4.2 Foreign investment-related barriers
Foreign ownership regulations pertain to those regulations that either limit equity
ownership in the firm or regulate the form of establishment, such as through a
separately-capitalized subsidiary, representative office, or joint venture. Each country
wants to protect its national interest. While some counties are quite liberal and allow
foreign companies to have majority equity, other countries require local majority
ownership. Such regulations inhibit foreign firms as they struggle to find the right
partner for joint ventures. The lack of management control also results in lower quality
and reliability of the service provided to shippers, thus leading to inefficiency in trade.
Except for Singapore and Brunei, in all other ASEAN countries, regulations require
some form of local participation in the management of the company. For instance, in
Cambodia and Myanmar foreign companies can own up to 100 per cent equity, but it
depends on the size of the company. For example, Schenker, a foreign LSP, owns
100 per cent equity in Myanmar because it provides employment for locals as well as
foreign direct capital investment in the country. Usually, the larger LSPs are easily
granted licences to operate in the country with 100 per cent equity. In Vietnam, foreign
equity is restricted to less than 50 per cent and it is usually very difficult to find the right
partners. In Laos, foreign ownership is restricted to less than 50 per cent. So far, there are
hardly any foreign players in Laos. Laos and Vietnam are now opening up
transportation sector to foreign LSPs. In Thailand, regulations allow foreign companies
to invest (,50 per cent) and require that the foreign companies to have a minimum
amount of paid-up capital and the board to have at least seven local directors.
Investment is difficult in Indonesia. While warehousing and distribution is permitted
transportation is not allowed. Foreign equity is restricted to less than 50 per cent.
Malaysian regulations have local majority requiring bumiputra to own more than
50 per cent. Recently Malaysian regulations have reduced bumiputra ownership to
around 30 per cent. In the case of larger investment, Malaysian regulations may allow for
100 per cent equity ownership to foreign firms. However, such policies are uncertain and
the equity ownership ratio may change. The local partners in Indonesia and Malaysia
are typically sleeping partners and a nest for retirement. For example, trucking licences
in Malaysia are normally given to former government, military or civil service officials.
When these officials retire, they can obtain 50-100 licences to operate. The government
can then refrain from providing pensions to such high-ranking officials. These officials
can earn $500-1,000/month on a licence.
4.2.1 Discriminatory licensing. Licensing requirements are present in every country
except Singapore and are different from country to country. Indonesia allows foreign
investment in warehousing and distribution but not transportation. The process of
obtaining licences is quite time consuming and difficult as there are different kinds of
licences, such as office licence, brand licence, export and import licences. The Philippines
does not grant licences to foreigners and a company has to go through a long debate to
obtain licence. There are also lobby groups such as the Philippines freight forwarders
association which push local aviation regulators not to grant licence to international
players.Moreover, local transportation delivery is given only to local firms. In Thailand,
licensing requirements are mainly for transportation. Domestic transportation services
can only be offered by local firms to those with majority local ownership.
Next, foreign companies can purchase a truck for their own purposes, but they
cannot lease it to other companies. For example, in Malaysia, foreign firms can apply
licences through joint ventures. In Laos, once a company obtains a licence, it does not
face any problem. It is difficult to get licence to set up a business in Vietnam. There are
several licences such as branch licence, which does not permit the firm to import and
export. In Cambodia, Myanmar, Laos, Vietnam and Brunei, a firm can obtain a licence,
but local transport delivery is given only to local companies. In Malaysia, it is easier to
obtain a licence through joint ventures.