Foreign Direct Investment Essay

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FDI is known as foreign direct investment and it’s meant to make an investment in the other location in a foreign country. In this article, the foreign direct investment theories is mainly concern the three theories which are market imperfections theory, international production theory and the internalization theory.
The market imperfections theory was said that the firm seeks the market opportunities at overseas and determines which is suitable to have an investment in order to achieve the competitive advantages. This can be advantageous for the firms due to firms can produce the homogeneous products and the firms can able to enjoy the same level of the factor production. The firm may seek the best quality of factor of production to produce …show more content…

Thus, the firm can able to create own internal market and the transaction costs is at low. It brings the new operations and activities. The internalization is the form of vertical integration is the form of a combination of two or more stages of the production. However, adopting this theory, it excluded the process of level of the international development and the dynamic and process-based perspectives were …show more content…

Each stages was characteritized by the greater internalization of marketing, production and administrative fuctions previously performed by the foreign market.
However, there is some contradictory evidence for the incremental internationalization. It confirm the internationalization is largely attributed to two key elements which are the amount of knowledge possesses and uncertainty regarding the decision to internalize. But there ares some critique about that. At first, it fails to explain the nature and character of the firms’ international involvement. The incremental development of the firms was the exception and not the rule. Firms may rely their own market experience and make some incremental adjustments.
Second, an important issue of intra-stage evolution is not considered within these models. It is because difficult to analysis the changes in the internal system and procedures and this may influence the export as well. Sometimes the firm doesn’t considered the internal factor then straight away to do

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