Comparative Study of Fdi Flow to India and China

Fall 2009 This case was prepared by Itir Karaesmen and Inbal Yahav of Robert H. Smith School of Business at University of Maryland, College Park. The names, locations, and other information included

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Ajami and BarNiv (1984) attempted to explain the variability of FDI across countries. They emphasized in following determinants of FDI in US: relative size of the US market, change in exports to the US, growth of GNP in the home and host countries, decline in value of the US dollar during the late 1970s, inflation rates in the home and host countries, attractiveness of the US capital markets and research and development and manufacturing as a percent of GNP.

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write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be

In addition it is worth considering that emerging economies having been attracting increasingly more Foreign Direct Investment (FDI) having accounted for 52% of global FDI inflows according to recent data. Looking closer at the FDI spread based on regional allocation it is worth noting that Nigeria received the greatest proportion of FDI in Africa, Indonesia in South-Eastern Asia, Mexico in Central America and Turkey in West Asia. This demonstrates the investment potential within the MINT

Robbins, S. P., & Coulter, M. (2009). Chapter 1 of Management, Pearson Custom Business Resources. Pearson Custom Publishing.

China’s economic reform has attracted worldwide attention. From the early stage of mainly export-oriented industries with cheaper labour costs to more recent foreign investments aiming to tap the huge domestic market, China, especially eastern region has gradually opened up to the rest of the world. While this research study is not only of vital importance to China, but also meaningful to the FDI development efforts to the individual regions in other countries.

In 2008, a serious financial crisis swept the globe, causing many countries' economies sunk in depression or recession. After four years, some emerging economies, such as China and India which are the members of the "BRICS" (the acronym of Brazil, Russia, India and China, which are at a similar stage of newly advanced economic development), firstly got rid of the effect of this financial crisis. Therefore, these emerging economies begin to draw more economists' attention. Prime, Subrahmanyam and Lin researched the competitiveness in India and China through the foreign direct investment (FDI). In "

multinationals (EMNCs), through outward foreign direct investment (OFDI). This internationalisation phenomenon, has led to increase interest from researchers in the international business discipline (Cavusgil, 1980; Hoskisson, Eden, Lau, & Wright, 2000; Jormanainen & Koveshnikov, 2012). In 2013, emerging economies invested $553 billion, representing 39% of global OFDI, compared with only 12% at the beginning of the 2000 (UNCTAD, 2014). These trends are consistent across different emerging market sub-regions, as organisations that are aggressively investing are doing so not only from large emerging economies like China, India, Brazil, and Russia but also from a number of new emerging economies in Asia, Latin America and Africa (Gammeltoft, Pradhan, & Goldstein, 2010; Goldstein & Bonaglia, 2007). Emerging markets (EM) are seen generally as low income, rapid growth countries using economic liberalisation as their primary engine of growth (Hoskisson et al., 2000). The economic liberalisation or open policies adopted by these emerging markets during the last two decades has led organisations from these economies to internationalize or seek markets abroad. Emerging markets are known to be heterogeneous in their level of development and environmental surroundings (Bianchi, 2014). Each manifests different starting points or different stages of

Figure 1 shows the net inflow of FDI into the developing countries. There is a fall into the amount of FDI going to the developing countries from late 1980 to early 1990 and in the late 2000. Overall, there is an upward trend of amount of FDI going to the developing countries. The same trend with ODA shown in Figure 2. The amount of Net ODA received by developing countries from 1990 to mid-1990 is fluctuating then continued to fall until 2000. From year 2000 onwards, there is a steady increase of ODA received by the low-income countries. Compared with FDI and Net ODA, personal remittances has a steady upward trend (shown in Figure 3), noting a huge increase in 2008 of US$4.5 billion from US$15.2 billion in 2007. With the

The companies mainly focuses of their innovation, strategic management and organizational structure to expand their business in international level.According to the United Nations Conference on Trade and Development (UNCTAD, 2013), the outward foreign direct investment (OFDI) by firms from these economies accounted for 30.6% of the global (OFDI) flows, which was $1.39 trillion in 2012.The above statement is a crystal clear proof that emerging economies like China, Brazil, Russia and India are working towards the restructuring of their international business. MNC’s from emerging economies, although diverse, have displayed some common characteristics that differ from their counterparts from developed countries (Xueli Huang, 2015).Emerging economies lack so many aspects like the know-how of that particular industry, the technology required by these business enterprise, but in spite of all the lack of primary resources they have cherished because the home government of emerging economies plays a vital role in helping to get the resources for them to expand the business.

With more and more foreign companies planning to invest in emerging markets there is a clear need to not only further extend but also develop a conceptual framework to guide and structure the rapidly growing

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