My Say: The role of cities in attracting FDI

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UP until recent times, executives had selected capital investment destinations on the basis of what countries and national governments had to offer. The foreign direct investment (FDI) matrix often came down to spread-sheeting labour costs, comparing tax rates, agreeing supply chains and negotiating concessions.

But in Southeast Asia, the FDI equation is changing.

First, the companies driving high-value growth are smaller and far more prolific. The generation propelling many of these creative industries responds to a very different set of inducements. From independent fashion designers to app developers courting a growing middle class, the choice of where to invest is dominated by personal taste and lifestyle ambition, in addition to market opportunity.

Second, the ground is shifting beneath the feet of the global corporation. According to a 2013 McKinsey Global Institute report, Urban World, the number of billion-dollar companies is forecast to almost double in the next 12 years. Interestingly, the centre of gravity for these industry magnates is expected to shift to emerging economies, with up to 45% of them located here.

What both the creative types and global executives have in common is that their decision-making has little to do with a country’s characteristics. Rather, their focus is on the city and the urban qualities that will enrich their careers and lifestyle.

Take the archetypal young, single, creative types — baby boomers and Gen Ys alike: they want their senses to be stimulated, they want urban landscapes that inspire. They will take to the places where they believe they can forge ahead with their professional and personal lives.

And the herd instinct will predominate: for them, the brightest prospect is the chance to work with, learn from and spark off other creative pioneers. The city needs to feed their intellectual, social and creative thirst for them to linger long enough — and possibly stay for a lifetime. This, then, allows the city to reap their inherent economic value.  

In the same vein, senior executives, having analysed all commercial factors, often realise that they need to tap a good and steady stream of knowledge workers for their business to cut it in the global market. So, they ask themselves, “Where am I most likely to be able to attract, retain and grow young talent?” The answer: this generation’s city of choice.

One way to recalibrate liveability is to approach it from how the “working class” is shaping up. Increasingly, women are taking up a larger share of the workforce. As a Grant Thornton 10-year survey released recently points out, economies in Southeast Asia are leading the way for women in leadership: women in Indonesia (41%), the Philippines (40%) and Thailand (38%) all seem to benefit from the support provided by their families to advance into C-suite positions.

This means that cities that offer “women-centric” amenities, such as affordable domestic help, good hospitals, world-class education and safe streets, will rise in popularity. Also, a city that offers dual career opportunities, where the trailing spouse can also expand on his or her career ambition, can well win the boardroom debate. These factors can tip the balance of decision-making for thousands of families looking to settle or even those looking to return on programmes such as those run by TalentCorp, which is tasked with stemming the brain drain.

Lessons for liveability

Melbourne, having retained the Economist Intelligence Unit’s World’s Most Liveable City title for the fourth year running, has put in decades of work to shape what it has to offer and continues to offer.

Liveability is getting the whole package right: stability, healthcare, culture and environment, education and infrastructure. It is no good spending US$7 billion in 2014-15 on infrastructure if the streets are not safe or the arts scene is a dud.

At the outset, Melbourne recognised that its cultural diversity could be as magnetic as its cultural heritage. Its cultural topography is formed from waves of immigrants: Italians in the 1950s, Greeks in the 1960s and Vietnamese in the 1970s and 1980s. These settlers broadened our world view and staged a welcome for world cultures to coexist. Its fine dining scene and plethora of unique coffee blends served in cool laneways are the direct offspring of this distinctive taste and flair.

The city’s vivacity — and its global cachet — marches to a steady beat of international tournaments, art exhibitions, fashion weeks and races, as well as food, comedy and arts festivals. And this is all played out to a symphony of free-wheeling and spirited public debate that gives Melbourne a truly liberating artistic and intellectual atmosphere.

Likewise, Kuala Lumpur has a cultural-linguistic edge. Both the billion-people emerging economies, India and China, can find here a deep, tertiary-educated pool of native language speakers who are fluent in numerous regional dialects and whose capabilities are ahead of some developing economies. Kuala Lumpur has genuine cultural diversity, with a freedom and vibrancy that is not automatic in Asia. Its strength is its diversity.

Based on data from the Financial Times, growth in FDI project numbers globally has remained flat and has experienced on average -5% growth from 2009 to 2013. In contrast, Melbourne has seen an increase in FDI project numbers since 2009, with average year-on-year growth of 10%.

In Asia, Singapore’s and Hong Kong’s city-centric policies have made their successes phenomenal. As a 2013 McKinsey report on global urbanisation points out, more companies have set up their regional head offices in Singapore than in any other country in the world.

What is the recipe for success? Both island-city-states have focused relentlessly on getting the equation right for corporate investors. The regulatory regime is clear, corporate tax rates are low and transport infrastructure has been so carefully managed that residents have the most predictable travel times of any city dweller in Asia.

More recently, Singapore has committed to an architectural vision. Its skyline is starting to define the city itself, with totemic buildings reaching for world recognition. This is a powerful differentiator. Since civilisation began, the ambitious have always been drawn to civic grandeur because they identify with the prestige and aspirations that great architecture embodies.

Kuala Lumpur also has a great start in the cityscape stakes: good infrastructure, both physical and digital. The Petronas Twin Towers stands beside Big Ben or the Sydney Opera House as city-defining architecture and its broadband connectivity scorecard is ahead of many of its neighbours’. It is also developing a progressive urban consciousness: witness the growing number of developers subscribing to the Green Building Index as more and more modern city dwellers eye environmentally sustainable buildings in which they can work and live.

So, the winners of FDI will be cities that create homes for talent. To succeed, cities in this region will need to focus on their liveability, their streetscapes and the cultural variances that make them globally unique.

This will be the battlefield on which cities compete for the attention of families and the creative types who are carving our future. That battle will change the face of the cities we know, and in ways that can only be positive.

Tim Dillon is the inaugural Commissioner for Victoria to Malaysia and Southeast Asia. He represents Victoria’s interests in the region, facilitating trade and investment opportunities and strengthening bilateral relations through strategic collaboration. Dillon and his family have lived in Kuala Lumpur since 2009.

This article first appeared in Forum, The Edge Malaysia Weekly, on November 17 - 23, 2014.