A Tale of Two Economic Giants When people think of multinational companies, names like Apple, Toyota, or Shell typically come to mind. But a dramatic shift is underway – companies from emerging economies, particularly China and India, are increasingly becoming major global players. This shift raises fascinating questions: How did these companies emerge onto the world stage? What drives their international expansion? And how do Chinese and Indian multinationals differ in their approaches?
The Evolution: From Regional Players to Global Powerhouses
The story unfolds in three distinct waves:
Wave 1 (Pre-1985): Humble Beginnings
- Indian companies led by private sector pioneers like Birla and Tata
- Chinese firms primarily state-owned, focused on Hong Kong
- Both limited to neighboring regions with modest investments
Wave 2 (1985-1995): Diverging Paths
- China surges ahead through “open door” policies promoting exports and foreign investment
- Indian firms held back by restrictive domestic policies
- Chinese firms expand into manufacturing while Indian companies focus on services
Wave 3 (1995-Present): Global Ambitions
- Both countries see explosive growth in overseas investment
- Chinese investment grows from $12B (1990) to $340B (2008)
- Indian companies increasingly target developed markets through acquisitions
Two Different Models of Going Global
The Chinese Approach:
- Strong state involvement and support
- Focus on natural resources and strategic assets
- Preference for investing in developing regions
- Often driven by national strategic interests
- Continued growth even during global financial crisis
The Indian Approach:
- Led by private entrepreneurs
- Technology and market-seeking focus
- Growing preference for developed markets
- More market-driven decision making
- More sensitive to global economic conditions
What Attracts Their Investment?
Both Chinese and Indian companies are attracted to:
- Countries that import their goods
- Strong local currencies
- Liberal investment policies
- Offshore financial centers
But key differences emerge:
- Chinese firms prefer smaller countries with natural resources
- Indian firms target larger markets with skilled workforces
- Chinese companies stay closer to home
- Indian firms show no geographic preference
Looking Ahead: Implications for the Global Economy
This rise of Chinese and Indian multinationals represents more than just business expansion – it signals a fundamental shift in global economic power. Some key implications:
- Increased South-South economic cooperation
- New models of international business
- Growing competition for Western multinationals
- Potential reshaping of global industries
Academic Abstract:
The present study deals with the origin and growth of outward foreign direct investment (OFDI) by emerging Chinese and Indian multinationals and examines the locational determinants of such investments. Both Chinese and Indian OFDI flows were observed to have surged after the adoption of economic openness policies by the home country in the late 1970s and the 1990s respectively and are now increasingly being driven by wholly-owned projects and acquisitions abroad. Indian and Chinese firms both started OFDI operations in developing countries and then they expanded into developed regions in the 1990s. Among locational factors, both Chinese and Indian OFDI projects are attracted by host country imports from the sources, greater strength of host currencies, rising host prices and host status of being offshore financial centres. While the Chinese multinationals were found to have preference for hosts with locational proximity, small size and high natural resource endowments, the Indian firms appear to choose countries with large size and that have bilateral investment treaty (BIT) with India irrespective of their physical distance from India.
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Full citation: Pradhan, Jaya Prakash (2011), ‘Emerging Multinationals: A Comparison of Chinese and Indian Outward FDI’, International Journal of Institutions and Economies, 3(1), pp.113–148, Publisher: University of Malaya.
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