Foreign investment key to diversifying, modernizing Maine’s economy

Posted Oct. 15, 2010, at 11:14 a.m.

The Hong Kong-based International Grand Investment Corp. spent $64 million to buy the pulp mill in Baileyville, and state officials expect yearly capital investments of $20 million to $30 million to modernize and maintain the 104-year-old facility.

In the past year, all of the mill’s pulp exports have gone to China’s burgeoning paper industry. This deal is expected to solidify and strengthen that market connection, preserving the newly named Woodland Pulp LLC’s 300-plus work force that represents an annual payroll of $15 million.

It’s also an example of foreign direct investment, which isn’t new or rare in Maine but represents important diversification of the state’s economy and a continued infusion of new capital from out-of-state sources.

Beyond the obvious benefits of keeping the mill open and viable, foreign direct investment offers numerous advantages — as well as some potential challenges — to Maine companies and the state’s economy, experts said.

“Foreign direct investment is extremely important for any state, but particularly for a state like Maine for multiple reasons,” said John Gulliver, a partner with the Pierce Atwood law firm who specializes in energy around the world. “We are really a terrific state, but we are small in terms of our population, therefore small in terms of a lot of other things that are important for growing businesses: capital, technology, understanding of best practices, access to markets. There are multiple benefits flowing from quality, strategic investors.”

Direct foreign investment in the U.S. as a whole took a hit after 2001 but has been rising since 2005, according to Janine Bisaillon-Cary, president of the Maine International Trade Center. It dropped to a low of about $63 billion nationwide in 2003, but has since risen to pre-2001 levels of $320 billion in 2008, according to the World Bank.

Bisaillon-Cary said she has seen more interest from foreign companies wanting to invest in Maine over the last year than she has in the previous 10 years. There are a number of factors pushing that trend, she said. The current value of the U.S. dollar is low compared to a lot of foreign currencies, making investment here more at-tractive. Another factor is that real estate is still cheap in the U.S., she said.

And many foreign companies are interested in cutting their energy costs as they relate to transportation. That means they are considering owning operations here rather than building product a thousand miles away and shipping it.

“The U.S. market is still a very high-value market in terms of having product to sell here,” Bisaillon-Cary said.

Additionally, Maine is getting noticed by some of the large alternative wind and ocean energy companies for the attention the state is paying to the sector, the supply chain companies that are here to support the industry and the natural resources the state boasts, she said.

Earlier this year, the trade center worked with a number of private firms to launch an effort to attract foreign direct investment, aimed at the advanced materials and renewable energy sectors.

Gulliver of Pierce Atwood said the state and the trade center never really targeted foreign direct investment, instead focusing on export opportunities for Maine companies. Both paths should be taken in the globalizing economy, said Gulliver, whose firm was one of the companies supporting the trade center’s new effort.

There are several important benefits to foreign investment, said Gulliver. The first is straightforward: capital. Taking money from someplace else and bringing it to Maine strengthens the state’s economy.

Another is that firms that invest here tend to bring new technology, making their operations competitive on a global basis.

A third is that foreign-invested companies become exposed to international best practices — workers and management can learn new ways of doing things that have been proven around the globe.

And a fourth, said Gulliver, is that having international investors can give a Maine company a degree of credibility and importance, giving them an entree into other foreign companies or markets.

“It gives leverage and access,” said Gulliver.

Anne Canabal, an assistant professor of business at the University of Maine, said every foreign-backed deal, such as the Woodland sale, puts Maine’s name out there and can help attract new investment — particularly if the deal goes well.

As with anything, there are potential downsides to foreign direct investment. John Mahon, chairman of International Business Policy and Strategy at UMaine, noted that assets that are owned by a foreign business may not be here permanently and that maintaining the existing job base may not be a priority. If the economy sours at home, the investment could be abandoned as the company seeks to shore up its domestic position, he said.

“In general, there is always concern that the foreign firm’s interests in the investment may wax and wane over time and that a previously successful enterprise might be starved for funds and attention and slowly die,” said Mahon.

And, said Mahon, there may be decreased involvement and interest in the local community and in being a good neighbor.

That’s a concern when Maine businesses are acquired by any firms from away — whether they’re from Ohio, Europe or Asia, said Gulliver. It is important that new owners and investors understand how important community involvement is, he said.

“It is expected that leading businesses contribute to their communities in the U.S. in an abundant number of ways,” said Gulliver. “As Maine continues to attract non-U.S. owners, we need to make sure they feel comfortable and honor their participation in these things.”

There can be other challenges, said Gulliver. They can include differences in business culture: A business casual dress code may not fly with a new foreign company, for example. The new owners will have to adapt to American business practices and cultures, said Gulliver, but the acquired companies may have to make changes as well.

Ken Priest, president of Kenway Corp. in Augusta, said his company supported the trade center’s new effort to attract foreign investment because of the importance of keeping Maine’s manufacturing sector strong on the international playing field.

The most recent example of foreign direct investment — the Woodland deal — will directly affect his company, said Priest. Kenway is a composites company that does hundreds of thousands of dollars of business with the plant, he said. Before the sale, “they looked to me like they were on very, very shaky ground.”

Keeping the mill viable, said Priest, is important to Kenway, but also to skidder manufacturers, woodcutters and a variety of other businesses across the state. In a very direct way, corporate decisions being made in board rooms around the world affect a web of businesses in Maine, from mom and pop grocery stores to international shipping firms.

“We are truly in a global economy — there is no question about that,” said Priest. “If we’re going to play the game, we need to be talking to those people on the other side of the ocean.”

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