Organizational Review of Investment
Partnership Canada and Associated
Departments and Agencies
May 2001

Executive Summary

Attracting foreign investment is a goal of the government which is delivered by several government departments working individually and collectively. The purpose of this review was to profile the government's investment promotion system, to explore how departments and agencies work together through Investment Partnerships Canada, to identify areas of potential improvement, and to suggest an agenda for the future.

Investment Partners and Governance Framework

Within the federal government, the task of promoting and facilitating foreign direct investment is shared by several departments and agencies. Foremost among these are Investment Partnerships Canada, three "domestic" departments (Industry Canada, Agriculture and Agri-Food Canada, and Natural Resources Canada), and one "international" department (Foreign Affairs and International Trade).

IPC is a joint Industry/DFAIT creation whose two main functions are (a) to lead campaigns to attract and retain MNE investment and (b) to coordinate the federal role in FDI attraction and build "partnerships" among the three levels of government. In 1999, a "realignment" of responsibilities with DFAIT enhanced IPC's coordination role and assigned it a number of additional responsibilities, notably management of the federal government's "branding" initiative and administration of the PEMD-I program. In four years of operation, IPC has grown from 24 FTEs and a budget of $3.5 million to 58 FTEs and $4.9 million today.

The role of the "domestic" departments is to analyze Canada's economic development needs, develop strategies and plans to meet those needs, and encourage investment in sectors which could most benefit from it. Each of the departments has resources dedicated to investment promotion, collectively in the order of 65 FTEs and $1.5 million in operational funding. Two sectors have full divisions devoted to investment issues.

The role of DFAIT is to advance Canada's international economic relations, inter alia by using its missions abroad to induce foreign companies with world-class expertise and technology to invest in Canada, particularly in targeted sectors. The department has 21 missions with dedicated investment counsellors, and a further 48 missions with trade officers who can perform investment functions.

Every provincial and territorial government also runs some sort of program to attract foreign investment. The largest provinces now have investment promotion agencies with well developed strategies, plans, and performance measures; operations which are every bit as sophisticated as those of the federal government; and individual budgets which dwarf that of IPC and may exceed the combined federal total. Ontario has 77 people and a budget of $26.3 million, Quebec has 49 people and a budget of $32.7 million.

Operation of the Partnership

The federal investment promotion system is a challenge to horizontal governance which the parties have yet to meet.

Since IPC was created, foreign direct investment into Canada has continued at a high level and IPC's engagement of deputy ministers to lead investment campaigns in priority countries is estimated to have facilitated $5 billion in new investment. Progress has also been made in eliminating some regulatory impediments to investment. New procedures have been put in place to enhance cooperation among the parties. Marketing materials have been developed to assist in international prospecting. Additional investment counsellors have been placed in key missions abroad.

But the goal of an IPC-led "partnership" among departments and agencies remains elusive. There is cooperation, but it takes place on a case-by-case basis and is more a function of individuals finding ways to get along than of institutional bonding. IPC manages a program which is not integrated with those of other departments and agencies, though it has grown over the years and has crowded out resources for other things – including tasks IPC has been asked to assume which were not part of its original mandate. Sector branches and missions have their own strategies and corporate calls programs, developed with input from a variety of sources. Despite parties' considerable efforts to fashion a governance structure to integrate their efforts, there is no strategic framework to guide their operations, they occasionally work at cross purposes, and collectively they make less than optimal use of their resources.

All the parties are struggling with mandate and resource issues. The arrival of IPC introduced a new player, but the team is still working out who does what. At Industry Canada, the problem has been compounded by a loss of sector expertise as a result of Program Review, and at DFAIT by a divestiture of resources to missions and IPC. Missions have pressed ahead with their investment promotion efforts, but there has been little money for local marketing initiatives.

In general, the parties are not comfortable with the current arrangements. They wish they had more resources for what they consider a critical function of government. They wish they could draw more on the expertise of others. They wish they could find a way to work more closely together without having to attend coordination meetings which generate little coordination.

Departments value the role IPC could play in leading the drive for foreign investment, but it has yet to develop the "team" to take investment promotion to another level. All value the personal engagement of deputy ministers, but they wish deputies were deployed more strategically. One investment counsellor summed up the views of many when he said that what people want is "a group of deputies who will answer the call, not necessarily a deputies' program".

Assessment

The principal findings of the study may be grouped under five headings: strategy, governance and accountability, planning and priorities, process and instruments, and performance management.

Strategy

The main guidance document is five years old, prepared at a time when the world economy and Canada's place in it looked very different. The choice of sectors to receive attention and the improvements to be sought in each sector have not been reviewed since 1996. The approach taken to achieve objectives remains what it was, notwithstanding the experience of five years.

Governance and Accountability

The governance structure being developed is complex and has yet to produce the coordinated approach anticipated when IPC was established. The roles and responsibilities of the various parties are not clear, despite much effort to define and delineate them. IPC has a mandate which has expanded over time, but one which has not yet been fully accepted by others. The accountability structure has placed few obligations on parties to work as a team.

Planning and Priorities

Federal departments and agencies have never developed a consolidated plan of action to guide their collective efforts in investment promotion. The principal parties also disagree on the weight to be accorded various activities, for example prospecting for MNEs vs. SMEs.

Process and Instruments

To date, the federal government has devoted more effort to sowing and tilling than to reaping and aftercare. One reason is that federal investment promotion lacks "method". In addition, investment promotion has yet to develop the disciplines one would expect of a more mature program such as trade promotion. There are no doubt lessons to be learned from the trade program's management and administration.

Little should be expected from current efforts to raise awareness of Canada as a place to invest. Unless it is informed by a vision of the kind of country Canada is to be and a strategy to create it, "branding" is unlikely to produce the results desired.

The federal government does not have a coherent approach to prospecting. The Deputy Minister Investment Champion Program marshals a resource no other country does, but the experience of four years suggests adjustments are due in how it is deployed. Issues include the choice of deputies to participate in the program, the country/sector focus of deputies' efforts, the planning of visits abroad, and management of investment climate and impediments issues.

The federal government's limited focus on reaping contrasts with the heavy emphasis other countries and other jurisdictions place on working with prospective investors to "find a path" through the obstacles inhibiting a positive investment decision. Re-investment has long been the major source of foreign investment, but the federal government has placed little emphasis on it.

Performance Management

A performance management framework has not yet been developed. (An interdepartmental committee under the auspices of IPC has been working on developing a framework for IPC since April 2000.) No indicators have been established against which to measure whether the federal government is getting better at investment promotion. This makes it very difficult to assess whether departments and agencies are adequately funded - though the experience of other jurisdictions suggests that the resources devoted to investment attraction and facilitation may not be commensurate with the results expected. In the absence of a performance management framework, it is difficult to evaluate the efficiency and effectiveness of the program.

Conclusions

The findings of the study indicate that the federal investment promotion function:

• has no "fatal flaw" in its design,



• is complex and will only work if people are genuinely interested in cooperating, has made some progress in recent years,



• lacks strategic direction for the future,



• requires a "game plan" which all members of the team will subscribe to,



• requires more purposeful direction and tighter accountability arrangements, needs to reassess some of its methods, particularly the deputies program, and the relative weight it assigns sowing, tilling, reaping and aftercare, and



• should develop a performance framework so that true resource needs can be determined.

Follow Up

1. A high priority should be placed on developing a new federal strategy.



2. As part of the federal government's annual business planning process, parties should begin to develop an annual plan of action for investment promotion.



3. A performance management framework should be put in place.



4. There should be a review of governance and accountability arrangements.



5. The Deputy Minister Investment Champion Program should be reoriented to accentuate deputies' value-added.



6. Investment promotion "method" should be reviewed.



7. Marketing, communications and branding programs should be more closely aligned with strategic objectives and operational needs.

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Promoting Foreign Investment

Management Response to a Report Entitled
An Organizational Review of Investment
Partnerships Canada and Associated
Departments and Agencies
August 2001

Background

This review was undertaken at the request of the Deputy Minister of Industry Canada and the Deputy Minister for International Trade. Performance Systems Canada Inc. was engaged to undertake the review on behalf of the Audit and Evaluation Branches of Industry Canada and the Department of Foreign Affairs and International Trade.

The objectives of the review were to:

• profile the government's investment promotion system;
• explore how departments and agencies work together through Investment Partnerships Canada;
• identify areas of potential improvement; and
• suggest an agenda for the future.

The organization and mandate of Investment Partnerships Canada have changed significantly since its inception five years ago. Given this, the two Deputy Ministers believed that it was timely to look at the strengths and weaknesses of the Partnership and to suggest improvements to the organization.

Management welcomes the report's conclusions. We recognize that this new type of approach involving federal, provincial and municipal governments is evolving and that changes are needed to make it both more effective and responsive to Canada's investment objectives and foreign investors' needs.

Success on the investment front requires the strong commitment of all players. The key ingredients for cooperation are there – we have support at the highest levels of government, all partners have reaffirmed their commitment and we are working on a common strategic direction. We see this as an opportunity to reinvigorate the partnership and move forward to strengthen Canada's ability to attract and retain investment.

Overall Management Response to the Review

The Review demonstrates commitment by the participating organizations to working together in a more coherent and integrated manner and has been helpful in making recommendations to advance this integration process. Some observations contained in the Review were not accepted by all parties. Nevertheless, all partners are committed to addressing each of the recommendations within the time frames set out in the detailed Management Response below, in order to enhance the delivery of the Government's investment agenda. As the Review confirms, investment promotion is complex with many groups pursuing differing objectives....and the process is getting more complex with the passage of time. The management of Investment Partnerships Canada (IPC) and the core departments that comprise the Investment Partnership accept and embrace the "areas for follow up" that are set out in the Review. For purposes of simplicity, the term Investment Partnership refers collectively to IPC and the core federal departments that are engaged as partners in investment promotion and attraction. These core departments consist of Industry Canada, the Department of Foreign Affairs and International Trade (DFAIT), Agriculture and Agri-Food Canada and Natural Resources Canada.

Management Response to the Recommended Areas for Follow-up

Recommendation: A high priority should be placed on developing a new federal strategy for attracting and retaining international business development.

Management Response: Agreed.

The Review calls for the development of an updated federal strategy. A revised federal strategy will be developed by the end of 2001 and is to be reviewed annually thereafter. It is agreed that there is a clear ongoing need for a coherent and comprehensive federal strategy that sets out the specific actions that all investment partners must undertake collectively to achieve the government's objectives. In this regard, the Investment Partnership has developed and is pursuing a very explicit and agreed strategy and policy agenda that would serve to make Canada a more attractive place to invest. This agenda is also an important element of our branding campaign (see paragraph 7). A recently concluded review of priority markets has been approved by the Deputy Ministers that comprise the IPC Advisory Board. The formal designation of priority markets and sectors within this strategy is to be made conditional on the commitment of adequate resources by the partners. By setting these priorities, the Investment Partnership would be in a position to develop sectoral strategies and identify the signature public events and specific firms that are to be targeted in priority geographic regions of the world. This agenda is being shared with the provinces and territories via the Federal-Provincial-Territorial Senior Officials' Working Group. As the Review points out, arriving at a consensus on all these points at this level of detail is an ongoing challenge that is inherent in the partnership model.

Recommendation: As part of the federal government's annual business planning process, parties should begin to develop an annual plan of action for investment promotion.

Management Response: Agreed.

To allow for implementation commencing in fiscal year 2002-2003, the Investment Partnership, under IPC leadership, will initiate an annual planning process that will require the development of action plans for each of the previously approved priority sectors and regions of the world. This will integrate and build on the existing planning processes within the member organizations of the Investment Partnership. These action plans are to be developed in consultation with the relevant partners within the Investment Partnership and will identify specific activities, define roles and responsibilities, allocate resources and measure performance.

Recommendation: A performance management framework should be put in place.

Management Response: Agreed.

A preliminary investment performance management framework has been developed over the past 12 months and will continue to build on existing performance management processes in partner agencies. A pilot of the first phase of this system has been launched within IPC. When fully operational, this system is to be extended to the operations of the various partners of the Investment Partnership to measure the effectiveness of their investment activities. The performance management framework would also provide the basis for performance and accountability accords that IPC will establish with its partners. The continuing work associated with this initiative includes: (1) implementing the data gathering strategy within IPC and evaluating its future applicability to the activities of the other members of the Investment Partnership; and (2) developing a measurement framework that would define the activities, outputs and results. This performance management framework would proceed concurrently with the development of the annual planning process described in item 2 above. Continuous dialogue within the Investment Partnership is essential to the development of this measurement framework as an integral part of a federal strategy.

Recommendation: There should be a review of governance and accountability arrangements.

Management Response: Agreed.

Governance and accountability arrangements are critically important to the success of the Investment Partnership and are especially challenging in such a complex line of business which engages so many partners and players. Adding to the challenge is the underlying dynamic of a partnership, i.e., horizontal management of partners in an environment where the partners do not work for each other but all work toward a common objective...the essence of teamwork! To meet the challenge, a governance structure has been implemented which engages those responsible within the Investment Partnership. Within this context, the role, membership and operation of the IPC Deputy Ministers Advisory Board is in the process of being reviewed and broadened. This review is to include greater participation by Deputy Ministers whose portfolios contain sectoral and policy responsibilities and to also include representative Heads of Missions within DFAIT, i.e., Ambassadors and Consuls General, who are responsible for implementing invest ment strategies in priority regional and national markets around the world. Similarly, the memberships of the Directors General Investment Committee and the Assistant Deputy Ministers Investment Council are being reassessed to ensure increased effectiveness across government and enhanced support for the decision making role of the Deputy Ministers Advisory Board. This reassessment will reinforce the accountability of all members of the Investment Partnership. The proposed changes in the governance structure are to be completed by the end of 2001.

Recommendation: The Deputy Ministers Investment Champion Program should be reoriented.

Management Response: Agreed.

One of the unique aspects of the Investment Partnership strategy is the direct involvement of a select group of Deputy Ministers in promoting investment. The Deputy Ministers Investment Champion Program is being reoriented to make the role of Deputy Ministers more strategic and to more broadly engage the Investment Partnership in the development and delivery of this program. Similarly, the roles of Deputy Ministers in addressing issues relating to policy and regulatory impediments to investment, and issues relating to specific industrial sectors as well as the branding of Canada as a location for investment are in the process of being redefined. The reorientation of the Deputy Ministers Investment Champion Program is to be completed by the end of 2001 in parallel with the planned changes to the governance and accountability structure outlined in item 4 above.

Recommendation: Investment "method"* should be reviewed to ensure a more client-centered and integrated approach to parties' dealings with prospective investors.

Management Response: Agreed.

Embedded in the Investment Partnership strategy will be a clear tactical plan which sets out the method to promote investment, particularly in priority regions around the world and in priority industrial sectors. The promotion strategy works at two levels: (1) increasing awareness of Canada by potential investors; and (2) increasing the propensity of investors to invest in Canada. The revised investment "method" that is to be implemented will result in a more coordinated effort among all members of the Investment Partnership to provide, within available resources, a high level of service to investors throughout the investment cycle, from targeting to promotion, through investment decision and aftercare. The integration of the roles of different partners throughout this cycle at appropriate times will be coordinated by IPC. The role of Senior Account Executives, within IPC, who support Deputy Minister Investment Champions would be expanded in line with this revised investment method. This revised investment method is to be implemented in conjunction with the revised annual planning process set out in item 2 above.

*The Review defines investment "method" as conceptual selling – a seamless process which involves defining the "ideal client", qualifying prospects to ensure they meet the criteria, making leveraged approaches, exploring needs and wants, designing solutions in common, and fashioning a relationship to see the project through from beginning to end.

Recommendation: Marketing, communication and branding programs should be more closely aligned with strategic objectives and operational plans.

Management Response: Agreed.

Marketing, communications and branding are situated at the core of the investment promotion program. This line of business provides the tools and the tactics required to support and leverage investment promotion efforts. Marketing and promotional materials have been developed for use by all investment partners (e.g., high quality print materials, Invest in Canada website, etc.), though more needs to be done. The Investment Partnership continues to develop more refined and targeted marketing materials that support our strategic and operational objectives. The Partnership is committed to developing and updating a wide variety of marketing and promotional materials, which are to be integrated across the Partnership, including the provinces, territories and municipalities. Branding pilots in Boston and Dallas are being used to define the attributes and marketing methodology that can be applied to a variety of markets, forming the core of a successful Canadian brand. The branding pilots will be completed in March 2002, but the research results, messages and elements of a marketing methodology are already being applied in other markets. Increasingly, this branding research is being developed and incorporated into investment strategies, such as Team Canada missions and the Deputy Ministers Investment Champion Program. Another aspect of the challenge going forward is the management of the investment branding strategy, both domestically and internationally, in the context of other federal, provincial and municipal branding initiatives. A working group from across the Investment Partnership has been formed to work toward aligning the partnership's marketing, communication and branding programs with its strategic objectives and operational plans. The work of the working group is planned for completion by the end of fiscal year 2001–2002.

Management Accountability

Leadership in implementing these recommendations is to be provided by IPC, in cooperation with partner organizations, and is to be overseen by the IPC Deputy Ministers Advisory Board.

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