Foreign Direct Investments

Introduction

Foreign direct investment is an important corporate strategy for companies that wish to operate on a global basis. While companies may gain a certain degree of international exposure through indirect financial investment, trade or technology transfer, they can better level resources both at home and abroad by directly investing in local production facilities and marketing campaigns. Foreign direct investment is often encouraged by hosting countries that may impose various trade barriers on imports. (Way, 2007, Ehow.com)

Focusing upon developed markets such as, UK, Canada, and USA, these nations are the first to experience and make use of new innovative products. Where these nations today influence global economies, aiding in

Hence the essential sub-paradigm establishes the grounds for making foreign direct investments. For example, there are various forms of foreign direct investments available for companies such as, franchising, subcontracting services to domestic players, licensing, and the most common form, exporting. All of which also allow companies to extract opportunities from their ownership advantages. Although utilizing these forms of foreign direct investments also provides companies with a competitive advantage. For example, Red Bull energy drinks have been associated with Indian market for over a decade, but the company has not yet internalized, and is still being imported ruling the Indian energy drink market. In addition Red Bull exports to 166+ countries globally, all being manufactured in central Europe. Red Bull being an exception MNE’s usually prefer internalizing to protect “superior knowledge” or there core competencies mainly because this causes domestic players to intervene and reduces market share. To summarize, companies persistently continue to make foreign direct investments, to utilize location advantages such as cheap skilled/unskilled labour, cut-rate factors of production, and the availability of raw materials and natural

Therefore the competitive advantages of MNE’s are frequently linked with location advantages. Where Dunning and Clegg later add, the product cycle is primarily a theory of new FDI, and it has little to say on the extensions of existing investments by a mature foreign-investing nation” (Dunning, 1993 and Clegg, 1987). Contingently Dunning suggests that models associated with trade are of special interest, thus emphasizes on the impact of innovation in formulating new trade trends within a unstable competitive environment, where these conditions are portrayed as the seed-bed of MNE growth. Consequently the product life cycle received much support in 1950s and 1960s. Therefore Vernon himself stated: by 1970, the product cycle model was beginning in some respects to be inadequate as a way of looking at the US-controlled multinational enterprises.(Vernon, 1974, 1979). In conclusive it is safer to say, that Dunning’s model is better utilized in terms of foreign direct