“Objective of aftercare is to maximize investor lifetime value”

Investment promotion agencies (IPAs) have chosen to prioritize FDI aftercare to boost FDI reinvestments, facilitate the investor journey, and accelerate economic recovery, especially in the aftermath of the challenges related to the COVID-19 pandemic. Investment aftercare has assumed a greater role as the world grapples with health crises, conflict, and a host of other challenges.

The Dubai Investment Development Agency (Dubai FDI) hosted the global launch of the book ‘Investment Aftercare Explained. A Guide for FDI Practitioners and Policymakers on How to Grow and Retain Investors’ at the Expo 2020 Dubai in March 2022. The first book to systematically map the final step of a foreign investor’s journey in a host economy is written by leading FDI advisor Carolina Arriagada Peters, senior economist David Coble, assistant professor Toby X. Li, and serial foreign investor Brendan Lewis.

In order to better understand the concept of aftercare and the role it plays, Dubai Advantage caught up with Carolina Arriagada Peters for a discussion. Here are excerpts from the interview:

What exactly is investment aftercare? Why has this concept become so important?

Aftercare has been on the radar for decades. In 2007, UNCTAD urged investment promotion agencies (IPAs) to give it more attention, but their focus on aftercare, the last part of the investor’s journey, was weak. Some called it an “afterthought”, “afterlove”, or an “aftercoffee”. It was not a priority; the next shiny new investment project grabbed all their attention.  Others were interested, but mentioned lack of resources, it not being a government priority, or that taking care of investors was discriminatory against local companies. These are only a few of the many reasons why some host economies could not serve the function.

And then COVID came, providing an unprecedented opportunity to look at and leverage the role that established foreign investors play, not just in navigating uncertain times but in accelerating recovery and in building and shaping local economic development. Against this backdrop, aftercare, the function that focuses on “growing, retaining, expanding, and linking productive private investment”, has moved center-stage.

Half of all jobs created by foreign direct investment (FDI) are delivered in the post-establishment phase. Taxes are paid year-on-year by investors, contributing to public budgeting; and employees learn new skills, which helps the local economy increase productivity. All this happens in the aftercare phase of FDI. Today’s most awarded IPAs all have strong aftercare propositions. This is no coincidence; these IPAs were able to recognize early on that taking care of and working alongside established investors can pay off.

How can aftercare become a game-changer for cities and countries?

The world faces big challenges. I am not talking only about COVID-19 or the conflict in Eastern Europe and the new wave of refugees or the financial debts that are likely to severely affect economies all over the world.  We also have climate change, the need to feed a growing population, water scarcity, and so much more. I am an optimist and believe we are up for the challenge and can find solutions, provided we maximize co-creation all over the world. For this to happen, we need the public and private sectors to work together.

In that scenario, aftercare becomes a methodology, a platform that helps governments better relate with companies and vice versa, so that both embark on joint projects that benefit not only one host economy, but many others simultaneously. Corporates have the channels to introduce these improvements in many other markets, becoming the de facto knowledge-transfer entities and speeding up the pace with which we address global challenges.

Who are the stakeholders for aftercare, and what roles do they play?

Aftercare is by nature a facilitation function. It is interdepartmental and interdisciplinary, bringing together public and private efforts. The primary beneficiary of its efforts is, of course, the foreign investor. Nevertheless, IPAs also need to take account of the views of, and the impact on, other stakeholders such as the boards of directors or decision-makers who are ultimately responsible for an IPA (this can include both funders and influencers), the local community, and other stakeholders who live and work in a location.

Understanding the different needs of each group is key to designing effective post-investment services. Let’s look at an example:  When an IPA works with a foreign investor, our stakeholder number one, they don’t do it out of the blue, but following a clear mandate from their board and policymakers, our stakeholder number two, to help the investor feel welcome, facilitate their operations, help them expand, deal with divestment, and so on.

To do so, they will need the support of chambers of commerce, local actors, free trade zones, universities, all of which are players in the FDI ecosystem (stakeholder number three). Finally, we have the interactions both the investor and government have with the local community, who essentially are voters. When voters exercise their voice, politicians listen and will most likely affect the guidelines they give the IPA when dealing with investors. The opportunity of aftercare then lies in working with the four stakeholders simultaneously, knowing how to find areas of convergence, so that projects run swiftly, and investors can maximize the benefits they bring to the host economy.

What are the objectives of aftercare? What is the economic impact if these objectives are achieved?

There are three main objectives of aftercare. They are:

1. Help foreign investors grow
2. Champion local opportunities
3. Further develop the host economy

We now have a better understanding of what these three objectives mean. Let’s unpack objective one for a moment. IPAs have seven different ways to help foreign investors grow – help deliver an investment project; minimize over-optimism; help embed a company in the local ecosystem; remove blockages to growth; support re-investment and expansion; reduce risk of disinvestment and closure; and identify needs for new IPA services. And so on for the other objectives.

IPAs can now better plan and improve their investment offer, as the framework of our book helps them understand the objectives and the components that make up each objective.

The economic impact of aftercare is simple: better embed the investor in the local economy, so that they maximize lifetime value and therefore the impact they bring to the local economy.

Which locations would you say are currently using best practices in aftercare?
For the book, we contacted many, many IPAs to understand what they were doing and their perspective on the needs of investors. You have different types of best practices. On the one hand, you have the established players who excel at FDI attraction and aftercare and, I even venture to say, that aftercare is actually at the very heart of their success. In that group you find IDA Ireland, CINDE Costa Rica, Invest in Holland, Invest Hong Kong, Department of International Trade in the UK, and Berlin Partners, just to name a few.

You then have another type of best practice when it comes to tech adoption, such as Guidance Tamil Nadu in India, which developed BizBuddy, which essentially is an inquiry and grievance platform powered by technology, connecting all players in the state with response protocols that leave nothing to chance. Or the work of Vietnam to help companies power their value chains.

IPAs are very creative and they all come up with different ways to serve their local communities – from running resilience workshops (London) to providing a branding toolkit for all stakeholders to have a common storytelling about the long-term benefits of growing in a specific host economy (Estonia), or helping established investors increase their exports (Germany), or branching out to other regions within the country (Japan).

Some IPAs already offer these services, but only a few have a comprehensive offer that matches the lifecycle of investment. And that is exactly where the opportunity lies.

At what point would you say is Dubai in the evolution of its investor services? What are some of the things Dubai would need to do better?

After a phenomenal World Expo, Dubai is best placed to work collaboratively with established investors. Dubai already has the infrastructure, a favorable business climate, and the connectedness that investors seek when looking for long-term investment. The next step is to spark innovation, foster collaboration, and develop resilience-oriented mindsets that global businesses want to fall back on in uncertain times.

This is where Dubai has a significant opportunity to further foster dialogue with investors so that they play a bigger role in forging the future of Dubai, and vice versa; i.e. Dubai plays a bigger role in forging the business transformation these companies are bound to experience. Foreign investors know that companies that don’t adapt disappear. Host economies have a direct line to company decision-makers and are best placed to help them adapt, grow, and re-invent themselves. Some IPAs recognize this and are already working with investors to help them be more resilient, more innovative, and more adaptive. This is where I see Dubai heading.

Can you explain Investor Lifetime Value and the role it plays in FDI attraction and retention?

It is not only about attracting the shiny new investment, but to increase the return on investment of taxpayers’ money spent in attracting that investment in the first place. FDI perspectives that focus on an investor’s one-time acquisition of a country’s value proposition are outdated; a post-COVID approach demands a wider perspective that considers repeat sales.

For that to happen, the FDI industry would benefit from adopting a customer lifetime value (CLV) logic that is so prevalent in commercial circles.  CLV estimates how valuable a customer is, not just on the first purchase, but across the whole relationship between company and consumer.  We coined the phrase ‘investor lifetime value (ILV) as we believe that looking at the whole relationship of the foreign investor with the host economy during the entire period the company is established there can contribute to FDI value creation in four different ways:

1. It would include the jobs created and the capex invested by the new investment.
2. It would take into account the value in the variation in permanent jobs due to expansion or contractions, taxes paid, and profits re-invested through the whole lifecycle of the investment, starting from landing, expansion, maturity, to divestment.
3. It would incorporate any externalities generated, such as knowledge transfer, upskilling of talent, and local spend, which is reflected in contracts with local suppliers and the charitable activities of the foreign entity.
4. It would consider the impact of co-creation; a stronger ecosystem, an improved business climate, and any sustainable development practices the investor brings to the host economy.

The contribution that ILV brings to aftercare is simple: it provides transparency of the value the investor has for the host economy during the complete investment lifespan, which in turn informs decision-making in the use of taxpayers’ money and guides prioritization for both policymakers and FDI practitioners.