International Business Environment: Brazil and Russia's FDI Trends

This report provides an in-depth analysis of the international business environment, focusing on the outward foreign direct investment (OFDI) trends of Brazilian and Russian companies. It examines the challenges faced by these companies, particularly those related to economic crises and political instability, as they expand their operations abroad. The report highlights the role of OFDI in national development, analyzing its contributions to both countries and utilizing various theories to discuss current trends. It explores the determinants of OFDI, including economic performance, political stability, geographical distance, state of institution, and cultural effects. The report also details the sectoral focus of investments, such as financial services, oil exploration, and construction, and compares the OFDI patterns, including destinations and motivations, of both countries. The report also discusses the impact of the Eurasian Economic Union (EEU) on Russian FDI and the importance of economic motives and government support in Brazil's internationalization strategy.

International business environment1
INTERNATIONAL BUSINESS ENVIRONMENT
Name:
Department:
School:
Date:

International business environment 2
Executive summary
The paper has broadly discussed how Brazilian and Russian companies are operating expanding
their business abroad. It has identified the challenges faced by the countries and firms as they
were operating overseas. The companies were mostly challenged by economic crisis and political
instability. The study has also discussed the role of outward foreign direct investment in the
development of a country. The study has analyzed various results of contributions of outward
foreign direct investment to these countries. Different theories have been used in this report to
discuss current trends in outward foreign direct investment.
FDI makes up a very little part of the total capital formation of a country. But it greatly promotes
economic growth, welfare and industrial growth in developing 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.
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 (Anwar and Mughal 2015, pp. 2385). Due to this there was no increase in
amount of outward foreign direct investment. The Brazilian outward foreign direct investment
mostly was concentrated on financial services such as banking services. 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.

International business environment 3
Introduction
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.

International business environment 4
Outward FDI
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 and emerging economies
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).
Russian outward foreign direct investment
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

International business environment 5
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

International business environment 6
Russian investment in Europe to decrease due to Russian companies interests in eastern markets
have increased (Euromoney 2001, pp. 483).
Outward FDI to Europe by country, 2007 and 2013 (Akyuz 2015, pp. 67)
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 Luxembour
g
497 1.11 6 Luxembour
g
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
Eurasia
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).

International business environment 7
Eurasia was formed to encourage a customs union and single economic space, manage member
states’ policies and assimilate them into the world economy.
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

International business environment 8
Outward foreign direct investment in Brazil
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 12th. In 2012, outward foreign direct investment stock
from Brazil was ranked 18th world’s most important source of OFDI with Russia being the 15th
(Al-sadiq 2013, pp. 31).

International business environment 9
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).
Predominant strategies of Brazilian MNCs
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

International business environment 10
(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
12.7
11.8
2.8
4.7
1.9
6.5
6.3
30.7
13.1
13.0
12.1
4.9
3.6
3.5

International business environment 11
Luxembourg
Canada
South Korea
Switzerland
British virgin Islands
Germany
Rest of the world
16.4
1.4
2.0
12.2
1.7
1.1
18
2.5
2.3
1.5
1.4
1.2
1.2
9.2
(Anwar and Mughal 2015, pp. 2389)
Characteristics of outward FDI from Brazil
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.

International business environment 12
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
Comparative features of OFDI from the BRICs (%) (Dasgupta 2015, pp. 24).
Outward FDI stock / GDP Outward / inward FDI stock
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.

International business environment 13
BRICs outward FDI stock during economic crisis: rate of growth (Dasgupta 2015, pp. 24).
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).
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).

International business environment 14
Global players and small-medium size firms: Brazilian multinationals
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

International business environment 15
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

International business environment 16
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 Novolipets
k
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

International business environment 17
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.
Major host countries of BRICs’ OFDI (Andreff 2017, pp. 40).
BRAZILIAN
OFDDI 2012
$mn % RUSSIAN
OFDI 2011
$mn %
Austria 56618 22.9 Cyprus 121596 33.6

International business environment 18
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.
Outward FDI from Brazil and Russia flows

International business environment 19
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.
Current FDI situation
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).
Determinants of OFDI from emerging economies

International business environment 20
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 effects
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

International business environment 21
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.
Institutional determinants
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).
The determinants of Brazilian OFDI
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

International business environment 22
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.
Empirical model and estimation
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.

International business environment 23
(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

International business environment 24
(Nicholls 2016, pp. 116)

International business environment 25
(Nicholls 2016, pp. 117)

International business environment 26
(Nicholls 2016, pp. 119)
WEG equipamentos eletricos and CVRD
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.

International business environment 27
TNCs from BRICs
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).
RECOMMENDATION
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.

International business environment 28
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.

International business environment 29
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.

International business environment 30
References
Acaravci, A. and Ozturk, I., 2012. Foreign direct investment, export and economic growth:
empirical evidence from new EU countries. Romanian Journal of Economic Forecasting, 2,
pp.52-67.
Akyuz, Y., 2015. Foreign Direct Investment, Investment Agreements, and Economic
Development: Myths and Realities. Research Paper, pp. 63-85.
Allan, J.A. ed., 2012. Handbook of land and water grabs in Africa: Foreign direct investment
and food and water security. Routledge, pp. 12-29.
Al-sadiq, M.A.J., 2013. Outward foreign direct investment and domestic investment: The case of
developing countries. International Monetary Fund, pp.13-52.
An analysis by country of origin’, Journal of International Business Studies, 27(1): 139-155.
Andreff, W., 2017. Maturing Strategies of Russian Multinational Companies. A Historical
Perspective. The Russian Economy and Foreign Direct Investment. Routledge: Oxford, pp. 23-
50.
Anwar, A.I. and Mughal, M.Y., 2015. Determinants of Russian Firms' Merger and Acquisition
Activities. Economics Bulletin, 35(4), pp.2382-2394.
Anyanwu, J.C., 2012. Why Does Foreign Direct Investment Go Where It Goes?: New Evidence
From African Countries. Annals of Economics & Finance, 13(2). Pp. 13-18.
Bartlett, C.A. and Beamish, P.W., 2018. Transnational management. Cambridge University
Press, pp. 120-140.

International business environment 31
Bevan, A. and Estrin, S. (2004) ‘The determinants of Foreign Direct Investment in empirical
evidence from EU accession candidates’, Applied Economics, 36: 505-509.
Brito, J., and Sampayo, F. (2005) ‘The timing and probability of FDI: an application to US
multinational enterprises’, Applied Economics, 37: 417-437.
Chaudhuri, S. and Mukhopadhyay, U., 2014. Foreign direct investment in developing countries.
Dordrecht: Springer, pp.78-90.
Chen, C., 2015. Determinants and motives of outward foreign direct investment from China’s
provincial firms. Transnational Corporations, 23(1), pp.1-28.
CIA (2006), The World Factbook 2006, Central Intelligence Agency, pp. 50-70.
Cruz, N.F.L., 2015. State-Owned Enterprises as key Outward Foreign Direct Investors: a
bibliometric study, pp. 90-102.
Da Silva, S.F., 2015. Outward foreign direct investment by emerging economies: a bibliometric
study, pp. 112-130.
Dasgupta, N., 2015. Home country effect of FDI outflows from the BRIC countries: Study of
domestic investment. In 12th Midwest International Economic Development Conference, pp. 24-
25).
Eaton, J., Gersovitz, M. and Stiglitz, J. (1986) ‘The pure theory of country risk’, Econometrica,
26 (1), 24-36.
Euromoney (2001), ‘Cautious Optimism on World Economy’, Issue 383. European Economic
Review, 30: 481-513.
Fischer, P., 2016. Foreign direct investment in Russia: A strategy for industrial recovery.
Springer, pp. 54-87.

International business environment 32
Freytag, A. and Savona, P., 2016. Securing the global economy: G8 global governance for a
post-crisis world. Routledge, pp. 109-124.
Garcia-Herrero, A., Xia, L. and Casanova, C., 2015. Chinese Outbound Foreign Direct
Investment: How Much Goes Where After Round-Tripping and Off-Shoring. BBVA, Working
Pa-per, pp.17.
Greene, W. (2003) Econometric Analysis, 5ª Edition, Prentice Hall, pp. 67-80.
Grosse, R. and Trevino, L. (1996) ‘Foreign direct investment in the United States: Empirical
Examination’, Managerial and Decision Economics, 7: 99-106.
Hayakawa, K., Kimura, F. and Lee, H.H., 2013. How does country risk matter for foreign direct
investment?. The Developing Economies, 51(1), pp. 60-78.
Hoti, S. and McAleer, M. (2004) ‘An empirical assessment of country risk ratings in the United
States’, Journal of International Business Studies, 19(2): 219-233.
Janicki, H. and Wunnava, P. (2004) ‘Determinants of foreign direct investment: in Transition
Economies’, Journal of Comparative Economics, 32: 775-787.
Jensen, N., Biglaiser, G. and Li, Q., 2012. Politics and foreign direct investment. University of
Michigan Press, pp. 12-21.
Jones, J. and Wren, C., 2016. Foreign direct investment and the regional economy. Routledge,
pp. 33-41.
Kumar, P., 2016. A New Trend of Foreign Direct Investment and Sustainable Growth of
Emerging Economies. Risk in Contemporary Economy, pp.517-524.