Barriers to U.S. FDI Inflow Share Growth

Understanding the competition, and having an effective product development plan are critical to long-term share growth for any product. Place brands are no exception. Understanding what the underlying dynamics of the global economy and the implications for your location competitiveness, which countries represent true competition for your FDI inflow attraction efforts, and recognizing your location’s strengths and weaknesses as seen by the foreign capital investor are critical to your community’s long-term FDI inflow dollar share growth.

The easiest way to understand the barriers to investment is to ask the question of people with an informed opinion. To do so, I reached out to LinkedIn members in relevant Groups and ran a short survey asking a few probing questions. I would like to give my personal thanks to those who were kind enough to respond.

In the spirit of proper characterization, I would not position the results of this simple survey as reliably predictable, but rather as a directional conversation starter. More rigorous and robust market research would be required to develop a reliable understanding of the challenges Brand America faces. None-the-less, I believe the results were interesting and worth sharing. Hopefully, the comments will be educational and carry the discussion forward.

First, the perfunctory respondent data –

The respondent mix suggests the data primarily reflect the perception of Brand America from outside the United States. That is a good thing since we want to better understand how potential foreign direct investors perceive Brand America. On the downside, the responders are mostly economic development professionals so they may or may not accurately reflect the opinion of foreign direct investors.

The first thing I wanted to know is which countries are seen as competitors to Brand America. The respondents had to prioritize their choices as #1, #2 or #3. Consequently, it is possible for a given country to appear in each position in the final tabulation. It simply means three respondents each ranked the country in different positions.

I found the list pretty interesting. China and India represent emerging markets where the potential for profit is driven by a rapidly growing middle class with increasing disposable income, and a governmental need for basic infrastructure investment. For the foreseeable future, multi-national corporations will likely continue to invest in building capability and capacity to service these high population markets. I did find the inclusion of Canada and Mexico as a healthy reminder that Brand America continues to compete with our NAFTA partners. We definitely need to work hard an make certain the business climate in the United States remains highly competitive in our own backyard and that Brand America is in a position to win when competing with our neighbors.

The next thing I wanted to better understand is what the key barriers are to FDI attraction for Brand America. I used the same type of question to get answers.

The citing of regulation fear and politics reminded me of the importance business executives place on predictability. There is enough variables that are extremely difficult to control when managing a company, that unpredictable public policy can become a real competitive disadvantage.

I also think economic optimism or conversely pessimism can impact the capital investment decision. Most respondents felt the business climate in the U.S. was declining slightly in attractiveness for foreign direct investment inflow.

Decline Greatly – 18%
Decline Slightly – 53%
No Change – 6%
Improve Slightly – 23%
Improve Greatly – 0%

Perception is often reality, so clearly pessimism about Brand America is not helpful. Of course, the best way to address this is with positive economic performance.

I was a little surprised that when asked what direction they thought foreign direct investment inflow to the U.S. was going to take, the pessimism didn’t translate directly in their prediction. The opinion was split about equally. Maybe this is a reflection that all countries were negatively affected by the economic meltdown.

Decline Greatly – 12%
Decline Slightly – 41%
No Change – 6%
Improve Slightly – 41%
Improve Greatly – 0%

Finally, I wanted to know what one thing they would recommend focusing on changing to help make Brand America more competitive for FDI inflow. I was genuinely surprised at how the responses varied dramatically. I think it reflects the complexity of the FDI choice.

Here is a representative sample of verbatim answers.

1. Get the boys back home from hot spots
2. Main problem is the shrinking consumer market
3. Change peoples’ attitudes that FDI is good for the US, and not a bad thing
4. Fed strategy
5. See concrete steps toward dealing with US deficit / US trade
6. Standard appraisal and evaluation methods
7. Easier Visas
8. Improve corporate tax system
9. Access to market
10. The view that U.S is a part of the world, not the world
11. Protectionist Policies should be limited
12. More money for innovative start-ups
13. Review plans for more regulation and more taxes
14. Lower taxes

This study provides an interesting perspective on the possible areas of improvement for Brand America. It illustrates the kind of study you could implement to better understand the opportunities for improving the competitiveness of your location for FDI. Of course you would want to make it more robust (projectable) and ensure the respondents were potential foreign direct investors.

The intent of this survey is to stimulate discussion on the opportunities for Brand America to be more competitive for FDI inflow dollars. In that spirit, I’d appreciate it if you would share links to additional resources that address the topic and would share your thoughts by leaving a comment. If there is one thing you would improve to make Brand America more competitive, what would it be?

To get the ball rolling, here is a link to a white paper of FDI that you may find interesting – http://www.vcc.columbia.edu/pubs/documents/KekicPerspective-Final.pdf

A second is the section on how to improve competitiveness in the “Assessing Trends and Policies of Foreign Direct Investment in the United States” report that can be found at – http://www.investamerica.gov/iia_main_019689.asp

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