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By Patrick McGeehan and Kirk Semple
Affluent foreigners are rushing to take advantage of a federal immigration program that offers them the chance to obtain a green card in return for investing in construction projects in the United States. With credit tight, the program has unexpectedly turned into a mainstay for the financing of these projects in New York, California, Texas and other states.
The number of foreign applicants, each of whom must invest at least $500,000 in a project, has nearly quadrupled in the last two years, to more than 3,800 in the 2011 fiscal year, officials said. Demand has grown so fast that the Obama administration, which is championing the program, is seeking to streamline the application process.
Still, some critics of the program have described it as an improper use of the immigration system to spur economic development — a cash-for-visas scheme. And an examination of the program by The New York Times suggests that in New York, developers and state officials are stretching the rules to qualify projects for this foreign financing.
These developers are often relying on gerrymandering techniques to create development zones that are supposedly in areas of high unemployment — and thus eligible for special concessions — but actually are in prosperous ones, according to federal and state records.
One of the more prominent projects is a 34-story glass tower in Manhattan that is to cost $750 million, one-fifth of which is to come from foreign investors seeking green cards. Called the International Gem Tower, it is rising near Fifth Avenue in the diamond district of Manhattan, one of the wealthiest areas in the country.
Yet through the selective use of census statistics, state officials have classified the area as one plagued by high unemployment, the federal and state records show. As a result, the developer has increased the project’s chances of attracting foreigners who will accept little, if any, return on their investment in the project if it means they can secure American visas for their families.
A senior federal immigration official, Alejandro Mayorkas, acknowledged in an interview on Friday that the program might need more scrutiny. Mr. Mayorkas and other federal officials said they were concerned that some of the maps that New York and other states were approving might not adhere to the spirit and intent of the regulations.
The Times’s review of the program in New York indicates that several other major projects are also based on questionable maps.
For example, the Battery Maritime Building, at the foot of Manhattan near Wall Street, has been classified as being located in an area that needs help attracting jobs. That designation is the result of a development zone whose outlines resemble a gerrymandered political district, project documents show.
The zone snakes up through the Lower East Side, skirting the wealthy enclaves of Battery Park City and TriBeCa, and then jumps across the East River to annex the Farragut Houses project in Vinegar Hill, Brooklyn.
In fact, the small census tract that contains the Farragut Houses has become a go-to area for developers seeking to use the visa program: its unemployed residents have been counted toward three projects already.
The giant Atlantic Yards project in Brooklyn, which abuts well-heeled brownstone neighborhoods, has also qualified for the special concessions using a gerrymandered high-unemployment district: the crescent-shaped zone swings more than two miles to the northeast to include poor sections of Crown Heights and Bedford-Stuyvesant. A local blogger and critic of Atlantic Yards, Norman Oder, has referred to the map as “the Bed-Stuy Boomerang.”
Since 2008, developers have raised or have planned to raise close to $1 billion on these projects in New York City, according to federal and state records. Almost all of that money would come in increments of $500,000 — much of it from residents of China — and pour into wealthy areas.
In interviews, New York State economic-development officials praised the program but were reluctant to accept responsibility for administering it. Indeed, some state officials who certified projects for the program acknowledged that they did not know what was being built. They said they were following guidance from federal regulators.
“This program serves as a valuable tool to support job-creating projects that will put areas of high unemployment on a continued path to economic recovery and growth,” said Austin Shafran, a spokesman for Empire State Development, the state agency that oversees the program in New York.
Urged on by federal and state officials, investors in faraway places like Shanghai and Seoul along with American developers have been flocking to the program, which was created by Congress during the recession of 1990.
Under the program, known as EB-5, investors receive a visa that provides residency for two years and can be converted into a permanent green card if the holders can show the investment produced at least 10 jobs, even if the project has not been completed.
With the surge in EB-5 projects, many lawyers and consultants, in the United States and overseas, are getting involved. In China alone, more than 500 agents are jockeying to connect wealthy Chinese people to American developers, experts said.
Investors throng EB-5 conferences. Many, successful in their own countries, said they wanted to secure American residency for their children. But the competition has given rise to unsavory practices, EB-5 lawyers and consultants said, like agents who falsely promise guaranteed returns.
The minimum investment in the program was set at $1 million and has not changed in more than 20 years. But if the project is in a rural area or a place where the unemployment rate is 50 percent above the national average, the threshold for investing is $500,000, not $1 million.
By creating development zones that are ruled eligible for $500,000 investments, urban developers are at an advantage in luring contributions.
The zone drawn up for the Gem Tower consists of two census tracts in Midtown Manhattan. According to census figures, the tract that contains the project had an unemployment rate of zero for the last five years.
But the State Labor Department calculated that there were enough unemployed people in an adjoining census tract — one that includes Times Square — to justify calling the small zone an area of high unemployment.
Lela Goren, director general of Extell New York Regional Center, which is helping to raise the EB-5 investments for the Gem Tower, said she could not explain how the tower’s zone qualified as needy. “It qualifies, whatever the numbers, and it got approved,” Ms. Goren said.
The consultants arranging the EB-5 financing for the Battery Maritime and Atlantic Yards projects declined to comment.
Officials in other states expressed dismay over how New York developers were using the program. They said New York was unfairly siphoning off investments from less-developed areas.
“A lot of projects are in areas that are head-scratchers,” said James Candido, an official with Vermont’s Department of Economic Development.
Other states have sometimes not allowed such questionable development zones. California told a developer to relocate a manufacturing plant for a surgical-products company from a more prosperous part of San Jose to a poorer one, said Brook J. Taylor, a spokesman for the Governor’s Office of Business and Economic Development in California.
Federal regulators said states determined whether projects were located in areas of “greatest need.”
“The question is, are the state authorities adhering to the spirit of the law?” said Mr. Mayorkas, the federal immigration official who is the director of United States Citizenship and Immigration Services. “Where is the project being developed, and where are the jobs being created? Are the people from the areas of high unemployment being employed? Because that’s really the purpose. If they’re not being hired from those areas, then the question is justified.”
Mr. Mayorkas, whose staff has been scrambling to keep up with the boom in the program, said in the interview on Friday that he was concerned about allegations of gerrymandering.
If some project designations were not achieving “legislative intent,” he said, “then I think that is something that we need to consider as the laws are reviewed.”
Harvard has released an interesting new index of “economic complexity” which is the productive knowledge of the economy, based on analysis of its output composition.
… the Economic Complexity Index (ECI) is based on the number and the complexity of the products that a country exports with comparative advantage. Empirically, countries that do well in this index, given their income level, tend to achieve higher levels of economic growth. The ability to successfully export new products is a reflection of the fact that the country has acquired new productive knowledge that will then open up further opportunities for progress.
The index is then used to make detailed growth projections, and identify export opportunities on a country-by-country basis. There are also interactive versions of most of these visualizations that you can explore and filter.
via The Heritage Foundation
China’s investment overseas is increasingly important to the United States and the international community. The China Global Investment Tracker created by The Heritage Foundation is the only publicly available, comprehensive dataset of large Chinese investments and contracts worldwide beyond Treasury bonds. Details are available on well over 400 attempted transactions — failed and successful — over $100 million in all industries, including energy, mining, transportation and banking.
Download the data set here.
Chinese investment and business contracts now span the globe. There is a clear effort to diversify across countries and regions but the Western Hemisphere has become especially prominent.
China’s investment total could be higher. Over $160 billion in proposed spending has been rejected by foreign or Chinese regulators or has failed due to mistakes by Chinese firms. However, there are also clear signs that Chinese firms are learning to be better investors.
Chinese Outward Investment: More Opportunity Than Danger
Chinese investment is not taking the world by storm financially, nor will it do so in the near future. It does not pose a major threat to the U.S., either in terms of the purchase of American assets or the expansion of Chinese influence around the globe. At home, American policy concerning Chinese investment should be more transparent. Overseas, the best reply to expanding Chinese commercial influence is to expand American commercial influence—for instance, through free trade agreements. These steps will help create more economic opportunities in the U.S., enhance America’s global position, and pose no threat to national security.
Where China Invests, And Why It Matters
The PRC has hundreds of billions of dollars available for investment and a desire to lock up resources; the U.S. has several trillion already invested and a bigger, more multi-dimensional economy. Concerns about increased Chinese investment and business activity should be addressed by expanding American activity, from investment in Ivory Coast to trade with Taiwan.
China’s Investment Overseas in 2010
The dominant feature of Chinese outward investment in 2010 was a rush to South America, particularly Brazil. Overall investment grew only modestly. The energy and power sectors continued to be the most attractive for Chinese enterprises. Troubled or failed investments – a huge problem in 2009 – were much less prominent in 2010. An obvious implication for American policy is to expand trade and investment ties to South America and around the world.
via the Wall Street Journal
Fast-growing emerging market economies are attracting soaring investment flows as growth in the U.S. and Europe remains sluggish. The trend has produced unexpected downsides such as overvalued currencies. Mouse over each emerging market country to see what the effects have been, and what the governments have tried to do about it.
Click on the image to launch the interactive feature.
via Harvard Business Review
By: Navi Radjou, Jaideep Prabhu, Prasad Kaipa, Simone Ahuja
We recently visited the brand-new R&D lab of Dr Reddy’s, one of India’s leading pharmaceutical firms. This lab isn’t located in Bangalore or Hyderabad (where Dr Reddy’s is headquartered) but in … Cambridge, U.K.
In 2008, Dr Reddy’s acquired Chirotech, Dow Chemical’s R&D unit, for $32 million, and in April 2011 relocated it to a new 33,000 sq. ft. facility in Cambridge Science Park. Chirotech specializes in biocatalysis and chemocatalysis, two important subspecialties of biotechnology and chemistry that help develop key biological and chemical intermediates needed for the efficient production of medicines. Dr Reddy’s plan is to leverage Chirotech’s scientific capabilities to optimize drug development processes, thus lowering manufacturing costs and speeding time-to-market. In doing so, Dr Reddy’s strengthens its core generic drugs business and boosts the custom manufacturing services it provides to Big Pharma and nimble biotech startups.
In prior blog posts, we have described how Western multinationals such as Xerox and GE are embracing polycentric innovation by sourcing more R&D capabilities from emerging markets such as India and China and integrating them into a synergistic global innovation network. In recent years, Indian firms such as Dr Reddy’s have also started globalizing their R&D footprint by moving into Western markets. They have been tapping into the sophisticated technical and scientific talent available in Western economies as part of their strategy to access international markets and build global brands.
Besides Dr Reddy’s, several leading Indian firms are pioneering polycentric innovation:
Tata Motors. While the $2000 Nano car was mostly developed in India, Tata Motor’s Indica Vista Electric Vehicle and the Pixel city car were primarily designed and built by the Tata Motors European Technical Centre (TMETC) in Coventry, U.K., in close partnership with the University of Warwick. TMETC, which was established in 2005, got a big talent boost when Tata Motors acquired Jaguar and Land Rover in 2008.
Suzlon. The world’s eighth-largest wind turbine manufacturer may be headquartered in Pune, India, but its main R&D centers are located in the Netherlands, Germany, and Denmark, nations that actively promote wind energy and boast a huge talent pool. Suzlon recently completed its acquisition of Germany-based REpower Systems, gaining access to cutting-edge expertise in aerodynamics and electronics.
Reliance MediaWorks. This media powerhouse offers creative and production services as well as cutting-edge post-production services to such films as Avatar and The Curious Case of Benjamin Button. To best leverage worldwide creative talent, Reliance MediaWorks operates a global network of creative centers located in Burbank, San Francisco, London, Tokyo, and across India.
TCS. Asia’s largest IT service provider has built what it calls a global Co-Innovation Network (COIN), which includes technology partnerships with startups and VC firms in Silicon Valley as well as academic tie-ups with leading American universities such as MIT, Georgia Tech, and Stanford.
Having extensively interacted with the leaders of these organizations, we find that Indian firms have developed several best practices around how to implement polycentric innovation effectively:
Cultivate a polycentric mindset to make global innovation work. Polycentric innovation won’t work in organizations that promote groupthink. The Indian firms we studied promote diversity in their R&D management by hiring external talent to build and oversee their global innovation network. Tata Motors appointed Tim Leverthon, who previously led R&D at BMW, as head of its global R&D. Suzlon’s head of technology is John O’Halloran, a former Cummins Engine executive who now leads Suzlon’s 500-strong global R&D team out of Hamburg.
Decentralize and empower global R&D units. You can’t run your global R&D operations from headquarters in Mumbai. The Indian firms we worked with strive to empower their regional R&D units. TMETC has full operational autonomy even though it collaborates closely with Tata Motors’ Indian R&D unit. Reliance MediaWorks’ global creative network is highly decentralized, allowing each design studio head in the U.S. and the U.K. to make independent decisions that best serve local customer needs.
Communicate constantly to break down cultural barriers. Cultural differences can severely hamper cooperation between Western and Eastern engineers. Constant communication across geographically dispersed teams is vital to keep creative synergies flowing in a global R&D network. The senior leaders of the Indian firms we examined regularly meet with their global R&D units to ensure they feel part of a ‘global family,’ as Ravi Kant, Vice Chairman of Tata Motors, puts it.
Integrate with local innovation ecosystems. Building a global innovation network doesn’t just mean opening R&D labs all over the world. It also means integrating yourself into local innovation ecosystems. That’s why Tata Motors collaborates extensively with the University of Warwick in the U.K. while Suzlon has forged partnerships with Delft University in the Netherlands and the Fraunhofer Gesellschaft and the University of Kiel in Germany.
Leverage global talent to move up the value chain while defending core business for now. It is commonly believed that emerging market companies tap Western R&D talent in order to ‘move up the value chain.’ That is certainly true in the case of Tata Motors, which is using TMETC to develop its electric car, and Reliance MediaWorks, which is leveraging its studios in California and London for high-end work. At the same time, these companies are using foreign expertise to bolster their core business as well. Some TCS academic alliances in the U.S. are aimed at finding ways to lower the cost of its core activities like software testing. And Dr Reddy’s is using Chirotech’s talent to make its generic drug business more cost-competitive rather than develop new branded drugs.
In an increasingly polycentric world, the battle between incumbent Western multinationals and up-and-coming Eastern multinationals will be fought around who is best at integrating and driving synergies across globally-distributed R&D networks. Moreover, Western and Eastern firms come to this battle with different assets and backgrounds. Western firms are masters of structured approaches to innovation that deliver scale and efficiency. Eastern firms excel at more frugal and flexible forms of innovation. In a global market that includes both affluent and mass market consumers, and in a world of polycentric innovation, firms will need to master and integrate both structured and flexible approaches to innovation. It will be interesting to see which firms turn out to be best at seamlessly integrating both approaches into a new paradigm for a polycentric world.
Is your company globalizing R&D? How are you preparing for the world of polycentric innovation? Do you have examples of companies that are innovating wisely across geographies? Please share with us your stories, challenges and best practices.
August 30, 2011 from WAMU
The Walter Reed Army Medical Center has a storied past. It has been the country’s leading Army hospital for more than 100 years, sitting on a complex that includes a Civil War battlefield. There was a time when 16,000 patients a year sought treatment for wounds of war or illness.
By the end of August, all of the patients and doctors will have left, moved to Bethesda and Fort Belvoir as the Army consolidates its bases. But as one era closes, another opens: Washington, D.C., may be left with nearly 70 acres of prime real estate.
Neighborhood Businesses Face Change
Just after the midday rush at Ledo’s Pizza on Georgia Avenue in Northwest D.C., Tim and Kelly Shuy sit down at a table.
“We get a lot of military families, people who are visiting, folks who are in the hospital. We get a lot of contractors,” Kelly says.
Their pizzeria is across the street from the sprawling Walter Reed campus. Lush with trees and a hilly landscape, the campus includes several iconic 100-year-old buildings with red tile roofs where patients, their families and staff were able to wander and just look out on the rest of the neighborhood from a distance.
Many in the neighborhood call the medical center a fortress. But for the Shuys, it was a mainstay. Doctors and patients alike have supported their business for years.
“Some of them come in uniforms. We have patients who come in who haven’t been out of Walter Reed,” Kelly says. “I’ve had dozens of people tell me this is their first meal out of the hospital.”
But those days are just about over.
“We’ve been saying goodbye to people for a long time. We say goodbye to people every day,” Kelly Shuy said. “But it’s horrible — we’ve had tears over saying goodbye to people who are regulars.”
Of course the Shuys are losing more than just familiar faces.
“As far as the business goes, obviously it’s a huge hit for us,” Kelly says. As Walter Reed closes down, it leaves behind questions. What is going to take its place? There is no shortage of opinion among interested residents:
“We are looking for quality space for our students,” says Christine Encinas.
“We’d like to use part of it to develop affordable family housing,” says Troy Swanda.
“We’d like to see a bit of parkland right along here,” says Ellen McBarnett. “Many of the neighbors have been talking about dog-walk parks or places for children to play.”
City Eyes Retail Development
And that’s just the beginning. The State Department will take a chunk of Walter Reed’s 113 acres, possibly for embassies. But that leaves almost 70 acres for D.C. In a city where a quarter of the land is owned by the federal government, demand for land is high.
“This is a uniquely vocal community, let me just put it that way,” says Victor Hoskins, deputy mayor of Planning and Economic Development. He co-chairs the committee that is going to figure out just what the District of Columbia is going to do with all of this land.
“Actually, the interest we’ve gotten from a number of retailers already has been, really, quite astounding. What’s going to happen is when that fence comes down [and] we develop the retail along there, it will become a place to go,” Hoskins says. “And there’s a chance now to revive a Main Street, which is Georgia Avenue, which has for years been suffering from decay.”
D.C.’s government has a major interest, as well. For 100 years, this property has been federal and untaxable. The city estimates it could get $20 million a year in tax revenue. And the people who worked at Walter Reed mostly drove in and drove out, not spending as much in the neighborhood as destination consumers might. Plus, if retail takes off, it might supply local jobs. Of course, that’s assuming the city gets it right.
This satellite image shows how the Walter Reed Campus will be divided between the District of Columbia (purple) and the State Department (yellow). The District’s 67-acre portion includes both the old and new hospital buildings.
Coming Up With A Plan
Faith Wheeler is a neighborhood representative who lives near Walter Reed. Standing about a mile away from the hospital, she points to a block where new development didn’t work out so well.
“Well, I don’t want to see all those for-lease signs; look at that,” she says. “If that happened on Georgia Avenue’s Walter Reed campus, it would be awful, horrible. According to textbook ideas, this is the place where retail ought to be booming. It’s not.”
This is what Wheeler does not want to see: a street that’s a commuter corridor, lined by sterile and vacant office buildings. One thing she does want is some sort of tribute to the place’s history. And that is likely; many of the historic building facades will be kept. But Wheeler’s voice is one of many.
Public Meetings, And Many Rules
“It’s kind of the new realities of urban planning in the 21st century,” says Lisa Benton-Short, a professor of geography at George Washington University who has written about previous base closings. She says the Walter Reed campus will take awhile to sort out.
“I think for much of the 20th century, planners were quite top-down in their planning,” she says. “They told us what we needed in our spaces. Sometimes they were right, and sometimes they weren’t. In the last 25 years or so, the planning profession has really changed. And one of the most important ways it’s changed is to bring in public participation and planning.”
That means public workshops, public forums and many public meetings. Benton-Short says it will be messy. And the military has its rules, as well.
There will have to be services for the homeless, there will have to be organizations that serve the community, such as schools. And there’s an entire bureaucratic process that will probably take two years before a deal is finalized, let alone anything getting built. The U.S. Department of Housing and Urban Development will have to approve the plan, and there will have to be an environmental impact assessment, as well.
“We’re talking 10 years, 15 years before these visions are actually transformed into reality,” Benton-Short says.
That only heightens the fear of area businesses who will have to wait that long. There’s also radioactive waste from X-ray machines and cancer treatments that needs cleaning up. And there’s asbestos to be removed. That’s all possible — but it will take time. It’s also one reason that the amount D.C. will have to pay the Army for the land hasn’t been nailed down yet. But when all is said and done, one thing everyone agrees on is that the site holds real potential.
A Positive Legacy
“This is something that I hope will be a positive,” says Ethelbert Dawson, 77, who attended Walter Reed’s official closing ceremony last month. He lives around the corner, and for 25 years, he worked at Walter Reed as a research chemist.
“When I was here, I never thought that this day would ever come. We used to call it Walter Wonderful, because that’s what it was.”
He says he can’t really predict what this new space will mean for Washington, D.C.
“But for Walter Reed and all of the positiveness that hospital has given this community,” Dawson says, “I don’t know if they can ever reduplicate that.”
All eyes are on this space, to see whether the disappearance of a 100-year-old place of healing will usher in an urban rebirth — or leave a scar.