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Episode 30 – So, you had an investment attraction strategy. What now?

Site Selectors Guild
Episode 30 - So, you had an investment attraction strategy. What now?
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Rick Weddle: Welcome to “Site Selection Matters” where we take a close look at the art and science of site selection decision making. I’m your host Rick Weddle, president of the Site Selectors Guild. In each episode, we introduce you to leaders in the world of corporate site selection and economic development. We speak with members of the Site Selectors Guide, our economic development partners, and corporate decision-makers to provide you with deep insight into the best and next practices in our profession.

In this episode, we have as our guest, Andreas Dressler, managing director of Location Decisions, Berlin, Germany based location advisory firm that assists companies in the location analysis and site selection in Europe and around the world. Today, Andreas will talk with us about investment attraction strategies in the post-COVID-19 world in which we live today. Join me as we welcome Andreas Dressler to “Site Selection Matters”.

Andreas, we’re all working every day to try to figure out how to best manage in this new environment. What are you seeing really in Germany in terms of re-opening the economy?

Andreas Dressler: Well, I think the approach has been very different throughout all of Europe, so Germany specifically or Germany specifically. It’s starting to slowly re-open, so people are starting to go back to work, factories particularly in the automotive industry which has caused a lot of concern have re-opened in many cases.

So, things are returning to some semblance of normalcy. You have a similar development in other European countries. Some countries primarily the Nordic countries like Sweden have had a more relaxed attitude. Things there have been going on pretty much as normal.

Countries that have been more impacted like Spain and Italy are also slowly starting to re-open and have introduced re-opening plans that will see their economies not go back to full capacity but certainly see major industries get back online between now and the end of June.

Rick: Well, thank you, Andreas. That’s really interesting. I haven’t used the word normal in a sentence in the last few weeks without having the word new in front of it, so we’re all trying to figure out what will be the new normal as we go forward. Why don’t you take a minute if you don’t mind to help our audience understand what you see, as a corporate location advisor, in the corporate investment and global growth dynamics, the changes that are underway?

Andreas: The biggest question I think for everybody in this field, whether you’re a site selector or an economic developer, is what’s going to happen to investment, what’s happening with investment projects. And probably everybody has experienced the same thing. Projects are being put on hold or being canceled out, right? That’s happening for different reasons.

Now, certainly there are a lot of companies in industries that are being impacted very hard, and they’ve had to cancel their projects because their focus right now is really on survival. It’s on retaining cash. It’s on not laying off too many workers. And the last thing these companies are thinking of is expanding. So those projects are pretty much gone.

We also see a lot of companies, and this is probably the largest group based on my experience and some of the conversations I’ve been having that are simply putting projects on hold. In many cases, these are companies that want to invest, have fundamental reasons to be investing, but because of the uncertainty around everywhere in the world right now, they just can’t make those decisions. They’re waiting to see how things play out and their investment decisions are on hold.

And then there’s a third group of companies that are going ahead. I would say that’s the minority of companies. Those companies are moving ahead with projects albeit more slowly and then a really tiny fraction of companies are moving ahead much more quickly because they’ve got a strong reason to be building up capacities or to be establishing new facilities.

So that’s what we’re seeing right now. That’s the immediate impact. The big question is what happens further down the road. What happens in a few months? What happens a year or so from now? And I think it’s still too early to say. Companies have to evaluate where they’re going to invest in the future. If they were folks in a particular market, will that still be an interesting market for them 12 months from now? If they were planning to focus on a particular service or product and expand capacities for that, will there still be demands for that particular service or product? Plus, you have a whole range of other economic and political factors that are going to impact where and how companies choose to invest.

Rick: It’s going to make for some interesting times as we look ahead. From a community or region or state or maybe even a country’s perspective in view of all of these changes, what role do you think investment attraction or FDI, in particular, should play in their location’s economy going forward?

Andreas: So that’s a really important question, Rick. It depends largely on what the community’s overall economic development goals and strategy is or is going to be. So, it doesn’t really matter if you’re a country or a state or a large metro area or a small community. The first question now is, what is your overall economic development strategy? What is it that you’re trying to do for your economy now and in the post-COVID scenario?

So, your overall primary goal might simply be to retain as many jobs as possible regardless of what those jobs could be. Your primary goal could be to build up or at least to retain certain types of industry clusters. Your goal could be to create certain types of jobs.

So, depending on those overarching questions, the next question is then, what role can investment attraction and particularly FDI play in that? What’s the contribution that investment in FDI can make to your overall strategy? And the answer could vary. The answer could be a huge contribution, so the answer could be, if you want to retain or create new jobs, investment attraction is going to play a very big role in that.

However, I think that, for some communities, the answer might be not such a big role. And some communities might come to the conclusion that they’re better off paying attention to existing companies, paying attention to their existing base of investors, and it’s ultimately going to be a question of, where do we get the biggest returns on our taxpayer dollar? That’s always been the question.

But, if you think a few months ahead, I think most governments in the world at all levels of government are going to have significant budget problems. There’s going to be less tax revenue. They’re going to be spending significant amounts on helping companies that are there already. They’re going to be spending significant amounts on helping workforce.

So, I think governments are going to be a lot more selective in terms of how they use the resources they have and that will really determine how much money or how much resource they put to investment attraction. In other words, is this worth us investing and is this going to generate return on our taxpayer dollar?

Rick: So, it sounds like what you’re saying is that, well, a lot of economic development organizations or investment promotion agencies are right now just trying to figure out how to get their companies back to work and their people back to work, that it really comes down to, after they get that underway, what’s their overall strategy and how does that work? And so, getting back on that strategy makes a lot of sense. And FDI will fit into that one way or the other.

Andreas: It might and, again, it might not. So, I’ve spoken to some agencies in the last few days who’ve told me that they’re developing their strategy post-COVID, and that FDI plays a big, big role in that, and that their governments have decided they’re going to continue investing and they’re going to continue making a big push towards attracting investments.

But I can also see a scenario in other parts of the world where some governments might come to the conclusion there are going to be less projects. It’s going to be more competitive to win FDI projects. We’re going to have stretched budgets and we’re better off using that money to help indigenous industry, companies that are already here, or displaced workers.

So each community again, whether it’s a country, state, city, or smaller community is going to have to make a decision as to how they allocate their resources and what role investment and FDI plays in that.

Rick: That’ll make for some interesting changes. You know, Andreas, in the early days of investment attraction, the economic development organization or the IPA approach may have been somewhat what we used to say in this country “shoot everything that flies and claim everything that falls” or a shotgun approach, which didn’t really seem to work very well so much anymore.

With this strategy approach, what objectives really do you think should make up a sound strategy? And then how specifically should the IPA or the EDO measure performance?

Andreas: So, the shotgun approach is definitely one that I’m familiar with. I don’t think that’s ever worked, so I don’t think a shotgun approach, or a scattergun approach has ever been a good approach to investment attraction. I’ve always believed that being very focused and knowing specifically what you want to attract in terms of various target groups, types of activities have been the most successful approach to investment attraction. And as you rightly say, that’s going to become even more important now.

I mean, I’ll give you an example. You know, we’re all reading a lot these days, and there are a lot of different opinions out there. We read a lot on industries that are being impacted so we read things such as automotive declining. Automotive is going to struggle. We read everywhere that life sciences is going to do well and life sciences will continue to generate investment.

You know, that might be true in general, but it doesn’t provide the full picture and I would argue that investment promotion agencies or economic development agencies will have to look a lot more closely at these sectors and see whether within those sectors there are differences. So not all areas of life sciences are going to expand. Some are, some are struggling, and not all areas of automotive are going to struggle. Some parts of automotive will do well.

And the challenge really is to look at those activities and decide which ones are going to generate projects and which ones are a good fit with your community and provide a basis for you to attract investments. So that’s the key or the foundation to the strategy.

Rick: So, let’s unpack that a little bit, Andreas, in terms of…obviously because, in today’s environment, EDOs, IPAs are looking at these specific sectors that make more sense for others. What sounds like you’re saying is that it really takes a more granular, in-depth analysis to look at these sectors to know what the target and to know where to spend your resources. So how do you go about that?

Andreas: It requires a lot of industry knowledge. So, some EDOs and IPAs will have that in-house. Others won’t but there’s a lot of information out there and there are a lot of specialists out there, and I would suggest the best place to start is by speaking to your own local base of companies and asking them what they’re seeing in the industry.

So if we take a sector like medical devices and everybody’s saying medical devices will boom, certainly some type of medical devices will boom but there are also others that won’t. So anything, for example, that’s related right now to elective surgery is not doing very well. There are a lot of companies that have been impacted by disruptions to clinical studies which is slowing down product launches or product approvals.

So it really does help—in fact, I think it’s essential right now—to have that type of granular approach and almost to use the time that’s available now to do that type of analysis and to really pick the sectors that are going to be producing projects or generating projects in the future.

Just quickly, Rick, on your point on performance measurements and, you know… I mean you’re an economic developer. You know that the currency in economic development is always jobs. Economic development agencies are measured in number of jobs, number of jobs created, sometimes number of jobs retained. Sometimes you have a secondary measure which is CapEx.

I think those metrics are important, but they’ve been out of date for a while. And while they will never be replaced, there needs to be a move now towards having more sophisticated, more holistic measurements for what economic development agencies do.

If your measure is still going to be jobs, just total number of jobs, there is no agency in the world that is going to meet their goals this year, and there’s unlikely to be an agency that is going to generate as many new jobs next year as they did say in 2019.

So, there is a need to be more refined measures that are more closely related to the strategy. And, again, this is where everything comes together. What is your overall economic development strategy? What role does investment attraction and FDI attraction play in that? And then how do you actually measure the contribution of FDI to that strategy?

Rick: Makes a lot of sense. Let me ask you. Let’s go a little deeper on that issue there because, you know, jobs are important, always have been important. I think it is a blunt instrument, as you say, to really measure overall performance. But we’ve moved from now and certainly in the U.S. but in much of the developed world from almost a full employment environment to the highest unemployment that we’ve seen perhaps in 70 or more years since the Great Depression.

What role will talent play in this post-COVID-19 environment as we go forward? I mean, even though we’re going to have plenty of labor to go around, skills and talent still going to be at a premium, is it not?

Andreas: It absolutely will be. So, the projects that we’re working on now or are seeing now very much placing an emphasis on the availability of talents as a key driver of where they invest. And, you know, the types of talent that are in demand continue to be in demand whether that’s in cybersecurity or in certain parts of pharma production. I mean those are skills that are still in demand that are not idle right now.

So one of the questions might be going forward is how can we create not just any jobs, but how can we create resilient jobs? And I know that’s a tough definition to make, but this is definitely something that I think economic development agencies should be dealing with is how can we create jobs that are recession-proof, downturn proof. There’s never any guarantee, but how can we create jobs that are not so volatile and that won’t disappear as quickly the next time something happens?

Rick: Excellent point because these black swan events like this COVID-19 pandemic have really upset the applecart and so it’s given us a… I like your term, resilient or recession-proof jobs. That’s perhaps a whole topic for another conversation on another day.

Let’s switch gears, if you don’t mind, a little bit and let’s talk about this whole environment situation from the corporate perspective. What are you hearing from the corporate community? And more importantly what advice would you give a company looking to realign supply chains or correctly position their investment profile in today’s post-COVID-19 environment?

Andreas: So, what we’re seeing and what you’re hearing a lot of is this realignment of supply chain. So that seems to be, you know, the topic that is keeping everybody busy both on the economic development side, trying to understand what that really means and also on the corporate side where corporates have experienced disruption to their supply chain.

I’m a little skeptical about what is going to happen. What I mean by that is I don’t think there’s going to be a massive wave of re-shoring. I don’t think that every medical device manufacturer, every pharma company, every automotive company is going to pull out of certain markets and invest back home. I just don’t see that happening for a number of reasons.

First of all, if you have a plant in China as a European or as a U.S. company or a North American company and you’re supplying the Chinese market, which is still a huge market, by the way, recovering very quickly, there are very good reasons for you to keep that facility in China and there are no really good reasons for you to bring that back home or to re-shore that manufacturing.

And the other thing is, you know, when we talk about realignment of supply chains is companies don’t actually have to move facilities to do that. They can simply change their suppliers. If they were getting their supplies from a certain part of the world, they can shift that to other parts of the world if they were using contract manufacturers in some parts of the world or change those or bring some of those processes back in.

So there are different things that companies can be doing to realign the supply chains. And, in fact, that’s what I’m seeing right now. That’s the approach companies are taking. It’s not all about how do we move manufacturing or operations from A to B; it’s about how do we restructure our supply chain using different options that are available to us.

So, my advice there to corporates would be not to make rash decisions. I think there are too many unknowns right now. The situation is too uncertain to simply make knee-jerk decisions unless you really have to. It’s really a good time I think for scenario planning. It’s a good time to sit down and say, you know, “These are the potential developments that could happen over the next 6, 12, 24 months and this is how we’re going to respond to each of those potential scenarios.”

Rick: Really interesting point about not changing physical facilities but realigning supplier vendor relationships because that can be done without the allocation of capital. It’s really just a contractual arrangement as that goes on. Obviously, that would possibly leave some stranded facilities or some facilities with lower utilization in some places that then are competing on a global stage to be competitive for their own new investment, I suppose.

Andreas: Absolutely.

Rick: Interesting. If you have a crystal ball, not to put you on the spot, but what do you think will be… One of the big debates that we have in the U.S. is what’s going to be different from here on out that we hadn’t thought of in the whole corporate site selection environment. Any ponderings or thoughts on what big changes may occur over the longer term that will be part of that new normal and not something we go back to but move on to?

Andreas: Maybe a couple I could highlight just off the top of my head. I mean one is certainly competition for projects is going to ramp up, being competitive enough as it is. But I think as the number of corporate location projects declines, the competition among locations for those projects is definitely going to heat up and we’re going to see some pretty I think aggressive measures to win projects.

That hasn’t happened yet although, you know, there have been instances, I won’t mention those, that have been in the press of already now locations in the same country trying to poach companies from one another. So that’s not a positive development, but I think we should be prepared for a much harsher environment in terms of competition globally for projects. So that’s one.

The second one I think is the nature of projects will change; something that’s been happening for a while. There has been a lot more automation in projects, so we’ve heard about Industry 4.0 that’s been going on for a few years. I think that is really going to ramp up if you look at what’s happening, you know, the last few days in the U.S. in meat processing where, you know, few facilities have closed down because of all those illnesses among employees.

You know, that wouldn’t have happened if there was more automation, and I think the same thing has been happening in the logistics sector here in Europe and some countries. A number of distribution centers have had to close because their workforce has been affected by COVID. So employers are going to want to prevent that from happening in the future, so I think we’re going to see an acceleration of the trend to automation.

And I think that a lot of activities that were labor-intensive in the past like distribution, like food processing will become increasingly automated. That’s not necessarily a good thing; in fact, that is not a godo thingn for communities that want to retain or create employment.

I guess the only silver lining there is one of the sectors that is definitely going to boom and then that I would be putting my money on is industrial automation. So companies that are producing technologies that are producing Industry 4.0 type systems and equipment are really going to see demand go up over the next year and then beyond.

Rick: Well, Andreas, you’ve given us a lot to think about today, lots of get back to basics with strategy for communities, regions, states, and countries. But also then some big changes that could occur over the next few years, more competition, and a changing nature of projects and maybe more automation and robots because robots don’t get sick.

What a great conversation we’ve had. We could talk about this all day long, but that’s all the time we have. So let me say thanks to Andreas Dressler for talking with us today on this episode of “Site Selection Matters”.

Andreas: Thank you, Rick.

Rick: Thanks for listening to this episode of “Site Selection Matters” and a special thanks to Andreas Dressler with location decisions for helping us get inside and better understand the changes and shifts in today’s investment attraction strategies. What an informative discussion and one that leaves us with a lot to think about.

Again, I am Rick Weddle, president and CEO of the Site Selectors Guild. This podcast represents my views and the views of my guests, and they do not necessarily represent the views or opinions of the Site Selectors Guild or its membership. We hope you’ll subscribe to “Site Selection Matters” podcast on Apple podcast, Stitcher, Spotify, or wherever you get your podcast. We look forward to bringing you some great discussions in the year ahead. Until next time, good day.