(EGM) Foreign Direct Investment in Southeast Asia - Unido

cumulatively serving to constrain FDI activity in China. These include a lack
of information and planning certainty for investors, stemming from: i)
inadequate IPR protection; ii) a rapidly mutating policy framework; iii)
various regulatory hurdles; and iv) limited market transparency. Rising input
prices also pose a problem, such as the cost of various professional services,
the relatively high prices for electricity and raw materials, and the
inefficiencies still evident in logistics and bureaucracy. Fierce competition is
also creating excess production capacity in some fields, and distribution
bottlenecks are raising the costs of supply chain management. [Any future
revaluations of the Yuan would increase price pressures further.]
Some observers would dispute the zero-sum approach to FDI activity,
particularly given WTO obligations to increase market access, and argue
instead that FDI growth in China will yield opportunities for Southeast Asia.
China will see an increase in demand for raw materials, resources and
services in sectors where some Southeast Asian countries have a
comparative advantage and/or complementarities. Thanks in large part to
the ‘integrated global factory’ trend of MNEs, and the ‘slicing and dicing’ of
production activity across national borders, the appropriate policies could
position Southeast Asian countries well to reap some of the rewards
emanating from a rapidly expanding China. These policies include: i)
absorbing new technologies, and raising indigenous technology and
innovation capacities; and ii) identifying lucrative niches within global
production networks. Versatility of technology is key, as is augmenting the
local human capital stock.
More specifically, Southeast Asian countries need to combat the challenge
posed by China -- on a national level -- by: i) further reducing business and
transaction costs; ii) providing high quality support services for MNEs; iii)
improving transport and communication infrastructure, including that with
China itself; iv) providing training to re-skill workers displaced by the shift of
some production to China; and v) by promoting entrepreneurship and
revitalising competitiveness. On a regional level, there is utility in facilitating
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