Hymer and Foreign Investment

1. Hymer gives three reasons (one of which he considers a minor reason) as to why companies might engage in foreign direct investment. The first major reason is that companies may want to participate in more than one market in order to eliminate competition that would otherwise exist between the two markets. The second major reason for foreign direct investment is that companies may have a particular strategic advantage in a given industry and can exploit that advantage by participating in foreign operations. The third reason, which Hymer cites as a minor factor, is to provide diversification. Hymer considers this a minor reason since control is not actually involved in this factor, although in the increasingly global markets which have evolved since Hymer first postulated his reasons, diversification may be considered by some to be a major factor today.

At the time that Hymer was developing his theory of foreign direct investment, such activities were particularly common in commodities (such as copper and aluminum). Hymer points out that such commodities favor a few producers (because of the capital investment required to extract the commodities) and typically only a few buyers. Hymer provides the example of a relatively small amount of copper being discovered and suggests that this would pose an attractive foreign direct investment opportunity for other copper producers. These producers would have the capital and the infrastructure in place to take advantage of the

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Category: Economics - H