Global Trends in Location Selection…Implications for East Tennessee: Gene DePrez, Americas Leader, IBM Global Location Strategies Jobs Now! Investors Luncheon Knoxville – December 1, 2005 Global Trends in Location Selection …Implications for East Tennessee


The World is Flat – look at the evidence…: The World is Flat – look at the evidence…


Key Discussion Points: Key Discussion Points Global Investment Origin and Destination Trends R&D and Innovation Investment Activity Implications for East Tennessee Developing a Regional Competitive Position Workforce issues Competitive positioning Importance of regionalism


A Changing World – It is Flat!: A Changing World – It is Flat! Global markets, labor, suppliers Geographic shifts to optimize location Communities responding – threat or opportunity? The changing process


Outsourcing, Insourcing, Offshoring, Nearshoring: What is the difference?Trends, Impacts: Outsourcing, Insourcing, Offshoring, Nearshoring: What is the difference? Trends, Impacts Drivers behind these global shifts Global sourcing, global resourcing China, India, Eastern Europe, Latin America Limitations of emerging markets Where are investors investing? How do we get our share?


Slide6: Records investment project announcements around the world on an ongoing basis Monitors corporate investments at the project level, records announcements of new (greenfield) and expansion projects by companies globally Captures details on the investor, origin, location of investment, subsector and cluster, type of investment, jobs created, capital invested, and other key factors Identifies where recent investment is going, provides key input for identifying location options Provides detailed analysis of recent investment trends by sub-sector, and activity, identifying location’s market share in attracting cross border investment, monitoring target countries, and other key information Supports corporate investor decision-making and provides insight to the economic development community GILD – Global Investment Locations Database Development investment flows by destinations selected (inward investment) and investor origin


Slide7: Data focus on cross border (FDI) investment projects For USA and Canada, state-to-state investment is included as well Focus on contestable investment; retail, sales offices and such are excluded Data are preliminary results through July 2005, but are believed to be representative for current trends Keep in mind …


- Growth in number of investment projects has slowed- Slight decrease of global investment : - Growth in number of investment projects has slowed - Slight decrease of global investment Source: IBM-PLI – Global Investment Locations Database, GILD


- China shows strong decrease; loses number one position- USA again leading in inward investment, but less foreign: Source: IBM-PLI – Global Investment Locations Database, GILD Top ranking destination countries by number of projects - China shows strong decrease; loses number one position - USA again leading in inward investment, but less foreign


- Developing Asia market share decreased after strong 2004- Western Europe recovering; North America stable: - Developing Asia market share decreased after strong 2004 - Western Europe recovering; North America stable Source: IBM-PLI – Global Investment Locations Database, GILD Share of destination regions in number of projects


- Decrease mainly seen in Developing Asia (mostly China)- Slight decrease in North America as well: Source: IBM-PLI – Global Investment Locations Database, GILD Number of projects by destination region - Decrease mainly seen in Developing Asia (mostly China) - Slight decrease in North America as well


- USA still by far largest generator of cross border investment- Developed economies stable except Japan, Germany- India and China quickly developing into outward investors: Source: IBM-PLI – Global Investment Locations Database, GILD Top ranking origin countries by number of projects - USA still by far largest generator of cross border investment - Developed economies stable except Japan, Germany - India and China quickly developing into outward investors


- North America is most important outward investor: Source: IBM-PLI – Global Investment Locations Database, GILD - North America is most important outward investor Share of origin regions in number of projects


- Most projects generated by US and European companies- Slight decrease in investment from all major geographies : Source: IBM-PLI – Global Investment Locations Database, GILD Number of projects by origin region - Most projects generated by US and European companies - Slight decrease in investment from all major geographies


- Business and Financial Services gain further importance- Industry sectors show decrease in foreign investment: Top ranking sectors by number of projects Source: IBM-PLI – Global Investment Locations Database, GILD - Business and Financial Services gain further importance - Industry sectors show decrease in foreign investment


- Investment in new manufacturing plants is decreasing- R&D investment is fairly stable: - Investment in new manufacturing plants is decreasing - R&D investment is fairly stable


- China continues to be the current manufacturing hot spot- Other emerging markets quickly coming up: Source: IBM-PLI – Global Investment Locations Database, GILD Top ranking destination countries by number of manufacturing projects, H1-2005 - China continues to be the current manufacturing hot spot - Other emerging markets quickly coming up


- USA, Japan and Germany create most manufacturing jobs- Top 15 also include developed economies, and India: Source: IBM-PLI – Global Investment Locations Database, GILD Top ranking origin countries by number of manufacturing projects, H1-2005 - USA, Japan and Germany create most manufacturing jobs - Top 15 also include developed economies, and India


- India and China also leading in R&D- USA limited in attracting foreign R&D investment: Source: IBM-PLI – Global Investment Locations Database, GILD Top ranking destination countries by number of R&D projects, H1-2005 - India and China also leading in R&D - USA limited in attracting foreign R&D investment


- US companies generate most R&D projects globally- US outward investment in R&D is much higher than inward: Source: IBM-PLI – Global Investment Locations Database, GILD Top ranking origin countries by number of R&D projects, H1-2005 - US companies generate most R&D projects globally - US outward investment in R&D is much higher than inward


- 2/3 of projects go to China and India, but China decreasing- Other Asian countries gaining share, particularly Vietnam- In number of jobs, India is leading: - 2/3 of projects go to China and India, but China decreasing - Other Asian countries gaining share, particularly Vietnam - In number of jobs, India is leading Asia-Pacific Source: IBM-PLI – Global Investment Locations Database, GILD Destination countries by number of projects


- China attracts majority of manufacturing into Asia: Source: IBM-PLI – Global Investment Locations Database, GILD Destination countries by number of manufacturing projects, H1-2005 - China attracts majority of manufacturing into Asia Asia-Pacific


- India attracts majority of R&D into Asia; China a quarter: Asia-Pacific Source: IBM-PLI – Global Investment Locations Database, GILD Destination countries by number of R&D projects, H1-2005 - India attracts majority of R&D into Asia; China a quarter


- UK still no 1, and France no 2 but losing market share- Eastern Europe generally stabilizing, but most jobs- More and more competing locations: Europe - UK still no 1, and France no 2 but losing market share - Eastern Europe generally stabilizing, but most jobs - More and more competing locations Source: IBM-PLI – Global Investment Locations Database, GILD Destination countries by number of projects Europe


- Eastern Europe attracts most manufacturing, but France and UK still doing reasonably well: Source: IBM-PLI – Global Investment Locations Database, GILD Destination countries by number of manufacturing projects, H1-2005 - Eastern Europe attracts most manufacturing, but France and UK still doing reasonably well Europe


- Major economies attract most R&D, but Eastern Europe quickly increasing its share: Source: IBM-PLI – Global Investment Locations Database, GILD Destination countries by number of R&D projects, H1-2005 - Major economies attract most R&D, but Eastern Europe quickly increasing its share Europe


- Brazil leading, as other main markets perform best- Overall, investment into region still not very strong: - Brazil leading, as other main markets perform best - Overall, investment into region still not very strong Source: IBM-PLI – Global Investment Locations Database, GILD Destination countries by number of projects Latin America


- Brazil attracts most manufacturing followed by Mexico: Source: IBM-PLI – Global Investment Locations Database, GILD Destination countries by number of manufacturing projects, H1-2005 Latin America - Brazil attracts most manufacturing followed by Mexico


- Brazil attracted 2 out of 6 registered R&D projects: Source: IBM-PLI – Global Investment Locations Database, GILD Destination countries by number of R&D projects, H1-2005 Latin America - Brazil attracted 2 out of 6 registered R&D projects


- Intense competition among states in North America- But: inward investment decreasing, outward increasing: - Intense competition among states in North America - But: inward investment decreasing, outward increasing Source: IBM-PLI – Global Investment Locations Database, GILD Destination states by number of projects North America


- East Coast states generally more successful in attracting manufacturing; Virginia showing best results: Source: IBM-PLI – Global Investment Locations Database, GILD Destination states by number of manufacturing projects, H1-2005 North America - East Coast states generally more successful in attracting manufacturing; Virginia showing best results


- California leading for R&D, but decreasing number of projects overall: Source: IBM-PLI – Global Investment Locations Database, GILD Destination states by number of R&D projects, H1-2005 North America - California leading for R&D, but decreasing number of projects overall


Slide33: Source: IBM-PLI – Global Investment Locations Database, GILD USA, China and India hold top positions in most key sectors


Research & Development- Of 802 R&D projects tracked in 2004, India attracted most (260)- USA is the no. 3 destination (behind China) with some 90 projects-- American investment in R&D/technology is huge but is often elsewhere : Research & Development - Of 802 R&D projects tracked in 2004, India attracted most (260) - USA is the no. 3 destination (behind China) with some 90 projects- - American investment in R&D/technology is huge but is often elsewhere H1-2004 H2-2004


Dramatic increase in competition for R&D : Dramatic increase in competition for R&D North American research park competition: 17-fold increase in the last 35 years, with medical bioscience the leading focus in North America World competition: Over half of the world’s research parks are outside of North America (400 out of 700) Asia rising as a new league of competitors in IT and biotech 80 parks in China alone Korea’s New Songdo City may be the largest private development project in world history VCs insisting on China or India strategy: "There isn't a board meeting that goes by that we don't ask, 'Why aren't you being more aggressive (with software development) in India and China?' Europe increasingly competitive, and increasingly focused on innovation: Gate2Growth initiative across the EU Innovation Relay Centers: 1,000 employees, 12,000+ transactions Sources: AURP, IASP, IBM team analysis, Lund University research


Slide36: Mobile global resources seeking sectors and geographic areas for investment More and more countries/regions are improving their general business conditions to an acceptable level IT related education is gaining strength in many developing regions including India, Russia, and Southeast Asia Globalizing companies are identifying pools of Research and IT talent in locations that they previously did not consider Universities and related knowledge clusters are key selection factors for both intellectual capital and lifestyle considerations IT R&D: Current location drivers


Innovation – the intersection of invention and business insight: Innovation – the intersection of invention and business insight Universities and businesses partnering to bring ideas to the entrepreneurial marketplace World class research, science and technology parks provide the best environments for innovation In the highly competitive global high technology marketplace, university presence and cluster strength are the single most critical location decision factors Concentration and convergence of intellectual capital coupled with a favorable work-life environment is a key predictor of success in attracting and retaining mobile investment and high wage jobs


New Songdo City, South Korea: A master-planned international business center to be developed on 1500 acres of reclaimed land 40 miles south of Seoul, 6 miles from Incheon International Airport, building new bridge for direct connection 10 year development project estimated at $20 billion Built around benefits to attract multi-national corporations and foreign direct investment Joint development of Gale International, one of the largest U.S. private development companies and POSCO E&C, a leading Korean steel maker. The new city will be home to nearly 50,000 residents and will offer a mix of hotel, retail, multifamily and office complexes. When completed in 2014, the new Asian "hub" city will boast more than 72 million square feet of commercial and residential development space built at a cost of more than $20 billion. IBM Global Location Strategies/Plant Location International WWW.IBM.COM/BCS/PLI 38 © Copyright IBM Corporation 2005 New Songdo City, South Korea


Slide39: Global investment has slowed based on first half of 2005 China and India are leading in foreign investment, but China is not continuing the strong performance it had in 2004 USA remains strong contender for investment, but is losing attractiveness for foreign investment; Europe also shows (slight) decrease of inward investment Many low cost regions have become very acceptable if not good quality business environments (e.g. Vietnam) Global competition for investment is a reality MNCs have the option to seek talent pools anywhere in the world (global resourcing) Developed and developing economies compete more and more for same projects Offshore destinations in turn begin exporting jobs India and China already in top list of countries of origin of foreign investment Emerging markets are becoming key target for inward investment into USA and other developed countries Conclusions


Slide40: Marketing of knowledge base and cluster strengths becomes more crucial Develop marketing strategies based on local strengths (supply driven) Cluster development becomes key for attracting investment Matchmaking role of regional EDOs/Partnerships will be requested by investors seeking partners and JVs Investor development (more than business retention) fits into this supply driven strategy New markets for attracting business are emerging Watch emerging markets as source for inward investment (India, China, etc), not just for IT but also for Life Sciences, Automotive and other industries Monitor overseas marketing intensity and resources; be responsive to market changes Competition for investment is increasing quickly and becoming more and more global Ensure understanding of competitive propositions; focus on strongest options Develop proposition based marketing techniques and tools Competitive positioning should be based on investor’s cost and quality criteria Implications for regional economic development


Economic Development is changing as the industry base changes: Economic Development is changing as the industry base changes Traditional Economic Development Focuses on traditional industries Manufacturing Distribution Transportation Sensitive to transportation, site selection, labor Facing tough competition from low labor cost regions Government assists with zoning, site selection, hard infrastructure and tax concessions New Economy Economic Development Focuses on intellectual capital driven industries Research Technology Services Sensitive to access to ideas, collaboration, venture capital Less susceptible to globalization Government assists with value networks to promote collaboration and access to critical services


How to succeed in this increasingly competitive global environment…: How to succeed in this increasingly competitive global environment… Understand current and future FDI market; monitor rapidly changing “C Suite” perspectives and global emerging trends related to investment origination and destination; avoid chasing phantom investment (e.g. sectors not growing, project types migrating to other parts of the world) Understand your location proposition: define key selling points by benchmarking your region against competing locations. Use Competitive Positioning to identify the most promising target sectors where you have the strongest comparative advantage for optimizing quality and cost Improve your Product Offering to address or mitigate comparative weaknesses, using sensitivity analysis to determine priority actions based on ROI Develop tailor made marketing initiatives and tools to effectively promote your region based on thorough understanding of investor requirements Market on a regional basis to meet a greater range of investor needs.


Slide43: Source: IBM Global Location Strategies/Plant Location International Companies seek acceptable balance between cost and quality; recently strong focus on costs


Example of cost and quality trade offSoftware development center (2003): Example of cost and quality trade off Software development center (2003)


Example of cost and quality trade offFinancial shared services center (2004): Example of cost and quality trade off Financial shared services center (2004)


Critical Success Factors : Critical Success Factors Attractiveness to Companies Workforce Business climate (regulation, taxes incentives, predictability, support services) Physical site (services, size) Idea environment (universities, research, innovation) Economic dynamism (growth, strength) Financial climate (capital, financing) Attractiveness to Individuals Quality of life (cultural, recreational, convenience) Economic dynamism (job growth, income growth, strength, stability) Climate / Geography Cost of living Educational quality Social interaction (quality, availability) Reputation / Brand Desirability of a regional address Attractiveness of associating with region Brand recognition Marketing prowess Credibility of area as research and technology leader Intellectual Interaction University – company cross-fertilization Company – company association Entrepreneur – institution interaction Individual – individual connection


Attractiveness of a business environment is determined by many factors as corporate executives decide where to expand or locate their business: Attractiveness of a business environment is determined by many factors as corporate executives decide where to expand or locate their business Regulatory framework Workforce Infrastructure Real estate Natural disaster Knowledge & innovation Taxation Incentives Business costs Living environment Business Environment Attractiveness


Business demand driven Economic Development aims to improve each of the factors relevant to business decision makers: Business demand driven Economic Development aims to improve each of the factors relevant to business decision makers Economic Development Regulatory framework Workforce Infrastructure Real estate Natural disaster Knowledge & innovation Taxation Incentives Business costs Living environment


Contact: Contact Gene DePrez Americas Practice Leader Tel: 973 726 4621 Fax: 973 729 7330 gdeprez@us.ibm.com Global Location Strategies Plant Location International IBM Business Consulting Services 400 Campus Drive Florham Park, NJ 07832 Web-site: www.ibm.com/bcs/pli


IBM Global Location Strategies/Plant Location International: IBM Global Location Strategies/Plant Location International Over 45 year track record, currently over 100 multi-region projects per year Assisted in location decision-making process for more than 2000 corporate investment projects in thousands of large and small communities around the world Advised clients in virtually every industry sector and business function Direct experience with corporate location selection processes provides us with unique expertise to assist state, regional and community development agencies with their performance improvement targets Recommendations based on the investor’s point of view – using actual business decisions and private sector experience and opportunities Committed to innovative strategic thinking and rigorous analysis to find practical solutions to complex inward investment issues Trendsetting in new research in the area of regional development and inward investment, such as cluster development strategies, competitive positioning and innovative marketing tools International team of specialist location, inward investment and economic development experts to assist communities retain their vitality and grow Global depth and insight through two practice centers (in NY/NJ supporting the Americas and in Brussels supporting other parts of the world) collaborating interactively to provide “follow-the-sun” coverage.


Global core offerings: 1. Corporate Location Strategy, Site Selection, Implementation Services Business case development, analysis of international location candidates for business expansion, consolidation or relocation (e.g. cost reduction, improved productivity, market access, workforce requirements, risk management) Financial and qualitative comparisons, opportunity and risk assessment, analysis of geographically variable factors (e.g. workforce quality and cost, employee retention, logistics, infrastructure facilities and incentives) Global Resourcing to identify human capital resource opportunities Negotiation and Implementation services through IBM and strategic partners 2. Economic Development Strategies, Inward Investment, Port Strategies Performance improvement by analyzing competitive position, defining marketing strategies, organizational strengthening Product improvement, innovative web-enabled tools development, training Port financing and systems development and implementation Global core offerings


Our unique offering for advancing the State and its communities: Our unique offering for advancing the State and its communities Unmatched global experience in developing and implementing economic development strategies Understanding of industry sector strategies and global investment trends, and opportunities and threats facing America and its communities Unique tools and techniques based on investor’s behavior GILD – Global Investment Locations Database Competitive positioning methodology & benchmarking tool Prototype investment projects Understanding best practices in economic development and investment attraction strategy around the world Focus on transformation, committed to knowledge transfer by means of interactive workshops and training sessions Our recent clients confirm that our economic development advice is delivering short term results


Sample of recent projects: Sample of recent projects Maryland DBED Benchmarking and competitive positioning; updates over 2 years for 4 target sectors/11 subsectors; 9 regions, 7 competitor regions; marketing tools, training and preparation for web enablement. Maryland DBED Benchmarking and competitive positioning: updates over 2 years for 4 target sectors/11 subsectors; 9regions, 7 competitor regions: marketing tools, training and preparation for web enablement Michigan Jobs Commission Separate analyses of industry trends and inward investment plans for the financial services industry in Europe and the automotive industry in Southeast Asia. Focus sessions with industry leaders and trade groups on inward investment plans and priorities, trends and decision factors. Reports enabled Michigan to optimize efforts to attract investments from these industry sectors Michigan Jobs Commission Separate analyses of industry trends and inward investment plans for the financial services industry in Europe and the automotive industry in Southeast Asia. Focus sessions with industry leaders and trade groups on inward investment plans and priorities, trends and decision factors. Reports enabled Michigan to optimize efforts to attract investments from these industry sectors Scotland Extensive benchmarking exercise for 28 sub-sectors (including benchmarking database and tool, sales manual, recommendations for product improvement and ongoing support) Scotland Extensive benchmarking exercise for 28 sub-sectors (including benchmarking database and tool, sales manual, recommendations for product improvement and ongoing support) Greater Phoenix Economic Council Benchmarking Greater Phoenix (18 municipalities) with 10 US competitive metropolitan areas in 4 priority clusters/10 subsectors; focusing on transforming area to high skill strategy. Competitive positioning, targeted marketing and sales messages, competitive marketing tool; training of ED professionals. Leadership meetings of over 300 people. Greater Phoenix Economic Council Benchmarking Greater Phoenix (18 municipalities) with 10 US competitive metropolitan areas for 4 priority clusters/10 subsectors focusing on transforming area to high skill strategy. Competitive positioning; targeted marketing and sales messages; competitive marketing tool; training of ED professionals. Leadership meetings of over 300 people. Denmark Competitive positioning for contact centers (including tailor made benchmarking tool). Marketing strategy for regional centers of excellence in life sciences and ICT sub-sectors (including benchmarking, marketing tools and recommendations for product improvement). Benchmarking Copenhagen for biopharmaceutical manufacturing industries (including detailed financial project evaluation, sensitivity analysis and sophisticated benchmarking tool). Developing proposition for regional option for windmill industry (including benchmarking and marketing tools) Denmark Competitive positioning for contact centers (including tailor made benchmarking tool). Marketing strategy for regional centers of excellence in life sciences and ICT sub-sectors (including benchmarking, marketing tools and recommendations for product improvement). Benchmarking Copenhagen for biopharmaceutical manufacturing industries (including detailed financial project evaluation, sensitivity analysis and sophisticated benchmarking tool). Developing proposition for regional option for windmill industry (including benchmarking and marketing tools) State of Victoria (Australia) Benchmarking study & update (2 years) for 7 target sectors, mainly focused on knowledge-based economy sectors - 36 benchmarking cities globally (including tailor made marketing tools and training, recommendations for product improvement and ongoing support) Commonwealth of Pennsylvania Benchmarking, Competitive Positioning and Economic Development Strategy against domestic and global competitors. Involved 11 diverse regions of the state in four industry clusters and 11 subsectors. Product improvement priorities, marketing channels and tools, business retention, rural development and international business development. Regional partnership development strategies.


Experience with economic development strategy and change: Albania Foreign Investment Promotion Centre Antilles Government of Aruba Government of Curacao Australia Invest Australia Port of Brisbane State of Victoria* Austria Austrian Business Agency* Vienna International Airport Azerbaijan Port of Baku Belgium Brussels Airport Flanders Foreign Investment Office* Ministry of the Flemish Community* Ministry of the Walloon Region* Office for Foreign Investm. Wallonia* Canada Montreal International State of Quebec Cape Verde Promex Caribbean Caribbean Inward Investment Office China Xi’an Pharma Park, Shaanxi Costa Rica CINDE* Czech Rep. CzechInvest Denmark Copenhagen Capacity Invest in Denmark Agency* Djibouti Government of Djibouti Estonia Port of Tallinn Ethiopia EIA Ethiopian Investment Authority France Ile de la Réunion Ile de France, Paris Invest in France/Datar* Nord-Pas de Calais Developpement* Port of Bordeaux Port of Le Havre* Germany Frankfurt Airport IIC (former East German States)* Nordrhein Westfalen* Saxony Economic Development Corp Ghana Ghana Investment Promotion Guadeloupe Port of Guadeloupe Sweden Confederation of Swedish Enterprises ISA Invest in Sweden Agency* Swedish Council of Local Authorities Switzerland Canton of Schaffhausen Tanzania Tanzania Investment Centre Thailand Industrial Authority Estate of Thailand Tunisia Government of Tunisia Trinidad & Tobago Port Authority of Trinidad & Tobago Un. Arab Emirates Jebel Ali Port Authority, Dubai United Kingdom: England Advantage West Midlands* Coventry Solihull Warwickshire East Midlands Development Agency* Invest.UK* Leicester Development North West Development Agency* - Scotland Edinburgh IFC Glasgow Development Agency Locate in Scotland/Scottish Enterprise* Northern Ireland CORE Invest Northern Ireland (+ former IDB)* - Wales Welsh Development Agency* USA Baltimore County Forest City, NY Greater Jamaica, NY Great Baltimore Alliance, MD Greater Phoenix Economic Council, AZ Greenville, SC Maryland DBED* Michigan EDC Pennsylvania DCED International Asian Development Bank* organisations European Commission* European Parliament* OECD* UNCTAD* WAIPA* World Bank/MIGA* Hong Kong Trade and Investment Bureau Hungary ITD Hungary India Government of Gujarat SEZ Positra SEZ Ireland Enterprise Ireland* IDA Ireland* Israel Israeli FEPZ Italy PROMOS Milan Kuwait Kuwait Luxembourg Ministry of Transport Malaysia Port Klang Mexico Industrial Port Development Board Morocco Government of Morocco Port of Casablanca Namibia Namibia Investment Centre Netherlands Airport Amsterdam-Schiphol* Airport Maastricht-Aachen Ministry of Economic Affairs* Netherlands Foreign Investm.Agency* NOM (Northern Netherlands)* OOM (Overijssel)* Philippines Cagayan Poland Industrial Development Agency PAIZ Polish Inward Investment Agency* Special Economic Zones (various) Portugal AIP Regio Norte Embassy of Portugal/ICEP* Puerto Rico Instituto de Fomento Russia St. Petersburg Saudi Arabia General Investment Authority Singapore Ministry of Finance PSA Port of Singapore Authority* Singapore Econ. Development Board* South Africa Greater Durban Marketing Trade and Investment South Africa Spain ADE Castilla-y-Leon Autonomous Port of Barcelona Suriname Government of Suriname * Multiple assignments Experience with economic development strategy and change


Experience with corporate location strategy and change : Experience with corporate location strategy and change * Multiple assignments


Working Across the GlobeGlobal Location Engagements by Country (1997-2005): Working Across the Globe Global Location Engagements by Country (1997-2005)