Why 2011 can be a “Defining Moment” for United States Industry

Latest data from global site selection firm ICA shows that the offshoring trend is reversing for U.S. industry .

In their latest report titled “U.S. FDI Competitiveness Report 2011 – Revival of the United States as an Economic Powerhouse,” global site selection firm Investment Consulting Associates (ICA) reports that the time is now for a more aggressive approach to growing industry in the United States.

The report points to the following factors as combining to create a favorable position globally for the United States:

* The U.S. position as the world’s largest consumer market
* Favorable business environment
* Low business risk
* World leading infrastructure
* Favorable tax environment
* Wage inflation in China

In the ICA analysis, the United States does show overall costs at 11% higher than those of China.  However, with wage inflation in China on the rise, this cost difference could fall to zero within five years.

To help North American economic developers respond this broad opportunity, Atlas has combined our considerable business attraction marketing expertise with the global consulting services of ICA.  Together, Atlas and ICA provide the consulting and marketing horsepower for communities to target and attract prospects worldwide.

Learn more about how Atlas and ICA are helping communities take advantage of this important opportunity.

View the full Investment Consulting Associates (ICA) report here

Ohio has long been committed to economic development, winning four straight Governor’s cups from 2006-2009. With strong community partnerships and collaboration with its six regional partner groups including Team NEO, Dayton Development Coalition, Columbus 2020, Cincinnati USA Partnership, Toledo Regional Growth Partnership and Appalachian Business Council, it can be argued that the state of Ohio is setting the stage for statewide economic development models across the country.

From critical changes in their tax structure (Ernst &Young and the Council on State Taxation, ranks Ohio as having the third-friendliest tax environment for new investment in the United States) to strong incentive packages and a resource-rich workforce, there is no question that Ohio has much to offer. But in a down economy—with states aggressively vying for deals—what is Ohio doing that is setting them apart?

To stay competitive, the Ohio Business Development Coalition – now part of JobsOhio and the Ohio Department of Development – have implemented Atlas InSite, Atlas’ industry leading GIS property database, as well as Atlas’ AtlasOne platform to enable the state to provide customized, collaborative proposals to prospects in minutes instead of days.

The truth is, high performing economic development organizations like JobsOhio are tracking projects, compiling voluminous amounts of quality data, collaborating with partners and responding to RFPs faster and more comprehensively than ever before. And, they are doing the majority of it online.

In a recent speech Mark Kvamme, Interim Chief Investment Officer and President for JobsOhio, characterized the state’s initiative to get answers to prospects faster.

“We want to get an answer to you in hours or days versus weeks or months,” Kvamme said.

By using AtlasOne as a key prospect management and proposal system since 2009, the state has been able to service prospects faster, and with more open collaboration from its previous methods. According to Matt Cybulski, Project Manager for JobsOhio and the administrator for AtlasOne in Ohio:

“Atlas InSite and AtlasOne have dramatically increased the rate at which the state of Ohio and our local partners can deliver information to prospects. Now, we can create proposals much faster and with more information than we could gather in days.”

Since adopting AtlasOne, the state has achieved the following milestones:

Since using Atlas InSite as its GIS system since 2008 the state has achieved the following milestones:

Atlas is proud to work with clients like JobsOhio, regional partners and local communities and to provide technology and GIS solutions that help economic developers maintain their edge, and save valuable time.

For more information on any of the products mentioned, please contact Guillermo Mazier, Business Development at Atlas, at 303.292.3300 x232 or guillermom@atlas-advertising.com.

Congratulations to Lawrence, Kansas! The Economic Development organization won at IEDC this year.

The award, which was presented at IEDC’s Annual Conference in Charlotte, recognized the new Lawrence Economic Development website in the category of General Purpose Website.

It has been a privilege working with Lawrence and we look forward to their continued success!

Congratulations to Webster City, Iowa! The Economic Development organization won two awards at IEDC this year.

The awards, which were presented at IEDC’s Annual Conference in Charlotte, recognize Webster City Economic Development’s new website in the category of General Purpose Website and its Social Media Strategy in the category of New Media.

It has been a privilege working with David Toyer at Webster City and we look forward to their continued success!

Read the full article here.

View the award wining website here.

The Revival of U.S. Competitiveness for Foreign Direct Investment (FDI)

In our series regarding the U.S. competitiveness for FDI, we began by examining the different drivers behind corporate FDI decisions, followed by a closer look of different views and opinions by various subject matter experts addressing these FDI drivers.

Now we continue our assessment with a factual benchmark of the global competitiveness of the United States versus emerging and low cost economies.

Based on several comparative global benchmark reports, as well as national statistical resources, we have computed and modeled a competitiveness score for all countries under study.

To assess the competitiveness of the U.S., we have used Investment Consulting Associate’s (ICA) web-based location benchmarking software product LocationSelector.com.

Below are the aggregated location groups that we took into consideration for this benchmark analysis. More specifically, there are six location groups that consist of several location factors, and in total we modeled 61 location factors.

1. Business environment
2. Business risks
3. Infrastructure
4. Labor cost
5. Macro economy
6. Tax

Based on our LocationSelector scoring model—that transforms the actual country values in a relative score between 10 and 100 (e.g. best in class country for a particular location factor receives a relative score of 100)—we have calculated the overall country competitiveness scores:

Source: LocationSelector.com

The overall competitiveness score implies that the U.S. not only has been, but still is a very competitive investment location compared to all emerging low cost and high growth markets. The U.S. consistently score well in terms of business environment, business risks, infrastructure and tax. However, the location groups macro economy and labor puts China, Vietnam and Indonesia on the forefront due to China’s strong future growth figures and the low labor costs of Vietnam and Indonesia.

In terms of labor costs the U.S. is still far behind. But unlike the past—where we saw a trend of corporates making investments decisions based on cost levels only—we now see examples of companies re-entering the U.S. again after a low cost adventure. This indicates that corporates are increasingly giving (and should also give) more priority to the softer factors, as these embrace a lot of hidden costs.

The next sections will discuss further the different details per location group included in this competitiveness benchmark assessment.

Business Environment

This location group not only consists of several criteria of the most recent World Bank’s Doing Business In Reports, but also includes the FDI Confidence Index, the Intellectual Property Protection Index and statistics relating to the Efficiency of the Legal Framework. In total we included 42 different location factors relating to this location group only. Overall, the U.S. scores significantly higher compared to its competitors, (i.e. 90.87 with maximum scores on 30 out of the 42 location factors). Behind the U.S. and ranking second is Mexico, with a competitiveness score of 64.08 followed by Vietnam with a competitiveness score of 57.43.

The findings suggest that the business environment of Vietnam is considered more favorable than China’s. This is also what we experience in our daily corporate site selection activities: bureaucratic concerns that corporates face in China are reflected by low scores on dealing with construction permits, starting a business, closing a business and employing workers.

India and Brazil have the least appealing business environments according to LocationSelector. Yet these countries have and still do enjoy large inflows of FDI projects, and this can partly be explained by the fact that these countries represent a significant internal market, which is still one of the most important drivers for foreign investment. In this perspective, it is not that surprising  these countries were popularly labeled as the BRICs.

Business Risks

Business risks encompass corruption levels and economic freedom. Here the U.S. scored best on both aspects, while Vietnam has the highest degree of business risks among all competing countries. A large gap exists in general between the U.S. and runners-up Mexico and Brazil with scores respectively of 100, 36.52 and 28.86. This implies that the U.S. is much more stable than its global competitors, and it provides corporate investors with a low risk investment location.

Infrastructure

The quality of road, rail, air transport and sea ports is, among others, a measure of the physical effectiveness of corporate supply chains. A higher score implies a more effective supply and distribution of finished goods to final customers by using different modes of transport. The U.S. clearly stands out as reflected by the best possible score of 100. China ranks number two, but with a large difference in score with the U.S. (almost 50 base points out of 100). Interestingly, Brazil has the worst overall score in infrastructure. However, with the World Cup and the Olympics in the next 6 years, improvements in this area are expected.

Labor

The location group Labor in our benchmark analysis includes the average hourly compensation costs for all direct employees in manufacturing. Here we clearly see the relative high labor costs of the U.S. and the favorable low costs in Indonesia and Vietnam. The results here coincide with our experience in Asian corporate site selection activities that routine and labor intensive production is relocated out of China to countries such as Vietnam and Indonesia.

Macro Economy

As a proxy for purchasing power, we used the GDP per capita and the estimated GDP growth rate over the next 5 years. China ranked first based on these two location factors. This is due to the high GDP growth rate forecasts for the next five years, whereas the U.S. has the lowest growth figures among the competing countries. The highest score for U.S. relating to the location factor GDP per capita does not compensate sufficiently to overtake China.

Tax

The location group Tax encompasses the corporate income tax for resident companies, ease of paying taxes, number tax payments, time to comply and total tax rate. Also here, it is the U.S. that scores best with maximum scores for the ease of paying taxes and the time to comply. Second place with less than 10 base points difference is Mexico. The U.S., however, scores lowest on corporate income tax for resident companies, whereas Brazil scores best by far. Interestingly, the total tax rate in Brazil is ranked lowest, which illustrates President Lula’s social agenda and strict taxation rules on foreign capital entering Brazil.

The final ranking in competitiveness as illustrated below suggests 4 main groups:

1. Competitiveness score 61<                         US
2. Competitiveness score 51-60:                    Mexico and China
3. Competitiveness score 41-50:                    Indonesia, Vietnam and India
4. Competitiveness score 30-40:                    Brazil

Source: LocationSelector.com

Summary

A competitive and low risk investment climate, with relatively stable wage inflation, increased productivity levels and a skilled labor pool in the U.S. compared to rapid rising labor costs and seemingly overheating economies in South East Asia are shifting the global landscape of FDI. It does, however, depend on the type of business you are in. As Tim Ryan, co-chair of the House Manufacturing Caucus, said: “We must face the fact that the U.S. will not produce any sport shoes anymore” and “While much of manufacturing has become more competitive and efficient, advanced manufacturing in areas such as green technology is critical to the country’s economic future”, illustrates the new direction and era in U.S. manufacturing.

According to the U.S. department of Labor, U.S. output per hour at non-farm businesses rose 5.2% from mid-2009 until the end of 2010, while hourly wages rose only 0.3% in relative terms. This increased productivity in combination with the strong competitive environment (highly favorable for market, efficiency and strategic asset seeking FDI) plays a big role in the current “reshoring” movement—repatriating production back to the U.S. from overseas—as surveyed by Reuters and MFG.com. Of all the companies surveyed, as much as 15% say they have repatriated production back into the U.S. in the past 2 years. Trends like reshoring often sustain for decades as opposed to years (just as the offshoring trend), and now that the balance between cost levels versus risk levels is changing in favor of the U.S., we expect to see more and more jobs re-generated due to reshoring.

Our next and final FDI blog post before our final report on “The United States: The revival of a manufacturing powerhouse” presented at the IEDC in Charlotte, North Carolina, will demonstrate a business case simulation of a manufacturing plant in the U.S. versus the competing low cost locations.