Strategic Management: Formulation and Implementation

International Investment Theories

International investment theories attempt to explain why foreign direct investment takes place.

Monopolistic Advantage Theory

Stefan Hymer saw the role of firm-specific advantages as a way of marrying the study of direct foreign investment with classic models of imperfect competition in product markets. He argued that a direct foreign investor possesses some kind of proprietary or monopolistic advantage not available to local firms.

These advantages must be economies of scale, superior technology, or superior knowledge in marketing, management, or finance. Foreign direct investment took place because of the product and factor market imperfections.

The direct investor is a monopolist or, more often, an oligopolist in product markets. Humer implied, that governments should be ready to impose controls on it.