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Importance of organizations for investment promotion during an investment decision process: an exploratory study.


During the past 15 years both developed and developing countries have created organizations for investment promotion (OIPs). The objectives of these organizations have been to prospect international markets, communicate the existence of competitive locations, attract foreign investors, and provide them services to make their establishment and their development in their new region easier. The fierce competition between countries to attract a few mobile projects has led OIPs to use sophisticated marketing techniques and spend extensive resources on investment promotion activities? According to Hatem (1993), in 1992 European OIPs spent about 10 billion French francs on promotion activities and employed more than 3000 workers.

The attractiveness of a region as an investment location can be reinforced through different government activities. Many studies have been conducted to assess the relative importance of different location factors and government incentives in the choice of a new location (see Tong/Walter 1980, Guisinger et al. 1985, Guisinger 1986, Blair/Premus 1987). Though some academic works have underlined the applicability of marketing techniques to the promotion of a region (Aharoni 1966, Watzke/Mindak 1987, Wells/Wint 1990, Kotler et al. 1993, Ashworth/Voogd 1994, Young et al. 1994), to date little research has been dedicated to the role of the marketing variable as a means to enhance the attractiveness of a location.(3) Past research has suggested that investment promotion activities can be classified into three types: (1) image-building, (2) investment-generation, and (3) investment-service (Wells/Wint 1990). While some studies have been dedicated to the first (Aharoni 1966, Wee et al. 1992, Ashworth/Voogd 1994) and second activities (Wells/Wint 1990, Wint 1992), so far little research has been done to assess the importance of investment-service activities on foreign investors' behavior. Wint (1993) investigated the different organizational approaches used by governments to provide post-approval services to investors. Using more than one hundred structured interviews, 10 developing countries were analyzed. A centralized organization performing both investment screening and post-approval service functions appeared to be the most effective approach. In a conceptual paper, Young and Hood (1994) proposed a framework aimed at assisting OIPs to design and implement an "after-care" program for foreign investors. While earlier research has focused on some components of the investment-service activities, to date no empirical study .has been conducted on the entire mix of services, and, moreover, none of them has adopted the perspective of the investor (for a literature review, see Young/Hood 1994).

The purpose of this article is to evaluate from the investor's viewpoint the importance of the role played by an OIP in general and by a mix of service activities in particular during the investment decision process. The link between these two measures of importance and the size of the company and the experience of both the company and the project's leader in terms of investment process respectively are investigated. We hope that the results of this research will be useful to those who are responsible for the design of investment promotion programs.


A country or a region as an investment location can be viewed as a mix of attributes. From the marketer perspective, these attributes can be classified into 4 categories according to the OIPs' ability to modify them. Some of them are fixed (like the climate) - and unmodifiable; some are modifiable in the long term (like the education program); some are modifiable in the short term (like an incentives program); and finally some may be customized (like services to investors). From the investor's viewpoint the investment location can be described in terms of the main advantage(s) provided by the new location, corresponding to the three main investment motives (market, cost or known-how) (see Buckley/Brooke 1992, p. 319); the secondary advantage(s); and services to investors. Some authors use the terms of"must and want factors" to describe the first two levels (see Schmenner 1982, p. 32).

The above paragraph suggests that services to investors can play an important role during an investment decision process. Indeed, this process is generally characterized by a high level of complexity and uncertainty. In this context, services to investors, which are the only way for a region to customize its offerings, may be of great importance. Through the use of 10 in-depth interviews with foreign investors, the role played by services provided to investors was identified as a major component of an OIP's activities. Seven out of 10 companies declared they would not have invested in the region without the presence of an efficient OIP. Though they cannot replace competitive location conditions, services to investors may represent a prerequisite to the development of a competitive position by a region.

Services to investors can be defined as the means provided by an OIP to foreign investors and its expatriates to facilitate the evaluation of the location, the setting-up, and the long term development of the investment. This definition goes beyond earlier work, since.both pre and after-care service are considered (Wint 1993, Young/Hood 1994). Beside the fact that services are part of a "customized" approach and allow the creation of deeper relationship with investors, they fulfill mainly three objectives:

* Reduce the level of uncertainty surrounding the investment decision process;

* Facilitate access to the region;

* Facilitate the start-up of the project and ensure its follow-up.

The following study tries to capture the relative importance of each of the 15 identified services during an investment decision process.

The Study

Two main data collections were performed. In the first exploratory collection, in-depth interviews were held with ten foreign investors, eighteen European OIPs, three international consultants, and three experts of the field. These interviews enabled us to understand the investment decision process and to identify 15 services provided by OIPs to foreign investors during their investment decision process.

Secondly a pre-tested questionnaire was mailed to a non-probabilistic sample of 197 companies recently set up in 4 European countries (Belgium, France, Ireland and Switzerland). As no exhaustive list of recent foreign investment projects existed in Europe, investors were identified through the following instruments: (1) promotional documents published by several European OIPs (brochures, newsletters), (2) lists of recent foreign investments published by several OIPs, and (3) on-going relationships with representatives from both companies and governmental agencies we met during the interview process. In each case the project's leader within the organization was identified and asked to complete the mailed questionnaire.4 After two follow-up letters each followed by a phone call, 82 questionnaires were returned (total response rate = 41.6%) and 75 could be used for the analysis (usable response rate = 38.1%). Among the 75 usable questionnaires, 28 were returned by companies counting less than 500 workers (37.33%), and 47 by companies counting more than 500 workers (62.66%). Twenty-three projects created more than 70 jobs in their new location (31.5%), 24 between 21 and 69 (32.88%) and 26 between 1 and 20 (35.62%).(5) The respondents are described in Table 1.

A chi square test ([[Chi].sup.2]) comparing the respondents' profile to the profile of the initial sample was performed. Regarding three characteristics (origin of the investor, new location, and sector of activity), these tests indicated that the responses obtained matched the original sample. Given the existing difficulties in collecting data in this field (no lists, an extensive and confidential decision-making process occurring relatively infrequently), the number of questionnaires returned was considered very satisfactory.


Study Findings

Respondents were asked to rate both the overall influence of OIPs and the importance of a mix of services during the investment decision process. The analyses were performed with SPSS. Professional Statistics release 6.1 for Windows (see Norusis 1994).

Overall Influence of OIPs

The influence of OIPs was measured at different stages of the investment decision process on a five-point rating scale (1 = strongly disagree, 5 = strongly agree). As shown in Table 2, investors considered that OIPs had an influence during the investment decision process-overall and especially at the end, whereas this influence seemed to have been very low at the beginning of the process.

The weak importance played by OIPs during the earlier stages of the process might be explained by the two following observations. First, another part of the same survey dedicated to the search for information process followed by foreign investors, showed that the external collection of information really started from the second stage of the investment decision process, the first stage having been more internally oriented (Brossard 1996). Second, the same study pointed out the lack of pro-active behavior expressed by OIPs during the investment decision process. In more than 82% of the cases, the first contact between the OIP and the investor was initiated through another company or a third party.
Table 2. Influence of OIPs at Different Stages of the Investment
Decision Process

Stages Mean Stdv.

Problem Recognition 2.36 1.28
Pre Selection of Regions 3.16 1.22
Final Choice 3.28 1.17
Setting Up 3.74 1.18
Entire Process 3.43 1.13

n = 71.

"The promotion agency had a significant influence during:" (1 = strongly disagree, 5 = strongly agree).

Besides this, the influence of OIPs seems to have been independent of the company's experience ([Mathematical Expression Omitted], sig.=0.099) and of its size ([Mathematical Expression Omitted], p-value = 0.7653). On the contrary, the respondents who had little experience in terms of the number of investment projects in which they had previously taken part tended to consider OIPs more important than respondents with a larger experience ([Mathematical Expression Omitted], sig. = 0.022).(6)

Importance of Services

As a second step in reporting the findings, the relative importance of each of the 15 services is discussed (Table 3). This importance was measured on a five-point rating scale (1 = not important, 5 = very important).

As can be seen in Table 3, services aimed at reducing the level of uncertainty were considered very important ("Information on Key Factors", "Information on and Identification of Premises and Sites"). Similarly, the results suggest that services designed to facilitate access to the region and reduce the length of the process such as "Assistance with Local Authority Contacts" and "Preparation of Documents to Obtain Incentives and Permits" were important as well. Such services aim at "reducing the hassle costs of doing business" (Dunning 1993, p. 27). Their effectiveness seems to be deeply linked to the organizational structure of OIPs, the [TABULAR DATA FOR TABLE 3 OMITTED] objective being to be able to provide them through a "one-stop shopping" centralized organization (Wint 1993).(7) Finally, services, designed to assist investors during the start-up stage do not seem to have been considered as relevant. Nevertheless the smaller companies ([less than]500 employees) tended to consider the services "Assistance in the Staff Research and Selection" ([Mathematical Expression Omitted], sig. = 0.016) and "Temporary Loan of Managers" ([Mathematical Expression Omitted], sig. = 0.007) more important than the bigger companies ([greater than]500 employees). The other chi square test we performed between each service and the size of the company, the experience of the organization and the experience of the project's leader respectively were not significant.

Relationship between Information Sources

A principal component analysis was performed from the correlation matrix of the 15 services. This technique allows us to identify any relationship between the variables and to create new factors which are linear combinations of the 15 services (see Diday et al. 1982). Table 4 presents the results of the principal component analysis.


Four out of the five factors are closely related to the stages of the investment decision process. Factor 5 defined only by one service "Information on Key Factors" seems to be deeply related to the feasibility study stage which includes the selection of the potentially interesting regions and their evaluation. Factor 2 and 4 are associated with the pre setting-up of the investor in its region. Factor 2 contains services whose objectives are to facilitate and accelerate the investment process. They are all related to better access to the government, i.e. to the desire to avoid bureaucracy. In contrast Factor 4 is composed of services not related to government access. In terms of importance, both Factors 5 and 2 were considered important or very important, while Factor 4 was considered less important (see Table 3). Factor 1 is composed of services directly linked to the setting-up of the company and to the follow-up. The services composing this factor were considered as not very important except for "Information on and Identification of Premises and Sites". The high loadings obtained by this service on more than one factor (Factor 1 and 2) show that it does not belong clearly to the first factor. Finally, Factor 3 can be described as "broad contact establishing".


Little empirical research has assessed the importance attributed by foreign companies to organizations for investment promotion (OIPs) during an investment decision process. This study focuses on this issue and provides some interesting insights to academic researchers, to area development representatives seeking to attract new industries in their region, and to foreign investors. Though marketing techniques cannot replace competitive location conditions, the results of our study suggest that OIPs, as provider of services to investors might play an important role, especially at the end of the investment process.

The principal component analysis allowed us to identify 5 sets of services related to the stages of an investment decision process. The high importance attributed to "information services" (Factor 1) should prompt OIPs' managers to focus carefully on the content of the information they provide to investors. In many cases, this information is presented at a too general level and, thus, does not meet the specific requirements of the investor. These services should allow companies' managers to assess accurately the potential of a region as an investment location and to reduce the uncertainty surrounding the choice process. In other words the information provided by OIPs should go far beyond the general information investors can obtain from promotional brochures.

Besides these services linked to the feasibility study stage, services related to the pre setting-up of the company and easier access to the governmental departments seem also to be central. Consistent with previous research, these results underline the need for OIPs to be as much as possible the only point of contact between foreign investors and the government. This need has strong implications in terms of both organizational structure of the OIPs and attitude of the government toward foreign investors. The adoption of a customer-oriented attitude seems to be a prerequisite to successful investment promotion activities. It also has to be related to the results of this research which highlight the lack of pro-active behavior by OIPs during the investment decision process. As time is often of great importance to companies setting up new sites abroad, the capacity to respond quickly to their needs should confer a competitive advantage to OIPs and their sponsoring regions.

Finally, the results seem to show that the importance of some individual services vary according to the size of the investor's company. This is true especially for services related to the setting-up stage, smaller companies tending to consider services such as "Assistance in Staff Research and Selection" as more important than larger companies. This observation underlines the importance for OIPs to adopt a customized approach and to understand the specific needs of each foreign investor.

From the investor's viewpoint, this article reveals the overall importance played by OIPs during an investment decision process, identifies the range of services an investor may expect to be provided with, and shows how important they are for investors that are involved in the investment decision process.

OIPs are considered by investors to be important partners especially at the setting-up stage of the investment decision process. Although the success of a foreign investment is directly related to the fit existing between the needs of the investor and the characteristics of the region, and even though the presence of a professional OIP does not guarantee its success, the results of this research suggest that its absence might jeopardize the whole project. OIPs facilitate and accelerate the investment process by providing foreign companies with easier access to key information, to networks, and to governmental departments.

Based on these results, the range of services provided by an OIP should be considered by investors as an initial indicator. A good OIP should allow foreign companies to assess the degree of welcome accorded by the region. It should be professional and willing to work closely with investors both during the investment decision process and later, once the investment is realized. The quality of an OIP is an indicator to which an investor should pay careful attention before seriously considering a region for further investigation. There are two primary reasons.

First, as the "time pressure" factor seems to gain in importance, and because OIPs are key determinants of quick and direct access to the government and thus of the length of the process, the professionalism of the OIP should be evaluated carefully. This is especially true for companies that do not have previous experience in the investment decision process and OIPs relationships and that need some indicators to screen and select the regions that will be included in the short list. Second, investors should be aware of the key role OIPs might play not only during the different stages of the investment process but also later once the investment is realized. OIPs should remain reliable partners assisting foreign investors to tackle some of the problems they could face. The potential for establishing a deep relationship with an OIP is therefore a crucial element to take into account when considering a new region.

Because of the nature (non-probabilistic) and the sie of the sample, further research should attempt to replicate this study using a more representative population. Such studies should lead to a better understanding of the variables influencing the perceived importance of various services (e.g. level of uncertainty, importance of the investment or sector of activity) and provide OIPs with useful and practical information. Further studies should also investigate the relationship between the costs of providing services to foreign investors and the global return for the region. Finally, they should determine the savings the use of an OIP can ultimately bring to a foreign investor.


1 The author thanks Michael Kostecki, Bruno Bircher, Michel Dubois and Janet Graham for their helpful comments. This research was supported in part by a scholarship to the author from the company Kraft Jacobs Suchard.

2 In 1993, only 456 new foreign investment projects have been realized in the United States (Fahim Nader 1994, p. 50), 162 in France (6,016 jobs create), 50 in Ireland (6,000) and 67 in Netherlands (2,300) (source: annual report published by the OIPs of the mentioned countries). During the same time, many countries and regions competed to attract this limited number of mobile projects. As stated by Globermann (1988) and Hatem (1993), since the early eighties many countries have modified their attitudes towards foreign investors by reducing foreign investment restrictions.

3 As already discussed by some authors, the promotion of a region has many similarities to an industrial (business-to-business) marketing situation (see, Wells/Wint 1990, Texier 1990, Young/Hood 1994).

4 We chose a mail survey which allows a wide distribution. Very often, once the company has settled, the project's manager comes back in the headquarters of the company in the native country.

5 Two companies did not reveal the number of jobs created. The median number of jobs created was 35.

6 The company's experience was measured on a five-point scale (1 = strongly disagree, 5 = strongly agree); its size in terms of the number of employees in the mother organization; and the experience of the project's leaders in terms of the number of projects in which they previously took part. Among the smaller companies ([less than]500 employees), 19 project's leaders had previously realized between 1 and 2 projects, 6 between 3 and 5 and 2 more than 6. In comparison, in the case of bigger companies ([greater than]500 employees) these numbers were respectively 15, 17 and 16 projects realized. The bigger the company, the more experienced are the project's leaders ([Mathematical Expression Omitted], sig.=0.003).

7 The organizational structure of OIP has been discussed in earlier research (see Alahique 1972, Wells/Wint 1991). The "quasi-government" organization structure seem to be the most efficient, since it is the one able to use critical skills of both public and private sectors.


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Dr. Hubert Brossard, Manager Research Projects, J.D. Power and Associates, Guildford, UK.
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Author:Brossard, Hubert
Publication:Management International Review
Date:Jul 1, 1998
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