Investment promotion professionals and scholars have long agreed on the effectiveness of sector targeting. When done properly, sectors targeted by investment promotion agencies (IPAs), on average, receive more than twice as much FDI as non-targeted sectors.

In a recent World Bank report on facilitating tourism investment, however, a majority of IPAs claiming to prioritise tourism as a strategic sector for their economy were found to know very little about the sector, meaning that they were only able to provide limited information to potential investors. Such a lack of detailed information on concrete investment opportunities is a major barrier to tourism investment.

Advertisement

Tourism is a key sector in driving economic development and employment generation in both advanced and developing economies. Its share of world employment, for example, is greater than that of the automotive and chemicals manufacturing industries combined. However, a shortage of domestic capital has meant developing economies increasingly look to foreign investors for capital, jobs, knowledge and global market access, and, in turn, attracting tourism investment has become highly competitive.

Dropping the ball

The World Bank's 2012 edition of the Global Investment Promotion Best Practices (GIPB) survey, which evaluates IPAs’ capacities to provide reliable and timely information to investors based on the IPA’s website and its responses to requests for information, placed a special focus on tourism, as it is a sector frequently targeted by IPAs given its potential to create a large number of jobs. Indeed, a review of websites and other promotional materials revealed that 57% of national IPAs claim to actively target tourism investment.

The results from GIPB 2012 were clearly at odds with IPAs’ claims, however. An assessment of the 107 IPA websites listing tourism as a priority sector found that more than one-quarter did not offer a tourism sector section or profile on their website, communicating the key strengths of the sector for investment. And even those that did often failed to provide important facts and figures, such as operating cost data, information on taxation, incentives, the process for acquiring property, the location’s relevant facilities and infrastructure, and an overview of relevant legislation.

Perhaps even more concerning, IPAs listing tourism as a priority sector were not any better at responding to a prospective investor inquiry than those that did not consider tourism to be a priority sector. When approached by an investor interested in developing a hotel, only 36% of IPAs responded to the request for information, and those that did often failed to follow up, thereby missing out on an opportunity to convert an initial interest into a solid lead. The rate of response was just as poor for IPAs that claimed to prioritise tourism investment and should have been, in theory, more interested in the opportunity.

The implications are clear: investors that expect IPAs to be well-versed in their priority sectors end up being frustrated, and are forced to turn to other sources for information – often at a considerable cost – or simply look elsewhere at other potential locations. When this happens, IPAs lose credibility and any possibility of influencing investor decisions. By contrast, IPAs that harness specialised knowledge and develop tailored marketing materials to support investment decisions gain a competitive advantage.

Time to get serious

If IPAs want to get serious about attracting FDI in tourism, they must begin by developing a good understanding of the tourism market, its opportunities, and their own areas' strengths and weaknesses, and be able to utilise this knowledge to impact investment decisions. This is neither a particularly daunting nor an overly expensive task. IPAs can simply follow the five concrete steps set out in the World Bank report in order to position their agencies and locations more competitively for new tourism investment:

1. Be strategic and focused. Tourism is a broad sector, spanning a wide range of business lines. To maximise the chances of reaching the right investors with the right information at the right time, IPAs should focus efforts on a limited number of tourism sub-sectors and opportunities where they have some competitive advantage.

They should identify the relevant target investor group and reach out to them proactively. For example, with a focus on high-end 'wellness' and winter tourism sub-sectors, the Austrian Business Agency – Invest in Austria – won 17 new tourism projects in the five years leading up to 2011, making Austria the 11th largest tourism market in the world by revenue.

2. Develop tourism knowledge. In order to build confidence among prospective investors and influence their decisions, IPAs must develop in-house sector specialists. They need to be able to refer to key statistics, discuss industry trends with authority, introduce investors to relevant local statistics, acquire a strong familiarity with the location’s product offering, and learn who the target investors are, how they think and how they conduct transactions.

3. Develop information in a form that is meaningful to investors. Based on their tourism sector knowledge and expertise, IPAs must craft powerful marketing messages that emphasise relative strengths and positively address known concerns of target investors. The use of well-sourced and up-to-date statistics, facts, figures, benchmarked data and testimonials can help attract investors’ attention, particularly when they are considering several locations.

4. Disseminate and customise information. IPAs must adopt a balanced approach: general communication channels such as websites for broader messages, and more tailored materials for targeted, direct marketing efforts and in response to specific investor inquiries. This will help IPAs cut through the noise and ensure that their messages are heard.

5. Identify and leverage strategic partnerships. Partners are essential in gathering all the required information and enhancing service delivery. Key partners include government bodies such as the ministry of tourism or tourism board; decentralised government offices that can help identify sites; national and foreign embassies, which can disseminate information about opportunities and help identify potential investors; business associations to share information and leads; existing investors; and government agencies that can help lift barriers to investment.

Throughout the economic crisis, the Invest in Greece agency has maintained the capacity to effectively facilitate tourism investors thanks to the robust portfolio of investment opportunities it has continuously identified through effective partnerships with various government entities, local communities, and other public and private stakeholders that bring projects to attention.

Exceeding expectations

Investment in tourism is affected by a number of variables, such as external economic factors, government policy, incentives, global trends, corporate strategies and lifestyle choices. Although most of them are outside of IPAs’ realm of influence, IPAs can have an impact on investment decisions by gathering and packaging detailed market data, providing in-depth information on investment opportunities, and offering support and key contacts to potential investors throughout the investment process.

In other words, IPAs can boost their investment proposition by providing high-quality information and facilitation services.

Sector targeting can make a difference, but only if claims of sector prioritisation are operationalised in an effective way. Simply stating that an IPA prioritises or targets tourism is not enough, and, in fact, can actually become a liability when an IPA’s tourism knowledge and skills are found to be inadequate. Too many IPAs around the world are facing that risk.

Effectively promoting tourism does not need to be expensive, but it does require clear commitment from IPA management to bring staff up to speed with the market, engage with investors to understand their businesses, effectively work with partners, and develop and deliver engaging and informative materials. In the increasingly competitive world of tourism investment promotion, meeting or even exceeding investor expectations is crucial.

Robert Whyte is a global specialist in investment promotion, and Valeria Di Fiori is an investment promotion consultant at the investment climate department of the World Bank Group. The full report is available at www.globalinvestmentpromotion.org