In a moving world, we need to find a way to keep our financial security in check. Thats where investment comes in, even if we dont use that money we save up, we end up giving our money to one or more firm so they can work on their goals and bring profits not only to their own firm, but also to their investor. One form of investment is Foreign Direct Investment (FDI). Taking definition from Financial Times lexicon, Foreign Direct Investment is an investment from one country that love poker to another that involves establishing operations or acquiring tangible assets, including stakes in other business.
Known as the Father of International Business due to his contribution related to Foreign Direct Investment, Stephen Hymer is a Canadian economist whose research focuses on the activities of multinational firms. The study of Foreign Direct Investment is the subject of his dissertation. Hymer developed a framework which sparked from the large number of investment made by corporations from the United States of America, the framework will be the basis of his theories in order to explain why does the corporations have to invest that much money outside the country.
Hymers theory is focusing on the corporations point of view, he states that there is a difference between capital and direct investments, those difference is the element of control. With direct investment, an investor have a greater level of control over the company. Hymer also said that Foreign Direct Investment is not just a movement of funds to a particular country, but rather it is invested and concentrated to a particular industry in that country. In plain English, Foreign Direct Investment is an investment made to a particular country outside the investors home country. The investment, however, have a greater level of control rather than that of foreign portfolio investment or just stocks. Before Hymers theory, all of the foreign investment were in form of capital movements. The movements of capital are considered to be an effect from the differences between interest rates between the countries. The distinction of capital and mentioned before ends up being Hymers groundwork for his theory. Stephen Hymers theory is considered to be the design of a perfect market structure.
There are some determinants of Foreign Direct Investment, they are firm-specific advantages, which are the capability for a firm to exploit the market flaws which could give the firm an advantage in the competition; removal of conflicts by collusion, that is, sharing the market with rivals or attempting to gain total control of production in the particular industry; and the propensity to formulate strategy to mitigate any risk that maybe imposed upon the firm, which are determined by focusing on the three levels on decision making which are day to day supervision, coordination of management decision, and long term strategy planning and decision making. His conclusion on his theory is that Foreign Direct Investment can only succeed as long there are flaws in the market that can create advantages and disadvantages towards the investing firm.