Changing Contours of Indian Investment Abroad: Evolution, Diagnosis and Public Policy

Mncs’ Emergence From Developing Economies: Theory & Empirics

Recently, international expansion of business has attracted attention of a large number of researchers. The theory of international operation of firm has sought to understand the major determinants influencing ‘Outward Foreign Direct Investment’ (OFDI, hereafter). The established theories of international investment based on the experience of the firms from the industrially advanced countries suggest that the competitive advantage allows firms to expand business and secure higher returns. The theoretical perspectives on the international operation of firm have evolved from Hymer (1976), Dunning (2000) and several others. The unique competitive advantage possessed by firms is based on innovation activity largely concentrated in the home country. This unique competitive advantage, in the form of ownership, location and internationalization, allows firms to acquire monopolistic or oligopolistic power in the market and expand their businesses internationally through investments, mergers and acquisitions.

It is widely recognized fact that the national innovation system of the emerging developing economies and emerging multinational enterprises of the developing countries do not possess such unique competitive advantage primarily due to the infancy of their national innovation systems. Consequently, the emerging multinational enterprises of these developing economies internationalize businesses mainly to acquire competitive advantage, which they do not possess (Nayyar, 2008). Under such circumstances, the theoretical developments explaining motives behind internationalization of business by firms, based on the experience of industrially advanced country firms, remain inadequate to explain recent spurt in internationalization of firms from developing economies (including India).