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The importance of Foreign Direct Investment

by: COURTESY OF DAIMLER TRUCKS NORTH AMERICA - Daimler Trucks North America, located in Portland, is one of the German-owned companies in Oregon. Here, robots manufacture the cab of a Freightliner truck.What do Daimler, Genentech and Jeld-Wen all have in common? They are all examples of foreign direct investment — money from abroad that has a multiplier effect in the Portland area economy.

According to new a report by the Bookings Institution, more than 41,000 local jobs are supported by FDI, and the metro region has potential for a lot more.

The report, FDI in U.S. Metro Areas, analyzes the types of foreign-owned businesses located in the Greater Portland area and finds that foreign direct investment supports 4,300 jobs in motor vehicle production and 3,200 in semiconductor production.

Since April 2014, Greater Portland has been part of a Global Cities Initiative — a joint project of the Brookings Institution and JPMorgan Chase — pilot program to create and implement metropolitan plans to secure and sustain FDI.

“We see our partnership in the Global Cities Initiative as critical to the region’s future,” said Derrick Olsen, Vice President of Regional Strategy & Coordination for Greater Portland Inc.

“Alongside exports, foreign direct investment is a key building block to growing our economy through global engagement.”

He told the Tribune that FDI is critical here because it tends to be concentrated in the traded sector — goods and services that bring in dollars from outside, in contrast to those that we buy and sell from each other. In this area, traded sector manufacturing and services include Daimler, Genentech in Hillsboro and Ajinomoto food processing on N. Marine Drive.

People often think of FDI as greenfield investment — brand new companies. A classic example of greenfield FDI is Solarworld in Hillsboro. However, mergers and acquisitions also count as FDI, such as Jeld-Wen, the southern Oregon door and window company that was bought by Canadians, and Simple, the financial software firm that was bought in February by Spanish bank BBVA for $117 million.

“The Brookings Institute is challenging metro areas to look at different aspects of capital, how to engage with them so that when investment comes to a region it stays and grows jobs,” said Olsen.

Locally, a high percentage of FDI is in semiconductors and computer electronics. As Intel Corp. has grown, smaller Asian and European companies have come in that supply chain in sales and service, office equipment, and specialized parts — such as wire in solar panels.

Another example is SIC Processing, which processes used slurry from silicon chip and solar panel factories.

“They have strong German roots which is helpful to the region in looking to connect to other European companies.”

Germany is the top source country for foreign direct investment in Greater Portland, supporting 10,300 jobs. The German American Chamber of Commerce recently announced that Daimler Group is the largest overall German investor in the U.S. when ranked by U.S. sales.

Groups such as Greater Portland Inc., the Portland Development Commission, the Port of Portland, and Business Oregon, make frequent trade trips to lure foreign investors to Portland. Olsen says athletic apparel also attracts foreign investment, citing Garmont skiwear and DiMarini Sports (bats).

He has seen some growth from Chinese, Korean and Indian investors, and the PDC has used the Japan America Society to hone relationships with Japan. One result was a delegation of Japanese manufacturers who visited Tokai Inc. in Hillsboro recently.

There are also sovereign wealth funds, where chunks of investment dollars from countries such as Norway with its North Sea oil, or Gulf states, are invested on behalf of their citizens.

“The Brookings Institute is encouraging us to think about this. Are there opportunities for connections?” says Olsen.

Elected officials, who often relate votes to how many jobs they create, are behind the push to make Portland more globally connected.

“They go on recruitment trips but it’s mostly done behind the scenes to provide data on workforces, land availability, supply chain strength etc.”

Olsen notes one twist: “Study Oregon. When foreign students come here, the dollars they spend count as export

dollars. It’s the same when tourists come.”

A coauthor of the report, Devashree Saha is a senior policy analyst and associate fellow at the Brookings Institution Metropolitan Policy Program. She’s a specialist in the intersection of clean energy and economic development policy.

“More often than not the quality of the FDI is more important than the quantity,” Saha told the Tribune, adding that the Brookings definition of FDI does not include portfolio investments in equities or real estate.

“Beyond supporting millions of jobs, FDI also brings a number of ancilliary economic benefit such as higher wages, increases in trade and research and development spending. But not every investment is going to bring all of these benefits.”

So, motor vehicles and semi conductors may lead to increases in exports and R&D spending while foreign-owned restaurants and grocery stores may only provide employment to U.S. workers.

Saha mentions a Taiwanese company called Wafer Tech, the German Siltronics, two Swiss companies, Precision Interconnect and Micro Systems Technologies, and Shin-Etsu Handotai, a Japanese maker of semi conductors.

“FDI is attracted to strong industry clusters encompassing highly skilled workers, robust supply chains, dynamic innovation ecosystem and quality infrastructure. High quality investors are attracted to all these factors. Strong clusters play role in maximizing the economic benefits of FDI to the local economy and make sure the spillovers stick around.”

She added such companies often tie up with local research institutions, making it important that we have good universities.