Learn.unctad.org Investment Facilitation Section IFS and TfT training course: Investment Targeting...

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Investment Facilitation

Section

IFS and TfT training course: IFS and TfT training course: Investment Targeting for Economic Investment Targeting for Economic

DevelopmentDevelopment

Understanding Understanding Investor Decision-Investor Decision-

MakingMaking

Investment Targeting for Economic and Social DevelopmentInvestment Targeting for Economic and Social Development

Investment Facilitation Section & TrainForTrade Programme October 2008 2

Module ObjectiveModule Objective

By the end of this module, By the end of this module, participants should be able to participants should be able to tailor their approach to investors to tailor their approach to investors to match their requirements.match their requirements.



OverviewOverview

1.1. The Investment Decision-Making ProcessThe Investment Decision-Making Process

2.2. The Corporate Strategy DecisionThe Corporate Strategy Decision

3.3. Project Location PrioritiesProject Location Priorities

4.4. The Long-List of LocationsThe Long-List of Locations

5.5. The Short-List of LocationsThe Short-List of Locations

6.6. The Preferred LocationThe Preferred Location

7.7. What promoters should do to influence What promoters should do to influence location decisionslocation decisions



The Location Decision ProcessThe Location Decision Process

Corporate strategy decision Are we going to invest internationally? Project location priorities What are the projects’ requirements?Long list of locations Which are the ten possible locations?Shortlist of locations Which are the three best locations?Preferred location What do we require to locate here?



Corporate Strategy DecisionCorporate Strategy Decision

Will we invest internationally?Will we invest internationally?• Decision based on strategic priorities and by Decision based on strategic priorities and by

issues such as the location of existing operational issues such as the location of existing operational plants, offices and other facilitiesplants, offices and other facilities

• What are the priority regions and markets to What are the priority regions and markets to serve?serve?

Where are the international markets with Where are the international markets with most potential?most potential?• National and regional GDP, Per capita income, National and regional GDP, Per capita income,

Current trade levels, Consumption trends, Prices, Current trade levels, Consumption trends, Prices, Competitors present, marketing and distribution Competitors present, marketing and distribution networks, transport facilities, FDI flows, etc. networks, transport facilities, FDI flows, etc.



Project Location PrioritiesProject Location Priorities

The Project Decision FrameworkThe Project Decision Framework• Large v. Small Scale ProjectsLarge v. Small Scale Projects• Hi-Tech v. Low-Tech ProjectsHi-Tech v. Low-Tech Projects

• Exceptions:Exceptions: • Suppliers locating close to a TNCSuppliers locating close to a TNC• Privatization or M&APrivatization or M&A• Extractive industry: oil, gas and Extractive industry: oil, gas and

miningmining



The Long List of LocationsThe Long List of Locations

The long listThe long list of potential locations tends to be of potential locations tends to be compiled as a subjective process based on corporate compiled as a subjective process based on corporate and advisor perceptions.and advisor perceptions.It may generate around 5-10 possible locations in a It may generate around 5-10 possible locations in a target region or country.target region or country.

What are the subjective criteria and perceptions What are the subjective criteria and perceptions used to determine a location’s position on a long-used to determine a location’s position on a long-list?list?

• General perceptions of emerging economiesGeneral perceptions of emerging economies• Specific perceptions of investment locationsSpecific perceptions of investment locations



Internationalization roadmap: Internationalization roadmap: perspective of consulting firmsperspective of consulting firms

Strategic Context / Business drivers

Define Internationalization Project

Selection LocationFactors (criteria defined)

Weighting and Prioritization of location factors

Strategic Context / Business drivers

Define Internationalization Project

Selection LocationFactors (criteria defined)

Weighting and Prioritization of location factors

Strategic Assessment

Long listing & Location Screening

Modeling & Comparison

Community Evaluations

Incentive

Negotiations

Implementation

Long listing locations

Start data gathering of candidate locations

Analyze and interpret key data

Present shortlist

Long listing locations

Start data gathering of candidate locations

Analyze and interpret key data

Present shortlist

Complete data gathering of short listed locations

Modeling

Comparison/Analyze and interpret the data

Present ranking and sensitivities

Complete data gathering of short listed locations

Modeling

Comparison/Analyze and interpret the data

Present ranking and sensitivities

Regional

Location Assessment

On-site data validations

Impact of Regional Trade Agreements

Preliminary incentive negotiations

Regional

Location Assessment

On-site data validations

Impact of Regional Trade Agreements

Preliminary incentive negotiations

Leverage Business

Case (grants, tax,

incentives, etc.)

Leverage Business

Case (grants, tax,

incentives, etc.)

Company set up:

Real estate, HR,

IT, audit, legal,

tax, financing,

permits, ...

Company set up:

Real estate, HR,

IT, audit, legal,

tax, financing,

permits, ...

Conception and DefiningConception and Defining Location Evaluation Location Evaluation Negotiations and ImplementationNegotiations and Implementation

This part of the decision-making process thatwill be proposed once the final short-list locations have been identified.

1 2 3

Evaluation phase with client

4 5 6

Source: Earnst & Young



Analysis of Initial Long-list of Candidate LocationsAnalysis of Initial Long-list of Candidate LocationsResults: Qualitative Analysis Consulting firmResults: Qualitative Analysis Consulting firm

Total Weighted Qualitative Score

5.76.1 6.2

5.7 5.75.9

6.4 6.36.7

6.56.1

Brazil

(Sao

Pau

lo s

tate

)

China

(Guan

gdong)

China

(Shan

ghai)

India

(Tam

il Nad

u)

Indones

ia (B

atam

)

Mal

aysi

a

Thaila

nd

Turkey

Czech

R.

Poland

Roman

ia

Taxation andIncentives

Logistics andInfrastructure

LaborFlexibility

LaborAvailability

BusinessSupportEnvironment

GeneralBusinessEnvironment

Source: IBM Consulting Services



Analysis of Initial List of Candidate Locations Analysis of Initial List of Candidate Locations Results: Combined Financial and Qualitative AnalysisResults: Combined Financial and Qualitative Analysis

Consulting firm evaluationConsulting firm evaluation

Melbourne

Sydney

Shanghai

Stuttgart

Tokyo

Kuala Lumpur

Seoul

Bangkok

South East England

Detroit

4

4.5

5

5.5

6

6.5

7

7.5

8

0255075100125150175200225

Operating cost index

(average = 100)

Qu

ali

ty s

co

re

(Sco

re f

rom

0 t

o 1

0)

Best

Value Proposition

Best

Value Proposition

Best

Value Proposition

= Location solution cluster

High cost Low cost

Lowquality

Highquality

Source: IBM Consulting Services



The Short List of LocationsThe Short List of Locations

The short listThe short list of possible locations will be derived through more of possible locations will be derived through more objective research, based upon detailed analysis of factual data.objective research, based upon detailed analysis of factual data.

This is likely to narrow the possible locations down to a maximum This is likely to narrow the possible locations down to a maximum of three country options, and these will be ranked in of three country options, and these will be ranked in attractiveness to the potential investor.attractiveness to the potential investor.

What are the objective criteria used to What are the objective criteria used to determine a location’s position on a short-list ?determine a location’s position on a short-list ?



Detailed Evaluation of Short-listed RegionsDetailed Evaluation of Short-listed RegionsLabor Market EvaluationLabor Market Evaluation

Consulting firm evaluationConsulting firm evaluation

0

2

4

6

8

10

Ease of recruitment

Competition for skills

Availability of required skills

Overall availability of staff

Labor regulations

Labor relations

Productivity

Stability & loyalty

Barcelona

Dublin



The Preferred LocationThe Preferred Location

• The preferred location is chosen when the The preferred location is chosen when the location appraisal process confirms one location location appraisal process confirms one location which has a feel good status with the investor which has a feel good status with the investor sufficient to begin negotiations with the host sufficient to begin negotiations with the host government.government.

• This is when a project finally gets serious.This is when a project finally gets serious.

• Next to actual investment this is the desired Next to actual investment this is the desired outcome of all investor targeting and promotion.outcome of all investor targeting and promotion.



Guidelines for Investment PromotersGuidelines for Investment Promoters

• Understand the purpose of the project for the investor

• Be aware of what stage the decision-making process is at

• Appoint a single client executive contact • Rapidly provide accurate, timely information• Encourage established FDI to be positive to the

potential investor• Ensure an understanding of the project in key

ministries and agencies



ConfidentialityConfidentiality

• The decision to consider investing in your The decision to consider investing in your location is commercially sensitive to the location is commercially sensitive to the investorinvestor

• It is also commercially and politically sensitive It is also commercially and politically sensitive to your location and inappropriate disclosure to your location and inappropriate disclosure of investment consideration can lead to you of investment consideration can lead to you losing the investmentlosing the investment

• All discussions with potential investors should All discussions with potential investors should therefore be confidential and a willingness by therefore be confidential and a willingness by the IPA to sign a confidentiality agreement is a the IPA to sign a confidentiality agreement is a good sign of their integrity and professionalismgood sign of their integrity and professionalism



Confidentiality agreementConfidentiality agreement

A confidentiality agreement A confidentiality agreement template is attached in your template is attached in your reference guidereference guide

You can use it in your You can use it in your discussions with investorsdiscussions with investors

Confidentiality Agreement Between (Your National Promotion Agency) and (The Targeted TNC)

Commercial-in-Confidence 1, _____________________________ of (the Location Promotion Agency), hereby agree and accept in relation to, that all meetings, conversations, discussions, negotiations and contacts (both oral and written) with (the Target International Corporation of Address), its Directors, executives, staff and associates, and with its associated companies and subsidiaries, will be on a strictly confidential and commercial-in-confidence basis; and that the contents, detail, implications and results of these contacts will at no time, either presently or in the future, be disclosed, indicated, suggested or otherwise transmitted to other individuals, companies, partnerships, associations, or any other public, private or international organisation, unless the express written approval and agreement of (the Target International Corporation) is freely provided and acknowledged. This agreement covers all written and spoken material, including letters, notes, reports, memoranda, financial statements and accounts, draft and completed agreements, photographs, sketches, diagrams, material on electronic machines, computers and other recording equipment, and any other material in any other form that (the Target International Corporation) deems relevant. In return for this signed agreement, (the National Promotion Agency), its Directors, executives, staff and associates similarly accept and agree identical confidentiality conditions, objectives and restrictions to those set out above.

Signed

On behalf of: (the Target International Corporation)

Name :_____________________________

Position : ___________________________

Date :______________________________

(Copy 1)

On behalf of (the National Promotion Agency) Name : _____________________________

Position : ___________________________

Date : ______________________________

(Copy 2)

Copied to : ____________ Date : _________

: ____________ Date : _________

: ____________ Date : _________

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