The ASEAN Economic Integration And Foreign Direct . - 財務省

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The ASEAN Economic Integration and Foreign Direct Investment:A Case Study of Japan’s FDI on the Automotive IndustryPrepared by Suteera Sitong1Visiting Scholar, Policy Research Institute, Ministry of Finance, JapanThe author is an Economist at the Fiscal Policy Office, Thailand, and acknowledges financial support forthis research from the Policy Research Institute, Ministry of Finance, Japan .The views expressed are those of the author and do not represent the views of the Policy Research Institute orFiscal Policy Office.1

AbstractThis paper documents research on foreign direct investment of the Japanese multinational corporations(MNCs) in ASEAN. The author studies the case of the automotive industry in ASEAN since this industryshares the largest direct investment value in several countries in the region. Apart from documentingresearch, the in-depth interviews with the strategic players in the automotive industry were conductedto provide an understanding of the automotive industry. The finding is that the current form ofeconomic integration is likely to continue to attract FDI of the Japanese automotive companies intoASEAN. The existing fragmentation in the automotive production has a positive relationship with thedirect investment of Japan.IntroductionSoutheast Asia has become the world’s most important foreign direct investment (FDI) region. Theinward FDI has been significantly increasing. FDI over the Gross Domestic Product (GDP) in the past twodecades increased from 20.6 percent in 1995 to 69.9 percent in 2015 (Table 1). Compared to otherregions of the world, it has the highest ratio at 69.9 percent, reflecting an increasing role of FDI to theeconomic development in the region. ASEAN formed its first economic integration as ASEAN Free TradeArea (AFTA) in 1993 to bring tariffs on goods originating in ASEAN down to facilitate regional trade.Then in 2015 it has transformed into ASEAN Economic Community (AEC) to create a single market andproduction base to attract more FDI inflows. A single market applies a tariff rate of 0 percent for allASEAN Member States (AMSs) across borders, and the free flow of goods, services, investment, capitaland skilled labor.Table 1 : Asian Destinations of FDI Inflows as a Percentage of Gross Domestic Product (percent)FDI stockEast AsiaSoutheast AsiaSouth AsiaWest AsiaDeveloping 23.269.912.623.628.533.6Source : ASEAN Foreign Direct Investment Statistics Database as of 5 October 2016 (Data is compiled from submission ofASEAN Central Banks and National Statistical Offices through the ASEAN Working Group on International InvestmentStatistics (WGIIS).ASEAN, European Union, Japan, and the USA ranked the highest share of economies in FDI inflows toASEAN, respectively. Some part of intra-ASEAN FDI is not indigenous but comes from foreignMultinational Enterprises (MNEs) (e.g., from Japan and the United States) operating regionalheadquarters or the subsidiaries and they turn invest in other AMSs on behalf of the parent companies(ASEAN Secretariat, 2016). The transformation to AEC attracting business has been in the interest of thebusiness sector as can be seen from investor views from company surveys and several studies. The 2017ASEAN Business Outlook Survey of the U.S. Chamber of Commerce reports that about 87 percent ofrespondents from the U.S. companies expect the level of trade and investment in ASEAN to increaseover the next five years. In addition, the EU-ASEAN Business Council Business Sentiment Survey 2015reports that investors view ASEAN as a bright spot for future investment and development of theirbusinesses. Besides, the JETRO FY 2015 Survey on the International Operations of Japanese Firmsreports that 73 percent of the 895 Japanese firms plan to expand in ASEAN, a percentage significantly

higher than in other locations. However, there are questions about the impact of this regionalintegration on FDI and how the inward FDI into ASEAN will change overtime.This paper aims to answer the above questions by surveying research on FDI and the economicintegration including the experience of the European Union’s single market. The case of FDI of Japanesecompanies’ inflows in the ASEAN’s automotive industry will be studied to explain the potential impact ofthe FDI inflows as the FDI of Japanese companies into this industry has the highest share in themanufacturing sector in ASEAN. The in-depth interviews with relevant stakeholders were conducted toprovide an understanding about the current situation of the automotive industry and the firms’production strategy.Reviews of LiteratureAccording to the International Monetary Fund (IMF), FDI is an investment made to acquire a lastinginterest in enterprises operating outside of the economy of the direct investor with an effective voice inthe management of the enterprise. Equity capital that is provided by the direct investor either directlyor through other enterprises related to the investor, the reinvestment of earnings and the provision oflong-term and short-term intra-company loans can be classified as FDI. OECD (2008) defines FDI as across-border, long-term investment made by a resident in one economy, the direct investor, with theobjective of establishing a lasting interest in an enterprise, the direct investment enterprise, that isresident in another economy. UNCTAD (2009) provides two key elements in the definition of FDI: (1) aninvestment made by a resident of one economy in another economy, with a lasting interest, and (2) theinvestor has a significant degree of influence on the management of the enterprise. IMF’s Glossary ofForeign Direct Investment Terms and Definitions describes that scope of FDI to include the subsidiaries,associates, and branches of the direct investor, in which the foreign investor owns 10 percent ownershipor more of the voting power. 2 Although the criterion of 10 percent is set, some countries do not applythis threshold for defining FDI. 3 Bank of Japan explains the Direct Investment based on the BPM5issued by the IMF as all transactions (investment) between direct investors and direct investmententerprises, including acquisition of equity capital, reinvested earnings, and lending/borrowing of funds,with 10 percent of ownership or more 4. However, data from 2014 onward applied the IMF’s sixthedition of the Balance of Payments and International Investment Position Manual (BPM6) which definesdirect investment as “a category of cross-border investment associated with a resident (DI) in oneeconomy having control or a significant degree of influence on the management of an enterprise (DIE)that is resident in another economy.” 5In terms of types of FDI, OECD determined based upon the purpose of direct investment. There aremainly four types of operations that qualify as FDI: (1) purchase/sale of existing equity in the form ofmergers and acquisitions (M&A); (2) greenfield investments which refers to new investments; (3)extension of capital (additional new investments); and (4) financial restructuring which refers toinvestment for debt repayment or loss reduction. The two basic types mostly raised in various ary.pdfWong and Adams (2002) find that some countries apply other criterion. For example, FDI in China and Malaysiarefers to the companies in which foreign investors hold more than 25 percent and 50 percent, respectively.4Bank of Japan, Explanation of “Balance of Payments Statistics (Data Based on the BPM5)”. Available exbs02.htm/5Bank of Japan, Explanation of “Balance of Payments Statistics (Data Based on the BPM6)”. Available exbpsm6.htm/23

are M&A and greenfield investments. In addition, FDI across sectors can be classified into vertical FDIand horizontal FDI. The former refers to FDI where the firms operating the same activities in manycountries while the latter refers to the firms where the firms operate a different stage of production indifferent countries.The well-known theory related to the MNE is the theory of international production of Dunning (1979).He used ownership, locational, and specific variables to explain the industrial pattern and internationalproduction in several countries in 1970. Three eclectic approaches are to determine the ownershipadvantages, location advantages, and internalization advantages.Some literature explains the factors determining FDI in ASEAN. Overall, the determinants of FDI inflowsto ASEAN indicate the cost of production, especially the labor cost. Koojaroenprasit (2015) explored thedeterminants of FDI inflows for ASEAN 6 (Indonesia, Malaysia, the Philippines, Singapore, Vietnam andThailand) and employed a random effects model using the panel data set from 1997-2012. The resultsfound that real GDP per capita and an increase in R&D have a significant positive impact on FDI inflows.Conversely, a higher corporate tax rate and higher labor cost lowered FDI inflows. Okapanom, T. andSricharoen, T. (2016) study twenty countries investing in Thailand and find that the factors affecting FDIinclude 1) previous year GDP growth rate, 2) government expenditure, 3) export value, and 4) importvalue. FDI has a positive relationship with previous year GDP growth rate, average minimum income,and domestic inflation while having a negative relationship with government expenditure and taxation.According to AEC Blueprint, AEC is the establishment of a single market and production base to facilitatebusinesses’ movement of factors of production within ASEAN. A single market lifts the barriers of themovement of goods, services, investment, capital, and skilled labor across borders. As ASEAN SingleMarket is the main outcome of the economic integration in AEC, it is worth looking at the experience ofEuropean Union and FDI. There are several studies on the impact of single market of European Unionon the FDI inflows in EU. Galgua and Sekkat (2004) study the impact of the Single Market Program onFDI inflows to Europe by conducting the study at the sector level. They find the potential explanationsthat the impact of the Single Market Program differs across countries and sectors. They also find thatthe industrial specialization story may not be the right answer to differences across countries, but thefunctioning of institutions.Yannopoulos (1990) studies the effects of the single market on the pattern of Japanese Investment. Heassesses the extent that Japanese firms can take advantage by looking at the comparative advantage ininnovative activity. Using a measure of revealed technological advantage of Dunning and Cantwell(1989), he finds the pattern in location advantage and the ownership advantage. Firstly, the changes inthe location advantages of EU markets lead to the trend of investment more in manufacturing,especially in motor vehicles. The pattern of automakers’ operation in the European Community wasthat they consider the single market as the established one, and choose to locate production sites thatoffer the most advantageous cost for each production process. For example, Nissan has located itsfinancial and regional headquarters in the Netherlands, distribution center in Belgium, passenger carproduction in Britain, and commercial vehicles division in Spain. Toyota is likely to have the samepattern. Secondly, the strong ownership advantages by Japanese in electronics and motor vehicles comefrom a success in organizing contractual networks. These networks bring several groups of smallproducers to supply sourcing and sub-contracting services to the large firms.

Globalization has transformed the world by introducing a new way to lower cost of production for theglobal firms. Baldwin (2012) described globalization as two unbundlings. The first and secondunbundlings were the results of the stream or transport revolution and the Information andCommunication Technology (ICT) revolution, respectively. The former unbundling improved the poortransportation and allowed the production and consumption to separate in the 1830s. The cheaper costof transportation made it feasible to produce on a large scale resulting in profitability from theeconomies of scale and comparative advantage gained from the said separation. The second unbundlingbegan when the technology advancement, such as internet, results in reducing cost which enables thecoordination in international production and leads to the fragmentation. Fragmentation refers toseparating an integrated production process into more components or fragments with the use of theservice sector (Arndt and Kierzkowski, 2001). This global pattern of production as the effect ofglobalization has changed the fragmentation process from within nations in the past into verticallyintegrated production among countries. The fragmentation production across national borders hasbeen enabled with the cost reduction from the transportation and telecommunications technologies,liberalization of international trade in services, convergence of legal and regulatory systems, and anincrease in establishment freedom (Arndt and Kierzkowski, 2001). The international fragmentationseparates the integrated production process into each stage allowing a gain from specialization in eachcountry’s stage of production. The theory of fragmentation of production is mainly focused on thegeography and this is the new type of international trade.Figure 1 : The International Fragmentation ProductionFragmentation Production ProcessesLarge integrated factoryFragmentationPBSLSLPBSLPBPBSLSLPBSource : Kimura, 2005PB Production BlocksSL Service LinksIn the literature, the international production networks are mostly located where there are gaps in thestage of development. Kimura (2006) observed the transactions of machinery parts and componentsand found the active back-and-forth transactions among countries with different development stagesand income levels.The pattern of the modern international production has been more complex as many production sitesparticipate in the global production. This has created a more complex global supply chain. However,

there is an attempt to indicate the value of the global supply chain. OECD (2012) described that theconcept of Global Value Chain (GVC) was introduced in the 2000s for capturing the world’s internationalfragmentation of production. It also examined the position of countries in the international productionnetwork by developing indicators to give a more accurate picture of GVCs position in six industries.These six industries include agriculture and food products, chemicals, electrical and computingmachinery, motor vehicles, business services and financial services.An Overview of Inward FDI in ASEANASEAN’s Inward FDIThe Association of Southeast Asian Nations (ASEAN) comprises ten nations. It can be divided into twogroups; the ASEAN 6 - Brunei, Indonesia, Malaysia, Philippines, Singapore, Thailand – and the so calledCLMV countries – Cambodia, Lao PDR, Myanmar and Vietnam. Rapid economic growth of severalASEAN members since the 1970s has attracted direct investment to ASEAN members. ASEAN took thefirst step in economic integration as ASEAN Free Trade Area (AFTA) in 1993. The FDI inflows to AMSshave seen development since 1993 (Figure 3). The ASEAN Framework Agreement on Services (AFAS)was signed and implemented in 1995. However, FDI started to deteriorate in 1998, a year after the1997 Asian financial crisis which erupted in Thailand and spilled over to the AMSs in the region.Thailand, Malaysia, Philippines, and Indonesia had been adversely affected by the crisis. In 1998, ASEANattempted to establish the ASEAN Investment Area to attract the direct investment flows to the regionby signing the Framework Agreement on ASEAN Investment Area (AIA). From the literature, Chinabecame one of the fastest growing economies with an average economic growth of 9.5 percent in the1980s (Shang-Jin Wei, 73). Then, Chinese economy boosted after China’s accession to the World TradeOrganization in 2001. With the rise of China in the 1990s, the concern of FDI redirection from ASEAN toChina was one of the major driving forces behind the ASEAN leaders’ decision in 2003 to establish anAEC in 2020 (see INTAL, 2015). The decision for establishing AEC in 2003 attracted FDI inflows andresulted in an increasing FDI in 2003 and a few year after that. The development of ASEAN economicintegration appeared in 2007 as the AEC Blueprint was approved and the establishment of the AEC wasaccelerated to 2015. However, a year after, the shock of the 2008 financial crisis decreased FDI inflowsin 2008 and 2009. ASEAN Trade in Goods Agreement (ATIGA), aiming to achieve the free flow of goodsin ASEAN, was signed to replace AFTA’s Common Effective Preferential Tariff Scheme (CEPT) in 2010.This made ASEAN 6 including Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand eliminateintra-ASEAN import duties on 99.65 percent of their tariff lines, while CLMV reduced their import dutiesto 0-5 percent on 98.86 percent of their tariff lines. Another important agreement, ASEANComprehensive Investment Agreement (ACIA), was implemented in 2012 while the FDI started tofurther grow in the same year and remain at the same level until the year 2015. FDI has started to growdramatically since 2010 and reached 0.12 trillion in 2015.

Figure 2 : Foreign Direct Investment : Inward FDI Stocks, Annual, 1970-2015 (Millions USD)Source : UNCTADstatSeveral ASEAN countries adopt the export-led growth strategy. That is, the countries accelerate theexport sector in the export-led growth model. At the same time, ASEAN countries also promote theexport sector by liberalizing FDI to ease the direct investment of foreigners. Five countries in ASEANincluding Indonesia, Philippines, Malaysia, Singapore, and Thailand succeed in attracting FDI. It is notedthat in the case of Philippines the inward FDI amount was smaller than the others since foreign investorswere not welcome (Diaconu L., 2014). Government in these countries encourages export-oriented FDIby employing a policy to ease the regulation on foreign investment. The statistical information, duringthe period of 1980-2015, in table 2 shows that Singapore attracts half of ASEAN’s FDI in the recent year.This followed by Indonesia, Thailand, and Malaysia with the share of 8.3 - 14.0 percent.Table 2 : Average of FDI Inward Stock by Country, 1980-2015 (Millions rd FDI% shareInward FDI% shareInward FDI% shareInward FDI170.1%1,0050.7%3,1310.6%5,528% donesia 65,75320.0%20,12314.1%45,0209.2%206,76214.0%Lao 100.0%1,481,817100.0%TotalSource : UNCTADstat

In a recent year, ASEAN, EU, and Japan were the sources with the highest share in FDI inflows to ASEAN(Figure 3). The higher share of intra-ASEAN FDI also comes from the strategy non-ASEAN MNEs adopt toset up a local company and use it to invest in another country within the region.Figure 3 : Top Ten Sources of Foreign Direct Investment Net Inflows in ASEAN in 2015Source : ASEAN Stats DatabaseThe FDI inflows to ASEAN classified by sector in 2014-2015 show that financial and insurance,manufacturing, wholesale and retail trade sectors are the three most important recipients of FDI. FDI infinancial and insurance, and in wholesale and retail trade declined while FDI in manufacturing increasedby 62 percent in 2015 (Table 3). Analyzing FDI flows to three economic industries: primary,manufacturing, and services, there was a decline in the services industry, but an increase inmanufacturing industries (ASEAN Secretariat, 2016). The highest share industries are service,manufacturing, and primary industries, which comprise 60 percent, 24 percent, and 12 percent of thetotal FDI inflows.

Table 3 : FDI Inflows by Industry, 2014-2015 (Millions of Dollars)Industry1. PrimaryMining and quarryingAgriculture, forestry, and fishingElectricity, gas, steam and air conditioning supplyWater supply, sewerage, waste management and remediation2. Manufacturing3. ServicesFinancial and InsuranceWholesale and retail trade, repair of motor vehicles and motorcyclesReal estateOther servicesTransportation and storageInformation and communicationConstructionAccommodation and food serviceProfessional, scientific and technicalHuman health and social workEducationArts, entertainment and 9973,08139,3242014(% yoy)6-5102-64-85-5334652015(% -7Source : ASEAN Stats DatabaseThe FDI is on a net basis, and computed as follows: Net FDI Equity Net Inter-company Loans Reinvested Earnings. The netbasis concept implies that the following should be deducted from the FDI gross flows: (1) reverse investment (made by aforeign affiliate in a host country to its parent company/direct investor; (2) loans given by a foreign affiliate to its parentcompany; and (3) repayments of intra-company loans (paid by a foreign affiliate to its parent company). As such, FDI net inflowscan be negative.As ASEAN, EU, and Japan have recently been the top three sources of FDI inflows, it is necessary toanalyze their inflows classified by sector in each region. Firstly, ASEAN shared the highest FDI inflows in2015 at 18.4 percent of the total flows, with 26 percent in manufacturing sector, 20 percent inagriculture, forestry, and fishing sector, and 18 percent in financial and insurance sector. Secondly, EUwas in second place at 16.7 percent of the total flows and invested 43 percent in other services sector,23 percent in wholesale and retail trade sector, and 14 percent in manufacturing sector. Finally, Japan’sFDI comprised 14.5 percent of the total inflow and flows 49 percent, 16 percent, and 13 percent tomanufacturing sector, financial and insurance sector, and wholesale and retail trade, respectively. Inthe broad picture, FDI mainly flowed to manufacturing sector, financial and insurance sector, andwholesale and retail trade sector. ASEAN and Japan’s FDI concentrate on manufacturing (Table 4).

Table 4 : Top Five Industries of FDI Inflows in 2015World33% Financial and Insurance24% Manufacturing9% Wholesale and retail trade8% Real estate6% Mining and quarryingEU43% Other services23% Wholesale and retail trade14% Manufacturing8% Mining and quarrying3% Financial and InsuranceSource: ASEAN Stats DatabaseASEAN26% Manufacturing20% Agriculture, forestry, and fishing18% Financial and Insurance14% Real estate6% Information and communicationJapan49% Manufacturing16% Financial and Insurance13% Wholesale and retail trade10% Other services5% Mining and quarryingAmong the world’s FDI flows to ASEAN, service industry received FDI most from EU, manufacturingindustry received FDI most from Japan, and primary industry received FDI most from ASEAN (Figure 4).Comparing to the previous year, the 2015 service industry’s FDI flows from the world, ASEAN and EUdeclined, but that from Japan increased. FDI flows from the world, EU, and Japan to manufacturingindustry saw a rise in 2015 while that from ASEAN adversely saw a drop. As for the primary industry, theFDI flows from the world, ASEAN, and Japan improved in 2015, but that from EU deteriorated. In short,the world’s FDI to ASEAN shows an improvement in manufacturing and primary industries. The FDI tomanufacturing industry from the world, EU, and Japan, started to increase dramatically in 2013, the yearafter ACIA was implemented (Figure 4).Analyzing the inward FDI of each AMS, the inward FDI is grouped into three periods; the period beforethe Blueprint in 2004-2007, the period of the Blueprint implementation in 2008-2011, and the periodafter ACIA came into force in 2012-2015. The average growth of the inward FDI in the 2012-2015 periodthat ACIA was implemented shows a positive growth in CLMV, Philippines, and Thailand. Some AMSs,which are Lao PDR, Philippines, Thailand, and Vietnam, experienced a continuous growth from theprevious period. Others AMSs faced a decline in the level of inward FDI growth. The growth of inwardFDI to Cambodia and Singapore has continuously dropped since the period of the Blueprintimplemented in 2008-2011. Note that Myanmar undertook political reforms in 2011-2015, embarkingon policy reforms of foreign investment laws resulting in the huge increase of inward FDI (Allchin, 2011).

Figure 4: World’s FDI Flows to ASEAN, by Industry in 2015 (Millions of Dollars)Source : ASEAN Stats DatabaseFigure 5: FDI Flows to ASEAN, by Industry in 2012-2015 (Millions of Dollars)

Source : ASEAN Stats DatabaseRecent Trend of Intra-ASEAN FDIThe FDI in ASEAN can generally be viewed into two sources of FDI. The first one is FDI from extra-ASEANregion, such as the direct investment in a form of Multi National Enterprises (MNEs). The second typerefers to the FDI from intra-ASEAN region, which is mostly the local companies and the subsidiaries ofthe extra-MNEs located in any AMC.Intra-ASEAN was the major source of FDI in 2015, followed by EU, Japan, USA, and China. Singapore wasthe largest recipient of FDI inflows and the main source of intra-FDI. However, most of these FDI flowsto other AMSs were through equity financing. In the same year, ASEAN attracted US 121 billion of FDI,and 62.1 percent was in the services sector, followed by 24.2 percent in manufacturing sector. In termsof trade, the intra-ASEAN trade became the largest share of ASEAN’s total trade in 2015, followed byChina, Japan, EU, and USA, respectively. The allocation of FDI among sectors varies among countries.

Most FDI inflows to Singapore, Indonesia, and Philippines are more in services sector while FDI inflowsto Thailand, Malaysia, and Vietnam are more in manufacturing sector.The figures in Table 5 show that extra-ASEAN FDI has remained the important source of most of theinward FDI in ASEAN, for both ASEAN 6 and CLMV. However, the trend of intra-ASEAN FDI has increasedover time in both ASEAN 6 and CLMV, while that of extra-ASEAN FDI has declined. Intra-ASEAN regionalso increased its role in CLMV. It is based on classification into ASEAN 6 and CLMV, on average. ExtraASEAN FDI inflows accounted for around 83 percent of the total FDI inflows, while FDI inflows fromintra-ASEAN accounted for around 17 percent of the total FDI inflows. The figures show that IntraASEAN FDI has been playing a greater role on CLMV than extra-ASEAN FDI does. This also reflects thecase of indirect investment by extra-ASEAN FDI that sometimes starts by entering in one nation such asin Singapore and then starts to invest in CLMV.Table 5 : ASEAN Destinations of FDI Inflows Classified by Group (% of total FDI inflows)Intra-ASEAN InflowsASEAN 6CLMVASEANExtra-ASEAN InflowsASEAN 6CLMVASEANAverage of 2013-201515.826.017.0Average of 4201583.471.181.6Source : ASEAN Foreign Direct Investment Statistics Database as of 5 October 2016 (Data is compiled from submission ofASEAN Central Banks and National Statistical Offices through the ASEAN Working Group on International Investment Statistics(WGIIS).Note : ASEAN 6 consists of Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore and Thailand, while CLMV comprisesCambodia, Lao PDR, Myanmar and Viet Nam.Scrutinizing the FDI inflows classified by country, extra-ASEAN FDI was not the major inward FDI inMyanmar, Indonesia, and Brunei. Extra-ASEAN FDI and Intra-ASEAN FDI in 2015 flowed to Myanmararound 20 percent and 80 percent, respectively. At the same time, Indonesia and Brunei also have seena higher share of intra-ASEAN FDI at around 60 and 50 percent, respectively. FDI inflows into CLMV andASEAN in the recent year show that both extra-ASEAN FDI and intra-ASEAN FDI tended to invest more inCLMV (Figure 7), with a slowdown of the extra-ASEAN FDI into ASEAN 6.FigureFigure 61FDIiItraInflows,and Extra-ASEAN2015FDI inflows,andIntraextra-ASEANin 2015in(%of total(% of total FDI inflows)Figure 7FDI Inflows, Intra- and Extra-ASEAN in 2013 – 2015(USD million)

Source : ASEAN Foreign Direct Investment Statistics Database as of 5 October 2016 (Data is compiled from submission of ASEANCentral Banks and National Statistical Offices through the ASEAN Working Group on International Investment Statistics (WGIIS).The ASEAN investment report 2016 views that an increase in intraregional investment and the share ofFDI in ASEAN come from both foreign MNEs expanding investments in ASEAN host countries, and alsoASEAN companies expanding and making new investments in the region as well. Some foreign MNEs(e.g., from Japan and the United States) operate regional headquarters or subsidiaries and they in turninvest in other AMSs on behalf of the parent companies (ASEAN Secretariat, 2016). The investors are notindigenous companies in this case (ASEAN Secretariat and UNCTAD 2015). In addition, the form of intraASEAN FDI financing new investment is intracompany loans and equity capital from regionalheadquarters in one AMS to another AMS (ASEAN Secretariat, 2016).A Case Study of Automotive IndustryIn this section, the impact of the economic integration of ASEAN will be discussed by using a case studyof the automot

The author studies the case of the automotive industry in ASEAN since this industry shares the largest direct investment value in several countries in the region. Apart from documenting research, the in-depth interviews with the strategic players in the automotive industry were conducted to provide an understanding of the automotive industry.

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