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Is Trade the New FDI Promotion?

The focus of Economic Development Organizations’ (EDOs) international efforts in many countries over the last 20 years has often been in foreign investment attraction. Even when that has been less the case, certainly the role of consultancy support to these EDOs has been much more limited. While some locations have had overseas trade offices for many years, they have not necessarily been seen as a starting point for proactive, strategic campaigns. So, an EDO would support its local firms looking to export, but the approach of selecting target sectors and international markets, in the same way that tends to take place in foreign direct investment (FDI), has often (but not always) been absent. Anecdotally, this does now appear to be changing. Certainly in the US, there are an increasing number of strategic projects that are explicit to proactive export promotion.

Why the shift?

There are at least three reasons for this:

  • TTIP & TPP: whatever your opinion on the merits or otherwise of these mega deals, they have made trade prominent in the popular media. The political weight behind these deals (notwithstanding views coming out from the US election, Brexit etc.), has made many locations’ terms of trade a key talking point for their economy. Ultimately, EDOs are normally at least partly publicly funded, therefore it is logical for them to attempt to exploit the potential advantages of the deals.

  • Weaker FDI, where trade is an alternative route: various data sources suggest that volumes of global FDI, while showing some bumps, continue to grow year on year. However this doesn't mask the facts that: there are more credible EDOs competing for projects than ever before, projects are not the large scale job creators of 10-20 years ago, and an increasing percentage of FDI comes in less footloose forms such as M&A. Therefore, winning greenfield FDI is on balance, probably getting more difficult. Now, most companies start internationalizing by exporting, before later physically expanding. Hence when EDOs work with their local companies to export and promote them in target markets, this also serves to promote the location and the type of dynamic, innovative cluster that overseas investors are looking for. In this sense, outward trade promotion becomes a method of boosting inward foreign investment promotion.

  • Understanding of how to promote: a challenge of export promotion in the past has been around the capacity for EDOs to pick winners. For good reasons, EDOs have been expected to provide a level of service to any local company that requires support. But more EDOs are now in a position to vary the scope and breadth of the service they provide, depending on the export readiness of the company. Moreover, in terms of actual export promotion in target markets, the task is no longer simply about building a list of potential distributors / partners, but is now more strategic - the same types of lead generation activity that take place for FDI, now apply to trade.

Will this 'trend to trade' continue?

The answer is surely yes. Whatever the outcomes of the different votes cited above, the importance to a location of exporting its goods and service will not go away, indeed it will probably increase. Moreover, at the tactical level, while some EDOs only have a mandate for investment promotion, and other have explicitly separate units for investment and trade, this may start to become less common. Instead, a joined up international economic development approach where trade and investment go hand in hand, and are viewed as such, (albeit with their own distinct strategies and resources), may well be the future.

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