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Bluegrass Market Review | Central Kentucky attracts big money

Further growing foreign direct investment is the focus of regional leaders in 2017 and 2018

By Abby Laub

Toyota recently invested another $1.3 billion, reaffirming its position as Central Kentucky’s largest foreign invested company.
Toyota recently invested another $1.3 billion, reaffirming its position as Central Kentucky’s largest foreign invested company.

mrbg-cover300Central Kentucky tuned up its economic engine long ago pursuing agriculture, bourbon, Thoroughbreds and universities, but the future fiscal pathway is expanding thanks in part to increasing direct foreign investment that’s coming as a result of remarkable things already happening here.

“We are a university city with a highly educated workforce and access to world-class research and development opportunities,” said Lexington Mayor Jim Gray on the rise in FDI in Lexington and Central Kentucky. “As a city, we invest heavily in quality of life to keep and grow that workforce, which drives so much of our economy.”

This sharp focus on quality of life, fostering an educated workforce and a business friendly environment is complementary to 2013’s unveiling of the Bluegrass Economic Advancement Movement partnership among Gray, Louisville Mayor Greg Fischer and Brookings Institution, a non-profit public policy organization in Washington, D.C.

The mayors and other leaders have ambitious goals for prosperity in the region, knowing that 21st century metropolitan aspirations depend on local partnerships as well as international engagement. Central Kentucky is checking all of the boxes to ensure foreign investors give serious consideration to the region.

The BEAM Global Trade and Investment Plan proposes strategies to “marshal the power of FDI in service to the region’s broader goals for advanced industry activity, diverse employment opportunity, and continuous adaptation in a competitive world.”

Increasing and nurturing foreign direct investment is a top priority of Commerce Lexington. In fact, Lexington was recently ranked No. 7 best city for FDI strategy according to Business Facilities magazine.

“Our team, alongside the Mayor’s Office, works closely with Louisville and the BEAM region on increasing FDI in our region,” said Bob Quick, president/CEO of the award-winning Commerce Lexington Inc. “Foreign-owned companies, as well as U.S.-based companies, are drawn to Lexington because of the low cost of doing business. Our greatest attribute, though, is our educated workforce. According to the U.S. Census, Lexington is ranked No. 11 most educated city in terms of the number of bachelor’s degrees. When advanced degrees are accounted for, we are ninth in the country for most educated city. This is attributed to our strong academic institutions throughout the region.”

Quick also noted local logistical advantages when wooing FDI. Situated at the crossroads of Interstates 75 and 64 and “within an hour’s drive of three major airports provides quick access for our companies to over 50 percent of the U.S. population. Having the UPS ground hub in our city, as well as proximity to the UPS Worldport and DHL, allows our companies to reach international markets within 24 to 48 hours.”

Look no further than Central Kentucky’s flagship manufacturing operation, Georgetown-based Toyota Motor Manufacturing Kentucky, as evidence that the Bluegrass means big business. At 8.1 million s.f., Toyota’s largest vehicle manufacturing plant in the world, TMMK has an annual capacity of 550,000 vehicles and 600,000 engines.

Toyota, recently recognized by Fortune magazine as a Top 10 company that’s changing the world, just completed its $1.33 billion Reborn project. Already one of the world’s leading automotive plants by efficiency, productivity and technology, TMMK’s overhaul increases manufacturing flexibility with the replacement or refurbishing of equipment, adding new technology in multiple manufacturing areas, including stamping, body weld, paint, plastics, assembly and powertrain. A new paint shop will be constructed and fitted with new equipment and technology.

The Reborn project prepares TMMK for Toyota New Global Architecture, or TNGA, a new approach to the design and manufacturing of vehicles. The Georgetown plant is the first North American facility to use TNGA, starting with the 2018 Camry.

Toyota’s massive growth and continued foreign investment signals the security its parent company has in the health of Central Kentucky’s economy. Toyota Motor Corp.’s 1986 greenfield investment in Georgetown brought thousands of jobs and a mindset shift among Kentuckians about the economic benefits of foreign investment that continues today.

Building on what is here

Massive greenfield investments are less common, and today most FDI comes via U.S. merger and acquisition activity. The continued investment in existing companies is proof that the region’s strategic plan is working.

“With strong leadership in our region, companies and organizations see the value in investing in their current operations because of the quality of life, low cost of doing business and educated workforce,” Quick noted. “We are also fortunate to have a diverse economy; Lexington weathered the recession much better than most cities because of our diversity.”

He speculates that further growth is on the way, mostly through M&A rather than greenfield sites.

“We have seen an increase in the number of international companies that are considering Lexington and the region for investment,” Quick said. “We believe we will continue to see an increase in international investment through mergers and acquisitions.”

And although Lexington is the main economic force of Central Kentucky, it’s worth noting that city and Fayette County leaders see their smaller neighbors as assets rather than competition. It’s obvious through some of the other major companies around – like Alltech in Jessamine County, the soon-to-open More Than A Bakery in Woodford County, Corning Inc. in Mercer County, to name a few – that the wealth is spread proportionally.

“Lexington is part of the regional economic development group called the Bluegrass Alliance, which covers eight counties in Central Kentucky,” Quick said. “Lexington is the urban core and the cultural, financial and commercial heart of the region, but being part of a larger region of over 600,000 people within a 30-mile radius is an important attribute. When companies are considering a new location, they do not recognize county lines, so marketing our entire region, the available workforce and different quality of life options in the region’s counties makes it easier to recruit companies here. For all projects, we market and submit buildings and sites in Lexington and the surrounding counties.”

Smart growth and leaders who mean business

Long-time local business leaders and residents also can get behind the pro-business attitude that attracts FDI.

Linden Long, a Lexington native who has owned Long Construction Management (LCM) for 15 years, notes the fine balance between promoting growth while preserving the historical significance of an area. Long, a company that focuses on design-build construction projects in the commercial and light industrial markets, sees the region taking positive steps to achieve growth with historic preservation.

“For some it seems difficult to have one without inhibiting the other,” said Long, who got his start 30 years ago working for Mayor Gray’s family company, Gray Construction, which had a significant role building TMMK’s original plant. “I believe our current government officials are doing as good a job as I can remember at maintaining and promoting a good balance between the two.

“Mayor Gray certainly understands what it takes for a small business to grow and thrive. Our governor, Matt Bevin, came into office with an agenda of bringing new business to Kentucky and to make doing business within our state easier and more streamlined. I have been quite impressed with how he has attacked that goal with a vengeance.”

Long cited Kentucky’s recent switch to becoming a “right to work” state and eliminating  “bureaucracy that makes trying to do business in the state of Kentucky difficult” as important steps forward in attracting more investment.

“I have seen first-hand opportunities that have opened up because of his initiative,” he said. “But neither Mayor Gray or Gov. Bevin are working to help business with a blind eye to the history of Kentucky and the things that make Kentucky great. Things, like horse racing, beautiful horse farms, bourbon, craft beer and the list goes on and on. So, yes, we’re telling businesses we want them to grow or to locate here in Kentucky, but we want them to come and embrace who we are in Kentucky and take full advantage of all we have to offer.”

He added that business and political leaders in Central Kentucky are getting rid of an “us versus them” mentality, and the strategy is working.

At the Kentucky Cabinet for Economic Development, also known as Think Kentucky, reducing red tape is a major objective. Secretary Terry Gill also cited Central Kentucky’s prime logistics, skilled labor force, abundant industrial suppliers, a bevy of manufacturing suppliers in-state, existing office space and temperate climate as major draws.

“Central Kentucky offers a skilled labor force sourced from one of the state’s most populated metropolitan statistical areas, robust workforce-development resources, labor pools that include high-tech, advanced manufacturing and white-collar expertise and a high quality of life,” Gill said. “At the same time, companies selecting Central Kentucky benefit from our low costs for industrial power and low costs of living relative to major metros nationwide.”

Automotive dollars… for starters

The biggest FDI growth sector now is automotive manufacturing.

“There’s strong investment across multiple industries in the Bluegrass region this year, but the numbers show the greatest quantity in automotive-related projects,” Gill said, citing Toyota first. “Among those, we’re seeing more expansions and reinvestments in Central Kentucky than completely new plants.”

Other examples include $71 million in investments and 110 new jobs across three projects in Madison County, a 31-job, $2 million investment by Hitachi Automotive Systems in Harrodsburg, and a $7.5 million expansion at Pilkington North America in Woodford County. Adjacent to the Bluegrass, Ford’s Kentucky Truck Plant in Louisville is receiving a $900 million “lightweighting” investment, readying it to produce the aluminum-intensive Expedition and Lincoln Navigator. And Tower Automotive plans a $20 million investment in Shepherdsville, creating 35 jobs.

“In other industries, Corning (maker of iPhone Gorilla glass) in Harrodsburg is receiving a $200 million investment from Apple toward research and development, and Lexington’s startup, tech and biotech scenes continue to grow,” Gill said. “Global demand for bourbon keeps our distilleries in expansion mode. Wild Turkey in Anderson County, Buffalo Trace in Frankfort and Peristyle in Woodford County announced new investments this year.”

The Cabinet team is constantly working to solicit more FDI, Gill said, noting that many of the enticing factors, like access to workforce training and logistics, support Kentucky’s goal to become the engineering and manufacturing hub of excellence for
the nation.

Other notable factors in recruiting business – from at home or abroad – Gill said include the state’s push in “reinvesting in workforce development and bolstering apprenticeships, repealing the prevailing wage law, passing charter schools, P3 and right-to-work legislation, instituting a governmental red-tape-reduction campaign and outlining plans for state pension and tax reform.”

Still largely under the radar, the Cabinet has received a jump from prospect businesses and consultants now that its right-to-work box is checked, he said.

Middle market growth

Despite high-profile large acquisitions and investments, it’s middle market companies that are the most representative of the trend of increased investments. According to the latest report from Middle Market Power Index from American Express and Dun & Bradstreet, Kentucky ranks 16th for growth in number of middle market companies from 2011-2017. Kentucky has an estimated 2,177 middle market companies ($10 million-$1 billion in annual revenues), which make up 1 percent of all firms in the state according to the latest.

The newest report in the series finds that the middle market is an increasingly important sector. While middle- market firms make up less than 1 percent of all U.S. businesses, they contribute about one in four dollars and employ 27 percent of workers in the private sector. According to the study, middle market firms were responsible for 51.7 percent of the 51.8 million new U.S. jobs created since 2011.

Lexington-based, Link-Belt Cranes is a prime example of a middle-market company making big waves in the community. Link-Belt is a leader in the design, manufacture and sales of telescopic and lattice boom cranes and a market leader in crane design and product quality standards, partly due to its focus on continuous improvement and employee empowerment. The company’s core production base and center for worldwide operations is its 770,000 s.f. manufacturing facility in Lexington.

In 1986, the Link-Belt Construction Equipment Co. was formed as a joint venture between FMC Corporation and Japan-based Sumitomo Heavy Industries. Today Link-Belt is a wholly owned subsidiary of Sumitomo Heavy Industries, and President/CEO Melvin Porter explained that the acquisition in the 1980s came at a time when construction equipment manufacturing was experiencing a downward turn and a lot of other business went under or experienced takeovers.

“SHI saw the long-term benefits of being in the marketplace and invested in the company, and in ’89 took full ownership,” he said. “Over time, there is probably less and less of what I would consider a direct influence as far as their personnel and staff on site … Before, all of the presidents have been Japanese, and they’ve come from various divisions of SHI. We also probably had on site a handful of other Japanese engineering and production and design engineering and accounting people – but not what I could consider the significant influence you may see in other Japanese companies here in Central Kentucky where you have a number of them on site in the various structure of the business.”

Instead, he noted, SHI recognized the need to have domestic management in the upper echelon in its North American companies, including Link-Belt.

Education turns the economic engine

The highly educated workforce of Kentucky makes it easy for foreign investors to turn over the reins, and that SHI and others rely heavily on the local knowledge. Porter cited Central Kentucky’s numerous universities, especially University of Kentucky, as being major economic drivers and providing a great pipeline of professional staff, but that like countless of other manufacturers, skilled workers for the shop floor are in demand.

“We’re struggling with the same issues of everyone in manufacturing – how to attract and retain younger people who are coming into the workforce for some reason with a negative connotation of working on a shop floor,” he said. “Really, the wages are good and it’s not sitting behind the desk all day.”

Porter noted that when he was in school, schools had shop classes and the emphasis was not on test scores and pushing everyone into college in a one-size-fits-all manner.

“Providing them an alternative career path is good,” Porter said. “There’s no doubt it’s hard work … and it’s also getting more technical in nature. Diagnostics and other things require laptops and programming and trouble shooting. It does require technology skills and a great skills set, but we also still have a lot of welding and assembly work – trade skills that will never go away.”

This type of feedback is precisely what Central Kentucky educators are listening to and acting upon.

The Academies of Lexington were recently created in partnership with Commerce Lexington, the Business and Education Network, and Fayette County Public Schools. The academies are based on a framework developed by Ford Next Generation Learning.

FCPS district spokeswoman Lisa Deffendall explained that the educational model relies heavily on feedback from a steering committee of educators, communities and industry partners.

“Schools have to come along on their own since it’s site-based learning,” she said. “At the same time, the new principal at Bryan Station (High) had already talked about how to develop smaller learning communities and better connect kids to a pathway to their future.”

This year, Bryan Station, Tates Creek High and the new state-of-the-art Frederick Douglass High School embraced the smaller learning communities that begin with students in ninth grade with a freshman academy.

“Every student deserves to be known well, and deserves to have the opportunity to find their path,” Deffendall said, explaining that the schools will be broken up into wings and a team of teachers will work with specific kids. It will allow students in specific academies to be strategically exposed to guest speakers, career fairs, site visits and other workforce development tactics.

“We have student teachers who in their senior year of college do their student teaching and realize they hate working with kids all day,” she said. “So instead, let’s have some kids who want to be teachers doing some tutoring while in high school … So many kids have no idea what they want to study in college.”

The strategy is working, as evidenced by results at Bryan Station, which brought its academy online last year.

“Bryan Station started a freshmen academy last year and had amazing success,” Deffendall said. “There were almost no office referrals for freshman last year. Normally you have about 150 freshmen fail and have to repeat, and they only had 20 last year.”

Local business is able to get involved in the model and expose students to different career pathways.

“Even if my career is stay-at-home mom, there’s still a pathway to get there,” Deffendall said. “Everyone needs a career, but some require college, some trade school, some internships, some tech school. Depending on the pathway, if you hate it you can switch. Schools are not locking kids into it; they’re trying to help kids discover their future. Even if you discover something you don’t want to be, that’s still helpful.”

Graduating students from Central Kentucky high schools – who will either head straight into their careers equipped with the proper tools, or who will head to college and become a part of the region’s highly educated workforce – is crucial for local employers like Link-Belt and other investors who want to move to the area and be sure there are people ready to take the jobs they will create.

Quality of life is a major factor

The rankings say that college graduates are wise to stay in Lexington. In its third annual study, Lexington ranked No. 7 in best U.S. cities for new college graduates by SmartAsset. Lexington moved up 11 spots from last year’s ranking. Reasons cited are low unemployment, affordable rent, strong earning potential and a quality entertainment and dining scene.

Quality of life is what Porter also feels helps draw investment to the Bluegrass.

“It offers a good quality of life, and there are a lot of things to do,” he said. “It checks a lot of the boxes for people. Central Kentucky as a whole is a good place to live and raise children.”

Gray echoed similar thoughts.

“Fifty years ago, people moved to where the jobs were,” he said. “Today, jobs move to where the people are, where the talent is. And talent moves to where there’s a premium attached to quality of life. Throughout our city we work hard to creative the environment that attracts companies with good jobs to Lexington, and encourages local companies to grow. That environment includes a focus on quality of life and place, a compelling and lively central business district, excellent parks, bike trails, a lively arts and cultural community and excellent education opportunities.”

He noted that Central Kentucky protects its beautiful farmland, which is its “international signature” and is a welcoming region that embraces diversity.

To successfully continue down the road with foreign investment, constant improvement is always needed, “in workforce, suitable spaces, and available technology,” Quick said. “Our economic development is working on several initiatives to make these areas stronger.”

Improving education also is at the forefront, as is the Comprehensive Land Use plan for 2018.

“Our team is advocating for more jobs land within Fayette County,” Quick said. “Having a properly zoned business park will provide opportunities for new and expanding companies to locate in Lexington and create more jobs for our citizens.”

Community leaders continue to understand patterns of investments, sectors and countries of origin and work to create an FDI roadmap to keep the dollars flowing into Central Kentucky.

The heavy hitters

Lexington-Fayette Urban County Government and Commerce Lexington Inc. point out some notable businesses who are either hallmarks of foreign direct investment, or those that are leaders in the software and IT sectors.

Piramal: Indian investment

HP now OpenText: Canadian investment

Toyota: Japanese company

Lexmark: Chinese investment via acquisition

Evolva: Swiss acquisition

Sumitomo: Japanese investment

MakeTime, Fooji, Base110: Lexington-based software and IT companies

Florida Tile: Italian Investment

KITO: Japanese Investment

LBX: Japanese Investment

Link-Belt: Japanese Investment

Schneider Electric: French Investment

Stantec Consulting Services: Canadian Investment

Clark Material Handling Co.: South Korea investment

DormaKaba: German investment via merger with Swiss-owned company that existed here

Award-winning chambers

Great business takes great support. In 2016, Commerce Lexington named Chamber of the Year in the large chamber category (Category 4) during the Association of Chamber of Commerce Executives’ (ACCE) annual convention in Savannah, Ga.

And in August 2017 the Kentucky Chamber of Commerce was named State Chamber of the Year at the annual conference of the Council of State Chambers. Pennsylvania was named first runner-up. Entries are judged in six categories: public affairs, political action, communications, membership development, membership services and organizational development.

The Kentucky Chamber highlighted the success of its business agenda during the 2017 General Assembly, the creation of the Kentucky Chamber Workforce Center and being the first chamber in the country to create its own news bureau with a professional reporter to produce state government news content for a business audience. The news site, KyChamberBottomline.com, also serves as the Frankfort bureau of The Lane Report, Kentucky’s premier business magazine.