Implications for strategies of MNCs in emerging economies
Only a few studies have found a firm’s resources to act as location determinant. For instance, such resources have been found to influence the sub-national location choices of overseas firms investing with asset-seeking strategies in the USA (Alcacer, 2006; Jain Hausknecht & et al., 2013). As Dunning (2009; Jain Hausknecht & et al., 2013) observed, location is now a more complex decision than the one proposed in the international process (IP) model. Single factor theories do not always offer a sufficient response to the possible variations in causal factors.
Marinov & Marinova (2012) argues that to support organizations in making them viable OFDI players in developed economies there is an increasing pressure on emerging economies to achieve a form of supranational institutional legitimacy, which requires adjusting their institution system in employment statutes, education and national innovation systems, financial markets, and corporate governance systems. Therefore, OFDI from EEs tend to institutional and cultural related locations. Talking about emerging economies, BRICs (Brazil, Russia, India and China) who take the largest FDI share cannot be ignored. The BRICS countries -- Brazil, the Russian Federation, India, China and South Africa -- continued to be the leading sources of FDI among emerging investor countries (Chen and Dhara, 2013). For example, Chinese multinationals were found to have preference for hosts with locational proximity, small size and high natural resource endowments (Pradhan, 2012). The Ministry of Commerce's statistics suggest that about 60% of the approved Chinese outward investment during 1979-2002 was destined to Asia (table 1) (UNCTAD, 2003).
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UNCTAD, 2003, “China: an emerging FDI outward investor” [online] Available from: http://unctad.org/Sections/dite_fdistat/docs/china_ebrief_en.pdf (Accessed: 21/02/2014)
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Wang, C., Hong, J., Kafouros, M. & Wright, M. 2012, "Exploring the role of government involvement in outward FDI from emerging economies", Journal of International Business Studies, vol. 43, no. 7, pp. 655.
I found this article "Foreign direct investment: Companies rush in with the cash" on the financial times website (www.FT.com) published December 11, 2002 written by John Thornhill. The reason for choosing this article is my personal interest in the Chinese economy and its attractiveness to the foreign investors. Apart from the foreign direct investment this topic has also helped me in understanding the impact of Chinese economy on the global market.
Since foreign aid programs are here to stay, it is important to focus on the enormous potential for foreign aid to be effective. One such way is through augmenting a state’s ability to attract foreign direct investment (FDI). FDI is a good option because it has the potential to be a more long-term solution than pub...
One of the most well accepted models of FDI is Buckley and Casson’s (1976) internalisation theory, who developed a model of MNCs and FDIs centered around the interrelationship between market imperfections, knowledge and the internalisation of production and consumption (Buckley and Casson, 2009). Specifically, the theory recognized that multinational corporations are both horizontally and vertically organized, and that the “the vertically integrated firm internalises a market for an intermediate product, just as the horizontal MNE [multinational enterprise] internalises markets for proprietary assets” (Caves, 1996: p.13). In addition, internalisation will occur, and multinational corporations will expand only as far as the advantages, including barriers to entry, are not offset by the costs of control, communi...
Hill, C., Wee, C. and Udayasankar, K. 2012.International Business:An Asian Perspective. 8th ed. Singapore: McGraw-Hill.
Political and legal considerations were given first priority in this analysis with primary emphasis given to whether a country's legal or political system prohibits or impedes foreign investment. If a country's political or legal system discouraged or prevented foreign investment, that country was disqualified from further consideration. Factors considered when assessing the political and legal environment:
When it comes to doing business internationally the decision making is more complex. There are many interactions between each country that need to be addressed. In order for a business to be successful in the international market they need to examine and analyze all the facets of their company. They need
Chellaraj, G., & Mattoo, A. (2009). Can the knowledge-capital model explain sectoral foreign investment?: Evidence from Singapore. Honolulu, Hawaii: East-West Center.
According to Teagarden & Cai (2009) Chinese companies have expanded abroad for three reasons. Firstly, ‘to secure natural resources to satisfy the demand of their home costumers for raw and fuel; secondly to identify and secure foreign technology and know-how; finally, to escape home market saturation and ruthless price wars’ (Teagarden & Cai, 2009: 73). In addition, Teagarden & Cai (2009) noted that in order to become multinational firms, Chinese companies followed a pattern of four phases:
In the year 2007, China and India ranked first and second respectively in the list of ideal foreign direct investment (FDI) destinations, according to A T Kearney, a global strategic management consulting firm (The Press Trust of India Limited, 2007a). The two nations, because of their similarities in geopolitical, economic and demographic aspects, are often compared with each other. To determine which one is more attractive for businesses to expand to, this essay will examine the business environment of both countries from the following perspectives: political/legal, economic, socio-cultural and technological.
Multinational corporations, for example, are actors that need to be accounted for, because their role usually involves providing FDI. FDI projects can be either horizontal or vertical. Horizontal FDI is when the whole production process is copy-pasted between economies, the production facilities are set up with the aim of servicing that specific economy. Horizontal FDI is often used instead of exports to get past trade barriers such as import tariffs (Helpman, Melitz & Yeaple 2003). Vertical FDI on the other hand is where the production process is broken down in stages between economies. Each economy takes care of only a part of the whole production process of the relevant good and the outputs are then transported to their final assembling place. Vertical FDI can be used to gain from international differences in price of inputs, such as labor (Helpman
Multinational enterprise (MNE) is “a company that is headquartered in one country but has operations in one or more other countries” (Rugman and Collinson 2012, p.38) that has at least one office in different countries but centralised home office. These offices coordinate global management in the context of international business. MNEs have increasingly essential influence on the development of the global economy and coordinate with other companies in different business environments. However, there are many issues involved with how MNEs operate well overseas, especially in emerging markets (EMs) (Cavusgil et al., 2013, p.5).
These factors encourage the SME to seek a non EU market and a central location where it can gain advantage from a lot of
Oesterie, M. J., Richta, H. N., & Fisch, J. H. (2012). The influence of ownership structure on internationalization. International Business Review, 22(1), 187-201.
International Monetary Fund. WEI, Shang-Jin (2001). Corruption and Globalization. Last accessed on 31 March 2005 at URL: http://www.brookings.edu/comm/policybriefs/pb79.pdf ZEKOS, Georgios I. (2003). Foreign Direct Investment in Digital Economy.