The radical view of FDI declined in popularity by the early 1990s because of

5.4.3 Dependent Variable

In Eq. 5.2, OFDI is the dependent variable, expressed by the annual stock of FDI from Brazil “i” to the host country “j,” in the period “t,” between 2001 and 2013. Annual data on FDI are available in stocks and flows, and are published annually by BACEN. We constructed our data using exclusively time-series data from BACEN for a sample of 32 developed and developing countries.

As recommended by several authors (Dunning and Lundan, 2008; Dunning et al., 2007), we used stocks of OFDI to capture the value-adding activities of Brazilian MNC affiliates in the host countries. Although such measurement of FDI captures only the net financial capital flows, we consider that for the purpose of our study, OFDI stocks still capture financial capital flows between home and host countries, and therefore can act as a proxy for the level of involvement of MNEs in the host countries (Amal and Tomio, 2015a).

The sample of the panel model is composed of 32 countries, for which we could gather complete data on all the variables of the general framework. Our sample is relatively balanced between developed (18) and developing countries (14), as can be seen in Table 5.15.

Table 5.15. Sample of Brazilian OFDI by Host Countries

Developed countriesDeveloping countriesAustria, Belgium, Canada, Denmark, France, Germany, Hong Kong, Hungary, Italy, Japan, Luxembourg, Netherlands, Norway, Portugal, Spain, Switzerland, United Kingdom, United States of AmericaArgentina, Bolivia, Chile, China, Colombia, Costa Rica, Ecuador, Mexico, Panama, Paraguay, Peru, United Arab Emirates, Uruguay, Venezuela

Abstract

This chapter explores the extent and nature of outward Foreign Direct Investment (OFDI) by Chinese companies in the wine sectors in the Bordeaux region of France and in Western Australia. Primary field research was undertaken along with analysis of secondary trade data. Results indicate that overall, the level of Chinese OFDI is relatively low. The motivations of investors in both wine regions were identified as the following: to exploit growing domestic wine markets; to achieve reliability and security of wine supply and to leverage the prestige that tends to be associated with this industry globally. In Bordeaux the ‘appellation’ was a clear motivation, as were the vineyards’ historic buildings. In Australia, cementing existing business relationships, as well as access to Australian residency were seen to be strong drivers of investment. Recently, both trade to China and new investment from China have fallen in the industry, due, in part, to the impact of an anticorruption drive by the Chinese government. Some managerial implications for the industry are highlighted and directions for future research identified.

2.2 China’s new status as a global acquirer

In the late 1990s-early 2000s, China barely contributed to OFDI. Cross-border M&As began to pick up in the early 2000s, and since 2009 China has been an important actor on the global M&A market (Fig. 2.6).

China became one of the most active global acquirers after the GFC, ranked second among the top 10 in 2016, its peak year. Chinese M&As accounted for about 20% of the total value of announced M&As by the top 10 global acquirers that year. Over the decade leading up to 2016, the value of Chinese M&A deals continuously increased, as shown in Fig. 2.7. The most significant cross-border deal by a Chinese acquirer was the state-owned chemical company ChemChina’s announced acquisition of Swiss firm Syngenta for $43 billion.

Comparing data from the United States to China, Korea, Brazil and India, we can observe that the US dominates both greenfield (since 2003, the earliest year with available data) and M&As (since 2000) for cross-border investments (see Table 2.1). Since the GFC, the total value of China’s activity has been roughly half of the United States while also showing impressive growth from precrisis levels in both greenfield and M&As at 354% and 391%, respectively. Although starting from a much lower level, Korea also had impressive growth in M&A activity (424%) and greenfield (118%). Brazil and India both have increased greenfield projects but reduced M&As. Given its high volumes, the United States has also grown, but at more moderate pace.

Table 2.1. Changes in announced outbound M&A deals and greenfield investments by country: comparing pre-GFC (2000–08 for M&As and 2003–08 for Greenfield) and post-GFC (2009–18).

InvestorGreenfield OFDI (total amount in million)Outbound M&A (total amount in million)China (with Hong Kong)Precrisis period: $184,674
Postcrisis period: $578,751

Growth: + 181%
Rank precrisis period: No 7
Rank postcrisis: No 2Precrisis period: $166,325
Postcrisis period: $798,013

Growth: + 380%
Rank precrisis:
Rank postcrisis: No 4 (No 2 in 2016)KoreaPrecrisis period: $126,601
Postcrisis: $276,368
Growth: + 118%Precrisis period: $26,324
Postcrisis period: $138,059
Growth: 424%IndiaPrecrisis period: $86,476
Postcrisis period: $158,925
Growth: + 84%Precrisis period: $63,250
Postcrisis period: $61,792
Growth: − 2%BrazilPrecrisis period: $29,408
Postcrisis period: $45,773
Growth: + 55%Precrisis period: $60,767
Postcrisis period: $47,463
Growth: − 22%ChinaPrecrisis: $141,448
Postcrisis: $642,950
Growth: + 354%Precrisis: $166,325
Postcrisis: $817,533
Growth: + 391%United StatesPrecrisis period: $977,553
Postcrisis period: $1,288,383
Growth: + 32%Precrisis period: $1,518,855
Postcrisis period: $1,814,891
Growth: + 19%

Source: Authors’ analysis based on data on announced M&A transactions originating from China and Hong Kong, excluding canceled transactions (value in million US$) from Standard & Poor’s Capital IQ. Consortium investments where Korean companies were minority stakeholders were removed manually for Korean M&A figures.

China not only became a more frequent acquirer, but was also involved in progressively larger M&A deals, including 10 of the top 100 global transactions in 2017, a feat only topped by the United States (26), Canada (16), and the United Kingdom (15). In 2018, China nearly repeated the achievement, accounting for 7 of the top 100 transactions (Fig. 2.A1). That year, the $35 billion acquisition of EDP (Energias de Portugal) announced by China Three Gorges (CTG) was the fourth-largest cross-border deal in the world, and China’s largest deal. At the time this book was going to press, however, the announced purchase was not realized, and EDP was considering other options involving a joint venture with CTG.

Since 2017, Chinese M&A activity has faced some headwinds from local and global policy changes (see Chapters 3 and 434). Chinese authorities made efforts to curtail capital outflows following a rapid flurry of Chinese M&A activity in 2016. M&A activity declined as a result of targeted government regulations, but China still proved a leading global acquirer. By mid-2017, Chinese activity accounted for 16% of worldwide M&A deals in the first semester of 2017, a result only surpassed by the United States (Fig. 2.6). The US and European policy shifts since early 2018 have further stagnated Chinese overseas acquisitions (Chapter 4), and subsequently China’s share of global M&A activity decreased to 8%, dropping in global acquirer rankings to sixth place between France and Switzerland (see Fig. 2.8). It is unclear if the growth volumes of 2016 and 2017 were outliers and 2018 represents a return to normality, or the beginning of a downturn. Time will tell if Chinese firms want to focus on regaining ground in outward M&A deals (see Fig. 2.9) or prefers to concentrate on their domestic market.

Investment

Thailand is still more of a recipient of FDI than a contributor. Outward FDI (how much Thailand invests abroad) fell from 1.2% in 1996 to 0.5% in 1998. Comparatively, inward FDI reached 25% in 1998 (the most recent data available). As of 1998, inward FDI was 50 times more than outward investment.

Equity investment abroad has declined significantly since 1997. Industrial investment declined from US$156 million to US$49 million, and investment services fell from US$93 million to US$16 million. This was not a very significant amount of foreign investment. Unfortunately, 1997 was the highpoint.

In 1999, Hong Kong was the most popular destination for Thai investment, followed by the EU, ASEAN and China. Thailand is not a major influence in international investment and its current performance is declining.

4.3.2.1 Asia-oriented preference

With the purposes of seeking stable cooperation with overseas companies, China’s outward FDI mainly orients to neighboring countries in Asia (Apoteker & Barthéléry, 2009). Based on the analysis of China’s overseas investment in 2005 carried out by Li (2009b), 71% of the total amount was invested in Asia, followed by Latin America with 20%, then Africa and Europe both with 3%, North America with 2%, and Oceania with 1%. The outward FDI of China has become country-diversified since it joined the WTO; although Asia still remains its main investment target, the amount of FDI in western developed countries is increasing (Li, 2009b). On one hand, compared with Europe and American continents, neighboring countries have the advantage of geographical positions (a closer physical distance and location in the similar time zone), which could reduce transport costs and offer much more convenience for CTNCs. Whereas, on the other hand, the proximate culture and the widespread Chinese diasporas may be helpful for decreasing the barriers of trans-boundary business cooperation and contributing useful relationship to facilitate it. In Chinese foreign investment history, the cooperating partner of China’s first foreign investment, which happened in 1979 (in the context of the planned economic system), was a Japanese company called Tokyo Maruichishoji Co. Ltd., which built China’s first joint enterprise in Tokyo with Beijing Friendship Commercial Service Corporation. Additionally, because some of the residents of those countries speak Mandarin (e.g., Taiwan and Singapore), it is likely to make business cooperation easier (Apoteker & Barthéléry, 2009; Guger, 2008).

Offshoring

Overall Indian investment in foreign countries either as joint ventures or wholly owned subsidiaries has not been small. Outward FDI (investment by Indian firms) has increased from USD13.7 billion in 2009–10 to USD16.84 billion in 2010–11. The financial, insurance, real estate business, and business service sector has been the leading contributor to FDI outflows with USD6.63 billion followed by manufacturing with USD5.04 billion (Khan, 2012).

With respect to ICTs, given the poor focus on the domestic sector as a whole and the hardware sector in particular, investments by Indian ICT firms might be in the area of services and might be much lower than in other industrial sectors. A trade association report (NASSCOM, 2009) says that the contribution of the Indian ICT sector to outward FDI, measured through values of mergers and acquisitions (M&A), is significant with 11% in 2008, which doubled that of 2007. While Indian companies expanded into geographies other than the U.S., the pace was somewhat muted (NASSCOM, 2009: 76). Though Indian firms are willing to undertake the acquisition route for growth (Economic Times, 2009) they face challenges in terms of differences in valuation and culture.

In the ICT sector M&A deals differ depending on the size of the firm. Large firms acquire firms because they need niche domain expertise for their current offering; achieving significant scale is not their priority. Second-tier firms acquire firms both to achieve a larger scale of operations and to gain niche expertise. The third set of smaller firms looks for similar smaller players to enhance their niche technology strength (De, 2006). Though Indian firms are expanding their global reach and technology domains in service through acquisitions, it is difficult to conclude that R&D capabilities have been acquired.

1.2 Overview of the book

In addition to this introduction, this volume consists of six more chapters.

Chapter: Determinants of Foreign Direct Investment: Theoretical Approaches provides the theoretical frameworks for the analysis of Brazilian inward and outward FDI. After a general overview of classical FDI theories and the different contributions of recent approaches, we discuss how the introduction of institutional theory and investigations of outward FDI from developing countries represent important contributions that challenge the main assumptions and perspectives in the general theory of FDI. This perspective opens up fresh opportunities for understanding how the interaction between economic and institutional factors shapes inward and outward FDI strategies from developing countries.

In chapter: General Institutional Framework of Foreign Direct Investment in Brazil, we address the general institutional framework of FDI in Brazil. In particular, we focus on the economic and institutional changes in Brazil from the period of import–substitution policies (ISP) to the period of reforms in the 1990s, in which the country implemented a new model of development based on free competition, fiscal responsibility and economic openness. Furthermore, we analyze the evolution and patterns of FDI and draw some conclusions about the strategies and performance of multinationals in the country, comparing the periods before and after the global financial crisis of 2008.

In chapters: Determinants of Inward FDI in Brazil; Evolution and Determinants of OFDI; FDI and Economic Growth, we make quantitative assessments of the general hypotheses established in the first few chapters.

In chapter: Determinants of Inward FDI in Brazil, we present several quantitative analyses of FDI determinants in Brazil. First, we evaluate the relationships between the economic performance of the host country and FDI in a long-run perspective, testing the effects of macroeconomic and trade variables. In the second approach, we estimate the role of institutions and their effects on the patterns of FDI. Finally, we discuss how absorptive national capacity moderates the effects of economic performance.

Chapter: Evolution and Determinants of OFDI provides a general understanding of outward FDI from Brazil. First, we discuss the evolution and patterns of outward FDI from Brazil. More specifically, we address the driving forces of FDI from a dual perspective. First, we assess the role of home-market economic performance. Second, we evaluate the effects of the host country on outward FDI, in particular by estimating the role of economic performance and distance. The chapter provides qualitative and empirical assessments of the impacts of economic and institutional factors on the patterns of outward FDI.

After discussing the drivers of inward and outward FDI, chapter: FDI and Economic Growth, discusses the relationships between economic growth and FDI. More specifically, we attempt to point to some avenues for how absorptive capacity may moderate the effects of FDI on economic development.

In the last chapter, we conclude the book by providing a critical discussion of the determinants of inward and outward FDI and their interactions with economic development. We also point to some specific research avenues on the internationalization of firms in emerging countries.

Which of the following is a reason for the decline in the popularity of the radical view of FDI?

Why is foreign direct investment declining?

How has the flow of FDI compared to the growth in world trade since 1990?

Which country was a favorite target for FDI inflows during the 1980s and 1990s?