Aftercare is important when attracting foreign direct investment because data demonstrates that the vast majority of new jobs and investment emerge from global companies already located in the community.
-Organization for International Investment
Aftercare services are provided to companies committed to investing in the region whether through a new “greenfield” facility, an expansion of an existing operation, or a merger or acquisition.
Economic developers consider aftercare to encompass a wide variety of services and activities, but it is not always widely recognized as a key activity in U.S. economic development organizations. The United Nations Conference on Trade and Development (UNCTAD) defines aftercare as those services designed to help foreign investors start-up and become comfortable in a completely new economic environment. The Organization for International Investment suggests that aftercare is a broader concept that includes business retention and expansion programs. One reason for this expanded definition is that a great deal of FDI occurs through investments in foreign-owned facilities already located in the area. In sum, aftercare is about building and sustaining a relationship with a client company, identifying and addressing their unique needs.
Aftercare facilitates new investment. Up to 70 percent of new FDI is linked to global businesses already located in the U.S. Global companies often expect attention, and they notice when local communities do not provide it in a systematic way (as is common in their home countries). A satisfied foreign-owned firm will spread the news and enhance the reputation of an EDO and the region among the firm’s corporate contacts world-wide. Consequently, aftercare is also vital for promotional purposes as well.
UNCTAD provides more insights on aftercare services...
The first-time international investor is often in a different situation from a globally networked FOE. The integrated, networked FOE may be more self-sufficient and less reliant on aftercare services, especially at the operational level and when considering reinvestment. The size of the foreign investor and the technology focus raise distinct issues concerning expectations from aftercare programs.
The development stage of an investment project places different demands of varying intensity on aftercare programs. During start-up and the first two years of operation, there is likely to be constant interaction between aftercare providers and the company, mainly on operational issues. Typically, in the subsequent period there is both a lower requirement for aftercare services and less contact with aftercare providers as the company becomes integrated into the region and focuses on other priorities. The nationality of the investor and associated cultural preferences also may influence aftercare requirements.
UNCTAD considers four distinct models for designing and delivering effective aftercare services: the integrated model, aftercare team model, project-based model and company-friend model.
The company-friend model is offered in the first years of operation after start-up. In this model, existing businesses are offered informational plus limited operational assistance. The company-friend model helps foreign affiliates to build their networks of contacts in the period up to and after start-up; it is regarded as the minimalist approach to aftercare. This is an activity that is not well resourced and is reliant upon the networks and contacts that aftercare managers can muster. It is not systematic or strategic but tends to be ad hoc and driven by immediate needs. It can combine a wide variety of services ranging from administrative to strategic issues, depending on the caliber of the staff delivering aftercare.
The project-based model directs resources to key or specific elements in aftercare programs rather than the entire span of aftercare activities. Areas of initiatives are supplier development, where the aim is to build up the supplier base as a means of increasing the multiplier effects of FDI. It is also used for human resources development where, for example, training programs might be initiated to assist the foreign investors in a particular industry. In this case, aftercare is not well resourced either, but the aim is to focus resources and service delivery on very specific areas such as supply chain development, talent, or increasing university collaboration.
The aftercare team approach is where a relatively wide service offering is delivered, but it is not particularly well structured in terms of subnational or national economic priorities. With many IPAs dealing with considerable resource constraints, this model is increasingly scarce and hard to justify.
The integrated model is the most ambitious and costly and envisages aftercare as part of a comprehensive regional economic development plan. Services provided under this model also benefit domestic companies. This approach works in a highly structured, well-resourced manner to deliver specific goals that are aligned with regional or national economic development objectives.
This table shows that the integrated model, the aftercare team approach, and the project-based approach are all more formal and ambitious than the company-friend model.
Sources: Adapted from “Aftercare of inward foreign direct investment: A case study of South Africa” (2011). Benjamin Manasoe and Ronald Mears; United Nations Conference on Trade and Development (2007), “Aftercare–A core function in investment promotion.” United Nations, New York and Geneva.