To drive growth, investment is fundamental. Recognizing the limitations on the domestic front, companies look overseas to expand their market while, at the same time, countries improve infrastructure and introduce incentives to attract new business.
Competition is tough. Resources are limited. Room for error is small.
In deciding where to go next and ensure profitability, all businesses have their own checklist. Below is a short list of common criteria.
Steady, as she goes
Political and economic stability is a primary consideration for investors in search of overseas markets. After all, all investors have long-term plans and need predictability if their ventures are to be profitable and worthwhile. They need to minimize risks by making sure their investment will be insulated from elections cycles and any possible change in policy direction.
Delving deeper, prospective investors look into a host country’s regulatory environment and its regard for the rule of law. They usually consider factors such as property rights, contract enforceability, labor laws, and dispute resolution mechanisms. To further mitigate their risks and give them a clearer picture, they also engage legal professionals who are knowledgeable in local regulations.
In the World Justice Project’s latest Rule of Law Index, Scandinavian countries of Denmark, Norway and Finland, respectively, occupied the top three spots in terms of regulatory enforcement. In Asia, the countries that performed best were Singapore (7), Japan (17), Hong Kong (18) and South Korea (24).
Size matters
Other critical factors that investors considers are population and its growth. The rise of China and, more recently of India as major economic powers became possible because of the sizes and growth of their population.
A larger market means a greater potential for sales and greater production capabilities. Factors such as population growth, rising incomes, and increasing consumer demand contribute to a favorable investment environment.
In Japan, where the population is ageing and shrinking because of its negative birth rate, companies are looking overseas for new markets to make their goods and to sell them to.
Other approaches include the negotiation of free trade agreements that eliminate tariffs, which lower the cost of goods; and the formation of common markets, the largest of which is the European Union, which is made up of 27 members and collectively comprises a market of around 447 million people. After mainland China, the EU27 accounted for the largest share in global trade as of 2020, according to Eurostat.
Planes, Trains and Automobiles
In evaluating prospective sites for new investments, companies evaluate the quality and the breadth of a country's transport infrastructure. Well-developed and highly-connected roads, railways and airports cut operational costs, facilitates logistics, and ensures the timely delivery of goods and services.
Apart from infrastructure, investors also consider proximity to suppliers, customers, and distribution networks. Being situated close to suppliers reduces costs and ensures timely delivery of raw materials and finished goods, while proximity to target customers and distribution networks facilitates market access and reduces logistics expenses.
In Texas, the city of Irving likes to stress that it is merely a 10-minute drive away from the Dallas Fort Worth International Airport (DFW), which offers daily flights to Haneda and Narita airports in Japan. Across state lines, Ardmore in Oklahoma uses its proximity to DFW (about 90 minutes by car) in its pitch to investors. Similarly, Opelika in Alabama says it is only a 75-minute drive away from Atlanta Hartsfield-Jackson International Airport in neighboring Georgia.
Sweetening the pot
To attract foreign investors, governments create a business-friendly climate through tax incentives, minimal administrative processes and safeguards to intellectual property. Some of these measure include grants and subsidies, as well as the establishment of special economic zones or free trade areas.
The availability of such incentives and policies, taken together with the country’s economic and political stability, will ensure the success of any international investor and guarantee long-term benefits to the host country, like new jobs and a higher standard of living.
According to the Doing Business ranking published last by the World Bank in 2020, it was easiest to do business in these 10 countries: New Zealand, Singapore, Hong Kong, Denmark, South Korea, the US, Georgia, the UK, Norway, Sweden. Included in the top 20 were Finland; Malaysia and Taiwan in Asia, and the three Baltic republics.
Going for the skill
Easy access to a large skilled and educated workforce is crucial for the success of any investment. Evaluating the quality and availability of local talent, particularly the level of education, technical skills, and language proficiency, is an essential factor in decision making.
Establishing operations with well-established educational institutions and vocational training programs can guarantee a reliable supply skilled technicians and workers.
In the U.S. Midwest, SI Now, which serves as the investment promotions hub for the 17 counties in Southern Illinois, capitalizes on the presence of Southern Illinois University, ranked in the top 4% of higher educational institutions for research in the country. It offers programs in automotive technology, aviation, fermentation science and engineering.
The university as partnerships with Nagoya University and Meiji University in Japan. The region is also home to three Aisin Group manufacturing facilities.
