Outward foreign direct investment from BRIC countries: comparing strategies of Brazilian, Russian, Indian and Chinese multinational companies.

• Author: Andreff, Wladimir
• Position: P. 79-105 - Report

Outward foreign direct investment (OFDI) from post-communist and fast-growing developing (emerging) countries started to increasingly draw attention in the early 2000s (2). Since then, analysing foreign investment strategies of multinational companies (MNCs) whose parent headquarters are based in each BRIC country has actually become a fashioned avenue for research. The literature based on country case studies has been growing at a skyrocketing pace during the past decade, though overall comparative studies are still in the cradle; practically no one comparison samples all the four countries together (3). Using a same methodology for comparing Brazilian and Indian MNCs (Andreff, 2014) then Russian and Chinese MNCs (Andreff, 2015) has facilitated an overall and systematic comparison of OFDI from all four BRICs presented below. Such comparison is of interest since Russia and China are transition countries while, at about the same time, India and Brazil have liberalised their economies without a post-communist systemic change.

Any deep comparison between the four BRICs' economies will find out so many disparities, sometimes more than similarities that the country grouping coined BRIC may appear heterogeneous enough to contest that gathering the four countries together is relevant. In the same vein, the present paper unveils a number of significant differences between OFDI strategies conducted by MNCs from different BRICs, beyond some marked similarities. A sensible expectation would be to consider that Russian and Chinese MNCs, since they are based in two post-communist economies in transition toward some kind of state capitalism, should be closer in terms of OFDI strategies while Brazilian and Indian MNCs operating from freer market economies should have together more similar features and strategies that would differentiate them from their Russian and Chinese competitors. The outcome of the comparison led in this article does not entirely confirm such expectation: BRICs' MNCs similarities and differences do not draw a clear-cut dividing line between transitional MNCs and emerging MNCs that emanate from more liberalized, though not fully-fledged, market economies like Brazil and India.

OFDI is compared across the BRICs first in terms of historical emergence (Section 1), then as regard how it has boomed in the early 2000s and is muddling through the current financial crisis (Section 2). Specificities of their MNCs' strategies are pointed out (Section 3), including their geographical (Section 4) and industrial distribution (Section 5), as well as the respective determinants of their OFDI as they show up from surveying a sample of econometric tests (Section 6). Finally, the role of home-country government vis-a-vis home-based MNCs is differentiated (Section 7). Conclusion grasps some main comparative results (Section 8).

1. The emergence of multinational companies based in BRICs

   Indian and Brazilian firms are known to have started up investing abroad earlier than Chinese and Russian MNCs. According to Lall (1983), the first OFDI from India occurred as early as 1962 with Jay Engineering Works setting an assembly line for sewing machines in Sri Lanka. Actually, the first one was the establishment of a textile mill in Ethiopia by Birla in 1955 (Saikia, 2012). Indian firms begun to significantly invest abroad in the 1960s, but India's restrictive OFDI regime limited them to small joint ventures (JVs) in developing countries such as Kenya, Uganda, Nigeria, Malaysia Thailand and Sri Lanka. Liberalisation of OFDI policy pushed up Indian firms to invest abroad though under stringent conditions fixed by the state. A major objective of the new policy was to developing JVs rather than fully-owned subsidiaries. Indian OFDI was felt--by the government--as a tool for export promotion in the equipment goods industry. This drove market seeking OFDI primarily to neighbouring host countries, but also in the Middle-East and a few African countries, with a focus on countries having a significant number of people with Indian origins as local residents. Compared to other BRICs' MNCs, the Indian ones have been benefiting from a first mover advantage (4).

   A classical presentation of India's OFDI in historical perspective splits it into three phases (Hansen, 2010). The first phase (1970s-1980s) was mainly led by modest investments made in JVs in Asia and Africa and shaped by political and regulatory restrictive government policies. Some MNCs were partially or fully state-owned but most were held by Indian family capital though often in collaboration with public financial institutions. Second was a start-up phase (1990s-early 2000s) which was largely an outcome of more liberal government stance on FDI. Liberalisation of the Indian economy in the 1990s targeted inward and outward FDI since 1994. The number of Indian firms investing abroad grew up. The emergence of new Indian MNCs has been boosted by a preliminary substantial inward FDI of Western MNCs into India in tune with the so-called LLL--Linkage, Leverage, and Learning--approach (Matthews, 2002). Instilling spill-overs, incubators and learning by doing business with foreign investors in India have pushed the internationalisation of Indian firms. With the 1998-2002 downturn of the Indian economy, Indian firms internationalised their operations not only for survival but with specific strategies for sustained growth (Kant, 2008). The third was a take-off phase (after early 2000s) when Indian OFDI exhibited a totally different trend as compared to the previous two phases in terms of growth, industrial composition, and geographical orientation.

   Brazilian companies started investing abroad in the 1970s. Domestic economic slowdown of the late 1970s and the 1980s' crisis are main reasons mentioned by Brazilian entrepreneurs to explain this first wave of Brazilian OFDI; it played as a push factor for Brazilian firms to internationalise. Banks, engineering service firms and Petrobras expanded their activities to bordering countries. Between 1975 and 1980, a dozen Brazilian MNCs had already emerged (Andreff, 1982). The Brazilian Central Bank data show that 54% of FDI outflows were concentrated in financial services in 1980. A strong presence of banking investments overseas was strategically targeted to support the expansion of Brazilian firms' exports. Besides, first Brazilian MNCs were involved in industries such as oil exploration and production, construction and engineering, and a few manufacturing namely in the agro-food industry. Main destinations of Brazil's OFDI were Latin America, Africa and the Middle East. Villela (1983) provides a list of the largest non-financial investors abroad in the 1980s (5).

   In the 1990s, large Brazilian companies have entered a new stage in their internationalisation process (Cyrino et al, 2010). OFDI flows soared as a consequence of deregulation, privatisation and trade liberalisation followed by new Brazil's outward economic orientation. By the late 1990s, due to economic and institutional reforms, a growing internationalisation of Brazilian firms was registered; OFDI was triggered by a strategy of expanding business in foreign markets which has particularly developed after 2002, corresponding to a recovery of Brazilian economy from the 2001 crisis (Amal and Tomio, 2012).

   Though lagging behind the emergence of Indian and Brazilian MNCs, Chinese MNCs held a first mover advantage compared to MNCs from all other transition economies, including those from Russia and Central Eastern European countries (CEECs). They have begun establishing subsidiaries abroad as early as 1979, primarily to open new export markets (Ye Gang, 1992). Since then they were ahead of Russian companies in investing abroad: OFDI from China in 1992 ($7,401 million) was of about the same magnitude as the one from Russia in 1998 ($7,385 million). Just like Indian MNCs, the growth of mainland China's MNCs has been led by the LLL approach and past technology transfers from foreign MNCs resulting in productivity spill-overs to domestic Chinese firms. In a future last phase, it is expected that China's OFDI would channel comparable transfers and spill-overs from China to developing countries (Lian and Ma, 2011). This should make Chinese MNCs more acceptable in this sort of host countries.

   Former USSR opened up to inward FDI comparatively later, in 1987, and the LLL process did not operate in the 1990s given the bad domestic investment climate in Russia (Andreff, 1999a). So-called Soviet "red multinationals" (Hamilton, 1986) vanished nearly overnight in the wake of the USSR's break-up and subsequent transformational recession. OFDI stock from the USSR fell from $699 million in 1990 down close to nil in 1992 and 1993. Paradoxically, number of Russian firms spontaneously transformed into MNCs overnight simply because they were located in more than one former Soviet republic. Since these republics obtained the status of new independent states by end of 1991 or in 1992, a same company located in two or more former Soviet republics--it was often so under central planning--became all at once a so-called "born multinational" company (Liuhto, 2001).

   From the mid-1990s on, the number of subsidiaries settled abroad by Russian firms started growing again, fuelled by a recovery in new FDI outflows from Russia (Andreff, 2002). However, if 1994 is the milestone for a new emergence of Russian MNCs, one has to wait until end of 1998 Russian financial crash consequences to witness a swift growth pace of Russian OFDI stock. Most of the biggest 100 Russian firms have gone multinational since...