How to Complete Foreign Direct Investment Projects Amid the Pandemic - Global Trade Magazine
  October 12th, 2020 | Written by

How to Complete Foreign Direct Investment Projects Amid the Pandemic

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  • New investments in foreign jurisdictions are almost always long-term decisions.
  • Consultants and attorneys can help companies explore their options and develop solutions.   
  • Without a doubt, the collapse of international travel has had a huge impact on site selection.

The coronavirus pandemic has created significant challenges for companies with foreign direct investment (FDI) projects in their pipeline. Restrictions on travel, immigration, and budgets are making it harder to make in-person visits to potential sites, bring over key executives, and solidify project financing amid an uncertain economy. But whether a project is in the site selection stage or a company is already in operation and considering additional investment, companies have plenty of options to keep their strategic projects moving. The key is to revisit the initial strategy, adapt to changing times by utilizing virtual tools, and consider all options with immigration and project budgets – including the potential for new incentives.

Revisit the Strategy

New investments in foreign jurisdictions are almost always long-term decisions. However, as global markets shift and new trends emerge, companies should revisit these decisions for projects in the pipeline to ensure the long-term strategy still makes sense. In most cases we have advised on, the answer is yes. But the scope may need to change.

The pandemic has caused businesses across industry sectors to take a fresh look at their supply chains and corporate footprints. In some cases, this has resulted in strategic changes. For example, some manufacturers that had previously been planning one large facility but experienced disruptions in the supply chain may now consider multiple smaller facilities to help diversify their footprint and be closer to key markets. Other companies who previously planned North American distribution facilities have pivoted to assembly or manufacturing. But as an overarching observation, many companies that had a clear strategic reason to enter or expand in the U.S. are finding they now have an even stronger argument to do so.

It is also important for companies to consider feasible time frames for making informed location decisions and starting operations. After a company decides to undertake a project, it can be two to three years before the company is producing a product. During the planning stages, companies should build in time for location evaluation, machinery and equipment orders, construction, hiring and training. Factoring in this lead time is critical as companies react to today’s markets but also continue proactive planning for the future.

Adapt With Virtual Site Selection

Without a doubt, the collapse of international travel has had a huge impact on site selection. But this is one area of the pandemic that has a silver lining: it has accelerated a shift toward enabling more of the site selection process to happen virtually, and it has improved the quality of those virtual tools.

Prior to COVID-19, many of the more innovative economic development organizations (EDOs) were already creating cutting-edge digital portfolios for their communities in response to enhanced online activity by site selectors and companies. It is now more fundamental for EDOs to develop virtual showcase pieces on available properties, which often include videos and drone footage, high definition site photos, and other due diligence materials. These tools make it easier for companies and consultants to review potential properties from the comfort of their home office at any time of day, and positions the community to get a site or building on the short-list for the next project. Site selection consultants can also help companies virtually evaluate a potential site using GIS mapping tools and digital data sets, packaged into an online storybook portal that simulates an in-person visit.  This virtual approach has proven to be extremely valuable for teams working odd hours, whether that’s due to different time zones or the need to supervise children during remote school days.

It’s clear that in this virtual environment, corporate decisionmakers have more considerations than ever when it comes to making site location decisions. Not being able to inspect a site in-person or meet face-to-face makes it even more critical to have trusted partners on the ground in the United States – partners who are looking out for a company’s best interest, eliminating risk and helping the company consider all options. Working with consultants and attorneys who understand the process, the resources available, and the roadblocks will give companies the best chance of success.

Navigating Immigration Restrictions

One of the most important aspects of FDI projects – bringing executives over to help oversee them – can be a challenge because of closed consulates around the world. Some consulates in Asia are not even scheduling visa interviews until December, whereas before the pandemic it would take seven to 10 days to get an interview. A variety of immigration restrictions remain in effect under the Trump administration as well.

But business immigration is slowly opening back up, and companies still have the necessary tools to bring essential workers to the U.S. Based on what country the foreign national is coming from and the immigration attorneys can help companies fashion creative solutions. Even if the category in question faces a ban, it’s possible to secure a waiver for high-level executives who are essential to keep the business running. With all immigration needs though, companies should plan for additional vetting and longer timeframes than in the past.

Companies should also carefully plan for their personnel’s return trip. Certain countries are requiring their citizens to quarantine for 14 days after they return from the U.S., which can outweigh the benefits of shorter trips to the States. There have also been instances where a country has denied entry from U.S. travelers, creating a risk of key personnel getting stuck. To avoid surprises, companies should work through these considerations before sending travelers overseas.

Adjusting to Budget Challenges

Companies trying to reduce expenses as they weather an extremely uncertain economic climate have several options with FDI projects. In some cases, they can adjust the scope of their project where that project is a critical element of the company’s long-term strategy.

Another option for companies that were planning on a greenfield project is to consider acquiring another company or starting a partnership instead. These options can sometimes reduce costs and time compared to starting from the ground up. But there are downsides to consider as well, including less control over the particulars of the facility, such as labor quality and availability, utility costs, taxes and more. There can also be potential surprises as the pandemic makes certain targets’ financial situations harder to gauge.

Before adjusting scope, companies already in the midst of new projects or who have had recent projects should explore how incentives at the state or local level could be impacted – negatively or positively. A variety of counties and states in the Southeast U.S., for example, are adjusting incentives programs to better fit the reality of remote work and maintain economic development. Some companies may also have a need to renegotiate incentives to avoid potential clawbacks as a result of change in strategy, a delayed project or reduction of force. Consultants and attorneys can help companies explore their options and develop solutions.

Bottom Line

Companies that stay aligned with their strategic plan, take advantage of virtual tools, and partner with experienced advisors can still implement FDI projects successfully. Forward-thinking businesses in the position to keep long-term investments moving will be in an even stronger position once the pandemic ends and will have a head start on competitors who remained in cost-cutting mode.

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Sam Moses and Michael Chen are international business attorneys at Parker Poe, and Morgan Crapps is a site selection and economic development consultant at Parker Poe Consulting. They can be reached at sammoses@parkerpoe.com, michaelchen@parkerpoe.com, and morgan@parkerpoeconsulting.com.