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ModernManagementResearchConference(MMRC) ISMUNIVERSITYOFMANAGEMENTANDECONOMICS,VILNIUS,LITHUANIA

INSIGTHSINTOTHESUSTAINABLEGROWTHOFBUSINESS
November1921,2009 b

FOREIGNDIRECTINVESTMENT
TOWARDSFASTGROWINGECONOMIES TOWARDS FAST GROWING ECONOMIES INTHEGLOBALCRISISCONTEXT

ANANALYSISTODECISIONAPPROACHAPPLICATION
Jean PaulLemaire JeanPaul Lemaire
ESCPEurope
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AGENDA
Whatisatstake:reciprocalinterests? Purposeandcontext:FGE,CrisisandFDI Context:initialtopresent Chosenapproach:fromenvironmentanalysistoentrydecision PositioningFGEonthegrid Ongoingconsequencesofthecrisis O i f th i i

What is at stake? Reciprocal interests (1) p ( )


FastGrowingEconomies(FGE)canexpectfromforeigndirect investments(FDI)
Directimpactsontechnologyupgrading,onreachinginternationalstandards,on exportsincrease,onGDPpercapitaincrease.. inashorttermperspective,speedingupinternationaltradeandinvestment flowscountrysintegration Indirectimpactsonlegalsystemevolution,onphysicalinfrastructures,on educationenhancement,onculturalopening.. inalongertermperspective,leadingtoenduringdevelopmentbothinan in a longer term perspective, leading to enduring development both in an externalandinternalperspective (integrative)

What is at stake? Reciprocal interests (2) p ( )


F i di t i Foreigndirectinvestors(FDI)areexpectingfromFastGrowing t (FDI) ti f F tG i Economies(FGE)
Expansionoftheirbusinessbeyondtheirareaoforigin,andoptimizationoftheir valuechain withthepossibilitytofocusonbestopportunitiesandarbitratebetween ith the possibilit to foc s on best opport nities and arbitrate bet een variouslocations ThroughamoresteadyaccesstoFGEmarketsandresources expectingfavorablelocalhostingconditionswhichwouldbebothtangibleand intangible

Purpose of the analysis to decision approach: FGE, and FDI (1) , ( )


FastGrowingEconomies(FGE)tendtoattractforeigndirect investments(FDI)
inanhorizontalizationperspective inordertoservelocalneeds(FMCG,durables,services,utilities,infrastructures..) and/orverticalizationperspective inordertoeaseforeigncompanies value chain enhancement at international in order to ease foreign companiesvaluechainenhancementatinternational level(costreduction,tangible/intangibleresourceseeking..)
(ArnoldandQuelch,1998) (Arnold and Quelch 1998)

Purpose fo the analysis to decision approach: FGE and FDI (2) ( )


Withthenecessitytoreconciletwomajorstakeholdersassuming p theirrespectivestructuralcontradictions:
For localauthoritiesofhostingcountries,contradictionsliebetween,
thenecessitytoupgradeanddeveloptheireconomy whilepreservingtheinterestoflocalplayersandsafeguardingtheirnationalsovereignty,as thepossibilityofexpandingattheirturntowardstheRoW
(Dyker,2006,Akamatsu,1956),

For foreign companies envisaging to establish a presence there, foreigncompaniesenvisagingtoestablishapresencethere, contradictionsliebetween


thecommitmentofresourcesneededtoexploitthelocalopportunitieswiththelowestrisk exposure whileensuringtheirorganizationmaximumflexibilityinaconstantlychanging local/internationalenvironment ( (Ghemawat,2001), , ),
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FDIDECISION CONVERGINGCOUNTRY/CORPORATE CONVERGING COUNTRY/CORPORATE APPROACHES


MACROECONOMICLEVEL Hostingpoliciesoflocalauthorities Enhancingvalueofnational/regionalareas Generatinglocationadvantage*

LOCALISATIONDECISION ANDDETERMINATIONOFENTRYSTRATEGY

MICROECONOMICLEVEL Corporateinternationalexpansionincentives Corporate international expansion incentives Searchforopportunitiesabroad Relyingonownershipadvantages*


*RegardingDunningsOLItheory

Initial context of the approach (1) : from progressive integration to local Crisis p g g
Thisconfrontationofcountryandcorporateapproachestakesplaceinavariety Thi f i f d h k l i i ofgeo/eco/politicalcontexts,characterizedbyareaandtimeframedifferences, forinstance,
Progressiveintegrationintoaworldeconomicopencommunity,allowingtoenvisage anorganizedintensificationofFDIflows ex.VietnamfacingWTOintegration (NguyenNhu&Haughton,2002) Consecutivereintegrationfollowingacyclicalshock thatprovokedforatimeadrying upofFDIbeforetheirresumptioncanbeconsidered Argentinareintegrationafter2001crisis. g g f (Carreraetal.,2003)

Present context of the approach (2) : from Global Crisis to post crisis p
Addressingearlyassessmentsassumingthatdecoupling wouldprotectFast GrowingEconomiesfromthefinancialcrisis:
Due to the limited financial links existing with Western economies and the DuetothelimitedfinanciallinksexistingwithWesterneconomiesandthe unsophisticatedFGEfinancialsystems, Due also to limited opening level already reached and geocentric development Duealsotolimitedopeninglevelalreadyreachedandgeocentricdevelopment whichcouldbedominatingintheseareas

Inordertoevaluatemoreimportantbutdifferentiatedimpacts,
R f i t Referringtocontrastedsituationsfromacountrytoanother,fromasectorto t t d it ti f t t th f t t another, ButintroducingnewpossibilitiesforFDIandevolvingpositioningofcountriesin thatperspective

SUCCESSIVESTEPS
Hence,thisexploratoryqualitativeapproachreliesontwocountrycasestudies , p yq pp y (VietnamandArgentina)andongoinglargeranalysis (BRIC) Applyinganenvironmentanalysistodecisionframework(PREST) A l i i l i d i i f k( S ) LeadingtotwopossiblediscriminatingaxesidentificationtopositionFGEsin Leading to two possible discriminating axes identification to position FGEs in termsofFDIattractiveness Inordertosuggest,
furtherindepthdevelopments(indexesselection,validationandmeasurement) andsystematizationtoalargerFGEset(egBRIC)andtoothereconomiccontexts(eg and systematization to a larger FGE set (eg BRIC) and to other economic contexts (eg globalcrisis)

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ANINDUCTIVEAPPROACH
FromaFDIsexpansionperspective,twocaseshavebeen,then,consideredin ordertostructuretheanalysis,
ThecaseofthelongprocessofVietnamjoiningtheWTO(Lemaire&Bui,2005/2008) ThecaseofthegradualshorterreopeningprocessofArgentinaafterthecrisisofDecember2001 (LemaireandLopez,2007)

Thensomeapplicationshavebeeninitiatedinorderto extendtheapplicationto alargersetofcountries a larger set of countries


TheBRICs,askeyFGE(ImpactofglobalcrisisonFGEforum,2009), Somematureeconomies whichhavebeendeeplyaddressedbythecrisisinordertomeasurethe recessionconsequencesonFDIflowandnature

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STEP1: ENVIRONMENTTODECISIONAPPROACH
Suggestinganapplication,inparallel,ofaPREST analysis, S ti li ti i ll l f PREST l i inanenvironmenttodecisionanalysisperspective(Lemaire,1993,2000,1997/2003):
Relying,first,ontheidentificationofexternalpressuresexertingoneachlocalenvironment Inorder,then,toevaluatetheresultingchallengesfacedbylocalauthoritiesandforeigninvestors Leading,atlast,totheidentificationofsectors/modesofpresencebestsuitedtoeachcontext

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ANALYSIS
PRESTMODELAPPLYINGTOFDI
EXTERNALPRESSURESONFDI FDICHALLENGES FDIDECISIONS

POLITICALREGULATORY PRESSURES

COMPETITION
WITHOTHERFDIHOSTS

TECHNOLOGICAL PRESSURES

CHALLENGE
LOCATION ENTRYMODE LEVELOF COMMITMENT

DECISIONS RE REDEPLOYMENT
OFACTIVITIES&GEOTARGETS

ADAPTATION
OFTHELOCALOFFER

CHALLENGE

FDI

CHALLENGE

ECONOMIC&SOCIAL PRESSURES

EXTERNALPRESSURES COUNTRYCHALLENGES FDIDECISIONS 13

EXTERNAL PRESSURES
WITH EITHER POSITIVE OR NEGATIVE IMPACT ON FGEs FDI ATTRACTIVENESS

POLITICAL-REGULATORY POLITICAL REGULATORY


ORIGINATING

FROM OUTSIDE

THECOUNTRY THE COUNTRY


-

FROM INSIDE
measuresofde/reregulationdesigned toadapttheframeworksupporting y p , FDIlikelydevelopment, measuresofprivatisation andrestructuringofthepublicsector and/orStateOwnedcompanies adjustmentpoliciesofthemajor infrastructuresectors infrastructure sectors (transport,fin.services,distribution..)..

STRUCTURAL LongTerm

attitudeofneighbouring/partnering countriesaffectingeco/politicalrelations In/decreaseintegrativeinfluencefrom / g regional,continental,worldmultigov. internationaleconomicorganizations IncentivetoadhereInternationalfiscal/ legalconventionsregulatingcorporate activities.. activities

TIME PERSPECTIVE

CONJECTURAL ShortTerm

abruptchangesoftheinternational abrupt changes of the international financialauthoritiesonthe creditworthinessofthecountry exposuretoeconomiccrisesand politicaldisturbancescomingfrom outside d

sensitivitytopoliticaltensions y p (crossborder,terrorism)fromtheregion orbeyond.. stabilityofthepoliticalsystem,State commitmentsandeconomicpolicies continuity, continuity strikesandsocialmovements, interethnictensions,xenophobic outbreaks.. naturaldisasters..

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EXTERNALPRESSURES
WITHEITHERPOSITIVEORNEGATIVEIMPACTONFGEsFDIATTRACTIVENESS WITH EITHER POSITIVE OR NEGATIVE IMPACT ON FGE FDI ATTRACTIVENESS

ECONOMIC&SOCIAL
ORIGINATING

FROM OUTSIDE
-

THECOUNTRY
-

FROM INSIDE

STRUCTURAL LongTerm L T

foreignexpectanciesforbetter environmentandethicalproduction environment and ethical production conditions longlastingunder evaluation offoreign competitors currency Improvementoflocalassetsinother countrieshostingFDI reallocationofMNCscorporateFDI portfolio

Populationdynamicsin/decreasinglocal demandandlabourforce demand and labour force costeffectiveness evolutionofpurchasingpower,middleclass developmentandpovertyreduction In/decreasedavailabilityandaccessibility ofnaturalresourcesintheMT/LT / permanenceofpracticesdistorting freecompetition(ex.corruption,State preferenceforlocalactors)..

TIME PERSPECTIVE

CONJECTURAL ShortTerm

currencyfluctuationsand rawmaterialsandcommodities worldpriceschanges dryingupofforeignfundingdueto y g p g g foreignfinancialcrisis abruptshiftsofforeigncustomers tastes(fashion) foreigndemandfluctuationforproducts andservices(elasticity+/)dueto and services (elasticity +/ ) due to ecomovesaffectingcustomerscountries

Internallossofconfidence inthecountryseconomyresultingfrom unexpectedeconomicevents (e.g.realestatebubblebursting) bottlenecks insomesectorsof productiongeneratinginflation

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EXTERNALPRESSURES
WITHEITHERPOSITIVEORNEGATIVEIMPACTONFDI

TECHNOLOGICAL
ORIGINATING

FROM OUTSIDE
-

THECOUNTRY THE COUNTRY


-

FROM INSIDE

STRUCTURAL LongTerm

compliancewithinternationalstandards ofquality,environmentandsafety ( g (e.g.ISOstandards) ) complianceforlocalproductsandservices withthemostdemandingcertification systems(USandEU) logisticalcapability(controlofthesupply chain,justintime,traceability..) chain justintime traceability )

TIME PERSPECTIVE

CONJECTURAL ShortTerm

existenceoflocalcompetencies developedthrougheducational system(bothforproductionasfor managementandorganisation) d i i ) levelofinfrastructureswithin thecountryandconnectivitywiththe RoW(roads,telecommunications, energysupply,inwater,portand airportfacilities..) accesstoITandcommunicationsystems (forex.broadbandInternet)as informationprocessingcapacities abilitytoadaptand/ortransform ability to adapt and/or transform technologyoriginatingfromexternal sources, developmentpotentialoflocalR&D (resourcesandstructures)relatedto tointernationalresearchnetworks t i t ti l h t k

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THERESULTINGCHALLENGESTOFACE FOR LOCAL AUTHORITIES AS FOR FOREIGN COMPANIES FORLOCALAUTHORITIESASFORFOREIGNCOMPANIES


Forauthorities:improvecountryscompetitiveness .supportmodernisationandlocalactorsandpreventforeigncompetitionfromdominatingkeysectors
Develop countriescompetitiveadvantagesamongFDIhostingcountries Developcountries competitive advantages among FDI hosting countries

Forforeigninvestors:becomeanacknowledgednativeplayer
.gainingaccesstomarketshare/factorsofproductionadvantages p p .assumelocalcompetitionanditspractices

POLITICALREGULATORYPRESSURES

TECHNOLOGICALPRESSURES

Forlocalauthorities: Optimizeinternal/externalpositioning l/ l
.redefine thegeosectortargets .redefinethe countryconcept visvis theexterior..

COMPETITION
LOCATION ENTRYMODE LEVELOF COMMITMENT DECISIONS

Forlocalauthorities: Targeting international standards internationalstandards .upgradeinfrastructure


.improve FDIhosting conditions

RE DEPLOYMENT

ADAPTATION

Forforeigninvestors: Displayingproperlyresourcesandreturns
.optimisetheirportfolioofinternationallocations .adapt/optimizetheirofentrystrategychoices..

Forforeign For foreign investors: Adjusting tolocalconditions


.adapttheirproducts/servicestothelocaldemand .adjustitsproductionprocesses/ distributiontothelocalcontext

ECONOMIC&SOCIALPRESSURES ECONOMIC & SOCIAL PRESSURES

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STEP2: RELATINGFGEATTRACTIVENESSAND RELATING FGE ATTRACTIVENESS AND POSSIBLECORPORATEENTRYSTRATEGIES


InordertointroduceacomparativemappingofFGEsattractiveness, relyingontwomajoraxesstemmingfromthepreviousanalysis,froma dynamicpointofview: dynamic point of view:
thelevelofinfrastructureupgradingbothtangible(utilities,commodities,equipment availability,..)andintangibleassets(education,legalhostingframeworkprogression..)as availability ) and intangible assets (education legal hosting framework progression ) as localresourcesmanagement (naturalasintellectualresources) the sensitivity to conjectural shocks and economic/political instability and the capacity of thesensitivitytoconjecturalshocksandeconomic/politicalinstabilityandthecapacityof thelocalauthoritiestocontrolandlimittheirconsequencesfordomesticasforforeign actorsasnationalsocialconsistencyandsolidarity.

IndexestobeselectedinconnectionwithmajorFrenchECA

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EXPLORATORYDYNAMICMAPPINGOFFGEs FDIATTRACTIVENESS
Thisstepbystepanalysistendstoimplythattwomajorfactorscouldbe h b l d l h f ld b retainedtodifferentiatethevariousFGEasFDIstargets
infrastructurelevel,largelylinkedwiththestructuraldimensionsofallthreesetsof externalpressuresofthePRESTmodel andinstabilitysensitiveness,largelylinkedwiththeirrespectiveconjecturaldimensions

GeneratingspecificchallengesineachFGE,itsuggests
tothehostingcountriesauthorities,somedirectionstobefollowedinordertoupgrade theirpositioningandtoattractthemostappropriateinvestments,throughdeveloping,
either,abettercontrolofthecountryssensitivitytoinstabilityandconjecturalshocks, and/or,measurestoupgradethelargespanofinfrastructuresexpectedbytheirhosts

tothepotentialforeigndirectinvestors,aclearerevaluationofthelocalcontextfroman operationalpointofview operational point of view


toarbitratebetweengoandnogoandtodecideofitsleveloflocalcommitment, andtoselectactivitiesandobjectiveswhichcouldbeenvisaged,leadingtodesigningitsFDIspossiblelocal economicmodel

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THE4xiMODELFOURBOXES
EXPLORATORYDYNAMICMAPPINGOFFGEsFDIATTRACTIVENESS

INSISTENT
Combining: Highlevelofcontrolinstability andofconjecturalshocks Relativelylowlevelof infrastructure

INDISPUTABLE
Combining: - High level of control instability and conjectural shocks - Already high level of infrastructure

Capacityto control instability instability and conjectural shocks

IMMATURE
Combining: Low level of control instability and conjectural shocks

INOPERATIVE
Combining: Low level of control instability and conjectural shocks Already high level of infrastructure

Relatively low level of infrastructure

Levelofinfrastructuretoupgrade

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THE4xiMODELFOURBOXES
INITIALLYEXPLOREDCOUNTRIESPOSITIONNING
INDISPUTABLE
Combining: - High level of control instability and conjectural shocks - Already high level of infrastructure

INSISTENT

VN
Combining: Highlevelofcontrolinstability andofconjecturalshocks Relativelylowlevelof infrastructure

Capacityto control instability instability and conjectural shocks

IMMATURE
Combining: Low level of control instability and conjectural shocks

INOPERATIVE
Combining: ARG Low level of control instability and conjectural shocks Already high level of infrastructure

Relatively low level of infrastructure

Levelofinfrastructuretoupgrade

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THE4xiMODELFOURBOXES
exploratoryBRICcontrastedregionalapproach(1) p y g pp ( ) +
INSISTENT INDISPUTABLE Coastal China Capacityto control instability instability and conjectural shocks Southern Brazil SW India IMMATURE Western Russia INOPERATIVE

Levelofinfrastructuretoupgrade

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THE4xiMODELFOURBOXES
exploratoryBRICcontrastedregionalapproach(2) p y g pp ( ) +
INSISTENT INDISPUTABLE

Central China Capacityto control instability instability and conjectural shocks Northern Brazil IMMATURE NE India Eastern Russia INOPERATIVE

Levelofinfrastructuretoupgrade

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THE4xiMODELFOURBOXES
FROMCOUNTRYPOSITIONING TOCORPORATEOPERATIONALIMPLICATIONS TO CORPORATE OPERATIONAL IMPLICATIONS

FGEPOSITIONING
Overallrecommended recommended Entrystrategy

INSISTENT
Sustainable targeted presence through partnerships Capitalintensiveenvisageable
Sectorsofinfrastructures(e.g.utilities)and goodsandserviceswithhugeexisting demand HORIZONTALISATION>VERTICALIZATION

Typeofsector toselect HORIZONTALISATION or VERTICALIZATION choice

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THE4xiMODELFOURBOXES
CORPORATEOPERATIONALIMPLICATIONS
INDISPUTABLE INSISTENT
Sustainable targeted presence through partnerships Capitalintensiveenvisageable Permanentdiversifiedpresence 100%subsidiary Capitalintensive
Allsectors withdomesticandinternational existingandpotentialdemand HORIZONTALIZATIONAND HORIZONTALIZATION AND VERTICALIZATION

Capacityto control instability instability and conjectural shocks

Sectorsofinfrastructures(e.g.utilities)and goodsandserviceswithhugeexistingdemand HORIZONTALISATION>VERTICALIZATION

IMMATURE
Limited/occasionalpresence Minimalcapital

INOPERATIVE
Conditional presence Throughpartnership Limitedcapital
Valorizationoflocaltangibleand intangibleresourceswithlimited exposuretodomesticdemand VERTICALIZATION> HORIZONTALIZATION

Import/Exporttradingactivities linkedwithnaturalresources andkeyneeds

HORIZONTALIZATION> VERTICALIZATION

Levelofinfrastructuretoupgrade

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INOPERATIVE
CORPORATEOPERATIONALIMPLICATIONS
INDISPUTABLE INSISTENT
Sustainable targeted presence through partnerships Capitalintensiveenvisageable Permanentdiversifiedpresence 100%subsidiary Capitalintensive
Allsectors withdomesticandinternational existingandpotentialdemand HORIZONTALIZATIONAND HORIZONTALIZATION AND VERTICALIZATION

Capacityto control instability instability and conjectural shocks

Sectorsofinfrastructures(e.g.utilities)and goodsandserviceswithhugeexistingdemand HORIZONTALISATION>VERTICALIZATION

IMMATURE
Limited/occasionalpresence Minimalcapital

INOPERATIVE
Conditional presence Throughpartnership Limitedcapital
Valorizationoflocaltangibleand intangibleresourceswithlimited exposuretodomesticdemand VERTICALIZATION> HORIZONTALIZATION

Import/Exporttradingactivities linkedwithnaturalresources andkeyneeds

HORIZONTALIZATION> VERTICALIZATION

Levelofinfrastructuretoupgrade

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INDISPUTABLE
CORPORATEOPERATIONALIMPLICATIONS
INDISPUTABLE INSISTENT
Sustainable targeted presence through partnerships Capitalintensiveenvisageable Permanentdiversifiedpresence 100%subsidiary Capitalintensive
Allsectors withdomesticandinternational existingandpotentialdemand HORIZONTALIZATIONAND HORIZONTALIZATION HORIZONTALIZATION AND VERTICALIZATION

Capacityto control instability instability and conjectural shocks

Sectorsofinfrastructures(e.g.utilities)and goodsandserviceswithhugeexistingdemand HORIZONTALISATION>VERTICALIZATION

IMMATURE
Limited/occasionalpresence Minimalcapital

INOPERATIVE
Conditional presence Throughpartnership Limitedcapital
Valorizationoflocaltangibleand intangibleresourceswithlimited exposuretodomesticdemand VERTICALIZATION> HORIZONTALIZATION

Import/Exporttradingactivities linkedwithnaturalresources andkeyneeds

HORIZONTALIZATION> VERTICALIZATION

Levelofinfrastructuretoupgrade

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IMMATURE
CORPORATEOPERATIONALIMPLICATIONS
INDISPUTABLE INSISTENT
Sustainable targeted presence through partnerships Capitalintensiveenvisageable Permanentdiversifiedpresence 100%subsidiary Capitalintensive
Allsectors withdomesticandinternational existingandpotentialdemand HORIZONTALIZATIONAND HORIZONTALIZATION HORIZONTALIZATION AND VERTICALIZATION

Capacityto control instability instability and conjectural shocks

Sectorsofinfrastructures(e.g.utilities)and goodsandserviceswithhugeexistingdemand HORIZONTALISATION>VERTICALIZATION

IMMATURE
Limited/occasionalpresence Minimalcapital

INOPERATIVE
Conditional presence Throughpartnership Limitedcapital
Valorizationoflocaltangibleand intangibleresourceswithlimited exposuretodomesticdemand VERTICALIZATION> HORIZONTALIZATION

Import/Exporttradingactivities linkedwithnaturalresources andkeyneeds

HORIZONTALIZATION> VERTICALIZATION

Levelofinfrastructuretoupgrade

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WHATABOUTTHECRISISEFFECTS?
GlobalmayhemhashitquitedifferentlyvariouslargeFGEandsectors:
TheexampleofVietnam: crisis,whatcrisis? ThecontrasteddiagnosisapplyingtoBRICs:
ReorientatesChinesepolicies ImpactsinalimitedwayIndia AffectssignificantlyBrazilbutwithinarelativelyshortperiodoftime LeavesRussiadesperatelydependentofnaturalresources Leaves Russia desperately dependent of natural resources

Butwithlimitedconsequences(atleastinsomeFGE)onFDI:
Differentialofgrowthremainequal(ifnotsuperior)betweenFGEandmature g q ( p ) economies(5%to7%),hencetheFGEattractivenessremainshigh FGEspoliciestendtobecomemorefocusedanddemanding(improvingtheir positioningonthetwoaxes):
capacitytocontrolinstability(tightereconomicmonitoring,higheconomicagentsmoral) it t t l i t bilit (ti ht i it i hi h i t l) acceleratedinfrastructureimprovements(Keynesianpolicies,inboundasmuchasoutbound)

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LIMITSANDFURTHERRESEARCH
Beyondthisexploratoryapproachfurtherresearchhastobepursuedin eyo d t s e p o ato y app oac u t e esea c as to be pu sued orderto, morepreciselyandcomprehensivelyidentifyandevaluatethe4xi modelstwoaxesindicators ECA moresystematicallycollectappropriatedatainordertopositionmore accuratelyeachFGEonthetwoaxesretained correspondent academics testandvalidatethegridincorporatecircles encompassingdifferent g p p g sectors

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THANKYOUFORYOURATTENTION! Q&A?

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