1. Policy Risk
Understanding foreign investment policies and approval procedures in Southeast Asian countries is a critical step before setting up a factory.
1. Unfamiliar with foreign investment access policies
Some countries restrict foreign ownership percentages, such as Indonesia and Thailand, which have caps in certain sectors.
Ignoring the policy may lead to delays in project approval or require a reduction in equity stake.
2. Foreign shareholding exceeds the limit
Exceeding limits requires local partners or special approval, adding complexity.
✅ Recommendation: Consult with local investment authorities in advance (e.g., MIDA in Malaysia, BOI in Thailand, BKPM in Indonesia).
II. Risk of Cost Overruns
Tight cost control is a common challenge in overseas manufacturing.
1. Low bid, many change orders later
Initial quote is low, but additional costs may be incurred during construction (e.g., design changes, permit fees).
⚠️ Risk: Likely to cause significant budget overruns.
2. Rising material costs
Steel, cement, and other material prices in Southeast Asia fluctuate significantly with international markets.
✅ Recommendation: Use long-term procurement contracts or fixed-price contracts to mitigate material price increase risks.
3. Mitigation Measures
Selecting the appropriate construction mode and contract type can effectively reduce risks.
1. Select the EPC general contracting model
The EPC model (Design-Procurement-Construction) reduces communication costs and accountability fragmentation.
✅ Benefits: Total cost is controllable, schedule is predictable, and quality is more assured.
2. Sign a fixed-price contract
Lock in costs with a fixed-price contract to avoid change orders later.
⚠️ Note: Contract terms must clearly specify the handling of change orders and liability allocation.
IV. Summary and Recommendations
Policy Risk: Review foreign ownership restrictions in advance to avoid exceeding equity limits.
Cost Risk: Adopt EPC model with a fixed-price contract to control the budget.
Construction Risks: Choose a Chinese team with overseas experience to reduce the risk of project delays.
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