根据现有的宏观经济理论或新古典理论的外国直接投资，资本将流动从资本丰富的国家，提供低回报的资本对资本的贫困国家，可以提供更高的利润。然而，海默（1960引（皮尔斯，2012）认为，现有的理论是不足够的。他提出了微观经济理论的新理论，侧重于不同于现有的产业层面，侧重于特定国家的产业层面。海默还表示，外资只会在不完善的或集中的市场，需要发生所有权优势。所有权优势是第一重要的元素在Dunning的电框架，使公司成为有竞争力的，允许企业进入外国市场；其他两个要素的区位优势和内部化。然而，这篇文章将专注于所有的所有权优势。
本文首先简要阐述了外国直接投资和新古典外国直接投资理论。然后，本文将进一步解释如何海默的有助于对现有理论的不足之处。本文将解释完全竞争的市场，不完善的市场，集中的市场，重要性和所有权优势的出现。最后，本文将简要探讨海默的分析批评和介绍Dunning的折衷的框架，他使所有权优势成为在跨国企业或跨国企业新理论的一个重要的元素。将在整个文章中提供的例子。
According to the existing macroeconomic theory or neo-classical theory of foreign direct investment, capital would flow from capital rich countries that provide low return-on- capital to capital-poor countries that can give higher profit. However, Hymer (1960 cited in (Pearce, 2012) argues that the existing theory is not adequate. He proposed the new theory of microeconomic theory focuses to the industry level which different from the existing one that focus on country-specific. Hymer also said that FDI will occur only in imperfect or concentrated market and ownership advantages are needed. Ownership advantage is the first important element in Dunning's electric framework that make firm become competitive and allow firm to enter to foreign market; others two elements are location advantage and internalisation. However, this essay will focus on ownership advantage only.
The essay will begin with briefly explain about foreign direct investment and neo-classical theory of foreign direct investment. Then, the essay will further explain on how hymer's contribute to the inadequacies of the existing theory. The essay will then explain about perfectly competitive market, imperfect market, concentrated market, importance and the emergence of ownership advantages. Lastly, the essay will briefly examine the criticisms of Hymer's analysis and the introducing of Dunning's eclectic framework, which he makes ownership advantages become a very important element in new theory of the multinational enterprise or MNE. Examples will be provided throughout the essay.
To begin with, foreign direct investment or FDI was defined as one of the key thing that multinational enterprise or MNE does in order to gain competitive advantages for the firm. It is the process that firm want to enter the new markets apart from its home country by acquiring ownership of asset, control and add value of the firm in another country or host country. With FDI, the firm can gain, control and access to sources of new technologies, capital, labour, management skill and product providing by host country that the firm was invested in (Moosa, 2002).
The traditional theory of FDI or neo-classical theory said that capital should flow from capital rich to capital poor countries. This is because as in capital rich countries (i.e. developed countries such as UK) most of the capital has been undertaken, less profitable opportunities available, higher domestic competition, higher expense of labour and cost of production is also higher compared to capital poor countries (i.e. developing countries such as Thailand) so the investments would only occur in the poorer economy in order to maximize the profits. The foreign investors will bring capital into the host country and producing the same goods (Khan, 2007, Alfaro et al., 2005). However, Hymer (1960 cited in(Pearce, 2012) introduced a microeconomic theory of the MNE which was firm-specific. He noted four facts that used to argue the inadequacies of the existing neo-classical theory, which only focus on trade rather than other elements.
First, the older theory state that there is one-way flow of FDI that is from capital rich to capital poor countries only, however, in the post-war years, FDI was two-way flows between developed countries. For example, Tata Steel, a steel manufacturing ranked in top ten of the global, was founded in India decided to do FDI in the United States and as a consequence, 5 million jobs were supported. In this case FDI flow to capital rich country or developed country so this shows that FDI does not only flow to capital poor countries only (PTI, 2011).
Economics Assignment 代写 The Existing Macroeconomic Theory
Second, the existing theory said that a country would not do engaging in export and import FDI at the same time. However, Hymer noted that in fact most MNE in developed countries did receive inward FDI and engaged in outward FDI across the national boundaries at the same time.
Third, the outward investments in every industries are not the same, it vary from industry to industry. For example, some industries such as technological industries were usually strong in outward FDI while aircraft industries were usually weak because of less overseas investment. Hymer argued that if capital availability was the only thing that influences FDI, any industry could be equal and have the same level of ability to invest abroad so existing theory was inadequate in this circumstance as well.
Fourth, some FDI does not involve in trade and capital transfer, for example, UK firm decided to set up subsidiaries in Canada and let the subsidiaries being financed locally without trading between UK and Canada. This is the case that the firm let the capital raising by it owns so capital does not move from one country to the another which is not compatible with the existing theory of FDI. Hymer (1976 cited in (Denisia, 2010) state that FDI is a firm-level strategy decision rather than in the country scale as the existing theory said, it depended on the industry and the firm that drive firms overseas investment.
Therefore, Hymer suggested that the existing neo-classical theory does not cover and cannot explain lots of situation. The theory was too weak and insufficient in explaining the decision to set up value-adding activities overseas to become MNE, it based on perfectly competitive market which foreign firms will be exist only when there is a super-normal profits. To illustrate this, in perfectly competitive market, there are lots of competitors and all firm are identical; using the same technology, produce the same goods and faced the same costs. Whenever the demand increases and exceeds the supply, all firms make super-normal profit and persuade foreign firms to enter to the market. However, as foreign firms get into the business so the supply is increasing up until the point that supply is equal to demand, all firms including MNE will make only normal profit. Thus, foreign firms or MNE will be driven out because they have to pay extra costs of being foreign, dealing with unfamiliar environment which leads to higher overall cost of production compared to other local firms. In order to be in the market and become MNE, foreign firm would have to have something that can overcome this disadvantage, which is a firm specific advantages or ownership advantages. It occurs when firm are better in product, technology, and management practice compare to other competitors (Pearce, 2012).
Ownership advantages, the first element in Dunning's electric framework, are firm specific characteristics that give them the competitive advantages in their home country. The characteristics are mainly on knowledge or know-how such as management practice, differentiated product and advance in technology. In addition, ownership advantages do not include only intangible assets such as knowledge, brand and organizational structure buy also including capital and industry market structure (Rugman, 2010).
If the firm decide to enter a foreign market, the firms have to make strategic decision to choose the entry mode since there are many modes of foreign market including exporting, licensing, joint venture, and sole venture as well as consider their firm specific characteristics or ownership advantages (Agarwal and Ramaswami, 1992).
Ownership advantages play as a significant role in all entry modes because in order to transfer these characteristics abroad and become MNE, the characteristics have to be strong enough to overcome local firms, compensate for the extra costs (i.e. Learning cost) and barriers (i.e. tariff barriers). If firms have lower levels of ownership advantages, the firms may considering exporting or not enter to the foreign market (Ghahroudi, 2009).
Hymer clearly state in his work that ownership advantage or what he called firm specific advantages are necessary and important for firm to become a MNE. However, he argued that MNE do not exist in perfectly competitive market because of the nature of the market that every firm are identical and lack of firm specific advantages as mentioned above. But MNE does exist in imperfect market with the important influence of ownership advantage. Consider the same situation but under the imperfect market, all firms are not identical, some are better and more successful than others but all firms still produce the same products. Again, when demand exceed supply, foreign firms getting into the market but this time they have ownership advantage, they have better in technology and management practices. Once supply catch up with demand, foreign firms with ownership advantage will not be driven out of the market. It will overcome the weak local firms but still behind top firms within host country. With this situation, MNE will exist and FDI do occur (Pearce, 2012).
For example, McDonald's, KFC and Burger King, 3 main fast-food restaurants in USA were running their business under oligopoly without feeling threaten by new entrants. As In an oligopoly, big and high profitable firms dominate with virtually high immune because the barrier to entry is very high. In order to overcome these big firms, the new entrants need very powerful ownership advantages including technology, products, management and reputation as well as very high amount of capital to start-up while existing firm can operated at much lower cost and much more effective. If KFC decide to open the first store in UK and become success, other firms will follow KFC to that market to take market share away from KFC. This example explains how oligopoly's environment works. Firms with strong ownership advantages easily do it because this ownership advantages are strong enough to overcome any barriers.
Moreover, examine kind of industrial sectors and market structures, Hymer (cited in (Pearce, 2012) also suggested that ownership advantages are likely to emerge and exist in very concentrated market. With the drive of FDI, two markets can be merged together. For example, there are 3 big firms in country A; another 3 big firms in country B and both markets are identical and independence. If one of the firms in country B make strategic decision to enter market country A and become MNE, all firms in country A will fell threaten because the new entrant has strong ownership advantages, well establish trade name, technology, management team and reputation. Because of the entrant of the forth firm, one of the firms in country A may break into country B market as well to take more market share and become MNE. When the new entrants become successful in both market, all remaining firms from both countries will make the same movement. As a result, both markets will have 6 firms and all of them are MNE. With this example, it can be said that FDI flow in two-ways, it flows between two countries as Hymer developed his argument to the neoclassical theory. Without ownership advantages, two-ways flow of FDI do not exist in this case because the new entrants need strong competitive advantage to confront with cost of being a foreign and overcome barriers to entry.
Economics Assignment 代写 The Existing Macroeconomic Theory
Hymer is the first economists and be the author of the concept of firm-specific advantages and theory of macroeconomic who try to find answer to the question that 'Why MNEs?' and 'Why FDI?', later on he then suggested that the three reasons behind are conflict removal, gain more profit from foreign location and involve in controlling the overseas assets (Dunning and Pitelis, 2009). He then emerge the concept of firm specific advantage or ownership advantages that can be find in imperfect market and concentrated market as a tool to overcome lots of barrier to being a foreign.
However, Dunning and Rugman (OEHLER-ÅžINCAI, 2011, Dunning and Rugman, 1985) argue that Hymer overlooks the transaction costs so he overemphasize the market-power advantages of MNE and market failure as transaction costs are also important. He also miss the point that the main purpose of MNE is not just three reasons mentioned above, MNE also do FDI for market seeking, resource seeking, efficiency seeking, knowledge seeking, gaining advantages from transfer prices and so on (Pearce, 2012). While Yamin (Yamin, 2000) point out that part of Hymer's ownership advantages is actually location advantages for example; Hymer mentioned that American firms are getting the access to US capital market as well as get access to US labour market easier compared to foreign firms. This implies that Hymer also count country factors into his work, and make elements of macroeconomic fit into the microeconomic theory, it is not completely microeconomic theory. As Hymer views advantages as assets that can be bought and sold in market, Yamin argue that in highly imperfect market some assets are non-tradable for example skills and capabilities that already tied in the infrastructure and culture of the firms.
In 1977, Dunning re-oriented as well as fill the gap tin the work of Hymer, which he thinks it was uncompleted and proposed the eclectic framework consisting of ownership advantages, location advantages and internalisation advantages with taken both microeconomic theory of FDI and macroeconomic theory of FDI into account. Dunning define country-specific advantages such as labour costs, available resources as location advantages. Focusing to ownership advantages, Dunning then separate ownership advantages into asset ownership advantage (Oa) and transaction ownership advantages (Ot). Asset ownership advantages include both intangible and tangible assets, such as management practices, technologies, firm reputation, and knowledge. While transaction ownership advantages include ability of firms to coordinate and communicate with multiple cultures, perform value-adding activities and reduce transaction costs that occurs during FDI. Dunning also make ownership advantages become a very important element of the new theory of multinational enterprise because ownership advantages represent unique firm-specific advantages that make firms become MNE and be competitive in foreign market (Dunning and Lundan, 2008).
In conclusion, the macroeconomic or existing theory of FDI is inadequate as Hymer point out four facts that were not compatible with the theory including FDI did flow to capital rich countries and can flow between two countries, one country can export and import FDI at the same time, level of outward FDI are varied, and situation that no capital movement. Firms become MNE because of many reasons including resource seeking, knowledge seeking, efficiency seeking, marketing seeking, and controlling overseas assets. However, MNE does not likely to exist if the market is perfectly competitive because all firms are identical and foreign firms will be driven out. In imperfect market and concentrated market including oligopoly, MNE does exist because of ownership advantages to overcome barrier and cost of being a foreign. However, the work of Hymer was criticised as incomplete work. Dunning then re-orientated the Hymer's analysis and come up with OLI eclectic framework that include both macroeconomic and microeconomics elements, and transaction cost into account. Ownership advantage was count as one of the most important elements in OLI eclectic framework and is a key element for firms to become MNE.