TOWARD THE NEXT GENERATION OF IPAS
MODULE 3
IPA SERVICE CATALOG
Toward the Next Generation of IPAs
Module 3
Course author Inter-American Development Bank (IDB) (www.iadb.org), through its Integration and Trade Sector (INT). Course coordinator Inter-American Development Bank (IDB) (www.iadb.org), through its Integration and Trade Sector (INT), the Institute for the Integration of Latin America and the Caribbean (INTAL) (www.iadb.org/en/intal) and the Inter-American Institute for Economic and Social Development (INDES) (www.indes.org). Module author Camilla Sharp. Pedagogical and editorial coordination The Inter-American Institute for Economic and Social Development (INDES) (www.indes.org) in collaboration with CEDDET Foundation (Economic and Technological Development Distance Learning Centre Foundation) (www.ceddet.org).
Copyright © 2017 Inter-American Development Bank. This work is licensed under a Creative Commons IGO 3.0 Attribution-NonCommercial-NoDerivatives (CC-IGO BY-NC-ND 3.0 IGO) license (http://creativecommons.org/licenses/by-nc-nd/3.0/igo/legalcode) and may be reproduced with attribution to the IDB and for any non-commercial purpose. No derivative work is allowed. Any dispute related to the use of the works of the IDB that cannot be settled amicably shall be submitted to arbitration pursuant to the UNCITRAL rules. The use of the IDB’s name for any purpose other than for attribution, and the use of IDB’s logo shall be subject to a separate written license agreement between the IDB and the user and is not authorized as part of this CC-IGO license. Note that link provided above includes additional terms and conditions of the license. The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Inter-American Development Bank, its Board of Directors, or the countries they represent.
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Table of Contents List of Figures .................................................................................................................. 5 List of Boxes .................................................................................................................... 5 List of tables .................................................................................................................... 5 Glossary ........................................................................................................................... 6 Module Introduction ....................................................................................................... 6 General Objective of the Module ................................................................................... 7 Learning Oriented Questions ......................................................................................... 8 UNIT I. PRE-INVESTMENT PHASE .................................................................................. 9 Learning Objectives ........................................................................................................ 9 I.1. Investor Identification ............................................................................................. 10 I.1.1. Proactive Approaches .................................................................................. 10 I.1.2. Reactive Approaches.................................................................................... 13 I.2. Geographical and Sector Resourcing ...................................................................... 15 I.3. Partners .................................................................................................................... 17 KEY POINTS OF THE UNIT ............................................................................................. 18 UNIT II. INVESTMENT PHASE ........................................................................................19 Learning Objectives ...................................................................................................... 19 II.1. Information Gathering............................................................................................ 19 II.2. Visits ........................................................................................................................ 23 II.3. Provision of Physical Space.................................................................................... 25 II.4. Expert Services....................................................................................................... 26 II.5. Additional Services ................................................................................................. 27 KEY POINTS OF THE UNIT ............................................................................................. 28 3
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UNIT III. POST-INVESTMENT PHASE ............................................................................ 29 Learning Objectives ...................................................................................................... 29 III.1. Aftercare ................................................................................................................ 29 III.2. Aftercare Services .................................................................................................. 31 III.3. Measuring Results................................................................................................. 32 III.4. Advocacy ............................................................................................................... 34 III.5. Advocacy Services ................................................................................................. 36 KEY POINTS OF THE UNIT ............................................................................................. 37 UNIT IV. CASE STUDY .................................................................................................... 38 Learning Objectives ...................................................................................................... 38 IV.1. The Case Study....................................................................................................... 38 IV.2. Pre-investment Services ....................................................................................... 39 IV.3. Investment Services ...............................................................................................41 IV.4. Post-investment Services ..................................................................................... 42 KEY POINTS OF THE UNIT ............................................................................................. 43
Complementary Material .............................................................................................. 44 Bibliography .................................................................................................................. 44
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List of Figures Figure 1. OECD on policy advocacy ............................................................................... 35
List of Boxes Box 1. Aftercare definition ............................................................................................ 29 Box 2. Successful aftercare ............................................................................................ 31 Box 3. Policy advocacy services provided by AIK Croatia ........................................... 37 Box 4. South Korean information technology infrastructure ..................................... 40
List of Tables Table 1. IPA services ........................................................................................................ 6 Table 2. IPA services by phase ........................................................................................ 9 Table 3. Benefits and drawbacks of proactive and reactive services ......................... 10 Table 4. Examples of different categories requiring dedicated services .................... 11 Table 5. Sample investment project questionnaire ..................................................... 20 Table 6. Investment project sample timeline .............................................................. 22 Table 7. Top ten countries for expansion and co-location projects ........................... 34
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Glossary n AI: Artificial Intelligence. n Brexit: the departure of the United Kingdom from the European Union. n FDI: Foreign Direct Investment. An investment in tangible assets made by a
company of one jurisdiction in the territory of another, usually entailing the establishment of a new company or the acquisition of a controlling stake (>10%) in another. n IPA: Investment Promotion Agency. n IT: Information Technology. n M&A: Mergers and Acquisitions. n MNC: Multinational Company. n SME: Small or Medium-sized Enterprise. n UNCTAD: United Nations Conference on Trade and Development.
Module Introduction The previous two modules have explored the reasons why locations decide to attract foreign direct investment. In this module, we will be examining how we do it. No two locations are the same and no two will provide exactly the same services. But all locations need to ask themselves a series of questions before they develop and promote their services to investors: Do we only provide information or do we also provide opinion? Do we help all investors to the same extent or do we offer different levels of service based on our priorities? Who is responsible for looking after an investment once it is made? The municipality, the region or the country that it is in? Are we equipped to offer advocacy services? Do we have the authority, the expertise and the budget to do everything we need to do? In this module, we will also examine the impact on our service delivery of tools such as incentives and investment promotion. Some locations provide information about 6
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incentive programs while others design or manage them. Either way, they need dedicated staff with detailed technical and/or legal knowledge. And, absurd as it seems, there is such a thing as too much investment promotion. Success in promotion may generate more leads than our service staff are able to attend to on time and in sufficient detail. An IPA will tend to provide some or all of the following services: Table 1. IPA services Investment phase
IPA service
Duration
Other interested bodies
Pre-investment
Image building, place branding
ongoing
Tourism etc.
Investment attraction/generation Investment
Facilitation
3 months to 3 years
Immigration, Education, Infrastructure, Environment, etc.
Post -investment
Aftercare and advocacy
ongoing
Justice
Source: Camilla Sharp, IPA Services
Some locations are very specific about what they can provide at each stage of the investment process, like the Rivne region of Ukraine. The module aims to be of maximum practical assistance and is broken into four units, the last of which will use a fictitious investment project to help crystallize the points we have been addressing in the first three.
General Objective of the Module At the end of this module, course participants should be able to: n Prepare a menu of services for different sorts of customer. n Know which institutions you need to work with to achieve that goal. n Support your service offering with a resourcing plan. 7
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n Prepare for contingencies and measure results.
Learning-Oriented Questions n Why do investors of different size, sector or nationality require different services? n Which other private and public organizations does your agency need to work with
if your investment service provision is to be effective? n If it is just as important to nurture investors once they have established an opera-
tion in your territory, why do so many agencies pour their efforts into investment attraction?
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UNIT I PRE-INVESTMENT PHASE
Learning Objectives A large part of the pre-investment phase involves place branding and deciding what makes your location appealing to certain sorts of investors. This has been comprehensively addressed in previous modules so, in this unit, we will be concentrating on the subsequent phases. Specifically, we will look at how to identify different customer types, understand what they are looking for and provide them with the information and services they need to choose your location. We will also be working out who else we can work with to achieve those goals. Table 2. IPA services by investment phase Pre-investment
Investment
Post-investment
Place branding
General information
Liaison
Investor identification
Bespoke reports
Alerts
Segmentation: sector and geographical
Partnerships
Policy advocacy
Influencers
Expert advice
Expansions
Negotiations
Source: Camilla Sharp, “IPA Services by investment phase�
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I.1. Investor Identification Suppose you want to become a center for bioplastics: agricultural producers with waste sugar cane feedstock or recycling companies might be of interest. Or if your research has shown that your location is relatively unknown, you might want to attract a couple of well-known brands to prove that you are an international player. Both of these are examples of companies that we set out to attract proactively. Most investment agencies also receive requests for information from companies and individuals that they have made no effort to reach. These only require us to react and are therefore a cheap market to reach. However, they may not fit with our aims: Table 3. Benefits and drawbacks of proactive and reactive services Positive Proactive
Reactive
•
•
Negative
Exactly what we want
No marketing costs
•
Expensive to target
•
Difficult to attract
•
May not be of interest
•
Distracts resources from companies we really want to attract
•
Reputationally damaging if ignored
Source: Camilla Sharp, Benefits and Drawbacks of Proactive and Reactive Services
II.1.1. Proactive Approaches We might have to develop specific services for any or all of the following categories:
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Table 4. Examples of different categories requiring dedicated services Companies
Existing investors Filter by size
For expansion Multinational Companies (MNCs) Small and Medium-sized Enterprises (SMEs)
Filter by sector
E.g. Textile
Filter by other criterion
E.g. Reputation
Institutions
E.g. Multilateral agencies
Influencers
E.g. Associations
Others Source: Camilla Sharp, Examples of different categories requiring dedicated services
Existing investors are easy to locate and important to keep happy. Your agency should find it simple to maintain regular contact with them. You should ensure that you are the first to know if there is a chance of an expansion in your territory. * Most agencies would welcome the arrival of a MNC to their area as they tend to create many jobs and have a positive effect on the local economy through the use of native suppliers. The services they require will certainly be personalized and may be complex and technical. They operate in many other locations so you may be able to benchmark your services against those of your competitors by paying attention to the expectations of MNCs. In the following short clip, lasting less than a minute, The Kuwait Direct Investment Promotion Authority (KDIPA) quite clearly establishes both its interest in innovative technology MNCs and what it can do for them. https://www.youtube.com/watch?v=KJtusFlm4Ns
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SMEs are less accustomed to operating abroad and more cautious about dedicating time or staff to progressing an investment project. Their lack of experience may mean that their checklists of requirements are not as exhaustive as those of MNCs but they are demanding in a different way. Your agency may have to undertake much of the research and information-gathering that is necessary before a preliminary visit to your location. That said, if successful, it is possible to build a strong and loyal bond with companies who recognize the value of partnering with you. Though countries such as the United Kingdom have programs for attracting entrepreneurs and almost all European countries recognize the importance of helping their own SMEs to grow and export, few have developed comprehensive services for attracting SMEs. This could be an interesting area to tap into since there are SMEs like Dints International that have the vision and ambition to invest abroad whilst small. Dints would surely have welcomed support from host governments when investing in Africa. * Sector-specific services can be very useful. One advantage is that information and supporting material can be used for a number of companies without their feeling that they are receiving something impersonal that has been mass-produced. It should show enough knowledge of their world that they feel encouraged to work with you on initial and future investments. Take, for example, the development of Europe´s largest animal health R&D cluster in Scotland. Proximity to skilled experts was one of the reasons that Sinovet of China set up a facility there, developing livestock vaccines for the Chinese market. However, having raised their expectations for your territory, it will be easy for you to fail when they start to ask complex, technical questions regarding the operating environment for their company. You will almost certainly need to have a person from this sector on your payroll. This, in turn, limits the number of sectors that you can claim to specialize in so you need to be sure that you have identified correctly those ones that you are linking to your place brand. *
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For the image and reputation of your territory, certain institutions can be desirable additions. A multilateral agency or an international body brings with it not just prestige but also stability—it is rare that these move their offices once established. But an unusual situation such as Brexit can cause such moves: both the European Banking Authority and the European Medicines Agency have shifted their headquarters—to Paris and Amsterdam respectively—from London. This will entail the relocation of a large number of talented people from a wide range of countries, bringing skilled, multilingual and multicultural families to their new location. However, the expectations of these bodies are not insignificant. They will anticipate an array of cosmopolitan services—such as international schools and shops with imported goods—that can attend to the requirements of their diverse workforce. They may even expect help with finding jobs for spouses and regular flights to international destinations. * Influencers such as associations are attractive because they do much of our work for us. If we were to wish to become the second global center of watchmaking after Switzerland, imagine the advantage we would have if we persuaded one of the global trade bodies to open an office or put its headquarters in our territory. Such institutions bring enormous reputational benefit but they tend to have relatively few employees so we might be required to work extensively with them to organize events and develop the necessary infrastructure for their members to visit us.
II.1.2. Reactive Responses In every agency, it is necessary to react to unsolicited requests from the following: n Companies n Influencers n Others (e.g. students, journalists)
If a company has found you, the chances are that they have an investment project. This is a good start. However, it is worth knowing how many other places they have 13
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approached in the same way. Are you one of five possible locations or twenty? Which are the others and why did they include you? If you are one of many, you may decide that your chances of success are small, this is not a company that you would have actively chosen and you will not be putting a lot of effort into your bid. In this case, you may want to limit your offer to a basic level of service. Influencers are a source of endless debate in Foreign Direct Investment. Some consultancies that specialize in site selection prepare lengthy questionnaires for candidate locations; it is not unusual to receive a request for answers to almost one hundred complex questions including the average rainfall for the last century and the distance to the nearest toxic waste disposal station as well as more obvious things like the number of marine biology graduates aged between twenty-five and forty. The problem with these requests, apart from their length and detail, is that they tend to provide little detail about the investor and demand a response within a very few days. Candidate locations need to decide whether it is worth the effort to meet the deadline: on the one hand, the project may sound attractive in terms of financial investment and employment creation but, on the other, the questionnaire is rarely personalized so will have been sent to many locations. Institutions have also been known to use consultants for “mystery shopping� exercises: pretending to represent an investor in order to measure agency efficiency. Do you really want to divert the attention of one or more members of staff in order to respond in time, when they are currently working on projects that you know to exist? However, the consultants will argue that a good response from a candidate location will be likely to get them included on the shortlist on future occasions. So keeping consultants happy can be a good way of widening access to the pool of projects that are coming up. *
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Finally, we have a group that are not really investors at all and whose requests for information may be time-consuming to answer. It may be tempting to disregard them or treat them as low priority since they divert resources from real investments. However, they may be able to give you something other than an investment. A journalist that you provide with information now may be able to help with publicity later. A student whose university thesis you help with now may one day work for a company that is interesting to you. What these people want and what you might one day want from them need to be balanced against what is possible for you to do today, given the staff, time and money at your disposal.
I.2. Geographical and Sector Resourcing Unless your location has a low international profile and your initial interest is in raising awareness of it, it is likely that your services will be prioritized for a handful of sectors. For each of these, a sector specialist member of staff is a key appointment and it could be necessary to have others in locations where you expect to engage in proactive approaches to businesses, not least to overcome language barriers. Ambassadors will almost certainly be necessary in geographies that you identify as key sources of potential investors. These ambassadors could be: n Individuals n Companies n Partners
If you choose to appoint an individual to represent your location´s interests in a foreign territory, they should be:
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n Familiar with your location as well as the target location (e.g. a native of
your location who lives in the other or someone who has lived/worked in your territory). n Comfortable in both languages. n Experienced in or able to talk sensibly about the sectors you are promoting. n Recommended by a trusted source.
If you choose a company, you will probably pay more than you would for an individual but you are more likely to find the required skills spread across a number of employees as well as experience of this sort of lead generation. A cheaper option still is to use the services of your government´s international network: embassies, consulates, representative offices and chambers of commerce. Many will permit investment agencies to place an employee within their facilities in exchange for a fee or a share of the institution´s workload. This arrangement provides the investment agency employee with access to experienced staff as well as support services. Whichever you use, it is essential to be clear about the division of responsibility: exactly which services are the responsibility of the head office and what is expected of the satellite office? Are all services developed by the head office or is the satellite office permitted to develop the offer most suited to the sector or geography in which it operates? Is the aim of the satellite office to raise awareness and if so, how is success measured? Or are there leads to be generated? If so, how do we define a lead? Is it a company with a project that has expressed an interest in our territory? Or must it be a company that has visited our territory or spoken to the head office by video conference or similar? How do we pay our satellite representatives? A flat fee? By results? A combination of both?
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I.3. Partners Unexpected consequences of our lead generation activity may include interest from companies that are not potential investors. These companies may fit our target criteria: may be located in a country where we have a satellite representative and belong to a sector that we have identified as a priority for us. If these companies receive an approach from our representative asking whether they might be interested at some future date in doing business in our location, they might answer that yes, indeed, ours is a place that they have thought about exporting to. What should we do in these circumstances? Clearly, the company is not close to making an investment and we do not have the resources to help foreign businesses that wish only to sell into our territory. However, they did not approach us: the conversation was started by our representative. To end the conversation abruptly now would be to create a bad impression. We need to provide some assistance and in this case, it would be sensible to develop links with partners to which we could refer them. A likely partner would be their own embassy in our location, if they have one. A chamber of commerce would be another option. Failing that, we might have to consider preparing a brief list of useful associations or information about import tariffs, licenses and taxes in our location—just to keep them thinking positively about us. After all, many investors start as exporters.
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KET POINTS OF THE UNIT n We need to have different services and information available for all
the different sorts of customer that we identify as useful to us in building our place brand. n We may need to hire sector specialists, linguists and representatives
that understand the cultures of the locations where our target customers have their head offices. n These satellite representatives will need us to provide them with in-
formation and support them with services and advice from the head office. n Service provision is a work-in-progress. We may find ourselves devel-
oping new services as different responses arise. n Saying “no� is an option. n We may find ourselves offering any or all of the following services:
o Research and information gathering. o Tenders for investments that require us to compete directly with other agencies in different locations (MNCs). o Basic legal and administrative assistance (SMEs). o Expert technical assessment. o Relocation assistance for personnel such as housing, schools and jobs. o Event organization.
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UNIT II INVESTMENT PHASE
Learning Objectives In this unit, we will learn which services are key to facilitating an investment and pay special attention to how to develop and deliver them. At the end of the unit, you will be better: n Prioritizing projects. n Listening and knowing how to interpret the unexpressed needs of inves-
tors. n Treating sensitive information with care. n Multitasking. n Learning when to say no.
II.1. Information Gathering Whether we first learn of an investment from an unsolicited (reactive) request or from our own scouts or representatives in target markets, the initial contact will almost certainly be accompanied by a list of questions.
At this stage, perhaps the most important element of our service is speed. It is helpful if a first contact receives a response within 24 hours. There is no need to answer the 19
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questions immediately if they are complex and will require time but an acknowledgement of receipt goes a long way to establishing a relationship: your response will include a contact name, email and direct dial, it will remove doubt as to whether the request has gone to the right place and it will give an idea of the likely date when the investor may expect a full response. As soon as possible, we gather as much information as we can about their company and their project, if possible by talking to them or by asking them to attach a form that may include some of the following sections. Table 5. Sample investment project questionnaire Name: Parent Company name: Company Country of origin:
Name: Job title: Telephone:
Contact person
Email: Address: Sector
E.g. Renewable energy E.g. Wind: manufacture of rotary
Activity
blades
Turnover Number of employees Geographical areas of operation Subsidiaries in our territory Suppliers Competitors INVESTMENT PROJECT Description Investment ($) Jobs to create
number
Skills required
Number and e.g. languages required
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Likely location Key project dates Special facilities requirements Space required m2 Preference for leasehold, purchase etc. Electricity supply Mwh Other utilities: water, broadband etc. E.g. proximity to airports, motorways
Special access and infrastructure requirements
etc.
Specific technologies or materials of interest or importance
E.g. lasers, hazardous waste, etc.
Source: Camilla Sharp, Sample Investment Project Questionnaire
This information serves a number of uses. First and most obviously, it enables us to prepare a personalized service offer, addressing the spoken and unspoken needs of our investor. For example, they might not feel it important to tell us that they use a special piece of technology or hazardous chemical in their processes but by asking the question, we may be able to warn them of the need to apply for an environmental impact study early on in the project life cycle as these can take up to eighteen months. Less obviously, a fully completed form is often a good indicator of seriousness. Projects that have no idea of investment costs, jobs to be created or timelines are not projects but ideas. No company with any sort of financial control would consider an overseas investment without a business case and the company should expect to share those details with you. If they say they are confidential, you should be cautious in spending time on their requests. This is one of the techniques that will help you to prioritize the projects you are dealing with. However important you may feel a request to be, it is good to have some general factsheets or briefing tools available to satisfy the need for speed. Clever creation of marketing material can enable you to provide useful information whilst transmitting a message. In the following video, Ghana shows off its modern infrastructure but the subtext is that this is not a backward African country beset by drought and poverty 21
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but a sophisticated place for investments: Africa’s second largest gold producer and the world’s second largest cocoa exporter: Ghana Investment Promotion Centre [GIPC Ghana]. (2013, May, 29). Ghana – Infrastructure Development. Retrieved from: https://www.youtube.com/watch?v=q3P6CSSR0So The information stage of an investment can continue for quite some time. A first request might be no more than a single question—such as whether your territory provides financial assistance or tax breaks for foreign investors. As your relationship develops and your locations becomes a more serious contender for the investor’s shortlist, emails and telephone calls give way to visits. Table 6. Investment project sample timeline Request
Time
Responsible
ALL INFORMATION REQUESTS Acknowledgement of receipt
24 hours
Response to initial questions
Within one
Agency
week Preparation of more personalized response to
2-4 weeks
specific requirements
Agency plus any partners necessary e.g. real estate experts
INVESTORS WITH PROJECT Presentation of preliminary report with options
Agency
Consideration of options
4-12 weeks
Investor
Preparation of investor visit to potential sites
2-8 weeks
Agency
Further contact with government bodies at differ-
2-4 weeks
Agency
ent levels Preparation of sector information
Agency
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Request
Time
Responsible Agency
Possible assistance with identification of suppliers 4-12 weeks
Agency/investor
Decision
4-12 weeks
Investor
Follow-up, administrative procedures, applica-
12-24
Investor/agency
tions etc.
weeks
Assistance with negotiations between investor and government institutions/private landlords etc.
Establishment of newco
Investor/agency
TOTAL
31-77 weeks
Source: Camilla Sharp, Investment project sample timeline
Companies in the services or technology sectors are sometimes able to make an investment within a year of initial contact but manufacturing projects take an average of three years from first questions to operation, so it is possible to receive several visits from an investor before a final decision is taken to invest in your territory. Therefore, preparing for these visits is a critical part of the investment facilitation phase.
II.2. Visits When preparing for a visit, the terms will usually be set by the investor. That is to say that they will dictate when they will visit. If they choose to visit during your holiday season, it may be possible to suggest alternative dates but, more often, they have chosen those dates specifically to test whether business operates as usual at that time of year; they are measuring the likely productivity of their shortlisted sites. So,
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it is essential that your agency functions efficiently all year round, even if you are unable to ensure that all the local partners you require will be available for the visits. These might include: n Representatives of other levels of government: If yours is a municipal
agency, your investor may need to meet central or regional government officials in order to understand the regulatory approval for their process. If yours is a national agency, you may need to meet local government bodies in order to understand land availability, business rates or the licensing and permit procedures. n Sector representatives: Preferably these should be foreign investors that
have been through the same process beforehand, but local companies and/or associations are also useful sources of information if they can be persuaded not to regard a foreign investor as unwelcome competition—as agrifood groups have discovered in India, some sectors can mobilize political support to block foreign direct investment into their country when they feel that the livelihood of many may be threatened by it. n Suppliers: Both of components and materials and also of services such as
legal or accounting expertise, recruitment assistance, translation services or property or facilities management. n Potential employees.
It is normal to treat these visitors as honored guests so efforts should be made to ensure that their travel is comfortable and stress-free. Collecting them from the airport and accompanying them on visits will save them worries about punctuality and communication misunderstandings. You may be asked to recommend hotels and restaurants and most agencies like to entertain their guests during their stay as a means of showing off the best of their location but it is worth checking whether your visitors would like time to themselves before filling their diary too full—they may have travelled some distance to be with you, be tired or have other work to do. Use this time
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well to establish a relationship with people who are either decision-makers or influencers. Understanding—even guessing—their needs will help to sell your location as one in which they feel they will have a reliable partner. One of these needs is likely to be confidentiality. Companies keep their proposed relocations and expansions secret for a number of important internal and external reasons. It is perfectly correct to talk about any established foreign investors in your territory but beware of providing too much information about other projects that your agency is currently dealing with. The investor will be watching for indicators of how you might use any information that they give you. They are looking for complete discretion.
II.3. Provision of Physical Space Some agencies have their own portfolios of land and buildings. Others rely on private and public agents to provide them with an updated list of what is available. Keeping this information updated with changes in availability and cost regularly altered is very difficult but extremely helpful. It can be an important part of your service offering: HIPA, the Hungarian Investment Agency, offers three broad groups of services to investors whilst they are deciding where to locate—and one of these is site selection. If yours is a municipal agency with power to negotiate land prices, do not withhold information from a central government agency that asks you for information. There may be a temptation to imply that you can compete with any other offer in order to gain direct access to the investor. However, if the investor has tasked a national agency with finding potential sites, there will be so many options that any that provide incomplete information will be simply be removed from the shortlist. Likewise, if you own land and have a role as a developer, be conscious of the speed at which certain companies move. You may have a site that is perfectly positioned, close to motorways and an airport but has insufficient electricity for a potential investor from the chemical or date center industries. How long will it actually take to 25
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build a new substation for this site? If your neighboring or competitor location already has a site equipped with a substation, the chances are that is the place that will win the investment. Finally, though tempting to promote publicly-held land—and it may be a political requirement that you do so—the investor may prefer to pay more for a private site that suits their requirements. Be careful to ensure that a full range of options is provided. After all, an investment on private land in your location is better than an investment elsewhere. Increasingly, foreign investors are looking to maximize the efficiency of their global facilities portfolio so you may need access to experts in new financing arrangements. Leasehold is particularly popular at present as it provides flexibility. The larger the firm, the more likely it is to be preoccupied by sustainability credentials. If you can reduce the carbon footprint of your properties by, for example, incorporating solar panels or providing electric transport for staff, this will increase the appeal of your offer.
II.4. Expert Services Most investors will need assistance from local lawyers, banks, accountants, real estate agents, recruitment consultants and translators, to name but six. Some will ask their head office advisors for local partners but it is wise to have a list of local providers that might be useful. If, as a public agency, you are prohibited from making recommendations, the list should contain at least three choices in each category for investors to choose from and a good filter is to supply a reference from another foreign investor attesting to the quality of the expert’s assistance where possible. If in doubt, you might ask the relevant sector association or embassy for their suggestions. For example, if you are looking for a legal firm to help a German automotive company, you might ask the national association of automotive firms for the name
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of their legal advisers and/or ask the German commercial office for their list of lawyers that speak German. You may have the budget and the good fortune to employ such expertise in your own organization. If a large part of your place brand revolves around a Free Trade Zone, for example, you might employ in-house taxation and tariff experts.
II.5. Additional Services If you are successful in developing a relationship of professionalism and trust with your investor, they may ask you to go beyond the normal brief of an agency and intercede with their business negotiations. Your agency will need to have strict guidelines on services such as these. On the one hand, your objective is to help foreign investors set up operations in your location. However, negotiations may lead you into situations where you are seen to defend the interests of a foreign company against those of your own local champions—their competitors—or they may bring you into conflict with your regulatory colleagues in other areas of government. If it is clear that the political priority is to support foreign investment above all other considerations (this is pretty much the case in Singapore), then you will need to recruit staff who are competent negotiators. Similarly, given how much foreign investment comes through acquisitions of local companies, you may have considered offering mergers & acquisitions (M&A) services. Most agencies feel that this is to compete with financial institutions and that they are unable to offer salaries that might tempt appropriate staff from the private sector. Invest in Sweden is one of the few exceptions as is the Flanders area of Belgium.
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KET POINTS OF THE UNIT n Speed and discretion are essential elements of your service provision. n Investors will not always know everything they will need in your territory
so go beyond providing only what they ask for. n Do not be afraid to question the seriousness of a potential investor. Saying
“no� is an option. n Hire experts or know where to find them for complex queries and negoti-
ations.
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UNIT III POST-INVESTMENT PHASE
Learning Objectives Using this unit, you will think about the value to you of your established investors, the importance of following-up on your promises and their expectations and planning your future service design from what you learn. We will move one stage further and take the role of partner so seriously that we will think about what we can do to improve the business climate for our investors. At the end of the unit you will be able to: n Divide, delegate and distribute investments. n Work with your investor as part of a team. n Measure your results and learn from them.
III.1. Aftercare Box 1. Aftercare definition “Aftercare comprises all potential services offered at the company level by governments and their agencies, designed to facilitate both the successful start-up and the continuing development of a foreign affiliate in a host country or region with the view of maximizing its contribution to the local economic development.� Source: Young, S. and Hood, N. (1994). Designing developmental after-care programs for foreign direct investors in the European Union, UNCTAD.
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Your agency´s internal objectives will require you to determine when you can classify a project as an investment. It is easy to see that land purchase or a contract to occupy an office block involve capital outlay and can be classed as an investment. But if the company has told you that they plan to invest $100 million over five years, do you need to wait for those five years to pass or for the $100m to be spent in your territory before you consider that their project is an investment? If you employ external contractors to help you with lead generation and you pay them a success fee, they certainly will not wish to wait for five years to be paid. You will need a policy for this. Whatever your policy, once you decide that an investment has been made, the investor shifts from being a customer with a project to an established investor and your services then become known as Aftercare or post-investment services. Some of these are the same as the facilitation services in the investment phase but, as the company becomes more settled in your territory, the services will change and may differ entirely. For this reason, many agencies employ staff whose role is only to keep in touch with established investors. KOTRA, the South Korean investment agency is an example, with a dedicated “Investment Ombudsman”. However, some projects succeed because the investor has developed a good relationship with the project manager at the agency who may have sector expertise that continues to be relevant after the investment. In these cases, the agency must balance the benefits of keeping the relationship positive against its internal need to share the workload. So a critical part of a good aftercare plan is the appointment of liaison officers or key account holders who are responsible for ensuring that the company is not only happy in our location but so successful that it expands.
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Box 2. Successful aftercare What does not work: Aftercare as an afterthought—ad hoc aftercare activities in times when business is slow. Aftercare needs continuous attention, follow-up, and feedback to the client. Source: ECORYS (2013). Exchange of Good Practice in Foreign Direct Investment Promotion. Rotterdam, 4 July.
It is common practice for responsibility for aftercare to fall to the most local of the layers of government involved in the project. Municipal or regional authorities are more likely to be able to respond quickly to requests from the investor.
III.2. Aftercare Services Unless your investor employs a government relations representative, the chances are that they will only contact you when they need something. If their new operation in your territory is a success, that might be rarely. You, however, would probably like to be in touch more often. You might want to ask them for testimonials and references, you might be asked by another potential investor if they could visit and, above all, you need to know if there are early signs of profit warnings, job losses or plant closures. So you need a plan in order to keep communication channels open without the investor thinking that you only ever contact them in order to ask for something. A newsletter is a possibility though they would probably prefer something more personalized: news about their sector or regulatory changes in your location that might affect their work. Events are another good opportunity to flatter them and give them publicity whilst allowing yourselves a chance to ask how everything is and whether you can help them more.
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An annual conference is a good way of inviting the local business community, including foreign investors, to discuss the external factors that affect their operation and allow them a chance to meet companies that may be of use. A party is another networking event that serves to remind your investors that you are grateful for their commitment to your area and demands nothing in return. Your services, at this stage, have changed from facilitation to partnership. You work as part of a team with your established investors. When the moment comes for them to plan an expansion or argue to their headquarters that theirs is the best place for a new production line or facility, they should know that they can turn to you as an agency and ask for your help in preparing their competitive tender to their own head office. Czech Invest is regarded as one of the agencies with a comprehensive aftercare offer. They have a team of seven, four of whom are sector specialists and two of whom are visa and residence permit experts. Their services include the facilitation of grants and incentives, help with construction permits and mediation with schools and universities.
III.3. Measuring results Whatever your decision about the moment when a project becomes an investment, that is the time to ask your investors to provide you with feedback. If they have selected your location, the chances are that they will answer in a positive way about it. It is perhaps of even greater interest to know what investors think of your location if they have chosen to go elsewhere. So do remember to ask the ones that you lose as well as the ones that you gain. Questions might include any of the following:
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n Availability and cost of relevant staff. n Availability and cost of appropriate facilities (land, office blocks etc.). n Quantity and quality of utilities such as superfast broadband, water, gas,
electricity. n Transport infrastructure: road, rail, air, maritime. n Length of time required to overcome regulatory and administrative obsta-
cles such as licenses, permits, visas, environmental impact studies etc. n Taxes and other levies. n Availability of suppliers and customers, associations and other relevant busi-
ness bodies. n Cultural factors: language, religion, values, quality of life, diplomatic rela-
tions. n Geopolitical factors: risk from severe weather, civil unrest, disease etc. n Support from public sector.
You should also ask both groups what they think about your agency´s services with particular reference to the following: n Ease of finding your agency, ease of finding contact details and relevant in-
formation on website. n Quality of information provided. n Speed of response. n Confidentiality. n Comparison with other similar organizations in other locations.
If the number of investments in our location is not as high as we should like, feedback should help us to see whether improvements are to be made at our agency or if items beyond our current control are making our location less than ideal for investors.
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According to research undertaken by fDi Markets in early 2017, the top ten countries for expansion and co-location projects were the following: Table 5. Top 10 countries for expansion and co-location projects 1 2 3 4 5 6 7 8 9 10
United States United Kingdom China France Germany India Mexico Spain Poland Ireland
Source: fDiintelligence (2017). “fDi Reinvestment Ranking 2017�. Retrieved from: https://www.fdiintelligence.com/Rankings/fDi-Reinvestment-Ranking-2017- Singapore-takes-top-spot
III.4. Advocacy If your aftercare services are limited by what you have the power to act on, advocacy is a service which aims to extend your areas of influence. The role of advocacy within a government institution is rather like that of an internal auditor in that both require impartiality and a keen sense of what is correct, rather than what is politically desirable. For both to function, they must rely on support from those who really do have the power to effect change.
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Here is what the OECD said about advocacy in a presentation to the People´s Democratic Republic of Lao (Laos) in 2015: Figure 1. OECD on policy advocacy
Source: OECD (2015). Available at: https://www.slideshare.net/OECD-DAF/lao-pdrinvestmentpolicyreview2015
Advocacy is time-consuming. It may come about of the agency’s initiative but is more likely to be a response to at least one, probably several, requests or complaints from established investors. Until recently in Spain, a peculiarity of commercial law meant that new businesses could not be constituted without the signature of a person in possession of Spanish identification. Obtaining this identification number was impossible without the person in question making a trip to the relevant ministry in Spain or, at the very least, to a Spanish consulate in their own country. One memorable case involved a subsidiary of a Japanese keiretsu (conglomerate) that could not establish an office in Spain since it would have required the signature of an elderly, wheelchair-bound gentleman who never left his office in Tokyo. 35
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With the intervention of the Spanish ambassador to Japan and a number of other diplomatic representations, it became clear that this legacy of old rules was driving investment away and the Spanish agency for foreign direct investment was able to “lobby” for the necessary changes. But the involvement of many ministries—Economy, Justice, Interior, Exterior and Labor—as well as the benchmarking research necessary to see what other countries were doing, meant that a year passed before changes were finally made.
III.5. Advocacy Services If our agency is tasked with providing advocacy services, we will need to have staff with particular skills. We have established that policy change takes time so our staff will need tenacity and patience. We have established that very many institutions will be required to agree on the changes so diplomacy and sensitivity as well as a clear sense of purpose will be helpful. In short, we are looking for staff who are comfortable in a world of academic research and theory as opposed to the eminently practical people we need as facilitators in the pre-investment and investment phases. Among the services they will be expected to perform are: n Engagement with companies, asking for input as to priority areas of reform. n Provision of information. n Original research. n Negotiation and dialogue between rule-makers and companies. n Events to facilitate discussion and debate between all interested parties. n Promotion of their own services both to established investors and to the
media. By way of example, here are some of the policy advocacy services provided by the Croatian investment agency:
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Box 3. Policy advocacy services provided by AIK Croatia •
Education, skills and training.
•
Research and development, technology and innovation.
•
Infrastructure: telecommunications/broadband, ports/airports, industrial zones, support services.
•
Business climate: legislation and implementation, flexibility, welcoming attitude.
•
Political, media and public awareness.
Source:
AIK
Agency
for
Investments
and
Competitiveness,
Croatia
(2010).
Retrieved from:
http://slideplayer.com/slide/7424570/
KET POINTS OF THE UNIT n Do not be afraid to reallocate resources. Aftercare services are less reac-
tive than facilitation services and can be planned ahead, with appropriate staff from the most relevant organization appointed to lead the follow-up. n Beware of asking too many favors of your existing investors. Part of your
role is to protect them from time-consuming meetings with government, the media or future investment. n Do not be afraid to ask what you could do better. Act on what is in your
power to act on. n Do not be afraid to extend your responsibilities. If the investors are happy
with your agency but not entirely happy with the business climate of your location, no government agency or body will be better placed to bring about the changes they recommend than you. n Advocacy takes time and skills you may not currently have in-house. n It depends upon approval and support from those who can change policy.
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UNIT IV CASE STUDY
Learning Objectives By looking at a fictitious investment project, we will try to apply all the key points from the preceding three units. We will divide the project into phases and think about the services that we might be providing at each stage. At the end of the unit, you should be able to answer the following questions: n Where does this project sit in my list of priorities? n Who do I need in order to make this project happen in my territory? What
resources do I need to mobilize both within and beyond my own organization? n What additional services do I see my agency developing in order to be ready
for future stages of this project?
IV.1. The Case Study Our fictitious investor is from Germany. It is a new company, less than ten years old and expanding fast. We shall call it Neuenstein. It is developing a low-emission, autonomous vehicle for car sharing that it needs to test, both in non-traffic environments and, later, in traffic ones. Once its safety and reliability are proven, it believes
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that it may be able to compete with Tesla and similar products from Google and Uber, even on US soil. The project has two site requirements that do not necessarily need to be together: n A software development center for forty-five skilled staff, who will be work-
ing on the artificial intelligence command system for the steering. They will also be developing the car-sharing app for passengers. n A test driving location with associated warehouse and workshop for mainte-
nance and emissions testing. The company wishes to conduct its testing and develop the associated software in as much secrecy as possible so remote sites would be welcomed. The project is initially presented anonymously by a consultant who provides little information but asks a good many questions.
IV.2. Pre-investment Services Research the market. Do we trust the consultant? Do we believe that this company exists? If so, do we believe it to be capable of what the consultant claims? Do we know anyone in the automotive industry or sustainable travel sector who can help? Providing information to the consultant. Do we tell them everything we know and can do for them or do we hold something back for the client? We also need to ask questions of the client. So we submit a questionnaire designed to find out as much as we can about the project requirements and timelines.
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Are we able to bid for both parts of the project? If we are South Korea, we probably have extensive superfast broadband infrastructure and highly skilled software developers. Box 4. South Korean IT infrastructure IT Readiness and Broadband Deployment Singapore, Japan, and Korea achieve the highest results in this section of the report. As IT readiness and broadband deployment is worth 25% of the overall score in this year’s scorecard, this strong result helps to lift the overall rankings for these countries. For example, Japan jumps from tenth position in the scorecard rankings to second once the infrastructure scores are included. Most of the other countries in the scorecard receive a similar ranking whether or not infrastructure scores are included. Source: Business Software Alliance - BSA (2018). Global Cloud Computing Scorecard. Retrieved from: http://cloudscorecard.bsa.org/2018/index.html.
However, 70% of the country is mountainous and the remaining 30% is densely populated so finding a remote test driving area would be difficult. South Korea would probably opt only for the software development element of the project. Software testing center An analysis of local skills availability: Do we have forty-five workers who are available and willing to work on such a project? Do any have experience of AI, the automotive industry? Do any speak German? How much do they cost? If we might struggle to find them, could we recruit from neighboring locations? Would that mean relaxing immigration rules? If so, we need the approval of the relevant ministries or regulatory authorities. How much would it cost us to import talent? An analysis of the broadband and IT security environment: Do we have enough bandwidth and can information be transferred easily between Germany and our location without fear of data breaches?
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Provide information regarding other companies operating in the AI, IT, automotive or environmental sectors locally that might be relevant as partners or at least prove that we have appropriate infrastructure for an operation such as this. Availability and cost of appropriate office space: Proximity to an international airport. Automotive testing location Availability of remote land, with an area that can be surfaced for traffic: A disused airfield would be ideal. How many hectares are required? In Europe, 500 hectares is considered generous for a test circuit: Bosch uses 120 ha. in France, Michelin 450 ha. and the Lapland cold climate testing ground in Finland is 500 ha. The United States has swathes of land available so General Motors has nearly 1,000 ha. Obviously, the Unites States would be better placed to bid for this part of the investment project than most European countries. How far from nearest center of population/motorway/access points? Given that the location is remote, how would your agency propose to source staff? What would supply costs be like? What measures do you have to deal with explosions (volatile batteries) and accidents? If the test location is remote, how close is the nearest hospital or will you provide on-site medical support?
IV.3. Investment Services Assuming, at this stage, that your location has passed the first hurdle and that the consultant has told you the name of the investor and the investor would like to visit, your services might include:
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n Presentations: If the sites are remote, it will be lengthy and time-consuming
to travel to many. An internal discussion of options with maps and photographs could be held before the visit, to ensure good use of time during the trip. n Site selection: Visits to potential sites, meetings with local government offi-
cials if relevant, inspection of utilities, access roads etc. n Introductions to intermediaries such as recruitment agencies, lawyers and
real estate professionals as well as other businesses operating locally (preferably a German company among them). n Hotel reservation, airport collection, appointment of translators etc.
If the meeting is successful and your location moves to the shortlist or is selected, the services will become more specific such same as above: n Help with finding staff. n Negotiating the purchase/lease of test track/office center. n Ensuring physical and cyber security are assured. n Installing safety measures in warehouses and test track. n Organizing medical, logistics and infrastructure requirements. n Unravelling any import restrictions on parts or supplies. n Finding local suppliers where possible (lithium?).
IV.4. Post-Investment Services n Work with the local Ministry of Transport to permit trials in traffic once the
prototypes are deemed safe and reliable on the remote test circuit. n Pilot car-sharing schemes to assess appeal and cultural acceptance. n Work with local colleges and universities to develop training qualifications
and certifications that will provide Neuenstein with a steady pipeline of employees.
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n Work with Neuenstein to attract suppliers and partners to your location, en-
suring that it becomes an important cluster for driverless cars and encourages them to continue expanding in your territory.
KET POINTS OF THE UNIT n The reward of winning a complex investment project can be very tempting
but needs to be weighed against the danger of over-enthusiastic commitment of resources to an investment that goes elsewhere or, worse, never existed in the first place. n Good planning and preparation is essential: Careful research into the in-
vestor’s sector and a thorough knowledge of the relevant advantages and limitations of your own location will help convince investors that they are dealing with an agency that offers a personalized, intelligent and honest service. n Knowledge of where to go to find solutions that are beyond your immedi-
ate control: Development of those key relationships well in advance of their becoming crucial to the success of a proposal.
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Complementary Material n ECORYS. Exchange of Good Practice in Foreign Direct Investment Promo-
tion. file:///C:/Users/CJS/Downloads/ECORYS-exchange-of-good-practice-inForeign-Direct-Investment-promotion_en%20(1).pdf n FDI Intelligence. FDI Report 2017. n http://report.fdiintelligence.com/ n FDI Intelligence. FDI Rankings 2018/19. n https://www.fdiintelligence.com/Rankings n UNCTAD. International Investment Facilitation and Promotion Services. n http://unctad.org/en/Pages/DIAE/Investment%20Facilitation%20Compact/In-
ternational-Investment-Facilitation-and-Promotion.aspx n UNCTAD. Best Practice in FDI attraction by small countries. n http://unctad.org/en/Docs/diaepcb2010d4_en.pdf n WORLD BANK. Advisory Services for Investment Promotion Agencies. n http://www.worldbank.org/en/news/video/2016/09/27/investment-policy-
and-promotion
Bibliography n Ernst & Young. Attractiveness Survey Europe 2017. n http://www.ey.com/gl/en/issues/business-environment/ey-attractiveness-
survey-europe-may-2017 n FDI Intelligence Rankings. n Multinacionales por Marca España. Las Multinacionales Extranjeras en Es-
paña. Análisis de su Contribución al Crecimiento y Desarrollo Español. n http://multinacionalesmarcaespana.org/wp-content/uploads/2016/06/In-
forme_Multinacionales_extranjeras_en_Espa%C3%B1a.pdf n OECD. Investment Promotion Toolkit.
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n http://www.oecd.org/investment/toolkit/policyareas/investmentpromo-
tionfacilitation/41246119.pdf n UNCTAD. World Investment Report 2017. n http://unctad.org/en/PublicationsLibrary/wir2017_en.pdf n World Bank. Doing Business 2018. n http://www.doingbusiness.org/~/media/WBG/DoingBusiness/Docu-
ments/Annual-Reports/English/DB2018-Full-Report.pdf n Young, Stephen and Hood, Neil (1994). “Designing developmental aftercare
programmes for foreign direct investors in the European Union”. Transnational Corporations. UNCTAD.
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