In a world that is ever more digital, everything has changed. Shopping, eating and socialising all transformed. The term digital FDI refers to a new generation of cross-border investments in which businesses operate in a largely asset-light mode, often forgoing substantial physical infrastructure in host economies. Companies such as Amazon and Uber stand as towering examples, operating across borders and driving economic activity, yet not grounded by substantial physical assets in every country they serve.

At the heart of digital FDI’s potential is the digital economy, a living, breathing entity that feeds off innovation and bridges geographical divides with technology. The knowledge-based economy promotes growth thanks to the reusable nature of knowledge assets, delineating a trajectory that only points upward. The natural extension of this growth is reflected in the growing footprint of digital FDI in the international economic landscape. Companies that venture into foreign lands today prioritise the digital literacy of the populace and the regulatory environment of the state, pinpointing the digital realm as a foundation for investments. The flexibility offered by digital FDI is unparalleled, granting businesses the agility to innovate, adapt and expand with a vigour unheard of in traditional investment paradigms.

However, the exciting prospects of digital FDI have given rise to several novel and complex legal challenges. New digital frontiers present heightened concerns regarding antitrust and competition laws while grappling with nuanced issues of digital taxation and cyber security. Furthermore, there arises a responsibility to safeguard consumer rights, deal with cultural repercussions and protect the societal fabric from potential disruptions. The asset-light nature of digital FDI raises pertinent questions about taxation, fair competition and economic equity between rich and poor nations. It thrusts to the fore issues such as consumer protection, potential cultural shifts and the urgent need for fortified cyber security measures.

Addressing these concerns requires a multifaceted strategy aimed at international consensus on digital FDI norms. First, a coherent transnational regulatory framework that accommodates the unique nature of digital businesses while safeguarding the interests of host states and global digital consumers is urgently needed. In addition to setting out a robust legal framework, attracting digital FDI must include a steadfast commitment to developing a digital infrastructure that would serve as a bedrock for these asset-light businesses.

The evolving economic dynamics necessitate not only physical assets, but also an ecosystem that nurtures digital skills, encouraging a fertile ground for digital FDI to thrive. Moreover, fostering co-operation between the states and the private sector is vital. The global nature of digital economies calls for a collaborative effort to mitigate the risks associated with data flows and reconcile varying interests to create a win-win situation for all stakeholders involved. Policy-makers should lean towards creating special digital economic zones that offer a conducive environment for digital enterprises to flourish, thereby boosting economic growth and fostering innovation.

Digital FDI is positioned as a dominant force that steers the direction of global investment in the coming era. The journey towards crafting a flourishing landscape for digital FDI is certainly taxing, yet it unlocks limitless potential, opening avenues for remarkable growth, fostering innovation and encouraging international synergy. A proactive approach, encompassing both public and private sectors, is essential for proficiently traversing the multifaceted digital economic landscape. As we refine regulatory frameworks and foster digital commerce to bridge gaps between nations, digital FDI evolves from a promising opportunity to an unequivocal necessity, paving the way for a future in which technology stands as the bedrock of sustained economic prosperity and stability.

Julien Chaisse is professor of law at City University of Hong Kong and president of the Asia-Pacific FDI Network

X (formally Twitter): @jchaisse

This article first appeared in the October/November 2023 print edition of fDi Intelligence