International Business Round Table June 2012

 International impact

Foreign investment in North Carolina and billions of dollars of exports translate into more business, more jobs and economic diversity.

North Carolina business has gone global, big time. The Tar Heel State ranks 10th nationally for employment supported by direct investment by foreign companies. Foreign-owned companies employ nearly 207,000 people statewide, according to the N.C. Department of Commerce. And it’s a two-way street, with North Carolina-based businesses manufacturing goods for export as well as expanding operations overseas. A panel of experts versed in the state’s international-business climate and global economic-development efforts recently met to discuss the impact of international business, the challenges of attracting foreign companies to North Carolina and the potential for growth. Participating in the round table were Jean Davis, director of international trade for the Department of Commerce; Eric Schmid, a shareholder with Greenville, S.C.-based accounting and consulting firm Elliott Davis LLC; Brad Luyster, vice president of Swiss-based ABB Ltd.’s Smart Grid Center of Excellence at N.C. State University Centennial Campus in Raleigh; Jim Fain, president of the North Carolina Global TransPark in Kinston and former commerce secretary; Ashley Story, managing partner of the Raleigh office of Atlanta-based international law firm Troutman Sanders LLP; and Andreas Wobmann, vice president for finance at Syngenta Biotechnology Inc. in Research Triangle Park, part of Swiss-based Syngenta AG. The discussion, sponsored by Troutman Sanders and Elliott Davis and moderated by Business North Carolina Publisher Ben Kinney, was held at Troutman Sanders’ office in Raleigh. Following is a transcript, edited for brevity and clarity.

How important is international business to the state’s economy?

Davis: We exported $27 billion worth of products and services around the world in 2011. Clearly, international business has been very important to this state and has been a key driver of growth. As it’s gone through this tough economy, we’ve really seen our businesses, both large and small, survive and thrive and grow because of those international sales. Our work at the Department of Commerce has picked up greatly both on the trade side, helping North Carolina companies increase their international sales, and in attracting foreign-direct investment.

Fain: We also export nearly $3 billion worth of agricultural goods and have a very active international marketing team at the Department of Agriculture. So a lot of agricultural communities are benefitting from overseas sales.

Schmid: Roughly 1,000 companies in the greater Charlotte region have international ownership. Now I’m talking more about inbound investment into North Carolina, but certainly a number of these companies export outside of this state and internationally as well. I’ve read that roughly 250,000 jobs in North Carolina are directly tied to international companies.

Fain:And probably half of those are in manufacturing, with manufacturing-type wages.

How important are those jobs to local economies?

Davis: I think research shows that foreign-owned firms tend to have higher wages and more stability, so they are clearly great partners for us all throughout North Carolina.

Story: I think it’s such a large and growing component of new business opportunity that you can’t not have it on the radar or your agenda. Proximity is an important component of building businesses. If you have other businesses like that close by, I think it creates opportunities for everyone involved.

What factors are prompting these companies to come here?

Fain: I would say some of the same reasons companies elsewhere in the U.S. come here: the central East Coast location, proximity to 65% of the national market, the quality of life is exceptional, and, of course, everybody always starts with the labor force. People are aware that this is one of the more productive labor forces to be found, so coupled with support in community-college training and workplace-training programs, it makes for a pretty good package.

What went into ABB’s decision to locate here?

Luyster: We came here about 23 years ago, so we’ve been fairly well-established at the N.C. State University campus since the late ’80s. We came here primarily for the manufacturing perspective and, of course, the universities. Now this is one of the smart-grid centers of the universe, with something like 60 companies in this area centered around smart grid. There are a lot of common systems, common product, common people that we can pull from to further our development of smart-grid systems.

What new methods are economic-development leaders using to recruit international companies into the state?

Fain: This state’s making a thorough assessment of our logistics assets. With the logistics task force and a maritime-strategy study — these are research efforts that are about to be wrapped up — the idea that we want to focus on is better integration of North Carolina’s logistics and transportation assets. And that can be vital to international trade and investment. Spirit AeroSystems is a great example of an advanced manufacturing company that needs to ship by both air and sea to Europe. They have found that combination of assets at the Global TransPark, where they have access to an 11,500-foot runway as well as convenient proximity to the deepwater port in Morehead City.

What other state initiatives are focusing on international business?

Davis: We have a number of strategic initiatives under way at the Commerce Department. We’ve been in China since 1994 and opened a Shanghai office in 2009. We have a specific focus on recruiting companies and helping North Carolina companies do business there. That’s been a new model for us in the sense that, just like we are slightly intimidated by the size of their market and the language, they feel the same about us. They want to be doing business here. They want to have access to the U.S. market. So we’re working to set up a network to help them. We just want to be a centralized hub for them to feel comfortable and get acquainted with all of the things we have to offer here.

What about local initiatives?

Schmid: We accompanied the Charlotte Regional Partnership to Germany in November and went with a similar group to China. And we will accompany the Charlotte Regional Partnership to Brazil. Some of these visits are a little bit like fishing expeditions. If you have multiple touches with the CEO of an international company, it’s not going to make them come to the United States, and it’s not necessarily going to make them choose North Carolina. But your chances of success, if you’ve had a lot of touches, are greater than they would be if you didn’t have that.

What’s the biggest benefit to these public-private trips?

Luyster: What you’re seeing a lot of manufacturing companies do is divide up the world into these centers of operations — North America, European Union, Asia. We have something we call “in country for country.” What you want to do is divide the world up into places that you can set up shop and be able to effectively produce goods at the right cost. You can still transfer some of those cheaper products among the different regions effectively as long as there is interchangeability.

Schmid: When a state like North Carolina is competing, your competition isn’t just South Carolina or Virginia. Your competition could be India. So you have to benchmark yourself globally. It also means your potential targets, your potential new companies, are also the world.

How did that change come about?

Luyster: Transference of information is so much easier now. I no longer have to wait weeks and weeks for some drawings or some kind of specification to come across. Now it’s instantaneous. I can share information among different companies or different divisions of our company easily. So do I have to be in North Carolina, or can I be in the Caribbean islands? Does location really matter now since information flows so easily?

Wobmann: It does if you do big investments. We announced about six months ago that we are building a new growth environment. And, as Eric said, we look globally. Where is the best place to build it? We checked in China and Brazil and all different kinds of places where you have the right environment, the right skills of people to deliver the work you anticipate when you do a big investment. We have decided — and many other companies in the past few months have announced as well — that we’ll build in North Carolina.

How has the economic developer’s role changed?

Schmid: I hear sometimes that the role of an economic-development person is not what it used to be. A guy at the county level said it used to be that before the age of the professional site selectors and all of the data that’s available on the Internet, I could really develop a relationship with this prospective company. I could spend two or three days. He said, “Now I feel like I’m just kind of a facilitator. They’ve got it all figured out on the Internet, and they say, ‘I want to see this site and this site, and I don’t need to know anything else.’” But the personal touch, perseverance, consistency, believability, just the cohesiveness of the communication between the state government and the local government, is vital.

Davis: I would certainly agree with that. Despite all of those great facts and figures, nothing replaces seasoned professionals who have been through this before, can help point out pitfalls and can point out good things that are to come. I still get calls from people saying, “This is a company I recruited here 30 years ago. We need to go help them with X, Y or Z.” So I think there is that real commitment to an ecosystem that helps these folks grow, helps them expand, helps take care of their needs as they’re moving forward. You know, we’re not just going to get you here, and then you’ll never see us again.

How important is that ongoing relationship to attracting new international investment?

Fain: Typically, a prospect will want to talk to an existing employer and investors and so forth. I think one thing they also find is evidenced by the willingness of companies who have invested here to always participate in those kinds of visits.

How can you leverage existing international business to attract new international investment?

Davis: We have companies call us a lot of times and say, “Hey, I’m going to be in Germany. I’m going to be in Munich. Anybody there you need me to call on?” Every interaction helps create our reputation and make the linkages that we need.

What role do international law firms play?

Story: Just as we are interested in China, we recently had a symposium where we brought people to talk to businesses that are based in North Carolina about opportunities in China. It’s interesting how much they already know. Part of it is be- cause of the work the state has done and the reputation with other groups that are already here that send back a very consistent, logical message about why North Carolina is a good place to be.

What new international industries are the state targeting?

Fain: Biopharma is obviously a target, along with automotive-related businesses, aerospace, financial services, information technology and energy. I think those targeted industries play to our strengths.

Schmid: With the Charlotte Regional Partnership, one of the industries they wanted to focus on was medical devices. Around Charlotte there is a lot of manufacturing, a lot of metal working. You know how to deal with devices and so forth. There is a large hospital system based there. The other thing I would say is that the Charlotte Regional Partnership is focusing a lot on Brazil. They have just signed a memorandum of understanding with the state of Sao Paulo, putting certain things in place between that city and Charlotte to facilitate increased business interaction, both outbound and inbound. That’s not necessarily an industry focus but rather a market focus.

So there’s a lot of interest in Brazil?

Davis: We opened a part-time office in Sao Paulo in January of last year, and because it’s part-time, we have more demand for it than we can satisfy. Clearly it’s a huge market — a growing middle class, people with money to spend, infrastructure projects that North Carolina companies can get in on, U.S. funding for some of their oil-discovery work. Just like China, there are a lot of challenges, but it’s clearly a place we’ve got to be engaged with.

What are some challenges we face in terms of recruiting and growing business here?

Davis: While they have done well in increasing their international sales, financing and capital continues to be a big problem for small and medium-sized companies. We’ve tried to work with various federal partners — the Export-Import Bank, Small Business Administration and others — to help them access some capital for their expansions. We have clients that say if I could finance this inventory I could sell it overseas.

 Fain: In my experience, all of the states in the Southeast are very good at economic development. We’ve already talked about the fact that there are competitors around the world. For example, Eastern Europe has really been very successful lately because they have a highly educated people and wage rates are still attractive.

Story: Cost has become a more important factor. I think it was always in the top 10, but I think the companies are looking more at that. They’ve sort of recalibrated where that is in their priorities, post-recession cost is going to remain higher for some time on their list.

How does the state promote exports?

Davis: Right now we’ve got seven international representatives. They’ll be here in the state traveling from city to city. They will be meeting with 250 North Carolina companies to talk to them about the opportunities in those markets, understand their products and services better and help them work on their international sales.

Where do some of the greatest export opportunities lie?

 Luyster: I think that China is going to turn inward pretty soon. They are becoming more wealthy, and so their middle class is going to explode, and I think they’re going to start buying things themselves. So we have to be able to understand how we utilize that economy to grow our economy. And you have to really set yourself apart to supply the market but also to expand through economic exports. The infrastructure is here to start becoming a larger part of the world community from an export perspective.

What are examples of infrastructure?

Davis: About two years ago we opened up a shipping line between the Port of Wilmington and the Port of Cortes in Honduras. Now we export more yarn thread to Central America than we do to China. It’s just fascinating how much these new routes or new opportunities mean for North Carolina companies. Our exports to China in the past 10 years have increased probably 600%. China has jumped up to our No. 2 export partner, buying $2.6 billion in North Carolina products in 2011. That’s a lot.

What role is technology playing in international business development?

 Davis: It’s interesting how much enabling technology has meant to many of our industries. One of the reasons we love nanotechnology so much is it hits many of our tradition- al industries. You know, in the textile industry you’ve got all of these high-performance fibers. In bio and life science you’ve got amazing drug- delivery systems through nano-tech-nology. What technology means to our industries is innovation and rebirth and growth.

 Fain: We’ve reinvented textiles, and now it’s a technology-driven industry. This is a time to invest in our research-and-development capabilities and our ability to support technology because that’s how we differentiate ourselves.

 Story: I think technology really has changed responsiveness and visibility for all sorts of industries, but you still have to build the relationships. Sometimes that can be a barrier if you’re not doing that as well.

 Fain: The state’s universities are wonderful economic-development partners. We’ve been joined at the hip for forever with the community-college system — also a key partner. But our research universities in particular have been very open to getting involved and working with us in economic development in many ways, everything from direct recruit- ing calls to being a collaborative research partner.

This article originally appeared in the June 2012 issue of Business North Carolina magazine.