The above arguments, and the perspective of this Focused Issue, suggest that we may even observe mimetic behaviour within the European host economy arising from inward FDI from China. This is a contentious point, and a reversal of the normal proposition that FDI from emerging economies into the advanced economies will succumb to isomorphic pressures exerted by the host economy. One parallel is the experience of the advanced economies of the EU with inward Japanese investment in the 1970s and 1980s. During this period, host economy firms began to emulate Japanese management and organisational practices. There is also the natural tendency, according to principles of social anthropology, on the part of people to imagine that they should adopt the practices of other nationalities that are found to be aspirational, or in the ascendancy (Gajewska-De Mattos et al, 2004). This applies to national corporate cultures that have enjoyed ostensible success, but it may extend more generally to the desire to emulate a wide range of practices. There is already some evidence of something of a “love affair” between EU host economy governments, their inward
DOI: 10.4236/tel.2018.85068 983 Theoretical Economics Letters influence on location choice of emerging economy MNEs. Empirical findings from this study suggest that successful pursuit of resource-seeking intent by an EMNE depends on how effective it can leverage its institutional advantages and overcome institutional constraints. Existing studies suggests that EMNEs re- spond to the institutional regime in the host countries in a manner different to their developed country counterparts, for example, they are more likely to locate in a host country with a high political risk     . Extending this line of research, our study posits that the way EMNEs respond to institu- tional constraints is influenced by strategic intent, such as resource-seeking in- tent. Second, our study contributes to the literature by emphasising the role played by embeddedness of institutional forces at a home country setting in making location choice. Studies highlight the heavy influence from the unique institutional forces of the home country as a significant feature of internation- alisation for EMNEs  . For the case of China, the state has a strong in- volvement in the firms’ FDI activities  . Our conceptualisations of po- litical risk and economic freedom provide a framework to reflect home country embeddedness in the measurement of the concepts for institutional forces. Moreover, the empirical findings from our study regarding the opposite direc- tions for interactive effects involving political risk and economic freedom dem- onstrates the influence of embeddedness from home country institutions in terms of both institutional advantages and institutional constraints to investing firms’ location choice. Third, this study examines a three-way interaction be- tween institutional forces and strategic intent. The empirical findings regarding this three-way interaction demonstrate a substituting effect between political risk and economic freedom in their interactions with resource-seeking intent to in- fluence FDI location choice. The substituting effects revealed in this study high- light the complexity of tasks facing emerging economy firms in leveraging insti- tutional advantages and overcoming institutional constraints in order to achieve the internal strategic intent when making an FDI location choice decision.
Gravity models utilize the attractive force concept as an analogy to explain volume of trade or capital flows. This paper aims at proving that direct investment flows between China and a group of South-East Asian countries are determined by standard variables included in gravity models such as: Gross domestic products of home and host economy and distance between them. In our gravity model on foreign direct investment (FDI) we include not only gravity variables but also other variables that may explain what factors affecting ChineseoutwardFDI (OFDI): Political risk, cultural proximity, the degree of openness to international trade and a proxy for natural resources. This paper, after having defined the variables that are capable of influencing Chinese OFDI, will suggest a method of econometric calculation of the gravitational model based on Prais-Winsten regression; correlated panels corrected standard errors.
1991). Proponents of this view argued that organizations should look within the company to uncover the key sources of such competitive advantages. Resources are classified as tangible and intangible, with intangible resources such as intellectual property rights and brand reputation being crucial sources (Barney, 1991; Prahalad & Hamel, 1994). Some researchers have specifically used RBV in the context of outwardFDI from the EMNEs (Cooke & Lin, 2012; Cui & Jiang, 2010). The intangible resources are found to be an important factor for Chinese OFDI in Europe. Regarding this, Amighini, Rabellotti, and Sanfilippo (2013) provide an empirical analysis of host country determinants of ChineseoutwardFDI for the period 2003 to 2008, using data disaggregated by country and industry. The study identifies the relevance of market-seeking, resource-seeking and strategic asset seeking motivations suggested by the theory on FDI to be the determinant. Thus, there are ample research models that support our hypothesis that FDI seeks innovation and entrepreneurship.
China’s “belt and road initiative” (BRI) (previously One belt, One road) (Cheng, 2016; Huang, 2016; Blanchard, 2018; Chen, 2018, Oxford International Infrastructure Consortium, 2016) raises many issues for the international direct investment policy regime. The close alignment of loans, direct investment, (Chinese) MNE involvement, state policy and geo-political relations requires great attention in unravelling and analysing the issues for the global economy, beyond the scope of this piece (for instance does the BRI promote ChineseoutwardFDI? Provisionally, yes, according to Du and Zhang, 2018). The potential debt servitude imposed on host states and the dual penetration of foreign investment and state policy make BRI a prime candidate for international supervision and regulation. Market imperfections here shade into market exclusion. Transparency is compromised and individual nation states are incapable of overall supervision. Such initiatives strengthen the case for an international policing framework, and for future research by the international business academic community.
With the growing process technological capability of Indian firms and off-patenting of many modern drugs since 1990, Indian pharmaceutical OFDI assumed greater scale and high degrees of geographical specialization in 1990s. A total of 61 Indian pharmaceutical companies undertook US $212 million worth of investment in 43 host countries in the 1990s (Table-1, Figure-3). Nearly 36 per cent of this aggregate investment has gone into developing countries. During this period a shift in the Indian policy regime occurred that allowed global competition into the pharmaceutical sector through inward FDI and imports of drugs. New competitive pressures in turn forced Indian pharmaceutical firms to expand their market focus and to improve their technological profile to include product development capability. The forthcoming product patent regime in 2005 and compulsory adoption of good manufacturing practices further diminished the traditional importance of process development capabilities in firms’ survival and growth strategy. This made Indian pharmaceutical firms more conscious about the importance of global markets and new sources of competitiveness like quality, product development capabilities and constant innovation in management system.
This study identified the determinants affecting China's OFDI, we have reviewed the evidences of the previous studies. First, the China’ OFDI were strongly influenced by the market size variables as GDP, GDP PerCapita, and openness to trade, conversely, Chinese investors were not more likely to pay much attention to GDP Growth of host countries. Cultural proximity had a positive impact on China's OFDI, Chinese enterprises have invested in host countries rating a large Chinese ethnicity in population as Indonesia, Singapore, Thailand, Hong Kong SAR, and Malaysia(Buckley et al., 2007). Furthermore, the host countries with weak institutions or rich natural resources are still attractive destinations with China's OFDI. Second, interestingly, we found that China’s OFDI is gradually moving to rich natural resources in developed countries having good institutions. Finally, the China’s “going global” policy, initial, disoriented I the ASEAN. However, China’s OFDI have flowed significantly since the two parties signed the in August 2009.
Thirdly, Chinese firms face increasing competition at home. Essentially, reform does not only mean an expansion of markets, but also greater competition among firms [Jefferson and Rawski, 1993], as market forces create a tendency to equalise financial returns to factors employed in different lines of business. Market forces and non-market forces have both contributed to the intensification of competition. In pursuing high financial returns, capital has flowed to activities where supply falls short of demand, leading to an end to the shortage economy, a consequence all centrally planned economies bear. Moreover, as the abolishment of the soft budget constraint lags behind the granting of autonomy in investment to various institutions (including firms) in the process of the decentralisation of investment system, over-investment has occurred in activities with high profit. Specifically, for a long time since the commencement of the economic reform, most of the state-owned enterprises, collective-owned enterprises and local government agencies have more and more leverage in investment decisions, but nobody bears the responsibility for investment failures in the meantime. In such a situation, firms and local governments are more active than ever in competing for state investment funds and banks’ loans to finance their investment projects. High information imperfection in the transitional period further fuels such behaviour. The situation was particularly bad in the 1980s: “the decentralisation of decision-making promoted by reform resulted in a period when neither central planning nor market forces were in a position to discipline their financial demands adequately” [Hannan, 1998, p.10]. As a result, duplicate projects have mushroomed all over the country, and the situation in industries with low entry barriers is particularly serious. This leads to highly intensified competition and production undercapacity. For example, while less than 50 per cent of the production capacities for most household electric products is realised, there are still a lot of projects under construction (Table 17).
The Eclectic Paradigm. Dunning’s (1973, 1993) eclectic ownership-location- internationalisation (OLI) theory of multinational activity has been the most influential and dominant explanation for international production in the 1970s and 1980s. The ideas of the market power and transaction cost schools were sought bridged by John Dunning’s OLI framework (Dunning, 1981, 1988) which essentially holds that FDI is a result of firms possessing ownership-specific advantages (O) that they want to exploit in foreign locations (L), which they cannot (profitably) do except through internalization (I). Dunning refined the possession of proprietary resources and capabilities into asset based ownership advantages which are realized from structural market imperfections and transaction based ownership advantages which are realized from transaction imperfections. Dunning’s theory of firm specific advantages (FSAs) explains the outward venturing of large well established firms from mature markets but does not really capture new firm formation and early development processes of firms from emerging markets In the light of the emergence of alliance capitalism and technological advancement, Dunning (1995) re-specified the ownership advantages to include both internally generated capabilities and competence to seek assets with other institutions with which they have ongoing cooperative relationships. Recently Dunning (2006) incorporated a dynamic perspective in the OLI paradigm by acknowledging that location advantages at time t may affect ownership and internationalization advantages at time t+1, and the accumulated ownership advantages will subsequently influence the location choice.
This empirical study aims to extend the present EMNE literature by examining the locational determinants of Chinese MNEs’ Greenfield and acquisition investments in 28 European Union (EU) countries before and after the 2008 global financial crisis. Using a large firm-level panel dataset and a multilevel methodology enables us to test the applicability of conventional and emerging theoretical hypotheses in the context of EMNEs. This also makes several empirical contributions to our understanding of contemporary Chinese firms’ internationalization activities. We sourced the dependent variable data, the number of wholly owned subsidiaries (WOS), from a rich firm-level database, ORBIS, which contains detailed information regarding the subsidiary’s’ shareholder background, incorporation year, revenue and employees. The performance and employee data provided by ORBIS helps eliminate the offshore financial centres and shell companies, and avoids the ‘untraceable capital flow’ problem that generally plagues Chinese MNE studies based on aggregate OFDI flow data (Cheng and Ma, 2008; Morck, Yeung, and Zhao, 2008). Thus, this allows us to explore EMNEs’ locational determinants as the Chinese firms’ geographic distribution reflecting individual firm’s financial details as well as their investment preference and location choice.
Table 3.4 displays results of Korean export. As mentioned previously, we applied the PPML model with panel data. This part show Korean export competitiveness along with change of lagged EPS gap. Like Korean outwardFDI, GDP and population have positive and significant values across all models of Column (1) – (10). Such results are consistent with many previous papers and intuitional thinking that larger market size and income needs more imported goods such as mobile phone, car, intermediate goods and so on. Considering that export in PPML is considered as log export, when other variables are held, in Column (10), 1% increase of GDP and population of host country will lead to 0.4% and 0.8% increase of Korean export respectively. Distance is negative. It is natural that the longer the distance is, the larger the trading cost which decease export. Unlike Korean outwardFDI, ratio tariff has negative values. It implies that because Korean goods face higher price along with increasing tariff in market of importing country, the export will be decreased. Specially, in Column (10), holding the other predictor variables constant, one unit increase (100%) of tariff ratio will lead to 14.2% 91 decrease in Korean export. Meanwhile, like Korean outwardFDI, ASEAN helps Korean export increase. When other things being equal, ASENA which entered into force between 2010 and 2012 on overage have increased Korean export by 50% 92 .
EU FDI outflows towards Latin America continued to decrease markedly during the period 2002-03, dropping from EUR 11.2 bn in 2002 to EUR 5.2 bn in 2003. In 2004, EU FDI flows to the region picked up, EUR 19.7 bn, but fell back to just over half that level in 2005 and remained there in 2006. This fall was mainly due to decreased investments (-88 %) in EU outflows to Mexico, due to the decrease in Spain's investments (EUR 200 mn in 2006 compared to EUR 7 bn in 2004). In addition, the Netherlands withdrew capital from all Latin American countries except Brazil, and contributed significantly to the trimming of EU investments in Latin America in 2006. Brazil was the main recipient of EU investments in Latin America in both 2005 and 2006, having Spain as the principal EU investor.
On the other hand, Kyrkilis and Pantelidis (2003) noticed that income is the most important determinant of FDI outflows for Germany. In addition, they also discovered that exchange rate is an influential factor in affecting the outwardFDI of Brazil and Singapore. Meanwhile, low interest rate in the home country relatively will lead to higher tendency of outwardFDI (Prugel, 1987; Lall, 1980; Grubaugh, 1987). Indeed abroad investments require sound financially support and capital abundance in term of low interest rate enable firms to access to capital market. Therefore, firms can obtain necessary funding to finance their abroad investment. In related to that, exchange rate also has significant impacts towards the outwardFDI. Although countries with stronger currencies in relative to firms from countries with weak currencies, will discourage exports, however this will lead to higher propensity to perform abroad investment due to appreciation of the currencies (Aliber, 1970; Kohlhagen, 1977; Stevens, 1993).
Sub-Saharan Africa (SSA) is a region with a population of over 1 billion people and abundant natural resources. With a current GDP of about US$1.6 trillion and an average GDP growth of about 5% over the last decade, it is fast developing into a vibrant business region. Its firms are also rapidly evolving to become competitive international players. With immense potential, SSA is one of the last unexplored frontiers of business, and conducting research into its emerging OFDI and internationalisation phenomenon is both interesting and important. Adopting an inductive methodology, this thesis explores the phenomenon at both country and firm levels through the use of a funnel approach. Specifically, this research investigates the important OFDI push and pull influencing factors, and the internationalisation process of indigenous firms described as SSA MNEs. It also examines the relevance of FDI and internationalisation theories to SSA. Based on a detailed literature review and conceptual foundations, a broad range of OFDI factors were developed into a comprehensive OFDI framework of twenty push and pull factors for SSA. In a subsequent firm-level analysis, this framework was used to underpin qualitative case studies from firms in South Africa, Nigeria, and Kenya, and interviews were conducted with senior executives. Case findings reveal fourteen influential push and pull factors in the region, with enterprise strategy and market growth being the most important push and pull factors respectively. The results also show that the internationalisation of SSA MNEs occurs through an incremental process that takes time, with patterns indicating the use of either systematic or unsystematic international market selection methods. For the purpose of subsidiary control, locational fit, and risk mitigation, SSA MNEs use a mixture of foreign market entry modes, such as greenfield investment, joint ventures, and licensing. Traditional FDI and international business theories relevant to SSA are identified, and it is found that several emergent approaches find support including the ‘firm resilience capabilities’ argument of this thesis. Based on general findings and syntheses, the thesis advances a taxonomy of SSA MNE’s which outlines internationalising firms from the region as market growth optimisers, strategic asset aggregators, networks consolidators, or low-cost market converters.
With the rapid economic development, China has sufficient foreign exchange reserves. Together with the appreciation in Chinese currency and other conditions, more and more Chinese enter- prises invest overseas especially in the USA. Based on the statistics of the National Bureau of Sta- tistics of the People’s Republic of China, in 2012 and 2013, among the top 3 countries in which Chinese enterprises have invested, the USA ranked the second with US$ 4047.85 million and the third with US$ 3873.43 million respectively. Chinese enterprises’ FDI in the USA has been mutually beneficial to both China and the USA. However, Chinese enterprises’ FDI in the USA has encoun- tered a variety of obstacles from the USA including American government’s interfering with FDI by political methods, difficulty to enter into some industries, and America’s protectionism. On the other hand, those Chinese enterprises also have some problems in their outwardFDI in the USA such as unstable development trend of FDI, enterprises of small size with the privately-owned en- terprises as the main body, and unfamiliarity with the related policies and laws. What counter- measures should Chinese enterprises adopt to deal with the obstacles or problems? This paper aims at analyzing the obstacles from the USA and the problems existing in those Chinese enter- prises’ FDI in the USA by means of SWOT method and puts forward some corresponding counter- measures for the Chinese enterprises to conduct their outwardFDI in the USA more effectively. The conclusions can be used for reference by companies which plan to invest in the USA or other foreign countries.
This paper presents evidence and discusses possible implications for Ireland of the increasing level of Irish outward direct investment in the United States. The relative position of outwardFDI to the US to inward direct investment received from the US has increased considerably since the early 1980s, as has employment associated with Irish affiliates based in the US. We find evidence that the development witnessed in Ireland is consistent with its moving from Stage 2 to Stage 3 in the Investment Development Path, a concept due to Dunning (1981) and discussed in this paper. The short discussion of the possible implications of outwardFDI introduces some of the potential issues a home country may face. This discussion, while being by no means exhaustive, hopes to stimulate interest in the issues involved and to induce further research into these areas as Ireland seems to be set on moving up the Investment Development Path.
Real exchange rate data were derived from annual average observations of the nominal bilateral exchange rates, as taken from EconStats (2007). The nominal exchange rate is denoted as the amount of home-country currency needed to pur chase one unit of host-country currency. For example, it tells how many British pounds can be bought from one U.S. dollar. Due to the limited scope of this study it was not possible to obtain industry related price indices for the construction of industry-specific real exchange rates. As reasonable alternative the producer price index (PPI) for each country is used. The nominal exchange rates were then multi plied by the ratio of host country PPI to home country PPI. Here, PPI rather than consumer price index (CPI) data are used because FDI is regarded as investment in assets of firms which are more likely related to production purposes than to market priced final products. The development of the real exchange rate of the six partner countries in this sample is presented in Table 2.2. Figures show that most currencies appreciated against the U.S. dollar in real terms, with exception of Can $, over the period 1983–2004. During the first half of the 1990s all partner country currencies were stronger against the U.S. dollar than at the beginning of the sam ple period as well as the beginning of the current decade. Especially from the ear ly 1980s to the beginning of the 1990s the U.S. dollar lost significantly in valuation which may in part be attributed to the Exchange Rate Mechanism (ERM) established in 1979 within the European Monetary System, whose member countries form a great part of this study. However, even after the failure of this first version of the ERM, the dollar could not regain fully its early 1980 levels.