Exploring Cross-Border Investment Opportunities in Asia

Amidst the global financial crisis and volatile markets, many investors and venture capitalists are now looking for the safest spots to invest. Analysts believe that countries in Asia are far more economically prepared in the light of the current Covid-19 pandemic as compared to the US and the UK, who are still struggling to ease out of the current global pandemic.

Thanks to the past experience in dealing with the SARS outbreak, various Asian countries like China, Singapore and Hong Kong are better positioned to respond to the current Covid-19 crisis. As a result, most businesses in Asia are disciplined in terms of cost-controlling and capital expenditure. This suggests that Asian companies will have the ability to invest back in the business market and potentially emerge with gains once the storm passes. Furthermore, unlike the US and European countries, central banks in Asia also have more room to cut borrowing costs despite low global interest rates, to boost their local economies and provide additional liquidity for business investors. As such, Asia is believed to be the safest spot for cross-border investments in the current financial storm.

Cross-Border Investment in Asia

According to experts’ prediction, the emerging market in Asia is expected to be stabilised and on the way to economic recovery around the second quarter of the year 2020. However, having a good economic prospect cannot be the sole reason why Asia is an attractive investment hotspot. Here are some other reasons why it is worth investing in Asia.

Figure 1: Why Cross-Border Investment in Asia?

Strong Relational Foundation Between Asian Countries

Many would argue that the harmonious relationship between the ASEAN member states and other Asia-Pacific countries might be over-optimistic and misleading. Yet, we cannot deny the fact that Asian countries can act as a big family even with conflicting interests in economic growth. Although each economic culture in Asia is unique, they are closely related as well. This is evident from the plan to build an ASEAN Free Trade Area between ASEAN countries in the near future, reflecting the close integration between the Asian countries’ economic landscape. Such tight bonds between the countries are beneficial for investors from both the West and Asia Pacific countries, as it creates a relatively stable economic environment for financial investment and business growth, even during times of crisis.

Smoother Cross-border Expansion within Asia

According to a PwC survey, cross-border investment activities between countries in Asia are proliferating, with China being  the largest foreign investor in Indonesia; while Hong Kong is the leading investment hub for China and 10 other ASEAN countries.

Additionally, the number of bilateral free trade agreements across Asia is also expected to boom in the coming years due to the introduction of the Belt & Road Initiative as well as APEC’s increasing emphasis on multilateral trade agreements such as the Trans-Pacific Partnership Free Trade Area. The trade agreements, coupled with strong foundation on cross-border investment activities between Asian countries, have transformed Asia into a desirable investment hotspot with easily accessed markets that are full of potential and opportunities.

Emerging E-commerce and FinTech Markets

In today’s technologically advanced society, online shopping has become a big part of our daily lives where  purchasing both physical and digital products and services online are preferred, especially during the current pandemic.

According to reports from IPC and Accenture on Asian e-commerce, the Asia Pacific region is predicted to account for two-third of the global e-commerce market, with Southeast Asian countries like Singapore and Malaysia potentially rising as major suppliers. The report also showed that over 50% of the e-commerce activities within Asia are cross-border, reflecting the frequency and demand of Asian consumers shopping overseas.

Experts believe that the drive behind Asia’s e-commerce growth is closely related to the rise of the m-commerce and mobile banking, specifically with the exponential growth of FinTech, in the region. With the growing number of online payment platforms like Google Pay and AliPay, alternative payment solutions are available for the large unbanked population in Asia. Such developments have thus encouraged online consumerism, like shopping, leading to the blooming of both the e-commerce and FinTech markets in Asia.

As such, the emerging e-commerce and FinTech markets within Asia, especially in Southeast Asia, made Asia more sought after as a cross-border investment attraction due to its diversified markets and high growth potential.

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Potential Challenges of Cross-Border Investment in Asia

Venturing abroad is intimidating as there are many unforeseen risks and legal challenges lurking around investors. From the lack of knowledge in the legal and financial field to the insensitivity towards the social and political landscape of the targeted market, these factors have hit many investors during their cross-border ventures.

However, despite cultural barriers, international administrative structures are becoming the norm worldwide. Venturing overseas continues to be an attraction to businesses due to the expansion of market reach and growth potential for businesses. The ever-growing Asian markets also mean there are challenges that businesses should take into consideration when venturing overseas.

Figure 2: Challenges Faced During Cross-Border Investment in Asia

Regulatory Practices

As cross-border investments become more streamlined and widely-accepted in the financial industry, many Asian countries have also started to introduce various free trade agreements, investment grants and financial regulations that are beneficial towards cross-border investment activities.

However, there are still various obstacles that foreign investors have to overcome, and one of them is the changing government policies and regulations. Given the fast-changing geopolitical climate in Asia, regulatory practices in each Asia country are unique and prone to changes. This will slow or even hinder cross-border investment activities, creating more risk for international investors.  To overcome this challenge, one must equip a team of experienced investors and lawyers to manage various investment regulations of its targeted market in Asia.

Centralised Global Fund

Another challenge identified is the shortcoming of operating a business with a centralised global fund. Such an operating structure will trigger distributed teams to fight for resources amongst each other. This will potentially affect the working performance of teams in smaller markets due to insufficient funds and result in low collaboration between offices. One way to solve this challenge is to connect startups with investors through partnerships to align incentives.   

Socio-Cultural and Language Barriers

Lastly, the most common challenge that all investors face is the socio-cultural and language barriers. Networking and negotiation strategies vary across Asia due to cultural and language differences. These have inconvenienced the foreign investors who are not accustomed to these differences and result in friction with the local authorities.  Moreover, working attitudes and environment also pose a great hindrance for international investors, which can be counterproductive for startups.  Thus, mastering the language and understanding the socio-cultural environment of the targeted markets sufficiently are essential to ensure a smooth process during cross-border investments.

Explore New Investment Opportunities in Asia Now

The current dire situation in the global marketplace calls for adjustments in how business investors approach cross-border opportunities, especially in Asia. As investing overseas has become more complex with underlying societal, economic and political risks and challenges, investors should be prepared to adjust their investment model while broadening their perspective with cross-border investments.

Tapping on to the expertise of cross-border specialists like Desfran is an effective solution to have a more comprehensive overview of the relevant market dynamics and strategic options for a successful cross-border investment in Asia. Spearheaded by one of the world’s leading management teams, we stay on top of trends and movements in various markets to help our partners know and pursue their options for growth. Contact Desfran today to explore your business opportunities in Asia.

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References

Cross-Border Opportunities in Asia Business, Davidcliveprice.com

Asia-Pacific: cross-border eCommerce opportunities and multi-currency solutions, Thepaypers.com

Tips for a Successful Cross-border VC Model, Entrepreneur.com

Asian economies may ride out the coronavirus crisis better than the West, Analysts say, Cnbc.com

Winning at Cross-Border eCommerce [PDF], Luxasia.com

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