The last decade witnessed an increased global competi­tion between places and regions for investments. New places have entered the competition at the same time as the global pool of investments has been shrinking.

Europe has shown a considerably poor inward investment performance in the last (some figures suggest that EU inflows of foreign direct investment are down by a whopping 75% from their pre-crisis levels in 2007 [1]).

In our recent handbook on Business Attraction Management for Cities and Regions, we discuss 10 global trends that drive and define today’s and tomorrow’s competition for businesses and invest­ments.

We believe that business attraction managers and investment promotion professionals at the city and regional level not only need to understand but also harness these trends to stay competitive.

The 10 global trends affecting investment

1. Globalisation

Globalisation is not just a catchword – it is a reality. Essentially, all locations around the world are part of the intricate web of the global trade, consumption, and investment landscape. A potential investor in any location in Europe can come from any country in the world, a reality many locations and their teams promoting inward investment have yet to adjust to. “Connectography” could even be a suitable word, if we used Parag Khanna’s book title.

2. Increasing complexity

As global supply chains become increasingly complex, particularly for manufacturing operations, a location’s unique competitive advantages become more impor­tant. Companies look for the locations that offer the optimal balance between market access, talent, resources and cost efficiencies. Thus, investors are increasingly looking for locations with particular value propositions and competi­tive advantages in a combination of sectors and functions rather than simply their own industry [2].

3. Access to talent continues to increase in impor­tance

One clear trend is that access to talent is growing in importance for business attraction. In the past, the workforce tended to move to locations with many job opportunities, but now the opposite is increasingly true: companies tend to move to places with an abundant supply of talent. As a result, locations need to focus on ensuring a high quality of life, liveability and at­tractive amenities in order to retain talent and attract business and investment.

4. Increasing importance of entrepreneurship

In 2012, entrepreneurs provided 67% of all new jobs in Europe [3]. Figures from Sweden show that 80% of all new jobs are created by small and medium sized enterprises (SMEs) with fewer than 50 employees. With more jobs and growth created by smaller firms, it will naturally become much more important for places  – cities and regions – to attract en­trepreneurs as a part of their business attraction efforts.

5. Increasing global mobility and migration

Global talent mobility increased by 25% over the previous decade, and is predicted to increase by another 50% by 2020 [4]. At the same time, we have seen the largest refugee crisis since the Second World War. New migration patterns bring new flows of trade, capital and investments, and, in turn, new opportunities for locations to attract businesses.

6. Changing patterns for research and develop­ment (R&D) activity

Even though global R&D expenditure is growing, the levels remain stag­nant in Europe. Large life science and high-tech companies, in particular, spend less on R&D in Europe and there is a trend that these firms operate fewer consolidated centres and instead engage in open innovation activities shared be­tween several firms, according to a recent study..

7. Internet of Things and Industry 4.0

The emergence of the Internet of Things (IoT) and the changes associated with the Fourth Indus­trial Revolution (Industry 4.0) will continue to radically transform the manufactur­ing landscape. These developments will enable companies to operate complex networks of production, distribution and sales across multiple geographic locations, using the power of col­lected data to drive value creation.

8. Outsourcing and re-shoring

Outsourcing from high-cost to low-cost countries continues, even if the pace has slowed down. In some cases, a reverse trend has been observed: the re-shoring of previously outsourced business activities from overseas markets back to the home market. Important drivers have been cost and quality, but also because consumers are increasingly look­ing for less standardised and more personalised products.

9. Urbanisation and the new role of cities

With the fast pace of urbanisation, some cities are becoming international actors in their own right, often bypassing national governments. There is also an on-going urbanisation of economic activity, illustrated by the fact that science and industrial parks try to expand into urban areas and become more “city-like” in their appearance, not least to become attractive to younger talent. Also, this trend may prompt a shift from greenfield to brownfield investments, as it is naturally more difficult to find land readily avail­able for new construction in more urban areas.

10. Regionalisation and clustering – place mat­ters

Despite the exponential increase in the speed of digital communication, the role of the place is increasing. Economic growth tends to cluster in regions where proximity and knowl­edge sharing lead to innovation. Thus, cluster development and regional specialisation are becoming increasingly important tools for attracting inward investment.

More info

Read more about the tools and strategies locations can use to become more attractive to business and investment – in our Handbook on Business Attraction Management.

Join our annual training session on Business Attraction Management for Cities and Regions.

Sources:

[1] OECD, Investments Insights, available at https://www.oecd.org/investment/InvestmentInsights-Nov2014.pdf

[2] IBM (2015), ”Global Location Trends 2015 Annual Report”, available at http://www-01.ibm.com/common/ssi/cgi-bin/ssialias?htmlfid=GBE03690USEN

[3] EY (2013), ”The EY G20 Entrepreneurship Barometer 2013 – the power of three: governments, entrepreneurs and corporations”, available at http://www.ey.com/gl/en/services/strategic-growth-markets/the-ey-g20-entrepreneurship-barometer-2013

[4] Pwc (2011) “Millennials at work: Reshaping the workplace”, available at https://www.pwc.com/gx/en/managing-tomorrows-people/future-of-work/pdf/mtp-future-of-work.pdf