In examining the way governments choose a structure in which to conduct investment promotion activities we found that most of the organizational issues fell within the realm of the public-private choice of management of certain nontraditional government activities.
Appropriate Organization For Investment Promotion
Like some other activities financed by governments, investment promotion has certain characteristics of tasks typically carried out by the government but others that are normally associated with tasks usually located in the private sector. Activities of this type are often financed by a government because they generate social profits that are greater than the private profits they could provide. When this condition prevails, a government must either finance the activity or risk that it will be underprovided.
In contrast to government organizations, quasi-governmental organizations tended to be created for the purpose of marketing countries as investment sites and not with the primary objectives of screening investment or negotiating with investors.
Governments can adopt two polar positions in their attempts to carry out the nontraditional government activity of investment promotion. A government can carry out investment promotion itself, but this approach has the disadvantage that the government organization may be unable to acquire skills that are required if the activity is to be managed properly. The required skills may reside in the private sector and be difficult to attract to the public sector, especially with the salary constraints typical of civil services. Accordingly, if the government decides to manage the activity, it may also, through various methods, have to take steps to obtain the appropriate skills from the private sector.
An alternative approach is for the government to delegate the management of investment promotion activities to the private sector. This approach often has the disadvantage that the private sector will not handle well the attributes of the task that are more like traditional government tasks, such as servicing investors by acquiring permits and approvals from other government departments. Indeed, neither the wholly public nor the wholly private approach to the management of investment promotion is ideal. Regardless of the approach that is chosen there will be management issues with respect to the way the inherent disadvantages of either approach are to be overcome. In an attempt to overcome these disadvantages, governments may search for the organizational approaches that combine most effectively the skills and resources of both the public and the private sectors.
Indeed, we observed that many governments did avoid these two extreme approaches and, instead, chose an intermediate approach. They conducted investment promotion through quasi-government organizations. These organizations, while reporting to the government, were not enmeshed within the conventional government and civil-service structure. Separation from the conventional apparatus of government gave these organizations certain inherent advantages over government organizations in carrying out the investment promotion function. At the same time these quasi-government organizations had an advantage over private organizations in conducting the tasks of investment promotion that required close contact with the government since they were, in fact, part of the government.
In contrast to government organizations, quasi-government organizations tended to be created for the purpose of marketing countries as investment sites and not with the primary objectives of screening investment or negotiating with investors. These agencies had the flexibility to attract personnel with the marketing expertise successful investment promotion requires. In addition, they were able to obtain sufficient autonomy to design and implement promotion strategies, and to develop integrated management control systems that tied the activities of marketers to particular investments. These management control systems provided sufficient, timely information with which agencies could simultaneously control, evaluate, and motivate marketing representatives. The overseas offices of quasi-government agencies also tended to be staffed by full-time promoters who were directly controlled by, and accountable to, the agencies. These advantages were particularly important when an agency was heavily involved in investment-generating activities.
In contrast to private organizations, however, the quasi-government agencies did not face the problems likely to be faced by a private agency in conducting the investment promotion tasks that are more like typical government tasks, such as servicing investors and cooperating with the government.
These research findings build a strong case for the location of a government's promotion program in a quasi-government organization. Many countries, however, already have promotional programs. If such a program resides in a conventional government organization or in a private organization, change may be difficult. For government organizations, conversion to quasi-government status may be politically unacceptable. Nevertheless, certain management practices may lead to better performance in both government and private organizations.
