It's all a matter of the economy

The objective of the book is to examine various facets of FDI inflows in the developing economies, China, India and the Caribbean in specific. The rationale behind taking up two large economies like India and China for the study is the strategic shift of both countries development from inward to outward orientation, whereas comparatively smaller economy like the Caribbean has been taken up to show how they require to take up FDI as an alternative source of capital and investment after the withdrawal of concession from countries like US, Canada and EU and their response to this global challenge.
The authors have made FDI differentiated with other forms of foreign capital inflows, viz., Portfolio investment, where the investors do not intend to hold long-term relationship or commitment with any enterprise and it has been kept out of scope of current context of the book. So are the alternatives of FDI like Trade Licensing, etc. Thus the study made in the book under review is contained with all facts, concepts and figures associated only with FDI as single form of foreign capital inflows.
The rationale of FDI has been given with market failure type of arguments, focusing on industry structure and transaction costs. FDI provides the means to internalise two broader specific advantages of an MNCFSA (Firm Specific Advantage) at micro level with transaction of intangible assets like knowledge, technology, managerial and marketing skills and CSA (Country or Location Specific Advantage) as macro-level economic variables with direct growth rate in terms of domestic saving, physical capital per worker economic, living standard, etc. FDI does have significant indirect long term effects on industriesfrom transfer or diffusion of managerial and technological know-how to spill-over effects through linkages to supplier industries. The scope of FDI is ideally dependent on certain determinants like lagged GNP, change in GNP, lagged domestic investment rate and depreciation in domestic exchange rate. And the trade and industrial policy of a host country is considered to be the most critical exogenous variable in this regard. FDI inflows could have different objective in different countriesviz., resource-seeking, market seeking or efficiency seeking. Of course the locational determinants in interaction with ownershipspecific and internalization advantages in broader context of corporate strategy, the degree of openness, size of economy (small or big) are important contributory factors here.
In their informative book, the authors have given the global trend and assessment of FDI and compared with the regional trend in the developing countries. Furthermore, the sectoral distribution of FDI is also dealt with facts and figure for the period 1992 - 2003 for both developed and developing countries. From the statistics, it is revealed that Latin America and the Caribbean region accounted for much of the fall in FDI flows to the developing world. Historically FDI in the Caribbean directed by MNCs, has been playing an increasing contributory role in its economic development. The surge in flows to South Asia was led mostly by a significant rise in FDI to India, mainly contributed by business decision to outsource services with its low-cost, English Speaking and IT-component labour force resources. Central Asia (Azerbaijan, Georgia, Kyrgyzstan, etc.) is also a destination of FDI. Interestingly, Asian firms of Malaysia, Korea, Taiwan and Singapore are also investing within this region because of shifting production from higher to lower cost locations. Similarly the authors have shown others facts and figure regarding African economies, Central and East European economies in their book. As regards sectoral distribution of global FDI, the FDI inflows are directed not only to manufacturing and service sectors, but also to the primary sector, comprising of two sub-sectorsone involves mining, quarrying and petroleum and the other involves agriculture, hunting, forestry and fishing. The authors have mentioned the basic distinction of service sector with the other twomanufacturing and primary sectorwhose output is tradable. The service sector is mostly non-tradable and requires close proximity and consumers. In this connection, they have dealt the off-shoring and outsourcing aspects also in this book.
The Caribbean countries have pursued an open door policy to FDI from around 1960, giving tax incentives to foreign investors. Till 1980, most FDI went for import substitution industries, bauxite and petroleum; after 1980 they shifted to service sector. The three specific objectives of CARICOM region countries are: employment generation, FE earning, development of technological and productive base of economy. CARICOM countries have fairly liberal foreign investment policies. But despite the locational advantages, the FDI inflows have been rather disappointing, which is largely explained by strong microeconomic incentive for the skilled labour to migrate large neighbourhood countries like USA, Canada and UK. The authors have given the comparative attractiveness of investment location in the Caribbean countries, along with the changing structure of the Caribbean economies (with GDP % by sector and FDI-to-GDP ratio). Historically USA is the main external investor in the Caribbean followed by UK and Canada. Sector wise Tourism, Financial Services, manufacturing and informatics are main recipient of FDI in Bahamas, Barbados, Jamaica etc whereas in Trinidad and Tobago and Guyana, the natural resource-based industries followed by infrastructure are of primary importance.
A firm's performance may be explained by three broad categories: The industrial organization literature, the transactional cost literature and the theory of organisation literature. The authors have discussed these categories in detail quoting the renowned persons like Cheng and Wu, Dunning, Kenevan and Pei along with their findings in determining the performance of FIEs (foreign firms) in China (viz., Guangzhou, Zhejiang ) etc. In fact the performance is dependent of 'duration of operation', 'consistency with China's comparative advantages', location of FIEs etc. In general the wholly owned foreign ventures are more profitable than alliances.
The authors have taken case study approach to study the process of technology Transfer and the resultants spill-over effects whose results sometimes become leapfrogging for low-knowledge countries, making the product competitive in standard life cycle. Before taking up cases, the literature on technology transfer and its links with FDI are reviewed. Six case studies are analysed for one Chinese firm (a Taiwanese OEM firm in China), three India firms (Sundaram Fasteners Limited, Moser Baer Limited and Sona Koyo Steering Systems Limited) and two Caribbean firms (Lenstec Inc-Barbados and Doyle Offshore Sails Limited- Barbados) to portray historical behaviour of technology adopted, absorbed, assimilated as well as developed. First four cases suggest framework for analysing the nature, direction and determinants of latecomer technological learning, whereas the last two cases are Caribbean specific export driven firms. Cases 1-4 represent technological accumulation through time, beginning with simple activities like manufacture as per parent firm's requirement (supply to OEM) and gradually toward more complex tasks such as process adaptation and eventually R&D a transition from OEM to ODM (own design manufacturing), except Moser Baer case, where the transition was to OBM (own Brand Manufacturing). Thus unlike traditional models of innovation, the cases reveal that the balance between local and foreign sources of technology is closely entwined and is essential feature of fast catch-up growth. Latecomer firm may also transform to leader or follower, depending on the radical changes not only in the way they operate but also in the environment in which they compete. Caribbean Cases 5-6 show that FDI is an important way of accessing foreign resources. Here a careful strategic selection of firms is more important rather than economic priorities.
The book may be a necessary reading for a person intending to understand the broader aspect of FDI in today's globalisation scenario and who wants to know the specific situation in the developing countries like China and India and other emerging countries like the Caribbean who is responding to the global challenge thrown to them in the wake of withdrawal of preferential treatments that were given earlier to them by the developed countries. At management educational level, the case studies incorporated in this concise but explanatory type book might also be recommended for class room interactive sessions where the concerned lecturer can act as instructor or moderator to give his/her students the feel of importance of technology spill-over effects in market economy with the examples of the above mentioned countries.

Apurba Roy works for Hindustan Aeronautics Limited, Lucknow, Uttar Pradesh, India.