Investment promotion is becoming more complex by the day. Corporate location needs are constantly evolving and competition among locations seeking foreign investment is increasing. This brings new factors to consider, as investment promotion agencies (IPAs) rethink their strategies and objectives to better adapt to these new challenges.
This article shares Deloitte Global Location and Facility Services' views on the new activities IPAs are engaging in, the new ways IPAs are aligning their strategies with other areas of economic development, and finally how IPAs are reviewing their approach to foreign investment attraction while ensuring an efficient and effective use of their limited resources.
Adapt and diversify
Increasingly, companies are investing internationally in both greenfield projects and mergers and acquisitions. Despite the global economic crisis, statistics show that the number of multinationals has doubled in the past 15 years, to exceed 80,000, and so has the average number of their branches abroad, increasing from five to 10.
The internationalisation strategies of multinationals, based on global value chains, are also evolving and so too are their needs. Companies are currently developing ‘footprint optimisation' strategies to combine cost efficiency with a presence in new and growing markets capable of providing adequate skills.
More and more countries, aware of the increased competition for skills, are developing new regulations and mechanisms to facilitate talent inflows. Attractive fiscal regimes for foreign professionals and streamlined visa procedures are the most common measures already in place in several European countries. A proactive promotion of a location as an attractive place for foreign professionals to work and live is also being developed at national and sub-national level by many IPAs.
Some IPAs have developed specialised websites and provide services aimed at assisting international relocations. Other IPAs, such as EDB Singapore, follow a different approach and directly target FDI in the professional services industry, working on the principle that talent brings talent.
Most IPAs involved in talent attraction still work on an ad-hoc basis, but we expect that more and more investment agencies will be including it among their mandates, as some, including Montreal International, have already.
Supporting new types of investment, as opposed to the traditional greenfield and expansion capital, is a second area we believe more and more IPAs have started focusing on. Following the evolution of selling a solution rather than a location, some IPAs support partnership investments and licensing deals between local and foreign companies and universities. In some cases, crossborder mergers and acquisitions are supported by IPAs such as CzechInvest and Jordan Investment Board.
Working as a whole
From an economic policy perspective, FDI has become a major element of industrial policy in many countries, particularly for those involved in cluster development, as clusters are magnets for attracting foreign investment. At the same time, FDI constitutes a powerful tool to strengthen existing clusters, both by reinforcing local value chains throughout mechanisms of international technology transfer – such as technological 'copying', direct licensing of technology and vertical linkages – and by stimulating further innovation at already established companies.
FDI also influences positively other internationalisation processes, particularly exports. The development of links between foreign firms and their domestic suppliers engage domestic companies in their international value chains, boosting their exports.
These interrelations are frequently translated into closer collaboration among the relevant supporting organisations, which can take, from the institutional perspective, different forms. There is an increasing number of organisations that combine trade and investment promotion activities, both as a result of merging the existing separate entities and by combining them from the start.
In these organisations, more and more often both sections collaborate in business-to-business activities that aim to put local and foreign companies in direct contact to favour partnerships and joint investments. On the other hand, cluster development organisations and IPAs are increasingly tightening their relationships by getting representation in each others’ boards, by aligning their target subsectors and by co-funding mutually interesting activities.
EDB Singapore constitutes a good example of an IPA that combines the two activities. The tandem Scottish Enterprise and Scottish Development International is another; in this instance three activities (trade, investment and cluster development) are grouped under one macrostructure.
It may still be early to claim that a new trend is emerging but it is true that other locations are also adopting this model, such as the Spanish region of Catalonia, where the Catalan business competitiveness support agency ACC10 was launched in 2009. Even if the benefits of these macrostructures are clear, potential risks, such as a possible reduction of the organisation’s flexibility and adaptability, should be carefully monitored.
Entering the modern age
In this changing environment and with the increased importance of FDI promotion at policy level, many IPAs are reviewing their approach to foreign investment in all their activities and making use of new disciplines to ensure an efficient and effective use of their limited resources.
IPAs are already applying location branding and social media for image awareness creation, starting to explore competitive intelligence for lead generation and strategy formulation, identifying funding possibilities to secure investors, and engaging in inter-territorial collaboration with neighbouring (and normally competitor) locations to achieve win-win situations.
Location branding as a discipline entered the FDI arena a few years ago. Branding relates to coordinated activities and joined-up approaches to attract all relevant foreign audiences to a location – tourists, importers and consumers, investors, professionals, students, etc – by focusing on its distinctive attributes.
A major danger when getting involved in branding is to limit it to just a logo or a strapline, which in fact it is not strictly necessary. Because branding is a long-term activity, it is difficult today to measure results of many of the initiatives that are currently undertaken by at national, regional and local levels.
The use of social media by IPAs has also increased, and most of the available channels, such as content communities, social networks, forums, blogs and micro blogs are being used. We believe, however, that so far not many investment-related organisations fully understand the challenges of this communication channel and so fail to develop structured social media marketing strategies.
A clear formulation of objectives (raising awareness of the agency services, driving visitors to the IPA website, generating new customers, etc), an identification of target audiences (potential investors, site selection consultants, opinion leaders, diaspora, etc) and an adequate quantification of the resources needed, particularly human, are key to any successful activity in social media.
The development of a clear internal policy for both private and public use of social media is essential to avoiding potential pitfalls. We believe, though, that the use of social media can only increase and that IPAs will professionalise their presence and fully benefit as they progress on their learning curve.
Competitive intelligence may be, in our opinion, one of the most innovative changes in the approach to attracting foreign investment in the near future. Essential in the corporate world for early-warning identification and for competitive strategy formulation, it has already been applied to internationalisation by intelligence units within national administrations in many countries, including Brazil, Canada, China, France, Germany, Israel, Japan, Netherlands, Russia, South Korea, Sweden, the UK and the US.
An increasing number of trade and outward investment promotion organisations, including the UK's Chambers of Commerce, are using competitive intelligence to support local companies in setting up their internationalisation strategies (pricing, product adaptation, distribution channels, etc).
Competitive intelligence can be used in FDI promotion to follow competitor locations’ changes, to track target investors’ moves, to identify changes in technology or in regulations affecting target sectors. It can also be used to contribute to the organisation strategy formulation. Even if today the implementation of this discipline within IPAs is still rather limited, we do foresee an increasing number of experts within IPAs in the near future.
Identifying funding possibilities to secure foreign investment constitutes a relatively new service being provided by an increasing number of IPAs. These organisations no longer limit themselves to investigating and proposing available fiscal and financial incentives (such as tax credits, grants and low-cost loans). For clients in particular sectors, such as life sciences and renewable energy, they explore private funding possibilities such as venture capital and private equity, and provide the necessary introductions for their clients.
Inter-territory collaboration has also gained traction in the FDI community in recent times. Several initiatives exist in different continents that are structured to different models, from virtual networks such as Balmet Promo to supranational agencies such as the Chinese American Independent Practice Association, the Common Market for Eastern and Southern Africa (Comesa) Regional Investment Agency and Association of Investment Promotion Agencies of West African States.
The rationale for most of these agencies is to create awareness of a larger market, such as the Baltic region, the Caribbean, west Africa and Comesa. It is our view though that the benefits of this type of collaboration become more sensitive when these structures shift from marketing activities to servicing potential investors, as competition among participating countries arises.
A different scheme of inter-territory collaboration consists of the facilitation of mutual investments between neighbouring countries through the exchange of economic information, the promotion of business potential in the countries involved, and the support of investment co-operation between the countries. The recent signature of a bilateral memorandum between Poland and the Czech Republic follows this scheme.
Amaya Manrique is a senior manager at Deloitte Global Location and Facility Services in Belgium.