Reasons Behind Ofdi from India and China

International Business Theory Assignment

Outward foreign direct investment (OFDI) from India and China has increased significantly during the last few years. Discuss the factors responsible for such a growth. Using IB theory, discuss whether FDI from China and India is likely to be in the form of forward integration rather than backward integration.

China and India are two of the fastest growing economies in the world at present. As a result of this economic growth, there has been considerable increase in both inward and outward Foreign Direct Investment (FDI) in these two countries as well as throughout the developing world in general. This essay will highlight and analyse the factors responsible for the growth of outward Foreign Direct Investment from China and India. Additionally it will discuss, using International Business Theories including Dunning’s Eclectic Paradigm Theory and Internalisation Theory to consider whether this outward FDI is likely to be in the form of forward integration rather than backward integration.

Outward foreign direct investment (OFDI) has been a phenomenon of developed countries for most of its theoretical life. Until the 1980s, more than 90 per cent of global OFDI originated from developed countries (World Investment Report, 2005). However, since the early 1990s, developing countries, especially China and India, have seen a rapid growth in their OFDI. Such is the extent of the growth that OFDI from developing economies reached US$ 3.1 trillion in 2010 (15.3 per cent of global OFDI), up from US$ 857 billion (10.8 per cent of global outward FDI stock) 10 years ago. On flow basis, outward FDI from developing economies has grown from US$ 122 billion in 2005 to US$ 328 billion in 2010 accounting for around a quarter of total global OFDI, figures that highlight the size and significance of OFDI from emerging markets. (World Investment Report, 2011)

Foreign Direct Investment can be defined as 'any investment that results in...