Public Sector In Focus

Competitive Places

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As the world’s trade becomes ever more international places, countries and cities, seek to compete for investment from private sector organisations.  This competition for investment is increasingly based upon comparative advantages.  Places need to understand, exploit and develop their comparative advantages.

Comparative advantages relate to the advantages that places have when compared to the other competing places for private sector investment.  They can relate to access to capital, access to skills, access to markets and access to a fiscal framework that provides incentives for entrepreneurialism/ investment and an opportunity to achieve a higher return on investment.  Comparative advantage can also relate to political stability, physical and social infrastructure, the quality of life, cost of operation, access to academic research institutions, access to clusters of activity, access to raw materials and the established competitive dynamic.

When assessing comparative advantages private sector organisations look at their competitive context and evaluate the different advantages that different places provide.  Some advantages are more important to certain private sector organisations than others e.g. the unit cost of production or access to an attractive market.  Similarly the risk appetite of private sector organisations has an influence on the evaluation of comparative advantage.  This is particularly the case when considering access to markets against the risk of political instability and/or the need to have local indigenous partners to gain access to the market.

A private sector organisation will decide where it is best for it to invest.  If the public sector is to play a role in achieving investment in their places, whether at the country level or the city level, it must understand the comparative advantages the private sector is seeking.  Only then can the public sector focus its efforts to influence the perceptions of the private sector and convince them to invest.

Whilst many places seek any and all the investment they can, it is also the case that countries and cities need to decide if there are any specific market sectors on which they want to focus.  Knowledge based companies will look for different comparative advantages to manufacturing companies.  Even if the same comparative advantages are sought across sectors it is probable that they will be weighted differently by private sector organisations operating in different market sectors.

The public sector needs to understand what is important to the private sector for the market sectors being researched.  It needs to understand how the private sector scores the comparative advantages that it seeks when considering investment.  This ‘ideal’ score forms the benchmark against which different places can be scored.  Each comparative advantage can be scored out of ten for places within countries and between countries.  This is illustrated by the table below:

The Comparative Advantage of Places

It has to be remembered that the scoring has to be done from the private sector’s perspective and not the public sector’s.  It is the private sector’s perceptions that are important.  The public sector should commission independent external consultants to undertake this work to ensure that an objective view is gained of the ‘ideal’ and the scores for each place.

The above can be illustrated clearly on a radar diagram:

This independent assessment can sometimes highlight very difficult messages for places, particularly where the results challenge taken for granted assumptions about how well places are perceived.  It is important, however, to receive these messages positively and to use them to provide an agenda for the public sector to address.

The radar diagram provides a clear illustration of the relative comparative advantages of different places.  If your place is Place A you will see that you need to consider how to improve on cost base, return on investment, fiscal incentives, access to skills and access to markets to improve your place’s attractiveness for investment for the market sector to which the research relates.

The radar diagram also illustrates the comparative advantages that you can use positively to distinguish your place from other competing places.  In the case of Place A it can promote its political stability, its physical infrastructure, its social infrastructure and its quality of life.  Positive messages can be generated about the benefits of investing in Place A.

The public sector has the ability to influence perceptions in the private sector.  For example, it can invest in the social and physical infrastructure, fiscal incentives and skills development required to attract the private sector.  The private sector does not expect to achieve a perfect fit with its requirements.  It will look at the elements of comparative advantage and trade off what it would ideally like with what it needs to enable it to achieve its objectives.

Where the primary objective at this time for a private sector organisation is market penetration its ideal profile for comparative advantage is likely to be different to that of an existing competitor in the market seeking to gain market share e.g. it a new entrant to the market will accept a low return on investment to gain entry to the market.  Different private sector organisations view the comparative advantages of places differently depending upon what they are seeking to achieve and the timescales over which they seek to achieve it.  Their view of what they require can also change over time.

Developing comparative advantage requires:

1. An understanding of the market to which the comparative advantage relates.

2. An understanding of the type of organisations that your place is seeking to attract.

3. An objective understanding of how your place, and other competing places, are perceived against what the private sector organisations in (2) above are seeking.

4. A plan for your place to address the elements of the comparative advantage that private sector organisations perceive need to be improved along with a communications plan to convince those organisations that you will improve them.

5. A plan to promote those comparative advantages for your place that meet or exceed the expectation of the private sector organisations.

Whilst there are generic elements of comparative advantage such as it’s a great place to live, work and invest; the places that are most successful in attracting the private sector to invest are those that focus their promotion and action on the specific requirements of market sectors and individual private sector organisations.

Professor Malcolm Morley OBE                                                  February 2016

Visiting Professor

The Lord Ashcroft International Business School

Anglia Ruskin University

Malcolm is a serving public sector chief executive and a visiting professor.  Author of The Public Private Partnership Handbook: How to maximise value from joint working, he lectures widely and undertakes consultancy.  He can be contacted at: malcolm.morley@aru.ac.uk

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