Heading the opposite of south

Dr. Jean-Marc F. Blanchard's picture

The latest issue of the “Global Investment Monitor” (No. 16), prepared by the United Nations Conference on Trade and Development (UNCTAD), re-affirms a trend that began many years ago which is that developing economies are becoming critical players in the world of outward foreign direct investment (OFDI). Not only have they become significant sources of OFDI, but they also are pouring large amounts of money into other developing countries (so-called South-South investing), with these trends fueled by government policy shifts, faster economic growth, and the increase in “purchasing power” resulting from rising commodity and natural resource prices. Looking at the data, in 2013, OFDI by developing country multinational corporations (MNCs) hit $460 billion, nearly 40% of total global FDI outflows.

A fairly significant portion of this OFDI involved the purchase of developed country foreign affiliates. Asia, particularly East Asia (including Japan), was a major source of OFDI, running almost 33% of total global OFDI. Even excluding Japan, this percentage ran close to 17%. Key East Asian developing country outward investors include China (US $101 billion), South Korea (US $31 billion), and Taiwan (US $15 billion). The UNCTAD report shows that many developing country outward investments took the form of M&A, and entailed consumer sector investments (food, hotels, and business and finance services). Generally, the Global Investment Monitor emphasizes the (continuing and) growing economic importance of East Asia in the global economic order. The latest report should make us reflect anew about the validity of the long-questionable thesis that Western MNCs rule the world. It also should make us question the proposition that developing world MNCs are only gassed up about natural resources. Lastly, it should make us wonder about arguments that developing country MNCs will shun M&A as a market entry form because of the difficulties of meshing different cultures.