Paul Whiteway, an Associate Consultant of GDP Global, specialises in inward investment promotion. From 2003 to 2008, he worked at the centre of the UK’s inward investment network as...
As expectations rise about what Foreign Direct investment can deliver, so competition between Investment Promotion Agencies (IPAs) grows. Meanwhile, Governments are becoming more and more demanding about the performance of IPAs and expect to see better returns for the taxpayer. This shows itself in different ways.
First there is the inevitable downward pressure on budgets, and the attempt to squeeze more output while simultaneously cutting resources. Governments have to make difficult decisions about resource allocation, and IPAs are far from being exempt from budget cuts.
Then there is the desire on the part of Governments to attract more high value FDI, with an approach aimed at focusing more effort on those companies which have the greatest potential to add value to the recipient economy. Here the emphasis is on fast-growing highly innovative companies that bring with them cutting edge technologies or management techniques which can enhance the competitiveness and productivity of the economy. This typically occurs in more developed economies, where competition for the finite investment pool and downward resource pressures combine to encourage IPAs to focus more effort where they can really make a difference.
Additionality is a third issue. Establishing exactly what influence the IPA has had over a company’s decision to invest is notoriously difficult, especially if the global economy is booming and the company might well have invested with or without the assistance of the IPA. But understanding how the IPA actually performs is key to targeting its resources effectively.
How do IPAs respond to these conflicting pressures?
Coping with the double challenge of rising targets and falling resources may necessitate a fundamental reappraisal of the business model. Cutting out waste could involve trimming the overseas sales network where this does not deliver sufficient value, trying to reduce back office functions at home (such as acting as the interface between the overseas sales team and regional partners), or introducing light touch methods of handling lower value projects.
This could be a good time to revisit the organising principle of the sales team. Increasingly IPAs are organised on a sectoral basis, and this makes sense because what the IPA is marketing is a growth opportunity in a given sector of the home economy.
Many investment projects are in fact expansions of existing investments. Good aftercare plays an important role in encouraging such projects. In addition IPAs should not neglect their policy advocacy role even if this sits oddly with being Government institutions. Governments need to be told when their policies are likely to discourage investment.
Managing relationships with regional partners is also of importance. A well-coordinated network working to a common agenda demands mutual trust and effort from all parties, but it repays the investment by avoiding duplication and costly internal competition.
Targeting high value FDI involves setting in place mechanisms for identifying those potential investors with the desired characteristics. For example, highly innovative companies will often have high R&D spend and have lodged large numbers of patent applications. Rapid turnover growth or an existing foreign presence are also interesting pointers but there are of course many more. Once a target list has been produced, the next step is to conduct the due diligence and boil down the list to something more manageable. The sales team can then start to engage the targets using compelling business propositions developed for the purpose. In practice this often means targeting projects which are internationally highly mobile, where the intervention of the IPA can have a decisive influence on the outcome.
All of this is a resource-intensive process which can conflict with budgetary pressures faced by the organisation. It is also hard to reconcile with the need to continue to service the more reactive part of the pipeline in order to meet volume targets. In the end, it’s about achieving an equilibrium between meeting stakeholder expectations on both value and volume. This is easier to achieve when the global economy is expanding: the present global economic outlook is more problematic.
Measuring additionality demands a systematic approach to collecting client feedback about performance, ideally using a third party. This needs to use a consistent methodology. Timing is important, because if the client is approached too long after the investment locates he/she is less likely to remember in detail how the IPA has helped. But robust statistics will help build the case for continued resource levels from key stakeholders, as well as providing valuable pointers about where training needs to be delivered.
These are just some of the issues with which IPAs are currently wrestling. What it points to is that IPAs cannot just focus on winning business from investors. They must also take the trouble to manage their stakeholder relationships so as to maintain their confidence and an adequate level of resources for their operations. IPAs must be client-focused but not at the expense of neglecting stakeholders. Getting the balance right is one of the key challenges of managing an IPA.
whilst lowering costs.
