M-RCBG Associate Working Paper No. 19
Building a FDI Task Force in Los Angeles:
Assessing Existing Resources and Proposing Strategy for the Future
Hauzhen "Molly" Guan
The United States of America has been a largest net recipient of foreign direct investments globally, even since the end of the World War II. Throughout this period, foreign investors brought to the United States new capital, new ideas and new jobs. Many of these benefits were taken for granted, and most US states and cities, including the city of Los Angeles, never got a designated government agency or department devoted to attracting foreign capital.
However, the world is rapidly changing and so are the patterns of FDI flows. Any successful FDI strategy has to account for this. While in the past century, most of the FDI flows were coming from the “developed” nations, academics and practitioners now agree that in the decades ahead of us most FDI will come from “developing” nations. Therefore, the key to a successful FDI strategy today is attracting and maintaining investors from world fastest growing economies such as China, India or Brazil. In our report, due to our clients needs, we tend to focus on Chinese investors.
The City of Los Angeles seeks to improve its economic vitality and generate new sources of revenue. Increasing the level of foreign direct investment (FDI) is likely to be a critical component in achieving this goal. The experiences of leading metro areas have shown that a well-funded, strategic effort to reach out to foreign companies could have an enduring impact on both job creation and economic activity. However, Los Angeles lacks a clear strategic industry and geographical focus in attracting foreign investors. Moreover, it lacks institutional capacity in a form of local government department or agency that would be at service for foreign investors.
Around the globe, Los Angeles is known for its appealing climate and lifestyle, movie industry and fashion. But the economic activity in the city and its surroundings is spread around dozens of industries and there seems to be a lack of specific, well-defined clusters. The incentives that various institutions provide to the city are almost equally appealing to both domestic and foreign investors. To successfully attract investors from distant parts of the world, Los Angeles will have to tailor a specific FDI specific strategy and ensure that this strategy is supported by institutional structure.
In defining a winning strategy, Los Angeles should consider examples from both literature and current practice of other cities. The literature that deals with local FDI promotion is very limited, as these efforts are usually undertaken on the level of state or national government. However, given the size of Los Angels and the strength of its economy, many of the lessons are applicable. In addition, numerous initiatives taken around the world from cities such as Toronto or Chicago could also be helpful in helping Chicago attract more FDI. Our findings indicate that Los Angeles could benefit by focusing on specific comparative advantages that it has, while avoiding the trap of spending significant time and resources on the tactics that have not worked well in the past. Specifically, we believe that the city should leverage its size and position, sophisticated customer base, high-value added service and manufacturing capacities, excellent human capital, well developed global brand, existing FDI and strategic position to Asia, especially China.
We recommend that the Los Angeles follows examples of its North American peers, Toronto and Chicago, and forms a local agency devoted to attracting FDI. The first step in establishing such an agency would be forming a task force that would work on defining strategic industry and geographic focus for the city’s FDI targets. The task force would be built
immediately with representatives from variety stakeholders across the Los Angeles County. The new agency would serve as a one stop shop for foreign investors in the county. Its first goals would be to recruit a firm group of informal ambassadors of Los Angeles among global businessmen and to organize a yearly FDI conference in the city that would demonstrate firm institutional and political commitment to bringing new foreign investors.