Chang­ing Trends In Out­ward In­vest­ment

De­bashish DasGupta, Chief Sales Of­fi­cer at Ami­corp Group, dis­cusses the trends, chal­lenges and op­por­tu­ni­ties for in­vest­ment across Asia and the Mid­dle East.

Forbes Middle East - - AMICORP GROUP -

Asia is emerg­ing as a prom­i­nent for­eign in­vestor, cat­alyz­ing the global trade re­cov­ery and shoul­der­ing nearly two-thirds of global trade vol­ume growth. Asian and Mid­dle East­ern economies con­tinue to show­case sus­tained growth in both in­ward and out­ward for­eign di­rect in­vest­ment (FDI). Out­ward Asian in­vest­ments have di­ver­si­fied sig­nif­i­cantly by ge­o­graph­i­cal spread and sec­toral com­po­si­tion in the past five years. FDI out­flows from Asia and the Mid­dle East have nearly dou­bled in the last eight years reach­ing $401 bil­lion in 2018, con­tribut­ing 40% of global FDI out­flows.

Key trends in­clude a mul­ti­fold in­crease in in­ter­na­tional merg­ers and ac­qui­si­tions (M&A). Over­seas M&A by Asian and Mid­dle East­ern com­pa­nies have wit­nessed three­fold growth, to $343 bil­lion in 2018 from $88 bil­lion in 2009. Re­cent ma­jor M&A ac­tiv­i­ties by Asian and Mid­dle East­ern com­pa­nies in­clude China In­vest­ment Cor­po­ra­tion’s ac­qui­si­tion of Logi­cor from Black­stone, the ac­qui­si­tion of WeWork Cos by Soft­Bank Group Corp., the pur­chase of Shire PLC by Takeda Phar­ma­ceu­ti­cal Co, and Cal­sonic Kan­sei’s ac­qui­si­tion of Mag­neti Marelli S.p.A from Fiat Chrysler Au­to­mo­biles.

Out­ward for­eign in­vest­ments from Asia de­clined slightly in 2018 due to grow­ing geopo­lit­i­cal trade ten­sions be­tween the US and China. This has led to Chi­nese over­seas in­vest­ments in­creas­ingly mov­ing away from the US to de­vel­op­ing Asian economies. ASEAN coun­tries like Sin­ga­pore, In­done­sia and the Philip­pines are emerg­ing as ma­jor ben­e­fi­cia­ries of Chi­nese in­vest­ments. Canada has also gained from the cur­rent US-China stand­off, with Asian in­vest­ments in the coun­try ris­ing from $635 mil­lion in 2016 to $2.7 bil­lion in 2018.

Over­seas in­vest­ments by Korean busi­nesses, in par­tic­u­lar, elec­tronic goods and au­to­mo­tive com­pa­nies, in­clud­ing LG, Sam­sung, Hyundai, and KIA, con­tinue to rise. Korean com­pa­nies are plac­ing these in­vest­ments in high-growth ar­eas such as ar­ti­fi­cial in­tel­li­gence (AI) and 5G.

Out­ward FDI from the Mid­dle East is also at an all-time high. For­eign in­vest­ments from Saudi Ara­bia, the U.A.E. and Turkey span across new global lo­ca­tions and emerg­ing dis­rup­tive tech­nolo­gies. Saudi Ara­bian in­vest­ments have come from the coun­try’s sov­er­eign wealth fund and large pri­vate in­vestors, such as the King­dom Hold­ing Com­pany.

There are some chal­lenges. Cross-bor­der M&A present in­dus­try par­tic­i­pants with many con­sid­er­a­tions, in­clud­ing po­lit­i­cal frame­works, un­fa­mil­iar ju­ris­dic­tions as well as in­creased fi­nan­cial and tax com­pli­ance bur­dens. Many cross-bor­der M&A deals have been with­drawn due to reg­u­la­tory, po­lit­i­cal, and com­pe­ti­tion poli­cies. An­tic­i­pat­ing and plan­ning for these po­ten­tial chal­lenges is crit­i­cal to the suc­cess of any cross-bor­der trans­ac­tion.

Crit­i­cal is­sues en­coun­tered by Asian and Mid­dle East­ern com­pa­nies in in­ter­na­tional/cross-bor­der M&A trans­ac­tions in­clude the po­lit­i­cal cli­mate. Na­tional pol­i­tics has a sig­nif­i­cant in­flu­ence on the free­dom to op­er­ate in the lo­cal busi­ness land­scape. Po­lit­i­cal par­ties ex­er­cise in­di­rect con­trol through unions, cam­paign groups and other pub­lic in­ter­est in­sti­tu­tions, which de­ter­mine the “free­dom and au­thor­ity” of a for­eign player op­er­at­ing in the host na­tion. The ab­sence of syn­chro­nized ob­jec­tives be­tween na­tional po­lit­i­cal in­sti­tu­tions and the for­eign cor­po­rate could heighten the risks of a sud­den busi­ness shut­down, re­sult­ing in mas­sive un­em­ploy­ment.

There are also tax and ac­count­ing con­sid­er­a­tions. The re­lease of the Panama Pa­pers in 2016 ex­pos­ing off­shore tax eva­sion, cor­rup­tion, money laun­der­ing and ter­ror­ist fi­nanc­ing around the world has pro­vided a tremen­dous im­pe­tus for global in­sti­tu­tions and coun­tries to in­tro­duce reg­u­la­tions around trans­parency and the stan­dard­iza­tion of re­port­ing and com­mu­ni­ca­tion be­tween home and host coun­tries. Adop­tion of these norms by ma­jor global re­gions has in­creased com­pli­ance re­quire­ments for cross-bor­der trans­ac­tions.

The FDI in­flow screen­ing process of­ten re­jects in­ter­na­tional M&A deals deemed to be a threat to the do­mes­tic in­dus­try play­ing field in the host coun­try. Screen­ing is es­tab­lished to en­sure no trans­fer of au­ton­omy or ex­cess power to the for­eign in­vestor in ex­ert­ing con­trol over crit­i­cal in­fra­struc­ture or tech­nol­ogy or prod­uct in the host mar­ket. Un­fair mar­ket com­pe­ti­tion from cross-bor­der deals runs the risk of trade mo­nop­oly and cre­ates pres­sure on do­mes­tic play­ers. The host coun­try’s com­pe­ti­tion reg­u­la­tory bod­ies of­ten dis­solve such deals, which threaten con­sumers’ free­dom and ac­cess, pri­or­i­tiz­ing na­tional in­ter­est.

Re­gard­ing em­ploy­ment and la­bor, vary­ing lo­cal ju­ris­dic­tions, cus­toms, and prac­tices across na­tions make tal­ent ac­qui­si­tion com­plex for a for­eign in­vestor. When op­er­at­ing in a new econ­omy, a for­eign in­vestor is heav­ily re­liant on lo­cal busi­ness part­ners to sup­port its crit­i­cal la­bor pool­ing and man­age­ment ac­tiv­i­ties. The for­eign cor­po­ra­tion is not only sub­ject to so­cial and cul­tural vari­a­tions in avail­able lo­cal tal­ent, but it is also ex­pected to com­ply with var­i­ous laws and ap­pli­ca­ble re­stric­tions.

Ad­her­ence to the var­i­ous cross-bor­der reg­u­la­tions also re­mains a chal­lenge for many en­trants. For­eign in­vestors of­ten need to grap­ple with com­plex poli­cies such as those drafted in line with ris­ing na­tional se­cu­rity con­cerns, lo­cal con­tent re­quire­ments, land, and fis­cal in­cen­tives for in­ter­na­tional play­ers.

Pre-deal due dili­gence is vi­tal be­fore ven­tur­ing into a new coun­try. It em­pow­ers the en­trant with knowl­edge on na­tional and re­gional tax laws, the tar­get’s fi­nan­cial in­for­ma­tion, po­lit­i­cal sta­bil­ity of the host coun­try, and the tar­get’s com­pli­ance with var­i­ous reg­u­la­tory and com­pli­ance stan­dards in the coun­try of op­er­a­tion.

Or­ga­ni­za­tions un­der­tak­ing cross-bor­der trans­ac­tions are in­creas­ingly opt­ing for as­sur­ance ser­vices to op­ti­mize for­eign earn­ings and min­i­mize com­pli­ance risks. As­sur­ance ser­vices help fa­cil­i­tate trade, sup­port­ing a for­eign in­vestor in scal­ing faster growth in a new ter­ri­tory through short­ened tran­sit times in cross-bor­der trade flows.

As­sur­ance ser­vices cover a wide range of func­tions such as foren­sic and in­tegrity ser­vices, fi­nan­cial ac­count­ing and ad­vi­sory ser­vices, and in­ter­na­tional tax plan­ning, which en­able for­eign in­vestors to ad­dress po­ten­tial chal­lenges in cross-bor­der trans­ac­tions. They also bring about a trans­par­ent and trusted re­port­ing sys­tem for fi­nan­cial de­ci­sion-mak­ers.

Ami­corp Group is an in­de­pen­dent global ser­vice provider pro­vid­ing a broad range of as­sur­ance, ad­min­is­tra­tive, le­gal, cor­po­rate sec­re­tar­ial, and sup­port ser­vices as one of their many busi­ness ver­ti­cals. Ami­corp helps com­pa­nies and HNWI’s meet trans­parency stan­dards and reg­u­la­tory re­quire­ments in cross-bor­der deals while man­ag­ing stake­holder de­mands. Ami­corp has a team of pro­fes­sion­als work­ing across the world and is a lead­ing player in emerg­ing mar­kets–ser­vic­ing across coun­tries from Brazil to In­done­sia and China, of­fer­ing ex­per­tise on the lat­est stan­dards of ser­vice, risk man­age­ment, com­pli­ance re­quire­ments, and reg­u­la­tory knowl­edge.

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