Internationalization of Firms: An Analysis of South Korean FDI in India

Abstract

International flows of capital in the form of FDI are being recognized as a means of promoting economic development. Outward FDI from emerging economies enhances the competitiveness of their companies by providing access to strategic assets, technology, skills, natural resources and markets in improving their efficiency. The present paper focuses on motivating factors of outward FDI from a fast growing emerging economy - South Korea - to another emerging economy - India, over the period 2000-01 to 2012-13. FDI flows between such emerging economies challenge the well established theory which operates on the premise that the pattern of international flow of investment is from developed to developing countries. Though both South Korea and India have fairly liberal FDI policy regimes, yet the flow of FDI from Korea to India is a small percentage of its total FDI inflows. South Korean firms have penetrated those sectors in India where other countries were investing relatively less. The prime motivation for investing in India is the large size of market and low wages in the host country. But it seems that only a liberal policy regime might sometimes not be enough to attract FDI, as qualitative aspects, too, play their roles. However, there is still scope for furthering business cooperation between these two countries.