The economic role of China and India has changed in recent decade. These countries have been usually regarded mostly suppliers of labor force by many foreign companies (Chang and Kartic, 166).
We will write a custom Proposal on International Business Theory & Practice: OFDI from India and China specifically for you
301 certified writers online
Yet, now China and India begin to act as influential investors that bring capital to the economies of many developed countries, including Australia (United Nations, 9). Thus, it is necessary to understand how these investors will act in Australian economic environment and what their major strategies will be.
First, it should be noted that there are different factors that contributed to the growth of outward investment from these countries. In this case, international business theory can provide some valuable explanations. First, one can speak about the liberalization of international trade and willingness of governments to establish partnerships that can be mutually beneficial.
Yet, this question can be answered by applying the theory of comparative advantage. China and India try to invest in those areas in which foreign countries such as Australia are more productive or have more expertise (Wall and Minocha, 82).
This strategy will enable China and India to exert more economic influence. According to the World Investment Report, in 2011 China was the firth largest FDI investor in the world (United Nations, 9). In 2007, Chinese investors brought more that $24 billion to Australian Economy (OECD Investment Committee, 2).
India plays a less prominent role, but this country has become a more active OFDI investor (United Nations, 9). This numerical data indicate that the role of China and India in OFDI investment will grow, and Australia should be ready for this change.
The FDI from China and India may take different forms. First, FDI from China is likely to take form of forward integration, which means that Chinese investors will try to take control over those activities which are directly related to the distribution of products and services. The thing is that Chinese companies have access to cheap and qualified labor force, but they cannot control the marketing of goods or services.
Yet, one should not forget that Chinese investors are also interested in resource-seeking. In particular, they may be willing to invest in mining industry of Australia (International Business Publication, 68). The thing is that China’s economy is very much dependent on continuous supply or coal, natural gas, and iron oar.
Thus, in this way, they try to gain access to cheap natural resources, and OFDI investment from China to Australia will be oriented toward this sector of economy (Voss, 16). Thus, one of their objectives can be backward integration.
The strategies of Indian investors will also vary. On the one hand, the objective can be backward integration. India is not rich in natural resources, and Australian mining industry can be very attractive to the investors from this country.
Secondly, they certainly wish to gain access to Australian customers. It should be noted that India exports clothing and textiles to Australia. Hence, they may invest in the major retailing companies of Australia.
This discussion shows that Chinese and Indian investors pursue several objectives, such as resource seeking and entrance of new markets. Overall, the strategies of these investors will rely on the principle of comparative and absolute advantage. This means that they will try to invest in those areas in which Australia is more efficient and productive. Overall, their primary interest will be backward integration.
Chai, Chang and Roy Kartic. Economic reform in China and India: development experience in a comparative perspective. London: Edward Elgar Publishing.
International Business Publication. Australia Mineral and Mining Sector Investment and Business Guide. Melbourne: IBP, 2005. Print.
Get your first paper with 15% OFF
OECD Investment Committee. China’s Outward Foreign Direct Investment. New York: OECD, 2008. Web.<http://www.oecd.org/investment/investmentfordevelopment/40283257.pdf>
United Nations. United Nations Conference on Trade and Development World Investment Report. New York: United Nation Publishing, 2011. Web.
Voss, Hinrich. The Determinants of Chinese Outward Direct Investment. New York: Edward Elgar Publishing, 2011. Print.
Wall, Stuart and Minocha Sonal. International Business. London: Pearson Education, 2009. Print.