Rien T. Segers - Multinational Management

International Business School, Hanze University OAS, Groningen, The Netherlands

Clingendael Netherlands Institute of International Relations, The Hague, The Netherlands

The most eye-catching feature of Asias economic ascent is the rise of China. Since the gradual opening up of the Chinese economy in 1978, economic growth rates have averaged nearly 10 % per year. According to forecasts, economic growth levels in China will persist, be it at levels significantly less than 10 %, and China could overtake the United States as the worlds largest economy (by GDP) by 2020.

Although market forces have entered China, the government still exerts great influence on the economy. The initial economic success of China lies primarily in using economies of scale to their advantage. A large and diversified labor pool and considerable inward investment have been important factors for China in becoming a powerful source of low-cost manufacturing and industrial exports in the world. The Chinese government intends to diversify its economy and develop more knowledge- and technology-intensive economic activities. Chinese exports and outward FDI have grown explosively, especially after China joined the WTO in 2001. Government incentives have assisted Chinese companies in establishing a global footprint. Large greenfield investments of State-owned enterprises (SOEs) have sprouted in Central Asia, Latin America and Africa to safeguard resources and energy supplies for Chinas industries. The number of Chinese companies (mainly SOEs) acquiring European and North American targets in high-tech, manufacturing and raw materials has grown exponentially to secure intangible assets, knowledge and technology.

Although still a poor country with vast socio-economic problems, India has managed to become the ninth largest economy in the world since economic liberalization in 1991. Between 1990 and 2010, the annual average growth rate of the Indian economy was 6.6 %. For an emerging economy, India has well-developed services and ICT industries which have showcased remarkable growth over the years. Indian ICT companies have been quick to embrace overseas clientele and business opportunities and have created a low-cost niche in the global ICT market. They derive the majority of revenues from services and software exports to developed markets.

Although service exports are booming, India has a trade deficit due to large importation of commodities. To improve its trade situation, India is negotiating various free trade agreements. Indian OFDI and M&A have surged since restrictions on outward investment and cross-border acquisitions have been loosened. Indian OFDI is mainly concentrated in the manufacturing sector followed by services and wholesale/retail activities. Favored investment destinations are Singapore, the Netherlands, United Kingdom, United States, various tax havens and the Middle East.

Indian greenfield investment mainly concerns mining, construction and heavy manufacturing activities in developing nations, often resource-rich countries. Indian outbound M&A has skyrocketed. Conglomerates have been especially keen to acquire foreign firms to gain market access and intangible assets. Indian outbound M&A activity is concentrated in developed nations manufacturing sector and, to a lesser extent, in services.