1. Achieving Long-term Competitive Advantage Regional Economics (310) 570 4619 www.milkeninstitute.org February 24, 2006 Lorna H. Wallace, Research Fellow Presented to: Regional Border Economic Development Forum San Diego, CA

2. Determinants of Inbound Foreign Direct Investment (FDI) 1. Market Access 2. Labor – availability and quality (not simply low labor costs) 3. Infrastructure 4. Regulatory Environment 8. Clusters of Firm Activities 5. Incentives 6. Information Availability 7. Quality of Life

3. Foreign Direct Investment in the U.S. Top 10 States by Employment, 2003

4. Foreign Direct Investment in California Employment, 1999-2003

5. Origin of FDI – Baja California

6. California Exports to Mexico 1997-2003

7. California Exports to Top 10 Countries Ranked by 2004 Value, US$ Billions

8. Most Attractive Global Business Locations Responses from Multinational Enterprise Executives 1. China (87%) 2. India (51%) 3. United States (51%) 4. Russian Federation (33%) 5. Brazil (20%) 6. Mexico (16%) 7. Germany (13%) 8. United Kingdom (13%) 9. Thailand (11%) 10. Canada (7%)

9. Internationalization of R&D More than 1/3 rd had ISO 9002 Certification In 1993, Motorola established the 1 st foreign-owned R&D lab in China The Indian R&D activities of General Electric employs some 2,400 workers In the Baja California Electronics and Automotive Manufacturing Cluster More than 25% of the plants surveyed were engaged in R&D 1/5 th did product design More than 1/10 th had developed a patent

10. In Conclusion Increasingly economic development means the ability to attract and retain high-quality jobs in high-tech growth industries – all of which demand well- trained human capital. In conclusion, the issue of competitiveness is very much “en vogue.” Is northern Mexico/southern California a desirable global platform? How does the Border Region measure up re: 8 Determinants of fdi? Isabela Project – innovative sources of financing for small business owners.