International Investment Potential in Memphis
– David Yawn
Global changes are marching in a double-time pace as many national economies and trading blocs grow and form alliances.
The U.S. is taking a more aggressive stance in opening world markets as multi-national trade takes an increasingly more prominent role. Now that the Cold War is over, a new world economic order is being forged that has new implications for governments and their relationships with multi-national corporations.
The U.S. has many high technology start-up firms searching for capital and new markets. At the same time, it is in the enviable, natural geographic position of being flanked in one direction by the Pacific Rim and on the other side by Europe and Africa. Moreover, an increasing amount of the world population is using English as their second language in communications.
As more companies seek partners to do business, the relationships that these arrangements create are becoming more important.
As the international trade order changes, the new World Trade Organization (WTO) is designed to pick up where the General Agreement on Tariffs and Trade (GATT) left off.
More specifically, as the European Union moves toward economic if not political integration over the next several years, the banking system is going to be a key player. The EU consolidation movements are making it the largest advanced and integrated market. As European nations grow closer together, that continent will take a more prominent role in the financial affairs of the world. This enhanced role will mean increased responsibility and also greater exposure to worldwide financial changes.
Many believe that economics, not politics, will be the driving force in coming years. In other words, new forms of organization, based on economics, will increase in strength and some nation-states may become more comfortable with this trend as others become less assured than in the past.
The Third World Wave is a real one, but the high-flying growth rates in various countries of the developing world still are playing catch-up with mature industrial markets.
Even advanced technological countries are not uniform in their development. Creating at least an accord on how to approach the future of telecommunications in the industrialized world, the Group of 7 has agreed to open their telecommunications markets and define policies.
And China with one billion potential customers continues to represents a potentially fertile ground for business.
An exceedingly brief time ago, a quite different world existed.
Hong Kong, a unified European monetary unit, East-West relations, NATO, the Internet, Vietnam, the Japanese stock market, Russia, NAFTA and other key components now have entirely new and different meanings than they did only a short time ago.
MEMPHIS AND ITS TRADITION IN WORLD TRADE
Memphis continues to become a center of international attention.
Front Street cotton merchants were among the first in the city to build the bridge to overseas business, leaving a trail for others to follow. Those selling the natural fiber around the globe acted as a catalyst for the major banks in the city to establish international departments for the transactions and letters of credit that enable the trading. The largest private company in Memphis, cotton merchant Dunavant Enterprises, brings in yearly revenues of over $1.5 billion.
The city on the Mississippi River bluffs continues to benefit from foreign connections into the capital of the Mid South.
World Trade magazine, drawing from location specialists at the National League of Cities and leading consulting firms, has ranked Memphis among the best U.S. cities for international companies that want a competitive edge for their facilities.
Now, over 140 foreign-owned companies ranging from food packaging businesses to ocean carriers have operations in the Memphis area.
Two dozen foreign flags are represented in the offices of these various businesses that together employ about 18,000 in the city which is the largest business center between St. Louis and New Orleans and between Dallas and Atlanta.
Corporations with foreign parents have invested tens of millions of dollars in the Memphis area over the past 15 years. Among these companies are familiar commercial names, such as Fleischmann's Yeast Inc., Sharp Manufacturing, Brother Industries, NKC, NYK Line.
Canada and Europe are particularly large investors in Tennessee.
Moreover, a recent study by the U.S. Department of Commerce ranks Memphis as the 38th largest exporting metro area and the 17th largest in terms of dollar volume increases. The Memphis Metro Area exports $3+ billion annually, mostly in the form of commodities. It is estimated that 40% to 45% of the rice grown in the Mid-South and 20% of the Mid-South’s cotton is exported. The rest of the area’s export sales is made up of manufactured goods.
On the import side, U.S. Customs considers Memphis "one of the fastest growing ports of entry in the country." Memphis Customs collects annually over $300 million in import duties which is roughly equivalent to $6 billion worth of imported goods. More duties are collected in Memphis than in New Orleans. Local Customs officials estimate that import duties collected in Memphis will continue to rise by millions of dollars per year.
A quarter of the total GNP of the U.S. is now involved in international trade. This makes it impractical for large American corporations to remain solely domestic in nature or in trade and this plays well into the growing global shipping capabilities of Memphis-based FedEx. thFedEx which celebrated its 25 anniversary in 1998, recently opened another
regional hub at Alliance Airport in Fort Worth and has announced another one in Greensboro, N.C. It is expanding its headquarters and data complexes in the Memphis area. It employs some 140,000 worldwide, about 38,000 of whom work in Memphis. It handles millions of packages and documents each day and serves over 210 countries.
PROOF OF ACTIVITY
THROUGH UNIVERSITY RESEARCH
The Business and Economic Research Center at Middle Tennessee State University has arrived at some interesting statewide findings, as well, as part of Project International. Consider the following points:
; In 1974, there were only 19 foreign-owned manufacturing firms in the state. The total
book value of foreign investment was then $736 million.
; A handful of foreign-owned manufacturing and distribution firms active 20 years ago
has grown to 420, a 2,100% increase. The total number of foreign-owned firms
engaged in all business sectors exceeds 800 with a combined book value of some $15
; About a quarter of the value of all products shipped in the state of Tennessee issues
from foreign-owned firms. Better than one in seven manufacturing jobs is in one of
; British investments are worth more than $2 billion in the state.
; Japan and Canada also are among the top three in this regard. Germany recently
became the fourth country with over a billion dollars in Tennessee investments. ; Japan is the largest investor in Tennessee with nearly 200 firms operating in the state,
together worth well over $5 billion. Almost all Japanese investment is in the form of
; Memphis held the most foreign owned firms in 1974 and does so today. Together,
Shelby and Davidson counties contain a little over a third of all foreign affiliates
operating in the state.
; The chemical industry (including the manufacture of plastics) has the most
foreign-owned firms of any industrial sector, the highest percentage of foreign-owned
firms and the most foreign-owned employment (over 9,000 workers).
; Tennessee owes about one-fifth of its total manufacturing sector to foreign investment
and it is growing rapidly.
; Tennessee's economy is the seventh most reliant on foreign-owned firms of the 50
RECENT DIRECT INVESTMENT
Sharp Manufacturing Co. of America was the first major Japanese capital investment in Tennessee when in 1979 it opened a $20-million plant that now produces microwave ovens, color televisions, liquid crystal projection units, and most recently, TV chassis units.
It produced its first five million units five years after its start-up in Memphis and achieved the 10 million unit mark by 1988.
In 1991, Sharp began to move production of its TV chassis units from Malaysia to Memphis, creating over 190 jobs in two years, an expansion investment of some $11 million in itself.
Sharp in 1992 built an additional 140,000-square-foot, $16-million plant to make components for microwave ovens, a venture that increased employment by another 100-200.
It now leads all companies in U.S. microwave oven sales with a 26% market share.
In 1993, Sharp announced plans to add a $22 million plant to produce toner for plain-paper copiers which opened the following spring.
The company employs about 1,350 in the city.
Each year, Sharp produces about 1.25 million color TV sets, 1.45 million microwave ovens and over 10,000 liquid crystal display projectors for total sales of at least $500 million.
About a dozen Japanese companies operate in the city, together employing over 2,000.
Other nations are represented heavily, as well.
AZO, Inc. is a leader in electronic measurements, providing automated material-handling systems for the food, pharmaceutical and materials industry. It buys computers, then reconfigures them, writes software and makes electrical controls for the systems. Using automated equipment, it provides precise measurements for companies that produce products in volume.
AZO, founded by Adolph Zimmerman of Osterburken, Germany in 1949, has more than 2,000 clients, including major manufacturers such as General Mills, General Foods, Kellogg, Nestle and others.
Other expanding companies are numerous in size and scope.
Fleischmann's Yeast Inc., owned by Burns, Philip & Co., Ltd., of Sydney, Australia, has completed a $3 million addition to its new Memphis plant, adding new equipment, employees and 5,000 square feet. The highly-automated facility became the company's largest in North America with an annual capacity of at least 95 million pounds of yeast. This addition augments the 51,000-square-foot, $20-million plant that Fleischmann's opened in Memphis in 1990.
Brother Industries USA, owned by Brother Industries Ltd. of Nagoya, Japan, employs about 600 in the Bartlett area, where it built an $8 million plant on 20 acres in 1987.
Brother made a subsequent $4.9 million expansion, added shifts and diversified into word processors in 1990.
NKC of America, owned by Nakanishi Metal Works Co., Ltd., of Osaka, employs about 175. The maker of conveyor systems for the auto industry started out in the city with a 48,000-square-foot building, and through four successive expansions, operates in a 200,000-square-foot facility.
DIFFERENT PARTS OF THE GLOBE REPRESENTED
These are but a few examples of foreign direct investment in the city.
International ownership of Memphis companies is broad geographically. The country-by-country breakdown is as follows - (Americas:) Columbia, one; Mexico and Brazil, two each; Canada, 14; (Asia/Pacific:) Malaysia, one; Hong Kong, two; Korea and Australia, four each; Japan, 37; (Greater Europe:) Austria, Belgium, Denmark and Israel, one each; Finland, three; Ireland and Italy, four each; Sweden, France and the Netherlands, five each; Switzerland, eight; Germany, 12; and the U.K., 21.
European companies together employ about 9,800 in Memphis, Asian/Pacific ones, around 5,700, and North and South American companies, roughly 1,600.
European business traditionally has come into the city via acquisitions of existing companies, while most Japanese investments have been start-up operations.
Among the more prominent European operations in the city in addition to Allenberg, and AZO, are the following (listed with their parents): Durand-Raute Corp., woodworking machinery, Raute OY of Lahti, Finland; Certain-Teed Products, pipes and fittings, Sainte-Gobain of Paris; Bauermeister, Inc., industrial machinery, Probat Werke of Emmerich, Germany; F.A.G. Bearing Corp., bearings sales, F.A.G. Kugelfischer Georg Schaefer Co. of Schweinfurt, Germany; and others.
The U.K. has had a particular interest in the city on the Mississippi River. The following British companies have acquired parts or all of these large companies, most of which were founded in Memphis: Bass PLC ($2.3 billion in 1990 for Holiday Inns), GKN ($30 million in 1979 for Parts Industries Corp.), Sedgwick James ($307 million in 1986 for Crump Cos. Inc.) and Smith & Nephew ($283 million in 1987 for Richards Medical Co.) Smith & Nephew Richards Inc., has since (1989) completed a $6 million addition to its administrative and research complex. Sedgwick James has completed a new headquarters building in Ridgeway Center. [In 1996, GKN sold Parts, Inc., an affiliate of Parts Industries, to a Houston company for $80 million].
Smith & Nephew has opened a new $5 million, 56,000-square-foot addition to its headquarters in a move that allowed the company to expand its staff by 10%-15%. It currently employs about 1,500. The new building is the first phase of a multi-year expansion plan.
TRADE GROUPS AND INFRASTRUCTURE
Since 1947, the Memphis World Trade Club has assembled those involved in international trade, and the Mid-South Exporters Roundtable also has grown as another trade group for those engaged in overseas business.
The Memphis International Council acts as a clearinghouse for many of the organizations and meets at lease quarterly. Since 1994, it has staged International Commerce Day in Memphis.
Also facilitating global trade are international accounting firms, attorneys skilled in overseas work, international departments at local banks, foreign consulates, international insurance companies, steamship line agency offices, translation services and freight forwarders and customs house brokers.
The primary banks headquartered in Memphis not only exchange international currency, but handle foreign exchange checks, international wire transfers, direct and documentary collections, letters of credit and the like.
Housed in the Memphis Area Chamber of Commerce is a branch office of the U.S. Department of Commerce International Trade Administration as well as a specialist who oversees and assists international investment in the Memphis area. In 1996, this office became an Export Assistance Center, part of a national and regional network for export experts. The office now has broader access to financial and market research sources. The change puts the specialties of the Commerce Department, the U.S. Small Business Administration, the U.S. Export-Import Bank and other organizations under one roof. The center is an outgrowth of the Trade Promotion Coordinating Committee formed nationwide in 1990 to streamline export promotions.
The Small Business Development Center has an international trade component in the city and the Tennessee Department of Economic and Community Development operates an international marketing division.
The chamber produced a multi-lingual color brochure highlighting business attributes of the city in German, Japanese, French and Spanish. It also has an inventory of videotapes in French, German, Italian, Japanese and Spanish. Also available is the region's international trade directory, listing about 400 companies involved in international trade, including exporters and importers. The book also lists individual local companies and institutions providing international trade services.
One of the goals of the Memphis 2005 strategic initiative is to increase the international trade and investment index for the Memphis MSA by 10% per year. Moreover, Memphis 2005 and the chamber share the following goals along these same lines:
; Develop an attractive business climate for foreign direct investment
; Promote Memphis goods and services worldwide
; Ensure that Memphis develops and sustains an infrastructure conducive to international
trade - both physical and professional
; Create the perception of Memphis as the Gateway to North America
; Maximize the economic benefits of the KLM flight
; Maintain a close working relationship with local, state, national and international
organizations that will help advance these goals
; Develop a synergy among local organizations to create the most efficient and effective
use of resources
The Memphis in May International Festival salutes a different country each year. Now attracting over one million to its month-long series of programs, the festival has long been recognized as a centerpiece of the city's annual event calendar. Countries that have been honored are: Japan, Canada, Germany, Venezuela, Egypt, the Netherlands, Israel, Mexico, Australia, the People's Republic of China, the United Kingdom, the Republic of Kenya, France, New Zealand, Italy, Russia, Cote d'Ivoire, Thailand, Brazil and Portugal.
INVESTMENT TAKES VARIOUS ROUTES
International investment in Memphis not only is gauged in terms of company ownership, but also in the acquisition of real estate.
For example, two large golf course/residential communities on the east side of Memphis owe much of their new development to the infusion of foreign capital. In the case of the residential/golf community of Cordova Club, it is Swedish investors and in the case of Southwind, German investors, namely Fasseck Venture Corp principals Michael and Christa Eckes.
Moreover, the Furst Thurn Und Taixis estate of Regensburg, Germany in 1988 purchased a group of three Class A office buildings in East Memphis on Primacy Parkway for $30 million.
Hooker/Barnes Projects Group USA, a division of LJ Hooker International of Australia, in 1987 built the 560,000-square-foot Outland Business Center near Winchester and Perkins, which since has sold. What became LJ Hooker Developments sold numerous industrial properties around the U.S., including some of its developed interests in Memphis,
to Kajima International, Inc., of Japan and the Atlanta-based company Industrial Developments International (IDI) in 1989
Memphis is one of the least expensive cities in the world to do business, in terms of comparative effective rental rates for Class A office space, according to a study by Boston-based Colliers International. The average effective rent in Tokyo, for instance, is 18 times higher than office rents in Memphis.
Real estate decisions that used to be made in the context of a local market now are being made on a global basis. The trend toward globalization will reduce differentials that exist between major financial capitals.
In addition, greater use of advanced communications technology means there are fewer reasons for corporations to be headquartered in the traditional East Coast cities, says Jeffrey Hallett, principal of PresentFutures, Inc., of Falls Church, Va., and a contributing researcher for the book, "Megatrends."
What the Mid South Common Market concept, a grouping of 105 counties for commercial interaction, has as its mission to achieve is a business base that will put the area in a good position to vie not only for domestic business, but also for business abroad, Hallett says.
South Central Bell, Time-Warner and US Signal have installed staged fiber optic networks to link Memphis and West Tennessee to a national fiber optic system that will permit optimum voice, data and facsimile transmissions.
Looking at foreign-based U.S. real estate investment trends, it’s evident now that around one dollar out of every five dollars of investment capital for U.S. real estate was financed by foreign sources. Syndications pooling funds from overseas emerge as a source of this capital, too.
Though the trend of Japanese investment in U.S. real estate has slowed, most of the divestment has centered in California and Hawaii.
Japan still holds a considerable share of American real estate and it is still instructive to analyze its traditional practices of investing here. Its institutions historically have joined to pool sources to spread risk and share returns. Trust banks, commercial banks, trading companies and securities firms embody these syndications.
Formal business decision-making in Japan often is a matter of collective approval. After a new project has been verbally approved at lower and higher levels, project supervisors draw up original plans in written form before obtaining personal seals of all seniors in descending order.
The most common model for investors is to identify a property, structure a partnership and then solicit co-investors. REITs are also a vehicle used. Some Japanese institutions are still involved here in the financing sector, operating through securitization of debt and equity, provision of credit enhancements, rate sawps, currency hedges and financing mechanisms.
Japan finds American real estate attractive because of U.S. stability and the shear amount of product.
European pension funds mostly are cash buyers and are heavily involved in U.S. real estate. They invest in cases where their own markets may lack available product.
A prominent one includes the Dutch Pension Fund PGGM.
Dutch funds in general average about 20% of total assets in real estate. The Dutch people have a high rate of savings and the market in Holland isn’t big enough to absorb all of it, so Dutch funds look abroad.
The Royal Dutch Pension Fund is another large example, as is ABP, which is the giant Dutch public employee pension fund.
Traditionally, the Dutch have bought office and retail properties, but also have moved into apartment investments, too.
More activity also is seen from Swedish investors, such as through Hansa, a Swedish insurance agency.
Italians have received the green light to create private pension funds.
Foreign buyers often use U.S. brokers and managers for a variety of real estate related services, including acquisition, leasing, property management and disposition.
Foreign buyers often will combine their equity with domestic debt and use local lenders to raise capital. Some tend to structure a deal as a joint venture rather than a loan. Foreign investors are yield driven, as are American ones, and come in different organizational types. They are keen on local market research and will rely on local representatives if they believe that their recommendations are based on good research and are backed by solid reasoning.
CITY MEASURES UP TO COMPETITION
Memphis is pegged as one of the most desirable places for manufacturing facilities. Top-weighted items considered by the corporate respondents include: labor quality/productivity, attractiveness to managers and access to markets. Other manufacturing site selection factors are facility costs, direct labor costs, transportation costs, labor-management relations, utility costs, transportation costs, government regulations and government-subsidized job training programs.
Distribution centers and warehouses were at the top of their lists. Memphis has some 105 million square feet of industrial space, most of it geared toward warehousing.
Of the larger firms, relocating to Memphis several common elements determined their interest.
These include ease of distribution throughout the U.S. and Southern market access in particular, the airport, location on the river, dual interstate connections, conducive climate, six Class I railroads, scores of motor carriers, reasonable taxes, good labor market, drop-off shipping advantages afforded by the FedEx SuperHub's proximity and a cooperative government.
CONNECTIONS FOUND ON SEVERAL FRONTS
The scope of Memphis' international involvement is seen on the agricultural front, as well, with the city being the headquarters of the National Cotton Council, National Hardwood Lumber Association and Agricenter International, all of which have regular exchanges with overseas companies and institutions.
In farmland alone, an estimated 120,000 acres surrounding Memphis are owned by foreign interests, representing a value conservatively estimated at $100 million.
Hamburg, Germany's Prince Ferdinand von Bismarck, a global real estate personage and businessman, owns vast rice farm holdings nearby in Arkansas.
In the educational arena, the University of Memphis has established two chairs of excellence for professors teaching international economics.
The Robert Wang Center for International Business at its Fogelman College of Business and Economics has built a reputation as a center for the promotion of international business education and research since the Wang Center was established in 1989. Through its curriculum, educational exchanges, publications, and professional development forums, the center has become a leader in generating practical knowledge of the changing world marketplace. In 1993, it launched an MBA program in international business which requires overseas internships or study experience, geographical-area expertise and foreign language competency.
The center's creation led to the establishment in 1990 of the university's Center of International Business Education and Research, one of 25 funded by the U.S. Department of Education.
In 1995, the university entered into a relationship with the Ecole Superieure de Commerce de Montpellier, a leading business school in France.
The university also is looking at developing a couple of dual-degree programs that would combine with law and/or engineering. In addition, a new doctorate-level international business program is in place at U of M.
Rhodes College and Christian Brothers University also have established international studies and exchange programs.
CBU has established the Centre for Global Enterprise within the School of Business. It will help the university's academic departments develop global perspectives; it will provide international education, travel and training for faculty and students; and international education and training for area busines executives.
The Mertie W. Buckman International Internship Program was launched at Rhodes in 1994 with a gift from the Buckman family. It places students in two-month internships in foreign countries.
The marriage of education and agribusiness is best evidenced by the Memphis Cotton Exchange International Cotton School, to which students travel from around the world for intensive studies at Rhodes College to prepare for the cotton business worldwide.
Several Memphis-based engineering and design firms have completed major projects overseas, such as JMGR, Allen & Hoshall, Inc., the Pickering Firm, Askew Nixon Ferguson Architects, and Process Systems Inc., (PSI).
Transportation and distribution, already considered synonymously with any discussion of Memphis business, are firmly established strongholds of the city, lending themselves to international as well as domestic trade.
About 70% of the eastern two-thirds of the U.S. population can be reached overnight by truck from Memphis, a crossroads between industrial centers and ports.
As an international crossroads, it's located between Tokyo and London.
Cross-continental micro-bridge and mini-bridge transfers allow shipments to move under a single bill of lading. And the city stands to be a major transfer staging area, distribution point and depot between Toronto and Mexico City and between the business centers of Montreal and Monterrey in light of NAFTA.
Over 200 truck lines have operations in the city and six Class I railroads have connections. The Port of Memphis is among the top four inland ports in the U.S., handling about 12 million tons of cargo yearly.
The Foreign Trade Zones in Memphis permit a waiver of collection of customs duties on goods imported into the zone or stored there. Taxes are collected only when merchandise is ready to be shipped out for sale in the U.S. and no duty is charged if the products made within a zone are exported from the U.S.
Memphis' location on the river gives it access to over 25,000 miles of navigable waterways.
Over recent years, the city has been a stopover point on the itineraries of many groups and individuals, including: the Italian Inland Navigation Union, the economic counselor for the embassy of Switzerland in Washington, D.C., the economic counselor with the British Embassy in Washington, the ambassador of the U.S. to Australia, a minister with the Japanese embassy in Washington, the Turkish ambassador to the U.S., a Japanese consul general, the Japan Lumber Importers Association; the director of the Israel Economic Development Partnership, port directors of Antwerp and Rotterdam, the Sopporo Japan Junior Chamber of Commerce, the director of the Hong Kong Economic and Trade Office in New York, the German American Chamber of Commerce for the Southern United States, The Swedish Civil Aviation Administration, the National Association of Travel Managers in Holland, and others.
AIRPORT/FEDEX NAMED AS FACTORS
Memphis boasts one of the safest and efficiently run airports in the U.S. It is consistently at or among the top performers for on-time arrivals, which is significant in that it is the busiest cargo airport in the world.
It has attained that status for the third year in a row. Airports Council International in Geneva ranks it No. 1 in total cargo volume. Memphis outpaces the runner-up, Tokyo's Narita Airport in metric tonnage.
The city was the setting for the Air Cargo Shippers Conference in 1994, which drew speakers from industry and academic fields who talked about time-based competition and global logistics before an audience of some 400.
The Memphis-Shelby County Airport Authority has a well-established master plan that includes recent and current runway construction projects.
e next century. This plan carries a pricetag of over $150
“We're very optimistic because of our geographic location and the role Memphis
plays in distribution," says Larry Cox, president of the Memphis-Shelby County Airport Authority.
Northwest Airlines operates its southern hub at the airport, where it has around 100 scheduled daily departures. KLM Royal Dutch Airlines and Northwest Airlines began regularly scheduled flight service between Memphis and Amsterdam in June of 1995 after the airport built a $15 million customs clearance facility and a walkway between the A and