Finding the next big innovation in FDI

John McIIroy | 17 Jul 2023 | General

The rise of cities has been one of the big stories of economic development in the last thirty years, and many of the world’s future trends are already taking shape in these hotbeds of trade and innovation. So, can we find the next big thing in investment attraction by looking at what is emerging from city-based Investment Promotion Agencies?

Why cities are important sources of new information

The Diffusion of Innovation is a well-established theory that explains how new ideas slowly spread across a system. It starts with innovators and early adopters who come up with ideas and are willing to embrace change. They are followed by the rest of us (the early and late majority) when we see evidence that it works and start following suit.

At a geographical level, it is the big global cities that are the innovators and early adopters. This is because they tend to get the cream of the advantages associated with cities (such as specialisation, clustering, and social networks) as well as benefiting from cross-border flows of talent and capital through connections with similar cities. So, if you want to know the general direction of travel for Liverpool or Nashville, you might be best to look at London or New York.

This type of thinking led me to look more closely at our recent OCO Global – WAIPA survey of IPAs and ask the question, is there anything that shows city IPAs are innovators or early adopters? And if so, what can we learn?

Cities in the survey

The cities that responded to the survey were a small sample (12 respondents) but an important one. As our previous research has shown, the biggest cities in the world drive FDI and our respondents included three of the most globally connected cities for FDI – London, New York, and Paris. Other respondents included Berlin, Dubai and Hong Kong, and in total our cities sub-group accounted for 12% of all FDI in 2022. This market share that has been steadily increasing over the last ten years, having been 8% in 2013.

Cities are ahead in key areas

Our survey results showed these cities are generally ahead of the game when it comes to the key priority areas we identified in the research – ESG, talent, and quality FDI. The results show that the majority of cities have already changed their strategies and processes while less than half of other IPAs had taken action on talent attraction or ESG monitoring.



Purpose driven companies: the next big innovation

Quality FDI was the one area where IPAs outside cities were quickly closing the gap on their urban peers. More than two-thirds of respondents outside cities stated that they had developed a specific strategy to attract quality over quantity (compared to 100% of city respondents).

When asked how they were defining this quality, the results were also similar. The top three criteria for both cities and non-cities were innovation, high-quality jobs, and investment in priority sectors.

However, one difference that stood out was the link between investment from a purpose-driven company and quality. Cities were over four times more likely to associate quality FDI with attracting purpose-driven companies (33% compared to 7%), which was the largest relative difference across the whole survey.

This is an emerging area for IPAs that is closely linked to both quality and ESG. As governments and their electorate become more concerned about social and environmental issues, so IPAs will be expected to take steps to attract ‘the right’ type of company.

To get ahead of the curve IPAs should be considering how they are going to identify these companies and how they can promote their area to them. This means asking questions such as:

  • How can we identify a purpose-driven company?
  • What sectors are they operating?
  • What do these companies look for in a location?
  • How can our local strengths be developed to appeal to these companies?
  • How can we get ourselves noticed by purpose-driven companies?

From our experience, it is by answering these types of questions that IPAs can futureproof their investment strategies and make connections with new investors. If you want to get ahead of the competition you need to be prepared to talk to the companies driving the world of tomorrow.

If you’re interested in finding the purpose-driven companies that would be a good match for your location, you can contact us here to find out more.