Topic: Investment Incentives – How Much Do They Matter?

The global sourcing location landscape has evolved rapidly over the past few years; resulting in significantly increasing the location options available for investors. In this competitive scenario, offshore destinations are increasingly attempting to differentiate themselves in their efforts to attract investors. Specifically, governments in these locations (state/provincial/national) are offering attractive incentives, trying to stay ahead of competition.

However, as investors evaluate locations in terms of incentive opportunities and the consequent benefits, they need to effectively deal with the following complexities:

1. Differences in types of incentives offered. While most countries offer financial incentives, the types of incentives vary significantly across countries, often making it difficult to compare (e.g., tax holiday in India, training subsidy in Czech Republic). In addition to financial incentives, some countries also offer strong support in set-up and running of operations (e.g., government guaranteed infrastructure service levels in Malaysia).
2. Changing incentive policies/focus. Countries are getting more sophisticated and intentional about designing incentives and are constantly revising their incentive schemes to align with their overall focus areas. This often results in complex incentive structures with variations driven by multiple factors such as the location of the center, scale, type of work, etc. For example, Czech Republic introduced differential incentive eligibility criteria for voice versus non-voice BPO work to align with its overall strategy of attracting more high-value non-voice work.
3. Negotiation room beyond stated incentives. It is quite possible that investors could negotiate special packages beyond the stated incentive policies. However, the extent of negotiation room and the specific negotiation levers could vary across countries (e.g., KPO work in Czech Republic, SAP development work in Malaysia).

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