1.1 Introduction
The rise of multinational enterprises (MNEs) from emerging markets is topical and important and poses a number of questions and challenges that require considerable attention in future from academia as well as business management. The recent takeovers of high-profile companies in developed or developing countries by emerging-market MNEs—such as Lenovo, Wanhua (China) and Hindalco (India)—as well as the greenfield or brownfield investments of emerging companies (Huawei, ZTE, Tata, etc.) show a new trend where new kinds of firms become major players globally. According to the World Investment Report, investments from emerging markets reached a record level: based on the United Nations Conference on Trade and Development (UNCTAD) data, developing Asia now invests abroad more than any other region (UNCTAD 2013).
Majority of traditional theories explaining the different motivations for foreign direct investment (FDI) were born after World War II, in the 1960s and 1970s, when investments were typically flowed from developed countries to other developed or developing regions. Consequently, the rapid growth of FDI from emerging and developing countries in recent years—often directed at developed regions—has been a subject of numerous studies trying to account for special features of emerging-country MNEs’ behaviour that is not captured by traditional theories.
Although emerging MNEs’ FDI is not a completely new phenomenon it has been examined by scholars with a new momentum in the past one or two decades due to (1) the unprecedented size of the phenomenon; (2) the fact that developing Asia accounts for more than a quarter of all outward FDI and (3) the fact that this group of countries will soon be a net direct investor (UNCTAD 2015). The phenomenon itself is indeed existing since Japan and then later the Four Asian Tigers (Hong Kong, Singapore, South Korea and Taiwan) are all experiencing similar upward trend in terms of inward as well as outward FDI. These countries can be considered as predecessors of FDI from emerging countries today (such as BRICS—Brazil, Russia, India, China and South Africa). Consequently, we can differentiate between three waves of FDI (Andreosso-O’Callaghan 2016: 15): (1) FDI from emerging Europe and the United States after World War II; (2) FDI from Japan and then the Asian Tigers from the 1960s and 1970s and (3) FDI from BRICS countries after the turn of the millennium.
1.2 A Brief Overview of Traditional and New Theories
The theoretical framework of FDI, as well as the concept of internationalization, has evolved a lot in the past century. To briefly summarize the traditional theories of FDI, this section uses—and expands—the typology of Andreosso-O’Callaghan (2016: 16–17), where different theories can be labelled as micro-, meso- or macroeconomic levels. After these traditional theories the main findings of the Japanese school of FDI is also summarized briefly as it can be relevant in explaining, for example, Asian FDI. The chapter then continues with those new theorists that consider traditional economic factors insufficient in explaining MNEs’ FDI decisions and, as a result, develop new theoretical attempts to explain FDI decisions of emerging MNEs.
1.2.1 Traditional Theories
Macro-level theories include theories such as the capital market theory, the dynamic macroeconomic FDI theory or the exchange rate theory, economic geography theory, gravity as well as institutional approach and investment development path theory.
Capital market theory is one of the oldest theories of FDI (1960s) and states that FDI is determined by interest rates. However, it has to be added that when this theory was formulated, the flow of FDI was quite limited and some parts of it were indeed determined by interest rate differences. According to the dynamic macroeconomic FDI theory, FDI is a long-term function of MNE strategies, where the timing of the investment depends on the changes in the macroeconomic environment. FDI theory based on exchange rates considers FDI as a tool of exchange rate risk reduction, while that based on economic geography explores the factors influencing the creation of international production clusters, where innovation is the major determinant of FDI. Gravity approach to FDI states that the closer two countries are—geographically, economically, culturally and so on—the higher will be the FDI flows between these countries. FDI theories based on institutional analysis explore the importance of the institutional framework on the FDI flows, where political stability is a key factor determining investments.
According to the investment development path (IDP) theory, which was originally introduced by Dunning in 1981 and refined later by himself and others (Dunning 1986, 1988, 1993, 1997; Dunning and Narula 1996; Duran and Úbeda 2001, 2005), FDI develops through a path that expresses a dynamic and intertemporal relationship between an economy’s level of development, proxied by the Gross Domestic Product (GDP) or GDP per capita, and the country’s net outward investment position, defined as the difference between outward direct investment stock and inward direct investment stock.
In the framework of the investment development path theory, Dunning also differentiated between five stages of development:
- Stage 1 is characterized by low incoming FDI, but foreign companies are beginning to discover the advantages of the country. In this phase there is no outgoing FDI since there are no specific advantages owned by the domestic forms.
- Stage 2 is chara...