Investment Trends for Japan and China in the Midwest

Investment Trends for
Japan and China in the
Larry Ingraham
Senior Fellow, Sagamore Institute
President, Ingraham & Associates, Inc.
Setting the Scene
 Economic recession hits the U.S. in late ’70s, early ’80s
 Double-digit unemployment (Anderson, Indiana led nation
with 20% unemployment)
 Double-digit inflation
 Double-digit mortgage rates
 Record lines at gas stations
 No U.S. companies making investments
At Home in Indiana . . .
. . . Governor Robert Orr and Lt. Governor John Mutz were
looking for ways to offer hope to struggling Hoosier
They came to two conclusions:
 Encourage creation of Local Economic Development
Organizations (LEDOs)
 Target Japanese companies for outside business
Indiana Meets Tokyo
In 1978, the state of Indiana opened an office in Tokyo*
*Indiana was one of original 14 states to open offices in Japan. Others were Illinois,
Michigan, Ohio, Kentucky, Virginia, North Carolina, South Carolina, Tennessee, Alabama,
Georgia, Florida, Washington and Oregon
Goals of Indiana office:
 Attract Japanese investment to Indiana in order to . . .
 Provide jobs for Hoosiers
 Increase the tax base for Hoosier communities
 Bring new technology to Indiana
 Promote Hoosier industrial & agricultural exports to Asia
Introducing Larry Ingraham
In 1983, Governor Orr hired
Larry Ingraham to serve as
the second director of the
Indiana Japan office.
At that time . . .
• Indiana had recruited 18
Japanese companies
• Half in manufacturing
• Half in sales/distribution
Larry’s Mission:
Take Indiana’s relationship
with Japan to the next level.
Tokyo, 1984
(Left to Right)
Larry Ingraham, Director of Indiana
Tokyo office
Indiana Lt. Governor John Mutz
Ms. Yoko Kudo, Secretary of
Indiana Tokyo office
June 1983 – Sony comes to Indiana
First CD manufacturing
plant in U.S. comes to
Terre Haute, Indiana
• Turned light “green” for
Indiana and Japan’s
continuing economic
In front of Gov. Orr’s residence, (left to right): Norio
Ohga, President, Sony; Gov. Robert Orr; Sony U.S.
official; Alan Kimbell, Deputy Director, Indiana Dept.
of Commerce
June 17, 1983
SONY President Norio
Ohga, Governor Robert
Orr, and Lt. Governor John
Mutz speak at the
commencement of
CBS/SONY in Terre Haute,
Business kept
rolling in . . .
1983 - Enkei Auto Parts
starts manufacturing
plant in Columbus,
And then . . . disaster!
 Japanese press identifies Indiana as a “unitary tax” state
 Unitary tax: A state corporate income tax on worldwide
 Sony Chairman Akio Morita leads a movement against
unitary tax
 Unitary tax states become “off limits” to Japanese companies
• Larry works with Orr
administration to craft a
bi-partisan resolution to
eliminate unitary tax
wording from state’s tax
• June 7, 1984 – Sony Chairman Akio
Morita leads a press conference at
Keidanren Mission in summer of 1984
• Governor Orr announces that
Indiana will be the first state
to do away with the “unitary
Japan is given a green light to continue investing in Indiana . . .
1980s: Trends in Japanese
 “Trade Friction” prompts Japanese car companies to invest in
 Japanese auto parts makers target Midwest
 Target business with the “Big Three”
 Interested in “country side” locations with “green”
 Site searches usually take 6-12 months
 Average factory investment: $10-20 million
 Average # employees: 100-200
Japanese Process of Selection
 Considered each state closely
 Created complex analytical charts comparing
 Engaged in detailed and exhaustive questioning
 Final decisions were made by subjective observation
Car Wars
 Honda: Marysville, Ohio, late 1970s
 Mazda: Flat Rock, Michigan, 1983
 Nissan: Symrna,Tennessee,1984
 Mitsubishi: Bloomington-Normal, Illinois, 1985
 Toyota Camry: Georgetown, Kentucky, 1985
Indiana . . . no Japanese car plant.
So Indiana went to work. . .
 In 1980s, incentive amounts were very important to
Japanese companies; indicators of a state’s “sincerity” in
their project
 Indiana as small state could not “outbid” larger, neighboring
 Instead, Indiana stressed that companies consider long-term
costs of operating, not up-front monies
 Indiana’s creed: Give an incentive package both parties can
live with!
Finally . . . in 1986
Subaru-Isuzu – Lafayette, Indiana
And then . . .
 Toyota Tundra – Princeton, Indiana (1996)
 Toyota Camry at Subaru plant – Lafayette, Indiana (2004)
 Honda – Greensburg, Indiana (2005)
Indiana is the only state . . .
. . . with 3 different Japanese car plants
. . . where Toyota has two separate manufacturing locations
Larry and Lt. Governor Mutz celebrate Subaru plant in Lafayette
Japanese companies in Indiana
In 1983
 18 firms
 Half manufacturing offices
 Half sales offices
In 2012
 250 firms
 45,000 Hoosiers employed
 $10+ billion investment
 Indiana #3 overall in U.S.
for most Japanese firms,
but #1 for Japanese
investment per capita
Across the Midwest
 1,140 Japanese companies in 10 Midwestern states by 2010
 Indiana, Illinois, Iowa, Kansas, Minnesota, Missouri,
Nebraska, North Dakota, South Dakota and Wisconsin
“From a long term perspective, the Midwest remains
particularly attractive to Japanese direct investment due
to its central location, top quality workforce, strong
transportation network, and favorable business
- 2010 survey report of Consulate General of Japan at
3/11 Events . . .
Photograph by Mainichi Shimbun, Reuters
. . . more Japanese investment
 Power shortages; rising corporate electricity rates
 Auto supplier network forever changed
 High value of Japanese Yen
 Shrinking domestic labor force
On February 8, 2012, Toyota announced a new $400
million expansion in Princeton, Indiana, adding 400 jobs
Who’s Next?
Over the next 5 years . . .
. . . China will bring the newest “big wave” of foreign
investment into the U.S.
 In 2009, Chinese direct investment in U.S. hit $5 billion
(compared to Japanese peak of $148 billion in 1991)
 Desire to escape potential trade friction
 Once they reach $100 million in domestic sales, they must
think globally
 Access to raw materials and end market
 Opportunity to escape costly transportation costs
 Chance to avoid rapidly rising labor rates at home
Zhejiang Province
 80 Chinese companies from
Zhejiang Province (Indiana’s sister
state) are interested in investing in
 2010 – Yuankai Furniture invested
$25 million in furniture factory in
Marian, Indiana
 2011 – Nanshan Aluminum
invested $100 million in aluminum
extrusion plant in Lafayette, Indiana
China vs. Japan
Short company history
Industry variation
Some government ownership
Difficult to investigate
Inexperienced in foreign
“Stand alone” companies
Unfamiliar with Midwest
Tedious banking situation
No brand name recognition
Interested in acquiring U.S. firms
Numerous Chinese students in
Established companies
Long company history
Mainly auto industry
No government ownership
Easy to investigate
Knowledgeable in foreign
“Group based” companies
Very familiar with Midwest
Ease of banking
High brand name recognition
Mostly desire direct investment
Few Japanese students in U.S.
Recommendations for U.S.
communities and companies:
 Create marketing materials in Chinese and Japanese;
send to interested state’s overseas offices
 Visit Chinese and Japanese consul generals in Chicago
 Join Japan-America Society and participate in events
 Learn nuances of conducting business with Chinese
and Japanese businessmen
 Travel on business trips to Asia whenever possible
 Consider utilizing Chinese students as interns
 Hire a seasoned, competent consultant!

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