International Convention of Asia Scholars (ICAS)

055.

Panel Title            : INWARD INVESTMENTS IN THE EMERGING ASIAN ECONOMIES

Institution             : Helsinki School of Economics (CEMAT)

Convener              : Ritta Kosonen

Chair                      : Ritta Kosonen

Discussant           :

Panel Abstract    :

This panel focuses on inward foreign direct investments (FDI) in Asian rapidly growing economies, i.e. South Korea, Taiwan, and Malaysia. The aim is to analyze the trends in investments policies and the realized direct investments of the target countries in relation to the operations of foreign companies in these economies. The papers of the panel investigate, respectively, the trends in FDI in the three Asian economies. These countries are faced by the fact that China has become the largest Asian recipient for global FDI that has increased the regional competition for investments. Two interrelated papers focus on Nordic investments (i.e. investments from Finland, Sweden, Norway, Denmark and Iceland) in South Korea and in Taiwan. The third paper compares the performance of Malaysia in inward FDI with a case from Eastern Europe, namely Estonia.The first paper aims to identify how the companies' decisions to invest in South Korea have contributed to the overall performance of the companies. The study elaborates on the strategic management theory which states that the economic performance of the firm is created through the scope and resource allocation. According to the paper, Nordic investment projects have been fairly successful in South Korea, although the country is often described as one of the most difficult places to do business in.The second paper investigates Taiwan's economic policy and its investment environment from the perspective of multinational enterprises, particularly those from the Nordic countries. The study aims to explain the investment motives of Nordic companies operating in Taiwan in relations to the economic policies of Taiwan. Up to the 1990s, the motive for Nordic investment in Taiwan was based on low cost production, but in the 2000s, an increasingly important motive is to acquire Taiwanese high technology and know-how. In addition, Taiwan has a role as a gateway to China.The third paper discusses the performance and dependence of Malaysia on inward foreign direct investments, making comparisons to an Eastern European emerging economy, Estonia. Focusing on the various source countries, sectors and trends in the investment flows, the paper highlights the similarities of these economies. These include the dependence on a few large investing countries, and the importance of regional trade groupings, i.e. AFTA and the EU.Key words: Asian economies, foreign direct investment, South Korea, Taiwan, and Malaysia.

Participants         :

Kristiina  Korhonen. Co-author: Erja Kettunen & Riitta Kosonen

Paper Title            : Performance of Nordic investment projects in South Korea

Abstract                :

After recovering from the financial crisis in the late 1990s, South Korea has remained as one of the growth centres of the world economy, attracting foreign companies that seek to transfer operations to new locations. This paper is interested in particular in Nordic companies (i.e. from Finland, Sweden, Norway, Denmark, or Iceland), that have invested in South Korea in 1981-2005. Our aim is to identify how the Nordic firm's decision to invest in South Korea has contributed to the performance of the firm. Furthermore, the paper shows in what degree the Nordic companies have divested their subsidiaries in South Korea in comparison to continuity of the operations. In this study, we investigate the impact of the investment decision on the firm's performance. Strategic management literature (e.g. Minzberg & Quinn 1996) argues that the economic performance of the firm is created through the scope and the resource allocation. In practice, the firm has to make decision on the target market that it will focus on in order to gain performance, and on the resources that will maintain or increase the firm's competitive advantage in the target market. Investment decision is one of the major decisions of the firm, as it defines what set of businesses a firm should be in. Empirically, our analysis portrays a sequential mixed methodology design, in which we conduct a quantitative study and a separate follow-up qualitative analysis. Primary data is collected by questionnaires in the investing companies and complemented by interviews in the companies. Secondary data are derived from documents and statistics. The performance of the firm is measured by profitability, external effectiveness, internal efficiency, and flexibility. Profitability is the basic indicator of the firm's performance. External effectiveness indicates the firm's position in the market in relation to competitors, which can be measured by market share of corporate image, for example. Internal efficiency refers to the firm's ability to generate turnover and profit through its existing resources. The total sum of the balance sheet can be used to measure the resources as a whole. Finally, flexibility explains how the firm has maintained its profitability in a changing environment and can be measured through the continuity of the business in certain circumstances.The findings show that although South Korea is often described as one of the most difficult places to do business in, Nordic investment projects have been fairly successful in South Korea. Statistical analysis shows that the number of repeat investments has been high reflecting good performance and positive future expectations. Accordingly, the number of divestments is relatively low. In the follow-up phase of the study, the company-level analysis will provide more detailed understanding on the performance of the Nordic companies in South Korea.

Erja  Kettunen /c/o- Kristiina Korhonen & Riitta Kosonen & Wen-Cheng Wang

Paper Title            : Taiwan's Economic Policy Towards Multinational Enterprises: The Case Of

                                  Nordic Investment In Taiwan

Abstract                :

This paper investigates Taiwan's economic policy and its investment environment from the perspective of multinational enterprises. Taiwan's economic development over the past few decades has been phenomenal, and in the 1990s, it has become a target for international investment on a larger scale. In this vein, Taiwan has gradually but selectively liberalized its economic policies. The other East Asian Newly Industrialised Economies have applied varied policies: Hong Kong and Singapore have opened their investment and trade regimes already in the 1950s and 1960s, while South Korea opened its economy for foreign investments only after the Asian crisis in 1998. The aim of our study is to explain the investment motives of Nordic companies (i.e. firms from Finland, Sweden, Norway, Denmark and Iceland) operating in Taiwan. In addition, the economic policies of Taiwan are analyzed with regard to the direct investments of Nordic companies in Taiwan, as it is acknowledged that the investment decisions of foreign companies are dependent on the host government investment policy that reflects the openness of the country in terms of FDI and foreign trade. Data used in the study include international and national statistics on foreign trade and foreign direct investments, as well as company-specific information.The findings of the paper show that up to the 1990s, the motive for Nordic investment in Taiwan was based on low cost production, but in the 2000s, an increasingly important motive is to acquire Taiwanese high technology and know-how. In addition, Taiwan has a role as a gateway to China. Furthermore, drawing from the evidence from the Nordic-Taiwanese case the paper points to varied scales of foreign trade and investments of the companies according to the level of internationalization of each Nordic country.The Taiwanese government has actively intervened in inward FDI to maximise the benefits to the host economy. It has been able to maximize the trade effects from inward foreign direct investment effectively, because it has applied different levels of intervention, i.e. micro-, meso- and macro-level policies. The three levels of government intervention are mutually reinforcing, which suggests that their effects are maximized when all levels are applied. The significant revisions in investment regime in Taiwan have created a further motive for Nordic enterprises in addition to Taiwan's economic growth. Taiwan's entry into the WTO, continuing liberalization of its domestic market, and emphasis on the growth of high-technology industries are viewed as offering increased opportunities for multinational enterprises to invest in its manufacturing and service sectors. In addition, Taiwan has built up special ties to the mainland China, creating a territory where despite of the political tensions, trade and economic interaction has become the centre of attention. This unique trade and investment link that has emerged through extensive capital, people and goods movement, has attracted FDI in Taiwan, because many multinational enterprises have been interested in Taiwan as a gateway to the Chinese market. Taiwan is more favourable and attuned to Western firms' practices and can serve as a listening post to Chinese market. In addition, many Taiwanese firms have already established a strong presence in China and can manage the local business connections.

Riitta  Kosonen & Erja Kettunen

Paper Title            : Emerging economies and inward foreign direct investments: Comparing

                                  Malaysia and Estonia

Abstract                :

This paper discusses the dependence of emerging economies on inward foreign direct investment (FDI) from the perspective of two rapidly industrializing countries, Malaysia and Estonia. The aim is to compare these two countries, one in Southeast Asia and the other in Eastern Europe, as to their performance in and dependence on inward direct investments. Sharing some similarities in their economic characteristics, both Malaysia and Estonia are relatively small, open and trade oriented economies. They are also major recipients of inward foreign direct investments in manufacturing industries, such as electronics. In addition, Malaysia and Estonia are characterized by strong economic growth during recent decades and the geographical proximity to some of the major investing countries, namely Singapore and Finland, respectively. They are also members in regional trade agreements: Malaysia is a founding member of the Association of Southeast Asian Nations (ASEAN) since 1967, and Estonia joined the European Union (EU) in 2005. Malaysia's inward foreign direct investment has also been linked with the establishment of the ASEAN Free Trade Area (AFTA) (Ariff 1995, Lee 1997, Sandrey 1997, Kettunen 1998). Similarly, the increase in Estonia's inward FDI was related to, first, its independence from the ex Soviet Union, and second, its membership in the EU (CEMAT 2005). Empirically, the study draws on longitudinal qualitative analysis of both quantitative and qualitative data. The comparisons are based on FDI statistics, investment policy data, and newspaper archives. As to direct investments in Malaysia and Estonia, the study employs data from various sources. These include the International Monetary Fund (IMF) statistics on foreign direct investments in these countries, and national statistics, such as the Malaysian Industrial Development Authority (MIDA) data on FDI in approved manufacturing projects.According to the findings, the two counties are faced with challenges from footloose foreign investments. Some of Malaysia's manufacturing investments are shifting to lower cost countries such as China. In comparison, Estonia's economy is dependent on FDI from a few large investors, such as the electronics contract manufacturer Elcoteq from Finland. At the same time, both Malaysia and Estonia are backed by regional trade groupings, AFTA and the EU.