Investment in emerging market or the effects of foreign direct Dissertation

Investment in emerging market or the effects of foreign direct investment(FDI) in emerging market - Dissertation Example Hence, the impact of FDI can be ascertained through reports and academic articles. FDI alone does not mean success and it depends on various other factors. With a view to evaluate the impact that the MNCs make by entering developing economies, this study was conducted. This study is based purely on secondary data through reliable sources. After reviewing literature on the theories and perspectives on FDI and on emerging economies, two MNCs that have invested in two different economies – China and India - were studied. Yamaha of Japan invested in India as a market expansion strategy and achieved initial success. Their investment and control was limited and as competition increased, they could not sustain. They still have two plants in India but they are yet to achieve success. Cultural distance seems to be the dominant factor in the outcome. In the case of China, General Motors of the US adopted a unique strategy by entering through investments in research and development at th e behest of the local government. Gradually they could enter into manufacturing and today they sell more trucks in China than they do in the US. GM adopted a vertical approach to FDI in China because of the huge difference in the factor endowments. Thus, the success or failure of the MNCs in developing economies requires taking into account the risk factors and knowing how to mitigate these risks. Prior experience is not enough. Table of Contents 1. Introduction 1.1 Background 1 1.2 Problem statement 2 1.3 Organization of the study 3 2. Literature Review 4 2.1 Definition and concept of FDI 4 2.2 Drivers of FDI 5 2.3 Emerging economies 7 2.4 FDI in emerging economies 9 3. Research Methodology 10 3.1 Research Philosophy 10 3.2 Research phenomenon 10 3.3 Research design 10 3.4 Research strategy 11 3.5 Justification for literature review 12 4. Findings and Discussion 14 4.1 India 14 4.2 China 17 5. Conclusion & recommendations 22 5.1 Conclusion 22 5.2 Recommendations 23 References 25 Ap pendices 27 1. Introduction 1.1 Background The developing economies comprising of low-income economies (with an annual gross national income per capita of $905 or less) and lower-middle income economies (income per capita between $906 and $3,595) jointly produce 41% of the world’s output, according to the World Bank Development Indicators 2008 report (Lenartowicz & Balasubramanian, 2009). Moreover, 5 of the 12 largest economies are now in the developing world. China and India’s economies are not expected to grow 22 times their current size by 2050 whereas the US is expected to grow only 2.5 times approximately. The developing countries constitute more than 80% of the world’s population. The geographical focus of growth has shifted towards the developing economies, which is the reason that the multinationals have been trying to develop economies in Asia, Africa and South America as profit sources. While the MNCs from the developed nations were seeking suitable ci rcumstances for foreign market access, the developing nations also strived to draw the attention of the foreign investors by offering incentives (Michi, Cagatay & Koska, 2004). This led to a serious competition to access the developing nations’ markets and the evaluation was based on costs, internal market and ownership/location advantages. The developing nati