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Theories of Internationalisation and Relevance in Explaining Global Patterns of Foreign Direct Investment - Essay Example

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Economic activities crossing the boundaries of countries have been taking place long before the current trend of globalisation. This paper shall now discuss the theories of internationalisation and its relevance in explaining the global patterns of foreign direct investment (FDI). …
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Theories of Internationalisation and Relevance in Explaining Global Patterns of Foreign Direct Investment
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Download file to see previous pages In effect, countries can gain profits if they direct their activities to the generation of products and services which are most profitable. This theory relates the situation where a country creates products and services for its people, and for export in terms of surplus. As a result, it is favourable for countries to import the products and services where they also have an economic disadvantage (Morgan and Katsikeas, 1997). The economic advantage and disadvantage may be based on differences in available resources, labour, and technology. The classical theory argues that the foundation of international trade would come from the differences in the qualities of production and available resources which are also based on differences in natural and acquired advantages (Morgan and Katsikeas, 1997). Another theory of internationalisation contrasts with the classical trade theory. The factor proportion theory discusses that countries usually produce the export products and services which support significant production advantages that they have, and they will import the products and services which would need large scores of production factors that may be limited (Hecksher and Ohlin, 1933). This theory supports the idea of economic advantage by evaluating the endowment and costs related to factors of production (Morgan and Katsikeas, 1997). The above theories do not completely explain the current trends in international trade. For one, the rise of technological development and of multinational corporations during the 1960s called for new theories on international trade. At such time, the product life cycle theory relating to international trade was considered a significant basis in explaining trade patterns and MNC expansions (Morgan and Katsikeas, 1997). Such theory...
This essay stresses that financial arbitrage is also another opportunity for securing strategic flexibility for FDIs. MNCs can circumvent the restrictions imposed by the host government, mostly those which relate to finance, remittance, and foreign exchange in order to secure and support their new and innovative products. Another opportunity relates to the transfer of information. Flexibility ensures that MNEs can benefit from the act of singling out available opportunities, assessing the world markets to match the involved buyers and sellers and avoiding the barriers to effective trade relations.
This paper makes a conclusion that based on the above discussion, the theories of internationalisation like the classical trade theory acknowledges the fact that trade relations and investments are dictated by the needs of investors and of the consumers. Where the need is great and the profit would best be gained, the FDIs would likely be made. The current global trends in investments indicate how the emerging economies have manifested the greatest need and the most profit for investments, for which reason investors have directed their economic activities to these areas. The internationalisation theory generally indicates how the current trends in the economy are gravitating towards more open forms of trade and economic relations. These FDIs are but another manifestation of internationalisation, and these investments would likely find bigger avenues for investment in the years to come. ...Download file to see next pagesRead More
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