Academic journal article Review of Business & Finance Studies

Outward Internationalization and Fdi: Motives for Malaysian Mnes Moving into China

Academic journal article Review of Business & Finance Studies

Outward Internationalization and Fdi: Motives for Malaysian Mnes Moving into China

Article excerpt

ABSTRACT

Firms are pressured to operate globally to reap the benefits of other locations through foreign investment. This phenomenon occurs not only among multinational enterprises from developed countries but also younger multinational enterprises from developing countries. Various factors induce them to invest in foreign locations. This paper highlights the motives of multinationals from developing countries engaging in foreign locations and capitalizing on location to enhance their competitiveness. This study uses one Malaysian company's experiences to analyze the situation through a qualitative analysis. The results show that intense competition in the domestic and global market has forced firms to move out of their home country and relocate their production centers in China. China offers various factors that entice Malaysian MNEs to escalate their global expansion.

JEL: F2, F21, F23

KEYWORDS: International Factor Movement, International Investment, Multinational Firms, International Business

INTRODUCTION

Multinational enterprises (MNEs) from emerging countries engage in outward foreign direct investment (OFDI) all over the world. Outward investment from emerging countries in 2005 was USD 1.4 trillion, an increase of 300 percent since the last decade (UNCTAD, 2006). Outward investment has become an integral part of corporate growth strategies for multinational firms to sustain their competitiveness. Multinational enterprises (MNEs) from emerging countries are currently focusing on developing their cost efficiency and utilizing resources. Thus, investing abroad is an alternative way of expanding and improving efficiencies, primarily in managing the costs of operations. Emerging countries like Malaysia are surrounded by other countries that are also rapidly developing, like China and Vietnam. Proximity to high potential locations may trigger the local firms to exploit such advantages. New MNEs from emerging countries like Malaysia are presently extending their global reach to emerging and developed countries. Moving abroad is mandatory to cope with competitive market pressures.

Another central issue that is frequently a challenging problem for MNEs from emerging markets is deciding in which country to invest. Relevant queries involve questions such as which country is the best location, is the location strategic for the investment, how can the location benefit the firm, and finally can the investment location help to enhance the firm's capabilities and efficiencies. Malaysian firms are keen to expand to foreign locations as the local market is becoming more competitive. This is due to the fact that the Malaysian market is smaller than in other emerging countries and the local market is unsettled by intensifying competition from foreign firms in the country. Malaysia was a targeted foreign investment destination in the 1980s and 1990s. However, at the moment it has shifted its position from being an investment recipient to an investment contributor by increasingly engaging in outward investment. The economic significance of Malaysia's outward foreign direct investment is increasing; Malaysia was in 32nd position in the period of 2003-2005. More recently, Malaysia was in 11th position among 128 economies worldwide (UNCTAD, 2009). Inflow of foreign direct investments into Malaysia in 2010 amounted to USD9.2billion but Malaysia's outward direct investment in other economies abroad was much higher at USD14.2billion (Central Bank of Malaysia, 2010). Since 2004, several Malaysian companies have expanded their international operations vigorously through various investments abroad. Indeed some of firms were included in the Top 100 non-Financial Transnational Corporations. For instance, the top three Malaysian companies include PETRONAS which ranked second, YTL Corporation which ranked thirty-second and MISC which ranked forty-fifth (UNCTAD, 2006).

The internationalization literature widely discusses the motives for MNEs from developed countries selecting emerging countries as foreign investment destinations (Hymer, 1960;Dunning, 1998; Porter, 1986; Defever, 2006; Guillén & García-Canal, 2009). …

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