124 l REGIONAL INVESTMENT PIONEERS IN SOUTH ASIA
FIGURE 3.10 Detailed Motivations for Investing in South Asia CONNECTVITY Access to global networks Access to infrastructure COST Labor cost Scale economies Access to support services Land availability MARKET SALES Market potential Untapped markets, low competition Nature of contract Experimental platform Buy back for home market VALUE CHAIN Brand development Vertical integration Higher profit margins DIVERSIFICATION OR RISK REDUCTION Failure of nonequity modes Exchange rate risk Production location risk SHOCKS Global recession HOST GOVERNMENT INCENTIVES Confidence-building courtship 0
5
10
15
20
25
30
35
Percent of firms making each choice Source: Computation based on the South Asian Regional Engagement and Value Chains Survey. Note: Firms, N, could make more than one choice. N = 267.
now investing in retail services to take advantage of the changing consumption basket of Bangladeshis with rising incomes. The importance of cost—especially labor cost—in vertical and complex FDI runs counter to the traditional perception that factor endowments are similar in all South Asian countries. The traditional perception is that all countries are producing similar products, with little to offer by way of collaboration or specialization. Among the South Asian firms driven by production costs was India’s tire manufacturer CEAT, which invested in tire plants in rubber-producing Sri Lanka. Sri Lanka’s Brandix invested in a large apparel park in Andhra Pradesh, India, where land was cheaper. Another example of a vertical investment is Dabur India’s investment in nurseries in Nepal to develop herbal plants.
