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Emerald Group Publishing Limited
Article Type: Viewpoint From: International Journal of Commerce and Management, Volume 25, Issue 3
Global trade/capital flows and competitiveness
We are honored to be the guest editors of this special issue on “Global trade/capital flows and competitiveness”. This vast area abounds in rich contributions from academics the world over. In this special issue, we present an eclectic set of papers that address some specific and very important and current questions relating to globalization. Answering these questions, to some extent, paves the way for strategically positioning emerging and other developing economies in the global marketplace and are instrumental in improving the well-being of citizens across the globe.
Trade and business activities have increased significantly between countries, regions and continentals in the light of liberalization of economic policies in developing economies. In the same vein, technology development, cross-culture integration, migration, improvement in education and income levels have contributed to the current economic growth of the world (Fatehi et al., 2008). This two-way process has increased the competitiveness faced by the liberalizing countries from global corporates. Protectionism has been phased out systematically by most countries and they have thrown open their doors for global trade and investment flows. As a result, there has been a phenomenal growth in trade among developed and developing economies. The capital flows across countries have grown even faster, both in terms of foreign direct investments and in terms of institutional investments in the primary and secondary financial markets of countries around the world. However, the market for cross-border capital flows across the world has been declined around the 2007-2008 global financial crisis (Reddy et al., 2014). While protecting local firms from international competition, many developing economies have drafted and altered various institutional and/or trade laws, provisions and guidelines (Dima et al., 2008; Pillania, 2009; Reddy, 2015a, 2015b). In fact, the entry of multi-nationals and the global investments have boosted the local competition in many of the host countries: India and China. In particular, Fatehi et al. (2008, p. 78) explain 11 major factors that affect international business environment (IBE): decreasing trade barriers; developing countries’ attitude changes; adoption of export-oriented strategies by developing countries; spread of regional trade agreements; technological developments; global demand for capital; diminishing effectiveness of national borders; investments required in new technologies; effect of the Internet; international terrorism; and increasing interdependence among nations. By contrast, they suggest that ease of cross-border travel and the information explosion ushered in by the Web have also raised globalization and global competition (p. 88). Therefore, this special edition will answer some important issues raised in the current IBE and related literature.
Motivated by these factors, the special issue invited academic professionals to submit their research output on various assorted themes. Following the double-blind review system, we have accepted six articles out of 31 submissions. We believe that the selected papers would add new knowledge to the existing literature on global trade and capital flows. We hope readers will enjoy reading them. Herewith, we present research summary for five selected articles and remaining article will be published in future issues of the journal.
Rudra P. Pradhan, Mak B. Arvin and Neville R. Norman in their paper titled, “A quantitative assessment of the trade openness – economic growth nexus in India”, use progressive statistical techniques to study interactions between economic growth, openness to international trade and the coverage of equity markets and banking in India. They focus on whether causality runs both ways, one way, the other way or not at all, between these variables. They advance on previous studies for India and many other countries with novel estimation approaches and the inclusion of all four potentially two-way interacting variables. The mixture of some bi-directional and some uni-directional causality warns policy-makers seeking to foster growth to check multi-causal studies involving all these variables before setting their policy stances. They, further, demonstrate the applications of the findings to trade liberalization, financial education-related monetary policy improvements and reforms and direct growth incentives.
Reena Kohli in the paper titled, “Financing strategies and shareholders risk in cross border acquisitions in India”, examines the effect of financing strategies used in outbound cross-border acquisitions on the risk structure of the acquiring companies. For this, average α’s (measuring the unsystematic risk) and average β’s (measuring the systematic risk) have been calculated for different event periods (viz. pre-estimation, post-estimation and pooled-estimation periods) and across different modes of payment (viz. cash offers, stock offers and earnouts). The analysis reveals that across all the modes of payment, substantial shifts are visible in systematic risk of the acquiring companies in post- and pooled-acquisition periods whereas shifts in unsystematic risk are negligible. Further, the systematic risk has shown substantial decline in case of earn-out offers, whereas stock offers have shown a significant increase in the same. Cash offers are accompanied with a statistically insignificant reduction in systematic risk. The paper recommends earn-out offers as a tool to mitigate the risk of adverse selection in case of cross-border acquisitions where the acquiring companies are prone to such risk due to the lack of information about the true worth of the target companies’ resources.
Avik Sinha in the paper titled, “Conceptualizing service export price optimization”, studies the issue from the perspective of a profit-maximizing producer. The paper finds that considering the profit maximization objective of a service providing firm, optimization of the service price in international market can prove to be a critical decision to make. This paper takes into consideration the demand and supply side aspects of the entire scenario and presents a comprehensive mathematical model for optimization of export price of services, along with a set of simulations for demonstrating the working of the model. To carry that out, both academic and applied implications of the model have been explored, with a hypothetical example for the academic purpose and another from the Indian IT industry.
Khanindra Ch. Das and Nilanjan Banik in their paper titled, “What motivates Indian firms to invest abroad?” study the increased capital flows, in the form of outward foreign direct investment from developing countries, with specific reference to India. India has emerged as one of the leading developing countries in terms of outward foreign direct investment. These investments are spearheaded by market-driven emerging multi-nationals, originating from both manufacturing and non-manufacturing sectors and motivated by various factors. The paper presents a detailed econometric analysis of foreign investment motives of emerging multi-national firms from India during 2008-2009 to 2011-2012. The analysis shows that there are multiple motives for outward investment by Indian firms, both in the form of equity and in the form of debt, to different host countries. These motives of investment includebut are not limited to the access to energy resources, technology and strategic assets and a quest for efficiency. The findings challenge the conventional understanding that emerging multi-nationals from India primarily seek markets in their international foray, and bring to the fore several implications that are relevant for policy concerning capital outflows from India.
Daniel Tarus in the paper titled, “Do diaspora remittances affect banking sector development in Sub Saharan Africa?” looks into the role of inward remittances from diaspora and how they have contributed to strengthen the banking sector services in Sub-Saharan Africa. Diaspora remittances to countries of origin constitute the largest source of foreign capital flows after foreign direct investment. The paper contributes to the extant literature by looking specifically at the effect of diaspora remittances on banking sector development in Sub-Saharan Africa. The paper draws data from 23 Sub-Saharan African countries over the period 1994-2009, giving a sample of 345 country-year observations. Fixed effects regression was used to achieve this objective. It is concluded that increasing remittances to Sub-Saharan Africa enhances the development of the banking sector. The paper further concludes that the capital flows from remittances have the potential to influence the competitiveness of emerging markets through the improved credit base of the market.
Nominated paper from this special issue to the journal annual awards
Title: What motivates Indian firms to invest abroad?
Authors: Khanindra Das and Nilanjan Banik
Nominated reviewer from this special issue to the journal annual awards
Imlak Shaik, Assistant Professor, Department of Management Studies, BITS Pilani, India
Special thanks and acknowledgement
Editor-in-Chief: International Journal of Commerce and Management
Former Editor: Professor Dr Abbas J. Ali
Current Editor: Professor Dr Hussain G. Rammal
Thanks to anonymous reviewers
Badri Narayan Rath
Helana Isabel de Sousa
Pradeep Kumar Choudhury
Rani S. Ladha
Richard David Ramsey
Syed Ali Raza
T. Satyanarayana Chary
India Development Foundation, Gurgaon, India
Great Lakes Institute of Management, Chennai, India, and
K. Srinivasa Reddy
Independent Researcher, Amaravathi, India
Dima, A.M., Musetescu, R. and Paun, C. (2008), “Trade and competition policies at the crossroads: conflicts and synergies on the long run”, Journal of International Trade Law and Policy, Vol. 7 No. 1, pp. 79-90.
Fatehi, K., Veliyath, R. and Derakhshan, F. (2008), “Emergent realities of global competition: the changing demands on managers and governments”, International Journal of Commerce and Management, Vol. 18 No. 1, pp. 77-92.
Pillania, R.K. (2009), “Competitiveness and emerging markets”, Business Strategy Series, Vol. 10 No. 2, pp. 90-95.
Reddy, K.S. (2015a), “Macroeconomic change, and cross-border mergers and acquisitions: the Indian experience, 1991-2010”, available at: http://mpra.ub.uni-muenchen.de/63562/1/MPRA_paper_63562.pdf
Reddy, K.S. (2015b), “Revisiting and reinforcing the Farmers Fox theory: a study (test) of three cases in cross-border inbound acquisitions”, available at: http://mpra.ub.uni-muenchen.de/63561/1/MPRA_paper_63561.pdf
Reddy, K.S., Nangia, V.K. and Agrawal, R. (2014), “The 2007-2008 global financial crisis, and cross-border mergers and acquisitions: a 26-nation exploratory study”, Global Journal of Emerging Market Economies, Vol. 6 No. 3, pp. 257-281.
About the Guest Editors
S.K. Shanthi is currently the Director of India Development Foundation, Gurgaon. She has a PhD in Economics from the Institute for Financial Management and Research (IFMR, University of Madras affiliation), Chennai. She has more than 20 years of teaching/research experience in the areas of Micro, Macro and Managerial Economics, most of it at the IFMR. She has published research reports, papers and newspaper articles in the broad areas of Public Finance and Applied Finance, Economics and Microfinance in national and international publications. She has consulted with the Government of Tamil Nadu, CII-Southern Region and CCI in various projects. She has also been associated as a Guest Editor with International Journal of Law and Management, Journal of Strategy and Managemen, and International Studies of Management & Organization.
Sanjoy Sircar is currently a Professor of Finance and Director for PGPM at Great Lakes Institute of Management, Chennai. He started his professional career as a Chartered Accountant with Pricewaterhouse Coopers in Assurance and Advisory. His course offerings include Corporate Finance, Strategic Financial Management, Options Futures and Risk Management, International Corporate Finance and Financial Analytics. He has authored technical notes on Portfolio Management and Risk Reduction, Capital Asset Pricing, Leverage and Cost of Equity. He was a faculty in the Finance area at the Fox School of Management, Temple University, Philadelphia and Rutgers, State University of New Jersey. He has also been associated as a Guest Editor with International Journal of Law and Management, Journal of Strategy and Management and International Studies of Management & Organization.
K. Srinivasa Reddy received his PhD in International Management and Finance from Indian Institute of Technology (IIT) Roorkee, Department of Management Studies, Roorkee. At graduation level, he did Bachelor of Commerce from Acharya Nagarjuna University and Company Secretary (Inter), then obtained an MBA from Andhra University and qualified the UGC-NET. His research and teaching interests include mergers and acquisitions, corporate finance and international business strategies. His researcher work has appeared in journals including Journal of Policy Modeling, International Strategic Management Review, Cogent Business & Management, International Journal of Law and Management, International Journal of Commerce and Management, Nankai Business Review International, Emerald Emerging Markets Case Studies and Journal of the International Academy for Case Studies. He has also been associated with special issues of International Journal of Law and Management, Journal of Strategy and Management, International Studies of Management & Organization, International Journal of Business and Globalisation and Global Business and Economics Review. K. Srinivasa Reddy is the corresponding author and can be contacted at: mailto:email@example.com