A wave of bumpy but apparently unstoppable reforms in Asia is opening up investment opportunities that would have been unimaginable pre-1997. In a shift from practices of the past, increased foreign direct investment (FDI) flows into the region reveal that many believe it is more effective and faster to invest without the "benefit" of a local partner. Consider that contracted foreign investment into China increased 27% in the first quarter of this year to US$11.08 billion. This represents a surprisingly strong indication of renewed investor confidence as China prepares to enter the World Trade Organization. Fast-liberalizing South Korea says it has recorded $2.7 billion in new FDI for the first quarter on the heels of a record $15.5 billion for all of last year. Korean firms themselves are on the march as a result of economic recovery and liberalization. In the first two months of 2000 the Ministry of Finance announced that South Korean companies planned investments amounting to $276 million in Asia. About half of that is going to new manufacturing capacity in electronic components and semiconductors, appliances, and computers. LG Group -- which managed to avoid many of the problems of other chaebol conglomerates -- is among the most aggressive investors. It has big plans for China and North Korea. In contrast to the fast pace of foreign direct investment in Asia, merger-and-acquisition activity has been slow. Today's investors are reluctant to deal with ownership restrictions or grease the bureaucracy through a local partner. This despite predictions during the region's two-year economic crisis that western carpetbaggers would gobble up Asian enterprise. This year Asian mergers and acquisitions are set to only slightly exceed last year's level, and only about 25% of deals involve a non-Asian player. The character of fund flows into Asia says interesting things about doing business there. First, investing is less esoteric than in the past. The most obvious sign of change is the diminishing importance of connections in such things as obtaining government approvals of incentives, development plans, and permits. Corporate identity is steadily taking the place of personal identity in establishing the genuineness and attractiveness of proposed FDI. Esquel Group, a large integrated garment manufacturer in Hong Kong, has made a point of insisting that its priority in China is creating jobs and improving workers' lives. The company is going so far as to help Chinese farmers who supply cotton to form U.S.-style agricultural cooperatives. Meanwhile, an aggressive anti-corruption initiative by Beijing has dramatically reduced smuggling. Previously, foreign manufacturers in China often saw locally produced output undercut by illegal imports. Second, most Asian governments really do expect their domestic enterprises to get competitive or get out of business. Liberalization is never smooth, but the momentum is well established, and will continue to move forward. Governments in Thailand, South Korea, the Philippines, and Singapore have steadfastly resisted pressures to roll back or go slow on scheduled tariff reductions and foreign investment incentives. And that's largely attributable to the third thing that's different about the new Asia: empowered consumers. Governments have dismantled barriers to investment in key manufacturing and retail sectors. This has freed consumers from high prices once levied as a result of antiquated but politically important distribution channels or entrenched big-business interests. Asian consumers have become extremely demanding of government and corporations. Accelerating that transition is the Internet, which, while in its infancy, will explode at the end of this year as a result of the introduction of broadband wireless access in most regional economies. The bottom line is that Asian and non-Asian investors alike are investing again in the region. And this time around, it's happening the right way.
Michael Alan Hamlin is the managing director of TeamAsia, a Philippines-based marketing consultancy. He is author of The New Asian Corporation: Managing for the Future in Post-Crisis Asia (1999, Jossey-Bass Publishers).