FDI Theories in Analyzing International Expansion Decisions

Running head: FDI THEORIES IN ANALYSING INTERNATIONAL EXPANSION
FDI Theories in Analyzing International Expansion Decisions
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1FDI THEORIES IN ANALYSING INTERNATIONAL EXPANSION
Table of Contents
1. Introduction......................................................................................................................2
2. FDI Theories in Understanding International Expansion Decisions of Emerging Market
Multinationals1250..........................................................................................................................2
2.1. Dynamic Capability Theory.....................................................................................3
2.2. International Trade Theory.......................................................................................3
3. FDI Theories Impacting Motivations to Internalize and Entry Mode Selection.............7
3.1. Foreign Direct Investment and Entry Mode Selection.............................................7
3.2. Acquisition Entry Mode and Dynamic Capability Theory Fit.................................8
3.3. International Joint Venture and International Trade Theory Fit...............................9
4. Conclusion.....................................................................................................................10
References..........................................................................................................................11

2FDI THEORIES IN ANALYSING INTERNATIONAL EXPANSION
1. Introduction
Internalization is observed to be of great interest for expansion strategies of all
organizations. Within the contemporary world, companies begin their business operations locally
along with developing a long term plan regarding the ways in which business can go
international (Nag, Benischke and Doh 2015). The process of internationalization has changed
considerably the landscape of most of the business which leads to an extremely dynamic
situation with fierce competition in several organizations. The internationalisation process is
used by organizations for the reason that their domestic market has become inadequate due to
lack of economies of scale and several opportunities that is available in the international market.
Companies those are interested in going international generally look for markets that have low
cost of living as this makes hiring process of employees cheaper (Buckley and Ghauri 2015).
Considering such situations certain effective FDI theories are implemented by most of the
companies in attaining support for their international process. The objective of the paper is to
analyse the FDI or foreign direct investment theories that can facilitate managers to realise the
international expansion decisions of emerging market multinationals. This also includes
motivations for internationalization and entry mode explanation with use of suitable examples of
companies (Buckley 2016).
2. FDI Theories in Understanding International Expansion Decisions of Emerging Market
Multinationals1250
FDI theories facilitate in analysing the outcomes of internationalization with rise in the
number of emerging market multinationals. Through implementing suitable theories of FDI the
emerging market multinationals can adapt them in operating within institutionally complex

3FDI THEORIES IN ANALYSING INTERNATIONAL EXPANSION
environments in domestic along with overseas market (Buckley et al. 2016). This is done by
these organizations through attaining long and short term objectives of the internationalization
expansion in accordance with relevant foreign direct investment theories implemented by them.
2.1. Dynamic Capability Theory
Cavusgil and Knight (2015) revealed that the dynamic capability theory of foreign direct
investment is important in different contexts. This theory can be of increased value within the
rapidly changing business surroundings. Based on such explanation, the dynamics capability
theory is deemed important for emerging multinational companies in from the mid-range
economies for the reason that they typically deal with fast-moving environments. In addition, the
dynamic capabilities offers a mechanism for these companies for continuously adapting and
reconfiguring their resource base for responding to constantly changing business market
environments (Cuervo-Cazurra 2016). There are four dynamic capabilities that are important to
be followed by the emerging multinational companies that include capability to recognise,
leverage, learn and realign. Resource reorganization offers these companies from the mid-range
economies with the starting point of deciding the internationalization strategies that they are
likely to pursue. Dynamic capabilities theory focuses on creating value by supporting
companies’ major strategies that further facilitates them in attaining competitive advantages
(Cuervo-Cazurra 2016). One such example of companies that employs this theory for taking
decisions on global trade is Apple Inc that focuses on entering foreign market by investing
greatly on research and development strategies in order to attain long term success.
2.2. International Trade Theory
Classical Trade Theory