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/ Canadian Government Executive
// June 2016
Christopher
Lau
New Strategies inWinning
Foreign Direct Investment
W
hether it is convincing com-
panies to build R&D cen-
tres, factories, or corporate
headquarters,
Canadian
governments have had a ton of success in
attracting foreign direct investment (FDI).
The numbers speak for themselves: Cana-
da’s inward FDI stock reached $732 billion
in 2014, an almost two-fold increase from
$379 billion in 2004. Investment incentives
have been on an accelerating trajectory in
Canada and the US over the last few de-
cades. In Canada, every single province
has received foreign direct investments
as a result of investment incentives, with
Ontario and Quebec leading the way with
a cumulative total of USD$1.5 billion and
USD$2.1 billion received respectively be-
tween 2010 and 2015.
However, having won over half a bil-
lion dollars in investment commitments
Strategy
over the last five years, my experience is
that American deal makers also have a lot
to teach the rest of the world. And within
America itself, I would consider Georgia as
one of those states that offers a rich source
of best practices.
Consider this example: In 2006, Craig
Lesser, commissioner of the Georgia De-
partment of Economic Development, was
faced with an opportunity to land a $1.2 bil-
lion Kia Motors plant that would employ
2,500 jobs directly, and close to three times
that number of jobs in their upstream sup-
ply chain. Mississippi, Georgia’s rival state,
offered $900 million in incentives to land
the same investment. Lesser had some dif-
ficult choices to make.
For sure, Georgia was already in a strong
position. It was part of an existing automo-
tive cluster and its neighbour, Alabama,
had recently attracted Hyundai 80 miles
away from the Georgia state line. This
meant that there were some potential
synergies with the regional supplier base.
Lesser had an additional motivation: the
location that attracted Kia had been hit
hard by the legacy of a textile industry that
had moved overseas, leaving many fami-
lies in economic distress. This was a deal
that Lesser needed to win. In order to com-
pete, he put together an incentive package
worth hundreds of millions of dollars.
Instead of relying solely on traditional
incentives, Lesser chose to use a mix of
incentives, including what are being re-
ferred to as “alternative incentives.” While
no standard definition exists, alternative
incentives can be thought of as business
assistance that is separate from purely
financial incentives–property tax abate-
ments, grants, or loans. In contrast, the
category of alternative incentives includes
infrastructure funding, workforce train-
ing, or streamlined permitting. In general,
an alternative incentive strategy distin-
guishes itself from traditional investment
incentives, or “vanilla subsidies” as I like to
call them, because the proceeds are direct-
ed towards the community at large, rather
than a single company.
Alternative incentives, much like tra-
ditional incentives, can be employed to
target specific firms and specific deals.
For instance, a province or a state can of-
fer and provide streamlined permitting to
fast-track infrastructure such as sewage or
wastewater treatment facilities to a partic-
ular FDI target. They could also deliver a
subsidized employer-specific training pro-
gram. However, what these examples have
in common is that the benefits accumulate
to the region even after the incentive has
been delivered. Furthermore, benefits con-
tinue to accumulate even in the event that
the facility closes.
Why does this all matter to Craig Lesser