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.

___________________________________________________________

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.

Archives, Global Trade Daily, International Trade

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.

____________________________________________________________________

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, EU Trade, Global Trade Daily

Is Europe The Best Place to Set-up your Business? Benefits and Pitfalls To Look Out For.

March 17th, 2021 Nicole Crawford Leave a comment

Your business is growing and successful in your country. You may have gotten to the point where you are asking yourself “What is next?”

It may be the most fitting choice in specific situations to launch a new product line or service to help you develop and grow your company. In other instances, entering into a new market is the next logical step.

For companies seeking to grow their businesses abroad, Europe has always been considered a great region. Expanding your company to Europe offers plenty of opportunities outside of your home market to expand. Expanding to Europe, however, is not without its challenges. In this article, we look at the benefits and pitfalls to look out for.

Benefits

First Mover Advantage

When it comes to first-mover advantage, Central-Eastern Europe (CEE) is becoming increasingly popular. CEE comprises countries such as Hungary, Poland, Slovakia, and the Czech Republic.

Example:

Businesses with the best e-commerce services can take the best mover advantage, as Forrester E-commerce Readiness Index suggests that the EU businesses lag behind in that area. Businesses can expand successfully by looking for places where established products and service levels are low, providing better alternatives.

Dreamland For Entrepreneurs

If you are an entrepreneur or the first company in your sector or market, you must consider setting up your business in Europe. This might provide you with an opportunity to earn a foothold before the market gets saturated.

Example

Take the example of Dublin (Ireland). There are many excellent reasons to uncover your new start-up company in Dublin. Dublin offers a favorable low tax system and a supportive environment for start-ups to the availability of well-educated workers. You need to be in the best location if you want your company to flourish.

Cost-Saving

It can be a cost-cutting step to set up a business in a European country in certain situations. Compared to the U.S., it could end up costing your company less to produce goods in the EU or to have your headquarters located in a European country. It can also help you save on shipping and transportation costs by providing a home base for your company in the EU.

Pitfalls

Pressure of Compliance

A company must adjust and function according to country regulations while expanding into a new market. These regulations may be quite distinct from your country of origin. In Europe, where employment law is concerned, each country has its own rules and regulations. Therefore, it is vital to associate with the right people who will help you stay compliant and ensure that the correct business procedures are in place from day one.

Global employee management

When it comes to employment legislation, every country in Europe has its regulations. Although some EU countries have parallels with some European laws, these directives are operated differently by each country and by the laws of their own country. A new level of HR support and administration includes the employment of foreign workers. For successful global expansion in Europe, staying compliant is key. Severe costs will result from failure to remain compliant.

Time zone issues

Your country offices can be four to 10 hours behind your European counterpart, depending on your company’s location and the location of your new venue. Differences in the time zone will make communicating a challenge. One possible difficulty of operating across time zones is that it can mean that it needs to become more coordinated and on-the-ball for your company.

How PEO Provide help

It’s just a matter of duration before you start planning a roadmap for your growth as a successful company owner. Luckily, there is a more straightforward option for companies that are trying to dip their toes into a new market without exhausting themselves with substantial investments and a set of criteria for international compliance. Engage with a PEO if you are looking to grow overseas using a lower-cost, lower-risk business model.

What’s a PEO, then?

A Professional Employer Organization works closely with small to medium-sized companies to assist with various activities, including providing access to better employee benefits, managing certain aspects of human resources, managing taxes and payroll, and other employer-specific admin positions that are required to operate a company effectively.

So, Precisely What a PEO Offers?

-International expansion

-Compliance support

-Payroll and HR

-Better recruitment options

-Risk protection

-Access to more engaging benefit packages

Example

You may take the example of Germany PEO services that offer employers of record service for businesses who want to recruit workers and run payroll without first setting up a branch or subsidiary. The candidate for your company is hired in Germany in compliance with local labor laws through PEO and can be set up within a few days. PEO services in Germany help customers in Germany to run payroll while HR utilities, tax, and compliance management problems are eliminated from their shoulders. As global PEO professionals, they practice the best strategies in employment contracts and severance problems and even termination if needed. Also, these services keep you up to date on any changes to local jobs laws in Germany.

Final Thoughts

Expanding worldwide has its pros and cons. However, companies seeking to grow their business internationally should take advantage of the many edges that Europe has to offer. With a population of over 500 million, a diverse community of countries, and a common market, Europe gives companies plenty of opportunities to grow.

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.

_______________________________________________________________

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, 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.

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

Archives, Banking on Global Trade, Global Trade Daily, News

New HSBC Report Urges Pro-Trade Policies

October 2nd, 2014 Haylle Sok Leave a comment

New York, NY – Though the US “continues to confront a competitiveness challenge of too few quality jobs and too little income growth, there is a future in which America can create millions of good jobs connected to the world via international trade and investment,” according to “Made in America – Made for Trade,” a new report released by HSBC.

Reaching that future, though, “will require US policies that are based on a sound understanding of how American companies succeed in today’s dynamic global economy, and of the critical role that trade finance plays in that success,” writes the report’s author, Prof. Matthew Slaughter of the Tuck School of Business at Dartmouth College.

The US, he concludes, could boost productivity and revitalize the economy in the next decade if the country “pursues an expansive and connected set of pro-trade policies in the areas of international trade, investment, immigration, tax, and the social safety net.”

The report’s major points:

* In absolute dollars, US exports have more than doubled from$1.04 trillion in 2003 to $2.26 trillion in 2013. “The net result has been a commensurate surge in how important exports are to the total US economy.”

* In the past three years, exports as a share of US GDP reached about 13.5 percent; the highest share since at least 1947.

* Exporters and importers “are more capital-intensive, more productive, and pay higher wages – about 15-20 percent higher for companies that trade and about 25-30 percent higher for multinational companies.”

* The tally of US companies that export has risen steadily in recent years, reaching a record 304,867 in 2012. Small and medium-sized companies – those that employ 500 workers or fewer – accounted for over 97.7 percent of this total count, at nearly 298,000.

* International trade “has boosted annual US income by at least 10 percentage points of GDP relative to what it would have been absent this global engagement. That translates into an immense aggregate gain in 2013 of at least $1.7 trillion, an average gain of over $13,600 per US household per year.”

* An aggressive pro-trade policy initiative could create, over the next decade, about 10 million new high-paying trade-connected jobs in America: one million per year or about 100,000 per month. This is indeed an aggressive goal. But it is also one that is no doubt attainable.

The HSBC Made for Trade report was crafted as an on-tour “national conversation” with leaders in business, government, industry and academia in four US cities whose economies have been shaped by global trade holding discussions on the role of global trade in today’s economy.

The national tour looks at the contribution of international flow of goods, services and capital to the US economy, and the opportunities for American businesses brought about by global trade.

10/02/2014

Archives, Global Trade Daily, News

AMCHAM Blasts China’s ‘Opaque’ Investment Rules

September 22nd, 2014 Haylle Sok Leave a comment

Los Angeles, CA – A major US trade promotion group is asserting that Beijing is targeting foreign companies “with opaque laws and rules that contribute to a deteriorating environment for investment.”

According to the American Chamber of Commerce in China (ACCC), 60 percent of those US-based businesses that responded to a recent survey said they feel foreign businesses “are less welcome in the country than before” – up from the 41 percent of respondents in a previous survey conducted in late 2013.

In addition, the group said, 49 percent stated that foreign companies are being “singled out” in the Chinese government’s ongoing pricing and anti-corruption campaign, which, many of those surveyed said, is “politically motivated and threatens to exacerbate a decline in foreign direct investment in the world’s second-largest economy.”

ACCC members say they have “growing perceptions that multinational companies are under selective and subjective enforcement by Chinese government agencies,” according to ACCC Chairman Greg Gilligan.

The country’s laws and rules, he said, “lack transparency and are at times only vaguely related to the particular case.”

Dozens of foreign companies “are being targeted in probes, with regulators opening an anti-monopoly investigation into Microsoft Corp. in July and state media accusing Apple Inc. of using its iPhone to steal state secrets, said Gilligan, who serves as Vice President and Managing Director for PGA Tour China.

In an interview with the state-run China Daily newspaper, Xu Kunlin, the head of China’s National Development and Reform Commission’s anti-monopoly bureau, called the charges that the country is specifically targeting foreign companies “groundless and baseless.”

Xu’s reactions were echoed by a spokesman for the Foreign Ministry in Beijing, who said that China’s anti-monopoly measures “are transparent, fair and done in accordance with the law.”

China, the spokesman said, “will as always welcome foreign companies and enterprises to develop cooperation in all fields and build a good market economy. At the same time, we request foreign companies observe Chinese laws while in China.”

American Chamber members have “concerns that rules are shifting again for foreign companies in China in ways that are highly opaque and difficult for local managers to anticipate or adapt to,” according to the ACCC’s Gilligan.

The group’s members, he said, “strive hard for full compliance and need support and greater clarity to achieve that goal.”

The ACCC’s membership representatives from more than 1,000 US-based companies of all sizes including Microsoft, Johnson & Johnson, Dell, Oshkosh, Qualcomm, and Mead Johnson.

09/22/2014