Carrying out a foreign direct investment (FDI) project is not easy. There are often time pressures at stake and the project is usually managed by a team within a company that also has other day-to-day priorities (especially within smaller companies). Hence it is good to know that your company does not have to act on its own. In fact a company can work well with government institutions – in particular investment promotion agencies (IPAs) or economic development organisations, as they are known in North America. An IPA provides support and guidance to foreign investors that would like to invest in a country and, if engaged properly, can be very useful and provide excellent support to companies embarking on FDI projects.
The number of IPAs around the world has grown tremendously over the past 30 years. While in the early 1990s only a few (largely developed) countries had an IPA, today almost all countries have a national IPA, often combined with many sub-national IPAs that represent specific regions or provinces of a country. There are also city-level agencies. Many of these IPAs are members of the World Association of Investment Promotion Agencies or regional organisations such as the Caribbean Association of Investment Promotion Organisations. These member-driven network organisations provide knowledge, support and training and have annual events where IPAs share best practices and further enhance their expertise and capabilities.
What does an IPA do?
There are a number of key activities that most IPAs carry out. The following four sets of activities are often delivered by these agencies:
1. Image building and marketing. IPAs create the market perception of a location as an attractive destination for international investment by developing fact-based marketing and promotional materials, creating awareness of the location among potential investors about the opportunities that lie within its borders.
2. Lead generation and targeting. IPAs attract new investment projects by actively targeting specific investors in (prioritised) sectors by creating exposure through attending and organising events, and other means.
3. Investor servicing and facilitation. IPAs facilitate the efforts of foreign investors seeking to invest by providing services that can assist the investor in making investment decisions and establishing a business. These services include providing information on sectors, investment opportunities, regulation, policies and incentives, and organising site visits.
4. Investor aftercare and policy advocacy. IPAs facilitate the continuing development of a foreign affiliate with a view towards maximising its contribution to local economic development and taking care of reinvestments, diversification or expansion of existing investors in a country. In addition, the IPA communicates to policymakers regarding the challenges a company faces once it has established its operation in a country and the policies that may need further modifications.
Moving beyond an IPA’s activities and what to expect
Most companies know an IPA from the first point of contact in which the IPA presents and promotes the country. The experience that many companies have is that once they have been in touch with an IPA staff member, they can be sure that they will be contacted frequently by that person. Although what could perhaps be seen as an aggressive marketing approach may be unwanted in some cases, there is a lot an IPA can do for a company throughout its entire investment decision life cycle. It is therefore good to learn from the IPA about what opportunities the location offers, to better understand what the IPA can do for your company, and to establish which services the IPA provides should you consider exploring the location as a next investment destination. IPAs can be very helpful at all stages of an FDI project.
First off, an IPA can be your first point of contact in a country when you are developing the business case for your investment project. It can make you aware of the investment opportunities within a specific country or sector and highlight the strengths and challenges of the business environment. It can also be supportive in providing accurate and up-to-date information on the investment climate of the country. The IPA can provide information on the costs of setting up a business but also more information about labour costs and salaries for specific jobs in your sector. It can provide information on the local or regional labour market, rent, lease and costs of purchasing land, work permits, visa requirements and the processes that are involved. It can provide information on the incentives programme the government offers and the associated eligibility criteria or any upcoming changes in policies that may affect your future activities in the country. In other words, the IPA can be very helpful in doing the initial due diligence of an FDI project.
Finally, once the investor has made a decision to schedule a site visit, the IPA can offer support by organising it and making sure the investor will meet all of the relevant organisations. It will ensure that your site visit is productive, well organised and provides additional insights that cannot be obtained through desk research. For instance, the IPA can make sure the investor sees potential available sites that meet the project’s requirements, arrange visits to other investors in the location so they can share their experience, or organise meetings with universities and colleges so the investor will get better insight into the relevant courses and level of graduates. The IPA can also schedule meetings with real estate agents, recruiters or other relevant government officials.
Guidance to follow when using an IPA for an FDI project
However, there are a few guidelines to take into account when working with an IPA on an investment project:
1. Keep the FDI project highly confidential and make sure a non-disclosure agreement is signed. FDI projects are highly political and you want to avoid your name getting out to the market, and especially to your competitors.
2. In order to receive the most project and sector-specific information, it is recommended that the investor drafts a project outline along with the required critical specifications of the project. This allows the IPA to provide the most accurate information needed.
3. Make sure the IPA puts a project manager in place as a single point of contact who can be trusted and who can work with the investor effectively. Even if the IPA has a one-stop shop for all investor enquiries, information and procedures, you want to be able to reach out to one person and coordinate everything with that individual.
4. In the final stages of an FDI project, when three countries of locations have been shortlisted, work with the IPAs of those countries simultaneously. You will not only learn more about the nature and quality of the investment facilitation support by different IPAs of different countries, you will also learn more about the business attitude and culture of the country.
5. Make sure you communicate clearly and share where you stand in the project. If there are any challenges, the IPA may be able to provide further support.
6. Collaborate with the IPA as partners, as you both share the same interest. For the IPA it is important to land the project successfully in its jurisdiction. On the other hand it is in the investor’s interest to get the best support from the IPA. Once the project has been completed and successfully implemented, stay in touch with the IPA and the contact person. These individuals can be useful if you encounter any challenges while operating in the country. Even if the project goes to another location, stay in touch with the IPA and make sure you are informed about new investment opportunities that may be of interest to your company.
Finally, there are many differences among IPAs in the way they work, the services they are able to provide, and their professional level of support and insights. Some IPAs even lack a proper website with relevant information, or can run up against language challenges. However, if an IPA’s organisation and services are up to date and its staff do their work diligently, and if the IPA is willing to accept that not all FDI projects are a good fit for the location they represent, you will have an excellent partner and resource for your FDI project. The better the quality of services the IPA provides, the smaller the need for a company to bring in a site selection consultant; it can even make the need for one obsolete.
Home page image of a site inspection by Asif Hassan/AFP via Getty Images