globalization and foreign direct investment

How Technology is Changing FDI

Walmart, McDonalds, Costo – each of these retailers is a household name in Canada, yet few Canadians understand the complicated process through which they have established a Canadian presence.  Foreign direct investment – or FDI – is “[i]nvestment from one country into another…that involves establishing operations or acquiring tangible assets, including stakes in other businesses” (definition courtesy of the Financial Times Lexicon). In the cases listed above, American investors have engaged in what is sometimes called “market-seeking” FDI, seizing opportunities to move into a foreign market (in this case, Canada).

The expansion of globalization has meant more aggressive marketing and increased accommodation on the part of potential host countries. Google searches related to FDI turn up a large number of online tutorials and consultancy-service websites aimed at helping governments attract the attention of foreign investors. It’s easy to forget that, in their bids to find locations that meet their needs, investors, too, are competitive. This competition can make forming beneficial partnerships a complicated process.

Of course, there are various ways in which an investor (a transnational corporation) might invest in a particular region, and various reasons its executives might choose to do so. This blog post will focus on market-seeking FDI. Specifically, it will discuss ways in which technology can help investors generate useful leads, which can lead to better partnerships.

 

Selecting Host Countries

While there is a lot of information available on attracting FDI, the process through which transnational corporations select new locations is a bit more mysterious. Common considerations include market growth and stability on the economic, political, and social fronts, but criteria may vary from one group of investors to the next. Usually, various professionals are involved in ranking and comparing potential locations, which helps executives narrow down a list of possibilities. But how is this list created in the first place? Where do transnational corporations get their information?

The Financial Times offers several services to FDI players. These include fDiBenchmark, a set of “online databases and location assessment tools [that help investors] appraise the attractiveness of countries and cities worldwide…”. Other available services include FDI Tracker and the FDI Confidence Index. These services fill similar functions, providing information specifically for use in FDI. While expert insights are always useful, one question inevitably surfaces. If everyone is relying on the same information, how can any group of investors gain a competitive edge?

Deep analysis of exclusive information is often the key to success. One sophisticated approach would include tracking the subtle signals contained in news stories from around the world. While these stories are widely-accessible (and therefore not “exclusive” in the traditional sense), they may be overlooked by investors who choose only to follow dominant market trends.

Combing the News for Foreign Direct Investment Leads

The applications of media monitoring are seemingly endless. Using hypothetical scenarios, this section will consider the potential benefits of tracking national and international media in market-driven FDI.

Ubiquitous coffee retailer Starbucks is responsible for many wildly-successful FDI endeavors. Starting with its first international location in Vancouver, the American retailer has expanded its operations into 63 countries. According to Starbucks’ business intelligence leader Laurence Norton, the company uses a location-selection strategy that “includes everything from web maps to applications, and everything inbetween.” Interactive mapping software helps decision-makers understand “trade areas, retail clusters and generators, traffic and demographics”. This information is vitally important in assessing promising neighbourhoods. But what about in the early stages? How does Starbucks decide to take the initial leap, moving into cities like Lima and Ho Chi Minh?

Most likely, the media plays some role. Newsworthy events – such as those that create political instability – can have a lasting impact on the regions in which they occur. Whether or not a company like Starbucks has a formal news-collection and analysis process, major news stories surely trigger investigation into certain markets. Media that comes from the regions in question can be especially useful. In addition to big news stories, lifestyle articles and editorials provide important cultural and economic insights. In the case of Starbucks, important regional concerns likely include income levels and general receptiveness to American culture.

In some cases, news stories reveal an unfilled need that investors can fill. Consider the example of a farm equipment manufacturer that produces tractor hitch pins. Executives at this company might want to keep an eye out for stories about accidents involving insecure tractor loads. An unusually-high number of these accidents in a particular region could indicate a good potential market for the pins.

Tracking news stories can also help investors gauge whether their FDI activities will tarnish their brands. Consider Google’s expansion into China. The company was heavily criticized in many countries for its initial decision to comply with China’s censorship laws. For a less-established company, the consequences of this decision could have been fatal. Scanning the media for issues related to freedom of information can help tech investors stay informed, allowing them to better assess actions that may be inconsistent with the beliefs of their customer base.

 

The Potential of Technology

Discussions of FDI and technology have tended to focus on the concept of “technology transfer”, whereby transnational corporations provide lower-income countries with new technologies. Less has been written about the role technology can play in connecting investors to host countries.

The internet has made it easy for experts to access information about markets around the world. It has also lead to the creation and widespread availability of services that utilize expert knowledge. As beneficial as these tools may be to potential investors, they do not take full advantage of automation. It’s also worth noting that creating a custom strategy may give some corporations a competitive advantage. Such a strategy would likely pull information from numerous sources, including those that contain more subtle signals.

As previously mentioned, retailers like Starbucks – along with Wendy’s, Dressbarn, and others – are using big data and a variety of software apps to set up and manage new outlets. As Starbucks’ Laurence Norton puts it, “one size does not fit all, whether it’s coffee or IT”. The benefits of blended and flexible solutions are undeniable. But when it comes to the earliest stage of an FDI project – generating leads – other strategies may be more suitable. This is where automated media-monitoring software can play a crucial role, helping users zero-in on signals in local and international news sources before they come to the attention of competitors

Allow me to use one of Gnowit’s clients as an example. The client – a global management consulting firm – uses Gnowit  to generate leads. Our software tracks signals relevant to the firm, pulling them together from a variety of internet sources so that they can all be viewed in one place. It automatically translates signals printed in foreign languages, providing the firm’s employees with a comprehensive scope of English-language results. Smart-filtering organizes results in accordance with the client’s wishes (for example, the system can group news items together when they are related to a particular event). Because monitoring is continuous, employees can view the most up-to-date information for all of their monitoring projects, even after their focus has shifted elsewhere for an extended period of time.

The list above represents a few of the features that may be useful for those using automated-monitoring software for FDI. The simplicity of these solutions make them low-maintenance additions to any lead-generation strategy. For a complete case study of the example above, click here.

Currently, there are a myriad of technologies available to help investors select locations for their FDI endevours. For many corporations, following the news – and especially local points of view from potential markets – may be an important piece of the puzzle.

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