16 l REGIONAL INVESTMENT PIONEERS IN SOUTH ASIA
The region as a springboard. On average, 65 percent of firms (by number) first invested within the region, and 28 percent of these firms that first invested in a South Asian country went on to invest outside the region. The finding provides suggestive evidence of the region being used by some firms as an experiential investment platform to launch into global markets. The finding is consistent with the aggregate data on FDI values that shows much higher shares for extraregional investments.
Policy and Operational Implications The findings of the report provide important new, actionable implications for policy interventions and investments. These recommendations are organized around enhancing knowledge connectivity, boosting physical connectivity and digital connectivity, establishing regulatory and promotional policies for OFDI, implementing IFDI promotion strategies, incorporating emerging global business practices into policy making, and identifying national policy reforms that may have regional implications. These policy recommendations apply globally but may be applied regionally to address frictions in regional engagement. They are also valid in the post-COVID-19 world, with greater emphasis in some areas. ENHANCING KNOWLEDGE CONNECTIVITY Lack of knowledge is often underrated as a source of friction and high costs. This report argues that focusing on knowledge connectivity, separate from other forms of traditional connectivity, is essential, because policies that reduce information frictions differ substantially from policies that reduce traditional trade costs. These information frictions reflect the high costs of search, matching, and contracting across borders and the high costs or market failures of the provision of channels or technologies to alleviate these frictions. The common determinants of the different modes of international engagement imply that addressing informational barriers would support intraregional investment as well as trade. Policy interventions that address information and coordination failures can be extremely useful for potential regional investors. Some firms may suffer from being late entrants (and are hence unknown to the wider business community) and their more recent maturation to global competitiveness. Other competitive regional firms that are already linked to global value chains may resist incurring the sunk costs and switching costs associated with new partnerships (a “status quo” bias). Structural features of the private sector, such as prevalence of family firms and diversified business groups, may create an atmosphere in which information is generally shared more cautiously and is restricted to a select group. The survey suggests that useful network development interventions could include support for regional and international business associations, industry meetings,
