From Quantity to Quality: Challenges for Investment Promotion Agencies

Most investment promotion agencies worldwide are now placing a higher emphasis on attracting high ‘quality’ FDI, including R&D centers and headquarter functions as well as knowledgeintensive industries such as information and communication technologies, biotechnology or nanotechnology. We argue that this requires a different approach than policies focused on the ‘quantity’ of FDI inflows, leading to changes in the policy mix and in the approach to performance measurement. Targeting quality entails a shift from a mindset that prioritizes attraction of greenfield investments towards one where the focus is on subsidiary development. Another implication is that the interplay between FDI policies and innovation policies becomes more relevant and needs to be further nurtured. We focus on the management challenges that investment promotion agencies face in this transition from quantity to quality, drawing attention to the consequences for their human capital, structural capital and relational capital strategies.

Keywords: Aftercare, FDI, intellectual capital, investment promotion, R&D, subsidiary development

JEL codes: E61, F23, H83, O38