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Foreign Investments in BRIC Countries

Empirical Evidence from Multinational Corporations

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Thomas Poplat

Investments in BRIC countries have been a main driver of the significant increase of cross-border investment activity in recent years. But investments in these emerging economies entail significant risks as institutional voids, host governments and national champions dictate the local business conditions for multinationals. This study investigates decision processes underlying cross-border investments in BRIC countries and discusses their critical success factors. The empirical results show how internal and external forces influence corporate decision-making efficiency. Moreover, the study highlights country-specific challenges for corporations which consider investing in BRIC countries.

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Figure 1-1: Outline of the investigation ................................................................ 5 Figure 1-2: Foreign market entry modes ............................................................. 11 Figure 1-3: Corporate goal and management layers ........................................... 17 Figure 1-4: Shareholder value network and the influence of investments .......... 20 Figure 1-5: The investment process and related management accounting tasks 23 Figure 1-6: Success of investment decision processes ........................................ 32 Figure 1-7: International investment timing strategies ....................................... 36 Figure 1-8: Geographic configuration alternatives ............................................. 38 Figure 1-9: Coordination mechanism in MNCs .................................................. 40 Figure 1-10: Population and share of world GDP of G7 and BRIC countries ...... 44 Figure 1-11: Inward Greenfield investment value: BRIC vs. Germany ............... 45 Figure 1-12: Research field characteristics ........................................................... 52 Figure 1-13: Classification of prior research ......................................................... 54 Figure 2-1: Main agency relationships in the capital allocation process ............ 75 Figure 2-2: The promotor model in the context of foreign investments ............. 78 Figure 2-3: Theoretical firm-level framework .................................................... 79 Figure 2-4: Liability of foreignness and cost of doing business abroad approach ................................................................................ 83 Figure 3-1: Basic types of case study research designs ...................................... 94 Figure 3-2: Visualization of firm-level analysis dimensions ............................ 100 Figure 3-3: Firm-level case study design .......................................................... 101 Figure 3-4: Visualization of country-level analysis dimensions ....................... 103 Figure 3-5: Country-level case study design ..................................................... 104 Figure 3-6: Interview process ............................................................................ 106 Figure 3-7: Interviewee identification process .................................................. 107 Figure 3-8: Development of the pool of interview questions............................ 109 Figure 3-9: Interview data sorted by company .................................................. 114 Figure 3-10: GasCo interview statistic by informants’ position ......................... 115 Figure 3-11: TechCo interview statistic by informants’ position ....................... 115 Figure 3-12: Interview data sorted by country .................................................... 116 Figure 3-13: Interview data...

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