FDI and the Ecletic Paradigm The increasing globalization has stimulated the appetite of Multi-National Corporation (MNC) to invest abroad while it has also forced the host country to create a more favorable environment for Foreign Direct Investment (FDI) (Chittle, 1999). International trade (exporting and licensing) and FDI (either greenfield investment or Merger and Acquisition (M&A) with an existing firm in the host country) are two important phenomena of globalization for MNC (Buckley, 2015). According to Liu et al. (2016), cross-border M&A is a significant component of FDI, being roughly about one-third of the total FDI flows. The main analytical framework to explain the determinants of FDI is the Eclectic Paradigm or OLI, which attempted
Secondly, Dunning’s model aims at gaining competitive advantage through foreign direct investment in developing countries, whereas product life cycle theory aims at achieving maximum efficiency through reduced overall cost etc. Another difference includes that product life cycle theory provides the chance to expand the market for the product in developing countries while Dunning’s model does not provide the possibility for the
These make China’s export cheaper, and thus more attractive. China believes fixed exchange rate policy can achieve to sustain a high growth rate. The exchange of yuan manage in low, the China has a large degree on export. Fixed change rate eliminates part of the exchange rate uncertainty for Chinese exporters and importers and their trading partners. The fixed change rate creates
When the capital is invested, it will cause improvement in the efficiency use of resources. Consequently, the capital invested will improve the welfare of the citizens. Although after investment the capital out in the supplying nation will decrease, the nation income in both countries will not decrease because the country benefits/returns from the invested capital which of course equals the capital marginal productivity times the total foreign investment. Thus, as long as the foreign investment capital exceeds the loss of output, the foreign country will continue investing because it gets larger national income. On the other hand, the host country will continue encouraging foreign investment as it enjoys greater
Globalization is a small term after all, but has a broader definition acting as a catalyst to progress and growth transforming the world in general. The concept of globalization is not something new for most of the people as this is gaining momentum in today’s era. Globalization has resulted in interrelation and assimilation between world economies and business. Globalization in general has a significant role in advancements of a country and improving the lifestyle of people. In the business world, the benefits of globalization are not just limited to profit maximization, but also provide other advantages equipping business to carve a niche for itself in today’s highly competitive market.
He offered an idea that how a country might play a game strategically and could be successful in extracting great levels of revenues from trade, by implementing new trade theories. The comparative advantage theory of Ricardian gained a new aspect as Porter emphasized on development of comparative advantage or innovativeness by improving to sustain greater shares of market. Therefore, the idea of productivity that can be work to attain greater levels of international competitiveness (IC) emerged [Porter (1990)]. Indices based on productivity are extensively used in the measurement of competitiveness. As per Porter point of view productivity is the most valuable thought in international competitiveness.
Another study found that a firm’s age sometimes showed a U-shape effect on export performance as it may hamper exporting activities up to a certain point after which it builds a positive impact on export operations (Rodríguez-Pose et al., 2013). In contrast to Ursic and Czinkota’s (1984) findings, Seifert and Ford (1989) found a positive relationship between firm age and export performance. Export Experience Export experience literature refers it as knowledge gained through experience from business operations overseas thus generating opportunities and is a driving force for internationalization of the firm (Johanson and Vahlne, 1990). Barney (1991) experience plays an important role in achieving superior company performance as a means of value building According to (Piercy, 1981) Experience accumulated by firms in their international operations influences their reaction to the opportunities offered by foreign markets. Experience is a mechanism of obtaining information on foreign markets as indirect intelligence.
Hong et. al (2008) Added that by entering into trade liberalization agreements, exporting industries could increase their marketing expenditure to the exporting country as they had lower tax rates to pay. Fosu (1990) found that trade agreements enabled the home country to concentrate investment on the sectors that had a higher competitive advantage. Trade liberalization has is known to bring benefits to the financial sector as well. By increasing exports, a nation is able to accumulate additional foreign exchange (Kemal et al 2002), promote additional saving and investment (Todaro, 2000) which may lead to an additional growth of exports thus creating a virtuous cycle.
The Efficiency/ Relative Market Power Hypothesis The Efficiency Hypothesis postulates that the profitability or the performance of a bank is hinged on the efficiency of that bank. Banks that are relatively efficient compared to competitors, have the power to maximise their profits through maintaining current sizes and pricing strategies or by reducing prices and expanding their operations. Once the banks’ choose to expand operations, they eventually gain a bigger market share. The Efficiency Hypothesis, in other word, argues that banks with better management and/or technologies have better performance as reflected by high profits owing to lower cost structures. By extension, those more efficient firms will gain greater market shares, which may result in a more concentrated market.
Thirdly, international business has been dominated by the developed countries and MNCs. MNCs are the multinational corporations of the developed countries. The country that dominated and fully controls the foreign trade is USA, Europe and Japan. They have many advantages such as large financial, other resources, best technology, research and development, skilled employees and managers. That was the factors that helping them to capture and dominate the world