Since the mid-80s, there has been a clear surge in the growth of FDIs, because it is considered an important way firms including those from the emerging markets can gain the necessary competitive advantages they require to grow (Amighini, Cozza, Giuliani, Rabellotti, & Scalera, 2015). Some of the forms FDI can take include greenfield investments and mergers and acquisitions (M&As). However, M&As appear to be the most prevalent among the several forms of FDI (Gregory & McCorriston, 2005; UNCTAD, 2013). This view is supported by Li, and Wang (2016) who identify acquisitions as an important strategy for FDI entry, and are largely influenced by same decisions that motivate FDIs such as to properly exploit a firm's assets, diversify its risk and strategically improve on its competitive advantages. In the 90s for example, almost 85 percent of FDI investments were in the form of M&As (Bertrand & Zitouna, 2008; Kang & Johansson, 2000).
Researchers distinguish between the push and pull factors that motivate emerging market firms to expand abroad through the FDIs route. With regard to the push factors, weaknesses in the national economy called institutional voids such as distortions in capital market, weak
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legal systems, high savings, high risk in politics, limited property rights and inefficient corporate ownership structure were identified to constitute strong motivations for emerging market firms to participate in OFDI to enable them to avoid the transaction costs associated with operating in their domestic markets (Kalotay & Sulstarova, 2010). However, other positive factors can be identified. These include promotion of policies that are formulated by local institutions of governments. Others include the setting up of regulatory and political institutions that manage and guide OFDI (Bhaumik, Driffield, & Pal, 2010; Luo, Xue, & Han, 2010). The argument is that, these push factors compel firms from the emerging markets to develop ownership advantages by improving themselves technologically or restructuring their organisations for them to become competitive both locally and internationally as multinationals (Cuervo-Cazurra, 2008).
Regarding the pull factors, literature makes mention of the various advantages existing in the host countries, such as natural resources availability (Kalotay & Sulstarova 2010). For example, Luo and Tung (2007) in their effort to improve on emerging market firms outward foreign investments (OFDIs) argue that, one key pull factor for firms to invest abroad is to pursue or have access to important resources to compensate for domestic market competition.
Another pull factor that is likely to facilitate the process is the impact of positive spillovers that result from FDIs. According to Zhao et al. (2010), such impacts may be realised in the emerging market firms’ productivity and bring improvement in their operations which later may encourage the participation of domestic firms in international activities. In all, it can be said that, these pull and push factors work together in encouraging emerging market firms’
outward expansions.
Another discussion which literature highlights is whether FDIs are motivated by asset exploration agenda or asset exploitation motive. While a number of the studies reviewed suggest that, emerging market firms’ (EMFs) internationalisation is driven largely by asset exploitation motives, other studies also maintain that, certain FDIs are driven by exploration motives which are quite contrary to known theories.
Additionally, changes that have taken place over time in trends of outward OFDIs by EMFs are also documented. For example, according to Buckley et al. (2007), before the year 2001, the quest for strategic-assets did not motivate China’s OFDIs. This phenomenon is quite
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recent which is being supported by the Chinese local institutions. Another indication is that, Russia has also adopted a similar approach (Kalotay & Sulstarova 2010), but the driving factors of foreign direct investments by Russian firms over the years have changed. For instance, if Russian firms in the 90s looked for safety nests abroad to protect themselves against uncertainties at home, recently, they are motivated by having control over the value chain for their respective products. Overall, Russian firms appear to concentrate on having control over upstream natural resources in developing economies, while in developed economies, they tend to concentrate on downstream markets.
Table 3.1: Foreign Direct Investments in the Brics Region (2005-2011)
I n w a r d FDI
Country 2005 2006 2007 2008 2009 2010 2011
Brail 15066 18822 34585 45058 25949 48506 66660
Russia 12866 29701 55073 75002 36500 43288 52878
India 7622 20328 25506 43406 35596 24159 31554
China 72406 72715 83521 108312 95000 114734 123985
SA 6647 -527 5695 9006 5365 1228 5807
O u t w a r d FDI
Country 2005 2006 2007 2008 2009 2010 2011
Brail 2517 28202 7067 20457 -10084 11588 -1029
Russia 12767 23151 45916 55594 43665 52523 67283
India 2985 14285 19594 19257 159271 3151 14752
China 12261 21160 22469 52150 56530 68811 65117
SA 930 6063 2966 -3134 1151 -76 -635
Source: unctadstat, database,http://unctadstat.unctad.org/reportfolders/reportfolders.aspx Table 3.1 above reveals interesting contrast for outward and inward FDIs from 2005 to 2011 among BRICS countries. Beginning with Brazil, inward FDI indicates an increase from
$15,066m to $66,660m representing a 13% improvement. Its outward FDI, however, witnessed a significant decline of more than 300%, from $2,517 to –$1,029m. 2011 also shows a considerable surge in outward foreign direct investments as Brazil multinational
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companies demonstrate renewal of interest in other countries from BRICS. Like Brazil, Russia indicates some improvement in outward FDIs. Russian inward FDI increased from
$12,886 in 2005 to $52,878m in 2011. Outward FDIs were the top among the BRICS countries, they show and improvement of 81%, rising from $12,767m in 2005 to $67,283. In comparison to the other BRICS countries, FDI values for South Africa were the lowest.
Inward FDI slightly remained the same throughout the period, coming down from $6,647 million in 2005 to a $5,807 million.