choosing the right location for FDI What to look for in a site: Comparing locations (countries, states, cities) Bargaining Power Guidelines to FDI List of all trade promotion agencies Middle East Africa Asia USA

 

choosing the right location for FDI

 

 

see also:   Location Consultants ,   location, location, location,   attracting FDI investments to your location

 

 

The Intel case teaches several key aspects to consider when analyzing a foreign investment. The due diligence has to incorporate a broad list of topics such as economical and political conditions, labor environment, fiscal incentives, culture, country/city infrastructure , education, etc. All the factors that might affect the investment positively or negative.

 

Next , the company should make a list of what factors are "musts", ie factors that they must have (like "no labor unions", for example), and the "wants", which are things that they could give up, but would prefer not to.  With this analysis completed BEFORE beginning your search, you will find it easier and faster to eliminate potential sites.

 

 

What to look for in a site:

 

potential foreign company will be looking in our countries: availability of personnel, situation of labor unions, availability of electric supplies, situation of government taxation , etc...

 

• predictability in the rules / legislation.  In this aspect, stable Democracies are more predictable where you will know the rules from year to year, and there is a sense of predictability. 
• transparency - make sure the laws are well known

• watch out for "special deals" that you make with current administration.  If the current government makes special arrangements for your company, or lets you benefit around certain laws, then you have the risk that future governments might take away that special privilege.  If the government is going to change any rules to attract your investment, make sure that the change the rules for everyone!

• labor is unionized?  How strong are the unions?  But, note...if you are investing in a high tech sector with high levels of thought involved, then unions may not be that big of an issue.  Its more of an issue with low level manufacturing jobs.

 

 

Comparing locations (countries, states, cities)

 

1.  pick the "must have variables",  (such as cheap energy, or available resources, or large market size)

2.  compare that variable country vs. country

3.  line up the analysis in a table...comparing one vs other in terms of the most important variables...

4.  use a weighted average system to "score" the locations one vs. other.

 

For example, when Intel was looking for a site, they looked at Brazil, Chile, Mexico and Costa Rica.  Labor availability was very important, but Costa Rica was lacking of the kind of technical expertise that Intel was needing; on the other side, Brazil had enough labor supply because of the amount of high-tech firms that in the past have placed there (e.g. Embraer); finally, in Chile there was availability but a high cost.  By lining up the different countries on this one variable, it becomes easier to compare countries in the same variable.   But, this one variable was not the most essential.  Eventually, Intel chose Costa Rica due to their close proximity to the US, a favorible union situation, and incentives to export.  Brazil, on the other hand, was more interested in attracting investment for the internal market, and did not put special attention in attracting Intel to Brazil (big mistake!). 

 

 

Bargaining Power

 

The key to a good negotiation is creating a situation where you have the bargaining power when selecting a site.  If you have multiple countries (or states, cities) competing for your FDI investment, then obviously you can play one off against the other for advantage.

 

But, what leads to bargaining power?

• high tech
• fast changing tech
• proprietary knowledge
• options of other locations that could work just as well

 

 

 

 

 

Guidelines to FDI

 

 

1.   Low level of corruption needed

• corruption

 

2.   good  regulatory quality

3.  Tax reasons taxation

4.  Sound macro economics

5.   Large investments in infrastructure projects

• Brazil FDI 
• FDI

 

6.   Business clusters  - how multinational corporations choose a location

• Business Clusters
• innovation clusters

• Country Analysis
• Location Consultants
• political risk assessment

 

 

7.   Home grown development vs.  Multinational corp FDI

• Emerging Multinational Companies

 

8.   Local examples:

• Economic Development in Miami

 

9.  Attracting financial portfolio money

• International Finance markets

 

10.  Attracting "do-gooders"

• Sustainable development ...Page name match: Sustainable development...
• environment and economic development ...Page name match: environment and economic development...

 

 

11.  Free trade Zones (FTZ's)

• zones that allow duty free and encourage exports

 

12.  Free trade agreements such as NAFTA, and other trading blocs.  see

• trade liberalization

• trade barrier
• free trade movement slows down in 2008
• regional trading blocks
• WTO

 

 

 

List of all trade promotion agencies

http://www.fdi.net/dir/ipa_index.cfm

 

 

Middle East

ESBAS - Aegean Free Zone Development & Operating Company - Izmir , Turkey , Middle-East

 

Africa

FIPA Tunisia - Tunisia , Africa

 

Asia

Gunsan Cluster Development Agency - Gunsan , South Korea , Asia

Gwangyang Bay Area Free Economic Zone Authority - Gwangyang , South Korea , Asia

 

USA

Nevada Commission on Economic Development - Nevada , USA , North America