Transcontinental Strategies and Strategic Choices

Introduction

While transcontinental trade can be traced back more than a millennium, advanced transcontinental strategies or strategic choices are a relatively new phenomena. The theories behind these strategies may be in need of revisiting (Aboutalebi, 2016b) to adjust them to the recent surge in the cross-continental internationalization of Asian multinational enterprises. Late industrialized countries in general and Asian countries in particular tend to follow different paths towards economic development, compare with those of the early developed ones. This research is an attempt to shed light on the preferred modes, strategies and strategic choices of Indian companies for internationalization and to assess the suitability of current theories to explain these preferences.

Foreign Direct Investment (FDI) as one of the common mode of internationalization refers to “an investment made to acquire lasting interest in enterprises operating outside of the economy of the investor” (International Monetary Fund, 2015). Recently, Outward FDI (OFDI) from Asian countries into the developed countries has fast been gaining momentum. A report by the Organisation for Economic Cooperation and Development (OECD) shows that Asia’s developing countries are the first major source of OFDI (see Figure 1). The recent World Investment Report (2015) by the United Nations Conference on Trade and Development (UNCTAD) indicates that not only is there a growing trend of OFDI from Asian economies, more interestingly, there has been a dramatic increase in the number of enterprises originated from developing economies investing in developed host countries. This ‘reverse’ globalization has been termed ‘unconventional’ (Kedia, Gaffney & Clampit, 2012), as it does not follow the conventional internationalization path previously predicted based on the experiences of firms out of developed (primarily Western) economies.

Figure 1.

Sources and trend of OFDI (billions of dollars)

Source: UNCTAD’s World Investment Report (2015).

Several Asian economy proponents have argued that the traditional theories fall short in explaining the FDI patterns from Asian economies. The emergence of these new multinational enterprises (MNEs) raises the need for further study and the development of new theories. A few renowned management advisory organizations have published informative reports (BCG, 2015; Price WaterhouseCoopers, 2010) and attempted to predict the possible long-term consequences. The structure of the paper is as follows: after the theoretical frameworks that highlight internationalization theories regarding multinationals from Asian economies, Indian multinationals in the United Kingdom (UK), research methodology and finally discussions and findings are presented.

Background

India is currently one of the fastest growing economies, with the second highest growth rate in the world, at roughly 8% (World Bank Data, 2016), just behind China. The Asian enterprises from India are ambitious, seeking to increase visibility and brand recognition on the global business scene (BCG, 2015; PWC, 2010). The recent spate of cross-border acquisitions of global brands by Indian companies – such as Tata’s acquisition of Jaguar/Land-Rover and Ranbaxy’s acquisition of generic pharmaceutical brands in Germany, Italy and the USA – has prompted business professionals to predict that by 2018, the number of Indian multinationals would far exceed the rest of the Asian countries (PWC, 2010). Needless to say, it is not only very interesting but also important to study the activities and the underlying patterns of OFDI by Indian companies.

The UK, a developed economy, has become the third most favored destination for Indian FDI, after the Netherlands and the USA, according to leading financial and economic newspapers in the recent past (World Investment Report, 2015). Moreover, there has been constant and active collaboration between India and UK with respect to business connections between the two countries; the most recent evidence being a diplomatic visit by the India Prime Minister with the largest delegation of business leaders to the UK.