Behind the Marketing Curve

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Investment Promotion Agencies (IPA’s) have always had a major issue with marketing spend. The private sector clearly knows that, to sell a product or service, large amounts of money have to be consistently allocated to marketing. In order to sell anything, a company needs credibility – brand awareness. A business could have a team of the finest and most expensive sales people in the world calling the target market, but without awareness, making a sale – regardless of the quality or value of the proposition – is going to be very difficult. The private sector knows that marketing is not a precise art, and that it’s impossible to find an exact formula. Nevertheless, spending on it is essential.

The public sector is very reluctant to embrace this private sector fact of life. It’s always hard to justify spending public money. Harder still when there is not a quantifiable result or return on the investment. The outcome is that most IPA’s do not give marketing the budget or attention that it deserves. This is a great pity, considering the many new platforms offered by the internet – such as social media sites – that facilitate cost-effective brand marketing.

The continued growth of new media is highlighted by Google’s latest quarterly results; the company saw a 25% rise in revenues – a huge increase. This demonstrates that the private sector continues to allocate more and more marketing spend to online and digital media. Agencies, perhaps, should take note of this trend, and seek to keep pace with the digital marketing curve.

It’s Always Darkest Before the Dawn

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This old saying is my theme, gleaned from interaction with the business and political elite attending the World Economic Forum in Davos. Please don’t misunderstand – the overall feeling is deep gloom.  Whomever you talk to, comments are peppered with doubt and fear and, above all, frustration – frustration for the fact that politicians have been slow to appreciate the seriousness of the Eurozone crisis, and then not firm or decisive enough in dealing with it.

In financial markets, it’s often profitable to take the contrary view; that pessimism has reached its peak and sentiment is changing for the better. Why? Three things: Firstly, sentiment has been so negative that it’s hard for it to get worse. The normal human reaction is to overreact, and now the only thing left for us to do is bounce back. Secondly, the European Central Bank began in December to offer loans to banks, at advantageous rates, providing billions of Euros of liquidity. This money will feed through, allowing the banks to make credit available to business and consumer customers. It will also inevitably be used to buy European sovereign debt, which will reduce the interest rates that government have to pay. The banks are happy to be able to make money, and in doing so provide a boost to the European economy. Thirdly, better late than never – the politicians have now caught up with the situation.

The result is that Europe has bought itself time, and using that time wisely will allow a recovery.   That’s not to say that there won’t be stumbles – the vast majority of opinion believes that Greece, for example, will be forced to abandon the Euro – but any such situation will be seen within the context of a much brighter outlook and will therefore be a lot easier to deal with.

Another prediction from Davos is that European government are putting growth at the centre of the agenda. Initially there will be lots and lots of talk, but then, eventually, there will be a plethora of initiatives and programmes aimed at boosting growth and competitiveness. When business sees that happen, then sentiment really will switch for the better and be translated into investment and growth.

What does all this mean for Investment Promotion Agencies? It means that they are about to move to centre stage.

Rail Infrastructure

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In the United Kingdom, there is currently a substantial argument raging about the planned new high-speed rail link between London and Birmingham. The link will be extended to Manchester and Leeds in a second phase of development. The debate centres on value for money and the impact of the high-speed connection on economic development and foreign investment. Is it money well spent?

The route connects the key cities along the spine of the country – the axis of population centres running from north to south. It is not about travel times; even though journey times will be cut, this is insignificant. What is important is capacity. There is no point in having a rail connection unless it is capable of efficiently handling all the traffic that can use it economically.

Easy access for people and goods is the fundamental cornerstone of economic activity. Inhibit this in any way and enterprise is discouraged. That means discouraging the creation and maintenance of jobs.

A flagship scheme such as the proposed HS2 delivers two things: Firstly, it sends a message that the UK is active in creating an environment in which business can thrive. Secondly, it will provide a huge economic boost to the Midlands and the North of England. The problem is that this is difficult to quantify, but there is overwhelming evidence that companies are attracted to – and encouraged by – first class infrastructure. The project will make the North of England and the Midlands a lot more attractive as places to do business. This effect takes hold right now and will have an impact on many investment decisions well before the line is operational.

The right decision? Absolutely, yes. It is exactly the type of project that Governments need to implement for the long-term economic good.

Oman Investment Forum: Free Zones and Development Areas

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I was recently in Oman, attending an Investment Forum in Free Zones and Development Areas. Oman is a major contrast to Dubai. It is much less frenzied; the pace of development (commercial property Oman) is much steadier and slower, but the country has a clear vision for economic growth. Oman is a very ‘civilised’ place; all the public areas are well kept, it’s neat and tidy – almost Germanic – and quite a change from other Middle East countries.

The country has a diversified economy; it has oil, but also high quality tourism and a growing manufacturing and industrial base. It is also embarking on a major economic development initiative, the focus of which is the development of its ports (company expansion Oman) , especially Salalah in the south, and Duqm and Sohar to the north of the country. The government is investing very substantial sums into the development of these ports and also their associated Free Trade Zones. The objective is to get foreign investors into these areas on a large scale.

Hilal Hamed Al-Hasani, the chief executive officer of the Public Establishment for Industrial Estates in Oman, and organiser of the Investment Forum, told me: “Oman is a leading country in the region with a strategic location. It is ‘the East Gate’ of the Arabian Peninsula, with a good infrastructure and much more planned – a new international airport in Salalah, a new airport in Duqm and major expansion of the airport in Muscat, as well as the port developments. The new free zones are aimed at international investors wishing to access the region, taking confidence from the economic and political stability that Oman offers.”

Oman certainly has a great strategic position. Its ports offer easy access to the ocean (avoiding the extra two hours or so, each way, going through the Straits of Hormuz to Dubai), and are on the shipping lines between India and the horn of Africa. Someone I met at the event underlined the advantages: originally from India, he set up a manufacturing business in Oman five years ago (click business expansion Oman) , and now exports across Europe, using his own sales office in London. The advantages? Low costs in terms of property and wages, no taxes, and a 12-year, low-interest loan to build the plant – hard to beat, and all within a very pleasant life/work environment. I can see that Oman’s development vision (business relocation Oman) is realisable. The challenge will be to move towards more knowledge based industries to provide suitable employment for its growing, well-educated young population.

For more information visit the links below.

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Growth in Action

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The Irish Prime Minister appeared on television recently to address the nation prior to the forthcoming budget. He pulled no punches – Ireland is currently spending 16 billion euros more each year than it brings in. The people of Ireland have accepted their problems stoically, and now he has appealed for a continued effort over a 4-year period to get the country back on track. He could only offer determination to succeed for the future, but pain in the short term – a further 22,000 odd job cuts in the public sector; abolishment of a raft of quangos, and increases in indirect taxation.

What he laid out was a budget for jobs, jobs and jobs. The creation of jobs is absolutely central in the new Irish scheme of things. What a refreshing approach – going straight to the core of the problem, for without a resurgent business sector that creates jobs, there is no wealth to spend on public services. Jobs cannot be created overnight, but with a determined focus, over time, they can be, and Ireland will steadily move out of its current problems.

Enterprise Ireland, the state body that looks after companies inside Ireland, and the Irish Development Agency (IDA), the agency that attracts foreign investment, will both have a central role to play. Over the years, the IDA has been one of the most successful national agencies, and has a much deserved reputation. Expect to see an even more determined effort in future to attract companies to Ireland.

This focus contrasts starkly with the near paralysis that exists in many parts of Europe. Everyone sees the need for job creation, but nowhere is it placed so centrally as in Ireland. Greece and Italy, for example – countries with different, but similar problems to Ireland – hardly know what foreign investment is, and certainly have no history or current focus on it. In the United Kingdom, only Scotland consistently and comprehensively addresses the subject.

In a previous post, I wrote about the importance of placing emphasis on economic development to deliver GDP growth, without which the public sector debt burden just increases. Ireland is showing Europe the way, and it’s a path that others should follow – not just on a national level, but on regional and city levels as well.

Economic Growth Forecast in India

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I recently visited India as part of a drive to increase corporate users to our site.

Two headlines caught my attention on my arrival. The first, “The Government lowered the full year economic growth forecast to 7.3% from 9% as industrial slowdown hit India’s GDP in the second quarter (July to September).” The second headline was a huge debate about whether the Government should open up the country to foreign direct investment in the multi-brand retail sector – not 100% foreign ownership, but to allow large, foreign multi-brand retailers, such as Walmart, to operate joint ventures in the country. The Government wants to proceed, but there is huge opposition from those who say that India’s huge army of small traders will be decimated.

Looking at this from a European perspective, what nice problems to have! Growth of 7.3% is an impossible dream for any country in Europe – an “if only” that would solve the public debt problem. In India, such low growth is a cause for concern.

India has only recently become a global growth powerhouse. It always had the potential, of course, but it was not until the ‘liberalisation’ of the economy, which started in 1991, that the shackles began to be removed from Indian business. Indians make excellent businessmen if given the opportunity. The results are clearly shown and recognised in the kind of GDP growth that has now been sustained for many years.

What India has achieved in the past 20 years illustrates how a Government can influence and direct growth. Most Indian businesses would say, though, is that it’s not enough, and there is still so much more to do. The FDI issue in retail is one example. Having large multi brand retailers is inevitable. Bringing in the expertise of leading foreign players will help transform the Indian supply chain and distribution system. It would also shake up and help modernise the still backward agricultural industry in the country.

Another problem for business is caused by India’s incredibly stringent labour laws, which hugely discourage the hiring of permanent employees. The laws are so protective of workers that they blunt hiring and stifle growth. They cover virtually every aspect of employment: how workers are hired; what they get paid; the hours they work, and whether they can be fired. India has more restrictive labour laws than even European countries – which says it all. For a country that needs to continue rapid growth to satisfy the aspirations of a growing population, this is a real problem, and something the Government could easily solve if it had the political will to do so.

The fix that is used by businesses is to hire contract workers via special agencies, which is how 24.3% of all workers are currently being employed, according to the Indian Labour Bureau. This way, employers avoid shouldering the onerous responsibility of having permanent staff. It also explains why 89% of companies in India employ fewer than 10 staff, as opposed to 11% in the U.S. and 4% in China.

There remains a long way to go before Indian business reaches its full power to create economic growth. In one way, disappointing, yet in another way, encouraging, as the necessary changes will undoubtedly come – in time.

 

It’s About Growth

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Many European countries are currently groaning under a high public debt burden. The key question is not a country’s ability to repay the debt, but its ability to service it. The dominant factor in that is the level of economic growth. An economy with growth generates additional revenues to service its debts, and has the confidence of investors in its future. A similar dynamic applies to any local government area – a region or a city.

The importance of growth is underlined when one looks at individual situations. Assuming it had a borrowing cost of 4% and a debt to GDP ratio of 120%, Italy would need to have growth of 4.8% just to avoid increasing its debt in a situation where it had a balanced budget. Even in Germany, assuming borrowing cost of 3% and a debt to GDP ratio of 80%, the country would need growth of around 2.4% to avoid increasing debt levels. France would need to grow at even higher levels.

The problem is that, right across Europe, growth is running way below the kind of numbers required, and any attempt to reduce the debt burden by running budget surpluses has the effect of further reducing economic growth. This is the reason why I am so surprised that countries and local government areas seem to give so little relative attention to economic development. Everyone is concerned with the large spending areas like public sector services. The money for these and everything else comes from economic activity, either at a national or a local level. Surely, the encouragement of business and jobs should be the first priority – get that right and the spending can follow. Economic development should be right at the top of every agenda.

In my opinion, two things need to be done: at a macro level, the conditions need to be put in place to allow business to grow and make money. The key policies would be to reduce taxes on enterprises and, more importantly, reduce red tape overall and especially increase labour flexibility. At the same time, much more emphasis should be placed on local and national economic development.

Foreign Investment and Libya

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Met a senior official from Libya. Interesting country, I said – lots of opportunities. Yes, he said, we are a large country with a small, but well educated, population – and right next to the European market. He added, we are also wealthy, and have huge potential in all business areas and tourism. I agreed. We lamented the recent loss of life and the wasted 40 years, and I said, now, the Libyan people have real optimism about the future.
Yes, he said, but we are like the elephant – we will not forget.

We talked about the huge business potential for foreign investors in the new Libya. I asked him about how Libya will react when it comes to choosing whom to do business with. Countries like the UK and France, and Italy, he said, and especially the few Arab countries like Qatar and the United Arab Emirates who really helped Libya – they are very much welcome. Come and see; come and talk to us, was his offer.

When I mentioned other countries like China and members of the African Union, who prevaricated or supported the old regime, his countenance darkened. Even major countries like Germany and Turkey, which sat on the fence, caused his brow to furrow. He answered, all are welcome; we will treat everyone equally, and we will have a fair and open review of all proposals – but, we are going to be like the elephant.

So, if you are a company from the UK, France, Italy, Qatar, or the United Arab Emirates, book your ticket now. If not, don’t bother; it may take some time to recover – and a lot of grovelling.

Regional Smart Specialisation – AGORADA

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I recently attended the AGORADA 2011 conference in Bielsko-Biala, Poland, organised by EURADA, and the subject was ‘Regional Smart Specialisation’.

In a presentation by Mikel Landabaso of the Directorate General for Regional Policy, he outlined how the ERDF will allocate resources from 2014 to the European regions. Around 80% of ERDF resources at national level should be allocated to energy efficiency and renewables, innovation and SME support. In the less developed regions, this would come down to 50%. That aligns with the subject of the conference – ‘Smart Growth’ – ensuring that regions make tough choices to select key areas where they have competitive advantage and then seek to develop them.

Mikel looked at some of the lessons of the past, where regions have been too inward looking in their approach – now they need to look at the global stage and make their choices into world beating clusters. He mentioned the lessons from Spain, where over 160 billion euros of European investment has created a world-class infrastructure – highways, high-speed trains, etc. yet, the country now has 20% unemployment. Economic development in future has to balance infrastructure development with creating support for industries that can compete globally and provide sustainable employment. This is what the new round of ERDF funding will concentrate on.

This, of course, creates many challenges; there can be many cities/regions in close proximity that decide to concentrate on the same business sectors – especially when the sector is the fashion of the moment. The challenge will be to concentrate on real niches – part of a sector where it could be possible to really specialise and stand out.

Finally, one lesson has to be that, in the final analysis, it is private companies that make the decisions that create world-class clusters. The role of the development agencies is to identify the potential that already exists at an early enough stage so that the momentum can be supported and encouraged.

Dubai Celebrates the 40th Anniversary of the United Arab Emirates

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I have recently come back from Dubai (, and, although I’ve written about it previously, it’s worth another comment. Whilst there, I saw newspaper advertisements proclaiming, “Dubai celebrates the 40th anniversary of the United Arab Emirates”. Just 40 years! It’s really only when you come and see for it yourself that you gain a perspective and understanding of the enormity of the developments that are in progress. Dubai is being transformed into a major international business hub. A few examples…

Dubai has developed the concept of Free Zones into an art form. In a free zone, international companies can set up with 100% foreign ownership and there are different zones that specialise in niche business sectors; Knowledge City; Internet city; Media City; International Financial Centre – you get the picture by visiting doing business in Dubai. I went to see one – the Dubai Multi Commodities Centre (DMCC), just north of downtown Dubai. It occupies 200 Hectares with 86 high-rise towers (really high high-rise!), some for office space, others for residential, so the companies and their staff can work and live (business expansion Dubai) in one environment. (Check out commercial property Dubai for examples of property prices) The mind-blowing fact is that, in the calendar year 2011 up to October, 1,000 separate new foreign companies were incorporated in just this one zone. A company can have whatever space it requires down to just a single desk or even a virtual office – everyone is catered for, and it all happens quickly, guided by an individual project manager for each business. (company relocation Dubai)

The Dubai International Financial Centre – a free zone for financial services – has its sights on creating the ‘Canary Wharf’ of Dubai – yes it’s on that scale! To really make it happen, the Government has suspended local commercial law within the zone (see company locations Dubai) , and so the zone has its own law – courts and arbitration running on English law. Contracts written outside the zone can also be made subject to English law. I cannot think of another country that has willingly allowed part of its territory to be subject to different law – all in the realisation that this will be a major attraction for business, and especially financial services organisations.

And lastly, Dubai World Centre – a 140-sq km area being built around the new airport. The airport will have a ‘logistics corridor’, connecting it with the port at Jebel Ali and the huge surrounding Jebel Ali free zone. The Dubai World Centre will be connected by port, airport, roads and railroad; it will be a huge logistics centre to serve the development of Dubai.

I have no doubt that Dubai’s vision to be an international business hub for the Middle East, Africa and Asia will become a reality. As a financial, manufacturing and logistics hub, with world-class infrastructure, sporting and leisure attractions, and huge retail capacity, Dubai certainly does mean business.