Inward Investment Insight #2

Dec 2022: Funding FDI; Singapore; Jobs etc

Dec 07, 2022

Investment Promotion: Who pays and who should?*

*this article is written with investment promotion agencies in the UK, USA, Canada and Australia in mind… so if you work for Invest Petrostan or some Sino-Russo Development Agency you probably won’t understand the next few paragraphs.

The next few years are going to be tough for inward investment teams that rely on government funding (ie most of them in the UK). So it’s a good time to have a rethink about sustainable funding of investment promotion.

How much does it cost to successfully promote your location?

Investment promotion can cost millions, but it can also be done on a modest budget. Yes, it’s great to be able to fly teams around the world to expensive conferences and showcase your place with a huge exhibition stand, but increasingly, the most effective approaches involve smart research and direct outreach by well-connected inward investment practitioners. Thankfully the days of big ticket advertising and glossy brochures are long gone, but the issue of how to fund your team on a shoestring persists.

As a (very rough) rule of thumb, a budget somewhere around a dollar/pound/euro (not a huge difference these days) per resident would provide a guide to the kind of budget that would be required for most towns, cities or regions although this varies wildly of course.

The ROI Problem

One of the problems of investment promotion funding is the lack of any direct return on investment (ROI) calculations. Companies will expand and relocate for many reasons, and would continue to do so even if every location stopped their investment attraction activities. Investment agencies should acknowledge this fact and try to show what difference they actually make, over and above the ‘natural rate’ of inward investment.

The more effective teams have already moved away from raw measures of jobs and projects which can be misleading and are subject to huge external factors outside the control of the agency. A great example of this shift can be seen at London & Partners who have shifted to measuring the increase in Gross Value Added (GVA) brought about by their activities, this economic benefit to London is validated externally. London & Partners’ quarterly reporting is an interesting read and a best-in-class example of how to demonstrate value.

Apart from GVA, the other main outcome for London & Partners in their most recent reporting is '“income generation” which they say “continues to be an essential outcome more so than ever as we need to ensure London & Partners is financially sustainable”. This brings us to a perennial and thorny issue, who actually pays for investment promotion and who should?

Who Pays?

Those last two words in the London & Partners quote are critical… “financially sustainable”. In the UK, the overwhelming majority of inward investment services are not sustainable at all. They survive from year to year on the whim of politicians as a result of being 100% dependent on revenue from local councils. In the larger city regions, the funding is a little more diverse, but only because a chunk of annual funding traditionally came from European Union funds, which are a natural casualty of Brexit. The last vestiges of EU support end this year and there is some concern that the UK’s replacement schemes are unlikely to be as generous or as straightforward.

The newly created Shared Prosperity Fund does not appear to have anywhere near the resources to co-fund many of the inward investment teams that EU money did. Guidance advises local players to “take account of the wider funding landscape, and in particular, complementary interventions at UK, national or local level,” which means a cocktail of funding from various buckets of cash which are at the mercy of political u-turns.

Who Benefits?

When an inward investor moves into town, the local authority gets some great headlines and sometimes a bump in economic fortunes, whether measured in GVA terms or simply additional local jobs. But there’s no direct financial gain for the council unless the investor takes a council-owned site or there is some business rate uplift. There are, however, a plethora of local and regional businesses who stand to gain from increased inward investment. Landowners; developers; house-builders; property agents; lawyers; accountants; bankers; recruitment firms; fit-out companies; IT and telecom providers; utilities companies; hotels; restaurants; taxis… a whole inward investment supply-chain of benefit all the way to carpets and car parks. So if all of these players stand to gain from inward investment, shouldn’t they be asked to pay a little to help attract new businesses?

Publicly Financed Promotion

In the early days of inward investment teams in the UK, government quangos like the Commission for New Towns and Welsh Development Agency were some of the most effective champions of foreign investment; they were very well-funded by the taxpayer and had the early-mover benefit of limited competition. By the time the Regional Development Agencies were set up, state funding of investment promotion had become the accepted norm and in the first decade of the 21st century some eye-watering amounts were spent on inward investment.

Private Sector Funding

The global financial crisis of 2008 and the subsequent period of austerity in the UK saw swingeing cuts to public funding streams. In a precursor to what 2023 has in store, it became politically difficult for governments and councils to prioritise inward investment spending when everything else is being cut. All of a sudden, investment teams started to get more creative and sought alternative sources of income, although most locations simply accepted the cuts and reduced investment services and activities. A few notable exceptions stand out as beacons that show what is possible:

Marketing Derby is one of the finest examples of a team that has galvanised its business base and created a promotional vehicle for business and tourism that receives significant amounts from more than 350 private sector partners from Rolls-Royce and Toyota to local small businesses. Their ‘Bondholder’ model was first pioneered by Hull, but it has seen its best success in the East Midlands and now provides Derby and Derbyshire with a regular stream of external funding that enables some magnificent programmes and activities.
Locate in Kent is another fantastic example of an inward investment service that blends public and private sector funding. It is “funded and supported by Kent County Council, Medway Council, local councils, the Kent Developers Group, Kent Housing and Development Group and partners from the private sector to promote Kent and Medway as a prime location for business and support the creation of new jobs”. The role of local developers and house-builders coming together to co-fund and support the service is something which other places would do well to consider.

Neither the Derby or Kent examples above happened overnight, and both are the result of many years of building support and keeping partners on board. The lesson is, it takes time, so start now.

In the US, there is an established culture of economic development being part-funded by private companies, either through local chamber networks similar to the above models, or through proactive utility providers like Duke Energy, Georgia Power and Tennessee Valley Authority who make a significant contribution to state and local initiatives. In most major cities it is the Chamber of Commerce that pulls together a partnership, like:

Nashville Chamber undertakes the majority of economic development services for its metropolitan area including business attraction, place marketing, business networking, trade and inward missions and sector development initiatives. Nashville Chamber has a tiered membership model that raises more than $1.5m each year, along with partner contributions and sponsorship income which create a total budget of $8m which is spent on economic development, talent development, marketing, research and education initiatives.

The role of intermediaries and service providers can be leveraged more too. Major banks like Barclays and Santander are increasingly involved in providing support to their clients around international trade and investment opportunities; specialist lawyers and accountants have inward investment teams themselves or sector specialists who are willing to collaborate.

It doesn’t always have to be a financial contribution either. Some teams have created in-kind support ranging from free rail tickets or hotel space to hotdesks or pro bono consultations. Often these services can be wrapped up in a soft-landing service - good examples are: North East England; Newcastle; Kent; and Manchester.

Culture Change

Fundamentally, this is not just about money. Having a diverse and sustainable mix of businesses supporting your programme changes the culture. It becomes a very different style of agency than were it 100% funded by a council or government body. To me it is no surprise that both places have become successful inward investment hotspots that punch well above their weight. Agencies that are closest to their home businesses and become embedded in the local ecosystem are more likely to add real value in a sustainable way, rather than relying on the boom and bust of government funded initiatives.

No Excuses

Some teams will be able to raise significant amounts of non-government funding given time, others will find it challenging, but there can be no excuse for having zero business contributions to fund investment attraction, no matter what your location. Simply accepting the inevitable cuts in state funding is lazy and fails to recognise that inward investment and business growth is the only sustainable way out of austerity.

#Teams

Singapore EDB

There’s always a lot to learn from the economic miracle that is Singapore. The emergence of one of the world’s most competitive, innovative and wealthy countries from what was a war-devastated island wracked by civil war is one of the great turnaround stories of the last century. A major part of that story is the scale of foreign investment that has been attracted and the role of the Economic Development Board (EDB) since its establishment in 1961. Sixty years on, the EDB is a global leader in FDI promotion.

EDB manages Singapore Global Network, which was set up in 2019 to grow Singapore's networks and connections around the world, with 18 international offices in 13 countries which includes Australia, Brazil, China, France, Germany, India, Indonesia, Japan, South Korea, Sweden, Switzerland, the United Kingdom and the United States.

Exceptional Messaging and Services

The EDB website is the perfect front door for investors, with a very clear proposition of Singapore’s offer. The website, like all of EDB’s marketing collateral, reads like a C-suite business magazine, full of great writing, insights, strategy, research and interviews, all delivered in a smart reader-friendly style and about a million miles away from the Invest in Anywhere culprits with their vanilla offerings.

A new service is in beta on the website, the Singapore Investment Clinic, which is a library of tailored-made courses to help potential investors along their journey. Courses include: Expanding to Southeast Asia

Managing Talent; Navigating Industries; Preparing to come to Singapore; Research, Development & Innovation; Securing Customers, Funding and Partners; and Setting up your Company. Using specialists in different aspects of the expansion process, these videos and live chat with EDB officers offer something truly unique in the FDI space.

The Connections Concierge is an initiative that makes introductions to key service partners, with a commitment to securing a response within 3 days. Valuable indeed (and something that could be adapted by other teams as a funding stream).

Their Set-Up Cost Calculator is a powerful and useful tool to get an idea of detailed costs of talent, property and incorporation services.

In November 2020, EDB announced plans to launch a new working visa Tech.Pass starting from January 2021 to attract more high calibre talent into the country. 500 permits will be issued on a first-come, first-serve basis. This focus on talent attraction is key to future success. Singapore is consistently ranked as a global leader for talent and skills but there is no resting on laurels here. The Global Talent Competitiveness Index 2022 placed Singapore top in the world for High-Level Skills and Talent Impact.

SG+ is the EDB’s strategy to collaborate with neighbouring Malaysia and Indonesia to promote a combined offer with a HQ in Singapore and a manufacturing operation in one of their low cost neighbours. Smart strategy, nicely delivered. Reads more like a consultant’s report than an investment promotion pitch.

In terms of slick professionalism and consistent messaging, Singapore EDB hits the target every time and their business savvy approach to global business and talent attraction is likely to bring continued success.

Not many locations have the assets and resources of EDB, but every team can emulate the smart approach that resonates across boardrooms far more than most of the content served up by IPAs.

#Hacks

UK Scaleup Index

Fascinating deep data dive into the UK scaleup ecosystem by ScaleUp Institute and Beauhurst with some interesting geographic concentrations. Of the top 12 local authorities by number of scaleups, 8 are outside London, showing the strengths across the whole of the UK.

City Twinning

Twin towns and sister cities have been a feature of local government for several decades, but have a chequered history with perceptions of local councillors having a nice annual trip overseas at taxpayers expense. There is, however, a new generation of twinning that focuses on international trade, FDI and innovation. A great example of this is the UK-South Korea Innovation Twin project run by Connected Places Catapult. I particularly like their robust methodology to find suitable cities to pair like Liverpool-Busan; Birmingham-Ulsan; and Glasgow-Daegu.

County Councils and FDI

All too often, inward investment is discussed at the national or big city level - although there is a huge amount of value created in all of the spaces in between the big brand cities of the UK. Developed by Ernst & Young LLP (EY UK) and commissioned by the County Councils Network (CCN), a new paper explores the FDI performance of CCN authorities, drawing on findings from EY’s annual UK Attractiveness Survey. One of the headlines was that more FDI jobs were created in England’s counties than in London between 2018-2021.

#Gigs

Here’s a selection of the current opportunities around the world for inward investment professionals. We’re not responsible for any of the links or any that may have now closed.