The recent global recession significantly curtailed corporate investment in new facilities. While investment has bounced back somewhat from its post-recession low point, it has not yet recovered to pre-recession levels.

Initially, credit seized up and even companies that wanted to proceed with an investment project had trouble financing it. Consumer demand plummeted, and while it has started to recover, the recovery has been uneven at best. Still, corporate balance sheets have been repaired quicker than household and government balance sheets and U.S. corporations are sitting on over $2 trillion, more than at any time in history. The story is similar in the United Kingdom and even in the Euro Zone. Historically, large corporate cash reserves have led to a surge in investment, new facilities and hiring. But the focus following this recession has been on improving productivity and post-recession job gains have been feeble.

Many of us in the economic development industry, to say nothing of the pundits, have been waiting for the pent-up demand represented by all that cash sitting on the sidelines to be put to productive use. But risk continues to abound. While there remains reason for optimism for corporate investment to tick up by the end of 2012 and 2013 (absent a disaster in Europe that spreads across the Atlantic), simply waiting for the corporate sector to rebound to normal levels of investment in new facilities is not a useful economic development strategy.

Keeping Corporations

Here are some initiatives and trends that we have identified in western Massachusetts to bridge the gap until investment returns to pre-recession levels.

Many companies consolidated facilities in response to the recession. That creates winners (regions whose facilities were retained by the company and picked up new business lines from sister facilities that closed) and losers (regions that suffered from closed facilities).

Credit is due to the Massachusetts Office of Business Development (MOBD) and its more flexible Economic Development Incentive Program (EDIP), which has enabled the commonwealth to be more nimble and responsive to existing companies competing internally to be the “winners” in corporate consolidations.

Examples of this include Smith & Wesson in Springfield, Sealed Air in Holyoke, Mayhew in Montague and Rodney Hunt in Orange. In addition, Titeflex in Springfield and Coca-Cola in Northampton added new production facilities that could have been built elsewhere, but chose Western Massachusetts.

The Western Mass Economic Development Council (EDC) began an international business development program in 2007. The EDC’s goal was to raise the profile of western Massachusetts and New England’s Knowledge Corridor globally, and particularly in Europe, which receives 40 percent of Massachusetts’s exports and is the commonwealth’s largest source of inbound Foreign Direct Investment (FDI). The EDC’s goal to increase FDI into our region was worthy, but our timing was awful. Generally these initiatives take three-five years to bear fruit, but within 18 months Lehman Brothers collapsed, and the financial crisis and global recession ensued.

FDI declined precipitously (although it has since recovered somewhat), but the United States retained (and has recently enhanced relative to Europe) its dominant position in the global marketplace. Successful European firms, who may have been candidates for an FDI project before Lehman, could no longer finance or accept the risk of a large-scale project, but still wanted to enter the U.S. market, if only to hedge against a European catastrophe.

So, recently the EDC, in addition to marketing the region as a smart place to invest, began marketing the region as a great place to outsource manufacturing for the North American market. When we identify a company that wants to enter the U.S. market, we find a regional manufacturer that has the capability of producing the firm’s products and match them up.

The EDC has worked with Northeast Utilities to organize pavilions at industry trade shows under the Team New England brand and solicit Western Massachusetts firms to attend. This strategy allows our firms to assess new industry sectors and/or geographic markets on a cost-effective basis, find new customers and potentially start new product lines. It reinforces our business development mission because seeing the quality of our companies enhances our pitch to firms that might consider an expansion into our region.

The EDC has joined Northeast Utilities and our Knowledge Corridor colleagues to expand our lead generation initiative. By pooling resources, we can identify and target more firms that will consider the region, whether for investment, outsourcing or M&A. These strategies increase growth opportunities for our region and prepare us for better times ahead.

Michael J. Graney is senior vice president of business development, EDC of Western Massachusetts. Email: m.graney@westernmassedc.com