Rugman's Business Model

A widely utilized typology taking into account different motivations for outward FDI is that introduced by (Dunning, 1993 ) based on four categories: a) market- seeking investments attempts to secure market share and sales growth in the target foreign market. Because the firm’s main suppliers or customers have set up foreign producing facilities abroad ; the firm’s products need to be adapted to local tastes or needs or the firm considers it necessary, as part of its global production and marketing strategy. b) resources-seeking investments aimed at searching for unique resources specific to foreign locations (e.g. natural resources); they are seeking physical resources; seeking cheap and/or skilled labor; and technological, organizational,

J. Buckley and M. Casson, 1976 ), (A. M. Rugman, 1981 ). Internalization theory holds that the available external market fails to provide an efficient environment in which the firm can profit by using its technology or production resources. Therefore, the firm tends to produce an internal market via investment in multiple countries and thus creates the needed market to achieve its objective. Expansion by the internalisation of markets means that firms use FDI to replace imperfect external markets in intermediate products and knowledge. The exogenous variables in the Buckley and Casson model can be characterised as either firm-specific, industry-specific, or location-specific. Firm-specific variables are exemplified by the costs of R&D, which reflect the skills of the firm's R&D team; industry-specific factors by the costs of licensing, which reflect the nature of the knowledge used in the industry; and location-specific factors by production costs in different regions. This theory as a summary, MNEs invest aboard as they want reduce search and negotiating, costs of violated contracts and ensuing litigation. To avoid government intervention (e.g., quotas, tariffs, price controls).To control supplies and conditions of sale of inputs (including technology) and market outlets. To better apply cross-subsidization, predatory pricing, and transfer

manufacturers shift from exporting to FDI. He argue that there are four stages in a product’s life cycle: “introduction”, “growth”, “maturity” and “decline”. When the product becomes standardized in its growth product stage, as demand from consumers in other markets rises, production increasingly shifts abroad enabling the firm to maximize economies of scale and to bypass trade barriers. As the product matures and becomes more of a commodity, the number of competitors increases. The U.S. manufacturer has an incentive to invest abroad to exploit lower manufacturing costs and to prevent the loss of the export market to local producers. In the end, the innovator from the advanced nation becomes challenged in its own home market making. Then they will choose invest aboard where export sales are large enough to support economies of scale in local