Innovations in Foreign Direct Investment Attraction

1.2 

WHY DOES INVESTMENT PROMOTION WORK?

1.2.1 

Getting a Location on the Investor’s Map

2

Image, brand awareness, and perceptions are major factors influencing the location 

of FDI.  Companies make investment location decisions based on their information 

pool and understanding of an area’s location “offer”. 

When deciding where to locate, the information base of MNEs is often imperfect, 

and the decision-making process can be subjective and biased.

3

 It is often a bureau-

cratic process, which may be affected by imperfect competition, distorted risk per-

ceptions and political rivalry between affiliates of MNEs. 

The implication, as the International Finance Corporation (IFC) argues, is that: “Most 

companies consider only a small range of potential investment locations, many other 

countries are not even on their map.”

4

 

Studies have found that investment promotion was most effective when it: 5

• Overcame information asymmetries; 

• Compensated for the imperfect functioning of international markets, which makes 

parent companies (and their corporate location advisors) reluctant to consider new 

production sites; and 

• Led to differentiation of the host country as a location for targeted activities.

The importance of the activities of EDOs and IPAs can be seen in recent investor 

surveys. A survey by Development Counsellors International (DCI)

6

 of 356 corpo-

rate location decision makers found that articles in newspapers and magazines and 

meetings with EDOs and IPAs were two of the four most important factors influ-

encing executive’s perceptions of an area’s business climate for inward investment, as 

Graph 1 shows. This demonstrates the importance of marketing and lead generation 

activities to get a location on the investor’s map.