International Business: Environments and Operations

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International business can be defined as the study of multinational companies. One of the first scholars to engage in developing a theory of multinational companies was Stephen Hymer. Throughout his academic life he developed theories that sought to explain foreign direct investment and why firms become multinational. There were three phases in Hymer’s work. The first phase was his dissertation in 1960 called the International Operations of National Firms. In this thesis, Hymer departs from neoclassical theory and opens up a new area of international production. At first Hymer started analyzing neoclassical theory and the financial investment wherein the main reason for capital movement is difference in interest rates. Then he started analyzing the characteristics of foreign investment by large companies for production and direct business purposes, calling this Foreign Direct Investment. By analyzing the two types of investments Hymer distinguished financial investment from direct investment. The main distinguishing feature was control. Where in portfolio investment is a more passive approach, and the main purpose is financial gain, with foreign direct investment a firm has control over the operations abroad. So the traditional theory of investment based on differential interest rates does not explain the motivations for FDI.

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