6. DIRECTIONS FOR FUTURE RESEARCH AND ITS IMPLICATIONS
6.2 Decision Characteristics
First, for the D element in ADO framework, several studies on OFDI from emerging countries investigate the entry mode choices made by emerging country MNEs. There are many studies which explore and examine the choices between joint ventures and wholly owned subsidiaries, or acquisitions and greenfield investment. However, changes in operation modes – e.g. switch from joint venture to wholly owned subsidiary, which is common in Western MNEs (Benito et al., 2012) – have largely been unexplored so far. Perhaps such changes have been less widespread in the context of emerging countries, but it could also be due to the difficulty of obtaining primary data from EMNEs from countries like China and India.
Second, many firms from developing countries, especially China, have emerged as MNEs and use cross-border acquisitions as their preferred mode of entry to acquire strategic capabilities to offset their competitive disadvantage at home. Despite the increase in publications on OFDI, most deal with Asia, and in particular, China. We note that there are not many studies that focus on OFDI from emerging countries in the South American and African continents. This reflects the fact that the volume of OFDI from Asian countries has been far larger than the volume of
OFDI from South America and Africa. However, OFDI from other regions have increased, which presents interesting research opportunities.
Third, research based on firm-level data with particular characteristics of OFDI is clearly warranted. Our overview uncovers that there are many studies which use country level data than studies that use firm and industry level data. While country level analyses are highly relevant, a complete understanding of the emerging country OFDI phenomenon also requires studies that put the behavior of firms into scrutiny, and that examine how their behavior can be shaped by industry factors. We acknowledge that such studies will require considerable investment for data collection. While such studies typically require additional effort, we urge researchers to venture into this relatively unchartered territory as the potential pay-off in terms of increased understanding of the ‘whys and hows’ of emerging country OFDI will make the extra effort fully justifiable.
6.3 Outcomes
Our overview suggests that the topic “outcomes of OFDI from emerging countries” is an unexplored area. Very few studies deal with the performance outcomes of EMNEs. One possible reason is that OFDI by EMNEs is a fairly recent phenomenon, and not enough time has elapsed to produce sufficiently large and reliable sets of performance related data. Another probable reason is that the unique antecedents and strategic choices by EMNEs may render conventional performance measures less relevant, or even misleading. Hence, we may need to develop novel performance measures. Future studies could go beyond financial results to encompass more strategic outcomes such as survival, success, knowledge transfers and reverse knowledge transfers. Some issues, such as exits and divestments (e.g. Benito, 2005), are generally
under-researched in international business, and merit more scholarly attention especially in the context of emerging country OFDI.
6. 4 Recommendations
Beyond the issues noted above, we propose several other recommendations for future research.
First, there is significant scope for research on OFDI from emerging countries other than China. Although OFDI research on China has increased tremendously over the last decade, research about other countries is still in its. There could be many reasons for expecting non-Chinese EMNEs to behave differently, due to cultural, regulatory, legal, industry-specific, and firm- specific factors. Likewise, the recent rise of multi-Latinas and the surge of OFDI from India and other Asian countries warrant more attention. There are opportunities to carry out comparative studies exploring the strategic motives of Chinese versus non-Chinese firms; for instance, Chinese versus Russian firms.
Second, following prior researchers (Meyer & Thaijongrak, 2013), we call for developing new theories to analyze the process of OFDI from emerging countries. The notable theories in the area of FDI such as Dunning’s OLI framework were developed in the context of OFDI from developed countries. While OLI framework embraces internalization and transaction cost theories and remain valuable theoretical perspectives, they miss out on the intricacies of OFDI by EMNEs. Therefore, one can explore the possibility of developing new theories, concepts, models and frameworks. There are already some attempts in this area. For example, Ghemawat’s (2001) CAGE (Cultural, Administrative, Geographic, Economic) distance framework is useful to understand the internationalization of firms from emerging countries, due to its comprehensive coverage of distance aspects. Moreover, it has become easier to cover any country in a study since measures of the distance between hosts and home countries are now available for all
CAGE variables. Researchers could also use Mathews’ LLL model (2002, 2006) and Luo and Tung’s (2007) springboard framework to analyze the antecedents, characteristics and outcomes of OFDI from different emerging countries. A fruitful research stream might be to study the mechanisms of institutional factors such as state ownership affect OFDI from EMNEs and how firms conduct business overseas in the era of globalization (Bruton et al., 2015). The role of networks in shaping firms’ internationalization has increasingly been recognized, and appears particular pertinent in the context of EMNEs (Taylor and Andreosso-O’Callaghan, 2016; Yang, 2005).
Third, there is scope for investigating the impact of OFDI on performance at home. Firm-level data from emerging countries would be very useful for such endeavors, and should novel methods such as Propensity Score Matching, as done, for example, by Hayakawa et al. (2013).
7. CONCLUSIONS
In this review, we have identified a number of studies that investigate OFDI from emerging countries. Our focus has been on antecedents (OFDI investment motives, host and home country factors), key characteristics and decisions related to OFDI (such as location, entry modes etc.), and the outcomes of OFDI (e.g., performance, effects etc.). We have also highlighted gaps in existing OFDI literature, and suggested new and promising directions for future research in this field. The ADO framework presented here is a useful tool to organize analyses not only of OFDI, but also of IFDI, and for both single country and cross-country studies. Through this critical review, we show that there has been a significant increase in scholarly interest and publications on OFDI research since 2005, which reflects the rapidly increasing volume of OFDI since then.
A number of important points may be summarized as follows:
Since the established theories of FDI were developed in the context of developed countries, there is scope for new conceptualizations which deal with different dimensions of OFDI from emerging countries such as the process, pace and pattern of OFDI. The process dimension covers accelerated versus gradual OFDI; pace refers to the speed of OFDI and the time taken by multi-national enterprises from emerging countries to switch from market – and contract – based operation modes to FDI modes; and pattern includes composition of the industries and the direction of OFDI.
Previous studies have found that most of the OFDI from emerging countries, especially by family owned enterprises has been directed toward predictable markets (markets with similar features in terms of cultural, administrative, geographical and economic distance). EMNEs have to deal with liability of foreignness issues, problems arising out of cognitive bias, and resource constraints. However, recent studies show that some EMNEs have actively invested in developed countries, which suggests that they are able to confront the challenges.
Finally, findings from research on OFDI from emerging countries are heterogeneous in nature and scope, which make cross-country comparisons difficult. However, we found generalized insights when we reviewed studies pertaining to a given country; for instance, the findings from the many OFDI studies on MNEs from China show that Chinese firms exhibit common behavior and motives for acquiring strategic assets abroad.
Author biographies
Justin Paul is Professor at University of Puerto Rico, San Juan, USA and a visiting professor in Australia. He is an author of several books, including Business Environment (McGraw-Hill), International Business (Prentice Hall of India) and Export-Import Management (Oxford University Press). He is senior editor of European Journal of International Management and of International Journal of Emerging Markets. He has been a faculty member with the University of Washington and Nagoya University of Commerce and Business, Japan. He has been a guest editor for Small Business Economics, International Trade Journal and Journal of Retailing and Consumer Services. He has taught in Denmark, France, Austria and Lithuania. His website is drjustinpaul.com.
Gabriel R.G. Benito is Professor at BI Norwegian Business School, Oslo, Norway. He is Fellow of the Academy of International Business and of the European International Business Academy.
He serves as associate editor of Global Strategy Journal and consulting editor of Journal of International Business Studies. His work includes the books Foreign Operation Methods (w/Welch and Petersen, 2nd edition, 2017) and Multinationals on the Periphery (w/Narula, 2007) and numerous articles in, inter alia, Journal of International Business Studies, Journal of Management Studies, Journal of Economic Geography, Global Strategy Journal, Journal of Business Research, Journal of International Management and International Business Review.
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Acknowledgements
We are grateful for very helpful and constructive comments and suggestions by the Editors of this journal and two anonymous reviewers. We thank Esther Galan, Jose Ernesto Colon and Gurmeet Singh for providing research support and assistance. We also thank Masaaki Kotabe, Arie Y. Lewin and A. Ramanath for comments on earlier versions of this article.
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