< Previous58 NOVEMBER 2018 SI T E S E L E C T IO NLegacy institutions and startups fuel a top location for medical device manufacturing.Early next year, a three-person Memphis startup called Somavac Medical Solutions will launch its fi rst product. e lightweight, wearable, post-operative drain, branded the Somavac , is designed to add comfort and dignity to the process of recovering from breast removal surgery. Post-operative drains suction and store fl uids resulting from surgical wounds. Fluids can lead to infections if allowed to build up beneath the skin. e current system, known as the JP drain, hails from the s and consists of clog-prone tubes attached to manual suction bulbs that also serve as fl uid reservoirs. “I interviewed breast cancer survivors who had up to six drains in their body and really suff ered for it,” says Dr. Esra Roan, who founded Somavac in . “We decided we had to fi nd a better solution.”Somavac created a motorized version that’s battery-powered and adjusts itself to maintain appropriate pressure. Fluid fl ows into discreet reservoirs that are easily detached for disposal.“It’s effi cient, sanitary, lightweight and wearable, and designed to improve the patient’s experience at home while also impacting the healing process,” says Roan.Innova Memphis, a venture capital fund, has invested hundreds of thousands of dollars in Somavac. “What initially attracted us to them,” says Innova partner Jan Bouten, “is the problem they’re trying to solve. ey’re not just making a technical advancement in this fi eld, but also bringing a lot of dignity to the patients that have had these very diffi cult surgeries.”Memphis continues to be one of the world’s medical device capitals. Major Memphis manufacturers include Smith & Nephew and Microport, Medtronic, Wright Medical Group and Olympus. Such legacy fi rms have a record of spinning off startups, some fi ltered through accelerator programs such as ZeroTo at the Memphis Bioworks Foundation.“We tell people all the time,” says Chris West, ZeroTo’s president, “that if you think you have the next Facebook, go to Silicon Valley. If you’re in medical device innovation, you should be in Memphis.”A Big Little TownMemphis calls itself the country’s second-largest hub for medical device manufacturers, after Warsaw, Indiana. A study commissioned by the Memphis Economic Development Growth Engine (EDGE) found that the industry creates $. billion in annual economic impact while employing , people directly and another , indirectly. People tied to the industry will invariably by G ARY DAUGHTERSgar y.daug hter s @ site s ele c tion.c omMEDICAL DEVICESSt. Jude Children’s Research Hospital belongs to a cluster of renowned medical institutions.Photo courtesy of St. Jude Children’s Research Center S I T E S E L E C T I O N NOVEMBER 2018 59tell you that the FedEx SuperHub adjacent to Memphis International airport is a crucial asset — urgently needed medical devices shipped by midnight can arrive in an OR anywhere in the country as early as the following morning. “FedEx is a huge part of it,” says Roy Smith, a former Smith & Nephew vice president who is now executive director of the Greater Memphis Medical Device Council (GMMDC). But the industry’s growth in Memphis began long before FedEx arrived in the 1970s.“It started here in Memphis in 1934,” Smith tells Site Selection, “when J. Don Richards started Richards Manufacturing Company.”Richards begat Medtronic and Wright Medical Group. “Ever since then,” he says, “we’ve been spinning off entrepreneurs who want to start their own businesses. It just goes on and on.”With $1.3 million in funding (largely from Innova and Memphis-based MB Venture Partners) plus a three-month tenure at ZeroTo510, Somavac has roots throughout the Memphis ecosystem. Roan is a former associate professor in biomedical engineering at the University of Memphis, part of a medical research establishment that includes renowned institutions such as St. Jude Children’s Research Hospital.“We’ve been very fortunate to be here because of the accelerator and the dollars we’ve been able to raise,” Roan says “We’re technical people, and we needed to learn the business aspects of launching a company.”Named one of the nation’s Top 25 accelerators for three years running, ZeroTo510 has helped to launch six medical device companies with products now on the market. “One of our stated goals,” says West, “is to have companies that graduate from our program set up shop here in Memphis.”Memphis, says Roan, is “a little big town. Everyone knows everyone, and everywhere you turn there’s someone who works in the industry. So, when we have some question, we can get the answer quickly.“We don’t have the urge,” she says, “to be anywhere else.” 60 NOVEMBER 2018 SI T E S E L E C T IO NWhy do recent reports and data show a drop in inward U.S. foreign direct investment?International companies have led a resurgence in U.S. manufacturing, creating new opportunities for U.S. workers, providing retirement security and dramatically increasing their contributions to local communities. These companies are responsible for nearly 7 million U.S. jobs paying 24-percent-higher wages and benefits than non-international companies, according to more than a decade’s worth of data explained in a new report authored by economist Daniel J. Ikenson, “Economic Bedrock” (ofii.org/report/economic-bedrock).Ikenson, director of the non-partisan Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, examined data from a 15-year period for international companies operating in the United States and compared it to the private-sector U.S. economy as a whole. He noted that “the potential contributions to U.S. economic growth and dynamism stemming from investments in the U.S. by international companies cannot be overstated … international companies provide a stable foundation of excellence that strengthens our economy and supports our workforce.”Job creation is one of the most significant benefits of foreign direct investment (FDI) in the U.S. economy. Currently, 6.8 million American workers are employed by international companies, many of them having received highly valuable job training through those same firms.In 2017, FDI in the United States exceeded $4 trillion, with 40 percent of it invested in the U.S. manufacturing sector. And because this investment is growing the U.S. manufacturing sector at a rapid clip — manufacturing employment at international companies in the U.S. grew by 22 percent, outpacing the overall domestic growth rate of 7 percent — productivity rates and exports of American-made goods have jumped dramatically as well.Another additional benefit is that international companies give a boost to domestic supply chains, many of which are small businesses. These international companies also significantly contribute to their local U.S. communities and charities, as well as reinvest profits back into their by NANC Y McLERNONe ditor @ site s ele c tion.c omFDI IN AMERICAAmerica CANNOT Affordto Fall BehindImage: Getty ImagesNancy McLernon is president and CEO of the Organization for International Investment (@OFII). S I T E S E L E C T I O N NOVEMBER 2018 61U.S. operations through research and development, facility and workforce expansions, and employee training. All of this makes the U.S. economy more resilient, which in turn keeps us highly competitive for additional FDI.Fly in the OintmentUnfortunately, recent data indicates that international companies are hitting the pause button. According to preliminary data from the U.S. Bureau of Economic Analysis, FDI in the United States (FDIUS) dropped dramatically in the second quarter of 2018. Preliminary Q2 2018 FDIUS flows were in negative territory, resulting in a divestment of $8.2 billion. There have been only six instances of a net divestment in quarterly FDIUS since 1982. This is highly worrisome, given that after record-breaking years in 2015 and 2016, FDIUS in 2017 was down 40 percent from 2016. Lower FDI flows are not just numbers in a report. A downturn in FDI could negatively affect American workers and their families across the country, especially in states with a high America CANNOT AffordCumulative FDI in the United States by IndustryManufacturing$1.61 Trillion40%Finance & Insurance$539 Billion13%Wholesale$425 Billion11%Prof., Sci., Tech.$212 Billion5%Banks$206 Billion5%Information$184 Billion5%Other Industries$852 Billion21%62 NOVEMBER 2018 SI T E S E L E C T IO Nconcentration of FDI jobs. For example, New Jersey and South Carolina are the top two states for FDI — where FDI jobs represent 8 percent of total private-sector employment — followed by New Hampshire, Kentucky, Indiana and many others where FDI jobs make up a significant percentage of the private-sector workforce.International companies have many choices about where to invest and expand, and it is critical that the United States position itself as the most attractive place to do business. To help policymakers focus on steps that will further improve America’s competitiveness, my organization has developed a strategic plan. The first step is to minimize uncertainty for international companies. The Trump Administration has taken a number of trade-related actions that have created uncertainty for foreign investors — for example, the Administration has imposed tariffs on more than $90 billion of imported materials and products. U.S. trading partners have retaliated in a similar fashion, and in many cases, weakened competition has driven domestic prices for materials and products higher.In addition, the Administration has used the pretext of national security to potentially slap tariffs on U.S. and global automakers. Many international automakers have operations across the U.S. and employ thousands. If the Commerce Department succeeds in imposing tariffs on the auto industry in the name of national security, it will have a major chilling effect on FDI. We recommend that the White House create a Global Competitiveness Council to generate an FDI policy roadmap that can achieve a national goal of increasing FDI by 20 percent within the next four years, and to provide feedback on the unique impact that regulatory actions could have on international companies operating in the United States.We also recommend a number of steps to boost America’s economic advantage, such as pursuing new free trade agreements; harmonizing U.S. regulations with global standards; reducing tariff and non-tariff barriers; opposing procurement policies that discriminate against U.S. employers with global supply chain requirements; and broadening awareness among policymakers of the link between competitiveness for FDI and federal tax treaties and trade agreements.Anyone who questions the value of trade should remember that international companies — and the 7 million Americans they employ — have a $4-trillion stake in boosting America’s economic success. They demonstrate the importance of cross-border connections. They are foundational to American prosperity. Economy-Wide InternationalSource: Chart courtesy of OFIIValue AddedSalesExportsNumber of EmployeesCompensationEmployee BenefitsPension/Profit SharingPPE StockPPE ExpendituresResearch & DevelopmentDomestic Supply Chain PurchasesSales Revenue per WorkerCapital IntensityTaxes After CreditsTax RateCharitable Contributions18.8%-25.1%-1.9%16.8%61.6%-8.3%68.2%13.2%8.1%56.7%4.8%55.8%51.1%68.0%31.8%-6.1%64.4%5.2%34.1%65.4%81.2%22.0%105.1%60.9%50.5%61.9%68.4%61.9%53.0%72.2%163.6%1.9%International Companies Are Growing America’s Manufacturing SectorEconomy-Wide vs. International Company Manufacturing Growth in Selected Metrics (2001-2015)BUSINESS CLIMA TE RANKINGS64 NOVEMBER 2018 SI T E S E L E C T IO Nby MARK ARENDmar k .ar end@ site s ele c tion.c omWith six consecutive Top Business Climate wins to his credit, Gov. Nathan Deal re ects on overcoming state transportation challenges, how to invest wisely in education and workforce resources, and his hope that Georgia’s business climate bene ts businesses and their workers long after he’s gone. S I T E S E L E C T I O N NOVEMBER 2018 Next >