Better Ways to Attract Foreign Companies

IN the 1980s, Midwestern states fell over themselves trying to lure big Japanese auto plants with tax credits and other financial goodies.The plants were built. People got jobs. But that's probably not the best way to foster international investment, economic-development officials say. A study released Dec. 10 by KPMG Peat Marwick here in Pittsburgh breaks through some of the myths. Myth 1: Lure them with tax credits. Foreign companies locate in a particular spot for specific reasons: proximity to their market, good industrial climate, quality of schools, and so on. Financial incentives are often not a deciding factor. "Instead of putting together packages of incentives, why don't you look at what makes you a good place to do business and tout that?" says Carl Wiker Jr., partner in the Pittsburgh office of KPMG Peat Marwick. "Regions should market strengths, not incentives." Myth 2: Bring in big companies. Most of the foreign companies who come to the United States are small. Of the 135 foreign companies KPMG surveyed in western Pennsylvania, for example, 73 percent had sales revenues of less than $25 million. About a third of the companies bought out existing US firms. But start-up companies accounted for a whopping 56 percent of the survey participants. Another 9 percent were joint ventures. Foreign start-up companies and joint ventures don't just save jobs, they create new ones and represent new capital coming into the region. Myth 3: Foreign firms hire mostly their own people. "The answer is that foreign nationals do not hold very many of these positions," Mr. Wiker says. Of the 15,505 people employed by the surveyed companies, only about 3 percent were foreign nationals. Slowly, Americans are learning the importance of international trade. "I think they're increasingly coming to realize that the Japanese and their Pacific neighbors on one side of the globe and the Germans and their European allies on the other side of the globe are making much faster progress than we are," says Tom Murrin, former US deputy secretary of commerce and co-chairman of the Pittsburgh International Initiative. The Initiative is a new public-private group that aims to coordinate the western Pennsylvania's disparate attempts to foster foreign investment and increase exports. During the 1980s, many states made the mistake of setting up offices overseas merely to attract overseas investment, he says. Now, they're moving to promote their own companies' exports in those countries.