1. Survey of Foreign Affiliates in New York City

2. 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.

3. 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?

4. 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.

5. Characteristics of the affiliates in the sample

6. Where do foreign affiliates in NYC come from? % of total Our sampleTotal in NYC Western Europe43.756.5 Asia (of which Japan) 31.0 (77%) 20.4 Latin America9.26.5 Southeast Asia7.02.6 Eastern Europe4.96.3 Africa2.86.5 T-test: 0.10

7. Major home countries of NYC affiliates Number of affiliates Our sampleTotal in NYC Japan36 (+)456 France11 (-)317 United Kingdom11208 Italy9146 Germany799

8. In what industries do they operate? % of the sample Financial Institutions21.0 Banks13.1 Retail14.8 Manufacturing12.6 Tourism8.9 Pharmaceuticals/Chemicals8.1 Consulting/Legal services5.2 Food/Beverages4.4 Other Services3.7 Marketing/Advertisement3.7 Publishing3.0 Real Estate1.5

9. The majority of NYC foreign affiliates are small establishments % of total Number of employeesOur sampleTotal in NYC Up to 1037.054.4 11-3030.921.3 31-5012.85.4 51-1005.210.6 Over 10014.111.1 Average143.793.7 Median14.510.0 Differences are not significant

10. And the magnitude of their business in NYC is modest

11. Growth has been slow… at least during the last 3 years

12. 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

13. When did foreign affiliates come to NYC?

14. 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%

15. Mode of establishment by year

16. Mode of establishment by industry

17. 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%).

18. Why do foreign affiliates come to NYC and what do they do here?

19. Why do foreign firms come to NYC? This is what they told us % of the sample InitiallyCurrent Establish a presence in a global business center 20.0 Serve US clients 19.021.6 Exploit their firm specific advantages 19.712.4 Serve home clients overseas 11.411.0 Implement a specific activity for the entire corporation 9.010.7 Access NYC local resources 8.48.0 Tap into industry knowledge pool in NYC 7.68.0 Counteract or preempt competitors’ moves 4.36.2

20. Would they choose NYC as a location today? Yes No 90% 10%

21. 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.

22. 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

23. What do foreign affiliates do in NYC? Functions performed by NYC affiliates

24. Functions performed by NYC affiliates, by industry

25. Functions performed by NYC affiliates, by region

26. The relationships of NYC foreign affiliates with the local economy

27. 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

28. Local sales by industry

29. 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

30. Local purchases by industry

31. 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-based Only 13% of the respondents reported most of their competition is locally-based

32. Competitive arena, by region

33. 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 week51.0%45.0% Once a month22.023.4 Several times a year22.020.0 Once a year3.0 Less than once a year2.08.0

34. Why do they meet other companies so often? % reported these meetings are “very important” and “important” source of: Client specific knowledge75.8 Industry specific knowledge74.2 Business environment knowledge68.7

35. The relationships of NYC foreign affiliates with their HQs

36. The most important decisions related to NYC affiliates are not undertaken in NYC

37. 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 knowledge71.068.0 Marketing knowledge62.461.0 Global market knowledge64.452.0 Organizational practices58.036.0 Capital60.017.6 Employees30.85.5

38. Resource transfer, by major regions: from NYC to HQ

39. Resource transfer, by major regions: from HQ to NYC

40. NYC foreign affiliates rely heavily on the local labor market

41. Most of the profits of the foreign affiliates remain in NYC

42. NYC foreign affiliates Then (1995) and Now

43. The 1995 survey: Sample and response rate 1992 Directory of Foreign Firms in the United States 559 firms in NYC Random sample of 200 39 interviews D&B Information Services 550 foreign firms in NYC 37 mail survey responses Surveys combined

44. Choose NYC again? Now Yes - 90% No - 10% Then Yes - 82% No - 18%

45. 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

46. What do NYC affiliates expect policy makers to do to make NYC a better business location? % of the samples NowThen Reduce taxes44.616.2 Improve transportation/infrastructure23.018.9 Improve security10.8 Improve the quality of service/business6.8 Reduce cost of doing business/reduce bureaucracy 6.814.9 Improve the quality of life5.424.3 Reduce cost of living/create more affordable housing 2.79.0

47. After all was said… Take away

48. Take away: The overall picture emerging from our data NYC affiliates are a population of small establishments, quite heavily controlled by their parent companies NYC 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.

49. Take away for NYC policy makers The satisfaction of foreign affiliates with NYC is very high and has increased over the last decade Most 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!

50. 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.

51. Finale Copies of this presentation and the questionnaire can be downloaded from: http://zicklin.baruch.cuny.edu/centers/weissman