Explore the foreign direct investments in the big emerging market as well as to carry out the preliminary research of the dissertation. This proposal consists of 3 main parts; the introduction to problem statement and purpose of study,
TABLE OF CONTENTS:
. ABSTRACT 2
2. INTRODUCTION TO PROBLEM STATEMENT AND THE PURPOSE OF STUDY 2
2.1 INTRODUCTIONS TO PROBLEM STATEMENT 2
2.2 PURPOSE OF THE STUDY 3
3. LITERATURE REVIEW 3
3.1 INTRODUCTION TO THE EXISTENCE OF THE FDI 3
3.2 WHY TO INVEST IN THE BIG EMERGING MARKET 4
CHART 1 5
3.3 ANALYZE THE CURRENT SITUATION OF THE BEM AND THEIR COMMON TRAITS 5
3.4 THE CHALLENGES IN THE BEM FOR FDI 6
4. METHODOLOGY 6
4.1 PURPOSE OF STUDY AND TYPE OF INVESTIGATION 6
4.2 SAMPLING DESIGN 7
4.3 DATA COLLECTION DESIGN 7
4.3.1 Secondary data 7
4.3.2 Primary data 7
4.4 POTENTIAL DIFFICULTIES FOR DATA COLLECTION 8
4.5 DATA ANALYSIS 8
REFERENCE 9
APPENDIX A 11
APPENDIX B 12
Topic: Foreign Direct Investment in the Big Emerging Markets
. Abstract
The purpose of this proposal is to explore the foreign direct investments in the big emerging market as well as to carry out the preliminary research of the dissertation. This proposal consists of 3 main parts; the introduction to problem statement and purpose of study, a brief review of relative references and the section of methodology which includes the type of study, sampling design and the way of data collection.
2. Introduction to problem statement and the purpose of study
2.1 introductions to problem statement
According to the IMF BPM5, paragraph 359, FDI is the category of international investment that reflects the objective of a resident entity in one economy ("direct investor" or parent enterprise) obtaining a 'lasting interest' and control in an enterprise resident in another economy ("direct investment enterprise"). The "lasting interest" implies the existence of a long-term relationship between the direct investor and the direct investment enterprise and a significant degree of influence on the management of the latter. Direct investment involves both the initial transaction establishing the relationship between the investor and the enterprise and all subsequent capital transactions between them and among affiliated enterprises, both incorporated and unincorporated. As mentioned by Weigel (1997) during the last two decades, foreign direct investment has become the largest source of external funding for investment in developing countries. As social and economic events bring about unraveling opportunities in the big emerging market (BEM), many multinational corporations have made substantial investments in the countries as an integral part of their global expansion strategies (Garten1998). Emerging markets are countries in the world that are expected to experience lots of growth. Investing in these countries has lots of potential for big returns, but it also carries lots more risk than typical domestic investing.1 The underlying principle of this study will be focused on the notion of FDI in the big emerging markets. The ten big markets selected are South Africa in Africa; China, India, Indonesia, and South Korea in Asia; Poland in Europe; Argentina, Brazil, and Mexico in Latin America; and Turkey in the Middle East. According to UN estimates, foreign direct investment flow to the world's developing countries grew from $31 billion in 1990 to $80 billion in 1993. All of the ten largest recipients of foreign direct investment in the period from 1988 to 1992 were from the Big Emerging Markets. During the period from 1989 to 1993, U.S. direct investment in the BEMs increased from $6.1 billion per year to $13.7 billion, an increase of 125 percent. (U.S. International Trade Commission 1996). Being aware of this, it becomes much more important to do some investigation on FDI and the BEMs. Examining the strategic factors for the FDI to process in a big emerging market is another thorny issue to be investigated. .
2.2 Purpose of the study
In exploring the specific factors that FDI need to consider in the emerging market, the purpose of this study will consist of three objectives:
) To explore the current situation of the FDI and the reason of using FDI as market entry strategy.
2) To investigate the strategic purpose of FDI in the big emerging markets. (Why?)
3) To explore the criteria used by the foreign direct investor in strategically investing in the big emerging market. (How?)
3. Literature Review
3.1 Introduction to the existence of the FDI
Foreign direct investment, in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country. The direct investment in buildings, machinery and equipment is in contrast with making a portfolio investment, which is considered an indirect investment.(Jeffrey P. Graham and R.Barry Spaulding 2004)Frank Bradley (1991 p269-270) claimed that FDI refers to the ...
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3) To explore the criteria used by the foreign direct investor in strategically investing in the big emerging market. (How?)
3. Literature Review
3.1 Introduction to the existence of the FDI
Foreign direct investment, in its classic definition, is defined as a company from one country making a physical investment into building a factory in another country. The direct investment in buildings, machinery and equipment is in contrast with making a portfolio investment, which is considered an indirect investment.(Jeffrey P. Graham and R.Barry Spaulding 2004)Frank Bradley (1991 p269-270) claimed that FDI refers to the establishment of a new venture abroad and the management and effective control of the enterprise. More important, perhaps, is the transfer of technology management skills, production processes, manufacturing and marketing and other resources. The firm that invests abroad transmits equity capital, entrepreneurship, technology or other productive knowledge in the context of an industry-specific package. The investment sometimes maybe a potential invention or a differentiated product which is in demand in the target market. Classical investment theory suggests that the reason for foreign direct investment is profit maximization, i.e. the factors of production move to where the highest rate of return can be earned; it is concerned with mobile factors of production. Behind classical investment theory is classical trade theory, the former is an extension of the latter; capital-rich countries tend to export capital-intensive products and to invest capital abroad (Frank Bradley 1991). In other words, foreign direct investment flows benefits both the home country and host countries. Dunning (1998) has identified four reasons for foreign direct investment:
Resource seeking--complementary resources
Market seeking--access to customers
Efficiency seeking
--deregulation of markets,
--entrepreneurial environment;
--enhanced competitiveness and cooperation among firms;
--reduced costs-tax breaks.
Strategic asset seeking:
--exchange of localized tacit knowledge of markets;
--access to different culture and market areas;
--different consumer demands and preferences.
To sum up, FDI have a great impact in the economy of both countries, it shows the need to explore it's developing orientation and its necessity to invest in the big emerging markets.
3.2 Why to invest in the Big Emerging Market
The Organization for Economic Cooperation and Development (OECD) has estimated that if just three of Asian BEMs-China, India and Indonesia-grow by an average of 6 percent a year through the year 2010, by that year approximately 700 million people in those countries will have an average income equivalent to that in Spain today. Jeffrey E. Garten (1997) claims that the rapid growth of the big emerging market offers an immediate opportunity for developed country and is likely to have a major immediate impact on global growth and integration.(see Chart 1) They have large territories, big populations with massive future demands for infrastructure, like power generation and telecommunications, and consumer goods, like computers and washing machines. The big emerging markets have undertaken significant economic policies that have already contributed to faster growth and expanding trade and investment with the rest of the world. They aspire to be technological leaders. They are markets whose economic growth would have enormous spillover in their respective geographical regions and significant political influence in their backyards and beyond. Philip R. Cateora and John L. Graham (2005 P244) discuss this idea that in the big emerging market, there is an ever-expanding and changing demand for goods and services. As countries prosper and their people are exposed to new ideas and behavior patterns via global communications networks, old stereotypes, traditions and habits are cast aside or tempered, and new patterns of consumer behavior emerge. A pattern of economic growth and global trade that will extend well into the twenty-first century appear to be emerging. It will therefore be interesting to investigate why the BEM develop so rapidly in the following steps.
Chart 12
3.3 Analyze the current situation of the BEM and their common traits
Five common traits of the big emerging market can be identified (Jeffery E. Garten1997)
?They have large populations, resource bases, and domestic markets and are regarded as power houses in their respective regions;
? They are bursting in the global arena and shattering the status quo;
? They are major participants in the critical political economic and social agendas taking place on the world scene;
?They are the world's fastest expanding markets and responsible, to large extent, for the explosive growth of global trade;
?They are trying to open their economies, balance their budgets, and dispose of their state enterprise.
According to Philip R. Cateora and John L. Graham (2005 P258), the BEMS differ from other developing countries in that they import more than smaller markets and more than economies of similar size. Increased economic activity means more jobs and more income to spend on products not yet produced locally. Thus as their economies expand, there is an accelerated growth in demand for goods and services, much of which must be imported. BEM Merchandise imports are expected to be nearly $1 trillion higher than they were in 1990.
3.4 The challenges in the BEM for FDI
Although to invest in the BEM provides many opportunities for the FDI, we should also pay attention to its constraints and barriers. In the research, China as one of the BEMs will be taken as the target market to be investigated. That's because 200 of the top 500 global companies have taken position in the Chinese market. As many multinational corporations have increased their stake of the country, we should pay more attention for the performance of FDI in the BEM. Geng Cui and Qiming Liu (2001) state that while much research has focused on investment for FDI to enter the BEMS, not enough attention has been given to understanding of the market structure and local consumers. Despite the preponderant reporting of the surge in consumer power in these countries, they have stayed at the level of descriptive information such as rapid urbanization and other macro-economic statistics and this has sometimes led to a distorted view of the marketplace and misreading of the consumer demand. Another delusion that many FDI usually ignore is treating the BEM country as a single and huge market. In fact, a BEM usually includes a number of smaller sub-markets. That is distinctive from one another in many ways including language, culture and economic development. (Prahalad and Lieberthal 1998).
4. Methodology
4.1 Purpose of study and type of investigation
This research will be carried out under a qualitative and exploratory research design. A qualitative research is best suited in this case to answer the specific questions posed already and will help to expand the questions. Also an exploratory study will be undertaken when not much is known about the situation at hand (Sekaran 2000). The main purpose of this study is to provide empirical basis for FDI to better access to the BEM. At the end of the study, the aim will be more familiar with this field and gain deeper understanding of the topic.
4.2 Sampling design
In the dissertation for the purpose of the sampling design, China will still be targeted under investigations. Non-probability sampling will be used in this research. The information regards to FDI and BEM will be required through purposive sampling and snowball sampling. This is due to the fact that the field that going to be explored is specialized. Information needs to be acquired from persons who are working in the specific domain. Snowball sampling will also be helpful for the research as the people who are being interviewed may have more contacts with those who are also working in the similar field. The specific target group will be probably the professors of the college or university, the management staffs of the existing foreign direct investment Co. in China and the relative government employees. Then judgment sampling where the choice of subjects who are in the best position to provide the information required will be used (Sekaran 2000). For instance, the top managers who are currently working in the FDI Corporation in China will be targeted as they are taking the relative occupation to the investigation, the situations and problems that they have met up with will invaluable to those who are thinking of adopting FDI to access the big emerging market. They will provide key information of the current big emerging market to the potential investors, and this will be also helpful for the exploration.
4.3 Data collection design
4.3.1 Secondary data
Secondary data is a useful source that should be looked at first. (Ghariet et al 1995). In this proposal, both secondary data and primary data will be used for the research. The secondary data can be collected from the academic journal, website, online database of the university, newspapers, references books, trade publication and magazines. Secondary data is collected from the authority data source, so it is reliable for study and analysis.
4.3.2 Primary data
When researchers can't find relevant data from secondary data to support their study, the primary data will be required for further investigation. Primary data usually consists of 3 main parts: interviews, questionnaires and observations. Questionnaires are an effective data collection mechanism when it is know exactly what is required and how to measure the variables of interest. (Sekaran 2000 233). Face-to-face interviews offer the possibility of modifying a line of enquiry, following up responses of interest and probing underlying motives in a way that postal and other self-administered questionnaires can not (Robson, 1993). In the purpose and snowball sampling, questionnaires and face-to-face interview will be applied in this research. The specific target group in the research will be 4-5 Foreign Direct Investment Corporation which have been operating in the Chinese market for a few years; in addition the companies will be in different areas of China. The professors in the business school of the university and government employees who are working in the relative department will also be interviewed. Qualitative technique will be adopted for data collection as the interview will be more flexible and adaptable. A preliminary phone survey consisting of closed-end questions will start at around February next year (See appendix A). Then, a face-to-face interview will be arranged (See appendix B). This will probably carried out during Easter holiday next year. Before the interview, a main questionnaire will be sent to the interviewee two weeks before so as to make them familiar with the topic and also get some preparation in for the interview. A voice recorder will be used during the process in case of missing some of the important information for the investigation.
4.4 Potential difficulties for data collection
Comparability across respondent is sacrificed for information that is very relevant to the study (Blackwell, 1990), it may happen that some people will refuse to be interviewed. Even when the interview was finished, it could be that some of the interviewees will reserve some of their personal opinions to protect their own company or industry to potential competitors. The information collected from various interviewees may be vary different. So it is better for the researcher to compare the information to the references acquired from reliable sources and then present objective comments.
4.5 Data analysis
The data will be analyzed according to content. Memos will be taken shortly after the phone survey and interview occur. During the interview, the key reflective notes that are acquired from the interviewees will be taken down in the memo. It may helpful for further analysis and it is also a good resource for researcher to gain new ideas and insights. Not all the interviews will be fully transcribed as average estimates for transcribing one hour of tape is seven hours (Blackwell, 1990) and can even go up to 10 hours (Robson 1993). However, the significant information will be transcribed into text and typed into word processing documents. These transcriptions will be used for deep analysis. A sheet of summary will be made for each interview. In the sheet, the contents of the interview, key issues that have been discussed, interviewee's personal opinions of the subject and conclusion that we get to in the research objective will be included. A coding system will be used to classify the data in hand. The data will be marked with symbols and descriptive words. Whenever a meaningful segment from the transcript is found, a new code will be assigned for the significant record. An interim summary of all information gathered will be done last.
Reference
Blackwell, G. M., 1990 Interviewing. Leicester. BPS/ Rutledge
Dunning, J.H.(1998) 'Location and the multinational enterprise: a neglected factor?' Journal of International Business Studies, 29(1), 45-66
Frank Bradley (1991) "International marketing Strategy" 5th ed., FT Prentice Hall
Garten, J. (1998), The Big Ten: The Big Emerging Markets and how they will change our lives. Basic Books, New York, N.Y.
Geng Cui; Qiming Liu (2001) Journal of Consumer Marketing, 2000, Vol. 17 Issue 1, p55, 18p, 5 charts
Ghaury, P, Gronhaug,k., Kristiamslund, I(1995) "Research Method in Business Studies" UK , Prentice-Hall
Jeffrey E. Columbia Journal of World Business, Summer96, Vol. 31 Issue 2, p6-31, 26p, 3 charts, 11 graphs;
Jeffery E. Garten1997, 232pp Cellich, Claude. Journal of International Marketing, 1998, Vol. 6 Issue 4, p94-97, 4p
Jeffrey P. Graham and R.Barry Spaulding 2004 Understanding of FDI, Retrieved December 8, 2005, from http://www.going-global.com/articles/understanding_foreign_direct_investment.htm
Philip R. Cateora and John L. Graham 2005 International Marketing 12th ed., MC Graw-Hill Irwin
Prahalad, C.K. and Lieberthal, K. (1998) "The end of corporate imperialism" Harvard Business Review.Vol 76 No 4 PP68-79
Robson.C, 1993, Real World Research, Oxford, Blackwell Published
Sekaran. U., 2000, Researched Methods for Business: A Skill-Building Approach 3rd ed., Chichester. John Wiley& Sons.
U.S. International Trade Commission: The Big Emerging Markets. 1996 Outlook and Sourcebook
Weigel.D.R. GREGORY, N.F.(1997), Foreign Direct Investment, The World Bank, Washington D.C.
Appendix A
Draft of the Foreign Direct Investment in the Big Emerging Market
Preliminary phone interview
For the company
a) What are the main products of your company?
b) Which department takes parts for the analysis of the market?
? Marketing ? Finance ? Research and Development
? Human Resource Management
c) In your opinion who might be the best suited to speak to me about the current situation of your company's position in the market?
d) Could you provide me with his/her contact information?
Appendix B
Draft of FDI in the BEM
FDI Company Version
Date:
a) What's the main product of your company?
b) How long have your company being access to the market of China?
c) Could you tell me the reasons why your company chooses to invest in the big emerging market?
d) In your opinion, what are the opportunities and barriers for the FDI to invest in a big emerging market?
e) Do your company have any other branches operating in some other big emerging markets? If yes, what are the differences between them in operation and competition with your rivals?
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Teenanalyst.com INVESTING MADE EASY Retrieved on December 8, 2005 from http://www.teenanalyst.com/glossary/e/emergingmarkets.html
2 The image of "The Big Emerging Market" Jeffrey E. Garten 1997, Journal of International Marketing 1998
Individual Project of Dissertation Proposal MNM55ZHENG05819023