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UNCTAD/PRESS/PR/2005/053
GRAVITY SHIFTS TO ASIA IN GLOBAL FDI AND R&D NETWORKS

Geneva, Switzerland, 15 November 2005

Developing countries in Asia are attracting large and rapidly increasing flows of investment from transnational corporations (TNCs), and much of that money is going towards knowledge-intensive activities, UNCTAD officials told an Asian investment conference this week. They said a series of Asian governments which have actively promoted imports of technology and know-how - and have invested heavily in providing educated workforces - are reaping the benefits as more sophisticated economic activity comes their way. They added that TNCs based in these nations are also expanding abroad in diverse areas.

Asia and Oceania attracted US$148 billion in foreign direct investment (FDI) in 2004, up US$46 billion from 2003, and the largest such increase ever, UNCTAD officials told the World Association of Investment Promotion Agencies (WAIPA) Asia-Pacific Investment Conference, held on 15-16 November. Nine out of 10 TNCs polled in an UNCTAD survey predicted that such investment will continue to increase. The top five destinations for this money are expected to be China, India, Thailand, the Republic of Korea and Malaysia.

Asian firms are internationalizing as well; of the top 50 developing-country TNCs, 39 are based in Asia. Outward FDI from Asia and Oceania quadrupled in 2004 to US$69 billion, driven particularly by flows from Hong Kong (China) of US$40 billion. Outflows from Singapore and the Republic of Korea also rose significantly to US$11 billion and US$5 billion respectively. Most of these investment flows are going to other Asian economies.

Another indication of Asia´s expanding role is the growth of FDI in research and development (R&D) activities that until recently were confined to developed countries. As UNCTAD´s World Investment Report 2005 indicates, R&D expenditures in developing Asia by majority-owned foreign affiliates of US TNCs, for example, increased from US$400 million in 1994 to more than US$2.1 billion in 2002. China, Singapore, Hong Kong (China), Malaysia and the Republic of Korea are among the main destinations of such expenditures. More than half of the 300 largest R&D spending firms in the world now conduct R&D in China, India or Singapore. In China, the number of foreign R&D units has surged from zero to over 700 in the past decade, according to official data from the Government of China.

Similar rapid growth is occurring in the Republic of Korea. By the end of 2004, a total of 140 foreign affiliate research institutes had been opened in that country. The nation hosts, for example, one of Microsoft´s four overseas research centres and R&D units of Intel, Motorola, Philips and Siemens.

Another shift is that foreign R&D work is increasingly being sponsored by firms based in developing Asia itself. A 2005 survey identified 60 foreign R&D centres owned by firms from the Republic of Korea; most leading Indian software firms have established an R&D presence abroad; and Chinese companies have set up more than 75 foreign R&D units in both developed and developing countries.

UNCTAD officials told the conference that Asia´s expanding role in global production and innovation networks reflects active government policies aimed at enhancing their countries´ "created assets". More than in other parts of the developing world, governments have vigorously promoted imports of technology, know-how, people and capital from abroad; invested strategically in human resources; established specially designed infrastructure, such as export processing zones and science and technology parks; used targeted incentives for attracting knowledge-intensive investment; and strengthened relevant institutions. An important lesson is that policies to strengthen education, competition, FDI, and business innovation - as well as policies targeting the needs of specific industries and smaller firms - are effective, and are most effective when well coordinated and pursued over the long term.