Along with healthcare and ICT sector preference, R&D and manufacturing activities represent key investment focus areas
In spite of the recent drop in foreign direct investment (FDI) inflows, most developing economies have remained buoyant. According to a new Frost & Sullivan's global research paper, titled Foreign Direct Investment, Asia is still seen as the key growth region for targeting FDI. At the same time, a further decline for developed economies is confirmed.
The Frost & Sullivan's analysis covers global FDI trends, provides perspectives of Investment Promotion Agencies (IPAs) based on insights that have been obtained from a survey of 35 senior-level officials working in IPAs across the globe and best practices in investment promotion.
For the IPAs surveyed, the top countries IPAs target as a source of FDI are China, Germany, the United States, Japan and the United Kingdom. The key investment focus areas across regions include technology-related/computer software services and healthcare/pharmaceuticals/biotechnology. In addition, a large majority of FDI is focused on R&D – 19 percent of IPAs put it as a priority segment, followed in close second place by manufacturing.
"Behind IPAs' preference for certain types of FDI lies strong economic rationale," explains Frost & Sullivan Public Sector Practice Director Richard Wong. "Factors such as the alignment of a particular type of FDI with national plans, the types of FDI that have historically worked, and the potential generation of high value-added activities and employment opportunities strongly influence IPAs' decisions in this regard."
To stimulate FDI, IPAs conduct promotional activities through various channels. Of the existing promotional channels, face-to-face, email and phone call are used most frequently. Investment tours/missions abroad are also popular tools employed to drive client development. The maintenance of long-term relationships was cited by 45 percent of IPAs as being an integral factor in the success of their promotional schemes.
"Nonetheless, the increasing competition for FDI, lack of sufficient funding, and inability to meet the growing demands of investors have been distinct challenges," notes fellow Research Analyst Sara Lai. "The insufficient coordination between government agencies has also been a cause of concern for IPAs."
While global and regional competition for FDI share has presented problems, it has also improved servicing and decreased bureaucracy. Other issues surrounding funding and coordination with agencies, however, need to be actively tackled. Remedial measures taken thus far include increased collaboration with local FDI players to reduce costs, and efforts to involve IPAs in all strategic government economic engagements.
"IPAs must consistently act as one-stop-shops, providing all forms of pre- to post- investment assistance to the investor," concludes Strategic Partnerships Director Iain Jawad. "Agencies can also improve their success rates through greater strategic focus, prioritization, and personalized approaches to client engagement."