IndividualSummary of Learning
Internationalinvestment is one of the strategies that has been opted by mostcorporations in the contemporary market. It takes place in twoprincipal ways. These include the foreign direct investment and theforeign portfolio investment (Mun and Hwi-chʻang, 22) foreign directinvestment entails the savings that are made in various companies orindividuals in another country for the main aim of establishingbusiness operations or acquiring the assets in another country. Onthe other hand, foreign portfolio investment is denoted as thescenario in which the securities such as bonds and stock are heldoutside the country without active management (Mun and Hwi-chʻang,23). One of the factors that facilitate most firms to involvethemselves in foreign investment is the fact that they acquireeconomic gains through the foreign direct investment. The advantagesare as a result of ownership and location benefits. Owing to thelocation benefits, it is paramount to depict that the labour andnatural resources that are found in different countries can benefitan organization. In terms of ownership, firms that engage in foreigndirect investment are assured of acquiring proprietary technology.
Oneof the factors that have affected companies involved in foreigndirect investment is the international transaction costs. Differentlaws and regulations in various countries can contribute to marketfailure. For instance, if two companies from different countries areengaged in business operations, it may be a difficult task for oneorganization to enforce a contract if one of the firms behavesopportunistically (Mun and Hwi-chʻang, 20). Suing a givenorganization in a different country is uncertain and costly. For thisreason, companies find it ineffective conducting business activitiesin the foreign countries thus leading to market failure. The currencyrates in given countries can also translate to market failure if theyare not favourable (Mun and Hwi-chʻang, 21). Such a factor can beillustrated by the case of the Mexican Peso crash. According to therecent news, the devaluation of the Peso is likely to result indecreased competition of the products especially in Latin America andMexico. The news further postulated that the stronger US dollar maynegatively affect the companies that have international exposure.This is because strengthening of the dollar implies that the productsand services of the US companies are expensive in the overseas. This,therefore, can result in a negative effect on the foreign directinvestment of the US companies.
Multinationalenterprises can combat the problems of market failure through the useof various strategies. One of the recommended strategies is the useof internalization in which case the involved companies can use thein-house links instead of the external markets. Through the use of asingle organization, it is paramount to point out that themultinational enterprises can decrease the transaction costs whileincreasing the efficiencies. For instance, in the case of the UScompanies, it is invaluable to ascertain that the US companies cancurb the prevalent problem through internalization. This can bemainly done through the owning of production assets in the foreigncountries. Through the strategy, it is evident to ascertain that thecompanies can combat market failure since they are assured of cuttingdown the transaction costs.
Thestructuring of the multinational enterprises also explains on how thecorporations can evade market failure. This can be done throughexquisite innovation and make use of the current technologies. Due tothe fact that various factors such as inflation, taxation, naturaldisasters and rising prices may make countries involved ininternational transaction incur higher costs, it is imperative thatthe local companies devise ways that can aid them in carrying outtheir business operations efficiently and effectively (Mun andHwi-chʻang, 21). This can be depicted from the case the BMW groupwhich mainly focuses on innovation in developing its products.Through the use of a flexible and a broad approach, the group focuseson innovation in order to establish customer mobility thus meetingthe future and current demands of the customers. According to thepostulated research, it is evident to elucidate that the BMW groupconducts intensive research for the main aim of developing the fuelcells. Despite the fact that it incurs high transaction costs, itreduces the magnitude of such costs through innovation strategieswhich make its product to get an exquisite demand in the overseascountries (Mun and Hwi-chʻang, 22). Owing to the US manufacturingcompanies, it is paramount to note that their development isattributed to innovation. As postulated by most manufacturingindustries, the main strategy that can aid in attaining thecompetitive advantages through foreign direct investment is makinguse of the modern technologies by using new processes in themanufacturing facilities.
Therealities of foreign direct investment can be explained from threepolitical points of view. In this case, the first one is termed asthe radical view. This perception denotes that foreign directinvestment is a principal way in which domestic resources can beexploited. Companies that value the radical view tend to nationalizethe multinational enterprises while discouraging the inboundmultinational enterprises. Another political view is the free marketwhich points out that when foreign direct investment is notrestricted by the government interventions, companies can beadvantaged since they can specialize in the production of goods andservices (Christopher). On the same note, they can gain comparativeadvantages since their products will be of high quality. An importantfactor to connote is that when a company specializes in theproduction of a given product, it can attract a large internationalmarket share due to the fact that it will produce the product in themost efficient ways with the modern technologies. Besides, the labourapplied in such production is from individuals who are highlycompetent (Twitter). Owing to the performance of BMW, manyindividuals attribute the performance of the organization to theexterior factors not taking into consideration the salient internalaspects that form a large portion in attracting a large market share.Some of the internal factors of the BMW that makes customers opt inpurchasing it include the seating configurations and the front seatsthat are exquisitely adjusted. The pragmatic nationalism view isanother perception which is used in explaining the rationale behindthe existence of foreign direct investment (Twitter). According tothe perception, companies should enter into foreign direct investmentonly if the benefits of the FDI outweigh its costs. This is becausethey may be rendered unprofitable if they involve themselves inforeign direct investment while incurring high costs, then thecomparative advantage of such an undertaking may not be attained.
Fromthe foregoing discussion, it can be ascertained that foreign directinvestment can yield more advantages if it is deployed in the mostappropriate way. It is imperative that companies use the rightinnovation strategies while predicting the trends in the futuremarket. For instance, the BMW group claims that it has always gainedmore benefits through foreign direct investment. However, it isthrough the rapid innovations that contribute to its improvement ininternational trade. It is always in the forefront in coming up withand creating new ideas. It is also the leading in creating the newvehicle segments. The strategy of innovation has exquisitely enabledthe BMW group to combat market failure. Despite the fact that thelocalization strategy that is used by the group may make foreigndirect investment disadvantageous, it is paramount to note that itsability to predict the future and make the right adjustments hasenabled the BMW group to yield more benefits (Twitter). The USmanufacturing companies also make use of innovation strategies whileinvolving themselves in foreign direct investments (Mun andHwi-chʻang, 22). The replacing of the border markets has also beensignificant in enhancing the operations of the BMW group. It mainlysells its technology to the Indonesian firm thus gaining comparativeadvantages. Through internalisation the group has immensely enhancedits performance.
Internationalinvestment is one of the strategies that has been opted by mostcorporations in the contemporary market. It takes place in twoprincipal ways. These include the foreign direct investment and theforeign portfolio investment. One of the factors that have affectedcompanies involved in foreign direct investment is the internationaltransaction costs. Different laws and regulations in variouscountries can contribute to market failure. The realities of foreigndirect investment can be explained from three political points ofview. In this case, the first one is termed as the radical view. Thisperception denotes that foreign direct investment is a principal wayin which domestic resources can be exploited. Companies that valuethe radical view tend to nationalize the multinational enterpriseswhile discouraging the inbound multinational enterprises. From theforegoing discussion, it can be ascertained that foreign directinvestment can yield more advantages if it is deployed in the mostappropriate way. It is imperative that companies use the rightinnovation strategies while predicting the trends in the futuremarket.
Mun,Hwi-chʻang. Foreign Direct Investment: A Global Perspective.New Jersey: World Scientific, 2016. EBook Collection(EBSCOhost). Web. 11 Dec. 2016.
"BMW,The Best Way To Prepare The Future Is To Design It.". Twitter.com.N.p., 2016. Web. 11 Dec. 2016.
Twitter. BMWon Twitter. N.p., 2016. Web. 11 Dec. 2016.
Christopher,Christopher. "How U.S. Manufacturing Is About To GetSmarter". WSJ. N.p., 2016. Web. 11 Dec. 2016.