THE STATE OF PLAY IN SOUTH ASIA l 35
India, Nepal, Pakistan, and Sri Lanka. The host economies are Bangladesh, India, Nepal, and Sri Lanka. The apparel sector includes two Sri Lankan pioneers that built brands to capture higher profit margins in the face of the phasing out of global apparel quotas in 2005. One is a brand developer and the other is a retailer selling its brand in its own stores. A third pioneer, from India, opted to provide volume and short lead times by creating an apparel park with value chain partners located in the same vicinity. The fourth is a Pakistani pioneer that set up a marketing office to sell denim cloth to Bangladeshi apparel manufacturers but wound up building its own apparel factory. The fifth is an Indian entrepreneur that has the widest reach in South Asia through the franchising of the company’s custom suiting retail store, backed by the production of high-quality suiting material. The cases from the auto value chain consist of the largest Bhutan ferrosilicon producer, whose output is vital for steel making in India, which goes into the production of auto bodies and auto parts. The firm’s competitiveness is based on Bhutan’s comparative advantage in energy-intensive manufacturing and availability of mineral deposits. Another Indian pioneer is the owner of a tire company that invests in rubber-producing Sri Lanka. The third pioneer is a Bangladeshi auto battery maker that produces for the Indian aftermarket. The agri-food industry cases consist of a Nepali pioneer in instant noodles that invested in factories in the North Eastern Region of India and eventually expanded into a retail chain across all of India. The sector also includes an Indian firm that set up a juice-making factory in Nepal to serve the local market and its home market. The hotel industry covers the story of a premier Indian hotel chain that invested in Sri Lanka and received a capital injection from a Nepali pioneer at the height of Sri Lanka’s civil war in 2008.
Relevance of the Report This report is relevant to South Asia’s development for several reasons, from both a regional and a global perspective. First, it brings the role of knowledge connectivity and information barriers, a much-neglected issue, into the decision to export or invest. This issue has powerful policy implications. Second, it highlights the varieties of outward investment strategies and the benefits of outward investment for emerging market multinationals and draws attention to the distortions in outward investment programs. The restrictions on OFDI in many countries in South Asia restrain their dynamic firms, restrict regional value chains, and are an increasing anomaly in an era of globalization, recent setbacks notwithstanding. Third, given the trade-investment links, improving regional FDI will also improve regional trade. Improvements in trade also result from FDI’s role in developing regional value chains in low-trust environments and its scope for trust-building in the longer term.
