Saturday, September 23, 2017

[Column] Restore Business Growth: Attract Foreign Direct Investment to P.R.



By on September 11, 2017

Editor’s note: The following article originally appeared in the September 7 print edition of Caribbean Business.

SAN JUAN — Restoring business growth in Puerto Rico is critical to rapid and robust economic recovery, and more importantly, economic expansion. The magnitude of the government’s fiscal crisis demands massive infusion of additional revenue, which could be accomplished more efficiently by incorporating new industries and attracting labor-intensive foreign multinational corporations to the island. Most explanations by international business have emphasized foreign direct investments, the preferred entry strategy of multinational enterprises.

Attracting multinationals from the United States and other foreign countries could bring thousands of new jobs to the island, and should be aggressively pursued. However, attracting new foreign businesses to Puerto Rico is a challenging task, considering the island’s current business environment, while the policies of the Trump administration are still unclear. It is going to take vision, ingenuity, flexibility and critical thinking from both economic-development strategists and top business leaders. Nonetheless, aside from the uncertain political environment, promoting foreign investment should not be evaded.

Global competition, business demands

Nations around the globe are competing fearlessly to attract new businesses to their countries. Multinationals, on the other hand, are constantly searching for better opportunities and ideal investment conditions in other countries. Although multinationals prefer to invest in countries with stable political systems and growing economies, they are also willing to take risks in countries that provide friendly business environments and flexible regulatory standards that are accommodating to foreign business needs.

Successful governments are responding to foreign corporations’ demands by aggressively developing strategies and attractive packages specially designed to accommodate those enterprises. Countries are primarily taking these actions for the capability of significant job creation and the economic-growth potential. We must keep in mind that these governments are flexible and willing to quickly change strategies to compete with other countries.

The assessment

The government of Puerto Rico, in collaboration with the private sector, needs to thoroughly assess its fundamental national competencies; short- and long-term economic-development goals; business strategies that successfully attract businesses; incentives; and the primary industries driving existing economic models. This analysis is paramount to honestly evaluate the country’s ability to efficiently compete for new jobs and markets in the global arena, as mentioned in my 2016 article “Planning the Economic Future of Puerto Rico.”

New global business model

The government of Puerto Rico’s primary mission should be to strategically bring new industries to the island, and its primary strategy should be to attract the best job-producing global corporations to Puerto Rico through Foreign Direct Investments.

Michael E. Porter, in his classic book, “The Competitive Advantage of Nations,” mentions that “the strategic selection of new industries requires…countries develop a national industrial policy. This policy is basically a proactive economic-development plan that governments launch to build or strengthen selected industries, and is often implemented in collaboration with the private sector.” Dubai, for example, developed a national industrial policy to become an international commercial center in the information & communications technology sector, and Singapore has become a world-class center for excellence in such areas as nuclear technology, according to the reputable graduate international business management book—“International Business: The New Realities,” by S. Tamer Cavusgil, Gary Knight & John R. Riesenberger.

The Puerto Rican government needs to develop business models to support the newly created industries, and develop appealing business packages designed exclusively to attract the targeted new industries to the island. Those packages must be strategically designed to benefit both Puerto Rico and multinational corporations. It should include attractive business tax incentives that are exclusively designed to contingently promote production; the removal of business barriers and impediments to start and/or do business on the island; and guarantee low electric rates all directly linked to job creation and retention.

Desired outcome

Again, what is urgently needed in Puerto Rico is massive revenue infusion. The potential creation of thousands of new jobs would significantly increase tax revenue for the government, which would improve its ability to pay down its massive debt, mitigate the fiscal crisis and prevent a future, even more severe economic downturn with potential catastrophic social consequences.

Félix E. De Jesús is an Adjunct Professor of Global Management & International Business in the Leon Hess Graduate Business School at Monmouth University in New Jersey. His research revolves around the dynamics and challenges of leading global corporations, and includes extensive experience in International Manufacturing.

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