This theory draws heavily on the more general work of Williamson that explores the conditions under which firms choose a hierarchical approach to engaging in business activities rather than a market-based approach. Williamson argues that where two sets of conditions exist, firms will tend to prefer internal or hierarchical approaches. These conditions include oligopolistic (few sellers) or oligopsonistic (few buyers) market settings and situations of great uncertainty. Oligopolistic or oligopsonistic situations lead to the choice of a hierarchical approach because, in these situations, opportunistic economic agents will make it very difficult for a firm to negotiate an equitable transaction. In situations of uncertainty, the fact that individuals and organizations are limited in their analytical capacity will lead to internal organization because of the difficulty of writing and enforcing long-term contracts that incorporate all the necessary contingencies that arise as a result of an uncertain environment (Michael, 1982).
Building upon this work, international business theorists suggest that firms that venture overseas either have a particular competitive advantage or seek a competitive advantage. A firm's existing competitive advantage might be its superior technology, its unparalleled management expertise, or its unique brand name. Indeed, these competitive advantages are often intangible assets. Though critical to the firm, they are not identified as fixed assets in the firm's balance sheet.
The firm has various options it could use to benefit from these competitive advantages. These options span the choice of a market or a hierarchical approach. In particular, the firm could sell or rent these advantages on the...
This essay stresses that the worldwide pool of labor expanded beyond the borders of the countries with enfranchised working classes and high levels of reproduction. Employers seeking to minimize their direct employment costs and their indirect political burdens sought out communities of workers who were politically less potent than those in the older industrial states and whose costs of reproduction were lower.
This paper makes a conclusion that the findings highlight the interaction between global financial institutions and local political-economic variables. When these variables measure both international and intranational processes simultaneously, they reflect or point to highly interdependent processes that influence the location of foreign investment. In other words, national and international dynamics are so interpenetrating in the modern world system that any analysis that disregards the effect of either set of factors is seriously deficient. As such, the work extends the political sociology of foreign direct investment by showing the importance of international financial institutions in directing and attracting foreign direct investment. Specifically, International Monetary Fund conditionality is both a signal of approval and a generator of policies that create access to foreign investors. When these two factors interact with policies of repressive regimes, foreign investors have realized their goal: economic access and political protection.
This report talks that foreign direct investment has figured prominently in the recent economic history of most developing countries. Until the early twentieth century, this investment principally took the form of investment in the extractive, mining, and agricultural industries in these countries. …
Multinational Business: Foreign Direct Investment (FDI) Introduction Globalization refers to the integration of world economies through the reduction of barriers to the movement of trade, capital, technology, and people. International business or cross cultural business has been increased a lot in recent times as a result of globalization, liberalization and privatization policies implemented in many countries.
Federal Reserve Bank of St. Louis Review 91(2), pp. 61-78. Dimelis, S. and Louri, H. Foreign Direct Investment and Technology Spillovers: Which Firms Really Benefit? [Online]. Available at: http://www.aueb.gr/imop/papers/DP149.pdf [Accessed on: 04 January 2013].
FDI can also be defined as an investment of a company in a foreign country by building a factory within the host country. It is through a company’s direct investment in machinery, building and equipment in another country that foreign direct investment is made possible.
Inward FDI increased from 9.6% of GDP in 1990 to 26.7% in 2006. (Woodward, 2011). There has also been a recent flow of FDI towards developing economies and this has had a plethora of effects, both for home and host countries. (Raj and Sager, 2005). Foreign Direct Investment has over the last three decades aroused conflicting responses from the first and third world.
According to the study there is no single best-practice FDI policy or strategy. There is no unique execution of all the possible policies. The FDI strategy, within which FDI policies are framed, depends partly on pre-conditions. For instance, a large country with few local capabilities and weak trading road and rail network is unlikely to benefit significantly from attracting high-tech FDI.
The growth experienced by many countries in Asia Pacific region provide an ample empirical evidence as to the effectiveness and impact of foreign direct investment on economic growth.
Foreign Direct Investment provide many benefits such as transfer of capital and technology to the country where the intended investment is made besides stimulating domestic growth as well as providing an opportunity for implementing best practices.
Africa especially is an area of interest since it has shown enormous growth in the recent years due to FDI than any other effort that has been carried out in the past. The paper critically explores the role of FDIs in the improvement of economic conditions of Africa and India as examples of its success.
The author states that a multinational firm in a developed country may face higher labor costs and higher production costs when locating its subsidiaries in its own home country, while a shift overseas may involve a larger initial investment but is economically beneficial in the long run because the margin of profits are higher.
rategies that enable entities to diversify its assets and risk across diverse countries by engaging in contractual agreements with multiple potential partners. Companies may find it advantageous by producing in foreign countries compared to exporting to those countries based on
This has led to most developing countries and to a large extends developing economies and those still in transition to divert they attention to FDI as the main source of economic development. Chaudhuri and Mukhopadhyay
11 pages (2750 words)Essay
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