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by Ruvini Fernando

Winds of change are once again blowing across our economic landscape, not least among them a renewed interest in attracting Foreign Direct Investment (FDI). As is common in our country, the visionaries, the economists, the policy makers, the common man, the revolutionaries et. al. have all had their say extensively on this subject. Strategists, however, in Sri Lanka are, I believe few and far between, and have been notoriously silent on this subject as well as many others of national interest. A strategy, nevertheless, is what we need if we want to get things done - and hence this effort to articulate a strategy for the widely accepted objective that Sri Lanka needs to attract more high quality FDI to accelerate economic development.

Varied opinions exist as to why Sri Lanka hasn't attracted enough, and what it should do to attract more, of this magic ingredient so vital for accelerated economic development. The benefits of FDI have been discussed extensively by many others before me and can be briefly listed as follows:

* greater capital inflows to support the balance of payments

* greater investment and employment

* increased Gross Domestic Product and exports

* technology and skill transfer

* development of linkage industries

* access to international markets

* social development

The writer in a previous work titled "Foreign Direct Investment in Sri Lanka: Directions for Policy" (published in the PIM's Journal of Management Volume I Number 4 Oct-Dec. 96) spelt out a framework for a national FDI policy in a 7-point plan, the summary of which is given below:

* Formulation of an effective National Economic Plan encompassing all aspects of economic policy, within which would be covered the role to be played by FDI

* Sectoral targeting and identification of industries where Sri Lanka has a competitive advantage in international markets and providing incentives for development of the targeted sectors

* Simplification of the regulatory framework governing FDI, including such diverse aspects as labour laws, local authority approvals and exchange controls

* Development of supporting infrastructure, including roads, power projects, industrial parks etc., in addition to building up a pool of skilled people, training institutions and linkage industries to support multinational companies; (MNCs) operations

* Better training for officers involved in investment promotion (such as Board Of Investment and embassy staff) in order to facilitate investor needs

* A focused marketing effort to promote Sri Lanka's strengths as an investment destination

* Monitoring of existing FDI ventures to ensure achievement of national objectives and to refine policy

What this policy framework, and the research which supported it, brought out clearly was that Sri Lanka, being a small and relatively less well known country among the global multinationals, needs a very strategic, focused and well targeted FDI promotion effort to attract the right quality of investor. Our country does not possess prominent and unique advantages which will automatically appeal to potential investors, without our having to make a great effort to be noticed. Certain other countries, however, do have such inherent appeal - India, Indonesia and China with their large growing domestic markets have an almost magnetic appeal for MNCs on a globalisation spree; Singapore and Hong Kong are world renowned for their efficient infrastructure and financial markets as gateways to Asia, while the natural resource rich African and Latin American countries appeal to investors in search of such resources. While Sri Lanka may be blessed with many advantages - both natural and man-made - none of these are of global repute or unique enough to give us a strong competitive advantage over the many other contending countries clamouring aggressively for a share of global investment funds. To become a prospective candidate for FDI from the multinationals is, therefore, no easy task.

While international mass media publicity and investment promotion forums are useful for creating awareness about our tiny island nation, we cannot rely on such measures alone to convince investors that Sri Lanka is suited for their own particular requirements. An active process of personalised canvassing and promotion is therefore needed. The writer therefore contends that we need to adopt a more personalised "customised" approach to investment promotion and retention - one where

(i) potential investors are individually identified,

(ii) specific investment solutions packaged to suit their unique requirements

(iii) their process of entry into Sri Lanka facilitated by close management of the investor-host country relationship.

In recent times companies, particularly those in developed countries, have often experimented successfully, with customisation of goods that were once mass produced. Customising your new car with the accessories of your choice, getting your own made-to-measure clothing with popular brand names (like jeans or a swimsuit) or a tailor-made insurance policy to suit your own particular financial needs are not uncommon product choices in developed markets. In Sri Lanka too, we can get our own custom-made shades of paint! Customisation strategy first and foremost recognises the fact that all customers are unique and therefore deserve special treatment. It is a giant leap towards actually putting into practice one of the greatest management principles of our times - that "the Customer is King".

As opposed to customisation of what were once mass produced goods, the customisation of personal services has often been taken for granted - like health care, airline ticketing and investment portfolio management where the product is designed to suit the detailed needs of the individual. Industrial goods and services are by their very nature customised for specific requirements - the design of a ship or manufacturing plant, or the development of specialised software. Promoting FDI, too, is then something even more personalised and even more relationship oriented than some of the goods and services commonly customised. This is especially so when your investment product (ie. your country and its resources) does not have popular mass market appeal as a result of a unique selling point. The writer's opinion, therefore, is that while Sri Lanka needs a clearly focused FDI policy targeting particular sectors and businesses in which it has a competitive advantage, it needs to implement this policy within the context of customising investment solutions for selected MNCs.

In using customisation as a strategy for attracting FDI, we come back to one of the issues identified at the beginning of the article of having a well articulated National Economic Plan. This plan would, among other things, identify target industries or sectors where Sri Lanka can compete effectively in international markets. It would also identify the competencies which Sri Lanka needs to develop to succeed globally in these selected areas; and those sectors or industries where FDI inputs are important either for acquiring capital, technology transfer or sourcing markets. The primary task then would be to seek investors whose business objectives will help to further Sri Lanka's policy objectives, and customise investment propositions for them. The key criteria for customisation are selectivity and focus, because with our limited resources we cannot hope to be everything to everybody. Thus in formulating strategies for attracting FDI we need to know exactly what type of investor we need and for what purpose. Some examples could be (i) FDI for the tourism sector to develop niche market theme hotels with a joint venture partner or franchiser with marketing expertise in the Asian region, or (ii) FDI for the gem and jewellery industry with a partner who can provide modern design and development skills to produce items for the high end US and European markets.

The next step in the customisation process would involve a critical exercise of searching for and canvassing the multinational companies with the requisite resources and expertise which match with the objectives of Sri Lanka's sectoral targetting policy. This requires a two pronged approach - firstly to gather databases and compile profiles of companies which are globally acclaimed multinationals, eg. Fortune 500, Asian 500 etc. together with companies listed in various other trade directories and international databases. This would give an initial working list of prospective investors.

Secondly one would have to shortlist an appropriate number of these companies for detailed study depending on whether they satisfy the requirements relating to the target sectors / industries identified in the National Economic Plan and the purposes for which we need FDI, ie. technology transfer, market sourcing etc. These shortlisted companies will have to be studied in greater detail - by looking at their annual reports, websites and corporate literature - to obtain an understanding of their business strategy, their corporate needs and the factors driving their overseas investment decisions. This will help us to assess whether there is a good match between Sri Lanka's expectations from the investor and the potential investor company's expectations from the host country.

Once these facts are known, the next main activity would be to package an investment proposition which is likely to appeal to the investor being targeted. This package should take into account the investor's likely needs in terms of managerial and technical skills, resources (land, labour, capital), infrastructure, and regulatory approvals, together with the proposed tax incentives. One important point which needs to be stressed here is that attractive tax incentives, while important, cannot alone motivate an investor to locate in a particular host country. That incentives are the not key factor in an FDI decision has now been proved beyond doubt.

Once the investment proposition has been customised and packaged, it needs to be then presented to the potential investor, and a local team appointed to follow up and facilitate inquiries, negotiate terms & conditions, and finally, if the investment materialises to facilitate entry of the investor. A true customisation strategy would not stop at this, but would also involve maintaining the relationship right through to the conclusion of the project and even thereafter, to smooth out administrative problems, facilitate the setting up of the project and co-ordinate between the numerous local service providers to ensure that the investor gets whatever that was promised speedily and without hassle.

On the other hand, the local team would also need to monitor the investment closely to make sure that the desired benefits for the country are in fact being gained through this investment as per the ultimate objectives of the National Economic Plan. It would in short, mean close contact between the investor and the investment promotion agency to ensure that the objectives of each are being achieved, thus ensuring that a strategic approach to investment promotion and management is adopted.

The main benefit of customisation is that through a process such as this Sri Lanka can develop a more planned, business-like and strategic approach to managing its economy. Following the historically successful models of "Japan Inc," "Korea Inc," and "Malaysia Inc,", what we too need is a well planned, selective and well executed strategy for attracting FDI. A business like ("Sri Lanka Inc,") approach to national economic planning would be a vital pre-requisite. Attracting FDI in today ruthlessly competitive global economy is tough, to say the least, and good strategy at the national level is important for energising this process.

Going back to the particular benefits of customisation - it will result in a win-win situation for the country and the investor, as each party will gain a good understanding of the other's needs and will therefore be able to work together better. This relationship building could result in repeat investments by the same investor - repeat purchases as it were by a satisfied customer. And if such a long term relationship were to be built up with one of the top multinationals, the resulting spillover benefits to the local economy would be immeasurable. Imagine the goodwill and benefits that would accrue if LG Electronics Intel or Marriot Hotels were to have multiple investments in Sri Lanka !

Targeted, customised investment promotion would enable us to focus our efforts on selected investors whom we would prefer to have for their particular skills and expertise (a niche marketing of sorts) as opposed to opening up our shores to just any unknown investor who may do more harm than good to our economy and environment. Choosing one's partner is far more preferable to taking on (at times in desperation) whoever who happens to come your way. The process of careful selection would also ensure that only those investors with a genuine long term commitment to the country would involve themselves in such a relationship, as opposed to those with only a fleeting interest who may pull out at the first sign of difficulty.

Customised investment promotion would also help us to target and attract those investors who will help us develop the sectors which we have identified as having high future potential for Sri Lanka. It will also help us secure technology and skill transfer, and marketing expertise in a planned manner. Customisation is no easy thing to do. It requires patience, hard work, and the ability to devise innovative ways of identifying, building relationships and retaining your customers. Using customisation to attract FDI is even harder to do because it requires substantial preliminary work, convincing ability, management of relationships and negotiation skills. But for a small country like ours, perhaps there is no other way to go. Not only must we try harder, but also smarter, if we too are going to join the new breed of high growth Asian economies.

(The writer works for a private sector organization and is an Associate member of the Chartered Institute of Management Accountants, UK and a fellow of the Association of Chartered Certified Accountants, UK. She is an MBA of the Postgraduate Institute of Management, University of Sri Jayewardenepura, where she is a visiting faculty member. The opinions expressed in this article are the writer's own and do not in any way reflect the views of the institutions to which she belongs).

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