Is GDP and economic growth enough?
Successful free zones of the future must do more than simply facilitate trade, economic growth, GDP performance and shareholder value. They must embrace sustainability and extend their benefit footprint to more directly include broader swaths of society. Failure to integrate social value and sustainability into the business model will begin to erode and undermine the ability of free zones to continue driving GDP growth and business value.
Strategically integrating social responsibility and sustainability will expand and extend the value proposition of free zones, benefiting owners, operators, tenants, governments and society at large.
Free Zones have, arguably, been one of the premiere success stories in fostering global trade, inward investment and development over the past 50 years. Since the first one was established at Shannon Airport in 1959 free zones, or special economic zones as they are sometimes called, have expanded rapidly. They have been a key part of a dramatic increase in trade and investment flows between countries and have created many millions of jobs in the process.
Today there are over 4,000 free zones in over 150 countries. They employ 60-70 million people, about 3% of the global workforce and are involved in 1/3rd of global trade. Free zones play a critical role in the economy of many countries, facilitating investment and development, creating employment, integrating services, logistics and transportation and, especially in emerging economies, providing a catalyst to facilitate broader growth.
But the world is changing. Society’s expectations of business, and indeed of economic policy, is shifting. There are increasing demands that social value and sustainability must be integrated with economic growth and business success.
The success of the Brexit vote, the voters that thronged to Trump’s anti-free trade rhetoric, and the various rumblings against free trade agreements tell a story of the public that feels left out of economic growth and is willing to hold those in power to account. And yes, this is relevant to free zones. And, trendlines suggest it will get more and more relevant
in the coming years.
Global businesses and brands are under increasing pressure to deliver value to society along with value to shareholders. Social performance, along with sustainability and efficient use of environmental resources have become important success factors for businesses of all types. Many businesses and brands are discovering that moving to meet these expectations not only relieves pressure but can stimulate business performance and value creation at the same time! Social responsibility and sustainability are paying dividends.
Communities around free zones and the citizens of the countries in which they are established are starting to look more closely at broader impacts from free zones, looking beyond economic and GDP impact and examining how they are contributing to larger societal well-being and to their impact on the environment and eco-systems.
This is putting pressures on many of the companies that are free zone tenants, and on the governments that create free zones and set the regulatory environments for them. Free zones of the future will be aware of these pressures and aware that developing strategies that address them will help ensure the long-term success of the free zone and will support the success of free zone tenants and investors.
Successful free zones of the future will provide an attractive investment and operating proposition for current and prospective tenants, helping to stimulate investment and growth in local and national economies and, simultaneously, facilitate sustainability performance and a widening of the free zone’s benefit footprint to include more people and groups in the local society.
This certainly isn’t to say that free zones should suddenly become like charities, or philanthropic funding organizations. It is simply that free zones of the future will be inclusive; strategically integrating and aligning social, environmental and business interests in a way that optimizes value for all, including investors and shareholders. This may seem like a daunting responsibility for free zones to take on. But, lessons can be learned from how other businesses and industries have met (or not met) this challenge. Success is possible and, for those that meet the challenge strategically and efficiently, the results may well be amazing.
A strategic and systematic approach to social responsibility can often identify and release unexpected value and synergy between the free zone operator, tenants and investors and
governments and regulatory bodies.
The 17 Sustainable Development Goals (SDGs) that were passed unanimously by the United Nations in September 2015 set out the world’s 2030 Development Agenda. These 17 Global
Goals provide a framework for social progress and environmental sustainability that has become the de-facto global development agenda. Governments, international agencies, NGOs and private sector interests are coming together to collaborate on the SDGs. SDG impact and integration will be key aspects of successful free zones of the future.
The first step for free zone operators and managers is to understand the needs and issues of their broader stakeholder constituency as well as understanding the needs and issues
of their tenants, investors and regulators. A stakeholder analysis that examines the interests, structure and power/influence of those who are affected by or who can affect your free zone
is a critical starting point.
The information and knowledge gained by a thorough stakeholder analysis will often be useful across many areas of free zone operations. In many cases, it will help to identify free zone tenants who are already addressing, or realize that they need to address social responsibility and sustainability issues.
Most will find it useful to consolidate stakeholder analysis issues to enable easy identification of crosscutting trends and issues and to facilitate effective segmentation and a consolidated analysis. Social Responsibility and Sustainability should be approached with the same discipline as any other serious management and operational issue. These aren’t softer issues. These are business critical, often mission critical issues. Taking an ad-hoc approach to them, or treating them as less important than other key issues will add risk and reduce value.
A Social Responsibility and Sustainability SWOT assessment can be an effective way to systematically identify issues and opportunities and to chart a strategic path forward. Knowing and understanding key strengths, weaknesses, opportunities and threats can set the foundation for becoming a free zone of the future.
The SWOT will also help to identify shared interests, risks and potential partners and collaborators. For example, a free zone may have a global consumer brand as a tenant. They may have identified educational support to local communities as a global social responsibility priority. The stakeholder analysis and SWOT may have identified educational issues and challenges in communities around the free zone. The free zone operator would be in a great position to facilitate a collaboration, helping address a local stakeholder issue and adding value for a tenant at the same time.
The SWOT should also integrate the SDGs into the overall analysis so the final output can become a working framework for meeting the social and sustainability expectations that will be a key success factor for the free zone of the future. Remember, integrating social value and sustainability into free zones may seem challenging and difficult, but, if done well and done strategically it can make your free zone stronger and more valuable. And, if not done, it can end up undermining your social license and impacting your tenants, investors and the very governments that regulate your operations.
The World Free Zones Organization is committed to assisting members, including providing support and guidance on how to successfully address issues such as social responsibility and sustainability performance. Development of a social responsibility and sustainability certification frameworks is underway and customized training and advisory support is available to help members become certified and successful free zones of the future.