Asia Investment Articles
Asia FDI Trends in 2008
Asian companies are expected to seek out investment opportunities in tier 2 and even tier 3 Asian cities in intra-regional FDI as they invest almost equally in both manufacturing and services due to increasing competition. More knowledge-based investment activities will also grow.
I expect Asian FDI to assume greater importance to account between 12 to 15 per cent of the global stock of FDI compared to the current 10 per cent. More Asian firms will grow to rank among the top transnational corporations (TNCs) in the world due to rapid economic growth and industrial upgrading. Outward Asian FDI will continue to focus on both natural resources and manufacturing with more Asian SMEs becoming a part of this new outward FDI, spurred by policy reforms reducing red tape, favouring domestic entrepreneurship and the need to invest abroad to avoid competition and to improve their competitiveness. This Asia outward FDI growth will continue till 2009.
Asian companies, other than wanting to enter new markets, will also try to obtain technology and financing from foreign investors. To achieve these goals, they will need to enter into joint ventures with foreign investors.
Outward FDI from ASEAN, traditionally led mainly by Malaysia and Singapore, will see more action coming from North Asia.
London will continue to be a springboard into Europe for Asia FDI but London’s favored location dominance will be increasingly challenged by tier 2 European cities as well as Eastern Europe. Within North America, I anticipate that more Asia FDI will seek out investment opportunities in selected Latin American countries as a manufacturing and export springboard into North America.
With China signing 117 bilateral investment treaties, I expect outward China FDI to increase further.
Asia-based private equity funds are likely to help Asian companies internationalise by performing more aggressive roles of venture capital, partner with third parties to analyse special situation plays like value unlocking arising from one-time expansion opportunities and thirdly in selective buy-outs. Most Asian companies, except for the huge conglomerates or government-linked companies, tend to acquire significant portions or a majority control in a more mature but smaller to mid-sized company. I foresee a future trend whereby banks and financial services companies will partner with location consultancies in offering joint location services with the former providing funding and the latter providing location research, feasibility and partner search studies. Thus, location consultancies will play an increasing role in Asia as well.
I expect more investment promotion agencies (IPAs) to intensify their location marketing efforts to address the lack of knowledge among Asian investors about investment opportunities.
As for inward FDI into Asia, I see more Asian IPAs implementing additional investment promotion activities abroad with Asian governments reducing non-tariff barriers and improving regional infrastructure. Asian governments are expected to enter into more public-private partnerships (PPPs) to attract FDI inflows and jointly formulate FDI strategies.
Other than West Asia, I expect the rest of Asia to remain the world’s most favored regional location since Asia offers attractive locational advantages like economic stability through improving GDP, growing market size and potential, improving infrastructure, relatively low labour, operating and taxation costs as well as increasing growing labour productivity and technological capabilities. Besides these hard attraction factors considered during investment feasibility studies, investors will also be enticed by Asia’s soft factors like growing tourism and social attractions.
