Introduction
When people think about globalization, they often first think of the increasing volume
of trade in goods and services. Trade flows are indeed one of the most visible aspects
of globalization. But many analysts argue that international investment is a much
more powerful force in propelling the world toward closer economic integration.
Investment, often alters entire methods of production through transfers of know-how,
technology and management techniques, and thereby initiates much more significant
change than the simple trading of goods.
Over the past ten years, foreign investment has grown at a significantly more rapid
pace than either international trade or world economic production generally. From
1980 to
…show more content…
Companies choose to invest in foreign markets for a number of reasons, often the
same reasons for expanding their operations within their home country. The
economist John Dunning has identified four primary reasons for corporate foreign
investments:
Market seeking - Firms may go overseas to find new buyers for goods and services.
Market-seeking may happen when producers have saturated sales in their home
market, or when they believe investments overseas will bring higher returns than
additional investments at home. This is often the case with high technology goods.
Resource seeking - Put simply, a company may find it cheaper to produce its product
in a foreign subsidiary- for the purpose of selling it either at home or in foreign
markets. The foreign facility may be able to obtain superior or less costly access to the
inputs of production (land, labor, capital and natural resources) than at home.
Strategic asset seeking - Firms may seek to invest in other companies abroad to help
build strategic assets, such as distribution networks or new technology. This may
involve the establishment of partnerships with other existing foreign firms that
specialize in certain aspects of