Download Competition for Investment: Best Practice in Investor Targeting

Competition for Investment: Best Practice in Investor Targeting
Paper by Dr. Henry Loewendahl
APEC-OECD Seminar, 14-15 November 2005 (Busan, Korea)
Executive summary
About this paper
§
This is the accompanying paper to a presentation to be made at the APEC-OECD Seminar ‘Working Together on
Investment for Development’ (14-15 November 2005; Busan, Korea). The paper is for the session ‘Competition for
Investment: Does Industry Targeting Work’. The objective of the paper is to share the author’s practical
experience in attracting foreign direct investment (FDI) to provide insight and best practice lessons for lead
generation. The paper argues that investment promotion agencies (IPAs) need to incorporate private sector sales
principles and organisation to effectively compete for FDI.
About the author
•
Henry Loewendahl is a Director in OCO Consulting (UK) Ltd. Henry has a published PhD, which examined Japanese
and German FDI strategies. His professional career began in corporate strategy in PricewaterhouseCoopers
London. He then joined IBM-Plant Location International Brussels, before joining OCO Consulting in 2003. Henry
has worked with IPAs in over 25 countries, and is currently leading assignments for the UK and Irish governments.
Henry has a strong interest in Asia, and opened a Shanghai office in 2005 to provide lead generation in China.
About OCO Consulting
•
OCO Consulting spun-out of PricewaterhouseCoopers in 2001 and has rapidly grown into one the largest specialist
FDI consultancies, with a client base that includes over 200 MNCs and IPAs in over 50 countries. Key clients
include Enterprise Ireland, Enterprise Florida, Forfas, Invest Italy, ISA, UKTI, UNCTAD, WDA and the World Bank.
Services include:
•
Investor prospecting – provision of European and Chinese lead generation services whereby identify target
companies, and generate investment leads and contestable projects in close coordination with our clients.
•
Benchmarking and proposition marketing – location benchmarking, proposition marketing and
organisation development services and unique sales tools for location positioning and case-making.
•
LOCOmonitor™ - the leading global FDI project database (www.locomonitor.com), for investor targeting,
FDI strategies and performance monitoring. 16,000 companies with FDI projects have been identified.
www.ococonsulting.com
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Industry targeting
Industry targeting to attract footloose FDI
§
§
19th
At the end of the
Century, the famous economist
Thomas Jefferson stated that:
‘Merchants have no country. The mere spot they stand on
does not constitute so strong an attachment as that
from which they draw their gain’
•
•
•
Jefferson emphasises the footloose nature of MNCs. It is
this mobility of investment that provides the possibility
to influence the location decision of MNCs.
Demand side factors
(Market opportunities)
Companies have imperfect information and decisions
are influenced by perceptions. Through direct
marketing, information can be provided to companies
on the profitable business opportunities in a location,
and encourage an investor to consider investment.
Competitive environment
Supply side factors
(Location attributes)
With a universe of millions of companies, it is essential
to focus on companies operating in sectors with the
best and most realistic investment potential for a given
location.
•
To help do this, a practical framework for investment
promotion strategy is shown on the right.
www.ococonsulting.com
Target
sectors/
location
alignment
Product
development
To market to every company that may invest overseas
would require a massive resource – and would be an
incredible waste of money and effort. Marketing
resources have to be focused on companies with the
highest potential for investment in a given location.
•
Industries should be targeted: (1) which offer the
largest market opportunities in terms of volume of
FDI projects; (2) where the location can fulfil the
location requirements of the sector; and (3) where
the location can fulfil these requirements better than
competing locations.
Investment promotion strategy framework
Sales and
marketing
strategy
Source: OCO Consulting
§
3
Target sectors (and business functions e.g. call
centres) should also meet the economic development
objectives of the location. The key benefits of inward
investment are shown in the box on the next page.
The benefits desired will also determine the type of
FDI projects targeted (e.g. an automotive
manufacturing investment will have a qualitatively
different economic impact than an automotive R&D
investment).
www.locomonitor.com
Industry targeting
The key benefits of FDI
Ø
Technology: MNCs are more R&D intensive, and control
much of global R&D and patenting.
Ø
Innovation: FDI can intensify local market competition,
creating the stimulus for innovation.
Ø
Increased domestic investment: It is estimated $1 FDI
leads to $1 domestic investment. Microsoft Europe estimates
its ratio to be 1:10.
Ø
Export market access: FDI is more export intensive than
domestic investment and can lead to local company exports.
Ø
Foreign exchange: FDI can be a key source of foreign
exchange in countries with low savings or access to capital.
Ø
Wage premium: Foreign owned companies pay higher
wages – a key objective of attracting inward investment.
Ø
Job creation: FDI creates direct jobs. It also creates indirect
jobs. Anecdotal evidence suggests 1 manufacturing FDI job
creates 3 indirect jobs. Microsoft Europe ratio is est. 1:30.
Ø
Higher productivity: Productivity in FDI is higher than
domestic firms, often by up to 40%. Multinationality is the
key reason - outward FDI also raises domestic productivity.
Ø
Distributional objectives: Inward investment can act as a
catalyst for growth in poorer regions – as long as they have
adequate absorptive capacity.
Ø
Cluster targeting
Catalyst role: FDI can act as a powerful catalyst for followthe leader investment, supply chain development, cluster
development, and raising the brand value of a location.
Towards the end of the 20th Century, Michael Porter
argued ‘Paradoxically, the enduring competitive
advantages in a global economy lie increasingly in
local things – knowledge, relationships, and
motivation that distant rivals cannot match…’.
§
In the early 21st Century the European Commission
stated:‘It is the capacity to innovate which helps
regions to achieve an advantageous position in key
industrial sectors or clusters’.
§
MNCs invest overseas not only to exploit profitable
opportunities (new markets, resources or lower costs)
but also to access tacit benefits, such as knowledge
and relationships, which cannot be found anywhere
else. As Markusen wonderfully puts it ‘globalization
may lead to sticky places within slippery space.’
§
While industry targeting is essential to focus on the
best FDI prospects, a cluster-based approach is
increasingly needed to attract knowledge-based
investment.*
§
The investment ‘proposition’ marketed to investors for
knowledge-based investment are business solutions
based on technology and innovation capacity relevant
for investors in specific industries.
See www.waipa.org/works_programme1.htm
Source: OCO Consulting
www.ococonsulting.com
§
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Investor targeting
Why engage in investor targeting?
Most successful methods
§
Investor targeting is a technique to attract FDI in greater §
quantity and quality. It is key to pro-active investment
promotion. Most of the world’s leading agencies now target:
Sectors, Types of company and Specific corporations.
§
Investment agencies are adopting private sector
approaches to investor targeting. This involves segmenting
the market and building networks with decision-makers in
key target companies and brokers. The objective is to
§
generate good quality business leads and to secure
projects.
§
§
Investor targeting involves well researched and planned
approaches to specific managers in the targeted companies
about niche ‘business opportunities’ in the host country’.
Results come by sustained approaches to selected
companies often after several years.
Focus effort on best prospects.
§
Can greatly increase investor and broker awareness.
§
Investors respond best to material relevant to them.
§
Can help develop ‘clusters’.
§
Cost effective – takes time more than money.
§
Can be outsourced to specialist providers.
www.ococonsulting.com
Directory listings and direct mail has proved to be the
least effective methods of investor targeting.
Method
Aftercare services for target firms
Links to target firms and netw orks
Links to industry associations etc
Direct mail to targeted brokers*
Sales representatives
PR companies
Conferences, seminars
Outw ard missions
TV commercials
Organisations in source country
Conventions, exhibitions
Trade press advertising
Direct mail to targeted companies
Inw ard missions
Directory listings
The major advantages of investor targeting are:
§
Experience demonstrates that the most successful
methods of investor targeting involve links to existing
investors and business and personal networks with
target companies and intermediary organisations,
including industry associations and investment
multipliers like real estate companies and location
consultants. Sales representation has also proven to
be effective, as long as it is performance driven.
% IPAs using
m ethod
40%
60%
40%
50%
30%
30%
70%
50%
20%
20%
80%
50%
90%
40%
40%
Av. rating for lead
gen. (m ax score=5)
5.0
4.8
4.1
4.0
4.0
4.0
3.6
3.6
3.5
3.5
3.4
3.2
2.8
2.8
2.5
Source: survey of 10 leading IPAs *Used by over 60% of major investors
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Investor targeting
Best practice principles
Key success factors
1.
Focus on a small number of sectors.
1.
2.
Focus resources, time and effort on a small
number of high quality prospects.
Focus on multiple contacts in a smaller
number of strategic companies.
2.
Develop a one year marketing plan BEFORE
engaging in company targeting activities.
Develop a sales pipeline that can be reactivated and re-contacted.
3.
Full preparation of project teams to ensure a
consistent and coordinated approach.
Manage the sales process strategically with a
web-based CRM system.
4.
Use trusted third parties for introductions and
networking at the appropriate level.
5.
Attend industry events and trade
conferences.
6.
Prepare for all meetings with business
propositions and appropriate material.
7.
Provide business advice to the investor based
on understanding issues.
8.
Conduct lead qualification early in terms of
project scope.
9.
Aim for a conversion rate of 20% on leads,
prospects, and active cases.
10.
Apply a time limit/cut-off point on follow-up
and closure.
3.
4.
5.
Prepare proposition-based marketing materials
and business cases tailored to specific target
audience.
6.
Development of research tools and
questionnaire templates to be used when meeting
companies.
7.
Well-planned approach to meetings and
discussions with companies.
8.
Post-meeting evaluation and immediate followup proposals to be made to companies.
9.
Longer term follow-up and relationship building.
10.
Pro-active targeting approach and relationship
building through presence in the market.
www.ococonsulting.com
6
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IPA sales best practice
Inward investment is a sales business
§
§
FDI promotion is a sales business. What we are selling are locationspecific investment propositions and products. We are selling to senior
decision-makers in multinational companies and investment multipliers.
The “numbers game” as it is commonly known is an expensive and
inefficient way of developing FDI business. We recommend an approach
which focuses resources at back office level in research and marketing
prior to deploying senior level front line resources in sales, and makes
maximum use of networks to identify known prospects. This ensures that
sales resources are focused on fewer but better prospects. We call this
approach “precision market targeting”.
Managing the sales pipeline
§
Lead generation and conversion is the key objective of investment
promotion. Leads are companies that have a confirmed interest to invest
in the medium term in your region. Qualified leads are companies that
plan to invest in your region in target sectors, and would like to meet.
No of
leads
‘As is’
No of
leads
As should be
Input
Time
Source: OCO Consulting
Source: OCO Consulting
www.ococonsulting.com
Leads
Time
7
12 months lead generation contract
3000 target investors
600 investors prospected
120 leads
60 qualified leads &
meetings
12 contestable
projects
2-5 realised
projects
Source: OCO Consulting
§
Contestable projects are companies that
have a current project, which your
location may be considered for.
§
It is critical to reduce your list of target
companies as quickly as possible to leads,
qualified leads and contestable projects.
OCO Consulting lead generation results
typically show that a 20% rule can be
applied (see the diagram above).
IPA input
Leads
FDI sales metrics (the ’20%’ rule)
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IPA sales best practice
Market/sector
Market/sector
research
research
Lead
generation
Strategic positioning – develop the sales propositions
Lead
validation
IPA SALES PROCESS
Home
Product 1
Regions A,B,C
§
The diagram on the left shows 8 key
stages of the IPA sales process – from
strategy, through to lead generation,
propositions, and facilitation and
implementation of the project.
§
Of particular importance is that there
are 4 stages after leads have been
identified and investors met in order
to secure a realised project.
§
While every IPA organisation is likely
to be different, the most successful
IPAs organise their FDI sales process
based on private sector best practice.
§
The diagram on the left shows that
‘Home’ is where the ‘product is made.’
Typically, regions in the country play
a key role in developing and providing
the product. As with the private
sector, the best practice sales
organisation centralises key sales
functions in the HQ, so that sales reps
in the market can focus all of their
time on sales.
§
Very few IPAs have yet aligned their
organisation to sales principles
Investor targeting/lead generation
Meeting
prospects
Introduce the proposition
Proposals &
business case
Negotiations
Facilitation and
implementation
Closure
Source: OCO Consulting
Best practice in IPA sales
Investor development
– the best propositions
often come from investors
Account
Account
management
management
Central sales functions
Overseas
Office 1
Products 2, 3
Account management
Sales & marketing strategy
Product 2
Regions B,C,F
Product 3
Regions D, E,F
Products and
clusters
Office 2
Products 3
Databases & systems
Office 3
Products1& 3
Case management
IPA SALES ORGANISATION
Source: OCO Consulting
www.ococonsulting.com
Prospecting and
follow up
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Case study: lead generation in China
Project background
Project results
§
UK Trade and Investment has achieved excellent results in
China with nearly 400 Chinese companies established in the
UK. UKTI has set itself ambitious targets – to increase the
number of FDI projects it attracts from China by one-third from
2005 to 2007.
§
600 target companies were identified. This was
screened to a shortlist of 300 that were
contacted. 120 of these companies were
interviewed, leading to 20 hot leads, which met
with UKTI to discuss their projects.
§
In 2005 UKTI appointed OCO Consulting to work with UKTI
offices in China to fast-track their lead generation efforts by
providing greater private sector focus and sales resource.
§
As the chart on the bottom left shows, lead
generation requires a sustained approach – it
took around 2 months before a significant
number of hot leads were identifed.
§
The pie chart shows that business networks
directly with companies are critical to
successful lead generation. Networks with trade
and sectoral associations, Government and the
media are also essential. Attending exhibitions
can also generate leads.
§
1 target company identified established a
biotech EHQ in Oxford during the assignment.
Up to 5 investments are expected within the
next 36 months.
§
UKTI will work closely with these companies to
secure their investment. Within a month of
identifying hot leads, the British Minister for
Trade & Foreign Affairs went to Shanghai to
have lunch with the companies and OCO–
demonstrating the Governments’ committment.
Project approach
§
The first stage in the project was to review UKTI’s marketing
materials (product information) and agree target sectors and
how the OCO and UKTI teams would work together in China.
§
Subsequently, OCO conducted market research and investor
prospecting in four waves of 150 Chinese companies, focusing
on the target sectors agreed (life sciences, ICT, automotive and
creative). The assignment was completed in 4 months.
Press and
Journalists
10%
Government
10%
Research
through
personal
business
networks
32%
Exhibitions
10%
Leads from
personal
business
networks
24%
China trade
and sectoral
associations
14%
www.ococonsulting.com
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Points of Contact
OCO Consulting Ltd (Head office)
6 Citylink Business Park
Durham St
Belfast BT12 4HB
Northern Ireland
Mark O’Connell
Managing Director
T: +44 28 9024 1849
M: +44 77 7164 3633
F: +44 28 9024 2597
E: [email protected]
OCO Consulting (International)
Avenue Louise 149/24
1050 Brussels
Belgium
Henry Loewendahl
Director, Consulting Services
T: +44 28 9024 1849
M: +44 77 4870 1382
F: +44 28 9024 2597
E: [email protected]
OCO Consulting (Asia)
Citic Square 3540
Nanjing Xi Road 1168
200041 Shanghai, China
Jianlan Yu
Director, Asia-Pacific
T: +86 21 51119108 (Shanghai)
T: +32 2 5357577 (Brussels)
F: +86 21 5252 4616
E: [email protected]
www.ococonsulting.com
OCO Software (Product development)
10 West Beach
Cobh
Cork, Republic of Ireland
10
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