An effective approach to aftercare is vital for investment promotion and economic development agencies.
Most investment promotion agencies (IPAs) and economic development organizations (EDOs) provide some type of aftercare (or “retention”) support to existing investors. Some agencies have dedicated teams or specialists to work with their existing base of foreign (and sometimes domestic) investors. Although approaches across agencies vary, aftercare is usually not a key function and typically receives far less attention and resources than new investment attraction or marketing and promotion. Agencies should stop “neglecting” aftercare in light of changes in the foreign direct investment landscape.
FDI has been declining for a few years already. In many parts of the world, especially in developed countries, re-investment by existing investors already exceeds investment by new investors, both in terms of investment amounts and the number of jobs created. A recent report by UNCTAD estimates that in 2018, reinvested earnings by the top 5000 multinationals accounted for more than 52 percent of the investment by those companies globally. In other words, more than half of global investment is made by companies in locations where they already have a presence, rather than in a new location.
Companies will cancel investments and close facilities
The same UNCTAD study also estimates that FDI could decline by between 5 percent and 15 percent as a result of Covid-19. However large the decline in FDI ends up being, it is clear that companies will put investment projects on hold or cancel them altogether. Despite government stimulus measures, companies will also be forced to lay off employees and close facilities in response to the economic impact of the coronavirus outbreak. This represents an immediate threat to IPAs and EDOs everywhere in the world.
In addition to the immediate risk of lower investment and downsizing, agencies must also consider the longer-term realignments of corporate location footprints that were already underway before the current crisis and will now be accelerated. Companies will increasingly seek to regionalize or localize their production supply chains to mitigate risk. In services and R&D, companies will continue to focus on knowledge and skills in their location decisions but will move toward a virtual and distributed footprint to increase their flexibility and reduce dependency on individual locations.
Putting your aftercare into action
In this context, aftercare plays a critical role in minimizing the impact of the current situation and ensuring that existing investors don’t just stay but continue to develop in a location. How can IPAs and EDOs respond to these developments and implement an effective aftercare approach? Here are five measures that most agencies should be able to implement quickly.
- Prepare an inventory of the top investors in your location. In most cases, you won’t be able to focus on all existing investors, at least in the short term. Depending on your agency’s resources, a list of 50 to 100 companies will provide a starting point. These can be selected based on their overall impact (for example, total employment) or other criteria such as the importance of the company for a certain sector or its linkages to local suppliers.
- Map your connections to each company. This includes all direct contacts to the company’s local operation, to their national or regional headquarters as well as to parent company management. It also includes indirect contacts through other government agencies or organizations (for example, industry associations) in your location that you can leverage. Each contact can be qualified in terms of factors such as decision-making authority, previous contacts or the strength of the relationship.
- Assess the company’s situation. Find out as much as you can about how the company is affected by the current situation and is likely to respond. Has the parent company already announced earnings warnings or layoff plans? This will require some research as well as discussions with individuals that have contact to the company like suppliers or local EDOs. The information you obtain will allow you to highlight those companies that appear most at risk.
- Determine the best approach for engaging with each company. If the relationships are strong enough, one-on-one meetings or calls with individual decision makers are the best option. Keep in mind that local management may not be fully aware of what headquarters is planning or may be reluctant to share sensitive information. Roundtables or video conferences with groups of companies in the same industry can be an option for engaging with multiple companies at the same time.
- Be clear about what you can offer. Do you have real solutions that address companies’ current needs? This might include workforce flexibility programs to help companies retain workers, assistance in sourcing local suppliers as well as financial support such as loans or grants. In recent days, many governments have announced support packages for business. Ensure that you understand how these packages work and how the companies you are talking to can take advantage of them.
One of the main challenges of aftercare is the perception that government is favoring foreign investors over local companies. For EDOs that provide support to both local and international companies, this should not be an issue. For IPAs whose focus is on international companies, it will be important to coordinate aftercare activities with broader business support initiatives.
Aftercare has always been important. Now is the time for investment promotion agencies and economic development organizations to focus their efforts on retaining investors. This will require shifting resources to aftercare from other functions within the agency and coordinating closely with other parts of government. It will also require close contact and regular interaction with corporate decision makers to keep up with developments and provide the best possible support.
