Canadian Government Executive - Volume 22

June 2016 //

Canadian Government Executive /

Strategy

whose most immediate need was winning

the Kia deal? It matters because companies

locate to a specific region for a mix of com-

plex reasons. To be clear, business costs

matter, and so long as companies want

to lower costs, traditional financial incen-

tives such as grants, loans, and property

tax abatements will have an incremental

effect on location decisions. However, re-

search shows that business costs are only

one of many factors. Access to the local

cluster of suppliers and academic institu-

tions plays an important role. So does the

local demand for the product. So does ac-

cess to public services such as healthcare,

education, and infrastructure. And so does

a variety of behavioural factors, including

how frustrating it is to access information

on the region and clearing regulatory hur-

dles.

In short, alternative incentives can

improve the attractiveness of a region.

These were the findings of four graduate

students at the Munk School of Global Af-

fairs at the University of Toronto, whose

research I had the opportunity to guide

earlier this year. Under the supervision of

faculty member Dr. Shiri Breznitz, the stu-

dents conducted an analysis of what kinds

of alternative incentives have been effec-

tive around North America.

In their final report, titled “Best Practices

in Employing Alternative Incentives for

Attracting FDI Targets,” they concluded

that traditional financial incentives are

oftentimes necessary, but not sufficient in

increasing the attractiveness of a region

to potential employers. While financial

incentives help to reduce costs for firms,

alternative incentives can seal a deal be-

cause they address other fundamental

needs of foreign companies.

According to their study, certain Cana-

dian provinces and American states are

in the game of offering alternative incen-

tives. Massachusetts, for instance, uses a

self-organized group of private firms to

offer subsidized professional services,

such as regulatory consulting and real

estate advice, for the potential employer.

North Carolina reimburses businesses for

the cost of training employees, including

textbooks, courses, and certification. Que-

bec offers potential employers network-

ing opportunities to local companies and

government officials. In fact, the manag-

ing director of a US multinational once

noted that he has Quebec’s investment

agency on “speed dial.”

Georgia’s Craig Lesser decided to put

together a total incentive package that

came to $410 million in incentives, includ-

ing federal, state, and local contributions.

Included in the deal was up to $193 mil-

lion in alternative incentives, including

$81 million in transportation improve-

ments, and $20 million in free, custom-

ized training programs for Kia plant em-

ployees.

Georgia won the deal, and in March

2006, the contract was signed in Seoul.

According to a Kia spokesperson, “[Geor-

gia’s Training Program] brought us 43,000

screened candidates to choose from, with

97% having a high school education. In my

experience, attracting such a high-quality

pool of applicants in such large numbers

so quickly is unprecedented.” This quote

from Kia Motors speaks eloquently to the

importance of alternative incentives.

Today, the automotive page on the Geor-

gia website showcases the Quick Start

Training program. Not tax incentives. Not

grants. Not cheap energy. A training pro-

gram. This is the exact same alternative

incentive that was critical to landing the

Kia deal in 2006, and is now considered

the State’s “signature program,” having

trained over 1 million workers.

As for Craig Lesser today, he is now

the managing partner of the Pendleton

Group, a Georgia-based economic devel-

opment consulting group. His success in

employing alternative incentives to win

the Kia deal has left a deep and lasting leg-

acy in the region. To date, it is estimated

that the original plant created over 10,000

jobs both at the factory and in the supply

chain. The cherry on top for this story is

that in 2012, Kia announced plans to invest

an additional $1.6 billion to upgrade the

facility–a clear signal by any standard that

these jobs are there to stay for the long

term.

So would alternative incentives like the

Quick-Start Program be effective for Ca-

nadian governments to deploy? The an-

swer is not so simple to determine. Every

region has unique characteristics, includ-

ing its economic, fiscal, social, and politi-

cal environment. Before deploying a be-

spoke portfolio of alternative incentives,

Canadian governments need to consider

their own unique context, including the

region’s existing offerings of policies and

programs.

However, with the twin demands of

rising competition for global capital and

a growing trend towards fiscal scrutiny,

public sector leaders around the world

will likely be considering how they are

using alternative incentives to strengthen

their value proposition to foreign compa-

nies. Canadian public sector decision mak-

ers will be under more pressure to show

their best hands.

hristopher

is a Senior Advisor

in the Ministry of Economic Develop-

ment Employment and Infrastructure,

Government of Ontario.

While financial incentives help to reduce

costs for firms, alternative incentives can

seal a deal because they address other

fundamental needs of foreign companies.