As talent becomes more mobile and competition to attract it is stronger, quality of life has become a bigger focus for multinational companies (MNCs) when deciding where to undertake foreign direct investment (FDI).
Housing options, schools, recreational and cultural amenities, and healthcare systems are all considerations, along with cost of living, transportation access, crime and safety, and climate.
The extent to which each of these factors is a concern for MNCs varies greatly depending on the company, sector or particular type of FDI project.
For operations in life sciences, technology, cybersecurity and aerospace, where attracting, moving and retaining talent tends to be crucial, quality of living is an important factor in picking a destination. It tends to play a less pivotal role, however, for the industrial and manufacturing sectors.
Investments that have a technology transfer component will be transferring individuals to the new operation and therefore attractiveness of a location is important. Matt Szuhaj, Deloitte Consulting
“Quality of living environment can be critical depending on the industry and aspect of the value chain being deployed,” says Matt Szuhaj, managing director for finance and enterprise performance/real estate and location strategy at Deloitte Consulting. “Investments that have a technology transfer component will be transferring individuals to the new operation and therefore attractiveness of a location is important.
“A headquarters relocation would have similar concerns. Generally, ‘living environment’, or what I prefer to refer to as ‘character of life’, has become even more important regarding attracting and retaining talent.”
Quality of life comes at a price
Data collected by Investment Monitor shows that quality of life and cost of living track closely together and correlate with how attractive a country is for FDI.
Singapore, Ireland, the UAE and Finland are the top four countries for FDI projects per 100,000 people. These countries also all score highly for both quality and cost of living. Conversely, the four lowest-ranked countries for FDI projects per 100,000 people – Nigeria, Iran, Pakistan and Bangladesh – have low quality of life and cost of living scores.
“There have been studies that show that people are willing to pay for quality of life,” says Andy Shapiro, managing director at law firm Biggins Lacy Shapiro & Company. “We often face this anomaly of clients considering cost of life as an issue but at the same time requiring access to good neighbourhoods, good schools, etcetera. Once all is factored in, they are often more inclined to pay for those and strike a balance,”
Covid-19 impact on living situations
The spread of Covid-19 has caused many to rethink their living situation and move to areas that are less urbanised. This has accelerated an existing trend in relation to the quality of living environment as an FDI driver.
“In the US, we have been witnessing for quite some time now a move towards smaller markets that might not have the scale of larger hubs but offer more accessible opportunities,” says Shapiro. “More medium-sized locations such as Phoenix, San Antonio, Nashville and Tampa have become much more attractive over the past two decades to talent first and companies after.”
Medium-sized locations such as Phoenix, San Antonio, Nashville and Tampa have become much more attractive over the past two decades to talent first and companies after. Andy Shapiro, Biggins Lacy Shapiro & Company
Having forced vast parts of the world’s working population to operate remotely, Covid-19 has given a nudge to this trend.
“Covid-19 has led to a migration of talent from dense population centres, but it is to be seen whether this is a long-term phenomenon,” says Szuhaj. “Also, remote working has accelerated and most companies will have some part of the labour force permanently remote – generally the average target across industries we see is 20–25%.
“It remains to be seen whether, in the wake of Covid-19, companies will make permanent decisions to relocate or establish a new presence in the smaller hubs where talent seems to be moving to.”
Much of the world is still within the grip of the Covid-19 pandemic, and it remains to be seen what the ‘new normal’ will be. What is certain, however, is that no location serious about attracting FDI can afford to let its guard down when it comes to the quality of living environment it offers.
This article is part of a series on FDI drivers. The full list comprises:
- Business environment
- Political stability
- Domestic market size
- Quality of life
Data analysis for this article was prepared by Naomi Davies.