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By SHELLEY HELTON


DCCA's international business role: export promotion, foreign investment



A smile slowly spread across the face of Jay R. Hedges, director of the Illinois Department of Commerce and Community Affairs (DCCA), as he nodded, a telephone pressed to his ear. The news he was receiving came as a surprise, but he seemed pleased. The work of his department had paid off. "That was one we thought had slipped away from us," he said as he hung up the phone. "And we have two more like it on the back burner."

What hadn't slipped away was what Hedges termed the "quintessential" development deal, an example of just what the department's International Business Division can put together when everything works perfectly. In this case, the department secured the expansion of an existing Illinois company with West German ownership and Japanese capital that will create 450 new jobs and save the 1,100 already at a tire manufacturing facility in Mount Vernon.

"This is a classic project," Hedges said as he received the news September 27 of General Tire Co.'s decision to upgrade and expand its southern Illinois plant to produce state-of-the-art bus tires. "They have six new facilities in other states that are below capacity. Mount Vernon is at maximum capacity, and they decided to build a new plant there."

The General Tire plant also symbolizes DCCA's two-prong strategy in its masterplan to become a leader in the international marketplace. The first is to convince foreign business to "invest" in the state, either by building manufacturing facilities here or by recruiting Illinois distributors for their products. Departmental jargon calls this "reverse investment." The second strategy is to export Illinois products overseas, as the Mount Vernon facility will do when it ships its bus tires to Germany and Japan.

Once thought to be only the purview of the federal government, subsidized inducements to expand U.S. products in the world market — from trade delegations and sensitive negotiations to product fairs and catalog shows — have become business as usual for more than 30 states, which collectively spend about $40 million annually on export promotion and foreign investment. As one of the first to recognize the need for state intervention in the world marketplace, Illinois for 20 years has been charging into the marketplace to hawk its homegrown products abroad and convince foreign investors to plant their francs, yen and pounds into its midwestern soil. Offices in Moscow, Canada, Taiwan and Korea may soon join the state's existing offices that dot the globe: Brussels, Belgium; Hong Kong; Sao Paulo, Brazil; Osaka and Tokyo, Japan; and Shenyang People's Republic of China.

The state export record is impressive. Illinois had $734 million in exports during August (last full month for which statistics were available), up $172 million from August 1987, according to the U.S. Department of Commerce. In the first eight months of this calendar year, Illinois shipped $5.89 billion worth of products overseas, up $1.6 billion or 37.2 percent from the same period last year. Using the state fiscal year as the yardstick, exports totaled $8.14 billion for the year ending June 30; DCCA took direct credit during that fiscal year for $51 million in new, first-year projected sales via its overseas offices.

DCCA researcher Wallace Biermann cautions, however, "You cannot tie what we do directly to output figures." DCCA is "just a facilitator," he explains, pointing out that variables in the economy affect results. For instance, state exports steadily climbed during a 10-year period starting in 1977, but in 1982 the strong dollar and recession pushed exports into a downward spiral.

Biermann's qualifiers do not dampen his boss's enthusiasm. "I am not bashful at all in defending the success of our overseas offices," says Hedges, who maintains an open-account-book style of leadership. "The numbers speak for themselves. . . . I'm not saying we're the best state [operation], but I'd say we're in the top five."

As for attracting foreign business into the state during fiscal year 1988, DCCA says 45 foreign firms expanded existing facilities or located new ones here. This meant the creation of 4,000 new jobs, retention of nearly 1,700 jobs and a total capital investment of $504 million. In terms of additional state tax revenue from this expansion, Illinois' Brussels office alone generated $7.8 million, according to DCCA.

Not everyone in the state legislature agrees. Some have pointed out that while foreign investment has taken place, it often has come as a result of state dollars augmenting the deals, money over and above the International Division's $2.9 million operating


December 1988 | Illinois Issues | 18


budget. The General Tire Co. expansion in Mount Vernon, for example, could cost the state $20 million in incentive packages. And a five-year $88 million subsidy was pumped into the Chrysler-Mitsubishi's Diamond Star plant in Bloomington that started production this fall.

Critics also argue that encouragement of foreign investment could mean too much competition and, ultimately, the loss of jobs at home. One better-known example was the state's courtship of the Japanese company, Mitsuboshi Belting Ltd. (not the same as the Mitsubishi automobile company), which built a plant in Ottawa, Ill. Mitsuboshi supplies belts for the Mitsubishi-manufactured automobiles both here and in Japan. When Colorado-based Gates Rubber Co. with a plant in Rockford discovered Mitsuboshi belts would be used at Diamond Star, it cried foul immediately. Gates argued that as an Illinois producer, it should have the opportunity to supply the Diamond Star plant. "I was shocked," remembers state Sen. Joyce Holmberg (D-34, Rockford) when she discovered Gates was not in the bid process.

But Hedges views the Gates Rubber scuffle in a different light. He counters that Gates Rubber was unable to grab Diamond Star's coattails since the Mitsubishi engines came from Japan already equipped with belts supplied by Mitsuboshi, but not necessarily with those manufactured in its Ottawa plant. There was never an opportunity to bid for any belting manufacturing, Hedges says. He maintains, however, that 40 percent of Diamond Star's suppliers ended up being Illinois companies. The situation, Hedges points out, brings into sharp focus the ongoing debate on whether the state should foster protectionism in its economy. "You don't get business by badgering a company," he says.

To guard against any surprises in future subsidy packages, the legislature, following the Diamond Star deal, passed a bill that requires DCCA to report on contract details and foreign investments' effects on local economies, something Holmberg says has yet to occur since no new subsidies have been approved.

All of DCCA's operations are under scrutiny by a House committee and a Senate task force. "DCCA is the fastest growing agency in the state, says Holmberg, a member of the Senate's Economic Development Task Force and a self-described advocate of local involvement in promoting local products in the international market. "We really don't know what is happening over there [in DCCA], but we want to know."

The $2.9 million appropriation for the International Division is just a sliver of DCCA's $65 million in general revenue funds, and a very teensy part of DCCA's $592 million overall budget. The other funds for DCCA include $399 million in federal funds and $128.5 million in "dedicated revenues," such as the hotel tax that funds tourism.

On the House side, Rep. James F. Rea (D-117, Christopher), chairman of the Select Committee on Economic Development, declined comment in late October on DCCA's operations until the report is released (set for November). But committee member Rep. Mike Weaver (R-106, Charleston) says the department needs to bolster staff levels at existing foreign offices rather than open new ones.

In Illinois' immediate future, new offices could open in Moscow (as early as next spring) and Canada, Hedges says. Additionally, the department will explore both Korea and Taiwan, areas where he believes cultural nuances, from language to accepted business practices, demand a physical presence in each country rather than a coordination from existing Asian offices. If the Moscow deal comes through, Illinois will then be the first state to open an office there as it was in China when the Shenyang office opened in 1985.

Weaver, who in the 1970s worked at DCCA's predecessor (Department of Business and Economic Development), believes the Brussels office, which has coordinated trade with Eastern Bloc countries since the early 1970s, may be doing an adequate job. Via the Brussels office, DCCA statistics for the the last several years show that Illinois manufacturers have participated in eight trade fairs/missions in the Soviet Union. Additionally, seven companies participated in a "catalog show," where the firm's products were described in a brochure put together by the Brussels office and distributed to Soviet businesses. The Brussels office, with its roots deeply penetrating the export turf, leads the trade offices with assisting more than 400 companies in trade fairs and missions in Europe, Africa and the Middle East, resulting in $250 million in off-the-floor and first-year projected sales since 1968.

"I'd like to see DCCA, in its business arm, get aggressively involved in overseas markets, not just reverse investments," Weaver says. He sees the need for the state to do a better job selling products from Illinois' small- and medium-sized companies in overseas markets.

Hedges seems to agree. He sees a shift back to exports. With the relaxation of Japanese trade barriers, Illinois firms are again looking to export to that country. "Exports, in general, are up dramatically," Hedges says. "[DCCA] is not, by any means, trying to take credit for that. Clearly, a big factor for both Illinois and the United States is the devaluation of U.S. currency. In response to that, we are shifting our efforts. But we still have this investment frenzy. We are trying to do both."

Companies which have used DCCA services give the agency high marks, saying formidable doors to foreign trade have been opened. But both business people and DCCA officials caution that once those doors are opened the firms are left on their own to win or lose in the competitive foreign markets. Providing up to 40 percent of the cost of trade show entry fees, which can run in the thousands of dollars, also helps small and large companies alike overcome financial obstacles.

"DCCA is like the foot soldier on the front line — [it goes] out there and finds the information; makes the mistakes," explains Norma Roldan-Burnson, owner of NRB Enterprises, an export management firm dealing with medical supply companies. "But companies have to do their homework before they go there," she says. "They have to be realistic."

Whatever marks the Senate and House reports give to DCCA on its overall operation, lawmakers are not going to dispute the agency's mission to bolster Illinois exports. Illinois operates in the world marketplace, and how Illinois does in that marketplace helps determine Illinoisans' prosperity. □

Shelley Helton is a Springfield-based freelance reporter.


December 1988 | Illinois Issues | 19



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