Grunke Column: Why Foreign Direct Investment Matters
Recently a ground breaking was held for a 20 unit luxury condominium building known as Pollys Square in the Old Sawmill District – with much of the financing being secured through Foreign Direct Investment (FDI) into our community. This investment – which ultimately will be in the tens of millions of dollars – was brought to Missoula by local business leaders Arnie Sherman and Ed Wetherbee who founded the Northern Rockies Regional Center.
Earlier this spring, Montana representatives from the Governor’s office participated in the SelectUSA Conference, which attracted companies from all over the world. The intent was to give them plenty of reasons to do business here, because it’s good for everyone. And there is data to prove it.
The Brookings Global Cities Initiative has reported why foreign direct investment matters. When foreign firms invest in the U.S., they contribute inordinately and positively to the economy. Overall foreign-owned operations account for 5 percent of private sector employment. That’s not insignificant, but most interesting is what this Foreign Direct Investment looks like in an average U.S. community.
- 0% of employment
- 7% of compensation
- 0% of productivity growth
- 2% of capital investment
- 9% of corporate R&D
- 3% of exports
But FDI’s contribution to the sector goes beyond employment. FDI also bolsters the three foundations of competitiveness in advanced industries—innovation, skills, and ecosystems.
Innovation: Foreign companies introduce ideas, technologies, and knowledge from abroad into the U.S. market that other businesses can then learn from, recombine, and turn into novel products, services, and business models themselves.
Skills: Foreign companies tend to invest more in worker training than do domestic firms. They also bring with them best practices in education and training that domestic companies and institutions emulate.
Ecosystems: Ecosystems are the regional industrial communities within which firms operate. When firms locate in close geographic proximity to one another, knowledge flows between them, pools of skilled workers deepen over time, and regional supplier networks form. The regional ecosystems that emerge end up constituting critical sources of competitive advantage for firms. By injecting brand new ideas and approaches into these regional ecosystems, FDI strengthens them more than do most other investments. And after decades of offshoring, many regional ecosystems would be far more depleted today had incoming foreign companies not offset some of the loss.
Not coincidentally, innovation, skills, and ecosystems are factors that attract high-quality FDI to the United States in the first place.
For Missoula and the Missoula Economic Partnership to remain relevant, attracting foreign investment must be one our strategies and priorities. Recently, Rachel Anderson of our staff just completed a foreign direct investment certification course offered by the International Economic Development Association. This certification allowed Rachel to meet practitioners across the country and bring best practices back to our community.
FDI just rounds out the portfolio of economic development efforts and activities.
James Grunke is the President/CEO of the Missoula Economic Partnership