over Tennessee over a decade ago and then just a couple of years ago, Toyota decided to go to Texas, leaving Los Angeles with thousands of jobs in flux.

As we’re moving forward I think Californians, specifically Angelinos, need to pay more attention to these competitive factors, because now investors are seeing other options that they’ve never seen before. They’re more comfortable exploring other markets, and other states are more aggressive. If we don’t actually compete with them and create a market strategy and climate that’s open for business, it’s very easy for us to lose additional investment that should’ve rightfully been ours.

Has California’s new Governor and administration brought new attention and resources to FDI?. 

Governor Newsom has indicated that he is going to put more resources into international trade development, increase their staff capacity, and pay more attention. They’ve been reaching out to local economic development agencies and nonprofit partners to create a strategy to tie the state together so that we can be competitive as a unit. This united approach is really helping brand the California story; our marketing strategy is coming together. However, we could and should do a lot more than that.

These international partnerships and relationships don’t come out of nowhere; you have to invest in them. You have to create and maintain those partnerships. That’s why it’s very important for us to continue to promote the partnership between the private and public sector, to invest in creating more infrastructure and more capacity for organizations around the state. We need to create an environment to entice international investors to consider Los Angeles first and make sure we don’t lose out on these opportunities to other states that investors haven’t traditionally even considered.

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Elaborate on the current research WTC LA has published on the state of foreign direct investment—the latest focused on Canada FDI.

For the past five years, we have created the Foreign Direct Investment Report where we quantify the number of foreign companies located in the Southern California region. It’s a great report, however, it’s very superficial in its analysis. We quantify the number of companies that are located here from foreign countries, the job and wage impact that they have, and some basic analysis of the sector they belong to.

However, we don’t have a deep understanding of the trends in terms of where the investments are coming from, what sector they’re focused on, and, if they’re leaving, why they’re leaving. Having that deeper analysis will help us develop strategies to prevent more companies from leaving the region, retain the ones that are here, and help those that are already here grow. We can focus on the target industries of certain countries, so we can best match our companies to the available opportunities. We need to start focusing on understanding these trends and patterns. Without that insight, it’s really hard for us to create a strategy that’s effective.

Stephen, Los Angeles hosts the second largest number of consulates in North America. Why are they here?

Internationally, people know Los Angeles as the center for international trade. With over 18.7 million people living in the greater Los Angeles region, this is a large population. As Mayor Garcetti has said before, ‘Los Angeles is the most diverse location in the history of humankind.’ With diasporas and populations from around the world located right here, countries have to represent their populations and their nationals. That is why we have over 103 countries represented and 67 full-time consulates located here. They have invested their resources, and their governments have opened up operations, offices, and dedicated staff to establish strong relationships.

In my opinion, I don’t think we’ve done enough to reciprocate. In other cities, you see dedicated teams that are managing those relationships. Yes, the State Department of the United States has an office here to manage and help with transactions. But we have a handful of staff supporting all 103 consulates when we should have full teams dedicated to building and maintaining these relationships.

Also, when people think of international relationships, especially when they concern international business transactions, some folks locally view this as a negative. A lot of locals don’t understand that these international companies are contributing financially to our local economy—they hire local staff members; they buy local things—which helps our economy grow significantly.

Sometimes, there are negative comments and negative perceptions in terms of these international companies; we need to do a better job in educating the public to make sure that they understand the positive impact of the international companies and what they do for our economy. We have heard people say that international trade is killing jobs in the Los Angeles region, but according to our FDI Report, we have over 10,000 foreign-owned establishments that create over 425,000 direct jobs, contributing over $30 billion in wages annually to our local economy. Meanwhile, other cities are telling our investors, ‘Los Angeles doesn’t want you, they’re difficult to do business with, and they don’t care about you. We do.’ Los Angeles needs to change that message.

Over the last three years, Amazon has, through the promise of new jobs, enticed the economic and civic leadership of metropolises around the globe to compete for their investment. These places have marshaled their resources to masterplan how to attract Amazon. Unfortunately, the results of what has been locally planned have not been shared in any of those jurisdictions. Does WTC LA have a master plan for attracting FDI, and what could more foreign investment do to assure job growth for the next 25 to 50 years?

The honest answer is, no. I definitely think we need to put a master plan together.

In regards to the Amazon HQ2 Bid, many people around the world didn’t expect LA to make it on their list, let alone land in the top 20. However, what we should do is look at more than just the largest companies like Amazon, and focus on international companies from around the world—whether it’s Siemens or Japan Airlines. These international companies that are located here, if you combine their net hiring together, exceed what Amazon plans to do.

We should have a strategy to collect information about why we are such a great region to do business in, and why companies like Amazon are investigating and interested in us. If Amazon is considering LA, we should be going after other headquarters of major Fortune 500 companies from other regions. I think we’re a competitive market. We shouldn’t be just okay with the fact that companies are leaving this region. We should be attracting these companies back here to Los Angeles. If we have a comprehensive strategy, I think we’ll be successful.

A year from now, Stephen, if we should have the opportunity to do another interview, what could change? What might change re: FDI in Metro LA?

We are at an inflection point. I think the recent changes in the global economy have created a bit of an urgency that we haven’t seen before. People realize that the status quo is not going to be acceptable anymore. They also see the international competition for these businesses growing significantly. So, I think in a year’s time, you’re going to see public-private partnerships in the Los Angeles region create more synergies to create a more comprehensive strategy. Whether we can implement it within a year—that remains to be seen, but I think it will be a bit challenging.

 

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© 2019 The Planning Report | David Abel, Publisher, ABL, Inc.