New Study: What Makes Cities Attractive for Investments by International Firms?

Investing abroad remains an important part of scaling a business and requires an assessment to be made of what foreign locations are most attractive for that investment. These investments may have a variety of motives that are not mutually exclusive, including seeking attractive markets for growth, local conditions that can increase the efficiency of operations and/or allow access to unique and rare resources and capabilities that provide strategic advantages to a firm. For decades such foreign direct investment (FDI) decisions have been framed in terms of selecting countries for investments. However, two key trends are calling this into question as a lens for assessing locations for foreign investments, namely an increasing regionalisation of the world and greater information availability about locations within countries, especially cities.

Cities can now be understood as locations for investment with one or more motives, that are nested in national and regional contexts. As business activity is however increasingly understood as a regional phenomenon, it makes more sense to assess cities across a region for invest. Cities than have primary attributes directly tied to their economic activities and the flows of goods and services in which they are embedded regionally, with national conditions best understood as secondary attributes of each city location.

Managerial implications:

1. Don’t think about international investment as targeting countries, rather think about multiple cities across countries as your investment locations, i.e. an investment in globally interconnected Singapore is not necessarily about the national Singaporean conditions, but rather access to the Asia Pacific market. Singapore in this case is not the only city you should consider, as there are multiple cities with the same features as Singapore in the Asia Pacific region that should be assessed.
2. Cities should be considered within the context of the global region in which they are located, and not in their national context alone, e.g., the global city of Amsterdam is an attractive internationally connected city located in the European Union Single Market.
3. Cities will be attractive as investment locations for specific investment motives to different degrees across the major global regions, i.e., market seeking investments by consumer goods firms in Asia Pacific are more likely to target cities in countries with large national markets, while in Europe the single market allows cities in smaller countries by population to be considered for serving consumers in the EU’s Single European Market.
4. Cities will differ in their attractiveness depending on your industry and your motive for investing, e.g., investment banking foreign investment is highly likely to target cities with major financial markets that are internationally connected, while a manufacturing firm is likely to target city locations with good transportation infrastructure and related support industry and a strong pool of potential employees.
5. The current trend towards a de-globalisation of business activities makes understanding cities as investment locations embedded in a global regional context essential, thereby allowing more effective strategic decision-making as international businesses restructure their operations.

Further Information

The publication «FDI motives and city location preferences in the automotive and commercial banking industries» is available on the project website: https://fdi-location-choice-cities-international-markets.com

The results will be used in teaching in the Master programme MSc in International Management in the module «Technologies for International Customer Engagement».