Why Do Companies Engage in Fdi

Name: Emmanouil Agrafiotis Student ID: 541930 Degree Title: MA Globalization and Corporate Development Course Title: MNEs in a Globalizing World: Economic and Legal Perspectives Course Code: 15PFFC019 Assignment: 2 Course convenor: Dr. Stephanie Blankenburg Course tutor: Mr. Jago Penrose Title: Why do companies engage in Foreign Direct Investment? Word Count: 2,748

This Essay will analyze three streams of thought concerning the engagement of firms in Foreign Direct Investment, namely Hymer’s Approach, the Internalization Theory and Dunning’s Eclectic Paradigm. There is, naturally, a great deal more to be said about Internationalization of Production, but this essay will focus to these three paradigms mainly because of their modernity and also due to limitations of space. The selection of the first two specific schools of thought is because of their significance in their time of development, as well as the pillar-status they still hold in the evolution of International Business Theory. Dunning’s approach, though not contributing to the theory in terms of new developments, is interesting not only due to the vast amount of criticisms and controversy it has spurred, but also because of its utility as a descriptive tool. Furthermore, attempts to find linkages between the theories will be made.

1. Hymer’s Approach (Market Power)
Hymer’s contribution in the theory of FDI is paramount, both in terms of time and of introduction of key concepts. While presenting similarities with the Marxist approach, in terms of conflict, especially in his latter works (Hymer, 1971), his approach was novel in different respects: Firstly, it is considered the first theory to actually address FDI,as ‘a mechanism by which the MNE maintains control over productive activities outside its national boundaries’ (Dunning and Rugman, 1985, p.228) , rather than just as the capital flows driven by interest or profit rates that neoclassical economists

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