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Chicago area aims to attract more foreign investments

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A warehouse built by onetime Chicago merchant Montgomery Ward & Co. is now home to the sleekly chic U.S. headquarters of an imported corporate citizen: Britain-based vacuum cleaner-maker Dyson.

The company that made an everyday household appliance hot again planted its flag in Chicago in 2002 with a two-person office and no sales in this country. Today, 1 in 10 upright vacuums sold in the U.S. is a high-tech, bagless Dyson. The innovation-minded firm has 500 U.S. employees, including 160 in the River North building it shares with daily deal company Groupon, and 180 at a call center it opened in 2012 in Aurora rather than in a low-wage country.

"It is the complete intention to keep the call center in the U.S. at this stage," said Ed Culley, president of Dyson U.S., adding that he wants top-notch service on the company's high-end products. "We want (employees) to feel they are not working for a call center, they are working for Dyson. I think that would be challenging if our call center were in a different country."

Dyson's story — an established company from a developed nation opening operations here — is in many ways typical of the most valuable type of foreign investment underpinning the Chicago economy in recent years.

Foreign acquisitions such as China-based Lenovo's planned $3 billion purchase of Chicago-based Motorola Mobility account for more than 80 percent of foreign investment in the U.S. But they do not necessarily generate new jobs — and in fact could do just the opposite, depending on the company's strategy.

"Greenfield" investments like Dyson's — generally defined as new projects or major expansions that bring with them new opportunities — are the most promising prospects for Chicago as the region strives to move beyond a decade of lackluster international business attraction efforts and economic stagnation.

"A greenfield investment ... brings new dollars," said Benjamin Jones, faculty director of the Kellogg Innovation & Entrepreneurship Initiative at Northwestern University. "It's a signal and a sign when others come to your region to invest that there are growth opportunities and attractive elements to the market."

Attracting investors

Chicago ranks high on lists of the world's global cities, most recently slotted as No. 7 in an A.T. Kearney index released this week. New York, London, Paris, Tokyo, Hong Kong and Los Angeles led the roster.

But a 2012 report by the Chicago Council on Global Affairs criticized regional attraction efforts as lacking in focus and underperforming comparable global cities such as Toronto and Bogota, Colombia.

Government agencies do not issue foreign investment data by metro area, but research by private firms indicates that Illinois, whose economy is dominated by the Chicago region, lags other populous states. California, New York and Texas lead the way, though Chicago economic development officials point out California and Texas are home to multiple metropolitan areas.

Landing foreign investment is viewed as critical for revitalizing the region's economy because such companies tend to pay higher wages, produce more goods per worker and ship more of them overseas, bringing in new revenue.

Such investment also "can lead to technology transfers," said Brent Neiman, associate professor of economics at the University of Chicago. "Companies with foreign know-how enter the market and hire local workers who learn to make things the way the company makes things."

The need to ramp up foreign investment comes at a time when U.S. companies' foreign investments are more than double what foreign firms invest here, and when some American-based firms are moving headquarters to lower-tax nations or are feeling pressure to do so.

Founded in Chicago, insurance brokerage Aon moved its headquarters to London in 2012, and drugstore chain Walgreen Co. is feeling shareholder pressure to consider a move overseas.

For a city that has lost some high-profile corporate headquarters over the past 25 years, foreign investment is an important way "of being able to have decent jobs and create investment into the community," said William Osborn, retired chairman and CEO of Northern Trust Corp. and co-author of the council's report. "There's no reason we can't rebuild a little of that." He said he sees movement in the right direction.

The issue is urgent enough that Chicago Mayor Rahm Emanuel traveled to Mexico and to China last year to begin establishing relationships.

"The reason I took my first trip to Mexico," Emanuel said at a recent immigration forum, "was to meet up with (more than 20) CEOs who want to follow the Mexican population here ... and to open up industries in financial services, food service, telecom." In China, he signed economic partnership agreements with eight cities.

Reciprocal visits from each nation are expected later this year, with the Mexico City delegation scheduled to arrive the week of May 19. The agenda includes meetings with representatives of the region's digital startup community, its biotech sector and its tourism industry, said Alpita Shah, part of the international team at World Business Chicago.

Long way to go

Chicago's foreign investment situation has improved along with the economy. But city leaders acknowledge that they still have work to do.

"Our goal, obviously, is to continue to improve Chicago's position as a premier global business city," said Jeff Malehorn, president and CEO of World Business Chicago, the not-for-profit that functions as the city's economic recruitment agency.

World Business, which collects data on new and expanding foreign-owned companies in the 14-county tri-state region, reports the area attracted 131 projects last year, compared with 80 in 2009, a recessionary period. The projects generated an estimated 4,085 jobs, up from 3,854 created in 2009. Investment was pegged at $1.4 billion, compared with $1.1 billion in 2009.

World Business' totals are inexact, since they are gleaned from news reports, press releases, company websites and direct contacts. About 40 percent of the projects did not disclose jobs data, and 30 percent did not provide investment estimates, the not-for-profit economic development agency said.

Germany, the United Kingdom, Japan, France and Canada are the region's main investor countries, though China is on the rise. Manufacturers make up nearly 38 percent of the investors in recent years, followed by business service firms, at about 17 percent.

Major investors are a mix of homegrown giants now headquartered overseas and companies born in other nations, among them insurance firms Aon, Zurich and Willis groups; steelmaker A. Finkl & Sons; Dyson; Splenda maker Tate & Lyle; conglomerate ThyssenKrupp; Nokia; and pharmaceutical firm Astellas U.S.

The federal government does not break down foreign direct investment by metro area, so it is difficult to see how Chicago measures up nationally. But private research suggests Illinois has a long way to go to reach the highest echelons.

Research group fDi Intelligence, which tracks greenfield foreign investment globally, ranked Illinois 8th among North American states and provinces in number of 2012 projects, its most recent statistics.

But the gap among the leading states is larger than a mere listing might suggest. Top-ranked California had four times the number of projects as Illinois, and New York was No. 2, with nearly three times as many. Ontario and Texas both had more than twice the number of projects as Illinois.

Foreign direct investment — both merger and acquisition activity and greenfield investment — represents 6.4 percent of the nation's gross domestic product, a small slice but double the share in 1980. And while foreign firms provide just 5 percent of private-sector employment, the average pay is $77,632, a third greater than the national average, according to the Organization for International Investment, a trade group.

Illinois ranks fifth in employment by foreign firms, trailing California, New York, Texas and Pennsylvania, according to the U.S. Bureau of Economic Analysis. Illinois' largest foreign employers are Aon, BMO Harris Bank, banking firm HSBC, Schneider Electric and steelmaker ArcelorMittal, the state reports.

The potential for foreign direct investment to boost metropolitan economies is significant enough that the Brookings Institution is carrying out its first analysis of how it "plays out across the country," said Devashree Saha, associate fellow in the Washington-based think tank's Metropolitan Policy Program. The report is expected later this spring.

"Most of the foreign, multinational companies that are searching the globe on where to locate look for a skilled workforce, a robust supply chain, dense tech clusters, good infrastructure and quality of life — and all of this is regional," she said.

Specialty hubs

Foreign-based firms have played a big role in the formation of a pharmaceutical/biotech cluster in the northern suburbs, a hub that is one of the region's selling points. The U.S. headquarters of Japan-based Astellas and Takeda as well as Denmark-based Lundbeck help fill out a roster that includes homegrown Baxter and Abbott.

Having outgrown its space in Deerfield several years ago, Astellas opted to stay in northern Illinois. The company, whose products include Vesicare for incontinence and Xtandi for prostate cancer, built a $150 million headquarters along the Northbrook/Glenview border — dramatically angled twin towers clad in silver glass at Willow Road and the Tri-State Tollway. The company employs 1,077 staff at its headquarters, up from 840 in 2010.

State and local governments provided incentives, including a $4 million package of state tax credits and training funds, an addendum to previous support for expansions. Company officials said that played a role in the decision.

Other factors were crucial as well, said Senior Vice President Collette Taylor: "The top-notch universities and medical schools. And we're in this biotech corridor here, so we have access to great talent."

With the north suburban location, "we're able to offer employees a great area to live in, great schools for their children, great hospitals for health care," she said. "It's a robust and thriving area, so it helps us to recruit people."

Dyson received a state tax credit package, too, but officials said the support did not play a significant role in its site decision. Chicago's central location in North America's transportation grid, its proximity to major retailers that could be potential customers and its history of architectural innovation were key factors, Culley said.

Specialized hubs can act as magnets. Bio-Rio International, an arm of a Rio de Janeiro biotech park, chose Chicago for its U.S. office last year because of its proximity to research hubs focused on human health and agriculture, said Angelo Barros, its president. The organization assists small to midsize Brazilian firms that want to establish operations in the U.S. as well as American firms that want to move into the Brazilian market.

Working against the region's assets, however, are some persistent liabilities that must be tackled if Chicago is to expand its role as a global center of commerce, observers say.

A history of political corruption, a hodgepodge of overlapping taxing districts, a still-wobbly tech scene and a tendency for backbiting between neighboring states are among the drawbacks, according to Peter Creticos, president of the Institute for Work and the Economy, a Chicago-based research firm.

Most critical, according to Jones, of the Kellogg institute, is building up the fundamental skills of the workforce.

"If there is a single challenge for Chicago," he said, "it needs to work on its primary and secondary education system. It's very important in attracting investment that you can attract workers of all kinds — lower skilled and higher skilled."

Coming Sunday: How Bogota fixed its image.

kbergen@tribune.com

Twitter @kathy_bergen

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