The corporate decision-making process by necessity has become more streamlined and stringent in the past five years. Companies wishing to locate a crossborder operation have more potential suitors than ever before, many with undifferentiated offers. By any reasonable estimate, there are more than 6000 active investment promotion organisations around the world trying to secure investment.
Even on a day-to-day level, when there may be no apparent short-term investment plans, companies are finding it frustrating dealing with the increasing number of economic development organisations (EDOs) lobbying for a piece of an FDI pie that is growing, but not to an extent that will support the ambitious growth plans of developing regions.
Many see FDI as a central tenet of economic success – even the business community in the Middle East, with its vast economic wealth from oil and gas, sees FDI as crucial to diversifying its economy and helping to make the region a more global location.
One leading financial services investor crystallised the issue recently, saying : “EDO solicitations were taking too much time and distracting us from our core business. We have established a government relations division to filter out the noise. Only EDOs that understand our business model will get through.”
The new breed
In response to this, a new breed of EDO has been emerging. Driven by increasingly competitive market conditions and complexities in the investment supply chain, EDOs, particularly the more established ones, have had to change their modus operandi to more effectively match the requirements of potential investors and to compete with the relative newcomers in investment promotion from eastern Europe, Latin America and the powerhouses of Russia, India and China.
EDOs that have adopted a private-sector approach tend to be those in which frontline sales and marketing staff were exposed to the changing corporate attitudes and recognised the need to drive change through to the headquarters.
The evolution of sector and activity-led strategies (such as R&D and software development), key account targeting, working with specialised outsourced service providers for pipeline development as well as up-skilling in account management are some of the central themes that have been seen in leading EDOs.
Relationships with clusters, including academia, science parks and sector thought-leaders, are becoming more important and better business advisory skills are being seen in EDOs as opposed to simple enquiry handling and facilitation of government incentives.
And not before time: many investors have also said that the EDO has often been a barrier as opposed to an accelerator for investment.
Services FDI needs a fast response with regard to market opportunities, human resources requirements, comparative costs, office occupancy and sector-specific regulation. Conveying the right information to the investor at the right time is also critical.
This is where EDOs can really add value. Investors should encourage EDOs to work on their behalf and set the information agenda early, allowing the competing regions to put forward respective structured business cases.
Some investors are already thinking about pre-qualifying who they are willing to work with, as highlighted by a senior representative from American Express, who said: “We are fast approaching a world where we will ask EDOs for a prequalification screening/tender response before we agree to work with them. There is too much amateurism out there and we don’t know where our data ends up.”
Most EDOs have a databank of statistics of everything that their region can offer, but it is the ability to take the relevant data from this and tailor it into a compelling proposition that makes it easy to identify the new from the old breed of organisation.
The old breed can be characterised as being incentive-led and having a geographical rather than sector approach; and even a cursory glance at promotional materials can indicate an outdated tourism style with a bland location offer.
The new breed is becoming more consultative in its approach and the development and tailoring of the proposition with a strong commercial narrative is critical to success.
A question one often poses to agencies when conducting strategic reviews is whether they would consider the service they offer as one worth paying for and how much would they be willing to pay?
That is not to suggest that investors should have to pay, but it is a useful mechanism for getting EDOs to adopt a different mindset and address the quality agenda, which still has scope for much improvement, even with the new breed.
There are many other areas where EDOs can deliver for the investor – before and after investment. Shortening project time to market by facilitation of investment can be achieved through reducing red tape, introductions, project management and helping with recruitment.
EDOs can also lobby government for changes to regulation to improve the investment climate generally or for specific company interventions. They are useful in underwriting important product development initiatives involving science parks, property development and skills. They can also provide access to important local networks.
Times of change
For too long, it has been a case of the tail wagging the dog in investment promotion. That has changed.
Everyone on the buyer’s side of the table has become more informed and EDOs must continue their evolution as leading service organisations with a full comprehension of business imperatives to help investors mitigate risk and drive shareholder value.
In the post-incentives world that Europe is becoming, and which the US may no longer be able to afford, the EDO product must be interesting enough to investors without the promise of a chequebook.
Even emerging markets such as India and China recognise that not all FDI is equal and some may be more strategic and sustainable than others – to win attention from these investors, a ‘reduced to clear’ badge will not deliver.
Mark O’Connell is CEO of OCO Global.