Investor Perspectives On Emerging Market Investments: Stage 2 Report


Structured interviews were undertaken with 22 multi-national enterprises (MNEs) spread across 11 countries and 13 of the 39 sectors defined in the fDi Markets database. They were conducted at parent company level with MNEs based in Western Europe or North America (OECD investors) or India, South Africa, Singapore and Malaysia (Non-OECD investors). Some interesting perspectives on differences between OECD and non-OECD investors are discussed at various points.

The small sample size (22 interviews) and the spread of companies and head office locations implied that the outcome would be a series of qualitative case studies rather than a statistically valid quantitative study. However, the insights generated are likely to be of interest to DFID and other parties; they address how executives responsible for foreign investments perceive investments in fragile states and emerging markets, what risks they encounter, how they manage those risks, what information sources they deem relevant and whether they use specific models and approaches to limit risks. Detailed extracts are summarised in the Appendices.

Interviews revealed a high degree of consensus among both OECD and non-OECD MNEs on “knock-out” factors which would block consideration of investment in a new country: sanctions; high levels of political instability and civil unrest; poor security situations; extreme corruption; and a track record of poor behaviour by governments, including poor investor protection, breach of contract, unreliable legal systems and unreasonable changes in taxation.

They also confirmed that MNEs in the extractive industry have a very different position on investments in Fragile and Conflict-Affected States (FCAS), linked directly to their need to identify and develop raw materials from lowest-cost sources. The choice of geographical markets and diversification of production is limited, since few countries have the natural resources which MNEs require. The investment risks associated with these markets must be managed and limited, but cannot be avoided by choosing another location.

For Market-seeking investments a similar process applies; here the size of market in terms of population size and growth, disposable income, GDP growth etc., serves as the “natural” endowments of a market. In contrast, Efficiency-seeking investments have a wider range of available locations and the process of identifying the most cost-competitive and low-risk location can be seen as a pre-investment risk management process in which multiple risks are evaluated and quantified.

In all cases, it is only when potentially profitable investments (i.e. those that generate additional revenues and/or reduce operating costs) are identified that the issue of risk moves into focus. If profit potential is high, MNEs are likely to accept higher risks; conversely, if profit potential is low or non-existent, even the most positive investment climate will not attract an MNE’s attention. Our view is that this factor is a major reason for the discrepancy between the indicated favourability of certain investment environments and the absence of increases in investment flows.



GBRW Ltd; Investment Consulting Associates (ICA). Investor Perspectives On Emerging Market Investments: Stage 2 Report. DFID, London, UK (2013) 56 pp.

Investor Perspectives On Emerging Market Investments: Stage 2 Report

Published 1 January 2013