Across the developed world, the goals of investment attraction are changing. A decade ago, most investment promotion agencies (IPAs) were driven by big-ticket projects that promised large amounts of capital expenditure (capex) or were big job creators. Today, their objectives are often more nuanced. A start-up might be considered more valuable than a mega-project, an industry association a bigger prize than a retail chain. Put simply, the bigger-is-better mentality no longer reigns supreme, and an investment’s value is in the eye of the beholder. 

For our latest IPA Roundtable, fDi spoke to four IPAs pursuing this strategy to varying degrees: Invest in Denmark, Switzerland Global Enterprise, Invest in Finland and the Northern Netherlands’ development agency NOM. Some of them disregard project size completely, while others give size and quality equal weight. Prioritising quality over size is not an obvious strategy for all markets. These four IPAs do, after all, represent advanced economies — some of them with limited land space — where governments are focused on preparing for a future in which technology and knowledge are prized more than physical assets and large workforces. But their rationale, success stories and tactics in identifying and chasing leads that generate the best long-term returns for their local economies and communities are a lesson for all.

The panel

• Lars Hagebris (LH), director of international operations, Invest in Finland 
• Anne-Wil Lucas (AWL), manager of foreign direct investment and innovation, NOM, the regional development agency for the Northern Netherlands
• Vanessa Vega Saenz (VVS), director, Invest in Denmark 
• Patrik Wermelinger (PW), chief investment promotion officer, Switzerland Global Enterprise

Q: How big a priority is a prospective project’s size compared with its other characteristics?

AWL: Starting this year at NOM we’ve made a complete switch and don’t even look at the size anymore. We have no key performance indicators [KPIs] regarding how many jobs or how much investment is involved. The basis of why we are [attracting investment] has changed completely and we only have quality-driven KPIs. The main KPI is to attract 10 companies each year that have high value to the Northern Netherlands. That means they add to, or fill missing links in, our industries. For example, the Northern Netherlands has a lot of traditional manufacturing and we’re looking for anything that contributes to automation or provides these firms with products they can’t otherwise get. We are also looking at circular economies. For example, investors that could use the [leftover] products of our big chemicals companies as feedstock.  

PW: We clearly prioritise the value of a project over its size. We started this qualitative approach four years ago and have sharpened it in our new four-year strategy. We’ve identified five innovation ecosystems where we are looking for the right companies to position Switzerland as a leader: health, digital, food, automation and finance. 

LH: We’ve always focused on high-value-add projects, but we think that both volume and value have an impact and are important. It’s not really an either/or. IPAs traditionally measure jobs and [capex], and of course we look at the size of investment in these terms. But we also look at how well it fits strategically into what we would like to see in Finland. We’d rather a greenfield project over a capital investment. We also look at the sustainability part and the signalling effect: is it a famous company? They are always good to have. And then we look at the contribution to GDP and exports. 

VVS: At Invest in Denmark, since 2015 we’ve pursued investments that we define as ‘high-quality’. Last year around 80% of the investments we helped attract met this criteria, against a target of 60%. To qualify as high-quality, an investment must fulfil four of six criteria. Two are related to capex and job creation, so they are part of the criteria. But an investment may perfectly well be considered high-quality without those factors. 

Q: Why is quality often prioritised over size?

LH: Finland is not a huge market for a company to come in and sell a lot of things. So we want to build on our strengths, and that’s innovation. For example, a retail chain setting up 20 shops, and recruiting 25 people per shop, creates 500 jobs. Alternatively, a semiconductor development site might employ 100 people. But we think these jobs could be more valuable than the retail ones, because they can probably create an additional 200 indirect jobs. They also add innovation competency and in the long run help our exports. If a big retail company came to us and said “We’d like to set up business in Finland”, we’d certainly support them. But we are not actively pursuing these kinds of business.

AWL: In the past, we sought FDI because we needed jobs. But now we have a shortage of workers, especially for technical jobs like engineers, AI and IT. So we had to rethink our strategy. It’s actually an investment attraction policy of the whole Netherlands to focus on value over volume. In our region, the Northern Netherlands, we have to think: are we going to use what valuable space we still have for this foreign company? Or do we reserve it for our growing start-ups? Also, a lot of areas in the Netherlands don’t have much room left on the electricity grid. So are you sure you want a big factory or company to have a valuable plug-in into the energy system? There’s a shortage of talent, energy, and space. So we really have to think wisely on how to spend it.

PW: We are quite a stable economy and have almost full employment. And there’s a political discussion of how much migration is the right fit for Switzerland. So we are targeting projects that add a missing piece to our economy. Also, bigger countries have more land available at low cost to attract big facilities. Take battery production. Investments on R&D projects and battery recycling is something we can offer. But this isn’t the right place for a huge gigafactory

Q: How does this focus on quality affect your operations?

AWL: Finding the right company to fill a missing link is like finding a needle in a haystack. Maybe it’s a firm with carbon capture technology that one of our big energy companies could use to reduce their carbon footprint. First you have to understand how that energy company functions and what solutions would work for them. This has changed the whole way we work. In the past, if a lead came to us we’d start running to tell them how we can help them. Now there’s an internal discussion where we almost challenge ourselves to say: “Do we really want this one?” Up until late last year, we never really thought about that. It also changed where we visit to look for these solutions. Now we’re looking for more deep tech trade shows, where there are young start-ups. And they don’t want to know how many hectares of land are available. They want to know if you have a launching customer or shared facilities. So we’ve really had to change our story in telling what the region has to offer. 

LH: We are quite a slim organisation, so to ensure we don’t miss an opportunity and focus on the right projects we qualify them at an early stage in a customer relationship management system. This rates companies based on size, strategic fit and sustainability. It then determines if it’s a platinum, gold or silver case, platinum being the most important, which means we go all in and have the back-up from the government.

PW: We will reduce our broad promotion of the country and build our internal capabilities to identify, understand and forge relationships with [target] companies. This can take months or years. We will invest in educating our sales force, to be able to understand the challenges of those companies even better and become a trusted partner even before the company really has an expansion project. It’s a mindset shift.

VVS: Our proactive work and networking focuses almost exclusively on potential investors investing in high-quality projects. At the beginning of the year we plan our activities with the aim of attracting as many high-quality investments as possible, so as not to proactively pursue projects that we believe will not fulfil the high-quality criteria. 

Q: What high-quality projects have you attracted that demonstrate this strategy? 

LH: We helped German group Schaeffler establish an Internet of Things solutions centre in Jyväskylä and helped it find a network of local companies to help develop the system. In the old days, the way to expand your business and competence was to acquire other companies. But we now see more of these co-creation set-ups, where the investor opens a small office with maybe 20 to 25 people but creates jobs for its 10 to 15 partners.

PW: Together with partners, we attracted the Korea Pharmaceutical and Bio-pharma Manufacturers Association to set up in Switzerland. The advantage is that Switzerland’s potential is better known to its members back in South Korea and enables Swiss companies to have better access to the ecosystem in South Korea. The association created just a small number of jobs, but its presence creates multipliers for the industry and bridges the two countries.

VVS: Last year we assisted a number of investment projects based on our focus on the potential within quantum computing. These include Zapata Computing and Maybell Quantum (from the US), QunaSys (Japan) and Quantum Exponential (UK). These are small R&D-related projects, but they all create high value for the sector’s continued growth. 

AWL: In the Northern Netherlands we have a very strong water tech cluster which includes CEW, which is our knowledge institute of water technology. So a lot of water tech companies find their way towards the country’s north. In 2023 we supported Californian wastewater treatment company Aquacycl set up its European headquarters in Leeuwarden. 

Q: Is prioritising quality over volume an advisable strategy for all IPAs?

PW: It really depends on the characteristics of the market: its size, strengths in specific industries, and the budget of the country to attract FDI. Countries with larger budgets can do a different marketing mix, they can go much broader in promoting the country. And those with more land available at low cost can attract large manufacturing facilities. So each country needs to make up its own mind about finding the right mix.

LH: I agree it depends on the particular market. If [Finland] were a huge market, we might have had a different mission. If we were 300 people working within investment attraction, we could cover a greater scope and work with more companies. You also need to look at the market’s strengths. So there’s a difference between big and smaller markets, and a bit depends on how the IPA works as well.

AWL: If you have shortages in your labour market, then of course ‘volume’ is a value in itself. Because it creates jobs. Each IPA has to define ‘value’ for itself. Is it strengthening your innovation ecosystems? If brain drain is a problem, maybe retaining jobs for people who just left university and school could be ‘value’. Or if your region is dominated by small and medium-sized enterprises and start-ups, and you’re lacking big corporates that have a lot of innovation power, then it would be valuable to look for corporates with big R&D budgets. This all sounds much easier, though, than it really is.

VVS: It also depends on the status and role of the specific IPA. In our case, we are part of Denmark’s ministry of foreign affairs and are a government agency. So we have to deliver on the priorities of the Danish government. Other IPAs could have other mandates, for instance to address regional disparities and avoid regional unemployment. In this case trying to attract investments that generate growth and jobs in less developed regions could be a good strategy. 

This roundtable has been edited for clarity and brevity.

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This article first appeared in the December 2023/January 2024 print edition of fDi Intelligence