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66 Outward Foreign Direct Investment by Enterprises from China Boston Consulting Group (2006). China’s Global Challengers: The Strategic Implications of Chinese Outbound FDI, Boston. Brooks, Douglas H. and Hafiz Mirza (2005). “Outward FDI from Developing Asia”, paper presented at the Asian Development Bank seminar, “Outward Foreign Direct Investment from Asian Developing Countries”, Bangkok, 28-29 November. Child, John and Suzana B. Rodrigues (2005). “The Internationalization of Chinese Firms: A Case for Theoretical Extension?”, Management and Organization Review, Vol. 1, No 3. Frost, Stephen (2004). “Chinese Outward Investment in Southeast Asia: How Much and What Are the Regional Implications?”, Southeast Asia Research Centre Working Paper 67, City University of Hong Kong. Geng Xiao (2004). People’s Republic of China’s Round- Tripping FDI: Scale, Causes and Implications, ADB Institute Discussion Paper No 7, Asian Development Bank, Manila. Hong Liu and Kequan Li (2002). “Strategic Implications of Emerging Chinese Multinationals: The Haier Case Study, European Management Journal, Vol. 20, No 6. Keller, Eugene von and Wei Zhou (2005). From Middle Kingdom to Global Market, Roland Berger Strategy Consultants, Shanghai. References Ping Deng (2004). “Outward Investment by Chinese MNCs: Motivations and Implications”, Business Horizons, May-June. Ping Deng (2006). “Investing for Strategic Resources and its Rationale: The Case of Outward FDI from Chinese Companies”, Business Horizons, November-December. UNCTAD (2004). “China: An Emerging FDI Outward Investor”, e-brief (United Nations: New York and Geneva). UNCTAD (2004). World Investment Report 2004: The Shift towards Services (United Nations: New York and Geneva). UNCTAD (2006). World Investment Report 2006: FDI from Developing and Transition Economies – Implications for Development (United Nations: New York and Geneva). Wong, John and Sarah Chan (2003). “China’s Outward Direct Investment: Expanding Worldwide”, China: An International Journal, Vol. 1, No 2. Yang, Dexin (2003). Foreign Direct Investment from Developing Countries: A Case Study of China’s Outward Investment, Centre for Strategic Economic Studies, University of Melbourne, unpublished thesis. Yao, Yang and Ying He (2005). Chinese Outward Investing Firms (a study for FIAS/IFC/MIGA), China Centre for Economic Research, Peking University (mimeo).
A. Introduction This paper examines the OFDI behaviour of Indian small and medium enterprises SMEs. 49 The pattern of enterprise internationalization is interesting because India is a developing country that has pursued a long-term policy of protecting and promoting SMEs development. Therefore, the Indian SMEs internationalization experience could be highly relevant for understanding the behaviour and characteristics of OFDI by developing country SMEs. The paper analyses the trends in OFDI by Indian SMEs, the drivers, implications on enterprise competitiveness and finally it reviews OFDI policies. B. OFDI from India: Trends and development Indian enterprises have been investing abroad for a long time, but it is only in recent years that Indian OFDI has become sizable. The evolution of OFDI flows from India is captured by the “two waves” trend. The first wave of Indian OFDI is different from the second wave in terms of investment size, growth, geographical spread, sectoral characteristics, pattern of ownership and motivations (figure 1). This “two waves” classification reflects the liberalization of * This paper was prepared by Jaya Prakash Pradhan, Gujarat Institute of Development Research and Manoj Kumar Sahoo, Centre for Economic Studies and Planning, Jawaharlal Nehru University, India. CHAPTER VI 49 For the purpose of this paper, firms are classified into small, medium-sized and large firms according to the following rule: for an industry (defined as the 3-digit level of International Standard Industrial Classification Revision 3), firms with sales up to the 25th percentile are taken as small, those having sales greater than the 25th percentile and up to the 75th percentile are classified as medium-sized and those with sales greater than the 75th percentile are designated as large enterprises. 67 CHAPTER V 67 OUTWARD FOREIGN DIRECT INVESTMENT BY SMALL MEDIUM-SIZED ENTERPRISES FROM INDIA* OFDI policy, and changes in the quantum of OFDI flows including the character and motivations of Indian investment abroad. The second wave is a distinct break from the first in terms of the number of Indian enterprises undertaking overseas production and the size of investment. It was a period of dramatic expansion of Indian OFDI. As at December 1983, there were only 228 approved OFDI projects, compared with 4,533 approved projects during 1997-2004 (table 1). This significant rise in the number of OFDI projects contributed to a 177 times increase in Indian OFDI stock, from $0.037 billion in 1976 to $6.6 billion in 2004 (figure 2). Indian OFDI has undergone significant changes in sectoral and geographical distribution, types of FDI, structure of ownership participation and financing arrangement in the two different periods. Geographical distribution. Most of the approved OFDI in the second wave went to the developed countries, which contrasted with the destinations in the first wave (table 2). �� In the first wave, developing South-East and East Asia were the largest host regions, followed by Africa, West Asia, Central Asia and South Asia in that order (figure 4). �� During the second wave, Western Europe and North America emerged as the major host regions, accounting respectively for 34 and 24 per cent of total Indian OFDI equity. Among the developing regions, South East Asia witnessed the largest decline in share, from 36 down to 9 per cent. Two developed countries, namely, the United Kingdom (27 per cent) and United States (24 per cent) were the major destinations for Indian OFDI in the second wave.
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