Before the 1990s, FDI was concentrated in the industrial, financial and oil sectors, much of this coming from the US. From the late 1990s, however, services became the destination for FDI and Europe replaced the US as the leading source of FDI.

According to UNCTAD, investing abroad is still a relatively recent phenomenon for many Asian firms. They tend to focus on intra-regional FDI. Asian economies had only just begun to build up their outward investment stock when they were struck by financial crisis in 1997. Asian newly industrializing economies have recently become relatively large investors abroad. Asian developing economies invest almost as much in manufacturing as services. Services FDI is mainly in trade-related activities and financial services. Asian investments have been growing in all major regions, but still remain concentrated mainly in Asia.

However, Asia’s economic Marco Polos are increasingly exploring further away from ASEAN to the far corners of Asia and other parts of the world. Asian FDI is assuming greater importance, accounting for 10 per cent of the stock of FDI in the world. Some Asian firms have grown to rank among the top transnational corporations (TNCs) in the world. This trend is likely to be reinforced in the future. The rapid economic growth and industrial upgrading currently taking place in Asia provide ample opportunities for regions to attract Asian FDI into both natural resources and manufacturing. Asian SMEs have also become an important source of this new outward FDI, as more of them need to invest abroad to maintain and improve their competitiveness.

Outward FDI from South-East Asia or ASEAN member states has been led mainly by Malaysia and Singapore.

Since the early 1980s, China’s policies on outward FDI have evolved, moving towards a more transparent and proactive policy framework. In the late 1990s the central Government began encouraging outward FDI and launched the “going global” strategy. A series of incentive measures accompanied the strategy, such as easy access to bank loans, simplified border procedures, and preferential policies for taxation, imports and exports. Bilateral investment treaties have been another facilitation measure adopted not only to attract FDI but also promote better protection to Chinese companies investing abroad. The country has signed 117 bilateral investment treaties.

Policy makers and politicians can consider policy reforms and initiatives to help attract more FDI from Asian economies. Most FDI promotion measures tend to target large transnational corporations (TNCs), thus missing out on the various strengths and advantages that SMEs may be able to offer to host countries.

Outflowing Asia FDI may have been limited to date partly because of lack of knowledge among Asian investors about investment opportunities. This is largely so in our Asia investor lead generation work for our government IPA clients. Hence, a large portion of our work has been to educate Asian investors about these opportunities.

Another reason for the limited outflowing Asia FDI partly due to bureaucratic impediments. UNCTAD suggests that policy reforms for attracting FDI from Asia should be considered. These may include expediting visa granting procedures, provision of serviced land and/or factory shells, strengthening investment promotion activities abroad, introducing wage policy reforms and seeking solutions to problems associated with being landlocked. Possible regional initiatives to promote FDI could include reducing non-tariff barriers, improving regional infrastructure and avoidance of a regional race. In addition, I suggest that IPA staff be trained to think ‘long term’. Some developing countries may come under pressure to find quick incoming Asia FDI within one year. However, it may require a time period longer than one year to woo Asian investors to invest outside Asia since they need time to conduct further feasibility studies, site visits, search for business partners, modify business models to adapt to local context and to train their staff before sending them overseas.

In the New Public Management (NPM) management philosophy, increased market orientation in the public sector may lead to greater cost efficiency for governments. Investment policy reforms are thus needed to enhance such market orientation while engaging in more public-private partnerships (PPPs) to use more private sector players like FDI consultancies to attract FDI inflows and jointly formulate FDI strategies or even city marketing. Critics of NPM embrace digital era governance and herald digitalization (exploiting the Web and digital storage and communication within government). This seems to suggest that ‘governments go digital’ can do wonders in attracting FDI. However, these NPM critics forget that in business, CEOs’ investment decisions cannot be fully persuaded by digitalization alone or by civil servants alone. Digitalization cannot replace the soft side of relationship-building and liking of potential partners.

With many Asian firms just venturing abroad to invest, the Asia outflowing FDI curve can only grow upward. Savvy IPA staff would benefit much by reforming their FDI policies and using more Asian private sector expertise to attract the increasing flood of new Asian FDI.