(a) Market Seeking.
The market seeker is the archetype of the modern multinational firm that goes overseas to produce and sell in foreign markets. Examples include IBM, Volkswagen,and Unilever.
(b) Cost Minimization.
Cost minimiser is a fairly recent category of firms doing business
internationally. These firms seek out and invest in lower cost production sites overseas (for example,
Hong Kong, Taiwan, and Ireland) to remain cost competitive both at home and abroad. Many
of these firms are in the electronics industry. Examples include Texas Instruments, Intel, and
Seagate Technology.
(c) Search for Raw Materials.
Raw materials seekers were the earliest multinationals, the
villains of international business. They are the firms—the British, Dutch, and French East
India Companies, the Hudson’s Bay Trading Company, and the Union Miniere HautKatanga—that first grew under the protective mantle of the British, Dutch, French, and
Belgian colonial empires. Their aim was to exploit the raw materials that could be found
overseas. The modern-day counterparts of these firms, the multinational oil and mining
companies, were the first to make large foreign investments, beginning in the early years of
the twentieth century. Hence, large oil companies such as British Petroleum and Standard Oil,
which went where the dinosaurs died, were among the first true multinationals. Hard-mineral
companies such as International Nickel, Anaconda Copper, and Kennecott Copper were also
early investors abroad.
(d) Knowledge Seeking Some firms enter foreign markets in order to gain information and
experience that is expected to prove useful elsewhere. Beecham, an English firm (now part of
GlaxoSmithKline), deliberately set out to learn from its U.S. operations how to be more
competitive, first in the area of consumer products and later in pharmaceuticals. This
knowledge proved highly valuable in competing with American and other firms in its
European markets.
(e) Exploiting Financial Market Imperfections An alternative explanation for foreign direct
investment relies on the existence of financial market imperfections. The ability to reduce
taxes and circumvent currency controls may lead to greater project cash flows and a lower
cost of funds for the MNC than for a purely domestic firm.
(f) Keeping Domestic Customers Suppliers of goods or services to multinationals often will
follow their customers abroad in order to guarantee them a continuing product flow.
Otherwise, the threat of a potential disruption to an overseas supply line—for example, a
dock strike or the imposition of trade barriers—can lead the customer to select a local
supplier, which may be a domestic competitor with international operations. Hence, comes
the dilemma: Follow your customers abroad or face the loss of not only their foreign but also
their domestic business. A similar threat to domestic market share has led many banks;
advertising agencies; and accounting, law, and consulting firms to set up foreign practices in
the wake of their multinational clients’ overseas expansion.
maurice.mutuku answered the question on April 25, 2019 at 05:31