Measuring the Offer and Opportunity in FDI: Are We Getting it Right?


Ever since Foreign Direct Investment (FDI) became an industry with enough scale to justify the existence of consultants (like All Out Location!), there have normally been three typical ways of measuring the trends between sectors, source markets, destinations locations etc. These are numbers of projects, numbers of jobs, and capital expenditure. Each of these have their advantages and disadvantages in terms of accuracy, level of (available) detail, and the extent to the which they require interpretation (e.g. measuring by number of projects means ignoring the size of the project etc).

Nevertheless the various sources of data out there all use at least one of these measures, and each help us to develop a picture of the nature of the opportunity to attract investment for a location. While combining these datasets helps further, an ongoing weakness around sector definitions pervades when analysing this opportunity. A particular example of this is around Environmental Technology, or Cleantech. Typically, these types of projects actually come from companies in other sectors like Advanced Manufacturing, where the Cleantech element is just a part of the investment – but they are not Cleantech-specific companies. This tends to mean that despite the high profile of the sector (and Renewable Energy is a similar, related example), where lots of IPAs / EDOs throughout the world target it, data suggests that the scale of opportunity is often quite limited.

So, are we hugely underestimating the opportunity in our evaluations and really all those agencies targeting Cleantech have got it right? Like most things in life, the answer is probably somewhere in the middle of the extremes – the opportunity is greater than quantitative analysis might suggest, but also less than some agencies might want to believe. In reality, all we can do is examine the data critically, use more than one source where possible, and place fair weight on quantitative (expert) views. Unfortunately, a similar challenge exists in measuring the location’s offer, perhaps to an even greater extent. We want to credibly answer the question, “what companies do we already have in our location, and in what sectors”? But whether we look at NAICS, SIC, or any other industry coding system, measuring Cleantech again is a major problem, as industry codes have not fully followed the evolution of modern economies. The codes simply don’t exist, and it means estimating the true scale of a location’s Cleantech industry is virtually impossible.

But solutions on measuring the offer seem more feasible than they are for the opportunity: first is to develop the relevant codes! The second is then for national statistics agencies to publish company and employee demography of secondary codes. This would allow all those Advanced Manufacturing, or Software, or Business Services, or Mining, or Oil & Gas companies that actually get involved in other areas to a lesser extent (be they Cleantech or otherwise) to still be recorded as such.

This enriched level of insight may be expensive and time consuming to achieve, but realistically if we want to better understand ever-changing dynamic modern economies, we need the tools to do so. Innovation is a key characteristic of much of the FDI we see today and more broadly a major economic driver. It is also a key feature of the likes of Cleantech, hence if we continue to be unable to properly measure such innovative industries, current existing data will become increasingly irrelevant, and this will be ultimately detrimental to growth.

Recent Posts
Archive
Search By Tags

© 2020

  • LinkedIn App Icon
  • Twitter Social Icon

All Out Location