Caves (1996)

Management > Global Firm > Lectures > Independent Research > Caves > Failure of P assets > OLI and transaction costs > Hypothesis > Factors and Barriers

Factors for Investment and Barriers to entry

Factors for investment

Firms invest abroad to create or maintain proprietary assets. R&D, for example, is a strong motivation for foreign investment, as is skilled managerial labour, and multiplant operations in large countries. Pp8-9

Barriers for Entry
“Extensive scale economies in production deter the dispersion of plant operations and thus retard foreign investment.” However, this hypothesis is not strongly supported.

There are conditions required for FDI: Pp9-11
1. Development of proprietary assets.
2. Adversary reaction between source and host country assets. @@
3. Foreign investment to augment proprietary assets – to take advantage of a host country’s assets to improve your own
4. International mobility of proprietary assets – firms with advertising assets are quite mobile and will invest, whereas firms with efficient and complex distribution systems are less mobile and less likely to invest, as they are harder to replicate elsewhere.
5. Evidence from market valuations of firms – information on the stock market. @@

FDI

Hymer on FDI

Further comments on FDI