Internationalzation of Chinese Mnc

In recent years, emerging markets have attracted a great deal of attention due to their immense economic growth. Emerging markets are characterized by having a large growing population, a strong GDP growth and a rapidly integrating information and communications technology. An increased income level, improved purchasing power and higher standard of living in these markets have attracted many foreign investors. While emerging markets have many characteristics in common, it is also important to bear in mind the enormous varieties existing among this group of markets, regarding for example cultural and institutional differences.

UNCTADstat (2011a) defines foreign direct investments (FDI) as long term investments by an investing resident or firm in one country in a firm or affiliate in another country. Investments are both the initial transaction as well as all following transactions between the two entities. Traditionally, patterns in FDI flows have mainly passed from developed countries to emerging markets but are changing as emerging markets are gaining importance in the global marketplace and increasing their share of the world's outward FDI flows. Emerging markets such as Brazil, Russia, India and China (BRIC) have received a large amount of inward FDI in the past few years and are increasingly becoming sources of outward FDI. As companies in emerging markets are internationalizing and becoming multinational companies (MNCs), this phenomenon adds another dimension to the theoretical framework.

1.1.1 Historical flows of FDI

After World War II most FDI flows went between developed countries, i.e. north-north FDI, for example between the USA and Europe. Therefore, research was mostly concentrated on the many multinational companies in developed countries. Another area receiving much attention is the down-market FDI flows from developed to developing countries, referred to as north-south FDI. The rise in FDI flows from developed countries to developing countries is to

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a large extent due to reforms which opened up China and other transition economies for foreign direct investments in the 1990s. In the late 1970s and early 1980s, the first larger waves of outward FDI took place among developing countries. Two thirds of the world's outward FDI from developing countries went between developing countries, i.e. south-south FDI. However, the amount of these FDI flows was still insignificant compared to the world's total FDI flows (Ramamurti, 2009).

The least studied area of the FDI flows are the up-market FDI flows from a developing country to a developed country, namely the south-north FDI. In the last few years, FDI flows in this direction have represented one tenth of global FDI flows. Examples of FDI flows in this direction is the Chinese company Lenovo's acquisition of American IBM's personal computer business, the Indian company