Foreign direct investment in Southeast Asia: - Regional Office China

Theme 2FDI and National ExperiencesFirst presentation summarySince the 1960s, the pace of growth in world trade has outpaced the growthin world output. Similarly, since the early 1980s, the pace of growth in FDIflows has outpaced the growth in world trade. And as a consequence,roughly three quarters of world trade is now conducted within MNEs, asintermediate products are produced and assembled across borders, and evenservices are increasingly tradable in association with international production.Much of this FDI activity is conducted betwixt the so-called ‘Triad’ powers ofEurope, the US and Japan, as substantial flows of capital pass through theinvestment corridors that span the Atlantic and Pacific oceans. Much of this‘Triad’ investment is not greenfield investment activity (i.e. the establishmentof new capacity), but rather cross-border merger and acquisition (M&A)activity. Numerous factors drive M&A activity, which tends to occur in cycleswithin 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 FDIchallenges faced by policy-makers included: i) restructuring investment laws;ii) inadequate information from, and limited co-ordination between, relevantstate agencies; iii) limited ability to catalyse local entrepreneurshipsufficiently, so as to enable local firms to engage more broadly with foreigninvestors; iv) inadequate ‘hard’ and ‘soft’ infrastructure, especially in relationto information and communication technologies; v) managing the hostlocation image; vi) entrenching the higher value operations of MNEs morefirmly within specific localities (in the context of intra-regional competition forFDI and outsourcing); vii) inadequate human resource capacity in policymatters; viii) an inability to reduce ‘red tape’ effectively; and ix) incoherentpolicy discrimination between foreign and domestic investment. These kindsof fairly common challenges, which could be viewed as regionaldisadvantages, vary across the region in degrees of intensity and16