How are U.S. Cities Innovating to Leverage Foreign Direct Investment?

How are U.S. Cities Innovating to Leverage Foreign Direct Investment?

On July 20th, the Truman Center for National Policy and the U.S. Department of State hosted a virtual panel discussion on how U.S. cities are innovating to attract Foreign Direct Investment (FDI).

The event featured opening remarks by Ambassador Nina Hachigian, Special Representative for City and State Diplomacy at the U.S. Department of State, and a keynote address from Mayor Quinton Lucas of Kansas City. A panel moderated by Truman's Visiting Senior Fellow Max Bouchet included Dr. Femi Elegbede, Acting Director of Investment Research at SelectUSA, the U.S. Department of Commerce’s federal investment promotion agency; Segun Idowu, Chief of Economic Opportunity for the City of Boston; Chris Knight, Managing Director of fDi Intelligence at the Financial Times; and Deborah Scherer, Senior Vice President of Global Trade & Investment at One Columbus.

Key themes of the conversation included:

  1. Why does going global matter to U.S. cities?

U.S. local leaders often initiate international efforts to connect their regions to the global economy. Many U.S. cities and regions are already deeply connected to global flows of people, trade, and ideas. Cities with substantial diasporas, such as Boston, where one-in-four residents are foreign-born, have strong international interests in their DNA. Local communities in these cities are often undertaking cultural and citizen diplomacy.

Regional economies also greatly benefit from cultivating economic ties with foreign counterparts. Foreign direct investment (FDI) and foreign-owned businesses account for a significant part of job creation, often tied to higher wages. SelectUSA reports attracting over $146 billion in FDI since its inception in 2007 (and creating/retaining 166,000 jobs), resources that can jumpstart local economies hit hard by the pandemic. Cities like Columbus, formerly known for their Rust-Belt economic deterioration, have reorientated their economy toward greater engagement with global markets, with foreign investment as a catalyst to successfully transition towards highly competitive and innovative specializations.

In an era of intense economic competition, US cities cannot afford not to promote themselves in global markets. Many emerging industries, such as semiconductor and battery manufacturing, are led by foreign companies, and North America has only 18% of the current clean energy market share. To remain relevant in the global economy and keep growing, cities need to attract and retain foreign investments.

  1. Cities cannot afford to be reactive: they need to develop targeted and proactive FDI strategies

Attracting FDI requires deliberate efforts based on proactive, data-driven, and targeted strategies. Too few U.S. cities have developed such strategies, often relying on ad-hoc and reactive engagement with foreign businesses and locations: welcoming incoming requests without screening, and organizing trade missions without clear priorities. These efforts usually bring low return value and invite scrutiny from constituents and taxpayers.

Some cities also need to finely tune the way they promote themselves to the world. Large cities like Boston may seek to attract a wide range of industries, from life sciences to insurance services. But small- to mid-sized cities find value in specificity. Kansas City leverages its central US location to promote strong warehousing and distribution networks. Columbus adapts proposals to each company's needs and prioritizes advanced manufacturing, even if this requires accepting that certain companies may not be a good fit for the region.

  1. Effective FDI strategies are driven by data.

Local leaders should align their international engagement to their regional economic development agenda, based on a clear understanding of their local industry strengths. Because no city is a strong performer in every sector, identifying and broadcasting specific industrial specialties does more to attract FDI than attempting to generalize across all industries (e.g. “cybersecurity” is more specific than “IT services”).

Cities and their economic development organizations and chambers of commerce benefit from collecting and analyzing data to map their assets and industry strengths. Federal agencies, such as SelectUSA, part of the U.S. Department of Commerce, are often a partner for local actors and provide them with data on everything from water infrastructure to housing costs. Economic development organizations like Los Angeles EDC also find value in collecting inward FDI data at the city-level, to map out foreign-owned businesses locally, guide new international initiatives, and communicate about the value and return of the international efforts for the regional economy.

  1. Cities need to organize for economic competitiveness by building coalitions across sectors.

Building economic competitiveness takes a village. Local leaders and mayors play a key role as ambassadors and champions for their region abroad. But FDI attraction also requires collaboration between a wide range of public, academic, and private actors who know best the industry strengths and economic needs of their community. One Columbus, the economic development organization (EDO) for the Columbus, Ohio region, provides a model of collaboration across sectors and stakeholders by bringing political leaders, chambers of commerce, and business actors together to set the region’s roadmap. One Columbus hosts monthly and quarterly meetings with county and state economic development partners and frequently organizes joint trips and trade missions to other regions.

Boston can trace its success in life science FDI to efforts by Massachusetts Governor Deval Patrick during his term a decade ago. In 2008, Gov. Patrick signed into law a 10-year, $1 billion investment plan for Massachusetts life sciences. The investment fueled life sciences development on many levels, from elementary and high school to workforce development, commercialization, and academia.

  1. City diplomacy helps cultivate connections in prioritized markets.

Local leaders play a crucial role in cultivating long-term relations with foreign counterparts at home and abroad. They prioritize markets that align with their city’s assets and existing connections. This alignment of city diplomacy efforts with economic development is essential. Consistency is key: building these relationships takes time as major deals may take years or decades to come to fruition.

To attract investments, cities should strengthen their ties with foreign businesses and U.S. consulates in their regions. Existing connections are often the primary source of investments. Retaining foreign businesses requires thoughtful aftercare through administrative, operational, and strategic assistance. For example, Columbus reports that a large majority of their investment deal flow comes from expansions of companies already established in the region.

Equitably spreading the benefits of FDI necessitates proactive awareness and intentionality. Ensuring that incoming firms locate and recruit across neighborhoods and communities requires connecting FDI to broader economic development efforts, including workforce training.

  1. Partnering with the federal level can help.

The international efforts cities and local actors undertake, especially job creation through FDI attraction and exports, are the foundation of America’s competitiveness and prosperity. Stronger ties between the local and federal levels can ensure that diplomacy and foreign and trade policies serve all Americans.

SelectUSA provides a wide range of services to support the exports of small businesses and to promote U.S. locations in global markets. They also facilitate connections with over 75 foreign markets and provide FDI attraction advice and networking opportunities, such as the annual SelectUSA Forum. The creation of the Unit for City & State Diplomacy at the U.S. Department of State in October 2022 already demonstrates the potential for a better alignment between the international engagement of U.S. local governments and U.S. foreign policy. This partnership can enable the U.S. federal government to harness and support the international connections of U.S. cities, while raising awareness across the federal government about the depth, diversity, and value of these subnational ties for the country.

Summary by Arya Nalluri and Max Bouchet