Foreign Direct Investment (FDI) and Supply Chain Disruption: Key Takeaways From the 2nd Quarter

There was a jump in foreign direct investment (FDI) activity in the second quarter. While COVID-19 restrictions remain a factor, business is picking up at an extraordinary velocity as companies spend the cash they’ve had sitting on the sidelines for their industrial expansion projects. At the same time, supply chain issues continue to plague international businesses, and filling open job positions can be a daunting task in the U.S. In other words, the second quarter was a wild ride for international businesses.

Those are a few takeaways from our conversations with dozens of business leaders from Taiwan, Singapore, Vietnam, China, Brazil, Germany, Austria, Italy, the U.K., and other countries around the world. The focus of those conversations has been navigating FDI and supply chain disruption. Below are some of the main trends we are seeing and examples of how companies are adapting.

FDI Trends

The level of FDI inquiry we received in the Southeast U.S. last quarter was enormous, including in areas such as electric vehicles, pharma, food, and consumer products. In the Southeast and more broadly, there has been an increased focus among foreign investors on acquisitions as the method of FDI. There is certainly an appetite for that among businesses looking to be sold, as valuations are high, and the multipliers paid can be significant.

An international company we talked to, for example, is considering acquiring a company in the Carolinas and then coupling it with a greenfield expansion. That kind of coupling is a trend we have seen, although there may be a delay between the acquisition and the ensuing expansion. We have also seen an uptick in acquisitions by European and U.S. companies that are backed by Chinese investors.

While multi-national ownership is not a new phenomenon, tighter U.S. trade and investment regulations have been implemented over the last few years. These regulations apply to all foreign-owned companies and require consideration. For example, business leaders and their advisors need to consider the potential impact on the transaction of requirements under the Committee on Foreign Investment in the United States (CFIUS), which has the authority to block, impose mitigation measures, or unwind transactions that could impair U.S. national security. Likewise, foreign ownership or foreign nationals may also impact a company’s need to evaluate and comply with export, immigration, and other U.S. regulations.

We also have seen in Q2 continued focus in Washington on enhanced U.S. content requirements. Companies should consider U.S. content requirements, now existing and those under consideration. There has been an increasing awareness of the risks manufacturers face tied to changing content requirements in the U.S. Two examples: the Federal Acquisition Regulatory (FAR) Council is scheduled to develop new “Buy American” regulations in July under an executive order from President Joe Biden, and it is expected that if an infrastructure package gets through Congress, it will include a variety of Buy American requirements.

In addition, foreign investors are often finding it hard to find qualified workers in the U.S., just like many American businesses right now. The pre-pandemic solution for that – bringing in your own team from another country – is challenging due to U.S. visa regulations and because of travel restrictions that remain due to COVID-19. In some parts of the world, consulates have been shuttering services again, making it difficult to secure the visas international businesses need to send their expat teams to the U.S. Moreover, quarantine requirements here and abroad continue to dissuade travelers, including requirements for those who have been vaccinated. A global executive overseas recently told us, “What businessperson can really spend a week or two out of pocket [in quarantine]?”

Supply Chain Disruption

Supply chain disruption continues to be a big struggle, including shortages of materials. We continue to help clients navigate the legal aspects of that, such as whether they can claim force majeure to manage contract risk (more detail on that here.) Operationally, businesses have continued to see huge increases in shipping costs combined with difficulty finding space on container ships or getting the containers out of the port. One executive told us even if his company offered to pay double the freight cost, it wouldn’t make a difference – there was no space on any ships.

International businesses continued in Q2 their steps to address many of these challenges. Whether you call it Onshoring or Reshoring, many companies are, when cost-effective in their industry, looking to shorten the supply chain, increase U.S. content, and add supplier redundancy.

For example, a European company we talked about within the second quarter is shifting its U.S. operation so the base product can be produced in the USA in addition to Europe, thereby providing redundancy to supply and a “U.S. made” product. In this case, the company is licensing the production to a third party that will produce and supply the U.S. subsidiary. We are hearing other examples of this kind of onshoring, which can be helpful both in terms of supply chain disruption and U.S. content requirements.

Final Takeaways

While the coronavirus pandemic is far from resolved globally, progress in the U.S. against the virus is already leading to enormous FDI activity. The continuing supply chain disruptions may also be contributing to the level of FDI activity, as companies have had time to learn lessons and adjust their strategy in ways to manage the current challenges and plan for the next unexpected event. The exact speed and depth of those adjustments will come further into light through the rest of this year.

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Al Guarnieri, Sam Moses, and Michael Chen are attorneys in Parker Poe’s Manufacturing & Distribution Industry Team. Al and Michael are based in Charlotte, North Carolina, and Sam is based in Columbia, South Carolina. They can be reached at alguarnieri@parkerpoe.com, sammoses@parkerpoe.com and michaelchen@parkerpoe.com.

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Brazilian’s Minister of State of Mines and Energy goes in Depth about Brazil’s Resilience through the Pandemic

July 2nd, 2021 Sydney Barnes Leave a comment

Brazil has proven to be a durable country despite the peculiar situation faced globally. As Latin America’s largest country, Brazil has secured $78.2 billion in investments this year while making significant improvements to drive its sustained success. The recent changes have resulted in the country becoming a global hub for innovation and economics.

Global Trade Magazine had the opportunity to speak with Minister Bento Albuquerque, Brazilian Minister of State of Mines and Energy, through an exclusive opportunity, Albuquerque expanded on Brazil’s resilience throughout the global pandemic, notable investment opportunities, and how unique factors have affected the business of Brazil’s energy sectors.

What is the current state of the energy sector in Brazil and what are the goals for the next year?

The energy sector in Brazil is flourishing with undergoing reforms and opportunities that are being created in this context.

The national council made important decisions regarding the energy (CNPE) policy in 2019, before the pandemic. The decisions made several reforms possible and increased the number of auctions that were scheduled in advance to support investors’ decisions.

Two comprehensive and sectoral reforms are being implemented as we speak. First, the new gas law, which was sanctioned by President Jair Bolsonaro on April 8th, 2021. The new legal framework will make room for a more open, dynamic, and competitive gas market with increased opportunities for new agents. Aligned with the new gas market policy, many companies are already announcing important investments in the Brazilian Natural Gas Sector.

Secondly, in ten years our power load will increase about 27 GW on average. Brazil must enable investments in the expansion of its power system. We are fully committed to the modernization of our power sector by expanding methods and abiding by a modern, robust set of regulations. We are working towards opening our energy market to the all-out consumer, promoting efficient cost and risk allocation, making sure the power supply continues to be safe and reliable and promoting rules and regulations that incorporate all new technologies.

Finally, part of the modernization regulatory package was approved by our national congress under Law No.14.120.21. The Federal Government declared it one of its top priorities. 2022 will focus on the concretization of projects and opportunities and the upcoming auctions are the gateway to turn these projects into reality, as we count on foreign and national investors to help us push these initiatives forwards.

What are the competitive advantages Brazil’s energy sector offers business?

When discussing the oil and gas sector beyond opening up and unbundling the natural gas market, we are promoting a strong divestment program in oil refining- a new era for our downstream. Petrobras recently approved a sale of RLAM (Landulpho Alves Refinery- 14% of Brazil’s total oil refining capacity) to a Mubadala capital for the US $1.65 billion. Moreover, the E&P expertise, the improvement of our regulatory agenda and the quality of our oil improve competitiveness in the Brazilian offshore basins, turning Brazil into a world leader in this segment.

Brazil is the world’s largest producer of sugarcane ethanol and the second-largest producer of biodiesel, which is based mainly on soy oilseed and animal fat. Our goal is to increase international cooperation in biofuels, by the transfer of technology and expertise to other countries.

The Brazilian population will grow at 6% until 2030 reaching 225.4 million inhabitants. The expectation is there will be around 83 million permanent private households in 2030, an increase of 13 million. The way our power sector is today, we have 186 thousand MW of installed compacity; 162.7 thousand KM of transmission lines; 70 million consumer units. With the increase of modernization, there will be plenty of room to expand with the incorporation of new technologies. Guaranteeing reliability in supply, suitable risk, and costs of allocation. Our region has the challenge of keeping our power matrix as clean and renewable as possible, while expanding its capacity and promoting energy security.

How is the energy sector contributing to foreign direct investment in Brazil?

Between 2019 and 2020, about USD 32 billion was invested in the energy and mining sectors in Brazil. Last year, 26% of the total foreign direct investment was directed to the energy and mining sectors alone. We are convinced that business environment improvement and agent’s confidence recovery help consolidate the pace of economic growth.

We annually update and publish our 10-year expansion plan. According to its predictions, as much as USD 44 billion is expected to be invested in the energy, oil, natural gas, and biofuels sector in the next 10 years. (E&P about the US $337 billion, supply $4.1 billion, natural gas $17.9 billion, and biofuels $12.8 billion)

For the same period, the total investment expected for centralized generation, distributed generation and transmission systems will be about USD 68 billion.

To boost economic recovery and improve the business environment we have updated our legal and regulatory frameworks, strengthened legal certainty, reinforced the governance in our institutions, introduced more predictability and transparency, and designed our projects bearing in mind OECD standards of environmental, social, and governance impact.

How do you think Brazil’s resilience during the pandemic affected the business environment and energy sectors in Brazil?

Brazil managed to look through the pandemic with good governance and method. The federal government created a committee to monitor the Covid-19 impact on the economy. At the ministry of mines and energy side, we established three sectorial committees. Three of the outcomes are the uninterrupted power supply, the guaranteed supply of fuels, and the preservation of mining activities. Several decisions were made in order to minimize the impact on consumers and preserve the attractiveness on the supply side.

As far as the power supply is concerned, 10 million households that use less than 220 KWh a month were exempted from chargers. We created a “Covid Account” in order to minimize the impact on consumers, causing tariffs to plummet from 12% to 3%. Hydrological risk -which was a concern for hydropower plants- was duly tackled by the parliament. In 2021, Energy consumption increased by 19.2% in comparison to 2020.

The whole chain of production has been monitored as of day one. Consumption of gasoline and ethanol fell significantly but resumed by the fourth quarter of last year. The LPG, the ministry of mines, and energy made awareness campaigns to put a halt on panic buying LPG and the rate was around +2.6% last May. The mandatory blending of biofuels was revised so that targets could be met under current circumstances.

Exports of crude oil and iron represented 21.1% of the total exports in 2020, reaching around USD 45.4 billion in our trade balance.

As a timely measure taken at the beginning of the pandemic, we managed to declare mining as an essential service for the economy, taking into account that mineral goods are the basis of the Brazilian industry. We made arrangements to extend administrative timeframes in a reasonable manner, and donations by the private sector to tackle the pandemic played an important role in our collective effort., By caring for the health of our sectors, our actions focus on the health of our citizens.

How do you predict Brazil’s business environment post pandemic?

Economic measures led to growth in 2020, focusing on the most vulnerable population. After a server downfall in April 2020, which affected primarily income, jobs, and family habits, industry, trades, and services in Brazil have made a V-shaped trajectory of recovery. Stabilization was evident in the fourth quarter of 2020. This was the result of a concerted and temporary effort involving government, associations, and the private sector.

The pension reform, the tax reform, and the administrative reform will allow the Brazilian government to save almost USD 375 billion in ten years. A more productive economy leads to higher demand for employment. Some scenarios foresee an injection of up to 370 thousand job opportunities in the labor market. Additionally, to the reforms passing at our house representatives, outstanding programs contributed to the Brazilian economic rebound.

When it comes to government expenses, it is important to stress that we do differ emergency measures from structural ones. Emergency measures are temporary. Otherwise, structural reforms are aimed at fiscal consolidation and increase productivity. Brazil believes that mass vaccination, fiscal consolidation, and structural reforms are the way to long-term sustainable economic growth.

How did Brazil’s resilience differ from other countries during the pandemic?

I wouldn’t like to judge other country’s domestic decisions, but Brazil does attribute positive results. We can showcase today in terms of the functioning of our mines and energy sectors to the robust governance that has focused on the people’s and sector’s health.

Crosscutting decisions taken back in 2019 made it possible for us to promote sectoral reforms that are meant to dramatically change the way these sectors work. We developed robust governance and evidence-based information to support policymakers in the pandemic. Finally, we designed policy and recommendations focused on the preservation of structural arrangements, with attention to the customers and competitiveness on the supply agenda.

As demand increases, we will need a more robust energy infrastructure. Brazil is a developing country and energy is the basis for development. Furthermore, Brazil is extremely well-positioned to take advantage of the ongoing energy transition. We believe in international collaboration, partnerships, and investments to make our projects a reality in the coming years.

Archives, Global Logistics, Global Trade Daily, Site Selection

Foreign Direct Investment (FDI) and Supply Chain Disruption: Key Takeaways from the 1st Quarter

April 9th, 2021 Sam Moses and Al Guarnieri Leave a comment

Foreign manufacturers are increasingly focused on how evolving “Buy American” requirements may impact them. And like most U.S. domestic manufacturers, foreign manufacturers continue facing challenges with supply chain disruption, with the grounding of the Ever Given in the Suez Canal as just the latest headache. In order to mitigate risks associated with more restrictive local sourcing requirements and complex logistical challenges, foreign manufacturers are revisiting the localization of distribution, assembly and production activities in the U.S.

Those are a few takeaways from our conversations over the past three months with dozens of business leaders from the UK, Germany, Austria, Italy, India, China, South Korea, Mexico and other countries around the world. The focus of those conversations has been navigating foreign direct investment (FDI) and supply chain disruption amid the pandemic. Below are some of the main trends we are seeing and examples of how companies are adapting.

Evolving Content Requirements

There is an increasing awareness of the risk manufacturers face tied to changing content requirements in the U.S. These risks are not totally new. However, the Biden administration is signaling that the U.S. will continue increased focus on this issue, which is expected to impact several industry sectors in particular.

On January 25, President Biden signed an executive order aimed at long-standing “Buy American” provisions the U.S. government follows in its own procurement process. The Biden order instructed the Federal Acquisition Regulatory (FAR) Council to come up with new regulations increasing the Buy American requirements and changing the way those requirements are measured. However, the Biden order does not specify how much to increase content requirements – that will be up to the FAR Council to decide by late July 2021. In the meantime, the U.S. government is already tightening its waiver process that is used to allow certain types of procurement projects to receive exceptions to some “Buy American” requirements.

Combined with higher North American content requirements in the United States-Mexico-Canada Agreement (USMCA), more foreign companies are finding themselves grappling with this issue depending on their industry sector. Those involved in government contracting are right in the crosshairs, and the building materials and information technology industries are likely to see the largest impacts. And the importance of this issue will increase if President Biden’s infrastructure legislation passes Congress.

Those content requirements are contributing to a longer-term trend: more industries are moving manufacturing into the United States. Business leaders say they have several strategic reasons for this, including improved logistics and US content requirements, but also proximity to key customers and reduced currency risks. We also continue to hear interest in Mexico as an alternative to the U.S. While USMCA’s content and wage requirements may shift some Mexican manufacturing to the U.S., Mexico is still very much in play for FDI projects considering North America.

Moving Forward With Site Selection Amid the Pandemic

While the pandemic has made site selection difficult, many companies that are making strategic investments like those mentioned above are finding ways to carry out their location projects. However, although some travel opened up for business travelers in the 1^st quarter of 2021, COVID-19 continued to disrupt many plans.

For example, several leaders of a South Korean business recently traveled to North and South Carolina for a site visit. But after their first meeting, they found out an economic developer in that meeting tested positive for COVID-19. As a result, the South Koreans had to quarantine in their hotel and conduct the remaining meetings virtually – with people who were right down the street.

We know of two other instances in the first quarter where a COVID-19 diagnosis, one in the home-country and one in the U.S. after landing, wrecked a site visit. That is part of the reason many of the visits still happening in the U.S. involve companies that already have an American presence, as travel is easier for their personnel.

Still, while international travel is down, international projects are moving forward. The key is the rapid improvement of virtual tools during the pandemic, including virtual showcases that incorporate GIS mapping data, drone footage, and other elements to help with due diligence. While companies are finding these tools extremely useful, they are also finding it more important than ever to have trusted professionals, including legal counsel, on the ground in the locations they are considering. (You can learn more about navigating virtual site selection here.) By combining the advantages of virtual site selection with an expected increase in the ability to travel this summer due to vaccinations in the U.S., foreign companies can move forward with their site selection.

Dealing With Supply Chain Disruption

There may be no clearer image of supply chain disruption than a 1,300-foot container ship walling-off the Suez Canal. But the Ever Given running aground was simply the latest example of the difficulties companies have faced for more than a year now. Manufacturers and the logistics companies serving them say the cost of shipping goods and the ability to get space for those goods have become terribly challenging.

Much of this still goes back to the inability to get products from the source, whether those products are microchips or wood. While there are fewer lockdowns worldwide now than there were last year, many plants continue operating at low capacity or are struggling to catch up to demand.

Marbach Group, a global manufacturer and supplier of die-cutting tools and equipment based in Germany with more than 20 locations worldwide, has been constantly adapting through the pandemic to address these challenges. The February freeze in Texas, for instance, contributed to a shortage of low-grade plywood that Marbach would typically use to make crates for the transportation of its products.

“In turn we had to use our own manufacturing wood for our products to build crates,” Marbach America CEO Fernando Pires says. “Since the lower-grade wood was not available, we increased our cost margins by having to use higher-grade materials for a simple transfer box for our products.”

That’s just to get their products ready for shipping. Pires has many more examples of challenges the company has faced after its products are shipped.

One-way Marbach and other companies have responded is by building up inventory. (Pires jokes his head of purchasing must have had a crystal ball, as Marbach started increasing its stock levels in January 2020.) Marbach reflects an uptick in interest for distribution and warehouse space in the Southeastern U.S., which is evidenced by the significant construction of new warehouse space in the region. Some companies are temporarily leasing warehouses so they can stock up on raw materials and finished goods to avoid shortages when supply chains are not working correctly.

Foreign manufacturers are also diversifying their supply chains and service capabilities. Some companies that traditionally had one or two suppliers of a certain type of component are now adding additional suppliers of the same component for more robust redundancy in the supply chain. Others whose supply chains were concentrated in one part of the world are looking to add geographic diversity – so the next time a country has a COVID-19 problem, they won’t be so dependent on that one area.

Likewise, companies are diversifying their service capabilities and know-how. Many foreign companies rely on key personnel from their headquarters to fly elsewhere and solve problems when needed. That’s become more challenging with COVID-19 travel restrictions, so companies are diversifying their training programs. One executive described it as onshoring skills.

Surging FDI Down the Road?

The final thing that stood out to us amid conversations with foreign business leaders in the first quarter of 2021 is the potential for a surge in FDI coming out of the pandemic. This potential comes from two key factors.

First (and as noted above), many companies remain committed to their strategic growth plans, although the pandemic may temporarily slow the pace of their investments. Second, companies have been in cash-preservation mode and have cheap borrowing options at the moment. In addition to cheap debt for expansion, investors are also hungry for higher returns and are seeking to invest in innovative foreign companies who have growth potential in markets like the U.S.

For companies that have been able to avoid a severe hit to their financial position, all of these conditions are ripe to create a jolt in FDI as the pandemic subsides.

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Sam Moses and Al Guarnieri are leaders in Parker Poe’s Manufacturing & Distribution Industry Team. Sam is based in Columbia, South Carolina, and Al is based in Charlotte, North Carolina. They can be reached at sammoses@parkerpoe.com and alguarnieri@parkerpoe.com

Archives, Global Trade Daily, Site Selection

MISSISSIPPI MEANS BUSINESS: WHEN IT COMES TO LOCATION, WORKFORCE, EDUCATION, INCENTIVES AND ECONOMIC DEVELOPMENT RESOURCES, THE MAGNOLIA STATE HAS YOU COVERED

March 1st, 2021 Haylle Sok Leave a comment

Promoting economic growth while maintaining a robust business climate seems like a walk in the park for the team at Mississippi Development Authority (MDA). Living up to its global reputation as a powerhouse for manufacturing, healthcare, aerospace, and transportation, MDA sets the bar higher for competing states providing opportunities for exporters, investors, and industry diversification.

“A lot of people may have certain impressions of Mississippi, but I can assure you, we have a lot going on here,” explains Gena Lentz, MDA’s director of Foreign Investment.

Lentz brings more than 25 years of international trade promotion experience for the state of Mississippi. While working on helping exporters in the Magnolia State transport products to Asia, Lentz further developed her role with MDA, evolving to investment recruiting alongside her agency’s international representatives in Yokohama, Japan, and Seoul, South Korea.

The authority does not stop there, though. Adding to its already diverse economic climate, MDA is currently laser-focused on the European market, specifically Germany. By closing the gap in global representation, MDA will boast a fully developed international team.

“Europe is an especially important market for Mississippi, serving as a major source of investment,” Lentz says. “We continue to work projects from Germany with our goal being a full-time representative promoting the state with boots on the ground recruiting investment, promoting the state, promoting exports from the state and developing investment leads.”

Previously, MDA had representation in both Germany and the United Kingdom. This year, however, the team continues to take steps in re-focusing efforts for a new approach to European representation by reprioritizing to better meet the needs of international clients and investors.

Extensive History within European Manufacturers

Manufacturing represents one of the Mississippi’s leading industries. An example of this is Continental Tire located just west of the state’s capitol of Jackson. Continental’s massive 5 million-square-foot+ facility is the home of all things tire production, representing a $1.45 billion investment in the state. Looking ahead to the future and plans for growth, Continental plans on developing a workforce of 2,500 employees through 2028. Since launching tire production at the Jackson facility, the company has already hit the 500-employee mark.

“Continental Tire represents an extraordinarily strong partnership between MDA and the local economic development organization of Hinds County, local authorities and Entergy Energy,” Lentz explained. “Economic development is very much of a team sport. Locating a large company such as Continental requires strong teamwork and trust on all sides, and this was a great example of strong teamwork between so many different partners and it’s something that we’re really proud of.”

Mississippi’s manufacturing sector is just as diversified as the variety of sectors found in the state. Ardagh Group is another example of this. The global company is best known for metal and glass packaging but recently started manufacturing the famous slim-can design that continues to outshine the traditional can shape for soft drink products. When the company decided to add the manufacturing lines necessary to accomplish this, Mississippi was able to provide the workforce and the facility needed to do so.

“Ardagh went through a major expansion to change and manufacture the slim design of the beverage cans to accommodate the shift to this design,” Lentz said. “By doing so, they added 80 new jobs as part of their facility expansion in Olive Branch, Mississippi, and will add two new production lines to manufacture beverage cans.”

John Rounsaville, MDA’s executive director, adds that Swiss-based technology-driven company ABB announced an expansion in 2019 at its Senatobia location, while Japan-based Ajinomoto Foods manufactures specialty frozen foods in Oakland while undergoing several expansions to accommodate its growth and to meet an increase in demand.

“The list of global companies that call Mississippi home and maintain successful operations in the state is ongoing,” Rounsaville said. “These companies realize the benefits and advantages of doing business in our state, as evidenced by continued investments in their Mississippi operations and the creation of thousands of jobs for Mississippi’s workers.”

And the list keeps going . . . Mississippi has been home to a Rolls-Royce facility since 2007. The British company is located at Stennis Space Center–just off the coast of Mississippi. According to Lentz, the company benefits from an outdoor testing facility for jet engines used in the aerospace sector. Additionally, Columbia, Mississippi. is home to Zodiac Parachute, and its parent company Safran. Safran is a French-owned company known for producing military-grade parachutes and has a history with NASA and some of its space missions.

Automotive Sector Drives Mississippi’s Success

Adding to the broad-ranging business presence that MDA supports, the automotive industry has experienced significant growth in recent years.

“Nissan started production in 2003 and was our first OEM,” says Lentz in reference to original equipment manufacturers. “Currently, Nissan has manufactured the Titan truck, the Frontier truck and the Altima. The automotive supply chain and all that Toyota and Nissan have accomplished over the years is fascinating. Nissan has approximately 5,200 employees now. Among suppliers here is a large company called Auto Parts Manufacturing Mississippi along with a network of other suppliers. Typical of the automotive sector, once you locate the large OEM manufacturers, you then have an opportunity for smaller companies to locate close by who need to supply products to the OEMs.”

Lentz went on to explain that the automotive sector currently dominates. This does not come as a huge surprise considering the state has two large automotive OEMs that began operations just a couple of years apart. North Mississippi’s town of Blue Springs has been home to Toyota since 2011, when manufacturing on the Corolla model began in Mississippi. Fast-forward to today and the Corolla is now their primary model manufactured in Blue Springs. Lentz credits Toyota’s robust employee pool consisting of 2,500 workers as a representation of the strong, positive work culture found at the facility.

In recent years, there has been significant success with smaller German automotive companies in Mississippi.

Variety is the Key

“Beyond Japan and Germany, Canada, the UK and Switzerland are other markets included in our network,” Lentz added. “For some, it is surprising that the state has this kind of investment variety. With 26 countries and 200 different facilities, it’s something to be proud of.”

From family-owned German companies with a strong emphasis on technology and engineering to smaller distribution facilities and companies in aerospace, Mississippi truly does set the bar higher in providing market advancements for all types of companies. An example of this extended network is found with the presence of Swiss manufacturer ABB, which has several facilities throughout the state focused on electrical manufacturing.

“Another factor that differentiates Mississippi is that we understand how important it is to have industrial sites that are ready to go for companies,” Lentz says. “Typically, when companies start looking for a new facility, they are on a very tight timeline and do not have time for the due diligence reports. Local economic development organizations, utility companies in Mississippi and MDA each have programs that are designed to help make sure that we have industrial sites that are available and ready to go without delay.”

The state’s infrastructure and transportation options are nothing short of remarkable while equally competitive for companies looking to expand or relocate. MDA takes into consideration all factors for businesses while proactively maintaining the state’s strong interstate systems and five class one rails.

Mississippi’s Project Ready sites are paired with a well-prepared and highly competitive team of economic development professionals with success and risk mitigation at the top of mind. The extensive partner network of developers, utility partners, community colleges and research universities, and infrastructure all work together to position companies for success and growth. The global network established by MDA has proven resilient and shows no signs of slowing down in the face of market disruptions.

“Our excellent transportation network includes six interstate highways and 14 federal highways; 76 airports, including two international airports; dozens of rail systems that serve 2,500 miles of track throughout the state; and 15 ports found along Mississippi’s three navigable waterways,” Rounsaville explained. “The Mississippi River borders the state to the west, the Tennessee-Tombigbee Waterway borders the state to the east, and the Gulf of Mexico forms Mississippi’s border to the south. Mississippi boasts two deep water ports along the Gulf of Mexico, allowing companies convenient, quick access internationally.”

The exceptional setup in Mississippi further reiterates the state’s position as an economic development powerhouse prepared to accommodate even the most complex of business operations. The Port of Gulfport is the No. 2 port in U.S. for fruits and vegetables. Mississippi’s structured approach in supporting international growth is evident in the state’s 2019 export numbers (see charts).

Incentivized Growth Abounds

“Our trade managers provide business assistance–including educational, marketing and referral services–to small- and medium-sized companies aspiring to sell products and services outside the United States,” says Luigi Dominighini, MDA’s senior manager, International Trade.

Through the U.S. Small Business Administration (SBA)-funded Mississippi State Trade Expansion Program (STEP), MDA can offer small businesses financial assistance to help defray many of the costs associated with exporting for the first time or with exporting to new international markets, Dominighini noted.

“Our footprint is seen throughout our global offices in Santiago, Chile, South Korea and Japan,” he says.

For companies seeking a region with historically strong export operations, Mississippi should be at the top of the list.

MDA’s International Trade Mission takes a granular approach to globalization. From travel support, market research, industry briefings and meeting coordination for international trade missions, exporters are provided the opportunity to meet with foreign prospects without driving up costs. MDA works to pre-qualify buyers, distributors and other business representatives.

Additional resources provided by MDA include workshops and seminars for exporters. Dominighini adds that not only do these resources serve as an extension for added network partner opportunities, but they support MDA’s International Trade Office mission to develop long-term growth and job creation with the globalization of the state’s economy at the top of mind.

“The seminars we host cover market-specific topics and provide technical information on all aspects of the international business process,” Dominighini added. “Comprehensive guides on all aspects of exporting and importing are available to Mississippi businesses through MDA’s International Trade Office. Exporting companies including Thomasson Company, a certified Women’s Business Enterprise, and Hyperion Technologies are just a couple of the success stories we’re proud to have in the state.”

Planting the Seeds for Growth

Adding to its global network, Mississippi has witnessed a breakthrough for the state’s agriculture sector. In September 2019, Mississippi was confirmed for the first time in history as part of Taiwan’s Agricultural Trade Goodwill Mission. Representatives with the Taiwan Vegetable Oil Manufacturers Association along with the Taiwan Feed Industry Association confirmed the purchase of 96 million bushels of soybeans (estimated value of $1.1 billion) and 197 million bushels of corn (estimated value of about $1.1 billion).

In the announcement, it was confirmed farmers in the states of Mississippi, Indiana, Illinois and Nebraska would supply soybeans and corn, with the total amount divided between the states based on negotiations of producers and buyers. Commissioner of Agriculture and Commerce Andy Gipson expressed his delight with the news in the released statement:

“These efforts will create new markets for Mississippi’s soybean and corn farmers and will potentially create new trade opportunities for other agriculture commodities as well.”

Mississippi Does It With Teamwork

Between forward-thinking strategies and proactive solutions for all types of businesses, MDA continues to raise the bar for competing states with its team of experienced and business-minded professionals.

“Mississippi’s representation makes a concerted effort to create an environment that has a pro-business climate, from low taxes to competitive operating costs, including the utility costs for manufacturers and large facilities,” Lentz says.

Considering the reputation utility costs have for running operations, this an especially important part of how MDA stays five steps ahead on the company’s behalf. MDA ensures a constant, strong relationship with all the region’s utility partners. This network provides a safeguard for reliable power for operations while driving down costs for manufacturers and other businesses.

When it comes to workforce development, MDA’s impressive partner portfolio proactively prepares companies for long-term growth while meeting them where they are in the present. An example of this is Hinds Community College, an institution incredibly involved with workforce development to further support the foreign direct investment climate in the state.

“MDA works closely with both international and domestic prospects to really understand their workforce needs,” Lentz says. “From the very inception of the project, we can work with companies to understand the labor market, looking at specific skillsets in the state so companies understand the market and what type of existing labor force is offered here. We are proud of our extraordinarily strong community college system throughout the state, totaling 15 community colleges in different regions. These colleges represent strong partners with us and customized training for companies, based on their needs.”

Without a proactively prepared workforce, expanding and relocating companies are cut short. One of the many differences found in Mississippi is the management of resources to ensure success from the start. The team at MDA understands what it takes for project success. They ensure that all training needs are met, from workforce training to workforce funds needed.

“We are well aware that a top priority for companies seeking to locate or expand operations is access to a well-trained pipeline of workers,” Rounsaville says. “Mississippi has made developing the country’s best workforce its top priority. In conjunction with the state’s community colleges and universities, the state guarantees companies quality, customized workforce training programs. As companies grow and evolve, so must their employees.”

In addition to preparing incoming companies for building their workforce, training resources along with needed funds are at the top of mind. The professionals at MDA work to provide these resources for companies so they can focus on establishing operations without delay or roadblocks.

“We work with our existing companies to support their workforce training initiatives, so their employees continue to not only meet–but exceed–their expectations as they grow and adapt to changing trends and consumer needs,” Rounsaville says. “To supplement the state’s workforce training, the MS Works Fund was enacted in 2016 to provide an additional $50 million over 10 years to enhance training at our community colleges. Seventy-five percent of the funds are allotted for new job training, and 25 percent of the funds are for training existing employees.”

Additionally, the state offers a variety of alternatives based on individual company needs. These options include Mississippi’s Workforce Investment Network job centers, on-the-job training and more to support the company’s bottom line while reducing training costs. Not only does this approach support the growth of the state’s industries, but it lowers costs for the companies while creating jobs for the community.

“We realize in today’s market having a talented workforce that is very easily trained in new techniques is so important,” Lentz says. “Beyond our community college partners, there are other workforce partners who play a crucial role. This is one of the many strengths found in the state: How we work to understand our business prospect’s needs and how we try to customize what they need to make sure that they train their workforce.”

COVID-19 Can’t Keep Mississippi Down

Despite the variety of disruptions created by the pandemic throughout 2020, MDA proved to be more than prepared. While other development authorities scrambled, MDA’s exemplary leadership and business-minded strategies carried its business climate through one of the most disruptive times in recent years.

“We hope to get back to more of the in-person meetings in 2021, and we’re certainly continuing to do that online through virtual meetings,” Lentz says. “Our team of seven project managers have continued to participate in virtual site visits for new investment projects while upholding a proactive schedule.”

In other words, the pandemic has not given the team at MDA any reason to slow down in terms of working with business prospects and meeting the needs for successful operations. Quite the opposite, in fact. MDA focused on efforts for the future, rather than becoming caught off-guard with economic uncertainty. As of now, leadership continues to focus on building its existing target industries while exploring options to further develop its European footprint. Even though the pandemic is still a concern for our nation, MDA continues providing solutions for market disruptions now and beyond COVID.

“Moving beyond 2020, which as we know has been an incredibly challenging year in many regards, the goal of the Mississippi Development Authority remains the same as it has been for years: to build stronger communities and economies for Mississippians through new investment and job creation,” Rounsaville says.

“Throughout 2021, the MDA team will continue working to grow advanced manufacturing, health care and aerospace. We also are committed to growing the state’s tech industry. Leading global tech companies are increasingly finding their niche in Mississippi, and we will continue working to attract more high-tech companies to the state. These are the jobs of the future, and the state has already taken many proactive measures, such as the creation of the MS Coding Academies, to ensure we have a workforce ready to fill these in-demand jobs of the future.”

Mississippi remains front and center for globally-minded professionals seeking a healthy economic climate for growth–even during a pandemic. For those companies already established in the state, Rounsaville affirmed that they can also look forward to continued efforts from economic development professionals and partners throughout the state.

“Mississippians are known for their work ethic and commitment to quality, and MDA and our partners are committed to continuing our efforts to ensure companies have a skilled workforce in place for generations to come. Their continued investment in our state serves as a strong testament to other global companies that Mississippi means business. We work hard to provide our global partners with a strong business environment that allows them to maintain their competitive edge and find lasting success in our state,” Rounsaville concludes.

To learn more about the Mississippi Development Authority, please visit: https://mississippi.org/

Archives, Foreign Trade Zones, Global Trade Daily

New CFIUS Regulations Formally Implemented: What Your Business Needs to Know

February 5th, 2021 Alan Enslen and Julius Bodie Leave a comment

The Committee on Foreign Investment in the United States (CFIUS or the Committee) is an interagency government committee authorized to review, modify, and block foreign acquisitions of or investments in U.S. businesses that could adversely affect U.S. national security.

In 2020, new regulations went into effect that broadened the scope of foreign investment transactions subject to review by the Committee. Historically, CFIUS national security reviews were limited to transactions that could result in a foreign investor obtaining “control” of a U.S. business. However, the scope of transactions subject to potential CFIUS review has been expanded, and now includes certain non-controlling foreign investments in U.S. businesses involved in critical technologies, critical infrastructure, or sensitive personal data of U.S. citizens. In addition, CFIUS has instituted new mandatory filing requirements for specific types of foreign investment in U.S. critical technology companies.

It is now more important than ever for non-U.S. companies doing business with or investing in the U.S. to understand how their business can be impacted by the revised CFIUS regulations. If a non-U.S. company is considering buying or investing in a U.S. business, conducting an assessment of potential CFIUS risks and obligations must be included in the due diligence process. To assist with this assessment, below is an overview of CFIUS, as well as a breakdown of the key CFIUS regulatory changes implemented in 2020 that stand to impact your business.

Committee on Foreign Investment in the United States (CFIUS)

CFIUS is chaired by the U.S. Department of Treasury and has the authority to review any transaction by or with a foreign person which could result in control (or in certain non-controlling interests) of a U.S. business by a foreign person. This includes proposed or completed mergers, acquisitions, or takeovers by foreign governments, foreign entities, and those controlled by foreign governments and entities. When CFIUS has jurisdiction over a proposed transaction, parties can voluntarily notify the Committee of the transaction and its terms. CFIUS is authorized to commence reviews unilaterally, but it rarely uses this power.

Foreign investors often seek to file for CFIUS approval voluntarily because once a transaction is cleared by the Committee, it qualifies for a “safe harbor” and is generally considered cleared indefinitely, thereby eliminating CFIUS-related risks. On the other hand, if CFIUS does not clear a particular transaction prior to its closing, there is a chance that the Committee will unilaterally initiate an investigation and ultimately require divestiture of the foreign party, potentially even years after the transaction has closed.

If CFIUS determines that a covered transaction presents a national security risk, it has the authority to impose certain mitigating conditions before allowing the deal to proceed, and may also refer the transaction to the President, who has sole authority to block a proposed transaction or unwind a completed transaction. However, U.S. Presidents have rarely used their power to block transactions because CFIUS generally enters into mitigation agreements with the parties to high-risk transactions in order to alleviate any identified national security concerns.

If CFIUS opposes a foreign investment or acquisition, and mitigating measures cannot be implemented by the transacting parties, it is often the case that the foreign investor withdraws the deal prior to CFIUS escalating its recommendation to the President. While to date only five investments have ever been blocked by a President, numerous proposed transactions have been withdrawn by the parties involved to avoid the risk of having the transaction formally blocked.

CFIUS has become much more active in recent years, particularly under the Trump administration, where the Committee reviewed 697 transactions between 2017 and 2019. Recent high-profile examples include the following:

-In 2017, President Trump blocked the acquisition of Lattice Semiconductor Corp. by the Chinese investment firm Canyon Bridge Capital Partners due to national security and intellectual property concerns.

-In 2018, President Trump blocked the acquisition of U.S. telecommunications equipment company Qualcomm by the Singapore microchip maker Broadcom.

-In 2019, CFIUS raised concerns over Beijing Kunlun Company’s investment in Grindr LLC, an online dating site, over concerns of foreign access to personally identifiable information of U.S. citizens. The Chinese firm subsequently divested itself of Grindr.

-In 2020, President Trump announced plans to ban the popular social media platform TikTok based on its ownership by Chinese technology company ByteDance and its potential access to sensitive personal data of U.S. citizens. CFIUS and ByteDance are still in the process of negotiating the terms of prospective mitigating measures that would allow TikTok to continue its U.S. operations.

Changing Landscape: Foreign Investment Risk Review Modernization Act

In recent years, there has been a push for CFIUS reform by government officials who viewed the process as inadequate to face modern geopolitical threats to U.S. businesses and technologies posed by foreign direct investments into U.S. companies – particularly from Chinese foreign investment. This led to the passing of the broad CFIUS reform legislation known as the Foreign Investment Risk Review Modernization Act (FIRRMA) in August 2018.

FIRRMA was designed to expand the scope of foreign investment reviews conducted by the Committee, and overhauled the CFIUS review process to more effectively address modern U.S. national security concerns. The revised CFIUS regulations provided for in FIRRMA formally took effect in February 2020.

Historically, CFIUS reviews have been based on voluntary notice submissions by parties to a covered transaction. Only transactions that involved foreign control and that raised national security concerns would be filed by the transacting parties with the Committee for approval. Under FIRRMA, the Committee now also has the authority to review non-controlling “covered investments” by a foreign person in a U.S. critical technology, critical infrastructure or sensitive personal data company. These “TID Businesses” (i.e., U.S. Technology, Infrastructure and Data companies) include companies that engage in one of the following activities:

-Produces, designs, tests, manufactures, fabricates or develops one or more critical technologies;

-Owns, operates, manufactures, supplies or services critical infrastructure; or

-Maintains or collects sensitive personal data (e.g., health or financial data) of U.S. citizens that may be exploited in a manner that threatens national security.

A “covered investment” includes circumstances where a foreign investor obtains:

-Access to material non-public technical information;

-Membership or observer rights on the board of directors or an equivalent governing body of the business or the right to nominate an individual to a position on that body; or

-Any involvement, other than through voting of shares, in substantive decision making regarding sensitive personal data of U.S. citizens, critical technologies, or critical infrastructure.

CFIUS has also instituted new mandatory filing requirements involving inbound investment in U.S. companies involved with “critical technology.” When FIRRMA was initially implemented, filings became mandatory for certain transactions involving U.S. critical technology businesses that were included among 27 specified industries identified by their North American Industry Classification System (NAICS) codes.

However, beginning in October 2020, CFIUS implemented a new rule tying the “critical technology” definition to U.S. export control regulations. Now, filing a declaration with CFIUS is mandatory for covered transactions involving a U.S. business that “produces, designs, tests, manufactures, fabricates, or develops one or more critical technologies” where a “U.S. regulatory authorization” would be required for the export, re-export, or transfer of such critical technologies to the foreign investor. Accordingly, having a clear understanding of U.S. export control classification regimes and licensing requirements, including those promulgated under the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR), is now a significant component of any CFIUS analysis.

In addition, FIRRMA added mandatory filings requirements for certain types of foreign government investment. If a foreign government holds a “substantial interest” in a foreign investor that in turn obtains a “substantial interest” in a TID Business, a CFIUS filing is now mandatory. This filing requirement is triggered when a foreign government holds at least a 49% (direct or indirect) interest in the foreign investor, whereas a foreign person will obtain a “substantial interest” in a TID Business if it seeks to obtain at least a 25% (direct or indirect) interest. In such scenarios, the parties must file a mandatory declaration with CFIUS at least 30 days prior to the transaction’s closing.

Global Impact

In terms of global impact, U.S. businesses and foreign investors previously unfamiliar with the CFIUS filing process, or that were previously outside the jurisdiction for a covered transaction, will now have to analyze the potential implications of a mandatory or voluntary CFIUS filing when considering even passive forms of foreign investment. This includes businesses ranging from health care companies, telecommunications companies, technology start-ups, related infrastructure industries, venture capital funds, emerging technology companies and manufacturers, and any company that maintains or can access sensitive U.S. consumer personal or health data.

Robust due diligence on proposed foreign investments will be more important than ever to ensure compliance with any mandatory CFIUS requirements. This will result in cross-border deals becoming much more time-consuming processes that will require significant scrutiny and attention to detail when drafting contractual rights afforded to foreign investors. Importantly, this will also require increased “up-stream” due diligence on any proposed non-U.S. investor’s corporate structure and ultimate ownership.

The business decision that a potential non-U.S. investor will need to make regarding which type of filing (if any) should be made with CFIUS is based on factors such as the complexity of the transaction, the working relationship between the parties, the national security implications and risk-level of the U.S. business, the likelihood of a successful resolution with CFIUS, the economy of legal resources, the evolving definition of what constitutes a “national security concern,” and current CFIUS enforcement priorities.

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Alan Enslen and Julius Bodie are attorneys at law firm Baker Donelson, they can be reached at aenslen@bakerdonelson.com and jbodie@bakerdonelson.com. Jiri Mestecky, Takanori Nakajima and Yunosuke Hirano are are attorneys at Kitahama Partners. They can be reached at JMestecky@kitahama.or.jp, TNakajima@kitahama.or.jp and YHirano@kitahama.or.jp.

Archives, Global Trade Daily

How to Complete Foreign Direct Investment Projects Amid the Pandemic

October 12th, 2020 Sam Moses, Michael Chen and Morgan Crapps Leave a comment

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.

Archives, Foreign Trade Zones, Global Trade Daily

The Logic of Qatar’s Logistics Ambitions

February 12th, 2020 Frank Himpel Leave a comment

Put simply, logistics is a global mega-business. Its processes are time-sensitive, quality-centered, customer-driven and efficiency-bound. An array of functional, operational and legal instruments shape the flow of a genuinely 24-hour industry. In response, the powerhouses of the corporate logistics sector – some of whom have been around for centuries – have near-constantly adjusted and innovated business strategies to stay at the top of their industry, typically for the good of all stakeholders.

However, logistics is not only about companies and their business activities. Superior logistics capabilities have become an important strategic asset for states aspiring to play a more prominent role in an increasingly interconnected world. In this respect, China has become something of a role model. Beijing identified early in the country’s economic development the need for facilities capable of inserting its output into the global marketplace. Since then, China’s logistics know-how has evolved to the extent that newer infrastructure projects such as Ningbo Port are on a par with more established hubs like Singapore.

Most Gulf States have factored the buildup of logistics facilities into their respective National Visions. These programs focus on reducing reliance on energy exports as the primary source of national income and diversifying economies beyond the exploitation of natural resources. As things stand, however, some states more than others are in a better position to become major global logistics centers with facilities to match. These include Qatar, for at least three key reasons.

First, since the start of the 2017 blockade by several Gulf Cooperation Council (GCC) states and others, Qatar has held the moral high ground by not responding in kind. Rather than cutting off supplies to blockading states, Doha has continued to fulfill its contractual obligations. The country has also called on allies and international organizations to help resolve the dispute with its neighbors. In doing so, Qatar has sent a strong signal to multinational companies seeking effective logistical hubs that their businesses will not suffer in the face of ongoing regional tensions.

Second, the blockade has demonstrated Qatar’s remarkable ability to adjust supply chains rapidly to meet the needs of the state and its 3million+ citizens and residents. Prior to the crisis, several now-blockading countries accounted for over 90% of Qatar’s milk and dairy supplies. Imports of these products collapsed almost overnight. However, in the space of just 4-6 weeks, Doha had made up for this shortfall by sourcing almost 90% of its milk and dairy products from 20 countries. Qatar’s ability to diversify its global supplier base at breakneck pace would not have been possible without effective resilience planning and adaptive logistics capabilities.

Third, Qatar is not only determined to become a global trading hub but also to attract the type of foreign direct investment that will take its logistical capabilities to the next level. Such ambitions require a more intensive network of international partners collectively doing business in and out of Qatar with relative ease. To assist, a radical overhaul of customs processes and systems to support future growth in these areas is now underway. Streamlined legal frameworks are also widely expected to attract greater foreign interest in the country’s logistical capabilities.

Qatar’s recently-established free zones perfectly highlight the country’s logistical strategies in action. Located close to Hamad International Airport and Hamad Port, both are designed to attract companies seeking a stronger regional presence and infrastructure that serves trading routes between Asia and Europe. In keeping with free zones around the world, they also offer a range of benefits, including zero corporate tax, seamless administration, and unrestricted capital repatriation. However, financial (and related) incentives are by no means the only tactics employed to attract and retain business.

A defining feature of the most successful free zones is their ability to encourage innovation from the companies that make their facilities home. For example, DHL Express’s relocation to the airport free zone at Ras Bufontas will be accompanied by the development of a new product that brings express bulk logistics process capabilities to Qatar and upper Gulf region. In an effort to enhance maritime logistical capabilities, the second free zone at Hamad Port’s Um Alhoul will develop a chemical cluster to encourage innovative logistics approaches relevant to this important process industry.

Taken together, Qatar’s stealthy response to the blockade and determination to become a global logistics hub chimes with its historical reputation for accepting and taking calculated risks. When Doha decided to construct Ras Laffan Industrial City in order to exploit Qatar’s vast natural energy resources, it did so knowing that its development would irreversibly change the economic structure of the country. This required a level of courage that many larger countries remain unwilling to demonstrate on the global stage. The same rule of thumb also applies to Qatar’s determination to increase its global connectedness via high-quality logistics capabilities.

This ambition has not only had a profound impact upon Qatar’s economy but also its higher education sector. Academic programs in Logistics and Supply Chain Management (LSCM) are under development at several academic institutions across the country. Their emergence in turn reflects Qatar’s growing demand for expertise in the fields of logistical planning, strategic supply chain management and operational management. To this end, course offerings by Hamad Bin Khalifa University’s (HBKU) Division of Engineering Management and Decision Sciences (EMDS) are among the most advanced, with alumni already developing promising careers in the country’s burgeoning logistics sector.

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Frank Himpel is a faculty member of the Engineering Management and Decision Sciences division at College of Science and Engineering at Hamad Bin Khalifa University in Qatar. Prior to moving to Qatar with his family in 2018, Frank served as a professor of business administration and logistics in Germany, where he also received his academic degrees. His research into aviation and air transportation management has taken him to several countries around the world.

This article is submitted by the HBKU Communications Directorate on behalf of the author. The views expressed are the author’s own and do not necessarily reflect the University’s official stance.

Hamad Bin Khalifa University (HBKU), a member of Qatar Foundation for Education, Science, and Community Development (QF), was founded in 2010 as a research-intensive university that acts as a catalyst for transformative change in Qatar and the region while having global impact. Located in Education City, HBKU is committed to building and cultivating human capacity through an enriching academic experience, innovative ecosystem, and unique partnerships. HBKU delivers multidisciplinary undergraduate and graduate degrees through its colleges, and provides opportunities for research and scholarship through its institutes and centers. For more information about HBKU, visit www.hbku.edu.qa.

Archives, Global Trade Daily, Special Reports

COMING AND GOING, THE U.S. WINS FROM FOREIGN DIRECT INVESTMENT

August 26th, 2019 Andrea Durkin Leave a comment

Think of it as strength through diversification

Foreign direct investment (FDI) is a vehicle for gaining entry into growth markets. Companies might decide the best approach is to acquire products and technologies already in the target market, or to secure distribution and retail channels for their existing products, or they might decide to launch greenfield production to serve the local or regional markets, or some combination. Whatever their approach, their goal is to generate additional sales. Investors reward companies that diversify their sales and income. Multinational companies typically look to grow global market share, not just shift market presence.

For the host economy, FDI often brings new well-paying jobs, an expanded tax base (if they don’t offset with too generous a tax holiday), stronger productive capacity, transfer of technological expertise, improvements in infrastructure, and stronger economic growth. In theory and in general, it’s a win-win. In practice and locally, it will depend on each deal.

Companies are not multinational, they are “multi-local”

A.T. Kearney produces an annual Foreign Direct Investment Confidence Index that surveys investor intentions. More than 75 percent of companies say they invest to be close to market, putting them in a better position to cater to local culture and customs, navigate the idiosyncrasies of the local business environment, and embed themselves in the community as a local partner with deeper roots beyond their core business.

Large cities and megacities are the most popular destinations for FDI – nearly two-thirds of the companies surveyed have more than half their FDI in cities, attracted by the concentration of talent, clusters of R&D or related activities, and availability of infrastructure. Fifty-nine percent of respondents said their companies begin their FDI assessments at the regional or city level, rather than take into account national considerations.

Many large cities have built their economic reputations on particular sectors. For example, an information technology investor looking at Asia would identify Hyderabad or Bangalore in India as among their top targets. Companies looking to locate an overseas headquarters in cities with strength in business services might look to Singapore, Hong Kong or Dubai first.

States and cities compete for foreign direct investment – why?

Countries, states and localities compete for capital by offering streamlined administrative procedures, incentives like tax breaks and grants, and by establishing special economic and free trade zones. Many U.S. states have permanent investment promotion offices overseas. South Carolina has offices in Shanghai, Tokyo and Munich. Florida maintains offices in 13 countries.

U.S. states and cities work hard to attract foreign investors because of the benefits they bring to local economies. The U.S. affiliates of majority-foreign owned firms employed more than seven million American workers in 2016, invested $60.1 billion in U.S.-based research and development, and contributed $370 billion to U.S. exports.

According to OFII, the trade association that represents foreign investors in the United States, international companies employ 20 percent of America’s manufacturing workforce and 62 percent of the manufacturing jobs created in the past five years can be attributed to international companies investing in the United States.

What goes out also comes in – how the U.S. wins with overseas FDI

There are two sides to the FDI coin, and the U.S. economy is positioned to win whether the FDI is coming or going.

A common perception exists that American companies who invest overseas are sell-outs, moving jobs in search of lower wages, and that the host country is the only beneficiary.

Politicians stoke this fear. The rhetoric will only heat up in the run up to the 2020 presidential election, but the data tell a surprising and different story.

In fact, economists Oldenski and Moran, who are leaders in studying FDI, have found that increased offshoring of manufacturing by U.S. multinationals is actually associated with increases in the size and strength of the manufacturing sector in the United States.

More specifically, they found that when a U.S. firm increases employment at its foreign affiliate by 10 percent, employment by that same firm in the United States goes up by an average of four percent, capital expenditures and exports from the United States by that firm also increase by about four percent, and R&D spending increases by 5.4 percent.

The idea that outward FDI is associated with expansion of economic activity at home feels counterintuitive, and critics would rightly point out that the overall result for the U.S. economy doesn’t mean there isn’t labor dislocation of some kind.

Demand for certain types of production occupations might increase (e.g., engineering or sales) at the expense of workers with skills that are less or no longer in demand. Or, some local labor markets might be adversely affected despite overall gains, or some manufacturing subsectors may wane as others rise.

But on balance, across the U.S. economy, Oldenski and Moran conclude that the foreign operations of multinational firms tend to be complements, not substitutes for domestic U.S. operations.

Global FDI flows are waning

Globally, companies are engaging in less FDI. For the third year in a row, global FDI flows have fallen. In 2018, FDI flows dropped 19 percent from to $1.47 trillion to $1.2 trillion.

Developed country recipients saw the biggest hit with a 37 percent decline. Part of the explanation is fewer megadeals and corporate restructurings – the large value of those in previous years inflated the overall value of FDI flows.

Tax reform in the United States has also set in motion a shift in FDI flows. Most outward FDI from U.S. companies is in the form of more than $3.2 trillion in retained earnings held overseas. Changes to the U.S. corporate tax regime prompted a 78 percent increase at the end of 2017 in companies reinvesting overseas earnings in the United States. The inward investment took the biggest bite from FDI into the European Union.

Another major factor was China’s FDI outflows which reversed for the first time since 2003, declining 36 percent largely in response to the government’s restrictions on capital outflows directed to investments in assets such as real estate, hotels and entertainment facilities.

Wait and see?

According to A.T. Kearney’s annual Foreign Direct Investment Confidence Index, 77 percent of responding companies said FDI will be more important for corporate profitability in coming years and 79 percent said they intend to increase FDI over the next three years, pending their assessments of the availability of quality targets, the macroeconomic environment, and their availability of funds.

But in reality, multinationals may be taking a wait and watch stance as trade tensions between the United States and China escalate. At the same time, a number of countries have implemented tighter screening of proposed investments, citing national security concerns associated with foreign ownership of strategic technologies and other assets. Overall, the investment policy climate is becoming less, not more, favorable with greater restrictions and regulations than liberalization.

Investor confidence in the United States is still strong

On A.T. Kearney’s index, developed markets dominate 22 of the top 25 spots on the list of countries considered the top targets by corporate investors. Despite trade tensions and risks of economic downturn, these economies offer relatively stable regulatory environments, legal protections, skilled workers and the availability of technological and innovation capabilities, all qualities multinational companies seek in FDI targets. Size and market potential matter too. China, India and Mexico are emerging markets where multinationals must be players to be globally competitive.

For the seventh year running, the United States tops the index as the most attractive target for FDI. FDI inflows to the United States fell 18 percent in 2018, part of a broader decline in FDI flows to developed markets and fewer large mergers and acquisitions, but the United States still receives more FDI than any other country.

China, which held the top spot from 2002 to 2012, dropped to seventh. European countries hold 14 of the top 25 spots. The only emerging markets on this year’s list were China, India, Taiwan and Mexico. Singapore holds the 10th position and South Korea the 17th spot. Notably, the United Kingdom is holding steady in fourth place, despite the uncertainties surrounding Brexit.

The transition from physical to digital

FDI accounts for 39 percent of capital flows for developing countries as a group and around one-quarter for the least developed countries. FDI is less volatile than liquid financial assets and more resilient during global economic and financial downturns.

Unfortunately for developing countries particularly outside Asia, there’s not only less foreign direct investment to go around, the type of FDI is slowing changing too. As digital technologies become more diffuse, companies are shifting to “asset light” forms of international production. In more cases, companies no longer need the same level of physical production assets or employees overseas to achieve growth. The drop in the value of announced greenfield investments may be a sign that growth in global value chains is stagnating.

A more nuanced conversation in U.S. politics

Global FDI flows are critical for growth in developing and developed markets alike, including the United States. Multinationals are stronger in their home economies when they diversify, and we should seek to have a more nuanced conversation about the role of FDI in the U.S. economy – including its impact on job creation and job shifting – rather than simply demagoguing the companies who invest overseas or the foreign companies who invest here. An evidence-based and comprehensive policy dialogue would better serve American workers in the long run.

Key resources:

To keep track of global FDI flows, consult UNCTAD’s annual reports which include statistics and analysis of investment policy trends. Access the 2018 Global Investment Report here.
Economists Theodore Moran and Lindsay Oldenski debunk some prevailing myths about the strength of the U.S. manufacturing base and the role of FDI in an excellent policy brief found here.

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Andrea Durkin is the Editor-in-Chief of TradeVistas and Founder of Sparkplug, LLC. Ms. Durkin previously served as a U.S. Government trade negotiator and has proudly taught international trade policy and negotiations for the last fourteen years as an Adjunct Professor at Georgetown University’s Master of Science in Foreign Service program.

This article originally appeared on TradeVistas.org. Republished with permission.

Archives, Global Trade Daily, Trade Cycle

How to Successfully Conduct Global Business During a Time of Geopolitical Instability

August 26th, 2019 Scott Ferguson, CEO of the World Trade Centers Association Leave a comment

The way organizations approach global commerce is undergoing a radical change. Geopolitical instability is slowing growth in a volatile global economy as organizations are forced to adapt their tactics, making complex decisions that increase operational costs and, if mishandled, make them less competitive in an unforgiving business landscape. So, what can organizations do to navigate this ‘new normal’? As an association whose members deal with small- to medium-sized enterprises (SMEs) at the local level on a regular basis, we at the World Trade Centers Association (WTCA) released our second annual WTCA Trade and Investment Report: Navigating Uncertainty, in partnership with FP Analytics. The report focuses on how cities around the world are optimizing trade and investment opportunities despite challenges, both economic and political, and how SMEs benefit from these strategies.

The report shows that the majority (83%) of business leaders interviewed believe that global economic uncertainty will stay at its current elevated levels (30%) or get worse (53%) in the coming year. However, 69% of business leaders polled are cautiously optimistic about the coming year, as the report shows that resilient cities—defined as those that outperform their countries during economic downturns—have Foreign Direct Investment (FDI) as a percentage of GDP twice as high as non-resilient cities.

Despite their differences in location and culture, resilient cities have a set of commonalities that allow trade and investment to thrive. These characteristics include diversified economies and strong service sectors. In fact, resilient cities on average saw the share of services in GDP grow by 3.3% over the last five years; more than double the pace of non-resilient cities. Their populations are largely educated, with many inhabitants having college or other advanced degrees, as well as diverse, with higher rates of foreign citizens. On average, foreign citizens represent 11.6% of resilient cities’ populations, which is one-quarter higher than that of non-resilient cities. These cities also tend to have strong transportation infrastructures, including both airports and public transit options.

Building Resilience

The report also identified specific tactics used by resilient cities that organizations, including business and civic leaders looking to improve their own city’s resilience, can mirror.

In resilient cities, key stakeholders are prioritizing direct diplomacy, meeting face-to-face to navigate obstacles created by regional or national governments. By cutting through political red tape, organizations have been able to create new meaningful relationships with each other and strengthen existing ties. The ability to engage in a direct dialogue creates efficient business interactions that are beneficial to all parties. For example, World Trade Center (WTC) Arkansas has organized multiple diplomatic trade missions with Mexico. As a result, its exports to Mexico are growing 3.6 times faster than to any other country.

Cities are also proactively building programs to attract and retain skilled foreign citizens. For example, Twente, located in the eastern Netherlands, is evolving from a region focused on machine-building and textiles to one with an economy driven by high-tech systems. To retain young, skilled workers from across the globe, WTC Twente created an Expat Center that offers a range of services, including Dutch language courses, visas and work permits, housing, and support for families, as well as social events with the goal of enticing technically-skilled foreign workers and their families to integrate into the community for the long term.

Turning Obstacles into Opportunity

Economic turmoil affects everyone, but not always in the same way. For some, the current geopolitical reality presents opportunity. City leaders are adapting to these geopolitical changes and establishing themselves as cost-efficient and low-risk trade and investment partners to capitalize on the situation. FDI is being redirected towards these agile cities who have recognized the advantages created by this global uncertainty, and supply chains are shifting and realigning based on new benefits. Competition for FDI is escalating (global FDI slowed 27% over the last year, according to the OECD) and the private and public sectors need to work hand-in-hand to create attractive fiscal and tax environments, and institute policies that will attract business.

Cities are also increasingly investing in both high-tech industries, and SMEs to ensure they are able to attract FDI at a time when this investment comes at a premium. These high-tech industries will lead to future growth and play a central role in the next industrial revolution. Additionally, partnerships with major research institutions are being used to create new technology and modernize existing tech. For instance, in Delaware, private agriculture technology or “ag-tech” companies have partnered with universities to pioneer better technology in seeding, pest management, antibiotic reduction, and biopharmaceuticals.

SMEs are well suited to adapt quickly in the face of change and evolving economic realities, which enables them to capitalize on changing conditions. However, their size can prevent them from competing on a global scale. To combat this, programs that help SMEs move forward given limited resources can be critical in encouraging and nurturing growth opportunities. As an example, WTC Toronto created the Trade Accelerator Program (TAP), a six-week program that connects SMEs with export and business experts to train them on developing export plans fit for the global market. This program has now been adopted by several other WTC members in Canada, including Vancouver and Winnipeg.

At the moment the global economy is relatively unpredictable, and increasing risks for businesses have made sound strategic business planning more difficult at a time when it is absolutely vital. Knowledge, preparedness, and agility are key traits cities and businesses need to acquire in order to achieve success and growth. Despite the prevailing conditions, with a strategic approach and tactics proven to increase resilience, organizations can optimize current trade and investment opportunities and set themselves up for success now and in the future.

To review the full 2019 WTCA Trade and Investment Report: Navigating Uncertainty, including commentary from WTCA Members, visit www.WTCAReports.org

Archives, Global Trade Daily, International Trade

U.S.-CHINA FDI GOES COLD WHILE VENTURE CAPITAL HEATS UP

August 25th, 2019 Lauren Kyger Leave a comment

Two-way FDI is plummeting

With trade talks between the United States and China running hot and cold, it’s irresistible to get sucked into daily U.S.-China trade war updates with its unexpected tariff announcements. In the bigger picture, the underlying uncertainty caused by ongoing trade tensions between the United States and China is having a large impact, particularly on two-way foreign direct investment (FDI).

So far this year, combined two-way U.S. and Chinese FDI has totaled just $9.9 billion— its lowest six-month value in five years, according to research firm Rhodium Group. At its peak in 2016, combined FDI totaled over $60 billion a year.

The slow start in 2019 is a continuation of a rough year for FDI in 2018, when flows between the United States and China dropped 60 percent year-over-year. Rhodium Group cites a deteriorating political relationship and regulatory intervention as two big reasons for the sharp decrease in investment.

U.S.-China FDI troubles are part of a bigger trend happening across the world, as global foreign investment flows fell to their lowest levels since the financial crisis in 2018, according to UNCTAD. Global FDI flows totaled $1.2 trillion in 2018 – down 20 percent from 2017.

Invested in each other

With trade tensions rising to a fever pitch, it may be hard to remember that American and Chinese companies have invested a lot in each other’s success over the last 30 years – over $420 billion, to be exact. U.S. FDI in Chinese industries adds up to over $275 billion since 1990. While Chinese investment in the United States is almost half of that at $148 billion, according to Rhodium Group’s U.S.-China investment tracker.

Beyond the sheer volume of money invested, foreign companies bring much more intangible value to the table. In his book, “Developing China: The Remarkable Impact of Foreign Direct Investment,” Michael Enright used an economic impact analysis to better understand the full impact of FDI in China. Enright estimates that foreign companies have contributed as much as one-third of China’s GDP and 27 percent of China’s employment through the accumulated impact of their investments, operations and supply chains in China. American companies alone contributed 4.2 percent of China’s GDP and nearly three percent of Chinese employment in 2014, according to Enright’s analysis.

Enright also pointed out that foreign companies have helped China develop by creating suppliers and distributors, introducing modern technologies, improving business practices, modernizing management training, improving sustainability performance, and helping to shape China’s legal and regulatory systems.

Chinese companies operating in the United States also bring benefits. As the second-fastest growing source of FDI in the United States in 2016, Chinese-owned firms supported nearly 80,000 U.S. jobs, invested nearly $600 million in innovative R&D, and expanded U.S. exports by $4.7 billion in 2016, according to Select USA.

Growing regulatory hurdles

The ongoing U.S.-China trade war is not entirely to blame for the recent dive in FDI. Both nations have stepped up regulatory oversight of foreign investment in recent years. Following the 2016 peak of global outbound investment by Chinese firms, the Chinese government tightened its grip on outbound capital flows, drastically slowing outbound investment by Chinese firms.

In the United States, the Committee on Foreign Investment in the United States (CFIUS) has stepped up investment screening of Chinese FDI, especially in sectors related to national security like infrastructure and information and communications technologies. Rhodium Group estimates $2.5 billion was left on the table in 2018, as Chinese investors abandoned deals in the United States due to unresolved CFIUS concerns.

The U.S. investment landscape may get more complicated for Chinese companies to navigate in the near future, as investors await the implementation of the new Foreign Investment Risk Review Modernization Act (FIRRMA) and Export Control Reform Act (ECRA), both expected to increase U.S. regulatory oversight of foreign investments.

Foreign direct investment by American companies in China has also decreased, but not as drastically as for its Chinese counterparts. Yet, concerns about technology leakage have led to a cooling in U.S. FDI in China’s technology sectors.

FDI cooling, venture capital heating up

At the same time FDI is slowing, venture capital investment is becoming an increasingly bigger piece of the U.S.-China investment puzzle.

Chinese VC investment in the United States has increased dramatically since 2014, with Chinese-owned VC funds contributing an estimated $3.6 billion to U.S. companies over the course of 270 different funding rounds in 2018. This is just a fraction of what U.S.-owned VC firms have spent in China, but an important trend. U.S. VC firms invested a record $19 billion in Chinese start-up companies last year, according to Rhodium Group.

Firms on both sides of the world have utilized VC investment to invest in companies in sectors where FDI has faced growing regulatory scrutiny. Chinese VC firms have invested in semiconductors, for example, while U.S. VC Firms have invested in sectors limited to foreign firms in China like digital payments and internet start-ups.

Confidence is key

In order for foreign investments to work, companies are dependent on the success and stability of the nations where they choose to invest. Both American and Chinese companies have invested a lot in each other, through decades of foreign direct investment and now growing venture capital investment.

As the U.S.-China trade war rages without an end in sight, it’s worth remembering that ongoing tensions cost more than just tariffs on the products in your shopping cart. They are also a roadblock to long-term investments that bring additional capital, exports and jobs to each other’s economies.

Lauren Kyger is Associate Editor for TradeVistas. Prior to joining TradeVistas, she was a Research Associate at the Hinrich Foundation focused on international trade issues. She is a Hinrich Foundation Global Trade Leader Scholar alumna, earning her Master’s degree in Global Business Journalism from Tsinghua University in Beijing. She received her Bachelor’s degree from the Walter Cronkite School of Journalism and Mass Communication at Arizona State University.