Internationalisation strategies of CEECs' MNCs can offer some universal lessons. Existing MNCs have used outward FDI as an instrument to get out of crisis situation that combined the loss of previous markets with the crisis of transition per se. Though risky and difficult investing abroad is very appropriate for staying competitive (i.e. surviving) not only in foreign but also in the domestic market. However, internationalisation patterns of transition and developing economies' firms are namely similar to firms of developed economies in spite of the substantial differences seen in development and the degree of internationalisation. Globalisation as a key novelty in the external environment in which outward FDI is taking place today has modified the ways and means of outward internationalisation, but not to such an extent that sequential internationalisation is put in question. It has only speeded it up. Firms have to start it earlier than in the past, they have to jump over certain former early stages. Globalisation has deprived firms of the time to benefit from a gradual learning process. Mistakes can therefore be expected to be more common in the future, but should not scare managers fromCEECsfirms to avoid advanced internationalisation modes. The only way to minimise them is to improve knowledge and information about internationalisation. Both firms and governments still have a lot to learn to improve global competitiveness and progress in internationalisation.
When one studies motives of Russian capital exports, one should not forget Russia’s indirect investments via Cyprus and other countries to their final destination [41; 28]. The majority of indirect investmentfrom Russia can be explained by the fact that Russian companies keep their assets in tax havens and low tax countries and use them to finance their operations either in Russia or in other markets. In a relatively small number of cases, howev- er, the transit countries (front companies) have been used to disguise the Russian origin in order to avoid negative reaction from host country gov- ernments, since some recipient countries have been reluctant to allow Rus- sian companies to enter industries that they consider strategic for the func- tioning of their economy. One may take some acquisition processes of some European energy companies as an example [35; 42].
Under this situation, FDI is one solution to local investment demand and is in fact encouraged by the central government.
Combining the works of Dunning and Lundan (2008) and Fetscherin, Voss, and Gugler (2010), the determinants of the PRC’s FDI inflow can be summed up in three stages: First, between 1978 and 2000, most of the enterprises the invested in the PRC were resource seekers or escape investment. The purpose of investing in the PRC is to take advantage of preferential policies, low labor cost, and lesser environment regulation. At this stage, FDI is mainly from Hong Kong, China; Macao, China; and Taipei,China. Recently, because of more environment regulations and higher labor costs, some investments of this kind moved from eastern PRC to the western PRC. More recently, between 2001 and 2007, market seekers and efficiency seekers came in. Because of FDI in the first stage, the PRC can invest more in infrastructure, and labor quality improved much also. These two factors entice investors to the PRC to use the PRC as their base use the PRC as their base in Asia. Also, the PRC’s accession to the World Trade Organization (WTO) ensures the multinationals of a more open market. Besides these, there is also supporting investment through agglomeration. The typical investors in this stage are from Europe, Japan, and the US. Third, after theglobal financial crisis, more and more multinationals became resource seekers and strategic asset seekers as they discovered the PRC’s advantage in aspects like excessive liquidity, skilled labor, and new technology. More foreign investors invested in the PRC, even established joint ventures outside of the PRC, to take advantage of this.
downturn and the considerable technical difficulties in launching 3G services, the winners of these auctions appear to have vastly overesti- mated the commercial potential of 3G services, at least in the short run. In late 2001 NTT DoCoMo launched its Freedom of Multime- dia Access 3G service based on W-CDMA, with Korea following with its so-called IXRTT using CDMA-2000. Both have struggled to overcome teething difficulties and to deliver on their promises (3G by Any 2002). Providers in Europe and North America have faced similar obstacles. This delay reflects both technical difficulties and concerns about funding the deployment of 3G technologies, es- pecially since the lucrative mobile phone market has attracted sever- al new firms and profit margins have narrowed. Signs show that the Korean government, which had previously encouraged competition among mobile phone providers to build a sizable domestic market, now favors consolidation through mergers and acquisitions into a small number of large firms. The government is defending this change in policy on the grounds that only larger firmscan afford to invest in 3G technologies; however, it risks sending the wrong sig- nals, dampening the entry of new firms and encouraging bigger firms to believe that the government will effectively underwrite their large investments in technology and service development. As with the Internet, state-sponsored, if not state-led, telecommunications development could easily deter technological change and drain ini- tiative fromthe industry. This is important, because the 4G technol- ogy currently being developed might, once deployed, save on invest- ment outlays while delivering far superior services.
When there are imperfections deriving from government intervention in international markets such as the existence of ad valorem tariffs, restrictions on capital movements, discrepancies in rates of taxation.
According to Buckley and Casson (1976) in their presentation of the evolution of the Internalization Theory, towards a new Theory; they argued that the two most important areas of internalization relevant to Trans National Companies are markets for intermediate products and markets for knowledge. Hence, imperfect markets generate incentives to internalize; and themarket for knowledge is highly imperfect, so there are strong benefits in internalizing it. Their reasoning being held to the earlier decades back can’t extend out to the externalization decades of the present trend. And in this regard, Grazia (2013) viewed that the internalization theory tries to explain why firms prefer the FDI rather than licensing route to growth, thus why they prefer internalization to market based relationships. However, even accepting that internalization is to be favored because it cuts transactional costs, it is not clear why firms should prefer the FDI rather than the exporting route: the first implies internalization across borders; and the latter modality implies internalization within the nation state.
1. Introduction: In recent years Outward Foreign DirectInvestment (OFDI) from emerging market economies (EME) has increased rapidly. Globalization generally starts with exports, and its natural extension is foreign directinvestment (FDI). While export is perceived to be good for the economy, the effects of the transfer of economic activities abroad, either through foreign investment or through arm- length contracts, is a widely debated issue. General apprehension associated with OFDI is loss of employment or decrease in low skilled workers’ real wages. A great deal of attention has therefore been given to the impact of OFDI on the home (country of origin) performance such as labour intensity, skill composition, substitution of employment between parent company employment and foreign affiliate, total factor productivity, etc. The impact, to a large extent depends on the nature such as horizontal or vertical (backward/forward) FDI and also motive of FDI.
3. Hypothesis development: resource dependence logic
3.1. Competitive and institutional interdependence
We employed resource dependence theory ( Pfe ﬀer & Salancik, 1978 ) as the central theoretical perspective to develop the hypotheses. This theory underlines various forms of interdependence between ﬁrms and external environment factors, which constrains the autonomy of ﬁrms due to resource exchange processes ( Pfe ﬀer & Salancik, 1978 ). Firms may employ avoidance strategies to escape such inter- dependence. Given the multiple forms of interdependence in emerging economies, we incorporate the most relevant ones, namely competitive and institutional interdependences to develop the hypotheses of the current study. Competitive interdependence refers to the coexistence of ﬁrms given their competition in similar product areas ( Xia et al., 2014, p. 1347 ). Competitive interdependence prompts ﬁrms to invest abroad because they face strong competition from rivals at home ( Witt & Lewin, 2007 ). Emerging market ﬁrms may also reduce domestic market constraints by globally diversifying their resource origins. The estab- lishment of subsidiaries in a diﬀerent country enables ﬁrms to avoid home market competition to some extent. Such an avoidance strategy through OFDI maximises global returns of ﬁrms ( Boddewyn & Brewer, 1994 ; Stoian & Mohr, 2016 ; Xia et al., 2014 ). Institutional inter- dependence between ﬁrms and the state arises when ﬁrms rely on the state for political treatments ( Pfe ﬀer & Salancik, 1978, pp. 188–224 ). Power imbalance fromthe state stimulates ﬁrms to employ an avoid- ance strategy to seek international markets to mitigate adverse situa- tions in the domestic country ( Choudhury & Khanna, 2014 ). This phenomenon is salient in government–corporation exchanges in emer- ging markets because the government usually controls strategic re- sources such as bank loans, land use and preferential tax treatments ( Khwaja & Mian, 2005 ; Sun et al., 2010 ).
high—25.3% in 2015. Fromthe trend of Fig. 1, it is obvious that Japan has improved its overseas expansion ceaselessly through outward FDI.
Figure 2 shows the trends in distribution ratio of Japan’s overseas affiliates by region. It can be observed from Fig. 2 that almost 30% of Japanese overseas affiliates are located in China, and other Asian countries also account for about 35%. Japanese multinational corporations (MNCs) established many affiliates in China and other Asian countries in recent decades. An important reason of this phenomenon is that Japanese MNCs relo- cated their production facilities to these neighboring developing countries through outward FDI to exploit low-cost factors of production. Theoretically, this kind of FDI is called vertical FDI which is a strategy for MNCs to utilize the comparative advan- tage of the host country. At the same time, China and these Asian countries are also huge sales markets which have great potential. 69.4% of Japanese enterprises consider the most important deciding factor for overseas investments is that market demand is strong or prospective in the future in host countries. Other major factors include
As a consequence, recent theoretical models place firm and individual heterogeneity as the core transmission channel of wage inequality, through rent-sharing mechanisms and labor market frictions (Helpman et al. (2010), Davidson et al. (2010), Egger and Kreickemeier (2009)). This theoretical background has opened new areas of empirical research, requiring very detailed employer-employee data to analyze the causes of wage inequality. A recent branch of the literature has focused on the effect of trade and imports of intermediate inputs on within job-spell wages at the firm level (Hummels et al. (2011), Amiti and Davis (2011)) and at the industry level (Autor et al. (2013)). These studies suggest that offshoring has increased wage inequality between high- and low-skilled workers (Geishecker and Görg 2008; Munch and Skaksen 2009; Hummels et al. 2011), and that low- skilled workers appear more vulnerable to import competition from low-wage countries (Autor et al. (2013)). Another part of the literature has focused on wage difference between exporting and non-exporting firms (Baumgarten (2013), Krishna et al. (2011), Helpman et al. (2012), Schank et al. (2007) and Carluccio et al. (2014) using French data). Results suggest that exports contribute to increase wage premiums of high-skilled workers because their employer’s internationalization allows them to bargain over higher profits.
Following the seminal paper by Bernard et al. (1995) and the theoretical contributions of Melitz (2003), Helpman et al. (2004) and Bernard et al. (2003), the literature on firm heterogeneity and trade has focused on the firm-level determinants of ‘internationalization’ of domestic firms. Mainly, the literature that followed primarily investigated the export behavior of firms and contributed to our understanding that it is the sunk costs of entering an international market and heterogeneity in firm- level productivity that explains why not all firms export. Later, Helpman et al. (2004) offered a theoretical model that showed that exporting and FDI can be complementary and that the firm's decision to export or FDI is also determined by its own productivity. The main contribution of Helpman et al. (2004) is that they showed that it is the most productive firms that decide to become multinational. Exporters are also productive but relatively less so. Finally the least productive firms only served the domestic market. Their model only considered the choice between exporting and horizontal FDI, but Head and Ries (2003) showed that when there are factor price and market size differentials firms invest for vertical motives as well.
In today's era, advanced technology and innovative capabilities can create much more values than land, capital, and other material factors can do. The ability to innovate has become an important source of core competitiveness of an enterprise or even a country. At the enterprise level, many companies attach great importance to technological innovation, and their R & D investment accounts for a large proportion of the revenue. Such companies tend to have advanced technologies and own a large number of patents. By owning advanced technologies and a large number of patents, they prove themselves to be active among the innovative firms and can often stand out in the fierce market competition and can develop further. At the industrial level, technology-intensive industries such as IT, aerospace, semiconductors, pharmaceuticals, etc., have broad development prospects, and are also supported by many countries as strategic industries.
provided they have adequate collateral (Manova 2013) 1 . This proposition has
been verified by the studies on firm specific decisions on outward FDI
(Duanmu 2015) 2 .
Outward FDI from emerging economies like India is increasingly becoming an important component of the world’s investment flows. Figure 1 shows the recent trends in the outflows of FDI from India. India’s outward FDI stock registered a quantum jump during last one decade, from a negligible amount of $ 25 million during the early nineties to $241 billion in 2013. The momentum of these investment outflows picked up during the second half of the 2000s. One can attribute this increasing trend of outward FDI by Indian firms to market oriented reforms undertaken during the early nineties. Indian policy makers have recognized the importance of these investments and have undertaken several measures by easing the stringent regulatory rules
Chinese firms investing abroad in the 2003-2015 time period aimed to improve their competitiveness at theglobal level (Deng, 2013; Hong & Sun, 2006; Wei et al., 2014) by fully exploiting their internally developed or acquired IP assets. Strong IP institutions in host European countries can enable Chinese firms to escape fromthe weak IP institutional framework existing in China (Luo et al., 2010; Yamakawa et al., 2008) and fully utilize their existing IP supported business models. This is because even if many of the Chinese firms are market leaders in China, the lack of a developed IP framework at home (Nolan, 2001; Rui & Yip, 2008) can make it more difficult for Chinese firms to fully utilize their IP assets and efficiently appropriate the returns to their innovations (Teece, 1986). Therefore, operating in strong IP institutions can enable Chinese firms to utilize their IP portfolios and fully exploit the returns to their internally developed or acquired innovations (Lu, Liu, & Wang, 2011; Ramasamy et al., 2012; Wei et al., 2014; Yiu et al., 2007). Operating in tight appropriability regimes, risks can be anticipated and IP infringement can be successfully managed due to the effectiveness of the enforcement related institutional agents. Strong IP institutions can also allow Chinese firms to further develop and better utilize their business models, by, for example, achieving to effectively block competitors who may be infringing their IP (Cendrowski, 2017). It is important to note however that the magnitude of the identified effect of IP institutions on Chinese OFDI suggests that there is still a large percentage of unexplained variance that probably relates to the effect of other variables and perhaps the way that IP institutions interact with them, which will need to be examined further in future studies.
environment and investment incentives provided by host governments.
More recent studies of FDI spillovers have focused on evaluating the factors which induce externalities. Researchers have paid close attention to the hypothesis that knowledge and technology spillovers are more likely to be found in vertical linkages between suppliers and clients in different industries than between competitors in the same industry. Vertical spillovers might be more common than horizontal spillovers since MNCs that bring superior skills in production and management to host countries will typically try to prevent these advantages from flowing to local competitors. MNCs are willing, however, to provide assistance to their local suppliers so as to ensure high quality and on-time delivery of inputs. Foreign firms may also bring higher-quality products that can be used as intermediate inputs by their local customers in downstream sectors. Rodriguez-Clare (1996) provides theoretical support to the notion of vertical spillovers. His model suggests that when transportation and
According to the resource-based view, a firm’s internationalization strategy and performance depend on the existence of unique tangible and intangible resources in its home country which give it a competitive advantage compared to firms in the host country. Intangible resources such as management know-how, R&D capability, brand names, and proprietary technologies are crucially important (Barney, 1991; Tan and Vertinsky, 1996; Teece et al., 1997). Companies with strong competitive advantages often try to exploit their strength by creating a “clone” of the parent in the host country (Mathews, 2006). In this case, greenfield investment is the preferred mode of entry as it is the most effective way to transfer the investing company’s advantages to overseas markets and to introduce the firm’s best practices. Research by Hennart and Park (1993) has shown that Japanese investors with strong R&D advantages prefer greenfield investment as the major entry mode into the US market. In contrast, companies with weak competitive advantages must acquire new resources that they cannot generate themselves. Under these circumstances, a foreign acquisition is more effective as it allows the firm to extract such assets fromthe acquired company (Homburg and Bucerius, 2005).
Narula (1997:6). These are essentially seeking for new markets as a new means of growth. But both of these firms have been able to localize their technical knowledge and to use it in other developing countries. Hence unlike these first wave TWMNEs that have only country-of-origin specific advantages, these firms possess firm specific advantages based on their cumulative experience and knowledge in their respective fields in the domestic market. OPI’s initial owner who started the company in 1991 had ten years of experience in non-destructive testing in the inspection of structures and piping works in the United Kingdom before coming back to Malaysia to start the company with a partner. Nam Fatt had 18 years of experience in engineering and construction before it obtained the project to build the Jiangjin Toll Bridge in the Sichuan Province in China in 1994. This project was undertaken as a Build, Operate and Transfer (BOT) contract and was completed in 1997. It also won the Export Excellence Service Award for construction by the government of Malaysia. As noted by D’Arcy & Roulac (2002:5), knowledge of the business and knowledge of clients and relationships are also sources of competitive advantages.
Outward foreign DirectInvestmentfrom Economies in Transition in a global context *
Kálmán Kalotay **
They are barely visible on theglobal scene. But it is in part so because official statistics have difficulties in reflecting their real size. They are nevertheless gaining in importance, representing a challenge for those who want to understand why and how they expand. Analysts are at the beginning of their quest for explaining how transnational corporations from economies in transition fit into a new “zoology” of international business, in which there is space for many more species than previously believed. Policy makers in economies in transition, too, are trying to grasp with the dilemma that outward FDI presents for them: on the one hand, it strengthens the international competitiveness of thefirms; on the other, it is an outflow of resources. On balance, some of the countries in transition, e.g. Hungary and Slovenia, have decided to promote outward FDI.
A short review of the economic literature on the actual effectiveness of BITs, however, leads to an inconclusive picture. On the one side, authors like Hallward-Driemeier (2003) find little support for the argument that BITs increase FDI inflows. Instead, she argues, they can bite, reducing available policy spaces and exposing policy makers to liabilities caused by legal claims by foreign investors. Tobin / Rose-Ackermann (2005) argue that BITs encourage FDI only to a limited extent. Banga (2003) and Neumayer / Spess (2005) on the other hand find empirical evidence that a higher number of BITs raises FDI in- flows. Apart from results of economic models it is safe to maintain that BITs entail eco- nomic and political gains as well as costs. They may promote FDI inflows and thus help to speed up development processes in the home as well as in the host economy. Another im- portant rationale behind the conclusion of international economic agreements like BITs is the improvement of political relations. The increased diffusion of BITs can also lead to economic costs for host developing countries. Strong protection clauses and comprehen- sive investor-state dispute resolution provisions in modern BITs may result in a loss of national autonomy and reduced policy spaces to pursue independent national development strategies. The rapid diffusion of BITs also increases the complexity of policymaking in developing countries. Negotiating and administering BITs requires capacities that they may find hard to provide.
Robust standard errors in parentheses *** p<0.001, ** p<0.01, * p<0.05
ous measures. Furthermore, firms extrapolate a negative experience more than a positive one. This implies that firms are both over-pessimistic following a negative shock and over-optimistic following a positive shock. They also make larger mistakes following a negative shock than fol- lowing a positive shock. The coefficients on positive past business and negative past business are significantly different at the .1% level in all specifications, as shown in the last row of the table. A potential issue with the interpretation of these results is that for the discrete measure we only know the direction of the changes and not the size of the changes. If the unobserved size of the changes in past business are not symmetric, this could explain why we obtain different coefficients for positive and negative changes. Using the continuous measure, however, should alleviate this concern. It is thus reassuring that the relative difference between the coefficients on positive and negative past business remains roughly the same whether using the discrete or the continuous measures of expectations.
All labor market institutions reveal a negative sign, and only a few of them are in- significant. Using a fixed effects estimator in column (I) we find that the coefficients for wage distortion, union density, and employment protection are negative but not significant. Random effects in column (II) reveal the same sign pattern, but the co- efficients are now significant for wage distortion and employment protection. Union density reveals the right sign but the effect is not significant and thus zero. The Haus- man test strongly favors the random effects estimation. This result supports our theory by indicating that countries with lower labor market institutions seem to attract more FDI inflows than countries that have a tendency to protect their workers. Moreover, addressing cross panel heteroscedasticity by running FGLS yields significant and nega- tive coefficients for all labor market institutional variables. Even union density has the right sign and is significant for FGLS. Running IV regressions and instrumenting lags of the variable wage distortion and employment protection as instruments confirm the findings in column (1) and even the magnitude of the effects do not vary by much. Par- tial R-squares in all regressions range from 0.6 to 0.8 indicating that the instruments are valid. In columns (5) - (8) we redo the whole procedure with FDI-flows instead of stocks, which support the findings discussed so far.