Small and medium-sized transnational corporations: Salient features

This second half of a series on small and medium-sized transnational corporations (TNCs) describes their main features in terms of such variables as the markets and industries in which they operate, ownership, forms of investment, performance and competitive advantages. It also deals with strategies that small and medium-sized enterprises (SMEs) tend to take in their foreign operations.An appreciable share of small and medium-sized TNCs produces highly-specialized or niche products that give them relatively high market power in those market segments. Their principle source of advantages emanate from proprietary technology, flexible management, organization and market ability, reputation and supplier/customer relations. Small and medium-sized TNCs, unlike their larger counterparts, are more likely to enter developing countries through joint ventures and other collaborative arrangements with local firms. SMEs from some developed countries, mainly Europe, are particularly willing to enter joint ventures.Transnational Corporations Affairs Officer United Nations Conference on Trade and DevelopmentThe aurthor is grateful for advice and comments by Hafiz Mirza. This paper is based on the chapter IV of the UNCTAD Programme on Transnational Corporations,Small and Medium-sized Transnational Corporations: Role, Impact and Policy Implications, New York: United Nations publication, Sales no. E.93.II.A.15, 1993.     

Religion and foreign direct investment

This study examines the effect of religion on foreign direct investment (FDI). Using a large sample of directional FDI flows and religious data between 1985 and 2019, we calculate the religious distance between home and host countries and find that FDI flows are smaller for country pairs with greater religious distance. This finding remains intact after a host of variables affecting FDI are controlled. Moreover, the negative effect of religious differences is less pronounced if the host country has higher religious diversity or both countries have a bilateral investment treaty (BIT) in force. Finally, we construct a country-level measure for religiosity and find an asymmetric effect of religiosity on FDI flows. Overall, our study suggests that both religious differences and the level of religiosity play important roles in explaining international FDI flows. (JEL F21, F41, Z12)     

Effects of direct foreign investment

There has been a considerable controversy in the Indian economic literature regarding the relative merits of direct foreign investment and official development assistance. No systematic study¹, however, is available on the effects of direct foreign investment in India. Therefore this article discusses this subject for the period 1951–66.     

Patent protection and foreign direct investment

The importance of development and use of products embodying intellectual property rights has increased dramatically. The growing share of knowledge‐intensive products in worldwide trade, together with the increase in international technological competition, has magnified the importance of patents and other forms of intellectual property. The objective of this study is to examine the effect of patent protection on inward foreign direct investment (FDI). It also examines the relative importance of other variables such as market size, trade orientation, unemployment rates, and so on. The findings are supportive of the fact that the level of patent protection is a strong determinant of investment flows. A proper understanding of this relationship will help firms and governments devise appropriate intellectual property policy to encourage the growth and expansion of FDI. © 2006 Wiley Periodicals, Inc.     

Industrial groupings and foreign direct investment

We explore worldwide foreign direct investment (FDI) location decisions by Japanese manufacturing firms from 1985 through 1991. Our conditional logit estimates provide evidence that firms' location decisions are affected by membership in either vertical or horizontal keiretsu. Consistent with previous studies that stress agglomeration effects on firms' location decisions, we find that the stock of investment in a region by a firm's vertical keiretsu partners increases the probability of location. Further, we find that the recent flow of investment into a region by a firm's horizontal keiretsu partners increases the probability of investment to the region, providing evidence of networking effects.     

Formal institutions and foreign direct investment

This study examines the impact of formal institutions on foreign direct investment. First, the quality (strength or weakness) of formal institutions in host countries is analyzed. Second, the absolute differences in the quality of formal institutions between the host and home countries are examined. The results show that (1) strong formal institutions in host countries positively influence FDI flows and (2) the larger the institutional distance between the home and host country, the lesser the FDI inflows. © 2009 Wiley Periodicals, Inc.     

China's outward foreign direct investment

China's outward foreign direct investment (FDI) is steadily increasing. The United States is now a key target for China's outward FDI, and the response by the American public tends to fall at opposite ends of the spectrum: fever or fear. Chinese FDI in the United States faces challenges posed by its liability of foreignness in political, cultural, marketing, and technological aspects. Utilizing mini case studies, we herein examine the polarized responses to Chinese outward direct investment, its history, and the challenges faced by Chinese multinational corporations operating in or attempting to enter the U.S. market. Finally, strategy suggestions are proposed.     

An information-based trade off between foreign direct investment and foreign portfolio investment

The paper develops a model of foreign direct investments (FDI) and foreign portfolio investments (FPI). FDI enables the owner to obtain refined information about the firm. This superiority, relative to FPI, comes with a cost: a firm owned by the FDI investor has a low resale price because of asymmetric information between the owner and potential buyers. The model can explain several stylized facts regarding foreign equity flows, such as the larger ratio of FDI to FPI inflows in developing countries relative to developed countries, and the greater volatility of FDI net inflows relative to FPI net inflows.     

Outward foreign investment by transnational entrepreneurs: Insights from emerging economies

This research considers how transnational entrepreneurs in emerging economies identify and develop opportunities for investment into international ventures. Specifically, this study seeks to identify common drivers for outward investment by transnational entrepreneurs from their country of origin (Brazil and India) to their adopted country (the US). Findings indicate three common drivers of this type of internationalization: formal education, effectual logic, and the leveraging of perceived market differences. Furthermore, the data show that entrepreneurs prefer a gradual process of investment rather than a large-scale initial investment during the exploitation of international opportunities in the adopted country. The results of this study have important practical implications and are valuable additions to the scholarly understanding of the growing field of transnational entrepreneurship.     

Geographic clustering and outward foreign direct investment

This study addresses an important neglected question: To what extent do geographic clusters promote outward foreign direct investment (ODI)? We find evidence that clusters do promote ODI and so support Porter's argument that advantages gained in clusters can be the foundations of successful internationalisation. Digging deeper, we find that certain cluster incumbents promote more ODI than others, with more experienced firms and firms with stronger resource bases accounting for more ODI. We also find that firms located in clusters within major global nodes/cities engage in more ODI. Finally, we find that both localisation and urbanisation economies promote ODI. However, the former, within-industry effects, are more important. Overall, this study echoes Dunning's call for more focus on the ‘L’ component of the ownership, location, internalisation (OLI) paradigm and particularly on the advantages that reside in clusters that make them not only attractive destinations for foreign direct investment (FDI) but also fertile environments from which FDI can spring.     

Intellectual property rights and foreign direct investment

This paper develops a product cycle model with endogenous innovation, imitation, and foreign direct investment (FDI). We use this model to determine how stronger intellectual property rights (IPR) protection in the South affects innovation, imitation and FDI. We find that stronger IPR protection keeps multinationals safer from imitation, but no more so than Northern firms. Instead, the increased difficulty of imitation generates resource wasting and imitation disincentive effects that reduce both FDI and innovation. The greater resources absorbed in imitation crowd out FDI. Reduced FDI then transmits resource scarcity in the South back to the North and consequently contracts innovation.     

Temporality and the first foreign direct investment

This study examines the timing of the first foreign direct investment (FDI). It explores how the conceptualization and, hence, the understanding of time affects our insights into major internationalization decisions in organizations; specifically, that of navigating into the unknown waters associated with making a first FDI. We introduce a multitemporal approach by drawing on the different temporalities prevalent in history and in business and management to build a platform for analysis that provides a suitable combination of richness and contrast. By examining the process toward making a major internationalization decision in terms of clock, event, stages, and cyclical concepts of time, we gain valuable but also varied insights about a complex process. We conclude that to understand any organization's process of international strategy formation at a certain point (or period) in time, its particularities need to be appreciated in some detail. While the details in this study are unique to the case of Harvard Business School's decision in 1971 to make its first FDI, we argue that the main features of the process are common to conceptualizing the internationalization decision process. As such, the findings should apply more generally.     

Multilateral rules on foreign direct investment

During the last decade the world stock of foreign direct investment has more than doubled. Nevertheless, considerable impediments to FDI continue to exist. The following paper discusses these and offers an answer to the question as to whether multilateral rules on FDI are necessary to remove these barriers and what form these rules could take.     

Recent trends in foreign direct investment

Global investment strategies have become a central issue in international business and in international economics. The worldwide stock of foreign direct investment (FDI) can be estimated at over US $ 1500 billion in 1990—three times the value of the 1980 stock. The following article discusses the driving forces behind this trend and identifies some recent changes in the pattern of FDI.     

Performance of foreign direct investment from Singapore

This study was conducted with two broad aims: to assess the performance levels attained by foreign direct investment (FDI) undertaken by Singapore firms and to identify the key determinants of the performance levels attained. We employed a broad set of perceptual measures, as reported by the MNC parent managers, to assess the performance of foreign subsidiaries. The measures included: stability, profitability, overall success, market share and sales growth. We hypothesized that the performance of (FDI) will be influenced by the following factors: mode of entry, cultural distance, relative size of the subsidiary and host government attitudes. Based on an analysis of 128 responses to a survey, we find that Singapore firms’ foreign subsidiaries achieve moderate levels of performance. The data analysis also revealed that FDI performance was positive under the following conditions: the host government attitudes were positive and the subsidiaries were of large size relative to the parent.     

Determinants of foreign direct investment in Turkey

The motives and characteristics of western MNEs' foreign direct investment (FDI) in Turkey are considered in terms of Dunning's ownership, location, internalization (OLI) paradigm for a sample of 98 firms. A parsimonious set of motives is identified by means of factor analysis. Binomial logit regression models are used to test a set of hypotheses concerning the relative importance of FDI motives and the sample characteristics. The findings are that the relative importance of the OLI factors vary most with the industry of the investment, to a moderate extent with the size of the investment and to a modest extent with the ownership pattern of the investment (wholly owned subsidiary or joint venture). © 1998 John Wiley & Sons, Inc.     

Emerging economies' attraction of foreign direct investment

This paper uses a composite measure to examine why some countries attract more foreign direct investment (FDI) than others. The measure considers all identified, measurable, and comparable socioeconomic aspects that affect FDI decisions on an aggregated country level. As a result, we can rank 127 countries with respect to their FDI attraction. The measure allows detailed strength and weakness analyses and enhances the discussion of why FDI flows are concentrated in advanced economies. Additionally, the findings reveal the areas in which emerging countries should improve in order to narrow existing gaps. Our robustness checks indicate that the composite measure accurately tracks real FDI activity.