The Foreign Direct Investment (FDI) flows in the future would be dominated by multinational companies from the Emerging Markets (EM), representing a shift in trend in the space which was cornered by firms in advanced countries, industry participants said.
Almost 40 per cent of the global FDI comes out of companies like Lenovo, Tata Sons, Lukoil from EM, and the magnitude of their investments in last 20-25 years, have increased by 35 per cent, and currently these companies are responsible for $500 billion (Dh1.84 trillion) of FDI per year with a concentration from a few countries in EM, according to a study.
“We have seen new players emerge on a global stage two are from emerging markets like the Sovereign wealth funds and companies from the EMs,” Ravi Ramamurti, D’Amore-McKim, professor of International Business and Strategy, director, centre for EM at Northeastern University, United States, told delegates at Annual Investment Meeting on Tuesday. The third major player would be private equity from developed countries.
“EM multinationals are latecomers on the global stage compared to their rivals, but in some ways being late can also be a good thing,” Ramamurti said.
Citing an example, Ramamurti said, Bharti Airtel, India’s biggest telecom operator, has successfully made use of technology and innovation to make calling rates affordable to hundred of millions of its consumers, charging 1 cent a minute for a call compared to 15 cents per minute by other global telecom operators. The company is also changing processes to bring down the calling rates after its acquisitions in Africa.
However, another component of FDI flows — Sovereign Wealth Funds, which currently manage $7 trillion worth of assets, are not a dependable, predictable source of FDI in the global economies, Ramamurti said. “They are looking for profitable ways of investing rather than making their money sit idle,” he said. But they are generally risk averse with a need to make the liquidity available quickly, which generally makes them not a dependable source of FDI.
“We have developed manufacturing capabilities and skills right from scratch,” Badr Olama, chief executive officer of Strata, owned by UAE-based Mubadala, which supplies aircraft parts to Boeing and Airbus. “We can see this transition happening with respect to wanting to get into high-tech industry and not be dependent on domestic market.”
The future trend of manufacturing would be integration of digital technology, manufacturing activity and information technology, Olama said, adding “the future competition won’t be between countries and companies, the future competition would be between value chains.”
Revenues of Strata for 2015 jumped 27 per cent on year to be at Dh400 million.