Theories of FDI and Political Ideologies in Global Business

This assignment delves into the realm of Foreign Direct Investment (FDI), providing a comprehensive overview of its underlying theories and the impact of political ideologies on governmental policies. It begins by outlining various FDI theories, including the Industrial Organization theory, Internalization or Transactional Cost theory, the Resource-Based View of organization theory, and the Eclectic theory of international production, each explained with relevant examples. The assignment then examines how political ideologies shape a government’s stance towards FDI, exploring concepts like the radical view, pragmatic nationalism, and the free market view, and illustrating how these ideologies influence FDI policies and activities across different nations. The solution provides an analysis of the relationship between political ideologies and FDI, offering insights into the dynamic interplay between economic theories and political realities in the global business landscape.

Running Head: SOCIOLOGY
0
Sociology
Global Business in the Asian Century
(Student details :)
6/6/2019

Sociology
1
Foreign Direct Investment
Solution 1
Different theories of FDI are as follows:
 Industrial organization theory: the theory identifies FDI being a bundle of intangible
and tangible resources generated by oligopolistic firms. For an example, Govt.
policies form markets, market forces impact on the Government, education as well as
sociocultural activities; education and socio-culture; education impacts human capital
and hence Govt., markets and sociocultural norms and practices; and sociocultural
systems are the source of Govt., markets as well as education, respectively (Popovici
& Calin, 2014).
 Internalisation or Transactional cost theory of FDI: this theory given by Buckley and
Casson suggests that internalisation is kind of process through which transaction
having an arm’s length based contractual relationships within the external market is
replaced by the internal transaction. In this way, this theory relies on the concept of
internalisation of market for intangible assets and goods across national boundaries
through a multi-national firm. An example of this kind of restrictions is the custom
duties levied through a country in order to protect their domestic industries by
imports. In addition, to acquire access to the domestic markets of such nations, a
foreign multi-national firm tries to form their FCFs (Popovici & Calin, 2014).
 The resource-based view of organization theory: the RBV theory of FDI divides
resources into 2 main categories includes tangible and intangible assets or resources.
Here, tangible resources are human capital, physical and financial resources. On the
other hand, intangible resources are IP rights. For example, patents, trademarks,
copyrights are the intangible resources.
 An eclectic theory of international production: this theory is a combination of IO,
location advantage, and internalisation theories. In this context, examples of an
organization's ability contain highly reliable services, product innovation, repeated
process, manufacturing flexibility, and short product development cycles (Live Mint,
2019).

Sociology
2
Solution 2
In this context, political ideologies will have an important impact on the FDI policies
of different nations. In other words, the ongoing liberalization of FDI policies as well as
activities through developing countries will make moving those nations towards democracy
(Kurtishi-Kastrati, 2013). In this way, political ideology and FDI can be seen connected with
the help of understanding the concepts like the radical view, pragmatic nationalism, the free
market view and shifting ideology (Kurtishi-Kastrati, 2013). Here, the political ideology of
Govt. towards FDI ranges from a radical view to the free market principles of market
economies. This can be further explained as the attitude of the Govt. having radical view will
show a negative attitude towards FDI whereas Govt. having free market view will
demonstrate a positive attitude towards FDI policies. Besides, among these 2 extremes, there
is an approach which is known as pragmatic nationalism. For example, Indian Govt. is having
pragmatic nationalism approach towards FDI and hence the country is neither having a
positive nor negative attitude towards FDI (Forbes, 2019). On the other hand, examples of the
free market view economies are the U.S., Chile, Britain, and Hong Kong.
References
Forbes. (2019). Why India's E-Commerce Curbs Will Hinder Foreign Investment. Retrieved
03 12, 2019, from https://www.forbes.com/sites/meghabahree/2019/01/31/why-
indias-e-commerce-curbs-will-hinder-foreign-investment/#36798d4722fc
Kurtishi-Kastrati, S. (2013). Impact of FDI on economic growth: An overview of the main
theories of FDI and empirical research. European Scientific Journal, 9(7).
Live Mint. (2019). What are India's new foreign direct investment rules for e-commerce?
Retrieved 03 12, 2019, from https://www.livemint.com/politics/policy/what-are-india-
s-new-foreign-direct-investment-rules-for-e-commerce-1548945138551.html
Popovici, O., & Calin, A. (2014). FDI theories. A location-based approach. Romanian
Ecinomic Journal, 17(53).