 "Business attraction has to be business-like: Milton Kotler")
Cities generally do a better job of negotiation than they do of targeting the right companies for business attraction, Milton Kotler tells Ankita Rai
MNCs need distinctive local insights and demand ready ecosystems before investing in a city. However, finding the right talent can be difficult. How should companies approach this?
There are three steps to this answer: Scanning promising cities, selecting a city for new market investment and executing that decision with actual business planning, development and operations. Lets start with the first issue.
The second factor is city selection. This involves many stages of analysis, discussion and decision-making. They have to talk to city leaders. They have to design their business organisation. They have to line up talent, supply and distribution resources for the new organisation. A lot of work goes into feasibility studies for final investment decision.
The third point is stating the business. Companies generally deploy expat teams for the start-up period. They quickly look for local talent to run the business in the long run. Transitioning to local management is a difficult and lengthy process.
What are the key factors that influence an MNC's location and expansion decision? Are city ratings useful in the company location-seeking process?
MNCs have many divisions. They look for growth in specific core markets; so general city ratings are not too useful. MNCs use specialised industry intelligence companies, trade association data and other sources to find information specific to their strategic business units to see best potential cities for global growth in their different business markets.
For a company seeking a new market location, city rankings and ratings should only be seen as scanning tools supplying initial data. The company needs additional facts to put customised values on these attributes.
What are some lessons India can learn from China in terms of developing its cities into global business centres?
National political leaders get the press coverage for international business investment and trade. But it is the local governments that have to take initiative and do the heavy lifting to attract MNC investment. Chinese local governments have the authority and financial credit to promote their own economic growth. There is less central government bureaucratic interference. China's central government encourages municipalities to compete for business attraction. Annual municipal growth is a major stepping stone for political and government career advancement.
Unless, I am mistaken, I think that global MNC investment initiative is more centralised in India than in China. Still, there are too many bureaucratic and political hurdles at the central level to achieve fast investment and development.
In the book Winning Global Markets you say cities have to understand that their pivot of economic growth is the capacity to attract MNCs. What are the key imperatives cities need to keep in mind when deciding the industries and companies to serve?
Cities have to examine their core market strength for domestic and global MNC investment. They need to consider the following factors on the demand side: Do they have attractive demographics in population and income to represent new consumer opportunity for companies? Cities have to present their market size attractiveness to companies; and the newness of this growth to show that the new demand is underserved. On the investment and trade side they should ask this: Do they have outstanding industrial clusters that foreign companies want to lock into for supply chain advantage and trade advantage? They also have to demonstrate local support for foreign business and a consistency of orderly governance and social stability. They have to have competitive attractive incentive packages. Above all, they have to stay in touch with company targets to show earnestness and marketing avidity.
Where does the balance of power lie - with the city or the MNC when an MNC is negotiating with a city in a developing country? How should cities in developing countries approach negotiation with MNCs to best serve their local interests?
I think it is a mistake for political leaders of a city to view company attraction as a 'balance of power' matter. This is a matter of business, not politics. In fact, the circumstances are unbalanced. There are many more cities seeking companies, than companies seeking cities. We have 600 major cities in the world representing 67 per cent of gross global product; while there are a limited number of large companies in any given industry looking to invest in new markets. In other words, companies have more choices than cities.
Business attraction has to be business-like. Cities have to do their market intelligence to find the best company target that fit their environment. Their political job is to build local business and community support for new company attraction. Then they have to build a solid business case for their targeted companies on the advantages their city offer for company expansion and investment. They first have to capture interest before they get to the stage of negotiation. Cities generally do a better job of negotiation than they do of targeting the right companies for business attraction.
Companies want to see a compelling business case for investing their resources in a new market. Meeting with mayors is a waste of time for company executives unless meetings are girded by the hard work of sophisticated city economic development teams that provide mayors with the business case for the exceptional advantages their city offers to a company's expansion plans. Worrying about negotiation before you have your foot in the door is a waste of energy.
MNCs need distinctive local insights and demand ready ecosystems before investing in a city. However, finding the right talent can be difficult. How should companies approach this?
There are three steps to this answer: Scanning promising cities, selecting a city for new market investment and executing that decision with actual business planning, development and operations. Lets start with the first issue.
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Businesses are becoming increasingly professional in searching for and selecting the right location. MNCs have global intelligence to scan the conditions, character, and opportunities of potential cities for investment. They have far more talent and methodologies in understanding cities than cities have of understanding companies. Companies are increasingly using consulting groups that have specialised city knowledge. They also hire recruiting firms to find local consulting support.
The second factor is city selection. This involves many stages of analysis, discussion and decision-making. They have to talk to city leaders. They have to design their business organisation. They have to line up talent, supply and distribution resources for the new organisation. A lot of work goes into feasibility studies for final investment decision.
The third point is stating the business. Companies generally deploy expat teams for the start-up period. They quickly look for local talent to run the business in the long run. Transitioning to local management is a difficult and lengthy process.
What are the key factors that influence an MNC's location and expansion decision? Are city ratings useful in the company location-seeking process?
MNCs have many divisions. They look for growth in specific core markets; so general city ratings are not too useful. MNCs use specialised industry intelligence companies, trade association data and other sources to find information specific to their strategic business units to see best potential cities for global growth in their different business markets.
For a company seeking a new market location, city rankings and ratings should only be seen as scanning tools supplying initial data. The company needs additional facts to put customised values on these attributes.
What are some lessons India can learn from China in terms of developing its cities into global business centres?
National political leaders get the press coverage for international business investment and trade. But it is the local governments that have to take initiative and do the heavy lifting to attract MNC investment. Chinese local governments have the authority and financial credit to promote their own economic growth. There is less central government bureaucratic interference. China's central government encourages municipalities to compete for business attraction. Annual municipal growth is a major stepping stone for political and government career advancement.
Unless, I am mistaken, I think that global MNC investment initiative is more centralised in India than in China. Still, there are too many bureaucratic and political hurdles at the central level to achieve fast investment and development.
In the book Winning Global Markets you say cities have to understand that their pivot of economic growth is the capacity to attract MNCs. What are the key imperatives cities need to keep in mind when deciding the industries and companies to serve?
Cities have to examine their core market strength for domestic and global MNC investment. They need to consider the following factors on the demand side: Do they have attractive demographics in population and income to represent new consumer opportunity for companies? Cities have to present their market size attractiveness to companies; and the newness of this growth to show that the new demand is underserved. On the investment and trade side they should ask this: Do they have outstanding industrial clusters that foreign companies want to lock into for supply chain advantage and trade advantage? They also have to demonstrate local support for foreign business and a consistency of orderly governance and social stability. They have to have competitive attractive incentive packages. Above all, they have to stay in touch with company targets to show earnestness and marketing avidity.
Where does the balance of power lie - with the city or the MNC when an MNC is negotiating with a city in a developing country? How should cities in developing countries approach negotiation with MNCs to best serve their local interests?
I think it is a mistake for political leaders of a city to view company attraction as a 'balance of power' matter. This is a matter of business, not politics. In fact, the circumstances are unbalanced. There are many more cities seeking companies, than companies seeking cities. We have 600 major cities in the world representing 67 per cent of gross global product; while there are a limited number of large companies in any given industry looking to invest in new markets. In other words, companies have more choices than cities.
Business attraction has to be business-like. Cities have to do their market intelligence to find the best company target that fit their environment. Their political job is to build local business and community support for new company attraction. Then they have to build a solid business case for their targeted companies on the advantages their city offer for company expansion and investment. They first have to capture interest before they get to the stage of negotiation. Cities generally do a better job of negotiation than they do of targeting the right companies for business attraction.
Companies want to see a compelling business case for investing their resources in a new market. Meeting with mayors is a waste of time for company executives unless meetings are girded by the hard work of sophisticated city economic development teams that provide mayors with the business case for the exceptional advantages their city offers to a company's expansion plans. Worrying about negotiation before you have your foot in the door is a waste of energy.