FDI from emerging economies has become more and more important in the recent years, it increased from $149 billion in 1990 to up to $1274 billion in 2005. As traditional FDI theories are more focussing on downhill- investments, namely investments from developed countries to developing ones, the uphill investment perspective becomes more interesting.
This term paper looks into Indian FDI invested into the EU, to exemplify this the paper uses the case study of the Indian company Mahindra and Mahindra acquiring the German company Schöneweiss in 2007.
It seeks to answer the question why an Indian company like Mahindra and Mahindra is investing into Europe, trying to find specific reasons for it by analysing empirical data. It is not only taken the perspective by Mahindra in this term paper but also the perspective by Schöneweiss, asking which were their reasons to agree to the acquisition.
At a glance
- Applies Nayyar’s seven proposed motives for Indian firms investing abroad
- 26 sources in the bibliography
- 4 tables
Table of Contents
1. Introduction
2. Background knowledge
2.1 Schöneweiss & Co. GmbH
2.2 Mahindra and Mahindra
3. Theory
3.1 FDI
3.2 Reasons for FDI
3.3 FDI and emerging economies
3.4 FDI and India
3.5 FDI in the EU from Asia
4. Methodology
5. Analysis
6. Conclusion
Objectives and Themes
This paper examines outward foreign direct investment from emerging economies through Mahindra and Mahindra’s acquisition of the German forging company Schöneweiss. It asks why the Indian company invested in Europe, why Schöneweiss agreed to the acquisition, and how the transaction’s success might be assessed.
- Foreign direct investment from emerging economies
- Motives for cross-border acquisitions
- Indian investment in Europe
- Mahindra and Schöneweiss as a case study
- Expertise, customer relationships and competitive pressures
- Limitations of press-based case analysis
Excerpt from the Book
3.2 Reasons for FDI
Different scholars state different reasons for FDI. While Madura and Fox concentrate on two different reasons to invest abroad, the EU adds another one and the economist states some reasons which are claimed to be especially valid for FDI coming from developing economies.
There are two differently motivated reasons to invest directly abroad according to Madura and Fox (2007). First of all there are revenue- related motives, and secondly there are cost-related motives.
The revenue- related reasons include attracting new sources of demand, entering markets in which there is the possibility for higher profits, using the company’s monopoly of some specific product abroad, reacting to trade restrictions and international diversification (Madura, Fox 2007), these are regarded as horizontal FDI by the EU (2007). In that paper examples are stated as easing market access, reducing delivery times and that there appears a trade-off between increased fixed costs due to a new factory and decreased variable costs due to savings of for example tariffs.
Cost-related reasons are the benefits from economies of scale, the usage of foreign factors of production, raw materials or technology and as a reaction to exchange rate movements (Madura, Fox, 2007). These are explained as vertical FDI as well (EU, 2007).
While Fox and Madura (2007) end their reasons there, the EU adds that M&As emerge in order to diversify risk and to deepen economies of scale (EU, 2007).
While the theories stated by Fox and Madura as well as by the EU concentrate more on the traditional view on FDI, namely the perspective that companies from developed countries invest into developing countries, the economist (2011) states some reasons for companies coming from developing countries investing into developed countries.
Three different reasons are identified. As the most important reasons are named that these companies want to hedge against (political) risk in their domestic market; they want to move up the value chain and combine foreign expertise and skills with their own.
Chapter Summaries
1. Introduction: Introduces investment from emerging into developed economies and presents the acquisition as the paper’s case study.
2. Background knowledge: Provides company background on Schöneweiss and Mahindra and Mahindra.
3. Theory: Explains foreign direct investment and its possible motives, then considers investment from emerging economies, India and Asia into the EU.
4. Methodology: Describes a comparison of press releases and media reports with investment theories and business figures, while acknowledging potential source bias.
5. Analysis: Applies the theoretical discussion to the acquisition, considering the perspectives of both companies, their competitive context and available business figures.
6. Conclusion: Brings together the proposed motives and considers the difficulties of assessing the acquisition’s success.
Keywords
foreign direct investment, emerging economies, India, European Union, Mahindra and Mahindra, Schöneweiss, cross-border acquisitions, investment motives, automotive components, internationalisation, competitive advantage, case study
Frequently Asked Questions
What is this paper about?
It examines investment from an emerging economy into a developed economy through Mahindra and Mahindra’s acquisition of Schöneweiss.
What are the central themes?
The central themes include foreign direct investment, cross-border acquisitions, company strategies and investment between India and Europe.
What is the primary research question?
The paper asks why Mahindra invested in Europe by acquiring Schöneweiss and why Schöneweiss agreed to the transaction.
What research method is used?
The author uses a case study, comparing press releases, newspaper and magazine articles, and business figures with theories of foreign direct investment.
What does the main analysis cover?
It considers the acquisition from both companies’ perspectives and relates possible motives to expertise, customer relationships, costs, risk and branding.
Which keywords characterise the paper?
Key terms include foreign direct investment, emerging economies, India, cross-border acquisitions, automotive components and investment motives.
How does the paper distinguish types of investment motives?
It discusses revenue-related and cost-related motives alongside considerations such as risk diversification, access to expertise and movement up the value chain.
How does the paper address the reliability of its evidence?
It notes that media reports and company press releases may be subjective and that company information about acquisitions is not always publicly available.
- Quote paper
- Katharina Osterholt (Author), 2011, FDI from Emerging Economies, Munich, GRIN Verlag, https://www.grin.com/document/193725
