Search results
1 – 10 of 195The apparent success of emerging market multinational (EMNE) operations in the Global South has led some to launch a claim of competitive advantage in investing in markets with…
Abstract
Purpose
The apparent success of emerging market multinational (EMNE) operations in the Global South has led some to launch a claim of competitive advantage in investing in markets with higher institutional risk. However, there has not been sufficient econometric investigation into all the forces driving South-South foreign direct investment (FDI). The purpose of this paper is to investigate the claim of institutional advantage and to further our understanding of South-South FDI.
Design/methodology/approach
The paper employs a simple econometric model of FDI flows to investigate the differences between the factors driving FDI from developed country MNEs and EMNEs. The model is tested on a bilateral sample of FDI stock data of 21 developed and 22 emerging source economies and over 80 host countries.
Findings
Contrary to the contention of the previous literature, the empirical results find little support for the claim to EMNE institutional advantage. EMNEs are just as sensitive to institutional risk as MNEs. The relatively higher participation of EMNE FDI in the Global South may be explained by other shared similarity factors across developing markets and competitive disadvantages in entering developed markets.
Originality/value
The findings of this paper cast some doubts on the hope that EMNEs will improve the FDI demands of least developed countries (LDCs). Healthy institutions are an important prerequisite for attracting FDI, regardless of whether it originates from developed or emerging economies.
Details
Keywords
Yair Aharoni and Ravi Ramamurti
This chapter examines the internationalization of the national origin of multinational enterprise (MNEs), starting with European firms at the turn of the 20th century, US firms…
Abstract
This chapter examines the internationalization of the national origin of multinational enterprise (MNEs), starting with European firms at the turn of the 20th century, US firms after World War II, Japanese firms after the 1980s, and, most recently, emerging-market firms, including those from low-income countries such as China and India. The acceleration of this trend in recent decades has been driven by changes in government policy, technology, capital markets and international social networks. As a result, MNEs are being spawned in more countries, in more industries and at earlier stages of a firm's evolution than before. These changes have also transformed the established Western MNE from raw-material-seeker and tariff-jumper to efficiency- and innovation-seeker. Therefore, going forward, the MNE must be viewed as a heterogeneous entity, distinguished by national origin, size and raison d’ệtre – from resource-seeking firms to knowledge-generating and processing firms. The chapter concludes with important questions raised by these developments for future IB research.
Andrea Goldstein and Fazia Pusterla
The expansion of South‐North and South‐South foreign direct investment (FDI) reflects the rise of cross‐border capital flows, a distinguishing feature of the contemporary global…
Abstract
Purpose
The expansion of South‐North and South‐South foreign direct investment (FDI) reflects the rise of cross‐border capital flows, a distinguishing feature of the contemporary global economy, together with the increasing size and complexity of emerging market multinational corporations. Against this background, in emerging economies, governments have become increasingly aware of the role outward FDI (OFDI) can play as an instrument to deepen the integration into the world economy. The purpose of this paper is to analyze recent trends in OFDI from Brazil and China.
Design/methodology/approach
Using annual data for the period 1980‐2006 for both countries, the authors test the investment development path hypothesis, according to which the net outward investment position of a country depends on its level of development.
Findings
Results show that both China and Brazil are moving towards the third stage of the path, where domestic firms have acquired ownership and other advantages to go abroad and become leading outward investors.
Originality/value
The role of governments, institutions and the characteristics of domestic firms in both countries are considered to be crucial factors in determining the movement along the path.
Details
Keywords
Jing‐Lin Duanmu and Yilmaz Guney
The upsurge of Chinese and Indian outward foreign direct investment (FDI) raises an unanswered question about locational determinants of direct investment from the two countries…
Abstract
The upsurge of Chinese and Indian outward foreign direct investment (FDI) raises an unanswered question about locational determinants of direct investment from the two countries. Using an unbalanced bilateral FDI database, we find that Chinese and Indian FDI are attracted to countries with large market size, low GDP growth, high volumes of imports from China or India, and low corporate tax rates. We also find important differences between China and India. While Chinese FDI is drawn to countries with open economic regimes, depreciated host currencies, better institutional environments, and English speaking status, none of these factors are important for Indian FDI. Chinese FDI is also deterred by geographic distance and OCED membership. However, neither of these has any impact on Indian FDI.
Details
Keywords
The chapter (re)assesses the impact of the 2008 financial crisis on global foreign direct investment (FDI). Based on updated data and renewed analyses, the author explores the…
Abstract
The chapter (re)assesses the impact of the 2008 financial crisis on global foreign direct investment (FDI). Based on updated data and renewed analyses, the author explores the crisis’ overall effects on global FDI flows, the different consequences on developed and developing countries, and the subsequent rise of emerging economies as both recipients and sources of FDI. Implications for policy and international business theory are delineated. By so doing, the author extends the theoretical and empirical studies on FDI determinants to the global level and provides lessons that are particularly useful against the backdrop of the COVID-19 pandemic.
Details
Keywords
Kevin I.N. Ibeh, Idika Awa Uduma, Dilshod Makhmadshoev and Nnamdi O. Madichie
The purpose of this paper is to explore the motivations underpinning the foreign direct investment (FDI) activities, including the location and entry mode decisions, of nascent…
Abstract
Purpose
The purpose of this paper is to explore the motivations underpinning the foreign direct investment (FDI) activities, including the location and entry mode decisions, of nascent multinational enterprises (MNEs) from West Africa.
Design/methodology/approach
This research adopted a case study approach entailing the triangulation of interview data with documentary evidence on two leading West African financial service companies that have FDI footprints in over 50 country markets.
Findings
Evidence suggests the primacy of market-seeking motivations in explaining the FDI activities of the explored nascent MNEs, with relationship, efficiency and mission-driven motivations emerging as strong sub-themes. Having neither the global resonance of their traditional counterparts nor the government-augmented resource profile of their Asian counterparts, the study firms appear to have shied away from costly strategic asset and prestige-seeking FDI, and preferred psychically and institutionally proximate sub-Saharan African markets and non-organic collaborative entry modes.
Research limitations/implications
The above insights should be considered tentative given the study’s limited evidence base. This underscores the need for a larger scale empirical effort to assess the propositional inventory outlined at the end of this paper.
Practical implications
Africa’s growing population of MNEs are urged to continue to strengthen their positions across African markets, view these regional markets as a platform to learn and upgrade their capabilities for future expansion into more challenging global markets, and to augment their limited resource profiles, including by tapping into their global diaspora networks. Policy makers should support their market-seeking initiatives given evidence that they could be a pathway to higher order FDI motivations. This evolutionary approach reflects enduring lessons from earlier generations of MNEs. Policy makers should also support continuing intra-African investment flows as a pathway to creating more sizeable, integrated African markets and generating positive spill-overs, including in typically blind-sided post-conflict or fragile African markets. This also entails pushing for cross-border regulation needed to minimise the transfer of systemic risks across countries.
Originality/value
The study provides rare empirical evidence on hitherto neglected MNEs from sub-Saharan Africa, thus extending the geographic compass of research on FDI motivations. It identifies some distinctive aspects of the explored MNEs’ FDI behaviour, including the previously unheralded mission-driven motivation, whilst also revealing shared characteristics with traditional MNEs and emerging market multinational enterprisess.
Details
Keywords
The purpose of this paper is to examine the trade relationship between China and other developing countries, analyze the regional structure and the commodity composition, and give…
Abstract
Purpose
The purpose of this paper is to examine the trade relationship between China and other developing countries, analyze the regional structure and the commodity composition, and give policy advice to promote economic and trade ties between them and then investigate the trade foundation of South‐South cooperation.
Design/methodology/approach
The approach takes the form of a statistical and quantitative analysis of trade flows. Some creative indicators are designed to measure the competitiveness and complementarities existing between China and developing countries. The sample of the study comprises 165 developing countries excluding those newly industrialized economies such as Singapore, and South Korea.
Findings
Developing countries are very important trade partners of China as a whole and trade with them has increased relatively fast in the last ten years. The pattern of trade shows that China has a complement in trade with most of developing countries although competitiveness exists in certain countries and some products. This close trade relationship laid a solid foundation for broader practice in South‐South cooperation including foreign direct investment.
Practical implications
China urgently needs to build a closed connection with other developing countries. The Going Out strategy provides an opportunity for Chinese firms to capture the international market and resources, and also for other developing countries to increase their domestic capital and production capability.
Originality/value
The paper assesses the trade relationship between China and other developing countries from a distinct perspective: South‐South cooperation. The findings are useful for policymakers to enhance South‐South cooperation and jointly face up to the challenges brought about by globalization.
Details
Keywords
Kader Şahin, Seyfettin Artan and Seda Tuysuz
– This paper aims to investigate the moderating effects of a board of directors on foreign direct investment (FDI)’s international diversification in Turkey.
Abstract
Purpose
This paper aims to investigate the moderating effects of a board of directors on foreign direct investment (FDI)’s international diversification in Turkey.
Design/methodology/approach
A sample of Turkish multinational firms with FDI was used. Two different aspects of international diversification were considered: the relationship between international diversification and financial performance and the moderating effect of board composition on the relationship between international diversification and the firm’s financial performance. Firm-level data were obtained from the Istanbul Stock Exchange in Turkey.
Findings
The findings reveal that international diversification leads to better financial performance according to market-based measures. On the other hand, this study indicates that the board characteristics have a moderating effect on international diversification and financial performance.
Research limitations/implications
The study is based on a sample of publicly listed firms in Turkey, and this restriction limits the generalizability of the findings.
Practical implications
The internalization efforts of Turkish FDI have led to better financial performance in terms of market-based measures. The results have stated that the interest of independent outside directors is aligned with lower-risk investment decisions. Independence of independent outside directors in Turkey is interrogated by practitioners or the Capital Markets Board of Turkey. The larger board size which a moderator variable is provided, the wider shareholder value in Turkey is.
Social implications
One can understand that the development of market-supporting institutions provides the support for entry to an emerging economy which is inefficient or incomplete markets and highly concentrated family ownership.
Originality/value
These findings provide important implications for corporate governance and highlight the need for further research on the role of governance in firm internationalization. This study not only helps to understand how board characteristics affect the choice of international diversification decisions, but the results also allow to assess the performance implications of these choices for a particular period.
Details
Keywords
Seong-Bong Lee, Masaaki Kotabe, Doohoi Heo, Byung Jin Kang and Albert H. Yoon
This paper examines the statistical relationship between outbound Foreign Direct Investment (FDI) and firm performance. We focus on how the link is influenced by sector-specific…
Abstract
Purpose
This paper examines the statistical relationship between outbound Foreign Direct Investment (FDI) and firm performance. We focus on how the link is influenced by sector-specific differences and geographical factors.
Methodology
We compile a time-series cross-sectional dataset that includes financial variables and FDI activities of South Korean firms between 2005 and 2008 from the DART, a financial statement database. Then, we fit our data against the linear regression models that we designed to identify FDI-performance relationship in different subsamples. Our measurement of firm performance is specifically constructed to reflect excess returns in the stock market.
Findings
We found compelling differences in the degree of FDI-performance relationships across different industries. In manufacturing sectors, the flow of direct investment is more heavily associated with firm performances than accumulated stock of direct investment, and vice versa in the service sector. The impact of China factors toward performance aspects of Korea’s outbound FDI which also differs across sectors as well.
Value
Although there have been extensive research efforts on this subject in general, our paper addresses an increasingly significant class of FDIs that have received relatively less attention, that is, direct investment originating from developing economies. Also, our analysis adds a sectoral dimension that contributes to more comprehensive understanding of a multinational-performance relationship.
Details
Keywords
Sasidaran Gopalan, Rabin Hattari and Ramkishen S. Rajan
This paper aims to examine the dynamics of foreign direct investment (FDI) inflows into Indonesia. It is interested specifically in analysing and deliberating on two important…
Abstract
Purpose
This paper aims to examine the dynamics of foreign direct investment (FDI) inflows into Indonesia. It is interested specifically in analysing and deliberating on two important policy questions: First, are all kinds of FDI useful from a policy perspective and what does the existing data on FDI reveal about the type of FDI inflows into Indonesia? Second, does the existing data help understand the extent of de facto bilateral linkages between Indonesia and other countries?
Design/methodology/approach
The paper offers an in-depth case study of Indonesia using extensive exploratory data analysis on FDI inflows into Indonesia. As discussed in the paper, the data investigation uses and reconciles available FDI data both from national and international sources to understand the usefulness of such data for policy analysis.
Findings
A data investigation of the trends in different types of FDI flows reveals a discernible downward trend in the ratio of mergers and acquisitions (M&A)–FDI ratio over the years. The paper argues that from a sequencing perspective, while a medium-to-long-term framework encouraging both domestic and foreign Greenfield investments could help Indonesia regain its growth luster, in the near term much more attention needs to be paid to FDI inflows in the form of M&As. Further, reconciling FDI and M&A data might help identify the original sources of FDI flows because existing data are based on flow of funds rather than ultimate ownership.
Practical implications
Since the Asian financial crisis, Indonesia has successfully embarked on a phase of economic and political transition post-Suharto, with the cornerstones of such a strategy being a process of greater democratisation and decentralisation. However, there have been growing concerns of economic growth stagnation in recent years. One of the policies to revive the economy’s lustre adopted by the government has been to attract greater FDI inflows. In this light, this paper examines the dynamics of FDI into Indonesia and deliberates on what kinds of FDI policymakers should focus on attracting to restore the country’s growth lustre.
Originality/value
The question of whether a policy to attract FDI should be careful in distinguishing the kind of FDI it wants to attract has not been sufficiently addressed in the related literature. This paper provides a framework to understand the different macroeconomic policy implications of types of FDI and provides extensive data analysis to not only understand the types of FDI but also sources of bilateral FDI inflows to Indonesia by reconciling FDI and M&A data.
Details