The Impact Of OFDI On Emerging Economies: An Essay.

Theories of Outward Foreign Direct Investment (OFDI)

Foreign direct investment (FDI) is an important part in the strategy of national development. Strategies have been developed but they only focused on inward flows (Anyanwu 2012, pp. 14). But recently, outward foreign direct investment has been put into consideration and was more integrated and considered in development policies of emerging and developing economies. Theories have been developed trying to discuss the role of outward foreign direct investment in upgrading the growth of industries. Outward foreign direct investment has been considered important both for emerging economies and technologically advanced countries (Da Silva 2015, pp. 114).

In the current years, outward financial direct investments have grown contributing to liberalization of investment movements across the countries. Multination plays an important part in global business with most of the global trade done by Multination. The study emphasizes on the  impact of the outward foreign direct investment on an economy of a country.

This report analyses the current trends on outward foreign direct investment in both Brazil and Russia. The paper compares the trends of outward foreign direct investment in the two countries. The paper has also identified the determinants of the outward foreign direct investment. The study examines the potential determinant variables of outward foreign direct investment. The paper has discussed the five determinants including; economic performance, political stability, geographical distance, state of institution and cultural effects (Bevan and Estrin 2004, pp. 507). Over the past years the foreign direct investment has grown strongly in both investments to and from emerging and developed economies.

Due to increased capabilities of technology specific advantages sufficient to expanding their operations to other countries, the emerging and developing countries started investing abroad. From 1990s, various shifts have been experienced in the investment objects, means of possession and sectorial evaluation (Akyuz 2015, pp. 67).

FDI makes up a very little part of the total capital formation of a country (Brito and Sampayo 2005, pp. 419). But it greatly promotes economic growth, welfare and industrial growth in developing economies. There was an increased in the value of total outward foreign direct investment stock from developing countries from US$ 129 billion in 1990 to US $859 billion in 2003. There has been 11 increases since 1985. estinations of OFDI (Akyuz 2015, pp. 71). There have been two different waves of outward foreign direct investment; market and efficiency seeking factors and combination pull and push factors. The first wave started in Latin America where new TNCs started from Chile, Argentina and Mexico followed by Colombian, Venezuelan and Brazilian competitors. The other wave was dominated by Asian TNCs Taiwan Korea China, Hong Kong, Singapore, Thailand, Philippine and India (Al-sadiq 2013, pp. 21).

Determinants of Outward Foreign Direct Investment (OFDI)

Since when the country started trading abroad the foreign direct investment outflows of the Russian federation have consistently exceeded the inflows. The country started using improved recording in 2003. Since 1990s the Russian outflows were in the nature of informal, and unregistered in the balance of expenses (Al-sadiq 2013, pp. 25). To make a middle income country to become a net capital exporter you need to combine economic and political factors. To combine these factors such as business environment and economic has still been hard. This was due to their oligarchy which was created under the governance of Boris Yeltisin, Where most of the natural resources have been privatized in the country (Le and Zak 2006, pp. 309). The political changes happening in the government can only have a limited increase in the influence of the state (Jones and Wren 2016, pp.35). The Russian strategic interest to take control of their vertical value chains through outward foreign direct investment was long term (Andreff 2017, pp. 24).

Russian outflows involved activities of the large energy firms that were trying to invest abroad. Due to the political risk in the country in early 2000s Russian companies were moving capital out of the country (Al-sadiq 2013, pp. 27). Due to this there was no increase in amount of outward foreign direct investment. Russian companies’ outward foreign direct investment was mostly aimed at resource related sectors such as metals and energy.

According to the research, Russians 2014 outward foreign direct investment were half that of 2013 (Andreff 2017, pp. 26). This was as results of Russian companies’ reduced their activities in abroad due to scarce financial resources and fear of restrictions by countries that fated Russia’s actions in Ukraine. Another growth in outward foreign direct investment is expected until they form a stable relationship with west (Kumar 2016, pp. 519).

The largest recipient and contributor of Russian foreign direct investment is Europe. Many of the Russian companies have invested in Europe (Acaravci and Ozturk 2012, pp. 52). Russian companies are focused in extra outward investment in production chain, technology series and guaranteed product markets and supplies in Europe. There is an expectation of the Russian investment in Europe to decrease due to Russian companies interests in eastern markets have increased (Euromoney 2001, pp. 483).

	2007				2013
		$ million	% total FDI			$ million	% of total FDI
1	Cyprus	14700	32.8	1	Cyprus	7689	8.87
2	Netherlands	11991	26.8	2	Austria	5265	6.07
3	UK	2454	5.48	3	Switzerland	1358	1.57
4	Switzerland	1404	3.13	4	Spain	1356	1.56
5	Germany	673	1.50	5	Germany	1334	1.54
6	Luxembourg	497	1.11	6	Luxembourg	1314	1.52
7	Spain	258	0.58	7	UK	1294	1.49
8	France	257	0.57	8	Denmark	752	0.87
9	Czech	248	0.55	9	Latvia	568	0.66
10	Austria	230	0.51	10	Bulgaria	554	0.64

 Source: central bank of Russia, foreign direct investment database

Russia is focused in making a greater integration with the Eurasian where there was an understanding of post-soviet space. In 2000 Belarus, Kyrgyzstan, Kazakhstan, Russia, Uzbekistan and Tajikistan came together and formed the Eurasian (Andreff 2017, pp. 27). Eurasia was formed to encourage a customs union and single economic space, manage member states’ policies and assimilate them into the world economy.

Trends in Outward Foreign Direct Investment (OFDI) in Brazil and Russia

In 2010, the Eurasian customs union was formed, and the EEU was established in 2015, which was focused in in greater economic integration (Anwar  and Mughal 2015, pp. 2388). The EEU was made up of Belarus, Armenia, Russia, Kyrgyzstan and Kazakhstan. EEU had a different objective from EAEC and Eurasian Custom Union which aimed at common trade, establishing of super natural  agencies, monetary and fiscal policies, economic commission, international investment bank, and commodities commission (CIA 2006).

Currently Russian inflows from EEU members is 0.7% of the total FDI inflows and Russian foreign direct investment outflows of 1.9% of its total outflows to members of EEU (Akyuz 2015, pp. 76).  Internalization of Brazilian companies was contributed by economic motives, political support from their governments to invest abroad. Russia and Brazil have particular strengths that led them to join both developing and developed countries and follow their internationalization strategy (Andreff 2017, pp. 29).

Many companies from different countries have entered the international markets. Fundamental changes and economic liberation in foreign regimes of BRIC have attracted high FDI inflows to these countries and motivated companies from these countries to invest overseas (Bartlett and Beamish 2018, pp. 121). The world investment report shows that the rate of outward foreign direct investment growth by firms from emerging markets has outperformed the foreign direct investment growing by firms from developing markets

The Brazilian outward foreign direct investment mostly was concentrated on financial services such as banking services (Jensen, Biglaiser and Li 2012, pp. 24). Other sectors of investment were oil exploration and production, construction, engineering and construction. Oil and construction sectors were aiming Latin American while engineering services were directed to Middle East countries.

In 2008 there was a high Brazilian OFDI stock growth rate of 25% (Akyuz 2015, pp. 80).  This was as a result of intercompany loans from parent companies to failing subsidiaries abroad as well as new acquirements of mining an natural-resource-based industries (Al-sadiq 2013, pp. 28).Due to worldwide economic and financial crisis which was experienced in 2009, there was negative FDI outflow from Brazil. Through intercompany transfers the Brazilian parent companies lost $10 billion from their foreign subsidiaries (Akyuz 2015, pp. 82). The Brazilian companies did not venture much abroad due to depreciation and loss of market value of oversea equity. This was due to uncertainty caused by economic crisis and international credit conditions.

Trans-border mergers and acquisition (M&As) by Brazilian MNCs failed in 2009 although its effect were not felt much in Brazil. The growth rate of Brazil’s GDP was 7.5% and equity investment in foreign subsidiaries by Brazilian MNCs was $11.5 billion in 2010 (Cruz 2015, pp. 92). From 2010, Brazilian OFDI stock that was directed to Europe has been significantly raising due takeovers of Austrian banks. Brazil was ranked19th largest outward investor in 2007 where Russia was ranked 12^th. In 2012, outward foreign direct investment stock from Brazil was ranked 18^th world’s most important source of OFDI with Russia being the 15^th (Al-sadiq 2013, pp. 31).

Outward Foreign Direct Investment (OFDI) in Russia

About 1000 Brazilian companies had invested abroad in 1990s. A study showed that in 2006 885 Brazilian MNCs had invested in 52 countries and had employed 77000 people. Some of these companies were privately-owned while others were owned by the state. By use of UNCTAD trans-nationality index, in 2007, it showed that the most trans-nationalized Brazilian firms were Marfrig, Gerdau, Sabo, Metalfrio and Vale. There were 40 Brazilian foreign subsidiaries MNCs in Latin America (46%), North America (17.1%) and Europe (20.6%) (Acaravci and Ozturk 2012, pp. 55). There are 100 Brazilian companies with significant amount of outward foreign direct investment, where about 50 are global players. In 2013, seven of the Brazilian MNCs appeared on the list of the fortune 500 biggest firms in the word (Al-sadiq 2013, pp. 21). These companies included Bunco de Brasil, Petrobras, Vale, Bradesco, ltrapar holdings, Brazilian distribution, Itau and JBS.

The stabilization of Brazilian economy and appreciation of the dollar value has strengthened overseas acquisition. The appreciation of the currency has made M$As much cheaper especially in USA. The Brazilian MNCs have taken advantage of the situation and expanded their market and accesse natural resources that are not in their market. This case happened in Iotorantim-US Zinc, Vale-Inco and Gerdau-Chaparral steel acquisitions. Companies were, motivated to move from emerging markets to internalize by search for technology assets that are not available in their companies (An analysis by country of origin n.d, pp. 142).

Brazilian MNCs had been using an export-substitution or an export-complementing outward foreign direct investment strategy from the beginning. This strategy was always a market seeking strategy. MNCs target was to direct foreign firms towards consumer markets (food, banking and services), which approves market focused on OFDI. This strategy was involved in market seeking, resource seeking and technological asset seeking.

Brazil was considered the second largest country that attracted foreign investments in the world. But it was later wiped out of the map. The country has placed FDI policies that advocates replacing imports with local productions. In 1980s the country categorized the companies into two; company of national capital and foreign capital. This created a legal foundation to discriminate between companies in which investment was done. Some sectors were reserved for national capital companies. Such sectors included petrochemicals, postal services, telecommunications, oil and gases. Foreign investment dropped due to these policies in the country. In 1990s a change was made due to recommendation made by the Foreign Investment Advisory Services (FIAS). The country abolished these policies and new reforms were made. To promote FDI the companies set up an investment promotion agency called invest Brasil. In 2010 and 2011 foreign direct investment inflows in terms of equity capital from various countries were as below:

Country	2010(%)	2011(%)
Netherlands United States Spain Japan United kingdom France Australia Luxembourg Canada South Korea Switzerland British virgin Islands Germany Rest of the world	12.7 11.8 2.8 4.7 1.9 6.5 6.3                                          16.4 1.4 2.0 12.2 1.7 1.1 18	30.7 13.1 13.0 12.1 4.9 3.6 3.5 2.5 2.3 1.5 1.4 1.2 1.2 9.2

Outward Foreign Direct Investment (OFDI) in Brazil

(Anwar  and Mughal 2015, pp. 2389)

Internalization in Brazil has led the Brazilian Outward Foreign Direct Investment to have a wide spread. It has invested in 78 countries. By 2007 Brazil directed half of its outward foreign direct investment to the United States, Denmark and Spain (Chaudhuri and Mukhopadhyay 2014, pp. 80). This together with developed economies accounted for 75%. The emerging markets are led by Argentina and followed by Uruguay. The World Bank data shows that in 2007 54% of OFDI stock from Brazil was directed into financial services.

Comparison

Due to privatization and less regulation, Brazilian outward foreign direct investment had taken a momentum between 1997 and 2000. Brazilian OFDI increased by 7 as against Russia increased by 3. Brazilian OFDI stock was growing at the rate of 2.5 and was growing at the same rate as the world OFDI stock overall (Allan 2012, pp. 14). Russia OFDI did very well and attained the highest growth from 2000 to 2007. It was growing faster than other OFDI from other BRICs.

BRICs	2007	2008	2009	2010	2011	2012	2013
Brazil	129840	162218	157667	180949	202586	232848	293277
Russia	255211	202837	248894	433655	362101	413159	501202

Source: (Andreff 2017, pp. 30) and previous issues

BRICs	1999	2007	2011	1999	2007	2011
Brazil	1.4	9.9	9.0	7.4	40.0	30.3
Russia	2.3	19.8	19.5	51.9	75.4	79.2

(Andreff 2017, pp. 32).

From the table, Brazil is exhibiting a quite lower OFDI/GDP ratio than Russia. When an OFDI/GDP ratio was higher than 5%, that country was required to be in the third step of IDP model. Countries like Brazil and Russia reached this level in 2000s while china and India attained this step in 2011 (Chen, C., 2015, pp. 4). From the table we find that outward FDI stock ratio is lower in Brazil than Russia in 1999. The ratio multiplied more than 5 times in Brazil from 2000 to 2007 (Chen, C., 2015, pp. 8). Russia outward foreign direct investment outperformed Brazil during this period. Economic and financial crisis affected most the OFDI for both countries compared to other countries.

Due to these financial crisis from 2008-2013, it led to a slow growth rate of global outward foreign direct investment (Andreff 2017, pp. 33). This financial crisis had a negative effect outward foreign direct investment. This led to a fall on growth of the overall world OFDI for one year out of two. There were dispersed OFDI fluctuations among the BRICs throughout the crisis.

	2007/2000	2008/2007	2009/2008	2010/2009	2011/2010	2012/2011	2013/2012
Brazil	X 2.5	24.9%	-2.8%	14.8%	12.0%	14.9%	25.9%
Russia	X 13	-20.5%	22.7%	74.2%	-16.5%	14.1%	21.3%

Russia outward foreign direct investment was the mostly affected by the crisis since it was very unstable. It decreased by 20% in 2008 and followed by another decrease of 17% in 2011 (Andreff 2017, pp. 35). The Russian outward foreign direct investment strongly recovered and experienced the highest growth rate of 74% in 2010. There was much impact of financial crisis on the Russian OFDI which led to cut on the value of the stock. This was due to depreciation of asset and disinvestments from abroad in 2008 (Vella and Sammut?Bonnici 2014, pp. 17). In 2010 there were new investments abroad, the value of asset appreciated and likely capital flight which contributed to growth of Russian outward foreign direct investment. Brazilian outward foreign direct investment stock is also not very stable.  It decreased by 3% in 2009, it then increased to 12% and 15% growth rates in 2012 and a growth of 26% in 2013. In 2008, a high growth rate was experienced due to intra-company loans and new acquisitions of mining and industries based on natural resources. In 2009 there was a negative FDI outflows due to worldwide crisis (Andreff 2017, pp. 37).

Conclusion

There were fewer ventures in abroad by Brazilian companies due real depreciation and loss of market value of abroad equity. From 2010, there has been an increase in the Brazilian stock located in Europe (Acaravci and Ozturk 2012, pp. 57).

There were 885 recognized Brazilian MNCs which had invested in 52 countries in 2006. The companies had employed more than 77000 people. There are 100 Brazilian companies with important amounts of OFDI where about 50 are global players. The following are the major Brazilian companies which have invested abroad.

Company	Industry	Foreign asset 2009 ($ billion)	Foreign asset 2010 ($ billion)
Itau	Banking	50.0	75.2
Vale	Mining	46.1	55.6
Odebrecht	Construction	24.4	n.a
Petrobras	Oil and gas	20.4	17.9
Gedau	Steel	14.3	15.1
Grupo votorantim	Conglomelerate	9.1	15.8
JBS-Friboi	Food	9.1	10.7
Embraer	Aerospace	3.7	3.1
CSN	Steel	2.2	n.a
Marfrig	Food	1.4	2.5
Andrade Guttierez	Construction	0.7	n.a
Brasil Foods	Food	0.6	3.6
Marco Polo	Automotive	0.5	0.2
WEG	Machinery	0.4	0.8
FIBRIA	Pulp and paper	0.3	n.a
Braskem	Chemicals	0.1	n.a
Metalfrio	Electrical equipments	0.1	n.a
Natura	Cosmetics	0.1	0.04
Lupatech	Machinery	0.1	n.a
ALL Logistica	Railroad transport	0.1	n.a
Totvs	Information technology	0.02	n.a
Bematech	Information technology	0.002	n.a
Bradesco	Banking	n.a	26.2
Industrias Romi	Machinery	n.a	0.8
Magnesita	Mining	n.a	0.7
Banco do Brazil	Banking	n.a	32.7

Source Columbia FDI profiles (Andreff 2017, pp. 39).

Brazilian companies applied an export-complementing or an export-substitution outward foreign direct investment strategy which in any case is market seeking strategy. Stabilization of Brazilian economy and temporary appreciation of real against the US dollar contributed to the strengthening of Brazilian overseas acquisitions.

Brazilian outward foreign direct investment was market oriented since trans-border M$As by its companies aim foreign companies concentrated towards consumer market. Although there are big investors coming up in this sector, Brazilian companies have not yet established a global strategy.

Russian multinational

There are less than 1000 Russian companies which have invested overseas. UNCTAD has ranked Russian companies in the list of top 100 biggest non-financial MNCs

The biggest Russian multinational

Company 2004	Foreign asset	Company 2007	Foreign asset	Company 2009	Revenue	Rank
Lokoil	10579	Lukoil	20805	Gazprom	67806	12
Gazprom	2951	Gazprom	17236	Lukoil	49654	23
Sovcomflot	1762	Norilsk Nickel	12843	Rosneft	25325	57
Norilsk	1413	Evraz	6221	TNK-BP	24124	61
MTS	994	Soverstal	5130	Gazpromneft	14758	106
Rusal	743	Sovcomflot	4874	Surgutneftegaz	13584	114
FESCO	675	Rusal	4533	Sistema	13015	118
Severstal	666	MTS	3812	Severstal	9529	164
Prisco	657	Vimpelcom	3572	IDGC	9299	168
Vimpelcom	602	Novolipetsk	1594	Tatneft	8629	177
TNK-BP	438	Prisco	1208	Norilsk	7302	197
OMZ	347	TNK-BP	1150	MTS	7064	203
InterRAO	261	FESCO	1055	Evraz	6783	210
Acron	119	OAO koks	978	Transneft	6478	224
Ratzioent	47	Eurochem	901	X 5 Retail	6363	227
Alrosa	31	InterRao	799	Vempelcom	6353	228
Sitronics	31	TMK	606	Rusal	5871	245
Evraz	0	Mirax	470	Avto VAZ	4525	284
Novolipetsk	0	GAZ	384	Novolipetsk	4482	288
IMH/ OAO	0	ChTPZ	262	Mechel	4138	306
Eurochem	0	Acron	261	GAZ Avto	4015	312
TMK	0	Alrosa	231	Magnit	3908	317
Mirax	0	Sitronics	226	Magnitogorsk	3709	327
ChTPZ	0	OMZ	207	Bashneft	2872	394
GAZ	0	Ritzioenter	200	Aeroflot	2718	416

Sources: (Acaravci and Ozturk 2012, pp. 60): rank among the biggest 500 European companies.

Russia companies expanded overseas to move to stable and foreign investment climates which were less risky than their domestic market. Russian company strategy was market seeking outward foreign direct investment spreading former export (Hayakawa, Kimura and Lee 2013, pp. 62). Most of the Russian companies who have invested overseas mostly invested in mining, oil and gas sector (Fischer 2016, pp. 55). They have applied a strategy of resource seeking. The same approach was used in recent Russian outward foreign direct investment in Africa. In Africa they had also a motive to see new consumer markets.

BRAZILIAN OFDDI 2012	$mn	%	RUSSIAN OFDI 2011	$mn	%
Austria	56618	22.9	Cyprus	121596	33.6
Cayman island	40264	16.3	Netherlands	57291	15.8
Netherlands	28186	11.4	Virgin islands	46137	12.8
Virgin islands	22291	9.0	Switzerland	12679	3.5
United states	18401	7.4	Luxembourg	11599	3.2
Spain	15376	6.2	United kingdom	10662	2.9
Luxembourg	14719	6.0	United states	9501	2.6
Bahamas	14500	5.9	Jersey	7035	1.9
Argentina	5511	2.2	Germany	6692	1.8
Hungary	3207	1.3	Gibraltal	5701	1.6
Peru	2986	1.2	Bahamas	5481	1.5
Uruguay	2951	1.2	Balarus	4663	1.3
Panama	2430	1.0	St Vincent Grenad	4421	1.2
Portugal	2139	0.9	Ukraine	4395	1.2
Canada	1804	o.7	Austria	4229	1.2

Source: Banco central do Brazil and central bank of Russia

From 2005, Russian companies have been focusing their acquisitions in developing countries such as Africa and Asia (Statistics 2014). Russian companies have lost their focus on the outward foreign direct investments on intra-country acquisition with the countries in the region.

Brazilian companies directed their outward foreign direct investment to Latin American and USA. The prominent recipients in Latin American were the Venezuelan and Chile. In 2003, about 70% of the Brazilian total outward foreign direct investment was directed to countries such as Bermuda, Bahamas and the British virgin islands (Fischer 2016, pp. 58). The most targeted markets for investment were the USA, western European countries and Mexico.

Russian outward foreign direct investment was focused towards the traditional neighboring host countries (Hayakawa, Kimura and Lee 2013, pp. 66). These countries included commonwealth of independent states (CIS), central and East Europe (CEE) and Western Europe.  It has expanded to non –traditional locations such as Africa, Australia, USA and the Europe Union.

GFC was the worst financial crisis that occurred in 2007/2008.it was caused by the US supreme mortgage crisis and in 2010 EU sovereign debt crisis activated it (Fischer 2016, pp. 61). This problem has not been solved yet and it is still affecting the global economy. Immediately after the foreign direct investment peak in 2007 the world felt the impact of GFC. There was a delay in investment worldwide. This delay was due to restrictions in financial credit, weaker growth predictions and consumer reductions. This led to a decrease in FDI from $2 trillion in 2007 to $1.82 trillion in 2008 and further decrease in 2009 to $1.22 trillion (Li, Liu and Jiang 2015, pp. 147). There has been a rebound in 2010-2011 with possibilities of recovery in global economy. In 2012 they reached to $1.35 trillion because weaker macroeconomic environment (Fischer 2016, pp. 65).

Economic performance determinants

The performance of a country’s economy helps internationalization of local companies or attracts outward foreign direct investment (Freytag and Savona 2016, pp. 111). Under this there are indicators such as size and the rate of growth of an economy, inflation rate, and trade openness. There is an important positive effect of GDP over the outward foreign direct investment.

Brazilian outward foreign direct investment has a positive correlation to the economic performance of the host country (Meldrum 2000, pp. 37). This was expressed through GDP, trade openness and macroeconomic stability. This means that when the economic performance is high, there will be high outward foreign direct investment. This shows that Brazilian company used market seeking strategy. When the GDP is large there will be higher FDI inflows from Brazil (Freytag and Savona 2016, pp. 119). With high GDP per capita, there will be higher outward foreign direct investment inflows from the host country. When the inflation rate in the host country is high, there will be lower foreign direct investment from Brazil. The higher the trade flows between Brazil and the country, there will be high foreign direct investment flows from Brazil to the country. The lower exchange rate of Brazil will lead to high flows from Brazilian foreign direct investment to the country.

Culture variance between varied markets has a great impact on the business that is operating across the border. It is more involved in internationalization of companies, which has made them chose to act on market more like to its origin market (Garcia-Herrero, Xia and Casanova 2015, pp. 17). There is a positive correlation between culture distance and foreign direct investment. When there is higher culture distance between home and host country, there will be more likely for companies enter foreign markets through foreign direct investment. When there is higher geographical disturbance between home and host country, the higher the Brazilian outward foreign direct investment.

The institution’s role is related to their ability to advance the markets’ structure efficiency. Countries which have good governance and improved institutions have good market structure. This may reduce uncertainty and transaction costs (Hoti and McAleer 2004, pp. 222). When the scores of good governance are high, the flow of Brazilian foreign direct investment to that country will be high. When the performance of accountability and voice is high in the host country, the Brazilian foreign direct investment flows to that country is high.

When the regulatory quality in the host country is high, there higher Brazilian foreign direct investment flows to that country. If the host country rule of law is high, there will be higher Brazilian foreign direct investments flows to that country. Higher political stability in the host country Brazilian FDI flows to that country (Kumar 2016, pp. 309). When there is higher the government effectiveness in the host country, there will be higher Brazilian foreign direct investment flows to that country. With higher control of corruption in the host country, there will be higher Brazilian foreign direct investment to that country (Pinto 2013, pp. 10).

There are factors that countries consider when deciding whether to invest in their own country or to invest abroad. The Brazilian outward foreign direct investment adopted the IDP model (Sheng and Carrera Júnior 2016, pp.99). This model is expressed through a quadratic equation where the function disclose the expected pattern of the connection of the net outward foreign direct investment and the development path of the Brazilian economy. The testing of the model was successful. It was later found that there are factors which cause shifts in the net outward investment. These factors are not caused by the development of the country’s OLI-advantage.  First they were caused by economic reforms and they were later caused by global business cycles. It was concluded that this theory of IDP can only explain the development of Brazil’s FDI to a limited extent (Eaton, Gersovitz and Stiglitz 1986, pp. 24). Factors that contributed to new Brazilian companies include privatization process, denationalization, consolidation and the creation of Mercosur.

The other model that tested the determinants of Brazilian outward foreign direct investment examines correlation between cultural, geographical distance and institutional indicators (Szent-Iványi 2016, pp. 109). The approach suggests that the factors involved in Brazilian MNCs were improved institutional environment in terms of business climate, law enforcement, political stability, and government effectiveness.

From the literature review above, the outward foreign direct investment depends on the economic performance, geographical distances, cultural effects and institutional environment in the host company (Ray 2012, pp. 189).

OFDI= f (Economic Performance; Cultural Distance; Institutional Environment)

Established on the theories debated before, the regression used to evaluate each of the

Variables will take the following shape.

(Eaton, Gersovitz and Stiglitz 1986, pp. 27)

ε is the residual error of the equation. All variables are symbolized by “i”, a host

Country and “t” the time (period). The table below presents the main used variables, with the

Hypothetical signs and the sources of the collected data

(Nicholls 2016, pp. 116)

(Nicholls 2016, pp. 117)

(Nicholls 2016, pp. 119)

This was established in 1961 in the city of Jaragua do Sul in the southern than Brazil state of Canta Catarina. Currently it is the largest company of Latin America in manufacture if electric motor. WEG is the fourth largest worldwide with a market share of 80% (Fischer 2016, pp. 65). The company offers efficient services globally and has employed over 22000 people. The company has 19 branches over the world. The company was able to make a turnover which exceeded 2.2 US $ billion (Razin and Sadka 2012, pp. 25). Its more than 40% of the company’ revenue was from abroad.

In 1990s there were more than 1000 Brazilian companies which had invested overseas (Dasgupta 2015, pp. 24). Among the countries which invested abroad were petro bras (petroleum and gases), Companhia Vale de Rio doce, (quarrying and mining), engineering companies and a few banks of Brazil. But currently Brazilian companies have been cautious about investing overseas, but instead the y internationalizes a major share of their output through exports instead of through investment (Grosse and Trevino 1996, pp. 101).

Russian outward foreign direct investment was done by large Russian firms. All other micro and small enterprise were supposed to operate close to home in both CEE and CIS markets (Janicki and Wunnava 2004, pp. 778). The value chain was controlled internationally as a strategy of improving the competitiveness Russian oil initiatives. The major outward investors include JSC (shipping), Lukoil (oil and gases), Norilsk (non-ferrous metals), Primorsk (shipping) and Gazprom (oil and gases) (Seid 2018, pp. 50). 

The study has analyzed various determinant of outward foreign direct investment. These determinants are economic performance, cultural effects, geographical distance and institutional determinants. In economic performance, exchange rates have an impact which has conflicting impacts in the literature concerning its effects to the foreign direct investment nature as well. Firms may be more or less prone to perform foreign direct investment and depends on the impacts of the exchange rates on their goals.

Some variables used in analyzing the determinants of the outward foreign direct investment are hard to measure or calculate. Some variables like government governance, political stability and cultural levels. Some results of the models seem that the rate of inflation was significant 1%, however showing a positive correlation. These results do not match with the line of the theory, which assumes that a lower inflation means a steady macroeconomic environment. The GDP per capita has been represented by a positive coefficient sign, which is not the case (Greene 2003, pp. 69). This pointed out a positive correlation into Brazilian outward foreign direct investment which shows that Brazilian firms are more interested to invest in countries with high income in order to support for their market seeking strategy.  But it has been proved that variable is not statistically significant in all the models. Another model should be developed with significant variables and with less assumption (Greene 2003, pp. 75).

Some factors affected the activities of the Brazilian and Russian companies’ activities in abroad. Political instability and economic crisis contributed to falling on outward foreign direct investment of the two countries. Countries should examine and predict the economic and political states of the countries they to invest to avoid future losses in terms of outward foreign direct investment.

Countries should also support their companies in the cases of investing abroad. Government policies should be favoring the companies investing abroad, so as to expand the country’s business with other countries which results to an increased outward foreign direct investment. Countries also should ensure good relationship with other countries to create a good business relation between the two.

Conclusion

The study has compared the current outward foreign direct investment in Brazil and Russia. In the beginning there are 1000 Brazilian companies invested abroad. Currently the Brazilian firms have taken caution on investing abroad. Some have internationalized an important share of their products through exports instead of investing. This was as result of fear of economic crisis or political instability.

In Russia, outward foreign direct investment involved large firms. Small firms in internationalization were limited and they were to operate closer to home, in the CEE and CIS markets. Russian firms used a strategy to internalize or take control of the value chain internationally.

There are various determinants of outward foreign direct investment. They include economic performance, political stability, cultural effects, geographical distance and the state of institution. Economic performance has a positive correlation with the outward foreign direct investment. When there is high political stability in the country of investment it will result to an increased outward foreign direct investment in home country. The geographical distance matter when countries are investing abroad. Companies with high state of institution will have a high outward foreign direct investment.

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