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 communities. § 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 relationship 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, Indiana
Business kept rolling in... 1983 - Enkei Auto Parts starts manufacturing plant in Columbus, Indiana
And then... disaster! Japanese press identifies Indiana as a “unitary tax” state Unitary tax: A state corporate income tax on worldwide income 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 codes 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 tax”
Japan is given a green light to continue investing in Indiana...
1980s: Trends in Japanese Investment “Trade Friction” prompts Japanese car companies to invest in U.S. 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 states/communities/sites 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 states 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
In 1983 In 2012 Japanese companies in Indiana 18 firms Half manufacturing offices Half sales offices 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 environment.” § - 2010 survey report of Consulate General of Japan at Chicago
3/11 Events... Photograph by Mainichi Shimbun, Reuters
Why? Power shortages; rising corporate electricity rates Auto supplier network forever changed High value of Japanese Yen Shrinking domestic labor force Example: On February 8, 2012, Toyota announced a new $400 million expansion in Princeton, Indiana, adding 400 jobs... more Japanese investment
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 Indiana 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
ChinaJapan China vs. Japan Entrepreneurs Short company history Industry variation Some government ownership Difficult to investigate Inexperienced in foreign investment “Stand alone” companies Unfamiliar with Midwest Tedious banking situation No brand name recognition Interested in acquiring U.S. firms Numerous Chinese students in U.S. Established companies Long company history Mainly auto industry No government ownership Easy to investigate Knowledgeable in foreign investment “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!