When considering what makes certain countries attractive to investors, factors including Political Stability, Size of the Local Market & Market Access, Wage Rates, Tax Rates, Transport & Infrastructure, Corruption Levels, and Skill levels are usually weighed. Traditionally, this is carried out at a national level.
The good news is, what attracts the flow of investment is not only about what countries have to offer but also what individual cities or regions can give. Investors are attracted to specific local conditions, and what seems attractive varies enormously depending on firm strategies, sectors and the stage of the investment.
There are types of investments that respond to national-level attraction factors, and types of activities that are instead responsive to local factors. While it is true that external investment is important to local communities, if the community can only offer economic incentives it might not be enough to attract investors.
Investors look for different locations for different activities. Instead of just focusing on sectors, it is important to look closer, not just to individual firms, but even to the range of different activities that a firm can undertake – for example, R&D, manufacturing, or marketing – to understand what activities can offer the best match with the local environment. There is so much more that local policymakers can do beyond economic incentives.
Having different business cultures and practices also makes it either harder or easier to invest in a new economy. This makes them rely on more traditional factors like whether there is a buildup of similar investments in the area, which would appear like a safe bet.
The quality of local government, for example, a combination of things like low local corruption and an efficient planning system, can also make a huge difference in attracting foreign and innovative firms in starting new ventures.
So when positioning local economies to attract investments, policymakers need to get a better understanding as to how to effectively interact with investors, identify what they can realistically attract and retain in their constituencies so as to get better deals for their citizens.