Why Do Companies Invest International

Introduction

When people think about globalization, they often first think of the increasing volume

of trade in goods and services. Trade flows are indeed one of the most visible aspects

of globalization. But many analysts argue that international investment is a much

more powerful force in propelling the world toward closer economic integration.

Investment, often alters entire methods of production through transfers of know-how,

technology and management techniques, and thereby initiates much more significant

change than the simple trading of goods.

Over the past ten years, foreign investment has grown at a significantly more rapid

pace than either international trade or world economic production generally. From

1980 to

Companies choose to invest in foreign markets for a number of reasons, often the

same reasons for expanding their operations within their home country. The

economist John Dunning has identified four primary reasons for corporate foreign

investments:

Market seeking - Firms may go overseas to find new buyers for goods and services.

Market-seeking may happen when producers have saturated sales in their home

market, or when they believe investments overseas will bring higher returns than

additional investments at home. This is often the case with high technology goods.

Resource seeking - Put simply, a company may find it cheaper to produce its product

in a foreign subsidiary- for the purpose of selling it either at home or in foreign

markets. The foreign facility may be able to obtain superior or less costly access to the

inputs of production (land, labor, capital and natural resources) than at home.

Strategic asset seeking - Firms may seek to invest in other companies abroad to help

build strategic assets, such as distribution networks or new technology. This may

involve the establishment of partnerships with other existing foreign firms that

specialize in certain aspects of