According to the United Nations Conference on Trade and Development’s World Investment Report 2006, FDI inflows to south, east and south-east Asia and Oceania reached a new high of $165bn in 2005. China, Hong Kong and Singapore remained the top recipients of inward FDI in 2005.

FDI inflows to south-east Asia increased to $37bn, a 45% increase in 2005, and there are signs that investments into south-east Asia will continue to grow.

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This 45% growth in south-east Asia came at the expense of China. China’s inward FDI grew at a slower rate of 19.5% to $72.4bn. In 2005, China’s non-financial FDI alone was $60bn, falling after five years of increase. Hence, south-east Asia’s inward FDI growth has narrowed the gap with China.

The highest growth in FDI inflows in south, east and south-east Asia was recorded in several Association of South-east Asian Nations states, such as Cambodia, Thailand and Indonesia. Large cross-border mergers and acquisitions, such as the purchase of Indonesia’s Sampoerna by US company Philip Morris accounted for the growth. Structural reforms in Indonesia have strengthened its economic fundamentals and investor confidence. In addition, south-east Asian investment promotion agencies have improved their FDI strategy development and execution.

Market inefficiencies and obstacles to investments cannot be adequately addressed by governmental public administration alone, nor even with slick national location branding campaigns from investment promotion agencies (IPAs). The private sector needs to take the lead to assess market feasibility, identify investment opportunities, explore ways to legally work around market inefficiencies and ensure their own firms have the human resources to manage their Asian investments.

Managing investor perceptions will be a key challenge for south-east Asian IPAs as well as technology parks and industrial site operators. Foreign investors have the whole planet to consider investing in. As such, crafting both the regional SE Asia attraction message and country positioning message are equally important, and not at the expense of each other.

Lost in translation

In addition, communicating to intra-Asian investors, compared with non-Asian investors, needs to be better managed. Too often, IPAs and site marketers develop only one common standard set of communication tools and marketing collateral that is available in different languages. They do not realise that developing different regional versions may work wonders to increase the success rate of attraction. Brands, icons, colours, associations all command different impacts and meanings to investors from different cultures.

A second challenge for south-east Asian IPAs and site marketers is retaining and strengthening investor loyalty. Many firms face increasingly impatient boards of directors and investors demanding quicker profits. This suggests a more regular analysis of investor satisfaction levels and exercising better investment after-care services.

A third challenge for south-east Asian IPAs and site marketers is to engage in gathering location-competitive intelligence. Competing locations now revise and enhance their location offerings frequently.

China and India will see more segments of their mega consumer markets becoming more affluent. This will stimulate demand for more foreign products and services, such as luxury, entertainment and fashion products, golf courses, resorts, spas, higher education and the like. Intra-regional air travel, logistics, trade and tourist flows will grow. China and India should transform into twin mega markets with the surrounding economies playing a support function. More Chinese and Indian products and services will enter south-east Asia. More south-east Asian firms are expanding beyond their traditional home markets and into China and India as well as within SE Asia. North America and Europe may become less important to south-east Asian companies in the medium term as they focus on China and India.

Trade promotion

Alongside these inward FDI attracting activities, trade promotion agencies (TPAs) will play increasingly important roles. South-east Asian TPAs have to consider how best to assist their local firms in overseas markets and to develop export maximising strategies, especially since China and India are fast becoming mega Asia markets with a rising middle class.

With such major structural changes, IPAs, TPAs and site marketers alone are unable to handle the impending changes, flows in both investments and trade as well as the increasingly complex needs of corporate investors with shorter time planning cycles, return on investment payback time and other investment criteria.

Lawrence Yeo is CEO of AsiaBIZ Strategy, a Singapore-based consultancy that provides Asia market research and investment/trade promotion services.

E-mail: Lawrence@asiabizstrategy.com