Effects of Booyoung Town Project on Cambodia

Abstract: 

Booyoung Company, a Korean conglomerate, has recently invested more than $1.1 billion to build satellite city in Phnom Penh. This investment is the biggest investment ever from Korea to Cambodia. This paper analyzes spillover effects of this investment on Cambodia. I find out that this project brings many positive benefits to Cambodia. 

Author: Mizuno Thay

Senior Banking and Finance Student

Published date: 21 January, 2014

Introduction

Cambodia has attracted many foreign direct investments since the enactment of the Law on investment in 1994. From 1994 to 2011, foreign investors had invested a total of $38.51 billion for 1,736 projects in Cambodia (Foreign Direct Investment in Cambodia, 2011). Foreign Direct Investment (FDI) has provided many positive effects to Cambodia such as employment, technology, and capital; Cambodia would not have develop and grow like nowadays without FDI. Karen Tramontano, an assistant to former US president Bill Clinton, claims that Cambodia has a very positive business climate which in turn provides great potential for FDI (Kunmakara, 2013). South Korea has always been one of the major countries that invest heavily in Cambodia with a total investment worth $4.027 billion by September 2011 (Investment Trend). South Korean companies invest in a variety of sectors within Cambodia like garment, electronic, financial, tourism, and construction. Kang Namshik, Chairman of the Korean Chamber of Commerce in Cambodia, believed that Cambodia is a new manufacturing base for Korean investors (Kimsay, 2013). In June 2013, a Korean firm conglomerate, Booyoung Group, has made the biggest investment ever in Cambodia from South Korea. This company has invested more than $1.1 billion to construct a satellite city in Phnom Penh called “Booyoung Town”. Booyoung said it will build 40 apartments and seven residential and commercial complexes on an over 23.5 hectares of land, located along Russian Boulevard, downtown Phnom Penh. Many experts in Cambodia have claimed that this project will provide a lot of benefits to Cambodia. This writing wants to analyze the spillover effects of this project on Cambodia.

Methodology

Based on OLI framework, there must be some advantages for multinational enterprises (MNEs) that lead them to invest in a foreign country. Foreign companies that decide to invest in other country usually possess at least one of the OLI advantages. When multinational enterprises invest a host country, it is assumed that FDI will have spillover effects on a host country. In this way, FDI usually bring with it equipment, skills, capital, technology, and expertise and then shares these tangible and intangible assets to a hose country through various means like licensing, franchising, subcontracting, and joint venture (as cited in (Sasidharan). It is also presumed that domestic firms benefit from the externalities associated with the foreign investment through productivity improvement, exports and international integration (Costa and de Queiroz 2002). The backward integration results from FDI will provide a lot of positive spillover effect to the host country. Local employees will gain skills as they work in foreign firms that possess high organizational and production techniques. If an investment helps local employees to possess high skill which in turn will raise wages, productivity, and living standard in a host country, it is believed that this investment is good for the hose country. 

Results and Discussions

Booyoung Company decided to invest in Cambodia because of location advantage. The company could see there will be a surge in demand for accommodations in Phnom Penh in the near future, especially when the ASEAN Economic Community takes place in 2015. At the moment, there are only a few standard condominiums existing in Phnom Penh, and more and more people are moving to live in this city. Many investors and expatriates will also come to invest/work in Cambodia in 2015 and this will further increase the demand for commercial and 
residential building in Phnom Penh. Hence, this project is really a great opportunity for the large South Korean conglomerate. 

During and after the construction of Booyoung Town, there will be a lot of spillover effects on Cambodia. First of all, this construction project provides employment for many Cambodians. A lot of Cambodian engineers and construction workers are working on this project. While they are working on this project, they can also learn from Korean engineers as the company has also brought some of its own engineers from Korea. The company has bought some raw materials and components for the construction from domestic suppliers such as cement and sand. Domestic suppliers are likely to improve the quality of their products in order to meet standardize requirements of Booyoung company. Additionally, local companies will try to increase its productivity since there is an increase in demand for inputs by local firms. The presence of Booyoung Construction Company in Cambodia will further increase the competition between construction firms in Cambodia. Local construction companies need to increase the quality in order to compete with international construction firms. The increase in quality of construction is certainly beneficial for Cambodia. A lot of buildings and houses in Cambodia was previously built under standard, but the quality of construction has improved substantially during this last couple of years because of the increase of construction companies operating in Cambodia. The Cambodian government can raise a lot of revenue from this project. In this respect, Cambodian government can increase its revenue from real estate and business taxes once this project complete. Booyoung Town will accommodate thousands of households and attract many new businesses to Cambodia. The more households and businesses locate in Cambodia, the more taxes the Cambodian government will collect. As more businesses may operate in Cambodia, the demand for labor may also increase. Hence, this project might indirectly increase employment in Cambodia upon its completion.

Conclusion and Recommendations

In conclusion, Booyoung Town project has brought many positive spillover effects into Cambodia. This project has created many jobs for Cambodians, shared expertise in construction to Cambodian engineers and workers, increased competition in construction sector in Cambodia that leads to efficiency, brought in more businesses into Cambodia, bought raw material and components from local suppliers, and contributed to the Cambodian government revenue. Overall, this project is a friendly FDI project for Cambodia. Booyoung Group will earn a high return from its investment in Cambodia because Cambodia provides them location advantage. Cambodian government has also granted Booyoung Company many investment incentives and guarantee. I would like to recommend Cambodian government to try to attract more of this kind of FDI into Cambodia as it can bring many positive spillover effects. Furthermore, the Cambodian government should impose local content requirements regulation in order to support local businesses. The local content requirements will improve the quality of Cambodia products as well as the productivity of domestic firms.

References

2011. Foreign Direct Investment in Cambodia. Phnom Penh: PHNOM PENH   SECURITIES PLC.

Costa, I. and S. R. de Queiroz. (2002), “Foreign Direct Investment and Technological Capabilities in Brazilian Industries”, Research Policy, vol. 31, pp. 1431-1443.

Investment Trend. (n.d.). Retrieved January 20, 2014, from Council for the Development of Cambodia.

Kimsay, H. (2013, January 31). South Korea leads Asia’s big three as Cambodia’s leading investor. Retrieved from The Phnom Penh Post: http://www.phnompenhpost.com/business/south-korea-leads-asia%E2%80%99s-big- three-cambodia%E2%80%99s-leading-investor

Kunmakara, M. (2013, January 9). Cambodia has great potential for FDI. Retrieved from The Phnom Penh Post: http://www.phnompenhpost.com/business/cambodia-has-great-potential-fdi

Sasidharan, S. (n.d.). Foreign Direct Investment and Technology Spillovers:.