Determinants of greenfield emerging market outward FDI into the UK

Abstract

Purpose: The purpose of this paper is to examine the determinants of Greenfield Emerging Market (EM) Outward Foreign Direct Investment (OFDI) into the UK, a Developed Market (DM) host. Despite the increasing significance of EM OFDI, this particular theme of EM OFDI to a DM host has received relatively little attention from researchers. This paper seeks to address this shortfall. Design/methodology/approach: Considering the distinctiveness of EM OFDI in its firmspecific characteristics, given circumstances and motivations, this paper applies adapted ‘Resource-based view (RBV)’ framework and institutional theory to build a theoretical framework. A range of hypotheses regarding ‘strategic-asset seeking’, ‘market-seeking’ and ‘institution-seeking’ motivations of EM OFDI, which reflect both ‘pull factors’ (advantages in hosts) and ‘push factors’ (disadvantages at home), were then developed. Using panel data for the years 2003-2012, the research questions were analysed using a sample of the then most important emerging market source countries which had undertaken Greenfield FDI into the UK. Findings: The analysis results supported the hypotheses that strategic-asset seeking and institution-seeking motivations were important in determining EM OFDI to the UK, with the coefficients of relevant variables showing statistical significance and expected sign (i.e. positive). However, the hypothesis on market-seeking motivation of EM OFDI cannot be supported as the coefficient of the relevant variable, whilst showing the expected sign, had a statistically insignificant coefficient. Amongst the three control variables, the source countries’ exports and imports as a percentage of GDP was statistically significant and had the correct sign whilst, the UK’s share of intra-EU trade, whilst statistically significant, had the opposite sign to that expected. The third control variable, the exchange rate was not statistically significant, though it had the correct sign. Originality/value: This paper provides an adjusted theoretical framework for the analysis of EM OFDI to DM with a novel application of institutional theory and RBV. It also qualifies and extends existing works on EM OFDI by including a wider range of EM source countries and DM hosts with empirical analysis results as well as theoretical suggestions. In addition, the paper offers up a range of policy implications for DM hosts.