Accelerated internationalization by MNCs from emerging economies: Determinants and implications

Abstract

Over the past decade the world has witnessed a new wave of globalization, by way of unprecedented growth in outward foreign direct investment (FDI) from emerging countries. For example, outward FDI from the top twelve emerging economies reached a peak of more than $200 billion in 2008, and their importance in global investment continues to grow (Table 1). By 2010, their outward FDI reached an all time high of nearly 15 percent of world outflows, compared with about 6 percent in 2005. In particular, FDI outflows from China increased by more than $11 billion in 2010, allowing it to overtake Japan as the No. 5 largest foreign investor in the world. As indicated in Table 1, China’s outward FDI stock has also increased sharply in the last decade. As in the case of developed countries, outward FDI from emerging countries has been boosted by rising volumes of cross-border mergers and acquisitions (M&As). However, a unique feature is the series of high-profile acquisitions made by emerging market multinational corporations (EMNCs) in developed economies even after the economic crisis engulfed the world in the last quarter of 2008. According to the United Nations Conference on Trade and Development (UNCTAD), in 2010, EMNCs undertook almost 30 percent of the takeover deals between developed countries and developing ones. Between 2006 and 2011, there were more than 30 cross-border deals in terms of EMNC acquisition of advanced multinationals (MNCs), worth over $1 billion in a wide range of industries and services. These mega-deals include the high-profile purchase of Rio Tinto (UK) by China’s Chinalco for $14.3 billion in 2008, the $11.8 billion acquisition of Corus Group (UK) by India’s Tata Steel, and the $11.6 billion purchase of GE Plastic (US) by Saudi Arabia’s SABIC in 2007.