Asian FDI starts flowing out

Himalayan News Service

London, June 8:

Citing Tata Tea’s acquisition of the British company Tetley, a UN agency says businesses from developing Asia are rapidly investing and expanding operations in foreign markets, mirroring trends set by industrialised countries.

New data released by the UN Conference on Trade and Development (UNCTAD) show foreign direct investment (OFDI) from emerging markets is more widespread than commonly thought, reaching a stock of $929 billion in 2003.

Outward investment from Asian firms is growing much faster than that from firms in rich nations. The number of emerging markets that reported OFDI data grew from 70 in 1985 to 122 in 2003.

“More emerging markets are now encouraging their firms to trans-nationalise as a way of improving competitiveness,” UNCTAD says, “Such firms aim to benefit from the international division of labour, strengthening national economic development on the way.”

Gaining access to resources and technology and improving research and development capabilities are other key factors in decisions to invest abroad.

The data shows emerging market OFDI flows to be dominated by Asia, led predictably by established investors Hong Kong, Malaysia, Singapore and Taiwan. Others, such as Brazil, China, India and Mexico are reported to be at the take-off stage.

Indian outward FDI stock grew exponentially from $124 million in 1990 to $5.05 billion in 2003. Leading the Asian list are Hong Kong ($336 billion), Singapore ($90 billion), Taiwan ($65 billion), and Malaysia ($34 billion). China’s 2003 OFDI stock stood at $33 billion.

India ranked 13 on the list of the top 15 emerging markets in 2001-2003 ranked by their FDI

outflows, coming just behind Malaysia and alongside Chile.

FDI outflows accounted for one per cent of India’s gross fixed capital formation in 2001-2003, compared with 0.9 per cent of China’s. By comparison, the figure is substantially higher in Hong Kong (27.9 per cent) and Taiwan (10.5 per cent).

Among examples of acquisition of well-known global brands, the UNCTAD report mentions Lenovo’s (China) acquisition of IBM’s PC division, TCL’s (China) merger with Thomson’s Television and DVD operation (France) and Tata Tea’s acquisition of Tetley Tea.

Tata Tea Ltd acquired Tetley in 2000 for 271 million pounds, which made Tata Tea the world’s second largest tea company after Unilever.

Analysts hailed it as a landmark deal between one company, Tata, that was strong in tea production, and the other that had marketing muscle and global reach.