(EGM) Foreign Direct Investment in Southeast Asia - Unido

Introduction
The Changing Face of Foreign Direct Investment
The important role played by foreign direct investment (FDI) in economic
growth and development is widely accepted. UNIDO’s own analyses of
industrial organisation, and the determinants of competitive industrial
performance, identify FDI as a key driver of a country’s capacity to trade.
Not surprisingly, therefore, developing countries’ industrial plans commonly
seek to attract FDI inflows, and the countries of Southeast Asia have proven
to be leading exponents in this regard. On average, South and East Asia
attracted 7% of annual global FDI flows in the 1980s and just under 15% in
the 1990s. This contrasts markedly with Sub-Saharan Africa, which attracted
just 1.2% and 0.8% in the same periods, respectively. While the total global
flows of FDI tend to vary each year, up and down, one constant is the
asymmetry of FDI distribution, with some regions and countries faring much
better than others in attracting and hosting foreign investment projects (see
Appendix V).
Another feature of FDI activity is its steadily increasing complexity, thanks in
part to technological and communication advances, and the reduction in
various regulatory and other barriers to cross-country investment and trade
[UNIDO (2005)]. Market liberalisation is one driver of FDI flows, as is
financial liberalisation, permitting capital to flow more easily across the
globe. This is evidenced by advances in sourcing and outsourcing, and the
global integration of production, marketing and servicing networks as inter-
connected systems that can be distributed right around the world. All these
different activities are pinned together by MNEs through their strategic -- and
increasingly dynamic and fluid -- relationships with affiliates, subsidiaries and
suppliers. Indeed, over time, we are seeing the production and other
business activities of MNEs being increasingly finely ‘sliced and diced’ into
smaller and smaller constituent elements, and then reconfigured, so as to
gain competitive advantage from economies of scale and economies of scope
[Bartels and Pass (2000)].
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