this is a sub-section of "Economic Development"
attracting FDI investments to your location
How do you win out over much larger governments/ economies?
As was shown in many cases, such as Intel's site selection of Costa Rica, or Dell's site selection of Brazil...one of the most important factors in making that decision is how well prepared the team of promoters is in attracting that investment. In both cases, the winning team was professional, aggressive, honest, and run independently from the state (following the Irish model for investment promotion agency).
Variables such as preparing for the customer by researching possible questions, coordinating meetings with heads of transportation, security, real estate, and education in order to effectively surround the potential customer with individuals who can address questions and concerns is very important. Making a potential customer feel like they are the center of the universe but not in an illegal manner can be the deciding factor. Researching a potential customer and knowing information better then they even do speaks volumes.
see also: Location Consultants , location, location, location, choosing the right location for FDI
Keys to attracting FDI
- Transparent rules that effect everyone. While it may be in your interest to make special rules to try and attract a new FDI client, you should be aware that many foreign investors become very alarmed when they see a country that is willing to bend rules for them to enter the country. Just the fact that you were willing to bend them for this one client gives the wrong signal that the rules of law are not equally enforced, and that certain clients get better treatment than others. Also, many companies are (rightly) concerned that changes in administration in the country may lead to a changing (elimination) of the special privileges that they once enjoyed. If you are going to change the rules / legislation to attract a key FDI investment, its better to change the rules for everyone. This tells the key investor that the playing field is level, and that there are no special privileges for this one client. Then, they know that they are getting what they want, but that it is highly unlikely that these privileges will be taken away.
- Predictable rules and legislation is key. If the rules change dramatically with each successive administration, then foreign investors will not want to invest. They need to know that a policy of a country will be predictable. for this reason, if all other things are equal, a stable democracy will always attract more foreign investment (all other things being equal).
- Avoid giving any "special considerations" based on personal contacts. As mentioned above, it creates an environment of distrust. Even if the company is happy to avoid taxes, or regulation, or to have the special considerations....most international organizations will be worried that there is a lack of transparency, and that the same rules dont apply to everyone. There might be a short term gain, but the distrust will scare away many foreign investors. Its better to keep the trust, and avoid giving any special considerations based on relationships.
- Corruption deters foreign investment. Note that it is illegal for US based firms to bribe any foreign official. This is according to the "foreign corrupt practices act"
Importance of government initiatives to attract FDI
Governments play a vital role in terms of foreign direct investment, much more than in those first world countries. This is due to the fact that infrastructure, education and other ingredietns may not be on the same level in developing nations, and so "investment-promotion agencies" need to be more active to sell their locations to foreign investors. What is good about your location that compensates for the other factors? Is it just cheap labor? Is it some sort of specialized knowledge base? raw materials? access to certain markets? you need to know very specifically what your comparative advantage is....and then find ways to compensate for your weaknesses.
Treat foreign investors as clients
personalized service as the one that Costa Rica offer to the Intel crew play an important role in order to make a decision. Customer service is key in order to attract your final customer
Be prepared, be professional, and find some edge to show that you want it more.
Being very, very well prepared creates a trustable environment. For many countries in the emerging markets, they must attract investment, but they must also fight back the stereotypes about disorder and a lack of preparation / work ethic in many of the areas. It is therefore very important that "investment-promotion" teams be very professional.
Make it easier to select your location
The investment promotion team can not change the governments tax incentives, or infrastructure, nor proximity to the final consumer, but there are certain intiatives that can be made to increase the chances of getting the winning bid
1. more direct flights,
2 control labor unions,
3. invest in better infrastructure
4. improve education.
USA examples:
US states were vying for Japanese or German automakers' plants. How did Ohio win a Honda plant? BMW in South Carolina? These states made a coordinated effort combining government, business and universities to entice these companies to set up shop.
The story of Honda is that the governor and Mr. Honda became great "friends" before doing business, and that the governor basically gave away massive amounts of land.
Also, Honda did not go into Michigan where unions were strong, but went south where people were hungry for work, and would be grateful for the jobs. Honda would rather train new workers, than to have to re-train ex-GM or Ford workers. But, proximity to the Michigan / Ontario manufacturing belt of suppliers was key. Over time, however, as Toyota, Honda and Nissan invested in the middle states such as Ohio, Kentucky and TN, we then saw a migration of suppliers to the middle states....which opened up the possibility of setting up future manufacturing plants in Alabama and into the deep south (as BMW,etc have done).
Ive read stories that some of these states made such massive incentives to the automakers, that they just couldn't say no!
Why attract FDI?
economic spill over effect that the investment of an IT Multinational company will bring to the country.
More guidelines:
1. Low level of corruption needed
2. good regulatory quality
3. Tax reasons taxation
4. Sound macro economics
5. Large investments in infrastructure projects
6. Business clusters - how multinational corporations choose a location
7. Home grown development vs. Multinational corp FDI
8. Local examples:
9. Attracting financial portfolio money
10. Attracting "do-gooders"
11. Free trade Zones (FTZ's)
- zones that allow duty free and encourage exports
12. Free trade agreements such as NAFTA, and other trading blocs. see
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