NEWS

Business-supporting assets a key to foreign firms’ investment in state, new study shows

By DAVID WILLIAMSON
UNC News Services

CHAPEL HILL -- Foreign-owned companies locating businesses in the United States chose North Carolina chiefly because of its quality of life, infrastructure and commercial resources that towns and cities offered to support business expansion, according to a new study.

"Our findings raise additional questions about whether state and local tax incentives and investment promotion programs can offset weak location assets," said Dr. Dennis A. Rondinelli, Glaxo distinguished international professor of management at the University of North Carolina at Chapel Hill’s Kenan-Flagler Business School. "North Carolina towns seeking foreign investment need to develop educational and other resources that will make them attractive to businesses seeking to expand operations in this country."

Dr. William J. Burpitt, management professor at Elon University, conducted the study with Rondinelli to identify strategies international firms use to locate operations. The work involved surveying 78 executives in 26 foreign-owned firms that set up shop in North Carolina over the past 15 years.

In an article to be published early next year in the Journal of World Business, Burpitt and Rondinelli cite major factors that strongly influenced location decisions.

"One that was common to all firms was the area's resource base," Rondinelli said. "They stressed the importance of convenient access to transportation, especially highways. They also described how important a pool of well-trained, productive labor was."

Asked how they evaluated a labor pool, executives listed the availability and quality of vocational and technical schools, high schools, high school vocational programs and firm-specific training programs at community colleges, he said. Quality of life also was critical. The manager of a Japanese-owned firm emphasized that the quality of life in the location his company chose in North Carolina was a valued experience for which executives competed. Related issues were the cost and quality of housing, quality of schools and proximity to shopping, cultural facilities and an airport.

Another major factor was complementary businesses, the two found. Executives sought nearness not only to customers but also to suppliers on whom their businesses depended. They also valued proximity to rival firms, or at least firms in industries overlapping their own.

"We liked this area because the labor supply had a lot of experience in the furniture industry so we knew we could hire people with many of the skills we were looking for," said a home furnishings company manager in Hickory. "We also knew that the area had a high concentration of businesses that could supply a lot of the tools, parts and stocks we would need. The people around here just knew the furniture industry. This meant that we wouldn't have to start from scratch."

The president of a firm manufacturing tools and jigs used by furniture makers stressed the importance of locating in a place that was not only close to customers but also to the parts and machine shops that supplied the materials and components they needed. Proximity to those supplies was important, he said, since machine failure and tool breakage, while not a daily phenomenon, often occurred, making it difficult to plan and stock inventory. Nearby experienced tool and machine shops and specialized supply houses facilitated efficient repairs and maintenance.

Still another factor that executives of foreign-owned firms valued were locations that allowed their companies to focus on manufacturing and distributing limited sets of products as they initially entered the U.S. market. Executives said that they used this strategy to limit risk and enhance opportunities to ensure high levels of quality and customer satisfaction rather than entering the U.S. market with a full array of products.

"We didn’t feel we had the staff or resources to open up a full service shop in the U.S.," a German manager said "On the other hand, we saw an opportunity in this one area where we felt we were quite good, an area not so crowded with other firms, and we went in."

Executives also looked for locations that offered opportunities for extending their operations once the companies were established, Rondinelli said. After a successful focused entry in North Carolina, many of the firms gradually branched out with additional products to serve a growing range of customers.

Also important were locations that provided the infrastructure and facilities for a two-way flow of resources between home countries and their U.S. location. Executives looked for places that provided strong air transportation and international communications facilities.

"There was always a lot of movement -- people and other resources -- between our North Carolina operation and our European headquarters," a manager emphasized. "We have people going back and forth between North Carolina and the home office on a regular basis," another said. "This helps us all. We learn things here that are taken back to Germany. New things there come quickly to us here."

What the firms learned from their entry and operation in North Carolina varied widely, from specific knowledge about their new location to more general knowledge related to customers and alternative methods of design, manufacture, delivery and service of their products and services.

"We learned things from our customers here that we were able to transfer back to our home (German) operations," another manager said. "The demands our new customers placed on us here didn’t just improve our southeastern U.S. operations, they led to a rethinking of how we had been doing things back in the UK," a British textile executive said. "We simply learned a better way."

Burpitt and Rondinelli concluded that foreign-owned firms use subtle and varied strategies for choosing places to invest in the United States that go well beyond tax incentives or subsidies offered by state and local governments.

"Understanding how companies make these decisions is valuable not only in reducing the chances of firm failure in international expansion but also in developing public policies for attracting foreign investment."

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Note: Contact Rondinelli at (919) 962-2678 or dennis_rondinelli@unc.edu, Burpitt at (919) 932-1058 or Wburpitt@elon.edu

News Services contact: David Williamson, (919) 962-8596