lorelgn ulrecL lnvesLmenL 1heory

And AppllcaLlon
Iore|gn d|rect |nvestment (IDI)
lL occurs when a flrm lnvesLs dlrecLly ln
producLlon or faclllLles ln a forelgn counLry
over whlch lL has effecLlve conLrol Companles
can enLer a forelgn markeL elLher Lhrough
experLlng or lul
Lxample coca cola has bullL boLLllng faclllLles
ln abouL 200 counLrles
llow of lul
8efers Lo Lhe amounL of lul underLaken over a
perlod of Llme
SLock of lul
8efer Lo Lhe LoLal accumulaLed value of forelgn
owned asseLs aL a glven Llme
uLflow of lul
Means Lhe flow of lul ouL of a counLry LhaL ls
flrm underLaklng dlrecL lnvesLmenL ln forelgn
counLry
lnflows of lul
Means Lhe flow of lul Lo a counLry LhaL ls
forelgn flrm ln underLaklng dlrecL lnvesLmenL
ln Lhe local counLry
Iore|gn portfo||o |nvestment
or forelgn dlrecL lnvesLmenL
ls lnvesLmenL by lndlvlduals flrm or publlc
bodles ln forelgn flnanclal lnsLrumenLs such as
governmenL bonds CorporaLe bonds muLual
bonds and forelgn sLocks
orLfollo Lheory
lL descrlbes Lhe behavlor of lndlvlduals or flrm
admlnlsLerlng large amounL of flnanclal asseLs
ln search of Lhe hlghesL posslble rlsk
ad[usLmenL neL reLurn
@pes of IDI
orlzonLal lul
lL occurs when MnL enLers a forelgn counLry Lo
produce same producL(s) produced aL home
verLlcal lul
lL occurs when MnL enLers a forelgn counLry Lo
produce lnLermedlaLe goods LhaL are lnLended Lo
use as lnpuL ln home counLry producLlon process
or Lo markeL lLs home made producLs overseas
Lx llllplno sLores ln oLher counLry
ntr Mode
lL ls Lhe manner ln whlch a flrm chooses Lo
enLer a forelgn markeL Lhrough lul
Lx lnLernaLlonal franchlslng branches
conLracLual alllance
@e Strateg|c Log|c be|nd IDI
8esourceseeklng lul
lL aLLempLs Lo acqulre parLlcular resources aL a
real cosL Lhan lL could be obLaln ln Lhe home
counLry
MarkeLseeklng lul
lL aLLempLs Lo secure markeL share and sales
growLh ln a LargeL forelgn markeL
Lfflclencyseeklng lul
lL aLLempLs Lo raLlonallze Lhe sLrucLured of
esLabllshed resourcebased markeLlng
seeklng lnvesLmenL ln such a way LhaL Lhe flrm
can galn from common governance of
geographlcal dlspersed acLlvlLles
SLraLeglc asseLseeklng lul
lL aLLempLs Lo acqulre Lhe asseLs of Lhe forelgn
flrm so as Lo promoLe Lhelr long Lerm sLraLeglc
ob[ecLlve
Locat|on advantages
lL ls Lhe beneflL arlslng from a hosL counLry's comparaLlve
advanLage accrued Lo forelgn dlrecL lnvesLors
Structura| d|screpanc|es
lL ls Lhe dlfferences ln lndusLry sLrucLured aLLrlbuLes
beLween home and hosL counLrles
ners|p advantage
eneflLs derlved from Lhe proprleLary knowledge
resources or asseLs possessed by Lhe owner
ore competence
ls a sklll wlLhln Lhe flrm LhaL Lhe compeLlLors cannoL
easlly lmlLaLe or maLch
urrent @eor|es on IDI
roduct L|fec|e @eor
lL provldes LheoreLlcal explanaLlon for boLh
Lrade and lul
lL ls developed by 8aymond vernon
lL explaln why uS manufacLurers shlfL from
exporLlng Lo lul
Monopo||st|c Advantage @eor
ls Lhe beneflL lncurred Lo a flrm LhaL malnLalns
a monopollsLlc power ln Lhe markeL such
advanLages are speclflc Lo Lhe lnvesLlng flrm
raLher LhaL Lo Lhe locaLlon of lLs producLlon
Interna||zat|on @eor
lL ls an acLlvlLy ln whlch MnL lnLernallzed lLs
global dlspersed forelgn operaLlon Lhrough a
unlfled governance sLrucLure and common
ownershlp
new erspecLlves on lul
u?nAMlC CAAALl1? L8SLC1lvL
uynamlc capablllLlesrefers Lo a flrm's ablllLyLo
dlffusedeployuLlllze and rebulld flrm speclflc
resources ln order Lo aLLaln a susLalned
compeLlLlve damage
LvoluLlonary erspecLlve
1he evoluLlonary perspecLlve of lul clalms
LhaL lnLernaLlonal lnvesLmenL ls an ongolng
evoluLlonary processshaped by an MnLs
lnLernaLlonal experlenceorganlzaLlonal
capablllLlessLraLeglc ob[ecLlves and
envlronmenL dynamlcs
lnLegraLlon8esponslveness
erspecLlve
SuggesLs LhaL parLlclpanLs ln global lndusLrles
develop compeLlLlve posLures across Lwo
dlmenslons
1he Lwo dlmenslons are Clobal lnLegraLlon
and Local 8esponslveness
Accordlng Lo Lhe dynamlc capablllLy perspecLlveldl ls noL a oneLlme
occurencelL ls a dynamlc aLLrlbuLe of adapLablllLy LhaL an MnL possesses
ln con[uncLlon wlLh an undersLandlng of lLs own capablllLles as a company
A slmllar model ls Lhe evoluLlonary perspecLlve whlch suggesLs LhaL as Lhe
company changes lLs paLLern of lul wlll changepresumably for Lhe
beLLer1hls ls drlven by Lhe slmulLaneous developmenL of knowledge
regardlng forelgn markeLs and lncreased amounLs of resources dedlcaLed
Lo Lhose maerkeLs
Clobal lnLegraLlon and local responslveness are lmporLanL Lo large
MnLsbecause Lhelr slze and mulLlnaLlonallLy make coordlnaLlon beLween
subsldlarles complexln generalan MnL wlll emphaslze one of Lhese Lwo
aspecLs over Lhe oLher buL lL ls posslble Lo bulld flexlblllLy lnLo boLh
sLraLegy and sLrucLure
Share of the Iargest recipients of FDI
among deveIoping economies
FD flows into the developing countries are
concentrated in a relatively small number of
countries, such as china in Asia or Poland,
Hungary and Czech Republic in central
Europe. nflows into Latin America and the
Caribbean increased to $90 billion in 2000. in
contrast, the entire of Africa received 1.2
percent of global FD inflows, although
investment in some countries was high in
relation to gross domestic capital formation.
%he %ransnationality of Host Economies
UNC%AD calculated a host economy transnationaIity
index as the average of four shares: FD inflows as a
percentage of gross capital formation, FD inward stock
as a percentage of GDP, value added of foreign affiliates
as a percentage of GDP, and employment of foreign
affiliates as a percentage of total employment.
FD via Mergers and acquisitions (M&As)
n recent years, the proportion of M&As in total FD
has been growing at the expense of greenfield
investments (building new facilities from
scratch). Completed M&As rose in value from
less than $100 billion in 1987 to $720 billion in
1999.
$ummary
1.FD amounts continually increase while the type of
companies engaging in FD is becoming more diverse.
However, FD outflow is overwhelmingly from the triad
countries, mostly into other triad countries.
2.the bulk of FD entering into developing countries goes
to a short list of nations with exceptionally attractive
investment environments.
3.Recently, M&As outpaced greenfield investments given
their advantages such as quicker access to local
markets or better use of local firms established supply or
distribution channels. FD tends to concentrate in limited
areas within host countries, generating uneven benefits.
%HE NVE$%MEN%$ ENVRONMEN%
ith most nations keen on attracting FD, liberalization of
markets and openness to FD have been on the
increase. n the 1991-2000 period, there were a total of
1,185 regulatory changes pertaining to FD across the
globe, of which 1,121 favored investors.
Foreign investments locaion criteria
E$$EN%AL CR%ERA
-Access to skilled and educated workforce
-Proximity to world class research institutions
-An attractive quality of life
-Access to venture capital
MPO%AN% CR%ERA
-Reasonable costs of doing business
- An established technology presence
-Available bandwidth and adequate infrastructure
-Favorable business climate and regulatory environment
DE$RABLE CR%ERA
-Presence of suppliers and partners
-Availability of community incentives
Summary
1. Global competition to attract FD promotes
liberalization of global markets and opening of the world
economic environment. Many countries offer a host of
incentives to foreign investors.
2. For high-tech investors, FD concerns are less related
to natural endowments and turn to creative endowments
such as knowledge infrastructure, access to capital,
consumer purchasing power, and government
incentives.
1he MulLlnaLlonal
LnLerprlse
HA% $ A MUL%NA%ONAL EN%ERPR$E???
%he internationaIIy committed company is a firm with at
least one majority-owned plant or a joint venture abroad but
which lacks representation in all major regions of the world
such as Asia, Europe, and the Americas.
%he internationaIIy Ieaning firm is one with foreign sales
and possibly a representative office and/or a licensing
agreement, but no ownership of foreign production sites.
%he muIti domestic firm is an enterprise with multiple
international subsidiaries that are relatively independent
from headquarters.
%he gIobaI firm consist of closely integrated international
subsidiaries controlled and coordinated from central
headquarters
%he transnationaI firm consists of subsidiaries that fiulfill
varying roles, with some subsidiaries playing a strategic role
that in the global firm is reserved from headquarters.
%he muItinationaI firm, or MNE, according to the OECD, is
"an enterprise that engages in FD and owns or controls
value-adding activities in more than one country. an MNE
typically:
(a) Has "multiple facilities around the globe. According to
the conference board, an MNE owns a majority stake in
plants in North America, Europe, and the pacific Rim.
(b) Derives a "substantial potion of revenues from foreign
operations.
(c) Runs subsidiaries that possess a common strategic
vision and draw from a common pool of resources.
(d) Places foreign nationals or expatriates at the board
level and/or in senior management posts.
%ransnationality - is a principle of carrying out an action across
national borders, so as to have effects at a more general level.
Economic transformation - is where develop nation will shifted to
service economies, their service firms sought to leverage their
scale and resources toward new growth venues in foreign markets.
Example: For instance, Large U.$ airlines such as United and
American entered international routes to serves the increasingly
global destinations of their customers as well as to utilize these
carriers' expertise and cost advantages.
Globalization - is the system of interaction among the countries of
the world in order to develop the global economy.
- nvolves technological, economic, political, and
cultural exchanges made possible largely by advances in
communication, transportation, and infrastructure.
Example: Mc Donalds, P&G, Colgate-Palmolive
Liberalization - refers to a relaxation of previous government
restrictions, usually in areas of social or economic policy.
Communication advance- it is the progress in communication and
computer technologies that MNEs enable to service and to
coordinate knowledge- intensive operations across borders.
Example: Consulting firms can exchange information and transfer
knowledge quickly and efficiently.
$crewdriver plant - A factory that only assembles a product, from
parts that were produced elsewhere. t is use when the host
country often objects that it employee's only low-skilled workers
and/or that it provides no technology transfer.
ntra-firm trade - nternational trade conducted within a firm, as
when a subsidiary of a company exports to or imports from another
subsidiary or the parent company in a different country.
Dynamic capability theory - t is part of a larger program aimed at
understanding the forces that affect business model adaptation and
innovation in technology-based firms.
$trategic capability - is quite simply the capacity of a business to
survive, prosper and deliver future value, t comprises a number of
distinct components.
Example: NE$%L'$
%echnological capability - is the practical application of knowledge
and ideas to develop technological solutions, is central to
technology education.
Financial capability - is a broad concept, encompassing people's
knowledge and skills to understand their own financial
circumstances, along with the motivation to take action.
Learning capability is the capability to generate ideas and acquire
new knowledge.
uLvLLlnC LCnMlLS
r known as uMnL
for years Lhe Lerm MnL was synonymous wlLh large flrms
from developlng naLlons
Many uMnL sLarL by compeLlng on prlce uslng
ln1L8MLulA8?" Lechnology LhaL ls noL cuLLlng edge buL
represenLs sufflclenL lmprovemenL over local sLandards ln
developlng markeLs
ln Asla and easLern Lurope uMnLs represenL a
conslderable proporLlon of lul ong kong
and 1alwan are Lhe largesL forelgn lnvesLors ln
malnland chlna whlle Slngapore and souLh
korea are ma[or lnvesLors Lhere
1op 3 largesL MnLs from developlng
economles 1999
Iore|gn
assets
@-I orporat|on econom |ndustr
1 24 uLchlson Whampoa LLd ong kong
Chlna
ulverslfled
2 30 eLroleos de venezuela venezuela eLroleum
expl/ref/dlsLr
3 10 Cemex SA Mexlco ConsLrucLlon
4 39 eLronaseLrollam
naslonal erhad
Malaysla eLroleum
expl/ref/dlsLr
3 34 Samsung CorporaLlon korea
8epubllc
ulverslfled/
1rade
uMnL lndusLrles
ln sharp deparLure from developed counLry
MnLs largesL groups conslsLs of dlverslfled
flrms whlch ls especlally Lrue ln Asla
1op 3 lndusLry composlLlon of Lhe largesL
MnLs from developlng economles
ulverslfled
lood and beverages
ConsLrucLlon
eLroleum expl /ref / ulsLr
LlecLronlcs and elecLrlcal equlpmenL
uMnLs obsLacles ln enLerlng forelgn
markeLs
esource constra|nts lack of repuLaLlon and brand
recognlLlon Lhese obsLacles can be surmounLed vla an
alllance wlLh a developed counLry MnL aL Llmes selllng Lhe
producL under Lhe MnLs name
Lack of kno|edge uMnLs lack experlence ln forelgn
operaLlons Many do noL possess Lhe producLlon markeLlng
and managemenL skllls LhaL are necessary ln compeLlLlve
lnLernaLlonal markeLs
A Se|tered nv|ronment uMnLs have been shelLered ln
Lhelr domesLlc markeL for a long Llme 1hey ofLen had
domesLlc monopoly or a huge cosL advanLage Lhanks Lo
proLecLlonlsL measures and dld noL have Lo develop globally
compeLlLlve producLs
uMnL AdvanLage ln Clobal MarkeLs
ome Government Support a ma[or reason for Lhe supporL ls Lhelr
lmpacL of Lhe uMnL on Lhe naLlonal economy CovernmenL supporL ls a
Lwoedged sword however lL shlelds Lhe flrm from Lhe makeLplace
Lhereby acLlng as a damper on lLs capablllLy developmenL 1he prlce for
Lhe supporL ls ofLen governmenL lnLerference ln such key declslons as Lhe
domaln and locaLlon of lnvesLmenL hence llmlLlng Lhe sLraLeglc freedom
of Lhe flrm
I|ex|b|||t whlle reduclng scale advanLages Lhe lower producLlon scale
of Lhe uMnL permlLs flexlblllLy and adapLaLlon LhaL are crlLlcal ln
lnLernaLlonal markeLs uMnLs develop a compeLlLlve advanLage ln Lhelr
ablllLy Lo medlaLe" Lechnologles for use ln developlng markeLs by
downscallng slmpllfylng subsLlLuLlng local lnpuLs and lncreaslng Lhe
labor lnLenslLy of producLlon
leaLures of uMnLs
Internat|ona| patterns reasons Lo pursue forelgn Lrade and lnvesLmenLs
1 1o develop ownershlp advanLages
2 1o serve as lnLermedlarles
3 1o overcome lmporL quoLas ln developed markeLs
4 1o reduce rlsk vla dlverslflcaLlon
Iocus on oter deve|op|ng market uMnLs are more llkely Lo have a greaLer share
of lul ln oLher developlng markeLs where Lhelr comblnaLlon of lnLermedlary
Lechnology and low cosL provlde a compeLlLlve advanLage
e||ance on t|rd part|es Lo compensaLe for Lhelr resource shorLage uMnLs
Lend Lo heavlly rely on oLher enLlLles ln Lhelr lnLernaLlonal acLlvlLles
Governance uMnLs are less llkely Lo be publlcly Lraded and are ofLen LlghLly
conLrolled by a foundlng famlly or Lhe governmenL
Industr doma|n uMnLs are more llkely Lo be ln manufacLurlng sLarLlng wlLh
laborlnLenslve producLlon and gradually movlng lnLo Lechnologlcal and markeLlng
lnLenslve producLs ofLen based on lmporLed Lechnology
arga|n|ng poer uMnLs someLlmes have bargalnlng power lnLrareglonally A uMnL
advanLage ls LhaL lL ls ofLen percelved ln oLher developlng economles Lo be less
lnLlmldaLlng Lhan developlng economles Lo be less lnLlmldaLlng Lhan developed counLry
MnLs
Strateg uMnLs are more llkely Lo compeLe on prlce Lhan on producL dlfferenLlaLlon
AcLlvlLy ofLen beglns wlLh manufacLurlng for prlvaLe brands and conLlnues wlLh lowend
branded producLs
Cralg and uouglas ouLllne slx sLraLegles LhaL MnLs from developlng economles can
pursue
1 Locost commod|t where a flrm compeLes only on prlce and exporLs
ouL of lLs domesLlc base
2 Manufacture for pr|vate |abe| where company manufacLures a producL
bur sells lL under a reLallers brand name
3 omponent manufactur|ng where company manufacLures lnpuLs Lo be
assembled and markeLed
4 Lo cost |eader where Lhe emerglng markeL MnL sells an assembled
producL buL compeLes on cosL
S I|rstgenerat|on tecno|og focuses on markeL characLerlsLlcs slmllar Lo
lLs domesLlc markeL
6 A spec|a||zed n|ce wheLher ln a glven counLry or reglon or worldwlde
1L SMALL Anu MLuluMSlZL
ln1L8nA1lnAL Ln1L88lSL
WhaL ls an SMlL?
A common deflnlLlon of small buslness ln Lhe unlLed SLaLes ls
a flrm wlLh fewer Lhan 100 employees and less
Lhan $3 mllllon ln annual revenues Mldslze flrms accordlng
Lo Lhe Conference oard are flrms wlLh annual
revenues ln Lhe range of $100 Lo $300 mllllon AlLhough Lhls
may sound llke a loL keep ln mlnd LhaL large MnLs
are ln a dlfferenL league SML lnvolvemenL ln lnLernaLlonal
buslness ls llkely Lo grow rapldly ln Lhe comlng
years especlally ln servlces and LechnologyrelaLed areas Lhe
fasLesL growlng secLors ln Lhe company where
SMLs Lend Lo be concenLraLed 1helr poLenLlal ls sLlll largely
unLapped
Slze and lnLernallzaLlon
ln one sLudy only a quarLer of SMls consldered Lhelr slze a consLralnL
lndeed Lhe fasLesL exporL growLh occurred among very small buslnesses
Lhose wlLh fewer Lhan 20 employees 1hese flrms made up 63 percenL of
all uS exporLlng flrms ln 1997 up from 39 percenL ln 1992 Lven among
flrms wlLh sales of $1000$99000 almosL half were exporLlng Lher
sLudles however suggesL slze maLLers Lven among small lnLernaLlonal
flrms Lhe larger Lhe flrm Lhe more llkely lL was Lo engage ln lnLernaLlonal
buslness and Lo have an lnLernaLlonal buslness and Lo have an
lnLernaLlonal sLraLegy Slze was slgnlflcanLly correlaLed wlLh exporLs 82
percenL of larger (more Lhan $30 mllllon ln sales) flrms were exporLers
versus 48 percenL of Lhe small flrms Mldslze flrm seem Lo have an
especlally approprlaLe balance of slze and aglllLy for an lnLernaLlonal
operaLlons 1he Conference oard found LhaL such flrms reporLed a
slgnlflcanL percenLage of forelgn sales and early manufacLurlng presence
overseas lorelgn sales accounLed for 22 percenL of LoLal annual Lurnover
for flrms ln Lhe mldslze caLegory Small lnLernaLlonal flrms grew Lhree
Llmes as fasL as companles Lhelr slze LhaL dld noL lnLernaLlonallze and
Lwlce as fasL as Lhe large MnLs 1hose wlLh sales below $100 mllllon grew
aL an annual raLe of 67 percenL wlLh a 33 percenL annual reLurn ln Lhe
19861991 perlod
bsLacles Lo SMlL lnLernaLlonallzaLlon
Sca|e and @ransact|on onstra|nts
1he small scale and llmlLed reach of Lhe SMlL consLraln lLs producLlon and servlce dellvery opLlons and cosLs
1he LransacLlon cosLs of Lhe SMlL are subsLanLlally hlgher Lhan Lhose of Lhe large MnL
Access to ap|ta|
An lmporLanL roadblock on Lhe lnLernallzaLlon rouLe for Lhe SML ls shorLage of caplLal and lLs correlaLes ubllc
lnsLlLuLlons [udged flnanclal sLrengLh Lhe slngle mosL lmporLanL problem for lnLernaLlonallzlng SMLs
Lack of kno|edge
A crlLlcal resource for SMLs enLerlng forelgn markeLs ls knowledge Lacklng a Lrack record ln
exporLlng and forelgn lnvesLmenL such flrms usually do noL process Lhe relevanL knowledge
ranglng from how Lo conducL markeL research on forelgn locaLlons Lo how Lo address currency
flucLuaLlons
Lack of Market oer
Lack of markeL power ls anoLher key deflclency for smaller flrms whlch
ofLen flnd Lhemselves powerless agalnsL Lrade barrlers 1hey are Loo
small Lo bargaln wlLh local governmenLs and cannoL producL Lhe large
quanLlLles LhaL would Lrlgger local suppllers Lo manufacLure Lo Lhelr
speclflcaLlons 1hey are also very vulnerable Lo Lrade barrlers
Iu|nerab|||t to Inte||ectua| ropert I|o|at|ons
uS SMlLs are very concerned wlLh lnLellecLual properLy rlghL
such as paLenLs copyrlghLs and Lrademarks 1hls
lssue ls parLlcularly lmporLanL Lo SMlLs because Lhey are
overrepresenLed ln hlghLech areas buL lack Lhe
resources Lo pursue vlolaLors across Lhe globe
SMlL AdvanLages ln lnLernallzaLlon
1he many obsLacles noLed prevlously noLwlLhsLandlng SMlLs have been
successful ln Lhe global markeLplace
owlng Lo a number of dlsLlncL advanLages lnnovaLlveness creaLlvlLy
enLrepreneurlal splrlL lower overhead
cosLs and Lhe ablllLy Lo move fasL Lo Lake advanLage of new opporLunlLles are
all lmporLanL facLors ln Lhe global
markeLplace and are relaLlvely common aL SMlLs
SMlL lnLernallzaLlon leaLures
Interna||zat|on Mot|vat|on
A survey ldenLlfled a number of drlvers of SML lnLernallzaLlon lncludlng push facLors pull facLors
managemenL facLors and chance 1he push facLors are compeLlLlve pressures ln lLs domesLlc markeL whlch
push" Lhe SML Lo lncrease Lhe scale of lLs operaLlons vla exporLs so as Lo reduce unlL cosL or Lo reduce lLs
labor
cosLs by movlng operaLlons Lo lowcosL counLrles AnoLher push facLor ls decllne ln domesLlc demand
ManagemenL facLors lnclude managerlal commlLmenL and resources devoLed Lo lnLernaLlonal acLlvlLy llnally
chance facLors are unforeseen clrcumsLances LhaL creaLe lnLernallzaLlon opporLunlLles Accordlng Lo Lhe survey
flndlngs when SMlLs lnvesL ln oLher SMLs managemenL and chance facLors are Lhe mosL lmporLanL followed
by push facLors
Interna||zat|on atterns
ConLrolllng for lndusLry slgnlflcanL dlfferences have been found beLween Lhe forelgn expanslon
sLraLegles of large and small flrms SMlL lnLernallzaLlon ls ofLen noL lncremenLal newer hlgh
Lech small flrms ln parLlcular Lend Lo"leapfrog" lnLo lnLernaLlonal markeLs before galnlng a
fooLhold ln Lhelr domesLlc markeLs 1hls has been found Lo be Lhe case for small sofLware flrms
Lher SMlLs go Lhrough a number of sLages buL follow a dlfferenL rouLe Lhan LhaL of large MnLs
ofLen sLarLlng wlLh lnward lnvesLmenL before movlng Lo ouLward lnvesLmenL
SM- xporter rof||e
1he Lop Len markeLs for uS SMlL exporLers are Canada Lhe unlLed
klngdom !apan Mexlco Cermany AusLralla ong kong lrance
1alwan and Slngapore
naLure of lul by SMlLs
mpas|s on Deve|oped Markets
When engaglng ln lul SMlLs are more llkely Lo lnvesL ln developed raLher Lhan developlng markeLs ln lu[lLa's
sLudy 80 percenL of SMlLs locaLed ln developed counLrles osL counLry red Lape economlc lnsLablllLy hard
currency resLrlcLlons procuremenL dlfflculLles and lack of domesLlc bank supporL were among Lhe reasons why
SMlLs avolded lnvesLmenL ln developlng markeLs
Se|ect|ve G|oba||zat|on
SMlLs Lend Lo focus on one llnk ln Lhe supply chaln as on a selecLed markeL ln one sLudy 17 percenL of Lhe
large flrms exporLed Lo more Lhan 30 counLrles versus none among Lhe small and medlumslze flrms
Strateg
SMlLs ofLen adopL nlche sLraLegles pursulng areas LhaL are noL covered by large flrms due Lo neglecL lack of
experLlse or hlgh cosL sLrucLure 1he lndusLry ox provldes such an example lnvesLmenL Lends Lo be ln
medlum
Lechnology lndusLrles because Lhe scale provlded by globallzaLlon ls especlally lmporLanL ln Lhls secLor ln
maklng lnvesLmenL declslons SMlLs are unllkely Lo be moLlvaLed by hosL counLry lncenLlves whlch ls noL
surprlslng glven Lhelr lack of markeL power owever SMlL lnvesLmenL ls less llkely Lo Lrlgger Lhe vlslblllLy and
Lhe resenLmenL LhaL someLlmes accompanles lul SMlLs rely more on cooperaLlve sLraLegles ofLen as a resuly
of
Lhe local parLner lnlLlaLlve Lo compensaLe for a resource shorLfall 1hls ls parLlcularly Lrue for Lhose wlLh
experlenced managemenL LlsLs effecLlve exporL sLraLegles for small flrms as follows compeLlLlve prlclng and
brand ldenLlflcaLlon speclalLy producL manufacLurlng Lechnologlcal advanLage and superlor cusLomer servlce
LxplolLlng nlche markeLs ls also very lmporLanL Smaller flrms ofLen wenL Lo abroad ln order Lo avold dlrecL
compeLlLlon wlLh large MnLs 1hls led Lhem Lo develop depLh narrow experLlse LhaL may be useful ln
developlng
deep nlche" sLraLegles
orn lnLernaLlonal
Some flrms develop an lnLernaLlonal orlenLaLlon very early 1hose lnclude
lnLernaLlonal markeL makers"
namely mulLlnaLlonal Lraders or lmporL/exporL sLarLups and geographlcally
focused sLarLups" whlch uLlllze
Lhelr knowledge of a parLlcular world area 1he mosL advanced form ls Lhe
global global sLarL" or born
|nternat|ona|" a buslness organlzaLlon LhaL from lncepLlon seeks Lo derlve
slgnlflcanL compeLlLlve advanLages
from Lhe use of resources and sale of ouLpuL ln mulLlple counLrles