When a company is looking for a business location to set up new operations or to expand its business, decision makers have to take several macro-economic location factors into account in order to make sure the general macro-economic environment provides the necessary fundamentals for stability and to ensure the company’s long-term continuity and profitability together with the necessary elements for sustainable growth for its business.
Several criteria determine a location’s overall potential to attract foreign direct investment. First of all, the necessary economic criteria need to be fulfilled for a company in order to take a specific locality into consideration. These vary from favourable and competitive labour costs, a high workforce productivity, favourable capital and fiscal incentives under the form of reduced taxes and capital grants to support innovation initiatives, to high quality infrastructural requirements that offer not only the necessary ICT infrastructure that is vital for information transmission but also provides the transportation means that are crucial for workforce mobility (road and rail infrastructure, the vicinity of airports, etc.).
Secondly, talent criteria are crucial for the company’s decision-making process: the proximity of a large pool of skilled labour is a factor of utmost importance for the company’s long-term growth, profitability and is of utmost importance to ensure a continuous innovation potential necessary to obtain competitive advantages. Not only the structure and size of the labour force in the potential location or region are of crucial importance but also the quality of education, mostly characterised by the presence and proximity of universities, centers of excellence, research and science.
Finally, several location parameters define an area’s general attractiveness: demographic factors are of a tremendous importance since large populations provide the necessary market to sell goods and services and create environments with a good chance of rapid market penetration. Furthermore, highly politically stable areas with low degrees of corruption are a cost reducing factor. Moreover, skilled labour force tends to be attracted to localities with a high standard of living, prevalent in areas with a high quality of life.
The highest probability of finding a company’s ideal combination of all fore mentioned location decision factors exists in large metropolitan areas. Over the last decades, large metropolitan areas continuously seem to develop all the right fundamentals for companies to flourish, which in turn continues to attract talented workforce. As a consequence, metropolitan areas increasingly attract foreign direct investment, and will eventually be able to (re)shape a large part of a nation’s economy. Moreover, large metropolitan areas tend to merge and some even become cross-border. Do recent projects such as Yongsan e.g. prove that metropolitan areas will eventually play the most important role in attracting foreign direct investment and in the end become more important than nation states themselves?
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