(EGM) Foreign Direct Investment in Southeast Asia - Unido

Theme 2
FDI and National Experiences
First presentation summary
Since the 1960s, the pace of growth in world trade has outpaced the growth
in world output. Similarly, since the early 1980s, the pace of growth in FDI
flows has outpaced the growth in world trade. And as a consequence,
roughly three quarters of world trade is now conducted within MNEs, as
intermediate products are produced and assembled across borders, and even
services are increasingly tradable in association with international production.
Much of this FDI activity is conducted betwixt the so-called ‘Triad’ powers of
Europe, the US and Japan, as substantial flows of capital pass through the
investment corridors that span the Atlantic and Pacific oceans. Much of this
‘Triad’ investment is not greenfield investment activity (i.e. the establishment
of new capacity), but rather cross-border merger and acquisition (M&A)
activity. Numerous factors drive M&A activity, which tends to occur in cycles
within specific industries. The most recent global M&A boom was in 2000,
with some signs that another flurry may begin in 2005.
Across the Southeast Asian region, some of the outstanding common FDI
challenges faced by policy-makers included: i) restructuring investment laws;
ii) inadequate information from, and limited co-ordination between, relevant
state agencies; iii) limited ability to catalyse local entrepreneurship
sufficiently, so as to enable local firms to engage more broadly with foreign
investors; iv) inadequate ‘hard’ and ‘soft’ infrastructure, especially in relation
to information and communication technologies; v) managing the host
location image; vi) entrenching the higher value operations of MNEs more
firmly within specific localities (in the context of intra-regional competition for
FDI and outsourcing); vii) inadequate human resource capacity in policy
matters; viii) an inability to reduce ‘red tape’ effectively; and ix) incoherent
policy discrimination between foreign and domestic investment. These kinds
of fairly common challenges, which could be viewed as regional
disadvantages, vary across the region in degrees of intensity and
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