The role of Investment Promotion Agencies (IPAs) in overcoming managerial Liabilities of Foreignness (LOF) in Greenfield FDI-projects

Abstract

IPAs, formed at national, regional and municipal levels, have become pervasive (numbering around 10,000 globally). Governments, via such agencies, spend approximately $100 billion a year on investment promotion. Large-scale empirical studies (i.e. using nationally aggregated data), moreover, show IPAs do positively attract FDI – yet we know relatively little, at a qualitative managerial level, about the particular functions and roles that IPAs play. How do IPAs influence managerial decision making and facilitate greenfield-FDI? Do they help managers overcome the difficulties they encounter in entering foreign markets – namely ‘Liabilities of Foreignness (LOF) and ‘Liabilities of Outsidership (LOO)’? And if so, how? To date, relatively little research has investigated the operational practices of IPAs, and how these reduce the practical problems managers face in FDI greenfield-projects. While most extant literature in this field is conducted at a firm- or country-level, I propose to analyse this question at a manager-level, looking at the problems and difficulties through the eyes of managers. I draw from (a) an initial set of 137 first round, semi-structured interviews, followed by (b) a second round of in-depth case-studies, involving managers and IPA representatives active in one specific project to highlight potentially opposing perspectives. I found IPAs help address a category of Liabilities hitherto under-theorised and largely under-identified – namely LOP (Liability of Practice) – characterising the practical problems of implementation (i.e. the aspect of the ‘doing’, for which there are no heuristics or short-cuts). The interesting insights gained in this context are the layered nature and operational depth of managerial liabilities. The key issues that emerged and ones which IPAs help address included: operational legal and regulatory barriers; the information needed to start a company in a foreign jurisdiction; very specific questions for project implementation; registrations, permits and approvals; transparency and ‘speed-money’; finding qualified people; overcoming specific cross-border hurdles; and the overcoming of the otherness of host-countries. By assessing how IPAs help managers deal with specific managerial-liabilities, I firstly deepen our practical understanding of FDI processes, but also expand our understanding of the Uppsala Internationalization Model, while also widen our conception of what such the liabilities might be. Importantly, it was found that while information barriers exist, they fall into several categories of information needs (knowing ‘what’ and knowing ‘how’): information is thus not an aim in its own right, but – in managers eyes – merely an initial step to the more important aspect of ‘getting things done’, which should be classified as a separate liability (i.e. LOP). Moreover, the combination of local know-how and out-of-the-box thinking or advice might result in unorthodox solutions, illustrating that the operational reality of IPAs in mitigating managerial liabilities is difficult to capture in categories of information or networks. Beyond theory-building, this PhD also seeks to address some of the inefficiencies observed by developing specific policy recommendations for governments on how to improve IPA performance. [math mode missing closing $]