No global investor today can afford to ignore the impact of emerging economies on their business. Be it in the quest for new promising markets, the hunt for lower costs, the search for excellence or the exploitation of natural resources, emerging economies offer enormous opportunities to investors and their competitors alike.

The Bric countries – Brazil, Russia, India and China – may be the most talked about, not least because of their market potential. But many other nations in Asia, the Middle East, South America and Africa may be added to the list.

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And the investors go there. Figures from the United Nations Conference on Trade and Development reveal that almost 40% of global inward investment went to developing countries in 2005. Emerging economies received the lion’s share and there is no sign that they will lose their attractiveness to investors in the future. As these economies are no longer just providers of cheap labour but offer competitive conditions for advanced manufacturing, services and research and development, large-scale foreign investment is bound to continue.

Promotion is vital

That said, investment promotion agencies (IPAs) from emerging economies have only just started their journey. Rapid economic globalisation has made competition for global investment tougher – much tougher. As countries and regions have identified the (mainly) positive impact of foreign investment on the local economy, their efforts to attract investors have multiplied. Consequently, locations in Organisation for Economic Co-operation and Development economies compete with locations in other OECD economies and in emerging economies. And locations in emerging economies have started to compete with each other. The differences between the locations are diminishing.

Part of the market

Investment promotion has become a business in its own right. The services of IPAs worldwide have become increasingly professional and attentive to investors’ needs. One might even say that IPAs have become part of the market of global investment; they are an intimate part of the investment puzzle that includes law firms, auditors, employment service providers, investment banks and many others.

As competition for investment increases – and as IPAs continuously improve their services and their appeal to investors – the governments of emerging economies are wise to plan ahead and think strategically about their long-term competitiveness as investment locations.

What, then, are the challenges for IPAs in emerging economies? Every location has its uniqueness; and every IPA has its specific mandate and operating constraints, be they political or budgetary.

But even with limited resources, IPAs can make an important difference. Experience shows that careful targeting and exploiting a location’s strengths improves its attractiveness to investors in the long-term. This may sound self-evident, but in real life it is not easy to make all interested parties – government, agencies, universities and research centres, and the business community – pull together and contribute to initiatives such as building a national centre of excellence.

The IPA may have a role in initiating a project that would increase the attractiveness of the location, by identifying a potential investment opportunity and successfully communicating the need for action to the government – an example of good policy advocacy. It may even have a role as a facilitator/co-ordinator throughout the project’s life span. But mostly the IPA’s role will be in strategic marketing of the location and its specific centres of excellence.

Target choice

Yet it is not enough to be focused in terms of presenting business and investment opportunities. An IPA should also carefully pick its target investors and target markets. Attracting and working with industries from abroad – for example, companies in the IT/telecoms and life sciences sectors – requires people who know the business and the jargon. Successfully fulfilling the different missions of policy advocacy, business development and strategic marketing (sales) would ideally involve the IPA employing a mix of civil servants and people from industry, all equipped with a mindset of the business that is investment promotion.

For mature and emerging economies alike, an attractive investment climate is a good start, and indeed necessary. But today’s global competition also requires professional investment promotion.

Kai Hammerich is president of the World Association of Investment Promotion Agencies and director-general of Invest in Sweden Agency.