REGIONAL ECONOMIC INTEGRATION
ARIZONA STATE UNIVERSITY
OMT 440 - INTERNATIONAL BUSINESS
WEEK 4
Learning Outcomes:
After studying this chapter, you should be able to:
1. Explain the meaning of regional economic integration
2. Describe forms of regional economic integration including Custom Unions, Common
Market, and Economic Union.
3. Explaining factors drivers integration regional economic integration
4. Explain the role of regional economic integration
5. Describe organizations of regional economic integration
A.
Introduction:
Regional economic integration refers to the process of countries within a given
geographic area coming together to reduce trade barriers, enhance economic cooperation, and
promote economic growth. The forms of regional economic integration are custom unions,
common markets, and economic unions (Asian Development Bank, 2022; World Bank, 2021;
Park & Claveria, 2018; Britannica Money, 2013; Roberts & Deichmann, 2009; Baier et al.,
2007; Andriamananjara & Schiff, 2001; Bléjer, 1988).
B.
Reasons for Regional Economic Integration
According to Al (2021), Baier et al (2007), Suyanto & Suryawan (2023), (Roberts &
Deichmann (2009), Bown et al (2017), and (Zein et al (2020) the various reasons for the
formation of regional economic integration can be described as follows:
1. Trade Enhancement. Regional economic integration aims to stimulate trade growth between
member countries by removing trade barriers such as tariffs, quotas, and regulations that
restrict trade. For example, APEC (Asia-Pacific Economic Cooperation) is a regional
cooperation forum in the Asia Pacific that aims to increase economic growth, trade, and
investment among member countries. NAFTA (North American Free Trade Agreement) is an
example of regional economic integration in North America. It aims to promote trade
between Canada, the United States, and Mexico by reducing tariffs and trade barriers. The
European Economic Union includes member countries that agreed to form a single market
and a common currency, the Euro, which allows for the free movement of goods, services,
capital, and labor, and stimulates trade growth in the region.
2. Shared Economic Growth. A key objective of regional economic integration is to promote
shared economic growth among member countries through increased investment, improved
productivity, and efficient resource utilization. For example, ASEAN (Association of
Southeast Asian Nations) which is a political and economic union of 10 countries in
Southeast Asia formed the ASEAN Free Trade Area (AFTA) which is a free trade
cooperation to remove trade barriers, encourage increased investment, and improve
productivity among its member countries. The European Union (EU) is an example of
regional economic integration that created a single market by increased investment,
productivity, and resource efficiency among member countries. The Regional Comprehensive
Economic Partnership (RCEP) is an agreement involving a number of countries in Asia and
the Pacific including Southeast Asian countries, China, Japan, South Korea, Australia, and
New Zealand, aimed at promoting shared economic growth through increased investment and
resource efficiency.
3. Enhancing Global Competitiveness. By working together in regional economic integration,
member countries can increase their competitiveness in the global marketplace by bringing
larger and more efficient markets to small and medium-sized enterprises and businesses. An
example is the ASEAN Economic Community where ASEAN countries work together to
create a larger and more efficient marketplace that provides greater opportunities for small
and medium-sized enterprises (SMEs) to access the rapidly growing regional market. The
Regional Comprehensive Economic Partnership (RCEP) agreement involves a number of
countries in Asia and the Pacific, bringing the benefits of a larger and more efficient market
by opening up opportunities for companies and SMEs to increase their exports and business
growth. The ASEAN Economic Community (AEC) helps reduce trade barriers among
ASEAN countries, creating a more efficient business environment for companies and SMEs
in the Southeast Asian region
4. Economic and Political Stability. The establishment of regional economic integration also
aims to create economic and political stability among member countries by reducing the
potential for economic and political conflict and strengthening cooperation between
countries. For example, ASEAN aims to create economic and political stability in the
Southeast Asian region by Efforts to reduce the potential for economic and political conflict
through economic cooperation and joint political policies. NAFTA (North American Free
Trade Agreement) aims to reduce potential economic conflicts between the United States,
Canada, and Mexico with efforts to form a free trade area to increase economic and political
stability. AEC (ASEAN Economic Community) aims to create economic stability in ASEAN
through a single market with efforts to strengthen cooperation between member countries to
achieve economic and political stability in the Southeast Asian region.
C.
Forms of Regional Economic Integration:
The forms of regional economic integration can be described as follows:
1. Custom Unions. In a customs union, member countries agree to eliminate trade barriers
between them and also eliminate tariffs between them while keeping a common external
tariff for imports from non-member countries. This encourages greater trade among member
countries and presents a united front to external trading partners (Asian Development Bank,
2022; World Bank, 2021; Park & Claveria, 2018; Roberts & Deichmann, 2009; Baier et al.,
2007; Andriamananjara & Schiff, 2001; Bléjer, 1988).
According to the World Bank (2021), Baier et al (2007), Schiff & Winters (2003),
Venables (2003), Brada & Méndez (1993), and Corden (1972), the Customs Union has
several key characteristics that distinguish it from other forms of economic regional
integration, namely:
a.
High Level of Trade Integration. One of the defining features of a customs union is the
elimination of tariffs and trade barriers among member states. This facilitates a high degree
of trade integration within the union, leading to increased economic cooperation and
exchange of goods and services. One important step in the customs union in ASEAN is the
elimination of trade tariffs between member states which means that goods traded between
ASEAN countries are not subject to import tariffs, facilitating smoother trade flows and
improving market access for producers. In addition to tariff elimination, efforts are also made
to remove non-tariff trade barriers among ASEAN countries. This may include harmonization
of product standards or mutual recognition of standards to reduce barriers that may arise due
to regulatory differences.
b.
Common External Tariff. In addition to the removal of internal trade barriers, a customs
union imposes a common external tariff on imports from non-member countries meaning all
member countries apply the same tariff to goods entering the union from external sources,
presenting a unified trade policy across the globe. An example of customs union in ASEAN
involves the implementation of CET (Customs and Excise Enforcement Team), where
member states set the same external tariff for imported goods from non-member states aiming
to create a uniform and unified trade policy beyond the ASEAN region. ASEAN countries
work together to coordinate their customs policies, including the setting of external tariffs.
This ensures that foreign trade policies are maintained jointly, supporting economic
integration among members.
c.
Trade Policy Coordination. Member states of a customs union often coordinate their trade
policies to negotiate over the following trade agreements with external partners as a unified
bloc that allows them to leverage their collective market size and bargaining power in
international trade negotiations. For example, ASEAN has signed trade agreements with
various external partners, such as with China (China-ASEAN Free Trade Area or CAFTA)
and with Japan (ASEAN-Japan Comprehensive Economic Partnership or AJCEP), as a
regional trade union. This approach strengthens ASEAN countries' negotiating position and
provides greater economic benefits.
d.
Unified Regulatory Framework. To facilitate smooth trade among member countries,
customs unions usually establish a unified regulatory framework for product standards,
certification, and customs procedures. This uniformity simplifies the movement of goods
within the union and reduces trade barriers arising from different regulations. For example
ASEAN has sought to unify product standards in the region which includes establishing
uniform standards for some products traded among ASEAN countries. ASEAN-Wide Self
Certification (AWSC) is an example where ASEAN countries adopted a self-certification
system to ease the trade process between them. With AWSC, manufacturers or exporters in
ASEAN member countries can self-certify the origin of goods. Harmonization of customs
procedures such as simplification of import and export processes as well as increased
efficiency at ports and border crossings are integral to ASEAN's efforts in forming a customs
union.
e.
Revenue Sharing. Customs unions can also involve arrangements to share revenues
generated from a common external tariff among member states which can help address
disparities in economic development and contribute to the overall economic well-being of the
union. For example, ASEAN member states may agree to share revenues generated from the
common external tariff through a common institution, ASEAN Customs. This can be done
based on the principle of equality or by considering each country's economic contribution.
Through AFTA, ASEAN has a common external tariff for certain goods. The revenue
generated from these tariffs can then be managed and shared among member countries
according to the agreement.
2. Common Unions. Another form of regional economic integration is the establishment of a
common market. In a common market, in addition to the removal of trade barriers, there is
also free movement of goods, services, capital, and labor among member countries which
enables efficient resource allocation and promotes economic growth within the integrated
region (Asian Development Bank, 2022; World Bank, 2021; Park & Claveria, 2018; Roberts
& Deichmann, 2009; Baier et al., 2007); Andriamananjara & Schiff, 2001; Bléjer, 1988).
Understanding the characteristics of the common market provides valuable insights into
the dynamics of economic cooperation and integration, as well as potential opportunities and
challenges for member countries and the regional economy more broadly (Suyanto &
Suryawan, 2023; World Bank, 2021; Park & Claveria, 2018; Alhorr et al., 2012; Baier et al.,
2007; Bléjer, 1988; Mercado & Park, 2011). The common market has distinctive
characteristics that set it apart from other integration arrangements:
a.
Free Movement of Goods, Services, Capital, and Labor. The main feature of a common
market is the free movement of goods, services, capital, and labor among member
countries. The common market creates a unified market where factors of production can
flow freely, leading to efficient resource allocation and increased economic activity. For
example, the ASEAN Economic Community (AEC) aims to create a single market and
international production base by facilitating the free flow of goods, services, investment,
skilled labor, and capital across the ASEAN region.
b.
Harmonized Regulations. In addition to the free movement of production factors,
common markets often involve harmonized regulations and standards among member
countries that reduce trade barriers and promote consistency in product specifications and
certifications, facilitating smoother cross-border transactions. An example is the ASEAN-
Wide Self Certification (AWSC) where ASEAN countries adopt a self-certification system
to ease the trade process between them.
c.
Economic Policy Coordination. Member states in the common market can also
coordinate their economic policies, particularly in the areas of competition policy,
taxation, and investment regulation. This alignment forms a more cohesive economic
environment and enables a level playing field for businesses operating across the
integrated region. For example, ASEAN has sought to create a healthy competitive
environment among its member states with efforts to harmonize competition policies to
avoid market distortions at the regional level, enhanced cooperation to prevent tax evasion
practices and improve tax transparency across the region ASEAN, and harmonizing
investment regulations to create a conducive environment for investors across the region.
d.
Increased Competition. The presence of a common market promotes competition by
exposing domestic industries to a larger market and a wide range of competitors that can
stimulate innovation, productivity gains, and consumer benefits through greater choice and
competitive pricing. For example, the presence of the ASEAN common market opens
access to a larger market of more than 600 million consumers. Domestic industries in
ASEAN countries must compete at the regional level, facing greater demand and a variety
of consumer needs.
e.
Social and Cultural Integration. Common markets often promote social and cultural
integration among member countries through increased interaction and exchange,
contributing to a sense of unity and shared identity within the integrated region. For
example, the ASEAN common market encourages the growth of the tourism sector by
promoting cultural destinations in each country. The M-ATM (ASEAN Tourism
Ministers) meeting provides a platform for Indonesia to enhance collaboration and
cooperation in the recovery of the tourism sector in ASEAN.
3. Economic Unions. In addition, regional economic integration can also take the form of
economic unions, where member states coordinate and harmonize their economic policies,
and in some cases, adopt a common currency. This deepens economic integration and
encourages closer economic ties among member countries. (Asian Development Bank, 2022;
World Bank, 2021; Park & Claveria, 2018; Roberts & Deichmann, 2009; Baier et al.,
2007;Andriamananjara & Schiff, 2001; Bléjer, 1988)
D.
Factors Driving Regional Economic Integration:
Some common factors that drive regional economic integration include:
1. Geographical Proximity. Geographic proximity can promote economic integration by
reducing transportation costs, facilitating trade, and encouraging closer economic ties
between neighboring countries.
2. Trade Opportunities. The potential for increased trade and economic benefits may
encourage countries to engage in regional economic integration to capitalize on greater
market access and trade opportunities within the integrated region.
3. Policy Coordination. Harmonizing economic policies, regulations, and standards among
member countries can create a more cohesive and connected economic environment,
promoting regional economic integration.
4. Political will. Strong political commitment and will among member states to engage in
economic cooperation and integration can drive the formation and success of regional
economic integration initiatives.
5. Economic Interdependence. Economic interdependence, including shared supply
chains and production networks can create incentives for countries to pursue
E.
The Role of Regional Economic Integration Organizations
According to Shen et al (2022), Tou (2020), Bown et al (2017), Schiff & Winters
(2003), Ethier (1998), Katzenstein (1996), international organizations that focus on regional
economic integration play a crucial role in promoting economic cooperation and integration
between countries. These organizations serve as platforms for member countries to engage in
dialogue, negotiate agreements, and implement initiatives that foster closer economic ties and
collaboration. By facilitating discussions and providing a framework for cooperation, these
organizations contribute to the following aspects of regional economic integration:
1. Policy Coordination. Regional economic integration organizations allow member countries
to coordinate their economic policies, harmonize regulations, and align standards to create a
more cohesive and connected economic environment. This coordination can help reduce trade
barriers, encourage fair competition, and promote fair competition within the integrated
region.
2. Trade Facilitation. Through the implementation of trade facilitation measures, such as
reducing customs bureaucracy, standardizing documentation, and simplifying border
procedures, the organization promotes smoother cross-border trade among countries member
countries. This streamlining of the trade process contributes to increased efficiency and cost-
effectiveness in conducting international business activities.
3. Investment Promotion. Regional economic integration organizations often seek to create a
conducive environment for investment by facilitating investment promotion initiatives,
providing investment protection mechanisms, and harmonizing investment regulations. These
efforts aim to attract greater foreign and domestic investment in the integrated region, which
can lead to economic growth and development.
4. Capacity Building. The organization supports capacity building efforts among member
countries, including providing technical assistance, knowledge sharing, and skills
development programs. This capacity building helps improve economic competitiveness
within the integrated region and contributes to overall economic development and resilience.
5. Negotiating Power. By negotiating trade agreements and representing a collective market,
regional economic integration organizations increase the bargaining power of member
countries in international trade negotiations. This collective negotiating stance can lead to
more favorable trade terms, increased market access, and improved trade relations with
external partners.
6. Conflict Resolution. The organization can also serve as a platform to address disputes and
conflicts related to trade, investment, or economic issues among member states. By providing
dialog and mediation mechanisms, they contribute to maintaining stability and cooperation
within the integrated region.
F.
Regional Economic Integration Organizations:
According to World Bank (2021), Asian Development Bank (2022), Park & Claveria
(2018), Baier et al (2007), Schiff & Winters (2003), Andriamananjara & Schiff (2001),
regional economic integration organizations include:
1. European Union (EU). The EU is a prominent example of regional economic integration,
featuring a common market and monetary union among its member states.
2. North American Free Trade Agreement (NAFTA). The North American Free Trade
Agreement aims to create a free trade zone between Canada, Mexico, and the United
States.
3. Association of Southeast Asian Nations (ASEAN). The Association of Southeast Asian
Nations promotes economic cooperation and integration among its member countries in
the Southeast Asian region.
4. Mercosur. The organization focuses on economic integration and cooperation among its
member countries in South America.
5. African Union (AU). The African Union aims to enhance economic integration and
cooperation among African countries to advance regional development.
6. Commonwealth of Independent States (CIS). The Commonwealth of Independent
States works for economic integration and collaboration among its member states, mainly
from the former Soviet Union.
7. Pacific Alliance (PA). Made up of countries such as Chile, Colombia, Mexico, and Peru,
the Pacific Alliance aims to promote economic integration and cooperation in the Pacific
region.
8. Economic Community of West African States (ECOWAS). The Economic Community
of West African States promotes economic integration and cooperation among its member
states in West Africa.
9. Gulf Cooperation Council (GCC). The Gulf Cooperation Council aims to enhance
economic cooperation and integration among its member states in the Gulf region.
10. South Asian Association for Regional Cooperation (SAARC). The South Asian
Association for Regional Cooperation facilitates economic cooperation and integration
among its member countries in South Asia.
G.
Summary
Regional economic integration refers to the process of countries within a given
geographical area coming together to reduce trade barriers, increase economic cooperation,
and promote growth economic growth. The forms of regional economic integration are the
formation of custom unions, the formation of common markets, and the formation of
economic unions.
Some common factors that drive regional economic integration include: geographical
proximity, trade opportunities, policy coordination, political will, and economic
interdependence.
The role of regional economic integration organizations is policy coordination, trade
facilitation, investment promotion, capacity building, negotiating power, and conflict
resolution.
Regional economic integration organizations include: European Union, North
American Free Trade Agreement, Association of Southeast Asian Nations, Mercosur, African
Union, Commonwealth of Independent States. Pacific Alliance, Economic Community of
West African States, Gulf Cooperation Council, and South Asian Association for Regional
Cooperation.
INTERNATIONAL INVESTMENT
International investment is the distribution of capital or funds to countries outside one's
own region with the aim of achieving long-term financial gains. International investment
involves the process of buying and selling assets such as stocks, bonds, property, or
businesses in other countries (Derbali & Jamel, 2020; Fernández et al., 2020; Muharam et al.,
2020; Yavas & Malladi, 2020; Bartram & Dufey, 2001; Ebenezer, 2015).
International investment is becoming increasingly important in today's global economy
by facilitating cross-border capital flows and contributing to economic growth. International
investment can help diversify investment portfolios, reduce risk, and create broader growth
opportunities. International investors can seek out promising sectors in different countries by
capitalizing on differences in market conditions and investment climate. In addition,
international investment can also Strengthening economic ties between countries creates
economic interdependence and can contribute to overall global economic growth. However,
as with every form of investment, international investment also involves risks, including
currency fluctuations, changes in political conditions and regulatory changes in different
countries. It is important for international investors to conduct careful market analysis,
understand potential risk factors and develop appropriate investment strategies. As such,
international investment can provide significant long-term benefits to investors and have a
positive impact on global economic growth (World Investment Report, 2020; Büthe &
Milner, 2008; Makki & Somwaru, 2004; Agénor, 2003; Zhang, 2001; Balasubramanyam,
2001).
A.
The Importance of International Investment:
International investment plays an important role in international business (Iamsiraroj,
2016; Büthe & Milner, 2008; Makki & Somwaru, 2004; Zhang, 2001; Berthélemy &
Démurger, 2000; Borensztein et al., 1998), namely:
1. Technology Transfer. International investment plays an important role in international
business as it actively promotes technology transfer between countries. This process occurs
when foreign companies invest in other countries, bringing with them technology, knowledge
and best practices to their destination markets (Çalışkan, 2015). For example, when large
technology companies such as Google or Microsoft invest in a developing country, they bring
new innovations, work methodologies, and the latest technology to that market. This
technology transfer can improve domestic technological capabilities.
2. Infrastructure Development.
International investment plays a crucial role in international business, especially
through infrastructure development. When foreign companies allocate funds to infrastructure
projects in destination countries, it has a positive impact on connectivity and business
efficiency globally. International investment in infrastructure development facilitates the
expansion and improved accessibility of transportation networks, ports, and logistics facilities
that not only accelerate the flow of goods and services across national borders, but also open
up new opportunities for economic growth (BorenszteinGregorio, & Lee, 1998). For
example, when international logistics companies such as FedEx, DHL, and UPS invest
resources to upgrade cargo terminals in a country's ports, it not only provides direct benefits
to these companies but also opens up opportunities for local producers to export their
products more efficiently to international markets.
3. Job Opportunity Creation. International investment has a significant impact on creating
employment opportunities in international business. International investment also encourages
innovation by combining resources, expertise, and ideas from different countries (Alfaro et
al., 2010; Makki & Somwaru, 2004; Lim, 2001; Reynolds et al., 2004; Hermes & Lensink,
2003; Mello, 1997; Lim, 2005). International manufacturing company Toyota Motor
Corporation from Japan investing in a country may open a new factory that creates jobs for
local residents such as machine operators, production workers, and administrative staff.
4. Access to New Markets. International investments allow companies to expand their presence
into new markets abroad. Through such investments, the company can enter new territories
and reach new customers previously unreachable. Developing new foreign markets through
international investments gives companies the opportunity to access untapped consumer
shares, diversify their revenue sources, and reduce dependence on a single market. By
investing strategically in foreign markets, companies can position themselves for long-term
growth and sustainability. This expansion also allows companies to benefit from different
market conditions, consumer behavior, and regulatory environments, thereby broadening
their market horizons and adaptability. In addition, international investments encourage the
transfer of skills, knowledge and best practices across borders, contributing to improved
operational efficiency and overall business performance. Companies engaged in international
investments often gain exposure to the diverse business models, management approaches,
and technological advancements dominant in target markets, enabling them to incorporate
these insights into their own operations. In addition, international investments serve as a
means to foster strategic partnerships and collaborations with local businesses and industry
players in the target markets. These partnerships can result in mutually beneficial agreements
such as joint ventures, technology transfer agreements, and research and development
initiatives, further enhancing the competitiveness and innovation capabilities of the firms
involved (Nguyen et al., 2020; Derbali, & Jamel, 2020; Chen, 2010; Robertson, 2006; Keller
& Chinta, 1990). For example, Japanese retailer Uniqlo investing in other countries can open
new stores and give local consumers access to products and services that were previously
unavailable in their region.
5. Portfolio Diversification. International investment plays an important role in international
business through portfolio diversification strategies. International investment not only allows
a company to diversify its investment portfolio, but also provides access to new markets and
growth opportunities. One of the key advantages of international investment is the ability to
reduce risk by spreading investments across different markets and industries. This
diversification can help companies reduce the impact of market fluctuations or economic
downturns in certain regions. In addition, international investment allows companies to
utilize local resources, including talent, raw materials, and infrastructure, to increase their
competitive advantage. By establishing a presence in foreign markets, companies can benefit
from lower production costs, access to skilled labor, and proximity to key suppliers or
distribution channels. In addition to tangible benefits, international investments also
contribute to a company's intangible assets by building brand recognition, cultural awareness,
and global reputation. Engaging in international investments allows companies to
demonstrate their commitment to global growth and development, which can enhance
reputation and relationships with stakeholders, including customers, suppliers, and investors.
It is important for companies to conduct careful market research and due diligence when
considering international investment opportunities. Understanding the local business
environment, regulatory requirements and cultural nuances is key to success in foreign
markets. Companies should also develop robust risk management strategies to address
geopolitical, currency and operational risks associated with international investments
(Birmingham, 2003; Lee, 1995). For example, Warren Buffett, owner of Berkshire
Hathaway, is one of the world's most famous international investors. Known as the "Oracle of
Omaha," Buffett has built an outstanding reputation through his smart investment strategies
and long-term philosophy. He is best known for his success in managing his investment
portfolio with a focus on companies that have high intrinsic value.
6. Utilizing Economies of Scale. Capitalizing on economies of scale is one of the key benefits
of international investment in international business. By leveraging economies of scale,
companies can reduce production costs and maximize operational efficiency. This is achieved
by achieving a larger scale of production, which results in cost savings in terms of production
cost per unit. International investment allows firms to access larger markets and production
facilities, allowing them to maximize economies of scale. In addition, international
investment provides businesses with the opportunity to access global supply chains and
supplier networks, allowing them to obtain raw materials, components or finished goods at
competitive prices. By optimizing their supply chains through international investment,
companies can streamline production processes, minimize inventory costs, and improve
overall supply chain resilience. Furthermore, international investment encourages knowledge
transfer and technological advancement, which are vital components to capitalizing on
economies of scale. Access to advanced technologies, production methodologies and industry
best practices in foreign markets can enable companies to improve their production
capabilities and efficiency. Moreover, international investments facilitate the establishment of
strategic partnerships and alliances with local suppliers, manufacturers, and distributors,
which further amplify the benefits of economies of scale. Collaborative ventures and co-
production agreements can allow companies to combine resources, share expertise, and
jointly optimize economies of scale for mutual benefit (Marciano, 2021; Rahman, 1997). For
example, Nestlé, the world's largest food and beverage company, has production plants in
many countries such as Switzerland, the United States, China, Brazilia, Indonesia, and India
to ensure the supply of their products can meet global demand.
7. Dissemination of Best Practices. International investment plays an important role in
international business by facilitating the dissemination of best practices between countries
and companies which helps companies improve their production efficiency by utilizing the
latest knowledge and technology available in the international market. By adopting best
practices and more advanced technologies, firms can increase their productivity and thus
utilize economies of scale more effectively. International investment also opens up
opportunities for companies to gain access to larger markets, new potential buyers and
consumers, and qualified human resources. In addition to optimizing production efficiency,
international investment can also help firms take advantage of economies of scale in
marketing and distribution. By entering new markets through international investment,
companies can spread their marketing and distribution costs over a larger sales volume,
resulting in lower per-unit costs and increased profitability. This allows firms to achieve a
wider market share and achieve economies of scale in their marketing efforts. In addition,
international investments provide companies with the opportunity to learn from diverse
business cultures and operational methods, which can result in better management practices
and increased organizational efficiency. Exchange of ideas and This expertise can result in
process and system optimization, ultimately contributing to the effective use of economies of
scale. To fully utilize the potential of scale economies through international investments,
companies should give priority to continuous learning and adaptation to the evolving global
business landscape. Adopting innovations, staying up-to-date with industry trends, and
actively engaging in knowledge exchange with international partners are essential to
effectively harness economies of scale in international business (Nguyen et al., 2020;
Tambunan, 2008; McKinsey, 2003). For example, global technology companies such as
Google or Microsoft set up research and development centers in various countries. Best
practices in project management and technological innovation can spread across global
organizations.
8. Innovation in the Domestic Economy. International investment can act as a driver of
innovation in the domestic economy. When companies engage in international investments,
they gain exposure to different viewpoints, technological advancements, and best practices
from different regions. This exposure fosters a culture of innovation within the organization,
encouraging the adoption of new ideas and new approaches to problem solving. Moreover,
international investments often involve collaborations and partnerships with foreign entities,
resulting in knowledge exchange and cross-fertilization of innovative concepts. This can
trigger the development of new products, processes and technologies that have the potential
to transform industries and drive economic growth. In addition, international investment
brings about the transfer of technology and expertise from the home country to the host
country. This transfer not only enhances the capabilities of the local workforce but also
contributes to the development of local industries and the overall economy of the host
country. In addition, international investment can stimulate economic growth in the host
country by creating new employment opportunities, transferring knowledge and skills to the
local workforce, and fostering the growth of related sectors domestically. This infusion of
capital, expertise, and technology can support the expansion and modernization of industries,
ultimately contributing to the overall development of the host economy (Hansen & Rand,
2006; Makki & Somwaru, 2004; Choe, 2003; Berthélemy & Démurger, 2000; Borensztein et
al., 1998). For example, automotive companies such as Toyota invest their capital in various
countries by establishing factories outside Japan. Innovations in production and management
applied overseas can then be adopted to improve efficiency in Japan and other countries.
9. Promotion of Cross-Border Exchange of Goods and Services. International investment
plays a crucial role in promoting cross-border trade, which in turn can foster innovation in the
domestic economy. By investing in foreign markets, companies not only expand their reach
but also gain access to new ideas, technologies, and consumer preferences. Exposure to
diverse market dynamics and consumer behavior can stimulate innovative thinking within the
organization and inspire the development of new products or services tailored to meet
different market needs. In addition, engaging in international investments often involves
forming partnerships and collaborations with local businesses in the host country. These
partnerships facilitate the exchange of knowledge and expertise, resulting in the cross-
fertilization of innovative concepts and practices. As a result, companies can utilize this
collaborative environment to develop breakthrough solutions and improve their
competitiveness in domestic and international markets. Furthermore, international
investments can lead to the transfer of technology and know-how across borders, creating
opportunities for local businesses to adopt new and advanced production and delivery
methods. This infusion of technological advancements can raise the overall standards of
innovation and efficiency in the domestic economy, paving the way for the development of
leading-edge products and services. In addition, international investment paves the way for
the exchange of goods and services between countries, fostering a competitive environment
that encourages businesses to continuously improve their offerings to meet the demands of
global consumers. This cross-border trade not only supports economic growth but also serves
as a driver for industry evolution, as businesses strive to differentiate themselves and stay
ahead in international markets. Furthermore, exposure to different regulatory frameworks and
business practices through international investments can inspire companies to rethink their
operational strategies and adapt to global standards, driving innovation in management
processes and approaches. This flexibility and openness to international best practices
contributes to the overall dynamism of the domestic economy, fostering a culture of
continuous improvement and innovation (Yamakawa et al., 2008; Galán & González-Benito,
2001). Examples of international investment take the form of establishing factories and
production facilities abroad to produce goods that can then be traded internationally. For
example, Indonesia has become a production base for smart cellular phones that are exported
to various countries in the world. This is shown by the achievement of PT Samsung
Electronics Indonesia (PT SEIN)'s smart phone production, which managed to export 8
million units of smart phones to various countries from 2018 to the 3rd quarter of 2022.
10. Economic Integration Between Countries. International investment can increase
cooperation between companies from different countries and the host country. This
collaboration is not only foster the integration of economic processes but also promote the
sharing of best practices, technological advancements, and operational efficiencies. In
addition, international investments can result in the formation of joint ventures and strategic
alliances between multinational corporations and local businesses in the host country. These
partnerships facilitate the transfer of managerial expertise, industry-specific knowledge, and
operational techniques, contributing to the overall improvement of the host country's
economic landscape. Furthermore, international investment can play an important role in
aligning economic interests between different countries and promoting mutual growth.
Through the establishment of international trade agreements, investment treaties, and
economic partnerships, countries can create an enabling environment for economic
integration and sustainable development. This integration paves the way for efficient resource
allocation, harmonization of trade policies, and reduction of trade barriers, ultimately
promoting economic interdependence and shared prosperity. In addition, international
investment can encourage countries to improve their infrastructure, regulatory frameworks,
and business environments to attract foreign capital and expertise. An enhanced focus on
creating an investment-friendly climate can lead to the modernization of institutions,
improvement of governance standards, and promotion of transparency and accountability,
forming the basis for a thriving global economic ecosystem. Ultimately, international
investment plays a key role in spurring economic integration between countries, promoting
collaboration and shared growth, and creating an enabling environment for sustainable
development and prosperity. By harnessing the benefits of economic integration, countries
can position themselves to be more competitive, resilient, and achieve shared success in the
global economy. International investment is key not only to connecting economies but also to
fostering synergistic relationships that promote shared progress and prosperity globally
(Derbali & Jamel, 2020; Nguyen et al., 2020; Vasilyeva & Mariev, 2019; Biglaiser, 2010;
Wang & Li, 2018; Lim, 2005; Servén, 2005; Makki & Somwaru, 2004). For example, the
ASEAN common market refers to the economic integration among member countries of the
Association of Southeast Asian Nations (ASEAN) that involves various aspects of the
economy, including the exchange of goods, services, and investment among ASEAN member
countries.
11. Increased Competitiveness. Through international investment, companies can expand their
markets abroad, access cheaper or higher quality resources, and gain access to technology
and expertise that may not be available in the home country. In addition, international
investment allows firms to capitalize on comparative advantages possessed by other
countries, such as natural resources, labor, or specialized expertise. By capitalizing on the
competitiveness enabled by international investment, companies can expand the range of
their products and services, creating added value for consumers in the global market. It also
encourages the creation of new jobs, technology transfer, and overall improvement in product
quality and business processes. In addition, international investment also plays a role in
enhancing firms' innovation capacity. By engaging in the global market, companies are faced
with the demand to continuously innovate to meet the needs of diverse consumers in different
countries. This encourages the development of products and services that are more efficient,
environmentally friendly and compliant with international standards, thereby supporting
sustainable growth in a sustainable manner. (Nguyen et al., 2020; Wijeweera et al., 2010;
Roy & Berg, 2006; Khawar, 2005; Makki & Somwaru, 2004; Zhang, 2001; Borensztein et
al., 1998; Williamson, 1978). For example, Samsung has succeeded in the global technology
industry by combining strong capital and high-tech expertise from abroad through technology
transfer agreements and business partnerships such as that of PT Samsung Denpasar in
Indonesia.
12. Increased Specialization. Leveraging international investment allows companies to deepen
their knowledge and expertise in a particular industry, establishing a competitive advantage
that is difficult for competitors to match. By strategically investing in foreign markets,
companies can access specialized resources, advanced technologies and specific skills that
may not be easily found domestically. In addition, international investments provide
opportunities for companies to engage in cross-border collaborations and partnerships,
allowing them to tap into the specialized expertise of foreign entities. Through joint ventures,
strategic alliances and knowledge exchange programs, companies can acquire industry-
specific knowledge and best practices, ultimately enhancing their capabilities and
differentiation in the global marketplace. Furthermore, international investments facilitate the
establishment of research and development centers, innovation hubs, and specialized
production facilities abroad. For example, Indonesia is becoming a global production hub for
the automotive industry with many world-renowned car companies choosing Indonesia as a
production base such as Toyota having production plants in Indonesia for models such as
Avanza, Fortuner, and Daihatsu Gran Max. PT Yamaha Indonesia Motor Manufacturing
makes Indonesia a production base for motorcycles, especially the MT-07 model which is
marketed globally.
C. Factors Driving International Investment:
Understanding the drivers of international investment and their effects is critical for
policymakers and businesses looking to invest internationally. International investment is
influenced by a variety of factors that drive its growth and impact. These factors play an
important role in shaping the pattern and magnitude of international investment flows. The
key factors that attract foreign investors are (Derbali & Jamel, 2020; Amal, 2016; Daude &
Stein, 2007; Zitta & Powers, 2003)
1. Regulations and Policies. Government regulations and policies greatly influence the interest
of foreign investors to invest in a country. A conducive regulatory environment and
transparent policies can attract foreign direct investment by providing a sense of security and
predictability for investors. Conversely, ambiguous or restrictive regulations can deter
potential investors and impede the flow of foreign capital. To attract and retain foreign
investment, governments often implement measures such as tax incentives, simplified
administrative procedures, and legal protection for investors. In addition, creating open and
fair competition policies, protecting intellectual property rights, and ensuring easy
repatriation of profits can contribute to a favorable investment climate. Furthermore,
establishing clear and consistent regulations related to labor, environment, and industry
standards can instill confidence in foreign investors regarding the operational environment
and sustainability practices in the country. By aligning with international norms and best
practices, governments can demonstrate their commitment to fostering a supportive and
responsible investment ecosystem (Dinh et al., 2019; Wang & Li, 2018; Saidi, 2018;
Zhenwei, 2015). An example in Indonesia is the existence of the Law of the Republic of
Indonesia Number 25 of 2007 concerning Investment, Government Regulation No. 31 of
2022 concerning Foreign Capital Ownership, Minister of Foreign Affairs Regulation Number
10 of 2022 concerning Protection, Facilitation, and Recording of Indonesian Investment
Abroad.
2. Economic Stability. Economic stability is a major factor that attracts foreign investors as it
provides predictability and certainty in investing in the country. To ensure a stable economic
environment, the government should give priority to sound fiscal and monetary policies, as
well as effective regulatory oversight. Sound fiscal policies, such as maintaining a sustainable
budget deficit and managing public debt, instill confidence in foreign investors regarding
long-term economic stability. Similarly, Prudent monetary policies that control inflation and
exchange rate fluctuations contribute to a favorable investment climate by reducing financial
uncertainty. In addition, transparent and effective regulatory oversight in the financial and
corporate sectors is critical to protecting investor interests and maintaining market integrity.
A strong regulatory framework, including rigorous supervision of financial institutions, clear
disclosure requirements, and enforcement of corporate governance standards, creates a
favorable environment for investment by mitigating risks and preventing fraud or
misconduct. In addition to stable economic policies, political stability and social harmony are
also important considerations for foreign investors. Political stability provides assurance that
there will be consistency in policies and regulations, minimizing the risk of sudden changes
that could disrupt business operations. In addition, a society characterized by social harmony
and respect for diversity creates an enabling environment for doing business and building
long-term relationships with local stakeholders (Dinh et al., 2019; Echandi et al., 2015; Roy
& Berg, 2006; Lim, 2001). For example, Singapore is known for its political stability, pro-
business policies, and strong legal system, creating an attractive environment for foreign
investment.
3. Market Access. Market access is a key factor that attracts foreign investors as it provides
expansion opportunities and increased sales potential. International investment plays a crucial
role in increasing specialization in various industry sectors. By investing abroad, companies
can gain access to specialized resources, advanced technologies, and niche expertise that may
not be available domestically. International investment also facilitates cross-border
cooperation and strategic partnerships, enabling companies to develop and expand their
business utilizing the specialized expertise of foreign entities. In addition, international
investment allows companies to establish research and development centers, innovation
centers, and specialized production facilities overseas. Thus, firms can expand their
operational reach and increase the adoption of new technologies, creating a competitive
advantage in the global market. (Iamsiraroj, 2016; Iamsiraroj & Doucouliagos, 2015; Alfaro
et al., 2010; Büthe & Milner, 2008; Li & Liu, 2005; Alfaro et al., 2004; Durham, 2004;
Borensztein et al., 1998; Mello, 1997). For example, China is a major destination for foreign
investors because it has the largest consumer market in the world. The success of many
foreign companies in China demonstrates the importance of access to a broad market.
4. Skilled Labor. Skilled labor is a key factor that attracts foreign investors because it can
increase the productivity and efficiency of company operations. The presence of skilled labor
can add value to foreign investment. For example, Vietnam has become an attractive
destination for foreign investment, especially in the manufacturing sector, due to the
availability of skilled labor at a relatively low cost. This makes Vietnam an option for
companies seeking quality skilled labor.
5. Geopolitical Stability. Geopolitical stability is a key factor that attracts foreign investors as it
creates a safe and predictable environment for doing business. Political uncertainty or conflict
can dampen investor interest. For example, Singapore is known for its high geopolitical
stability. Safe political conditions and pro-business policies have made Singapore a top
destination for foreign investment, especially in the financial and technology sectors.
6. Infrastructure. Good infrastructure is a key factor that attracts foreign investors as it
supports smooth operations and product distribution. For example, infrastructure
development in Indonesia, such as roads, ports, airports, and telecommunications, is an
attraction for foreign investors and also strengthens Indonesia's competitiveness in attracting
Foreign Direct Investment (FDI). This investment not only benefits the government but also
opens up opportunities for foreign investors.
7. Technology. Technological factors are of key interest to foreign investors as they provide
opportunities for innovation, efficiency and competitiveness. Foreign investors tend to be
attracted to countries that have technological advances to gain a competitive advantage. For
example, developed countries such as the United States and Japan are investment destinations
because they develop advanced technology in various economic sectors. In addition, foreign
investment in the manufacturing sector that brings automated production technology can
provide increased efficiency and product quality in the recipient country.
D. Theories of International Investment:
The theories of international investment can be described as follows:
1. Imperfections in Product and Factor Markets Theories. This theory proposed by Hymer
(1960) refers to situations where these markets deviate from the ideal of perfect competition.
In imperfect product markets, individual buyers and sellers can influence prices and
production, and there is incomplete disclosure of information about products. On the other
hand, imperfect factor markets involve deviations from the assumption of perfect competition
in the markets for factors of production, such as labor and capital. These imperfections can
arise due to a variety of factors, including market power, information asymmetry, and
regulatory intervention. Imperfections in product and factor markets indicate situations where
competitive conditions are not fully met resulting in distortions in pricing, production, and
resource allocation. Examples are:
a.
Information Asymmetry. A situation where the seller or buyer has more information
than the other party. For example, a buyer who does not know the quality of the product
being purchased.
b.
Externalities. The impact of economic activity that affects third parties not involved in
the transaction. For example, pollution from a factory can be an example of a negative
externality.
c.
Monopoly and Oligopoly. Market conditions where one or a few firms dominate the
market which can lead to a lack of competition and high prices.
d.
Market Misalignment. A situation where supply and demand do not always align,
creating distortions in prices and production.
e.
Government Intervention. Government actions that can affect the market either
through regulation or other policies.
f.
Unequal Products. A market where products are not similar, making it difficult for
consumers to make accurate comparisons.
g.
Public Goods. Situations where the goods or services cannot be limited or avoided by
consumers. The government often needs to be involved in the provision of public goods.
h.
Limited Factor Mobility. The inability of production factors such as labor to easily
move between industries or regions.
2. International Product Life Cycle Theories. The International Product Life Cycle Theory,
developed by Vernon (1966) explains the evolution of a product or service from the
introduction stage, growth stage, maturity stage, and maturity stage decline (saturation). This
model is also used to explain how the product becomes international. The international
product life cycle includes the following stages:
a.
Introduction Stage. The product is introduced to the domestic market. At this stage,
innovation and product development research takes place in the country of origin.
b.
Growth Stage. The product experiences growth in the domestic market. Demand grows,
and the product can be exported to international markets.
c.
Maturity Stage. The product reaches maturity in the international market. At this stage,
production can be moved to countries with lower production costs.
d.
Decline (Saturation) Phase. If a company's product reaches the saturation phase in the
domestic market, it can still look for sales opportunities in other countries where the
market is still growing.
3. Follow-the-leader theories (Knickboxer Theories). This theory is an approach to the study
of leadership. This theory, proposed by Knickerbocker (1973), discusses the impact of
foreign direct investment (FDI). Foreign Direct Investment (FDI) in an oligopolistic
environment. Knickerbocker suggests that under these conditions, FDI can be explained by
factors such as liquidity, currency area, diversification with barriers to international capital
flows, and the Kojim hypothesis which refers to the ideas proposed by Kojima in 1973, 1975,
and 1985 where this idea focuses on explaining the differences in foreign direct investment
(FDI) patterns between the United States and Japan in developing countries.
4. Internalization Theories. Internalization theory was introduced by Hymer (1976).
Internalization theory is a branch of economics used to analyze international business
behavior. This theory focuses on shortcomings or imperfections in the market that encourage
firms to internalize, i.e. produce or carry out certain activities within the firm rather than
using external markets. This theory includes:
a.
Theory Focus. Internalization theory emphasizes that there are advantages for firms to
bring certain activities in-house, especially when external markets are inefficient or there
is a risk of losing competitive advantage.
b.
Imperfections in Markets. This theory identifies flaws in markets, such as information
imperfections or uncertainty, which are the basis for why companies choose to internalize.
c.
Applications in International Business. Internalization theory is widely used to explain
phenomena in international business, especially related to the company's decision to make
direct investment abroad.
d.
Theory Development. Some theory development includes a Penrose-inspired approach to
analyzing how multinationals function internally. The Penrose approach refers to the
concepts introduced by Penrose (1959). In his theory, Penrose highlighted the following
aspects:
1) Ownership Capacity. Penrose emphasizes the role of a firm's unique proprietary
capacity as a source of growth. These capacities include employee knowledge,
managerial expertise, and other intangible assets.
2) Internal Growth. This theory highlights a firm's tendency to grow internally by
optimizing its proprietary capacity rather than rely on external growth through
acquisitions or mergers.
3) Environmental Fit. Penrose emphasizes the importance of a company adjusting to its
external environment to maximize growth.
4) Growth as an Evolutionary Process. This approach sees growth as a result of the
evolution of a company's capacity and adjustment to changing market conditions.
5) The Importance of Management. Effective management in managing proprietary
capacity and responding to environmental changes is key to company growth.
Penrose (1959) states that resource inputs result in sustainable firm growth. However,
on the other hand, this sustainability can only be achieved when resource inputs can adapt to
the scale of the firm at that time. Actually, it is difficult for a firm to adapt its resource
investment to the scale of the firm in a short period of time. And the faster the firm grows, the
more adaptable this adaptation will become more difficult. Therefore, a firm will not grow as
fast as initially expected, as there are always adjustment costs that are generated along with
rapid growth. In the short term, after new management staff enter the firm, due to the Penrose
Effect, the growth rate of the firm slows down, and the maximum growth rate g* will be
reached at the point when the firm has the right number of new management staff n*.
However, in the long run, with the accumulation of cooperation experience among the new
management and knowledge, the enterprise will exceed the limitation g* with the whole
curve shifting upward, which will make the new expansion for the enterprise achieve gradual
expansion. This dynamic view can be regarded as the Penrose Effect theory of expansion, as
shown in Figure 6.5.
5. Dunning Eclectic Theories. The Dunning Eclectic Theory, developed by Dunning (1979) is
known as the eclectic paradigm or OLI (Ownership, Location, Internalization) framework.
This theory is also known as the Ownership Advantages Theory, which is a concept in
international investment that suggests that companies make direct investments abroad
because they have several advantages, namely ownership advantages, location advantages,
and internalization advantages, as described below:
a.
Ownership Advantages. Companies that make direct investments abroad have certain
advantages or assets, such as technology, brands, or management that are difficult for
competitors to replicate.
b.
Location Advantages. In addition to ownership advantages, the location of the investment
site also plays an important role. Some locations may provide certain benefits, such as low
production costs or access to strategic markets.
c.
Internalization Advantages. Factors influencing a firm's decision to make a direct
investment involve considering how firms can internalize their advantages, i.e. whether it
is more profitable to produce or sell directly in a foreign market.
6. Monopolistic Advantage Theories. The Monopolistic Advantage Theory was proposed by
Lall, and Siddharthan (1982) which refers to the concept of advantage possessed by a firm in
a market based on unique characteristics or control over a particular product or service. This
creates an advantage that is difficult for competitors to replicate, such as a strong brand or
innovative technology.
7. Cross Investment Theories. Cross investment theory was proposed by Kojima (1987). Cross
Investment in international investment is an effective strategy that involves offering
additional financial products or services to existing clients with the aim of deepening
relationships and increasing revenue. By cross-investing in international investment clients,
financial institutions can provide solutions tailored to their diverse needs and preferences.
This approach allows for the maximization of resources and expertise, as well as the
opportunity to capture a larger share of the client's financial portfolio. In addition, cross-
investment in international investments can also increase customer satisfaction and loyalty, as
clients benefit from the convenience and efficiency of obtaining multiple financial services
from a single institution. By offering a wide range of financial products and services, such as
asset management, wealth promotion, and international banking solutions, international
investment institutions can comprehensively meet the specific requirements of clients
(Derbali & Jamel, 2020; Banalieva & Robertson, 2010; Hitt et al., 2006; Kearney & Lucey,
2004; Agénor, 2003; Hermes & Lensink, 2003; Hitt et al., 1994).
E. Summary:
International investment is the channeling of capital or funds to countries outside one's
own region with the aim of achieving long-term financial gains. International investment
involves the process of buying and selling assets such as stocks, bonds, property or
businesses in other countries.
International investment plays an important role in international business: technology
transfer, infrastructure development, creation of employment opportunities, access to new
markets, portfolio diversification, utilization of economies of scale, dissemination of best
practices, innovation in the domestic economy, promotion of cross-border exchange of goods
and services, economic integration between countries, improvement of competitiveness, and
increased specialization.
International investment is influenced by various factors that drive its growth and
impact. These factors play an important role in shaping the pattern and magnitude of
international investment flows. Key factors that are attractive to foreign investors are
regulation and policy, economic stability, market access, skilled labor, geopolitical stability,
infrastructure, and technology.
Theories of international investment viz: Imperfections in Product and Factor Markets
Theories, International Product Life Cycle Theories, Knickboxer Theories, Internalization
Theories, Dunning Eclectic Theories, Monoplolistic Advantage Theories, and Cross
Investment Theories.
F. Practice Questions
1. Explain the definition of international investment?
2. Explain the importance of international investment?
3. Explain the factors driving international investment?
4. Describe the forms of international investment?
G. Group Discussion:
Potential and Challenges of Foreign Investment in Indonesia
As one of the fastest growing economies in the world, ASEAN is increasingly
attracting foreign investment. HSBC's Head of Commercial Banking, South & Southeast
Asia, Amanda Murphy, revealed that Indonesia is currently one of the countries with the
greatest investment potential. "Investors who are already in Southeast Asia initially entered
Singapore, Malaysia and Thailand. But now they want to expand their business and look at
Indonesia and the Philippines," said Amanda Murphy.
Indonesia has become the "belle of the ball" in the eyes of investors thanks to its
rapidly growing middle class. With 278 million people, Indonesia is a market with growing
consumption. "A democratic nation with a young middle class who are now consuming more
health products, more nutritious food, and are new consumers, all these economic indicators
are very positive for Indonesia," said Amanda Murphy. Amanda explained that currently the
biggest investments come from countries around Southeast Asia, namely Hong Kong, China,
India, and Australia. Business owners from these countries hope to expand their supply
chains to Southeast Asia and grow organically. Southeast Asia is even China's largest export
market today.
Not only countries around Southeast Asia, the UK, France, Germany, and the United
States are also said to want to explore the same potential. "Some of the things that make them
interested in investing here are its human resource capabilities, digital economy, and
competitive wages," said Amanda.
As one of the international banks established since 1884 in Indonesia, HSBC has the
strength to see these potentials. With the largest trading network in the world, HSBC
connects markets with growth that like Indonesia, with investment potential. "We are
committed to connecting the world to Indonesia, and also connecting Indonesia to the world,"
said Amanda. Amanda believes that with its local knowledge and strong network, HSBC can
help businesses grow around the world. "For example here in Indonesia, we partner with the
Indonesian Ministry of Investment to help facilitate trade into Indonesia," Amanda said.
Despite its potential, ASEAN, including Indonesia, also faces challenges. Amanda said
that although ASEAN was resilient during the pandemic, currently various countries around
the world, especially Southeast Asia, have to face inflation, exchange rate volatility, and
spikes in interest rates. "For businesses, they also have concerns about skills. Especially
digital skills and understanding of sustainability," said Amanda. Amanda also shared her
forecast for Southeast Asia's future economic growth. With an estimated economic growth of
between 2.1 to almost 6 percent at present, Southeast Asia is very attractive for investment.
Especially when compared to Europe's 0 percent growth, or the United Kingdom and United
States' less than 1 percent. "And when I look at Indonesia, the number of companies already
operating here, is very, very high, higher than many other countries. So we are very
optimistic about Indonesia," Amanda said.
Discussion Questions:
1. What are the factors driving foreign investment into Indonesia in the above case?
2. What is the solution for Indonesia in dealing with the above cases?
