survey of foreign affiliates in new york city. overview of our talk the survey and the...

Survey of Foreign Affiliates in New York City

Overview of our talk

The survey and the characteristics of the affiliates in the sample

Why do foreign affiliates come to NYC and what do they do here?

The relationships of NYC foreign affiliates with the local economy

The relationships of NYC foreign affiliates with their HQs

NYC foreign affiliates: Then (1995) and now

Take away.

What did we set out to do?We sought understanding of:

Why do foreign companies operate in NYC? Decision making process; selection criteria Alternatives considered What does it take to keep them?

What advantages do presence in NYC provide? The strategic value of investment in NYC

How to maximize the benefits of investment in NYC for the firms and the local economy? What do foreign firms do in NYC (value adding

activities)? How locally embedded are they?

The Survey

We approached all foreign affiliates in New York City (listed in The Weissman Center Directory of International Business)

Mailed questionnaire, 2004

Responses received from a sample of 142 affiliates About 10% response rate.

Characteristics of the affiliates in the sample

Where do foreign affiliates in NYC come from?

% of total Our sample Total in

NYC

Western Europe 43.7 56.5

Asia (of which Japan) 31.0 (77%) 20.4

Latin America 9.2 6.5

Southeast Asia 7.0 2.6

Eastern Europe 4.9 6.3

Africa 2.8 6.5

T-test: 0.10

Major home countries of NYC affiliates

Number of affiliates Our sample Total in NYC

Japan 36 (+) 456

France 11 (-) 317

United Kingdom 11 208

Italy 9 146

Germany 7 99

In what industries do they operate?

% of the sample

Financial Institutions 21.0

Banks 13.1

Retail 14.8

Manufacturing 12.6

Tourism 8.9

Pharmaceuticals/Chemicals 8.1

Consulting/Legal services 5.2

Food/Beverages 4.4

Other Services 3.7

Marketing/Advertisement 3.7

Publishing 3.0

Real Estate 1.5

The majority of NYC foreign affiliates are small

establishments% of total

Number of employees Our sample Total in NYC

Up to 10 37.0 54.4

11-30 30.9 21.3

31-50 12.8 5.4

51-100 5.2 10.6

Over 100 14.1 11.1

Average 143.7 93.7

Median 14.5 10.0

Differences are not significant

And the magnitude of their business in NYC is modest

0%

5%

10%

15%

20%

25%

30%

% o

f th

e sa

mp

le

0--5 6--10 11--20 21--30 31--50 Averageover 50

Sales in millions US$

Growth has been slow… at least during the last 3 years

0%

5%

10%

15%

20%

25%

30%

35%

40%

% o

f th

e s

am

ple

<0% 1--5% 6--10% 11--20% 21--30% > 30%

Average annual sales growth

How does this growth compare with the economy?

Growth rates, 3 years

The US economy: 3.5%

NY state: 2.5% (2001-2003)

Source: Bureau of Economic Analysis

When did foreign affiliates come to NYC?

0%

5%

10%

15%

20%

25%

30%

35%

40%

% o

f th

e sa

mp

le

2000-present

1995-1999

1990-1994

1980-1989

1970-1979

Before1969

Year of establishment

Mode of establishment

91.5% of the affiliates in our sample established an office from scratch

Acquisitions: 8.5%Of US-owned firm: 7.0%Of foreign-owned firm: 1.5%

Mode of establishment by year

0% 20% 40% 60% 80% 100%

2000-present

1995-1999

1990-1994

1980-1989

1970-1979

Before 1969Establishedan officefrom scratch

Acquired aUS-ownedcompany

Acquired aforeign-ownedcompany

Mode of establishment by industry

0% 20% 40% 60% 80% 100%

Finance

Retails

Tourism

Chemicals

Manftg.

Services Establishedan officefrom scratch

Acquired aUS-ownedcompany

Acquired aforeign-ownedcompany

Our sample is wholly-owned Level of ownership

The overwhelming majority of foreign affiliates in our sample are wholly-owned: 86.5%

The rest is split equally between majority owned (more than 50%) and minority owned (up to 49%).

Why do foreign affiliates come to NYC and what do

they do here?

Why do foreign firms come to NYC? This is what they told us

% of the sample

Initially Current

Establish a presence in a global business center

20.0 20.0

Serve US clients 19.0 21.6

Exploit their firm specific advantages 19.7 12.4

Serve home clients overseas 11.4 11.0

Implement a specific activity for the entire corporation

9.0 10.7

Access NYC local resources 8.4 8.0

Tap into industry knowledge pool in NYC 7.6 8.0

Counteract or preempt competitors’ moves 4.3 6.2

Would they choose NYC as a location today?

Yes No

90% 10%

And those that would leave NYC, where will they go?

The most frequently selected alternative is the tri-state region

Other attractive destinations are Chicago, Los Angeles, and Washington DC.

What do NYC affiliates expect policy makers to do to make NYC a

better business location? % of the sample

Reduce taxes 44.6

Improve transportation/infrastructure 23.0

Improve security 10.8

Improve the quality of service/business 6.8

Reduce cost of doing business 6.8

Improve the quality of life 5.4

Reduce cost of living 2.7

What do foreign affiliates do in NYC?

Functions performed by NYC affiliates

0%

5%

10%

15%

20%

25%

30%

% o

f th

e sa

mp

le

Sales &Distribution

CustomerServices

RegionalHeadquarters

R&D Production

Functions performed by NYC affiliates, by industry

0% 20% 40% 60% 80% 100%

Finance

Retail

Tourism

Chemicals

Manuftg.

ServicesR&D

Production

CustomerServicesSales &DistributionRegionalHeadquarters

Functions performed by NYC affiliates, by region

0% 20% 40% 60% 80% 100%

R&D

Production

Cust. Serv.

Sales&Distrib.

Regional HQsWesternEurope

Asia

LatinAmerica

The relationships of NYC foreign affiliates with

the local economy

NYC affiliates do not sell much locally

About 40% of the affiliates in our sample generate less than 10% of their sales locally

Another 17% of them sell less than a quarter of their total locally

Only 7% generate more than three quarters of their sales locally

Local sales by industry

0% 20% 40% 60% 80% 100%

0-10%

11-25%

26-50%

51-75%

75-100%

% o

f sa

les

in N

YC

% of the sample

Finance

Retail

Tourism

Pharm.

Manuftg

Otherservices

Nor do they purchase much locally

About half of the respondents do less than 10% of their purchases locally

Another 15% purchase less than a quarter locally

Only 20% of the affiliates in our sample do more than three-quarters of their purchases locally

Local purchases by industry

0% 20% 40% 60% 80% 100%

0-10%

11-25%

26-50%

51-75%

75-100%

% o

f p

urc

has

es i

n N

YC

% of the sample

Finance

Retail

Tourism

Pharma.

Manuftg

Otherservices

And the competitive arena of most of them is away from NYC

Three quarters of the respondents reported that most of their competitors are located outside NYC:35% of the respondents said less than 10% of

their competitors are locally-basedOnly 13% of the respondents reported most of

their competition is locally-based

Competitive arena, by region

0% 20% 40% 60% 80% 100%

0-10%

11-25%

26-50%

51-75%

75-100%

% o

f co

mp

etit

ors

in

NY

C

% of the sample

WesternEurope

Asia

LatinAmerica

But they seem to be heavily engaged with local companies

Frequency of meetings with people from other companies, % of the sample

In same industry

In other industries

Once a week 51.0% 45.0%

Once a month 22.0 23.4

Several times a year 22.0 20.0

Once a year 3.0 3.0

Less than once a year 2.0 8.0

Why do they meet other companies so often?

% reported these meetings are “very important” and “important” source of:

Client specific knowledge 75.8

Industry specific knowledge 74.2

Business environment knowledge 68.7

The relationships of NYC foreign affiliates with

their HQs

The most important decisions related to NYC affiliates are not

undertaken in NYC

0% 20% 40% 60% 80% 100%

Longterm strategy

Capital

New markets

New products

R&D

Labor relationships

Distribution/marketing

Outsourcing

Aff iliatesdecide

Equalinf luence

HQsdecide

Resources transferred between NYC affiliates and their parent

companies % reported intense and moderate transfers

From HQ to NYC affiliates

From NYC affiliates to HQ

Professional knowledge 71.0 68.0

Marketing knowledge 62.4 61.0

Global market knowledge 64.4 52.0

Organizational practices 58.0 36.0

Capital 60.0 17.6

Employees 30.8 5.5

Resource transfer, by major regions: from NYC to HQ

0% 20% 40% 60% 80% 100%

Professional knowledge

Marketing knowledge

Global market knowledge

Organizational practices

Capital

Employees

% of the sample

WesternEuropeAsia

LatinAmerica

Resource transfer, by major regions: from HQ to NYC

0% 20% 40% 60% 80% 100%

Professional knowledge

Marketing knowledge

Global market knowledge

Organizational practices

Capital

Employees

% of the sample

WesternEurope

Asia

LatinAmerica

NYC foreign affiliates rely heavily on the local labor market

0%

5%

10%

15%

20%

25%

30%

35%

% o

f th

e sa

mp

le

None 1--5 6--10 11--15 16+

Expatriates as % of total labor force

Most of the profits of the foreign affiliates remain in NYC

0%

10%

20%

30%

40%

50%

% o

f th

e sa

mp

le

None 1--25 26--50 51--75 76+

Profits transferred to HQ as % of total profits

NYC foreign affiliatesThen (1995) and Now

The 1995 survey:Sample and response rate

1992 Directory of Foreign Firms in the United States559 firms in NYCRandom sample of 20039 interviews

D&B Information Services550 foreign firms in NYC37 mail survey responses

Surveys combined

Choose NYC again?

NowYes - 90%No - 10%

ThenYes - 82%No - 18%

Leave NYC?

Now If yes, most

frequently mentioned locations are tri-state area, Chicago, Washington DC and Los Angeles

Then If yes, most frequently

mentioned locations are tri-state area, elsewhere in New York State, Colorado, and Arizona.

57% would leave for tax savings

What do NYC affiliates expect policy makers to do to make NYC a better

business location? % of the samples

Now Then

Reduce taxes 44.6 16.2

Improve transportation/infrastructure 23.0 18.9

Improve security 10.8

Improve the quality of service/business 6.8

Reduce cost of doing business/reduce bureaucracy

6.8 14.9

Improve the quality of life 5.4 24.3

Reduce cost of living/create more affordable housing

2.7 9.0

After all was said… Take away

Take away: The overall picture emerging from our data

NYC affiliates are a population of small establishments, quite heavily controlled by their parent companiesNYC affiliates are a force for good for the NYC economy and enhance its economic strength Create high value added jobs Bring and maintain capital

The most important resource transferred between NYC affiliates and their parent companies is knowledge of various kinds. Except for capital and employment the transfer is two

ways.

Take away for NYC policy makers

The satisfaction of foreign affiliates with NYC is very high and has increased over the last decadeMost would choose NYC again

However, high taxes are a growing concern of NYC affiliates #1 on the list of expectations for

improvements by policy makers!

Take away for NYC affiliates

Most sales and purchases of NYC affiliates takes place elsewhere.

Most affiliate competitors are not located in NYC

Local interaction with other companies is of critical importance to foreign affiliates. Knowledge and local learning appear to be the

major strategic value that NYC provide foreign affiliates.

Finale

Copies of this presentation and the questionnaire can be downloaded from:

http://zicklin.baruch.cuny.edu/centers/weissman