DRC Working Papers
Foreign Direct Investment in Emerging Markets
CENTRE FOR NEW AND EMERGING MARKETS
LONDON BUSINESS SCHOOL
FDI Spillovers in Emerging Markets:
A Literature Review and New Perspectives
Klaus E. Meyer
Copenhagen Business School
Draft, March 2003
Do not quote
CNEM is a Development Research Centre supported by
the UK Department for International Development
Introduction: Spillovers in a Changing Global Economy
Inter-industry linkage effects
Competition and crowding out
Investor and project specific determinants of spillovers
Acknowledgements: I thank Arie Lewin for stimulating this research, and Evis Sinani for her research assistance. Moreover, the following colleagues have been providing helpful comments: Saul Estrin, Camilla Jensen, Mike Peng and participants of the JIBS conference ‘new frontiers in international business research’ at Duke University.
Multinational enterprises (MNEs) play a pivotal role in the development of many emerging markets, and have consequently received due attention by scholarly research in economics and by policy analysts. In contrast, international business scholars have been comparatively uninterested in analyzing this role of MNEs. Yet, they would have important contributions to make to these debates, in particular in two ways: Firstly, the management perspective is essential to understand the interaction between MNEs and their local environment. Secondly, the application of theories and research methodologies developed in management research provide new insights on the dynamics of MNEs in emerging markets.
The prime objective of this paper is thus to motivate international business scholars (beyond those working within a traditional economics paradigm) to engage in research on the role of FDI in emerging economy societies. I thus review existing literature, and propose extensions of the research agenda that management scholars may wish to pursue.
1. Multinational Enterprises in a Changing Global Economy
Multinational firms play a pivotal role in global economy, linking rich and poor economies, and transmitting capital, knowledge, ideas and value systems across borders. Their interaction with institutions, organizations and individuals is generating positive and negative spillovers for stakeholders in host countries. In consequence they have become focal points in the popular debate on the merits and dangers of globalization, especially when it comes to developing countries. A solid understand of the role of MNEs in host societies is vital for both policy makers and for MNEs themselves. Policy makers are influencing the regulatory regime under which the MNE as well as local business partners operate and is influenced by politics.1 Policy makers are interested to understand how MNEs influence local firms, and thus economic development and national welfare. They need to understand how policy instruments may induce MNEs to act in ways that benefit the host economy.
The policy relevance is underlined by the fact that international organization have sponsored research in the field (Oman 2000 [OECD], Hansen 2002 [UNCTAD]), commissioned very informative reviews of the literature (Altenburg 2000 [UNCTAD], Blomström and Kokko 2002 [OECD], Fan 2002 [ADB]) and publish regular reports, notably the annual World Investment Report [UNCTAD].
The impact of multinational firms on their surrounding is, or should be, equally relevant to managers. Firstly, positive spillovers may be utilized to build a reputation as company concerned for its stakeholders, while negative spillovers may in the long-run trigger adverse reaction from stakeholders such a local politicians. Secondly, recognizing complementary interests as well as and areas of conflict helps in negotiation processes as it helps...
With the developed world markets becoming increasing saturated, the multinational corporation (MNCs) have now turned to the emergingmarkets of the world. These countries which are on their way through modernization, are now a potential source of revenue for MNCs, countries such as Malaysia, Indonesia, India and China. However for companies to enter the markets, there will be challenges that they will have to overcome, as to tap the potential revenue goldmine. This is because, every country has a different and unique background or culture in doing businesses. In this assignment, I shall discuss on the types of strategic approaches MNCs use as to gain entry through a particular market. The strategic approaches which firms use as to do business in emergingmarkets that shall be discussed here are through Foreign Direct Investment(FDI), Licensing and Franchising. We shall discuss each method and analyze the benefits, the risks involved and other factors which may lead to the application of the method in different countries around the world. But first, we must define, what is an emergingmarket and how does a country fall into that category. The term emergingmarkets was coined by economist at the International Finance Corporation (IFC) in 1981 but...
...FDI strategies in European emergingmarkets
The impact of host-country developments on post-formation FDI strategies
Maastricht University Faculty of Economics and Business Administration International Business, Strategy & Innovation
Document: Thesis report Date: Author: Supervisor: Amsterdam, March 14th, 2009 H.W.A. Canisius (i464635) Mr. W. Swaan
FDI strategies in European emergingmarkets
The impact of host-country developments on post-formation FDI strategies
I thank my parents, family and close friends for their moral support and constructive criticism during my studies in Amsterdam and Maastricht. I thank Marcel for letting me rent his nicely renovated and refurnished apartment while finishing my thesis. It provided a perfect work environment. I like to thank Mr. W. Swaan for supervising my thesis and his constructive criticism. The startup phase of my thesis has been quite challenging and his guidance supported me in making this thesis what it is. Last but not least, I would like to thank the interview candidates for their willingness to participate in this research and by providing the foundation for this thesis. I hope they enjoy reading it as much as I enjoyed writing it.
FDI strategies in European emergingmarkets
The impact of...
of decisionmaking (Figure 1.1).
Conversely, slow human development
can put an end to fast economic growth.
According to Human Development Report
1996, “during 1960–1992 not a single
country succeeded in moving from lopsided
development with slow human
development and rapid growth to a virtuous
circle in which human development
and growth can become mutually
reinforcing.” Since slower human development
has invariably been followed by
slower economic growth, this growth
Sustainable development is a term widely
used by politicians all over the world even
though the notion is still rather new and
lacks a uniform interpretation. Important
as it is, the concept of sustainable development
is still being developed and the
definition of the term is constantly being
revised, extended, and refined.
According to the classical definition,
given by the United Nations World
Commission on Environment and
Development in 1987, development is
sustainable if it “meets the needs of the
present without compromising the ability
of future generations to meet their
Social justice defined as equality of
opportunities for well-being, both
within and among generations of people,
can be seen as having at least three
aspects: economic, social, and environmental.
Only development that manages
to balance these three groups of objectives
can be sustained for long
Conversely, ignoring one of the
aspects can threaten economic growth as
well as the entire...
...BusinessDictionary.com defines an emergingmarket as,
“New market structures arising from digitalization, deregulation, globalization, and open standards, that are shifting the balance of economic power from the sellers to the buyers. In such markets information is freely and widely available, and is almost instantly accessible. To compete in these scenarios, a firm must adopt new processes based information technologies, and must keep a close watch on the price, quality, and convenience trends.”1
While this definition seems quite convoluted, emergingmarkets can be summarized as “nations with social or business activity in the process of rapid growth and industrialization.”2 This generalization may seem to be somewhat broad, but when the two are combined we can get an understanding of what exactly is going on with emergingmarkets and how they are differentiated from developed markets.
Essentially in looking at these definitions, there are four major characteristics. The first is that they have large populations and thus are regional economic leaders, due to their large markets. This is key as emergingmarkets are transitioning to consumer based economies, and thus need to have enough people to support consumerism. The second is that they are in transformation socially and politically in order to...
...Written Report of Assessment One
Module : MKT10901 EmergingMarkets (Hong Kong)
Topic : EmergingMarket in Russia
Local Tutor is Stephen Li ([email protected])
Student Name : Huen Ho Ki
Edinburgh Napier University student no. : 40073098
Scope, City University of Hong Kong student no. : 52652990
Word Count : 1982
Russia is a country which has rich natural resource with Europe’s largest population of more than 140 million, this shows Russia’s heavy weight as a player in global trade, also indicates the potential benefits that the country can bring to other WTO members upon accession.
Being one of the emerging country, Russia does have unlimited potential to develop into a country flourish. His daily necessities exports rely mainly on the field the introduction, including Asia and Europe. Russia aspirations to localize consumer goods production would provide new opportunities for Hong Kong companies, especially parts and components suppliers of electronics, footwear and apparel.
Meanwhile, weakness and threats of Russia has to be considered about. As the Russian terrain is rather special, the island is more dispersed, so that a large population of investment in power becomes relatively weak, because of the lack of experienced manpower, and most people prefer the money be converted into cash by their own savings, the relative impact of the future development of the...
...that managers face when implementing them. Mainly looking into two particular industries namely emerging industries which will be addressed in section a, and Turbulent, high-velocity Industries which will be addressed in section b of the assignment discussing extensively the appropriate strategies firm must adopt to achieve their corporate goals.
Section A: Emerging Industries
2.0. Characteristics of an EmergingMarket
Anemerging industry is one in the formation stage, and is usually totally fresh or modernized industry, which is developing at a high rate compared to other industries in the economy. Industries of this nature generally originate when consumers want change as innovative technologies bring efficient and economic alternatives that substitute older ones, or when new socio-economic circumstances arise (businessdictionary.com, 2013).Characterized by Low entry barriers and is a new and untested industry. Section A of this assignment will focus on Skype now a Microsoft Corporation subsidiary after a $8.5 billion deal in May 2011 as a firm that operates in the Voice over Internet Protocol (VoIP) industry an example of a firm that operates in an emerging industry(bbc.co.uk, 2011). Skype is a computer software program that permits users to make free voice and video calls and chats making use of an internet connection. It is typical example of a firm that operate in an...
With a population of 194 million, Brazil is the 5th most populous country and also the 10th largest economy in the world having an impressive GDP of US$1,314 billion. It is also the largest market in the Caribbean and Latin America. The existence of rich natural resources in abundance and a reasonably advanced industrial base provides Brazil with competitive advantages. Because of these factors, Brazil has also succeeded in becoming the leading recipient of foreign direct investment (FDI) in Latin America. The total inflow in 2007 was around US$35 billion.
The uniqueness and achievements of Brazil can be summarized in the table below:
However, the above competitive strengths and remarkable achievements are not fully speculated in Brazil’s performance till date in terms of better living conditions for its citizens, economic growth rates and enhanced competitiveness. Brazil registered an average annual growth rate of around 3.9% for the period 2003–2007. On the other hand, fellow BRIC countries China, India, and Russia had a growth rate of about 10.8%, 8.6%, and 7.3%, respectively.
Also, Brazil’s income distribution comes under one of the most unequal in the world, indicating to the fact that the country’s huge potential has not yet been converted into increasing the prosperity for all the natives of Brazil. However to make up for all its negatives, Brazil was the first country in the Latin American region to recover...
While no generally agreed upon definition for emergingmarkets exists, the term refers to low-income countries which generally have a rapid pace of economic development and where government policies favour economic liberalization (Hoskisson et al, 2000). These markets not only do some have high economic growth rates but nearly all have high population growth rates (Reynolds, 2006).
Some countries can be identified as big emergingmarkets. According to the World Bank, the five biggest emergingmarkets are China, India, Indonesia, Brazil and Russia. Other countries that are also considered as emergingmarkets include Mexico, Argentina, South Africa, Poland, Turkey, and South Korea.
Department of Commerce estimates that over 75 percent of the expected growth in the world trade over the next two decades will come from the more than 130 developing and newly industrialized countries; a small core of these countries will account for more than half of that growth. Commerce researcher also predict that imports to the countries identified as big emergingmarkets, with half of the world's population and accounting for 25 percent of the industrialized world's GDP today, will by 2010 be 50 percent of that of the industrialized world (Cateora et al, 2006). World Bank has estimated that if...