I have been interested in the phenomenon of Foreign Direct Investment for a while. Till a few years ago, FDI implied the flow of foreign funds into a developing country. The direction was almost taken to be granted and the thoughts of India investing in Europe or Americas didn't cross my kind. Money flowing into the economy was an important indicator of the country's standing and opinion in foreign markets. An important proxy indicator of the possibilities, untainted by government statements. The last ten years of growth have however bought us to a new ground; winds of FDI now clearly blow in both directions.
There is this interesting editorial in Financial Times that shows how the growth in emerging markets has affected the flow of FDI. The article points out that FDI arising out of BRIC nations, Indonesia and South Africa has risen from a mere $10bn in 2003 to $12bn in 2008. A growth of 1100% percent. I remember a headline from the WSJ marketplace front page section about a Chinese company (Sichuan Tenzhong) bidding for the GM Hummer division. The reporter had used the word 'Unknown' literally in the headline. I searched the first four columns and didn't find the name of the company mentioned anywhere.
Coming back to the FT article, it uses four recent examples from the automobile sector involving mergers and purchases by Chinese and Indian companies. Next important learning most of these FDI transactions are M&A transactions and not Greenfield projects. A comparatively easier route with ready access to talent and technology and also a much faster path to growth giving these companies an immediate foothold. To me it is also an indication of the speed of the changes to come.
For the companies in developed markets this therefore is a time of reckoning. Clearly countries like Indian and China are no longer just places to outsource for cheap manufacturing and talent. They are also potential competitors and partners, presenting a need to engage and keep a tab on. The virtues of the 'next billion customers' in growing populations of China and India has already been extolled enough.
I am reminded of the principle of the state of equilibrium. It might be a useful reminder for those in power both in the developing and emerging economies.
You can access the article written by the Matthew Slaughter, associate dean and professor of management at the Tuck School of Business, Dartmouth here
Book Update: Just finished Dan Brown's The Lost Symbol.
Movie Update: Avatar is in a class of its own. Despite its over the top second half, Three Idiots is thoroughly entertaining. Sherlock Homes is a well shot and acted period drama with an unconvincing Dan Brown style story
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