• Joanna Pawlowska

Are new international business environments causing the path to market expansion to change?

Change is the new constant.

Perhaps the most significant changes are those concerning technological innovation, political attitudes and economic policies. For example, transportation and automation enabled reliable long-distance trade, the global depression in 1929 propelled a move to inward-looking polices by many governments, and the lowering of tariff barriers and the increase in international trade after the end of World War II (Brooks, Weatherston & Wilkinson,  2010). Such changes have enabled globalization to flourish; thus opening up the possibility of a more manageable world where distance is no longer a concern in business (Brooks, Weatherston & Wilkinson, 2010).

The new international business environment is causing the path to market expansion to change. Of significance is the enablement of Foreign Direct Investment (FDI). Most interesting effects are seen in developing countries, who are now becoming investors! In 2011, developing and emerging countries invested $457 billion abroad; equivalent of roughly one-third outward FDI of advanced economies! (Stiftung, 2013) Interestingly, cross-border investments were drivers of global economic integration long before globalization was synonymous with international division of labor, however the speed of the global division of labor has accelerated at a rapid pace; "the global map of cross border investment flows has changed" (Stiftung, 2013).

Perceptions have changed as well. In the 1960's, the prevailing explanation of international capital movement relied on a neoclassical trade and financial theory of portfolio flows, capital was assumed to be transacted between the buyer and seller; offering no role for the MNE (Dunning & Rugman, 1985). There was no separate theory on foreign direct investments (FDI), until Stephen Hymer's seminal dissertation (Dunning & Rugman, 1985). Hymer's approach focused on the MNE as the institution for international production as opposed to international trade. Such an approach extended territorial horizons abroad; thus opening the door for the acceptance of the concept of FDI (Dunning & Rugman, 1985).  Take a look at appendix 1 to see how the promotion of FDI has skyrocketed from 1992-2008.

But the changes in the direction of investment flows and new players pose much risk. Lee suggests that FDI does not always return the profits imagined and often (especially when dealing with developing nations) profits will be achieved only on a long-term horizon (Lee, 2013). Other disadvantages include the overestimation of profits and poor investment decisions (Lee, 2013). Research also suggests that "long term growth associated with FDI is seen primarily within countries where human capital, financial markets and infrastructure show comparatively high levels of development (Stiftung, 2013).

Swift changes are causing MNE's to consistently seek opportunities to gain market share in the new global playground and in the case of technology regarding the Monopolistic Advantage Theory,  there is a major benefit of control established by FDI.  This is due, among many elements, to oligopolistic industries possessing technological, marketing, finance and other advantages over indigenous firms (Ball et al., 2013, p. 83). “Such investment brings with it not only resources, but technology, access to markets, and (hopefully) valuable training, an improvement in human capital (Stiftung, 2013)." One example is the Japanese electronic manufacturing firms entry into the United States during the period 1976–1989.  Japan had a strong competitive advantage over local firms to reduce the hazard of failure (Chang, 1995).

The biggest risks are those fueled by our perceptions; interestingly perceptions are all over the place when it comes to FDI! In the 1970's FDI was seen as a monster and 2 decades later as the savior, only to return back to hostility with globalization; critics blamed "all encroaching multinationals for crowding out local business and undermining government autonomy (Stiftung, 2013)." Perhaps it is also perception that is the driving force for the rising levels of protectionism. Maybe it is as simple as focusing on understanding each nations position, embracing change of perspective from our own to putting ourselves in the other persons shoes, both on a cultural level as well as a business needs level when it comes to FDI? Perhaps creating necessary conditions and perceptions where countries see business efforts in a positive win-win light (team effort) as opposed to feeling under attack, would help to facilitate direct investment flows.  What are your thoughts? How would you accomplish such a feat? Is it at all possible, in a society driven by so many stigmas?  Maybe we just need to "market the idea of FDI better-what approach would you take? Are previous successes and failures of FDI attempts even a valid reference point in a global marketplace where change is the new constant?

 Looking forward to your input.

-Joanna Pawlowska


Ball, D.A., Geringer, J.M., McNett, J. M. & Minor, M.S. (2010). International Business: The Challenge of Global Competition. New York: McGraw-Hill.

Brooks, I., Weatherston, J., & Wilkinson, G. (2010). The international business environment: challenges and changes. Pearson Education Limited.

Chang, S. J. (1995). International expansion strategy of Japanese firms: Capability building through sequential entry. Academy of Management journal, 38(2), 383-407.

Dunning, J. H., & Rugman, A. M. (1985). The influence of Hymer's dissertation on the theory of foreign direct investment. The American Economic Review, 75(2), 228-232.

Lee, J. W. (2013). Week 1 Compiled Lecture Notes [PDF document]. Retrieved from https://onlinecampus.bu.edu/bbcswebdav/pid-1677288-dt-content-rid-5117630_1/courses/13fallmetad655_ol/Week01/metad655_W1.html

Stiftung, B. (2013). Shaping globalization: New trends in foreign direct investment. Germany: Bertelsmann Foundation.

2 views0 comments

Recent Posts

See All

© 2017 by JP Marketing and Design