The Impacts of International Expansion by Foreign Direct Investment - Essay Example

Prior to the 1960s, it was generally perceived that international expansion would flow primarily from countries with capital abundance into countries with little capital. Foreign Direct Investment (FDI) in the 1950s was primarily occurring among businesses in Western Europe and North America. The result was international expansion was limited to the extent that capital was not shared globally (Oxelheim and Ghauri 2004, p. 323). Essentially, developed countries dominated both the source and host venues for FDI flows.

With the expectation that a number of Central and Eastern Europe (CEE) countries will eventually become members of the European Union, several questions relative to the impacts of international expansion in Europe arise. The first question is whether or not this prospect will contribute to European internationalization via FDIs. This paper investigates this question since Europe represents a unique conglomeration of developed and developing countries, an essential feature of internationalization.

The main objective is to ensure that developing countries share in international capital flows. Another relevant question for investigation is whether or not FDIs will introduce the skill and capital necessary for modernizing CEEs in Europe or will it encourage monopolies and rent-seeking practices. If the FDI can be beneficial in terms of internationalization in Europe, what factors are essentially fueling its development and growth and what can European countries do to make the FDI more appealing?

Ideally, the impact of internationalization by FDIs in Europe should be the supply of cheap labor with a reciprocal infusion of capital for the funding of privatization and industrialization (Morgan, Kristensen and Whitley 2003, pp.43-44). In this regard, Western European and other foreign companies would assist in the transitioning of these socialist states to open-market economies by not only providing investment capital but by virtue of technology and management transfers.