Change is the new constant.
Perhaps the most significant changes are those
concerning technological innovation, political attitudes and economic
policies. For example, transportation and automation enabled reliable
long-distance trade, the global depression in 1929 propelled a move to
inward-looking polices by many governments, and the lowering of tariff
barriers and the increase in international trade after the end of World
War II (Brooks, Weatherston & Wilkinson, 2010). Such changes have
enabled globalization to flourish; thus opening up the possibility of a
more manageable world where distance is no longer a concern in business
(Brooks, Weatherston & Wilkinson, 2010).
The new international business environment is
causing the path to market expansion to change. Of significance is the
enablement of Foreign Direct Investment (FDI). Most interesting effects
are seen in developing countries, who are now becoming investors! In
2011, developing and emerging countries invested $457 billion abroad;
equivalent of roughly one-third outward FDI of advanced economies!
(Stiftung, 2013) Interestingly, cross-border investments were drivers of
global economic integration long before globalization was synonymous
with international division of labor, however the speed of the global
division of labor has accelerated at a rapid pace; "the global map of
cross border investment flows has changed" (Stiftung, 2013).
Perceptions have changed as well. In the 1960's,
the prevailing explanation of international capital movement relied on a
neoclassical trade and financial theory of portfolio flows, capital was
assumed to be transacted between the buyer and seller; offering no role
for the MNE (Dunning & Rugman, 1985). There was no separate theory
on foreign direct investments (FDI), until Stephen Hymer's seminal
dissertation (Dunning & Rugman, 1985). Hymer's approach focused on
the MNE as the institution for international production as opposed to
international trade. Such
an approach extended territorial horizons abroad; thus opening the door
for the acceptance of the concept of FDI (Dunning & Rugman, 1985).
But the changes in the direction of investment
flows and new players pose much risk. Lee suggests that FDI does not
always return the profits imagined and often (especially when dealing
with developing nations) profits will be achieved only on a long-term
horizon (Lee, 2013). Other disadvantages include the overestimation of
profits and poor investment decisions (Lee, 2013). Research also
suggests that "long term growth associated with FDI is seen primarily
within countries where human capital, financial markets and
infrastructure show comparatively high levels of development (Stiftung,
2013).
Swift changes are causing MNE's to consistently
seek opportunities to gain market share in the new global playground and
in the case of technology regarding the Monopolistic Advantage Theory,
there is a major benefit of control established by FDI. This is due,
among many elements, to oligopolistic industries possessing
technological, marketing, finance and other advantages over indigenous
firms (Ball et al., 2013, p. 83). “Such investment brings with it not
only resources, but technology, access to markets, and (hopefully)
valuable training, an improvement in human capital (Stiftung, 2013)."
One example is the Japanese electronic manufacturing firms entry into
the United States during the period 1976–1989. Japan had a strong
competitive advantage over local firms to reduce the hazard of failure
(Chang, 1995).
The biggest risks are those fueled by our
perceptions; interestingly perceptions are all over the place when it
comes to FDI! In the 1970's FDI was seen as a monster and 2 decades
later as the savior, only to return back to hostility with
globalization; critics blamed "all encroaching multinationals for
crowding out local business and undermining government autonomy
(Stiftung, 2013)." Perhaps it is also perception that is the driving
force for the rising levels of protectionism. Maybe it is as simple as
focusing on understanding each nations position, embracing change of
perspective from our own to putting ourselves in the other persons
shoes, both on a cultural level as well as a business needs level when
it comes to FDI?
Perhaps creating necessary conditions and perceptions
where countries see business efforts in a positive win-win light (team
effort) as opposed to feeling under attack, would help to facilitate
direct investment flows. What are your thoughts? How would you
accomplish such a feat? Is it at all possible, in a society driven by so
many stigmas? Maybe we just need to "market" the idea of FDI
better-what approach would you take? Are previous successes and failures
of FDI attempts even a valid reference point in a global marketplace
where change is the new constant?
Looking forward to your input :)
-Joanna Pawlowska
References:
Ball, D.A., Geringer, J.M., McNett, J. M. &
Minor, M.S. (2010). International Business: The Challenge of Global
Competition. New York: McGraw-Hill.
Brooks, I., Weatherston, J., & Wilkinson, G.
(2010). The international business environment: challenges and changes.
Pearson Education Limited.
Chang, S. J. (1995). International expansion
strategy of Japanese firms: Capability building through sequential
entry. Academy of Management journal, 38(2), 383-407.
Dunning, J. H., & Rugman, A. M. (1985). The
influence of Hymer's dissertation on the theory of foreign direct
investment. The American Economic Review, 75(2), 228-232.
Lee, J. W. (2013). Week 1 Compiled Lecture Notes
[PDF document]. Retrieved from
https://onlinecampus.bu.edu/bbcswebdav/courses/13fallmetad655_ol/Week01/metad655_W1.html
