For much of the modern investment-promotion era, the geography of foreign direct investment appeared relatively predictable. Capital cities and major metropolitan areas concentrated headquarters, advanced services, international connectivity, universities, administrative institutions and the largest labour markets. Investment-promotion strategies therefore tended to follow a familiar hierarchy: national agencies marketed the country, metropolitan authorities marketed the principal city, and secondary regions competed for projects by offering lower costs, available land or financial incentives.
That model is increasingly incomplete.
The next generation of investment attraction will not be determined exclusively by the size of a city, the proximity of a capital or the volume of incentives that a territory can mobilise. Investors are becoming more selective about the environments in which they locate specific activities. They are looking for specialised ecosystems: places where firms, suppliers, skills, infrastructure, research institutions, public authorities and international connections combine around a clear economic proposition.
This does not mean that geography has become irrelevant. On the contrary, geography matters more, but in a different way. The relevant geography is no longer simply the distance between a company and a capital city. It is the geography of capabilities, networks, value chains, institutional coordination and access to markets.
This shift creates a strategic opportunity for cities and regions that have historically been positioned outside the main metropolitan core. However, the opportunity should not be misunderstood. Secondary cities and intermediate regions will not become more attractive merely because congestion is increasing in capital cities. They will become attractive when they can demonstrate a distinctive ability to solve a specific investor problem.
The central proposition is therefore straightforward: the future of investment attraction belongs not necessarily to the largest territories, but to the territories that can articulate, organise and internationalise a credible specialisation.
1. From urban hierarchy to investment networks
The traditional geography of investment was strongly hierarchical. Firms tended to select locations according to a relatively stable set of criteria: market access, transport infrastructure, administrative centrality, access to finance, availability of professional services and proximity to decision-makers. These factors continue to matter. Capital cities remain powerful investment platforms, particularly for headquarters, financial services, public-sector suppliers, international organisations and activities requiring dense institutional connectivity.
Yet the production of value has become more distributed.
Many firms no longer need every function to be located in the same metropolitan area. Research and development, advanced manufacturing, shared services, logistics, testing, maintenance, customer support and specialised production can be distributed across several locations, provided that coordination costs remain manageable. Digital connectivity has reinforced this tendency, while supply-chain disruptions, labour shortages, energy costs and the search for operational resilience have encouraged companies to reconsider excessive concentration.
The investment question is consequently becoming more granular. Instead of asking, “Which country or capital city should host our operation?”, companies increasingly ask:
- Where can we access the specific technical skills required?
- Where is the relevant supplier base already present?
- Which location provides reliable energy, transport and digital infrastructure?
- Where can the operation expand without excessive land or housing pressure?
- Which public authorities understand the sector and can reduce implementation risk?
- Where will the project generate operational and strategic value over the next decade?
This is a different form of locational competition. It rewards functional relevance rather than administrative status.
A secondary city may not offer the same density of international services as a capital. But it may offer a stronger combination of sector-specific skills, industrial land, proximity to raw materials, technical education, supplier relationships, quality of life and institutional responsiveness. An intermediate region may lack a globally recognised metropolitan brand while possessing a highly effective production system.
The distinction between administrative territory and economic territory is critical. Investors rarely experience a region according to its formal boundaries. They experience labour markets, commuting zones, logistics corridors, supplier networks, university partnerships and service areas. The investment proposition should therefore be built around the functional economy, not only around the municipality or statistical region.
Recent research on European regions reinforces this point by showing that FDI and regional economic performance are interdependent and that spatial spillovers matter for policy design. In other words, investment does not occur in isolated locations. It is shaped by neighbouring regions, knowledge endowments and wider territorial dynamics.
The implication for investment-promotion agencies is important. Their task is not simply to rank locations. It is to understand the networks through which locations create value.
A region should not ask whether it can imitate the capital city. It should ask what role it can perform within a wider national and international investment system.
2. The rise of specialised ecosystems
The language of “ecosystems” is sometimes used loosely, as a fashionable substitute for older concepts such as clusters, industrial districts or regional innovation systems. The underlying idea, however, is strategically useful. An ecosystem exists when the presence and interaction of multiple actors make a location more valuable for a specific activity than the sum of its individual assets would suggest.
A company does not choose a location because a university exists in isolation, or because an industrial park has vacant plots, or because a regional agency offers a tax incentive. It chooses a location because these elements interact in a way that reduces risk and improves performance.
A specialised ecosystem may include:
- Anchor firms with demanding technical or commercial requirements.
- A dense network of specialised suppliers and service providers.
- Universities, polytechnics and vocational institutions aligned with industry needs.
- Applied research centres and technology-transfer capacity.
- Testing, certification, prototyping and quality-assurance facilities.
- Reliable energy, logistics, digital and water infrastructure.
- Business associations and intermediary organisations able to coordinate collective action.
- Public authorities capable of resolving planning, licensing and investment issues.
- A labour market that can recruit, train and retain relevant talent.
- International firms and institutions connected to external markets.
The strength of such an ecosystem depends not only on its assets but also on its relationships. A region with several institutions that rarely collaborate may be less attractive than a smaller region where firms, educators and public authorities work together systematically.
This is where the concept of flexible specialisation remains relevant. Smaller and less-developed regions may build competitiveness through networks of specialised firms, adaptable production systems and close relationships between companies and local institutions. Flexible specialisation does not require a region to host one dominant multinational or reproduce the scale of a major metropolitan cluster. It requires the capacity to combine specialisation with adaptability.
That combination is especially relevant in sectors exposed to technological change. A territory that is specialised in one narrow product but unable to adapt may become vulnerable. A territory specialised in a broader capability, such as industrial automation, advanced materials, marine engineering, food technology, clean energy systems or digital health, may be able to serve several adjacent markets.
The strategic distinction is between product specialisation and capability specialisation.
Product specialisation asks: “What do we produce?”
Capability specialisation asks: “What complex problem can firms in this territory solve exceptionally well?”
The second question is more useful for investment attraction. Investors may not be interested in locating in a region because it produces a particular product. They may be interested because the region can accelerate the development, certification, customisation or industrialisation of that product.
This is also why a regional proposition must be more specific than a list of sectors. “Advanced manufacturing”, “technology”, “sustainability” and “innovation” are not investment propositions by themselves. They are broad categories. A credible proposition specifies the activity, the value-chain position, the available capabilities, the target investor and the reason the location is relevant.
For example, “clean technologies” is a weak proposition. “A production and testing platform for industrial water-efficiency technologies serving Iberian manufacturing markets” is more precise. It identifies a problem, a customer base, a market geography and a possible ecosystem architecture.
3. Why secondary cities are gaining relevance
Secondary cities and intermediate regions are not a single category. Their economic functions vary widely. Some are industrial platforms. Others are logistics nodes, university centres, tourism gateways, administrative hubs, agricultural-processing centres or specialised service locations. Population size alone does not define their investment potential.
International organisations increasingly stress the importance of integrated territorial development and urban-rural linkages. UN-Habitat’s work on urban-rural linkages highlights the role of small and intermediate towns in connecting flows of people, products, services and information, rather than treating urban and rural areas as separate policy worlds.
Their relevance is emerging from several structural pressures.
Congestion in major metropolitan areas
Capital cities continue to attract investment, but their advantages increasingly coexist with constraints: high land prices, expensive housing, congestion, competition for talent, infrastructure saturation and longer permitting processes. For certain activities, the marginal benefits of metropolitan proximity are now outweighed by operating costs and execution risks.
This is not an argument that companies will abandon capitals. It is an argument that location decisions are becoming more differentiated. Headquarters and specialised corporate functions may remain metropolitan, while production, testing, logistics, data operations or technical centres are allocated to other locations.
Recent evidence on subnational FDI in EU regions suggests that localized specialisation, agglomeration economies and the type of value-chain activity matter, and that capital cities may be less attractive for some manufacturing-related investment because of resource constraints.
The search for operational resilience
Companies have become more attentive to concentration risk. A single congested location, a narrow supplier base or dependence on one labour market can expose an operation to disruption. Multi-location strategies create demand for regions that can perform complementary roles within broader production networks.
Intermediate regions can benefit if they present themselves as reliable nodes rather than isolated alternatives. Their proposition should show how they connect to ports, airports, metropolitan markets, research systems and neighbouring industrial territories.
The importance of technical talent
Large cities may offer more graduates in absolute terms, but specialised intermediate regions can possess strong technical and vocational capabilities in particular fields. Long-standing industrial traditions often produce tacit knowledge that is difficult to replicate quickly.
A firm assessing a location for a technical operation may value the depth and stability of a specialised labour market more than the total number of graduates. The relevant question is not “How many people live here?” but “How many people can perform, learn and advance in the activities required by this project?”
The value of proximity
Proximity remains important, but it is not only proximity to a capital. It can mean proximity to suppliers, customers, ports, natural resources, universities, test sites or complementary firms. A smaller city located within a well-connected corridor may offer greater functional proximity to an industry than a capital city located farther from the relevant production system.
Quality of life and talent retention
The competition for talent has altered the role of place. Employees increasingly evaluate housing, commuting, environmental quality, education, health services and the overall social experience of a location. Affordable and liveable intermediate regions may possess advantages that metropolitan areas struggle to maintain.
However, quality of life is not a substitute for economic opportunity. A region cannot attract and retain talent merely by describing itself as pleasant. It must offer credible career pathways, international exposure, good schools and services, professional networks and opportunities for spouses or partners. Talent attraction is therefore inseparable from investment attraction.
The OECD’s work on regional attractiveness is useful in this context because it approaches attractiveness through several forms of connection, including business, human, knowledge and infrastructure links, rather than reducing attractiveness to a single indicator such as FDI inflows or visitor numbers.
4. Positioning is an institutional capability
Specialisation does not automatically produce visibility. Many regions have genuine economic strengths but fail to convert them into a clear international proposition. They communicate assets individually, without explaining how those assets create investor value.
Positioning is therefore not a branding exercise added at the end of an investment strategy. It is an institutional capability.
A strong position answers five questions:
- Which investors or investment projects are we trying to attract?
- Which activity or value-chain segment is relevant to them?
- What capabilities does the territory possess?
- Why is this combination difficult to find elsewhere?
- What evidence demonstrates that the proposition is operationally credible?
The fifth question is often neglected. A region may claim to have talent, infrastructure and institutional support, but investors need evidence. Evidence can include the number and profile of specialised firms, graduate outputs, supplier density, export performance, patent activity, available sites, permitting timelines, energy capacity, research partnerships, logistics performance and examples of successful investment.
The proposition should also distinguish between assets, capabilities and outcomes.
An asset is something the territory possesses.
A capability is something the territory can reliably do.
An outcome is the value that an investor can obtain.
A university is an asset. A structured programme that produces industrial data scientists in partnership with local firms is a capability. A shorter recruitment and onboarding cycle for an advanced-services operation is an investor outcome.
This logic changes the way agencies should prepare investment materials. Instead of presenting a catalogue of infrastructure and incentives, they should construct an investment case around the investor’s operating model.
A serious investment case might include:
- The relevant market and customer access.
- The full value-chain position available in the territory.
- The labour and skills pipeline.
- Supplier and partner opportunities.
- Site and infrastructure readiness.
- Regulatory and permitting conditions.
- Public support and accountability arrangements.
- Expansion potential.
- Risks, dependencies and mitigation measures.
The ability to speak credibly about constraints is part of positioning. Sophisticated investors do not expect every region to be perfect. They expect the region to know what is missing, who is responsible and how the gap will be addressed.
This is particularly relevant for national investment-promotion agencies. A national agency can open doors, provide international credibility and coordinate with diplomatic and commercial networks. But the quality of the final proposition depends on regional intelligence. If the national message promises capabilities that cannot be demonstrated locally, confidence deteriorates during due diligence.
The most effective system is therefore complementary:
- The national agency provides scale, reputation and international access.
- The regional agency provides sector intelligence, local coordination and implementation support.
- Municipalities provide land, planning and local services.
- Universities and training institutions provide skills and knowledge.
- Firms provide market intelligence, supply-chain integration and credibility.
The investment proposition should be jointly owned, even if different institutions communicate different parts of it.
The OECD’s regional attractiveness work also emphasises that attractiveness policies require stronger regional capacity, multi-level governance and better alignment between national and regional actors.
5. From attraction campaigns to ecosystem orchestration
The conventional model of investment promotion is often campaign-oriented. An agency identifies target markets, attends events, generates leads, arranges visits and supports negotiations. These activities remain necessary, but they are not sufficient where the investment proposition depends on specialised capabilities.
The agency must increasingly become an ecosystem orchestrator.
This involves five practical shifts.
From sector lists to value-chain intelligence
A region should map not only the sectors already present but also the specific functions performed by local firms. For each priority domain, agencies should identify suppliers, buyers, service providers, research actors, skills providers, infrastructure, gaps and international competitors.
The objective is to identify investable opportunities. These may include supplier development, nearshoring, technology transfer, joint ventures, testing facilities, regional headquarters, production capacity or shared infrastructure.
From lead generation to investor qualification
Not every project is strategically valuable. Investment attraction should distinguish between projects that merely occupy land and projects that strengthen the regional economy.
Qualification criteria may include:
- Contribution to productivity and technological upgrading.
- Quality and resilience of employment.
- Potential for local supplier development.
- Compatibility with environmental and energy constraints.
- Contribution to export capacity.
- Opportunities for research and skills partnerships.
- Likelihood of reinvestment and long-term embeddedness.
This is especially important because FDI effects are heterogeneous. Research on FDI spillovers in Portugal, for example, suggests that geographical proximity and the development level of the host region are relevant to the effects generated by foreign investment.
The relevant goal is therefore not to maximise the number of projects. It is to maximise the territorial value of projects that the region is capable of embedding.
From incentives to execution capacity
Incentives can influence a location decision, but they rarely compensate indefinitely for weak execution. Investors need confidence that land, utilities, permits, recruitment, training and construction will be coordinated.
A region’s “soft infrastructure” includes the quality of its institutional response. Is there one accountable project manager? Can the investor obtain reliable answers? Are public agencies aligned? Are timelines realistic? Can the region mobilise training providers before the operation begins?
The answer to these questions can become a competitive advantage in its own right.
From attraction to aftercare
The first investment is often the beginning of the relationship, not its conclusion. Existing investors are sources of reinvestment, referrals, supplier demand, labour-market knowledge and reputational credibility.
A mature agency should maintain structured aftercare, monitor operational risks and identify expansion opportunities. It should ask:
- What is limiting the company’s growth?
- Which local suppliers could be developed?
- What skills are becoming scarce?
- Is the company considering additional functions?
- Which public or institutional intervention would improve retention?
- Can the investor become an ambassador for the region?
This approach turns investment promotion into a cumulative process. Each successful project should increase the credibility and capability of the ecosystem.
From isolated territories to corridor strategies
Intermediate regions rarely compete alone. Their strongest proposition may emerge from collaboration with neighbouring cities, metropolitan areas, ports, universities and industrial platforms.
A corridor strategy does not require every territory to offer the same capabilities. It requires complementary roles. One city may host research and design. Another may provide industrial production. A third may offer logistics, testing or specialised services. Together they can present a more complete investment proposition than any one location could offer independently.
This is particularly relevant to national agencies managing geographically diverse investment pipelines. Rather than directing every project toward the capital, they can match investor requirements with differentiated regional capabilities. The result is not a zero-sum redistribution of investment, but a more efficient national investment system.
6. Measuring the new geography
If investment attraction is becoming ecosystem-based, conventional metrics need to evolve. Number of leads, site visits and announced projects remain useful activity indicators, but they do not reveal whether a region is becoming more capable.
A stronger performance framework should include five dimensions.
Positioning — Possible indicators: recognition among target investors, quality of sector propositions, conversion by priority segment and clarity of value-chain focus.
Ecosystem depth — Possible indicators: specialised firms, supplier density, research partnerships, technical training capacity, applied innovation infrastructure and presence of anchor companies.
Execution — Possible indicators: permitting timelines, site-readiness, response times, infrastructure delivery, inter-agency coordination and quality of investor support.
Embeddedness — Possible indicators: local procurement, reinvestment, skills partnerships, productivity effects, export growth and integration with domestic firms.
Resilience — Possible indicators: sector diversification, energy security, labour-market adaptability, infrastructure redundancy and exposure to external shocks.
The purpose of measurement is not to create another ranking. It is to improve strategic decision-making.
For example, a region may have modest headline FDI but strong reinvestment rates, supplier linkages and technical employment. Another may attract large greenfield projects that generate limited local integration. A narrow comparison based only on investment volume could misinterpret the relative performance of the two territories.
The geography of investment should therefore be assessed through connections. Business connections, human connections, knowledge connections and infrastructure connections reveal how a region participates in globalisation. They also help identify hidden weaknesses. A region may have excellent industrial assets but poor international knowledge connections. Another may have strong universities but weak business integration. Another may have good transport infrastructure but insufficient talent-retention capacity.
This is why regional attractiveness should be treated as a system rather than a slogan.
7. A strategic agenda for investment agencies
For national and regional agencies, the new geography suggests a practical agenda.
- Develop a small number of evidence-based specialisations rather than promoting every sector simultaneously. Strategic focus improves credibility and allows limited institutional resources to compound.
- Define the functional geography of each proposition. The relevant investment platform may include several municipalities, a university network, a logistics corridor, a port, an airport and a neighbouring metropolitan area.
- Build investor propositions around operational problems. Replace generic claims about competitiveness with specific answers about talent, suppliers, infrastructure, market access and implementation.
- Invest in ecosystem intelligence. Agencies should maintain live maps of firms, capabilities, skills, sites, research assets, infrastructure and institutional responsibilities.
- Create institutional mechanisms for rapid coordination. The investor should not have to understand the administrative architecture of the territory in order to receive a coherent answer.
- Treat existing investors as strategic assets. Retention and reinvestment should receive the same analytical attention as new-project attraction.
- Align investment attraction with regional transformation. The objective should be to attract projects that strengthen productivity, diversify the economy, improve skills and accelerate the transition to more sustainable production systems.
- Develop a narrative that is ambitious without being inflated. Secondary cities do not need to pretend to be capitals. Their credibility often increases when they explain precisely what they are, what they are not and where they can create distinctive investor value.
The territory as a strategic proposition
The new geography of investment attraction is not a simple movement from capital cities to smaller cities. It is a movement from generic location competition toward differentiated territorial propositions.
Capital cities will remain essential. They concentrate institutions, services, connectivity and talent, and they will continue to attract many forms of investment. But their dominance is no longer automatic across every activity. As firms decompose their operations, manage risk and seek specialised capabilities, the competitive landscape becomes more distributed.
Secondary cities and intermediate regions can benefit from this shift, but only if they avoid competing on the wrong terms. They should not present themselves merely as cheaper or less congested versions of the capital. They should define the capabilities, networks and value-chain functions that make them strategically useful.
The winning question is not:
“Why should an investor choose our region instead of the capital?”
It is:
“Which investor problems can our ecosystem solve better, faster or more reliably than alternative locations?”
That is the foundation of credible investment attraction.
It connects economic geography with institutional strategy. It treats specialisation not as a slogan but as an organised capability. It recognises that FDI generates value through relationships, not simply through capital expenditure. And it gives national and regional agencies a basis for working together: the national level can provide international scale, while territories provide the differentiated substance of the proposition.
In the years ahead, investment promotion will increasingly be judged by the quality of the connections it creates: between firms and skills, investors and suppliers, research and production, municipalities and regions, national strategies and local capabilities.
The future belongs to territories that understand those connections, organise them deliberately and communicate them with precision.
