August 11, 2020 - From the August, 2020 issue

WTCLA on Attracting & Retaining Foreign Direct Investment Post-COVID

The World Trade Center Los Angeles (WTCLA) recently released its Foreign Direct Investment in California, 2020 report, which assesses the positive employment impact of foreign-owned enterprises in the different regions of the state. TPR excerpts a WTCLA panel discussion moderated by GO-Biz Senior Advisor on Business Development and International Trade, Kaina Pereira—in which WTCLA President Stephen Cheung, President & CEO of Fresno County EDC, Lee Ann Eager,  GlobalSF Executive Director, Darlene Chiu Bryant, LAEDC Associate Economist Tyler Laferriere, Professor of International Business and Strategy at Loyola Marymount University Dong Chen discuss how global economic slowdown brought on by the COVID-19 pandemic has placed pressure on supply chains internationally and the possibilities for FDI considering eroded corporate confidence in offshore manufacturing.

Stephen Cheung

“To make sure that the world knows the various resources and advantages (California’s Regional Economies) have collectively,…our strategy has to be … to make sure that the world knows the various resources and advantages we have collectively… (and to) market ourselves as the tech, entertainment, trade, tourism, agriculture, sustainability, and cultural center of the United States.“—Stephen Cheung

Kaina Pereira: We learn a lot about the economy from trade patterns and other macroeconomic data. Does FDI data reveal something unique about our understanding of the economy?

Dong Chen: In general, both trade and FDI tend to promote economic growth. Trade is about the exchange of goods and services, and FDI is about the flow of financial resources and other production factors. They reveal different but related aspects of the economy.

FDI not only brings capital, knowledge, and employment, but it's also likely to stimulate domestic investment. FDI allows us to examine an investor's confidence in specific locations and industries. International investors are very sensitive to changes in the business environment. For example, with the increasing US-China tension, FDI inflow between the two countries shrank much faster and greater than trade.

Currently, because of COVID-19, many multinational companies are in crisis mode. According to the UN Conference on Trade Development, the COVID-19 pandemic will lead to a 30 to 40 percent decline in global FDI. Also, we have seen increasing restrictions on FDI in the United States. More stringent reviews are expected in critical business areas, including healthcare-related investments.

However, many multinational companies are preparing for this and adjusting their investment strategy, and FDI data will allow us to understand and better prepare for those changes.

Kaina Pereira: In recognizing the pandemic and the situation we're currently facing, how has the pandemic impacted investment flows? And, what are your strategies going forward?

Darlene Chiu Bryant: The pandemic has definitely, especially, impacted immediate inflows of foreign direct investment, particularly in restaurants and hotels. However, there is a greater shift into investing in the areas of biotech and healthcare. Actually, we're also seeing an uptick in cybersecurity, block chain, and even food tech.

In commercial real estate, the development continues. As you all know, the Bay area is probably the most expensive in the state of California and there continues to be interest from Asia, particularly from Taiwan. I would say that's probably because the relationship between Taiwan and the USA.  It's easier for the money to flow between the 2 regions.

We're going to see a focus on sectors that are becoming more localized, and we're actually encouraging more on-shoring. When companies are looking to get into the US market, we're suggesting that they actually onshore the manufacturing. We're providing more information and educating prospective investors virtually to do that.

Stephen Cheung: I'm going to highlight four industries in particular.

Transportation: In Southern California, traffic conditions have been horrible until recently. It's been amazing (due to the drastic decrease in traffic caused by COVID19), if you've seen the pictures of the 405; it's just mind boggling. Moving forward, I think we need to do more to reduce traffic congestion and invest in transportation and mobility solutions. We've already invested heavily in electric vehicles, so you see the EV infrastructure being developed right now: electric buses, electric cars, and electric planes eventually. Combined together, we need the support and grid systems, so that's going to be a huge opportunity for international companies to be able to invest in these technologies. We still have our Measure M (a local tax measure passed in 2018 that will generate about $122 billion dedicated to transportation projects). This is the largest infrastructure project in the history of the United States, and the spending will be solely focused in Los Angeles County. Those are all great opportunities for international investment.

Biosciences and life sciences: As we're moving forward, we're going to have to think about resiliency, so I think the biosciences and life sciences industries will continue to be a huge aspect for California, especially since we have the education institutions and talent pool to support and grow those sectors.

Digital media entertainment. It's not just about studios. Right now, due to being quarantined and socially isolated, people are desperate and eager for new shows and content. Whether it's Netflix, Hulu, or AppleTV, all of them have recently opened operations in Culver City of Los Angeles County.  These major Digital and Media Entertainment companies have selected Los Angeles because they are seeking for talent to support their growth, and they are lookin  for content (that has been developed and growing in Los Angeles over the past century) as well.

Lastly, it's a new-ish sector we've been looking at that we should've been doing for a long time - the ocean economy: Los Angeles is located right by the ocean, so we are looking at growing an industry that is supported by the ocean.  For example, we are exploring sustainable aquaculture and the potential for new food source from the ocean.  We are also investigating how climate change will impact our geography, and how rising ocean level will impact our infrastructure, like the Port of Los Angeles and Port of Long Beach. These are huge opportunities for international partners to work with us in Southern California, and across all of California. 

Tyler Laferriere: Sectorally, manufacturing is obviously on top. If you measured things by firm size and employment, it's manufacturing, retail, and wholesale trade, professional services, and financial activities—which doesn't just include banking, that's also real estate.

If you take a look at wages, then the story changes a little bit. You have to include the information sector as well, which includes anything from television and film recording to data management and warehousing. Maybe except for manufacturing, this really highlights a lot of the competitive advantages we have in the state in all these industries in terms of technology, innovation, and entertainment.

Now, looking ahead, we can't really avoid the COVID story.  On one hand, you could really see FDI be pulled back as a lot of firms start to make economies reduce risk and exposure, and cut back to make ends meet in the short term. You could also see a lot of reshoring as companies seek to shorten supply lines and minimize risk. This may imply a reduction in wholesale trade as an FDI industry, but an increase in manufacturing.

Dong Chen: Given the pressure to mitigate supply chain risks and increase the domestic production of essential goods, we do expect many companies to change their FDI strategy accordingly.

For example, many of you probably have learned that Taiwan Semiconductor Manufacturing Company, which is one of the world's largest chip makers, recently announced a plan to build a $12 billion plant in Arizona to serve the US market. We believe there will be similar investment activities in California for sure. Also, for companies with abundant financial resources, there will be opportunities to acquire discounted assets and expand their operations. I also believe that in less restricted business areas, local governments are expected to encourage FDI to speed up economic recovery. Companies will respond to those incentives.

Lastly, disruptive innovations may emerge in times of crisis. We have seen the rise of web conferencing, like Zoom, telemedicine, food delivery, online education, and entertainment during the COVID pandemic. For instance, TikTok—a video sharing service owned by a Chinese company—has been expanding their operations in California. We're likely to see increasing FDIs in these areas. Overall, I believe California will continue to be a top destination for FDI.

Kaina Pereira: Onshoring is one strategy to bring businesses to California, how will that feature in your FDI attraction strategy going forward?

Stephen Cheung: We've been seeing a lot of companies here looking to diversify their supply chain based on the fact that they don't want to rely on one single source for manufacturing, in case there's future disruption of either ocean-going cargo transportation or air freight. What they're looking for is to bring some of that manufacturing here.  Although it might be expensive to bring their entire production line to the United States, It’s important to look at opportunities to bring flexibility into manufacturing.  Some companies are able to pivot really quickly to manufacturing other products such as Personal Protective Equipment (PPE) to help address the COVID19 crisis.  For example, major medical institutions in the region are now exploring bringing back some of their PPE manufacturing to the local region as a risk mitigation measure.

California, as the fifth largest economy, is really seen as a global player. However, you do not see many other nations having individual cities within that nation compete with each other, and not come together and collaboratively market their collective strengths.

In the future, our strategy has to be a collaborative approach with all of California, to make sure that the world knows the various resources and advantages we have collectively.  When the world thinks of Los Angeles, they only think of one major industry, but we have so many other resources and industry in our region resources besides Hollywood and entertainment. Combined with the powers from the other regions of California, we can market ourselves as the tech, entertainment, trade, tourism, agriculture, sustainability, and cultural center of the United States.  For example, in the Central Valley, we have the “food bowl” that's producing the food and produce for the rest of the world and doing so in a sustainable manner.  Silicone Valley continues to dominate the world with new technologies and medical advances.  Los Angeles and Southern California is leading the world in sustainability technology, biosciences, space exploration, international trade, and of course, entertainment.  When they're investing in California, there are so many great options to select from. 


Darlene Chiu Bryant: In the San Francisco area we have been working on onshoring manufacturing for over a year already, knowing that everybody wants to buy local and—with the tariff situation—you really have to look at your supply chain and make sure that it's stable and secure.

That being said, we have seen that San Francisco has been growing and reinvigorating its manufacturing sector. Also, in the greater Bay area, we're looking at the manufacturing of hardware that is moving back to California. I'm really excited to be working with our partners across the state and trade offices overseas that have companies that are focused on the US market.

In San Francisco, because we're small—only 49 square miles—we're actually focused on putting up the advanced manufacturing and providing the education so that we can actually have trained technicians, space, and machines readily available to provide those services.

Lee Ann Eager: Like Stephen and Darlene, we have been working on onshoring for about a year now. It's certainly because of the trade issues, and you have to be flexible. One of the things that we have certainly noticed is manufacturing. We have companies from Asia, Mexico, and Germany that have been looking at manufacturing here in the Valley.

We're looking at ag-tech, and as it changes constantly folks are looking at what they can do. They have people growing right here so that they can have some of those testing sites right next to what it is they're manufacturing.

Safety is a big concern too. We had a company in China recently that said that they could charge four times as much for a product that's manufactured here in California because of the safety issues. I know sometimes people complain about our rules and regulations in California, but it's paying off. One of those was a baby food company that we have right here in Fresno County—the third largest baby food company in the entire country—and people around the world are wanting to buy from there because of those safety regulations.

Kaina Pereira: The report shows that Southern California is home to the most foreign-owned enterprises in the state, how do your regional economic development organizations and government representatives plan on continuing this success during the economic recovery of the pandemic?

Stephen Cheung: We're going to utilize the report as a blueprint. The report has identified the top investors and the markets and industries they're focused on already. It's already laid out where the lowest hanging fruits are located and what the easiest markets to partner with are.

Furthermore, besides FDI attraction, we need to think about retention as well. Often, we focus on attracting new companies and not on the retention of these companies. As companies leave our region,  we're losing a lot of great jobs that we've invested in. A case in point was when Texas was able to attract Toyota's headquarters from our region. We've invested heavily in infrastructure and talent development to help Toyota grow. To see them leave is a shame.

Part of the retention strategy is about talent. I think a lot of these international companies are coming to California because of our talent pool. In Los Angeles alone, we have 118 higher education institutions, millions of college grads, and top centers of excellence for education and training.

Currently, LAEDC is partnering with the community college district through our Center for Competitive Workforce to work closely with community colleges to train displaced workers and the future generation of workers to feed directly into growing industries. We need to partner with our international companies to make sure as they're continuing to grow and evolve, we supply them with the workers and talent that will help them expand and grow as well.

I think it's a comprehensive approach in that LAEDC, our government and education partners are coming together to create an ecosystem of support for international trade, FDI attraction, as well as retention. 

Lee Ann Eager: I truly want to say—for the entire state of California—people are looking at us for those new technologies and industries because we are still that land of opportunity. People around the world do think of California as that place for innovation.

Obviously, agriculture is our number one industry, but as agriculture and ag-tech changes, we're looking at how to attract those businesses that are really looking at different kinds of fertilizers or ways to get the water out to the fields.

The same thing for renewables and clean energy. We have a company from Brazil that's looking at hydrogen fuel cells, and some companies from Germany that we're partnering with biomass. This is perfect in California to do those kinds of things, and partnering with our friends in Southern California to look at what it is we need to do in California as a whole.

Another quick piece is aviation technology. We have a new company that's looking at training people for electric airplanes. We have the largest electric airplane training center in all the United States right here in Fresno County. We're looking at what it looks like to get folks trained on that new technology.

Kaina Pereira: What can we do at the state level and what can the businesses and economic development community do collectively to promote FDI for California?

Stephen Cheung: GO-Biz already started doing this prior to COVID 19, which is to unite the various regions throughout California so that we have one collective voice.

There's a reason why we have the most FDI of any state. There's a reason why there are 18,000 firms that are located here.

Are we saying it's the ideal place or best place? No, there are going to be challenges in every state, but California can't be categorically relegated as a bad place to do business.  There are good and bad to every situation, but there are many assets here in California that have attracted companies from around the world over the past decades.

However, we haven't done enough to tell our own story.  Other people are telling our story. What GO-Biz and the State of California can do is be that unifier, and bring us all together so that we have one massive voice saying, "If you're looking to invest in entertainment, tech, or bioscience, there are certain areas that are suitable for your company. If you're looking for ag-tech and sustainability-related investment opportunities, there are other areas throughout California that would be suitable.”

We're a population of 40 million with a multi-trillion dollar economy; we're not a podunk town. We are a nation-sized economy, and we should be treated like so. We need to take our rightful place in this world as a global economy, act like a global player, and show the world that we have massive opportunities and we are open for business.


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