FDIREG MODULE 5

TOWARD THE NEXT GENERATION OF IPAS

MODULE 5

AFTERCARE AND POLICY ADVOCACY

Toward the Next Generation of IPAs

Module 5

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 Carolina Arriagada 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).

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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 .................................................................................................................... 6 List of Boxes ...................................................................................................................... 6 List of Tables...................................................................................................................... 7 Glossary ............................................................................................................................. 7 Module Introduction ......................................................................................................... 8 General Objectives of the Module.................................................................................... 9 Learning-Oriented Questions ........................................................................................... 9 UNIT I. WHY AFTERCARE MATTERS ............................................................................... 11 Learning Objectives ......................................................................................................... 11 I.1. Definition of Aftercare................................................................................................ 11 I.2. FDI Expansion in Numbers ......................................................................................... 13 I.3. To Aftercare or Not to Aftercare? ............................................................................. 15 I.4. The Case for Aftercare .............................................................................................. 16 I.4.1. The Business Case ......................................................................................... 19 I.4.2. The Economic Development Case................................................................ 20 I.4.3. The Governance Case .................................................................................... 21 I.5. How Aftercare Can Affect Reinvestment ................................................................ 22 I.6. Types of Aftercare Services ...................................................................................... 24 I.7. Types of Aftercare Programs .................................................................................... 26 I.8. What Defines Success in Aftercare? ........................................................................ 27 I.9. Impact Measurement of Aftercare .......................................................................... 29 SYNTHESIS OF THE UNIT ................................................................................................ 32 3

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UNIT II. AFTERCARE IN PRACTICE .................................................................................. 33 Learning Objectives ........................................................................................................ 33 II.1. What Does the Client Want? .................................................................................... 33 II.2. Encouraging Reinvestment ..................................................................................... 34 II.3. Developing a Reinvestment Plan Step by Step ...................................................... 37 II.3.1. Know Your Market ....................................................................................... 38 II.3.2. Know Your Customer................................................................................... 39 II.3.3. Identify Key Segments................................................................................. 40 II.3.4. Design Services .............................................................................................41 II.3.5. Delivery ......................................................................................................... 47 II.3.6. Evaluate & Monitor ..................................................................................... 48 II.4. Sectors as Platforms ................................................................................................ 49 II.4.1. Growing Sector Entrepreneurship .............................................................. 50 II.4.2. Strengthening Sector Linkages .................................................................... 51 II.5. Country Value Chains ................................................................................................ 51 II.6. Mechanisms to Aid the Investor ............................................................................. 52 II.6.1. Conflict Resolution & Grievance .................................................................. 54 II.7. Aftercare & Disinvestment ...................................................................................... 55 II.8. Soft Imprint of a Foreign Investor .......................................................................... 55 SYNTHESIS OF THE UNIT ................................................................................................ 57 UNIT III. POLICY ADVOCACY........................................................................................... 58 Learning Objectives ........................................................................................................ 58 III.1. Advocacy: The Link between Aftercare & Policy ................................................... 58

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III.1.1. Roles of the Government ............................................................................ 59 III.1.2. The Roles of Foreign Investors ................................................................... 60 III.1.3. The Roles of the IPA .................................................................................... 61 III.2. Policy Advocacy in Action ....................................................................................... 62 III.2.1. Quantify the Influence of Foreign Investors in your Location .................. 63 III.2.2. Assess and Improve Dialogue Mechanisms ............................................... 63 III.2.3. Identify Relevant Stakeholders .................................................................. 64 III.2.4. Consider the Most Common Requests from Foreign Investors ............... 64 III.3. Policy Advocacy Case Studies ................................................................................. 66 SYNTHESIS OF THE UNIT ................................................................................................ 70

Module Summary ............................................................................................................. 71 Final Remarks .................................................................................................................. 72 Acknowledgments .......................................................................................................... 74 Bibliography .................................................................................................................... 75 Websites .......................................................................................................................... 77 Further Reading .............................................................................................................. 78

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List of Figures Figure 1. The landscape of aftercare ............................................................................. 18 Figure 2. The case for aftercare ...................................................................................... 19 Figure 3. The link between aftercare and reinvestment ............................................... 23 Figure 4. Aftercare services by type of service and timeframe .................................... 26 Figure 5. Success in aftercare ......................................................................................... 28 Figure 6. Aftercare services step by step ...................................................................... 38 Figure 7. Scope of the role of an aftercare professional .............................................. 46 Figure 8. Different roles in policy advocacy ................................................................... 59 Figure 9. Aftercare 2.0 .................................................................................................... 73

List of Boxes Box 1. Overview: Ten years of expansion........................................................................14 Box 2. Primary objective of evaluation .......................................................................... 29 Box 3. London & Partners’ evaluation methodology ..................................................... 31 Box 4. AGFA client testimonial ....................................................................................... 36 Box 5. Pramerica client testimonial ................................................................................ 36 Box 6. TransferWise client testimonial .......................................................................... 36 Box 7. Value proposition from invest in Holland ........................................................... 43 Box 8. Yokohama World Business Hotline ..................................................................... 54 Box 9. FDI & Giving - Dan Ikenson .................................................................................. 56

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Box 10. Case study of how a city can respond to market needs ................................... 66 Box 11. Case study of a policy recommendation ........................................................... 67 Box 12. Case study of a cross-governmental collaboration........................................... 68 Box 13. Case study of skills development as a partnership ........................................... 69

List of Tables Table 1. The FDI reinvestment ranking 2017 ....................................................................14

Glossary n BRE: Business Retention and Expansion n DA: Development Agency n EDO: Economic Development Organization n EPZ: Export Processing Zones n ID: Investor Development n IPA: International Promotional Agency n ISDS: Investor-State Dispute Settlement n RDA: Regional Development Agency

Note 1: The words IPA, EDO, DA and RDA are used as synonyms in this module.

Note 2: The use of the words: “country”, “nation”, “city” “territory”, “area” are interchangeable, simply referring to a jurisdiction that is covered by a specific initiative to support investment promotion.

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Module Introduction Seventy per cent of all foreign direct investment projects are expansions. Despite these significant figures, helping international companies grow is an industry that has not always received sufficient attention. Aftercare and policy advocacy are the most advanced steps of a foreign investor’s journey. They include a wide range of administrative, operational and strategic efforts to retain investment, encourage follow-on investment and achieve greater local economic impact through a multistakeholder dialogue that leads to improvement of the business environment. There are sound business, economic development and governance cases to deliver aftercare services and International Promotional Agencies (IPAs) that embrace aftercare today have many success stories to share.

This module looks at the why, what and how of aftercare. The first unit explores different definitions of aftercare, unpicks the landscape in which the industry operates and explains the dynamics between aftercare and reinvestment. It then focuses on the framework of aftercare programs, the types of services and programs available in market, identifies what success looks like and reviews rationales for interventions and impact measurement mechanisms.

The second unit addresses what clients need, how to encourage reinvestment and how to develop an aftercare plan step by step. It continues with the role sectors and country value chains play in igniting investment, how to assist investors and address challenges to minimize grievances. It closes with a brief review of the soft contributions foreign investors bring to host countries.

The last unit, policy advocacy, presents the links between investor participation and policymaking, how policy advocacy looks like in action and lists innovative examples of this growing field.

The module closes with reflections about the future of aftercare and outlines how aftercare 2.0 can look like.

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Throughout the module there will be also several practical and group activities to learn from peers and hear about local experiences in the field.

General Objective of the Module This module will look at all elements of aftercare from an IPA perspective, including aftercare models, barriers to delivering aftercare and how best to measure its success.

On successful completion of this module, participants will be able to: n Understand why aftercare matters and the case for investing in it. n The dynamics of aftercare and reinvestment. n Recognize the building blocks of an aftercare program. n Explore the various types of aftercare, and their opportunities and

challenges. n Learn about the tools and activities that are used today. n Recognize the links between aftercare and policy advocacy. n Contextualize aftercare with other aspects of economic development. n Gain an understanding of future trends in the industry.

Learning-Oriented Questions The following questions can guide participants to relate to the content of this module: n What value offers aftercare to a host economy? n How can foreign investors increase competitiveness of the host economy? n Is aftercare tactical or strategic? n What is the connection between sectors, supply chain and aftercare? n How can aftercare be measured? Are there Key performance indicators? n What is the link between aftercare and cluster innovation?

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n How does an aftercare program look like? n What do world-class aftercare professionals do? n What is policy advocacy and how does it relate to the work of IPAs? n How is the industry of aftercare evolving?

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UNIT I WHY AFTERCARE MATTERS

Learning Objectives n Understand the definition and importance of investor aftercare. n Learn about the business, economic development and governance elements

of aftercare. n Identify the links between aftercare and reinvestment. n Gain an overview of the various types of aftercare services. n Understand the focus of the four models of aftercare program. n Learn what success looks like. n Familiarize yourself with impact measurement.

I.1. Definition of Aftercare The United Nations Conference on Trade and Development (UNCTAD) Investment Advisory study “Aftercare, a core function in investment promotion” published in 2007 is the most cited reference in reports and papers discussing aftercare. It states that “International Promotional Agencies often have different perceptions of what aftercare is. The most complete definition is possibly that of Young and Hood who define aftercare as ‘comprising all potential services offered at the company level by governments and their agencies, designed to facilitate both the successful start-up

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and the continuing development of a foreign affiliate in a host country or region with a view toward maximizing its contribution to the local economic development’ ”.1 The UNCTAD expands on that definition to include the range of activities from postestablishment facilitation services through to developmental support to retain investment, encourage follow-on investment and achieve greater local economic impact. It needs to be driven by the view of what companies need in the present and the future, and what the host economy needs from international companies in its territory.

It will consider the role of institutions operating at various socio-spatial levels, namely town, municipal, district, provincial, regional or national.2 The International Monetary Fund3 defines Foreign Direct Investment (FDI) as a category of investment that reflects the objectives of an investor in one economy or the direct investor obtaining a lasting interest in an enterprise resident in another economy or investing directly in an enterprise. Aftercare is the function that focuses on maximizing the length and positive externalities of that lasting interest.

The FDI Frontline Coalition4 adds in an interesting viewpoint when it describes aftercare as “an organizational mindset driven by an EDO leadership and supported by adequate resources. Subsidiaries of global companies want to grow in regions where state, regional, and local governments are positioned to respond to company needs and concerns”.

This definition alludes to the symbiosis that exists between the location and the foreign investor. The focus of aftercare is to develop structured programs with a view to ensuring the continued presence of foreign investors, growth and development in a way that is mutually beneficial to themselves and their host regions. It is not only about servicing the client and responding to their needs, but to jointly work to strengthen the local proposition and increase attractiveness.

1 2 3 4

Young and Hood (1994:46).

Fuller & Phelps (2004:785).

IMF (1995:86).

See website from FDI Frontline.

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Aftercare is a strategy used to obtain a higher return on investment from efforts from previous years that secured an internationally-mobile company committing to a particular territory. It is about building on sunk efforts to generate a second and third harvesting wave from the seed planted years ago. This concept is reinforced in the UNCTAD study, as it emphasizes that aftercare aims directly to foster follow-on investment and to enhance the development impact of this investment.

There are a number of terms used to refer to aftercare services, the most common being aftercare itself, but it is also known as business growth, retention services, expansion, development support services, foreign business customer care, investor services, reinvestment services and customer care, among others. In this module “aftercare” is used to refer to those many concepts.

I.2. FDI Expansion in Numbers According to the FDI Reinvestment Ranking 2017 (published by FDIMarkets), the top three sectors spurring expansion and co-location projects are Software / IT services, followed by Automotive Components and Industrial Machinery and Tools. The ranking looked at data from January 2006 to October 2016 that was captured by FDI intelligence—a data division of the Financial Times—during that period. The countries that secured the largest expansion numbers were China, India and the United States, followed by Mexico and the United Kingdom. The most bullish global companies leading expansion projects during the last decade were Nestle, Toyota, Volkswagen, Deutsche Post and Robert Bosh.

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Table 1. The FDI Reinvestment Ranking 2017

Box 1: Overview: Ten years of expansion Singapore, the South Asian city-state wins the accolade when it comes to attracting the highest number of expansion projects of all locations globally. Between January 2006 and October 2016 they secured 462 projects with an estimated investment of $29.7bn Expansion focus on a few sectors: * The chemicals sector (with 54 projects). * Software and IT (with 51). * Business services (with 42).

The main player in this sector was North American-based oil and gas giant ExxonMobil. They created more than 6,000 jobs during the period within seven different expansion phases.

London, the British capital retains and grows their investors and achieves the second ranking. Different to Singapore whose expansion is highly concentrated in a few players, London secured 356 projects from 326 different companies. This growth concentrated mainly in the digital sector (30%), followed by financial services (21.1%) and business services (19.9%). The main reasons cited are the digital cluster around the iconic Silicon Roundabout in the East of the capital. Some of the bigger projects include social media giant Facebook which has expanded already four times in London, IBM with three different expansion projects and Amazon, already in its second wave of investment.

Bangalore, India’s digital city, capital of Karnataka leads the ranking in terms of the number of jobs created from expansions. Almost two thirds of those jobs were related to R&D activities, echoing its reputation as an innovation center. In the last 5 years, Chinese digital conglomerate Huawei Technologies grew its local workforce to 7,000 in five years only and German manufacturer Bosch committed to $56m investment to grow its facilities with an addition of 3,000 new jobs.

Source: content based on report form FDI Reinvestment Ranking 2017 published by fDIMarkets

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I.3. To Aftercare or Not to Aftercare?

Despite the significant growth as a result of foreign investors, sometimes years after initially committing to a location, aftercare is an often-neglected area within a location’s FDI strategy. There are very few studies, only a handful of academic papers and almost no recent reports about the subject. It is no surprise that “aftercare” has often been seen as an “afterthought”.5 However there have been significant changes in the last decade. The work of international organizations such as The World Bank, The International Monetary Fund, various development banks, Think Tanks, academia and not least UNCTAD have brought the concept of aftercare to the forefront and most IPAs are now familiar with the importance of investor care. The increasing professionalization of the sector, paired with the role that big and small consultancies have played in the industry is noticeable. When looking at their service offer, most IPAs now state that taking care of the investor in the long run is part of their service proposition.

Aftercare is an easy sound-bite potential investors like to hear, and no reputable location would dare saying that they don’t take care of their investors. It is simply part of a location’s compelling proposition to investors. But has aftercare really made it out of the “afterthought” box?

According to the UNCTAD study, only 10% of IPA resources are allocated to aftercare.

However another insight from the same survey indicates that generating expansion of existing investment is given a relatively high priority compared with other IPA activities. Respondents estimate that, on average, 32% of FDI comes from reinvestment, which is only half of the real figures.

This disconnect between the importance given to aftercare in principle and the poor performance in practice is mirrored when interviewing many IPAs and enquiring about their actual aftercare activities and strategies. Despite aftercare services being provided, in reality it is still a background element of the overall IPA offer.

5

UNCTAD (2007).

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The portfolio of aftercare services offered is wide, ranging from non-existent or basic reactive aftercare provision to highly complex aftercare programs. Surprisingly there are many locations that do not allocate resources to aftercare at all (even when promoted as part of the offer), while others only monitor investment for statistics and reporting.

When prompted to explain this disparity between intention and actual delivery there is no one answer, however the most common explanation is budgetary constraints— they would like to help, but there are no funds.

Some IPAs—particularly those funded publicly—indicated that there is no market failure that needs to be addressed, so no need to assign valuable resources. Others mention that companies don’t need any help as they know best how to grow themselves. Yet others say that they provide aftercare as part of their day to day relationship with clients, but that they don’t report it as it is not included as a performance indicator. Some IPAs indicate that aftercare is not part of their immediate priorities or remit. A small group alludes to the difficulty in correlating the impact of aftercare as a driver of economic growth. Finally, some IPAs indicate that when a foreign company invests, they automatically become a local company and are therefore eligible for any business support services offered locally, rather than the tailored services provided by an IPA. The bottom line is that the concept and value add of aftercare is for most IPAs in its infancy and still has a long way to go before it is provided consistently and to a high standard.

I.4. The Case for Aftercare “Do not neglect existing investors or they will neglect you.”

Patrick Daly – Communique International, Ireland

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According to The World Bank, the flow of FDI reached a new high of $1.8 trillion international trade deals in 2016. This growth resulted in a significant increase in the volume, complexity and mobility of the FDI industry when compared with a decade ago. There are seven main reasons for this growth.

Firstly, the increased numbers of established foreign affiliates present increased servicing burdens for IPAs. However it also generates expanding opportunities to create follow-on investment and to foster a developmental impact.

Secondly, companies that seek to take leverage competitive advantages of a global positioning have tended to distribute value chains and to set up distinctive functions in different locations. This change allows them to access different offering provided by the different locations.

Thirdly, linked to the increased specialization of corporates, “foreign subsidiaries� tend to integrate into corporate systems, run as networks. The case is the same to companies run hierarchically or separately as foreign fiefdoms.

Highly sophisticated corporate structures have emerged to provide the flexibility required to adapt to these fast-changing market conditions. This results in less predictable, shorter investment cycles and more dynamic investor profiles.

The fourth reason is the rise of cross-border M&As, which present new challenges to maintain the profile of local affiliates, continuity of relationships and information flows that allow making informed decisions on the part of the investor, but also the host territory.

Political uncertainty at a macro level that reshapes the established power balance leaving investors out of their comfort zone, is the next driver for this FDI change. A polarized economic space which favors an apparent rise of protectionism on one side, and an increased commitment toward openness on the other, questions the existing understanding of competitiveness and attractiveness of locations, which results in foreign investors reassessing their past and future investments.

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The penultimate element is that technological advances and industry disruption are changing the very nature of value creation, with significant implications on how resources, capital and ideas are combined to produce goods and services. The fourth industrial revolution has deep implications in how and where services are provided, how value chains are designed and where jobs will be created or operations ceased.

Lastly, the values of sustainability, inclusivity and equality are gaining momentum in the business agenda with a recognizable shift at leadership level of what it means to do business. Whilst the return on investment is still the main currency, sustainability is redefining governance and decision-making, placing new demands both from the location to the investor and vice versa.

This resulting increased volume, complexity and mobility has major implications in how business leaders conduct foreign investment, the stability of any investment and the legacy and impact of such an investment. It also significantly defines location competitiveness, attractiveness and relevance. The sweet spot that results from combining these three dynamics is the raison-d’être of aftercare as can be seen in figure 1.

Figure 1. The landscape of aftercare

Source: Aftercare Explained, Arriagada Peters (2017)

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There are several arguments in favor of aftercare: the economic development argument, the business case argument and the governance imperative among others argument. They all reinforce each other and create a virtuous dynamic.

Figure 2. The case for aftercare

Source: Aftercare Explained, Arriagada Peters (2017)

I.4.1. The Business Case A longer term investment will necessarily result in the investor gaining knowledge of the local economy and relationships with the local public sector. Promotional agencies can build on that social and intellectual capital. From that perspective, foreign investors can be seen as a type of “captive audience�.

Common business sense tells us that the easiest sale is to an existing customer.

Moreover, there are cost benefits of doing so. Selling to an existing client is five times cheaper than acquiring a new client, and is therefore a compelling argument in favor of aftercare.

Existing foreign businesses have already proven their adaptability to the local conditions.6 They provide increased job security when compared to an equivalent job created by a new investor. The existing investor is simply better equipped and more

6

Manasoe and Mears (2011).

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likely to outperform the newcomer. As such, devoting resources to aftercare is an effective deployment of an IPA and, ultimately, public resources.

Another reason why aftercare is business-wise is that it leverages resources from existing networks at the point of delivery. Staff from local subsidiaries become defacto location ambassadors and fly the flag for the location, without the need to pay them a salary. The same is true for stakeholders who join in to help deliver aftercare services for the location. A typical example of this is the work undertaken by academics when it comes to providing Research & Delivery (R&D) overviews. Again, a clever way of using third-party resources to secure further expansion from existing clients.

“Aftercare is a no-brainer. Why lose what you worked so hard to secure in the first place?” (Copenhagen)

I.4.2. The Economic Development Case Economic development studies outline the economic impact of the existing businesses on the host or local economy7. Foreign businesses not only tend to reinvest in their host country, they also contribute to significant spill-over in other areas of economic development such as skills, community, inclusion and innovation.

These companies benefit from and contribute to positive externalities of the agglomeration effect, which in itself increases attractiveness. There is also a beneficial nudge to capacity building of the local IPA. Invest in Madrid describes this clearly when stating that “we also invest in aftercare to learn about international investment practices and to identify business barriers and policy suggestions that need to be overcome/implemented to improve the business climate at a regional and national level”. These many angles result in increased competitiveness of the host country.

7

Idem.

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Interestingly, studies undertaken by players further afield such as The Global Cities Initiative arrive at the same conclusion. Understanding the increasing importance of cities and their capacity to generate economic growth, both North American Think Tank Brookings Institute and JPMorgan Chase have developed extensive programs to help cities improve their global presence. In their report published in 2016 “The 10 lessons from global trade and investment planning in US metro areas” they indicate that “the most important firms are the ones you already have. The foundation of a strong global effort is, paradoxically, an even more intense focus on local Business Retention and Expansion (BRE). Successful global trade and investment initiatives, first and foremost, require IPAs to become experts on their own economies and firms. This expertise is acquired largely through a robust regional aftercare program, which is anchored by ongoing engagement with targeted local firms and industry clusters.”8 “The top economic development priority should be to work with existing companies to help them get bigger.” Technology firm, Syracuse

I.4.3. The Governance Case The last decade has seen an increased awareness of the importance of adequate governance, both in business and in the public sector. There are at least three core values that are relevant in aftercare. They are accountability, transparency and trust.

A strong aftercare value proposition can showcase a concerted effort in retaining investment and jobs in the location. At the same time it sends a strong signal to prospective investors that the location is serious about its commitment toward them and that support will not stop the day they cut the ribbon. It is also a way to manage any risk associated with de-investment and minimize reputational damage for the location and the IPA. From that point of view, aftercare provides accountability into

8

“The 10 lessons from global trade and investment planning in U.S. metro areas” Brookings Institute & JP Morgan Chase (2016).

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the activities of the IPA. The IPA can use this tool to raise its profile and authority in front of their funders and stakeholders.

Transparency is another driver. Aftercare programs can dilute opaqueness in the use of funds, both private and public. This element acquires even stronger relevance when there is taxpayers’ money or international funds involved. A well-designed aftercare program with robust impact measurements will provide confidence in the professionalism of the location.

And last, but not least is trust. Aftercare programs are important tools with which to verify the impact of investments, grants and incentives given to both investors and IPAs. Many funders include it in their funding terms, the need for regular reporting and an audit trail as evidence of how funds have been allocated and the impact achieved.

Interestingly, the 2017 Edelman Trust Barometer9 reveals that trust in business, government and not-for profits has declined broadly, a phenomenon not reported since Edelman began tracking trust among this segment in 2012. FDI as an industry is positioned at the interface of these three types of institutions and is therefore affected by the same trend. In a time when trust is in crisis, governance becomes even more important.

I.5. How Aftercare Can Affect Reinvestment Aftercare has an important role in catapulting reinvestment. In essence it creates a virtuous cycles as can be seen in Figure 3. It aims to support company growth and influence the decision-making process at the c-suite level of the foreign investor. It does so with a refined portfolio of structured services that focuses on removing obstacles to growth, linking the company to networks and supply chains, providing access to talent pools and identifying location-wide collaboration opportunities. The

9

2017 Edelman Trust Barometer.

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goal is to make the investor feel welcome and support pain-free growth in the host country.

Secondly, aftercare aims to improve the business climate by channeling challenges and concerns from the investors to the relevant regulators, or by involving the private sector in public consultations. It works closely with regulators to generate the best business environment and it works closely with the private sector to understand needs and business trends. This work is framed by the political and business agendas of the host country, as well as the regulatory frameworks of international trade agreements. This work is achieved through policy advocacy.

Figure 3. The link between aftercare & reinvestment

Source: Aftercare Explained, Arriagada Peters (2017)

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I.6. Types of Aftercare Services Aftercare services can broadly be categorized into three core services as seen in figure 4. These are administrative, operational and strategic, with the latter containing two subcategories: informational and general supply-side services:10 Administrative services enable operations and include: n Obtaining permits and permissions to operate or expand. n Obtaining work permits for foreign nationals or spouses. n Help in finding homes for transferred staff or schools for their children. n Introductions to service providers such as banking, legal and accounting

services, or property agents/brokers n Support with relocation.

Operational services support the effective and efficient operation of transnational corporations and include: n Support for training. n Help with export promotion. n Obtaining larger premises for expansions. n Identifying local suppliers. n Helping an established company build a business case to present to the

parent firm for new investment into the host region. n Developing cluster organizations or other networks to improve productivity

and competitiveness.

Strategic services are investment aftercare services that have an impact on the future direction of the firm, the development of new capabilities and the corporate development path of the host region.

Strategic services can be divided into two subcategories. The first is informational services geared toward the investor as well as funders and government and 10

UNCTAD (2007:14).

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stakeholders. The second is supply-side services which support the development of both indigenous and foreign companies within a region. These services are aimed at ensuring that the multinational stays in the region and continues to grow and expand there, as well as upgrade their operations to higher levels of added value. Examples of strategic services include: n Encouraging and supporting the development of new, upgraded, higher

value added products and services of strategic value to the firm’s network. n Nurturing local suppliers to reach international standards. n Linking the senior managers and directors of the company into high-level

and national policy and influencing networks. n Policy advocacy activities.

The recommendation is to carefully consider these categories when establishing or operating an aftercare program. The choice they make will define the service portfolio, whether it is going to focus on one or a few parts of the service package, or if it is going to develop a fully-inclusive and integrated aftercare service. This is a key decision, as it will have organizational and resource implications and influence the mix of organizations it will collaborate with, both in developing objectives and in organizing delivery.

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Figure 4. Aftercare service by type of service and timeframe

Source Table: UNCTAD (2007) p. 16

I.7. Types of Aftercare Programs Back in 1994, Young & Hood distinguished four models of an investment aftercare program, which are still valid today, more than 20 years later. These models are the integrated model, the aftercare team model, the project-based model, and the company-friend model. They correspond to the following descriptions: The company-friend model is applied or offered in the first years of operation. In this model, existing businesses are offered informational plus limited operational assistance. There is some help for the foreign affiliate to build their networks of contacts in the period up to and after start-up, but little else might be achieved. It is also regarded as the minimalist approach to aftercare.

The project-based model represents an attempt to direct resources to key or specific elements of aftercare programs rather than the entire span of aftercare activities.

Areas of initiatives are office relocation and supplier development, where the aim is 26

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to build up the supplier base as a means of increasing the multiplier effects of FDI. It is also used for human resources development, where, for example, training programs might be initiated to assist the staff requirements of a number of foreign investors in a particular industry. In cases such as this, the trend is to focus on delivering the service in respond to a very precise demand. Resources tend to be reactive, allocated only to deal with the specific request.

The aftercare team model tends to offer a wide range of optional services, which will be designed as and when needed. Whilst in the one hand they will cater for different needs, they might, on the other side, lack structure and replicability.

The IPA essentially assigns a team to the function and staff deal with client requests as they come in, assigning resources as needed. Response capacity will vary significantly depending on the seniority and influence of the team assigned.

The integrated model is the most ambitious and costly, and envisages aftercare as part of a comprehensive regional economic development plan. This type of service works well in more complex environments, where there is a need for a highly structured and well-resourced service capacity. They tend to be aligned with locationwide and/or national-wide political and economic priorities and objectives. This model also recognizes the need to include indigenous companies11.

I.8. What Defines Success in Aftercare?

Measuring success in aftercare is usually based on a combination of deliverables focusing on impact, activities and innovation, which result in a stronger brand for the location as well as increased reputation for the organization. The most common performance evaluation will be given by the foreign investor on one side, and by funders on the other. Public funds will most likely be released in exchange for jobs and economic growth. Other Key Performance Indicators (KPIs) might include

11

Young & Hood (1994:61).

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supporting the political agenda of the local government or a flow of business opportunities to the private sector.

Stakeholder evaluation also needs to be considered as they will have their own measurements/indicators of the value of the services provided and their capacity to help growth and improve the ecosystem. This can be a delicate point for the IPA, as there is sometimes a disconnection between expectations and scope. As such, much of the work of an IPA focusses on setting the context and managing these varied expectations of the foreign investors, funders and other stakeholders. The balance of these different demands is summarized in figure 5.

Figure 5. Success in aftercare

Source: Aftercare Explained, Arriagada Peters (2017)

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It is no surprise therefore that the definition of what success looks like is one that only can be defined locally by each IPA. For example, Invest in Madrid states: “Our expectations are both to facilitate the growth of our aftercare clients and the attraction of new business lines to the region, as well as to learn about international investment practices and identify business barriers and policy suggestions that need to be overcome/implemented to improve the business climate at a regional and national level.�

Evaluation and monitoring helps improve future programs and provides valuable insights for policy advocacy, a topic that will be covered more in detail in unit 3.

I.9. Impact Measurement of Aftercare Box 2. Primary objective of evaluation The primary objective of evaluation is to learn from experience, leading ultimately to improved performance and returns on public and private funds invested. Evaluation achieves this through two basic mechanisms: (a) Accountability: looking backward, evaluation helps to explain to stakeholders what has been achieved by a program and the use made of public funds (b) Improving future programs: looking forward, evaluation helps ensure that lessons from the past are learnt and used to improve existing and future programs.

Source: UNCTAD (2008)

A solid impact measurement and evaluation program not only meets or exceeds funders’ expectations, it also supports governance and provides credibility and capacity building for the IPA and the territory. A best practice in this type of evaluation is to agree from the very beginning, what aspects of the program will be formally evaluated against and the criteria that will be applied.

As with many surveys and research methodologies, IPAs recognize that customer responsiveness can, in some cases, be a challenge. There are instances when front line sales teams report difficulties in securing written feedback from the client, despite successful service delivery. This becomes particularly problematic when the IPA becomes limited in its ability to demonstrate impact, due to lack of evidence.

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Some IPAs have adopted the practice of explaining to the client at the outset that they are obliged to complete a survey at the end of the project, in order to be able to provide services.

In terms of accountability of use of public funds, the most common KPIs are: n The number of jobs created by aftercare. n The number of jobs safeguarded by aftercare (a job that was under threat). n The number of expansion projects completed. n The number of new projects identified. n The number of follow-up or repeat visits. n The change in stage of value chain of successful projects. n The number of high value initiatives. n The number of column inches or PR (AVE) value. n The number of client requests successfully serviced.

Whilst some of the above are numeric figures which are straightforward to monitor, others include an element of subjectivity. The latter is an area of debate when it comes to assessing the scope by which influence and responsibility is claimed by an IPA. One IPA that has gone a long way in creating a solid evaluation methodology is London & Partners, the promotional agency for the British capital. As part of their transparency efforts, they published a paper outlining their methodology. The following box covers the main points of their report “London & Partners Evaluation Methodology Study�.

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Box 3. London & Partners’ Evaluation Methodology “A core aim within evaluation of publicly funded programs and organizations is to determine the value for money and the additionality of intervention”. To establish the model, they undertook extensive consultation with the various stakeholders including HM Treasury, the Department for Business, Innovation and Skills and the Department for International Trade. They then aligned these methodologies (when applicable) to national best practice in evaluation. They also undertook a number of round table sessions with national counterparts with the explicit aim of sharing approaches. Some of the approaches subsequently developed are entirely new (where no established methodologies existed) and have been recognized by national agencies and central government as best practice. The dialogue with national counterparts is ongoing.

Rationale for intervention: London & Partners’ intervention is justified based on the following market failures: • Information failure: firms expanding overseas require information on market opportunities, i.e. access to customers; the business environment; and the availability of talent. Arguably, information asymmetries and lack of complete information are often barriers preventing investments.

• Positive externalities: High-quality FDIs benefit local economies via knowledge spillovers to local firms. The acquisition of knowledge tends to increase local productivity and improve local economic outputs. It is in the public interest to ensure that investments from high-quality foreign businesses are sustained and promoted.

London & Partners measures economic impacts in terms of additional economic activity in growth value add (GVA), job creation, and inward capital expenditure based entirely on authenticated feedback from its client base. The estimate of GVA depends on the number of jobs generated by an FDI business and the sector in which the FDI operates. GVA is, in simplistic terms, the sum of the cost of employment and business profits and this tends to vary widely across sectors.

The organization has traditionally claimed GVA for “contestable projects” only. These are foreignowned companies considering other locations in the UK or globally as well as London for a new operation or for an expansion. The argument for this is that impacts will be maximized by focusing on potential investments where London & Partners can play a more important role to influence the investor’s decision and therefore the additionality is expected to be higher. They recently introduced a GVA for “non-contestable projects” when the organization still plays a role in influencing the timing and scale or in removing substantial obstacles to growth.

The following factors drive the estimation of the GVA impact from London & Partners’ FDI promotional activity: • The scale of the project in terms of number of jobs expected in the first three years of business operations.

• The sector of the project (which will determine the selection of the job value as provided by the Office of National Statistics).

• The persistence of the jobs created which are likely to generate a stream of future economic benefits.

• The estimated scale of displacement of existing London jobs by the inward investor.

• The estimated additionality of London & Partners’ activities in terms of their influence on the number, scale and timing of the investment or growth project.

• Over-optimism adjustment, based on extensive evidence that the number of jobs effectively generated in the first three years of an FDI operation tend to be lower than the forecasts provided by the businesses when arriving in London.

In ballpark numbers, this formula will result in a figure similar to a quarter of the value of a 1 job.

Source: extract from report Smith, Brian and Conti, Elisa (2014) “London & Partners Evaluation Methodology study”, Working Paper 61, GLA Economics, downloadable from the website of London and Partners

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SYNTHESIS OF THE UNIT §

FDI has reached new heights with a $1.8 trillion investment in 2016. The industry is not only affected by volume but also by complexity and mobility. This industry context, paired with business and location context defines the landscape of aftercare.

§

There

are

sound

business,

economic

development

and

governance cases in favor of a compelling aftercare service. §

There are three main types of aftercare services: administrative, operational and strategic, the latter with two subcategories such as informational and general supply-side services.

§

There are four types of aftercare program: integrated model, the aftercare model, the project-based model and the company-friend model.

§

A well-designed aftercare program can affect reinvestment by removing obstacles, informing decision-making and convening the ecosystem.

§

The success of an aftercare program is defined by satisfied foreign investors, jobs and economic growth delivered, pleased funders, positive evaluation from stakeholders, improved ecosystem, stronger location and institutional brand.

§

The key drivers for impact measurement are accountability and improvement of future programs.

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UNIT II AFTERCARE IN PRACTICE

Learning Objectives n Understand what foreign investors want. n Learn how to encourage future reinvestment. n Develop a reinvestment plan step by step. n Understand sector and customized-based aftercare services. n Identify the links between value chains and aftercare. n Demonstrate an understanding of different aftercare initiatives.

II.1. What Does the Client Want?

The FDI Reinvestment Ranking 2017 published by FDIMarkets provides insight into what drives investors to keep coming back to a specific location for more, and to pour additional resources in locations where they are already established. Based on their study, one in four clients indicated the growth potential of the location is the number one driver behind their decision. A second important factor is availability of skilled workforce (18.5%). The third one is proximity to clients, reaching 13,5%12 In their report about lessons from global trade and investment published by the Brooking Institute, McDearman, Donahue (2015) add that foreign investors expect a 12

FDI Reinvestment Ranking 2017.

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certain quality of services and responsiveness: “practitioners must be prepared to respond to needs more like businesspeople and not bureaucrats.”13 Firms want to talk business, not politics.

So, how can IPAs deliver against those expectations so that the client decides to reinvest?

II.2. Encouraging Reinvestment “Aftercare professionals are on a mission to support, equip and empower foreign investors to tap into growth opportunities the location can offer. By doing so, they encourage the investor to reinvest”.14 The following example, adapted from the Brooking report (2016) captures the client voice: “Our biggest competitor is not another company or low-cost production in the Far East. For us, the competition comes from other locations where our company is already based and has similar manufacturing capabilities than we have. The question is who is going to get the largest portion of production assigned, this plant or another plant somewhere else. We have to fight for our share of our own company’s production and bring this capacity production home. IPAs can provide us with arguments and facts that we can take to HQ.”15 Copenhagen Capacity provides a good example of how they put themselves in the shoes of the local CEOs and accompany them step by step in their growth and decision-making processes.

They first provide support to particular areas of the business.

“Are you seeking improvements in your logistics processes and sustainable supply chain activities, so as to create growth, become more competitive and build a profitable supply chain? Copenhagen Capacity and Invest in Denmark can help support your supply chain agenda”.

13

The Brooking Institute, McDearman, Donahue (2015).

Arriagada Peters (2017).

15 Brookings report.

14

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They then move to services that equip the leader to put the case for Denmark forward.

“We can provide data for you to objectively compare Denmark/Copenhagen with up to 300 global locations in parameters including salary and office rents, as well as qualitative factors. Identification of technological know-how, research and scientific output in Denmark for the R&D project.”

It can be followed by a comparison study to highlight cost competitiveness and suggests regional consolidation.

“Your Scandinavian operations have grown to a size at which consolidation of your management team or business functions i.e. finance, HR, IT or customer support can benefit from centralizing your activities to support your overall Scandinavian or international business strategy.

Establishing a shared services center in Denmark will bring you highly skilled employees, the largest pool of Scandinavian language speakers, the most flexible working hours and an unsurpassed labor market flexibility which allows your company to scale up and down to meet the actual needs.”

Or they can outline the value proposition to attract R&D. “We can help you tap into a world-leading knowledge hub with universities, science parks and knowledge institutions.

Enjoy the benefits of extensive government-backed R&D initiatives in a close interplay with researchers and research institutions through co-development projects, funding and PhD schemes. Benefit from the strong competences within life sciences, cleantech, ICT, maritime and design.”

The final step is to empower the local CEO and decision-makers in the headquarters to manage the usual due diligence that is characteristic of a reinvestment decision.

“Take the initiative—a smart move. Regionalization strategies typically originate from company headquarters. If the issue of regionalization has not yet arisen, you can be reasonably sure that it will at some point. Seizing the initiative and bringing the idea of regionalization to the table—before your HQ does—is a smart management move.

We can help you with the initiation of a business meeting at your company headquarters to discuss key investment issues concerning your Danish operation and the advantages of Denmark, with the participation of government officials and other political stakeholders.”

The following client testimonials taken from the respective IPA’s websites speak for themselves.

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Example: Growth by increased efficiency & reduced costs Box 4. AGFA client testimonial “The result of initiating the regionalization process and bringing the services to Denmark was reflected in the bottom-line results. The reason for concentrating activities in Copenhagen was to reduce costs and make Afga more competitive. We have succeeded in both counts and HR reduces costs by 60%, administrative personnel have been reduced by 70% and management cost by 40%.”

Example: Growth by tapping into talent Box 5. Pramerica client testimonial Pramerica has grown steadily in the last 15 years, since it decided—as a startup, to invest in Ireland. Today it has 1300+ employees and has had at least 3 different phases of strategic expansion, beyond the organic growth of the company. One of the factors of growth is talent.

“We are proud of the partnership with educational institutions, particularly 3rd level institute to access talent and the various universities. And attracting talent happens in two ways. Of course we hire locally, but we have also many professionals attracted back to the region, people who had connection to the North West and were looking for opportunities to return to Ireland.

Pramerica is a global company based in a rural location able to support work-life balance of our employees and at the same time offer them huge career opportunities”.

Example: Growth by tapping into customer networks Box 6. TransferWise client testimonial “Transferwise is a peer-to-peer service that lets people transfer money internationally at a low rate over its online platform. It was founded in Estonia in 2011 to offer an international transfer service without any ‘hidden’ banking fees. Being headquartered in London has helped the company to grow a significant customer base tapping into London’s more than 270 different nationalities. London’s diversity has helped TransferWise flourish and achieve vital scale: ‘Our success in the UK has shown that it really helps to be close to the customer. I think that’s one of the things that many internet businesses are starting to realize. Although theoretically it can all be done online, you have to really know your customer.’ Four years since launching in London, TransferWise continues to grow steadily at a rate of 16-20 per cent a month. Additionally, more than £3bn has been transferred through the platform.”

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II.3. Developing a Reinvestment Plan Step by Step Aftercare—if done properly—requires well-designed plans that include the key steps for setting up and managing the program. “In essence, these correspond to what is to be expected from any professional program: know the market, know the customer; identify and target the most desirable segments; design and deliver services that meet customer needs; and monitor, evaluate and adjust the service as required”.16 Figure 6 presents a simplified version of aftercare services.

The practice of aftercare will reveal that these steps are not independent of each other and that they significantly influence each other.

The British Department of Trade & Industry has a sophisticated account management strategy focused on their “Global Accounts”. These are large foreign corporates with a presence throughout the country, who have made significant investments and are responsible for thousands of jobs. There is a dedicated inter-ministerial team working alongside the c-suite executives of the foreign company, coordinating the various interactions the client has at all government levels. From taxes to permits, from local council to ministerial liaison, the objective is to provide a 360° comprehensive service throughout the whole governmental network. This program allocates a small portfolio of 5 to 10 companies to each Minister or Secretary of State (determined by either sector or political agenda). The corresponding authority will be responsible for aftercare services for their investor company UK-wide, have regular dialogue and serve as a conduit for engagement at the highest levels. Insights from these interactions feed directly into improving business climate and policy advocacy. The work not only includes dialogue in the UK, but it also incorporates the assistance of the network of embassies around the world, to make sure there is engagement in home market of the foreign investor.

16

UNCTAD (2007).

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These programs are costly, but the logic is clear. There is a strategy, regular contact, a careful segmentation of companies, a staged delivery of services and constant dialogue.

Figure 6. Aftercare services step by step

Source: Aftercare Explained, Arriagada Peters (2017)

II.3.1. Know Your Market To operate a successful investor program, practitioners “must know their local economies, industry clusters, and available services better than anyone else, and add value by translating”17 it to foreign investors.

Aftercare has its roots in understanding local opportunities and identifying areas the foreign investor could tap into. Maintaining in-depth firm and cluster knowledge is key to “speak business and not politics” and is a way to secure the client’s attention.

IPAs who are experts in their local ecosystems are seen as relevant partners that provide insight, opportunities and connections no other player can. This local knowledge is highly valued by the foreign company and constitutes the basis from which to develop strong relationships.

17

The Brooking Institute, McDearman, Donahue (2015).

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Much of the market knowledge will have been collected by colleagues in the new investment teams and it is likely that aftercare professionals have access to plenty of reports, data, insight and connections to build on. The need is to tell the story of the location brilliantly and to do that, aftercare professionals need to be able to highlight success stories, relevant figures and insights that reflect the growth opportunities the investor is after.

Practical tips about how to understand your market n Map “who’s who” in your location and understand their operations. n Identify and engage with local firms that could become partners, suppliers

or clients of the foreign investor. n Go out and meet people in sector clusters. n Meet professors, academia and R&D centers. n Network with talent pools, such as sector associations and university alumni

networks. n Be familiar with your start-up and innovation scene.

II.3.2. Know Your Customer Foreign investors fall into a number of categories. On one side are those who favor working with Development Agencies and request their services before landing. These clients will be familiar to the IPA and the aftercare team will benefit from existing relationships. On the other side are those who work quietly and find their way alone or are advised by expansion consultants about the next big move. As a result, the work of knowing the customer is an ongoing one and requires aftercare professionals to keep on their toes.

Practical tips on how to get to know your customer n Create a database of foreign investors. If that data is not available, IPAs can

a) buy databases from FDI consultants, b) reach out to foreign embassies or consulates as they will know the company stock from their home market

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operating there, c) review local trade statistics d) follow the press and monitor new arrivals. n Analyze the data collected. Is there a typical investor profile? Are there any

patterns or trends regarding size, sector or type of corporate structure? n Speak to colleagues in the new investment team who will be able to provide

valuable insight about existing investors. n Read articles about multinationals and their growth plans. n Reach out to professional services such as lawyers, accountants and

bankers who might have foreign investors in their books. n Define how you can work with expansion consultants as they will have a

strong influence on your customer.

II.3.3. Identify Key Segments A typical dilemma of aftercare is segmentation. This is closely linked to the value the company brings. How value is defined and measured will vary from country to country and therefore it is important to develop some local criteria that match the local context. Some factors to consider are: n Company sector and their alignment with the organization’s sector strategy. n Company size (measured in turnover or local presence). n Potential number of jobs of the reinvestment. n Potential value of the reinvestment. n Expansion track record of the company (either locally or in other locations).

This analysis can be as simple or complex as the IPA deems necessary. Some locations devote significant intelligence to segmentation, analyzing data and statistics, seeking input from the sales teams, the sector specialists, strategic account, media, alignment with political agenda and stakeholders, etc. Others simply select the top three companies they believe they will commit an expansion project in their location.

A survey undertaken by the UNCTAD (2007) found that 60% of agencies who actually provide aftercare services do so to their complete client base. The remaining 40% will 40

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work with a selected subsector. The key here is to stress that the selection has to be aligned with local political drivers and growth policies.

Practical tips on how to identify key segments n Align the segmentation strategy with your funder’s guidelines. n Focus on targets that can provide a good return on investment of IPAs

resources. n Choose high growth sectors. n Select recognizable brands that can help marketing efforts. n Prioritize those companies where you can secure a senior contact and

access n Use your supply chain knowledge to identify industries that offer growth

opportunities to foreign investors. n Use gut instinct for where the next reinvestment might come from.

II.3.4. Design Services Irrespective of whether the aftercare program delivers administrative, operational or strategic services, the resources allocated or the sector, a careful design of the services is needed in order to align agendas, focus efforts and maximize return on investment of time, connections and resources.

An investor service program is no different from any other sales plan and will address the three basic questions of why, what and how. Whilst describing in detail the various building blocks is out of scope of this module, there are five areas that require a few comments:

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Market Insight This is the starting point for all journeys. As previously mentioned IPAs need to know what they have locally and what they can offer. It is good practice to conduct a SWOT18 analysis; which will outline a service narrative that builds on local strengths and opportunities.

Markets change, new opportunities arise or offers are withdrawn. Aftercare professionals need to keep abreast of market insight. This is an ongoing task and aftercare teams are advised to use their time wisely. One way of doing this is engage with the ecosystem. “Ecosystem Affairs is an emerging space of concerted efforts to understand, navigate and intervene ecosystems, tapping into many and different communities, clusters and networks at any one time. It is an effective method to deal with fragmented, dynamic and complex knowledge systems, where communication channels, structures and players are constantly evolving.”19 Developing skills in Ecosystem Affairs will be useful in several stages of aftercare services. For example, to identify market opportunities to take to the client such as upcoming tenders; responding to a gap in the aftercare value chain by reaching out to players not actively involved or creating city-wide activities that create a sense of belonging.

Value Proposition This is the currency the IPA takes to the client to buy his time and engagement. No value add to the client means no relevance and therefore a poor use of the client’s time.

The value proposition is the IPAs answer to a simple question the client will ask: “What can they do for me?”

18 19

SWOT is an acronym for Strengths, Weaknesses, Opportunities & Threats.

Arriagada Peters (2017).

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Box 7. Value proposition from Invest in Holland The Investor Relations Program aims to make it easier for businesses to grow and thrive in the Netherlands. Here’s what we can do: 1. Provide information, advice and support: The Investor Relations program is here to help your company find the talent with the skills you need for your operations. We make sure any international employees have a soft landing in the Netherlands, by assisting with visas and work permits, providing cross-cultural advice and linking to international schools. The Investor Relations program also helps execute new investment and development projects; find and apply for subsidies; and assist expanding companies in many other ways. If you have any questions, our door is always open.

2. Connect you to relevant partners: The Investor Relations program can also introduce you to Dutch government organizations at the national, regional and local levels and bring you into contact with commercial service providers, such as consultants, agents and lawyers, and a wide variety of regional, national and international networks that are relevant to your company.

3. Jumpstart your network: With the Investor Relations program, you can gain access to dozens of national and regional events organized each year, ranging from seminars and conferences to network dinners, roundtable sessions and individual update meetings with representatives from the Dutch government. We’ll even help you make individual arrangements for tailor-made support and advice.

4. Introduce you to public-private partnerships: Our Investor Relations Program is also equipped to provide guidance on the network of public-private partnerships that abound in the Netherlands. For example, we can provide insight into R&D incentives and direction on partnerships to maximize incentives. We also help link education, government and business for assistance in everything from pooling talent to addressing the need for technical skills.

5. Support business development: The Investor Relations Program can also be a valuable partner in helping you support your business case for expansion of international activities in the Netherlands. We provide tools and input for cost and location benchmarking, help recruit talent and promote your company’s presence in the Netherlands to increase company recognition and brand awareness.

6. Put your feedback in the right hands: The Investor Relations program serves as a channel through which you can share your views and experiences concerning the investment climate in the Netherlands with the Dutch government. We collect your feedback, submit it to relevant government departments and use it as input for future decision-making.

Source: website from Invest in Holland in section “Investor Relations”

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Resources There are a few basic elements that will be available in the toolkit of any good aftercare professional. Some of the most commonly used tools for aftercare include: n Marketing material that tells brilliant stories about local assets and how to

add value. Infographics about the local market are useful. n CRM system to organize data about the client and client engagement. n Forms & templates including: n Introduction template. This can be sent by the Local Authority

introducing IPA services to the local CEO of the foreign investor or to the HQ in the foreign country. n Client engagement template that sets out the terms of the

relationship. n Confirmation of Investment Form (also referred to as a Completion

Form). n Service Evaluation Form.

Equipped with these resources, aftercare professionals are ready to knock on the doors of foreign companies and unlock new expansions and aftercare jobs.

Questions for Foreign Investors Experienced professionals in the aftercare industry will say that finding new expansion opportunities is more of an art than a science. They equip themselves with “killer� questions to identify where the next expansion might come from. Some of those questions include: n Are you challenged/threatened by your HQ regarding staying in this

location? n Is your company considering regionalizing or centralizing regional activities

to reduce cost?

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n Are you considering expanding your local activities and bringing new

business lines such as shared services, R&D, sourcing offices, etc.? n Is there a possibility your company can attract more jobs? n Is there consolidation taking place in the company, can we grab some part

of it? n Does your supply chain work? n What are the growth inhibitors? n Where do you see your company in five years? How can we help you achieve

that?

Teams The difference between poor, good and great service is the human touch. An industry where relationships are the key to success, staff involved in servicing clients will embody the IPA’s service capabilities. There is industry-wide consensus that the most appropriate model is the account management one, as it provides the best option to deliver aftercare service. A motivated, empowered and resourceful team is a necessity no IPA that is serious about aftercare can do without. This won’t be achieved by chance but requires careful recruitment, training and career development paths.

The aftercare team will most likely manage three different set of demands, as shown in figure 8. They will lead engagement with the client, gather information about future investment opportunities and establish where and how the IPA can add value.

They will engage in ecosystem affairs and will scan the market for insights, opportunities and connections. These insights will turn them into the location experts foreign investors will go after. Once a support need is identified, they will create bespoke services, curating solutions, connections and information flow that addresses exactly what the investor requires.

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Figure 7. Scope of the role of the aftercare professional

Source: Aftercare Explained, Arriagada Peters (2017)

Practical tips on how to design services n Recruit people with sector knowledge and who are at ease engaging at c-

suite level. n Invest in people. It will make a huge difference in service provision. n Start with what the client needs, not what you want to offer. n Be practical. The design will only be as good as what your location can

deliver. n Work with existing resources. You will probably never have enough hands

to do it all. n Regularly review your service portfolio with existing foreign investors who

will be able to provide valuable feedback.

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II.3.5. Delivery Once the IPA has established credibility with the investor and has gained their confidence and been provided with information about their future needs, it is delivery time. The range of requests is as varied as the nature of the investor, sometimes solving practical problems, other times engaging in key strategic issues.

The point is to add value, win trust and strengthen the relationship.

Delivery of aftercare services is an ongoing process, with no precise timeline. It is rare that expansions and reinvestments happen overnight. The same applies to trust in relationships. Both sides need to get to know each other to unlock the full value each side can bring to the table. This requires time, engagement and a medium- to longerterm focus. The secret is to keep the conversation open, to lean in, to be present and gather insight for when the right time comes. A varied activity plan can help in keeping the contact afresh. Events—either organized internally or by a third-party— are usually a good playground for aftercare professionals to informally touch base with foreign investors and find out how the investor is doing and whether there is any need for aftercare services.

One of the areas where aftercare for foreign investors differs significantly from conventional commercial customer care is the dependency of the delivery model. An IPA will need the support and input from partners and collaborators in order to be able to provide services. They do not have any formal control or authority over them and will rely on relationships, good will and bandwidth from counterparts to be able to provide both the service and the quality of service the foreign investor requires.

Despite these constraints, there is a trend toward working with partners, favor cooperation and collaboration as a way to share resources and leverage insight, opportunities and connections needed for an effective account management.

However while coordinating work with partner organizations is key to avoid overlaps, inefficiency or annoying the investor, it can become cumbersome for the investor

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and the partners to deal with so many organizations. This is an area to carefully assess case by case.

Practical tips on how to deliver aftercare services: n Engage with your clients. Delivery of services is about relevance and time. n Respond fast. Businesses don’t wait and your investor won’t either. n Shout about your successes, publish case studies, reach out to the press and

celebrate reinvestments. It will help to tell the story of your location.

II.3.6. Evaluate & Monitor The importance of evaluation and monitoring cannot be overlooked in any investor services programs. With aftercare reinvestment plans being customer-led there is a constant need to adapt to an evolving market.

Some of the most well-established evaluation and monitoring tools include: 1. Written confirmation by the client confirming the number of jobs created, sometimes called a completion form or jobs certificate.

2. Validation of these numbers by a third-party, usually a consultancy, the controlling team of the funders, academic institutions or Think Tanks specifically appointed for this purpose.

3. An annual or biannual evaluation survey to assess not only the quality of service provided but also problem areas, new trends in the market, etc. The feedback provided by participants can be instrumental when evaluating services and how these are delivered, as well as impact and performance from the IPA. 4. An investment climate study, where c-suite executives are invited to provide their views on the investment climate, ease of doing business, competitiveness and locations attractiveness. This can be done via structured interviews or by informal information gathering that is adequately channeled.

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5. Alongside the growth of social media, new tools are emerging that “listen” to social sentiments of foreign investors and analyze their views regarding particular locations or territories.

Practical tips on evaluation & monitoring n There is no better evaluation and monitoring tool than a constant dialogue. n Online tools and short surveys are easy to use both for client feedback and

data analysis. n Adequate channeling of feedback is key to increasing competitiveness.

II.4. Sectors as Platforms “Foreign investment is more beneficial for a company when it takes root in a cluster, as spillovers of information and business practices diffuse quickly through tight-knit networks of firms and workers. And since the benefits of clusters are inseparable from place, companies that invest in locations with strong clusters are more likely to stay or expand. The most promising locations recognize the value of these specializations and double down on them, focusing on turning their strongest clusters and international relationships into platforms that companies can use to distinguish themselves and form valuable partnerships.”20 Sector specializations are deeply intertwined with expansion in two ways. Firstly, there is the need of the investor to tap into sector knowledge. Doing so is resourceintensive and there is an asymmetry of information that hinders the foreign investors.

IPAs play an important role in bridging the gap.

Secondly, there is the investor’s desire to have a place in the cluster. Doing so is healthy for their business. Many foreign investors play an active part in supporting the local ecosystem. This spillover is highly valuable for a location and is seen by some DAs as equally important to the creation of new jobs.

20

(Brookings, 2017)

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Global companies want to build relationships with customers, community leaders, suppliers and Think Tanks and academia. The trick here is to connect the investor with the relevant sector players who can help them to grow, but also that the investor can help grow. Networks work back and forth and this is no different in aftercare. IPAs can encourage these relationships and play a broker role by: n Facilitating networking opportunities between ecosystem players. n Creating peer-to-peer connections, where IPAs connect companies going

through similar phases of growth for them to exchange best practice. n Introducing to talent pools. n Inviting clients to events, investor dinners, power lunches and awards. n Highlighting companies in sector PR and marketing features.

The following examples provide a glimpse of how IPAs and investors use sectors as platforms.

II.4.1. Growing Sector Entrepreneurship With entrepreneurship reaching new heights globally, there is significant interest from the public and private sector to offer virtual and physical spaces for entrepreneurs to grow. The following example demonstrates how one company has made a mark in their sector by engaging with start-ups and entrepreneurs.

Google Campuses With 70 offices in 50 countries, multinational Google has an extensive corporate network that spans the globe. They recognize the need to work locally to support entrepreneurship as a channel for growing digital ecosystems and accessing tech innovation that could help their own growth. Their response was Google Campuses.

These are physical spaces for entrepreneurs—diverse, thriving communities where people are building growing companies and new technologies. Campuses have coworking spaces, classrooms and event spaces, and large Campus cafes to fuel the community. The first was launched in 2012 in London, and many other cities followed.

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Today, they have more than 70,000 members worldwide who create approximately 3,000 jobs a year and have raised more than $215m since 2012.

II.4.2. Strengthening Sector Linkages The work of German chemical firm Bayer is a good example of how a foreign investor took the lead in forging sector relationships and partnerships that strengthened the cluster.

“By any measure, the footprint of Bayer in the United States is significant. They entered the North American market in 1960. Fast forward more than half a century, they employ more than 15,800 people in almost 50 states. They established the US Science Hub in 2011 to forge partnerships with academic institutions and life science companies in support of early drug discovery collaborations. Partnering with Bayer can provide access to the global expertise and equipment of Bayer’s research network. It’s a spectrum of finding ways to work with external innovators and help Bayer deliver its products to patients.”21

II.5. Country Value Chains Investors will carefully analyze their industry value chain in the prospective country they are looking to enter, and evaluate their own capacity to add value to the industry and by doing so secure both suppliers and clients. They will look for local companies that can help them to improve their competitive advantage. Foreign investors are keen to engage with local suppliers and SMEs to develop long-term relationships. This leverages expenditure locally, and usually addresses a sector agenda raised by the authorities. IPAs can help foreign investors in finding the right partners and suppliers, while supporting economic development mandates.

21

Jobs we need report by OFII www.ofii.org.

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A best practice comes from Ghana. Invest in Africa developed a two-tier approach to supporting supply chains: n The African Partner Pool is an online marketplace that brings businesses

together. It connects companies across sectors with the local business partners they need to get the job done. It allows African businesses to promote the products and services. This makes it easier for big companies to find the right business suppliers. n The Business Linkage Program is a business skills training program part-

funded by the African Development Bank. It gives members the opportunity to receive coaching and mentoring from international and local consultants as to make them more competitive and more able to win business from larger companies.

These initiatives launched in 2015 and have so far secured 79 deals with a value of $11.7m. The estimated retained value for the local economy is 72% ($8.5m). This is yet another reason that speaks of the business case of aftercare.

II.6. Mechanisms to Aid the Investor An important part of the work of an aftercare account manager is to remove obstacles to growth. Well-established feedback mechanisms ensure that the flow of information is relevant and timely and create optimum conditions to introduce remedial actions.

The investor’s input will most likely fall into some of the following categories: n Asymmetry of information. The need is to fill the information gap. An

example is when the client is having difficulty finding local talent. The IPA can facilitate introductions to relevant talent pools the investor was not familiar with before.

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n Needs not anticipated before. The need is not covered by the general

service offer, yet there is an option to provide a solution within existing resources or frameworks. An example would be an investor looking to implement an LBTG inclusion policy who is looking for guidance on local best practice. The IPA can facilitate a conversation with other companies that have similar programs in place. n Gap in the service*. This is a request that falls outside the existing service

portfolio and may or may not be in the remit of the IPA. An example could be the approval of building application to build a new plant which falls under the remit of the local council. In this case, the role of the IPA is to manage expectations and to outline the roles of the various local organizations. n Gap in the market*. In this case there is no mechanism to provide a solution

within the existing resources or frameworks. An example could be when an investor is looking for supply chain sourcing services, not locally offered. *Gap in the market and gap in the service will be analyzed more in detail in unit 3, policy advocacy.

n Difference in views or interpretation regarding existing investment

agreements, partnerships or collaborations. They could also include poor evaluation due to mismatched expectations. This type of feedback needs careful addressing in order to avoid escalation.

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Box 8. Yokohama World Business Hotline The City of Yokohama established the “Yokohama World Business Hotline” a 24/7 phone line acting as a one-stop-shop service to address the ample variety of questions that established foreign investors have, as well as “making the human connection more relevant”. This service offers a comprehensive signposting service and it helps investors navigate the city.

II.6.1. Conflict Resolution & Grievance Despite careful planning and impeccable deliverable of services, there will be instances where the investor won’t be satisfied. Conscious of this reality, IPAs can take precautions and make an effort for early detection of conflict areas and establish mechanisms to avoid escalation. However there will be cases where the investor will be vocal and willing to take his case to the next level. In such cases there is a need to establish impartial grievance procedures.

IPAs and governments are well aware of the risk of the story being picked up in the media and will treat these cases with care. Locations should make every effort to solve the conflict amicably and can consider engaging the services of professional mediators or expansion consultants who will understand both sides. The objective is to resolve these disputes outside the formal court system as this can save investors and locations considerable effort, time and money. It will also make the location more business-friendly and therefore more attractive. One such mechanism is the International

Centre

for

Settlement

of

Investment

Disputes,

ICSID

(ww.worldbank.org/icsid). ICSID is an independent, depoliticized and effective dispute-settlement institution supported by 160 countries that have signed the Convention on the Settlement of Investment Disputes between States and Nationals of Other States. The UNCTAD’s World Investment Report 2016, reports that “with 70 cases initiated in 2015, the number of new treaty-based investor-state arbitrations (ISDS) set a new annual high. Following the recent trend, a high share of cases (40&) was brought against developed countries. Publicly available arbitral decisions in 2015 had a variety of outcomes, with States often prevailing at the jurisdictional stage of 54

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proceedings, and investors winning more of the cases that reached the merits stage�.22

II.7. Aftercare & Disinvestment Investment and disinvestment are two sides of the same coin. Companies grow, expand and venture into international waters. They also downsize, close operations, retreat from hostile markets, merge with their competitors or go into administration.

This is the natural cycle of business. Foreign direct investment is not different. IPAs that are aware of these cycles will be able to articulate alternative options that safeguard jobs. Practical examples include: n Providing information about incentives schemes. n Finding more affordable locations that meet tighter budgets. n Helping quantify the financial loss of staff turnover that could result from a

potential relocation.

On occasion, despite the best efforts of IPAs, market forces make disinvestment a plausible choice. Locations that have contingency plans in place are a step ahead.

Those plans include a crisis management toolkit, including political intervention, staff retraining, community engagement, PR efforts, etc.

II.8. Soft Imprint of a Foreign Investor Foreign investors offer significant opportunities to secure more value for a location.

Few IPAs have a strategy in place to maximize the soft value of a foreign company and attract not only a new division, but well-established social responsibility programs supported by the parent company. A focused aftercare program can help unleash the additional value that a foreign investor can bring to the host location.

22

http://unctad.org/en/PublicationChapters/wir2016_KeyMessage_en.pdf.

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Examples of these are many and varied and include corporate social responsibility, volunteering, advancement of appreciation of the arts, sponsorship of social causes and supporting local schools, among many others. Many foreign investors are also active participants in the conversation about gender parity, inclusion and diversity and lead local initiatives to support these global causes, with positive externalities in the host location.

An example of this emerging trend comes from the Council of MĂĄlaga. For the last four years they have helped employees from Oracle organize a benefit concert to raise money for an NGO that builds drinking water wells in Africa. The IPA felt this kind of event helped foreign employees and their families integrate into the local community.

Box 9. FDI & giving Economist Dan Ikenson, director of the Herbert Stiefel Center for Trade Policy Studies at the Cato Institute, has researched the connection between global investment and community connection. In a study that looked at a decade’s worth of data, he found that FDI companies in the United States increased their charitable spending by 125%, while the economy-wide average grew by 14% only. This ratio of 8 to 1 reflects the significant contribution that foreign investors make to host communities that welcome them23.

23

Source: http://ofii.org/jobs-build-community

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SYNTHESIS OF THE UNIT §

The most cited driver for foreign expansion is the growth potential of the location, followed by the availability of a skilled workforce and proximity to markets and customers.

§

Aftercare professionals are on a mission to support, equip and empower foreign investors to tap into the growth opportunities their location can offer.

§

Aftercare services base themselves on a few building blocks: know the market, know the customer; identify and target the most desirable segments; design and deliver services that meet customer needs; and monitor, evaluate and adjust the service as required.

§

Locations can leverage their sector knowledge to become platforms that companies can use to distinguish themselves and form valuable partnerships.

§

Country value chains are essential for growth, both for the investor and the local ecosystem.

§

Well-established feedback mechanisms are essential to meet accountability

and

participatory

objectives.

Investors

are

encouraged to share their views, input needs to be adequately channeled. §

There is significant value to be captured if IPAs encourage investors to amplify their social good imprints in the host location.

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UNIT III POLICY ADVOCACY

Learning Objectives n Become familiar with the concept of policy advocacy. n Understand the different functions of policy advocacy and how they

complement each other to create a competitive business environment. n Review case studies that present a variety of examples of how foreign

investors and governments influence each other.

III.1. Advocacy: The Link between Aftercare & Policy The UNCTAD references participation as one of the four pillars of good governance of an investment promotion agency. They describe participation as “a continuous dialogue between the Government and the investor community as well as other stakeholders, which feeds into policymaking”.24 As an aftercare practitioner put it, “advocacy is about presenting to the government the issues that our clients raise with us without irritating neither the government nor the foreign investor”. The IPA plays a “translator” role, one in which it needs to keep the balance right. If it is too close to the foreign investor, it becomes a de-facto 24

UNCTAD (2004).

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member of staff. If it is too far, it doesn’t get the picture of what the investor is going through or aiming to achieve. There is a role in putting both the investor’s and policymaker’s voice into context which the IPA can master.25 Facilitating that dialogue is the raison-d’être of policy advocacy.

Public-private dialogue comes in a variety of shapes and forms. Government, foreign investors and the IPA have different roles that complement each other’s work, as can be seen in figure 9.

Figure 8: Different roles in policy advocacy

Source: Aftercare Explained, Arriagada Peters (2017)

III.1.1. Roles of the Government The roles of the government are centered on creating a favorable business environment.

To provide governmental support The OECD recognizes that “support from government toward foreign investors is not always guaranteed”26 and that dedicated efforts are required. IPAs can play a role when it comes to tackling two different dynamics. Firstly, to secure engagement 25 26

Arriagada, Peters (2017).

OECD (2006).

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from local authorities and secondly, to advocate for an investor-friendly mindset throughout the extensive governmental structure. This also includes engaging lower ranking officials to provide fast and practical solutions on the ground. The objective is that the government signals to the business community that it is welcoming, open and efficient.

To set best regulatory frameworks Public authorities familiar with how relevant investors are, have an important task when it comes to creating a business-favorable regulatory framework to retain investors. However this is not always easy given the many constituencies they serve. “The challenge is often to strike the right balance between promoting business growth, investor confidence and competitiveness, and retaining necessary health, safety, security, environmental and labor standards. What is critical to note is that this requires a government/private sector partnership. On the one hand, policy makers, regulators, legislators and enforcers must examine the legislative process and be accountable for the consequences, both direct and indirect, positive and negative, of the regulations that they make�27.

To consult In order to be able to deliver against the previous role, the public sector can benefit by proactively reaching out to foreign investors and inviting them to provide their views on policies, laws and processes. Consultations can be an effective way of innovating processes and local practices, because foreign investors will be familiar with best practices in other jurisdictions, which they then can implement locally.

III.1.2. The Roles of Foreign Investors One could argue that the private company usually gets their heads focused on business, but the increasing involvement of foreign investors with host economies

27

OECD (2006).

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speak of the opposite. Companies are increasingly participating in public affairs and have three main roles when it comes to FDI. To self-regulate Foreign investors are not only responsible for complying with local regulations and abiding with local laws, but also for self-regulating in all matters of good governance.

Doing so sends the right signal of a responsible player and helps reduce the enforcement burden on governments. It also demonstrates the seriousness of their commitment to the location and their ambition to become a valuable member of the local community.

To participate The private sector can share the responsibility of creating the best possible business climate by responding when consulted and allocating time and resources to dealing with the public sector.

To innovate Foreign investors have international networks that expose them to state of the art know-how. They will be the first to notice changes in markets, new trends and best practices implemented elsewhere. They can help by transferring that knowledge to the host economy and drive innovation.

III.1.3. The Roles of the IPA Whilst lobbying is generally outside of the remit of IPAs, there is an important task for them when it comes to facilitating policy advocacy. This will include at least the three following functions: To connect IPAs will be familiar with the deployment of functions throughout public services and will be able to convey foreign investors’ views to the relevant departments. They will

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also be able to help the public sector to reach out to the private sector when it comes to consultations, round tables and intelligence gathering.

To contextualize When investors ask governments to “please speak business, not politics” they are implying a different type of language. IPAs can help to overcome that distance and contextualize what it is the government is looking to achieve. At the same time they can shed light into the “dark space of corporations”, move conversations beyond stereotypes and provide guidance to public sector of how to deal with foreign cultures and business practices.

To enable The myriad of angles of policy advocacy is such that there will always be new areas to explore and develop. Prestigious IPAs become de-facto one-stop-shops for all matters relating to business growth and will be exposed to a wide range of enquiries, initiatives and projects. This is an opportunity for them to exercise a mentoring role, both to the private and public sectors and serve as a sounding board and advisor, enabling the location to become more effective when it comes to advocating for policy changes.

These roles are dynamic and will merge one into another as needed. The key here is for IPAs “to become facilitators of well-coordinated and informed public-private sector collaborations”.28

III.2. Policy Advocacy in Action Whilst the breadth of policy advocacy is outside of the remit of this module, below are some basic steps to be considered by practitioners.

28

Arriagada Peters (2017).

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III.2.1. Quantify the Influence of Foreign Investors in your Location Giving investors the value they deserve based on their imprint in the location is a good starting point when it comes to policy advocacy. Invest Slovenia, for example, looked at their investment stock. What initially seemed like a small presence of only 4.5% of local companies, looked significantly different when quantifying other parameters. Multinationals provide 22% of total jobs, own 27% of assets, contribute with 19% of capital and are responsible for 39% of exports and 45% of imports29. These substantial figures put into perspective the relevance of foreign investors in Slovenia.

Quantifying the influence of foreign investors can also provide a sense of relevance and prioritization when it comes to deploying resources. It will help align interest of stakeholders and gain support toward aftercare work.

III.2.2. Assess and Improve Dialogue Mechanisms IPAs use a variety of tools to gather intelligence, create platforms for dialogue and support the development or implementation of policy recommendations. These include informal conversations, formal surveys, roundtables, consultative forums, investment barometers, business climate rankings, and confidence and trust indexes, among others. These sources of information provide valuable insights that IPAs can channel effectively. This can be done by writing white papers, reporting survey findings and introducing a sense of urgency when required.

Assessing existing feedback mechanisms and how that insight is channeled and acted upon will secure a continued dialogue with the investor. A usual mistake is to convene investors to participate and use their valuable time in roundtables that do not lead to action. This is a poor use of IPAs resources and reputation.

29

https://ecampus.itcilo.org/pluginfile.php/28063/course/section/3851/After%20care%20SPIRIT.pdf

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III.2.3. Identify Relevant Stakeholders IPAs can help both governments and foreign investors identify stakeholders that can help them realize their ambitions. Their knowledge of the ecosystem and who is who locally, is a valuable asset for a policy advocate. They will be able to access academia, think tanks, policy makers, communities, etc. and convene different players and views around the dialogue table.

III.2.4. Consider the Most Common Requests from Foreign Investors There are a few frequently asked requests when it comes to policy advocacy; for the investor they tend to cluster around securing a business-favorable business climate; for funders this will usually focus on delivering their wider agenda.

Typical requests from Foreign Investors: Prevent discrimination Global companies want to invest in markets that treat them equally with other investors, regardless of where their corporate headquarters are located. “Any discrimination in state or local law or regulation resulting from a company’s foreign heritage diminishes a market’s attractiveness to global investment. For example, global companies want equal opportunities to bid for state and local government contracts and to operate in states that do not undermine the principles of tax treaties and other international tax norms. EDOs prove helpful if they ensure their business climates are non-discriminatory, treating domestic and global companies alike”.30 Address infrastructure deficiencies Infrastructure is an area that foreign investors expect local authorities to tackle and have little patience when it comes to dealing with the burden it sometimes involves.

30

fDI Coalition (2016).

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Companies understand that there are budgetary restrictions, but struggle to make sense of the red tape or timelines involved in finding solutions, particularly when their execution skills would come in useful. Competitiveness is strongly tied with infrastructure and is an area that local authorities need to revisit periodically and keep foreign investors informed about progress.

Provide access to talent With industries facing shorter business cycles and technological disruption destroying established sectors in only a matter of months, businesses are constantly searching for the best talent. They need sharp skills to navigate complex business scenarios and be able to survive. Larger foreign investors are well aware of the links between immigration and talent. They tend to put the case to the local authority to open doors to qualified talent. In a time of increasing protectionism and an anti-migration discourse in the media, foreign investors are taking action and making their voice heard, as for them the place of birth of talent is almost irrelevant.

Typical requests from funders:

Provide good PR stories Public service is closely intertwined with public opinion. And there is nothing better to raise profiles than a good story, showcasing the commitment from foreign investors toward the region. Both private and public funders welcome testimonials that strengthen location branding and signal to other potential investors the benefit of investing there. Some public funders go further and use those stories for political purposes. And the media does their bit to tell the stories they are after. This is an area to handle carefully; there are cases when foreign investors find themselves involved in political fights that are not theirs and might resent the collateral exposure.

Provide support to deliver the wider (political) agenda Even when some few IPAs have an official remit for economic development, there is a significant proportion that do not. However, there tends to be a de-facto practice

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for the IPA to support the wider economic agenda of the funder with common areas of overlap including location brand, tourism, skills and infrastructure. The rationale is simple: IPAs can leverage their connections with the private sector and activate foreign investors to help deliver other objectives.

Help in dealing with outer town / international delegations IPAs tend to have strong skills when it comes to international relations. Many employ multilingual staff and recruit cosmopolitan professionals. Governments like to tap into those resources and ask for help when it comes to commercial diplomacy.

III.3. Policy Advocacy Case Studies The following five case studies are recent examples of successful policy advocacy with far-fetching impacts for the host countries. They are innovative responses to market needs identified in close dialogue between foreign investors, government and stakeholders.

Box 10. Case study of how a city can respond to market needs Tel Aviv received the Smart City of the Year Award in 2014, which prompted increased interest in sector innovation developed in Israel. Smart city companies from around the globe travelled to Tel Aviv to see what the city had to offer. Many highlighted the difficulties private sector had when looking to trial their solutions in real spaces and city assets.

The Tel Aviv Smart City Lab was conceived as a response to that demand. It is the first global center of excellence in urban innovation. The vision is to create a smart city lab in Israel—to harness the innovative and entrepreneurial power of “the start-up nation�, in order to think and create the cities of tomorrow. The lab will be a place to feel, see, create, imagine and learn about the technologies that will shape future urban life. Apart from a physical space, the lab will operate a strong online presence which will make it accessible to people around the world. It will also provide access to city assets and infrastructure to trial innovative urban solutions.

Source: Interview with Tel Aviv Global and Smart City Lab website

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Box 11. Case study of a policy recommendation at an international forum that one country present took back and implemented The electronic World Trade Platform or eWTP is an initiative proposed by Jack Ma, Founder of Alibaba while attending the G20 Summit. The proposal was accepted as a major policy recommendation of the Business 20 (B20) and officially included in the 2016 G20 Leaders' Communique.

Special trading areas can act as ecommerce hubs linking up markets around the world. E-trade, often known as cross-border electronic commerce, is an innovative trade mode, seen in many ways as a game changer for global trade. It opens new opportunities for revenue growth through cost reduction, shorter supply chains, increased efficiencies and reach of more customers.

Less than a year later, Alibaba turns eWTP into reality with the creation of the first overseas e-hub in partnership with the Malaysia Digital Economy Corporation (MDEC), the country’s digital economy development agency, and other parties. The hub includes the establishment of an e-fulfilment hub near Kuala Lumpur International Airport, a one-stop online cross-border trading services platform, cooperation in e-payment and financing, and development of e-talent training that will fit into Malaysia’s roadmap of transformation into a digital economy.

On occasion of the inauguration the Malaysian Prime Minister said: “Alibaba Group is at the forefront of private sector development of e-commerce solutions and their ambitions to enable trade, particularly for SMEs, make them the perfect partner in this new initiative. This is an exciting development for the country, and to be an early participant in eWTP will provide a plethora of opportunities for Malaysian organizations.”

Alibaba Group Executive Chairman, Jack Ma said, “I laid out the vision for eWTP last year, and we as a company have taken on the responsibility to make this a reality. The first e-hub under the eWTP outside of China will go a long way toward making global trade more inclusive and provide much needed support to a hugely important constituent: SMEs and the younger generation. With innovation throughout the supply chain, support from governments and important private sector collaborations, we will achieve our aim of enabling SMEs and young people to thrive and enjoy in the fruits of the next phase of globalization.

Source: Alibaba’s press release March 22, 2017

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Box 12. Case study of integrated, cross-governmental collaboration initiative The example below is first of its kind based on the multiplicity of stream covered and the sheer size of its potential impact.

Thailand’s Deputy Prime Minister and Alibaba Group’s Executive signed off a Letter of Intent that will see Thailand and Alibaba cooperate on a range of initiatives to develop e-commerce in the country through providing training to SMEs and individuals, and exploring ways to enhance the country’s logistics capabilities to support Thailand 4.0 and Digital Economy strategies.

The taskforce in charge of building upon the bilateral talks is led by various agencies, including the Ministry of Commerce, Ministry of Digital Economy and Society, Ministry of Science and Technology, the Office of Small and Medium Enterprises Promotion, the Small and Medium Enterprise Development Bank of Thailand, the Export-Import Bank of Thailand, the Electronic Government Agency (Public Organization) and Thailand Post Company Limited.

An integrated collaboration initiative, the agreement covers four key areas.

Firstly, it will offer e-commerce training to 30,000 Thai SMEs to aid their access to both domestic and international e-commerce platforms. Alibaba and Lazada Group, will help provide the training. They will also share their experience and expertise with the Thai government to help build Thailand's own National E-Commerce Platform.

Secondly, Thailand and Alibaba will collaborate on the creation of a nationwide People and Talent Development Program, which aims to train around 10,000 individuals so they can be proficient in digital technology. The two sides will also work together to nurture software developers who will be given access to the China market via Alibaba Cloud's marketplace for their software apps creations.

Furthermore, senior government officials will receive training at the Thailand Digital Government Academy, initially on big data and artificial intelligence technologies.

Alibaba and Lazada will jointly run a train-the-trainer program to groom e-commerce business coordinators who will in turn help SMEs establish their own online export capabilities.

Thirdly, Alibaba and Lazada will contribute to the development of the country’s supply chain and logistics systems by sharing their experience and expertise with Thailand Post, in a bid to expand the coverage of domestic delivery services to all provinces across Thailand in 2017. Studies on Alibaba’s inventory management systems and international e-commerce fulfilment services will also be undertaken by Thailand Post to gain insight into the establishment of bonded warehouses and fulfilment centers.

Lastly, Alibaba and the Thai government will explore cooperation opportunities under the Eastern Economic Corridor Development project and help establish Thailand as a hub of digital technology and regional data centers in Southeast Asia.

Source: Alibaba’s press release, December 2016

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Box 13. Case study of skills development as a partnership that benefits the country and the company’s capacity to widen the talent pool Google has partnered with the government agency Singapore Economic Development Board (EDB) to equip Singaporeans with the skill sets that are relevant to the digital economy. Together they designed the “Digitize� program, in partnership with the Xpand Group, a private sector company specialized in training.

With the digital media sector becoming one of the fastest growing industries in the world both partners see an opportunity. Singapore has an internet penetration rate of 80%, which is the highest across Southeast Asia. This has opened the door for monumental growth in the digital advertising market, which amounted to 235.5M USD in 2016.

The new education program focused on training local talent to be the future experts and leaders of the Singapore digital marketing industry.

For the occasion of the opening of the program, The Minister for Trade & Industry emphasized the importance of Singaporeans to become programmatic buying experts focused in the algorithmic sale and purchase of advertising space in real time, as well as technology experts in digital marketing. The program seeks to train local Singaporeans with the ambition of them taking leading roles in the industry in the future.

The course will take place over the next year, and will provide training and on the job experience at agency and client partners in offices in Singapore and Sydney, including Dentsu Aegis Network, Omnicom Media Group, Publicis, Hotels.com and Amobee.

This immersive experience starts with 4 weeks of in-person training run by Google Singapore, followed by 1 week of training in Google Sydney, and 3 weeks of an international work placement in Sydney. Finally, the candidates will be situated into the top advertisers and agencies of the digital industry for a 10 month domestic career assignment in Singapore.

Source: https://www.mti.gov.sg/NewsRoom/Pages/Speech-by-Minister-S-Iswaran-at-the-opening-of-Google-newcampus.aspx December 2016

These examples are only a glimpse of the significant opportunities that a successful partnership between foreign investors and governments can aspire to. The Thai partnership with Alibaba is a game-changer due to its sheer size. It demonstrates what can be achieved through policy advocacy and opens the door to a new phase in international private-public partnerships.

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SYNTHESIS OF THE UNIT §

Policy advocacy is a continuous dialogue between government and the investor community, as well as other stakeholders, which feeds into policy-making.

§

Facilitating that dialogue is the raison-d’être of the IPA’s role in policy advocacy.

§

There are niche roles that make policy advocacy possible, and are shared between governments, foreign investors and the IPA.

§

Best practice in policy advocacy includes qualifying the imprint of foreign investors, assessing and improving dialogue mechanisms, identifying relevant stakeholders and considering the most common requests from investors.

§

A dynamic policy advocacy dialogue can lead to innovative private-public partnerships.

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Module Summary Estimates show that 70% of the jobs created by foreign direct investors are reinvestments or expansion. In this dynamic space, IPAs can contribute to additional jobs and economic development by embracing aftercare. There are sound business, economic development and governance cases to do so.

The most cited driver for foreign expansions is the growth potential of the location, followed by the availability of a skilled workforce and proximity to markets and customers. Aftercare professionals are on a mission to support, equip and empower foreign investors to tap into the growth opportunities the host location can offer. In their quest for growth, locations can leverage their sector knowledge to become platforms that companies can use to distinguish themselves and form valuable partnerships. The same is valid for country value chains and a strong local ecosystem.

Strong aftercare programs are the result of careful planning. Basic areas to cover include market knowledge, customer knowledge, identification and targeting the most desirable segments, designing and delivering services that meet customer needs, and monitoring, evaluating and adjusting the service as required. The value proposition to bring to market will look to not only serve the needs of the foreign investor, but also focus on generating additional jobs and economic growth, securing positive funder feedback, positive stakeholder evaluation, an improved ecosystem and a stronger brand for both the institution and the location.

In this context well-established feedback mechanisms are essential. IPAs encourage investors to share their views and channel that input appropriately. They also facilitate engagement from the public sector with the investors and other stakeholders with the aim of improving location attractiveness. This continuous dialogue feeds into policymaking and facilitating and is the raison-d’être of the IPA’s role in policy advocacy.

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Best practice in this area includes qualifying the imprint of foreign investors, assessing and improving dialogue mechanisms, identifying relevant stakeholders and considering the most common requests from investors and funders.

Locations that understand the dynamics of this industry will be better positioned to embrace new opportunities, confront challenges, and develop stronger value propositions to address 21st century market realities.

Final Remarks The conceptual frameworks, best practices and success stories of the previous units provide a vivid example of the wide implications and potential of public-private partnerships and the role foreign investors can play in generating economic growth.

These innovative approaches confirm the case for aftercare, bring the industry to the forefront and position it as an effective driver of location competitiveness. “By neglecting aftercare, locations not only miss on new jobs created by reinvestment, they disregard the positive externalities foreign investors can bring to their locations.

As a result, they unconsciously impoverish the communities they serve. Correcting this oversight should become a priority for the FDI industry”31.

In uncertain times such as these, industries evolve to give responses to new needs.

Players reach out to each other to gather intelligence and reassess their operations, which intensifies the dialogue between foreign investors, policymakers and stakeholders. Aftercare is no different. As an industry it is entering a new phase; there is a professionalization of services, as well as a broadening of remit, with three clearly recognizable trends.

First, there is a move away from tactical engagement or “afterthought” toward livelong engagement with the investor. Moreover, services would be better described as Investor Services or Business Growth, than aftercare.

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Secondly, whilst it is still very early days, there is a third space that is emerging around the traditional fields of investor services and policy advocacy: placemaking.

The triangle of figure 10 presents how “aftercare 2.0� looks like.

Placemaking makes spaces livable, appealing and provides a sense of pride to its members empowering different sectors of society. It aims to strengthen business connectivity and community cohesion by generating convening opportunities, endorsing location-wide initiatives and strengthening location brands. This area has traditionally been an area of brand consultants, tourism boards and property developers, but now it is gaining traction and slowly but surely involving foreign investors in creating a sense of place. The main focus of placemaking is to convene the ecosystem to work collaboratively.

Figure 9. Aftercare 2.0

Source: Aftercare Explained, Arriagada Peters (2017)

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And finally, there is appetite for sustainable business. This goes beyond a green agenda or a CSR program. A new type of international investor is emerging. Driven by millennials, baby boomers and Generation Y alike, there is increasing social pressure to revisit corporate and government practices and address social disparities, inequality and the way we use resources. Social good is soon to become the new normal, with foreign investors proactively pursuing a stronger agenda in all types of business endeavors. From the inclusion of marginalized sectors of society to improving the green footprint, from staff health to making cities more livable, from addressing the impact of automation to the disruption of new technologies that change the way we understand society, the list is endless. The challenges ahead require all hands on deck and public-private partnerships such as the one offered by foreign investors can help by providing a response to most pressing social challenges.

There are many reasons to stay optimistic, because investor services, policy advocacy and placemaking can jointly upgrade a location from a host economy to a competitive platform. Economic impact, innovation, and sustainability are at stake.

IPAs have a significant role to play in making those three goals a reality.

Acknowledgments The author would like to thank the many IPAs, practitioners, consultants, foreign investors and academics who participated in face-to-face meetings, phone interviews, provided links to online material and shared their expertise This module would have not been possible without the generous input in time and knowledge from: n Council of Mรกlaga n City of Yokohama n Copenhagen Capacity n EDB Singapore n Invest in Africa

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n Invest Hong Kong n Invest in Madrid n London & Partners n Paris Region n Tel Aviv Global

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n IMF (International Monetary Fund) (1995). “Foreign Private Investment in

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n Tsang, Eric W. K. and Yip, Paul S. L. (2007). “Economic Distance and the

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Investment Advisory Series (A), No. 1. New York: United Nations. n UNCTAD (2009). “Aftercare Strategy for Investors in the Occupied

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Challenges”. New York: United Nations. n UNCTAD (2004). “Good Governance for Investment Promotion, Geneva”. n http://unctad.org/en/Docs/c2em15d2_en.pdf n Wald, Donald. “Private Sector Dynamics: The Key to Understanding US

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n London & Partners: www.londonandpartners.com n Ministry of Trade and Industry of Singapore: www.mti.gov.sg n UNCTAD: www.unctad.org

Further Reading n Ahn, Choong Yong (2008) “New direction of Korea’s foreign direct

investment policy in the multi-track FTA era: Inducement and Aftercare services”. Paper presented at the VII Global Forum on International investment, 27-28 March 2008, organised by the OECD. n Columbia FDI Perspectives (2013). Perspectives on topical foreign direct

investment issues, No. 98 “Do host countries really benefit from inward foreign Investment?” New York: Vale Columbia Center on Sustainable International Investment. n Columbia University (2009). Handbook for Promoting Foreign Direct

Investment in Medium-Size, Low-Budget Cities in Emerging Markets.

Millennium Cities Initiative. New York: Vale Columbia Center on Sustainable International Investment. n Ecorys (2014). “Exchange of Good Practice in Foreign Direct Investment

Promotion”. A study carried out under the Framework Contract ENTR/2009/033. Study commissioned by the European Union, Ref. Ares (2014)644686 - 10/03/2014. Rotterdam. n Ghimire, June and Killen, Trevor (2016). Topic Guide Foreign Direct

Investment. London: Nathan Associates London Ltd.

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