International Business Expansion in South Carolina
Downtown Greenville, SC
Though the pandemic caused new foreign domestic investment expenditures (FDI) in the United States to reach a 5-year low in 2020, FDI is a viable economic development strategy pursued by states to diversify their economies and provide gainful employment to their residents. Between 2013 and 2018, FDI employment grew 26% (exceeding domestic private sector employment growth of 10%), contributed to 80% of new manufacturing job growth during that timeframe, and entities spent ~$67B in 2018 on research & development (15% of all R&D costs in the US). The benefits of FDI range from improved innovation via technology and knowledge sharing with global partners, additional employment opportunities for residents, and to an expanded tax base contributing to local jurisdictions. South Carolina has taken advantage of FDI from the 20th century onward, previously enticing FDI to the region based on its competitive advantages in the workforce in the textile industry, and now attracting FDI in a range of industries including biotechnology, automotive manufacturing, and materials manufacturing.
The textile industry was a boon to Southern economies throughout the late 19th and 20th centuries, with the Upstate region of South Carolina (e.g. Greenville, Anderson, Spartanburg counties as examples) capitalizing on natural resources in the region to grow the industry. South Carolina’s lower cost of living, lower wages, and rich natural resources enabled mill managers and textile manufacturers to move south from the industrialized Northeast and become dominant exporters of textile products for the country. Concentrated manufacturing activity in the region accelerated the pace of innovation in manufacturing processes, created a highly skilled manufacturing workforce, and greatly improved the economic condition of communities. While offshoring and globalized textile manufacturing began to undercut the domestic textile economy in the late 20th century, Western Europe and other developed countries took note of the manufacturing opportunity available in the Upstate region, and began investing operations in the region.
~545 international companies have operations in the Upstate region in South Carolina currently, employing ~158,500 workers in the state (55% of which are in the manufacturing sector). 10.1% of jobs in the region are within foreign-owned companies, >60 new projects have been announced in the region since 2015, and ~$4.6B has been invested by foreign corporations in the region. International companies include notable names like Michelin, which arrived to South Carolina from France in the 1960s and made its North American headquarters in Greenville, SC, and BMW in Greer, South Carolina, which now employs 11,000 employees and exports finished vehicles to over 140 countries globally. Industries also include advanced materials manufacturers such as Teijin, a South Korean carbon fiber manufacturer which opened a $600M manufacturing plant in Greenwood County, and food and beverage operators such as Nestle, a Swiss conglomerate employing 1,000 South Carolinians at its facility in Cherokee County. The state benefits from agglomeration effects as the international footprint in South Carolina expands, causing more countries and companies to invest in the region.
Local economic development professionals point to various factors which contribute to the high growth of international businesses:
Business-friendly climate: FDI entities arriving to South Carolina regularly point to the state’s low marginal corporate tax rate, affordable utility rates, and low rates of unionization as reasons for investing in the state. South Carolina has a 5.0% top marginal corporate tax rate (see map below for comparisons with other states), has the lowest unionization rate in the country at 2.2%, and ranked 28th in terms of cost of living. The state benefits from proximity to major trade areas including the Charleston port, Atlanta, and Charlotte, providing international businesses with various options to export goods from the state.
Educated, and technically-skilled workforce: The concentration of manufacturing activity in South Carolina has led the state and educational partners to develop technical training programs, STEM education, and apprenticeships in partnership with international partners. The South Carolina Technical College System of 16 technical colleges across the state provides affordable technical education to ~250,000 students annually. readySC partners with companies to offer a range of services to customize and scale training opportunities including: recruitment assistance, training curriculum development, instructor identification, and resource procurement. Apprenticeship SC assists companies in developing apprenticeship programs for their workforce - ~36K apprentices have been involved in ~1,178 Apprenticeship SC programs, across a range of industries including advanced manufacturing, construction, energy, and IT.
State government support and investment: South Carolina has a portfolio of economic incentives to incent further investment in the region. The Jobs Tax Credit is a scaled tax incentive attached to the number of net new jobs created in a region annually, ranging from $1,500 to $25,000 per job created. The size of the base credit is based on an assessment of unemployment rates and per capita income per county in the state, and the state provides a higher incentive to companies creating jobs in more disadvantaged counties. The Research & Development Tax Credit provides a 5% tax incentive on research expenses in a taxable year to companies, to further incent research & development. Additionally, SC Commerce manages international offices in Germany, Japan, Korea, China and India to streamline relations with the international headquarters of companies investing in South Carolina.
Quality of life and multi-cultural presence in the region: The cost of living in South Carolina is extremely favorable to families relocating to the region. Public and private education in the Upstate region is nationally ranked, residents have access to beautiful natural scenery in addition to vibrant downtown areas, and the multi-decade foreign immigration trend from Western Europe and Asia due to continuous FDI has created greater multiculturalism in the region.
Regional coalitions to ensure scale (in terms of workforce and infrastructure): The Upstate Region benefits from a regional coalition of public and private sector leaders working in tandem to market the region to foreign investors, and attract additional investment. Counties in the region are able to market their competitive advantages as a larger entity, providing corporations with the benefits of scale achieved by moving to a large region. These benefits include a sizeable workforce (~700,000 members in the labor force in the Upstate), ample expansion opportunities across counties, and access to regional transportation and energy infrastructure.
Top marginal corporate tax rates by state in 2021, Tax Foundation
Price of industrial electricity, 2019
In an increasingly globalized economy, the country will remain competitive if it’s able to strengthen trade relations with, and benefit from increased access to technology, markets and skilled workers by enabling FDI from, other countries. State and local economic development professionals should add foreign direct investment as a priority with entrepreneurial and domestic corporate growth, to provide their regions with a full array of economic options. To do so, states should evaluate the respective competitive advantages of their regions (natural resources, talent, industry expertise) and work with regional business leaders and the public sector to appropriately market themselves to international corporations. Private sector leaders should also forecast updates to specific industries (e.g. electric vehicle production to replace standard vehicle manufacturing, tech-enabled advanced manufacturing compared to manual labor manufacturing), and ensure the workforce is skilled appropriately to accommodate changes. As with all topics related to regional economic development, international business expansion and FDI also requires significant planning across the public and private sector, and has a lengthy time horizon for projects to come to fruition.
Future blog posts will continue to explore FDI in additional areas of the country, and identify successful policies and initiatives enabling FDI.
How should federal, state and local governments attract additional FDI to their states? What tradeoffs exist as states balance domestic vs. international business expansion? Please comment below with any reactions, ideas, or recommendations for The Next Tide to improve in the future. Thanks for reading!
Blogs will be posted on a biweekly schedule on Mondays. The next blog will be posted on Monday, 7/19/2021.
