Los Angeles Is Not Just a Hub of Trade, It's a Center for Foreign Investment
May 29, 2006
Lorna Wallace
Publisher: Los Angeles Business Journal

Los Angeles Business Journal

Los Angeles Mayor Antonio Villaraigosa recently kicked off this yeari? 1/2 s annual World Trade Week by speaking to a breakfast crowd of about 500 at the Omni Hotel, telling them about the strength and i? 1/2 greeningi? 1/2 of the ports of Los Angeles and Long Beach. He elaborated on the cooperative efforts under way to expand the ports while legitimizing the need to embrace the very real NIMBY (not in my back yard) concerns. Trade initiatives and their impact on job creation and economiAc development in the city were highlighted, particularly our recent fascination with China and almost everything Asian.

All of that is important, of course, as trade is a significant part of our economy. But the event also highlighted the most overlooked issue when it comes to international trade and competitiveness in Los Angeles: foreign direct investment (FDI).

Research shows that in today's global economy, FDI is more important than trade. Initially FDI was largely driven by trade; now it increasingly determines trade.

Broadly, FDI occurs when a foreign company establishes a physical presence in this country and employs local workers. It is a long-term investment that brings knowledge, skills, access to international markets and entrepreneurship to the region. In short, it brings capital and creates jobs. But, many people involved with international trade still doni? 1/2 t understand the importance of FDI and continue to give it short-shrift while focusing most of their attention on imports and exports.

The state of California is the number one location in America for FDI. In 2003, the most recent year for which data are available, some 561,000 workers were employed by foreign firms located in this state. In Los Angeles, these include some of the world's best-know companies, including ING (the Netherlands), UBS (Switzerland), Maersk (United Kingdom) and China Shipping.

As Villaraigosa officially opened World Trade Week, he announced that funds have been set aside to establish an international trade office in Los Angeles. He also spoke about FDI and the importance of strengthening quality education in the city in order to attract and retain firms, both foreign and domestic.

Leti? 1/2 s hope that, through this important initiative, Villaraigosa can bring a few more players on board to increase the understanding of Los Angeles as a global center of international business (including foreign direct investment), and not just a hub for imports and exports.

Lorna H. Wallace is a research fellow with the Milken Institute in Santa Monica.