Investment Attraction – What’s Old is New Again

By Alex Lever-Shaw | Sunshine Coast Regional Council

A NOTE FROM THE AUTHOR:

This is my first attempt at writing an article for EDA, so I may require your patience as a reader.

I am most certainly not an academic, therefore I have not approached this as a professionally researched and documented paper, but rather from the perspective of a tactical practitioner. Having been in the economic development field in various capacities for the best part of 15 years and having had a good relationship with EDA over that time, I feel it is now appropriate to impart some hard-learnt lessons on to the next generation of practitioners, or anyone who wishes to consider my thoughts about Investment Attraction. With organisations like Regional Development Australia and various state and local governments (and others) now looking to return to this space, I also hope it is timely. There is no requirement to agree with my views but rather consider them when coming to your own.

Having practiced the undertaking of Investment Attraction activities at both the state and local levels of government for some time and having close exposure to the Federal Government’s activities in this space through professional colleagues, I broadly understand where the Australian Government has attempted to engage within investment attraction and what has or hasn’t led to successful outcomes. Additionally, the projects I have worked on in the roles I have held, have been across many industries and business sizes.

In the industrial sector I have had the pleasure of working with major companies like Orica, Boral and Visy Corp, securing investment wins on ammonia nitrate plants, plaster board facilities and paper recycling plants, all worth in the hundreds of millions of dollars. I have worked in the services sector with back office providers, including Stellar Asia Pacific, Auto and General and SNC Lavalin to name a few. I engaged with Youi Insurance when they were a start-up business of three staff in 2006 to over 1300 staff today, thanks to amazing leadership and entrepreneurship in their management teams. From small sheds of a few hundred square metres to big sheds such as Capral Aluminium’s 70,000 square metre development, I have seen a fair depth and breadth of projects. I only offer the above to demonstrate experience and regardless of the project, the sector or size, the fundamentals remain the same. The client wants to make money and the community wants jobs or technology transfer. If you can break it down to the basics, a quicker resolution is often achieved.

SO WHY ENGAGE IN INVESTMENT ATTRACTION?

The debate rages in various publications as to the role of government or semi-government organisations intervening in the market to affect an outcome and there are many strong arguments for and against. We are seeing a good example play out now as several North American cities vie for Amazon’s second headquarters. The incentive packages mentioned in the press are at best, eye watering. However, in my view the discussion is like the climate change debate in that ‘the science is clear’, but those with agendas will want to argue the case regardless of the evidence.

Pictured below: ENGEO’S Guy Cassidy (centre) and Tomasz Krawczynski (right) with Sunshine Coast Council’s Head of Investment Attraction Alex Lever-Shaw (left) celebrate the opening of ENGEO’s first Australian office on the Sunshine Coast.

Analysis of 30,000 Foreign Direct Investment projects by the World Bank (1) demonstrated that government-provided assistance significantly influenced investor decisions to locate in one economy or another. A University of Oxford study (2) showed “one dollar spent on investment promotion increases Foreign Direct Investment inflows by $189 and that $78 spent on investment promotion created an additional job by a foreign affiliate” (estimates).

Right here in Australia, a research project by Southern Melbourne RDA (undertaken by AEC Group) looked at the Casey-Cardinia region of Victoria. The report concluded that investment attraction activities over a 20-year period had provided additional GRP of $1.7billion per annum, an additional 32,405 jobs, a reduction of residents leaving the region to work, an increase in selfsufficiency (12.4% to 75.7%) and a reduction in costs to the community by reducing the commute to employment, detailed as:

  1. $61 million saved in personal worker travel costs
  2. 2.26 million worker days saved, personal time that could be reinvested into the community
  3. Less impact on infrastructure, due to fewer commuters (not valued)
  4. More time with family resulting in better social cohesion (not valued)
  5. Other benefits to personal health and wellbeing (not valued).

I think the answer is even simpler. If you can demonstrate that you can invest a dollar of community funds into a project which delivers a positive, measurable impact on net economic benefit for that community, why wouldn’t you do it? The numbers are without question, as is the positive press for our community leaders for their commitment to investing rates into these activities and the long-term career opportunities they are creating for their constituents. This would appear to be better than the return on investment than can be achieved in most financial institutions currently.

WHAT IS BEST PRACTICE FOR INVESTMENT ATTRACTION?

It concerns me when organisations who pursue Investment Attraction initiatives go hot and cold on their commitment. It is not good for the long term professional development of the people who do the work, who need the career paths to build experience. We don’t expect our doctors to go from taking temperatures to doing major surgery overnight, nor can we expect those who are charged with undertaking investment attraction to do the job without clear career paths with support through training and other resources provided for the job to be undertaken. It also goes without saying that lack of long term support by organisations who are charged with undertaking investment attraction activities will create uncertainly in the minds of investors leading to less investment outcomes for the affected communities.

I understand that in North America there are well over 300 well-funded and highly motivated investment attraction agencies trying to source investment and jobs for their cities and regions. Australia’s efforts to win investment against these, as well as others based in the Asia-Pacific and even Europe, who may have larger staffing, budgets, tax free zones and other tools at their disposable is hard enough. Chopping and changing our commitment about whether to be in or out of the business makes our task that little bit more challenging, perhaps much more challenging, so we need to commit wholeheartedly and seek to deliver best practice.

To achieve best practice, the World Bank recommends developing comprehensive sector profiles, responding effectively to investor enquiries, fostering partnerships to develop sector specific knowledge and undertaking activities to promote investor confidence, all of which takes money. If you don’t have the financial resources, you can’t have a professional approach to winning investment. Budgets will differ from agency to agency; only you will know whether your organisation is serious about wanting to be in this space based on the budget allocated to the activity. Size is not the determining factor, but budget allocation in comparison to the revenue of the organisation is a good starting point, as is the commitment to the length of funding.

The activities mentioned above do not even begin to address the issues of investment lead generation, the ongoing lead management process from generation to closure, nor the training required to upskill staff to give them a commercial sales focused mindset to be able to compete in a highly competitive and aggressive space. It is imperative to manage those who expect quick wins, as the more complex the project is (with arguably the biggest returns), the longer the gestation of the project will generally be. Companies don’t generally uproot and shift or expand into a new location overnight.

It is usually part of a long-term repositioning and/ or growth strategy and being close to your client through that entire journey allows you to be better positioned to be there when a relocation or
expansion investment decision is on the cards.

SHOW ME THE MONEY

Do you need to have the ability to offer financial incentives to be successful in this space? Simply put, yes. However, the more accurate question is, do I need to use financial incentives? The answer, maybe not. You need incentives to get a seat at the table, however it is true that in many instances the non-financial incentives will out-value the financial, and in the longer term, the client may not even wish to pursue financial incentives. But it is without question that when asked by the client or the site selection consultant whether you have financial incentives available, a negative answer will almost always see discussions terminated before they begin. Just like any recruitment process with many applicants, finding a way to shorten the list of candidates is necessary, even if we don’t like it.

I don’t think anyone would argue that when all is said and done, the actual amount of incentives (particularly here in Australia compared to what can be obtained overseas) may not even be in the top five decision making factors of the client. Issues such as high-speed internet and access to skilled and talented staff tend to take priority, but to get the deal done, you must get through the first-round interview, and financial incentives play a crucial role in that respect. If you don’t have them, you need them, as well as a clear and transparent process to ensure that if they are used, they are done so in an  appropriate manner and circumstances.

The provision of accessible financial incentives is important, not only from the client’s perspective/ but also for those hoping to win the deal. Those at the table who are negotiating to win the investment need to ensure everyone present is adding value. It was our own experience here in Queensland that when the State Government had an aggressive, well-resourced investment attraction team that could offer incentives, they had a welcome seat at the negotiation table. But when that tool was removed from them, so too was the seat at the table as the only value proposition they could offer was a “streamlined approval process” or similar. This was unfortunate for both the client and the community as the offer put forward was likely not the best offer that could have been given to the client.

I am pleased to say this situation has now somewhat reversed and the state is back in the field of incentives. The negotiation process with client firms will always be challenging particularly if you are not clear on the real value you can provide both from a financial or non-financial perspective.

BUT THEY’RE ALREADY HERE?

It would be remiss of me not to mention the benefits of a dedicated aftercare program. Three quarters of investment agencies (3) state that ‘aftercare is one of the most effective methods for identifying new leads and generating new enquiries’ (PWC survey of 12 Foreign Direct Investment agencies). In the same study, it was noted that up to 85% of new investment outcomes originate from someone that already has a connection with a community/region. So generally, there are six key elements that need clarity, unless you have these as a minimum, then you really have to ask if you are in this space at all.

  1. Have a clear plan with defined objectives.
  2. Review it regularly to ensure market relevance.
  3. Set and document KPIs to gauge ongoing success.
  4. Limit financial assistance to those that meet clear eligibility criteria.
  5. Ensure documentation of the process meets good governance policy.
  6. Including dedicated Aftercare, Corporate Partner and Ambassador Programs.

IS YOUR REGION OPEN FOR BUSINESS?

Who hears this on a regular bias or even worse still, who of you are responsible for telling the market that your local region, state, territory or other is “open for business”? Let’s assume that no one is
shut for business so conversely, everyone is open. The marketing of regions has always been done in very simple terms, a glossy brochure, with nice shots of some buildings and maybe even industrial
space available to lease for low cost. So now we are open and cheap! Why wouldn’t you want to uproot all your staff or take a huge financial risk to relocate or expand to that empty product? In 2017 my Council won an EDA award for a cheeky marketing campaign (Mensa Test – Your HQ with IQ) which sought to test clients to see if they would qualify to enter our region as investors. Yes, it was successful, but it demonstrated that we as an industry particularly here in Australia, we need to get away from glorified pamphlets and understand our clients, what they aspire for in their business and personal lives and appeal to those values. Rational or expansion decisions are complex, pamphlet and newspaper adverts are not.

In my time, I have seen the interest in commercial grade fibre go from non-existent to as important as the electricity to power the lights. The market changes. Understanding your key strengths and product offerings in a changing market and playing to them, is paramount to attain cut through with your target audience. On many occasions, your key strengths might to others be viewed as a negative. My region won one of its greatest investments not because it was open for business (it wasn’t at the time) but because there was no other business here and thus provided a good test bed location. Not something one would want to sing from the roof but being aware of what pushes the buttons of your target market and then expressing that regional advantage as a cost benefit to the client’s balance sheet bottom line is paramount. So, what are the things you should know before taking that next half page advert in that industry magazine, because it is a week before deadline and the editor is desperate to shift the space?

  • Have clear professional research of what your locals and your audience think of your location as it appears today
  • Have a clear understanding of what gap exists between what they think today and how it may need to be thought of tomorrow to attract investment
  • Understand what issues need to be addressed to achieve this mindset and the tools you can use to achieve
  • Have your 30-second pitch for your region clear, just as others looking for investment need to have their pitch, so must you. The pitch may change by industry
  • Make sure your pitch is focused on commercial outcomes and not aspirational statements,
  • Lifestyle is important but dollars are more important, you must pitch how the client can have both, and;
  • Make sure everything you say and everything you do is backed with a clear and transparent value proposition that substantiates the claims being made.

TIME TO SELL, SELL, AND SELL…. BUT SELL WHAT?

Every region wants to be a smart region, attract high value employment opportunities for their residents and be known as the ‘place’ for innovation, and to some extent they can. What they can’t do, is do it ll
in the one place at the same time, and so we come to the subject of comparative advantages. What does your region have that no one else does? This is a big subject with lots of academic papers written on it. Suffice to say that no region can wake up one day and decide that they are going to be the centre for any industry (aviation for argument’s sake) if they don’t have the basic building blocks (let’s say an airport). There may be arguments to say this is not always the case, such as building solar cell manufacturing plants in the desert like Mr Musk. But I dare say those players have more money and the sustainability of such decisions are not yet proven.

You need a grain of sand to make a pearl and this is also true in investment attraction. It doesn’t matter how small the asset or the advantage, you need to have something small to make something big. I acknowledge those from Northern Grampians and the town of Stawell that took a very big hole in their backyard and have attempted to turn it into an Underground Physics Laboratory in the search for dark matter, having the vision and commitment of taking this asset (a gold mine) to give them a competitive advantage in their quest for innovation, smarts and high paid jobs. This underlines the project is on hold due to the mine going into care and maintenance, but there is certainly nothing wrong with the idea and underlines the need to look at turning existing assets into economic generators if other issues like timing, capital and government/ corporate commitment can also be addressed. For those considering undertaking investment attraction for the first time, I strongly encourage you to do so, as it is a most rewarding profession where the fruits of your labour can be directly seen by the community, whose people are afforded jobs and careers that were once unavailable. For those already engaged in this field, I encourage you to compete aggressively (some of my EDA colleagues already do!) as the stronger the competition, the better the outcome for our clients, and bigger and better resources will flow into investment attraction. What can be better than a career that provides better opportunities for our communities? In summary I would like to say:

  • Commit to the long haul,
  • Be 100% committed or don’t commit at all,
  • The market is competitive and sophisticated, so should you be,
  • Be specific in what you want, what you need to get it and how you go about it,
  • Don’t overlook the small opportunities, the experience gained will serve you well,
  • Don’t compete within regions as resources are already tight, complement each other’s efforts and add value and;
  • Celebrate the wins to garner the support for addressing future challenges as they invariably arise.

SOURCES AND OTHER READING

  1. Source: Attracting FDI: How Much Does Investment Climate Matter? 2011
  2. Source: Roll Out the Red Carpet and They Will Come: Investment Promotion and FDI Inflows 2011
  3. Attracting Employment & Investment to the Casey-Cardinia Region, AEC 2011
  4. Source: Investment Climate Department, World Bank Group 2012

 

ABOUT THE AUTHOR

Alex is currently the Head of Investment Attraction at Sunshine Coast Council. He holds a postgraduate qualification from the Securities Institute of Australia and undergraduate qualifications in education,  marketing and finance from various universities. He is a past Senior Associate of the Australian Institute of Banking and Finance and Associate of the Australian Institute of Management.

He has participated as secretariat to various economic and tourism boards and won the 2016 EDA Agent of Change Award as well as other EDA awards in previous years. A father of two young boys, he states his interests are investment destination marketing and watching multiple repeats of Paw Patrol with his boys…