By Dustin Daugherty, Dezan Shira & Associates US Liaison Office
2020 was a year many US businesses would like to put well behind them. A global pandemic led to economic fallout at home and the most severe economic belt tightening in a decade for corporate America. However, many onlookers are expecting a surge of US investments throughout Asia in 2021 as the Covid-19 vaccines are rolled out nationwide and the business environment starts to return to normal. Judging by the early days of the Biden Administration, while the heated rhetoric between the PRC and US governments may cool down somewhat, US-China are not on track to return to the days of cooperation and engagement in any substantive way. Now marking the one-year anniversary of the Covid-19 induced national lockdown in the US, if we think back to the very early days of the pandemic the real fear in the US business community was a disruption of Sino-centric supply chains. While the Chinese manufacturing engine may have rebounded, the now years long US-China trade war and tit for tat measures such as export controls on each side has only further pushed US firms off the edge in seeking viable and sustainable China alternatives for their supply chains.
In this new (hopefully) post-pandemic environment, US businesses are now ready to execute long-mulled plans to shift at least some aspects of their Asia supply chains out of China and supplement them with operations in alternative dynamic and emerging Asian market. The top contenders to soak up the incoming US FDI for reasons of competitiveness, population, and a friendly business climate, are India and Vietnam
India has long been of interest to US firms large and small due to its ability to rival China’s labor pool depth, competitive wages, and growing consumer market. While US investment was once concentrated heavily in IT services, manufacturing is now the name of the game for US firms in the country. With the tech industry’s exposure to the China supply chain being a major concern of the US government and Silicon Valley alike, expect to see very large industry household names making significant investments in the country.
Even with the headwinds caused by the Covid-19 pandemic, provisional data from the RBI for the first three quarters of FY 2020 showed US FDI in the country ballooning to nearly USD 13 billion, with the US now making up 8% of cumulative FDI this century. 2020 saw notable investments from Amazon, Wistron, Honeywell, and Microsoft, and so far in 2021 firms such as Tesla have setup shop with a new entity in Bengaluru. Apple is shifting significant consumer electronics production from China to India with new capabilities in Tamil Nadu. And even that old mainstay, IT outsourcing, is benefitting with a new investment from Salesforce. For US business accustomed to China’s previously low cost and abundant labor, India now presents a highly attractive FDI market, a trend we expect to intensify over this next year.
Lacking India’s China-rivaling labor pool but compensating with efficiency, productivity, and low wages, Vietnam offers US businesses another excellent China alternative. Shared concerns about Chinese assertiveness and mutually beneficial investment opportunities have helped to bridge a political gap between the US and Vietnam, and the country was one of the few Asian nations with which the Trump Administration significantly deepened relations during its tenure. Vietnam did an outstanding job containing the pandemic, and its standing within the US business community has never been higher. While the cost of Vietnam’s effective response to the pandemic was strict border control, which dampened US FDI in the country in 2020 due to the difficulty of travel, as those restrictions ease we expect an explosion of US manufacturing FDI in the country during the second half of this year. Despite the drop in FDI growth in 2020, total US FDI stock in the country still by nearly USD 200 million, and significant investments from firms like Pepsico, Dell, and Nike were realized. Energy giant Exxon Mobil secured LNG rights in late 2020, and in Q1 2021 Intel announced a nearly USD 500 million capital injection in its Vietnam operations to boost long term production. Although US FDI is still outranked by investment from countries like Japan and South Korea, 2021 and 2022 will see a rush by American firms, ranging from family-owned SMEs to MNCs, to establish manufacturing operations in the country allowing that FDI gap to significantly narrow over the next few years.
US investment inroads in the region are certainly not limited to these two markets. Indonesia features in high level discussions in US boardrooms as an enticing market deserving further exploration, and an ambitious target to double annual bilateral trade to USD 60 billion over the next five years is being backed up by a new trade preference facility agreed to by each country’s government. Malaysia and Thailand also provide unique sectoral advantages for US firms, such as in automotive and electronics, and should not be overlooked, especially for those engaging in higher tech manufacturing. It is important to remember that for many US firms looking to shift their supply chains out of China, one market may not be sufficient to fully replicate their prior China operations, and they will instead look to build a portfolio of China supplements in the region for their supply chains. Now, however, Vietnam and India seem to provide the most well balanced and enticing FDI environments for the American business community, especially in manufacturing, with significant new projects undertaken by household names headlining the trend. Look for continued growth in US FDI in India and a very healthy rebound in Vietnam in 2021.
Dustin Daugherty leads Dezan Shira & Associates’ business development in North America from our Salt Lake City office in Utah, USA. He is the point of contact for our North American clients and partners, having extensive experience in our major offices across the Asian region, including Beijing and Shanghai in China, Hanoi and Ho Chi Minh in Vietnam and Delhi in India. Dustin is a native of New York City, where he studied Political Science and International Relations at Columbia University. He has mastery over his native English and Mandarin Chinese.
E: dustin.daugherty@dezshira.com
W: www.dezshira.com
Disclaimer
Any views or opinions represented in this blog are personal commentary, belong solely to the contributor and do not necessarily represent the views of Asia Briefing Limited or Dezan Shira & Associates.
