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Impact of motives of inward FDI on benefits perceived by foreign multinational enterprises investing in India
Abstract
The study aims to determine the principal motives of inward foreign direct investment by foreign multinational companies in India. The study undertakes to find out the impact of motives of inward foreign investment of multinational firms on benefits as perceived by the managers. The paper uses a survey approach to collect data about motives and its impact on benefits. Statistical tools, namely confirmatory factor analysis, structural equation modeling have been used. The study found that principal motive for foreign multinational firms to undertake investment is market-seeking followed by resource-seeking and efficiency-seeking motive. The strategic-asset seeking motive does not significantly influence foreign direct investment in India. The study found a positive impact between perceived benefits and motives of inward foreign direct investment in India.
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Purpose
The purpose of this paper is to examine the motivations behind Indian firms’ outward investment, i.e. whether these firms are investing abroad in search of market, resource, technology, strategic-assets, efficiency, etc. Outward FDI by Indian firms has increased considerably in recent years. Such investments have gone to more than hundred host countries and into various sectors. The higher volume of outward FDI following policy reforms requires examination of factors that have motivated Indian firms to invest in different host countries.
Design/methodology/approach
The empirical analysis is done for the period from 2008-2009 to 2011-2012 using firm-destination panel data with appropriate adjustment for clustering.
Findings
The analysis provides evidence of the existence of multiple motives behind such investments. Indian firms are found to have invested abroad in search of resource, technology (strategic-assets) and efficiency, whereas the evidence on market-seeking motive is found to be at best weak in the empirical analysis. The results are robust to the use of alternative sample of outward investing firms.
Practical implications
This analysis of firm-level motivation of outward FDI by Indian multinationals has pertinent policy implications as well. The presence of multiple motives implies that Indian firms could bring multiple benefits to the Indian economy through outward FDI.
Originality/value
The link between outward FDI and host country factors is examined at the firm level as against at the aggregative level using a comprehensive and unique official database on actual outward FDI made by Indian firms, originating from both manufacturing and non-manufacturing sectors, in the form of equity and loan.
Knowledge is the preeminent resource of firms that wish to become and/or remain globally competitive. This is especially true for emerging market multinationals, whose ability to overcome their inherent disadvantages as latecomers relies heavily on their ability to seek knowledge outside of their home borders through foreign direct investment.
Our conceptual framework explores drivers of knowledge-seeking foreign direct investment, the types of functional knowledge sought, and the impact on location choice and entry mode decisions.
It is argued that EMNE knowledge-seeking outward FDI is not based on the traditional asset-exploitation model of FDI, but rather tends to be focused on asset-augmentation through the exploitation of EMNE unique circumstances.
Specifically, this work posits that an EMNE’s strategic orientation predicts its propensity to engage in knowledge-seeking FDI and that the type of knowledge sought predicts location choice and entry mode.
What drives firms, particularly those from emerging economies, to engage in competitive catch-up with world leaders? We study the first step leading to catch-up, namely the managerial intent to acquire strategic assets that help closing the gap. Theoretically grounded in the awareness–motivation–capability (AMC) framework of competitive dynamics, we identify key factors contributing to firms’ strategic intent to catch-up by acquiring strategic assets abroad. Using a sample of 154 Chinese firms, we find that firms’ strategic assets seeking intent of foreign direct investment is influenced by their exposure to foreign competition, their governance structure, and relevant financial and managerial capabilities.
The eclectic paradigm as developed by Dunning evolved in response to the changing IB milieu. I argue that this continual expansion threatens to make the paradigm tautological, without an honest “gatekeeper.” Continual expansion to address new lacunae begins to have decreasing returns, either because the gatekeeper cannot expect to have the specialized knowledge, or because the number of extensions makes the final product unwieldy. I propose a return to a basic eclectic paradigm, which I refer to as “EP-lite,” that can then be complemented by other frameworks and theories as needed. In a similar vein, the growing number of sub-categories of ownership advantages does not in itself provide greater clarity. Besides, the “correct” definition of what constitute O advantages is relative to the purpose for which it is being used.
This paper evaluates the proposition that development of human capital can be instrumental in attracting FDI in developing countries by using fixed effects models on the panel data of 23 selected developing countries and 35 years (1970-2004). For the purpose, we employ two indicators of human capital development that are health expenditures and illiteracy rate and our empirical estimates confirm the efficiency seeking behavior of the MNEs. This study differs from the existing empirical literature-earlier FDI was mainly driven by market seeking motive and latter on by efficiency seeking motive- by finding the importance of both motives at the same time. Excessive government consumption and military expenditures are comparatively more significant, reflecting non-market friendly approaches. The impact of real lending interest rate on FDI is positive because higher lending interest rate in host countries mean MNEs have cost advantages in term of financing by home countries.
Why and how firms take advantage of foreign opportunities, especially via foreign direct investment (FDI) has been much documented. China, as a major emerging market, has attracted significant flows of FDI, to become the second largest receipt. This paper briefly examines the literature on FDI and focuses on likely determinants of FDI in China. It then analyses responses from 22 firms operating in China on what they see as the important motivations for them to undertake FDI. Results show that market size is a major factor for FDI especially for US firms. For local, export-orientated, Asian firms, low labor costs are the main factor. The paper concludes with managerial implications for businesses wish to exploit opportunities in China.
The purpose of this paper is to empirically investigate how ownership-specific, location-specific, internalization and strategic advantages have influenced the location strategies of Finnish firms in 10 South and Southeast Asian countries from 1980 to 2000. Despite the increased interest in foreign direct investments (FDIs), very few studies have been undertaken to empirically analyse influential ownership-specific, location-specific and internalization (OLI) variables together with strategic advantages in order to assess FDI decision-making among foreign investors. To the best of our knowledge, strategic motives particularly have remained primarily anecdotal. This paper is apparently the first attempt to analyse how the above OLI advantages have influenced Finnish manufacturing firms in Asian countries. The research results indicate that large parent firm size, large international experience, large market size in the target country, low cultural distance and low wage rates increase the probability of market-seeking and efficiency-seeking FDIs. It has also been found that low levels of inflation, low levels of risk and a high level of exchange rate fluctuation in the target country increase the probability of risk-reduction seeking FDIs. Finally, the results show that high R&D intensity in the parent firm increases the probability of knowledge-seeking FDIs in Asian countries.Asian Business & Management (2005) 4, 293313. doi:10.1057/palgrave.abm.9200133
A questionnaire survey covering MNCs that had invested in Greece during the period 1995-2003 is carried out in order to determine the motives for investing in Greece through a phase of increased expectations on foreign investment from hosting the 2004 Olympiad. The underlying assumption made is that the views of the local managers reflect the views of the mother company when deciding to invest. Although the findings represent the time that the investment took place, the influence of the conditions shaping the economic environment at the time the survey was carried out is also discussed. The findings indicate that the primary motives of foreign investors for the period 1995-2003 were those associated with market-seeking and support those of quantitative studies covering recent developments, leading to the conclusion that there is no progress made regarding the factors that enhance FDI attractiveness.
To what extent do firms go abroad to access technology available in other locations? This paper examines whether and when state technical capabilities attract foreign investment in manufacturing from 1987-1993. We find that on average state R&D intensity does not attract foreign direct investment. Most investing firms are in lower-tech industries and locate in low R&D intensity states, suggesting little interest in state technical capabilities. In contrast, we find that firms in research-intensive industries are more likely to locate in states with high R&D intensity. Foreign firms in the pharmaceutical industry value state R&D intensity the most, at a level twice that of firms in the semiconductor industry, and four times that of electronics firms. Interestingly, not only firms from technically lagging nations, but also some firms from technically leading nations are attracted to R&D intensive states. This suggests that beyond catching up, firms use knowledge-seeking investments also to source technical diversity.
In this paper we examine the location determinants of the inflow of foreign direct investment (FDI) into Poland, at a regional level. Using survey data from an on-line questionnaire in February 2005 and a multinomial logit model incorporating the investor's specific characteristics, we show that knowledge-seeking factors alongside market and agglomeration factors, act as the main drivers for the inflow of FDI to the Mazowieckie region (including Warsaw), while efficiency and geographical factors encourage FDI to the other areas of Poland. Some implications are drawn for FDI attraction policy in Poland.
The extant literature had studied the determinants of the firms’ location decisions with help of host country characteristics and distances between home and host countries. Firm resources and its internationalization strategies had found limited attention in this literature. To address this gap, the research question in this dissertation was whether and how firms’ resources and internationalization strategies impacted the international location decisions of emerging market firms. To explore the research question, data were hand-collected from Indian software firms on their location decisions taken between April 2000 and March 2009. To analyze the multi-level longitudinal dataset, hierarchical linear modeling was used. The results showed that the internationalization strategies, namely market-seeking or labor-seeking had direct impact on firms’ location decision. This direct relationship was moderated by firm resource which, in case of Indian software firms, was the appraisal at CMMI level-5. Indian software firms located in developed countries with a market-seeking strategy and in emerging markets with a labor-seeking strategy. However, software firms with resource such as CMMI level-5 appraisal, when in a labor-seeking mode, were more likely to locate in a developed country over emerging market than firms without the appraisal. Software firms with CMMI level-5 appraisal, when in market-seeking mode, were more likely to locate in a developed country over an emerging market than firms without the appraisal. It was concluded that the internationalization strategies and resources of companies predicted their location choices, over and above the variables studied in the theoretical field of location determinants.
This paper applies Dunning's eclectic paradigm of Ownership, Location and Internalization (OLI) advantages to the international activity and performance dynamics of the Chinese family enterprise (CFE). Through the lens of Dunning's paradigm, we trace the role of cultural and economic factors in the success of this important form of organization. In demonstrating the relevance of a theory that originated in the analysis of Western multinational firms to this indigenous Chinese type of firm, the paper supports the larger effort to expand the scope of received theory to include Chinese as well as other non-Western forms of organization.
Chinese outward foreign direct investment (FDI) has increased substantially in recent years. Though this has generated considerable interest in the motivations and drivers of Chinese investment abroad, there have been few systematic empirical studies of these questions. This paper performs an econometric analysis of the host country determinants of Chinese outward FDI in the period 2003-2006. The focus is in particular on institutional and natural resource-related determinants, and their interaction. We find that Chinese outward FDI is attracted to large markets, and to countries with a combination of large natural resources and poor institutions. Disaggregation shows that the former effect is related to OECD countries, whereas the latter interaction effect holds for non-OECD countries.
Economic globalisation and the subsequent growth of global and alliance capitalism have fundamentally affected the way in which MNC activities are undertaken and organised. The various contributions to this special issue have evaluated the eclectic paradigm in the global economy, and its validity as a theoretical basis to understand these developments. This paper places these contributions into context. We highlight that globalisation has increased the interactive dynamics between and among 'O', 'L' and 'I' characteristics at firm, industry and country level, in at least two ways. First, a knowledge-based society has meant that the efficient exploitation of MNCs' ownership advantages and the continual need to augment and sustain their competitive advantages is ever more crucial, leading to a complex interdependence between ownership and location advantages. Second, globalisation has affected how MNCs seek to organise their cross-border activities coherently in response to changing boundaries of the firm. We find that the paradigm continues to provide a framework which facilitates how best to synthesise relevant complementary theories, or how to choose between potentially competing theories, and helps to operationalise them.
This study investigates the determinants of Chinese outward direct investment (ODI) and the extent to which three special explanations (capital market imperfections, special ownership advantages and institutional factors) need to be nested within the general theory of the multinational firm. We test our hypotheses using official Chinese ODI data collected between 1984 and 2001. We find Chinese ODI to be associated with high levels of political risk in, and cultural proximity to, host countries throughout, and with host market size and geographic proximity (1984–1991) and host natural resources endowments (1992–2001). We find strong support for the argument that aspects of the special theory help to explain the behaviour of Chinese multinational enterprises.Journal of International Business Studies (2007) 38, 499–518. doi:10.1057/palgrave.jibs.8400277
Since 1989 Austria's investment activities in Central and Eastern Europe has intensified. Investments are concentrated in adjacent countries. Geographical proximity and close historical and cultural ties have enabled even small and medium-sized Austrian enterprises to achieve a 'first mover advantage'. Investments have been performed to a large extent in industries that are typically not connected with outsourcing activities (trade, finance and insurance, construction). Market-driven factors and strategic considerations are the ultimate objective of these investments. Only a few sectors, in particular a so-called 'core' industrial sector (metal products, mechanical products, electrical and electronic equipment), indicate that low labour costs are of importance. Trade and sales data of the affiliates support the dominance of the local market. Whilst on average 66% of the affiliates output was sold locally this share was only 39% for the 'core' industrial sector. This sector indicates particular patterns of relocation. Nevertheless, until now this part of Austria's FDI has only been of minor importance.
Non-American firms have recently begun investing larger sums of money in the U.S. Such increased activity has created a great deal of interest and concern. The growth in foreign direct investment and findings of a mailed questionnaire will be reviewed in this article. Factor analysis was utilized to help isolate the salient motives for these investment activities. Although the size of the U.S. market and the attractiveness of a new market or the desire to preserve the existing U.S. market were the most frequently cited reasons for new investment in the U.S., factor analysis reveals that these reasons merely reinforce the primary motive: namely, the desire to benefit from a higher level of U.S. technology and innovation.© 1981 JIBS. Journal of International Business Studies (1981) 12, 25–34
The last two decades have witnessed an extensive growth in foreign direct investment (FDI) flows to developing countries. This has been accompanied by an increase in competition amongst the developing countries to attract FDI, resulting in higher investment incentives offered by the host governments and removal of restrictions on operations of foreign firms in their countries. This has also led to an ever-increasing number of bilateral investment treaties (BITs) and regional agreements on investments. In this scenario, the question addressed by the study is: How effective are these selective government policies and investment agreements in attracting FDI flows to developing countries and do FDI from developed and developing countries respond similarly to developing host countries' policies? To answer this, the study examines the impact of fiscal incentives offered, removal of restrictions and signing of bilateral and regional investment agreements with developed and developing countries on FDI inflows to developing countries, after controlling for the effect of economic fundamentals of the host countries. The analysis is first undertaken for aggregate FDI inflows to fifteen developing countries of South, East and South East Asia for the period 1980-81 to 1999-2000. Separate analyses are then undertaken for FDI from developed and developing countries. The results based on random effects model show that fiscal incentives do not have any significant impact on aggregate FDI, but removal of restrictions attracts aggregate FDI. However, FDI from developed and developing countries are attracted to different selective policies. While lowering of restrictions attract FDI from developed countries, fiscal incentives and lower tariffs attract FDI from developing countries. Interestingly, BITs, which emphasize non-discriminatory treatment of FDI, are found to have a significant impact on aggregate FDI. But it is BITs with developed countries rather than developing countries that ar found to have a significant impact on FDI inflows to developing countries
Over the past two decades, Chinese multinationals have made a huge amount of foreign direct investment abroad, making China one of the world's leading foreign investors. The phenomenon has not been widely studied from a business perspective, however. Given the increasing prominence of Chinese MNCs in global business, this study of both macro and micro data sets out to fill the gap by concentrating on the motives underlying Chinese MNCs to invest abroad, and by examining their unique features, which differ particularly from other MNCs in emerging countries. A detailed analysis and a number of cases round out the discussion.
This paper analyzes the determinants of Foreign Direct Investment (FDI) to developing countries and examines why Sub-Saharan Africa (SSA) has been relatively unsuccessful in attracting FDI despite policy reform. The results indicate that the factors that drive FDI have a differential impact on FDI flows to SSA. Specifically, infrastructure development and a higher return on capital promote FDI to non-SSA countries. In contrast these factors have no effect on FDI to SSA. Openness to trade promotes FDI to both SSA and non-SSA countries, however, the marginal benefit from increased openness is less for SSA-suggesting that trade liberalization will generate more FDI to non-SSA countries than SSA countries. Another important finding is that there is an "adverse regional effect" for SSA: a country in SSA will receive less FDI by virtue of its geographical location. These results suggest that Africa is different!
This paper examines the trends and determinants of South Korean outward foreign direct investment (FDI) and the extent to which location decisions in a single country need to be nested within the general theory of the multinational firm. In a conceptual framework analysis, the patterns of South Korean outward FDI exhibit several different types of motivations for going abroad. We empirically examine the important factors for the location decisions of South Korean outward FDI, considering host countries at very different stages of economic development. In line with this objective, we test the determinants of South Korean outward FDI using macroeconomic factors of host countries. Thus, we both identify several factors that affect such trends and develop hypotheses that could explain the phenomenon generically. We test our hypotheses using official South Korean outward FDI data collected from 1994 to 2005. Several distinctive features correspond to the behaviour of South Korean multinational firms. As a result, we find that the dynamic effects of economic development have influenced the changing character of outward FDI.
Purpose
– The purpose of this paper is to determine the motives of cross-border mergers and acquisitions (M & A) by Indian companies for the period 1998 through 2009. The study has also attempted to ascertain the post-merger paybacks realized by the sample acquirer companies. It also identifies the motives which help in improving the post-merger performance. The preference of the motives and post-merger paybacks realized across the development status of the host economy, age and industry of the company has also been found.
Design/methodology/approach
– This paper uses a survey approach to collect the responses over the motives and post-merger paybacks. Statistical tools, namely, Likert scale, factor analysis, independent samples t-test and binary logistic regression have been used.
Findings
– The study found that there are five motives of cross-border M & A – value creation, improvement in efficiency, market leadership, marketing and strategic motives and synergistic gains. The results also indicated that the acquirer firms expect cost and financial efficiency, stakeholders’ benefits and employee welfare post acquisition. The motive of value creation significantly improves the post-merger financial performance.
Research limitations/implications
– The study has only considered the cross-border M & A but not domestic M & A.
Practical implications
– The research is an attempt to understand the dynamics which are responsible for motivating Indian companies to go abroad for acquisitions. Thus, it would help the prospective Indian acquirer companies to focus on the motives which help in improving the post-merger financial performance.
Originality/value
– This research paper is original as it explores the motivation of Indian companies for entering into cross-border M & A. It adds to the extant literature of cross-border M & A by emerging economies multinational enterprises.
This study examines the macroeconomic factors underlying FDI flows to India using cointegrating VAR with I(1) exogenous variables. The results indicate that conventional determinants such as a depreciating exchange rate, higher domestic returns, higher domestic output and better infrastructure are conducive to FDI flows to India. The results also indicate that macroeconomic instability has adverse effects while credit worthiness is conducive to FDI flows. A negative relation between trade openness and FDI is observed suggesting that FDI flows to India may be tariff jumping in nature. Empirical estimates also indicate that an increase in global FDI flows to other emerging economies reduces FDI flows to India indicating that India competes with other emerging economies in receiving FDI. Further, the results show that higher foreign output is conducive to FDI flows indicating procyclicality of FDI with economic performance of foreign countries.
Foreign direct investment (FDI) inflows to the developing countries have increased with a greater pace in the 1990s accounting for about 46.1 % of global FDI inflows in the year 2010. Similar trends have also been visualized in India where FDI has expanded rapidly following the economic reforms initiated in the early 1990s. These were directed towards increased liberalization, privatization and deregulation of the industrial sector, integrating the economy with that of world economy by reducing trade barriers and adapting favourable policy framework towards expansion of foreign investment in the country. This has made Indian economy a favourable destination for foreign investors. The present study explores the determinants of FDI that influence the inflows of FDI into India. Explanatory variables used in the study are gross domestic product (GDP), foreign exchange reserves (RES), long-term debt (LTD), inflation (INF), exchange rate (EXCH) and openness (OP). Empirical analysis concludes that the variables OP, Reserves, GDP and LTD have found to have positive impact on FDI, while negative impacts of INF and EXCH on FDI have been noticed.
Since China opened its economy to foreign investment in 1979, it has become the second largest Foreign Direct Investment (FDI) destination in the world after the USA. Over the past three decades, the manufacturing sector has dominated China’s FDI inflow, however, when manufacturing activity is bifurcated into low and high technology classes, it becomes evident that China is in a transition stage, moving from FDI in traditional low-tech manufacturing activity to a high-tech manufacturing environment. This paper attempts to analyse the key determinants of FDI inflow across low and high technology manufacturing industry across the four geographical regions of China. In the paper we empirically investigate the determinants of FDI inflows to both high and low-tech manufacturing industries by market size, labor cost, labor quality, and government spending on human capita.
According to eclectic theory of Dunning, FDI could be of four types: market seeking, resource seeking, efficiency seeking and strategic asset seeking. Market seeking factors of FDI such as market size, market growth, structure of domestic market, etc. aim at penetrating the local markets of host countries. While resource seeking investments are made in order to have access to cheap raw material, pool of labor, infrastructure, etc. New sources of competitiveness, economies of scope and specialization and low cost of production are some of the efficiency seeking factors of FDI. An attempt is made to study the impact of market seeking, efficiency seeking and resource seeking factors of host countries on FDI inflows of host countries by taking sample 10 Asian countries in the time period 1991 to 2008. Panel regression results show that all categories of FDI motivating factors have a significant impact on FDI inflows.
The aim of this paper is to study the determinants of FDI in the 260 EU NUTS2 regions between 2000 and 2006. After reviewing the relevant literature and the major traits of the FDI regional distribution in the EU, we analyse its drivers. First, we specify the model and perform a factor analysis to reduce the vast number of potential determinants to a manageable size. Afterwards, we estimate a reduced version of the model with the extracted factors as independent variables. We find that economic potential, labour market characteristics, technological progress and competitiveness exert a significant impact on FDI location patterns; in contrast, market size and labour regulation do not seem to play any noteworthy role. Finally, we perform some robustness tests to make sure the results are not sensitive to outliers, spatial dependence, size of regions, endogeneity and the consideration of just the top 50 FDI recipient regions.
Outward foreign direct investment (OFDI) of Thai garment industry and the differences between firms with and without OFDI are explored by interview and survey during June and December 2008. Efficiency seeking is the most important OFDI motive, while labour shortage and general cost pressure are the most important push factors. Incentives, capacity building, and market intelligence are home government measures that firms are looking for. Firms with OFDI have higher levels of management proficiency than firms without OFDI due to their larger size and being more ready in terms of market to serve and production technology. Most activities of OFDI are production based. Low labour costs and cultural proximity are among the most important criteria in investment location selection. Generally, the reasons for OFDI in garment industry from Thailand to be minimal can be both internal and external factors. For internal factors, it is shown that firms with no OFDI are far behind those with OFDI in terms of management proficiency, capital resources (size), and firm readiness. It is thus suggested that Thai garment firms need to upgrade their factors of production and focus more on management skills if they want to expand internationally. Regarding external factors, home government policies that incentivize firms pursuing OFDI are still lacking. It is therefore suggested that the Thai (home) government not only develop policies that help push OFDI in the short run but also need to improve the location (L) advantages which in turn will help indigenous firms to upgrade their ownership (O) specific competitive advantages in the long run.
Presents the findings of an exploratory study into the motives and experiences of British firms participating in international joint ventures in Hungary. A great deal of foreign direct investment has been taking place in Central and Eastern Europe since the early 1990s. To date, little research has been conducted on the impact of this investment. A mail study of British firms operating in Hungary was conducted. The results reveal that its stable economic environment and the potential of its market were the primary reasons why firms invested in Hungary. However, political, economic and institutional problems are being experienced by investors.
Purpose
The purpose of this paper is to examine the determinants of foreign direct investment (FDI) in India.
Design/methodology/approach
Using macroeconomic variables – GDP, inflation rate, interest rate, patents, money growth and foreign trade – the authors tried to find the best fit model (ARIMA (p,d,q)) to explain variation in FDI inflows into India. The authors tested for various assumptions taken before applying autoregressive integrated moving average (ARIMA) such as heteroscedasticity, autocorrelations, etc. using standard tests and quantified FDI policy changes using dummy variables.
Findings
It was found that of all macroeconomic variables taken, only GDP, inflation rate and scientific research are significant and that FDI Policy changes during years 1995‐1997 have had a significant impact on FDI inflows into India.
Research limitations/implications
The authors' econometric model explains 63 percent variation in FDI inflows into India. Implicitly, the balance 37 percent variation in FDI inflows is still unexplained and so further study should be undertaken with even wider scope in terms of macroeconomic variables such as exchange rate, etc.
Practical implications
As a recommendation for future FDI policy planning and implementation, the authors suggest the Government of India gives resources towards variables that have been classified as significant in this paper, namely GDP growth and inflation rate and should open the economy further. Sectors not yet open to FDI investments should be opened and although inflation rate should be controlled but some inflation is beneficial.
Originality/value
There has been no authoritative study until now to find “Determinants of FDI inflow to India” and this paper also goes a step forward and presents accurate models that can be used to forecast FDI inflows based on the macroeconomic variables considered.
This paper examines the motives behind foreign direct investment (FDI) in a group of four CIS countries (Ukraine, Moldova, Georgia and Kyrgyzstan) based on a survey of 120 enterprises. The results indicate that non-oil multi-national enterprises (MNEs) are predominantly oriented at serving local markets. Most MNEs in the CIS operate as ‘isolated players’, maintaining strong links to their parent companies, while minimally cooperating with local CIS firms. The surveyed firms secure the majority of supplies from international sources. For this reason, the possibility for spillovers arising from cooperation with foreign-owned firms in the CIS is rather low at this time. The lack of efficiency-seeking investment poses further concern regarding the nature of FDI in the region. The most significant problems identified in the daily operations of the surveyed foreign firms are: the volatility of the political and economic environment, the ambiguity of the legal system and the high levels of corruption.
This paper considers the strategic motivation for cross border mergers and acquisitions (CBM&As) for a sample of UK firms acquiring North American and European firms. The leading set of motives lends support to the theories of strategic positioning and the resource based view. The highest ranked strategic motives for CBM&As are to enable presence in new markets, to enable faster entry to market, to facilitate international expansion, gain new capabilities and gain strategic assets. Hypotheses are tested on the relationship between the relative importance of individual strategic motives and a number of characteristics of the sample. In general findings show that there is little variation in the relative importance of the strategic motives across the characteristics of the sample.
Using a dataset which breaks down FDI flows into primary, secondary and tertiary sector investments and a GMM dynamic approach to address concerns about endogeneity, the paper analyzes various macroeconomic, developmental, and institutional/qualitative determinants of FDI in a sample of emerging market and developed economies. While FDI flows into the primary sector show little dependence on any of these variables, secondary and tertiary sector investments are affected in different ways by countries’ income levels and exchange rate valuation, as well as development indicators such as financial depth and school enrollment, and institutional factors such as judicial independence and labor market flexibility. Finally, we find that the effect of these factors often differs between advanced and emerging economies.
As the field of international business has matured, there have been shifts in the core unit of analysis. First, there was analysis at country level, using national statistics on trade and foreign direct investment (FDI). Next, the focus shifted to the multinational enterprise (MNE) and the parent’s firm specific advantages (FSAs). Eventually the MNE was analysed as a network and the subsidiary became a unit of analysis.
We untangle the last fifty years of international business theory using a classification by these three units of analysis. This is the country-specific advantage (CSA) and firm-specific advantage (FSA) matrix. Will this integrative framework continue to be useful in the future? We demonstrate that this is likely as the CSA/FSA matrix permits integration of potentially useful alternative units of analysis, including the broad region of the triad.
Looking forward, we develop a new framework, visualized in two matrices, to show how distance really matters and how FSAs function in international business. Key to this are the concepts of compounded distance and resource recombination barriers facing MNEs when operating across national borders.
Using a panel dataset of bilateral flows of foreign direct investment (FDI), we study the determinants of FDI from Western countries, mainly in the European Union (EU), to Central and Eastern European ones. We find the most important influences to be unit labor costs, gravity factors, market size, and proximity. Interestingly, host country risk proves not to be a significant determinant. Our empirical work also indicates that announcements about EU Accession proposals have an impact on FDI for the future member countries. Journal of Comparative Economics32 (4) (2004) 775–787.
This paper updates some of the author's thinking on the eclectic paradigm of international production, and relates it to a number of mainstream, but context-specific economic and business theories. It suggests that by dynamizing the paradigm, and widening it to embrace asset-augmenting foreign direct investment and MNE, activity it may still claim to be the dominant paradigm explaining the extent and pattern of the foreign value added activities of firms in a globalizing, knowledge intensive and alliance based market economy.
This paper examines major investments by Western companies in Central Europe between 1989 and 1996. The results indicate that investors are primarily motivated to enter these transition economies on the basis of host country specific market factors, although the opportunity to gain first mover advantages or comparative labour cost advantages were also important elements in the investment equation. Subsequently, while investors have utilized various modes of investment to enter these new markets, there is a clear move to consolidate their shareholding positions. Finally, the signs are encouraging as the level of performance in many local firms seems to be improving.
This study empirically explores the role of corruption, and the impact of China joining the WTO in 2001 on inward foreign direct investment (FDI) in Malaysia. From the empirical tests, this study suggests:- (1) FDI and its determinants are cointegrated; (2) Openness, interest rate, inflation rate, the joining of China into the WTO, and the level of corruption are the major determinants explaining inward FDI in Malaysia, both in the long-run as well as short- run. In general, these findings do provide the policymakers with empirical information about the policy formation on the variables those stimulating FDI in Malaysia.
The eclectic paradigm of Dunning (1980) (with its OLI and
four motives for FDI framework) can be reconciled with the firm
and country matrix of Rugman (1981). However, the fit is not perfect.
The main reason for misalignment is that Dunning is focused upon outward
FDI into host economies, whereas Rugman’s matrix is for firm-level strategy
covering MNE activity in both home and host countries.
This paper analyzes the determinants of the location choices made by foreign investors at the district level in India to gauge the relative importance of economic geography factors, local business conditions, and the presence of previous foreign investors. We employ a discrete-choice model and Poisson regressions to control for the potential violation of the assumption of Independence of Irrelevant Alternatives. Our sample includes about 19,500 foreign investment projects approved in 447 districts from 1991-2005. We find that foreign investors strongly prefer locations where other foreign investors are. They are also attracted to industrially diverse locations and those with better infrastructure. We conclude that the concentration of FDI in a few locations could fuel regional divergence in post-reform India.
Dissertation (MIntBus)--University of Auckland, 2003.
This article first traces the changing world economic scenario for international business over the past two decades, and then goes on to examine its implications for the location of foreign direct investment and multinational enterprise activity. It suggests that many of the explanations of the 1970s and early 1980s need to be modified as firm-specific assets have become mobile across natural boundaries. A final section of the article examines the dynamic interface between the value-added activities of multinational enterprises in different locations.© 1998 JIBS. Journal of International Business Studies (1998) 29, 45–66
This article reviews some of the criticisms directed towards the eclectic paradigm of international production over the past decade, and restates its main tenets. The second part of the article considers a number of possible extensions of the paradigm and concludes by asserting that it remains “a robust general framework for explaining and analysing not only the economic rationale of economic production but many organisational and impact issues in relation to MNE activity as well.”© 1988 JIBS. Journal of International Business Studies (1988) 19, 1–31
This paper first sets out the main features of the eclectic theory of international production and then seeks to evaluate its significance of ownership- and location- specific variables in explaining the industrial pattern and geographical distribution of the sales of U.S. affiliates in fourteen manufacturing industries in seven countries in 1970.© 1980 JIBS. Journal of International Business Studies (1980) 11, 9–31
This paper analyses European Union FDI flows into the CEECs at a sector level, which is currently the less studied aspect of this issue. The aim is to understand whether and to what extent FDI in different sectors reacts to the same characteristics of the host countries. The paper first presents data that summarise the trend of FDI in the CEECs and, then, regression evidence that seeks to account for differences among sectors. A statistically significant positive association has been found between FDI and market size, wage differential, the stage of the transition process and the degree of openness of the economy as well. However, a statistically significant negative relation has been found for proximity to Europe and the degree of industrial concentration. This last effect suggests that strategic motivations completely offset the benefits generated by agglomeration economies. Controlling for sector specific effects, some differences emerge. Progress towards a market economy is relevant only in scale intensive and science based sectors, while labour cost is a potential attractiveness for foreign investors in traditional labour intensive sector and in science based ones. Also market considerations, proxied by the traditional gravity approach variables, affect FDI differently, depending on the industrial sector.
A vast empirical literature has used ad hoc linear cross-country regressions to search for the determinants of FDI. The literature is extensive and controversial. Can policy-makers use this body of research to learn anything that can help them stimulate FDI? In this paper I use Extreme Bound Analysis (EBA) to examine if any of the conclusions from the existing studies is robust to small changes in the conditioning information set. The EBA upholds the robustness of the correlation between FDI and market-size, as measured by per-capita GDP, but indicates that the relations between FDI and many of the controversial variables (namely, tax, wage, openness, exchange rate, tariff, growth, and trade balance) are highly sensitive to small alterations in the conditioning information set. I also study the distribution of the estimated coefficients of the controversial explanatory variables to rank them in order of the likelihood of their being correlated with FDI. Copyright 2001 by WWZ and Helbing & Lichtenhahn Verlag AG