Why are So Many Investment Promotion Agencies Plagued With Ambivalence?

A 2011 University of Oxford Study determined that one dollar devoted to investment promotion increases Foreign Direct Investment (FDI) into a country by $189 dollars.  Despite the incredibly obvious impact of dedicating efforts toward investment  promotion, the performance of many IPAs around the world is somewhere between horrendous and mediocre. The good news is – a few agencies in Latin America are performing at a high level. The 2012 Global Investment Best Practices Report (GIPB) issued by the World Bank Group recently recognized that 83 percent of executives say they make direct inquiries to Investment Promotion Agencies (IPAs) during the site selection process and 47 percent say they are highly likely to use an IPA’s website.  Clearly, executives find IPAs to be important partners in the site selection process which is a big opportunity for IPAs to shine with targeted research and exceptional customer service.

Paradoxically, the GIPB report found “that 80 percent of national IPIs [Investment Promotions Intermediaries] fail even to respond to investor requests for information, thereby costing their economies valuable opportunities to win FDI.”  That 80 percent number was derived from the secret shopper approach; 80 percent of IPAs failed to respond to either one or both investor inquiries requesting information about potential projects.

Despite LAC being a strong performer in comparison to the whole, LAC registered its second drop in inquiry handling since the first GIPB report was published in 2006.  Reasons cited, although not completely clear, were high staff turnover, a shift from national promotion to subregional, and more money allocated to website presence with less dedicated to staff for client interaction.

This entire dynamic is playing out amid increasing competition between IPAs (globally, regionally, and even domestically among sister agencies) and decreased FDI flows struggling to return to their pre global financial crisis levels.

Inquiry Handling

Inquiry handling is not simply whether an IPA responds to an email or phone call, it is composed of four categories as defined by the GIPB report: availability and contactability, responsiveness and handling, the quality of the inquiry response, and customer care.

Inquiry handling – the lynchpin of investment promotion – was measured at its lowest point ever in GIPB reporting history, sliding from its already weak position of 28 percent in 2009 to 22 percent in 2012.  That average was buoyed by a small contingent of top performers while the median registered at an abysmal 12 percent.

 “…several of Central America’s IPIs are now handling inquiries at OECD levels, consistently providing thorough responses with customized business cases and attentive follow-up.”

The report states “…four in five IPIs [Investment Promotions Intermediaries] handled inquiries very poorly, providing limited or no information at all to the potential investor who had approached them with a specific information request.”

We couldn’t imagine that these agencies suffer some sort of collective ambivalence, so then why is it that inquiry handling performance is so poor?

“They [IPAs] usually hire people without business backgrounds that have trouble handling corporate.  Additionally, most agencies don’t have a centralized/standardized investor inquiry system.  There is often a huge difference between agencies that are completely public and agencies that are a public-private partnership, the latter works better,” said Sergio Barraza, External Consultant for OCO Global, a company that provides a range of solutions for the economic development community and has worked with over 300 economic development agencies.

LAC Performance

One LAC IPA cracked the top ten for inquiry handling and took the number one spot – PRONicaragua; an organization we reviewed and championed for its best practices and ability to succeed in country with widely recognized political corruption at the highest levels and high poverty.

Although OECD countries still lead in Global Investment Best Practices, taking over the number two spot from Europe and Central Asia (ECA) is LAC boasting a 48 percent rating to ECA’s 44 percent.  However, it is not much to celebrate as LAC’s position swap came at the behest of a 5 percent drop by the poorer performing ECA in 2012.  Website performance between the two regions shows to be almost equal, the performance gap is created by LAC’s better inquiry handling.

The LAC region, divided into Mexico and Central America, the Caribbean, and South America reportedly have comparable performance.  A difference is that “…several of Central America’s IPIs are now handling inquiries at OECD levels, consistently providing thorough responses with customized business cases and attentive follow-up.”

And that is critical says Barraza, who stresses the need to move from a position marketing approach to a proposition based approach. “The position marketing approach is the cliché and generalized ‘come here because labors rates are X, talent level is Y, and culture is Z,’ which is very exhausting for a company to hear when they are meeting with several countries all saying essentially the same thing.  The position marketing approach lays out very specific business solutions for a company in the given context.”

The Caribbean in contrast is categorized as weak in inquiry handling despite making strong gains in online presences since 2009.

It would be wrong to assume that because South America is considerably more developed that Central America as a region, that it outperforms its northern neighbors.  “First, the region’s performance [South America] in inquiry-handling remains low, close to the Caribbean level. Second, half of the region’s Web sites have serious deficiencies in terms of content quality, and one-fourth do not provide information in English,” the report stated.