Foreign direct investment in Southeast Asia: - Regional Office China

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ecome insiders and thus avoid being discriminated against [Almor and Hirsch, 1995)]. Similarly,and despite ASEAN's open regionalism [Ariff (1994)], AFTA may be discriminatory towardsoutsiders. Earlier evidence pointed to the greater de facto integration of ASEAN with the rest ofthe world than within the region itself [Amelung (1992)]. This has improved, at least withrespect to intra-regional FDI [Bartels (2004)]. However, intra-regional trade as a percentage oftotal trade decreased by 19% between 1994 and 2001 [Schwarz and Villinger (2004)]. Recentanalysis points to these stresses and strains arising from factors such as the costs offragmentation within AFTA, tariffs and technical barriers, costs of doing business and standards.A view of the fragmented nature of doing business in ASEAN is illustrated in Appendix I -Doing Business in ASEAN Indicators 2005; and Appendix II – ASEAN Investment ClimateIndicators.The challenge of AFTA and ASEAN + 3 from a FDI policy perspective is how todisentangle the potential regulatory inconsistencies within Asia-Pacific Economic Cooperation(APEC) and between most favoured nations; and avoid the ‘spaghetti bowl’ problem of rules oforigin and harmonisation of investment and trade provisions across the free trade areas[Soesastro (2003)]. The AFTA will be successful in attracting FDI if it proves to be a catalyst forincreased market size and greater market growth with lower costs of doing business [Scally(2000)]. Member countries would need to make a greater effort in co-ordinating theirapproaches towards economic, financial and political management, to ensure that factorsidentified above do not undermine AFTA aims.The areas of increasingly significant policy concern for creating competitive locationadvantages at the regional level necessary for the (mobile) assets of MNEs networks, are: (i)regional markets; (ii) quality of cross-border communications (‘hard’ and ‘soft’ infrastructure);(iii) regional innovation systems; (iv) presence of agglomerative economies (cross-borderclusters); and (v) regional institutions able to restrain ‘free rider’ or ‘defection’ strategies ofnational governments. Related issues concern the challenges of cohering regional and nationalIP policies and strategies, at the different levels of subsidiarity, and the avoidance of ‘incentivewars’ given the increasing gravitational pull of China for FDI.3.3 Boundaries, Hierarchies, Markets and FDIThe challenges for FDI and IP policy craft in this theme lie deep within the complexityof the organisational form and networked operations of MNEs. The shape and operations ofMNEs are increasingly based on collaborative relationships with supplier- and value-chains andless on wholly owned assets. This is especially prevalent in services which are currently82
experiencing the kind of global relocation that manufacturing experienced during the 1980s and1990s 44 .The manufacturing and servicing operations of MNEs have been fully incorporated into‘the global factory’. This internalisation allows the international firm to transact market exchangefunctions, within its organisational boundaries 45 , throughout the spatially distributed network ofaffiliates and subsidiaries [UNIDO (2003b); Dicken (2003a, 2003b); Buckley and Casson (2002)].The real option of joint ventures and strategic alliances between international firms, anddomestic companies, ranging from simple co-operation in R&D for example to full mergers andacquisitions, enable organisations to answer operationally the ‘make or buy?’ question muchmore efficiently. The developing countries face the evident increasing pace of liberalisation inFDI, trade, and capital and financial markets as well as the agglomeration of markets. Theunderlying common factor to these concerns is that in operationalising FDI, the boundaries ofthe firm are no longer well-defined and are often far more ‘virtual’ than real. The notion ofarm’s length markets is less solid as firms merge with markets and markets merge with firms.A comprehensive view of the implications of variables related to ownership, location,alliance relations, the internalisation of markets and the spatially distributed yet integratednetworks linking global and regional production plants, is crucial to policy for attracting FDI[Fukao, Ishido and Ito (2003); Ito and Fukao (2003)].Within the frame of reference provided by location specific advantages, ownership,internalisation and alliances, motivations that induce large MNEs and international small andmedium-size enterprises (ISMEs) to invest overseas and spatially distribute their manufacturingand marketing comprise groups of variables impinge on FDI policy. These are:(i) Those that relate to efficiency-seeking motives for FDI. Chief among these are: theproductivity-adjusted cost of labour and relatively high quality to low input factorcost ratios. These variables are commonly a function of industry-widetechnological adaptability.(ii) Those that relate to market-seeking motives for FDI. The major market variablesare; size, the demographic profile of various market segments, tariff jumping andthe vectors of domestic market growth. The latter is a function of supply factorand demand conditions, and the nature of related and supporting industries 46 .(iii) Those that relate to vertical integration with respect to access to raw materials.44 See “The new global job shift” Business Week, 3 February 2003, pp. 36-48.45 To this extent the MNE is a phenomenon that internalises external markets to avoid opportunism andtransaction costs.46 See the determinants of national competitiveness in Porter M., 1990, The Competitive Advantage of Nations,London: Macmillan, p. 127.83
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Foreign Direct Investment in Southe
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PrefaceThis UNIDO report presents t
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PreambleWithin the constantly evolv
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IntroductionThe Changing Face of Fo
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Theme 1FDI and Multinational Enterp
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These include: i) changes in long-t
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quality of life in a country can be
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consequence, as well as in terms of
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high-technology cluster development
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Theme 3FDI, Boundaries, Hierarchies
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A second dimension is that incentiv
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industrial sector and sub-sector le
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industrial base without relying to
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socialising public goods and privat
Page 33 and 34: Typically, but not exclusively, Sin
Page 35 and 36: generate tax revenues to fund vario
Page 37 and 38: cumulatively serving to constrain F
Page 39 and 40: Southeast Asia as an integrated mar
Page 41 and 42: Theme 5FDI and Capital in Southeast
Page 43 and 44: Finally, there is also a need for i
Page 45 and 46: components of the integrated global
Page 47 and 48: ConclusionEmerging Policy Direction
Page 49 and 50: In conclusion, Frank Bartels sugges
Page 51 and 52: Taking the above research needs int
Page 53 and 54: Annex 1:Presenters at the EGMName P
Page 55 and 56: TIMOR LESTEMs. Warubon SUKASAMEMr.
Page 57 and 58: 14:00 - 15:30 Theme II: Intra-regio
Page 59 and 60: y Japan ITPOsCommentator: Frank L.
Page 61 and 62: This type of deep information excha
Page 63 and 64: The extent of FDI effects and their
Page 65 and 66: Appendix IV: Opening Statement by U
Page 67 and 68: only of UNIDO but also other UN spe
Page 69 and 70: LIST OF ABBREVIATIONSAFTA - ASEAN F
Page 71 and 72: in mind that host policy for attrac
Page 73 and 74: forces of competition and co-operat
Page 75 and 76: 2. BACKGROUND ISSUESAn accurate per
Page 77 and 78: economies. In contrast, Sub-Saharan
Page 79 and 80: costs, boost quality and accelerate
Page 81 and 82: Fourthly, in terms of a framework f
Page 83: in joint venturing), while retainin
Page 87 and 88: other hand, being predominantly nat
Page 89 and 90: Also, the trade surplus (or deficit
Page 91 and 92: limited [Freeman and Bartels (2000)
Page 93 and 94: technology and innovation policy; h
Page 95 and 96: Credit Information Index NA 0 3 0 6
Page 97 and 98: Appendix II - Investment climate in
Page 99 and 100: REFERENCESAlmor T., Hirsch S., 1995
Page 101 and 102: Freeman N. J., Bartels F. L., Eds.,
Page 103: Trigeorgis L., 1996, Real Option: M
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Foreign direct investment in Southeast Asia: - Regional Office China

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