survey of foreign affiliates in new york city. overview of our talk the survey and the...
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Survey of Foreign Affiliates in New York City
Overview of our talk
The survey and the characteristics of the affiliates in the sample
Why do foreign affiliates come to NYC and what do they do here?
The relationships of NYC foreign affiliates with the local economy
The relationships of NYC foreign affiliates with their HQs
NYC foreign affiliates: Then (1995) and now
Take away.
What did we set out to do?We sought understanding of:
Why do foreign companies operate in NYC? Decision making process; selection criteria Alternatives considered What does it take to keep them?
What advantages do presence in NYC provide? The strategic value of investment in NYC
How to maximize the benefits of investment in NYC for the firms and the local economy? What do foreign firms do in NYC (value adding
activities)? How locally embedded are they?
The Survey
We approached all foreign affiliates in New York City (listed in The Weissman Center Directory of International Business)
Mailed questionnaire, 2004
Responses received from a sample of 142 affiliates About 10% response rate.
Characteristics of the affiliates in the sample
Where do foreign affiliates in NYC come from?
% of total Our sample Total in
NYC
Western Europe 43.7 56.5
Asia (of which Japan) 31.0 (77%) 20.4
Latin America 9.2 6.5
Southeast Asia 7.0 2.6
Eastern Europe 4.9 6.3
Africa 2.8 6.5
T-test: 0.10
Major home countries of NYC affiliates
Number of affiliates Our sample Total in NYC
Japan 36 (+) 456
France 11 (-) 317
United Kingdom 11 208
Italy 9 146
Germany 7 99
In what industries do they operate?
% of the sample
Financial Institutions 21.0
Banks 13.1
Retail 14.8
Manufacturing 12.6
Tourism 8.9
Pharmaceuticals/Chemicals 8.1
Consulting/Legal services 5.2
Food/Beverages 4.4
Other Services 3.7
Marketing/Advertisement 3.7
Publishing 3.0
Real Estate 1.5
The majority of NYC foreign affiliates are small
establishments% of total
Number of employees Our sample Total in NYC
Up to 10 37.0 54.4
11-30 30.9 21.3
31-50 12.8 5.4
51-100 5.2 10.6
Over 100 14.1 11.1
Average 143.7 93.7
Median 14.5 10.0
Differences are not significant
And the magnitude of their business in NYC is modest
0%
5%
10%
15%
20%
25%
30%
% o
f th
e sa
mp
le
0--5 6--10 11--20 21--30 31--50 Averageover 50
Sales in millions US$
Growth has been slow… at least during the last 3 years
0%
5%
10%
15%
20%
25%
30%
35%
40%
% o
f th
e s
am
ple
<0% 1--5% 6--10% 11--20% 21--30% > 30%
Average annual sales growth
How does this growth compare with the economy?
Growth rates, 3 years
The US economy: 3.5%
NY state: 2.5% (2001-2003)
Source: Bureau of Economic Analysis
When did foreign affiliates come to NYC?
0%
5%
10%
15%
20%
25%
30%
35%
40%
% o
f th
e sa
mp
le
2000-present
1995-1999
1990-1994
1980-1989
1970-1979
Before1969
Year of establishment
Mode of establishment
91.5% of the affiliates in our sample established an office from scratch
Acquisitions: 8.5%Of US-owned firm: 7.0%Of foreign-owned firm: 1.5%
Mode of establishment by year
0% 20% 40% 60% 80% 100%
2000-present
1995-1999
1990-1994
1980-1989
1970-1979
Before 1969Establishedan officefrom scratch
Acquired aUS-ownedcompany
Acquired aforeign-ownedcompany
Mode of establishment by industry
0% 20% 40% 60% 80% 100%
Finance
Retails
Tourism
Chemicals
Manftg.
Services Establishedan officefrom scratch
Acquired aUS-ownedcompany
Acquired aforeign-ownedcompany
Our sample is wholly-owned Level of ownership
The overwhelming majority of foreign affiliates in our sample are wholly-owned: 86.5%
The rest is split equally between majority owned (more than 50%) and minority owned (up to 49%).
Why do foreign affiliates come to NYC and what do
they do here?
Why do foreign firms come to NYC? This is what they told us
% of the sample
Initially Current
Establish a presence in a global business center
20.0 20.0
Serve US clients 19.0 21.6
Exploit their firm specific advantages 19.7 12.4
Serve home clients overseas 11.4 11.0
Implement a specific activity for the entire corporation
9.0 10.7
Access NYC local resources 8.4 8.0
Tap into industry knowledge pool in NYC 7.6 8.0
Counteract or preempt competitors’ moves 4.3 6.2
Would they choose NYC as a location today?
Yes No
90% 10%
And those that would leave NYC, where will they go?
The most frequently selected alternative is the tri-state region
Other attractive destinations are Chicago, Los Angeles, and Washington DC.
What do NYC affiliates expect policy makers to do to make NYC a
better business location? % of the sample
Reduce taxes 44.6
Improve transportation/infrastructure 23.0
Improve security 10.8
Improve the quality of service/business 6.8
Reduce cost of doing business 6.8
Improve the quality of life 5.4
Reduce cost of living 2.7
What do foreign affiliates do in NYC?
Functions performed by NYC affiliates
0%
5%
10%
15%
20%
25%
30%
% o
f th
e sa
mp
le
Sales &Distribution
CustomerServices
RegionalHeadquarters
R&D Production
Functions performed by NYC affiliates, by industry
0% 20% 40% 60% 80% 100%
Finance
Retail
Tourism
Chemicals
Manuftg.
ServicesR&D
Production
CustomerServicesSales &DistributionRegionalHeadquarters
Functions performed by NYC affiliates, by region
0% 20% 40% 60% 80% 100%
R&D
Production
Cust. Serv.
Sales&Distrib.
Regional HQsWesternEurope
Asia
LatinAmerica
The relationships of NYC foreign affiliates with
the local economy
NYC affiliates do not sell much locally
About 40% of the affiliates in our sample generate less than 10% of their sales locally
Another 17% of them sell less than a quarter of their total locally
Only 7% generate more than three quarters of their sales locally
Local sales by industry
0% 20% 40% 60% 80% 100%
0-10%
11-25%
26-50%
51-75%
75-100%
% o
f sa
les
in N
YC
% of the sample
Finance
Retail
Tourism
Pharm.
Manuftg
Otherservices
Nor do they purchase much locally
About half of the respondents do less than 10% of their purchases locally
Another 15% purchase less than a quarter locally
Only 20% of the affiliates in our sample do more than three-quarters of their purchases locally
Local purchases by industry
0% 20% 40% 60% 80% 100%
0-10%
11-25%
26-50%
51-75%
75-100%
% o
f p
urc
has
es i
n N
YC
% of the sample
Finance
Retail
Tourism
Pharma.
Manuftg
Otherservices
And the competitive arena of most of them is away from NYC
Three quarters of the respondents reported that most of their competitors are located outside NYC:35% of the respondents said less than 10% of
their competitors are locally-basedOnly 13% of the respondents reported most of
their competition is locally-based
Competitive arena, by region
0% 20% 40% 60% 80% 100%
0-10%
11-25%
26-50%
51-75%
75-100%
% o
f co
mp
etit
ors
in
NY
C
% of the sample
WesternEurope
Asia
LatinAmerica
But they seem to be heavily engaged with local companies
Frequency of meetings with people from other companies, % of the sample
In same industry
In other industries
Once a week 51.0% 45.0%
Once a month 22.0 23.4
Several times a year 22.0 20.0
Once a year 3.0 3.0
Less than once a year 2.0 8.0
Why do they meet other companies so often?
% reported these meetings are “very important” and “important” source of:
Client specific knowledge 75.8
Industry specific knowledge 74.2
Business environment knowledge 68.7
The relationships of NYC foreign affiliates with
their HQs
The most important decisions related to NYC affiliates are not
undertaken in NYC
0% 20% 40% 60% 80% 100%
Longterm strategy
Capital
New markets
New products
R&D
Labor relationships
Distribution/marketing
Outsourcing
Aff iliatesdecide
Equalinf luence
HQsdecide
Resources transferred between NYC affiliates and their parent
companies % reported intense and moderate transfers
From HQ to NYC affiliates
From NYC affiliates to HQ
Professional knowledge 71.0 68.0
Marketing knowledge 62.4 61.0
Global market knowledge 64.4 52.0
Organizational practices 58.0 36.0
Capital 60.0 17.6
Employees 30.8 5.5
Resource transfer, by major regions: from NYC to HQ
0% 20% 40% 60% 80% 100%
Professional knowledge
Marketing knowledge
Global market knowledge
Organizational practices
Capital
Employees
% of the sample
WesternEuropeAsia
LatinAmerica
Resource transfer, by major regions: from HQ to NYC
0% 20% 40% 60% 80% 100%
Professional knowledge
Marketing knowledge
Global market knowledge
Organizational practices
Capital
Employees
% of the sample
WesternEurope
Asia
LatinAmerica
NYC foreign affiliates rely heavily on the local labor market
0%
5%
10%
15%
20%
25%
30%
35%
% o
f th
e sa
mp
le
None 1--5 6--10 11--15 16+
Expatriates as % of total labor force
Most of the profits of the foreign affiliates remain in NYC
0%
10%
20%
30%
40%
50%
% o
f th
e sa
mp
le
None 1--25 26--50 51--75 76+
Profits transferred to HQ as % of total profits
NYC foreign affiliatesThen (1995) and Now
The 1995 survey:Sample and response rate
1992 Directory of Foreign Firms in the United States559 firms in NYCRandom sample of 20039 interviews
D&B Information Services550 foreign firms in NYC37 mail survey responses
Surveys combined
Choose NYC again?
NowYes - 90%No - 10%
ThenYes - 82%No - 18%
Leave NYC?
Now If yes, most
frequently mentioned locations are tri-state area, Chicago, Washington DC and Los Angeles
Then If yes, most frequently
mentioned locations are tri-state area, elsewhere in New York State, Colorado, and Arizona.
57% would leave for tax savings
What do NYC affiliates expect policy makers to do to make NYC a better
business location? % of the samples
Now Then
Reduce taxes 44.6 16.2
Improve transportation/infrastructure 23.0 18.9
Improve security 10.8
Improve the quality of service/business 6.8
Reduce cost of doing business/reduce bureaucracy
6.8 14.9
Improve the quality of life 5.4 24.3
Reduce cost of living/create more affordable housing
2.7 9.0
After all was said… Take away
Take away: The overall picture emerging from our data
NYC affiliates are a population of small establishments, quite heavily controlled by their parent companiesNYC affiliates are a force for good for the NYC economy and enhance its economic strength Create high value added jobs Bring and maintain capital
The most important resource transferred between NYC affiliates and their parent companies is knowledge of various kinds. Except for capital and employment the transfer is two
ways.
Take away for NYC policy makers
The satisfaction of foreign affiliates with NYC is very high and has increased over the last decadeMost would choose NYC again
However, high taxes are a growing concern of NYC affiliates #1 on the list of expectations for
improvements by policy makers!
Take away for NYC affiliates
Most sales and purchases of NYC affiliates takes place elsewhere.
Most affiliate competitors are not located in NYC
Local interaction with other companies is of critical importance to foreign affiliates. Knowledge and local learning appear to be the
major strategic value that NYC provide foreign affiliates.
Finale
Copies of this presentation and the questionnaire can be downloaded from:
http://zicklin.baruch.cuny.edu/centers/weissman