Fools rush in where angels fear to tread: OCO FDI playbook at a time of crisis
FDI will tank in 2020
Let’s not kid ourselves, companies are de-prioritizing all expansion in the short-term and will likely push out investment decisions to at least the second half of the year. More immediate challenges of workforce wellbeing, supply chains, mobility and liquidity are likely to dominate the (virtual) boardroom agenda as our exasperated European Automotive Supplier respondent confirms below. In this context FDI targets for 2020 are likely to be unachievable. OCO anticipates that in 2020 Capex could be down by as much as 50% given last year it dropped 40% with global uncertainty, and project numbers likely to dip by at least 30% given that economic life will pause completely for at least one if not two quarters.
So, let’s start by managing stakeholder expectations.
How should IPAs respond?
With many sectors and businesses facing potentially existential challenges, and stock markets in unchartered territory, it would be totally inappropriate to canvas expansion at this moment. Even if it was not, the capacity for new prospecting is limited given the inability to travel, the rescheduling or cancellation of industry gatherings and willingness of executives to meet.
So, what can be done?
- Business development activities need a reset
Prioritize pipeline management over new lead generation. At this stage it is critical for IPAs to nurture relations and boost confidence and trust as a partner. IPAs should establish positive and forward-looking engagement with clients and prospects which will evolve into strengthened relations when confidence returns. Messaging should be centered around providing transparency, up to date briefings and continued support.
In recent weeks OCO have experienced more frequent and deeper engagement with our clients in this time of uncertainty. Working remotely can create anxiety and isolation, as well as time to reflect and plan. Economic developers and their advisors have an opportunity to influence this process by keeping information flowing and providing thought leadership. This hiatus also provides a window for innovation, research and development of new ideas, given the limited scope for business development or business as usual distractions.
“I am impressed by the cluelessness of IPAs. An Agency is writing to me that they are specialists in the automotive industry and would like to talk to us about a greenfield project. What are they thinking? Automotive in Europe is in the biggest crisis since World War II, practically every OEM is in lock-down, all supply chains are breaking down, hundreds of thousands of employees have been sent home, there is acute pressure on cash flows and securing liquidity, … and then they seem surprised when we don’t want to build a new plant right now… Nothing embodies ignorance as completely as this action right now”
Unedited quote from a European Automotive Supplier today 19 March 2020
- Double down on existing investor relationships:
Your existing foreign investor community will likely be facing daily challenges for the next few weeks – ranging from keeping abreast of government advice on health, homeworking, childcare, to repatriation of its workforce, through to navigating the financial supports that are being announced on a daily basis and will likely differ in scope and eligibility than those in their HQ country. Supply chain diversification will also be an issue for many and free movement of management/staff across borders will be a challenge for many businesses. Account management needs to adapt rapidly to understand and address these new issues facing foreign investors in the host country in order to maintain and protect existing investments. Close collaboration with the company HQ to advise on the different government schemes will also be welcome and pay longer term dividends.
These scenarios for which account managers may be ill prepared may necessitate closer collaboration with the local multiplier community to enhance connectivity with professional service firms, industry organizations and international trade bodies to provide additional expertise.
- Reflect on your own strategy and business development activities
At this time of disruption, economic developers would do well to reflect on their existing investment attraction strategy and determine whether it is future proof. For example, if your strategy depends on attracting sports betting firms, aircraft MRO or the cruise industry, you may need a rethink. Which sectors / segments are likely to be most resilient, which are vulnerable, and which might indeed thrive in a new world order? And clearly sources of FDI and Host countries are likely to experience considerable upheaval with reshoring of some Asia dependencies, or diversification (and shortening) of supply chains in the West. There will be winners and losers. Like us you may have more questions than answers right now.
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