Impact Of Foreign Direct Investment Theories On National Economic Prosperity
The various aspects associated with Foreign Direct Investment or FDI have been evaluated as well as explored a long time ago. However, in the past, the impacts and the determinants associated with Foreign Direct Investment were described hypothetically without providing empirical pieces of evidence. As time passed, econometric models files and conditions were utilized for discovering the observational outcomes (Froot, 2008).
Besides that, the survey given underneath spreads both the preliminary and hypothetical reviews regarding the matter after various approaches. It provides a list of theoretical determinants of FDI to the effect of FDI on financial development as well as worldwide exchange. Foreign Direct Investment can be considered as the growth of classical theories of international trade. It was an early concept and is originally rooted in economics.
Moreover, the first attempt at explaining the Foreign Direct Investment was considered as Ricardo's theory of comparative advantage (Brakman and Garretsen, 2008). The development of the concept of capital for international trade due to the variety of resource requests between the nations is based on Heckscher-Ohlin theory. Heckscher-Ohlin theory is built on David Ricardo's theory of comparative advantage by forecasting patterns of manufacture and commerce regarding the factor legacies of the trading region.
According to this particular model, the countries will export products and these products will utilize their competitive and profuse factors of production as well as import products that use the scarce factors of countries (Foreign direct investment and development, 2004). Nevertheless, Foreign Direct Investment cannot be explained and described by Ricardo's theory because it is based on two products, two countries as well as a perfect mobility of factors at the local level. Such model could not even allow FDI. During the year 1960, the microeconomic theory of international production was introduced.
The method was proposed by Stephen Herbert Hymer. According to this theory, the reasons for internationalization of organizations are two kinds such as variables which are the outcomes of existence failures in market and variables connected to the ownership and dimension of an organization of particular advantage. FDI just happens when the benefits of abusing firm-particular points of interest (FSAs) crosswise over fringes authorizes defeating the extra expenses of working together abroad (Foreign Direct Investment, 2012). As per Hymer's thoughts, it has been contended that MNEs have firm-particular inclinations permitting them to work productively in separate nations. Heledd Straker has four disagreements. These disagreements were also distinguished by Hymer:
- Based on the old theory, it was suggested that the capital flow was one directional. One directional means unique way. It means that the capital flows from developed countries towards underdeveloped nations. However, in the real word after the war period, Foreign Direct Investment became two-way among the developed countries.
- The level of outward Foreign Direct Investment or FDI was found to vary between the industries. It means that if the capital availability was the driver of FDI, then there should be no variation. The reason behind this is that all industries would be equally proficient and motivate to invest in international markets (Kalamova and Konrad, 2010).
- A country was supposed to involve either in external FDI or receive FDI only. In the meanwhile, Hymer found that Global Multinational Enterprises migrated in either direction across national boundaries in industries in industrialized nations. It means that those particular countries received inward and engaged in external Foreign Direct investment.
- As foreign subsidiaries were financed locally, it did not fit that capital moved from one nation to another.
Besides, as proven by Hymer and as referred to by Aliber, there are two clarifications behind organizations getting the chance to be MNEs. Initially, the companies got the opportunity to be multinational enterprises since they have a competitive advantage (Ziying, 2014). They practice this competitive edge in different countries remembering the right objective of helping their productivity.
Secondly, some ventures on account of their engaged structure would motivate organizations to internationalize more than those in various agencies. Soon, these benefits must not be available to companies belonging to host countries on unclear terms and expenses from to the source-country organizations. According to Caves, the upgrade of products is a key influencing factor. He stated that Foreign Direct Investment could be named conglomerate, horizontal and vertical.
The vertical category can be further subdivided into backward and forward. Vertical FDI incorporates a geographical decentralization of production chain of a company, where outside partners in poorer countries ordinarily make good work intermediates that are dispatched back to high-wage countries, routinely to the parent organization itself. Moreover, vertical FDI is sooner or later implied as market-seeking FDI.
The name is given because the primary motive for the investment is to develop the cost effectiveness of the production of a company (Kojima, 2013). Also, vertical FDI can take two structures. There is backward vertical FDI into an industry abroad that offers commitments for the internal production procedure of a firm. Unquestionably most backward vertical FDI has been in extractive endeavors, for example, oil extraction. The second form of vertical FDI is forward vertical FDI in which an industry abroad offers the yields of an organization's particular production procedure.
On the other hand, horizontal FDI conveys a similar product in various plants as well as local service markets with the help of output partner rather than through exports from the original country of multinational enterprise (Makoni, 2015). This kind of FDI is now and again insinuated as market-seeking FDI. The FDI inflows to established countries are regularly horizontal investments driven by market seeking methods.
They have a tendency to extend the workforce of domestic production of the countries of origin. Horizontal investments rehash the aggregate manufacturing process of the country of beginning in a remote country. Besides, multinationals convoluted into extraction or usage of trademark resources are yet another case of FDI where there is no other choice to the adjacent intimacy of the firm. Legacies of waterfalls, forest, gas, oil and minerals may be the most fundamental interest for overall investment in different emerging countries. Buckley and Casson conceptualized the internalization theory.
In the literature of international business, the market renunciations approach to manage FDI is typically implied by internalization theory. Also, market imperfections made the opportunity to camouflage trades inside a firm (Eregha, 2012). As opposed to coordinating business remotely between two companies specifically countries, it appeared to be well and great to rather enlarge benefits by cooperating inside transversely over political points of confinement. Two things are essential now; firstly firms would pick the base cost zone and second the firms would camouflage until the price surpassed the preferences.
There is another current theoretical development which analyses the form and origin of internationalization. It is based on the product life cycle of a particular product. In the mid-1960s, Raymond Vernon initially proposed this theory. He debated that often the similar companies that operate a product in their home markets undertake that the companies go through an introductory phase. The preparatory phase is followed by maturity, growth along with the decline phase.
Apart from it, the product remains in certain stages during a particular interval of time is a function of a variety of factors. According to the observations of Vernon, the organizations undertake FDI at distinct steps in the product life cycle they have initiated. Meanwhile, the organizations launched old products in new markets. They capitalize in other improved countries when local demand in those countries increases large enough to support the local production.
The organizations consequently shift production to the developing nations when the standardization of product, as well as market saturations, give rise to cost pressures along with price competition. In developing countries, investment is significant. The company should invest in such place of a developing country where labor cost is lower and is seen as the best method of cost reduction.
Therefore, foreign direct investment in the following phase of the product lifecycle will be export based, motivated primarily by considerations of cheap labor. In the decline stage of product life cycle, the country which innovates product becomes the net importer of the products. Conversely, product life cycle theory fails to explain the reason behind the profits firms is making to undertake FDI at such times. The theory of Vernon is applicable for some products, but it is appropriate for the vertically integrated multinational companies. According to some critics, sometimes entrepreneurs buys external resources before launching the products.
The increase in direct investment flows has laid the foundation for the marked development of international production by transactional corporations (Kristjánsdóttir, 2010). Based on the research, it has been estimated that 3.4 million dollars are invested in about four hundred and fifty million foreign companies throughout the world. The sales value of these foreign companies has increased more rapidly than that of international trade which reached an estimate of ten billion dollars. As FDI streams have developed in volume, they have similarly turned out to be all the more scattered among home and host nations. Powered nations as a gathering similarly draw in the more prominent extent of such venture, yet their share is disintegrating as creating nations turn out to be progressively alluring goals for speculation.
How Can Managers Resolve The Conflicting Needs Of National Growth And Their International Corporate Strategy?
Conflict in the organisation is inevitable fact. While two or more social identities have the variety of attitudes, morals, thinking, and etc. few negative behaviour repeatedly happen over time and cause of some kinds of misunderstanding lead to the conflict. In recent times conflicts in working area are very much familiar. Now it is normal and natural for our society. Conflict have that power to make necessary changes in home and workplace.
As a result of unsolved conflict unhappiness, mind dis-restless, dissatisfaction, hopelessness, and depression seen among the employees. Unsolved conflict leads to the dissolution of relations, aggression, resignation from jobs, physical and mental withdrawal, violence, etc. But it doesn't hamper the productivity. There is lots of option to control the conflicts and maintain the peace in the workplace.
Conflict can damage the productivity and the organisation's environment. It is a painful reality of all organisation. Conflicts get worse when it ignores. Magically it doesn't solve. Conflicts in workplaces are easily detected whereas others conflicts are not seen too much. Cheap pranks, irritating events, negative attitudes, misbehave among the employees' forms conflicts in the workplace.
Mainly conflicts occurred in the senior level of the organisation. Kind of involvements is important for these specific conditions. Any disputes in the office, effects on the productivity, kind of threat among the employees need to share of spoke of. A degree of tolerance depends on the situation dealing with or interference. A threat or expression needed while the production is hampered in the office among the employees.
When the minor exchange of sentence or words happens between the employees, then the manager may not give importance to it. These activities became the big issue between the employees as per the use of those word on a daily basis. Prompt action is needed when one employee threat another in the office. It may build a conflict among them. Conflict is a perception of various interest within people.
The parties in a company give rise to conflict about the delivering of resources, in another hand, they may have some issues to take the structure of the organisation. In the case of goal incompatibility, conflict develops because of their dynamic fashion, much needed constructive modification and destructive consequences.
Various types of conflict seen in the workplace. These are originated by the individuals. The base of the conflicts totally depends on the relationship between individuals. Conflicts occur due to the interaction with the individuals. The most difficult part is to analysing and manage the conflicts. Conflicts occur when two different or incompatible tendencies are evoked by a stimulus. Individual need to choose any one among those tendencies.
In this condition, the person has to experience frustration, and that condition provokes the individuals to do excessive drinking or destructive behave. Intrapersonal conflicts are generally between two incompatible tendencies. Interpersonal conflict enhances the human interaction elements in a workplace. Two different classes are present as the elemental source of conflict- (a) Personal & (b) functional.
(a) Personal: individuals are not- identical, constant. Communication between the person with different attitudes, morals and necessity can build the conflict behaviour and affected the working environmental of an organisation.
(b) Functional: in an organisation, everyone behaves in a particular way according to their position.Few basic rules or guidelines are needed to solve any conflict. The manager has to concentrate on the conflicts as well as in the other problems. Few steps are followed to erase the conflict from the tan organisation. These are- establish guidelines, keep the open communication, act decisively, etc. few guidelines are accepted by the individuals before participating in any formal meetings. They are ordered to behave calmly. At the time of any conversation react unemotionally as much as possible with individuals in the workplace. They have to understand each other's point of view. Violence in the office or ignore the guidelines are the punishable offence for employees or individuals.
To solve the conflict is the best way to end up the conflict through an open and free conversation. Both of them should express their point of view with each other as well as their perspectives. Discussion about the cause of the conflict is the ultimate goal to eradicate the conflict from the organisation. On should gather information as per free time, communicate with people, and understand the proper objectives of the individuals.
Make a healthy decision and act in a proper body language and try not to leave the issue or problem in the middle of the way. A lengthy conversation may damage one's decision and the view of you towards him. The opposition may take you as weak to solve that problem. Lots people argue about your decision or not ready to agree with you. Your decision makes them understand the point of view of yours. To avoid the conflict, anyone should not argue with his or her supervisor, manager. Always Act as per the situation need. You should maintain the politeness and soft-spoken behaviour in front of senior of that organisation. Learn to change the thing if possible and accept that which can never change.
Benefits of Conflict Management in A Workplace:
The most fundamental conflict has the potentiality to choose the mode of conflict, which will be the most creative for a situation. The presence of personality conflict in an organisation shows that they have a powerful negative consequence in the workplace that should be avoided. Conflict turn into personal conflict while the people try to concentrate on the faults of them than the substantive conflicts.
People got frustrated and irritated and busy to blame each other, express anger, and stored negativity in their mind. Those negative emotions are lead to interfere with the making of decision, cohesiveness, and reduction of job satisfaction. The organisation should identify the correct issue of a specific conflict. The next stage of skill includes successful implementation of conflict –controlling mode that they have chosen.
Teamwork is an important element to make decisions. To solve the collaborative problems conflict management programme confirm the people to learn the key skills. The last level of skills including low costs, negative consequence, they have chosen. Some collateral damages are accepted when the manager is less skilled. The manager should be knowledgeable how to solve an issue without being tensed, how to complete the necessity without annoying the people, gather knowledge about accommodating.
Human resource department can train the conflict management or organise the training programme. These programs are held to improve the conflicts of an organisation. Only the human resource department can take the chance to help with their programme. After Looking the condition of the organisation, they have made the management of conflicts. Which is mainly used to clean the organisation's conflict among the employees.
Each organisation have their mind-set according to their working environment. That is why the conflict of individuals changes as per the organisation's mind set up. The different cultural state allows performing a different kind of conflicts in a population. The prevailing mind-set of an organisation gives raise to the conflict which is a threat to the relationship, and team cohesiveness. Conflicts should be avoided if it is possible.
Conflicts can damage an organisation from very depth. Most of the organisation show conflict by their power. They should avoid that type of conflict. Competitive stanza is essential to protect the position of one's. Still, now other organisations show the concession and sacrifices to dissolve the conflict. Group conflict mainly damages the team-works of an organisation. Conflict management has to understand the issue first then an open conversation needs to perform.
By this performance management can handle the conflict situation of the organisation. Well behave, better understanding, open communication is the best way to erase various types of conflict from an organisation. Human resource management work on the conflict issue behalf of the organisation. During the training session, they teach how to decrease conflict mentality in the office or workplace.
If these agendas are performed well, then the organisation should be conflict free. The manager plays a major role in this case. They can handle this situation if they have proper training. Managing something like behaviour issues that give rise4 to the conflict or anything are the responsibility of a skilled manager. Some programmes are very much helpful against the conflicts otherwise, the growth of an organisation became ruined.
To save the organisation from the internal conflict of the employees or individuals to maintain few guidelines as much as possible. Apart from these there are few factors work on the conflict issue. Conflict is a delicate matter, should solve by the care and huge understanding. Better understanding between the employees and the senior officer can cut the head off the conflict. All the associates of an organisation should careful about the organisation's rules, regulation and guidelines. These are going to help an organisation to be conflict free and make the organisation's working environment clean.
Brakman, S. and Garretsen, H. (2008). Foreign direct investment and the multinational enterprise. 1st ed. Cambridge, MA: MIT Press.
Eregha, P. (2012). The Dynamic Linkages between Foreign Direct Investment and Domestic Investment in ECOWAS Countries: A Panel Cointegration Analysis. African Development Review
Foreign direct investment and development.
Foreign Direct Investment. (2012).
Froot, K. (2008). Foreign Direct Investment. 1st ed. Chicago: The University of Chicago Press.
Kalamova, M. and Konrad, K. (2010). Nation Brands and Foreign Direct Investment*. Kyklos