A Deep Dive Into Asian Markets

We’re also right in the middle of the decade of diversification. This is this global trend in supply chain restructuring, really started and driven by the needs for geographically diversifying manufacturing from China. This diversification really started in earnest with the tariffs imposed on imports from China enacted during the Trump administration, but was exacerbated by lockdowns and supply chain disruption issues during the COVID pandemic. 

El Koubi: How does that geographic diversification play out in Asia? Which pieces of it are focused more broadly in creating FDI opportunities in North America? 

Meseroll: We always think about reshoring in its pure definition, which is when a company closes down a location overseas and then returns it to its home country to start the operations up again. While reshoring is happening on the margins, we’ve seen much more nearshoring activity.

In Asia, there’s been this trend that’s called China Plus One. Companies still operate in China to serve the Chinese market — it’s still a massive market and they want to be able to take advantage of that. But they’re also looking to diversify their manufacturing capacity geographically, trying to identify alternative locations outside of China to serve regional and global markets. We’re seeing more companies operating in China for China and other places for supplying to other markets.

Chinese investment into the U.S. started out primarily as M&A. Chinese companies acquired U.S. companies to get a foothold in the market and acquire management talent and market access. For the last decade, M&A-focused investments were always much higher than greenfield. However, this all changed in 2023. This was the first year it switched, and it switched in a big way. In 2023, total outbound Chinese investment was about U.S. $115 billion, and about $100 billion of that was greenfield and only about $15 billion was M&A. Most of this investment went to “friendly” locations that are attractive and receptive to Chinese investments. Of the $100 billion of greenfield investment, only about 8% went to Europe and less than 2% went to the U.S. About 36% went to Africa and 34% was invested in Asia. The Chinese are preferentially investing in more receptive countries and ones that are closer to home.

El Koubi: Are there any differences that you would want to point out in terms of how the Chinese business decision-makers are managing geopolitical challenges? What caused the shift in Chinese investment from predominantly M&A to greenfield investment?

Meseroll: The Chinese companies we’ve worked with are typically used to working in the Chinese environment. There, the government is very directive or very helpful in how they can invest and expand domestically. When they invest overseas, they find themselves in an unfamiliar environment. The experience is very similar to what we observed 30 years ago with U.S. companies that were new to Asia. They’re having to learn as they go and adjust their expectations and perceptions to the reality of the markets they are investing in.

Having Chinese companies focus on M&A to begin with is not at all surprising, because if you look back at how U.S. companies invested internationally, that’s how they did it. You get management, you get market access, you get talent, you get experience. From that, you operate those plants and, after awhile, you’re much more comfortable to do a greenfield investment. 

Chinese companies have been investing in the U.S. for the last 10 years, so this is about time for that transition to take place. There’s been a lot of administrative or political pushback in the West for Chinese acquisitions of companies but, in some markets, it’s a little bit easier to put a greenfield investment on the ground.

El Koubi: One of the things that we read about frequently is the supply chain and how that is changing. Particularly in a post-COVID environment, which exposed some of the challenges to the supply chain, and it’s driven a certain amount of diversification. What are you seeing in particular on supply chain factors and how is that driving location decisions?

Meseroll: What we’re seeing are the changes that are being made for new investments and expansion. Companies are looking to serve new markets, to serve new customers, to balance their supply chain more. Drivers for locations are almost always market access-related. Diversification could be looked at from a risk perspective as well, reducing geopolitical risk, diversifying and improving supply chain resiliency — not putting all your eggs in one basket.

Another part of it is access to talent and raw materials. We’re seeing a huge amount of investment in the last three years in Indonesia in battery materials. The investment is primarily resource-driven with Indonesia being the largest producer of nickel in the world. But there is also a regulatory element as Indonesia bans the export of non-ferrous metal concentrates, forcing companies to invest in value-added smelting and refining in-country to add value. Indonesia has nickel, cobalt, and manganese, and those are all necessary for the production of various kinds of battery materials. 

The fundamental drivers are the same. Market access to resources depends on the company and industry. But companies are very cognizant of needing to diversify the geographic locations of their investments to reduce risks and improve resiliency.

El Koubi: How do you think the United States is in a position to benefit from these trends and activities?

Meseroll: If you look at the cross-border greenfield investment statistics over the last decade, the U.S. has been the No. 1 location for almost the last decade. For some sectors, specific investment incentives like the CHIPS Act are pulling in semiconductors, the Inflation Reduction Act with battery materials, and such.

It’s the world’s biggest economy, so that’s always a pull. With the interest in diversification, that just adds to it. It’s an easy place to do business and is open and welcome to investment. It’s hard to be in a better position than that overall.

We’re asked sometimes by different companies to comment on what it’s like to operate in the United States. With the federal system, you’ve got different laws, different regulations, different incentives, and different workforces in each of the states. There are very few countries in the world that are federal and have such a disparity in regulations within a single country. Most other countries are pretty unitary, so they’re expecting one set of laws to comply with. It can be daunting for foreign investors to understand.

El Koubi: You’ve been in Asia now for 30 years or so. What has that been like, watching Asia evolve? 

Meseroll: I think the best metaphor is that it has literally been like watching corn grow. Myself, my partner, if we sit back and think about it, we’ve seen some amazing changes in the span of 30 years. That’s maybe a generation.

One of the first projects we worked on was an air conditioning compressor plant for Emerson Electric. The executives flew into Thailand to do a site visit at the end of the project and then they were headed off to China. They flew to the site, a pineapple plantation that was being converted to an industrial estate, by helicopter. In Asia, industrial zones, sometimes called industrial parks or industrial estates, are gated industrial communities. A developer will prepare the land and infrastructure and put a wall around the whole thing that may be several square miles in size, but, in this case, it was just a pineapple plantation at the time of their visit.

There was significant demand for their compressors from air conditioning manufacturers in Thailand and Southeast Asia. They saw the government was promoting the area for industrial investment, investing in infrastructure and providing incentives for investment in the area. They reviewed our report, had confidence in the developer, and, after seeing the site, said, “It’s a go. We will take it.” After some negotiations, they acquired the first plot in the new estate. That plant is still there. It’s been expanded twice. It’s still at the gate of this industrial estate.

While that was one of the first major investments in the area, there are probably 20,000 plants in that area that they call the Eastern Seaboard now. Every single Japanese pickup truck OEM has moved all of their manufacturing to that area of Thailand. Ford, GM, now all the Chinese electric vehicle OEMs — almost every vehicle manufacturer has an assembly facility in the Eastern Seaboard region of Thailand. In addition to automotive, there is significant appliance and air conditioning, aerospace, and all the downstream activities, such as automotive parts and other components. Flying back and forth to Vietnam and our other offices around Asia, you see the change in the economy and industrial development over that span of a generation.

El Koubi: Thank you so much for joining us today. Fascinating perspective.

Meseroll: You’re welcome, Jason.