retaining and increasing canadian...

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RETAINING AND

INCREASING CANADIAN

FDIU N D E R S TA N D I N G T H E F O R E I G N

I N V E S T O R ’ S C U R R E N T P E R S P E C T I V E

Marc BeauchampNovember 1st, 2016

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Strategy

•Readiness Assessments

•Diagnostic

•Head Office Strategy

•Acquisitions

Financing

• Incentives

• Equity

•Venture Capital

Implementation

• Site Selection

• Incentives

•Cost Analysis

•Decisional Matrix

Maximizing Project Value

Investment Project

Corporate Service Offerings

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• $10 billion in capital

investment projects

• 27,000 jobs created and

retained in the private

sector

• 125 economic development

agencies and jurisdictions

in North America

Montreal

Toronto

New York

General Facts

Attract ing and Retain ing FDI

Constant Battle Between Perception and Business Needs

Branding vs. Delivering

CAI ’s S i te Select ion Process

Strategic Assessment

Location Screening, Modeling &

Benchmarking

Cost ComparisonCommunity Evaluations

Implementation

• Information & sales packs

• Investment plans

• Policies and incentives

• Procedures and requirements

• Progress and achievements

Image Building

• Advertising and PR

• Information & marketing

• Missions & events

• Company targeting

• Company visits

• Follow-up

Targeting Lead Generation • Information provision

• Assistance with contacts

• One-stop-shop services

• Assessment of manpower, infrastructure, service needs

• Follow-up

Servicing Investors

• Continued “account executive attention”

• “Ombudsman” role and trouble-shooting function

• Follow-up on manpower, infrastructure, service needs

Aftercare and Policy Advocacy

Phase 2Phase 1 Phase 5Phase 4Phase 3

Cri t ical Moments in the Decis ion Process

Company Action EDO ActionFinal choice Engaging the business community

Company Action EDO ActionOn-site evaluations Professional site visits and answering business needs

Company Action EDO Action

Evaluation locations Website and marketing that educate

Company Action EDO ActionBusiness evaluation and assessment of search area Relevant branding that gets you on the list

Source: The CAI Global Group, 2015

Cri t ical Moments in the Investment

Decis ion Process

1. Getting on the radar

• Brandingyourcommunity

2. Beating the competition

• Delivering on yourpromises

3. Winning a reinvestment

• Answeringcurrent and future needs

PerceptionsNeeds

The Investor ’s Decis ion -Making Process

The foreign investor will look to what will satisfy and suffice “satisficing”*

• Looks for value-added information as early on as possible

• Reduces costs of search and will seek something that is “good enough,” something that is satisfactory

• Limited attention to the site search. Not only can they not get access to all the information required, but even if they could, their minds would be unable to process it properly

• Sticks to preconceived ideas and known information. The human mind necessarily restricts itself; it is bound by “cognitive limits”

* Derived from Herbert A. Simon’s theory of bounded rationality, Nobel Prize Winner, 1978

The Investor ’s Decis ion-Making Process

C r i t i c a l M o m e n t 1 :

G e t t i n g o n t h e

R a d a r - B r a n d i n g

yo u r C o m m u n i t y

Market your community to have the opportunity to

compete

Draw out the attention of the

investor

Create or modify an impression

U.S. Execut ives’ Percept ions of Canada’s

Business Cl imate

Source : U.S. Executives’ Perceptions of Canada’s Business Climate, Development Counsellors International, 2013

Source: Ericsson Communications, Internal Newsletter, 1990's

Cri t ical Moment 1: Gett ing on the Radar -

Branding Your Community

At the beginning of

search process24%

Aftershortlisting

40%

Final list: decision stage

13%

Once site identified 6%

Never17%

First Point of Contact with the Community

Why develop a branding of your

community ?

75% of investors will make an initial decision

before contacting any economic developer

36% will have a final list before any outreach

to a community

Their decision will be based on their

perception, what marketing message got to

them and what they believe your community

has to offer

Source: Winning Strategies, A view from Corporate America, Development Counsellors International, 2014

Cri t ical Moment 1: Gett ing on the Radar -


Source: Winning Strategies, A View from Corporate America, Development Counsellors International, 2014

Gett ing on the Radar : Promotional Tools

and Prospect ing

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Source: Winning Strategies, A View from Corporate America, Development Counsellors International, 2014

0%

10%

20%

30%

40%

50%

60%

70%

80%

Internet/Site Web Visite planifiée dedirigeants

Relationmédia/publicité

Évènementsspéciaux

Exposition Promotion Envois postaux Telemarketing

2014 2011 2008 2005 2002 1999 1996

Internet/ websitePlanned visits to

corporate executives

Media relations/

publicityHosting special

eventsTrade shows Advertising Direct mail Telemarketing


and Prospect ing

Source: Economic Developers Association of Canada, 2014

Social Media and FDI

Like other professionals, economic developers are adopting

social media:

The case for why social media is an important tool for economic

developers has been made. Social media tools provide timely,

engaging, interactive, targeted and low-cost ways to market a

community, gain information, and communicate and build

relationships with stakeholders. However, as with other programs or

services offered by economic development agencies, to be truly

effective, it is critical to have a strategy in place.

“If we are not having conversations, we are not making a

difference,” Wright, 2012

Social media platforms EDAC members

are using (% of respondents)

Cri t ical Moment 1: Gett ing on the Radar –


It’s hard work

Consists of leveraging a multitude of platforms and technologies

Receiving political support

Planning small steps


and Prospect ing

EDAs must work on their brand if they are seeking success with their marketing tools

Breaking through the clutter… is difficult without a brand. It is no longer sufficient for agencies to tell the world that their region is the best choice to invest in

Agencies must consistently illustrate why the region is the best option to invest in by using key brand attributes that must be substantiated with accurate & updated content

Branding your community (region or province) must be a coordinated effort

with all stakeholders involved in attracting FDI


B e a t i n g t h e

C o m p e t i t i o n -

D e l i v e r i n g o n

yo u r P r o m i s e s

Understanding the motives of the investor

Investment readiness

Beat ing the Compet i t ion: Del iver ing on

your Promises

Motives underlining a foreign company’s investment into Canada:

Not always a substitute to an investment in their home country

A logical next step in a growth strategy

Closely linked to a business strategy

• Market proximity

• Resource needs

• Efficiency requirements

• Strategic asset-seeking

Beating the Competition: Motives for Investment

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Source: Adapted from UNCTAD (1998), Dunning (1998, 2000, 2004)

Beating the Competition: Motives for Investment

• Resource-seeking

• Efficiency-seeking

• Strategic Asset-seeking

• Market-seeking

• Market-seeking

• Resource-seeking

• Efficiency-seeking

• Strategic Asset-seeking

Source: Invest in Canada, Investment Strategy and Analysis Division, Office of the Chief EconomistGlobal Affairs Canada, 2016

Beat ing the Compet i t ion: Investment

Readiness

Source: 29th Annual Survey of Corporate Executives, Area Development, 2015

Out of the 10 most

important site selection

factors, 8 are

related to your

community or region

Beat ing the Compet i t ion: Del iver ing on

your promises

At the end of the day, investors are not investing in Canada,

they are investing in your community

Investment readiness becomes increasingly important for all

EDOs looking to attract FDI

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Readiness

Investor has limited attention to the site search

Unable to process the information properly

Condition OK/DNQ

Qualifying NAICS OK

Project: Project Stone

Sales and Use Tax Exemption on Energy Used in Manufacturing

Jobs 58

Output per Worker $210,000

Expected Sales using Industry Averages $12,180,000

Energy Cost (Utilities) to Sales Ratio 1/62

Expected Energy Cost $195,963

Sales Tax 8.70%

Tax Savings $17,049

This preliminary profile suggests annual savings from sales and use tax exemptions on energy used in manufacturing of:$17,049

DISCLAIMER

The materials contained in this document have been prepared by the Oklahoma

Department of Commerce for informational purposes only and do not constitute legal or

tax advice. This information is subject to change based on judicial interpretation and

legislative action. The application of the information is subject to your unique facts

State of Oklahoma Incentive Summary

State Incentives

1b Alternative to Quality Jobs Incentive

Investment Tax Credit $232,750 Five Years

Sales and Use Tax Reimbursement on Construction Materials $0 One-Time

Applies to manufacturing firms with new building investment of at least $5 million.

2 Five Year Property Tax Exemption $176,693 Five Years

Real and personal property used in the manufacturing process earns a five year

abatement assuming a minimum of $250,000 in investment and $250,000 in new

payroll in counties with a population of 75,000 or less, additional payroll of

$1,000,000 is required for larger counties, OR certain computer service

companies already in the program with $7,000,000 investment.

3 Sales and Use Tax Exemption on Machinery and Equipment $404,985 One-Time

Valid at all times for machinery and equipment purchased for use in the

manufacturing process. Includes replacement parts as well as new equipment.

4 Freeport (Inventory) Tax Exemption $16,757 Annual

Firms able to move inventory through their facilities within a nine month period

are able to avoid property tax liability on imported items.

5 Sales and Use Tax Exemption on Goods Consumed in ManufacturingEst. Available Annual

Includes tangible personal property used in the manufacturing process as well as

primary and secondary packaging materials.

6 Sales and Use Tax Exemption on Energy Used in Manufacturing $17,049 Annual

Includes all fuel and electric power used in the manufacturing process.

ESTIMATED TOTAL VALUE OF STATE INCENTIVES OVER TEN YEARS:

* With 1a, Quality Jobs Cash Incentive $919,737

* With 1b, Investment/New Jobs Tax Credit Package $1,152,487

ESTIMATED TOTAL VALUE OF STATE AND FEDERAL INCENTIVES:

* With 1a, Quality Jobs Cash Incentive $919,737

* With 1b, Investment/New Jobs Tax Credit Package $1,152,487

Project Name: Project Stone

Eligible new manufacturing investment earns a credit of 1% each

year for five years (total of 5% of investment).


Readiness

Investor looks for value-added information as early on as possible

Example : RF I Response Deva lu ing the Reg ion

The RFI response and communication

with investor and site selector must be

strategic and tie-into the efforts of

selling the attributes of the community

If the proposed site can not meet the

criteria, the RFI response should

outline the solutions, how and when

Collaboration between the federal,

provincial and local governments as

well as educational institutes and other

stakeholders are key and to leverage

an RFI response

Case: Project in Food Processing looking at the US

and Canada

Response to an RFI included claims like “we have

no incentives” and “our sites do not have the

availability of water and sewer capacity necessary

for this project”

Reality:

The infrastructure improvements could be paid for using

an existing development program

Site was located in a province that ended up putting

together a $33 million incentive package


W i n n i n g a

Re i n v e s t m e n t -

A n s w e r i n g

C u r r e n t a n d

Fu t u r e N e e d s

Answering current and future needs

Winning a Reinvestment

Company has worked with you to complete their investment project

Company evaluates its experience; how you kept your promises and met its needs

Impression you leave will play a role in your ability to support them in the future, and secure a reinvestment

Retention and expansion of a business in your jurisdiction depends on your capacity to develop your community

« A business cannot remain healthy

in a sick community »

Source: Andrews, K., The Concept of Corporate Strategy, 1980


Factors that cause relocation:

High taxes 44%

Excessive government regulations 29%

Labor availability 26%

Labor costs 24%

Poor infrastructure 24%

Quality of life concerns 21%

Healthcare costs 15%

Source: 29th Annual Survey of Corporate Executives, Area Development, 2015


• Reinvestment and retention dynamics:

– Decision-making process; structure of organization; internal competition

between subsidiaries

– Local leaders become important in the process (e.g., Remember

Ericsson)

– The EDOs focus must be on the ability to answer the investor’s current

and future needs

Neutral and

paternalisticConflictual

Synergy and

creativityMissed opportunities

EntrepreneurPassive

Negative

Positiv

e

Birkinshaw (1995). “Encouraging Entrepreneurial Activity in Multinational Corporations”

Business horizons. “Likely Forms of the Parent-Subsidiary Relationship”

Behaviour of the

head office

towards

subsidiary

initiatives

Decis ion -Making Process

Behaviour of the subsidiary

executives

Identify the strategic foundation of the company in your community

Anchored Interconnected

Ineffective Advantaged

Local Comparative

Advantages


Local Strategic Importance

Best Pract ices

• Access to resources

• Proximity to market

• Labour (cost,

quality)

• Available incentives

• Tax benefits

• Education

• Labour (cost, quality)

• Business community

• Local industries

• Transport/distribution

• Access to resources

• Proximity to market

• Labour (cost, quality)

• Business community

• Local industries

• Transport/distribution

Anchored Interconnected

Ineffective Advantaged


Strategic

asset-

seeking

Market-

seeking

Resource-

seeking

Efficiency-

seeking

Understand Your External Environment

Best Pract ices

Conclus ion

Branding and marketing sometimes has more to do with how the investor thinks than the

message you want to relate.

No longer sufficient to tell the world you are the best choice to invest in

Requires the use of different technological platforms and the ability to provide added value

The attraction of FDI for Canada involves a multitude of stakeholders who must work

together

Investment Motives

Investment Factors

Conclusion

Once Canada is on the radar, the investor will look to the community to evaluate

the investment factors (8 out of 10 factors are local criteria) and will make a

decision; communities have the responsibility to be investment ready

Winning a reinvestment requires the ability to identify the positioning of the

subsidiary based on its external environment (Local Strategic Importance and Local

Comparative Advantages)

THANK YOU

Marc Beauchamp, Vice-President and Partner 514-982-0095, ext. 224 I [email protected]

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