GSM Lecture 2

Management > Global Strategic Management > Comparative advantage > Hymer

Hymer

(For good study of Hymer, see Understanding the Global Firm, lecture 2)

Pre-Hymer, economists did not consider the Multinational Enterprise (MNE) or Foreign Direct Investment (FDI) as a distinct phenomena.

Hymer (1970) argued that firms extended abroad to attenuate competition and to employ the firm's competitive advantage.

Hymer's work began observing the limitations of portfolio capital transfers. Three characteristics of FDI, which differentiated it from portfolio investment) included:

Risk, uncertainty, volatile exchange rates, cost of acquiring information (market imperfections) altered firms' behaviour
FDI involved a package of resources
It involved no change of ownership.

Companies must have a monopolistic advantage which is sufficient to compete with domestic firms. Hymer was fascinated with the power that advantages provided MNEs and studied the implications for resource allocation provided by MNE hierarchies relative to pareto-optimality of perfect markets (See Understanding the Global Firm, lecture 2 for a more detailed explanation)

Limitations

Hymer's study was limited:

He did not compare resource allocation using other modes
He did not examine the role of the MNE in circumventing market failure (as opposed to market imperfections)
He did not at first take into account location advantages
He did not consider internalisation of ownership advantages