S. Hymer's Monopolistic Advantage Of Internalization Theory

According to Moosa (2002), “Hymer (1976) organized the industrial organization hypothesis. Kindleberger (1969), Caves (1982) and Dunning (1988) further explained the hypothesis. This theory assumes that the firms when it establishes an enterprizes in another country it suffers from many disadvantages in comparison to local investors. The cultural aspects, languages, legal system and other factors play an important role in determining FDI. But there is increase in FDI. The theory explains about why firms invest in foreign countries. But the theory fails to explain the motivation for choosing the locations. This theory explains the expansion of FDI is due to capital, management, technology, marketing, and access to raw materials, economies of

The aim of this essay is to look at the evolution of both inward and outward foreign direct investments in Britain and then discuss the impact of the direction and level of FDI in Britain on the success or failure of British Business. This will lead us to question ourselves on whether the level and direction of FDI determine the success/failure of British firms. In other words, is there a correlation between these two key features of FDI and the performance of British firms and if this correlation implies causation.

Figure 1.7 The structure of the dissertation Figure2.2 Modes of entering foreign markets Table 2.32 Factors affecting the FDI decision Figure 2.33 Types of FDI 12 15 19 22

The fundamental question is what makes developing countries MNEs succeed in international business and what factors influence the firm’s strategy in international business?

Foreign direct investment by multinational corporations is the action of obtaining controlling equity share of a firm in a foreign country. There has been many discussions about the role of FDI in affecting a country’s unemployment rate and economic growth. Of which many believed

Dunning’s OLI paradigm (1976) is used to support firms to locate its production in countries that are financially beneficial for them. According to Dunning, “the paradigm offers a holistic framework to take in consideration all of the important factors that influence the decision of a MNE.” (Stefanović, 2008, p.241) FDI is determined through the composition of the three powerful advantages; ownership, location and internationalisation as shown in figure 1. The thesis is to assess, ‘why go multinational?’, ‘how to choose the best location?’ and ‘what actions have to be taken to enter a foreign market?’

Regional differences of FDI in China are the result of various economic and non-economic factors. Dunning divided the locational factors whicn affect FDI into four groups: market factors, trade barriers, cost factors and the investment environment. According to FDI location mentioned in the first part, the location selection factors influencing FDI can be classified into four groups below: cost factors, policy factors, market factors and centralization economic factors. The essay will focus on the influence of market factors and centralization economic factors.

Robert E. Lipsey and Fredrik Sjoholm, (2004) “The Impact of Inward FDI on Host Countries: Why Such Different Answers?” pp. 23-43 [Online] Available at:

The research this material accounts for mainly focuses on the pros and cons of FDI regarding corporations more than host countries, like what are the factors that attract multinational’s investment, what are the risk of expropriation, the extent of the development of stock markets, and what is the linkage between democracy and foreign investment (Bekaert, Harvey, & Lundblad, 2011; Busse & Hefeker, 2007; Eichengreen et al., 2011; Li, 2009). Indeed, this specific research tells little about the host countries in this international flux of investment rather than distinguishing between developed and less-developed countries (LDCs).

“A multinational enterprise is a company that is headquartered in one country but has operations in one or more other countries” (Rugman and Collison, 2012). A firm on the other side operates within the national borders of a country. Some firms want to expand, not only in sizes but also in value and market share, by becoming MNEs. This is due to the fact that it can bring remarkable advantages even though is very risky. MNEs perform international business operations named as: Exports and Imports, Foreign Direct Investment (FDI). The first branch includes the goods and services that are produced in a country and sold in another one and vice versa, the second branch consists in equity funds invested in foreign countries. It is when firms begin to use FDI that they become MNEs.

Thus, among all these theories, our thesis, we will mainly focus on location-specific advantages as according to the research conducted by Nayak and Rahul (2014,p.10), location advantages of different countries play a significant role in determining which country will be the recipient of FDI, Since the aim of the study is to analyze the impacts of the host country characteristics on FDI inflows, particularly that of Singapore and Hong Kong, we assume that firms already possess ownership and have internalized these advantages, making locational advantages very much country specific and are likely to vary according to changes in internal and external factors which will eventually influence a firm’s market potential and market risk. Thus, this renders the choice of locational advantage factors critical in influencing a country’s ability to attract

The traditional internationalization models regard that firms’ capabilities (internal factors) lead firms to make internationalizing activities. On the contrary, OC paradigm refers to internationalization as a process that internal and external factors interact so that firms obtain a competitive advantage in the global level (Mathews & Zander, 2007). According to this innovative model, firms achieve superior performance by adapting and integrating in view of a varying environment (Pisano et al, 2007). Considering that BGs try to survive, operating under uncertain conditions that change all the time, OC constitutes the most suitable way for studying them.

Click and Harrison (2000), for instance, followed the financial performance of over 3000 US firms over a 14-year period to provide empirical evidence that an increase in the extent of multinational operations of US corporations actually brought about erosion in their value. Their arguments, however, are based only on an accounting and economics-based perspective and do not take into account the strategic compulsions due to which MNEs might often be constrained to accept such costs in order to follow their rivals into foreign markets due to oligopolistic rivalry. The financial issue of firm value thus cannot be divorced from the strategic issue of foreign market entry. This paper seeks to examine LOF through the relatively underexplored lens of strategic management, departing from the usual transaction-cost economics perspective, because it enables a more realistic and continuous appraisal of the effect of the IBE on MNE operations. Anecdotal evidence also abounds about such costs, with even established MNEs often incurring huge losses in their foreign operations. Ricks (1993) and Knight (1995), for instance, provide lucid accounts of blunders in international business. However, do those anecdotes really reinforce the LOF argument? Or, alternatively, are they getting confounded with mistakes that even domestic firms could make in their

Subject : Appraisal of a MNE's recent market entry (2007-2010) ( 1. Firm Motivations for internationalization 2. Entry Strategy 3. Corporate Strategy)

created the largest job opportunity in India and not the manufacturing industries. Therefore, apart from