Aftercare by investment promotion agencies – overlooked or overrated?

Aftercare is key function of investment promotion agencies (IPAs) and most IPAs claim to provide some level of support to existing foreign investors in their location. IPAs should approach aftercare in a targeted way to use their resources effectively and generate the greatest results.

There are good reasons for IPAs to focus on aftercare. Helping existing investors to expand can sometimes be easier than attracting new ones, resulting in higher returns on the IPA’s efforts compared to bringing in new investors. Positive relationships with existing investors can lead to “repeat business”, as companies continue to add new (and often higher value) activities to their operations with the IPA’s support. Satisfied investors can also be valuable allies for attracting new investors, by providing testimonials or even referrals to their own corporate networks. In some cases, aftercare interventions by IPAs can prevent companies from leaving or at least mitigate the impact of relocations or closures.

Despite the many benefits, our experience shows that only few IPAs place significant emphasis on aftercare. Attracting and supporting new investors typically consumes most of an agency’s resources while aftercare is often done sporadically, when time allows or when changes in the investment environment make focusing on existing investors expedient (for example, during a pandemic).

Are IPAs missing an opportunity by not focusing more on aftercare? The answer depends on how an IPA approaches aftercare and what results it wishes to achieve.

Aftercare is more than problem solving

For many IPAs, aftercare means helping existing investors to solve problems. This sometimes takes the form of “grievance resolution”, where the IPA assists investors to resolve regulatory or operational challenges related to their ongoing activities. This may be beneficial to the investor, increasing their satisfaction with the location and contributing to a positive relationship between the company and the IPA. However, this requires significant efforts on the part of the IPA, tying up resources to provide a free service to investors that may not contribute directly to their expansion.

Some IPAs focus their aftercare activities on helping existing investors with defined expansion plans. In this case, the IPA facilitates an existing investor’s expansion project in much the same way as it would support a new investor. While this can lead to results, it can be difficult to determine whether the IPA’s support is really necessary for an investment to occur. Unless the IPA can ascertain that the investment could have been made in another location, it may be helping companies with expansions that would have happened anyway without its involvement. Again, while the investor may appreciate the IPA’s assistance, this may not be the most effective use of the IPA’s time.

Helping existing foreign investors with problem solving or ongoing expansion also opens the IPA to accusations of favoring foreign investors over domestic companies. While the benefit of attracting new investors is relatively easy to convey to stakeholders, it is more difficult to justify why established foreign investors, some of whom have been in the location for decades, should receive special assistance that is not available to domestic or local firms.

A targeted approach to aftercare focuses on specific companies and outcomes

Given these challenges and the resource constraints faced by most IPAs, we find that a targeted approach to aftercare is often most effective. Rather than offering all foreign investors an open offer of support, the IPA should ask itself the following questions.

• Who do we want to support? (for example, foreign multinationals from specific industries with manufacturing facilities in our location)

• What do we want these companies to do in our location? (for example, conduct R&D or add more sophisticated manufacturing processes to their existing facilities)

• What support will we provide these companies? (for example, connect them to universities or provide access to customized training to upskill their workforce).

Answering these questions will allow IPAs to provide a targeted aftercare service that is designed to generate specific outcomes. This enables the IPA to calibrate its aftercare activities to existing resources, reducing the risk of overcommitting or dedicating excessive time to solving investors’ problems. This approach also makes it easier to measure the results of aftercare and to justify the support provided to established investors.

IPAs that want to implement a targeted approach to aftercare need to conduct some preparation work. This includes:

• Carefully selecting the companies that will be the focus of aftercare activities, based on clear criteria.

• Researching these companies in advance of engaging with them to discuss opportunities for enhancing their activities.

• Defining the support that will be offered to companies and ensuring that the required partners (for example, universities or training organizations) are ready to assist.

• Assigning qualified IPA staff to interact with selected investors and providing them with the necessary mandate and tools to provide value to companies.

Unstructured aftercare activities require a lot of effort but may generate few results in terms of expansions by existing investors. This explains why aftercare often receives less attention compared to attracting new investment. Adopting a more targeted approach to aftercare can allow IPAs to unlock the benefits of existing investors and make the most of this important – but often overlooked – IPA function.

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